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4HE #YBER 4HREAT Economic espionage and Internet-based attacks against American companies – both in China and at home – are growing threats, say industry experts and elected officials
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INSIGHT June 2012
The Journal of the American Chamber of Commerce in Shanghai
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F eat u res
14 J. Stapleton Roy on U.S.-China Relations
By David Basmajian
The former U.S. ambassador talks about Bo Xilai and economic and political issues during a recent stop in Shanghai.
Committees
Stefanie Myers insight editor-in-chief/ Communications & Publications Events
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17 The Long Wait in Shanghai
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By Matthew Garner
Several months after the government rolled out measures that require foreigners to sign up for social insurance, Shanghai has not implemented it.
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20 The Sky’s the Limit LUXURY MARKET
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American manufacturers are guessing that China’s appetite for luxury corporate jets is the next big thing.
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26 Phishing For Trouble COVER STORY
Story ideas, questions or comments on Insight: Please contact David Basmajian (86-21) 6279-7119 ext. 8066 david.basmajian@amcham-shanghai.org
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By Bryan Virasami
U.S. corporations in China and elsewhere have experienced or are likely to face cyber attacks from parties interested in intellectual property.
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Editor's note
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David Basmajian editor-in-chief/ Director Communications & Publications
he threat of a rising China is a narrative that, as they say in the newspaper business, “has legs” in the Western media. None more so than Internet-based attacks, allegedly launched from China, on U.S. networks and on American companies located here. The list of victims is broad and diverse and reportedly includes the U.S. Defense Department, the White House, Google and the U.S. Chamber of Commerce. While most stop short of directly accusing the Chinese government as being the source, attacks are often traced to China and when asked, many of our member companies (privately) tell us these attacks are happening and are a real threat. In this month’s cover story, Insight Managing Editor Bryan Virasami tells us more about the threat of phishing, spear phishing and how you can stop valuable IP from walking out your front door. The cyber security threat is but one of the contributors to a growing case of “strategic mistrust,” which is damaging the relationship between the United States and China, according to J. Stapleton Roy, former Ambassador to China and one of the most distinguished American diplomats ever to have
served in the U.S. Foreign Service. Roy took time out of his busy schedule to talk to me about this mistrust, his impressions of the Bo Xilai scandal and differing opinions on how and when China’s “cake” ought to be served. All is not doom and gloom on the diplomatic front, according to AmCham Shanghai’s own Kenneth Jarrett. Chair of the Board of Governors and former associate of Ambassador Roy while serving at the U.S. Department of State, Ken provides his thoughts on an unexpectedly productive Strategic & Economic Dialogue session in Beijing between the U.S. and China. According to Ken, despite the blind dissident Chen Guangcheng taking up temporary residence at the U.S. embassy in Beijing, positive outcomes at the talks reflect a “maturing relationship” between the two powers. AmCham Shanghai this month launched the Yangtze River Delta Center in Suzhou, expanding Chamber services and programming into the YRD. Learn more from an article by Jonathan Shyu, AmCham’s new YRD program manager.
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News
n ne ew ws s b br r ii e ef fs s
CHINA BUSINESS
Billionaire to create replica of Titanic in Nanjing Australian Mining mogul Clive Palmer has signed a preliminary agreement with Chinese state-owned company CSC Jinling Shipyard in Nanjing to rebuild a modern version of the Titanic. The ship, which will have the same dimensions as the original, will also include pools, gymnasiums and state of the art safety and navigation equipment. It is expected to be finished by late 2016, when it will navigate the route from London to New York that its predecessor was unable to complete because it sank. The shipyard will also build several bulk cargo ships for Palmer’s shipping company, a minor relief to a shipbuilding industry that recorded a drop of 22.5% year-on-year in built ships last quarter.
Credit card transactions increase Credit card transactions rose 48% in 2011, according to a report from the China Banking Association (CBA), which listed total transactions at US$1.2 billion, 40% of total consumer goods sold. The increase in transactions is likely because of increasing Internet sales, as approximately 167 million Chinese bought items via online payment, an increase of 21.6% from the year before. “The booming credit card industry is playing a more important role in boosting domestic demand and driving GDP growth,” said Deputy Director Yang Ke of the China Banking Association’s bank card committee. There was, however, less growth in the amount of cards put into circulation; the increase was recorded at 24% yearon-year compared to 30% growth in 2009.
Fed approves ICBC takeover of U.S. bank The U.S. Federal Reserve has cleared Chinese state-owned bank Industrial and Commercial Bank of China (ICBC) to buy a majority stake in the U.S. branch of Bank of East Asia, following talks between high-level U.S. and Chinese officials in Beijing. ICBC, China’s largest bank, will buy the U.S. bank for US$140 million.Two other banks, Bank of China and Agricultural Bank of China, will also open U.S. branches.This is the first time a Chinese bank has been allowed to take over a U.S. bank.Traditionally the Federal Reserve has delayed or rejected proposals, fearing regulation inadequacies. Before it was allowed to proceed, the ICBC application was reviewed by the U.S. Department of Justice. China’s government also opened up restrictions on the banking industry, loosening restrictions and allowing U.S. banks to raise their stakes in ventures with domestic securities firms from 33% to as much as 49%.The talks were hailed as a success by U.S.Treasury Secretary Timothy Geithner, who said they increased economic ties between the U.S. and China.
Iron ore exchange established An iron ore exchange organized by the Chinese government was launched this May. The system, operated by China Beijing International Mining Exchange, will try to eliminate on-the-spot buying between buyers and sellers. Su Bo, vice minister of Industry and Information
Technology, said that “the platform will stabilize prices,” benefitting global trade and ensuring supplies for China. The platform is expecting to reach 100 million tons in iron ore trade by the end of the year. It will help China, who currently imports 60% of the world’s iron ore, to ensure supplies and to have more control over pricing in the market.
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Phone penetration will reach 100% by 2015 By 2015 China will have 1.4 billion phone users, a phone penetration rate of 100%, according to the Ministry of Industry and Information Technology in a report following the telecommunication industry’s 12th Five-Year Plan. This is not a new trend. Earlier this year the Chinese smartphone market became the biggest in the world, surpassing the U.S. market to represent 22% of sales while smartphone sales in the U.S. represented 16%. While many individuals may have more than one phone, by 2015 it is predicted that China will have 450 million 3G users. China also plans to start a project called “Broadband China” to improve average broadband bandwidth capacity in cities, making Internet access five to 10 times faster than current levels. CORPORATE NEWS
Coca-Cola GM in Shanxi suspended The general manager of Coca-Cola Shanxi Beverages resigned and several employees were suspended after traces of chlorine were found in its drinks. David G. Brooks, president of Coca-Cola Greater China and Korea, issued a public apology. According to Brooks, the contamination occurred during a pipe refitting project on February 3 when “some employees, due to errors in operation, opened the valve between the beverage production processing water pipe and the daily-use water production pipe.” The Shanxi branch has issued a recall for products produced between February 4 and 8. Despite the recall, Brooks asserts that the nearly 76,000 boxes that reached the market meet national standards and pose no harm to human health.
Taobao stores in bribery scandal Nine online stores hosted by Taobao.com, China’s largest online retail platform, have been closed and banned from further use of the platform after allegedly bribing Taobao employees to remove
negative feedback from consumers and raise credit ratings in order to improve business. Alibaba Group Holding Ltd., China’s largest e-commerce company and owner of Taobao, released an open letter stating that future violators will also have their stores closed and be turned in to the authorities if necessary. The company set up a Department of Integrity in 2010 to investigate customer concerns regarding Taobao employees’ illicit activities, but this occasion marks the first move the company has made to target corruption among store owners.
Lenovo to expand mobile Internet devices lineup Lenovo recently broke ground on a plant in central China to manufacture and research development of mobile Internet devices, such as smartphones and tablets. The plant, located in Wuhan, Hubei province, will open in October 2013. It is expected to generate US$1.5 billion in sales revenue by 2014, creating 10,000 jobs in the area. In a statement, Lenovo Group Chairman and CEO Yang Yuanqing said the company is “accelerating development in smart phones, tablets, and other mobile Internet terminal markets.” Lenovo plans to spend US$800 million in research and development for the industry over the next five years.
GE buys stake in XD Electric GE has launched a joint venture with China’s XD Electric in which it will sell equipment to help upgrade and automate Chinese electrical systems. GE will purchase a US$535 million-equity stake of 15% in the company, allowing the company to appoint a director to the XD Electric board. The investment, according to President and Chief Executive Officer of GE’s digital energy business Bob Gilligan, “helps us better serve energy-intensive industries like utilities, like mining, like steel.” GE will continue to invest in the region, where in March it forecasted an annual growth of 15% in China and other Asian nations through 2016.
MACROECONOMICS
Chinese trade surplus rises The Chinese trade surplus rose to US$18.4 billion in April, a sharp rise from the US$5.4 billion surplus posted in March. The number was higher than expected, and is largely a result of weak import growth, which rose only 0.3% compared to 5.3% in March. The low import growth could point to a decrease in domestic demand. Export growth was also lower than expected, rising 4.9% year-on-year in April compared to an 8.9% increase in March according to China’s General Administration of Customs. The weak growth numbers were enough to affect the Australian dollar, normally sensitive to China’s demand for raw materials, which fell after the data was released. Stocks on the Shanghai Composite index also experienced a slight dip.
CPI indicates slowing inflation The Consumer Price Index (CPI), a method of gauging inflation, rose by 3.4% in April, compared to 3.6% in March. Food prices, a large component of the CPI, rose 7% year-on-year in April, accounting for over two percentage points of total inflation, compared to 7.5% in March. The Chinese government intends to keep inflationary growth within 4%. The Producer Price Index (PPI), which measures price changes for domestic producers at the wholesale level, fell 0.7% from last year, compared to a 0.3% drop in March. Falling inflation sets the stage for looser monetary policy to boost lending and stimulate a slowing economy. During the first quarter of 2012, China’s economy grew by 8.1%, its lowest rate in nearly three years.
FDI in China drops for sixth month Foreign direct investment in April fell for the sixth consecutive month, dropping 0.74% from last year to US$8.4 billion, according to China’s Ministry of Commerce. This is largely because of European investment, which continues to fall in the country; from January to April European FDI decreased by 27.9% to US$2.7 billion. However, FDI
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from other areas of the world continues to grow; China has been listed as one of two top destinations for investment by the Japanese Bank for International Cooperation. Between January and April Japanese investment increased by 16% to US$2.7 billion and U.S. FDI increased by 1.9% to US$1.05 billion. GOVERNMENT & POLICY
Gutter oil producers arrested Police in Zhejiang province apprehended 20 individuals suspected of manufacturing and selling “gutter oil,” a type of illegal oil usually recycled from kitchen waste and considered a threat to human health if consumed. Li Weijian and his wife, Xu Xiaoqing, used decomposed animal fat and organs from slaughterhouses to produce their oil and have been selling it since 2005. The oil, which sells for RMB7,600 per ton, is sent to wholesalers and processing plants for use in restaurants including those in major cities such as Shanghai, Chongqing and in Jiangsu province. The gang reportedly earned over RMB10 million (US$1.6 million) in 2011 alone. The oil may contain carcinogens and other dangerous substances, making it unfit for consumption.
Tax breaks for IT In an effort to spur technological innovation and upgrading, China’s State Administration of Taxation has announced preferential income tax policies for software and integrated circuit (IC) producers. Backdated from January 2011 and effective until December 2017, companies that manufacture IC lines thinner than 0.8 microns will receive a corporate income tax exemption for their first two profitable fiscal years, and for the following three years be required to pay only half of China’s 25% corporate income tax rate. Also, enterprises that produce IC lines thinner than 0.25 microns or with investments of over RMB8 billion (US$1.27 billion) will receive a discounted income tax rate of 15%. Additional exemptions and reductions are available for qualified software and IT firms under certain conditions.
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Six regions warned over excessive energy consumption Six Chinese regions received “red-light warnings” from the National Development and Reform Commission for their failure to conserve energy resources. The number of red-light warnings issued decreased from nine regions in the same period last year. The six regions include Gansu province, Qinghai province, Hainan province, Guizhou province, Ningxia Hui Autonomous Region, and Xinjiang Uygur Autonomous Region. All of these regions received the same warning last year, except for Guizhou province, which also experienced a 15% year-on-year rate of growth in the first quarter. Jiangsu, Zhejiang, Jiangxi and Henan provinces did not receive a warning this year, although they received a red-light warning the year before. China aims to reduce energy use by 3.5% per unit of GDP.
New rules on lawsuits against Chinese monopolies China’s Supreme Court has issued new rules making it easier for plaintiffs to win lawsuits against Chinese monopolies. The new rules, effective June 1, will allow plaintiffs to bring cases into lower courts in big cities such as Shanghai, Beijing and Guangzhou. They will also classify SOEs as dominant entities, allowing plaintiffs to easier win cases against them. The new rules, the Supreme Court said in a statement, will help to “improve the competitiveness of enterprises and promote the healthy development of a socialist market economy.” They are part of a growing trend by the Chinese Government to target monopolies in China.
