"Insight" of AmCham Shanghai (July/August 2015) by AmChamShanghai

July/August 2015

ALSO INSIDE • 2015 Food Safety Law • President’s Report • TCM and Expats

Prescription for Change Despite challenges, China’s rapidly growing healthcare industry is creating demand for better quality care and services, opening the door to new investors. PLUS: Gov’t Reform Not Working

HEALTH SPECIAL An expert sheds light on air quality at work and an expat reveals how he keeps his family healthy in Shanghai

Chinaâ&#x20AC;&#x2122;s top business school. United Statesâ&#x20AC;&#x2122; strongest EMBA network.

September 2015

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INSIGHT JULY/AUGUST 2015

The Journal of the American Chamber of Commerce in Shanghai

amcham shanghai President

Kenneth Jarrett

AmCham Shanghai Birthday

Food Safety Update

Keeping My Family Healthy

COVER STORY China’s Healthcare Dilemma

VP OF PROGRAMS & Services

Scott Williams

By Xinlan Hu

AmCham Shanghai celebrated its official birthday with more than 250 guests at the JW Marriott Hotel on June 9. See photos and a report inside.

VP of Administration & Finance

Helen Ren Directors Business development & Marketing

Patsy Li Committees

Stefanie Myers

By David Ettinger and Chen Yun

The rules have changed again and we offer an in-depth analysis of the 2015 Food Safety Law that will go into full effect in October

COMMUNICATIONS & PUBLICATIONS

Ian Driscoll Events

Jessica Wu government relations & csr

By David Basmajian

An American expat writes about his life in Shanghai and how he keeps his wife and two young sons safe and healthy

Veomayoury "Titi" Baccam Membership & CVP

Linda X. Wang

INSIGHT EDITOR-IN-CHIEF

Bryan Virasami Content Manager

Kathryn Grant Senior Associate Editor

By Mark Ray

Foreign healthcare companies should find new investment opportunities in China’s healthcare market but will need to deal with ongoing challenges

Silvia Feng INTERNs

Lois Delhom Sander Denecker Xinlan Hu Design

Alicia Beebe Printing

Mickey Zhou Snap Printing, Inc.

INSIGHT Sponsorship (86-21) 6279-7119 ext. 5667 Story ideas, questions or comments on Insight: Please contact Bryan Virasami (86-21) 6279-7119 ext. 5668 bryan.virasami@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

I nsig h t standards

5 Movers & Shakers

MONTH IN PICTURES

Highlights from recent events

7 China Business

EXECUTIVE reading room

Summer Reading List

INSIDE AmCham

40 From the Chair 41 Board of Governors Meeting 45 Government Relations 46 Event Highlights Cover design: Mickey Zhou

Editor's note

Bryan Virasami editor-in-chief

t’s hard to find anyone who likes to visit a hospital unless it’s required or necessary. And anyone who has visited a public hospital in China might understand why the experience left them feeling more like a consumer shopping for treatment and medicine rather than a patient in need of quality care. In his analysis of China’s recent healthcare reform, Yanzhong Huang of the Council on Foreign Relations said although the government has thrown money into the sector, it hasn’t solved the quality of care problem because public hospitals and their backers don’t want things to change. This edition of Insight focuses on two important issues that are important to many AmCham Shanghai members: healthcare and food safety. In addition to Huang’s analysis, Mark Ray from the Sovereign Group here in Shanghai has a comprehensive piece on the industry today. He touches on some of the challenges that exist and what it could mean to foreign investors looking to tap the booming market. Food safety in China is a topic we can all

relate to here. And for manufacturers, things will get a bit clearer or more complicated depending on how the new law is enforced after the 2015 Food Safety Law goes into effect in October. David Ettinger provides a candid take on the new provisions and what they mean. Also in this issue, see how David Basmajian keeps his two young boys eating, breathing and living healthy in Shanghai. And if you believe the problem with air pollution begins when you step outside, think again. Louie Cheng explains why some employees may make a fuss about the air quality at work and what employers and HR professionals should be doing to alleviate their concerns. The Chamber’s official 100th anniversary was on June 9 and more than 250 guests joined the birthday festivities at the JW Marriott Hotel last month. See photos and a report of that event on page 10. Of course, we have photos from other selected events on page 42. Thanks for reading Insight and visit Insight. AmCham-Shanghai.org for regular updates and event coverage.

M o ve r s a n d S h a k e r s compiled by Junling cui

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

Cohn & Wolfe Cohn & Wolfe, a brand communications agency, named Angelina Ong President, Asia-Pacific. Ong is responsible for all Asia-Pacific offices, building on the agency’s growth in the region. Ong has more than 18 years of public relations experience. She has worked with Coca-Cola, P&G, Philips, British Airways, Wrigley, Pfizer, GSK, Bayer, HSBC, 3M and Bosch. Recently, Ong was regional managing director, APAC at Burson-Marsteller where she helped shape the agency’s APAC Brand Marketing offering. Previously, she held positions at Yahoo! and as general manager of the marketing practice at Edelman China.

Private Sector the Coffee Bean & Tea Leaf Andrew Nathan has been appointed Senior Vice President Asia Pacific for The Coffee Bean & Tea Leaf, an American coffee chain headquartered in Los Angeles. In his new role, Nathan will be responsible for managing the company’s growth Andrew Nathan opportunities in Asia. Nathan has nearly 20 years of experience in the specialty coffee business, with expertise in leading and growing brands in Asia. Most recently, he was International Director of Domino’s Pizza’s Asia Pacific region, from March 2013 to December 2014, based in Hong Kong. Prior to Domino’s, he held regional franchise and market leadership positions at Starbucks Coffee. Caterpillar Caterpillar appointed Raymond Chan as Vice President with responsibility for the Asia Pacific Distribution Services Division (APDSD). Chan is currently a member of the APDSD leadership team, serving as Raymond Chan Regional Manager based in Beijing. Chan joined Caterpillar in 1986 after working in the energy industry in Hong Kong, China, France and Malaysia. His first nine years at Caterpillar were spent at the engine business Cat China Ltd. in Hong Kong. In 2005, Chan became the China Distribution Manager within APDSD, based in Beijing. Since 2008, he has had the expanded responsibility of being Regional Manager with APDSD. He has a bachelor’s degree in mechanical engineering and manufacturing from the University of Hong Kong.

Angelina Ong

Leo Burnett Danny Mok was recently named CEO of Leo Burnett’s China operation. In this new role, Mok will oversee Leo Burnett’s operations in Shanghai, Beijing and Guangzhou. Mok is a marketing veteran Danny Mok with two decades of agency and clientside experience. Most recently, he was the Chief Marketing Officer for Hong Kong’s mobile communication operator, CSL Limited, where he managed the marketing department. Prior to CSL, Mok spent eight years at Grey in Shanghai and Hong Kong. He has also worked at advertising agencies DMB&B and BBDO.

government Wang Xuejun was named Party Secretary of Anhui province in June. Wang has been working in Anhui since 2013, serving as Vice Party Secretary, Vice Governor and later Governor of Anhui province. Prior to Anhui, he was the head Wang Xuejun of State Bureau for Letters and Calls and Vice General Secretary of the State Council. Zhuang Yan was promoted to Vice Governor of Jilin province. Zhuang spent most of his career in the organization department of Jilin Provincial Government, most recently as its head. From 2006 to 2007, he was the mayor of Da-an city of Jilin.

If your company has executive personnel changes, please contact Junling Cui at junling.cui@amcham-shanghai.org. j u ly / a u g u s t 2 0 1 5

insight

Zhuang Yan

Kering sues Alibaba over counterfeits

McDonald’s to shutter 300 stores in China and U.S.

Alibaba was sued by the French luxury group Kering for allegedly supporting the selling of counterfeit goods on its marketplace. Kering claimed in the lawsuit that Alibaba has allowed for counterfeit sales to continue even when it had been expressly informed that merchants were selling fake products. Bob Christie, a spokesman for Alibaba, expressed the company’s firm stance in battling fake luxury goods and preserving a wholesome market order, while stating Kering’s complaint “has no basis” and the company will “fight vigorously.” Kering owns a number of well-known and popular luxurious brands in China including Gucci, Yves Saint Laurent and Bottega Veneta.

VW set to boost production of electric cars Volkswagen signed a cooperation agreement with SAIC Motor Corporation, a Chinese state-owned automaker, to boost production, research and development of electric cars in China. According to the agreement, VW will expand its main plant in Shanghai, localize more than 15 different electric vehicle models in China and beef up its research activities in the fields of fuel cells and plug-in hybrid vehicles over the next four years. The German automaker looks to produce a new electric vehicle model based on Volkswagen’s Chinese bestseller, the Lavida, in its Shanghai plant before 2019.

Cirque du Soleil plans regular shows in China The world’s largest theatrical producer Cirque du Soleil announced its plan to open an office in China and launch regular shows in Hangzhou in the next three years, after Fosun, one of the largest private-owned conglomerates in China, acquired 25 percent of its shares. This acquisition is set to bring the Canadian entertainment company onto the stage in a large mixed-use residential, retail and entertainment development in Hangzhou, described as a hive city by Fosun. Fosun is actively seeking to diversify its investment portfolio after a few recent notable acquisitions including British travel company Thomas Cook and American biopharmaceutical company, Ambrx Inc.

Global fast food giant McDonald’s decided to close 130 stores in Japan and another 300 in the U.S. and China combined by the end of this year. The company recently reported 1Q15 earnings that showed a profit drop of 32.6% to US$811 million from US$1.2 billion in the same quarter last year. As people continue to doubt whether McDonald’s has recovered from the meat supplier scandal last year, the company reaffirmed its ambitious goal of opening another 250 new stores in China, while shutting down scores of existing ones.

Wanda buys Aussie cinema chain Hoyts Wanda Cinema, a unit of China’s major property developer Dalian Wanda Group, recently acquired the Australian cinema chain Hoyts Group. The deal size was not disclosed. Hoyts owns around 450 cinema screens in Australia. Operating China’s biggest theatre chain, Wanda Cinema has over 150 motion-picture houses in more than 80 Chinese cities. Wanda has already made several international deals, such as buying a Swiss sports marketing firm and investing in the Spanish soccer club Atletico Madrid, to diversify its business portfolio away from real estate.

Hungary joins China’s Silk Road plan Hungary became the first European country to sign a cooperation agreement for China’s new “One Belt, One Road” initiative in hope of closer trade ties. A railway connecting Hungary and Serbia is being constructed with Chinese funds and construction expertise. With a goal of surpassing US$2.5 trillion worth of annual trade through the modern Silk Road, President Xi Jinping hopes to see more countries join the initiative.

