Magazine july august by AmChamShanghai

INSIGHT www.amcham-shanghai.org

The Journal of the American Chamber of Commerce in Shanghai - Insight July/August 2016

Founders

We talk with three entrepreneurs about their new energy, F&B and healthcare startups P. 7-14

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Find 26 words related to the startup world hidden in this word search. Answers on the back cover.

FEATURES P.15

POLICY P.18

MEMBER NEWS P.28

Insights from venture capital firm Qiming

Former deputy assistant secretary of state on U.S.-China relations

Exit interview with Ford regional director of government affairs

Movers and Shakers CAREER

INSIGHT

The Journal of the American Chamber of Commerce in Shanghai - Insight July/August 2016

FEATURES

amcham shanghai President

Kenneth Jarrett VP of Programs & Services

Scott Williams

VP of Administration & Finance

Helen Ren Directors

Business Development, Marketing & Events

Patsy Li

Turning Rooftops into Renminbi

China’s Crafty Import

12 15

Committees

Seeder serves as an intermediary, installing solar power on factory rooftops

China’s emerging craft beer market is creating opportunities for entrepreneurs

The Doctor’s Assistant Mobile health seeks to remedy challenges facing today’s doctors and patients

Nothing Ventured Q&A with JP Gan, managing partner of venture capital firm Qiming

Jessica Wu Communications & Publications

POLICY PERSPECTIVES

Ian Driscoll

Government Relations & CSR

Veomayoury "Titi" Baccam Membership & CVP

Linda X. Wang

INSIGHT Senior Associate Editor

Ruoping Chen

New Container Weight Verification Rule

U.S.-China Relations, an Update

China Removes Parcel Tax for Cross Border E-Commerce Retail Imports

2016 S&ED Wraps, Future Uncertain

Content Manager

A new global shipping rule has the potential to disrupt your supply chain

Q&A on U.S.-China relations with Susan Shirk, former deputy assistant secretary of state Significant changes made to preferential tax policies by adjusting tariffs on imported goods On the final U.S.-China Strategic & Economic Dialogue of the Obama Administration

Kathryn Grant

MEMBER NEWS

Design

Gabriele Cordioli

President’s Note

Board of Governors Briefing

INSIGHT Sponsorship

Exit Interview

(86-21) 6279-7119 Story ideas, questions or comments on Insight: Please contact Ruoping Chen (86-21) 6279-7119 ext. 4583 ruoping.chen@amcham-shanghai.org

Committee Chair’s Corner

Event Report

Printing

Snap Printing, Inc.

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.

U.S.-China relations has many dimensions

Notes from last month’s meeting

With Russell Scoular, regional director of government affairs of Asia-Pacific for Ford

32 34

With Alice Wong, Chair of the Human Resources Committee Recap of selected events from last month

Month in Pictures Selected photos from last month’s AmCham events

Esoterica

Book Review: Street of Eternal Happiness

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

July/August 2016

Special thanks to the 2015-2016 AmCham Shanghai President’s Circle Sponsors

Chairman’s Letter

Ker Gibbs Chair of the Board of Governors

Our long wait for the launch of Disney’s new theme park in Shanghai is over! No doubt, this adds another fun place to go with our families and friends, but the project is significant in other ways. For one, the sheer size and complexity of the investment is unprecedented. At US$5.5 billion between the two parties, few other multinational companies have deployed that much capital in China, certainly not in a single project. As a joint venture with multiple state-owned enterprises through the Shendi vehicle, the deal has an extraordinary number of moving parts and varied interests. The Shanghai Disney resort also marks a significant point in the evolution of U.S. business in China. In the early days, America sold machinery and equipment before trade shifted to manufactured goods and consumer products. Today, growth is mostly in services and intellectual property. Here at the Chamber, over half our members are now in services. Disney is very much part of this trend. With a large and growing middle class with disposable income, China demands world-class entertainment and services. This is a milestone for China’s development, and an evolution in the relationship with the United States. Like many of our businesses, Disney has had ups and downs in China. The release of Kundun, a movie about Tibet, strained the relationship before Disney got back on track. As a business based fundamentally on intellectual property, Disney also had issues with piracy in the China market. The brand and characters, however, resonate with Chinese audiences. In the coming years, millions of Chinese children – as well as their parents and grandparents – will return home from a visit to Shanghai Disney with heads and hearts filled with new songs and stories. This comes at a time when China seems particularly sensitive about Western influence and ideas coming in from abroad through the Internet. Will Disney dominate the minds of young Chinese, and should those who are in charge of such things be worried about “cultural imperialism?” Will the next generation grow up with Western ideals and forget how to be Chinese? It’s my view that these stories resonate with Chinese audiences because of how

they are told, and people care little about where they come from. Disney’s stories are about perseverance, kindness, loyalty and friendship. People of all nationalities love them precisely because these ideals are so widely shared. Moreover, a child’s imagination is not a finite space. There is plenty of room in there for pirates and princesses as well as dragons and monkey kings. CEO Bob Iger calls the project “authentically Disney, but distinctly Chinese.” With all said and done, China may make a bigger impact on Disney than Disney on China. The long-term benefits to China will be many. Disney’s formula is a potent cocktail of planning, creativity and flawless execution. The 10,000 Chinese people working in the park will learn new ways of doing things and carry these lessons throughout their careers. Standards are improving already, and competition for the attention of China’s next generation of consumers is fierce. Shanghai Disney raises the bar. Will China continue to welcome this positive influence? Will authorities support Disney’s expansion and encourage others who aspire to bring new forms of entertainment and media content to the Middle Kingdom? The arrival of one of the world’s greatest entertainment concepts could mark the beginning of wonderful things for China’s entertainment industry and a new era of innovation and creativity. If so, the fun is just beginning! I

OUTPLACEMENT

CAREER TRANSITION COACHING Organizations engage Cornerstone to transition employees out with dignity and coach them through the job search process.

TIMES WHEN OUTPLACEMENT WOULD BE APPROPRIATE • • • •

Realignment of resources requires the adjustment of staff to meet reduced workload. Economics requires the reorganization of one or more business units. Leadership recognizes the need to make team adjustments for or function. Individual or individuals no longer the future corporate direction.

5 REASONS WHY COMPANIES ENGAGE CORNERSTONE 1. Cornerstone provides experienced Career Consultants & Career Transition Manuals in either Chinese or English for affected employees. 2. Increased employee engagement. When the remaining employees see that a company cares for its people the employees perform better. 3. The company reputation goes with the employee and his circle of friends. What will they say about the way they were treated? 4. Protection for your company brand in the marketplace. 5. Cornerstone offers a variety of programs to meet an employer’s needs. Programs can include Individual tailored Executive Level Outplacement & Professional Level Outplacement.

REPUTATION ARE WORTH THE INVESTMENT CONTACT US: Simon Wan, Chief Executive Email: simon-wan@cornerstone-group.com Cornerstone International Group - Career Partners Website: www.cornerstone-group.com & www.cpiworld.com

Movers and Shakers

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

Ford John Lawler, vice president, chairman and chief executive officer of Ford China, has been promoted to be vice president and controller, Ford Motor Company. Lawler has been chairman and chief executive officer of Ford China since December 2012, with responsibility for all operations and business leadership. Prior to this role, Lawler served as the chief financial officer for Ford Asia Pacific and Africa, based in Shanghai, and was responsible for the financial strategy and analysis of the company’s operations in the region. Lawler joined Ford Motor Company in 1990 and worked in North America, Europe and Asia. His assignments included serving as a controller at Ford for Europe’s Product Development organization and a finance leader with Mazda Motor Corporation in Japan. Lawler holds a bachelor’s degree in economics from Knox College and an MBA from the University of Iowa.

Toys‘R’Us Andre Javes was named president, Toys‘R’Us, Asia Pacific. In this role, he will oversee all operations and business activities for the company's growing number of stores in Japan, Southeast Asia, Greater China and Australia and be responsible for the profitability and success of the company in these markets. Javes has more than 30 years of merchandising and management experience. Most recently, he was managing director, Toys‘R’Us, Southeast Asia and Greater China. Prior to joining Toys‘R’Us, Javes served as chief executive officer at Anaconda Group Pty., from 2009 to 2012, where he managed a retail chain of camping, outdoor and adventure gear stores across Australia. Earlier in his career, Javes spent three years

at Kmart as divisional merchandising manager, first for seasonal and consumable items and later for the company's toy and outdoor product categories throughout Australia and New Zealand. He also served as group merchandise manager, Grocery, at Coles Supermarkets Australia Pty Ltd.

Hewlett Packard Hewlett Packard has appointed Lloyd Mathias as head of marketing for the Asia Pacific and Japan region, which includes China and Australia. An industry veteran with over 24 years in telecom and consumer goods, Mathias spent over a decade at PepsiCo India and was executive vice-president (marketing) for the India region. Prior to being marketing head at Tata Docomo, he was responsible for marketing at Motorola in India. Mathias co-founded GreenBean Ventures in 2011 along with former Nokia India CEO Parikshit Bhasin and former Nokia India managing director Sanjeev Sharma. He moved out of the venture after returning to the corporate world.

CNN DIGITAL Marc Lourdes was appointed director, CNN Digital Asia. Based in Hong Kong, Lourdes will lead CNN Digital’s Asia team across editorial content and multiplatform programming for CNN’s global audience in that time zone. He will be responsible for devising and implementing strategies to grow key audiences in Asia. Before joining CNN, Lourdes worked at Yahoo! for five years, most recently as editor-in-chief in Singapore. He also spent more than a decade as a journalist, working at publications like The Star and New Straits Times in Malaysia.

GOVERNMENT Wang Xiaohong was appointed vice minister of Public Security in addition to his current titles as director of the Beijing public security bureau and vice mayor. Wang has been working in public security since 1979. He was promoted to be the vice director of the Fujian provincial public security bureau in May of 2002 . From 2011 to 2013, Wang was the mayor as well as the public security bureau chief of Xiamen, a city in Fujian province. In August of 2013, he took charge of the Henan provincial public security bureau and became the assistant to the governor of Henan province. Zhou Lianqing was named vice governor of Fujian province. Most recently, Zhou was the municipal party secretary of Putian, a city in Fujian. Prior to this, he worked as the party secretary of The Fujian State-Owned Assets Supervision and Administration Commission. Zhu Hexin was appointed vice governor of Sichuan province. Prior to this, Zhu was the vice governor of the Bank of China. Zhu has spent most of his career working for the Bank of Communications, from 1993 to March 2015, most recently as vice governor of the Bank of Communications.

If your company has executive personnel changes, please contact Junling Cui at junling.cui@amcham-shanghai.org.