CCTV Beijing office opens Beijing’s CCTV office completed construction this month, adding the 54-story, 772-foot building to a list of new-wave architectural structures that have started to appear in Beijing. The office, nicknamed “big boxer shorts” by locals, was designed by Dutch Office for Metropolitan Architecture (OMA) and features two diagonal legs that meet at the
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top via a 90 degree, 13-story bridge jutting 528 feet above the ground. Construction on the site began in 2004, but was disrupted by a 2009 fire started from illegal fireworks set off by CCTV. The building will hold offices, TV studios and broadcasting and production facilities. U.S.-CHINA
Evernote plans China expansion Evernote Corp., makers of a cloud-based note-keeping application for computers, tablets and phones, recently announced plans to install servers in China. While Evernote is not blocked in China, filters required by the Chinese government for overseas Internet content slow down the service. Although the move would improve performance and local experience in China, it would also make users’ information more susceptible to Chinese government censors. However, according to Evernote CEO Phil Libin, “The overwhelming vast majority of people in China aren’t going to care.” For those that do, Chinese users can still opt to use foreign servers in the country of their choice to host their data. Currently, Chinese users account for approximately 4% of Evernote users worldwide.
Ford to build plant in Hangzhou Ford Motor Co. plans to invest US$760 million in an auto assembly plant in Hangzhou as part of a larger plan to catch up to rival carmakers and double global capacity by 2015. In collaboration with joint-venture partner Changan Ford Mazda Automobile Co. Ltd., the new Hangzhou plant will add 250,000 vehicles to annual capacity when it begins operations in early 2015. Including its recently announced plant expansion in Chongqing, annual capacity in China is expected to increase to 1.2 million vehicles. Increasing capacity in China will support company plans to introduce 15 new vehicles and 20 new engines to China by 2015. Construction of the Hangzhou plant will bring Ford’s total investment in China to nearly US$5 billion.
Yum! restaurants eye Suning stores Yum! Brands Inc. will open 150 restaurants in Suning electrical appliance stores over the next five years. Restaurants that will open include KFC, Pizza Hut, Little Sheep and Dong Fang Ji Bai, adding to the more than 5,000 locations Yum! already has across China. “The partnership will attract more customers than if each operates separately,” said Yum! Brands China Chief Executive Officer Zhu Zongyi. For both companies, the deal is part of a number of expansions; Yum! plans to add more than 600 locations in the near future, while Suning hopes to add 400 new stores this year. SHANGHAI BUSINESS
Shanghai may expand smoking ban Shanghai legislators may soon restrict smoking in all indoor venues, expanding a 2009 smoke-control law that restricts smoking in places such as government buildings, hospitals, campuses and entertainment venues. Fourteen local
legislators have already proposed the addition to the law, which will come into review later this year. Last year, the World Health Organization reported that there are 300 million smokers in China, 28% of the population. Although the push for a public smoking ban is part of China’s 12th FiveYear Plan, the restrictions face enforcement issues; most perpetrators don’t remain long enough for police to arrive, and fines that range from US$7.8 to US$31.
Software industry alliance formed A national development alliance was formed in Shanghai between 75 regional software industrial parks. The members, which include Shanghai Pudong Software Park, Beijing Zhongguancun Software Park and Shenzhen Software Park will use the alliance as a platform to improve cooperation and to develop the industry. According to the software division director of the Ministry of Industry and Information technology, the group “helps software parks share resources and exchange experience
and further pushes industry development.” China’s government, according to the 12th Five-Year Plan, will grow the software industry 20% every year from 2011-2015.
Foxconn establishes presence in Shanghai Foxconn Technology Group (Hon Hai Precision Industry Co, Ltd.), the world’s largest consumer electronics manufacturer, has announced plans to set up headquarters in Shanghai’s Lujiazui financial district. The 80,000 square meter facility, scheduled to be completed in 2015, will focus on developing the company’s sales and services sectors. “We are turning our export factories to be more domestic market oriented,” says Terry Gou, founder and company chairman. Foxconn intends to expand its Internet retail website, e-feihu.com, which launched in 2010. The platform sells components and consumer electronics products it manufactures for global clients such as Apple, Sony Corp. and Microsoft. Foxconn has also opened up a number of stores and branches in Chinese cities to distribute electronic goods.
CHINA & THE WORLD
ASIA-PACIFIC SIA PACIFIC SOUTH AMERICA
CAMBODIA: China builds infrastructure in Cambodia Construction for the No. 214 national road and the Cambodia-China Friendship Mekong-Stung Trent Bridge began in Cambodia. Both projects are funded by the Chinese government in the form of a US$116 million soft loan, intended to boost the economic development of Cambodia’s border provinces. The road will stretch 114 kilometers from Stung Treng province to Preah Vihear province, to be completed in 45 months by the Shanghai Construction (Group) General Company. The bridge will extend 1,731 meters after its completion. He Leping, Charge d’Affairs of the Chinese Embassy to Cambodia, said that China would continue to help Cambodia develop infrastructure projects as well as encourage more Chinese investors to do business in Cambodia.
MIDDLE EAST
NIGERIA: Nigerian state plans to teach Chinese in schools The government of Cross River State in Nigeria plans to start teaching the Chinese language in state public schools, in an extension of a massive 10-year overhaul of the country’s education system. The move, according to State Commissioner for Education Offiong E Offiong, will allow the country to tap into China’s socio-economic growth. “In the next 10 years, China will emerge as a world superpower given its population indices and leading role in Information and Communication Technology revolution, amongst other very critical fields of human endeavor,” he said. Commissioner Offiong has already written to the Chinese ambassador in Nigeria, and is looking to collaborate with China to train the teachers who would become part of the state program. There are also plans to establish a Chinese Language Center in Calibar, Nigeria.
ASIA-PACIFIC SIA PACIFIC EUROPE
AFRICA
UNITED KINGDOM: Bright Food acquires U.K.-based Weetabix Chinese state-owned Bright Food Group Co. bought 60% of U.K.’s Weetabix early in May from London-based Lion Capital. The deal, dubbed Project Sunshine, gives Bright Food Group a controlling stake in the iconic British cereal brand, a staple in the U.K. that has expanded over its 80 years to employ over 2,000 individuals and export to more than 80 countries. Weetabix is currently valued at US$1.9 billion, including debt. Bright Food Group plans to allow the brand to expand through their already-established distribution system in China, exploiting a rapidly increasing demand for cereal in the country. Cereal sales are now recorded at US$191 million in China, a 70% increase from 5 years ago.
MIDDLE EAST EUROPE
NORTH AMERICA MIDDLE EAST
UAE: Chinese construction company will build in Abu Dhabi Shanghai-listed construction company China State Construction Engineering Corp signed a deal with Abu Dhabi sovereign fund Aabar Investments PJS to develop projects in Abu Dhabi worth US$2 billion. The construction company will build 30 properties including office buildings, apartments, and hotels. Aabar investments, whose real estate branch hopes to become the only developer in the United Arab Emirates, will be funded by the Industrial and Commercial Bank of China (ICBC), which it plans to repay largely with revenue from oil trading. For Chinese construction companies, offshore contracting will increase by 5 to 10% this year, according to the China International Contractors Association.
AFRICA
NORTH AMERICA
SOUTH AMERICA MIDDLE EAST AFRICA
UNITED STATES: News Corp. buys stake in Chinese film studio News Corp., owner of 20th Century Fox film studio, will take a nearly 20% stake in Beijing-based film company Bona Film Group Ltd. Yu Dong, founder and chief executive of Bona, says that News Corp.’s “extensive global reach, investment and distribution will help accelerate our strategy to expand our global footprint.” Conversely, Jack Gao, News Corp.’s chief executive for China investments, stated that, “One of Bona’s unique advantages is its vertically-integrated business model, which differentiates the company from other film distributors in China.” While box-office revenue in the U.S. and Canada has dropped 4% to US$10.2 billion last year, the Chinese film industry experienced a 29% revenue increase to RMB13.1 billion (US$2.08 billion).
AFRICA ASIA-PACIFIC SIA PACIFIC NORTH AMERICA
COLOMBIA: China makes oil deal Colombian President Juan Manuel Santos signed a deal with Chinese President Hu Jintao to increase oil and coal exports from Colombia to China, via a pipeline expected to be completed in 2018. There were preliminary agreements made between Colombia and state-owned China Development Bank to finance the project, which will pipe 600,000 barrels a day of Colombian and Venezuelan oil to Colombia’s pacific coast to be exported to China and Asia. The pipeline may later be accompanied by a railway for coal. Currently Colombia exports half of its oil to the U.S., where an evolving energy market is expected to decrease demand. “We have to start shifting our markets to Asia,” said Colombian Mines and Energy Minister Mauricio Cárdenas.
SOUTH AMERICA
ASIA-PACIFIC SIA PACIFIC
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SOUTH ASIA-PACIFIC SIA AMERICA PACIFIC
deal of the month By Caitlin Elling
Johnson & Johnson Acquires Bioseal Biotechnology
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he Chinese division of Johnson & Johnson Investment in May acquired Guangzhou Bioseal Biotechnology Co., Ltd., a biopharmaceutical company that specializes in producing a porcine plasma-derived sealant used to control bleeding during surgery. The acquisition is the first within the Chinese medical device industry for Johnson & Johnson (China) since its entrance into the China market in 1985, and will allow the corporation immediate access to the fibrin sealant market. Bioseal is currently the only government approved porcinederived fibrin sealant in the Chinese market. Bioseal will work under Johnson & Johnson Company Ethicon, which focuses on biosurgical care. “By adding Bioseal to the existing line of Ethicon products sold in China, we aspire to shape the broader biosurgery market in Asia by providing physicians and their patients with an even greater variety of innovative and clinical-based solutions to address bleeding, sealing and leaking challenges,” said Michael del Prado, company group chairman of Johnson & Johnson Medical Asia-Pacific, in a statement. While financial details of the Bioseal acquisition were not disclosed, the deal received approval from the Chinese government. The transaction, according to a statement by Xie Wen Jian, president of Johnson & Johnson Medical China, issued after the deal, “reinforces our commitment to China
and delivering innovative medical solutions to the Chinese market.” Johnson & Johnson has recently enjoyed doubledigit growth in China, as well as in other emerging markets, including BRIC countries Brazil, Russia, and India. Johnson & Johnson’s Medical Devices and Diagnostics unit made up 40 percent of the corporation’s total revenue in 2011, recording US$25.8 billion in sales. Last year, Johnson & Johnson opened a new innovation center in Suzhou Industrial Park to develop Asia-specific medical devices and diagnostic products. The new center increased Johnson & Johnson investment there to US$155 million. The Chinese medical device market itself has undergone substantial growth; in 2011 it grew 13.1 percent. China is currently ranked as the third biggest market in the world for the industry, following the U.S. and Japan, worth US$15 billion in 2010. US$760 million of Chinese imports in the same year were from American companies. By 2019, the Chinese market for medical devices is expected to reach US$43 billion. Biotechnology in particular has been flagged as a strategic industry. In China’s 12th Five-Year Plan, Beijing listed biotechnology as one of seven strategic emerging industries; the country is expected to spend US$1.7 trillion on the industry in the next five years. For Johnson & Johnson, the Bioseal acquisition will become a platform for continued growth, research and development in the region.
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Sponsored Content
How Can Imported Consumer Goods Companies Capture the Chinese Market? With increased demand for imported consumer goods and new incentives such as decreased tariffs enacted in recent years, many luxury goods or first tier brands have set up online stores or flagship stores in key cities in China. Second or third tier brands, however, which have less brand recognition and integrated marketing, have to find other ways in and collaborate with Chinese partners who are more familiar with the local market. ShanghaiMart has been devoted to providing B2B service for international trade since 2004, with countries such as Japan, Korea, and Thailand. Hongqiao, where ShanghaiMart is located, is a strategic area in establishing an international trading center, due to its geographic advantage. It is close to Jiangsu and Zhejiang provinces and it also boosts a good business environment. ShanghaiMart is now introducing a practical “3+2” program, with “3” B2B and “2” B2C promotion methods strategies, helping second and third tier brands enter the Chinese retail market in a short amount of time. So far, this program has successfully introduced a “Global Products Pavilion,” with stores such as the “Japan Food Center,” “Good Goods Japan,” “Kyoto Image Showroom,” “Turkey Food and
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Gifts Center,” “Taiwan Trade Center,” “China Silk Center,” “Doota - Korea Fashion Center,” “Thailand Commodity Center,” “Canada Commodity Center” (food and wine) as well as the “Sri Lanka Commodity Center (Jewelry).” The consumer goods introduced at this center come from nine countries and regions, which all have high-quality goods, such as wine, household articles, jewelry, clothing, as well as high-end business gifts and luxury goods. The Golden Key to the Chinese Market — ShanghaiMart’s “3+2” Program ShanghaiMart now brings more effective services through the 3+2 program. On the B2B side, steps include participation in ShanghaiMart trade shows, reaching out to more distributors, agents and buyers. The second part involves tailored one-onone B-match (Business Match-making) programs to introduce products to the market. The last step is setting up a long-term exhibition space ShanghaiMart’s Hongqiao location. The two B2C services encompass offline and online promotions. Offline promotion includes carrying out testsells in well-known shopping malls and gauging consumers’ reactions. Online promotions through “Alibaba /
Taobao + Orient TV shopping” open the market in the short term and increases brand awareness. These B2C services help brands see feedback directly from consumers as well as try out the market, which is a great way to grab valuable, first-hand information. The “Global Products Pavilion” in ShanghaiMart has attracted second and third tier brands from Japan, Korea and South East Asian countries by its innovative marketing strategies. After growing significantly, the “Global Products Pavilion” is moving in a positive way. More and more brands from European countries and America, including some luxury brands, have started to join in this center after many successful cases.
