Insight Magazine

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

INSIGHT The Journal of the American Chamber of Commerce in Shanghai June 2009

FINANCE FOCUS

China’s Big Four Banks ERP SERIES

Design and Testing INTERVIEW

U.S. Speaker of the House Nancy Pelosi

China’s Graduate Problem As the number of university graduates continues to increase, the job market is having trouble keeping up

INSIGHT June 2009

The Journal of the American Chamber of Commerce in Shanghai

AMCHAM SHANGHAI

Karen Yuen COMMITTEES

Siobhan M. Das COMMUNICATIONS & PUBLICATIONS

David Basmajian

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By Ron Cai, Jojo Bai, and Kevin Moore

The widespread use of computers and the Internet means that companies must enact strong policies to ensure security and productivity, while still respecting employee privacy.

18 A Pressing Challenge INTERVIEW

EVENTS

Jessica Wu

IMAGINECHINA

DIRECTORS BUSINESS DEVELOPMENT & MARKETING

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IMAGINECHINA

15 Employee Online Privacy in China LEGAL UPDATE

AMCHAM SHANGHAI

F E AT U R E S

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PRESIDENT

Brenda Foster

By David Basmajian

U.S. Speaker of the House of Representatives Nancy Pelosi sat down with Insight to talk about climate change and relations between the U.S. and China.

FINANCE & ADMINISTRATION

Helen Ren

MEMBERSHIP & CVP

Linda X. Wang

22 China’s Big Four FINANCE FOCUS

INSIGHT

By Teresa Yan

The global financial crisis has severely affected financial institutions in the U.S. and Europe. Meanwhile, China’s Big Four banks have emerged largely unscathed.

EDITOR-IN-CHIEF

Justin Chan

EDITORIAL ASSOCIATE

Elaine Wu

27 Implementation Design and Testing ERP SERIES

COMMUNICATIONS ASSOCIATE

Weina Yang DESIGN

By Tony Cotterell

The third article in the ongoing series on implementing a global enterprise resource planning (ERP) system looks at the design and testing aspects.

Alicia Beebe LAYOUT & PRINTING

Ella Shan Snap Printing, Inc.

32 China's Graduate Problem COVER STORY

INSIGHT SPONSORSHIP MARKETING ASSISTANT MANAGER

Sophia Chen

(86-21) 6279-7119 ext. 5667 Story ideas, questions or comments on Insight: Please contact Justin Chan (86-21) 6279-7119 ext. 5668 justin.chan@amcham-shanghai.org Insight is a free monthly publication for the members of The American Chamber of Commerce in Shanghai. Editorial content and sponsors' announcements are independent and do not necessarily reflect the views of the governors, officers, members or staff of the Chamber. No part of this publication may be reproduced without written consent of the copyright holder.

Shanghai Centre Suite 568 1376 Nanjing West Road Shanghai, 200040 China tel: (86-21) 6279-7119 fax: (86-21) 6279-7643 www.amcham-shanghai.org

By Elaine Wu

As more and more students graduate from China’s universities, the task of finding a job has never been more difficult. Many students are having trouble coming to terms with the realities of the job market.

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

3 News Briefs

12 Manager's Notebook

11 From Waste to Energy

48 Deal of the Month

Development 13 Clean Policy

FRESH IDEAS

ANALYSIS

Covanta Energy Asia Pacific is building a new Energy-from-Waste facility that will profide safe solid waste disposal and generate clean, renewable energy.

Deloitte outlines a new Circular on policies and incentives regarding Clean Development Mechanism projects.

INSIDE AMCHAM

39 From the Chairman 41 2009 AmCham Shanghai Customs Survey Report

45 Events in Review 47 Committee Highlights

Special thanks to the 2009-2010 AmCham Shanghai President’s Circle Sponsors

MARCH 2009

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ummer is almost here, which means it is time for China’s National Higher Education Entrance Examination, held annually each June. A student’s performance on the examination determines where they will attend university and their course of study. This month’s Cover Story looks at how graduates from China’s universities are faring in their search for employment. With 6.1 million university graduates this year, competition for entry-level jobs is fierce. The government is ramping up efforts to create jobs for new university graduates, as the graduates are also changing their expectations of employment.

JUSTIN CHAN EDITOR-IN-CHIEF

The current economic downturn has decimated banks in the U.S. and Europe. But China’s Big Four banks remain strong, having largely stayed away from complex financial derivatives. Our Finance Focus examines the development of the Big Four, their current status in today’s economy and their outlook for the future, as the Chinese economy tries to rebound from slowing growth.

AmCham Shanghai was pleased to welcome two Congressional Delegations last month, one led by Speaker of the U.S. House of Representatives Nancy Pelosi, and another by U.S. Representatives Mark Kirk and Rick Larsen. Speaker Pelosi spoke to Insight about her views on the growing importance of the U.S.-China relationship and the pressing need to cooperate and act on the issue of climate change.

In the workplace, the daily use of computers and Internet access means that companies need to have strong IT policies in place to protect company resources and ensure employee productivity. Our Legal Update shares recommendations for how a company can design an effective online policy while respecting the privacy of its employees.

Finally, the third installment of our five-part series on enterprise resource planning (ERP) describes the design and testing phase of a global implementation. Next month’s article will look at knowledge transfer, another key aspect of developing an effective system.

IMAGINECHINA

News

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

CHINA BUSINESS

January-April utilized FDI drops 21% Foreign direct investment (FDI) dropped 21% year-on-year in the first four months of 2009 to US$27.7 billion, according to figures released by the Ministry of Commerce (MOC). In April, utilized FDI totaled US$5.9 billion, the seventh straight month of decline, as the number of new foreign-invested businesses dropped 34.2% to 6,241 for the year.

The government is monitoring the situation closely and will take measures to encourage more foreign investment by streamlining approval procedures and supporting foreign businesses to invest in industrial upgrades, said MOC spokesperson Yao Jian. The decrease in FDI in manufacturing was 12.9%, while FDI in the service sector dropped 31%.

Pig producers struggle with low prices Plunging prices have put China’s pig farmers in a dire situation, as they are forced to sell pigs at a loss when they go to market. The oversupply situation has been worsened significantly in recent weeks by fear over the A/H1N1 flu and false concerns about the safety of pork consumption. The National Development and Reform Commission (NDRC) issued a warning in early May that the sector will have tough times ahead as the average rate between the prices of pigs and feed dropped below the breakeven point. An NDRC official also noted that the government could start buying large quantities of pork in an attempt to stabilize market prices.

Canton Fair orders drop China’s struggling export industry could

Utah Governor Huntsman appointed Ambassador President Barack Obama named Utah Governor Jon Huntsman as the new U.S. Ambassador to China on May 16. If confirmed by the U.S. Senate, Huntsman will succeed Clark S. Randt, Jr., the longest serving U.S. Ambassador to China who stepped down in January. “I cannot think of a more important assignment that is creating the kind of bridges between our two countries that would determine the well-being of not just Americans and Chinese but also the future of world," Obama said at the White House press conference. “Governor Huntsman has respect for China’s proud traditions. He understands what it will take to make America more competitive in the 21st century and will be an unstinting advocate for America’s interests and ideals.” Before being elected governor of Utah in 2002, Huntsman, a Republican, served as deputy U.S. trade representative under President George W. Bush and ambassador to Singapore under President George H.W. Bush. A fluent Mandarin Chinese speaker, Huntsman is well equipped to foster the cooperation that reflects a new understanding between China and the United States, Obama said. Huntsman, who also has a daughter adopted in China, was reelected as governor of Utah in 2008 and is considered a potential Republican presidential candidate in 2012. be in for more tough times as orders at the Canton Fair, the country’s leading trade fair, dropped 16.9% year-on-year. Still, more than 20,000 Chinese companies signed export agreements worth US$26 billion at the 105th China Import and Export Fair held from April 15 to May 7.

Held biannually, the fair is considered a barometer of China’s import and export

markets. The textile and manufacturing sectors were hit hardest, down 15% and 19.5% respectively. Overseas buyer attendance at the fair reached 165,000, down 5.1% from the previous fair last October. Two smaller sub-fairs focused on domestic markets were also held during Canton Fair, with one fair generating RMB460 million in deals.

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CORPORATE NEWS

Sanlu brand name acquired Once a leading domestic dairy brand, the Sanlu name was sold at a bankruptcy auction for RMB7.3 million. The company went bankrupt in February following its role at the center of the melaminetainted milk scandal last fall. The auction, held in the Shijiazhuang Intermediate People’s Court in Hebei Province, lasted just three bids and was won by an unidentified entrepreneur from southern China. The brand name was valued at RMB14.9 billion in 2006, according to the China Brand Asset Evaluation Center.

The majority of Sanlu’s core assets were previously purchased by Beijing-based dairy producer Sanyuan.

BoA sells CCB shares Bank of America (BoA) has sold 13.5 billion China Construction Bank (CCB) H shares to raise US$7.3 billion. The sale reduced BoA’s stake in CCB from 16.8% to 11%. “CCB understands BoA’s selling of shares after the lock-up period is to improve its asset condition,” said a CCB spokesman. The two banks are still on schedule to implement a series of strategic coordination programs in retail and corporate banking, IT, as well as experience sharing and training. BoA was one of ten U.S. banks recently asked to raise new capital following a series of stress tests by the U.S. Federal Reserve. Following the sale, China Life picked up 2.77 billion shares of CCB while BOCI Asia bought 2.2 billion shares.

Microsoft fights piracy in Hangzhou In a new approach towards protecting intellectual property rights (IPR) in China, Microsoft will invest heavily in Hangzhou in return for promises to clamp down on software piracy. Through two new technology centers and other investments, Microsoft hopes Hangzhou will showcase the benefits of strong IPR protection.

Hangzhou has outlined targets for banning the sale of pirated software and pushing

local businesses to use licensed software.

Microsoft expects the total investment in Hangzhou to eclipse the US$1 billion research and development spending it announced last November.

pay and reducing layoffs. Mediation was used to settle 237,000 disputes, said Yang.

MACROECONOMICS

Consumers across China are keeping the economy afloat, as retail sales increased 15.9% in the first quarter of 2009.

Although China’s gross domestic product (GDP) growth slowed to 6.1% year on year from January to March, consumption accounted for more than 4 of those percentage points. According to a survey

by Nielsen spanning 50 countries, Chinese consumers are least pessimistic about the state of their domestic economy. In China, only 35% of respondents believe the domestic economy is in contraction, the lowest figure among all markets surveyed.

The survey concluded that Chinese consumers were “willing to spend and feel that the next 12 months would be a good time to buy things they need.”

Power usage continues drop Electricity consumption in China declined 3.6% year-on-year in April, according to the China Electricity Council. The drop for April was 1.6% greater than the drop in March. According to the National Bureau of Statistics, power usage by the industrial sector fell 8.3% although industrial output rose 7.3% in the same month. While some economists questioned the validity of the figures, other analysts attributed the disparity to the fact that industrial upgrades were in progress and heavy industries, which consume a greater proportion of power, were still in decline.

Chinese consumer sentiment still strong

China’s fiscal revenue drops The Ministry of Finance announced that fiscal revenue dropped 13.6% in April to RMB589.7 billion as slowing economic growth reduced business profits and resulting tax payments, and increased expenditures on incentives designed to boost the economy shrank government revenues. Fiscal revenue for the first four months of the year fell 9.9% year-on-year to RMB2.1 trillion while expenditures over the same period grew 31.7% to RMB1.8 trillion.

Slow economy fuels labor disputes The Ministry of Human Resources and Social Security received 693,000 labor dispute cases in 2008, up 98% over 2007 as the global economic downturn forced some firms to cut costs and others to close down. While the vast majority of the disputes were individual cases, 22,000 instances were collective disputes involving more than three employees and an average of 23 workers, said Yang Zhiming, Vice Minister of Human Resources and Social Security. The disputes generally centered on protecting basic rights, ensuring back

U.S. - CHINA

Geithner travels to China for talks U.S. Treasury Secretary Timothy Geithner will make his first trip to Beijing for economic talks on June 1 and 2. According to the Treasury Department, Geithner hopes to engage in dialogue that will “promote stable, balanced and sustained economic growth in the two nations.” Earlier this year, Chinese Premier Wen Jiabao expressed concern about the safety of China’s U.S. debt holdings while an April U.S. Treasury report noted that China’s currency is “undervalued.” Although the U.S. trade deficit with China grew to US$15.6 billion in March, the overall trade deficit for the first quarter of 2009 shrank by 8% compared to the same period last year.

U.S.-China Working Group launches bills The 55-member congressional U.S.-China Working Group recently unveiled a series of four bills intended to forge closer ties with China by focusing on trade, energy and education. “To strengthen our economy,

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enhance American competitiveness and create new, high-paying jobs in the United States, we must expand our diplomatic and economic footprint in China,” said Representative Mark Kirk, the Republican co-chairman of the bipartisan group.

The bills focus on helping small- and medium-sized businesses enter China, increasing U.S. diplomatic missions in China, starting joint research on energy efficiency and boosting Chinese culture and language education in the U.S. In lateMay, Kirk will be joined by Representative Rick Larsen, the Democratic co-chairman of the working group on a visit to China.