July/August 2016

Private Sector

Turning Rooftops into Renminbi cover story

Seeder Co-founder and CEO Alex Shoer tells Insight about his ambition to bring solar power to the factory rooftops of China and savings to their domestic and MNC owners

The key is moving fast, sticking to your value proposition and being collaborative. Our goal isn’t to compete with people doing this good stuff already, but to work with them.

orget about those massive solar farms in remote places like Gansu and Qinghai provinces, sometimes costing hundreds of millions of yuan to build. American entrepreneur Alex Shoer is trying to build his own lucrative business on a much smaller scale by helping businesses in Shanghai and nearby cities lower their energy costs and become more environmentally friendly one megawatt at a time. The evolving recipe is simple in principle, with building owners generating their own green energy using rooftop solar power systems. But nothing in China is ever simple, as Shoer has discovered more than three years after setting up his company, Seeder Clean Energy. Like many people doing business in China, Shoer learned early that most companies and building own-

ers don’t want to invest their own money for something eccentric like becoming more environmentally friendly, even as Beijing pushes for such moves to lessen dependence on far dirtier coal-burning power. So Seeder has positioned itself as a middle man in the small but fast-growing market for micro-projects aimed at promoting green energy one rooftop at a time. The business model sees Seeder finding companies who agree to have solar energy systems installed on their building rooftops at no cost to them. Seeder then finds third-party investors to pay for system design and installation. The client company’s power bill automatically drops after the new systems come on stream. But it has to give some of that savings back to Seeder, which collects a fee and then passes the rest to the inves-

tor as a form of return. Seeder itself is still very much a seedling and is constantly discovering new challenges to implementing its model. But the business does look highly scalable due to China’s focus on green energy development that should ultimately push thousands of companies to generate more power from non-polluting, renewable sources. What’s more, Seeder’s growing experience will ultimately help it to lower the costs of going green, and to even someday group dozens of small projects into larger packages that would be of interest to big institutional investors. “Seeder fulfills an important role of not only raising awareness of energy management opportunities for multinational corporations operating in China, but also finding practical ways to get the job done,”

July/August 2016

By Doug Young

C OVER S T OR Y

said Tienyu Sieh, CEO of Blue Sky Energy Asia, one of Seeder’s funding partners that looks for energy management projects throughout Asia.

China’s degrading environment While many entrepreneurs set their sights on China from early in their careers, Shoer’s decision to come to Shanghai was a bit more the product of happenstance. After working at a big U.S. investment house for two years in structured finance, he decided he wanted to channel his skills into the budding field of green energy generation. His interests in microfinance and poverty alleviation, and desire to work abroad, led him to China in 2011. The country’s advanced state of environmental degradation left a strong impression and prompted him to decide to stay in China and cancel his return ticket to America. After two years as a consultant, he set up Seeder in late 2012 and has currently built up a team of 12, including eight full-time employees, working out of the naked Hub, a trendy warehouse-style shared office space for entrepreneurs in the former French Concession area. Reflecting Shanghai’s own international flavor, Shoer’s team is quite multinational, with employees from the U.S., Belgium, Sweden and Taiwan, in addition to five local Chinese. Shoer said setting up a company like Seeder in China poses a number of unique challenges for

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Doubles as a power station

foreigners. “The key factor is finding a local co-founder,” says Shoer, an Atlanta native whose challenges over the last two years show up just slightly over his youthful looks at the age of 29. “Setting up your corporate structures early is important, and so is using the resources available.” After trying a few different models, Seeder finally settled on its current approach of designing rooftop solar power generating systems, mostly for multinational corporations in China and local Chinese factories that sell to the big MNCs.

ban market in China’s biggest population centers, where an average project is more likely to generate about one megawatt of energy each year and cost around RMB8 million ($1.2 million). In a typical project, Seeder first

Going green China has embarked on an ambitious program to build up its green energy sector in a bid to clean up the nation’s polluted air and foster high-tech industries that can someday become global leaders. Much of those efforts have been focused on clean energy cars and construction of massive solar and wind power plants, many supplied by local turbine makers and a domestic solar panel manufacturing sector that now makes more than half of the world’s output. Most green power plants cover large areas in remote parts of interior China that get lots of sun or wind. Many of those typically generate dozens of megawatts of power each year, with one megawatt typically enough to power 1,000 homes and costing millions of dollars to build. By comparison, Seeder is eyeing a much more ur-

Alex Shoer

identifies a client and works out the structure of a deal, including the costs of installing a solar system and subsequent energy savings. Projects also generate income from government subsidies derived from selling excess power they generate to the national grid. Companies must agree to 20-year contracts, and can typically lower their energy bills by 10 to 15 percent. After all the numbers are crunched, Seeder finds an investor to finance the project and brings in the actual contractor to supply and install the equipment. Most investors so far are based offshore, though interest from locally based financiers is growing. The whole process typically takes around six months, though Seeder hopes to reduce that time as it becomes more experienced.

Pilot project complete Seeder has completed its first pilot project in Beijing, giving it the experience to embark on others using a similar model. “The first pilot took a lot of time,” Shoer said. “We had to figure out the subsidies, apply for approval from the state grid and so forth. But now that we’ve finished the first pilot in Beijing, we’re moving forward with

some other clients.” Seeder currently has about 10 megawatts of projects in the pipeline, about half of those in Shanghai and surrounding Jiangsu and Zhejiang provinces, where costs tend to be highest and clients are therefore most eager to look for ways to save money. One of Seeder’s early obstacles was simply finding financing, since it was working with a largely unproven business model and the company itself was new. What’s more, the relatively small size of its projects at around US$1 million apiece was unattractive to many investors who often look for much bigger targets. To bridge the gap, the company has raised about $500,000 in venture capital since its inception. One of its earliest investors was SOS Ventures of Ireland, while one of its largest backers has been Skywood Capital, a U.S. fund backed by Chinese capital. Funding is less of a problem these days as Seeder gains more experience and meets more potential investors for its projects. Its growing momentum owes in no small part to the relatively generous returns it can offer investors.

Suning deck

Shoer said his current projects can generate returns of around 10 to 12 percent, versus client requirements of around 8 to 10 percent. He added the high risks associated with China make the required rate of return in China quite a bit higher than more mature markets like Singapore, where a six percent rate might be considered acceptable. Shoer hopes to generate even more money for Seeder and its investors by lowering the costs of installing new systems, which should be possible as he gets more experience and can get bet-

ter deals from his various designers, suppliers and construction partners. “At the end of the day, one of the key areas for a foreign company to succeed is finding a specialty area where it can provide benefits that clients might otherwise be unable to get,” Shoer says. “Look at what the government is supporting and what the market needs. The key is moving fast, sticking to your value proposition and being collaborative. Our goal isn’t to compete with people doing this good stuff already, but to work with them.” I

C OVER S T OR Y

FEATURES

From Consumer to Generator Most businesses would consider themselves

process in around a week. But it can take up to two

power consumers rather than generators, but playing

months in some smaller cities with less experience.

the role of the latter is a key component of Seeder’s

Those times are expected to come down as grid oper-

business model.

ators throughout China become more familiar with the process, says Shoer.

tor, a massive state-owned company, is a bureaucratic

“Selling back to the grid is a lot of paperwork, but

process, especially in smaller cities that don’t have much

you have to do it to get the subsidy,” he says. “They have

experience dealing with small private firms like Seeder.

to come onsite to approve everything.”

But power sales to the grid are critical to making Seed-

Dealing with such bureaucracy is necessary be-

er’s financial model work, since such sales generate

cause the rewards are also big. Seeder and its clients

more than twice as much revenue as traditional power

get 0.4 yuan for each kilowatt hour they sell back

sales after government incentives are added in.

to the grid, which is what traditional power typically

Within the broader process of setting up a roof-top

costs, plus another 0.42 yuan as a government subsidy.

solar system, getting the necessary connections to the

Of the total power generated through a rooftop solar

grid can take big chunks of time. The process is rela-

system, a typical company would consume about 80

tively fast in big cities like Shanghai, where the gov-

percent for its own needs and sell the remaining 20

ernment is more experienced and can complete the

percent to the grid.

July/August 2016

Selling excess power to China’s national grid opera-

China’s Crafty Imports China’s emerging craft beer market is creating opportunities for entrepreneurs By Kathryn Grant

www.amcham-shanghai.org

hina is now the world’s largest beer market, accounting for a quarter of global beer volume. Eighty percent of the industry is controlled by five major Chinese beer-producing companies, including the world’s best-selling beer brand, Snow, according to a Reuters study in 2015. But rising incomes and a growing middle class are also leading to a heightened interest in craft beer. Premium beers are expected to make up over a third of China’s US$80 billion beer market by the end of the decade, and the number of brewpubs in Shanghai alone has tripled since 2010, creating a niche market for people who enjoy more flavorful brews – and for those entrepreneurs who want to sell them. Gary Brown, co-founder of craft beer import company Top Shelf Asia, saw the potential of this niche market in 2012. He moved here from South Africa in 2001 with another U.S. company and quickly became tired of the lack of variety in imported craft beers. “I sensed an opportunity to get into a burgeoning market at the beginning and just got right into it,” he says. “This is still a young industry with great growth potential and a strong growing customer base.” Top Shelf Asia now imports craft beer from America’s Rogue Brewery, Tuatura of New Zealand, BrewDog of Scotland and the German brewer Merchant & Co. “We are very selective in the brands we represent. We look for breweries that want to be in China and that we feel the Chinese consumer

would want to see in the market,” says Brown. Today, his company distributes to outlets in Shanghai, Beijing, Guangzhou and most second-tier cities in China. He counts over 500 bars, restaurants and grocery stores as clients. “We are not about acquiring as many brands as we can into our portfolio. We want to ensure that we will be able to devote the time and resources needed to grow the brand label and accompanying market share. When we take on a brand, it’s for the long term,” he says. Top Shelf Asia exclusively imports and distributes their own brands and works closely together with the craft breweries abroad to meet their objectives for the China market. They distribute to Western-style bars and restaurants in Shanghai including Liquid Laundry, Olé Supermarket and Funkadelino. Brown describes craft beer as anything brewed in batches with fine quality ingredients and made on a limited basis or seasonally. Imported beers such as BrewDog and Tuatara have a much stronger flavor than mass-produced beers such as Tsingtao. They usually include a higher amount of hops [the bittering agent in beer production] and often have higher alcohol levels. Brown’s success in China as a craft beer enthusiast-turned-entrepreneur is not unique, as middle class Chinese consumers are increasingly looking beyond mass-produced local beers to imports and local craft beers. Sales of imported high-end beers such as “Shakespeare Oatmeal Stout” and “Punk IPA”

saw a 60 percent jump in 2015, Reuters said in a report. The Chinese middle class includes many young, affluent professionals who are willing to spend money on overseas brands and who in many cases have been educated abroad and understand the tastes of many different countries. “The popularity of craft beer in China is another sign that people are upgrading their lifestyles and experiences,” says Brown. “For an increasing number of people Carlsberg just doesn’t cut it anymore. China’s market is so vast that a small shift in a different direction can open up huge opportunities.” As a foreign entrepreneur in China with a wholly foreign-owned business, Brown says he is exposed to a number of challenges. Starting the business was “extremely difficult,” he says, pointing to the many requirements necessary to legally register a business as a foreign-owned enterprise involved in the import and distribution of alcohol. “Startup costs and investment costs vary per city and even per district within the cities. Of course from an operations side there are also a number of upfront and expensive costs including office space, cold storage warehousing in Guangzhou and Shanghai, delivery vans, staff and of course the actual beer,” he says. Then there are on-going problems such as managing customs-related import issues. “There are a multitude of documents and certificates needed to legally import beer. This can create real challenges,” says Brown. “Different ports require different documen-

tation. We have learned a lot of very costly lessons, but all we can do is learn from our mistakes and move forward.” As with many import companies, Top Shelf Asia also struggles with parallel importers who bring in craft beer through grey channels without paying duties. These grey channel imports often do not obtain government-issued sanitary certificates and don’t use refrigerated shipping or storage, sometimes resulting in off-flavors and contamination. “Those grey companies don’t respect the beers they import, nor the brands. They do not care about quality of the beers and they have a blatant disregard for import regulations and taxes,” says Brown. Further complications include the power that the mass-market beer companies have in the beer industry in China. “They use their superior financial positions to buy taps, control distributors and generally undermine any competition,” he says.

