Summary report EU China Economic and Finance Forum

Sixth EU Asia Top Economist Round Table !

EU China Economic and Finance Forum!

17 November 2014# Beijing, China#

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Summary Report !

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The ‘Sixth EU Asia Top Economist Round Table’ (TERT) - the ‘EU China Economic and Finance Forum’ took place on 17 November 2014 at the Capital Club in Beijing. The event was held in partnership with the Cheung Kong Graduate School of Business (CKGSB), European Chamber of Commerce in China, Caixin, EU China Business Association.#

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Following on from the success of prior TERT events in Dublin and Tokyo, this flagship event brought together key stakeholders from top European and Asian companies as well as policy makers to discuss the latest economic developments impacting trade and investment relations between the EU and China.#

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The event focused on three key topics impacting EU China economic relations:#

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- The China EU Investment Agreement and Creating a Framework for Greater Two Way FDI Flows# - Reforming the Finance Sector and the Internationalisation of the Renminbi# - Promoting Free Trade Zones (FTZ) and the Implications for China’s Economic Future#

The discussions from the event provided valuable insights from top business leaders and senior policy makers at a pivotal juncture in China EU investment relations.#

in cooperation with

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© Asia Matters 2014

Key Points # The Round Table provided valuable insights into current economic realities in China and the EU, as well as the key trade and investment activities between both economies. The China EU Investment Agreement will help to unlock barriers to greater two-way investment and expectations are high for the agreement to pave the way for a more substantial Free Trade Agreement (FTA) in the future. The EU and China, as strategic partners with 40 years of engagement, are economically interdependent, represent a third of Global GDP and two way trade of €430 billion. FDI is an area where both the EU and China are seeking greater market access. The Round Table focused on three key trends facing greater EU China economic relations.#

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The New Normal - Developments in China’s Economy. China’s growth has reached some major milestones in the last decade by overtaking Germany as the largest exporter in 2009, Japan as the 2nd largest economy in 2012 and surpassing the US as the largest trading nation in 2013. It is seen as only a matter of time before it overtakes the US as the largest economy. China’s growth has contributed an average of 24.5% to global growth over the past 10 years, without which a global depression would have been a serious risk. In this period, it has increased its low level of FDI and purchased a large proportion of European sovereign debt. M&A activity has seen Chinese brands and SOEs enter global markets, from 2003 to 2013 M&A value jumped from USD$1 billion to USD$40 billion with Europe accounting for 23% of these activities. This included the acquisition of some notable brands such as Volvo, Weetabix and Pizza Express. In foreign exchange markets, the RMB is directly trading with the Australian Dollar, Malaysian Ringitt, New Zealand Dollar, Russian Rouble, Thai Bhat and UK Pound. Many believe that this remarkable economic transition has taken place on the back of the sacrifices of the 1978 generation who had to “eat bitterness - 吃苦” and the major structural adjustments that occurred since then. # China EU Investment Agreement - Creating a Framework for Greater Two Way FDI Flows.

The EU and China’s trade relationship is considerable, in the last 10 years two-way trade has tripled to €430 billion in 2013. Unfortunately, this is not reflected in two-way FDI, as China represents only 2% of EU outflows, while inflows of FDI from China account for only 0.7% of total inward investment into the EU. Chinese external investment is picking up at the moment and rising considerably from its low base with a wave of M&A activities being the preferred investment vehicle. Meanwhile, major EU firms are in China and many are succeeding, though the requirement to form joint ventures and partnerships discourages market entry. The China EU Investment Agreement, initiated in December 2013, seeks to address issues of market access, regulatory issues and investment protection for both sides. The Round Table featured two prominent examples of EU firms investing in China Airbus and Nokia, both leaders in their respective markets. Airbus currently employ 1,263 in 10 cities across China with their final assembly line centre (FAL) for all of Asia located in Tianjin. Nokia employ over 9,000 people in China and have ¥11 billion in annual sales, ¥12.2 billion in annual procurement and ¥8.7 billion in annual exports. # China’s Economic Future - The role of reforms and FTZs. Chinas economic future looks bright, despite transitioning from rapid double digit growth to more sustainable levels. Urbanisation is at 53%, the services sector accounts for 46% of GDP, the population dividend will continue until 2020 and deregulation has yet to occur in key sectors such as financial services and healthcare. These factors offer China the room to grow its economy. Reforms in the finance sector will be crucial and will take the form of “two reforms, two openings”. This refers to reforming interest rate markets and exchange rate formation mechanisms, in addition to the opening of capital account liberalisation and capital markets. These reforms will need to be made in the face of greater market volatility as the transition opens China's exposure. Free Trade Zones (FTZ) are a key source for economic growth and internationalisation. The Shanghai FTZ has been seen by foreign firms as lacking vision, direction and clear value added.# Interestingly, a EU Chamber of Commerce survey ranked Chengdu and Chongqing ahead of Shanghai as destinations for the next major FTZ. #

#The EU and China are both major global economic players and their economies are immensely

interdependent. Two-way trade has grown exponentially over the last decade, yet two way FDI has not.

The EU China Investment Agreement and the key reforms taking place in China will have major implications on the growth of both economies and the health of the global economy as a whole.# 2

© Asia Matters 2014

1 Developments in the Chinese Economy !

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China’s ! average !

Contribution # to Global Growth# 2003-2013

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24.5%

China’s Economic # Development # 12.3% 1978# 2014

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# 1.76% # 2

M&A Activity

Major Acquisitions !

2003

2014

USD $1 b!

(30 deals)

USD $40 b!

(264 deals)

23% of

EU is China’s #2 Source for M&A Activity

Chinese M&As in the EU

% of Global Growth

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China EU Investment Agreement: Creating a Framework for greater two way FDI flows

Two way EU China Trade has trebled in 10 years worth €430 b in 2013

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China EU Investment Agreement Negotiations started in Dec 2013

Major potential for greater FDI flows €26.8b

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€118b *2012

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EU Company Success Stories ★ Leading in aircraft & helicopter Sales ! ★ Employs 1263 people in 10 cities across China! ★ Aircraft Sales have doubled every year since 2000! ★ 41% share of growing helicopter market in China

★ #1 foreign vendor in 4G-LTE in China! ★ Employs 9000 people in China ! ★ ¥11 b in annual sales ! #★ ¥12.2 b annual procurement

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3 China’s Economic Future: Reforms & Free Trade Zones

# # 5 Megatrends impacting # China’s Economic Future #

Potential for Growth

# # # Services Sector worth 46% of GDP! # # Population Dividend until 2010! # Urbanisation Rate: 53%!

# D e m o g r# a p h i c s Accelerating # Urbanisation

S h i f t s i n# G l o b a l # E c o n o m i c# P o w e r s # Reform Priorities

T e c h n o #l o g i c a l

¥

Deregulation Potential in Key Sectors! (e.g. Financial Services, Healthcare)

Breakthroughs 3

© Asia Matters 2014

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About The EU Asia Top Economist Round Table !