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deal of the month B Y LOIS D E LHOM

Fosun to Buy Ambrx of U.S. imaginechina

Deal part of effort to upgrade R&D

hanghai Fosun Pharmaceutical Group Co., a major Chinese drug maker, last month jointly acquired Ambr x, an American biopharmaceutical company. Fosun, in consortium with HOPU Investments, China Everbright Healthcare and WuXi Pharma Tech, signed the deal to purchase Ambrx in Shanghai, and is planning to close the transaction in late June. By this time all regulatory approvals should be completed. The amount of the acquisition is undisclosed. A m b r x i s a b i o t e c h n o l o g y c o m p a n y, specialized in oncology, particularly in the development of products for the treatment of breast cancer. Fosun is interested in this investment to “enable Chinese patients to get faster access to innovative therapeutic drugs,” says Fosun’s Chairman Chen Qiyu. Fosun has signed 17 deals in the past five years, with a total worth of about US$1.6 billion – more than the total acquisitions of state backed firms like Sinopharm Group, according to Bloomberg. Chen has further ambitions. Not only will the company invest in innovative companies like Ambrx to further upgrade its R&D, but it will

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also focus on improving its operations in the fields of marketing and sales and M&A in order to strengthen the currently unstable Chinese pharmaceutical industry, says Chairman Chen Qiyu in an inter view in Shanghai. For the moment, the Shanghai-based company’s overseas revenue is growing by 12 percent a year, but Chen is optimistic about achieveing his goal to increase overseas earnings by 40 percent through acquisitions in the next five years. Fosun’s idea behind this deal – like most of its agreements – is to have the possibility of creating a “high-level, low-cost, large-scale research and development capacity” and also “for Chinese c omp an i e s t o i n f lu e n c e t h e g l o b a l d r u g innovation structure,” added Chen. In order to increase the incentive for faster and better pro du c t i on , Fo s u n m a k e s it s e mp l oy e e s shareholders of the companies, according to the report. This way, the company reduces cost and increases productivity. Yongzheng Yan, an analyst at Capital Securities Corp believes this is just one of Fosun’s first steps: “I think in the future it will acquire some overseas distributors to expand its overseas sales abilities.”

PRESIDENT ’S Report

Recent Actions on the Policy Front Your Chamber plays many roles. For example, we help you make the right contacts, we provide a range of member services such as an attractively priced medical insurance program, and we host numerous programs so that you have the information you need to succeed in China. Another key role is policy advocacy and we have been particularly busy on that front in recent months In fact, policy advocacy has been a critical part of the Chamber’s work from its earliest days, as I have discovered from my research into the Chamber’s history. From the very beginning, our advocacy was directed at both the U.S. and Chinese governments, just as it is today. Our early decades were a tumultuous period in China’s history and it should surprise no one that security was a critical concern for our members, who urged the U.S. government to fund a Yangtze River patrol force as well as maintain troops in Shanghai. The legal status of U.S. companies in China was another policy focus, an effort that resulted in successful passage of the China Trade Act in 1922. Other priorities would still sound familiar today, such as currency rates and intellectual property rights. Others were a feature of their time: pushing for legislation in 1922 to create work-study opportunities for Chinese students in the United States, debates on whether or not to end extraterritoriality, and demands for compensation for war losses. Today, policy advocacy remains a top priority. In recent months, we have responded to several Chinese government requests for comments on draft laws and regulations. We have also provided views on some Chinese government decisions even though the Chinese government did not explicitly solicit our views. Here is a short summary of our recent policy advocacy: Draft Foreign Investment Law: joint submission with AmCham China and the U.S. Chamber of Commerce. Draft Foreign Investment Catalogue: joint submission with AmCham China and the U.S. Chamber of Commerce. Draft National Security Review provisions in FTZs: joint submission with AmCham China and the U.S. Chamber of Commerce. Ministry of Finance Circular 62 on ending local tax incentives: we raised concerns in meetings with MOFCOM and the Shanghai Commerce Commission. The Ministry of Finance subsequently revised the regulation to grandfather existing agreements. Proposed banking sector ICT regulations: we co-signed

several letters to the Chinese government from a coalition of trade associations to express concerns about proposed information communication technology requirements for China’s banking sector. Those regulations have been “suspended” pending consultation with industry. Draft Foreign NGO Management Law: we submitted views to the National People’s Congress Standing Committee. Trade Promotion Authority: we signed a joint letter from AmChams in the Asia-Pacific region supporting passage of Trade Promotion Authority for the President. Bilateral Investment Treaty: we participate in a joint working group with AmCham China to provide input to U.S. negotiators. At the same time, we are engaged in market access efforts at the local and provincial level on a regular basis. These are very practical discussions, often at the working level, on regulations and policies that affect your business. Recent examples include: A day-long roundtable in Nanjing with Jiangsu provincial authorities A roundtable discussion with a Suzhou vice mayor and key government officials A meeting with the Kunshan mayor and his foreign trade team A morning forum with Shanghai FTZ officials and a Pudong New Area vice governor Meetings with Shanghai Customs and CIQ to discuss the results of our annual trade facilitation survey As you can see, we’ve been busy. I encourage members to participate in this advocacy work to ensure we have the right focus. You can participate via our industry communities or via one of our specialized working groups: Trade Facilitation Taskforce, BIT working group, FTZ禾taskforce, or the Government Affairs Committee. Within the Board of Governors, the Advocacy Policy Committee directs our work in this area. Your support can make our advocacy efforts even more successful.

Kenneth Jarrett, President

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c h a m be r n e w s B Y X INLAN HU

Chamber Celebrates 100th Birthday

Nearly 250 members, officials and invited guests helped AmCham Shanghai mark the special occasion on June 9

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early 250 people turned out to help AmCham Shanghai celebrate its 100th anniversary during a special reception at the JW Marriott Hotel on June 9. The Chamber was founded June 9, 1915 and has since transformed from an all-male, all-American organization with 45 members to an inclusive community of nearly 4,000 members from a variety of nationalities and industries. Representatives from the Shanghai government, the U.S. Consul General to Shanghai and other Foreign Chambers in Shanghai were on hand for the birthday celebration. Soong Qing Ling Foundation, Fudan University and Jiaotong University representatives were presented with a check of 375,000 RMB to fund undergraduate stu d e nt s a s p ar t of A m C h am Sh ang h aiâ&#x20AC;&#x2122;s Centennial Scholarship program.

Kenneth Jarrett, President of AmCham Shanghai, presented a brief overview of the Chamber’s history to guests and stressed its deep c o m m i t m e n t t o p r o m o t i n g U. S . - C h i n a commercial ties. “The world today is quite different from what it was 100 years ago,” Jarrett told the gathering Tuesday night. “But the process of rediscovering our history has given us a deeper and better appreciation of the role that AmCham Shanghai has played over the past century and helped us prepare for our second century, which officially begins tomorrow.” The Chamber event was a gathering “for the celebration of people, partnership and progress,” said Jarrett. Robert Theleen, Chairman of the Board, spoke about the Chamber’s contribution to China. He also talked about America’s innovative spirit and was optimistic about the future. “We will always be a bit more brash, a bit more bold, a bit more courageous in innovation and, hopefully, we will also be a bit more humble, somewhat wiser and still maintain our American sense of humor when we try to understand the most fascinating society on earth. And finally, we will be the trumpet of the best of American values that all of you here bring from every industry and every university on every corner of America,” said Theleen. Hans com Smith, U.S. C onsul G eneral, expressed appreciation for the Chamber’s leadership of American business in promoting China’s economic growth and strengthening the Sino-U.S. bilateral relationship. Norman Givant, former Chairman of AmCham Shanghai, reflected on the Chamber’s return in 1987 and the vast changes in Shanghai since that time.

‘Momentous event’ The crowd included current members as well as some from years past. “What I really find impressive about AmCham Shanghai is that it is still able to engage at its heart and innovate,” Simone Groeneveld, Marketing and BD Director at Right Management Manpower

Foundation representatives accpect funds for scholarship winners

Group, said when asked about her thoughts. “It is a really great exception in Shanghai to meet great company leaders, not just from U.S. companies, but in a global context. Really well done AmCham.” Mark C hen, Gre ater C h ina Market ing Manager at American Airlines, was also at the reception and said he enjoyed the networking opportunities at AmCham Shanghai events. “I have attended AmCham Shanghai activities for three years and, overall, I think it’s a very good platform for American companies and nonAmerican companies to gather together, network and help business development. I hope that AmCham Shanghai is going for great,” said Chen. “I think it’s a momentous event,” said Ed Conner, China Regional Director at Lord Corporation. “AmCham Shanghai has a great history here and a great record.” Yantong Zhao, Director of Asian Projects at Halvorson and Partners Structural Engineers said he enjoyed the events and the fact there’s always something “new” going on. “Most clients of Savills are international clients [and] we can get much benefit from A m C h am S h ang h ai , n o m att e r f rom t h e relationship or from the events,” BD Manager at Savills Property Services, Christina Lu said. “We can learn a lot from these events and we can keep the relationship with most of our potential or current clients. Our employees can also improve themselves professionally.”

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food safety B Y DAV ID J . E TTING E R AND YUN CH E N

On the Menu: Law The 2015 Food Safety Law is stricter and broader than before and imposes harsher penalties for a variety of new violations

ith a fifth of the world’s population, China has one of the world’s largest food industries and thus requires an effective food regulatory system. In late April, the Standing Committee of the National People’s Congress passed a new version of China’s Food Safety Law that will go into force on October 1. Right after the law was unveiled, the media quickly touted its severity and harshness, including a first-time provision for personal penalties to punish serious violations such as manufacturing and trading of foods containing drugs, using recycled food as food raw materials and more.

imaginechina

The burden of proof will be higher for food producers this year

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The administrative fines for these serious violations jumped from five to ten times the value of the commodity to 15 to 30 times. These fines cover products valued at over RMB10,000. Commentators cited stiffer penalties on food traders and producers, more stringent requirements on food businesses, and the addition of many new provisions. One of f i c i a l f rom t h e C h i n a Fo o d a n d D r u g Administration (CFDA) publicly said that the amended law mandates “the most precise standards, the strictest administration, the harshest accountability system, and the gravest punishment” to regulate food and food-related products in China. The finalized law contains 154 articles, as compared to 104 in the current law, which was last updated in 2009. It reflects an overall trend toward strengthening food safety regulation in China by introducing many new regulatory requirements. These include not only general requirements applicable to food and food additives, but also specific requirements for food-related products, including food packaging materials and other product categories such as genetically modified foods, health foods, infant and young children formula and formulated food for special medical purposes. This latest version of the law also extends its regu l ator y s cop e to fo o d storage and transportation. The new law clearly states that “food producers and traders are responsible for the safety of the food they produce or trade.” In order for a food producer or trader to demonstrate that it performed due diligence, it must, among other things, maintain a good traceability system to manage all the food materials and finished products. Additionally, due to recent scandals involving restaurants in China, the government addressed this problem by implementing stricter requirements over raw food material procurement and inspection, facility maintenance, as well as

and Order David Ettinger

Yun Chen

kitchenware and tableware sterilization. Food producers and traders are also required to hire food safety management personnel along with the professional technical staff. Of course, with all the new requirements in place, the cost of running a food business will rise. There are two main ways for a foreign food manufacturer to sell to Chinese consumers. The first is operating a manufacturing facility in China and the second is exporting to China. In the former situation, the Chinese subsidiary is considered a “food producer” under the Food Safety Law just like any other domestic Chinese food producer. Although the revised law does not particularly target multinational companies, the latest regulatory climate in China suggests that foreign companies need to take extra care in protecting their brands and reputations in China. The new law requires foreign food producers to ensure their food products comply with all applicable Chinese laws and regulations. Accordingly, companies exporting food to China must be ready for a high level of scrutiny. The potential for severe consequences is real and the media is not shy about splashing food safety stories on the front page. As a good measure, the new law includes a provision that calls for the media to report food safety issues in a truthful and accurate manner; otherwise they are subject to administrative penalties and may be liable for damages caused.

David Ettinger is Managing Partner at Keller and Heckman, a law firm in Shanghai. He helps clients with product development and product protection of food and food packaging around the world. He was previously a trademark attorney with the U.S. Patent and Trademark Office and an assistant district attorney in the Nassau County District Attorney’s Office in New York. Yun Chen is an associate at Keller and Heckman and practices in the areas of food and drug laws.