Case Studies: “Good Goods Japan,” Luxury Marketing Japan has always been a frontrunner in marketing. The “Good Goods Japan” introduced by Japan External Trade Organization (JETRO), joined the project in 2010 to showcase fine Japanese living goods. At the same time, it entrusted ShanghaiMart to promote its brand in the Chinese market. Consumers can try and browse exhibited goods in its showroom, as well as place an order via JETRO’s online store. This has been a winning strategy. In one and a half years, exhibiting companies at ShanghaiMart have risen from 12 to over 100. Many luxury brands have set up their retail flagship stores in Shanghai. The well-known luxury car, Lamborghini, with an average price of RMB12 million and its related goods such as glass, sports ware, perfume, accessories, furniture, and IT products are all equipped with cutting-edge technology and top grade material,. Lamborghini has shown great interest in the “Global Products Pavilion” and looks forward to presenting its goods in the Pavilion, which will complement its online store.
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INT E RVI E W B y Dav i d B a s m a j i a n
During a recent visit to Shanghai, Roy spoke to Insight about some of the greatest challenges facing the United States, China and the bilateral relationship.
Former U.S. Ambassador J. Stapleton Roy
‘A Decisive Period’
Former U.S. Ambassador to China J. Stapleton Roy shares his views about U.S.China relations, strategic mistrust and Bo Xilai
F
ormer Ambassador J. Stapleton Roy is one of the most distinguished diplomats of his time. Roy served as U.S. ambassador to China, Indonesia and Singapore and also Assistant Secretary of State for Intelligence and Research. He retired from the State Department at the highest rank one can obtain, Career Ambassador. His life has been intertwined with China. “Stape” Roy was born in Nanjing to missionary parents and studied at the Shanghai American School as a child. He was involved in talks between China and the U.S., which led to normalization of relations in 1979. He is now Director of the Kissinger Institute on China and the United States at the Woodrow Wilson International Center for Scholars in Washington, D.C.
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Insight: You were ambassador to China between 1991 to 1995. What’s your assessment of U.S.China relations today? Roy: “The state of the U.S.-China relationship is better than it appears to be. Beneath the surface we are still working together on a variety of issues. The problem is the strategic mistrust which is poisoning the relationship in important sectors of both countries, especially the military establishment where the blame is equally shared between China and the U.S. Donald Rumsfeld [U.S. Secretary of Defense, 2001–2006] didn’t want militar y exchanges with China, even when President Bush wanted them, he was simply obstreperous. “The PLA more recently broke off military to military contacts because of dissatisfaction with our arms sales to Taiwan. The result is that the one component of the U.S.-China relationship that has not been significantly strengthened over the last 30 years is the military to military relationship. We have some military exchanges taking place now but we have a long way to go. “But the military doesn’t determine the size of the military; our civilian leadership determines that. If we’re going to address the question of trying to find a modus vivendi that would permit both countries to maintain strong militaries in the western Pacific without starting an arms race, we have to start addressing that at the highest levels, and we’re not doing it. “[U.S.-China cooperation in areas like] search and rescue operations, humanitarian responses to natural disasters, all these things are not trivial but they are trivial in terms of addressing the problems of strategic mistrust. That has to do with how you are deploying your forces and sizing your forces in terms of potential threats and the fact of the matter is both countries see the biggest potential threat as the other and that is what we have to address.” Insight: What do you see as the biggest challenge facing U.S.-China relations over the next 10 years?
Roy: “In many ways I think the next 10 years will be a decisive period in U.S.-China relations. The reason is very simple. Unless the U.S. and China can find some way to block the current drift towards growing strategic rivalry, tensions are going to rise in East Asia and it will make it more difficult to preserve the climate of peace, stability and prosperity that has fostered China’s rise and made East Asia such a dramatic success story. “Perhaps more important, if China’s economy continues to surge ahead and the U.S. economy remains mired in the struggle to bring our budget deficits under control, the PRC could emerge within a decade as the largest GDP in the world. This is going to have psychological as well as strategic significance. In many ways, I’m more worried about the psychological impact because Americans won’t easily adjust to having another economy in the world that is larger than ours. It’s an important fact because even if China does overtake us in terms of the size of GDP China will not have overtaken us in terms of comprehensive measures of national power. The danger is that we [the U.S.] are underestimated by a rising country such as China and that could have enormously dangerous fallout.” Insight: The Bo Xilai affair has been called by some the biggest political crisis for China since Tiananmen Square. Would you agree, and what does it tell us about China’s political transition, if anything? Roy: “Is it the biggest crisis since Tiananmen? I don’t like comparisons. It’s a bigger crisis than was caused when Chen Xitong [former Mayor of Beijing] and Chen Liangyu [former Shanghai CPC Committee Secretary] were purged, it has far more significance to it than the purges of other Politburo members. The reason is Bo Xilai had gained a national following because of his campaign against corruption and his use of Cultural Revolution themes in promoting his development strategy in Chongqing. The reaction of the Communist Party shows that they are nervous that there is nationwide support for Bo Xilai that could potentially split the party. So they have protested too much that the Party leadership
has been united in dealing with it and they have called for unity in dealing with the consequences of t he pu rge not on ly i n C hongq i ng but nationwide. “Why do they have to call for nationwide unity in the face of the purge of the Chongqing party secretary? The reason is because he represented some themes that have public appeal in China because of the disparities of income. Is there a ‘two line struggle’ [opposing ‘Party lines’]? Let’s not say there is a two line struggle, there is a ‘two cake’ struggle. Why do I say that? Wen Jiabao has referred to the Chinese economy as ‘the cake.’ “Party leaders have said that you should make the cake larger as the key task and the secondary task is to distribute it. Bo Xilai has taken the opposite approach – distribute the cake first and then try to make it larger. That’s an important, substantive difference. The ‘distribute the cake first’ is responsive to the sense in China that the income disparities are causing people to be kept poor longer because they’re trying to make the cake bigger first but that’s benefiting the haves of China, not the have-nots. “This was seen as a threat partly because he was using techniques that did not have party endorsement. The Chang Hong campaign (revolutionary song campaign) involved elements of self promotion and he probably made enemies partly because this is a non-traditional style of enhancing one’s leadership position. But if people say he was purged because he was promoting himself and there was no underlying issue, they are wrong. The Party’s response suggest that they are concerned that his approach had appeal beyond Chongqing and that that created a problem for the Party in terms of creating a split around how you deal with income disparities.” Insight: Does the Bo Xilai affair show that Chinese politics is changing? Roy: “The answer is yes. Because the very open public discussion in the blogosphere in China about the Bo case was clearly insuppressible by the authorities, and the authorities do not like an active blogosphere discussing Chinese politics. That just shows that the existence of a nationwide
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In many ways I think the next 10 years will be a decisive period in U.S.China relations.”
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…the very open public discussion in the blogosphere in China about the Bo case was clearly insuppressible by the authorities…” J. Stapleton Roy talks to Insight’s David Basmajian
opinion instantaneously formed through the Internet has altered how politics is pursued in China. We saw it in the case of Russian elections last fall. Putin was stunned that you could have instant pictures of ballot box stuffing broadcast on the Internet which created an anti-election movement that the Russians weren’t used to having when they controlled the central media.” Insight: The Obama Administration has received a lot of attention for their renewed focus on Asia or what they and others have called the “Asia Pivot.” What do you think of this policy? Roy: “I don’t like the term pivot because it suggests that we weren’t engaged in East Asia. China and North Korea always received our attention. It was Southeast Asia that we were neglecting. I think rebalancing is a better way to phrase what we are doing. “This is, in my judgment, part of a coherent approach to East Asia that does not attempt to contain China but restores confidence in the region that the United States, despite its budgetary difficulties, is truly committed to maintaining a robust presence, not simply in the northeastern part of the region but in southeast Asia, which we truly did neglect with negative consequences for
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our position in the region. “Not surprisingly, this flurry of activity by the United States has caused many Chinese to see the U.S. as challenging China in its own backyard. From China’s standpoint, if they look at this correctly, they will realize that, as long as we don’t pursue a containment strategy against them, it is actually in their interest to have the U.S. increasing the confidence of China’s neighbors that China can continue to rise without creating threats that they can’t manage. It can’t do that unless the U.S. stays engaged in Asia. “I think they [Obama Administration] have repositioned ourselves properly. While it is easy to see China as the driving factor I think it would be a mistake. While I was Ambassador to Indonesia, I wanted more attention for Indonesia, not because of China but because we weren’t paying enough attention to the fourth largest Muslim country in the world. The reason why we needed to pay more attention to southeast Asia is that southeast Asia is driving the institution building process [in Asia] and the U.S. was an outsider. So we had new institutions emerging in southeast Asia some of which are absolutely fine without our participation and some of which our failure to participate in was totally baffling.”
S O C IA L INS U R AN C E B y M at t h ew G a r n er
Social Insurance: The Long Wait Foreign workers in Shanghai are still awaiting word from authorities on whether they must enroll
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early eight months after China’s Ministry of Human Resources and Social Security (MHRSS) issued the controversial “Interim Measures for Participation in Social Insurance System by Foreigners Employed in China,” Shanghai government officials have not yet clarified when they will issue related rules for foreign workers in the city or implement the measures. The national “measures” require foreign workers (including those from Hong Kong, Macao and Taiwan) to register and begin making payments within 30 days of being issued a work permit. When it was issued, the new policy raised a lot of discussion as to how, if and when Shanghai would develop its own localized version of the national policy and when it would be implemented. As of late May, there were still no developments. The government described the measures as a way to ensure all foreign nationals with work
authorization in China receive coverage under the country’s social insurance system. It requires both employers and workers to make contributions to retirement, medical and other programs. Other provisions provide rural Chinese residents the same coverage that their urban counterparts have long enjoyed. Theoretically, all companies in Shanghai are required to register foreign workers with work authorization and contribute into the system but it’s been reported that many are holding off until they’re told they must do so. However, some companies in the city said last year that they were setting aside payments just in case the measures go into effect retroactively. Foreign workers have complained, as widely reported, that they would not reap any benefits from China’s social insurance system even though they are asked to pay into medical, retirement and other insurance programs. Additionally, foreign workers at multinationals already have company-issued medical insurance
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Gordon Feng of Paul Hastings
Social Insurance Across China Cities Local Implementation Rules / Authorities / Effective Date
Requirements Enrollment and Overdue Fines on Hong Kong, Contribution Macau and Taiwan Residents (“HMT”)
1. Beijing
Enrollment notice was issued on October 11, 2011 and became effective October 15, 2011
N/A
Enroll within 30 days after obtaining Work Permit
No overdue fine if making up the contributions for October to December 2011 before January 1, 2012
2. Zhuhai
Enrollment notice was issued October 11, 2011
N/A
Enroll from November 1, 2011
Not specified
3. Chengdu
Enrollment notice was issued on October 19, 2011, effective from October 15, 2011
Applicable
Enroll within 30 days after obtaining Work Permit
Not specified
4. Qingdao
Enrollment notice was issued November 4, 2011, effective from October 15, 2011
N/A
Enroll within 30 days after obtaining Work Permit
Not specified
5. Suzhou
Enrollment notice was issued and effective from January 18, 2012
Applicable
For foreigners employed before October 15, 2011, contribution starts from October 2011
Not specified
6. Chongqing
Enrollment notice was issued on January 31, 2012
Not applicable
Enroll within 30 days after obtaining Work Permit
Not specified
7. Wuxi
Enrollment notice issued on February 16, 2012
Not applicable
Enrolled within 30 days after obtaining Work Permit
Not specified
8. Xiamen
Enrollment notice was issued on March 6, 2012
Not applicable
Enrolled before May 6, 2012, c o n t r i bu t i o n s t a r t s f r o m October15, 2011
No overdue fine if enrolled before June 30, 2012
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I do not think Shanghai is very interested in enforcing the enrollment of foreign employees to PRC social insurance schemes…” –Attorney Gordon Feng, Paul Hastings
Chart courtesy Paul Hastings
and pension, and few go to public hospitals that accept social insurane coverage as required by the domestic measures. Other cities including Beijing, have implemented the measures. G ord on Fe ng , ch ai r of Pau l Ha st i ng s’ employment law practice in Shanghai, said Shanghai doesn’t look too keen on implementing the measures anytime soon. “I do not think Shanghai is very interested in enforcing the enrollment of foreign employees to PRC social insurance schemes,” Feng told Insight. “On one hand, compared to PRC employees, the number of the foreign employees in Shanghai is little, so the compulsory enrollment would not bring much financial benefit to the government. On the other hand, the compulsory enrollment will drive Shanghai’s already high labor cost even higher, thus weakening the competitiveness of the city.” Shanghai authorities said late last year that social insurance rules in Shanghai are presently based around Circular 38, “Concerning Social Insurance for Expatriates (Including Taiwan, Hong
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Kong and Macao) in Shanghai.” Published in 2009, the document is similar in structure to the national regulation with the exception that foreigners in Shanghai receive pension/retirement, health insurance and worker’s compensation but not unemployment and maternity leave. In Chinese legalese, a “circular” calls attention to issues of concern to the leadership but do not themselves constitute operational decisions, meaning that foreign employees should register, but are not required.