U.S.-China maintain engagement Following the first meeting between U.S. President Barack Obama and Chinese President Hu Jintao in April at the G-20 summit in London, political consultations continued in May. Chinese Vice Foreign Minister He Yafei visited Washington, D.C. for meetings with U.S. Deputy Secretary of State James Steinberg and National Security Advisor James Jones. Vice Minister He said that the two sides need to increase dialogue, coordination and cooperation in order to resolve issues of common interest such as economic recovery and climate change. The two also exchanged positions on regional security issues such as the Korean Peninsula.

Each side proposed to increase dialogue and exchanges at all levels of government and to ensure success of the Strategic and Economic Dialogue.

CHINA OVERSEAS

China stays LA’s largest trade partner Total two-way trade between China and the Los Angeles Customs District reached US$186.6 billion in 2008, making China the district’s largest trading partner. A total of US$157.9 billion in Chinese imports arrived in LA while US$28.6 billion worth of U.S. exports left for China. The value of imports from China decreased by 0.4% in 2008 while the value of exports to China jumped 15.7%. Consumer electronics and non-durable consumer goods were the

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leading imported goods, while imports of apparel and accessories declined in volume. Exports to China were largely made up of raw materials and components headed for China’s manufacturing sector.

Series to feature Chinese in New Zealand A Beijing-based television production company is partnering with New Zealand’s Gibson Group to create “Gold Rush Revelation,” a television series that will examine the connections between the first generation of Chinese immigrants in New Zealand and their descendants living there one hundred years later. The title comes from the producers’ view that the pursuit of a better life in New Zealand by Chinese today can be likened to a contemporary “gold rush.” The international series is expected to last up to 26 hours.

CNOOC inks 20-year LNG deal The China National Offshore Oil Corp.

(CNOOC) signed a 20-year liquefied natural gas (LNG) deal in Australia with UK-based BG Group. The Queensland, Australia development will supply CNOOC with 3.6 million tons per annum of LNG for 20 years beginning in 2014 when the project is expected to be completed and online.

CNOOC will take a small stake in the reserves as well as an equity share in one of the two LNG processing trains at the facility.

The two companies are also both joining a consortium that will construct two LNG tankers. CNOOC is China’s largest offshore oil and gas producer; as a part of its LNG infrastructure, CNOOC has built LNG receiving stations in Fujian, Guangdong and Zhejiang provinces and in Shanghai.

China to boost UN cooperation Following a meeting in New York with United Nations (UN) Secretary General Ban Ki-moon, Chinese Vice Foreign Minister He Yafei vowed to strengthen ties to the UN and support the organization’s efforts in addressing global issues. China will support efforts to reform the UN

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Security Council so that global threats and challenges can be dealt with in a more effective and efficient manner under the obligations of the UN Charter, said He. Ban commended China’s actions in maintaining peace and promoting development around the world, and noted that global challenges such as the financial crisis and climate change should be jointly confronted by all countries.

GOVERNMENT & POLICY

China cuts industrial land prices In an effort to stimulate investment in the slowing economy, the Ministry of Land and Resources announced a 30% cut in the minimum purchase price for land intended for industrial use. Minimum prices were set in January 2007 in order to limit the practice of selling land below market value in order to attract investment and boost GDP growth. Industrial investment has contracted as a result of the economic slowdown, reducing the demand for industrial land, according to the Chinese Academy of Social Sciences.

The national average industrial land price is currently RMB721 per square meter. A date was not given for when the cut will take effect.

SOE investments under review Following the onset of the global financial crisis, the State-owned Asset Supervision and Administration Commission (SASAC), China’s state-owned asset regulator, will review investments made by centrally controlled state-owned enterprises (SOEs) in order to mitigate further losses.

A number of prominent SOEs such as Air China, China Eastern Airlines and China COSCO Holdings invested in financial derivatives that lost significant value. In particular, state-owned airlines suffered large losses as a result of fuel-hedging contracts. “SOEs are short of financial talent to deal in such investments, which led to an underestimation of risks and violations, so the commission will issue suggestions after an investigation, said Li Wei, vice director of SASAC. In 2008,

Chinese SOEs saw net profits decline for the first time since 2002, dropping over 30% year on year to RMB665.3 billion.

Consumer financing rules released The China Banking Regulatory Commission released measures on consumer financing for public comment, signaling the beginning of consumer loans by non-deposit-taking institutions. Consumer finance companies in Beijing, Chengdu, Shanghai and Tianjin will be permitted to operate on a trial basis as the government continues to seek new ways to boost domestic consumption.

Consumers can obtain loans without collateral for the purchase of durable goods such as appliances and private consumption such as education and travel. Loans intended for automobiles and property will not be permitted, according to the draft regulations. A date for implementation was not given, although June 12 is the deadline for public comments.

Shanghai committed to being a financial center

SHANGHAI BUSINESS

Shanghai exports drop again Exports from Shanghai dropped further in April, down 26.2% year-on-year to US$25.1 billion, compared to a 16.4% fall in March. Meanwhile, industrial production in Shanghai in April improved slightly, falling 5.2% year-onyear to US$27.1 billion, less than the 7.1% decrease in March. While exports to all major markets fell in April, the steepest drop was in exports to the EU, which dropped 32.1% in April to US$5.4 billion.

“The mixed data showed that the recovery path for the city won’t likely be smooth,” said Lu Jianfeng, a Bank of China analyst.

“If demand from the United States and Europe fails to pick up in a sustained manner, any improvement in exports or manufacturing will be short-lived.”

Shanghai Mayor Han Zheng said that the economy is beginning to recover and Shanghai is still on track to achieve 9% economic growth in 2009.

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Shanghai will focus its efforts on driving “breakthroughs and innovation” in attracting financial talent, which is the most important element in achieving its goal of becoming an international financial center by 2020, said Vice Mayor Tu Guangshao.

The city will push financial markets and institutions towards developing financial innovation and continue the Pudong New Area’s role as a leader in implementing financial reforms. Other measures include ongoing development of the legal system and continuing to improve the city’s credit database. The city will count on the central government for guidance with the drafting and implementation of regulations, but will also expect financial markets and financial companies to make some contributions, said Tu. Pudong is also the testing grounds for trial programs such as RMB payments for cross-border trade and consumer finance lending.

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CHINA & THE WORLD

SOUTH AMERICA JAPAN ASIA-PACIFIC In a boost to Sino-Japanese relations, Chinese Defense Minister Liang Guanglie met recently with a delegation of Japan’s Forum on China’s Politics and Economy to discuss ties between the two nations.

Sino-Japanese relations have made significant headway in recent years, especially in the area of defense exchanges, and mutual trust has increased between the two nations creating a favorable atmosphere for the development of mutually beneficial relations, said Liang. The Japanese delegation visited China as guests of the China Association for International Friendly Contacts.

MIDDLE EAST

FIJI The China Railway Wuju Group completed a new RMB16 million bridge in Fiji’s province of Naitasiri that will help improve the livelihood of 2,000 people in Navuso Village by providing greater accessibility to nearby towns. The Navuso Bridge crosses the Waimanu River and is the latest addition to the Pacific island country’s road infrastructure. The Navuso Bridge was designed by the First Highway Survey and Design Institute of China.

ASIA-PACIFIC EUROPE

SOUTH AFRICA Shenzhen-based Huaqiang Holdings, Ltd., in conjunction with the China Development Bank, the China-Africa Development Fund, and the Industrial Development Corp. of South Africa, signed an agreement to build a 770,000 square meter theme park in Johannesburg. The US$250 million Disneylandstyle theme park will consist of three zones that are themed Chinese culture, African culture and world culture. Construction on the park is set to start late this year and will take two to three years to complete.

The park aims to attract 2 million tourists a year.

AFRICA

MIDDLE EAST

CZECH REPUBLIC Chinese Premier Wen Jiabao met with Czech President Vaclav Klaus and Prime Minister Jan Fischer to discuss bilateral cooperation during the Premier’s trip to Prague to attend the ChinaEU Summit. This year marks the 60th anniversary of the establishment of diplomatic ties between China and the Czech Republic. Wen noted that the Czech Republic was among the first countries to forge diplomatic ties with China and relations between the two countries have a solid foundation.

Wen and the Czech leaders agreed to enhance mutual political trust, expand trade and mutual investment, strengthen cooperation in science and environmental protection, promote nongovernmental exchanges and better coordinate international affairs.

EUROPE

NORTH AMERICA MIDDLE EAST

AFRICA

EGYPT Egyptian Defense Minister Mohammed Hussein Tantawi was invited on an official visit to Beijing by Chinese Defense Minister Liang Guanglie where he met with top Chinese officials. China and Egypt have a long friendship and have increased exchanges and cooperation during recent years. Chinese Vice President Xi Jinping affirmed China’s readiness to expand further cooperation with Egypt and praised the country’s firm support for China on issues related to Taiwan and human rights. Tantawi said Egypt looked forward to advancing relations between the two countries, especially between the armed forces.

NORTH AMERICA

MIDDLE EAST SOUTH AMERICA AFRICA

CANADA During an official trip to Beijing, Canadian Foreign Minister Lawrence Cannon pledged Canada’s help in tackling the global financial crisis by enhancing economic trade and cooperation with China. Facing global challenges of common concern is an opportunity for China and Canada to work together, said Cannon, noting that trade and investment were key areas of mutual interest. The volume of bilateral trade between China and Canada reached US$34.5 billion in 2008, an increase of 13.8% year-on-year, according to China’s General Administration of Customs.

AFRICA ASIA-PACIFIC NORTH AMERICA

UNITED STATES China rejected a U.S. foreign relations bill proposal that planned to give grants to groups that protect Tibetan culture and history or promote environmental protection, education and healthcare services there, stating that it interfered with China’s internal affairs. The bill, the “Foreign Relations Authorization Act for Fiscal Year 2010 and 2011” (H.R.2410), also devoted some clauses to Hong Kong and Taiwan. Chinese Foreign Ministry spokesman Ma Zhaoxu said the bill violated the basic principles guiding international relations and commitments made by the U.S. Ma urged the U.S. to delete the China-related sections in the bill to avoid damaging bilateral relations.

SOUTH AMERICA

NORTH AMERICA

BRAZIL Brazilian President Luiz Inacio Lula da Silva met with Chinese President Hu Jintao during an official visit to Beijing, where they discussed the 35-year long diplomatic ties between the two countries. Bilateral relations between China and Brazil have advanced notably in recent years, especially as Chinese companies continue to make significant investments in Brazil. During his trip, Lula da Silva and President Hu witnessed the signing of 13 cooperative agreements in oil, equipment exchange, financing, science, space and agricultural products, among others. From 2006 to 2008, trade between China and Brazil grew at an annual average of 50 percent, and in April, China replaced the U.S. as Brazil’s top trade partner.

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FRESH IDEAS ISTOCKPHOTO

From Waste to Energy

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anking on China’s push towards sustainable development and clean energy, Covanta Energy Asia Pacific recently announced an 85-percent stake in a joint venture to build a new Energy-from-Waste facility to serve the cities of Taixing and Yangzhong in Jiangsu Province.

The amount of household waste produced in China has grown as the country’s standard of living has improved. China generates an estimated 280 million tons of municipal solid waste annually, most of which is currently being disposed of in simple and unsophisticated landfills. The Ministry of Construction has outlined a National Waste Disposal Plan to increase Energy-from-Waste utilization from 2005 levels of less than 2 percent of waste disposal to 30 percent of total municipal solid waste disposal by 2030.

“The development of this Energy-from-Waste facility has obvious advantages for both cities’ sustainable growth,” said Allard M. Nooy, president of Covanta Energy Asia Pacific.

Covanta, which has secured long-term waste disposal contracts with the municipal governments of Taixing and Yangzhong, will build a new 350 metric ton-per-day facility in the Taixing Economic Development Zone that can generate 30 metric tons of steam per hour to power local business operations.

According to Covanta, municipal solid waste is transferred into a combustion chamber where it is

reduced to 10 percent of its original volume. The heat generated by the combustion process heats water into steam that powers a turbine to generate electricity.

The company’s US$30 million investment is part of the company’s ongoing strategy to expand its presence in China. Partner Jiangzu Taineng Group is wholly-owned by the municipal government of Taixing and operates under the supervision of Taixing Economic and Trade Commission.

“The Taixing city committee and government will give priority and full support to this project to ensure that we can start construction, begin operations, and see results quickly and create a win-win situation for the citizens of both communities and Covanta,” said Gao Yazi, Mayor of Taixing.

Construction of the Energy-from-Waste facility is expected to begin this summer and be completed

by June 2011.

Allard M. Nooy: “By processing waste into energy, the facility’s operations will provide safe solid waste disposal for both communities, help to avoid reliance on damaging landfills, and offset greenhouse gas emissions that would otherwise be generated by landfills. Not only will it generate clean, renewable energy to help power regional businesses, it will help the local environment.

This effort will result in zero landfilling, a major accomplishment, as the residual ash from the process will be reused in materials for road construction.”

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Covanta looks to turn household waste in China into energy.

M A N A G E R ’ S N OT E B O O K

Do or Die!

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Talent Management in China

hrases such as global economic crisis, manufacturing company closures, overseas investment reduction and expatriate exodus have all been splashed across the media in recent times. It could be that we are only at the start of some difficult times – but even if the economy is showing signs of improvement, now is an excellent time to reevaluate business plans and consider some difficult but very necessary changes that are required to weather the storm and emerge stronger.