Bumps in the road China’s Food Safety Law has evolved over the past 30 years, and given its short history, one need not look too far back to compare the earlier food safety laws to the 2015 law. Since the first Food Hygiene Law adopted by the National People’s Congress in 1982, there have been four generations of the Food Safety Law. Notably, in the past five years, the law has twice been substantially revised. Nevertheless, if we compare the 1982 Food Hygiene Law to the most recent Food Safety Law, one sees that the essential safety concepts remain the same. For example, many point to the 2008 infant formula melamine scandal as a trigger for the adoption of the 2009 Food Safety Law, but it was illegal to adulterate food well before 2009. Specifically, two articles of the 1982 law prohibited food products that were harmful to health and, in fact, it was explicitly required that infant formula meet applicable st an d ard s s e t by t h e Mi n i st r y of He a lt h (consolidated into the National Health and Family Planning Commission in 2013). The 154 articles in the new Food Safety Law cannot and should not be a panacea to all of China’s food safety problems. Like any evolving regulatory system, there will be bumps in the road, but there is no question that China sees the development of its food regulatory regime as one of its top priorities, and the authorities put considerable effort into improving the safe production, distribution, and

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consumption of food. Since the new Food Safety Law is intended to act more as a framework than as an exhaustive body of law, we expect to see various implementing measures and regulations issued by the local and national authorities – these actions will certainly add more meat to the new law. Let’s take a closer look at some of the more recent developments in China’s regulation of food and food-related products – bumps and all.

Regulatory regime For many years, China had a very fragmented

regulatory regime for food and food-related products, in part, due to overlapping responsibilities among various government agencies. This often led to inefficiencies and conflicts. For example, under the 2009 law, the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ), the State Administration of Industry and Commerce (SAIC) and the State Food and Drug Administration (SFDA) all had a role in keeping food safe. In response to many complaints regarding the inefficiency and inconsistencies arising from different government agencies overseeing food safety in China, the establishment of the CFDA in

Case Study

What’s in the Plastic Wrap?

nder the new law, food packaging materials that have direct contact with food are considered “high risk” food-related products. Until recently, most Chinese consumers and companies knew little about the existence of food packaging regulations, despite food packaging having been a highly regulated area in the U.S. and E.U. since the 1950s. Most consumers may still not be aware that many chemicals in food packaging could potentially migrate to food and impact the quality. In 2013, for example, CCTV News reported that plastic film used to wrap the meat and vegetables found in supermarkets in the largest Chinese cities such as Shanghai, Beijing and Guangzhou may contain banned toxic plasticizers. Often such stories are not based on science, but the fact remains that chemicals can leach from package to food. Therefore companies must ensure that packaging materials will not adversely impact the safety of the food. Food packaging materials have historically been regulated via premarket approval and compliance testing. Premarket approvals for individual substances are provided through GBs. For example, the Hygienic Standards for Uses of Additives in Food Containers and Packaging Materials (GB 9685) provides a list of permitted additives for use in food packaging in China. Notably, in the 1990s, only about 65 chemicals were

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permitted for use in food packaging materials in China. New substances could only be added via a long and difficult GB amendment process. It was unlikely that the food packaging products on the Chinese market during that time consisted only of additives from this short list. In fact, many companies simply relied on clearances under comparable laws of other jurisdictions (U.S. and EU) and many others just stayed off the market. A total of 950 new additives were cleared in the revised National Standard that was released in 2008. After several additional rounds of “clean up” efforts and many subsequent petitions filed under the Management Rules for the Administrative Approval of New Varieties of Food Related Products, the draft revision to GB 9685 published last year has increased the number of permitted additives to over 1,300. While there are still hundreds, if not thousands, of additives used in food packaging around the world, the authorities are continuing to allow the marketplace to expand by clearing new food packaging materials that are demonstrated to be safe. This has given the food industry more comfort that the packaging materials used to hold food have regulatory status in China, but inevitably, more additives and resins used in packaging materials will need to be cleared.

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A sign informs customers of a “limited menu” at McDonald’s following reports about chicken quality

2013 marked a new era for the Chinese food regulatory regime. Largely built on SFDA, CFDA was created to be the primary government agency in charge of food safety matters during the life of a food pro du c t – pro du c t i on , d i s t r i b ut i on a n d consumption. The latest version of the law incorporates all of the restructuring details of the regulatory agencies and again confirms the central role assumed by CFDA. For example, under Article 5 of the 2015 Food Safety Law, CFDA becomes the primary government authority responsible for supervising the production and trading of food products and no longer shares supervisory powers with AQSIQ and SAIC.

While there are many potential benefits to this new regime, enforcement problems remain. For example, at the county level, the new law shifts many responsibilities from local subsidiaries of AQSIQ and SAIC to local FDA offices, as CFDA has been working to bring all food-related issues under its jurisdiction. Since local FDA offices var y substantially in terms of their expertise in food law and how they handle food issues, a truly effective and efficient regulatory regime in China will take time to establish.

‘Fraud fighter’ Let’s consider a hypothetical scenario. Mr. Zhang is a very well known professional consumer, also known as a professional fraud fighter in the area in which he lives. One day, he entered the “Sunshine Market” looking for his “targets.” Sunshine Market sells imported foods and is known for offering a range of products. After an hour, he went to the checkout counter with 75 boxes of imported products. A week later, a local FDA office received several claims against the Sunshine Market. The FDA officer

The International Food Safety Conference in Beijing sponsored by the State Food and Drug Administration in June

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…Companies exporting food to China must be ready for a high level of scrutiny”

in charge of the claims looked up after reading his file and said to his colleague, “It’s him again!” In short, the shopper alleged the following: The energy drinks sold in the Sunshine Market (manufactured in Germany by Company A) contain a vitamin that is not permitted for use in beverages under Chinese laws. The chocolate candies sold in the Sunshine Market (manufactured in U.S. by company B) contain a misspelled food coloring agent in the declaration of food additives on the product label. Company A and B soon learn about these allegations from Sunshine Market. In his claims, Mr. Zhang demanded 10 times the purchase price as compensation. Since the passage of the Consumer Protection Law in 1993, China has recognized that private monitoring can effectively unveil faulty products sold to consumers. Many current Chinese laws offer protection for consumers while increasing the responsibilities and liabilities for businesses. While this approach has many positive effects on consumer safety, an interesting phenomenon is the birth of the s o-called “professional consumer.” Such “consumers” have created significant challenges for many companies. The following hypothetical situation is increasingly common and illustrates what professional consumers are doing in today’s new world of food safety. Over the years, courts have taken different approaches when determining what constitutes a consumer under the China law. These approaches include looking at whether the goods bought are intended for the consumer’s personal use. However, according to the most recent official judicial Interpretation issued by the Chinese Supreme Court on March 15, 2014, also the same date as “Consumer Day”, the goods in question are not required to be for personal use, which implies that a professional consumer can purchase as much as he chooses and profit by sending complaints to various authorities, including courts. In fact, following the Supreme Court Interpretation published in 2014, that same year C F DA re c e ive d ove r ha l f a m i l l i on fo o d complaints. Also, according to news reports, after Shanghai implemented a reward system for

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anonymous reports of alleged food safety violations, the Shanghai FDA received 78 percent more food safety reports and issued 89 percent more rewards in 2014 compared to 2013. There are some strategies Company A and B may consider. First, with respect to the vitamin, Company A should conduct a thorough ingredient review of the energy drink product to determine if any legal argument justifies the presence of the vitamin in the product. Many companies often ignore this critical step because they have insufficient experience with China’s food laws. Second, with respect to the misspelled food coloring agent, a new provision under the new Food Safety Law may offer some help. Specifically, the new Food Safety Law adds a carve-out clause in Article 148, which states that the consumer is not entitled to compensation if the claim involves a minor labeling defect that is not misleading to consumers and does not affect food safety. In most mislabeling cases, it is difficult for a company to successfully assert that the labeling error does not mislead consumers, even if the labeling error is a minor and an unintentional mistake. In the hypothetical situation above, however, one could assert the defense in Article 148 that the spelling error is not misleading because it is an unintentional typo and is not intended to persuade consumers to buy the chocolate candies. Whether or not the argument prevails may depend on real circumstances, but, in the meantime, it is important that Company B acts as quickly as possible to correct the label. Of course, notifying and engaging immediately with your company’s in-house and/or outside counsel is imperative before taking any action or measures. Consumers and the food industry will see how the new Food Safety Law unfolds over time. We expect to see more detailed measures and regulations in areas such as health foods, genetically modified foods, as well as Internet trading. In the meantime, the new Food Safety Law marks another milestone in China’s regulation of food and foodrelated products and one hopes that the efforts made by the authorities and by the industry will lead to and result in the production, sale, and consumption of safer foods in China.

fa m i ly h e a lt h B Y DAV ID B ASMA J IAN

Survival Shanghai xinhua

David Basmajian

Many local water delivery shops sell tap water with the names of popular brands

even years ago, I moved to Shanghai with my wife and 2-year-old son Nikolas. His little brother, Miles, was born a few years later here in Shanghai. Our life here has been good. Shanghai has provided not only unique career opportunities but also a front row seat to history in the making as China continues along its development path. The boys speak fluent Mandarin, go to school in a multi-cultural environment and have more stamps in their passport than many adults will get in a lifetime. We knew going in that Shanghai would pose new challenges. We discussed health concerns but looking back, we weren’t completely prepared for the full impact of our daily lives. How to raise a healthy family in Shanghai is a question that confronts us daily. It’s one I find to be a regular topic in our conversations with fellow expats, ranking up there with “how long do you plan on

staying here?” Often times the two are directly linked. I’ve learned a lot from listening to others who have been here a while. I like to sample the collective intelligence of fellow expats and Shanghainese alike. All I can say is, it’s not as bad as Beijing! This is a common refrain (or is it a rationalization?) that I think all foreigners here have used at one point or another. The truth is Beijing isn’t even the worst. The WHO ranks China’s capital city number 79 in the world and a recent New York Times article said the air quality in New Dehli is the worst in the world. But even though we don’t live in Beijing, or New Delhi, breathing non-toxic air at home seems to be a minimum standard we, as parents, should strive for. So we have air purifiers in our home, one in each room in fact, and when the air outside is really bad we run them full blast for a few hours a day. My family has tried them all, starting with

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An American in Shanghai reveals the lengths he goes to ensure his family breathes clean air, use clean water and enjoy toxic-free vegetables and meat

“

But is living healthy in Shanghai only about warding off poisonous food and toxic air?”