The ‘EU Asia Top Economist Round Table (TERT)’ is a flagship event series organised by Asia Matters in cities across Asia and Europe. The event brings together top economists, business leaders and policy makers from Asia and Europe to engage with one another on the latest developments in EU-Asia economic and trade relations.#

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With the EU on the path to recovery and Asian economies continuing to experience growth, the TERT conference series brings key stakeholders together at a pivotal point in EU Asia relations. Multiple trade, investment and partnership negotiations are underway between the EU and its partners across Asia, TERT aims to analyse the business implications of these agreements. #

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The sixth edition of the one-day C-summit style conference followed the success of previous TERTs in Dublin and Tokyo and featured top economists and speakers from Airbus, Nokia, PwC, CKGSB, Caixin, BASF as well as high level government officials from the People’s Bank of China, MFA, and the EU Delegation.#

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About Asia Matters !

Asia Matters is an economic institute based in Dublin dedicated to developing Ireland Asia and EU Asia business relations.#

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It is an independent, not for profit organisation with a strong educational remit delivered through business briefings, conferences, policy research and publications.#

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Within Ireland, Asia Matters provides thought leadership and business connectivity through events such as the annual Asia Business Week Ireland summit in Dublin and Cork and publications including the annual Ireland Asia Business Yearbook, the book of reference for bilateral trade relations.#

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Within Asia, Asia Matters host the EU Asia Top Economist Round Table (TERT) series in association with key stakeholders on the ground. In 2014, the TERT series took place in Beijing and Tokyo. #

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Asia Matters works in close partnership with government, business and academic stakeholders in Ireland, the EU and across Asia. The Chairman of Asia Matters is Alan Dukes, the former Irish Minister for Finance.#

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Disclaimer!

This document is a summary of the discussions from the “Sixth EU Asia Top Economist Round Table: EU China Economic and Finance Forum”. The insights shared by speakers at the event are summarised in this report in good faith and accurately reflect the key topics, quotes, facts, figures and charts presented during the conference. This is not investment advice or an offer or solicitation to sell or purchase any financial instruments shares or products. The author and partners to this publication expressly disclaim all liability to any person or corporation in respect of any losses or other claims, whether direct, indirect, incidental, and consequential or otherwise arising in relation to the use of this report as the basis for any investment or other decision or in connection with any advice given to third parties.

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© Asia Matters 2014

Opening Session !

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Alan Dukes, Chairman, Asia Matters, &, Round Table Chairman, opened his remarks by detailing the raison d’être of Asia Matters, which is to increase the understanding of EU Asia relations to further the economic and trade development goals of both sides. Mr. Dukes focused in on the opportune moment presented to hold this conference, Asia Matters’ first to be held in Beijing, as China and the EU have recently embarked on negotiations to bring about greater mutual investment between both economies. He encouraged participants to speak openly and to share their experiences with delegates in order to paint a clear picture of the strengths, challenges and vast potential in unlocking greater China EU investment. #

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H.E Hans Dietmar Schweisgut, Ambassador and Head of Delegation of the European Union in China, commented that the Round Table was coming at a “very appropriate time” given the recent activity surrounding the APEC summit and the G20 summit in Brisbane. These summits featured major developments for the global trade landscape that has major impacts on the China EU relationship. The meetings created a path for the WTO Bali Agreement, paved the way for an Information Technology agreement - an area that the EU has been at the forefront, and important bilateral relations e.g.

China - Republic of Korea, China Australia Free Trade Agreements.

Ambassador Schweisgut remarked that these activities, and what happens in China overall, have a major global impact. #

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The EU and China, at the most recent bilateral summit, came to an agreement on a strategic 5

cooperation agenda aiming at 2020 for implementation. This comprehensive agreement covers everything from political to security cooperation to economics (including finance, transport, energy, climate change) and urbanisation, an area in which the EU has a lot to offer China.#

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Trade has tripled over the last ten years and it is important to point out that during the GFC, this trade growth continued to reach €430 billion today with the EU as China’s largest trading partner. Trade in goods is healthy and at a high scale, services on the other hand are much smaller (€50 billion). Services will be key to China’s new growth path, as outlined by China’s leaders in the 3rd party plenum.#

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Although the EU is one of the major investors in China, in the larger picture it is very low as China accounts for only 2% of EU external investment. Similarly, the volume of Chinese FDI in Europe is still roughly 1% of total inward investment in the EU. Looking at this optimistically, the potential is very high for rapid growth as economic realities change. At a leader level, Chinese and EU leaders met on the sidelines of the Asia Europe Meeting (ASEM) summit in Milan in October 2014, where the focus was on working towards securing the China EU Investment Agreement. #

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This agreement will ensure access to the market for both EU and Chinese investors, certainty and security in their investments, and a single legal framework governing all investments. This is seen as a key driver of growth for both economies and fits with existing plans for the next phase of economic reform in China. #

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Ambassador Schweisgut highlighted that bilateral relations need to be embedded in the global framework and support an EU backed multilateral agreement on investment services.

The EU has also encouraged China to sign up to an ambitious agreement on public procurement. #

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The Ambassador ended his remarks by bringing attention to the great momentum in the China EU relationship and the need to ensure that this continues to bear fruit. #

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© Asia Matters 2014

Ambassador Yu Hongjun, Vice President of the Chinese People’s Association for Peace and Disarmament (CPAPD), Former Vice Minister of International Department, Central Committee of Communist Party of China opened his key address by discussing his recent visit to the EU, where he visited Ireland, the UK and Malta and saw first hand the “passion and vitality” of the people to promote economic recovery and advance their development.#

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Vice Minister Yu went on to detail the history of EU Chinese engagement over the past 40 years. He mentioned how both asides enhanced their mutual understanding and pragmatic cooperation through their constructive, comprehensive and strategic partnerships. He cited the recent engagements, such as the China-EU 2020 Strategic Agenda for Cooperation, the blue print for the next 10 years of cooperation agreed in November 2013.

More recently, in March 2014, President Xi Jingping on his European Tour, called for both sides to work together for “peace, growth, reform, civilisation”.

While Premier Li Keqiang called on both sides to promote investment to “the fast lane” and greater trade development.#

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The EU has made some major strides in reforming its economies and making the required structural adjustments to get back on the road to growth, according to Vice Minister Yu. He particularly commended the EU on setting up the Single Supervisory Mechanism (SSM) to help monitor the financial stability of banks in EU member countries. #

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Moving to the state of the Chinese economy and reforms outlined at the 3rd and 4th party plenum, Vice Minister Yu detailed some of the restructuring taking place on administration, taxation, finance, investments and the judiciary that will be essential for China’s new growth strategies. In terms of the health of the Chinese economy, year on year GDP growth is at 7.4%, 10.82 million new jobs have been created in urban 6

areas, the consumer price index (CPI) went up 2.1% year on year and per capita earnings were up by 6.9% (urban residents) and 9.7% (rural residents), according to Vice Minister Yu. Another major development has taken place this year with energy consumption decreasing.#

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Vice Minister Yu mentioned how China was entering a “new normal” that was transferring China from high speed growth to a more sustainable rate. Key restructuring is taking place across the economy, while the tertiary industry and consumer demands are gradually becoming key drivers of growth.