Traditionally, the first thing many companies do in trying times is cut headcount, place a freeze on hiring, stop educating employees and slash marketing budgets. However, are these actions likely to yield the best results? It is important to consider the long-term future of a brand and the negative internal and external messages that extreme cost-cutting measures convey. The company that is seen as robust and strong enough to retain staff during difficult times is likely to have a significant competitive advantage.

Apart from the negative impact to a brand or reputation, consider the ramifications of losing top staff during the current crisis. If key employees are lost, how challenging will it be to hire people with the same levels of knowledge and experience as the economy improves? It is clear that China has a negative supply of

Mark Law rence is Managing D irector – Greater China of Caliper Human Strategies Co., Ltd. Contact h mlawrence@ im at: calipercorp .com

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qualified managers and leaders compared to the demand from industry. Experienced hands that get the job done and have the ability to manage change, motivate staff and produce results are always in demand.

It is these employees who will be the first ones targeted by headhunters and the ones that will be attracted to competitors with deep pockets – those companies who still have their long-term business strategy in place, with hiring budgets intact, who value their talent and understand that economies cycle. So what can be done to prevent losing key talent?

Constant communication Communicate,communicate,communicate!

Employees at all levels must be kept informed about what is happening within the organization. Even if headquarters has ordered headcount reductions in another region, inform your employees early and tell them why. If you have to make employee cuts, make sure reasons are communicated to all employees. Sharing the reasoning behind all personnel decisions and assuring the staff that remains will provide them with confidence and positive views about their future with the company.

Internal talent audits Conducting an internal talent audit can provide a clear understanding of the makeup of an organization. Now could be a good time to look at individuals and teams in order to understand their strengths and their weaknesses and most importantly, to find new potential within. Many organizations have untapped and unrecognized talent within existing employees.

Consider redeployment within the organization that suits the true potential for success of each individual. For example, someone in the accounting department

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may actually have great potential for sales, while a salesperson may be better suited to providing customer service. Or perhaps the business model has changed, or needs have changed significantly. In a good economy, a sales team may have been mainly “order takers” due to high demand from clients, but in the current market, the skill set required could be completely different. Salespeople will have to actively find new clients, negotiate deals and close new business.

Employee education Even with a total freeze on training budgets, companies can seek out the most skilled and successful employees and help them deliver internal training programs, one day workshops, one-on-one coaching sessions and mentoring groups. Consider “train the trainer” sessions instead of using external suppliers to deliver every program, and then utilize this knowledge to continue developing talent in order to keep them motivated to stay with your company.

One thing is for sure, this is not the time to sit back and do nothing – this is a time for action. Each company should take stock of its business, look at the makeup of the organization, evaluate business plans and strategies, and make the necessary changes to stay competitive in the current environment.

Some decisions will be very hard to make – especially if that type of decision has not been made before – but if change is necessary, then it needs to happen now!

China is one of the few places that still has positive growth. It will be the first country to come out of the recession and the driving engine that all countries will look to for business growth. Companies must ensure they are positioned for recovery and it is now time for all business leaders to shore up human resources practices to ensure there is capacity for new business growth.

Got an article idea for “Manager’s Notebook”?

Contact Insight Editor-in-Chief Justin Chan at justin.chan@amcham-shanghai.org.

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Clean Development Policy

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lobal warming is a serious challenge facing every country around the world. The Kyoto Protocol adopted by industrialized nations in 1997 is an agreement with binding targets to reduce emissions of certain greenhouse gases over a period of time. Signatory countries can reduce greenhouse gas emissions with three market-based mechanisms: Joint Implementation, Emissions Trading and the Clean Development Mechanism (CDM). CDM allows developed countries to cooperate with developing countries to meet their emissions reduction targets by purchasing Certified Emission Reductions (CERs, also known as carbon credits) from developing countries.

China ratified the Kyoto Protocol in August 2002 and issued guidelines for operating and managing CDM projects in 2005. By April of this year, 1,935 CDM projects were approved by the National Development and Reform Commission and 507 Chinese CDM projects were successfully registered with the United Nations Framework Convention on Climate Change.

Despite the growing popularity of CDM projects, the tax treatment of CDM-related income was largely unclear, until the State Administration of Taxation and the Ministry of Finance jointly issued Circular No. 30 (Circular regarding the Enterprise Income Tax Policy for Clean Development Mechanism Fund and Clean Development Mechanism Implementing Enterprises in China) in March, outlining taxation policies effective retroactively from January 1, 2007.

Impact of Circular No. 30 Before the issuance of Circular No. 30, it was not clear whether the income generated from the sale of carbon credits would be subject to the enterprise income tax. The Chinese government had stated that since emissions reduction resources are stateowned, the government would retain up to 65 percent of revenue generated from the sale of CERs from CDM projects. Taxpayers generally accepted the fact that since they already contributed a portion of revenue to the government, no additional tax should be paid, a position approved by many Chinese tax authorities under previous practice.

Under Circular No. 30, the following types of income related to CDM funds may be exempt from enterprise income tax: the portion of CER sales revenue paid to the Chinese government, donated funds from international financial organizations, interest income associated with CDM funds on deposit and treasury bonds, and donations from domestic and foreign institutions and individuals.

For a CDM project implementing enterprise, certain portions of CER sales revenue paid to the Chinese government based on the type of project, such as hydrofluorocarbon (HFC) or nitrous oxide (N2O), may be deducted before the enterprise income tax is assessed. Additional tax incentives are also available depending on the type of project.

Circular No. 30 defines income related to CDM projects as the net income calculated by the CER sales revenue minus the portion paid to the central

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China issues long-awaited income tax policy for Clean Development Mechanism funds and enterprises.

Analysis provided by

Vivian Jiang, Managing Partner China East Region Tax (86 21) 6141-1098 vivjiang@deloitte.com.cn Timothy B. Klatte, Director Global Chinese Services Group (86 21) 6141-2760 www.deloitte.com/cn/gcsg

“

New investors potentially interested in CDM projects should carry out a comprehensive cost-benefit analysis before any investment decision is made.”

government and relevant costs and expenses. Tax incentives for the CDM project may be granted only to enterprises that can separately account for the income and expenses related to the CDM project.

Issues to be considered Although Circular No. 30 outlines and clarifies the enterprise income tax policy for CDM funds and CDM project implementing enterprises, some important issues remain for consideration.

The reduction of greenhouse gas emissions typically occurs in industries such as electricity and energy that are technology-intensive and where other incentives are currently available. It is unclear whether the three-year enterprise income tax exemption followed by a three-year 50 percent reduction incentive available for certain CDM projects may be enjoyed concurrently with the other tax incentives.

For example, if a CDM project implementing enterprise is also certified as a High and New Technology Enterprise (HNTE), it is unclear whether the enterprise may apply for the "threeyear 50 percent reduction" incentive as 50 percent of the HNTE 15 percent tax rate instead of half the statutory 25 percent tax rate.

Circular No. 30 states that without separately accounting and allocating for expenses, the project company may not enjoy preferential income tax treatment, but the Circular does not provide further guidance on the allocation. For certain industries, it may be difficult to separately account for expenses on emissions reduction and it is unclear whether and how such companies would be eligible for the tax incentives.

Because Circular No. 30 is effective retroactively from January 2007, it is also not clear whether a tax refund is available for CDM project implementing enterprises that have not enjoyed tax incentives.

Although one listed Chinese company announced that it could apply for a tax refund based on Circular No. 30, whether the refund would be granted and the detailed procedures for obtaining a refund need to be clarified.

In addition to the enterprise income issues, the turnover tax treatment on CER sales revenue has

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not yet been issued. Typically, tax authorities and academic circles have disputed certain aspects of the turnover tax treatment on CER sales revenue, such as whether sales of CERs are deemed to be transfers of intangible assets and subject to the 5 percent Business Tax, whether sales of CERs are deemed to constitute a transfer of goods and subject to valueadded tax, or if sales of CERs should be exempt from turnover tax entirely.

Observations Before Circular No. 30, there was no detailed guidance on taxing emissions reduction revenue even though many tax authorities accepted that no income tax would need to be paid on revenue generated from the sales of CERs from CDM projects.

However, Circular No. 30 makes it clear that after the contributions are made, income tax will be imposed on the remaining income. This will have a negative impact on enterprises that have not paid tax on such income and will reduce their expected return on investment. New investors potentially interested in CDM projects should carry out a comprehensive cost-benefit analysis before any investment decision is made.

Furthermore, although Circular No. 30 provides rules regarding the tax treatment of CERs, it does not mention the tax treatment of the emissions reduction sales income outside of CDM projects.

Does the issuance of Circular No. 30 mean that the income from emissions reduction generated from other projects is also subject to income tax? Different answers to this question may have a positive or negative impact on the interests of enterprises in other emission reduction projects.

Clarification of the above issues is critical, since the Kyoto Protocol will expire in 2012 and the next steps in the global climate change arena have yet to be identified.

Investors and enterprises considering emissions reduction-related activities and investments in China should be aware of China’s new policy and practices.

After analyzing the impact, appropriate measures can be taken to better utilize the tax incentives and avoid potential risks.

L E G A L U P DAT E

BY RON CAI, JOJO BAI AND KEVIN MOORE

ISTOCKPHOTO

Employee Online Privacy in China

I

n China, the 1994 Regulations on Safety and Protection of Computer Information Systems (the “Regulations”) and the 1997 Administration Rules on Safety and Protection of International Connection

by Computer Information Networks (the “Administration Rules”) set forth fundamental rights and rules relating to privacy protection in Internet environments.

The Regulations and the Administration Rules, together with other regulations regarding information technology (IT), provide clear instruction for e-mail service providers regarding privacy protection.

Yet, employers lack guidance regarding the circumstances under which they may legally monitor employee online activities. This article explains relevant legal provisions, highlights accord on the legitimacy of Internet monitoring, and presents observations about strategies for managing employees’ work-related Internet activities while curtailing legal disputes.

Relevant legal provisions Article 7 of the Regulations provides that “no organization or individual may utilize computer information systems to endanger … the lawful rights of citizens.”

Article 7 of the Administration Rules further elaborates citizens’ lawful rights in the following terms: “The communication freedom and

communication privacy of the user [of computer information networks] are subject to legal protection.

No entity or individual may use the Internet in a way that violates the law to harm communication freedom and communication privacy.”

A recent amendment to China’s Criminal Law includes a provision imposing criminal liability for misappropriation of personal information. The amendment can make a company or an individual (“management personnel with direct responsibility”) liable for such misappropriations conducted by the company. Possible penalties include imprisonment for up to three years, fine or detention.

China’s Constitution guarantees freedom and privacy of correspondence. Given a systemic lack of judicial interpretation beyond the provisions of the Measures and the Constitution, an employer’s ability to monitor employee online activity is thus dubious.

Legitimacy of monitoring The pro-employer camp of China’s legal community contends that monitoring employee online communications is an appropriate means to exercise corporate management. They argue that, during work hours, a business’ computers and employees’ online communications are owned by the business.

Those who advocate freedom of correspondence contend that any monitoring of employee online activity constitutes a fundamental legal infringement upon their privacy.

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Employers must strike a balance between overseeing employee internet use and respecting privacy rights.

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Disputes might be avoided or reduced if an employer notifies employees of its legitimate intent to monitor and its policy thereto.”

Both camps generally converge, however, in agreement that disputes might be avoided or reduced if an employer notifies employees of its legitimate intent to monitor and its policy thereto.

The accorded model is that employers develop relevant rules and policies for Internet monitoring to reasonably convey the scope of use for online activity (such as company IT equipment, personal e-mail and instant messaging (IM)) and to explain the purpose and method of monitoring.

There remains disagreement as to how broad work-related monitoring can be; for example, whether an employer can monitor employees’ e-mail or IM activities outside of the corporate e-mail system.

Effecting a balance Some experts on Chinese privacy law suggest the following approach: An employer may formulate an IT policy for inclusion in its employee manual, specifying that personal online activity not related to work is prohibited during work hours (and/or on company IT equipment). Such a policy should specifically prescribe activities for which use of the company e-mail system is deemed appropriate.

The employer may require its staff to read the employee manual carefully and acknowledge, in writing, having done so before being formally hired.

Simply having such policies posted on the company intranet may not be sufficient. Some experts also suggest that an employer may apply one of several strategies, or a combination thereof, to manage their employees’ Internet, e-mail and IM activity at work.

Employers can utilize software that prevents employees’ access to personal e-mail, IM or other programs. Use of such blocking software would negate the employer’s need to monitor employees’ personal e-mail and IM communications, and could be implemented regardless of whether a relevant IT policy, as described above, has been effected.

Where the employer’s relevant IT policy has been acknowledged in writing by the concerned employees, the employer may request employees or supervisors to notify management if they are aware of an employee using personal e-mail, IM, or other programs not related to work, or using company IT equipment for personal use. The business could

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then demand that the violating employee cease such personal activity, rather than directly monitor the employee’s online communications.

Where the employer’s relevant IT policy has been acknowledged in writing by the concerned employees, if an employee uses personal e-mail or IM and saves records of such personal online activity on a company-owned computer, the employee can then be deemed to have granted consent for access to the saved content, which could otherwise be deemed private information.

The employer may then access and read such saved activity, as company IT equipment is the property of the employer. However, under such a circumstance, it is important that the employer not disseminate personal communications.

Likewise, where the employer’s relevant IT policy has been acknowledged in writing by the concerned employees, if an employee uses the company e-mail system for personal use, he can then be deemed to have relinquished his right to privacy of such personal e-mail content.