Elsewhere in China Cities like Beijing and Dalian have already implemented their own local versions of the foreigner social insurance regulation. However, Beijing’s localized framework has not made much revision to the national outline. While methods for application and payment have been laid out, currently it has yet to resolve several issues like range of coverage, procedures for redeeming coverage, coverage for dependents and penalties
for not singing up. The Ministry of Human Resources and Social Security said that by the end of 2011, of the 30,000 foreign workers in Beijing municipality who fit the criteria, 7,800 had entered into the program. What is repeatedly absent from announcements about foreigner social insurance is an actual standardized payment structure. Unlike payments for Chinese employees where there is a specific standard (e.g., 8 percent of salary), for foreign employees in Beijing, there is only a maximum and minimum amount of payment. In Beijing, the upper limit on the amount is 300 percent that of the average monthly salary for the city and the minimum is 40 percent of the average monthly salary for the city. Feng said that no news from Shanghai authorities might not necessarily be good news for companies and workers. “It m ay n o t n e c e s s a r i l y b e a p o s it i v e
development. Because an employer in Shanghai may feel uncertain and unstable about the enrollment, given more and more cities are starting to require enrollment. Especially, it is uncertain if, in the future, the enrollment becomes compulsory, w he t he r t he e n rol l me nt and p ay me nt of contributions would retroactively apply to the previous years when the enrollment remained voluntary,” Feng said. As for other cities, it is the same picture as Shanghai. Chengdu, Qingdao and Chongqing are still at the “should contribute” stage. Although, according to the Chengdu Social Security Administration, there are approximately 147 foreign workers registered for social security in the city.
Matthew Garner is a government relations associate at AmCham Shanghai.
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L U X U RY MA R K E T B y Mered i t h R odr i g ue z
A small jet at Shanghai Hongqiao Airport
The Sky’s the Limit U.S. companies are aiming for high growth in China’s private jet market despite regulatory hurdles
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uring a windy and sunny March afternoon in Shanghai, Chinese government officials and sales executives in suits and sunglasses mingled with the rich and beautiful near the foot of private planes, corporate jets and helicopters parked on the tarmac just south of Terminal One at Shanghai Hongqiao Airport. They posed for photographs as aircraft industry personnel tried to charm the nouveau rich standing on red carpet. Inside the hangar, charter companies and other industry executives with stakes in the private jet industry from Asia and beyond tried their best to secure a piece of the pie as they all anticipate strong growth of the private jet industry in China. The event that brought everyone together was the Asi an Business Avi at ion C onference and
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Exhibition (ABACE), the second to be held in Shanghai since 2005 when 40 companies and just 11 planes were on hand. Since then, the government has taken steps to develop China’s airports and flight services and it’s even featured in the 12th Five-Year Plan as a priority. In addition, the military, which controls China’s airspace, has been slowly loosening its grip. For those in the industry, China is one of the ripest markets today for private jets, and business is getting better. In China, some 63,500 people have assets in excess of RMB100 million, according to Hurun Report, a white paper on the Chinese luxury consumer published in March. Around 13 percent of those said they intend to purchase a private jet. Hurun also publishes China’s annual list of the thousand richest people
Interior of private jet
David Turchetti
in China. “All of the factors seem to be lined up for a perfect growth of the industry for the future,” said David Turchetti, managing director of Blu Inc. Media in Shanghai, which publishes luxury lifestyle magazines including Jet Asia-Pacific. “The trends are all looking in the right direction.” As American aircraft manufacturers see sales decline sharply because of the slow growth of economies worldwide, they’re looking to China to pick up the pace. There were more than 150 exhibitors at this year’s ABACE event with 27 business jets and three helicopters from major manufacturers on display. Manufacturers say they expect deliveries of hundreds of business aircrafts over the next 10 years, 50 jets a year to the mainland and more than 1,000 by 2020.
Carey Matthews, general manager at Shanghai Hawker Pacific Business Aviation Service Centre, which co-sponsored the show with the Shanghai Airport Authority, sees room for growth. “Most of the people that were exhibiting there were predominantly American companies. The States has such a long tradition of aviation, it really is a nice way to introduce themselves to the Chinese customers,” Matthews said. “In the same way Chinese have appetite for Audis and Ferraris, they have also developed an appetite for private jets.” Georgia-based Gulfstream has seen good business here so far. Other airliners such as the Global Express XRS by Canadian manufacturer B ombardier and Falcon 7X by French manufacturer Dassault are also popular choices for China’s wealthiest, while leading American
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For those in the industry, China is one of the ripest markets today for private jets, and business is getting better…”
Mike Shih
companies like Cessna recently announced joint ventures to help solidify their place in the market. A Boeing plane on display at ABACE looked like a small commercial jet on the outside but was more like a small apartment inside. It was glitzed out with Renaissance-style painted ceilings, gold trim, a living room, dining room, bedrooms and a kitchen from which staff could bring out lunch on china platters. This may seem gaudy even for some Chinese consumers, but Boeing was helping its original owner sell this gently used airplane at the ABACE show in Shanghai. Industry sources say China has some unique features. In other markets, a first time jet owner usually goes for a small and then graduates to a mid-sized jet before choosing a 12 to 18 seater, an ultra long-range aircraft, which generally starts around US$40 million, according to Jeffrey Lowe, General Manager of Asian Sky Group, a PanAsian business aviation consulting firm. Over the last decade here, however, CEOs and
Visitors at the Asian Business Aviation Conference & Exhibition in Shanghai
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other executives have been picking larger jets as their first one. Of the Gulfstream G550s owned by billionaire CEOs, many have been collecting dust between domestic trips, Lowe said. “They probably don’t need a Gulfstream,” Lowe said. “They are mostly flying between Beijing and Shanghai. They don’t need an airplane that will fly them from China to London, England. It’s new wealth, so they’re certainly not afraid to flash it around.” Regardless whether it’s just for show, it’s certainly a symbol of success for the uber-rich, Lowe said. Manufacturers and other investors in China predict that as China’s infrastructure and regulations mature and match those in other countries, the Chinese consumer will begin to see planes as business tools and not a decoration. Eventually, even mere managers may opt for a small, mid-range jet such as a Bombardier Challenger 605 and Dassault Falcon 2000LX, according to Lowe.
“There’s still the hurdle of the stigma of the private jet. By some it can be viewed as an extravagance,” said Dan Drohan of Solairus, an aircraft charter and management company which recently announced a joint-venture with Hong Kong-based Metrojet. “In Asia we are still early in the process of showing and demonstrating to people that it is not true. These are business tools and not play things of the rich and the famous.”
Unique Market China is unique because of its population, limited land to develop infrastructure and strict government regulations, Lowe said. Lowe adds that the Chinese economy is not experiencing double-digit growth as before. “China is the flavor of the day,” Lowe said. “Whether it will still be that hot two years from now or not, who knows what might take place.” Regulations have been a historic problem for the industry, but that appears to be changing. In August 2010, the government announced a plan to open airspace below 1,000 meters (3,300 feet) and up to 4,000m (13,100 feet). Through 2015, the plan calls for the military to open up trial airspace in Hainan, Guangdong, Liaoning, Jiling and Heilongjiang provinces, according to Mike Shih, Cessna’s Vice President of China Strategy and Business Development. Another problem that could hurt sales is delays. And it’s not just flights on Air China or China Eastern that are held up for hours. Most jet owners need to go through security and their planes must often wait until commercial jets take off. In Beijing, air traffic is so congested that private jets cannot return to the same airport from which they left within 12 hours, Shih said. The same busy airports still don’t allow propeller planes. In China there are little over 200 airports available for public use, a number that is expected to grow to 250 by 2020 but will still be far from reaching the 20,000 in the U.S. “They are expected to grow, but it takes time to build airports,” Shih said. “I don’t think we’ll ever expect China to grow close to the number of the U.S.”
Adding to congestion is the fact that the military only opens specific routes. A plane can’t go directly from Guangzhou to Shenyang, for example, but will have to fly via Beijing’s airspace. “To some extent, if the traffic condition in Beijing gets so bad that you can only use your car three days a week, at some point people will say, ‘What’s the point of owning a car if you can’t use it?’” Shih said. The shortage of qualified pilots is another issue. There are some 5,000 new pilots every year in China and that’s the case for the next 20 years. The number does not include pilots for private jets. “If you’re looking for a local Chinese pilot who’s experienced, there just aren’t any,” Lowe said. “No one that really has much experience.” Some aspects of the industry are improving. For example, five years ago, it took up to two weeks to secure a landing permit, according to Yang Fang, the Shanghai sales director for Asia Jet, a Hong Kong-based charter company that has been in the mainland market for five years. Now it takes three working days and sometimes one. “The advantage diminishes if you have to book two weeks in advance,” Fang said. At the same time, it takes eight months to approve every registered plane, possibly an attempt to limit the size of the market. Many Chinese have found a way to speed things up: registering their airplanes in the U.S. While avoiding high import taxes and delays, the owners must fork over extra fees and possible delays when they fly their U.S.-registered plane into China. There is growth potential for the tenacious and patient but the industry is small with incremental growth that cannot be compared to other industries. “I think it’ll be a nice market for American companies,” Matthews said. “It won’t be this explosive growth. The pieces of the puzzle aren’t there to support explosive growth just yet.”
Meredith Rodriguez is a freelance writer based in Shanghai.
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Yang Fang
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…It’s new wealth, so they’re certainly not afraid to flash it around….” -- Jeffrey Lowe, Asian Sky Group
VI E W P O INT B y E STH E R YO U NG
Social Responsibility and the Supply Chain AmCham Shanghai’s latest Viewpoint shows how businesses can meet their goals and responsibily manage societal goals
Caterpillar has leveraged its CSR programs in China
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upply chain operations and corporate social responsibility (CSR) are often considered mutually exclusive. However, aligning operating goals with consumer preferences and government targets across the supply chain can often support a company’s business objectives in China, especially in light of existing business challenges, according to AmCham Shanghai’s newest Viewpoint, The China CSR Imperative: Integrating Social Responsibility into the China Supply Chain. China’s economic growth is accompanied by rising labor and resource costs as well as pressure from consumers who are progressively more focused on products and services that are responsibly managed and are environmentally sustainable. In addition, as supply chains impact a growing
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number of communities throughout China, government policy is focusing on positive contributions to CSR initiatives. These priorities are echoed in China’s 12th Five-Year Plan (FYP), released in 2010, that prioritizes sustainable development through social responsibility. Many of these policies touch directly on China’s efforts to curb its massive energy usage and subsequent emissions, including stipulations on mandatory CO2 reductions over the next year and limitations on resource usage. Integrating CSR across the supply chain can reduce costs in the long run, as CSR goals call for limited energy and resource usage in addition to smart labor planning. Companies can also leverage fair labor practices, environmentally friendly sourcing and sustainable manufacturing processes
to build their brand and ensure consumer loyalty, as well as build stronger and better connections to national and local government. Caterpillar Corporation, based in Peoria, Illinois, is one example of a company that has integrated CSR goals into its operations, which has helped its business in more ways than one. In certain areas in China, companies can be subject to local government-mandated rolling electrical brownouts and blackouts to reduce overall energy usage and meet national energy goals. They may come without much advanced notice, or companies may be asked to work during off-peak hours. At the end, these can lead to increased cost of transportation and overtime for workers and disrupted supply chains. However, Caterpillar’s energy-saving practices have helped the company reduce energy costs and avoid these brownouts and any disruption to its operations. Caterpillar’s multi-functional research & development center in Wuxi, Jiangsu province, for example, has been recognized for its work. The 10,000-square-meter, state-of-the art facility was constructed in Wuxi New District in 2009 with a strong focus on environmental impact and energy efficient design. Subsequently, the Wuxi government has committed to not limit the facility’s electricity sources and the facility has been exempted from power brownouts and blackouts. It has operated for three years without interruption to its power. Other companies are doing the same, including Dow Chemical, based in Midland, Michigan. In the chemical industry, companies often use intermediate bulk containers (IBCs) to transport and store fluids and bulk materials. They are usually discarded after use. In the Asia-Pacific, Dow uses second hand and washed IBCs instead of new IBCs to receive its supplies. Every IBC is recycled/washed five to seven times before it is disposed, reducing costs and building its reputation as a responsible company. “Setting the standard for sustainability is one of Dow’s four strategic themes,” says Niklas Meintrup, director of Dow Business Services Group, AsiaPacific. “We integrate sustainability in the way we conduct business, including supply chain, purchasing and all other business services to our clients and customers.”