they are craft beer drinkers themselves,” he says. “What’s more, most of the bars we distribute to act as ambassadors for our brands and they are excited to be able to offer craft beer.” Brown is confident that the business will continue to grow as China’s middle class drinkers increasingly reach for beers that offer something different from mass-produced lagers such as Snow or Suntory. Michelle Wang, a craft beer fan from Wuxi who organizes the annual Shanghai Craft Beer Conference, says craft beer represents individuality. “Craft beer has more varieties and personalities – each beer has its own story and people behind it. It’s something different. Amber nectar imbiber

Despite the challenges of running an import business in China, Brown can also point to upsides, including the enthusiasm of his Chinese employees to act as professional ambassadors for the brands. “I have been very lucky with my staff –

C OVER S T OR Y

Movers andFEATURES Shakers

I much prefer the taste of stronger beers to light lagers and it is worth the extra cost,” says Wang. That extra cost can be quite high. The average price of a high-end imported beer is RMB30, around ten times more expensive than China’s cheapest mass-marketed beers. But the willingness to spend more on higher-end beers has attracted craft breweries such as New York’s Brooklyn Brewery, which was one of the first craft beers in the Chinese market when it arrived in 2008. Co-founder and brewmaster at Brooklyn Brewery Garrett Oliver is amazed to see how quickly craft beer appreciation has taken hold in China. “China is a huge market for us and we’re here to stay. People say odd things like ‘Chinese don’t enjoy bitter beers’, but I think this is nonsense,” says Oliver. “Chinese consumers are just like everyone else – there is a process of getting used to a certain taste but the Chinese are very curious about different food and drink.” Brooklyn Brewery’s flagship “Brooklyn Lager” costs RMB35 on average and can be found in most Western-style bars and imported grocery stores in Shanghai. I

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July/August 2016

SCHEDULE

The Doctor’s Assistant Mobile health seeks to remedy some of the challenges facing today’s doctors and patients By Ruoping Chen

What we discovered was that there is one source of information that a patient will listen to and that’s their own physician Martin Shen, CEO of Trusted Doctors

n China, the “uberization” of everything continues. Car owners are equipping their vehicles with multiple car-hailing platforms; homeowners list rooms in their apartments for temporary stays; cooks open their homes to strangers wanting a homemade meal. And now doctors are getting in on the game, providing a myriad of healthcare-related services, all accessible by mobile phone. Companies in the mobile health industry span the spectrum of healthcare-related needs, from ones that book appointments and solicit doctors’ answers to ones offering services tailored for specific diseases. Though the industry’s regulatory

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Martin Shen with employees

framework is still developing, the Chinese government’s attitude of encouragement to doctors to engage in private practice as a complement to their full-time hospital work, combined with the demand by consumers for easy-access healthcare, has boosted growth. Clearstate, a healthcare market research company, estimates that the mobile health industry in China will grow by 60 percent between 2015 and 2018 and become the second-largest market globally. Research firm iiMedia made similar estimations, predicting that the market will exceed RMB10 billion by the end of 2017. One player in the industry is Xingren Yishen (杏仁医生), meaning “Trusted Doctors”, an application that describes itself as a “mobile partner” to the doctors of China’s overburdened hospitals. Its capabilities include an integration with WeChat through which

doctors and patients can communicate, management tools for doctors to track the health and recovery of their patients, and access to the evidence-based clinical resource, UpToDate, as well as China’s leading drug reference database. Doctors can also supplement their income by offering consultation services via the app. The benefit to patients signing on to the feebased VIP service (Trusted Doctors takes a cut of that fee) is that they gain, in China terms, unprecedented access to their doctors. Through the app, patients can talk with their doctors about a range of issues. They can ask follow-up questions after consultations, solicit advice on foods to eat and avoid, and inquire about symptoms, treatment options and prescriptions. As the Trusted Doctors’ WeChat page, asks: Why take time off work or wait hours in line to see your doctor?

App origins Trusted Doctors was founded by Martin Shen, a physician with 18 years of healthcare industry experience. After graduating from medical school in Australia, he joined the Australian Navy, participating in

that a patient will listen to and that’s their own physician. So in 2014, we pivoted to Trusted Doctors,” says Shen. “Our goal hasn't changed.” The decision was a wise one. Months after securing their pre-A funding and becoming Trusted Doctors, Shen and his team secured RMB30 million in A-round funding from Sequoia and, a year later, RMB200 million in B-round funding from FountainVest. Today, over 400,000 credential-verified physicians from mostly public hospitals have signed up and, from a staff of five in 2013, it has grown to a staff of 530, with 34 offices across the country. Shen attributes the success of his fundraising efforts to his team. “At the end of the day, if I look at my angel round, my pre-A round, the main reason we raised funding was really the team. Recognition by the VC that they believed in us and that we would be able to drive the business to completion,” he says.

Raising an army The Shanghai headquarters of Trusted Doctors resembles a typical startup. The brightly-lit open office space is packed with rows of workstations and glass offices. Meeting rooms hug the exterior walls, there’s a small theater-like arena, and pantry nooks where team members can bond over lunch. Stuffed animals and Marvel figurines embellish employee desks. A banner that parodies the typical red-and-white propaganda street banners found around China declares: Xingren’s iron army sweeps away all obstacles, pioneers and breaks new ground, unique to its industry (杏仁铁军杏仁铁军所向披靡开疆拓土行业唯一所向披靡开疆拓土行业唯一). Apart from Shen and a few others in senior management, the employees are fresh-faced in both outlook and age. Shen emphasizes

the need to hire and train the right mix of people from IT and healthcare backgrounds. Instead of delegating hiring to an HR department, every manager is responsible for his or her own team, including hiring, firing and setting goals. Instead of a matrix-type organization, every employee reports to only one boss. KPIs in the traditional sense — measurable functional goals linked to performance reviews — are avoided, as they are seen as a crutch that leads to inefficient organization. “I’ll give you an example,” says Shen. “If you set goals for a developer to have ‘x’ number of bugs and more stable code, the immediate thing that they will do is obviously decrease scope in every version, or need another two weeks to complete. But in the startup world, we’re all aligned together — bugs or what have you are things we all need to avoid.” All senior managers attend new employee training and invest time in their staff’s career development. For some employees, that development opportunity is key to their retention in an industry that, according to Shen, now has over 1,000 companies vying for space and talent. “It’s very free and gives me a lot of personal space to grow,” says Stan Jin, the company’s social media manager, contrasting the work environment at Trusted Doctors with his former work as a local hospital doctor, where he felt confined by a lack of institutional creativity and bottlenecked career growth. “I think hospitals need that innoFrustrated doctor reinactments

July/August 2016

peacekeeping and counterterrorism missions, and worked in the Australian public healthcare system. In China, he worked as deputy general manager of Beijing United Family Hospital before moving into healthcare IT with Computer Sciences Corporation and Siemens Healthcare. Then he started his own company. Shen attributes his decision to leave corporate life and enter the world of startups to two factors. “I was at Siemens Healthcare for almost six years, leading our healthcare IT business. And at that point, I really saw that there must be a better way of doing things,” says Shen. “Looking at corporates, we often have great vision, but not necessarily great execution. And I think that’s where startups have the advantage, being able to be more nimble, more flexible, seeing the opportunity and executing directly. We don’t have the resources that a multinational might have, but we certainly have the enthusiasm and the drive.” The other, bigger motivation came from his father’s pancreatic cancer diagnosis, which personalized the problems in the healthcare industry and drove him to improve the situation. Shen’s choices were either staying at Siemens for another 10 years and rising up the management hierarchy or trying to make a difference by founding a start-up. He chose the latter. Shen’s first company was launched in 2013 under the name Kanchufang (看处看处方), with a mission to democratize healthcare information by creating a patient-driven healthcare management platform — in essence, a community for patients to exchange treatment options and find better answers to their healthcare questions. The company didn’t take off, but Shen learned that despite having an engaged core group of users, the majority of patients showed little interest in proactively controlling their own healthcare. “What we discovered was that there is one source of information

C OVER S T OR Y

Movers andFEATURES Shakers

vative spirit to develop, but at hospitals they will think my kind of creative personality is not professional. Here [at Trusted Doctors] they will support my ideas,” he says. One of those ideas is now a series of viral WeChat videos (WeChat ID: drxingren), produced by and starring Jin, that focus on the daily frustrations and emotions of the hospital practitioner. In one clip, Jin gives humorous examples of the different kinds of patients a doctor is likely to encounter; in another, he waxes lyrical on the importance of the doctor’s pen.

At your service The videos are lighthearted, but they aim to convey the message that Trusted Doctors is a trusted partner. Hunter You, head of marketing and previously at tech giant Alibaba, believes that establishing an equitable relationship with doctors is essential. After joining, he decided to shift the mindset of sales representatives charged with

introducing the app to doctors. “What I discovered from going along to doctor visits with [sales representatives] is that the purpose of our platform is to help optimize doctors’ work. But I discovered that the team members who came from a pharmaceutical or medical equipment background continued to interact with doctors based on how they used to interact — that is, selling them them products,” he says. Today the sales pitch is that of a partner offering a free service that helps physicians manage busy careers. This means conducting regular visits to doctors who have installed the app, so as to be on-call in offering their help and assistance. “Last year, we discovered that just adding new doctors is meaningless because, even though we add new users every day, if you don’t provide additional service and they don’t know how to use it, they will not use it. So we built a new consultant team. Every consultant will be responsible for two hospitals. Their

work is not to add new doctors but to see the same doctor regularly, to teach them how to better use the app, to explain how it can help them,” says You. “In providing this service, the doctors increase their trust in us.” Assessments of the service are conducted regularly. While many competitors outsource their sales teams, Trusted Doctors only uses in-house staff. Progress is monitored and discussed at morning and evening meetings. When problems arise, everyone helps find solutions. Set procedures are used to handle doctor complaints, and recruitment information that is found to be forged leads to immediate dismissal. According to You, the management system gives employees a sense of clarity. “They will know what their values are. They will know what kind of person the company likes, and what kind of person they don’t like. They know how to work so as to be able to develop within the company.” I

Q&A with Trusted Doctors founder and CEO Martin Shen How important is it for a foreign entrepreneur wanting to run a

mated. Whoever said the Internet is cheap is telling lies, because

startup in China to get a Chinese partner?

it’s very expensive to do an Internet business.