Where the employer owns the company email system, and if communications on the system are routed through a server owned by the employer, the employer may access and read such communications, but still should not disseminate the personal communications.

Conclusion Employers in China face uncertainties when it comes to monitoring employee online activities. To conform with current provisions under the Measures, the Administration Rules, and China’s Criminal Law and Constitution, employers should be careful when handling employee online privacy issues.

China’s lawmakers have been drafting a privacy protection law, called the Personal Information Protection Act, since 2005. During a recent meeting of the National People’s Congress, deputies called for the law’s finalization. This Act, when promulgated, will likely provide more certainty for employers.

Ron Cai, Jojo Bai and Kevin Moore are based in Davis Wright Tremaine LLP’s Shanghai office. For more information, visit www.dwt.com.

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I N T E RV I E W B Y DAV I D B A S M A J I A N

AMCHAM SHANGHAI

Insight speaks with U.S. Speaker of the House Nancy Pelosi on U.S.-China relations and the urgency of combating climate change.

A Pressing Challenge

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n May 24, United States Speaker of the House of Representatives Nancy Pelosi, and a delegation of members of Congress, arrived in China for a series of meetings with top Chinese oďŹƒcials on the subject of climate change and energy in advance of a major international United Nations conference on climate change scheduled for December in Copenhagen.

The delegation included Speaker Nancy Pelosi, Representative Ed Markey (D-MA), Representative

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Jim Sensenbrenner (R-WI), Representative Earl Blumenauer (D-OR), and Representative Jackie Speier (D-CA).

While in Shanghai, Speaker Pelosi and her delegation joined members of AmCham Shanghai and the U.S.-China Business Council for a private event to discuss the business environment for U.S. companies in China. In her opening remarks, Speaker Pelosi discussed the pressing importance of climate change and the need for international and bilateral cooperation on this issue. The Speaker

also discussed a bill that was reported out of the House Energy and Commerce Committee on May 21 that would establish a cap-and-trade system for the emission of greenhouse gases in the U.S. If signed into law, the bill would change how energy is used in the U.S. by mandating a 17 percent reduction in emissions of greenhouse gases by 2020 and an 83 percent reduction by 2050. Pelosi called the bill transformational in America’s effort to combat global climate change.

Speaker Pelosi met with members of AmCham Shanghai to discuss the level of market access in China for U.S. goods and services, the challenges in the development of an open market in China and the possible impact of protectionist measures being considered in both the U.S. and China.

After the event, Speaker Pelosi sat down with Insight to talk about climate change and her views on U.S.-China relations.

The stated purpose of your trip to China is to hold meetings with Chinese government officials on climate change and energy. What do you hope to accomplish this week?

The purpose of our trip, in the bigger sense, is to improve the relationship between the United States and China. We have been working with Chinese officials for a while now to try and find common ground on the climate change issue and we see it as a real opportunity. Whether you’re talking about openness and transparency in government, whether you’re talking about intellectual property, whether you’re talking about accountability to the people or whether you’re talking about environmental justice for people of all countries, this is an issue that addresses many of the ongoing concerns that we’ve had with China over the years. We see an opening to improve U.S.China relations.

What would an agreement between China and the United States on climate change look like?

Our invitation for this trip came from the Chair of the People’s Congress and we’ll be meeting with Chinese officials at the highest levels. In any of the conversations that we have with the Chinese government on this issue, we will emphasize

that we want each of our countries to live up to our responsibilities. They may not be the same because of our different experiences and where we are economically but we want to have a mutual understanding of the urgency of the challenge we face, as well as the different opportunities we have.

We would like to have some coming to terms by Copenhagen (the United Nations Climate Change Conference to be held in December of 2009) but we have to make a lot of progress between now and then.

The Kyoto Agreement did not require China to meet carbon reduction targets. Do you think it is important for China to commit to specific carbon reduction goals in order for the U.S. to support an agreement in Copenhagen?

China has already established some important goals. In fact, some of their goals are higher than the U.S. goals. Now it is a question of implementation and enforcement. But we wouldn’t say that we (the U.S.) are going to meet these goals and we want you (China) to meet the same ones. It would have to be something where, perhaps, we look sector to sector to see where we can find common ground.

But remember, this is an international agreement and it is important for us, the United States, to be able to say that we have sought common ground and that we have an understanding of what we think is achievable in terms of taking us forward on this important issue.

China has proposed that developed countries cut their carbon emissions to 40 percent of 1990 levels by 2020 and should also give 0.5 to 1.0 percent of their annual economic worth to help other nations curtail greenhouse gas. Are these serious proposals and are they likely to be agreed to by the U.S.?

Well I love the standard! Not quite as high as Al Gore’s and not as high as what we are able to achieve in Congress either; we’re below that standard.

I think the idea that we, the United States of America, should be helping developing countries in terms of technology and any exchanges in that regard is very important. I don’t think you’re going to see 1 percent of GDP but you might see,

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“

We want each of our countries to live up to our responsibilities.

They may not be the same because of our different experiences but we want to have a mutual understanding of the urgency of the challenge we face, as well as the different opportunities we have.”

“

This climate change issue has taken us to a level where we can see how we're all in this together and that we all have to work together to address this issue.”

in our bill for example, 1 percent of some of the resources that come from a U.S. cap and trade system to be used internationally for the purpose of helping countries develop the technologies that will help them reduce emissions and improve the environment.

China is the third largest economy in the world and America’s second largest trading partner.

There have been some in Congress who have called for legislative action to address disputes over the exchange rate and the trade deficit. What do you think is the best way for the U.S. to manage the relationship with China moving forward?

There is no question that, from the perspective of the U.S. Congress, issues that relate to the trade deficit, violation of our intellectual property, manipulation of currency, and food and product

safety are four of the main issues where we need to resolve some of these differences. Whether that should be done legislatively is always the debate.

A lot will depend on the President of the United States, because you can’t have a law unless he signs it. But I do think that the President has an open attitude toward our relationship with China and looks forward in a very positive way to engagement.

Nonetheless, we have these concerns that, in a very candid way, we will discuss. I don’t necessarily see any legislation that addresses those concerns.

There is one piece of legislation that has prevailed and that is on food safety and that is an issue of concern for every parent in America (Consumer Product Safety Improvement Act passed in July 2008). So there has been some legislation which has withheld funds to implement a rule which is a food safety issue.

AMCHAM SHANGHAI

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Biography

Regarding intellectual property (IP), China is developing its own intellectual property so perhaps we can find a course of action where we are respecting each country’s IP. But intellectual property protection and enforcement is a very important issue in our country. I don’t know if it is something that will be dealt with through negotiation rather than legislation.

On May 4, the Obama administration proposed a number of international tax reforms that will be submitted to the U.S. Congress. These include a limit on a U.S. company’s ability to “defer” profits from foreign subsidiaries as well as changes in the way the U.S. government recognizes foreign taxes paid by U.S. companies. Some say enacting these changes could make U.S. companies less competitive abroad. What are your thoughts on this?

I think companies will have a chance to make their case as to whether this impacts U.S. competitiveness abroad. I support the President in what he wants to do. Companies have come to me and have said they are being painted with one broad brush as if this is tax evasion, and in some cases it may be. But this isn’t true in all cases and everything has to be judged on what benefits it provides and what disadvantages it has. I believe that the business sector will have an opportunity to make its case. But the fact is, there is considerable support for what the President wants to do in general. Now we’ll get down to specifics and there may be some differentiation there.

But I’d also like to add that, 10 years ago, if we had a visit with the business community and members of Congress, we would have many more areas of disagreement. I do think that this climate change issue has taken us to a level where we can see how we’re all in this together and that we all have to work together to address this issue. On our way here we stopped in Alaska and we spent the day hearing about the impact of climate change on communities there, and that is important. It is important to understand the impact pollution has on our cities, cities in China and throughout the world. But what is very important and urgent

Nancy Pelosi, Speaker of the United States House of Representatives, has represented California’s Eighth District in the House of Representatives since 1987. The Eighth District includes most of the City of San Francisco and its diverse neighborhoods. Pelosi was overwhelmingly elected by her colleagues in the fall of 2002 as Democratic Leader of the House of Representatives and became the first woman in American history to lead a major party in the U.S. Congress.

Before being elected Leader, she served as House Democratic Whip for onae year and was responsible for the party’s legislative strategy in the House. On January 4, 2007, Pelosi was elected Speaker of the House of Representatives.

Pelosi is a senior member of the House Appropriations Committee, a member of the House Permanent Select Committee on Intelligence, and has chaired the Congressional Working Group on China. She is a strong advocate for international human rights and has been a leader in increasing educational opportunity, protecting workers and promoting healthcare. One of her first legislative victories was the creation of the Housing Opportunities for People with AIDS program.

Pelosi has also been a leader on environmental protection in the U.S. and abroad. In 1989 she secured passage of a provision in the International Development and Finance Act of 1989 which requires the World Bank and all the regional multilateral development banks to review the potential environmental impacts of development projects for which they provide funding and to make these environmental assessments publicly available. Known as the “Pelosi Amendment”, it has become a significant tool for indigenous, nongovernmental organizations around the world.

In 2007, Pelosi established the House Select Committee on Energy Independence and Global Warming to add urgency and resources to address the challenges of energy independence and to combat global warming.

is the fact that the Arctic ice is melting; the white cap of the globe that has reflected heat is shrinking, leaving a dark space that is absorbing heat so that the whole thermal management of the planet is disrupted. We don’t have that much time. We absolutely must act.

I appreciate the opportunity to come to Shanghai and especially to have the opportunity to meet with AmCham Shanghai. Thank you for having me here today.

David Basmajian is Director of Communications & Publications at AmCham Shanghai. He can be reached at david.basmajian@amcham-shanghai.org.

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FINANCE FOCUS B Y T E R E S A YA N

IMAGINECHINA

China’s Big Four China’s Big Four banks are on the frontlines in the government’s battle to keep the global financial crisis at bay. Will they emerge unscathed?

I

n March 2008, Wall Street icon Bear Stearns collapsed and was subsequently purchased

by J.P. Morgan. Lehman Brothers followed by shutting its doors in September. Merrill Lynch, Goldman Sachs, Morgan Stanley, Citibank and most of the rest of Wall Street followed with near fatal losses and stock prices dropping to lows unseen in the history of the U.S. financial industry since the Great Depression.

The global financial crisis and subprime shock devastated western banks and many non-bank financial institutions, leaving most teetering on the brink of bankruptcy until they were saved by massive government intervention.

Desperate for liquid assets, western banks are also cashing out their lucrative investments in Chinese banks, which were first made in 2005.

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The contrast between western financial institutions and Chinese banks is remarkable.

According to figures released by the China Banking Regulatory Commission (CBRC), the nation’s banking watchdog, banks in China posted RMB583.4 billion in net profit in 2008, an increase of RMB133.6 billion or 30.6 percent from a year earlier.

CBRC Chairman Liu Mingkang was quoted by state media saying that the return on equity in the Chinese banking sector stood at 17.1 percent in 2008, significantly higher than the global average.

Three of China’s Big Four currently rank first, second and third in the world by market value.

Industrial & Commercial Bank of China (ICBC), the largest, comes in at US$178.6 billion, ahead of China Construction Bank (CCB) and Bank

of China (BOC). The fourth Big Four bank, Agricultural Bank of China, has yet to go public with a listing.

Homebound foreign investors In January 2009, Bank of America (BoA) pocketed US$2.8 billion by trimming its holdings in CCB from 19.1 percent to 16.8 percent. More recently, BoA sold a further 13.5 million shares to raise an additional US$7.3 billion. Switzerland’s UBS AG and Royal Bank of Scotland (RBS) completely divested their Bank of China shares to raise US$3.2billion. U.S. credit card group American Express (AmEx) and German insurer Allianz sold half their shares in ICBC in April, worth a combined US$1.9 billion. Prior to that, Goldman Sachs announced it would consider selling at least part of its 4.9 percent stake in the bank.

In 2005, foreign capital began making inroads into large state-owned Chinese commercial banks at relatively low prices. The recent divestment stampede began after three-year “lockup periods” expired, allowing investors to cash out. The pullback has been quite profitable.

“Foreign financial institutions saw their investments as a cost-efficient means of entering China’s market by gaining access to local banks’ vast branch networks. Having acquired the holdings at low prices – ahead of the Chinese banks’ IPOs – the western firms have realized multibillion dollar profits from the sales,” said Liu. Goldman’s stake in ICBC is valued at nearly three times what it paid in 2006, before ICBC’s recordbreaking US$29 billion dual listings in Hong Kong and Shanghai that year.

According to analysts, foreign investors’ motives to cash out stems from a combination of needing to shore up capital, reduce risk, strengthen balance sheets and salvage liquidity.

“As the credit crisis has consumed the cash flow of western financial institutions, these foreign investors need cash to enhance liquidity.

[The divestment] is due to their own needs. It is a response to the [economic] crisis they are facing at home,” says Samuel Chen, a banking analyst at JP Morgan Chase.

Western banks’ share buying three years ago was part of the grand reform scheme developed

by China’s banking regulators. “In the lead-up to IPOs, China attracted foreign capital as a means of reforming its under-capitalized banking system and sought selective partners with foreign banks for their financial know-how and to improve risk management.” says Leo Wah, a senior analyst from Moody’s Investors Services, in a recent report.