Chinese brands, then a few Swiss machines before landing on a U.S.-made model. However, you need to clean them regularly or replace the filters. If you have an ayi, teach her how to do it otherwise you might forget as they hum away inconspicuously in the corner. After a few food safety scares, much of what the kids eat is sourced outside of China, especially dairy. When we return from trips to the U.S., our luggage allotment is used up by kid-friendly snacks. In Shanghai, we’re comfortable buying from the well-known online grocers who source a lot of their vegetables, fruit, meat and poultry from farms in China. Many of them claim to be organic but I’m happy if they’re not toxic, poisonous or tainted in any way, so we don’t think too much about whether we’re eating organic or not. Shanghai’s big plus is delivery of whatever you want right away. Before Shanghai, we lived in San Francisco, where we would have to walk or drive to buy our groceries from the local Whole Foods. The flipside of course is cost. Our online shopping

The Whole Foods in San Francisco

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options here make Whole Foods look like a Safeway. Our fresh veggies and chicken are dear, so early on we tried to make sure our ayi was cooking the food we bought in a healthy way. Enforcing healthy habits with our ayi has been a challenge but I like to think we’ve made some progress. For starters, we checked the oil she used and found that she was cooking with a heavy local variety. We swapped it out for canola but we keep an eye on her as she likes to switch back! It seems to be common knowledge that those large bottles of water delivered to homes across Shanghai are often rebranded tap water. So we rely on filters. We opted to install water filters in several places including our main pipe that brings water into the home, another beneath the sink and for good measure we run drinking water through a filtered pitcher. We attach filters to the faucet in the kids’ bath and in our shower. But is living healthy in Shanghai only about warding off poisonous food and toxic air? We try to set our sights a bit higher. Our goal has been to

leave Shanghai in better shape than when we arrived and I think it’s within reach. I grew up in Philadelphia – home of the delicious (but greasy) cheesesteak sandwich – and as a child in my American home, vegetables were too often an afterthought. But I’ve found that Chinese cooks know how to make vegetables taste good, something we take full advantage of. When our family sits down to dinner, most of the dishes are vegetables. I can’t name many of them but surprisingly I’ve embraced a new semi-vegetarian diet. In my opinion it is often easier to eat healthy in Shanghai than in many Western cities as long as you’re careful about the source. We work out regularly and I’d recommend joining a gym, splurging on a trainer or taking group classes. I don’t like running outside because the air is bad and I think the added stress of dodging cars, scooters, bikes and electric carts full of cardboard, etc. is too much. There are more and more indoor options for working out in Shanghai. Crossfit has definitely hit Shanghai and my wife boxes. But there are more gentle options like swimming and zoomba. We’ve even found a class called “natural movement” – a fitness system that teaches you how to move – walk, run, jump, climb - like your body was meant to. If there was a more needed workout regimen in a modern city like Shanghai, I can’t think of one. Shanghai attracts great talent from all over the world, including people who know how to get you in shape. We also get out of Shanghai proper when we can. We found a club a short drive outside the city and go there regularly. The peace and quiet are the main draws and we love the expanse of green grass and trees where the kids can just be kids. We’re even learning to sail. At this point, you may be noticing a pattern. Yes, there are things you can do to live more healthy in Shanghai but you have to make a real e f for t to d o s o and it’ l l c o st you ! Mo st importantly, does any of it really make a difference to you and your family? Sure, you can get the air tested in your house (we have) and you’ll see improvement from the air outside. You can buy “organic” food. But what’s the real impact on your health and that of your kids? It’s hard to say and

Visitors in Beijing’s Tiananmen Square

that’s perhaps what’s most stressful. Living in Shanghai has been a good experience for us and regardless of where we live next, we’ll always remember our time in Shanghai fondly. For us, our ability to live healthy in Shanghai is one of those factors difficult to quantify but will help determine whether we continue to live here or not. Over the past 18 months, I’ve seen many families depart for home. Most won’t say air pollution or food safety was the determining factor, but it certainly weighed on their decision. I suspect that when the time comes for departure, it will be the same for us. In the meantime, we’re doing the best we can and I like to think we’re doing more than just surviving.

David Basmajian is the AP head of public policy at Baxter Healthcare and has lived in Shanghai since 2008. David is co-chair of AmCham Shanghai Healthcare Committee.

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h e a lt h B Y LOUI E CH E NG

Is it Safe to Breathe at Work?

Louie Cheng

and most re cent ly, j our na list C hai Jing’s nationwide exposure of air quality cover-ups have all contributed to growing awareness. In China, perhaps even more than in the West, white collar workers, especially those working in foreign companies, expect their employers to provide a safe environment. Legally, statute GB50325 requires companies to have healthy indoor air quality inside new buildings. This has left many business leaders, particularly those working in HR, facilities management, and health and safety, wondering how to respond best.

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Employers are increasingly finding that concern about air quality isn't limited to outside the office

hances are, if you put any group of China business leaders in a room, one topic is likely to surface: dealing with air quality concerns. This is a unique China challenge for which there is no blueprint to follow. Increasingly, it’s having a negative impact on staff retention, productivity, and the bottom line. The fact that air quality has taken center stage is no surprise. The US Embassy’s decision to publish outdoor air quality readings in 2008, the “Airpocalypse” scare in December 2013, followed by the subsequent departure of many expatriates,

Air purifiers on sale in a store in China

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The fight for better air is my job, professionally and personally. Nearly two decades ago, I commanded a US Army unit detecting and defending troops against chemical, nuclear, and biological attacks. Today, my team of consultants, chemists, engineers and I take those same skills to offices to protect people from China’s dirty air. In this article, we draw upon our experience from advising clients in nearly 4,000 indoor air quality projects throughout China to offer five tips on how to create high performance workplaces that not only have clean healthy air but also win over the hearts and minds of their staff. Several years ago, the general manager of the Beijing office of an Australian telecommunications company invited me for a visit. I arrived in the middle of a workday to find an empty office. He explained that the company had just finished a lavish office expansion, but that some of the employees were complaining of odors and headaches soon after they moved in. When their managers downplayed the complaints, some staff tested the air quality with kits they got on Taobao and then shared the results with their colleagues. Faced with a crisis and possible liability, the HR manager advised the GM to allow staff to work from home for a week while they searched for a solution.

Know thy enemy Clean air is free of three main groups of pollutants: Particulates: Particulates are tiny airborne par ticles generated f rom so ot, industrial emissions, vehicles, pet dander, pollen, or construction. Sources are mostly from the outdoors. When inhaled, particulates smaller than 2.5 microns in diameter (“PM2.5”) bypass our body’s natural defenses and enter the bloodstream in our lungs, leading to increased blood pressure, lu ng dy s f u nc t i on , and i nc re as e d ast h ma incidences. Volatile organic compounds (VOCs): These are gaseous chemicals emitted by manmade materials as they offgas into the ambient air.

Exposure of VOCs result in unpleasant odors, neurological reactions, and increased incidence of cancer. Sources are mostly indoors. Biological: Mold, bacteria, and viruses can be generate d t hroug h organic g rowt h w hen conditions are too moist, and when there is microbial growth or sickness that can be transmitted in aerosol form. It’s a significant threat when occupants compromise their developing immune systems (especially in schools an hospitals). Sources are mostly indoors. If you are focusing on one pollutant and neglect the others, you wouldn’t be alone. The only one for instance, sealing off all external airflow might reduce particulates, but at the cost of allowing VOCs to build up to dangerous levels like a pressure cooker. Proper solutions balance control of all pollutant types.

Diagnose Understandably, managers are under pressure to take action. Coupled with a plethora of solutions on the market that all claim to create perfect air, it is tempting to jump straight into things without proper research. But, just as you would not self-prescribe medicine, it is best to have a professional investigate and determine where the problems exist and their sources. A good assessment will examine systems and answer these questions: are mechanical systems correctly designed? Are filters maintained? Are the systems operated correctly? Are occupant activities like workshops the source of pollutants? This information can be interpreted by a trained consultant to provide cost-effective and tailored recommendations. During one occasion, a client had spent over RMB1 million on portable particulate filters that did nothing to reduce VOCs that were causing occupant complaints. A formal certified air quality testing usually takes about seven to ten days, including lab analysis. Howe ver, in a sp ecif ic cas e, a 20-minute walkthrough odor investigation identified corkboard glue as a VOC source which, when removed, quickly eliminated the problem. An

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One of the biggest mistakes company managers often make is to focus on a technical solution…”

with the use of a few portable air cleaners. However, workplaces face unique challenges: • Spaces are often too large for portables to cover. • Unfiltered fresh air systems may bring in polluted outside air or smoke.

indoor air quality consultant can determine the type of audit you need.

Solutions Problem in homes can often be remediated Box page 24 bottom, please add color in background.

A brief guide to cleaner air

Commercial PM2.5 Filtration Technologies

Air Cleaning Technology

Portable purifiers

Independent in-‐ ceiling filtration units

Fan coil unit (FCU) filtration

Electrostatic Precipitators (ESP)

Air handling unit (AHU) filtration

Project costs

$$$$$

Primary applications

Small rooms 2 (<40m ); temporary use

Larger areas (40-‐ 2 120m ); when central system cannot be modified

Augment other filtration; when thermal comfort not critical; when floor or ceiling-‐space is limited

Place on air handlers outlets

Most commercial systems do not have high efficiency filtration. Large spaces (auditoriums, gyms, lobbies); filter incoming fresh air

Advantages

Mobile; suitable for small spaces; visible and psychologically reassuring

Independent from HVAC; cost-‐effective; easy to retrofit; hidden; quiet operation; very fast PM reduction

Cheap and easy – simply add filters to existing air returns

Little pressure drop; low operational cost (no filters to replace)

Single filter can process significant volume of air; easy and low-‐cost maintenance

Drawbacks

Not effective for large spaces; occupants often disable functions; high maintenance costs

Semi-‐permanent; requires space in ceiling; not suitable for very large open areas

Causes pressure drop that compromises heating/cooling performance

Efficiency inferior to media filtration; loud in polluted environments; frequent cleaning

Pressure drop may impact HVAC performance; single pass filtration not effective; modification may be complex

Source: PureLiving China

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• Air recirculation may allow indoor pollution like cigarette smoke or cooking odors to migrate into the office area. • It is difficult to control outside exposure – occupants often change system settings, or open windows and doors when instructed not to. • Offices face frequent renovation and addition of new sources of chemicals. Getting air filtration systems installed is increasingly common and architects or designers can advise on how to introduce them into new office environments. As a rule of thumb, if you own your own building, start by upgrading the filters on your central ventilation system (if it can accommodate the reduced air flow) and then augment the system with modular ceilingmounted recirculating units. If you are a building tenant, you may not be allowed to modify the central system but can still achieve clean air with independent ceiling units. Only consider building your air quality plan around portable floormounted purifiers if you are in a very small office or anticipate moving within a year.

have been faked and this is why some workers naturally distrust paper results, especially when they are not easy to understand. Also, management often does not communicate indoor air quality measures during an office move, and the lack of information leads to concern or inaccurate selftesting, which erodes confidence in management. For these reasons, we advise: • Involve a staff leader to regularly communicate air quality plans and collect staff concerns before and during renovation. • Do not release raw air quality test results directly to staff – this can easily be misinterpreted. It is better to engage a trained expert to manage the message and explain the action plan to preserve confidence. In fact, it is best to limit interim test results to the operations team only. • Once you have tuned the system to deliver consistent, clean air, utilize air quality monitoring to gain staff confidence and market this internally as a workplace benefit, along with information about the implemented indoor air quality system.

Monitor

The payoff

The installation of professional air quality monitors helps validate your investment in air quality solutions and enables continuous improvement by allowing operations teams to see how systems impact air quality over time.

Even if you never encounter a crisis of confidence, demonstrating that your workplace is an oasis of clean air is good for retention and branding. It also contributes to an improved bottom line from higher occupancy rates, lower turnover, and higher productivity. Though the vast majority of employers taking action are still foreign, some domestic companies are starting to seek solutions and a few global Chinese brands such as Alibaba and Tencent are emerging industry leaders in air quality.

Benefits include: • Marketing value and providing peace of mind to staff and tenants. We have noted in every case that complaints drop when occupants can see the real time performance. • Automation of systems based on real-time conditions.