I think it’s critical that you actually understand China yourself. I’m the only English speaker in my whole company. I’m not saying

What has been the most difficult part of your job so far?

English language or a predominantly foreigner-based team won’t

Everything’s difficult (laughs). I think driving the business is

be successful in China, but you need to find your niche. If you’re a

hard, I think managing the investors and raising funding is hard, I

predominantly foreigner-based team, and your story is that you’re

think hiring people is hard. When you have no money and you’re

taking on the China market, you may very well have a competitive

hiring people, you’re spending the effort and sharing the dream

advantage, but it will be very hard to get VC funding. So being very

with everybody. Everything is difficult. I won’t single out anything

practical, I think that’s one aspect. But the other aspect is that ha-

as being more difficult than the rest.

ving a local team, a Chinese partner, is essential if you want to do the Chinese market. And to have someone that you work well with.

If you could go back in time and share advice with yourself at day one, what would you say?

What specifically is the greatest value that a Chinese partner www.amcham-shanghai.org

adds?

I probably wouldn’t do it. Even though we’ve probably already gone to the top five or top one percent of startups, to have raised

I think if you want to do the China market, if you’re a foreigner,

the C-round and grown to this stage, the chances of getting to this

you definitely should have someone from the local market part-

stage if I look back are very, very low. And the effort and time that

nering with you, to take the strengths and the weaknesses of both

we’ve spent over those years exceeds massively what you would

sides and meld them together. So I guess I wouldn’t really em-

have expected. So if I had to do this again, I may not have done it,

phasize the China side, I’d more emphasize just finding the right

knowing what I know now. Because your chance of success are

partner. Other than Western and Chinese, I would say you need

not that high. But having said that, if you are going to do it, you’d

industry expertise. And understanding how the Internet works in

better put everything into it, and you’d better prepare yourself for

China is critical. It’s very different. The operational effort that you

the five-, 10-year long timeframe.

need to drive things on the Internet is in no way to be underesti-

Q &A

Nothing Ventured... By Bryan Virasami

There are a lot of good entrepreneurs who have good ideas and technological abilities… but they’re not necessarily good managers

What is Qiming’s overall mission? We help young entrepreneurs to build great companies and at the same time generate substantial returns for our investors. That’s what we do.

How would you assess the venture capital scene in China today and what industries are you looking at? The venture capital business has been growing dramatically since I became part of the business in 2000. In the first half of 2015, it hit a record high. I think it might have surpassed the U.S. I think this year there’s some correction, but overall it’s still happening. Is the economic slowdown impacting Qiming and the wider venture capital scene? We haven’t seen any negative impact just because of the sectors that we focus on [which are] Internet consumer technology, information technology and healthcare technology. More and more people are concentrating on research and development and on innovative technology to get ahead; so our sectors, to a certain extent, are booming. A lot of the traditional business people are selling their steel mills, selling their coal mines and shifting their capital into our sectors, trying to look for Internet, healthcare or IT opportunities. I think we have not seen any slowing down. And as I said, 2015 was a record year for us. If somebody has a good idea for a

new product or service does that also mean they will be a good CEO or executive? Not always, and only time can tell. That’s something that we are very mindful about on a daily basis. There are a lot of good entrepreneurs who have good ideas and technological abilities, who can put the product together and who can get the initial traction, but they’re not necessarily good managers. Some people are naturally smart, and have great ability to work with people and grow with the organization, and some cannot. That’s part of our investment risk. Are there any other qualities that you look for in a good entrepreneur? Passion is very important. Passion to succeed and passion about the business he or she is in. A startup is a long, difficult and sometimes painful journey. People who are truly passionate about what they do are able to do it day in and day out for a long time and excel at it. How deeply involved do you get in the companies in which you invest? In general, we are involved at the board level but not day-to-day operations. Our job is to help the CEO

July/August 2016

any countries set ambitious goals, but China also has a reputation for getting big things done. Today, China has a new plan: to spur innovation and a national spirit of entrepreneurialism. But at least one other company also has bragging rights on this subject: Qiming. The venture capital firm, cofounded by longtime AmCham Shanghai member Gary Rieschel, is behind such notable companies as Xiaomi, Dianping and Bilibili. JP Gan, one of Qiming’s managing partners, sat down with Insight to discuss current trends in China’s venture capital market. Gan debuted on Forbes’ Midas list for the first time this year as one of China’s top venture capitalists and has been on the top 10 list of CBN Weekly for several years. His 20-year career in finance and investment includes five years at the Carlyle Group and also a period as CFO at KongZhong Corporation, a wireless internet technology company. He has also worked for Merrill Lynch and PwC.

to make good strategic decisions and be their advisor and sounding board. Do you think China will produce a game-changing product that will change the world like the iPhone, Coke or Nike? It depends on what you mean by changing the world. Xiaomi is making 60 million phones, some of them as cheap as US$80, and they are selling those phones in rural areas of China. They’re selling those phones in India, in Brazil, to give people who cannot afford an iPhone access to a smartphone and to the Internet. So that’s helping the world for sure. The Chinese government is reportedly pouring billions into startups to encourage innovation. Does that make you happy or worried? We are indifferent. We’ve always been focused on raising private capital from either U.S. or Chinese institutions. Our money does not directly come from government funding. And we try to be as neutral, as market-driven as possible. We very rarely go get government grants. If one of our companies is doing great research and that happens to meet with government thinking, that’s fine, we apply for a grant. But in general, we’re a market-driven venture capital firm.

www.amcham-shanghai.org

But do you think the idea of giving people money to develop startup ideas will work?

Xiaomi phone

It definitely has its merits. Both in the U.S. as well as in China, small and medium enterprises employ the vast majority of the population. So having a lot more smart, hard-working entrepreneurs running small and medium enterprises is good for the economy. If the government can help, it’s also probably good. But to a certain extent the better way is to use more marketdriven measurements to lower income tax, lower VAT tax and reduce bureaucracy, and these probably will help more, but whatever it takes. What do you look for in an idea that’s worth your investment and time? The first thing is the overall market environment or the industry that we invest in. When Qiming chose to invest in China many years ago, I moved to Asia in 1999 and Gary moved to Shanghai in 2005. So we think China is a great place to invest as a venture capitalist because by definition venture capital needs growth and we have seen tremendous growth in China in the last few years. Double digit GDP growth for 30 years. In the last 20 years, one is the Internet. The Internet went from narrowband to broadband Internet and then to mobile Internet. And in the past 10 years the smartphone has become a phenomenon. [It also] comes down to a specific company or its technology, whether it’s a smartphone technology or a mobile app. The third thing is entrepreneurship. My friends in America think entrepreneurship in China is widespread and everybody in China wants to be rich. There’s no lack of trying, so the entrepreneurship spirit is widespread here. We look for people who have passion for what they do and have the commitment and persistence and the technical knowhow and execution capabilities. How does a company like Qiming hear about investment opportunities? We do both a top-down approach and bottom-up. We try to identify big trends early on, whether it’s smartphone penetration or younger people enjoying games. We focus on three primacy sectors, and one is

JP Gan

what we call ‘intersumer’ – it’s a combination of Internet and consumer; two is healthcare, including healthcare service, healthcare technology, diagnostics equipment, pharmaceutical products; and three is IT and also environmental technology. Within each of the major areas, we’re constantly looking at new trends, new technology changes, new innovation. So when we do the top-down approach, every year we will identify a number of key sectors that we will be focusing on and then we will go look for either the first movers, the early movers or the market leaders in each of the areas. You have experience in the United States. How does the U.S. compare to China when it comes to risk mitigation and deciding where to invest? In the U.S. I think the overall judicial system is more transparent and more straightforward. But here we try to avoid getting into any judicial disputes, if you will, before we invest. People in our industries, in the technology industry, are in general honest, straightforward and genuine. We have invested in many so-called returnees, people who are educated overseas and work for multinationals and are returning to China. Those people tend to have very good ethics and are very straightforward. We are very careful about who we work with. We do a lot of due diligence before we get into an investment relationship. I

POLICY PERSPECTIVES

New Container Weight Verification Rule

O Daniel M. Krassenstein

Dan Krassenstein is a global supply chain executive with over 30 years of experience in manufacturing, trading and logistics in Asia, Latin America and the U.S. He is Director Asia Operations for Procon Pacific LLC, which is the largest importer of FIBC (Bulk Bags/Industrial Textiles) from China to North America for the chemical, agriculture, mining and food industries.

n July 1, a new global shipping rule goes into effect, which has the potential to disrupt your supply chain. The shipper must now validate and declare a container’s weight before the carrier will accept the cargo. Otherwise, your shipment can be rejected – causing delays and costs. Are you ready? AmCham Shanghai members involved in international trade must be fully prepared in order to avoid shipment delays. The forwarders and ocean carriers play a key role in the education process and should be consulted to ensure the shipper is compliant. My preferred source of information is a special section dedicated to the IMO Container Weight Rule on the Journal of Commerce’s website http://www.joc.com/specialtopics/container-weights (While it may be behind a pay wall, keeping aware of the ever-changing rules/implementation may outweigh the small subscription cost plus it’s an excellent international trade journal in its own right.) Ultimately, the shipper (often defined as the legal exporter of record) is responsible for ensuring that the VGM is accurate. Thus, if you are a U.S. exporter selling product to China, then you are legally responsible for verifying the gross weight of that container. On the contrary, if you are a U.S. importer buying product from China, the seller in China who exports the product is legally responsible. However, bear in mind that if the Chinese factory is lazy or incompetent and declares a false weight, you may pay a steep price, as there could be inordinate delays caused by the port rejecting the container until the container is re-weighed and a new VGM declaration is transmitted. Do you really want to take that risk? I didn’t think so.