“ See the full report at www. amchamshanghai.org
When describing how Dow precisely maintains its quality, Meintrup describes the effort as a “process,” which requires extensive talks with management to communicate productively. Dow also uses the Dow S4TAR Award Program to promote sustainable business growth for both Dow and any operators along its supply chain, ensuring that Dow’s partners follow Dow’s standard of sustainable practices. The S4TAR Award program is a long-term partnership program between Dow and Dow’s suppliers that focuses on sustainability practices. It sets performance goals and is a platform for best practices exchange that aims to ensure accountability in Dow’s supply chain. Awards are given every year. Sharon Xiao, Senior Sustainability Researcher of Haworth Asia-Pacific, Middle East and Latin America, also emphasizes the need for concrete actions and continued connection with suppliers to enforce CSR goals. Since Haworth also employs original equipment manufacturers, the company audits a supplier before signing a long-term contract and every subsequent year performs two quality checks. To view and download a copy of The China CSR Imperative: Integrating Social Responsibility into the China Supply Chain, which highlights recommendations and other case studies, visit the AmCham Shanghai website at www.amchamshanghai.org.
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Companies can also leverage fair labor practices, environmentally friendly sourcing and sustainable manufacturing processes to build their brand…”
The Cyber Scare By Bryan Virasami
American companies based in China and at home are being attacked by hackers and competitors looking for information to gain an economic, military and scientific advantage.
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f it appears that some officials in Washington have adopted a brand new vocabulary each time they speak the words “security” and “China” in the same sentence, they’re not alone. A growing chorus of cyber security experts and analysts – both in the private sector and government – are sounding the alarm about the escalation of Internet-based attacks originating outside the United States, a situation that many characterize as one of the most severe economic and national security challenges facing the country today.
Indeed, U.S. lawmakers, military officials and the White House agree the threat is severe and are scrambling to fight back and implement new techniques to stop attacks that have reportedly already penetrated military computers, retrieved information from private corporations and pose an unknown danger to transportation networks and power grids. The threat from hackers just a few years ago who stole credit card numbers to make money now seem like an old story when compared to the new sophisticated type of attacks from
istockphoto
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c ov e R s to ry
“For the market that I work in, which essentially consists of Western multinationals doing R&D and manufacturing in Asia, China has more attacks than other countries…” –Thomas Parenty of Parenty Consulting
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istockphoto
Western multinationals doing R&D and manufacturing in Asia, foreign hackers or “actors” as experts call them. Cyber attacks China has more attacks than other countries because right now, are receiving the most attention because of their near invisible, there is a lot of manufacturing being done here and a lot of very borderless capabilities. But experts warn that in a digital world sophisticated technology is being developed here,” Parenty told where companies store all their business records, intellectual Insight during an interview in Shanghai. “It is still the case that property, research and other technology-related information in many Western multinationals, as a precaution, will only develop electronic form, it can take just a memory stick to copy and steal some technologies at home.” a chemical formulation, drug composition or aerospace secrets The most common form of cyber attacks comes from the and sell them to a competitor. “hackivist community,” people who want to “stir up trouble” who While there is disagreement if it’s possible to trace an attack can cause harm but are not generally the best hackers around, to a specific person or determine if the hacker is working for a according to Kent Kedl, the Shanghai-based managing director state, there is a growing consensus among intelligence officials, for Control Risks, a global risk management consultancy whose and security and military experts that foreign actors – with services include cyber security. They tend to be associated with a China and Russia most often singled out – are actively looking to movement and want to protest through hacking. The other kinds find and steal valuable assets. One U.S. government sanctioned are what multinationals should avoid. report said the target is business information, communication “The second kind is what is called APTs – advanced persistent technology, military secrets about marine systems and unmanned threats – which include sovereign threats from a government of aerial vehicles, as well as other technologies in industries some kind,” Kedl said. “They are focused, they’re targeted, they’re expected to see rapid growth such as clean energy, healthcare and pharmaceuticals. Some wonder if American companies with offices, factories and research centers in China face a greater danger than their headquarters in the U.S. Others ask if all attackers are looking for the same thing. What can CEOs and their IT departments do about it? Thomas Parenty, president of Hong Kong-based Parenty Consulting who advises Western multinationals across China and Asia about cyber security, said that cyber attacks and ordinary theft of information is a global issue but acknowledged there’s more activity in China. “For the market that I work Technology to build an unmanned drone is a top target, U.S. experts say in, which essentially consists of
aggressive, they are coming after you – not just kind of a joyride kind of thing.” Few executives in China are willing to openly discuss the topic out of fear of drawing attention to their company from hackers. But Western security experts with years of China experience said the goals of offline attacks here are the same: to obtain information that will give an economic or scientific advantage. U.S. companies tend to be the main targets because the country produces the latest and best technology today. While they’re often most at risk, no one is exempt, including small and medium sized firms, government experts say. The security issue was also raised during an AmCham Shanghai briefing earlier this year following a published news report that said many U.S. executives traveling to China go to extreme measures to avoid being a victim of skilled hackers. There’s no question cyber attacks are a form of crime without borders, and it matters little if the target is in Seattle or Shanghai. Experts say that most companies who have been attacked may not find out about it for years. And they often will never
One report prepared for a U.S. government agency described it this way: “The practice of enticing a victim to visit a website or other online resource with the intention of stealing credentials, financial information such as bank accounts, or credit card numbers. Phishing attacks generally involve an email claiming to come from a trusted entity such as a bank or ecommerce vendor, with a link to a website and the instructions to click the link and take actions once at the website.”
What is Spear Phishing? According to the same report: “A targeted phishing attack against a select group of victims, usually belonging to a single company, school, industry, etc. ‘Spear phishing’ is commonly used to refer to any targeted email attack, not limited to phishing.”
Cyber Attack Incidents The US-China Economic and Security Review Commission identified several China-based attacks aimed at foreign entities Over the years, several serious hacking incidents have been allegedly traced back to China, including some against U.S. government officials. The Office of the National Counterintelligence Executive, in their 2011 report, cited a few incidents that allegedly came from China. The report cited a 2011 study in which McAfee said an attack they called “Night Dragon” originated from China and targeted oil, energy and petrochemical companies starting in 2009. Employees were victims of “spear phishing, e-mails and network exploitation.” The attackers sought information about “financing of oil and gas field bids and operations.” The Chinese government was allegedly behind the January 2010 attack against Google, according to VeriSign iDefense, a charge denied by Beijing. In 2008, U.S. authorities investigated claims, the report said, that Chinese officials “surreptitiously copied the contents of a US government laptop during then-Commerce Secretary Carlos Gutierrrez’s visit to China.” In November 2008, it was reported “Chinese hackers penetrate the White House information system on numerous occasions, penetrating for brief periods before systems are patched.”
A U.S. cyber security report
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figure out where the attacker is located, who is behind it or whether it’s a competitor, nation state, organized crime or just an employee. “When successful, it is a crime that no one sees,” Parenty said. “If you steal a car it’s very obvious that the car is missing. If you steal information, often times you wouldn’t know that it is gone. One thing that’s very consistent about much theft of corporate information is that it will be a long time before companies know it’s gone.” Several lawmakers in Washington, military officials and former CIA and FBI officials tend to be more direct and have no reservations about blaming China and the government. Numerous reports by government-funded offices and private think-tanks have recently chronicled the predominance of attacks and the risks they pose to U.S. and other Western nations. Last year, the Office of the National Counterintelligence Executive in a report, “Spies Stealing US Economic Secrets in Cyberspace,” quoted an unspecified 2010 survey of 200 western executives from the gas, power, oil and water industries in which 85 percent said they were aware of “network intrusions” and that they suspected “governmentsponsored sabotage and espionage.” “Chinese actors are the world’s most active and persistent perpetrators of economic espionage,” the report continued. “U.S. private sector firms and cyber security specialists have reported an onslaught of computer network intrusions that have originated in China, but the IC [intelligence community] cannot confirm who was responsible,” according to the report. The Canadian government said in a 2010 report that 86 percent of all large Canadian companies were attacked. Internet-based attacks should not be the only thing on the radar. Within China, U.S. companies should be on the lookout
imaginechina
for another type of threat: employees and ex-employees. “The cyber threat is only a part of it,” said Kedl. “Our China practice that investigates intellectual property violations is huge, it’s the largest practice of its kind in our global operations. This is because there are so many companies here with critical intellectual property and the legal environment in China to protect it is not very strong.” He explained that there’s big money to be made from stealing technology that took its owner years to develop, selling it to a company that will then commercialize it and put it on the market. Parenty echoed a similar sentiment. “In my experience over the last decade in working in this area, most intellectual property is not stolen from attacks over the Internet, it is stolen by an employee who actually had legitimate access to that information in order to do their job,” said Parenty. “And they use that information in ways that would be less common in the U.S. because of the lack of legal repercussions. So there’s a big difference there.” Unlike the U.S., workers caught stealing intellectual property are not likely to be prosecuted under the current legal system, he said.
The motivation
Model of a Sinovel wind turbine in Beijing
One of the most widely reported cases was made public last year. American Superconductor Corp., which makes computer systems that operate wind turbines, was nearly destroyed after it lost one of its biggest accounts in China due to flagrant IP theft. Workers from the company were investigating a turbine malfunction in the Gobi Desert that resulted in the discovery. The company, based in Massachusetts, was using their new
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Chemical formulas are also a target
software in the turbine manufactured by China’s Sinovel Wind Group. The software controls the heart of the system. After the workers sent a copy of the software taken from the malfunctioning turbine to their research center in Austria to see what the problem was, they found out the software inside the turbine was an unauthorized copy. In other words, someone copied the
software that they were selling to the Chinese company to use in their turbines. Sinovel had previously purchased large numbers of turbine controllers from the company but in early 2011, the Chinese firm began refusing shipments at its factory in Liaoning province. Sinovel, which was the biggest customer of the U.S. company, completely stopped all purchases in April, 2011. American Semiconductor’s stock fell 40 percent in one day and by 84 percent by September, according to Businessweek. The Massachusetts company realized the Chinese company didn’t need them anymore. Dejan Karabasevic, a Serbian worker at the company’s Austria research center, was promised US$1.5 million for turning over the software to Sinovel and the company found numerous emails between the two parties and even a contract between the two. He’s now serving prison time in Austria. American Superconductor has filed multiple lawsuits against Sinovel asking for US$1.2 billion in damages but it’s unclear if they’ve made progress. The incident was reportedly raised by U.S. officials during Chinese Vice President Xi Jinping’s visit to the U.S. Parenty said that case is a lesson in poor internal security measures. “If you look at the core elements, which is somebody inside the company, for financial rewards, gives trade secrets to a competitor. That is a very common scenario. This is the thing that’s interesting, it wasn’t a cyber attack yet it was something where cyber protection could have been relevant because it was a case where an employee had access to sensitive information and there was no control over how he used it or distributed it.” The information security chief for a top U.S. technology company said since China’s telecommunications infrastructure is owned and operated by the government, the environment is difficult for private companies. The Chinese government
Thomas Parenty, President of Parenty Consulting, offers his best cyber security advice to U.S. corporations in China Q: What’s your best free advice? Parenty: “If you’re a U.S. multinational that is doing business over here and you want to protect your information, the first thing you need to do is figure out who needs what information to do their jobs. And that sounds like such a simple thing but it’s actually not and it’s something that most organizations that I’ve worked with do a very bad job of it because that actually requires them to think in more detail about how their operation works. “It’s much easier to say simply give everyone everything because
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then you don’t have to think through it and work will get done. And part of the difficulty, especially for U.S. companies operating over here, is that their employees on the ground here are rewarded and punished based on their ability to deliver. For example, a factory has to be built by such and such a date. They are not rewarded or punished based on what information is lost or stolen. One, protecting information is not a KPI [key performance indicator]; and two, it’s often the case that information will be lost and you don’t know it.”