The nation’s vast banking restructuring started at the mid-1990s when most domestic banks were saddled with excessive debt and they were technically insolvent. The regime transformation unleashed a new era for Chinese banks and they moved towards overseas listings.

Global crisis survivors While western banks scramble to replenish their balance sheets, the state-controlled Chinese Big Four have reported rosy profits and appear to be largely unscathed from the ravages of the global financial crisis.

ICBC posted RMB111.2 billion in net profit for 2008, a 35.2 percent increase when compared with 2007. CCB earned RMB92.64 billion and BOC gained RMB64.36 billion, a year-on-year rise of 34 percent and 14.42 percent respectively.

Net income of the three lenders totaled RMB268.2 billion, accounting for 46 percent of the overall net income of domestic banks in 2008.

“Chinese banks are less battered than their western counterparts. That is because the Chinese banks’ assets remain primarily in the domestic [market], instead of international. Even BOC, which has had the biggest exposure [to toxic overseas assets], survived with very little injury,” Chen explained. BOC’s US$2.59 billion investment in U.S. subprime mortgage-related securities was the largest investment among all Asian financial institutions.

However the first quarter of 2009 shows that Chinese banks may not be completely insulated as some report sluggish profit numbers. In the wake of flat profit growth in the final quarter, ICBC reported a lower growth rate of 6.1 percent in its 2009 first-quarter earnings. Net profits at CCB and

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“

In the lead-up to IPOs, China attracted foreign capital as a means of reforming its under-capitalized banking system and sought selective partners with foreign banks for their financial know-how and to improve risk management.”

IMAGINECHINA

FINANCE GURU: Liu Mingkang, chairman of the China Banking Regulatory Commission speaks at the Boao Forum for Asia in April.

BOC fell by 18.2 percent and 14 percent. Wah at Moody’s attributed the eroded profit of Chinese banks to a combination of factors.

“The narrowing interest margin is the main reason. Monetary policies were loosened to stimulate domestic consumption and GDP growth, the lenders faced margin pressure after several rounds of interest cuts by central banks,” says Wah. “To meet new regulatory guidelines in relation to provision coverage ratios, banks set aside more provisions against bad loans. This move would also eat into their net profits.”

Even with a recent slowdown, Chen believes China’s Big Four banks and their domestic peers will escape the global downturn.

“Chinese banks boast high capital-adequacy ratios, high return on equity, strong profitability, and adequate provisions to resist the financial crisis.

Chinese banks have made huge improvements in profitability and risk governance after the past ten years of reform. China will ride out the downturn under the expansionary monetary policies,” says Chen.

NPLs on the horizon As an integral part of the state economic apparatus, the Big Four banks and rest of the banking sector have been major contributors to China’s economic miracle. Massive new lending in the

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first three months of 2009 was intended to fuel the government’s efforts to jumpstart the economy.

In March alone, Chinese banks issued RMB1.89 trillion of new loans, a new monthly lending record. China’s total yuan-denominated loans were RMB4.58 trillion in the first quarter, up 244.4 percent from the same period in 2008, according to data from China’s central bank.

The first quarter figure is close to the government’s full-year minimum target of RMB5 trillion, which Chinese premier Wen Jiabao announced earlier this year.

“The new loans have been poured into state projects. Infrastructure projects under the nation’s RMB4 trillion stimulus package are major recipients. Another direction [of new lending] is livelihood and commerce. Bill-financing also takes a big share,” said Liu said at Boao Forum for Asia (BFA) 2009 Annual Conference in April.

There are concerns about the rapid pace of loan growth in China and that project loans could test local governments’ ability to repay debt.

“Banks are lending in large part to support local and central government stimulus plans, so their risk exposure to local and national governments is increasing rapidly from an already high level, says Victor Shih, assistant professor of political science at Northwestern University and a noted academician in Chinese banking. “The problem is, most assume that local and national governments will make good on their borrowing. For the central government, that is likely the case, but for local governments, this is not necessarily a safe assumption.”

Another concern is the possibility of nonperforming loans (NPLs) from the corporate sector.

“Banking insiders agree that official NPL figures will likely rise later in the year. Exports and real estate developers, two major segments that borrowed a lot in the past years, are being squeezed too much by recent developments,” says Shih.

China’s export industries, making up about 40 percent of the nation’s GDP, have faced extreme hardship since the global credit crunch dried up overseas orders. February saw the worst decline in more than a decade, a 25.7 percent drop in

year-on-year numbers. Exports in April slid 22.6 percent from a year earlier, the sixth consecutive month export numbers have dropped.

Challenges facing lenders

Teresa Yan is a contributor to Insight. She can be contacted at teresayxy@gmail.com.

Additional reporting by Weina Yang.

BIG BANKS: The Agriculture Bank of China is actually the second-largest bank in China behind ICBC, with RMB7.1 trillion in assets.

IMAGINECHINA

Regulators downplay the NPL worries and shrug off doubts about the banks’ ability to manage risks. “The risk is manageable. Banks have been controlling the pace of loans and authorities are tightening their monitoring. We’ll continue to pursue the goal of low NPLs, low NPL ratios and high loan loss reserves,” said Liu. By the end of March, the NPL ratio at commercial banks stood at 2.04 percent, down from 2.4 percent at the beginning of the year. The average provision coverage ratio of commercial lenders, a measure of how much a bank has allocated for the troubled part of its loan portfolio, rose from 7.5 percent to 123.9 percent.

By the end of September 2008, BOC had a provision coverage ratio of 121.5 percent. The provision coverage ratio of ICBC and CCB stood at 121.2 percent and 119.4 percent respectively.

Is a dramatic increase in lending a prescription for economic growth or a disaster waiting to happen? The answer is unclear but the likelihood of a slowdown in lending is slim. After removing the credit quotas in 2008, regulators have been urging banks to increase lending in an effort to drive up investment and domestic consumption.

In an online statement on the central bank’s website, the People’s Bank of China Vice Governor Yi Gang wrote, “the merits of large-scale lending are: more credit lowers the risk of deflation, stabilizes capital markets and speeds up inventory cycles of the

companies. It also bolsters public confidence in China’s stable, fast-growing economy.”

Right or wrong, the soundness of China’s banking sector will ultimately rely on the country’s overall economy. “I don’t expect deterioration in banks’ asset quality in the near term, because asset quality depends on the recovery of China’s economy,” says Chen, who believes China’s economy is strong.

China’s economy expanded 6.1% in the first quarter of 2009, the lowest growth rate in ten years.

Some believe more caution is warranted. “It remains unclear because it all depends on how fast things unwind and how much banks use to write off bad loans immediately. In any event, we can expect a substantial decline in profitability,” says Shih.

In a recent research report, Australian investment firm Macquarie Group predicted that 2009 will be a difficult year. “We expect a difficult operating environment for Chinese banks in 2009 as margin contraction and rising impairment costs hamper sector earrings and profitability.”

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ERP SERIES

B Y TO N Y C OT T E R E L L

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Implementation Design and Testing

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global enterprise resource planning (ERP) system is a major undertaking, especially considering its reach across an entire multinational company to integrate information from each business unit.

In the third article of a series of five articles for Insight on global ERP implementation, we look at the next steps in deploying a global system. Having chosen the right implementation partner, it is now time to examine designing and testing a system.

From the perspective of the client, it is important to keep in mind that you can only get out of the process what you put into it. Businesses often say that is difficult to devote the proper resources to

designing the system while also maintaining a daily business. It should be noted that the investment in the project is going yield a greater benefit to the business – it has a supporting business case and should be considered a valuable use of time.

Business buy-in A common issue with ERP implementations is that when a region is asked for resources, the value or benefits that it will later enjoy are not properly communicated.

In such a case, the project may simply be considered a “headquarters or IT” initiative. It is

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The third article in Insight’s ongoing ERP series looks at the design and testing aspects of a global implementation.

“

It is also critical to keep the business side of a company actively involved in the implementation design, and not just depend on the IT representatives from the company.”

important that all regions buy in to the need for a global implementation and that they understand the timeline and the options open to them to solve resourcing issues.

It is also critical to keep the business side of a company actively involved in the implementation design, and not just depend on the IT representatives from the company.

Only the business representatives on a project can be accountable for deriving business value from the implementation and only business representatives understand the operations and where the business issues lie.

Without the participation of business representatives, there is no one to decide if a given process change is workable in the real business environment.

Therefore, it is import to plan for additional staffing such as temporary hires to see the business through such an important initiative. The planning cycle should include a budget allotment for additional resources so that there are no cost surprises and the business can proceed with a good understanding of available resources and constraints.

The business side needs to take the view that an ERP implementation is likely one of the single biggest investments a company will undertake. It is not a process that should be repeated later due to poor initial planning or budgeting.

When hiring temporary employees to relieve pressure during the project’s busiest periods, the temporary workers should be used to backfill business operational positions and not used to fill vacancies on the project team.

Placing temporary employees on the project would mean that all the knowledge of the system’s processes would be lost to the business at the completion of the project when the temporary employees leave. An ERP implementation can only succeed with the commitment of valuable resources, including the best and brightest staff.

Global design template In the past, a template developed in one country and deployed to other countries would deliver a

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70 to 80 percent fit. Companies are more and more demanding a global template that can deliver a 90 percent fit across different regions to enhance standardization and drive efficiency. While this is certainly achievable, a fundamental shift in how projects are resourced and conducted is required.

First, the design team must be a global team made up of business and consulting resources from the major countries in each region. This allows for country differences and statutory requirements to be included and maintained in the design before it is deployed. A global template cannot be built by a team that only represents one or two countries.

Second, the use of a global team to design and build the template will enable a more rapid global implementation, as each team can then return to their own regions and commence the deployment simultaneously. There is no need for a new learning curve as the region is brought up to speed on the design.

As discussed in the previous article, a global governance team should be formed to ensure that previously agreed project and process standards are not violated as the deployments are rolled out. Therefore, all requests for change should be routed through the global team to determine if the request is fair and acceptable system-wide.

Implementation Testing There are many different levels of testing in ERP implementations with different nomenclature to describe testing levels. The minimum testing requirements that should be included in a typical project are: unit testing, string testing, integration testing, acceptance testing, regression testing and stress testing.

There are four basic rules that all testing processes should follow. First, the test scenarios should be defined according to the transaction or business needs. As a minimum, each scenario should include the Test ID number, input values, expected outcomes and a record of the actual outcomes, to prove the test was successful.

Second, all tests must be carried out by users and not consultants. There is little value in consultants

The China Factor Business buy-in Staffing is a real issue in China and Asia overall. With most businesses growing very rapidly, taking key personnel out of the business to support a global implementation is difficult.

You do not have enough people to cope with the growth in demand, let alone undertake additional work. Hiring in advance is often one solution. An established country may use temporary labor until the business representatives on an implementation return at the completion of the project. In China, the business will probably need the extra hands by the time the project is complete, so it may be more effective to hire the temporary staff full time. A good global governance structure, with regional representation, should ensure adequate time for workforce planning in advance.

Another major concern in China is retaining valuable ERPcapable staff following the completion of a major implementation. Having had the taste of an exciting project and a different type of challenging work, it may be difficult for many employees to return to "the old job." Given their valuable new skills in a highly mobile market, these employees become very marketable. It would not be unexpected for other consulting companies to target them with very attractive employment offers.

Solving this issue comes with good workforce planning. After taking some of the best and brightest staff and placing them on a

verifying their own work. Third, tests that do not pass should be examined to determine the reason for failure. Once the situation is corrected, the test should be run again. Finally, all tests in the cycle must pass before moving on the next level of testing.

Unit Testing This is merely testing the transactions within the ERP system. Each and every transaction that is used in the operation of ERP should be documented and tested. In most cases, this will take less than five minutes per transaction but in some cases may last as long as 30 minutes.

String Testing This is a collection of Unit Tests, usually in the same

project at the forefront of a new initiative, you should be ready to reward them for their newfound expertise. Plan for promotions at the end of the project, and give these employees the responsibility they need. By working out a career plan for key staff, they become very committed to completing the project in a timely manner and retention of valuable skills can be ensured.

Global design template Given the changing nature of business in China, it is vital to include China resources in any global template design and build. Give the pace of growth in China and the rate of regulatory change, China representatives must be involved in keeping the template up to date. It is also important to have a mix of business representatives and consulting resources from China as a part of the global design team. This ensures that the global design will be adequately challenged from the China viewpoint with a team of people who: • Have implemented ERP many times and really do understand what is achievable and what is not.

• Help to reduce the cost of an implementation project as China staffing resources, both business and consulting, are less expensive than their U.S. or European counterparts.

• Are able to discuss the concepts of the design in the local language with the business representatives to help clarify complex issues.

• Are abreast of the latest changes in business requirements in China, from a business, legal or tax perspective.

ERP module, which are dependent on each other.

For example: purchasing raw materials leading to an increase in that particular inventory level, all carried out within the inventory module of ERP. String testing should proceed relatively quickly as there is no reliance on configuration that requires integration with other ERP modules and so should incur very few failures.

Integration Testing This is a series of ERP transactions that span several modules and where the integration points between modules need to be tested.

An example would be the purchase of assets through the purchasing module, receipt of the asset, then matching the purchase order with an invoice, the assignment of an asset number and value recorded in the General Ledger and finally

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The China Factor Implementation Testing For the most part, testing scripts should already be prepared as part of the global template. However, these scripts should be modified to account for local process changes that apply at each individual country level.