Importantly, China is moving from a production and investment driven economy to an innovation-driven economy. This new normal will bring new development opportunities for China, according to Vice Minister Yu.#

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Focusing back on China EU relations, Vice Minister Yu called on both sides to work together to unlock the true potential of EU China trade and investment relations. The EU is the largest trading partner and the largest export market for China, while China is the second largest trading partner for the EU. Investment needs to be fostered to increase the potential and Vice Minister Yu sees the speedy conclusion of the China EU Investment Agreement as a major step to achieve this. He also called on both sides to establish a feasibility study on a potential Free Trade Agreement (FTA) to expand the scale of bilateral trade and overturn trade and investment protectionism. #

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In conclusion, Vice Minister Yu called on a widening of EU China engagement to look at macro economic, public policy, rural development, social issues and more at this pivotal juncture in their relations. Finally, he commended the valuable work of Asia Matters in strengthening EU China cooperation and expressed support for Asia Matters to take the opportunity to increase its presence in China.#

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Mr Xiang Bing, Dean, Cheung Kong Graduate Business School (CKGSB), gave a key address on the challenges and opportunities facing China’s economic future. To begin with, Dean Bing listed some of the major milestones in China’s recent economic development as it overtook Germany as the largest exporting nation in 2009, Japan as the 2nd largest economy in the world in 2012 and surpassed the US as the largest trading nation in 2013. See figure 1.# © Asia Matters 2014

Figure 1: China’s Economic Development since 1978 In 2013, China overtakes US as world’s top merchandise trader • GDP: 9.24 trillion USD, merchandise trade: 4.16 trillion USD • #1 in foreign currency reserves (3.82 trillion USD in 2013) • #1 foreign holder of US debt (1.27 trillion USD in 2013) • Largest market for many products/ sector (autos, smartphones, OCs, Luxury products, …

12.34%

In 2010, China surpassed Japan as the world’s second-largest economy; China replaced the US as the world’s largest manufacturing country In 2009, China overtook Germany to become the world’s largest exporter

9.35% 8.59%

In December 2001, China’s WTO accession

In 1978, Reform and Opening-Up

In 1992, Deng’s Southern Tour

1.76%

1.71%

Dean Bing outlined China’s remarkable contribution to global growth over the last decade, which was an average of 24.5%. Without this growth from 2008, according to Dean Bing, the global economy # “could have had a global depression” (see figure 2). In addition to this, China increased its FDI (including to the EU) and purchased large amounts of sovereign debt.#

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It did not pay to innovate over the past 15 years as those who replicated made millions, while those who innovated, failed. Chinese companies do well in “nonmainstream sectors”, bulk activities and basic goods (ties, shoes, lighters) that fit with the ‘Made in China’ brand. This is a major limitation to the Chinese economy at this current point. High end production does not bring much value added, e.g. Foxconn get $8 per iPhone that retails from $649, Barbie dolls retail at $10, while the Chinese company gets 35c per doll.

China has not done well in value 7

4.12%

added, according to Dean Bing. Also the ‘Made in China’ brand is not sustainable environmentally as high production has a major impact on the environment.#

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Dean Bing discussed China’s major brands, commenting that China has lots of billionaires and lots of owner/manager family run companies, which breeds inequality and a lack of wealth distribution across many levels of the economy. China needs to build its own brands, it does not have an Airbus, a Siemens, a Rolls Royce. He cited Huawei as an exception in this occasion as one of the only major Chinese global brands. This inequality of owner/manager companies has spurred the government to tackle income inequality and seek more sustainable growth. #

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Changing this model will take time and will be a major challenge both internally and globally, according to Dean Bing. On a global stage, the perceived China threat needs to be mitigated, as does the image of the ‘Made in China’ brand of high quantity production of goods, rather than value added services. #

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Dean Bing was optimistic for China’s future and its ability to continue growing, urbanisation is at © Asia Matters 2014

Figure 2: China’s contribution to the world economy since 2005

Note!

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• Contribution = China’s GDP Increase/

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World’s GDP Increase# In 2009, world economic growth was -1.1%, while China’s economic growth was 8.7%, so China’s contribution to the world economy is not applicable for 2009. # In 2012, the EU economy experienced negative growth.

53% with much more room for growth, services sector is 46% of GDP far below the US (79% in 2012) and the EU, even below India.

Europe has a lot to contribute in terms of services, according to Dean Bing. China will also have a population dividend until 2020, which will be at the same age as the US at that point, while deregulation has yet to happen in key sectors providing opportunities in financial services and healthcare (only 5.3% of the economy) and sports/cultural services. These factors will give the Chinese economy considerable room for growth. #

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China can grow its economy without innovation and have far more options open. Dean Bing commented on the rising inequality, which is a major issue for economic growth, as well as the environmental impact. China does have remarkable human capital to draw upon with 20% of the global population, an entrepreneurial spirit, the largest amount of international students globally and highly skilled immigrants making high value c o n n e c t i o n s g l o b a l l y. C h i n a , according to Dean Bing, has embraced globalisation like no other 8

Year

Contribution to World Economy (%)

2005

15.28

2006

16.32

2007

20.20

2008

39.50

2009

-

2010

18.08

2011

20.77

2012

61.94

2013

28.00

and is set to embrace it even more with the new growth agenda.#

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Historically, as Dean Bing pointed out, China was the number one economy in the world in 1820 with 30% of global GDP and it is a matter of just getting back to the top. In addition, t h r o u g h i t s r e c e n t h i s t o r y, C h i n a h a s experienced many forms of government and economies from the command economy to the market economy. This historical context, according to Dean Bing, ensures that China has the wealth of knowledge to continue thriving and take a longer term view.#

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Dean Bing argued that China and the US could learn from the EU in terms of tackling inequality, as both have very high ‘gini co-efficient’ rates and need to ensure a greater convergence to the middle in terms of socialism and welfare. He called on a greater reflection of two old Chinese proverbs relating to the connection between people and the environment, the notion of the “unity of heaven and man” （天⼈人合⼀一) and the Confucian principle of harmony versus uniformity （和⽽而不同).!

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According to Dean Bing, there needs to be a greater focus on longer term views as myopic short termism dominates power cycles both in political and business systems. He called for a new social contract, citing that Europe has contributed so much since the Enlightenment and it is now time for China and other emerging © Asia Matters 2014

economies to step up and contribute to global thinking and future societies.#

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Conclusion# The opening session featured key insights from top thought leaders and officials on the state of the economic growth in both China and the EU. The EU China economic relationship is built on a solid base of trade with two-way trade growing three fold in the past decade to a rate of €430 billion, however the investment relationship is relatively undervalued and has huge potential for growth.

The China EU Investment Agreement and the reforms agenda in China should create a shift in the economic realities and ensure greater two-way FDI growth. #

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Session 1: The China EU Investment Agreement and Creating a Framework for Greater Two Way FDI Flows !

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Introduction!