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treats information security and national security as the same issue. As a result, regulations created for national security purposes end up affecting businesses. “That kind of imbalance makes it very difficult to do business whereas in other countries, it’s like ‘OK enterprise, I will leave you alone. You can do whatever you want as long as you’re not interfering with the national agenda,’” said the security expert who spoke on condition he not be identified. “In China, a lot of these things are intermingled. The infrastructure is intertwined with the commercial side and the State are owners of the infrastructure.” In coming months and years, cyber security could become a major source of friction between the U.S. and China, some experts say. There are currently two pieces of legislation in Washington to counter cyber attacks but they remain controversial due to privacy concerns. But security experts feel that understanding the threat and dealing with it is the best route for private companies. Given the scope of the problem and all the rhetoric about fighting cyber and computer related espionage, several security experts said they’re amazed how many American companies with operations in China fail to take appropriate steps to protect their intellectual property. A senior executive based in Shanghai with a U.S. company said cyber threat is “intangible” and since it doesn’t feel like an imminent problem, it often gets placed on the back burner due to competing priorities that require immediate attention. The threat, he said, is always seen as something that happens to other companies. “And then we go on dealing with more tangible issues – the disgruntled employee, the unexpected plant outage or the
quarterly financial performance. So the biggest concern is that we understand the potential damage that could be caused by the threat, but we underestimate the imminence of the threat,” the executive said. Another concern, security experts say, is that many U.S. executives here feel there’s nothing that can be done about the risks. And a large number who know the risks exists, tend to take the wrong approach by simply duplicating protective measures used in the U.S. without studying the unique China threat, according to Parenty. He said IT specialists need to spend time in China to analyze the unique threats here and create solutions to target those problems.
istockphoto
Q: You said things that work in the U.S. don’t always work here. What do you mean? Parenty: “One of the biggest problems that I’ve found is U.S. companies who have done a legitimately good job of developing security standards, procedures and technological guidelines, think that because they exist in the U.S., that the people running their operations in China one, know that they exist, two have read them, three have understood them, four care. Simply because you’ve got something that works in the U.S. does not mean that it’s going to automatically or magically work in China.”
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Blame game While many lawmakers have slammed China and called on the Chinese government to investigate attacks traced back here, they’re not prepared to say the government is behind the attacks – at least not publicly. Security experts are also not prepared to single out any specific entity or organization in China with certainty but agree U.S. companies in the technology, aerospace and chemical industries are among the most at risk and feel that China
has more reasons to pursue them. Kenneth Lieberthal and Peter W. Singer wrote in a 42-page Brookings Institution report, “Cybersecurity and U.S.-China Relations,” that despite a “blanket denial” from China, many hold the view that the cyber threat from China has a “large government-directed component.” They said this is based on the fact the attackers seek out specific things: information about decisions that could impact China, technology with a special strategic interest, NASA and military planning and reconnaissance planning. Senator John Kerry, chairman of the Senate Foreign Relations
Committee [D-Massachusetts], told Insight through a spokesperson that he and others see attacks from China as a big threat. He has spoken out about the cyber threat from China on numerous occasions. “We know we live in a world without borders and the damage a cybersecurity event across the world can have on markets at home,” he said. “So my main concern is that weak enforcement of robust cyberspace protections in China threatens our economic interests, and an inadequate effort on the part of the government to crack down on unauthorized hacking of American firms is an issue in a delicate relationship.” Asked whether he agrees with some lawmakers and military reports that blame the Chinese government, Kerry said while there is evidence attacks originate in China, he cannot be certain. “I cannot and would not accuse the Chinese government of sponsoring cyber attacks without open and shut evidence. I don't have that smoking gun,” Kerry said. “What we do know, though, beyond any doubt, is that cyber attacks on our firms and networks are originating in China and we have every right to demand that the Chinese government help us stop them. If they don't, it raises a whole other set of questions.” An earlier incident that placed the spotlight on China and drew sharp responses from lawmakers, involved the U.S. Chamber of Commerce, which represents most of the major companies in the U.S.. The organization, based in Washington D.C., was apparently attacked through the Internet and four employees who work with issues related to Asia were targeted. The attack lasted at least six months and an investigation showed that the attackers sought out documents related to trade policy, meeting notes, reports about trips, schedules and
Cyber Security Expert Suggests ‘A Risk-Based Approach’ Kent Kedl, Managing Director of Control Risks, offers his best tips to companies concerned about the security of their company secrets and cyber related crimes When considering information security, companies first have to consider just what they are trying to protect. Protecting every piece of data to the same high standard will be costly, difficult to implement, and restrict the creativity and collaboration modern companies need to thrive and develop. We recommend that companies take a risk-based approach. The first step is to assess the threat: Who might be after your IP (competitors? organized crime?) and how would they be able to access it (do they have the capability to hack into your systems or access your people?).
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The next step is to ask yourself: “so what…even if I lose this data, what impact will that have on my company?” Assess what information is important, what information is critical to achieve business objectives and should be restricted, and understand what is less important and sensitive. Implementing a document classification system that is aligned with your business priorities is a simple process that will help you identify how different types of information should be secured and who should have access to them.
“U.S. private sector firms and cyber security specialists have reported an onslaught of computer network intrusions that have originated in China…”
up for and the attackers know about due to their monitoring. “The old advice that you would give of ‘Oh don’t open suspicious attachments,’ doesn’t work here because it won’t look suspicious,” Parenty said. “It will look exactly like something that you should be getting. It’s customized for you, so to you should feel special.”
Fighting back names of certain members, according to published reports of the incident. The Chamber has 3 million members and said publicly that just about 50 members were affected by the attack but they’re not aware of any loss by members. Some lawmakers said they were concerned that confidential emails between themselves and the Chamber about policy issues were stolen.
Phishing for trouble The attack against the Chamber apparently utilized what experts call spear phishing, a specialized technique that uses email attachments that look genuine to even the most careful observers. Once opened, the attachment exploits the computer and the command and control servers with malware, according to Parenty, the consultant. The attackers design the email and attachments for specific targets and the emails always contain information the recipients expect, Parenty said. The attackers may spend months, sometimes years, preparing an attack designed to obtain large amounts of information undetected. Spear phishing is also unique in that emails are designed to look normal and come from people the recipients know and trust. It could be a schedule to an upcoming conference that the victim has signed
Technology is only part of the solution – and while it should be developed in layers with multiple vendors and regular updates and audits, remember that even the best systems in the world can be thwarted by more sophisticated technology or by the willingness of an unwitting colleague to share information: in the hotel lobby, in the elevator, on the airplane, carelessly leaving documents on the printer or ignoring the clean desk policy, etc. Make sure your employees understand the danger of opening unknown attachments or clicking on unknown links, and remain vigilant against attempts to pry into company business by unauthorized employees, strangers, suppliers, vendors and
The White House, lawmakers, the military and private security consultants have all expressed a desire to attack the problem more aggressively but there is little consensus. President Obama is often quoted as saying that the cyber threat is “one of the most serious economic and national security challenges we face as a nation.” He has appointed a cyber security coordinator and is working with various government and civilian bodies to assess and counter the problem. In addition, several lawmakers have been critical of China. Rep. Mike Rogers, chairman of the House Intelligence Committee, for example, has called for the U.S. to approach the problem as a bilateral trade issue with China because in his opinion intellectual property theft results in the loss of jobs for Americans. Both the House and Senate have bills that would require more sharing of information between the private sector and government. Opponents said the bills could hurt civil liberties and privacy. President Obama has threatened to veto the House bill and has expressed support for the Senate version but the body is divided over that bill. “There is an economic cyber war going on today against U.S. companies," Rogers, who co-sponsored the Cyber Intelligence Sharing and Protection Act, told reporters in a statement. “Economic predators, including nation-states, are blatantly stealing business secrets and innovation from private companies.”
competitors. A regular training and awareness program should accompany policies and procedures that are reviewed and respond to the changing risk environment. For those employees who have access to critical information, but need to travel, consider taking “clean” electronic devices. Make sure you keep electronic and hard copy files on you at all times, don’t even assume the hotel safe is secure. Avoid connecting to wireless networks, change your passwords frequently and have your IT department check you device when you return.
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Y R D C E NT E R B y J o n at h a n S h y u
AmCham Shanghai President Brenda Foster, 2012 Chair Kenneth Jarrett, U.S. Consul General Robert Griffiths and others greet guests before the Second Annual Suzhou Government Appreciation Dinner
YRD Center Opens in Suzhou AmCham Shanghai leadership launch center during annual Suzhou Government Appreciation Dinner
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A
fter months of planning and discussion, AmCham Shanghai formally launched the Yangtze River Delta (YRD) Center during t h e S e c on d A n nu a l Su z h ou Government Appreciation dinner held at the Suzhou Marriott on May 21. More than 100 guests were in attendance including Suzhou Vice Mayors Zhou Weiqiang and Huang Qin, and the U.S. C onsul General in Shanghai, Robert Griffiths. Member companies and local Chinese and U.S. government officials, as well as AmCham Shanghai 2012 board members also attended. Kenneth Jarrett, AmCham Shanghai’s 2012 Chair, opened the event with the announcement of the launch of the Center. Jarrett recognized the support of the Suzhou Committee to the
Chamber’s efforts in the YRD, and highlighted the more than 30 events that were held in Suzhou since 2011. “Suzhou plays a central role in the Chamber’s strategy to expand its footprint in the fast growing Yangtze River Delta,” Jarrett said. The YRD Center will ser ve three major functions as AmCham Shanghai strives to be the central regional networking and business information exchange for American companies. • First, the Center will offer new opportunities for members to take advantage of t he C hamb er’s business infor mat ion and resources and to more readily access the AmCham Shanghai member network. • Second, the Center will serve as a business development platform for companies competing in the fast growing YRD market.
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“
Suzhou plays a central role in the Chamber’s strategy to expand its footprint in the fast growing Yangtze River Delta.”
AmCham Shanghai President Talks about the YRD Center Brenda Foster, AmCham Shanghai’s President, talks about why the new Center is important to members. manufacturing facilities and research and development centers. AmCham Shanghai’s membership in the YRD continues to climb with more than 180 member companies in Suzhou alone and over 280 member companies across Jiangsu and Zhejiang provinces.” Q: Are American companies moving to the YRD? Foster: “There is no sign American companies are leaving Shanghai to set up operations in the YRD. Instead, an increasing diversity of companies – such as those in manufacturing, retail and sales – are expanding their existing China operations to Suzhou and the YRD. Harley-Davidson is one example of the many American companies that have opened a retail outlet in Suzhou and are enjoying success. Recently, Caterpillar invested in a LEED certified factory in the YRD. Motorola Mobility operates a R&D center in the YRD.”
Q: Why is the YRD Center in Suzhou? Foster: “Suzhou is a natural starting point to expand AmCham Shanghai’s presence in the YRD for several reasons. First, AmCham Shanghai has had a strong presence in Suzhou since 2003 and the demand from the growing business community in Suzhou for local AmCham Shanghai services is only increasing. Second, the Chamber, and U.S. companies generally, have enjoyed strong support from the Suzhou government and Suzhou Industrial Park (SIP). Suzhou has a well established reputation for its quality of life and as a good place to do business. “In response to these, and other factors, AmCham Shanghai’s Board of Governors decided in 2011 that the Chamber should locate the YRD Center in Suzhou.” Q: Is AmCham Shanghai’s presence in the YRD new? Foster: “AmCham Shanghai and its members have long been involved in Suzhou and the greater YRD. AmCham Shanghai established a dedicated Suzhou Committee in 2003 to better service the membership in Suzhou and the YRD. AmCham Shanghai has led provincial tours of investors to these areas over the years, continuing investment, facilitating members’ visiting the area and facilitating relationships for investment between members and government officials. “The Second Annual Suzhou Government Appreciation Dinner builds on such government relationships AmCham Shanghai has established and continues to develop in partnership with the Suzhou government.” Q: How many American companies are in the YRD? Foster: “The YRD now boasts 4,000 U.S. enterprises and investment projects that are taking advantage of new 36
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Q: Why are American companies expanding into the YRD? Foster: “Growing Tier-II and Tier-III cities like Suzhou and Nanjing offer American companies a growing market to expand their business and to access fast growing domestic markets and distribution channels. The YRD also offers a highly skilled, highly educated and experienced workforce. “Local government leadership, particularly in Suzhou and Nanjing, has been helpful in providing American companies with proactive investment support and offering investment incentives. Officials in the YRD have a clear business plan for developing their localities, identifying the type of industries they want in those locals and attracting the right sort of investment for realizing those plans. “Thanks to these and other reasons, in recent years American companies have expanded aggressively into the YRD, and that rapid growth is projected to continue. According to AmCham Shanghai’s 2011–2012 China Business Report, nearly 30 percent of responding companies say they plan to establish a presence in second- and third-tier cities, and cities in the YRD are high on that list.” Q: What are some of the issues facing U.S. companies in the YRD? Foster: “According to the 2011–2012 China Business Report, YRD companies face several business challenges particular to the YRD, especially rising costs and HR challenges. 49 percent of responding companies in the YRD identified rising costs as a serious hindrance compared to 34 percent of all members. “Going forward, AmCham Shanghai will work with the Suzhou Municipal Government on addressing such business issues as well as helping the local government to reduce operating costs for U.S. companies and address HR constraints.”