The testing cycle is a very important element of the knowledge transfer process. Testing should be carried out by key users, with the support of consultants. This way, key users are able to start working on inputting ERP transactions long before the system goes live and they can become experts in the operation of the ERP system. In China, this is one of the downfalls of global ERP planning. Key users are used ad-hoc throughout the project and more as subject matter experts, rather than full-time valuable members of the team. Most system-user knowledge resides with the overseas teams and is not transferred adequately to the local team.

The lack of understanding of the system and fear that users do not possess the capabilities to operate the system effectively leads to problems with local acceptance of the system. Without buy-in from the local users, they cannot enjoy the benefits the new system will bring. Many local users will see it as "your system" not "our system." It is imperative that local users be given enough time and involvement to become comfortable with the operation of the ERP system.

A final point that should be considered during deployment testing is for the localization of testing scripts. This depends largely on the ability of key users to read and understand English. While most employees would be able to follow simple steps, it is important to understand what the steps mean and their relationship within the entire system. Translating scripts into Chinese and then conducting testing in Chinese should not be considered a waste of time. In fact, it may be the difference between success and failure.

the depreciation of the asset posted in the financial modules.

In Integration Testing, complete end-toend process scenarios that mirror the business requirements of the company are developed.

Testing typically follows a number of iterations, or cycles, with each one adding more complexity to the previous cycle.

Regression Testing

Acceptance Testing

Stress Testing

This also referred to as User Acceptance Testing (UAT) and there are many different approaches to this level of testing.

One common approach is to have a new group of future end users run a full set of Integration Test Scripts. Although there a training period is required, the end users can determine if the system is robust enough to be accepted.

In some cases, UAT is performed by the key users, the future experts who are expected to understand the new business processes and systems under which the company will operate.

There can save time as there is no need for additional training and scripts will be processed faster because the key users are more adept at operating the ERP system.

The reasoning behind stress testing is to ensure that the system will continue to function under the most extreme conditions. This testing mechanism tries to purposely bring down the system in order to determine the maximum load that the system will be able to bear. This ensures that the final system will operate effectively following additional growth or when the company is in the selling and delivery season.

Testing extreme scenarios ensures that the system can effectively handle support any future transaction load.

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This is to test whether modifications made to the system as a result of other testing-related bug fixes have introduced any new problems. For complex, multi-country implementations, the cost to re-test all scenarios across all markets is too high and simply not practical.

Tony Cotterell is a partner with Deloitte Consulting in Shanghai. He can be contacted at tcotterell@deloitte.com.

2009 AmCham Shanghaii Ann Annual nn nual H HR R Conference n e & HR HR Fai Fa Fair air ir

Changing Times, Changing HR Solutions tions ns Leading Le eaad diin di ng n g to to Opportunities O Oppo pp por po orttu unitie nitie nit tie ie ess

June une 17 7 & 18, 8, 20 2009 9|P Pudong udong Sh Shangri-La, han ng n gri-La La, a, SSh Shanghai hangha h hai For the past 15 years, HR in China has as only exp experienced xpe the challenges enge as associated so ate te with ha booming economy and rapidly expanding business. Today however, ng bu ve a generation ener on of HR e r finding g the th situation tua leaders and managers face an entirely new environment and many are unfamiliar and unsettling.

More time has to be focused on consolidation than on expansion, more o layoffs than th hiring and more time scrutinizing costs than serving the line. CEOs are turning to HR to play a larger role in guiding the business through these challenging times while still engaging talent and driving performance. The stakes have never been higher and the opportunities have never been greater for HR in China!

Join us as we examine how today’s HR challenges are being met and balanced against the demands of building the foundations to realize future opportunities. We will also a look at what opportunities are being presented by these changing times.

This year’s topics to include: • Meeting the CEO's agenda • Linking HR strategy with the business strategy • Effective C&B cost reduction • HR programs for delivering efficiency • Driving and segmenting employee performance • Change management and communication • Leveraging your company culture and values To register, please call (86 21) 6279-7119 or visit www.amcham-shanghai.org.

Platinum Sponsors

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China’s Graduate Problem

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C OV E R S TO RY

BY ELAINE WU

This year, 6.1 million students will graduate from China’s universities and face a formidable challenge: competing for jobs during an economic downturn. Finding jobs for all of them has become a top priority for the Chinese government.

W

hen Chelsea Cai graduated from university this year, she had no idea the job market would be quite so forbidding.

Over the past three months, Cai, a graduate of Shanghai Jiao Tong University, has sent out over 50 résumés to different companies and has managed to land interviews with seven. She has attended on-campus recruitment fairs and vied with thousands of students for positions with companies who are only looking to fill a few spots. So far, Cai, a food science and engineering major, has received one offer as a research assistant from a company that specializes in producing MSG, but has dismissed the monthly salary of RMB2,500 as too low.

Cai is waiting to hear the results from another recent interview with a state-owned organic food producer, but she, like many of her peers, is getting increasingly frustrated.

“I’ve had enough of job hunting. I’m sending out résumés every day and am getting no replies, and it is just one disappointment after another. I was not prepared for this when I got out of school,” says Cai. Cai is one of 6.1 million students who will graduate from Chinese universities this year, an increase from the 5.6 million students who graduated in 2008 and nearly six times as many as in 2000. State sources predict that, by 2011, the number of Chinese university graduates will reach a staggering 7.6 million each year.

China’s university graduates face a daunting challenge. After years of double-digit growth, China’s economy has slowed in the wake of the global economic crisis. Job prospects for Chinese graduates are shrinking at an alarming rate. The number of jobs in the country has declined 7 percent since last October, according to China’s Ministry of Human Resources and Social Security (MHRSS).

In 2008, the employment rate for university graduates was less than 70 percent, as roughly 1.5 million graduates failed to find jobs. This year, those graduates will search for jobs alongside this year’s crop, and up to 40 percent – around 3 million – will be unsuccessful, forecasts China’s Academy of Social Sciences (CASS).

Many companies receive far more applications than can be processed.

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This year, PricewaterhouseCoopers’ Shanghai office received more than 10,000 applications for 450 spots.

“You can no longer think that because you are a university graduate, you will land a good job. It’s no longer a guarantee like it may have been before. Nowadays, everyone is a university grad,” says Simon Li, human resources manager at PricewaterhouseCoopers Shanghai.

It wasn’t supposed to be like this. China’s class of 2008 grew up during a time when annual double-digit growth was routine, and during their college years they witnessed an explosion of prosperity and job creation. From 2003 to 2007, China created 51 million new jobs in its urban areas, according to the National Development and Reform Commission. In a culture where holding a university degree is highly esteemed and viewed as virtually a guarantee to a stable, respectable job, China’s new graduates are now finding their expectations turned on their heads and must contend with some harsh economic realities.

Despite top grades and test scores, Cai continues to worry about her credentials. “At first, before I started looking for jobs, I was confident and thought I would do well, but now I don’t think I’m as qualified as I thought. There is just too much competition,” she says.

A glut of graduates Generating enough jobs for the masses of eager young students emerging from the country’s universities has been a chief concern of the

country’s top decision makers for years. Since 1999, the number of undergraduate and graduate students in China has grown by approximately 30 percent a year; as a result, the job market has been unable to keep pace with the deluge of graduates entering each year.

In 2003, around 750,000 university graduates were unable to find jobs upon graduation; the number hit 1.2 million in 2005, and in 2007, 1 million out of 5 million graduates were unemployed up to a year after graduation.

China’s official urban unemployment rate reached 4.3 percent in the first quarter this year, but this number doesn’t include the 230 million migrant workers scattered around cities in China.

A survey by CASS last December estimated that the unemployment rate may have hit closer to 9.4 percent.

According to MHRSS, China has created nearly 2.7 million new jobs in its cities so far this year, and the government has pledged to create a further 9 million jobs for urban workers, 5 million for laid-off workers, and 1 million for people who are facing difficulties finding work, including university graduates.

But some education experts believe that simply creating more jobs is not enough, and unless major changes are made to the country’s university system and the expectations of students themselves, the problem will only worsen.

“The financial crisis is not the fundamental reason the situation is so tough this year. University graduates have been facing difficulties in finding jobs for years. The number of university grads in

CUTTHROAT COMPETITION: Thousands of job seekers turn out at a recent employment fair aimed at recruiting university graduates.

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China still constitutes a relatively low percentage of the whole population, so the problem doesn’t stem from too many people holding university degrees, but is due to a variety of different factors,” says Dr. Boqing Wang, president of MyCOS, a Chinese human resources and higher education consulting firm.

First, not only are there fewer jobs available because of the economic slowdown, but widespread cutbacks means there are more experienced people in the market who are competing for the same jobs as fresh graduates than in previous years.

Second, industries that have a high demand for workers have a comparatively low educational and skills requirement, and pay much lower wages.

“China’s 9 to 10 percent economic growth in recent years has relied on industries that use laborers with low technical skills rather than university graduates. The nation’s industrial structure cannot absorb so many university graduates; it has a great demand for migrant workers instead,” says Wang.

Third, there are considerable differences in the development levels between the country’s coastal region and interior, western areas. Most graduates seek jobs in the big cities in China’s eastern regions, where the employment market is already relatively saturated.

“Most graduates are unwilling to take a job in the middle and western regions or in grass-roots organizations, but it is those places that need the most talent and have vast opportunities to explore,” says Xiong Bingqi, deputy director of Jiao Tong University’s 21st Century Education Research Institute.

An explosive expansion Another key factor that is responsible for the difficulties confronting graduates today is the massive expansion of universities and university enrollments over the past decade. The number of students enrolled in China’s universities has quintupled between 1998 and 2005. Before that, the number of graduates and students enrolling in universities was stable, but the government’s decision to expand enrollments in 1999, in a move to boost domestic consumption during the Asian financial crisis, opened the floodgates to higher education.

In another move to reorient its university system, the Chinese government advocated the “211 Higher Education Development Project”, which called for the priority development of 100 first-class universities that would rank among

the top educational institutions in the world.

As smaller universities consolidated into larger ones, these new institutions snapped up enrolling students.

But with these changes came notable problems within the country’s higher education system.

Education specialists like Wang point out that there is a distinct contradiction within the university system itself: as China’s economy transformed into a market economy, the higher education system did not follow. Parts of its operation still follow strict government planning whereas other parts have been given autonomy.

The government still decides the number of students to be enrolled, what subjects a school may teach, and imposes a unified entrance exam. But in a system that many consider out of sync with the realities of the market, the government no longer guarantees employment of graduates. In contrast, as government funding became insufficient, Chinese universities were encouraged to tap into other means to generate revenue through increasing enrollment and raising tuition.

“As the number of students surge, the quality of education and teaching declines, and in the process of expansion, universities add impractical majors and set up courses that are disconnected with social realities,” says Xiong. “The education system does not keep pace with the needs of the market.”

As a result, there remains a disparity between the supply of qualified graduates in the job market and the demands of employers. Some companies complain of a talent shortage, unable to find capable people to fill mid-level managerial positions.

Critics of China’s university system maintain that because the education system emphasizes rote learning skills, it churns out graduates who are schooled in theoretical and academic subjects but lack the necessary innovative, practical or ethical abilities wanted by employers.

“In terms of theoretical knowledge, university students are adequately prepared, but they aren’t trained in the many practical or soft skills such as business communication, proper behavior skills and professional ethics like integrity that are needed in a service firm,” says PricewaterhouseCooper’s Li. There has also been an oversupply of graduates from a select few majors such as accounting, law, art, literature and computer science. Positions in these fields have too many applicants, while many companies lack qualified employees working in specialized or technical fields.

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“

The education system does not keep pace with the needs of the market.”

“

There is a belief that a university degree can change a person’s social status. Students seek the degree that they think will bring them the most ‘status’ instead of the education that suits them the best.”

Changing expectations For many in China, a university degree is considered a guarantee to a good job. Significant investments and sacrifices are made to secure a diploma, but this can often lead to inflated and unrealistic expectations.

“There is a belief that a university degree can change a person’s social status. People tend to hold a university education in high regard, while they consider adult education or vocational education inferior. As a result, students seek the degree that they think will bring them the most ‘status’ instead of the education that suits them the best,” says Xiong.

Most Chinese parents spare nothing to send their children to the best primary and secondary schools in order to gain entrance into the best universities. Education expenditures for children ranks number one in consumption categories for most Chinese households, according to CASS. It is common for Chinese children to start studying academic material from the age of 6, and from then on they devote an average of 8.6 hours a day to school, with some spending as much as 12 hours a day in the classroom, according to a study conducted by the Chinese Youth and Children Research Center.

“They want the return on their investment and don’t want to waste all those years of studying,” says Li. In his line of work, he says the majority of students he sees are ill-prepared by their education for the realities of the job market and expect too much for their first job. Many graduates expect to land the “best job” with a high paying salary right out of school. “[Most graduates] won’t find their dream job right off the bat, but they have to start somewhere.

It doesn’t matter whether they like the position or not, if they commit to it, they should do their best and adjust their attitudes,” says Li. Cai was one of those students who embarked on her job hunt with high hopes. She wanted to branch out from her food science major and land a job in marketing, and expected a monthly base salary of at least RMB5,000. But marketing jobs were hard to find and the one offer she has received from a company within her field of specialty was far below what she anticipated.