This session featured presentations from key figures involved in China EU investment, be it from a business perspective engaging in M&As and

joint ventures, a policy perspective promoting investment ties and a media perspective covering the investment landscape. The presentations provided delegates with unique insider insights of top European companies investing in China and wider macro trends impacting the growth of investments. #

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Mr Laurence Barron, Chairman, Airbus Group China, shared the 20 year history of Airbus Group in China from setting up their office in 1994, to the multifaceted large scale operation they have today. Airbus Group covers three areas, Airbus planes, Airbus Helicopters and Airbus Defence and Space, though due to the arms embargo, the final elements’ exposure in China is somewhat modest. #

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Airbus is currently engaged in multiple joint ventures in China from enterprise management and services to training, engineering, assembly lines and delivery centres, composite manufacturing, and other elements of industrial cooperation. It has 20 field service locations in 10 cities across China and a final assembly line for the A320 in Tianjin as well. #

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Mr Barron highlighted the major landmark in May 2009, where the first flight and purchase of the A320 from the Tianjin final assembly line Centre (FAL) occurred. Since then, more than

Airbus"fleet"is"doubling"every"4"years"in" the"new"century"

Figure 3: Airbus fleet is doubling every 4 years in the new century

1069 by 2014Q1

1200"

A380"

A330/A340"

A320"Family"

A300"

2011"

1000"

Logistics Centre opened

HMC"opened"

2009" 800"

1997"

FAL7C/ATDC"" first"delivery"

Hua7Ou"Avia:on" "Centre"opened"

2005"

600"

1994"

Airbus China office opened

A(B)EC" established"

400"

200"

0"

9

First entry into China

1985"1986"1987"1988"1989"1990"1991"1992"1993"1994"1995"1996"1997"1998"1999"2000"2001"2002"2003"2004"2005"2006"2007"2008"2009"2010"2011"2012"2013"2014" Q1"

© Asia Matters 2014

Figure 4: Airbus now holds a 50% market share of in-service aircraft in China

100%#

Boeing 91%

80%#

Airbus 50%

60%#

40%#

20%#

Airbus 9%

19 95 # 19 96 # 19 97 # 19 98 # 19 99 # 20 00 # 20 01 # 20 02 # 20 03 # 20 04 # 20 05 # 20 06 # 20 07 # 20 08 # 20 09 # 20 10 # 20 11 # 20 12 # 20 13 # 20 14 Q1 #

0%#

190 aircraft have been delivered with 47 scheduled for delivery in 2014. It has since become the FAL centre for Asia and are expecting to deliver their 200th aircraft in December 2014. #

years since 2000, see figure 3, leaving Airbus with a market share of 50%, having eaten into Boeing’s dominance in the sector, see figure 4. It has set itself ambitious targets for its growth in China with a €500 million industrial turnover target by 2015.#

2014 has been a landmark year for Airbus in China with the signing of a framework agreement with AVIC (Aviation Industry Corporation of China) to enhance the cooperation for HMC (Harbin Hafei Airbus Composite Manufacturing Centre).

This will resolve many technical and operational challenges, ensure more effective management for increased production and increase Airbus’ share from 20% to 25%. In addition to this investment agreement, an MoU with COMAC (Commercial Aircraft Corporation of China) for non-competitive cooperation was signed. This agreement targeted issues of harmonisation, regulation and customer finance methods. #

China is a rapidly growing aviation market and new opportunities are available for Airbus to get greater market share and to sell new products.

Its growth over the past decade has been remarkable compared to other parts of the world. see figure 5. #

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Airbus, currently employs 1,263 people in joint ventures and their own operations across China. Airbus’ aircraft sales have doubled every 4 10

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In addition to the massive growth in planes, helicopters have been identified as a key growth sector as the demand for civilian helicopters has been driven by new wealth and a lack of capacity in public services. Airbus is currently the market leader with 41% of what is a small market, with huge potential for growth. #

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In March 2014, Airbus signed an agreement to produce 1,000 helicopters. Recent orders have come from the oil & gas industry, police departments, general aviation and importantly Emergency Medical Services (EMS), where Airbus delivered their first aircraft in October 2014 to Beijing 999, a subsidiary of the Chinese Red Cross. EMS helicopters are seen as a © Asia Matters 2014

Figure 5: Airbus in-­‐service fleet by 2014 Q3 2005

2006-2014Q3 net increase

895

USA

245

Mainland China

824

232

UK

197

222

Germany

24

Russia France-7

82

Turkey 0

181 260

206 68

UAE

229

141 116 300

600

900

1200

major growth market as China seeks to increase its capacities and services.#

comparisons to the US economy, Mr. Gao raised the question of “when will China surpass the USA?”. #

In summary, the significant industrial footprint developed by Airbus in China for over 30 years has paid dividends and has left Airbus well positioned for a growing aviation sector. As a final message, Mr. Barron supported investment and the supported measures to ease investment in China as it has been a key aspect for Airbus’ success in China.#

Some estimate it has already surpassed the USA, with the Financial Times publishing on 8 October, 2014 that China’s GDP (PPP) was US $17.6 Trillion in 2014 vs the US with a GDP of USD$17.4 Trillion. The World Bank, in their International Comparison Programme estimated that China will overtake the US by the end of 2014. Finally, in a more conservative estimate, Mr Gao listed the Economist projection from 22 August, 2014, that this will happen by 2021. It is clear to see China’s position, as becoming the largest economy in the world, will be a matter of when rather than if. #

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Gao Zhikai, Vice Chairman, SinoEurope United Investment Cooperation, discussed the current China EU investment landscape, some key trends in the Chinese economy following the 3rd plenum and the major challenges facing China in taking over the mantle of the top global economy. #

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Mr Gao opened his presentation by outlining the scale of the Chinese economy. By official statistics, the Chinese economy is USD$9.31 trillion (US$ 13.37 trillion by PPP).

Compared to the US economy, China’s economy is 56% the size (80% by PPP). With these 11

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From a Chinese perspective, overtaking the US as the number one economy will not be a single event, it will be a process of gradual change.

Many are starting to ask what is beyond surpassing the US and how will China deal with being the number one economy in the world?

As President Xi Jingping commented “China is getting increasingly closer to the centre of the world”. #

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Mr Gao went on to discuss what China might look like as the world’s top economy citing that with the room for growth and current trajectories, China could feasibly grow to twice that of the USA, which would be a remarkable scenario and could pose further questions. Such as, would © Asia Matters 2014

Figure 6: ‘ChinIreland’, Mr. Gao advised Ireland to drive Chinese investment by appealing to China’s needs and strategic focus

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ChinIreland

中爱两国 China champion free trade? Would the RMB become a reserve currency? Could China have greater energy efficiency and less pollution?

Could China have greater democracy, transparency, better governance and rule of law than it has today? #

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These questions provoked much food for thought and Mr Gao added in his perspective on the ‘Chinese way of success’, which enables multiple stakeholders to win. Using the Alibaba IPO as an example, Mr Gao highlighted the ‘win win’ element with the largest shareholders coming from Japan and the US, while the benefits to China were multiple with job creation, boosting e-commerce, greater globalisation and encouraging more innovation.#

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Finally, Mr Gao introduced a unique case study in promoting greater trade and investment between the EU and China - that of Ireland.

Setting out to illustrate the potential linkages between Ireland and China, Mr Gao introduced a new word in English and Chinese to the delegates ‘ChinIreland’ or 中爱两国, which means “Love is at the heart 12

of it”, see figure 6. Mr Gao advised Ireland to drive Chinese investment by appealing to China’s needs and strategic focus, such as ensuring that travel and immigration is hassle free, becoming a transports and logistics hub for China’s trade reaching both sides of the Atlantic.