IMO SOLAS VGM Some background: The International Maritime Organization (IMO) is a specialized agency of the United Nations

and is responsible for regulating shipping. The IMO develops and maintains a comprehensive regulatory framework for shipping; including safety, environmental concerns, legal matters, technical co-operation, maritime security and the efficiency of shipping. The container weight mandate from the International Maritime Organization under the Safety of Life at Sea (SOLAS) convention comes after mis-declared weights contributed to maritime casualties such as the breakup and subsequent beaching of the MSC Napoli on the southern U.K. coast in 2007 and the partial capsizing of a feeder ship in the Spanish port of Algeciras in June 2015. The IMO’s Maritime Safety Committee (MSC) approved changes to the SOLAS convention regarding a mandatory container weight verification requirement on shippers. It will require verification of container weights, Verified Gross Mass (VGM) before containers may be loaded aboard ships and will become legally binding on July 1, 2016. Whilst the IMO has the authority to make this rule, the actual implementation and enforcement may not only vary from country to country, but could also potentially be handled differently by different ports within the same country, or even amongst different terminals within the same port. Shippers are nervous, as they still don’t know if they should pay to use the port’s truck scale to weigh their laden container, or if they should buy a “weighbridge” truck scale for their factory and weigh it themselves (referred to as Method 1), or continue with what most factories have been doing, which is weighing each pallet individually, adding them together and then adding to that the tare weight of the sea container (referred to as Method 2). As of this report, any of these methods are deemed acceptable. After you determine what the VGM you will declare is, you still must find a

method to transmit this weight declaration to the ocean carrier. There are many service providers who offer a platform to submit the VGM information. One such provider is called “CargoSmart,” and they report that their platform is fully compliant and several major forwarders have reportedly confirmed their intention to use that platform for submission. Per CargoSmart’s own statement: “Weighing services, weight accuracy tolerance levels, cutoff times, and penalties for non-compliance vary by country, terminal, and carrier, making it challenging for shippers to prepare their weighing, verification, and processes in time for the implementation date,” CargoSmart noted. “Each steamship line has its own procedure to receive the VGM,” said Rei Goshima of Nippon Express USA’s ocean cargo division. “CargoSmart has one window to submit the VGM, making it easy and simple to comply by the implementation date. CargoSmart’s solution allows Nippon Express to collect the weight information from its customers and other weighing parties and to have visibility to the status of the required data before submitting the VGM to its carriers.” Maersk Line, one of the largest container lines in the world, is worried about keeping global supply chains intact during implementation. The Journal of Commerce quoted Maersk Line’s Chief Commercial Officer, Mr. Vincent Clerc, as anticipating a bumpy six months, and there’s a need for global coordination and alignment on how to implement the VGM rule. Finally, I recommend you watch this three-minute animated explanatory video (VPN needed) from global transportation and logistics integrator Kuehne & Nagel, which succinctly explains the new VGM rule – enjoy the show! https://youtu.be/hPcjXzL5clI I daniel.krassenstein@outlook.com

July/August 2016

By Daniel M. Krassenstein

U.S.-China Relations, an Update By Ian Driscoll

Susan Shirk previously served as deputy assistant secretary of state (19972000), responsible for U.S. policy toward China, Taiwan, Hong Kong and Mongolia. She answers questions www.amcham-shanghai.org

about U.S.-

China relations, Chinese

Chinese foreign policy under President Xi has arguably been more robust than under President Hu. Is this a reflection of personality types or is it a result of China having reached a position of economic and military strength such that it can now be more unyielding? As a rising power that’s improving its economic, political and military capabilities, it’s natural that China would have ambitions to exercise influence and leadership regionally and globally. So I think it’s a combination of increasing capabilities and Xi Jinping’s own aspirations for China. There is no reason for the United States to fear this or to see this in zero-sum geopolitical terms. If China exercises influence in a way that provides public goods that are welcome by other countries and if it opens economic opportunities to others rather than monopolizing them, then great; we will all benefit from that.

foreign policy and the Chinese economy.

China’s claims in the South China Sea look set to put it on a collision course with the U.S. Is there a way to resolve the broad issue without

armed conflict but which leaves both sides content? Unfortunately, the disputes over maritime territory and navigation rights are becoming a defining feature of U.S.-China relations. It’s a dangerous situation and it’s not in China’s national interest to elevate the South China Sea issue or other maritime claims above its own national security. It’s a formula for continued friction with its neighbors after decades of working to reassure them that it’s not a bully. China is subverting that earlier effort to reassure its neighbors that as it gets stronger it’s not a threat to them, and secondarily it’s bringing the U.S. military into the region in a way that appears to be the opposite of what China might have hoped. So it seems very counterproductive. It also raises troubling questions about China’s character as a rising power and its intentions. Is its expansive claim in the South China Sea about force projection? Why is it willing to pay the cost of damaging relations with neighbors and causing them to try to join the U.S. in a coalition to restrain China or to balance China? It seems perverse

and counterproductive. This is why the South China Sea is so troubling. It’s not only because the U.S. cares about the South China Sea or the principle of freedom of navigation – it’s because it raises perplexing questions about China’s intentions and character as a rising power. Some commentators view the U.S. response to the AIIB as a misstep. Do you think the U.S. should have been more collaborative at the outset? There is a consensus among the China policy community that the U.S. response was a mistake. It was a mistake because it made us look pathetic and insecure. My view is that China is inevitably going to be more ambitious so it’s natural that it would want to take initiatives and take leadership in certain areas. From the standpoint of the United States, I think we should welcome China’s leadership in economic diplomacy and I would much rather see leadership in economic diplomacy than see efforts in arms races and territorial claims. By and large it was a positive initiative that we should not have reacted negatively to.

Movers POLICY and PERSPECTIVES Shakers

How would you critique the Obama administration’s handling of U.S.-China relations? Where have things not gone as well as you might have expected? They have made the appropriate adjustments to these changes in China’s behavior. They have done it in a cool-headed way, not in an emotional way, and with recognition of the stakes involved in retaining a decent relationship with China while also being increasingly willing to impose costs. We saw this with cyber sanctions, and I think that message was communicated loud and clear and actually achieved results. The more we can cooperate on things, the better. Look at the mutual compromises that were required to handle the penalties the U.S. Commerce Department imposed on the Chinese firm ZTE that had violated our Iran sanctions. Our Commerce Department and ZTE did a really good job at negotiating how ZTE could correct its behavior that involved ZTE firing its top executives and the Commerce Department delaying the penalties while it watched to see if ZTE had cleaned up its

act. And that’s in the face of a political environment in the U.S. where, because of the souring of public and congressional opinion on China, it’s not that easy to work things out. How do you think the next administration, regardless of who is in the White House, will approach U.S.-China relations? Will some changes be inevitable? Will we see increased calls for more “reciprocity” by the U.S. government? Our efforts to engage China over 40 years, since the Nixon administration, have been successful for both parties. But some things have changed recently in China’s international behavior and in its domestic behavior. First is the priority on maritime territorial issues that damages China’s own national security. Second, the discrimination against foreign firms in the service of building national champions and becoming an innovative power, this after years of being relatively open to foreign companies operating in China. Third is the increasingly repressive political situation that looks like it’s going backwards to Mao-style governance. These changes call out for some modifications in our approach to China. I think you see the modifications starting already in the Obama administration and I suspect they will continue. It’s basically a tougher approach and a willingness to impose costs if we feel our interests are severely harmed as well as considering ways of applying the principal of reciprocity. We’re not throwing out engagement, and on the global level, on global governance, we don’t really have any big problems. Things are going pretty well and we should just do more of the same. What role should the business community play in U.S.-China relations? If you think that role is not being realized, why is it? It would be good for the business community to try to develop some common front in its approach to China. I understand why they often depend on the U.S. government to defend their interest, but I think a sector-by-sector approach might not be a bad idea. Businesses are competing with one another but they also have some common interests. American businesses are great models in China for corporate governance and corporate social responsibility; I think they

have really had positive impacts. It’s part of our soft power. The United Kingdom appears willing to placate China in order to win business. Do you think this approach may prove short-sighted? I was recently in Oxford talking with Europeans about China policy and I got the impression that the tide may be turning. European firms are just as frustrated with market access problems in China as American firms are. So while on the one hand they would like to attract more Chinese FDI, they are feeling frustrated and resentful at the difficulties that their firms are facing in China. It was interesting that Angela Merkel started talking about reciprocity when she was here [in China] last week. Several of the European countries, but particularly the U.K., were punished for meeting with the Dalai Lama. What I found unfortunate was the effort to ingratiate themselves with Beijing after being sent out to the diplomatic and economic wilderness because of meeting with the Dalai Lama. That reinforces China’s inclination to leverage its market power in the world to achieve political objectives on its own, but it’s not the way a great power like China should be behaving. So by playing the game you reinforce that. One outcome of Chinese economic planning is GDP targets, yet many economists see the current target of 6.5 percent as unrealistic. When do you think China will abandon these targets? I thought they would have abandoned them way before now. GDP targets are a legacy from Soviet-style central planning and they lead to so many distortions in the economy. The [focus on] quantity of growth is neglecting quality of life issues like environment and health. Focusing on GDP targets gives local officials the wrong incentives for promotion. It was considered a huge step forward to provide a range for the target in the new five-year plan, but I think they ought to just give up the target and let the market determine the growth rate. At best, China’s commitment to SOE reform seems weak; at worst, the country appears bent on creating stateowned behemoths rather than letting

July/August 2016

Some voices have suggested that One Belt, One Road (OBOR) is a tool for talking up slack in the SOE sector. A more positive view is that it will help the development of China’s interior and improve its relations with Central Asian states. How do you view OBOR? I think it forwards both goals from their standpoint. I see it as one of those economic diplomatic initiatives which can have some positive contributions to public goods in the region beyond China’s borders. If it’s welcomed by China’s neighbors, it should be fine with us; and I don’t think the United States should frame it in a primitive geopolitical competitive framework. The diplomatic objectives are real because China found itself without many friends in its own neighborhood. This is an effort to cultivate new and friendly relationships, especially in central Asia which is not a region where the U.S. has strong strategic interests. There’s no reason that this should be viewed as a problem from the U.S. perspective. I think the Russians view it as more of a problem because it is their traditional sphere of influence, but right now they are being polite about it in order to maintain good relations with China.

www.amcham-shanghai.org 20

the market allocate resources. Is the government serious about economic reform or is it determined to create a dirigiste state? In recent days it looks like people in the leadership have different views about economic priorities. There is great worry about a financial crisis and slowing growth; about how you keep the economy growing and create jobs and maintain social stability and middle class support for the Chinese Communist Party. One camp says that China can’t afford to take any risks by major economic reforms at this point – we just have to keep the economy humming along by some forms of stimulus – and another camp says that this approach will increase the debt problem and make matters worse in the long run, so we have to bite the bullet and undertake structural reform. Pretty much all outside observers of China’s economic policy making are disappointed with the pace of implementation of the Third Plenum commitments. The SOE reform package was very flimsy and not substantial. Important things like fiscal reforms and [changing] the relationship between center, province and locality, which should be a very important part of motivating lower level officials to get behind the next wave of economic reform, just haven’t been done. It’s an interesting paradox because Xi Jinping is supposed to be such a strong leader but he made these big commitments in the Third Plenum that haven’t been fulfilled. It raises questions about how serious an economic reformer is Xi Jinping. Is it really just the opposition of vested interests that’s the problem? Xi hasn’t taken any actions that are politically costly to himself to achieve economic reform. He has put his energies more into military reform than economic reform. But he appears to want the party, not the State Council, to lead the economic reform. Maybe he’s just become a bottleneck because of not having