“I thought my expectations were reasonable, but now I think they were too high. If I can’t find anything better, I’ll take RMB3,000 or RMB2,000 a month because it will at least cover my rent. I don’t

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have much of a choice anymore,” says Cai. Even though Cai considers most of the jobs she is looking into “uninspiring,” she is still one of the lucky ones. Many of her classmates have been job hunting for months and have yet to receive a single offer.

An oversupply of university graduates has reportedly brought down wage levels for fresh graduates. A recent study by MyCOS found that the average salary in 2008 for undergraduates of universities under China’s “211 Project” earned an average of RMB2,549 a month, compared to RMB2,949 in 2007. Graduates who came from schools other than the nation’s top 100 universities earned an average of RMB2,030 a month, compared to RMB2,282 in 2007.

In another sign of shifting expectations, the appeal of working as civil servants or in stateowned companies has risen. Before, graduates tended to target foreign companies for jobs they believed were the safest, most reputable and bestpaid. But with plunging exports and a slowing economy, many foreign companies have been cautious about hiring new employees.

“More students are looking at the government or SOEs because to them, these organizations can offer stability and a good work-life balance, an important consideration for this generation of students. This is a big change in attitude from a few years ago,” says Li.

A government priority The employment of university graduates has become a top priority for the Chinese government.

China’s State Council has pledged RMB42 billion to tackle the issue of unemployment, and has implemented a series of measures aimed at creating more job opportunities.

Graduates are being encouraged to join the Army or work and teach in remote and povertystricken areas of China’s central and western regions for a number of years after graduation. In return, the government will either fully or partially reimburse their tuition fees and student loans, or add extra points to their examination scores for future postgraduate study.

The government is also encouraging graduates to work for small or private companies, providing loan incentives of up to RMB2 million to laborintensive companies who hire graduates. Graduates who start their own businesses can obtain loans of up to RMB50,000 as start-up capital. In addition,

the Ministry of Education announced it would place 1 million graduates in internship programs over the next three years in order to improve their qualifications.

Another avenue some graduates are taking is going back to school. Faced with bleak job prospects, more graduates are choosing to earn postgraduate degrees and delay their entrance into the job market. This year, almost 1.25 million students competed for hundreds of thousands of openings during the country’s annual postgraduate entrance examinations in January, a 4.1 percent increase from 2008. Fewer than half will be accepted into postgraduate degree programs. China’s Education Ministry plans to expand enrollments of master’s students by 5 percent and doctoral students by 1.7 percent this year.

But experts warn that these measures are only temporary solutions. “Some students look to graduate school as a harbor of refuge. They need to ask themselves whether they are going back to school in order to improve their skills and abilities or simply to improve their degrees,” says Xiong.

Wang believes that the government’s recent measures provide only short-term solutions.

“Some of the policies in place to help graduates are effective, but they don’t get to the root of the problem,” he says. “Universities need to be more employment oriented and reform their teaching methods and curriculum to include more practical subjects. They need to adjust their enrollment strategies among different majors and help students form realistic expectations towards industries they expect to find jobs in.”

Nurturing entrepreneurship There are some educators in the country who are offering an unconventional alternative to China’s higher education system and employment predicament. Jia Shaohua, vice president of the Yiwu Industrial and Commercial College in Zhejiang Province, is on the frontlines of the movement to make higher education more relevant to the job market by teaching students how to start their own businesses and emphasizing management skills.

Jia’s vocational school of 8,000 students offers ecommerce entrepreneurship classes as an alternative to the traditional university model of teaching theory; instead students gain “real-life, practical skills and knowledge from experience, which can be more valuable than book knowledge,” says Jia.

China’s vocational schools are often seen as a last option to a university education, although more than 30 million students attend middle and higher vocational institutions across the country and have more success finding jobs. As university graduates struggle in the job market, more than 95 percent of graduates from middle vocational schools found jobs last year, according to the Ministry of Education.

Despite incentives from the central government to encourage graduate start-ups, only 0.3 percent of college graduates nationwide start their own businesses, revealed a 2007 study by MHRSS. But at Yiwu College, 15 percent of graduating seniors are already managing businesses of their own this year, a majority of them operating online stores on retail website Taobao.com.

Running an online store on Taobao is an easy way for students to start businesses because it doesn’t require much capital to start up, has relatively low risks and a quick turnaround for profits, explains Jia. One of Yiwu’s greatest success stories is Yang Pugang, a student who earns between RMB60,000 and RMB70,000 a month from his online Taobao store selling cosmetics. Yang already has a fulltime staff of eight and plans on hiring another 12 to help him run his store this year.

“I’m never worried about the job prospects of graduates from my school,” says Jia. “They don’t have to worry about competing for jobs like students graduating from traditional universities do. [Yiwu] students learn how to solve problems on their own and become their own bosses right out of school.”

While Jia acknowledges that his methods will not work for everyone, nor are they the single answer to China’s graduate employment problem, he, like many others, is a firm believer that a change needs to be made.

“The financial crisis will end eventually, but the unemployment situation will still remain the same if universities continue their old ways of thinking. The mindset of graduates needs to be changed – don’t get stuck into thinking that you have to look for a job; create one for yourself and your classmates,” he says. “Opportunity waits for no one, and college students have plenty of time on their hands. Don’t waste it!”

Elaine Wu is an Editorial Associate at AmCham Shanghai. She can be contacted at elaine.wu@amcham-shanghai.org. Additional reporting by Teresa Yan.

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The financial crisis will end eventually, but the unemployment situation will still remain the same if universities continue their old ways of thinking.”

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INSIDE AMCHAM FROM THE CHAIRMAN

Moving Forward

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hen President Obama announced his appointment of Utah Governor Jon Huntsman as the next U.S. Ambassador to China last month, he called the U.S.-China relationship one that will play a vital role in determining the future of the world. AmCham Shanghai maintains that a strategy of engagement with China is the best way to move forward and we look forward to working with the new ambassador to continue strengthening U.S.-China ties.

Late last month, we were also pleased to welcome two congressional delegations led by House Speaker Nancy Pelosi and Representatives Mark Kirk and Rick Larsen to Shanghai. It is important for U.S. leaders to learn more about the environment for U.S. businesses in China and AmCham Shanghai welcomes the opportunity to present the views and opinions of our members. Visits from such prominent U.S. leaders indicate a strong commitment in Washington, D.C. to building a constructive dialogue with China.

J. Norwell Coquillard Chairman AmCham Shanghai

A strategy of engagement with China is the best way to move forward.

Here in China, last month was the one-year anniversary of the devastating earthquake that hit Sichuan Province and caused severe damage and loss of life. But in the immediate aftermath of the tragedy, we all saw an incredible outpouring of concern and goodwill from the Chinese people, as millions volunteered to help and donated more than RMB10 billion. The foreign business community also responded by giving generously – donating cash, goods and services to support relief and rebuilding efforts.

AmCham Shanghai has focused its efforts on projects that help children and senior citizens.

Proceeds from last year’s Independence Day event and Charity Golf Tournament are supporting a transitional school in Lixian County and a community healthcare program in Anxian County.

The funds raised at this year’s Charity Gala will establish a senior citizen activity center in Minle Village, where seniors will be able to enjoy cultural and recreational services as well as gain access to preventive healthcare. The rebuilding process continues, and AmCham Shanghai is proud to support projects that provide long-term outcomes in affected communities.

The AmCham Shanghai 2009 Board of Governors: 2009 Chairman

J. Norwell Coquillard President Cargill Investments (China), Ltd.

2009 Vice Chairman

2009 Governors

Eddy Chan

Ted Hornbein

James Rice

Head of China and Senior Vice President FedEx Express

Managing Director for Asia Richco, Inc.

Vice President & Country Manager Tyson Foods, Inc.

Murray King

Matthew J.Targett

Managing Director Shanghai APCO Worldwide

Asia-Pacific Technology Director INVISTA

Pierre E. Cohade President, Asia-Pacific Region The Goodyear Tire & Rubber Co.

Warren Wisnewski Minda Ho John Grobowski Managing Partner Faegre & Benson LLP Shanghai

Executive Vice President Praxair (China) Investment Co., Ltd.

Diane Long JU NE 2009 Director

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Director and Vice President, Asia-Pacific Operations Eastman Kodak Co.

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

Highlights from May 2009 Board of Governors Meeting Membership The Board approved 44 new members.

Audit Committee Treasurer Matthew Targett and Board members Eddy Chan and Pierre Cohade were appointed to the Audit Committee for the FY08/09 financial review.

Nominations & Elections Committee Following an election by the Board former AmCham Shanghai Chair Angie Eagan was elected Chair of the 2009 AmCham Shanghai Nominations & Elections Committee.

U.S. Government Visitors Representatives Kirk and Larsen will visit Shanghai as a part of the U.S.-China Clean

Energy Initiative during the last week of May. Other potential visitors include House Speaker Nancy Pelosi, U.S. Trade Representative Ron Kirk and Energy Secretary Steven Chu. 2009 White Paper AmCham-China (Beijing) has released its 2009 White Paper, with chapters contributed by AmCham Shanghai. Members have full access to a PDF version on the AmCham Shanghai website, downloadable in its entirety or by chapter.

Regional Programming The Chairman will lead a delegation of members to attend the 8th China International Consumer Goods Fair in Ningbo, Zhejiang Province from June 8-10.

IN ATTENDANCE Governors: Eddy Chan, Pierre Cohade, Norwell Coquillard (Chairman), David Gossack, Minda Ho, Ted Hornbein, Diane Long, Murray King, James Rice, Matthew Targett and Warren Wisnewski.

Attendees: David Basmajian, Justin Chan, Siobhan Das, Brenda Foster (President), John Leary, Helen Ren, Linda X. Wang and Karen Yuen.

REGRETS Chris Beede and John Grobowski.

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2009 AmCham Shanghai Customs Survey Report Since 2006, the American Chamber of Commerce in Shanghai (AmCham Shanghai) has had a liaison program with Shanghai Customs. Each year, AmCham Shanghai invites companies from the manufacturing, logistics and trade sectors to participate in the annual “Shanghai Customs Survey.”This year’s report was released at an AmCham Shanghai event on May 14.

• Promoting Bonded Zones Bonded zones can be used to support logistics functions, reduce lead times and increase overall efficiency in the supply chain.

AmCham Shanghai members would welcome further explanation about the policies, costs and benefits of the various bonded zones that are located in and around Shanghai.

The following is an excerpt of the 2009 report. For a full copy of the report, please contact Ting He, Government Relations Associate at he.ting@amcham-shanghai.org.

• Upgrading Processing Trade AmCham Shanghai members would welcome further information and explanations about the regulatory changes that are being made to assist companies through the financial crisis.

Summary A total of 308 companies participated in the 2009 survey, the largest number of participants ever.

The key findings of the 2009 survey are: • Maximizing customs clearance facilitation is important to companies not only during a normal business environment, but also during a financial crisis. Some companies experienced delays in clearance last year, but this may have been due to additional security checks that were enforced during the period of the Beijing Olympics.

• The Customs supervised zones of bonded warehouses, bonded logistics parks, and free trade zones are the three most important types of bonded zones for business.

• The Processing Trade and Customs Handbook is important and understood by most enterprises, but there is still room for further improvement. Regulatory changes to assist companies through the financial crisis are not yet well understood and there is room for further improvement.

• Enterprises value policy transparency and consistency.

The main recommendations for Shanghai Customs are summarized as follows: • Maximizing Customs Clearance The Paperless Clearance Pilot Program implemented by Shanghai Customs was a great success and Customs may expand the coverage of the program as a measure of trade facilitation.

Customs’ recent program review concluded that paperless clearance could strike a good balance between risk management and clearance efficiency. AmCham Shanghai members would welcome further education from Shanghai Customs about the program (i.e. qualification criteria, costs, and benefits).

Introduction This year’s survey was the third Shanghai Customs Survey conducted by AmCham Shanghai; the first and second took place in 2006 and 2008 respectively.The 308 companies who took part in the survey was an increase of 18% from 2008.

The composition of participating companies is summarized as follows: • 65% were engaged in manufacturing • 20% were engaged in trading • 9% were engaged in customs consulting services • 6% were engaged in logistics and transportation

Ten Measures during the Financial Crisis In view of the current financial crisis, the General Administration of Customs (GAC) recently announced “10 Measures” to assist companies through these turbulent times. The survey asked companies which of the 10 Measures were most important to their operations. The results are summarized in the table below.

As can be seen, maximizing customs clearance facilitation, providing personalized support of policies and laws, promoting transformation and upgrading of ProcessingTrade were considered most important.

Customs Policy and Clearance Overall, 69% of respondents thought providing “personalized support to policies and laws” was most important to their

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Rank

1

Top Ten Measures During the Financial Crisis 1

2

Scoring1 3

4

5

1

Maximizing customs clearance facilitation

52%

30%

14%

3%

1%

2

Providing personalized support of policies and laws

33%

36%

17%

10%

4%

3

Promoting transformation and upgrading of Processing Trade

31%

20%

34%

7%

7%

4

Relaxing the restrictions for the return of exported goods to China for maintenance

24%

34%

14%

17%

10%

5

Improving the management of enterprises classification

23%

31%

30%

11%

4%

6

Boosting development of special customs supervision zones

20%

22%

36%

9%

13%

7

Strengthening anti-smuggling measures, maintaining regular procedure of import and export

20%

21%

31%

13%

14%

8

Implementing secured customs clearance

18%

26%

40%

9%

7%

9

Increasing Customs protection of IP rights

17%

24%

36%

13%

10%

10

Strengthening monitoring and early warning of statistics

10%

32%

32%

14%

12%

The importance decreases progressively, i.e. score “1” represents “the most important”, while score “5” represents “the least important”.

business. The phrase “personalized support to policies and laws” means periodic customs clearance, centralized customs clearance and similar company specific trade facilitation measures. Exactly 52% of respondents thought maximizing customs clearance facilitation was most important to their business and 40% thought that implementing secured customs clearance was also important to their enterprise.

to assist them or would like to see further enhancement on their Processing Trade compliance practice and bonded material management through the Customs Handbook. In addition, some of the member companies are asking their suppliers further down the supply chain to convert from General Trade to Processing Trade, which may result in a higher number of new Processing Trade applications to be received by Customs in the near future.