He also outlined major sectors in which Ireland could brand itself as a quality source for Chinese imports and investment, these include Agriculture, Education, Fisheries, High-tech, Tourism, as well as being a key Chinese wealth destination.#

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Mr Huang Shan, Associate Managing Editor, Caixin Media, focused his presentation on Chinese investment trends into the EU. Currently, M&As are the dominant means for investment from China into the EU. Since 2008 and 2014, there have been over 200 crossborder M&A deals or joint ventures, most of which are taking place in the industrial sector, followed by consumer products and the energy sector. State Owned Enterprises (SOEs) have dominated these investments, with 78% of the total investment value between 2008 and 2013. #

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Some high profile recent M&A activity included the purchase of France’s Louvre Hotels Group

by Shanghai-based Jin Jiang and the purchase of Paris Marriott Hotel Champs Élysées by Kai Yuan.#

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© Asia Matters 2014

Chinese investment into the EU has grown considerably in recent years, albeit from a very low base.

Currently, China’s overall investment stock in the EU accounts for just 0.7% of the total inward FDI stock. # # In closing, Mr. Huang outlined the huge potential growth in Chinese investment in the EU. China’s appetite for value-added products and services is growing and is a building block for the bullish view on China’s growth in EU investments.

There are some issues that Chinese investors are seeking to resolve through the China EU Investment Agreement, these include investment protection measures and market access.#

Mr. Borchert detailed how Nokia employ over 9,000 people, which is more than in Finland and Germany combined, and contribute indirectly to over 500,000 jobs in China. Nokia is the top non-Chinese vendor in the 4G market in mobile broadband technologies. Overall, Nokia in China generates ¥11 Billion in annual sales, ¥12.2 Billion in annual procurement, ¥8.7 Billion in annual exports and paying ¥2 Billion in annual taxes. #

Markus Borchert, President, Greater China region, Nokia, discussed the major role that Nokia is playing in China through building partnerships and linkages in mobile broadband technologies. He commented about the challenge for Nokia in operating in the home market of two of their largest competitors, Huawei and ZTE, as well as the regulatory landscape that supports local enterprises and SOEs. #

#

#

#

#

Currently, Nokia have 4 R&D Centres and 3 manufacturing sites in cities across China having set up operations in China over 16 years ago. Nokia’s big China success story has been in the 4G TD-LTE sector, where it is the leading foreign vendor in China and number one globally for innovation with a number of world firsts from joint ventures in China, as well as winning the GTI Innovation award in 2014. In the field of TDLTE, Nokia has the second largest market share.

See figure 7.# Nokia has seen a shift in the Chinese investment model, as business models shifted to innovation and domestic consumption driven growth. The joint ventures that Nokia has supported have seen Chinese firms wanting to be a part of the invention and innovation themselves. Nokia has supported this process and Mr. Borchert mentioned that this has been a core approach from the beginning of their operations in China to utilise technological innovations in a joint Sino-Europe operation. #

# Figure 7: 4G TD-­‐LTE: A Sino-­‐European Success Story

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© Asia Matters 2014

This Sino-Europe venture has overseen the whole process - R&D, manufacturing, distribution, sales as well as government and industry relations development. Through this, Nokia has been able to utilise its sales and marketing development in China to push its global position. It has become a leader in innovation through its joint approach. #

#

Nokia has received very high level recognition for its approach and its commitment to China through government level awards and appointments, including the China Friendship award, membership of Li Keqiang’s global advisory panel and the signing of a USD$1 billion deal at the recent Germany-China government negotiations.#

#

Taking the long term view is essential in China, committing to the market is v e r y i m p o r t a n t . M r. B o r c h e r t discussed the major opportunities for Nokia in China in a more connected world. Nokia wants to use technology to expand the human possibilities of the connected world, and sees China as the centre of this connected world. # #

# Conclusion! #

Session 1 provided some excellent insights from top executives from leading EU companies investing in China and experts on Chinese investments in the EU. From a European perspective, the M&A and JV requirements are seen as a benefit but also limiting their access to what is a key market for global growth. From a Chinese perspective, investment in the EU has grown substantially from a very low base and there is major scope for further growth. This growth relies very much on the economic climate for investment, as up until now Chinese firms (majority of which are SOEs) 14

have focused on M&A activity acquiring high end brands in Europe.#

#

Session 2 Reforming the Finance Sector and Implications for China EU Business Relations!

#

Introduction !

Session 2 looked at the reforms ongoing in China at the moment and in particular the finance sector. The session examined how these reforms could impact on the investment landscape in China, especially the ability for two way investment between the EU and China. #

#

Niu Mu Hong, Director of Monetary Policy Division, Financial Research Institute, People’s Bank of China, ! speaking on behalf of " Dr Jin Zhongxia, Director General, Financial Research Institute, People’s Bank of China, ! began the presentation by outlining how the Chinese economy is in a new phase of growth and though there are positive factors in many aspects of the economy, China still faces many risks and challenges. #

#

As China enters this new phase of growth, many shifts will take place in key areas of the economy such as employment, consumer prices, environmental and energy concerns, manufacturing and real estate. As the economy undergoes structural adjustment and reforms, these sectors will face further challenges. #

#

In order to continue to create a stable monetary and financial environment for this restructuring, transformation and upgrading, as well as promoting sustainable development; China must emphasise the deepening of financial functions to optimise resource allocation and encourage economic restructuring.#

#

According to Mr. Niu, the deepening of financial market reforms will require “two reforms and two openings”. The “two reforms” refer to the interest rate market-oriented reforms and exchange rate formation mechanism reform, while the two “openings” refer to capital account liberalisation and capital market opening. #

#

Interest rate reforms face complex market oriented reforms over four levels. (i) At the © Asia Matters 2014

macro level, any attempts to reform too quickly may increase the volatility of financial markets, which would be detrimental to the real economy and further reforms. (ii) At the micro level, there is a need to build national and l o c a l fi n a n c i a l i n s t i t u t i o n infrastructure to be equipped for these reforms and to offset risk. (iii) At the market level, despite the short-term financial product pricing rate Shibor (Shanghai Interbank Offered Rate) there is not yet a fully formed financial market benchmark interest rate system. (iv) Finally, at the institutional level, China does not have an effective financial market exit mechanism, the deposit insurance system is under construction and it may be difficult to constrain irrational price competition behaviour of financial institutions.#

#

Exchange rate formation mechanism reforms have been underway with the March 2014 announcement that the exchange rate of the RMB against the US dollar trading band is to expand by 1% to 2%, to further enhance the flexibility of RMB exchange rate.