Communications strategy One of the biggest mistakes company managers often make is to focus on a technical solution while neglecting staff perception. In the past, test results

Louie Cheng is the founder of PureLiving China. Originally from the U.S., Louie launched PureLiving in 2010 and has offices in Beijing, Chengdu, Shanghai, and Suzhou. PureLiving specializes in advising clients on air and water quality, as well as the design and implementation of air filtration. j u ly / a u g u s t 2 0 1 5

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interview B Y SILV IA F E NG

Prevention is the Key Insight: Please tell us why you decided to become a TCM doctor and what illnesses do you specialize in? Dr. Ying Liu Ko: “As an expatriate returning to Shanghai, I found that sometimes Western medicine didn’t work efficiently. My daughter got sick with a virus, and she only felt better after we used Chinese medicine. Then I started to explore alternative treatments and came across TCM. My specialty is acupuncture. We view the body holistically rather than by the symptoms of individual diseases. We treat the cause of the illness instead and we try to prevent illnesses before they begin.”

Dr. Ying Liu Ko with a patient

A doctor at United Family Hospital says many foreigners view Traditional Chinese Medicine as the last resort after trying Western medicine but should see it as a preventive tool

raditional Chinese medicine has a history that dates back 5,000 years, and over time, TCM has not only grown to become a medical s c i e n c e t h at e x e mp l i f i e d t h e ancient wisdom of Chinese people, it is also still widely revered and applied in modern times. Insight recently spoke with Dr. Ying Liu Ko, a TCM doctor at Shanghai United Family Hospital & Clinics. Ko has worked in TCM for more than a decade. She earned a TCM degree from Shanghai University of Traditional Chinese Medicine. Specializing in wellness management, ac upunc ture and herbal t herapy, she has extensive experience treating foreign patients with TCM and she likes to practice preventive care in communities and schools. During the interview, she discussed how ancient Chinese medical therapies are often the last but best hope for expats with health concerns. She also offered some free advice on how to stay healthy and robust amid worries about food safety while also coping with a busy urban life.

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Insight: What are the most common health concerns among foreign patients? Ko: “Most of them come here for a solution to chronic diseases. Quite a number of patients we treat see TCM as a last resort after they failed to obtain results with Western medicine. Since TCM is about prevention, its application should start as early as possible before the disease arrives. Most of the foreign patients come here for a cure for a stubborn headache or psoriasis. TCM is about 70 to 80 percent effective. We encourage frequent body checkups and early prevention as this is the essence of TCM. What we always tell the patients is that TCM is a natural science. There’s a misconception among foreigners that TCM is an alternative to the Western medicine.” Insight: Have you encountered patients who have doubts about the effectiveness of TCM and what do you do in these cases? Ko : “ No t n e c e s s a r i l y e f f e c t i v e n e s s , b u t sometimes efficiency. Usually it takes five to six, or even 10 visits to see tangible improvements. Quite a number of patients are reluctant to use TCM medicine and herbs, as they have concerns

Workers prepare Chinese herbs at a community health center

about pollution or other food safety related issues in China. Metal contamination, overuse of pesticides and even occasional food safety scandals are often mentioned. Usually, for patients who harbor doubts, we suggest they buy the imported equivalent from Japan or Taiwan. In fact, there are other types of TCM therapies such as cupping, acupuncture and massage and drugs that can be an alternative.” Insight: How does a typical TCM doctor treat a patient? Ko: “ TCM do c tors often apply the Four Diagnostic Methods of looking, listening, questioning and feeling the pulse. We start by observing the patient’s complexion. At this step, the examination covers eyes, ears, nose, mouth, and most importantly, the tongue coating, which is an organ map of the patient. Organ health is believed to be largely reflected in the pigment of the coating on the tongue. The second step is listening. Doctors will listen attentively to the patient’s breathing when they’re speaking, moving or just being tranquil. Then the doctor will inquire about chills, appetite, taste, bowel movement and sleep. Finally, the doctor will examine the patient’s palpitation.” Insight: How is it different from Western medicine? Ko: “TCM focuses on regulating the body’s qi or energy and balancing yin (negative) and yang (positive) of internal physical strength. Western

medicine is a science developed on the basis of lab tests, and only looks to cure the symptoms, not the fundamentals. Many white collar workers wit h fat igue are told by Western doctors to get better sleep, eat healthier or exercise more. Whereas, TCM doctors believe qi deficiency is the cause behind exhaustion, and would suggests American or Korean ginseng as great supplements for energy.” Insight: What’s your advice to foreign patients who are reluctant to use TCM drugs that contain animal parts? Ko: “We have always tried to avoid using animal parts as they are definitely not necessary to treat common diseases. They are expensive as well. Suffice to say, we will never suggest using precious animal parts to patients unless one is seriously ailing, and we make sure we communicate with them effectively. Herbs are more often used. Astragalus, atractylodes, wolfberry, chrysanthemum and other flowery herbs are all among our top choices.” Insight: Many foreigners living in China have complaints about air quality related health issues and stress. What are some ways TCM can help with these health issues? Ko: “I can give some general guidance for this concern: boost your immune system by exercising and eating right. For example, eat warm or room temperature food and go to sleep before 11pm. To detoxify your lungs, eat foods that are good for lung energy, mostly white colored food such as lotus seeds, white radishes and pear.” Insight: What advice would you offer our readers who want to naturally stay healthy even though they work long hours and are sometimes stressed? Ko: “Eat healthy and seasonal food, exercise, follow the natural seasons and listen to your body. Practice moderation with everything. Finally, you can see a TCM doctor to help balance your body.”

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Is There a Cure, Doc? New trends and developments in Chinaâ&#x20AC;&#x2122;s healthcare industry create opportunities for U.S. firms but corruption and other obstacles remain BY MARK RAY

hinaâ&#x20AC;&#x2122;s healthcare industry has not developed evenly, which has resulted in a significant amount of pressure. Hospitals are classified by grade. Grade III hospitals are the largest and have the most advanced technologies, while Grade I are small and sometimes lack even the basic testing and diagnostic equipment. The quality of doctors between the hospital grades can also vary greatly because the best doctors generally opt to work in Grade III hospitals. Even the city in which hospitals are located can affect the quality of care. Hospitals in the Tier 1 cities usually have both the best facilities and the ability to attract the best talent. There are 1.4 billion people in China and the number of people aged above 60 currently accounts for nearly 16 percent of the population. This is expected to rise to 23 percent by 2030. Chronic conditions such as diabetes and high blood pressure are

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Mark Ray leads Sovereign Chinaâ&#x20AC;&#x2122;s market research and consulting business unit and has worked on more than 200 consulting projects for Small & Medium Enterprises and large multi-national companies in a number of industries. He is often asked to give guest lectures at various universities including CEIBS and Jiaotong University.

also on the rise due to changes in diet and lifestyle. The combination of an aging population and an increase in chronic conditions is placing significant strain on the healthcare system, which is exacerbated by uneven development. There is significant overcrowding in many Grade III hospitals, while many Grade II and Grade I hospitals are under-utilized. Additional pressure is brought by patients seeking treatment for relatively minor conditions such as the common cold or seeking reassurance from doctors that minor conditions are not

more serious. There are even cases of students attending hospitals for intravenous fluids as a result of dehydration from studying too hard. Furthermore, patients want to attend the best hospitals available, which typically means that a large proportion of patients go to Grade III hospitals in search of care. However, the Chinese healthcare system is constantly evolving, especially in terms of government policies. This year, China updated the Foreign Investment Catalogue, making some areas for foreign investment easier. For example, institutional

The government has set fixed prices for many drugs

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The population of elderly people in China will grow and it will fuel the need for more health facilities

care for the elderly is now an “encouraged” category for foreign investment. Moreover, China has lifted restrictions on foreign investment in pharmaceutical production. For example, there are now no restrictions on foreign enterprises producing blood products, antibiotics, anesthetics, vitamins, vaccines, etc.

Costly graft Corruption, both internally and externally, is systemic in the healthcare industry. Doctors’ salaries are low, so patients routinely offer “red envelopes” (i.e. bribes) to secure more time or b e tt e r c a re . Supp l i e r s of s e r v i c e s , e qu ipm e nt or pharmaceuticals may also offer “red envelopes” or seek to exploit more creative means of “relationship building,” such as paying tuition fees for doctor’s children at an overseas university or

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travelling costs to enable doctors to attend a “conference” in an exotic location. Corruption in the industry has very real cost implications for patients. For example, as much as 50 percent of the consumer price for pharmaceuticals is due to the costs associated with building relationships and providing bribes. Foreign-invested firms, especially American firms that are subject to the US Foreign Corrupt Practices Act (FCPA), are not able to compete with domestic firms in this graft race, although some may try. UK pharmaceuticals firm GlaxoSmithKline, for example, was found guilty of bribery in 2014 and fined $490 million. The GSK scandal may have been the biggest and best known corruption scandal to involve a foreign firm but there have been several other cases where the Chinese government has come down on corruption. Recently the director of a hospital in the

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eastern coastal province of Zhejiang was removed from his post for accepting “red envelopes” from doctors in return for promotions. In the last few years, there have also been numerous cases where doctors and hospital chiefs have been prosecuted for accepting bribes from pharmaceutical firms and equipment manufactures or distributors to promote and buy their products. While doctors and administrators’ salaries remain low, the graft problem is unlikely to go away completely. However, corruption represents a significant drain on the healthcare system. Fortunately, and it seems that the anti-corruption measures, which really began to be extended throughout China after President Xi Jinping took office, are increasingly enforced. This is good news for Foreign Invested Companies that are considering entry into the market.

Pharma prices In China, around 80 percent of pharmaceuticals are sold through hospitals, which hold a virtual monopoly on distribution. By way of comparison, fewer than 15 percent of pharmaceuticals are sold through U.S. hospitals. This places a significant amount of power in the hands of Chinese hospitals, which also use a centralized purchasing mechanism for drugs. Hospitals primarily sell traditional Chinese medication or pharmaceuticals that are on the Essential Drugs List, which are drugs covered under the national healthcare system. As the cost of registration at Chinese hospitals is low – typically between RMB10 and 20 (around US$2 to 3) – doctors tend to overprescribe drugs in order to generate revenues and profits for hospitals.

Some hospitals have better medical equipment than others

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Doctors often over prescribe medicine to raise revenue, the author says

Until recently, many drugs were subject to price caps, which in theory kept prices low. An unintended consequence was that some manufacturers used substandard or toxic ingredients, such as industrial leather scrap, in the capsules. In order to broaden the market, the central government â&#x20AC;&#x201C; specifically the National Development and Reform Commission (NDRC) â&#x20AC;&#x201C; recently removed price caps for many drugs, with the exception of anaesthetics and some types of psychiatric medications.

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However, this is not expected to affect prices significantly because hospitals still have substantial bargaining power through the centralised procurement system. In addition to the removal of some price caps, reforms in the healthcare industry have made it more challenging to introduce new drugs into the market. Approval time by the China Food and Drug Administration (CFDA), especially for new generics, is expected to rise from three to five years to seven to ten years. This is beneficial to domestic drug producers because it will allow them to capitalise on drugs with expiring patents while slowing the entry of new drugs into the market and likely increasing development costs for manufacturers.

Medical equipment The market for medical equipment is also experiencing significant changes. Grade III hospitals were typically the primary purchasers of imported advanced medical equipment, while Grade I and II hospitals, together with rural medical inst itutes, were genera l ly incons e quent ia l. Wit h t he implementation of the healthcare reforms, beginning in 2009, the government has committed to invest around US$140 billion.