• Third, the Center will build upon AmCham Shanghai’s strengthening relationships with the local government to support the needs of the membership. Consul General Griffiths said the U.S. State Department has assigned a special representative to strengthen interactions between U.S. and Chinese local government officials. Griffiths pointed out that U.S. firms in 2011 accounted for over RMB1 trillion in gross domestic product in Jiangsu province and emphasized that American businesses are “happy to be in Suzhou.” Vice mayor Huang Qin thanked AmCham Shanghai for opening the Center in Suzhou and pledged that the Suzhou Municipal Government will dedicate its efforts to provide better services to U.S. companies in Suzhou in three ways. “First, Suzhou will continue to open up for foreign investment. Second, we will strengthen the protection of IPR and create a fair and transparent business environment. Third, we will improve the administrative efficiency to provide better service to U.S. companies,” Huang said. The YRD Center will be located in the Suzhou Industrial Park, and will act as a resource center for Chamber news, upcoming events and other information on the YRD. For any programming ideas or feedback and comments on AmCham Shanghai activity in the YRD, please e-mail yrd@amcham-shanghai.org.
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M a n a g er ’ s N ot eb o o k
A Long-Term Commitment B y Arv i n d S i n g h Arvind Singh
M
ost businesses find it a challenge to find and retain talent in Asi a. Accelerate d economic growth in recent decades has led to greater demand than supply of a trained and experienced workforce. This human capital “deficit” is even more pronounced in China. The biggest challenge for every CEO is finding people to support their growth ambitions. The high cost of employing expatriate managers and the difficulties expatriate managers face in China because of language and the business culture further accentuate the demand for domestically trained managers. This supply-demand gap has led to some unhealthy trends in the Chinese markets. Wages have grown significantly in China and have almost caught up with international levels, particularly for middle and senior managers. I am amazed to see how many jobs most Chinese middle managers have held; many have hardly stayed in any one job long enough to really deliver results. Arvind Singh is th e Regional Director wit h Quest on th eF RO NT IE R, Sh an gh ai, a leading consu lting and se arc h co mp an y wi th eig ht offices in Asia. He graduated from the Wharto n Business School and Harvard University and lives in Shangha i with his wife.
Another offshoot of this supply-demand gap is the sense of entitlement employees develop. For example, three years back, I wanted to hire an experienced consultant who had been laid off from another consulting firm and she wanted a 30 percent raise over her previous job which she did not deserve and I did not accept. So, what should organizations do? Here are some suggestions: • Companies often use the word talent as a substitute for experience. Experience reduces risk; talent is more than just experience; a talent refers to someone with innate skills and aptitude to act like a catalyst and move the organization forward. • Talent needs space and nourishment to grow. They are demanding and they are ambitious. Every organization has to determine how much real talent it needs and can sustain based upon its ambition and its culture. • Expand where you look for good people with “latent talent” and take risks with people with less experience. There is some hype when people say we can’t find talent in China. After all, this is a country with 1.3 billion people and there are a lot of talented people but they may not have gone to the top Chinese universities and may not be fluent in English. Organizations need to redefine the concept of talent in terms of
attributes and skills and not degrees. • Finding and developing talent is a long-term mutual commitment. Organizations need talent but for this relationship to succeed, the talent must also need the organization to realize their fullest potential. There must be fit in mutual expectations and objectives. This “aspirational fit” should be given greater attention. • C h i n a i s i n a s e c u l a r g row t h trajectory. Any sizable business with growth ambition should develop its own talent pool of young people who can grow with the organization. Pinching people from competitors – except for certain critical skills – can hurt morale. Further, companies should force rank its employees and ensure that those on the high potential list are not allowed to leave and all efforts must be made to retain this select group of “future stars.” Some attrition among the average and below average performers is manageable and even desirable. In short, companies should redefine their strategy to acquire talent, take calculated risks with their own people rather than hiring from outside and adopt a “segmented approach” to talent development. Some companies have adopted this approach. Many more including local Chinese firms with bigger ambitions should consider adopting this approach.
Got an article idea for “Manager’s Notebook”? Contact Insight Editor-in-Chief David Basmajian at david.basmajian@amcham-shanghai.org.
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AmCham Shanghai New Members U.S. Corporate Membership Cooley LLP, Shanghai Rep. Office PECK Brad Ford Automotive Finance (China) Ltd. TRAN Nu Silicon Valley Bank Shanghai Rep. Office YAHNG Mike Yanfeng Visteon Automotive Trim Systems Co., Ltd. LI Liangjun
Russin, Vecchi & Berg, LLP CLAUSS Eliot R.
Quaker Chemical (China) Co., Ltd. OUYANG Qiaoqing Russell Reynolds Associates Co., Ltd. HARRIS Kevin Dwayne
Small Business Membership
Schenker China Ltd. KEUNG Caraka
Exolus Investment Consulting (Shanghai) Ltd. HOUDARD France Ningbo Royal Dragon International Trading Co., Ltd. RAMEZANIFARD Alireza
SI Group- Shanghai Co., Ltd. HESS Emmanuel
SSBG - IT Solutions (HK) Ltd. BEARE Elliot
Silicon Valley Bank Shanghai Rep. Office WILCOX Ken
U.S. Associated Corporate Membership Barco Visual (Beijing) Trading Co., Ltd., Shanghai Branch LU Diana Broadcom Communications Technology (Shanghai) Co., Ltd. ZHANG Richard Cardinal Medical Equipment Consulting (Shanghai) Co., Ltd. KEEFE Daniel Stryker (Beijing) Healthcare Products Co., Ltd., Shanghai Branch JIN Lu
Individual Int’l Affiliate Memberhsip
Losberger Shanghai Co., Ltd. GAENZLE Frank
Shanghai Marriott Hotel City Centre LO Tuck Meng Non-Resident Corporate Membership adSage Corporation TANG Zhaohui Anguil Environmental Systems, Inc. LIU Eric Boston Education International, Inc. JIANG James China Telecom (USA) Corporation DENG Zili Integration Point, Inc. LING Angela Phillips Service Industries, Inc. DOYLE Robert
Tractus Asia, Ltd. ZHANG Ryan Letian
Butler (Shanghai), Inc. LI Jianghong MA Walt
Richard Ivey School of Business (Asia) Ltd., Shanghai Rep. Office ZHOU Rebecca
Textron Trading (Shanghai) Co., Ltd. ROBSON William Smylie
Procore Direct Ltd. FERGUSON Brent TURNBULL Michael Kingdon
Corporate Int’l Affiliate Membership
Michael Page Shanghai Recruitment Co., Ltd. SUN Natellie
Stryker (Beijing) Healthcare Products Co., Ltd., Shanghai Branch SHEA Ben WANG Victor ZHANG Christine
Four Seasons Hotel Shanghai BLOMQVIST Fredrik
Associate Membership
Landseed Hospital, Shanghai TU Paul
Simmons & Simmons (Shanghai Office) LIGORNER RITCHIE K Lesli
Amastal HOSTAL Romain
Teknvous Information Technology (Shanghai) Co., Ltd. LIU Chunfang
Appleby Corporate Services (China) Ltd. REID Scott
Shanghai Kelly Services Human Resources Co., Ltd. FREEKE Lois
Wells Fargo Bank, National Association, Shanghai Branch HUANG Michael Junhe
AECM, LLC CHEN James
Yum! Restaurants Consulting (Shanghai) Co., Ltd. HSIEH Lily LO Christabel NG Siu Chui
Cooley LLP, Shanghai Rep. Office LOOFBOURROW Patrick
Deloitte Touche Tohmatsu Certified Public Accountants, Ltd. SOONG Jack
Binocular Vision JOHNSON Marcia
Individual U.S. Citizen Membership
Fluor (China) Engineering & Construction Co., Ltd. WU Charles Ford Motor (China), Ltd. CREEL Randy
Doctors Beck & Stone Pet Health Care MCALLISTER Parker LP Amina TARGETT Matthew Particle Measuring Systems BEAL Dwight
InterChina, Shanghai Office DANIEL Mark JPMorgan Chase Bank (China) Company Limited Shanghai Branch ZHU Weijun Kimberly- Clark (China) Co., Ltd. HANDOKO Riko Setyabudhy
Shanghai Boson Network Co. JIN Ruxiang BROWN Sean KOWALSKI Andrew LEE Kenneth MORGAN Nicholas
Langfang MK Foods Co., Ltd. WANG Hefu
NGUYEN Minh-Ha
Medtronic (Shanghai) Management Co., Ltd. GAO Tong
Individual U.S. Citizen Membership
Milliken Commercial and Trading (Shanghai) Co., Ltd. MIAO Jun
APPELBAUM Richard KING Lawrence
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Do you want to share more information about your company? Contact Sophia Chen at (86 21) 6279-7119 ext. 5667 or sophia.chen@amcham-shanghai.org for a “Standout Listing” opportunity in the New Members Section.
i n s i de a mc h a m from the chair
U.S.-China Relations: A New Maturity?
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o r a l l t h e t a l k o f g r ow i n g strategic mistrust between the United States and China, the results of the May 2-4 Strategic and Economic Dialogue (S&ED) give cause for optimism. From the start, expectations for this high-level dialogue were modest at best. In the run-up to the meeting, Beijing and Washington were relatively quiet on expected outcomes, perhaps reflecting the lame-duck status of both administrations. Then, days before the meetings were scheduled to begin, the U.S. Embassy in Beijing found itself playing host to blind activist Chen Guangcheng, who miraculously escaped from his guarded home in Shandong and made his way to Beijing. Round-the-clock negotiations between U.S. and Chinese officials ensued, as the two sides searched for an acceptable outcome. At the time, there was considerable speculation that the S&ED could become a casualty of Mr. Chen’s flight – that the meeting might be cancelled altogether or that the difficult negotiations over Mr. Chen would affect S&ED outcomes. In fact, neither happened. As we all know, the S&ED took place as scheduled and what we have heard from U.S. delegation members suggests that the discussions were relatively unaffected by the Chen crisis. Moreover, the meeting produced a number of substantive outcomes. Focusing just on the economic and trade track of the talks, these included: a commitment to intensify negotiations on a bilateral investment treaty, China’s agreement to include trade secrets in the State Council’s next work plan on intellectual property enforcement, China’s commitment to submit a revised Government Procurement Agreement
Kenneth Jarrett Chair of the Board of Governors
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offer, a U.S. commitment to act expeditiously on pending applications by Chinese banks to expand their operations in the United States, and new Chinese regulations increasing the equity cap on domestic securities joint ventures to 49 percent. These are just some examples of the meaningful progress achieved by this S&ED meeting. Needless to say, implementation of all the commitments is a critical next step. But returning to the theme I introduced at the beginning of this column, what does this S&ED session say about the state of U.S.China relations? From my perspective, I take the outcome as an encouraging sign. Despite all the talk of strategic mistrust, neither government allowed a sensitive human rights case that commanded global attention to disrupt the proceedings. Years ago, this would have been unthinkable. The meeting would have been cancelled or the Chinese government would have expressed its ire by cancelling calls on senior Chinese leaders or refusing to agree to substantive outcomes. That this did not occur suggests a new maturity in bilateral ties. This is a positive sign and certainly one that will be put to the test many more times in the future. Turning to our immediate backyard, the Chamber hosted a successful Suzhou Government Appreciation Dinner on May 21, with a strong turnout from member companies and Suzhou government officials. At the dinner we announced plans to open the Chamber’s YRD Center in the Suzhou Industrial Park later this fall. The Suzhou government’s response was enthusiastic and we are excited by this first step in extending AmCham Shanghai’s physical footprint into the vibrant Yangtze River Delta.
i n s i de a mc h a m B OA R D o f g ov er n o r s br i e f i n g
Highlights from the May 2012 Board of Governors Meeting 2012 Washington, D.C. Doorknock Board members discussed the AmCham Shanghai Washington, D.C. Doorknock which will be held Wednesday, September 19 through Friday, September 21. With the primary goal of the Doorknock being to represent the interests of the members to U.S. policy makers in Washington, the Chamber’s Advocacy Policy Committee will meet to discuss positions to be advanced during the trip. An invitation to participate in this year’s Doorknock will be sent to all members in May. SME Advisory Committee/SME Center Update Kenneth Jarrett, chair of the AmCham Shanghai Board of Governors, announced that Board Governor Andrew Au will serve as the Chair of the Chamber’s SME Advisory Committee. The SME Advisory Committee will provide support and guidance to the Center, a key initiative for the Chamber moving forward. A discussion was held on the results of the first SME Advisory Committee meeting, which focused on developing criteria to evaluate the success of the SME Center, which is planned to be launched in the fall of 2012.