VAT Reform & Duty-free Equipment

Issues in Top 10 Priorities

Exactly 22% of respondents “strongly agreed” and 43% “somewhat agreed” that VAT reform has had a positive impact on their dutyfree capital equipment importations. Only 19% of respondents didn’t know about VAT reform measures, or viewed any benefit that VAT reform brought to duty-free capital equipment.

When asked “what else should be on the list of Top 10 priorities,” policy transparency and consistency (34%), Customs Clearance facilitation (22%) and VAT reform (16%) were the most important.

The leading two priorities, “policy transparency and consistency” and “customs clearance facilitation”, reinforce the overall message of the 2009 Survey in terms of what is most important to companies at this time.

Processing Trade and Customs Handbook 2009 was the first year that Processing Trade was included in the survey. Only 12% of respondents “strongly agreed” and 46% “somewhat agreed” that they were satisfied with the current rules and supervision measures for Processing Trade. Of note is that 14% were not satisfied with the current rules and supervision measures for Processing Trade.

Transformation and upgrading of Processing Trade also ranked high in importance during this period of challenging economic times. It is understandable that when companies are under severe pressure, the most available alternative is to drive down operating costs. However, a significant percentage of respondents either were unfamiliar with the latest measures Customs had announced

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The AmCham Shanghai Customs Liaison Program thanks all the members who participated in this year’s Customs Survey. Your responses will help AmCham Shanghai focus its advocacy and offer pertinent programming to meet member needs.

For any comments or questions regarding this survey, please contact AmCham Shanghai Government Relations Manager Celia Yang at celia.yang@amcham-shanghai.org.

Annual Sponsor of the 2009 AmCham Shanghai Customs Liaison Program

Is your Membership due for renewal?

Renew now & stay a part of the largest and most active AmCham in the Asia-Pacific Region: AmCham Shanghai!

Renew your AmCham Shanghai Membership now and have chance to win one of the below prizes.

• Oral SPA voucher provided by Arrail Dental • RMB570 Treatment voucher provided by Body and Soul Medical Clinics • First-aid kit provided by Shanghai East International Medical Center • RMB500 Hair dress voucher provided by Grace Hair & Aesthetics • RMB800 Tooth care card provided by Kowa Dental • One-night accommodation in a studio at Pudi Boutique Hotel • One-night weekend stay in a Deluxe Room at the St. Regis Shanghai • One-night stay in Executive one-bed room at Union Square, Shanghai Pudong - Marriott Executive Apartments • Three-month free subscription of the Wall Street Journal newspaper (PDF)

Special thanks to the prize sponsors:

MEDICAL CLINICS

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AmCham Shanghai members can enjoy up to 3 FREE standard job postings every month.

In addition, we also provide 20 Candidate Invitations at RMB500: full access to our resmue database and send up to 20 invitations to your target candidates.

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For more information, please contact Ms. Elaine Yang at (86 21) 6279-7119 ext. 5664 or elaine.yang@amcham-shanghai.org

Event Highlights

INSIDE AMCHAM

RECENT AMCHAM HAPPENINGS

May Consul General Briefing U.S. Consul General Beatrice Camp began the briefing by talking about how the Consulate responded to the H1N1 influenza situation via airport visits and contacts with Shanghai authorities, other consulates, U.S. air carriers and quarantined citizens. Consulate actions included warden messages to registered American citizens in East China and daily situation reports to the Embassy in Beijing.

Consul General Camp was pleased to announce that GE had signed on as a Founding Partner for the USA National Pavilion at the 2010 World Expo, joining Dell and 3M. The Consul General briefly reviewed four trade-related issues, including the antidumping petition filed by U.S. steel pipe manufacturers, China’s WTO notification on U.S. poultry imports, the U.S. Treasury report on currency manipulation, and this year’s Special 301 Report, an annual review of intellectual property rights (IPR) protection. She also mentioned expanded regional cooperation on IPR protection and upcoming IPR events in Shanghai and Hangzhou. The Consul General outlined recent visits by Congressional staff and the Dallas Federal Reserve Bank and upcoming visits by several members of Congress, the National War College, and the Coast Guard.

AmCham Shanghai President Brenda Foster receives prestigious ATHENA Leadership Award AmCham Shanghai is pleased to announce that Brenda Lei Foster, President of AmCham Shanghai, has received the international ATHENA Leadership Award. Presented by ATHENA International, a professional Women’s Leadership Organization headquartered in Chicago, Illinois, the ATHENA Award is presented to outstanding leaders who achieve excellence in their business or profession, serve the community in a meaningful way, and actively assist women in their attainment of professional goals and leadership skills.

Three Athena Awards have been given in China since the award’s inception in 1982; Ms. Foster is the first expatriate to receive the award. The award celebration took place on May 15, 2009 at the Women Making a World of Difference reception at the Art + Shanghai Gallery.

The ATHENA Award is unique in that it recognizes individuals across professional sectors for professional excellence, giving back to the community, and most importantly, actively assisting women in realizing their full leadership potential. It is this focus on mentorship that makes the ATHENA Award stand out among leadership awards of its kind.

Recent Consulate activities include participation in a ceremony inaugurating construction of a U.S.-designed nuclear reactor in Zhejiang Province and a series of Earth Day celebrations. Consul General Camp reviewed the Consulate’s new American Citizen Services appointment system, a recent meeting with American volunteer wardens, and changes to NonImmigrant Visa (NIV) procedures that will introduce a new online application system that will further speed up NIV processing for Chinese applicants prior to their personal interviews. (May 5)

2009 Athena Leadership Award winner Brenda Foster with Lori Carbonneau (left), Jerrie Urbele, Siobhan Das Bachran (right).

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INSIDE AMCHAM

Corporate Preparedness and the H1N1 Flu AMCHAM SHANGHAI

AmCham Shanghai recently hosted a corporate preparedness event in a continuing effort to help companies safeguard their employees, operations and other stakeholders against a possible H1N1 pandemic. Experts presented on risk mitigation and how to coordinate efforts of a corporation’s key functional areas including human resources, legal counsel and communications in the event of a pandemic.

business would be significant, lasting from 9 to 15 months, resulting in high levels of absenteeism and affecting factors such as production, supply chain, distribution and sales issues. Bai emphasized the importance of implementing an emergency management system to cope with a crisis and having measures in place both before and after a pandemic. Communication, both internally and externally, is of the utmost importance in managing rumors and avoiding unnecessary panic, said Bai. The most important thing one can do in a pandemic situation is to get informed, said Jarrett. A company needs to communicate accurate, timely and consistent information to key stakeholders such as staff, their families, clients, the government and the local community. It is important to be able to respond quickly, keep information current and accurate, have monitoring systems in place and have well-trained spokespeople because facts can be quickly distorted in a crisis, said Jarrett. Some steps companies should take include creating a crisis management team and an emergency communications system, establishing policies and guidelines in advance, planning for business continuity and possible impact on their employees and their families. (May 6)

Dr. Staples warned attendees not to underestimate the H1N1 virus. H1N1 may follow the pattern set by the Spanish flu of 1918 which died down in the spring and summer and then returned to peak in the fall. Dr. Staples advised attendees to practice good hygiene techniques such as hand washing, covering your mouth when you cough or sneeze, and cleaning clothes and workspaces. Dr. Staples predicted that a pandemic’s effect on

H1N1 Info Center In a continuing effort to assist the AmCham Shanghai membership stay informed on the H1N1 flu outbreak, an info center has been created on the AmCham Shanghai website with information, links and other important resources necessary to stay up to date. Fact sheets and FAQs from a number of different government agencies and the World Health Organization are included.

To access the Info Center, please visit: www.amcham-shanghai.org/swineflu

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AMCHAM SHANGHAI

Speakers Dr. Jeffery Staples, president of ParkwayHealth’s China and North Asia division, Victor Bai, vice president of the International Association of Emergency Managers (IAEM) Asia Council, and Kenneth Jarrett, vice chairman of APCO Asia’s Greater China region, spoke on flu prevention measures and corporate emergency planning for pandemics.

Committee Highlights

INSIDE AMCHAM

NEW IN COMMITTEES

AMCHAM SHANGHAI

Edward Epstein, Troutman Sanders

Financial Services Committee Pudong’s Role in Shanghai’s Bid to be an International Financial Center by 2020

Pudong, with an area of roughly 570 square kilometers and a gross domestic product of RMB300 billion in 2008, has ambitious plans to become an international financial center. AmCham Shanghai’s Financial Services Committee hosted Mr. Shi Haining, director of the Financial Institutions Service Office of the Pudong New Area, to discuss Pudong’s current status as a financial hub and its plans for development at a recent event.

Legal Committee

Downsizing During the Downturn As companies in China continue to grapple with the effects of the economic downturn, AmCham Shanghai’s Legal Committee recently hosted a timely program focused on managing the difficult process of downsizing.

Stella Hou, Asia-Pacific compensation practice leader of Hewitt Associates, emphasized that while layoffs have become an unfortunate necessity for some businesses, companies should continue to focus on engaging high performing employees, particularly because many companies are seeing some business units performing well while others are struggling because of the downturn. The mission for organization leaders is to “strategically manage an environment with both growth and redundancy,” Hou explained.

She emphasized that employee engagement remains important in these times, particularly as layoffs can impact employee morale. Now is also the time for companies to make sure that they have the right leaders in place to drive change and performance through these challenging times, added Hou. (Apr 28) The seminar was part of the Legal Committee’s programming series on the Labor Contract Law and its impact on business operations in China. For more information on the Legal Committee and the programming series, please visit the Legal Committee homepage at www.amcham-shanghai.org/ committees.

AMCHAM SHANGHAI

Speaker Edward Epstein, managing partner of Troutman Sanders’ Shanghai office, explained that the recent changes to China’s Labor Contract Law have made the process of laying off staff a challenge for many companies. He outlined the process for executing a mass layoff, including the requirements to consult the employees’ union or representatives and provide 30 days notice to the local labor bureau. Epstein also explained that the law gives retention priority to employees with “relatively long” contracts, non-fixed term contracts and those who are single bread winners in their household.

According to Shi, Pudong has already become a major financial hub in China. By the end of 2008, 544 financial institutions were located in Pudong, making it the location with the most foreign financial services institutions in China. Over 120,000 financial services employees also work in Pudong. To encourage investment in the area, Pudong offers one-time bonuses to institutions that open offices in the district and also helps financial firms to obtain resident permits for qualified financial service employees. Pudong is also trying to increase and encourage the development of more talent in the financial services sector by introducing finance courses beginning in middle schools and hosting an annual Financial Cultural Week. (Apr 23) Shi Haining, Financial Institutions Service Office of the Pudong New Area

Event and Committee Highlights are reported by Patrick McNally, Brian Seifert and Elaine Wu.

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DEAL OF THE MONTH IMAGINECHINA

Bonds on Offer HSBC and Bank of East Asia become the first international companies to issue yuandenominated bonds.

W

ith two foreign commercial banks given permission to issue yuan-denominated bonds, some believe multinational companies could soon have a new fundraising mechanism as credit markets remain tight. Last month, the China arms of London’s HSBC and Hong Kongbased Bank of East Asia won approval to issue bonds denominated in yuan to overseas investors.

The banks are two of the largest foreign financial institutions operating in China and both plan to issue debt in Hong Kong to raise funds to support their China branches.

China recently began promoting increased use of the yuan for international trade, especially since March, when Chinese Premier Wen Jiabao questioned the stability of and the dependence on the U.S. dollar. China has also launched swap agreements with six countries thus far where exporters can settle payments using the yuan instead of the U.S. dollar.

Although neither bank indicated how much or when they intend to issue, analysts noted that offerings could happen as soon as late June.

The initial issues by HSBC and Bank of East

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Asia are expected to draw interest from Hong Kong investors and their existing yuan savings.

Since 2007, when the central government first granted permission for the practice, only Chinese banks, including the Bank of China and China Construction Bank, have issued yuan-denominated bonds in Hong Kong. Given the shortage of yuan investment options in there, bonds issued in the past have been well-received, drawing approximately RMB22 billion, says the Industrial & Commercial Bank of China.

Analysts expect the overseas yuan-denominated bond market to open gradually, both in terms of the number of multinational companies authorized to issue and the amount of funds raised. “We believe that an RMB issue by HSBC China will help establish a representative pricing benchmark for foreign banks requiring funding,” said Richard York, president of HSBC China.

The increased activity in Hong Kong is also expected to help the city recover from the global financial crisis as yuan liquidity is increased.

Premier Wen recently met with Hong Kong Chief Executive Donald Tsang to offer assistance.

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