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Only around 10 percent of the total budget is aimed at upgrading medical equipment in Grade III hospitals, while the remainder is to be used for new equipment in Grade II and I hospitals, as well as to install more advanced facilities in rural medical institutes. The type of equipment required will largely depend on the specialties of the hospital. For example, if the hospital specialises in treating chronic conditions such as diabetes, its equipment needs will be different from one that specialises in treating cancer. Foreign Invested Enterprises face several challenges with regards to medical equipment. The government is encouraging hospitals to purchase domestically manufactured equipment (not necessarily made by a non-Foreign Invested Enterprise) and there is significant pressure to keep costs low. Grade III hospitals are the fewest in number and the only ones that can afford top-end equipment. In the Grade II and I hospitals, equipment that is “good enough” is all they can request. Furthermore, domestic companies are improving their product quality, so that previously medium and high-end products (e.g. stents) are now commoditized and domestic companies are able to produce them at a significantly lower cost.

hospitals and acting as online consultants. The quality of these online services varies and, in some cases, can be quite poor. Currently there is minimal regulation of some of these online diagnostic sites because they are seen to be alleviating the burden on hospitals. Outside of these two areas, there are also likely to be more private investment opportunities in the healthcare and patient management systems. Hospitals in China typically have underdeveloped and non-integrated support and diagnostic systems. This creates a challenge because it restricts the diagnostic aids available to doctors. Integrating the various departments within a hospital – linking diagnostics laboratories to doctors’ terminals, for example – is an important step in improving how patient information is shared and how patients are managed. It is one thing to collect data but quite another to analyze it properly so that it can be used as an effective diagnostic tool for treating and tracking patients. There is also likely to be increased involvement for private insurance, allowing patients to purchase private insurance for coverage beyond what is included under social benefits schemes.

Growing, but still a challenge

Foreign Invested Enterprises face several challenges with regards to medical equipment.” Private participation Private investment is beginning to play a bigger and more important role in the industry. Increased investment in private hospitals between 2011 and 2014 saw the number of private hospitals grow with a 17 percent in Compound Annual Growth Rate (CAGR) from roughly 7,600 to about 12,200. Moreover, in 2014, the central government introduced a policy to limit the development of large public hospitals, including number of beds and capacity, in favor of a larger number of smaller hospitals. Private companies such as Yucoo Network and Hudongfeng Technology (HaoDF.com) are now filling service gaps by allowing patients to access consulting and diagnosis services online. However, these companies are also creating challenges because doctors are dividing their time between working at

The per capita expenditure on healthcare in China is only US$365 per year, while in the U.S. and Europe it is closer to US$8,000 and US$4,000 to US$5,000 respectively. In part this is because income levels in many areas of the country are insufficient to sustain higher spending. However, as the population ages and incomes increase, the annual per capita expenditure on healthcare is expected to increase. Hospitals face many challenges, not least because they are often competing with each other for both patients and doctors alike. Foreign companies that can address their needs should be able to achieve some penetration in the market. Of course numerous challenges remain, especially with respect of an opaque regulatory environment and a system that often favors domestic companies. There are opportunities in the market for foreign invested firms. However, companies need to identify the specific opportunities and challenges they will be facing in their particular sector. Developing and maintaining an understanding of the complexities and nuances of the market is essential to any market launch or growth initiative in China. There are no prepackaged solutions and foreign investors should consider the need for targeted market research, regulatory analysis, competitor analysis, potential partner search and due diligence, and entry strategy consulting.

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Road to Reform Filled with Obstacles Despite higher government spending, public hospitals remain a hindrance to genuine healthcare reform in China, says U.S. expert BY YANZHONG HUANG

the number of people with some type of health insurance increased from 30 Yanzhong Huang is a senior fellow percent in 2003 to 96 percent today. for global health at the Council on As the low-hanging fruit is picked, the Foreign Relations. He is also a professor consensus is that the government’s recent at the School of Diplomacy and healthcare reforms failed to fix problems International Relations at Seton Hall of access and affordability. On the one University. He is author of Governing h an d, h e a lt h c are re s ou rc e s re m ai n Health in Contemporary China (2013) concentrated in a few urban health and the founding editor of Global Health centers, which continue to expand at the Governance: The Scholarly Journal for expense of grassroots healthcare the New Health Security Paradigm. Huang has written extensively institutions and rural patients. on global health governance, health diplomacy and health security, For example, Zhengzhou, the capital of and public health in China and East Asia. Henan Province, is now home to the “largest hospital in the world” with 7,000 beds. Xijin Hospital, a major urban health center in Shaanxi Province, has an annual capacity of 30,000 ix years have passed since China kicked off its “new” people. However, every day, nearly 1,800 to 2,000 patients are round of healthcare reform, which translated mainly forced to wait days or even a week for a bed. At the same time, into more spending in the sector. Government although “out of pocket” spending has shrunk, the financial spending on healthcare has grown 20 percent burden for patients remains a problem. Between 2008 and annually since 2009, increasing healthcare’s share of 2012, for example, while the share of out of pocket spending fiscal spending from 4.4 percent in 2008 to 5.9 percent in 2013. dropped from 40 percent to 34 percent, actual out of pocket Between 2009 and 2014, the government spent nearly RMB4 spending increased by 64 percent, from RMB587.6 billion to trillion or US$640 billion on healthcare, which has led to RMB965.5 billion. significant progress in expanding health insurance coverage, Not surprisingly, a Horizon Group survey in 2013 found equalizing public health services, and strengthening financial that 57 percent of respondents said it was more difficult than conditions of grassroots healthcare institutions. In addition,

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imaginechina

People line up to register at Huashan Hospital in Shanghai

four years ago to meet with a doctor, while 87 percent said that the cost of healthcare was higher compared to four years ago. This may in part account for the rise in violence between patients and healthcare providers. The percentage of hospitals reporting violent conflicts increased from 48 percent in 2008 to 64 percent in 2012, while the average number of violent attacks directed at healthcare workers in each hospital increased by nearly 30 percent over the same period. In some ways, the reform has left both patients and healthcare providers displeased.

Revenue challenges Why has the seemingly well-intended and well-funded reform failed to create a Pareto improvement in the healthcare sector? The primary reason is Chinaâ&#x20AC;&#x2122;s inability to effectively address the core issue: public hospitals. Despite the growth in the number of private hospitals, public hospitals in China still account for 88 percent of hospital beds and provide 90 percent of the healthcare services. Their commanding reach in the

healthcare sector not only reinforces the maldistribution of healthcare resources but also hinders growth within the nonpublic sector, which could otherwise relieve access problems. In the absence of competitive pressures from the private sector, it is a lot more important to address the revenueseeking model, one which drives up healthcare costs in China. Unfortunately, no significant progress has occurred. A large portion of hospital revenue comes from overprescribing drugs and services. Consider that drug sales alone account for 40 percent of hospital revenues, with only 8 percent coming from government subsidies. Patients with chronic diseases such as diabetes and cancer are usually slapped with staggeringly high medical bills. A study in 2012, for example, found that adjusted expenditures for medical care were 3.4 times higher among people with diabetes than among people with normal glucose tolerance. It is estimated that diabetes may consume more than half of Chinaâ&#x20AC;&#x2122;s annual health budget if routine, state-funded care is extended to all the diabetes sufferers. To be fair, government decision makers are fully aware of

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It is safe to say that public hospitals and health bureaucrats have hijacked a reform process that is critical to the interests of more than one billion people.”

Delay tactics The National Development and Reform Commission (NDRC) relies on an administrative fiat to set prices for services and drugs, while the National Health and Family Planning Commission (NHFPC) is the owner, general manager and regulator of the public hospitals, a situation that reinforces the delay of introducing competition into the sector. In addition, social security departments which could play a critical role in reforming the provider payment system are

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the need to reform public hospitals. But many of the proposed measures they undertook failed to account for the systematic and holistic nature of the needed reform. In order to reduce the overreliance on drug sales, for example, the government introduced “zero markups” for drugs sold at hospitals and sought to increase fiscal subsidies to compensate for the hospitals’ loss incurred by this new policy. Since hospitals get a sizeable share of revenue from drug sales, it’s nearly impossible for the government to fill the gap. Compared to their public counterparts, non-public hospitals do not receive equal treatment in terms of taxation, market access, eligibility for social insurance, and evaluation of professional titles. For example, the rules restrict the opening of a second hospital within an 800 meter service radius of an existing hospital. This protects the monopoly status of public hospitals. Also, doctors at private hospitals face discrimination when it comes to promotion and retirement benefits. Therefore, it is difficult for the best doctors (most of them are employed by public hospitals) to leave public hospitals and practice in private ones. But in the absence of a competitive non-public sector, it is difficult to incentivize the public hospitals to kick off meaningful reform measures.

Xu Shaoshi, Chairman of China’s National Development and Reform Commission at a March news conference in Beijing

service units of the Ministry of Human Resources and Social Security and do not have the motivation and authority to launch required reform measures. These bureaucratic agencies distort the healthcare market and it is unrealistic to expect they would surrender power. It is safe to say that public hospitals and health bureaucrats have hijacked a reform process that is critical to the interests of more than one billion people. Premier Li Keqiang seemed to be keenly aware of the challenge when he said “stirring vested interests may be more difficult than stirring the soul.” The awkward status of the healthcare reform also highlights the importance of top-level design. Rather than view the NDRC or NHFPC as lead agencies for healthcare reform, the central government should create a higher-level agency or policy group to handle the reform process. Ideally, this would be the State Council or the Central Leading Group for Comprehensively Deepening Reforms, which may charge a stand-alone and authoritative committee to redesign and guide China’s healthcare reform. The idea is by no means radical: In 2002, in order to apply for and implement grants from the Global Fund to Fight AIDS, Tub e rc u l o s is and Ma l ar i a , C h i na bu i lt it s “C ou nt r y Coordinating Mechanism” that draws representatives outside of gove r n me nt su ch a s i nte r n at i on a l org an i z at i ons , nongovernmental organizations, the private sector, and individual representatives. A similar arrangement would not only allow members of the committee to undertake a more systematic or synergistic approach toward the reform, but would also minimize the undue influence of vested interests. Of course, defining and designing the reform package is no small task. But setting up such a committee would be a crucial step in the right direction.