Authorised by the PBC, interbank foreign exchange markets have started direct trading of the Yuan with the Malaysian Ringgit, the Russian Rouble, Japanese Yen, Australian Dollar and New Zealand Dollar, while the Yunnan province is an Baht RMB inter-bank market trading area. In addition, in order to promote bilateral trade and investment between China and the United Kingdom direct trading of RMB against the pound was introduced in the Chinese interbank foreign exchange market and the London foreign exchange market in June, 2014.#

#

Currency market reform is key to the next steps to improve RMB exchange rate mechanisms. Mr Niu outlines 4 key areas to assist this reform. These include: the gradual 15

elimination of the foreign exchange market supply and demand gap, enhancing two-way fl o a t i n g R M B e x c h a n g e r a t e fl e x i b i l i t y, accelerating the development of the foreign exchange markets to improve trading tools, market liquidity and infrastructure, and to reduce the normal foreign exchange market intervention to improve the exchange rate fluctuations and capital flows monitoring systems. #

#

Mr. Niu discussed the issue of capital account liberalisation and the need to actively and steadily push this forward. Promote capital account convertibility multifaceted interest adjustments and interest demands, the need to pay attention to deal with a variety of interests.

In addition, there needs to be a development in domestic and international economic monitoring, as well as maintaining policy flexibility and focus, including the adoption of three mechanisms: (i) to combat money laundering, terrorism financing, tax havens; (ii) macro-prudential issues; and (iii) temporary special measures.# Meanwhile, support for the use of the yuan in cross-border trade and investment has steadily widened the yuan outflow and return channels.

In addition, support for the use of the yuan in cross-border trade and investment has steadily widened the yuan outflow and return channels. #

#

Of the final reform mentioned by Mr. Niu, capital market liberalisation, he broke it down into two key elements (i) the development of financial markets and (ii) the expansion of financial market liberalisation. On the issue of developing financial markets, Mr Niu listed a long list of reforms from expanding bond markets to promoting financial product innovation and diversity, asset securitisation pilot efforts, developing SME financing instruments such as debt collection to steadily improving corporate governance and transparency. Further critical issues are deepening the reform of the IPO market system, reviewing the examination and approval system, strengthen the registration system. Other key reforms on safeguards included improvements in investor returns mechanisms, punishing insider trading, market manipulation, fraud, illegal acts listed false disclosure.#

#

On the second element, the expansion of financial market liberalisation, Mr Liu discussed Š Asia Matters 2014

Figure 8: M&A activity in China has seen a rapid rise in the last ten years Number of M&As

300

Value of M&As in $ billion

50

264 250

207

218

200

162 150

40

203 174

118 100

30

150 145 20

86 55

50

13

18

28

10

30

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09 20

08 20

07 20

06 20

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02 20

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0

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s u p p o r t i n g o v e r s e a s fi n a n c i a l institutions and enterprises in the primary market through "panda bonds" for short-term financing and medium-term notes in the domestic interbank bond market. #

M&A activity in China has seen a rapid rise in the last ten years, having jumped in value from just over USD$1 billion in 2003 to over USD$40 billion in 2013, while in those ten years the amount of M&A deals has jumped from 30 to 264. See figure 8.#

In concluding his comprehensive overview of finance sector reform in China from the point of view of the PBC, Mr Niu offered valuable takeaway points. The reform process will be a gradual process and the reform needs to cut across every aspect of the sector. The dilemma facing China is whether to bring about reforms through promotion and support or in a more prescriptive way. Advising that the latter is very difficult when opening up to greater market pressures. #

In terms of investment locations, the majority of China’s outward investment from 2000 to 2014 has gone to the Asian region (37%), while Europe (23%) is the second most popular

#

#

Figure 9: Destinations for Chinese Outward Investment

Europe# location, narrowly ahead 23% of the US & Canada (22%), see figure 9. Of these M&As in Europe, there have been some substantial Latinbrands America# acquired including Volvo, Weetabix and AMC. 12% Africa & Middle East# 6%

#

D r. L i X i a o y a n g , A s s i s t a n t Professor of Economics and Finance, Cheung Kong Graduate Business School (CKGSB), provided an excellent analysis on the recent wave of M&A activity in China and its implications on the EU. #

#

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US & Canada# 22% Asia# 37% © Asia Matters 2014

According to Dr. Li, this M&A wave has a number of new features. The big Chinese BATs (Baidu, Alibaba, and Tencent) are expanding through acquisitions. Hybrid ownership reforms offer private enterprises with great opportunities. The latest new trends also point to more private acquirers rather than the dominant SOEs as more and more private enterprises seek targets overseas.

These M&A activities offer Chinese firms the opportunities to diversify and enter new markets and sectors.

Another area enticing the latest M&A wave are the possibility for acquisition to become publicly-listed, which is a key value enhancing tool and a main exit channel for Venture Capital and Private Equity. #

Figure 10: The main factors driving the recent M&A wave in China.

National Industrial and Financial Policies MBO and Hybrid Ownership Reforms

RMB and Capital Market Globalization

Merger & Acquisition

Banks, PE, and Buyout Funds

Technology and Consumption grading

#

See figure 10 which details the main factors driving the recent M&A wave. # In terms of macro policies, there have been some major initiatives and lightening of restrictions since 2008.

The initial change occurred when the State Council created new financial channels through M&A loans, REITs, Private Equity and regulated informal lending. In 2010, the state council expressed their support to promoting enterprise M&As. In 2013, 12

ministries set out guidelines to promote important sectors for M&As, these included steel, cement, auto, ship, aluminium, rare earth, ICT, pharmaceutical, and agriculture sectors.

Meanwhile, the PBC took a major step in July 2014 to loosen restrictions on individual/firm investment abroad. On a wider level, M&A activity has been seen as a key support mechanism to lift SOE productivity to offset inefficiencies and diversify investment. See figure 11. #

Figure 11: M&A activity has been a key support mechanism to lift SOE productivity.

Year

2003

2004

2005

2006

2007

2008

2009

2010

Capital %

50.1%

48.8%

48.9%

48.5%

52%

53.3%

51.6%

41.9%

Output %

37.5%

35.2%

33.3%

31.2%

29.5%

28.4%

26.7%

26.6%

Over capacity in some sectors 100

93%

95%

75 50 25 0 17

21%

21%

Steel

Automobile

28% Cement

35%

Electrolyte Aluminium

Glass

Solar Battery

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Figure 12: The Smile Curve: The value-added potential offered by M&A acitivity

Value

Consolidation!

# # # # # # # # # # #

Resources & Technology

Branding & Channels

Manufacture !

China Market

Downstream

Upstream

The recent surge in M&A activity has seen some major acquisitions by Chinese private enterprises and SOEs. These include the purchase of Pizza Express by Hony Capital (the investment arm of Lenovo) for £900 million (¥9.55 billion), which was the largest ever acquisition in the European restaurant industry.

Another high profile acquisition was Bright Food’s purchase of Weetabix in 2012 from Lion Capital, a British private equity firm, for £1.2 billion.

Bright Food, a Shanghai based state owned food, drink and supermarket conglomerate, had previously failed to purchase United Biscuit (UK owned) and Yoplait (US/ French owned).#

#

Of the M&A activity from China into Europe, there are some common traits. Chinese companies are seeking the brand and technology to upgrade consumer discretionary goods and machinery manufacturing.