sufficient time and attention to put into it. Another possibility is that he just isn’t that strongly committed to market reform. Right now there seems to be a premium on control across the board. Looking ahead five years or ten years, what do you think Chinese economic policy makers should be most concerned about? The quality of growth, quality of life and income distribution. Also, keeping the door open. Deng Xiaoping had such foresight and courage to not just introduce market reform but also to open China to the global economy. And obviously once the walls came down China really took off and that has been hugely beneficial to Chinese economic modernization. The highest priority should be to not start putting walls up again in the service of protectionism and social control. The growth of a middle class is often associated with calls for greater rule of law. Do you think this will be the case in China, or do you believe that China’s economic and political development trajectory is set to follow a very different path from Western and Asian democracies? I do not think China is immune from the imperatives of economic modernization and political change. I don’t think that China is exceptional, and I don’t buy the arguments about scale. I think China is a very large country and should therefore probably adopt a federal form of government; we have other large countries that are federal democracies. If you look at the growth of the middle class, especially in Asia, such as the transformations in Taiwan, Korea and South East Asia, I believe that it means that sooner or later, China is going to experience the same kinds of middleclass demands. We recently observed how the middle class was very upset when the middle-class fellow was abused by the police in Beijing. You’ve got the middle class speaking out about the need for

people to have oversight over police. Also the environmental movement is a kind of middle-class demand for better quality of life and health. I’m pretty confident that the same pattern will occur in China. It’s slower than we anticipated, for sure, and it’s a really interesting puzzle for social scientists to explain why it’s been slower. What is it about the nature of the Chinese political system that is so resilient? [After China’s opening up] people were so busy improving their living standards and were basically satisfied with the government because their living standard was so much better. They weren’t demanding anything more than that. But now there are a lot of quality of life problems, with the environment, health, education, etc. That’s why Xi Jinping and his colleagues are extremely anxious – because they look out and they see a society that’s been so dramatically transformed over the past 35-40 years and there are no precedents for Communist party rule of this type of open market society. I Susan Shirk is Research Professor and Chair of the 21st Century China program at UC San Diego. She founded and continues to lead the Northeast Asia Cooperation Dialogue, an unofficial forum for discussions of security issues. She is the author of China, Fragile Superpower and other books. http://china.ucsd.edu/

POLICY PERSPECTIVES

China Removes Parcel Tax for Cross Border E-Commerce Retail Imports By Jake Liddell

Jake Liddle is an editor at China Briefing, a subsidiary of the foreign investment consultancy firm Dezan Shira & Associates.

Level

Item

Books, newspapers and magazines, computers, digital and video cameras and other household appliances, food and beverages, gold and silver, furniture, toys and games, holiday and entertainment items.

Tax

15%

Sports equipment (excluding golf equipment), textiles and clothing, television recorders and other such devices, bicycles, and other items not listed under the 15% or 60% categories.

30%

Tobacco, alcohol, jewelry, golf equipment, watches, cosmetics and perfumes.

60%

Implications for the cross border e-commerce industry Before the adjustments to the parcel tax scheme, imported goods that were sold via online cross border retail sites were classed as per-

sonal postal items and were subject to a comparatively lower rate of about 10 percent for goods less than RMB1,000 in value. Taxes amounting to under RMB50 were also waived as an incentive for exporters selling general consumer goods to China. Under the new tax scheme, such goods are treated in the same way as ordinary imported goods, subject to import value-added tax (VAT) and consumption tax, which vary according to type of commodity. However, consumers can still enjoy a 70 percent discount on import taxes for single cross border e-commerce transactions amounting to under RMB2,000 (RMB20,000 for transactions per year). Certain low priced consumer products, such as food and baby products, as well as luxury products valuing above RMB2,000, are to be most affected by this adjustment to tax rates. For example, before the change of policy, the price of a popular German branded baby formula was about RMB258. After the adjustment – where tax exemption on items amounting to less than RMB50 no longer applies – it will be subject to a tax of 11.9 percent, making the total cost RMB289. However, commentators note that e-commerce giants like Tmall and JD.com will likely absorb the tax rise of certain commodities, squeezing profits to increase competitive edge. And where some consumers will lose the desire to buy, the industry will benefit in the long run: previously, some online importers took advantage of the parcel tax to avoid taxes. Conversely, given proper pricing strategies, the costs of selling higher priced products (below RMB2,000) such as cosmetics, clothing and electronics might fall. For instance, a foreign cosmetic product priced at RMB600 was subject to a 50 percent

parcel tax before the tax reform (tax payable was RMB300). After the adjustment, the product can enjoy a 30 percent discount on import VAT (17 percent) and consumption tax (30 percent), making the tax payable total RMB197.4. Following the tax rate adjustment, the Chinese government issued the “Cross Border E-Commerce Imported Goods List” to clarify what types of goods can be imported under a cross border e-commerce model. The 23page “positive list”, covering a broad range of products from toys to household appliances, serves to limit foreign manufacturers who use cross border e-commerce as a tax-free channel to export raw materials to China. Customs clearance times for items found on the list will be substantially reduced, allowing goods to reach customers within one to two weeks versus the previous several months. The positive list largely details milk products, healthcare products, alcohol and cereal.

What is the impact on importers? Where consumers are able to enjoy reductions to tax rates, the overall tax burden will be passed onto importers and retailers, in which the rate will increase almost certainly to more than 10 percent. As for the limitations of the positive list, for products not listed, the regulation is unclear and left to interpretation. The main impact these regulations have on importers is the retail price of commodities. Consumers will not always be deterred by higher prices, as trust and availability will take priority in consumer decisions. Some products will encounter greater obstacles to accessing cross border e-commerce sites as a retail model. I

July/August 2016

he China General Administration of Customs (CGAC) has made significant changes to preferential tax policies applied to cross border e-commerce transactions by adjusting tariffs on imported goods. The policy, which took effect April 8th of this year, adjusted the Classification Table and Tax Tariff List of Imported Goods issued in 2012, and was implemented with an aim to level competition between online platforms and traditional brick and mortar import stores. The adjusted parcel tax scheme now only applies to goods for personal use of value exceeding RMB5,000 brought back into China by Chinese nationals, and RMB2,000 for non-residents. Anything below these values is tax exempt. In addition, tax brackets have been reduced from the four levels of 10, 20, 30 and 50 percent, to three. The below table details the new scheme:

2016 S&ED Wraps, Future Uncertain By Trevor Clark

he final U.S.-China Strategic & Economic Dialogue (S&ED) of the Obama Administration ended in Beijing on June 8. The S&ED, which takes place every spring/summer, is one of the key high-level bilateral engagements between the U.S. and Chinese governments. The 2016 dialogue also served as a prelude to the final scheduled bilateral meeting between Presidents Obama and Xi on the sidelines of the G20 Summit in September. President Obama and then-President Hu Jintao announced the formation of the S&ED in April 2009, with the first summit held in Washington, D.C., in July the same year. The S&ED was born of previous dialogues focusing on security and the economy started under U.S. President George W. Bush and President Hu, and was envisaged as a mechanism to increase and improve communication between the world’s two largest economies. 2016 marked the eighth round of the S&ED, with the U.S. delegation led by Secretary of State John Kerry and Treasury Secretary Jacob Lew, and the Chinese delegation headed by Vice Premier Wang Yang and State Councilor Yang Jiechi. According to reports, the two-day dialogue brought together some 400 government officials from dozens of ministries and departments on both sides. A number of announcements and policy outcomes were released at the conclusion of the dialogue, chief among them that China would submit a revised negative list as part of the ongoing U.S.-China Bilateral Investment Treaty (BIT) negotiations when its negotiators visited Washington, D.C., in mid-June.

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Key takeaways

The U.S. and China jointly reaffirmed numerous previous commitments and set out new commitments to both better facilitate trade between the two countries and increase regional stability. Among the key economic takeaways, both countries agreed not to use “nationality-based conditions” on procurement or sale of

information and communications technology (ICT) products. China’s use of “secure and controllable” technology, typically regarded as the favoring of domestically-produced technology products, has been consistently highlighted by foreign businesses in China as a key impediment. China also committed to expanding access to its financial services sector for American companies, including designating banks in the U.S. as RMB clearing banks, expanding the RMB Qualified Institutional Investor (RQFII) quota, and gradually raising the permitted equity cap for foreign financial services firms in the securities and mutual fund sectors. China also noted that “there is no basis for a sustained depreciation of the RMB” and said that it plans to continue to address industrial overcapacity. On security, the U.S. and China both committed to fully implement sanctions imposed on North Korea by the UN Security Council earlier this year. They also agreed to expand and enhance cooperation, particularly on food security and sustainable development in Afghanistan, Timor Liste and Africa. Notably absent, however, was any mention of developments regarding the South China Sea. This topic, which has dominated headlines and the bilateral relationship over the past year, was not listed in the U.S. State Department’s S&ED outcomes document. The U.S. also announced that it will host the 2017 U.S.-China Climate Leaders Summit in the summer of 2017. A number of environmental commitments were also announced as part of the strategic track. There were no breakthroughs announced during this year’s dialogue, nor were any expected in light of the upcoming bilateral meeting between the two presidents in September on the sidelines of the G20 summit in Hangzhou. Any significant announcements will likely be made then.

Bilateral investment treaty progress As promised by the Chinese during the

S&ED, a revised negative list, which outlines what industries a country considers off-limits to foreign investment, was delivered by Chinese BIT negotiators during their visit to Washington, D.C., in mid-June. According to a statement given to Reuters, the U.S. Trade Representative said the BIT negotiations “continue to be productive.” Reports have also indicated that China’s revised negative list was “encouraging,” though details about what changes have been made and what sectors may be opened under the new list were not released to the public. Most analysts believe that any substantial progress towards passing the BIT is unlikely during the last months of the Obama Administration, with resolution likely years, not months, away. This is especially true given the slow progress the Trans-Pacific Partnership (TPP) — a twelve-country trade agreement agreed to earlier in 2016 — has made towards approval by Congress. Many observers expect the Obama Administration to make the passage of TPP a key priority during the final months of the President’s term. The TPP is unlikely to pass before the November presidential and congressional elections, and will likely occupy a large portion of Congress’ time during its lameduck session in November and December.