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C e l e b r at i n g 1 0 0 Y ea r s B Y X IN L A N H U

Henry Murphy Integrated East and West American architect designed university buildings with Chinese style

As the American Chamber of Commerce in Shanghai prepares to celebrate 100 years in China as of June 2015, we take a look back to highlight some American products, people and companies that changed daily life in China, bridged cultural gaps, and paved the way for decades of AmericanChinese trade.

mCham Shanghai prides itself on bridging the gap between American enterprises and the Chinese market, but is not alone in its efforts to link East and West. Although the Hungarian architect Laszlo Hudec was likely the most famous foreign architect associated with Shanghai, an American architect named Henry Murphy also designed several important buildings in this city. Murphy left his mark in Shanghai by adapting traditional Chinese architecture to modern educational uses in the 1910s and 1920s. Starting with the 1914 Yale-in-China program in Changsha, Hunan province, Yale graduate Henry Murphy made eight trips to China, with the longest one lasting four years. He made a name for himself designing landmark buildings for Tsinghua University in Beijing, preserving t he ancient city wa l ls of Nanjing, and contributing to Nanjing’s transformation into a capital city. In 1928, when China’s leader Chiang Kai-shek ordered the destruction of Nanjing’s historic city walls, Murphy bravely objected and succeeded in preserving this relic, which he called “the symbol of China.” Murphy showed the same appreciation for traditional Chinese architecture in Shanghai. He opened his firm “Murphy, McGill & Hamlin,” a former member of AmCham Shanghai, on the

Henry Murphy

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Bund in Ju ly, 1 918, and d e si g ne d Fud an University, the University of Shanghai and one of t he Shang hai Ame r i c an S cho ol’s e arl i e st buildings. Fudan University was only Murphy’s second commission designed in a Chinese style but, fortuitously, Fudan’s president Li Danghui was a Chinese classmate of Murphy’s at Yale, though the two had never met. With this alumni connection and other work experience, Murphy was handed the job on his first meeting with the s c h o ol a d m i n i s t r at i on . He s u c c e e d e d i n completing this project that he admitted was “moving a little more rapidly than [he] had expected.” Although Fudan’s 1918 school gate was torn down in the 1950s, the one rebuilt in 2004 adopted the same vertical cornices and archway in Murphy’s original design, showing the university’s legacies in Chinese traditional culture. Murphy further combined western elements with Chinese architecture when he designed the 1919 campus plan for the University of Shanghai, the alma mater of romantic poet Xu Zhimo. Surrounding academic buildings with greens and carving out functional zones, Murphy clearly drew his inspiration from the design of contemporary American campuses. But at the same time, his use of red bricks and doublesloped tile roofs betrayed strong Chinese influence. If you visit this historical campus of what is today the University of Shanghai for Science and Technology, don’t forget to view the Murphy statue that still overlooks his works. Murphy did not hew to a single style, but instead allowed function to determine design when necessary. The Shanghai American School building, designed in 1922, was modeled after Independence Hall in Philadelphia. Its American outlook aligned with its purpose to accommodate an increasing number of American children, a result of the growing American business pres ence in Shanghai following the end of World War I. Murphy’s passion for Chinese architecture did not end in China. In 1926, he briefly returned to

Fudan’s gate in 1918

Hujiang University Auditorium

the United States to create a “Chinese village,” a complex of eight homes, in Coral Gables, Florida. Later when he officially bid goodbye to the East in 1935, he declared at the farewell dinner that he had achieved his two goals in China: becoming a responsible architect and embracing Chinese architectural style.

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inside amcham from the chairman

Internet Strategy Not Optional

t is both humbling and wondrous to think about the changes we are so fortunate to experience every day in China. Having just returned from a lengthy business trip to New York and Germany, the contrast with our world in Shanghai is distinctive. When I remarked to two business groups that China’s Internet sales, within a five year period, went from zero to over $2 trillion, no one believed me. That’s about twice the level in the United States and triple when compared to Europe. What does that mean for our Chamber and for your business? First, it means that an Internet-savvy business strategy for any consumer product or service company is not optional, it is essential. Second, the level of trust among Chinese consumers of e-commerce is greater than that of their counterparts in North America and Europe. And finally, Chinese regulators, like those in the U.S. and Europe, are way behind the knowledge curve of how to both facilitate as well as regulate this massive industrial transformation. Two contrasting, but related dilemmas are the slow progress that the Shanghai Free Trade Zone (SFTZ) is making. And in the U.S., Congressional approval for the President’s “fast track” initiative, which is required to successfully conclude the Trans Pacific Partnership Agreement (TPP), has been controversial. Rest assured that AmCham Shanghai is in the middle of both of these initiatives that advocate further opening up, in Washington and in Beijing. And who are our most important allies? Mrs. Wang, the intrepid Chinese educated urban consumer, and small and medium-sized companies in both the U.S. and in China that, thanks to Jack Ma at Alibaba and Jeff Bezos at Amazon and their respective competitors, allow both consumers and SME’s to participate in China’s ever-changing economic landscape. Finally, I want to alert all of you that AmCham Shanghai has launched a new membership campaign to coincide with our centennial anniversary. We recently completed a survey which showed that there are many American companies in the Fortune 100-500 size that have operations in Shanghai but who are not yet members of our Chamber. I would ask each of you to assist us in reaching out to executives at these companies to tell the story of how Amcham Shanghai can be a valuable partner for success in their business.

Robert Theleen Chair of the Board of Governors

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

Highlights from the June 2015 Board of Governors Meeting Nominations & Elections Committee The Board approved the full slate of members of the 2015 NEC: Robert Theleen (NEC Chairman), Michael Crotty (MKT & Associates), Shirley Lu (Gateway to China), Gary Huang (Prima Shanghai) and Rob Abbanat (Ivy League Management Consulting). The committee will screen candidates for the upcoming Board election and adjudicate any disputes that might arise. June 9th Birthday Celebration Robert Theleen, chairman of AmCham Shanghai, thanked the Chamber for the successful June 9, 100th Birthday Celebration, held at the JW Marriott Tomorrow Square. Over 250 Chamber members, government officials and journalists attended the evening event. Theleen said he had received many positive reports from attendees. Corporate Membership Campaign Vice President Scott Williams briefed the Board on a new corporate membership campaign initiative, which was approved by the Board. The aim is to grow the number of corporate members, including from within the ranks of the Fortune 1000. The campaign will begin July 1 and will last for six months. One

element is to encourage current Chamber members to participate in the campaign. Washington Doorknock With the Washington Doorknock approaching (September 8-10), Chairman Robert Theleen suggested that the Chamber send a letter to Members of Congress voicing our strong support for the Trans-Pacific Partnership as well as renewal of Trade Promotion Authority for the President. He advocated doing so in conjunction with the US Chamber and other business organizations. Kenneth Jarrett, AmCham Shanghai President, said he would contact the US Chamber to explore how best to proceed.

Meeting Attendance Present: William Duff, Cecilia Ho, Aina Konold, Ning Lei, Robert Theleen (via phone), Glen Walter, Cameron Werker, Helen Yang (via phone), Shirley Zhao Apologies: Jimmy Chen, Ker Gibbs, Jun Ge, Curtis Hutchins Attendees: Veomayoury Baccam, Kenneth Jarrett (president), Patsy Li, Li Qiang, Helen Ren, Scott Williams

The AmCham Shanghai 2015 Board of Governors Governors

Chairman

Jimmy Chen FedEx Express

Jun Ge Apple

Cecilia Ho International Paper Asia

Curtis Hutchins Eaton (China) Investments

Aina E. Konold GAP Inc.

Ning Lei Navistar

Glen Walter Coca-Cola

Helen ChingHsien Yang DuPont

Shirley Zhao Allergan

Robert Theleen ChinaVest

Vice Chairman

Ker Gibbs BW Ventures

AmCham Shanghai

The AmCham Shanghai staff at the Chamberâ&#x20AC;&#x2122;s birthday celebration

Questions from the audience at the Shanghai Free Trade Zone Expansion event

Several governmental and industry professionals spoke at the annual Food Safety Event 42

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Month in Pictures

Shaun Brodie, head of China strategy research at DTZ, addresses the crowd

Guests at the CEO Series event, Issues Facing the Auto Industry

Attentive guest during a lecture from world renowned Japanese economist Gerald Curtis

Professor Ron Schramm discusses his book at the Author Series event july / august 2 0 1 5 i n s i g h t 4 3

Government Relations The U.S., China and Japan Triangle Gerald Curtis, a renowned authority on Japanese politics and Burgess Professor of Political Science at Columbia University, addressed an AmCham Shanghai breakfast meeting on June 12 at the Four Seasons Hotel. Curtis spoke about Sino-Japan relations and Japanese and American attitudes towards China in a fascinating lecture. Curtis first touched on Japan’s current domestic political and economic circumstances. He explained that Japan today is considerably more confident than it was just two years ago. After seven prime ministers in seven years, Shinz Abe has now governed for 2 and a half years and Curtis expects his reelection to another three year term as LDP President and his continued office as Prime Minister until 2018.The Bank of Japan is also optimistic about reaching a 2 percent inflation target by the middle of 2016. Curtis said that Abe sees economic recovery as the necessary means for achieving what he is most interested in, revision of the Constitution of Japan and a larger voice for Japan on the international stage. Abe has reinterpreted Article Nine of the Constitution, which is a clause outlawing war as a means to settle international disputes involving the state. The change permits collective defense, which means Japan could use military force if a conflict threatens Japan’s existence. Curtis said the legislation is ambiguous and the different ways Abe presented it to the Americans and to the Japanese public imply to the US a basic change in Japan’s military role, and to the Japanese a reassurance of Japan’s “defensive defense” orientation. Despite a lot of controversy over the legislation, Curtis is certain the legislation will soon become law. Abe’s new Japanese security strategy emphasizes Japan is doing more for itself, contributing more to support U.S. power in East Asia and is building security ties with countries such as Australia,Vietnam, the Philippines, and India, all aimed at balancing growing Chinese power. China is trying to improve relations with Japan, partly because President Xi recognizes that bad relations with Japan has an adverse effect on China’s relations with the United States and partly because of concern over the sharp drop in Japanese direct investment in China. Xi also knows China’s effort to drive a wedge between the U.S. and Japan has backfired, as piling on the pressure on Japan over the Senkaku/Diaoyu Islands and spewing anti-Japanese rhetoric only lead to stronger ties between the US and Japan. Curtis said that maintaining a balance of power in East Asia as China’s power increases is essential but that balancing against China does not mean containing China. China is too important

Gerald Curtis

to the economies of the entire world to be contained. While making sure that China faces stiff resistance to attempts to extend its power into the waters and islands of the South and East China seas, it is also important to integrate China into the world system by giving it a voice in multilateral institutions that are reflective of its power, he said. Despite his suggestion that Japan and the U.S. should embrace Chinese participation in international bodies, Curtis also said it was “essential to balance Chinese power as China rises, and to maintain a balance of power in East Asia.” U.S. policy today is to encourage Japan to contribute more to the U.S.-Japan military alliance and to encourage Japan’s military to integrate further with U.S. forces. This, he said, would make it more difficult for Japan to act independently of the U.S. Curtis concluded by pointing out that Japan and China have shared interests, noting that an economic slowdown in China would adversely affect the Japanese economy and consequently the Chinese economy.

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Event highlights

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Shanghai Free Trade Zone, Version 2.0

Pudong governmental officials address the crowd

Pudong Vice Governor Jian Danian headlined a comprehensive briefing by the Pudong Government on the expanded (Shanghai) Pilot Free Trade Zone in June. It was one of the first briefings by the Pudong government to the international business community on the State Council’s decision to expand the Shanghai FTZ to include parts of Lujiazui, Jinqiao, and Zhangjiang. Jian Danian acknowledged that a lot of enterprises are not satisfied with the progress made by the FTZ but added that the Pudong government is working hard to make the FTZ meet companies’ demands. The FTZ continues to play a role in the government’s economic reform process. It has gradually merged its own standards with international standards and multilateral trade regulations. In addition, it continues to simplify the “Negative List.” Jian pointed out that, in its 2.0 version, the FTZ will be closer to the market, to companies and to international regulations. With three other free trade zones established in China (in Tianjin, Guangdong, and Fujian), the Shanghai FTZ aims to stay ahead by incorporating a couple of measures. First, the FTZ will be integrated as a driving force behind Shanghai’s development into an international financial center. Second, The FTZ will be pooled with Shanghai’s aim to become a science and innovation center. Third, government functions will be shifted and lengthy approval measures will be simplified. In this respect, new bureaus will be established to protect IPR and the environment.