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From the EU side, target companies are experiencing stagnant growth and high leverage, whereas Chinese buyers offer capital and market growth prospects. Interestingly, in this wave state champion SOEs, private equities and private enterprises are all active. Dr Li used the Smile Curve, see figure 12, to illustrate the value-adding potential that M&A activity is offering by providing different components of the value chain for Chinese firms.#

#

In concluding his presentation, Dr Li outlined the key drivers of China’s latest merger wave including :# - Government deregulation # - Technology disruption # - Financial innovation # - Economic globalisation # - State privatisation# - Private equity and buyout funds # Finally, Dr Li pointed out that M&A activity was invigorating the Chinese economy and that the opening up of a two-way street for China-EU M&As should be a priority in the short and media term. # © Asia Matters 2014

Lijia Zhang, Writer, Columnist and Social Commentator, presented some fascinating insights from her acclaimed memoir “Socialism is Great”, which tracks her journey from a worker in a rocket factory to modern day writer and author. Her presentation offered some unique insights into the reforms and shifts that have occurred in China since the Cultural Revolution, the opening up of the economy, through Tianamen in 1989 and the modern day globalised China.#

Conclusion!

Session 2 featured some excellent presentations on the key reforms taking place in China’s finance sector and how these are impacting on wider economic and societal reforms. The session highlighted some of the key reforms put forward by the PBC on developing financial infrastructures and institutions, as well as some of the latest M&A activity between China and the EU. Finally, the session was capped off by a fascinating insight into the societal change that China has gone through in the last three decades from a command economy to a more open market economy.

Ms Zhang informed delegates of her experiences from her childhood catching and eating cicadas and the low level of education in China at the time. The economic priority in that era was to find a permanent job in a State Owned Enterprise, or what was considered the “iron rice bowl”, or job for life. The monotony of the role and the workers experience in China at that era, created a very repressive environment for the average Chinese worker.#

Session 3: Promoting Free Trade Zones (FTZ) and the implications for China’s Economic Future!

#

#

The traditional wisdom was towards conformity - “the big tree catches wind” and the “nail that stands up gets hammered down”. Despite this, Ms. Zhang had set out to learn English in a bid to work as an interpreter for an international company as China began opening its economy. At this point, there was a cultural opening up also as English language radio and music became available, allowing the average Chinese person to access other cultures. #

#

Ms Zhang painted a picture of a China before economic progress took hold and the massive efforts of the people to bring about the current economy, which has lifted so many people out of poverty. # !

#

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# #

Introduction !

Session 3 looked at the Chinese priority to open its economy further through FTZs in its priority to promote more sustainable growth. Taking from these innovative reforms, the session discussed the impact of both of these phenomenons for China’s economic future and its future economic ties with the EU. #

#

Mr Joerg Wuttke, President of the European Union Chamber of Commerce in China, and, Vice President and Chief Representative of BASF - China, spoke in detail about the proposed FTZ in Shanghai and drew comparisons with the original and hugely successful Shenzhen Special Economic Zone which was set up in 1980. #

#

Mr Wuttke described the Shenzhen initiative as visionary with a great location and a clear value that was easy to sell. The Shanghai FTZ has been less visionary and initial consultations with EU companies lacked clear insight on what the FTZ could offer. That said, many companies such as HSBC, Deutche Bank, and other financial institutes have small operational management activities in the FTZ, although many have not “leapfrogged” any of their existing processes in China. This has led many members of the EU CCC to question the added value of the FTZ.#

#

© Asia Matters 2014

According to Mr. Wuttke, speaking on behalf of EUCCC members, what needs to happen is for Beijing to push the FTZ and give it the support needed to make Shanghai a model for other FTZs. Without this, the Shanghai concept will limp on as its value proposition is not evident for EU investors and the process has been very slow to date.#

#

Interestingly, Mr Wuttke shared the result of a survey of EUCCC members, who had ranked both Chengdu and Chongqing above Shanghai in their choice of city for FTZ. For European companies, the FTZs seem more like service centres rather than innovative centres to drive growth, as other factors such as human capital are seen as top priority. #

#

Moving back to the priorities of the Shanghai FTZ, Mr Wuttke commented that there seems to be a mismatch between the expectations of Shanghai and the central government in Beijing. He remarked that local sentiments see the Shanghai FTZ, as an outdated concept as China does not need a trial balloon for the next 5 to 10 years but rather needs wider reforms at the moment. Expanding on this point, Mr Wuttke discussed the realignment of the FTZ issues and the wider realignment taking place in China today, remaking that vision and leadership are needed to push these forward. #

#

The 3rd party plenum position paper from the EUCCC, responds to what is seen as a very positive reform package with overall support, despite some reservations of the noninclusion of SOEs. Mr. Wuttke pointed to the exemption of the FTZs in the 3rd party plenum report as a sign that the central government is 20

concerned with a wider view rather than city focused reforms.#

#

Mr Wuttke pointed that different stakeholders are responsible for implementing 3rd party plenum decisions, so the reality is that the action plans may be a little slower than targeted. #

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In summation, Mr Wuttke proclaimed that “FTZs are very good but Free Trade is Better”. Sharing his views on China’s recent history, Mr Wuttke, remarked on the leadership of President Jiang Zemin, who saw China through the major reform of SOEs, entering the WTO and overseeing the Asian Financial Crisis in 1997. He was not associated with FTZs but rather nation-wide reforms, economic infrastructure, internationalisation and crisis management.#

# #

Mr David Wu, PwC Beijing Office Senior Partner, PwC China Government and Regulatory Affairs Leader, opened his presentation by sharing some of the success factors of China’s economic progress. These included the transformation from command economy to market economy over the past 35 years, an unprecedented achievement which, according to Mr. Wu, owes a large part of its success to a number of key factors. #

#

Firstly, the work ethic of the Chinese people is a key feature that Mr Wu highlighted. He believes that the generation that brought China through this economic journey had to ensure great hardships and had to “eat bitterness” 吃苦 as the Chinese expression goes. In 1978, the working population had to live under great hardships and poverty, having endured the Great Leap Forward and the Cultural Revolution. That generation sacrificed everything for the future of the generations to come. #

#

The next major aspect that has driven China’s economic miracle, according to Wu, was “Borrowed Technological Advancements”. The increase in productivity in China over the past 30 years has been driven largely by advances and investments in technology. Like many emerging economies, China has leapfrogged many technology advances such as the telephone network to a state of the art mobile network. Mr. © Asia Matters 2014

Wu pointed to the major e-commerce revolution that has taken place in China with leading online retailers Alibaba and Taobao both handling a higher volume of sales than Amazon and eBay combined. He also brought attention to Ali-pay which provides current account services for Chinese consumers, something that was underdeveloped in China. #

#

From a political perspective, Mr Wu focused on the stability that China has experienced under one party rule during its economic revival. This stability allowed for the gradual and controlled introduction of market mechanisms thus avoiding a disruptive big bang process. Mr Wu discussed the 1993 reforms of overhauling thousands of state owned companies and laying off tens of millions of workers. These measures caused major difficulties for these workers as companies provided their staff with housing, healthcare and schooling. This type of reform, an essential element of economic restructuring, would not be possible without the one party rule and as Mr Wu points out the economy is now four times as large than it was in 1993. !