The last hurrah? With the upcoming presidential election in November, and a new U.S. President taking office in January 2017, there is uncertainty about the direction, or even the likelihood, of a ninth S&ED. Some commentators have questioned the usefulness of the S&ED in the bilateral relationship. Others suggest that the new administration should modify the S&ED to make it more effective. Regardless, the necessity for high-level engagement remains. Given the rhetoric on China from both sides, however, questions about the tenor of the conversation under the next administration will remain. I

WEâ&#x20AC;&#x2122;VE DONE SOME REMODELING

Find all of Insight at our new address: http://insight.amcham-shanghai.org

PRESIDENT’S NOTE U.S.-China Relations Has Many Dimensions

Kenneth Jarrett

www.amcham-shanghai.org

President of The American Chamber of Commerce in Shanghai

Elsewhere in this edition of Insight, Board Chair Ker Gibbs writes about the opening of Shanghai Disney, a milestone for Shanghai and the Walt Disney Company that has been long in the making. The park is important, and not just because it is one of the largest U.S. investments in China. Rather, the real significance of the park rests with its being a place where millions of Chinese will be exposed to the story-telling magic of an iconic American company. Viewed from this perspective, Shanghai Disney serves as an example of how American business strengthens people-to-people ties between our two countries. Disney, of course, is not the only such example. Nor is American business the only contributor to the strengthening of people-to-people ties between our two countries, although it may play the biggest such role. Education is another force that helps bring our two countries together. The presence of thousands of Chinese students in the United States is a well-known fact. Less known is the growing presence of U.S. universities and educational institutions here in China. I recently attended the 30th anniversary of the founding of the Hopkins-Nanjing Center, an educational experiment started in 1986 between Johns Hopkins University and Nanjing University. The Hopkins-Nanjing Center brings together American and Chinese students who live and study together in an intimate environment. Over the years, nearly 3,000 students have attended the program. I was fortunate to have been a student at the Center during its early years and can attest to the value of the program. Not only must the American students take classes and write papers in Chinese, but they are also paired up with a Chinese roommate. The opportunity to live and study in such close proximity to Chinese classmates makes the Center a special place. Classrooms are just one venue for learning, as the entire Center is a place where one learns about Chinese life and culture all day long. To this day, my understanding of things Chinese owes much to my time at the Center. Here too, the Hopkins-Nanjing Center is not alone. Just in Shanghai and the nearby Yangtze River Delta, there are several American university campuses: New York University Shanghai, Duke Kunshan,

and Kean University Wenzhou. There are multiple business school programs and at least one private U.S. secondary school with a campus in Shanghai. Others are considering the same. Without a doubt, education is a growing business in China and one that can make a special contribution to people-to-people ties. Ironically, as the number of Chinese students in the United States – now over 300,000 – continues to grow, it becomes easier for them to remain within a Chinese ecosystem, reducing the benefits of the study abroad experience. Even though the number of American students in China is much smaller – roughly 23,000 – there is a similar risk, especially since many international students in China live in separate dormitories and have their own classes. Thus, getting the full benefit of the study abroad experience requires special effort. Based on my experience at the Hopkins-Nanjing Center, it is an effort worth making. I say this because polling data shows sizeable numbers in each country with negative views toward the other side. This is not a new phenomenon but the numbers are not getting any better, which is worrying. This trend only reinforces the importance of educational programs as one way to increase mutual understanding and reduce mutual mistrust. Of course, exchange programs alone cannot change the perceptions of an entire population, but they can help. Other channels for people-to-people ties, such as tourism, can also contribute. And the same is true for AmCham Shanghai members, who through their business operations in China, perhaps touch the largest number of Chinese citizens. That positive impact may not be top of mind for our members, but it is something to consider as we all work together to improve the tone of U.S.China relations. I

MEMBER NEWS

Board of Governors Briefing Board Gets Update on Recruitment Efforts, Upcoming Washington Doorknock Highlights from the May 2016 Board of Governors Meeting

Membership Update Chamber President Kenneth Jarrett spoke to the board about ongoing efforts to recruit more members to the Chamber. Governor Eric Zheng has been supporting the Chamber’s efforts to build membership at our newly established Nanjing office as well as in Suzhou. Business Opportunities In response to member feedback in our 2015 Member Satisfaction Survey, the board discussed a new effort to help create more business opportunities among members. The taskforce is headed by Vincent Yang and also includes Cameron Werker and AmCham Vice President Scott Williams.

Miscellaneous As this was the final meeting for Bill Duff, one of the Honorary Governors from the U.S. Consulate General, the Chair thanked him for his contributions to the Board of Governors. The Board unanimously passed a resolution to commend and thank Duff for his many contributions to AmCham Shanghai during his three years on the Board.

MEETING ATTENDANCE Present: Ker Gibbs, Jimmy Chen, Cecilia Ho, Tim Huang, William Duff, Cecilia Ho, Tim Huang, Gentry Sayad, Glen Walter,

Washington, DC Doorknock In advance of AmCham Shanghai’s upcoming Washington Doorknock, President Ken Jarrett spoke about AmCham China’s recent Doorknock, which he attended. Among other things, the delegation noted that China’s Foreign NGO Law and National Security Law had led to a less a favorable business environment.

Cameron Werker, Helen Yang, Eric Zheng, Michael Crotty (by phone), Aina Konold (by phone), Ning Lei (by phone), Vincent Yang (by phone) Attendees: Kenneth Jarrett, Helen Ren, Titi Baccam, Patsy Li, Linda Wang

The AmCham Shanghai 2016 Board of Governors CHAIRMAN

Ker Gibbs ChinaBio

GOVERNORS Jimmy Chen

Michael Crotty

Timothy Huang

FedEx Express

MKT & Associates

Bank of America Merrill Lynch

Aina E. Konold

Ning Lei

Glen Walter

GAP Inc.

Navistar

Coca-Cola

Helen ChingHsien Yang

Vincent Yang

Eric Zheng

SKF

AIG Insurance

DuPont

July/August 2016

Vice Chair

Cecilia Ho International Paper Asia

July/August 2016

Movers and Shakers

Exit Interview A Chat with Russell Scoular Russell Scoular, the regional director of government affairs of Asia-Pacific for Ford Motor Company, answers questions about his work and experiences in China.

When did you first come to China and into what position?

My experience is that you’re always evolving as a manager; and as a

I came to China in 2011 as regional director of government affairs of

person, you’re always learning. You can never know too much. And

Asia-Pacific for Ford Motor Company. Previously, I had been gov-

to the extent that my colleagues were extremely generous in shar-

ernment affairs director for Ford Australia.

ing their knowledge and experiences with me, it helped.

What China experience did you have before moving here?

Do you think that there are elements of Chinese management

I had been to China two or three times on business and once on a

style that the West should utilize?

family holiday. On my business trips, I never really got out of hotels

I think consensus and teamwork in any organization can be very

or offices. However on our family holiday, we had been able to get

helpful in reaching agreed outcomes. Team buy-in in terms of get-

out and see some of the fantastic historical sites like the Great Wall,

ting strong outcomes can also be very helpful. Sometimes in the

Summer Palace and Forbidden City.

West, we tend to be a little top-down and impatient in the way we

We loved it and it whetted my interest in China, but I never at that

deliver our instructions and missions. One thing we can learn is the

time thought I would be moving to here to work.

benefit of teamwork and slowing down a little at times.

What was the biggest change in your time here? And what has

How does government relations work in China differ from other

not changed?

countries?

The biggest change in my time here is that Shanghai is continually

I don’t think it substantially differs in any market in the world.

growing; it’s an exciting and dynamic place. What has not changed is

Fundamentally, government officials at all levels are all trying

the friendliness and the warmth of the colleagues who I work with. They

to do the same thing. They are all trying to better their com-

are great people, very passionate about their work and, particularly

munities by implementing policies, bringing about change and

when you get to know them, they have wonderful senses of humor.

addressing areas of community concern. In more than 30 years in a governmental affairs function, my experience is that if you

What advice have you given your successor?

engage with officials, carefully develop and explain your point

Take your time. Get to know people. Listen. And always treat people

of view; if you listen to their point of view, you can work together

with the respect with which you would like to be treated.

to get some really good outcomes. Whether it’s India, Australia, China or ASEAN, it’s very much the same.

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What was your biggest mistake during your time in China?

That’s a hard question, because if you’re not making some mistakes,

Regulators often seek the advice and input of companies,

you’re probably not trying hard enough; that’s my view of life. I think

whether formally or informally. Have the regulators here solic-

possibly early on I was a little impatient. You have to learn that in

ited your feedback, experience and advice?

China and throughout the Asia-Pacific region you may need to be a

Regulators anywhere, including China, are always interested in

little patient. If you work hard, if you engage consistently, if you build

sharing the knowledge and experiences that global companies

relationships and if you have well-rounded points of view to put for-

can bring to the table. That can come from discussions, through

ward in a considered way, then common sense will usually prevail.

missions, through groups visiting overseas facilities and talking to senior leaders, engineers and designers. They are always

Did your Chinese colleagues make you a better manager or a

reaching out – there’s a thirst for knowledge. And that is good

better person?

for all of us.

I think they made me both a better manager and a better person.

Can China succeed purely on Chinese terms or do its businesses need a hybrid of Western and Chinese thinking and management? I think we will see the development of a hybrid model, particularly as Chinese companies reach out and make significant investments in companies around the world. The challenge will be to ensure a hybrid, if you want to use that term, takes in the very best from both perspectives, particularly in terms of being innovative in thinking and agile in implementation. You will have a pretty powerful business model where people can successfully do that. The eventual creation of fully automated vehicles looks set to change the future of driving. What will the auto landscape in China look like in 20 years? I think the question is what will the global auto landscape look like in 20 years’ time? I don’t think you will see any change in China that you won’t see in any other major economies. China is growing rapidly, the rate of growth has slowed a little but the growth is still there. I think it will be a different market with different products and services. This will be particularly so in mega cities throughout the world where the transportation model will probably change significantly. Chinese auto manufacturers are steadily improving their product. Will that make it harder for Ford to compete? Well, we have joint venture partnerships with Chinese auto manufacturers, two very good partnerships with Chang An and JMC. Obviously China’s indigenous industry is growing and developing its capability rapidly; they will be formidable competitors locally and globally over time. A characteristic of the global automotive industry is that it is ferociously competitive. Competition doesn’t frighten us, it in fact inspires us. A little more competition just means we will need to be more laser-focused. What worries you about China’s economy, society, etc? I am a China optimist. I admire how China has developed and improved the lives of so many millions of people in such a relatively short time. Nothing really worries me about the economy. There are some issues, but all global economies have issues. The growth of the economy has slowed from the heady days of a few years ago, but it’s still growing at a rate that in many developed economies would cause central bankers to panic. You are moving back to a country with blue skies, exquisite wines and sublime beaches. Will you miss the Middle Kingdom? I will miss my friends and my colleagues. I have had the privilege of working with some wonderful people here; colleagues who have really welcomed me into friendship groups and their communities. In addition to the beaches and wine that you mention, I will be able to go and watch top-class sport every weekend, so I’m really looking forward to that. I plan to return and visit the many parts of China I didn’t get to see this time. I

Committee Chair’s Corner A Chat with Alice Wong Alice Wong is Director of Human Resources at EY Greater China. She is the chair of the Human Resources Committee.

Can you talk about some of China’s major HR challenges?

of cultures in China now and many returnees. Young people are

One of the major challenges is that labor costs have been increasing

more open and straightforward than before and that’s a welcome

dramatically. Last month, at the roundtable on Labor Cost Management

change. I see subordinates challenging authority and leaders

co-hosted by the AmCham CFO Forum and HR Committee, we

treating their staff like equals. The dynamic of the workforce

all echoed that if we aim to bring in talents with excellent skills,

is changing and the old mentality of being non-direct is less

knowledge and language ability then this implies an increase in costs.

common. We need to create an environment where we all respect

Of course, many companies are unable to increase their compensation

and value individual differences and the employees feel safe and

every year in line with the GDP growth, so we are seeing companies

comfortable to be who they are.

deploy a Total Rewards concept by listing benefits such as leave hours, learning hours, flexible medical plans for family members and other

How important is it for expats sent over to China to have local

incentives that appeal to committed professionals trying to achieve

cultural training?

some semblance of a work-life balance.