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Cao Lei, representative of the Pudong New Area Commission of Commerce, presented the business opportunities the new FTZ would bring about in three different aspects: as the most convenient zone for investment, as the most open market and with the most innovative functions. The Shanghai FTZ has tried to make it easier for companies to invest in the zone. It will continue to simplify and clarify the “Negative List,” opening up more areas of investment for foreigners. However, there remains a tight control on energy, the agriculture sectors and other sectors related to national security. In addition, the FTZ has introduced a “Three-in-One Certificate” system that combines the business license, organization code certificate, and tax registration certificate. An Innovative free trade account system will be opened in the FTZ. The system will enable Individuals to open a foreign trade account (FTA) to access foreign funding. RMB can flow between an FTA and an overseas account within one day. Furthermore, innovative trade supervision measures will be introduced. The Pudong government has introduced policies in the Shanghai FTZ to make it easier for skilled foreign nationals to file for longterm residency in China. The FTZ has also loosened employment policies for recent foreign college graduates. Recent policy updates allow for graduates to apply for “Private Business Residency Permits’’ to attract foreign students to open startups. These permits would be valid for two years, after which these graduates can apply for a regular working visa.

Event highlights

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Issues Facing the Auto Industry: CEO Series AmCham and BritCham Shanghai celebrated their 100th year anniversary together at a breakfast meeting on June 10 to discuss the environmental and energy issues facing the autoindustry in China. The main speaker, James R. Verrier, president and CEO of BorgWarner Inc., addressed these issues by discussing technological innovations in both global and Chinese markets. BorgWarner is an American components and parts supplying company with a wide client-base and 58 locations spread around 19 countries. While Chinese clients represented less than 5 James R. Verrier percent of the company’s sales a few years ago, Verrier was proud to announce that China had climbed up to 13 percent of its revenue. Verrier, in a global context of BW, tells us to commercialize the right products in high volumes, quickly and efficiently. This is how to keep your client base as well as grow your company at a good pace. Car production in the past 15 years has seen an 18 percent increase, while his company soared with a 48 percent increase. However, the Chinese market is very different from the rest of the world. As Verrier puts it, the Chinese market is “vast, varied and complex.” To penetrate this market, a company has to get the right technology and commercialize at the right time. In order to appeal to customers, Verrier states that he only worries about two aspects: talented employees and again, the right technology. BorgWarner cooperates closely with universities to attract, train and retain talented students and gain skilled workers.” BW’s participation in the 2015 China Technical Seminar is not just for educational purposes, but also for interacting with customers about the future of the market and therefore learning how to adapt and provide customers with the technology they demand. Regarding future trends, Verrier states that his company focuses on power trains but believes self-driving cars and active security to be the next big prospects in the near future. Regarding alternative energy use, Verrier pointed out the development of batteries, hybrid cars and the electrification of motors. Finally, Verrier concluded that “all of our products contribute to sustainability, better fuel economy and provide cleaner engines.”

The Legend of Business: Herbert Kohler Jr. AmCham Shanghai kicked off its Global CEO series with a visit from Herbert Kohler Jr., President & Chairman of the Kohler Company on June 4 at the Kohler Design Center. The renowned speaker is known as a “Legend of Business,” and spoke about the history of his famous private company. Kohler has been Chairman and Chief Executive of the Kohler Co. since 1972, starting his position as a young 32-year-old and has successfully led the company in upward growth since that time. Kohler discussed the “Midwestern values” which he believes have contributed to his hard working taskforce and added to the company’s stellar reputation in quality control and innovation. Kohler pointed out with pride that the washroom products first appeared in Shanghai as early as 1922 in high-end apartments and withstood wreckage and decay throughout the Cultural Revolution. Although the classic designs speak to a high standard attributed to the company, Kohler emphasized new and innovative concepts as part of the ever evolving industry.

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Committee highlights

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Speakers Highlight Real Estate Trends The AmCham Shanghai Real Estate Committee hosted an event titled “Land Policy and Investment in China” in early June, at the Shanghai Vanke Center. Speakers were Charles Ma, head of strategic investment and business development at Vanke, one of China’s largest residential real estate companies, and Shaun Brodie, head of China strategy research at DTZ, a property consulting firm. Ma discussed the maturing process of China’s real estate industry and outlined Vanke’s strategy for the next ten years as an urban service provider. Brodie then spoke on macro-economic trends in China’s real estate market and his future expectations. Charles Ma

Ma said that during the past two years, China’s real estate market witnessed market divergence and more sophisticated consumer demands. It is now shifting from a seller market to a buyer market and from a “golden era” where making money was easy to a “silver era.” In the market’s stabilized stage, Ma predicted an average of 1.1 residential units per household and a new focus on city regeneration, gentrification and large consumer demand for urban services. In response to this maturing market, the Chinese government has tried to boost the economy with low interest rates and stimulus packages. Real estate enterprises, meanwhile, are transforming themselves through three strategies: outbound investment by crossborder acquisition or real estate investment, entering new markets through strategic partnerships or investments and business model adjustment. Brodie analyzed the macro-economic tendencies in China’s real estate market and the government policies that influence it. On the one hand, China has experienced an economic slowdown; the country’s GDP growth has stagnated, debt overhang of local governments has risen, debt-to-GDP ratio has increased, and government investment in real estate has dropped. On the other hand, China is the world’s largest economy based on purchasing power parity-based total GDP and the Chinese government is taking its cooling policy off the agenda by lowering interest rates and reserve ratio.

The Greenest Office Space in Asia AmCham Shanghai’s Design and Construction Committee organized a tour to the Shanghai branch of the Glumac Office on June 16. The Glumac Shanghai office, recently featured by Fast Co as the “greenest office space in Asia,” has just been certified as the first LEED Platinum project in China by the US Green Building Council. Additionally, it is targeting to become the first Asian awardee of the Living Building Challenge project, a certification program that awards the most advanced sustainability measures on the globe, with a net-zero impact on the environment through net-zero energy, water, and carbon footprint. “Glumac is pushing the boundaries of sustainability design and gives us an idea of what [design and construction firms] we should be doing,” said Steve Willet, Chair of the Design and Construction Committee. In order to achieve its zero-impact goal, Glumac engages in a “habitat-exchange” project. In exchange for the land used for the office, a patch of land on Chongming Island is preserved as a natural habitat for birds. Energy is preserved by super insulated material, imported from Germany and originally produced for spaceships. The lights in the office have motion, daylight and occupancy sectors. Office lights will automatically shut down if nobody is present and will automatically dim or light up depending on the daylight that comes in through the windows. Even the bathrooms are very sustainable; the toilets only use 200 ml per flush, instead of 6000 ml like most toilets do. All “waste” from the toilets is stored into a composting machine.The composter processes this waste into fertile soil.The machine does not produce any smell and only needs to be emptied once every six months.The substance of the composter is then used as a kind of super soil to feed the plants in the office.

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Committee highlights

inside amcham

Food Safety Event Covers Multiple Issues AmCham Shanghai held its annual Food and Beverage (FAB) Conference on May 28 at the Grand Hyatt Hotel in Pudong. Under the theme of “food safety and innovation,” the conference hosted key government officials and FAB company executives. It shed light on industry and government collaboration, operational excellence, regulatory compliance and how innovative approaches can create a sound industrial environment. Several government officials joined the convention this year to share The panelists address the crowd exclusive government interpretations of the newly amended National Food Safety Law, which will go into effect on October 1, 2015. Deemed as the “most stringent food safety law ever in China,” the newly amended law stipulates that there will be only one single license for food distributors and manufacturers, as authorities have decided to hold all “food operators” to the same standards. The accountability for enterprises will be much higher and local governments will be delegated more power to uphold new regulations. Non-compliant firms will face higher fines and penalties than were previously levied. There will be new stricter licensing regulations for specific products; examples are baby formula and medical nutrition products. Finally the FDA will work together with the Ministry of Education to raise awareness regarding food safety issues. Industrial representatives responded to the government speeches by reaffirming the importance of industry-government cooperation. Danone is an example of an industry leader in close contact with the government; the company works together with both government and Industry to help the government understand food safety regulations in other countries. Industrial leaders reaffirmed their efforts to provide safe products to consumers. Two important operations challenges to food security in China are the fragmented supply chain and the discrepancy between actual behavior and company rules. In order to overcome these challenges, continuous training, both in the company and in cooperation with suppliers, and regular audits are necessary. For example, Mengniu has installed a number of innovative measures, including big data analysis and source tracking systems to ensure food safety throughout its supply-chain. The company has also invested a lot in educating rural cow farmers to improve food safety at the base of their operations. Traceability was one of the most significant buzzwords of the conference, and a lot of companies are working on improving their traceability processes. Metro is an industry leader in this regard; just by scanning a product’s QR code, customers can get detailed information about a product’s origins and content.

For more information on AmCham Shanghai’s 23 industry-specific committees, please contact committees@amcham-shanghai.org.

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2015

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EXECUTIVE reading ROOM Executives tell us about the books they’re enjoying now and what’s on their summer reading list. Celina Chew, President, Bayer Group,

leads to a smooth adaption of that role. I find that playing the

Greater China

‘Dandy’ leads to tremendous success in dealing with my fellow man.

Books: The Pause Principle by

Many interesting insights.”

Kevin Cashman and The (Honest)

Truth About Dishonesty – How We Lie to Everyone Especially Ourselves by

Ronald Nyman, President, Pacific Century Ventures

Dan Ariely Remarks: “In today’s busy, information

Book: Dead Wake by Erik Larson Remarks: “The book is non-fiction and tells the

over-loaded world, it is important to step

story of the sinking of The Lusitania by a

back to get clarity and perspective in order

German U-boat during World War I.”

to see the path ahead. Also in today’s world, it is important to understand what motivates or nudges people to act with

Mary E. Rezek, Founder, Principal

integrity and what tempts them to “fudge.”

Consultant, Saatori Book: You are a Badass: How

to stop doubting your greatness and start living an awesome life by Jen Sincero

Jerry L. Palmer, Accenture, Managing Director and Chemicals Industry Lead, APAC Book: Racing the Sunset by Scott Tinley

Remarks: “This book was given to me

Remarks: “Scott Tinley is a two-time Ironman

nonsense, funny, easy to follow guide on how people can truly fulfill

World Champion turned freelance writer and

their life’s dreams. I have given this book to many of my clients and

college professor. This book is a first-hand

they too have read it cover to cover. Awesome life – indeed.”

and I couldn’t put it down. It is a no-

account as well as a scholarly look at how sports stars have dealt with retirement and a rapid descent from a storybook life. It’s applicable to anyone who finds themselves at one of life’s crossroads I think.”

José Soares de Pina, Leader, Asia Region, Dow AgroSciences China

Richard Gelber, Owner/Grower, Gusto Fine

Book: Scott and Amundsen - Their race to the South Pole by Roland Huntford

Foods

Remarks: “The book depicts the great race to the

Book: The Art of Seduction by Robert Greene

South Pole between Britain's Robert Scott and

Remarks: “Although certain aspects are

20th century. Both Amundsen (leading his South Pole expedition)

about physical seduction, what drew me in

and Scott (leading the Terra Nova Expedition) reached the South Pole

to purchase this book many years ago was

within a month of each other, but Scott and his four companions

Norway's Roald Amundsen at the beginning of the

Greene's analysis of the weaknesses in

perished during the return journey, posing stark contrasting fates.

people. By observing and properly reading those around oneself,

The book captures the driving ambitions of the era and the complex,

one learns to manipulate reality – a personality that another hopes

pioneering explorers who were charged with achieving the feat. A

and wishes that you would be. Hyper-awareness of the ‘moment’

leadership lesson resulting in two very different outcomes.”

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J U LY / A U G U S T 2 0 1 5

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2014

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