#

Looking into the present reforms and the future prospects for growth. Mr Wu discussed the timeline for the ‘China Dream’, a Xi Jingping era term to describe the aspirations of the nation and its people. Looking beyond the China Dream, Mr Wu focused on two key dates: 1 July 2021 and 1 October 2049. #

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In 2021, President Xi Jingping will be nearing the end of his term as President and the 14th Five-Year Guideline (2021-2025) will have just commenced. The specific date of 1 July is significant as it will mark the 100th anniversary of the Communist Party and its leadership may look to 21

use the opportunity to outline the vision for the next 30 years. #

#

In 2049, the People’s Republic of China will celebrate its 100th anniversary. According to Mr Wu, ’with the reforms adopted at November’s Plenary Session, President Xi Jinping aims to make history by establishing a modern social governance system that will drive China’s prosperity and development for the next 35 years. The Chinese Dream for 2049 is a China that is strong in the world and capable of wielding influence on the global stage: “the great revival of the Chinese nation”.’#

#

Having set out some of the leadership trends to watch out for in the medium to long term, Mr Wu cited a PwC report that outlined 5 global megatrends that will impact on China’s economic future. (i) Demographics - ageing populations and the growing middle classes; (ii) Accelerating urbanisation - megacities, infrastructure build-up and inland development; (iii) Shifts in Global Economic Power - China going global and regulatory reforms e.g. the focus on FTZs; (iv) Technological breakthroughs - Mobile & Digital, E-commerce and Big Data; (v) Reform priorities - China’s leadership up to 2049. These trends, according to Wu, will have a major impact on China’s enduring growth. #

#

In concluding, Mr Wu pointed to the much forgotten fact that China is still a developing country and the image of massive growth and wealth is only a microcosm of the Chinese story as the wealth gaps are very large. He called on the EU to continue its engagement with China as China becomes more competitive on a global scale and adds to its value proposition for trade and investment. Of the megatrends cited, Mr Wu encouraged delegates to consider these in motion rather than mere predictions as many of them are happening already and are accelerating.#

# Conclusion ! #

The session provided some candid and useful insights into the views of the business community on the current status of FTZs in China’s growth and their future role. In addition, the presentations provided analysis of the wider © Asia Matters 2014

reforms that are needed for China’s push towards more sustainable growth, as well as analysing the past reforms and leadership that put China in the position that it is in today. Discussing the issue of FTZs and other initiatives to spur economic growth, need to take into account the wider economy. FTZ initiatives can often spur the rest of the economy and develop internal competition to their own growth as the rest of the economy grows and talent, expertise, facilities are available widely.! # S u m m a r y b y R o u n d Ta b l e Chairman, Mr Alan Dukes!

#

The Round Table Chairman, Mr Alan Dukes, began his summary remarks by discussing a term that was referenced repeatedly throughout the day, the “new normal” of the Chinese economy. The chairman encouraged the Chinese delegates not to fear this ‘new normal’ - the adjustment is happening - it still looks very healthy to EU stakeholders who have returned to the “old abnormal” (stalled, stagnant growth). At a global level, we need to work towards greater growth across the board and strive for more equilibrium. #

#

Lessons and issues that need further discussions - Minister Yu discussed the recognition of a multi-polar world.

A concept that should become a normal part of the political discourse.#

Through the valuable insights shared, we received object lessons on how EU companies have developed their investments in China. The lesson is that there is no single formula for economic development, when looking at two way EU China investment, as joint ventures can have many positive aspects and challenges also. #

#

M&A activities are never a guarantee to win major public procurement or to break into a market, there is an element of simple “name change” rather than valuable investment.

Outbound investment from China is an area that holds huge interest from the EU, the deregulation of interest rates, access to capital in one of the biggest economies in the world. A lot is riding on this, if the authorities get it right, there will be major opportunities, if they get it wrong, it will hurt the global economy. With the increasing inter-penetration of financial markets, the importance of this issue increases. #

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Mr Dukes commented on references made during the day on the actions of the G20 but warned that the G20 took a long time to make decisions and enable actions. So it is difficult to place much hope in speedy developments at that level. #

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In closing, Mr Dukes echoed the remarks of Joerg Wuttke, “Free Trade Zones are good, but Free Trade is better” and called it “on of the most pertinent things said about Trade Policy”. He warned that without taking measures in line with this sentiment, much of the potential for growth that we can grasp at the moment will be lost. #

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The Panel of Expert Speakers

#

Deregulation in the Chinese economy is an interesting area.

Something that Europe has gone through for many years - citing his own experience in aviation, telecommunications and energy deregulation in Europe. Energy has proved problematic with high prices and a small market of big players, he warned.#

#

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© Asia Matters 2014

Presentations can be viewed at www.asiamatters.eu/presentations#

# # # # Speakers! #

• H.E Hans Dietmar Schweisgut, Ambassador and Head of Delegation of the European Union in China www.eeas.europa.eu/delegations/china/#

• Ambassador Yu Hongjun, Vice President of the Chinese People’s Association for Peace and Disarmament (CPAPD) www.cpapd.org.cn/web/, Former Vice Minister of International Department, Central Committee of Communist Party of China www.idcpc.org.cn/#

• • • • • •

Mr Xiang Bing, Dean, Cheung Kong Graduate Business School (CKGSB) www.ckgsb.edu.cn/# Mr Laurence Barron, Chairman, Airbus Group China www.airbus.com/# Gao Zhikai, Vice Chairman, Sino-Europe United Investment Cooperation # Mr Huang Shan, Associate Managing Editor, Caixin Media www.english.caixin.com# Markus Borchert, President, Greater China region, Nokia www.nokia.com/cn-zh/# Niu Mu Hong, Director of Monetary Policy Division, Financial Research Institute, People’s Bank of China www.pbc.gov.cn/#

• Dr. Li Xiaoyang, Assistant Professor of Economics and Finance, Cheung Kong Graduate Business School (CKGSB) www.ckgsb.edu.cn/#

• Lijia Zhang, Writer, Columnist and Social Commentator www.lijiazhang.com# • Mr Joerg Wuttke, President of the European Union Chamber of Commerce in China www.europeanchamber.com.cn/ and, President of BASF www.basf.com/ #

• Mr David Wu, Senior Partner, Government and Regulatory Affairs Leader, PwC China www.pwccn.com/#

# # Chairperson! # • Alan Dukes, Chairman, Asia Matters, www.asiamatters.eu# # # # Presentations can be viewed at www.asiamatters.eu/presentations

Asia Matters!

13 Classon House, Dundrum Business Park, Dundrum, Dublin 14, Ireland# T: (+353) 1 906 5333 E: info@asiamatter.eu W: www.asiamatters.eu#

#

Asia Matters is an independent, not for profit educational think tank focused on building lasting connections with and better understanding of key Asian partners for Ireland and the EU. The Chairman is Alan Dukes, former Irish Minister for Finance

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© Asia Matters 2014

Asia Matters!

13 Classon House, Dundrum Business Park, Dundrum, Dublin 14, Ireland# T: (+353) 1 906 5333 E: info@asiamatter.eu W: www.asiamatters.eu#

#

Asia Matters is an independent, not for profit educational think tank focused on building lasting connections with and better understanding of key Asian partners for Ireland and the EU. The Chairman is Alan Dukes, former Irish Minister for Finance

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Š Asia Matters 2014