This really depends on the duration of their stay in China, but I

Talent retention is another key challenge due to the competitive

would say it’s very important to have a basic grasp of Mandarin.

job market in China. The average employment period in China

Although the level of English is usually very good at MNCs, you

is less than two years, which is a low when compared to other

need to have some basic communication skills using the local

countries. Employees in China are more aggressive and they

language. If locals are aware that their expatriate colleagues are

expect to be in a management position after working for three or

making an effort to learn their language and culture, then the level

four years – especially for those with strong language skills which

of communication and respect could be totally different.

open them up to more opportunities.

EY endeavors to promote an inclusive culture and was named “2015 Diversity and Inclusion Corporate of the Year” at WEConnect

Can you talk about social media for corporate branding and

International’s annual event in recognition of our efforts and

recruitment? Are there any interesting success stories we can

commitment to building a diverse and inclusive workplace. I am

learn from?

very proud to say I believe that we have a high level of acceptance

EY started our social media platforms when we set up our EY Weibo

of people from different cultures at EY.

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account in 2012 and EY WeChat accounts in 2014. In order to set up

a successful social media plan of action, you first need to identify

What do you consider to be the key elements of a good in-

and dedicate the resources needed to maintain the accounts and

house leadership program in China?

deliver regular and timely updates. Secondly, the content and the

I believe investing in future leadership is critical and that the most

communicating style need to be relevant to your target audience.

important aspect of an effective training and in-house leadership

For example, we have a corporate account which is more business

program is to develop a sense of personal leadership in our

focused and therefore has a more formal tone, while we have a

employees. Charm, presence, vulnerability and confidence are key

campus account for engaging students with a more casual tone.

aspects of a good leader and so we need to give staff experiences

Thirdly, provide staff the freedom to be creative in engaging the

and challenges that foster these aspects. At EY, we also stress the

audience, perhaps by organizing interactive online activities. And

need for partners to lead by example and to act as a role model for

lastly, be focused. Sometimes, this can mean giving up some other

their teams. This includes the way they treat their colleagues and

channels as resources can be limited.

clients, the way they approach communications, and the way they project a thorough professionalism. My last point are buzz words at

The importance of saving face is an intrinsic cultural convention

the moment – but they are important: diversity and inclusiveness. We

in Chinese society. In your experience with HR, does this cause

strongly encourage our leaders to embrace differences and provide

problems at MNCs with cross-cultural staff?

an inclusive-style leadership as we believe it is fundamental for two

I don’t see this being an issue any more. We have a stronger mix

key reasons: it’s good for our staff, and it’s good for our business. I

MEMBER NEWS

Event Report Food Safety and Emerging Technology AmCham Shanghai hosted the annual Food Safety and Emerging Technology Conference on May 26 at the Grand Hyatt Pudong. Developed by food industry experts in collaboration with the Shanghai Food Safety Federation, the full-day event is a bridge between the food and beverage industry and regulators. Keynote speaker Dr. Junshi Chen, professor at the National Centre for Food Safety Risk Assessment, began the event by discussing the 2015 China Food Safety Law and how emerging technology is being integrated in food service. David Ettinger, partner at Keller and Heckman LLP, moderated a panel about food safety through industry and government collaboration. Panelists Dr. Junshi Chen, Danny Tan of Yum! Brands China, and Maggie Sans, chief corporate affairs officer of Walmart China, discussed how goods and distribution companies can align growth strategies with government policy. The panelists agreed that China needs to have more channels of communication and develop a common standard for food safety. Tan said the 2015 Food Safety Law is an enormous improvement over the 2008 version of the law; however, it is up to industry leaders to lead real implementation. According to Sans, the new law reflects China’s efforts to become a standard bearer for food safety. The panelists said they would recommend new players to China’s growing food market, but only if they are willing to directly invest in food safety at the outset. Conference Sponsor

Lunch Sponsor

director at IBM China, spoke about using WeChat as a campus recruitment tool. “We use millennials to hire millennials through our WeChat platforms and have built up our own ecosystem locally,” she said. Pewter also spoke about the success of IBM’s “reverse mentoring” program where the company brings in younger staff to “mentor” senior managers on new technologies like social media platforms. “Through this program millennials are very involved in high-tech projects and it’s motivating for all of us. I learn a lot through them,” she said. Foreign NGO Law Briefing AmCham Shanghai hosted a detailed briefing on the new Foreign NGO Law by William Lu, a PRC lawyer who specializes in NGO issues, and Leo Li, Shanghai Charity Explorer Director, on May 20. The speakers said that although the new law provides a legal framework for Foreign NGOs to operate and develop a relationship with the local government, it imposes some challenging

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Leaders Gather at 2016 Talent Conference Key benchmarks for success in China’s tight labor market were addressed at the AmCham Shanghai annual Talent Conference on June 7 at the Four Seasons Hotel. Industry experts discussed workforce management, leadership development and recruitment strategies. Sherry Chen, senior human resources director at Alibaba, started the event by discussing how to attract and retain talent amid the tightest labor market in decades. Chen spoke about the importance of aligning growth strategies with local government and how organizations must adapt leadership styles according to Chinese culture. Alice Wong, director of human resources for Greater China at Ernst & Young and chair of the AmCham HR Committee, spoke about meeting the needs of the younger generation. She specifically discussed how companies are using social media and CSR for branding and recruitment. Zoe Pewter, human resources

restrictions and requirements. They noted the prominent role played by the Public Security Bureau (PSB) in the law and advised companies and NGOs to develop closer relations with the PSB. They also noted that the law prohibits foreign NGOs from setting up private companies or WFOEs to circumvent the law. Foreign NGOs can establish representative offices or work through their local partners to continue their operations. According to the speakers, the government is focused on the funding and activities of NGOs. If a majority of the funding comes from overseas and the activities touch on sensitive issues, the NGO would likely receive considerable attention and may not be approved by the government. I

July/August 2016

A panel discusses key benchmarks for success at the Talent Conference

2016 Talent Conference

AmCham Shanghai

The Womenâ&#x20AC;&#x2122;s Executive Network at Jingâ&#x20AC;&#x2122;an Park

Guests at the CSR Conference

Members discuss organic food business opportunities at a morning event

A CEO panel at the CSR Conference

Han Lin at a Financial Services Committee event

Dr. Junshi Chen at the Food Safety and Emerging Technology Conference

Month in Pictures CSR Conference

Guests at the Food Safety and Emerging Technology Conference

Industry experts discuss food safety

MEMBER NEWS

Esoterica Summer Reading By Ian Driscoll

www.amcham-shanghai.org

or journalists, China is rich ground. The vicissitudes of the country’s modern history, its economic rise and the creation of many robber baron-like fortunes provide reams of compelling content. Often, though, the opinions and observations of the authors can veil the voices that best tell these stories, those of Chinese people. Either that, or readers endure a long march through the origins of the Cultural Revolution or Great Leap Forward to learn about the horrors that inane socio-political and economic movements visit on people. One strength of Street of Eternal Happiness, Rob Schmitz’s candid book about several of the inhabitants of Shanghai’s tree-lined thoroughfare Changle Lu, is its brevity of historical background. Another virtue, perhaps because Schmitz is a radio rather than print journalist, is that his interviewees are left to tell their own stories. Schmitz’s occasional interjections are more like yield signs, asking us to slow and think when he intermittently lifts the reader away from his subjects’ hardscrabble lives. Schmitz, who first came to China as a Peace Corps volunteer in 1996, returned in 201o as the correspondent for Marketplace, the American Public Media program heard on many public radio affiliates in the U.S. Since then, he has reported on a number of issues, including the human impact of recent steel mill and coal mine closures in China’s northeast. The protagonists who inhabit Street of Eternal Happiness, whom Schmitz befriended while living on Changle Lu, are superficially ordinary. But below the blur of their everyday lives lie the discordant forces that mold and influence both Shanghai natives and the millions of country folk who came here over the decades seeking a better life: hope, ambition, sacrifice, discontent, the erosion of filial bonds and money, the unguent of modern Chinese life. Each of Schmitz’s interviewees is emblematic of a particular era and of the power that historical forces can exert over lives. There is Auntie Fu, a woman who comically stumbles from one get-rich-scheme to another. She is a sad example of the many millions of left-behi-

nd Chinese for whom the chance of success and betterment is cruelly slipping away. Married to Uncle Feng, a punch bag for her invective, Auntie Fu has fallen in with an illegal church lead by criminals-turned-preachers, one of whom dispenses fire-and-brimstone rhetoric with the energy of a Southern Baptist minister. The preachers’ Wenzhou origins, as anyone who has been in China long enough knows, are semaphores for trouble ahead. Also seeking answers to spiritual vacuity is CK, an accordion salesman and café owner whose curiosity and ambition have served him well in China’s burgeoning private sector. Earning a wage equal to many high-flyers in the new economy, his search for his other self is rooted in a desire to recover the spiritual aspect of Chineseness that was so effectively defenestrated by Mao’s rule. The most engaging of Schmitz’s characters is Zhao Shiling, a waidiren (immigrant from elsewhere) whose childhood dream of leaving her Shandong village and finding fortune in Shanghai was fulfilled thanks to competence and grit. The owner of small flower shop on Changle Lu, Zhao’s earnings may pale compared to CK’s, but she has bested the men who remained in her home village and in doing so forever changed the lives of her less-able sons. If Zhao and CK’s success is rooted in the China that Deng Xiaoping created by giving freedom to market forces, the plight of Chen Zhongdao symbolizes how heavy-handed and unyielding China’s government can still be. A long-term resident of Shanghai, Chen’s brutal ejection from a shikumen home serves as a reminder both of the perniciousness of corruption and the human cost of unfettered growth. By far the most compelling tale in the book, though, is the epistolary relationship between a man sentenced in 1958 to spend what became two decades in a reform-through-labor camp in Qinghai and his wife, who remained in Shanghai with their seven children. The letters, given to Schmitz by a friend who unearthed them in an antique

shop, are heartbreaking in their content but more so in the asymmetry of their penning. The letters not only offer proof of how political campaigns drove a wedge between different sectors of society, but they are also first-hand evidence of how they split families, too. The wife’s letters to her husband, when they do arrive, contain both admonitions and propaganda: “You should get the government policies straight and shed the bad habits that remain in you from the old society and you should read beneficial books and newspapers and emphasize your political studies and follow the teaching and guidance from the Party and Chairman Mao, and completely reform yourself and become a new person…,” Liu Shuyun chides her distant husband. The extent to which the letters are written to please the censor is hard to know, but over time either exasperation with her husband’s owner-class baggage or the rigors of raising seven children alone eventually means that nine years pass between letters to him. For foreigners who have made Shanghai their home, Street of Eternal Happiness is a candid expose of city life. For those unable to speak Chinese, it provides insight into lives they might otherwise never know. For Chinese residents of Shanghai, the book may more feel like a mirror on a city, but one held by a balanced and empathetic observer. More than anything, the book is yet further affirmation of the crapshoot that is life in modern China. As Professor Wei, who also spent many years in the Delingha labor camp observed to Schmitz, “We were born at the wrong time.” I

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