Shanghai 2020 Report David Basmajian, director, communications and publications, provided an overview of the Chamber’s upcoming report, Achieving 2020, focused on the opportunities and challenges for Shanghai as the city attempts to establish itself as an international financial center by 2020. The report, led by the Chamber’s Financial Services Committee, is a joint project with the Brookings Institution. The report is planned to be launched in late June 2012.
In Attendance Governors: Andrew Au, William Brekke, Eddy Chan, Lienjing Chen (phone), Ted Hornbein, Kenneth Jarrett (Chair), Marie Kissel, Dan Krassenstein, Jim Mullinax, James Rice, Peter Sykes, Robert Theleen, Eric Zheng Attendees: Brenda Foster (President), David Basmajian, Helen Ren, Karen Yuen, Linda Wang, Jessica Wu, Jonathan Shyu, Kirt Greenburg, Stefanie Myers
The AmCham Shanghai 2012 Board of Governors Governors
Chair
Andrew Au Citibank China
Eddy Chan FedEx Express
Chen Lienjing Pratt & Whitney
Ted Hornbein Richco
Marie Kissel Baxter Asia-Pacific
Daniel M. Krassenstein Procon Pacific
James Rice CSM nv China
Peter Sykes Dow Chemical
Eric Zheng Chartis Insurance
Kenneth Jarrett APCO Worldwide
Vice Chair
Robert Theleen ChinaVest
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COMMERCE B y Dav i d B a s m a j i a n
U.S. Secretary of Commerce Bryson with 2012 AmCham Shanghai Chair Kenneth Jarrett
In Search of a Level Playing Field U.S. Commerce Secretary addresses a wide range of crucial issues that impact American companies in China
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ohn Bryson has big shoes to fill. Sworn in seven months ago as the 37th U.S. Secretary of Commerce, he brings to the job more than three decades of business e x p e r i e nc e. But he fol l ow s i n t he footsteps of U.S. Ambassador to China, Gary Locke who is widely regarded among the American business community as one of the best commerce secretaries in recent memory in part due to his long experience working on U.S.China trade issues. While Secretary Bryson may not have the same China pedigree, I’m happy to report that he’s coming up to speed fast and has identified several areas of focus critical to U.S. companies in China including the support of advanced manufacturing, helping U.S. companies increase exports to China, ensuring a level playing field for U.S. businesses and combating online piracy. In early May, made a trip to China that
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included stops in Nanjing and Shanghai where Bryson promoted the U.S. as a destination for C hines e tour ists w ho, on average, sp end US$5,200 per visit, No. 1 in the world, according to the Commerce Department. On May 7th, the Secretary met with AmCham Shanghai members to learn more about the challenges faced by American companies competing in the China market. T he fol l ow i ng i nclu d e s e xc e r pt s f rom responses to questions provided to the Secretary during his visit. Insight: The Strategic & Economic Dialogue (the S&ED) was just completed in Beijing and Joint Commission on Commerce and Trade (JCCT) will be conducted in Washington, D.C. this fall. What are the top two or three business issues being raised by U.S. negotiators at these bilateral dialogues? Can you point to any
recent concrete successes? John Bryson: “In 2011, we made progress at the JCCT (which, as your members know, was led by myself and U.S. Trade Representative Ron Kirk) in a number of areas key to leveling the playing field for U.S. companies and their workers, including in areas of intellectual property, indigenous innovation, new energy vehicles and China’s strategic emerging industries. “Some concrete examples of success include C hina’s ag re ement to cre ate a hig h-le vel leadership structure led by Vice Premier Wang Qishan to lead and coordinate intellectual property enforcement across China and to take measures to ensure that government agencies at all levels use only legitimate software. China also required all levels of government to delink indigenous innovation policies from government procurement preferences by December 1, 2011. “On new energy vehicles (NEVs), China stated it will not mandate technology transfer nor require the establishment of domestic brands in China, and will allow foreign-invested enterprises to be eligible on an equal basis for subsidies and other preferential policies for NEVs with Chinese enterprises. China also assured the United States that it will create a fair and level playing field for all companies, including American firms, in China’s strategic emerging industries. “The Tourism Memorandum of Understanding, opening the market for packaged leisure travel, was extended to three more provinces (27 total) amounting to an additional 169 million potential group leisure travelers. “At the recently completed S&ED, we also made a number of important steps, including in the areas of leveling the playing field for U.S. firms and workers, ensuring greater protection of IPR, and expanding opportunities for U.S. firms through more open and market-oriented financial systems.” Insight: Two years ago President Obama called for a doubling of U.S. exports by 2015. The latest data suggests that we are on track to hit that goal. What has been the biggest factor
supporting this increase, and do you see it as more than a short-term trend? Bryson: “There are many factors that have contributed to this growth. Some examples include a surge in exports from the manufacturing sector, along with an increase in the number of small and medium businesses who are currently exporting. Exports of manufactured goods in 2011 were the highest in history, exceeding the previous record set in 2008. “ T he C om me rc e D e p ar t me nt is d oi ng everything we can to support a wide variety of businesses, whether they are looking to export for the first time, or expand their exports into new markets. Many members of the AmCham here in Shanghai are familiar with our foreign commercial service officers, but we're trying to get the word out to all U.S. businesses that we have staff serving all 50 states and in over 70 countries around the globe that are dedicated to helping U.S. companies begin and continue to export. “ The dedicated staff of the C ommerce Department is laser-focused on meeting the short-term goals of the NEI, as well as doing everything we can to support U.S. businesses and grow exports for years to come.” Insight: Chinese investment into the U.S. is growing and most agree that it is good for the U.S. economy and good for building stronger U.S.-China commercial relations. What is the Commerce Department doing to support and encourage this trend? Br yson: “Last year the President launched SelectUSA, which is led by the Commerce Department and is the first coordinated effort by our government to encourage more foreign direct investment in the U.S. “In addition to their traditional role of promoting U.S. exports, our 120 commercial service staff in China has now been trained to help China’s business leaders invest more in the U.S. They and their SelectUSA colleagues in the U.S. will serve as an information clearinghouse, where they can help when companies face confusion, delays, or obstacles – at federal as well as state and local levels. And they will
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“
China also assured the United States that it will create a fair and level playing field for all companies, including American firms, in China’s strategic emerging industries.”
Vice Premier Wang Qishan
continue to help after those companies have invested.” Insight: You’ve said that addressing China's unfair practices in the auto parts sector is hindered by a reluctance of private companies t o c o m e fo r w ard w it h t h e “n e c e s s ar y information.” Can you tell us more about what support you’re looking for from U.S. companies and business organizations and how it will help you address this issue? Bryson: “Historically, companies have feared coming out publicly for fear of retaliation from the government. But it isn't a secret that wide spectrums of U.S. rights holders confront policies that limit their fair access to the Chinese market or subject them to unfair competition with Chinese products exported to the U.S. and other markets. “The United States government stands ready to help U.S. companies and workers by fully enforcing global trade rules, but we need to build these important cases with the assistance of American companies and workers that are being injured.”
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Insight: I understand you are spending some of your time on this trip to China talking about increasing Chinese tourism to America. Can you tell us more about why you’re focusing on this area? Bryson: “There is no country in the world that is more fun, more diverse or more interesting to visit than the United States. Travel and tourism is a vital part of the U.S. economy. Last year, international visitors spent an all-time record of US$153 billion on U.S. travel and tourismrelated goods and services. Those dollars translate into jobs. As a matter of fact, travel and tourism is America's number-one services export. “But the benefits of the industry go beyond just dollars and cents. Every visitor is a part of building an important bridge between our nations and our people. We project that China will – by far – have the largest percentage growth in tourism to the U.S. over the next five years, at nearly 200 percent. Our message to China and people across the globe is clear: we welcome you! Come and visit our great nation.” Insight: What’s the biggest untapped industry that you think U.S. companies in China should be exploring? Bryson: “That is a tough question, but I have faith that American enterprise can succeed in any market where they are given a fair shot. We compete in some areas, but many strengths of our economies are complementary. “American goods and services providers can help the Chinese government achieve its goal of an economy driven more by domestic demand, more services to meet the needs of its people, more innovation and more sustainable growth. Opportunities for American business are wide ranging: from health information technology, to financial services, to energy, to automotive products, you would be hard pressed to find a s e c t o r w h e r e A m e r i c a n i n d u s t r y c a n’t contribute. At the Commerce Department we are working every day to ensure that American businesses get a fair shot at participating in every sector of the Chinese economy.”
GoverNment Relations Shanghai Healthcare Official Addresses Healthcare Reforms and U.S. Investment AmCham Shanghai, in conjunction with the U.S. Foreign Commercial Service, hosted a luncheon with Director General of the Shanghai Municipal Health Bureau Xu Jianguang. The Director General spoke on the current state of healthcare in Shanghai and goals for the city’s healthcare reform in the coming years. Shanghai, as one of China’s most developed cities, is considered by many to be at the forefront of healthcare in China. According to the Director General, the average lifespan in Shanghai is 82 years, Director General Xu Jianguang (center) with Bill Brekke, the longest in China, and boasts an infant mortality Kenneth Jarrett and Brenda Foster rate on par with Singapore and Hong Kong. However, this does not mean that Shanghai is not without its challenges. The city has to deal with a large population, little land, a large migrant population and an aging population (24.5 percent of the population is over 60). Shanghai’s healthcare system can benefit greatly from increased cooperation with American healthcare entities. Director General Xu went on to outline priorities for the city’s healthcare reform. Among these were equal access to public healthcare services, increased insurance coverage for urban, rural and migrant residents and control of medicine/drug costs. He also spoke about how Shanghai is improving health services infrastructure; it increased government and private sector investment and is focused on specialized services like maternity and elderly care, family doctor programs and public hospital reform. (April 25)
Court Unveils Top 10 IP Protection Cases for 2011 As part of World IP Day, the Shanghai Higher People’s Court held a press conference to announce the White Paper on Intellectual Property (IP) Legal Developments in Shanghai in 2011 as well as the top 10 IP legislative cases in 2011. Shanghai began hearing cases of trademark, patent and copyright in the 1980s. In 1994, the city higher court and middle-court established a department to specifically hear IP-related cases. The Pudong district court was one of the first to establish a locallevel IP court within the country. Currently there are three levels (higher, first-middle, second-middle) of IP courts in Pudong, Huangpu, Yangpu, Xuhui, Minhang and Putuo. In order to improve the general quality of court processes, the city has continued to strengthen case study analysis and make these readily available to the public. In 2011, there were a total of 3,274 civil, administrative and criminal IPR cases processed in Shanghai municipality, a 15 percent increase for civil cases, a 103 percent and 350 percent increase over 2010 for primary cases and appeal criminal cases, respectively. One reason for the increased number of cases is, due to the rise in ecommerce, digital media and new technology, there are many new kinds of cases, especially involving copyright infringement. The American business community in Shanghai for the last several years has emphasized strengthening the city’s implementation of IP laws. The Shanghai government has been similarly interested in strengthening the legal system’s ability to implement legal protection of IP. This has included an increase in maximum penalties for infringement from RMB500,000 to RMB1 million, increasing the number of verdicts that were actually implemented and rewards that were actually paid and developing tools to strengthen legal action in criminal cases. (April 25)
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Committee highlights
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Marketing & Media Committee Building Trust with Your Social Influence Eco-System AmCham Shanghai’s Marketing and Media Committee hosted an interactive event with guest speaker Larry Weber, chairman of Racepoint Group, and guest panelist Paul Lin, the planning director at Wunderman AGENDA Shanghai, on how to build trust with your social influence eco-system. Larry Weber highlights best practices in building Technology has become more and more integrated into our trust with consumers everyday lives, and “we are now a smartphone based economy,” said Weber. Companies now need to not only create an online destination for their consumer base, but also promote it in a way that instills confidence in the consumers. To do this, companies need to create what Weber calls a “digital destination,” a site that creates a relationship with customer that strengthens as time spent on the site increases. This means that companies cannot just use their websites to provide information to the consumer. They also have to create an environment where the consumer provides information to the company, said Weber.
Weber noted another key to strengthening your social influence eco-system is marketing yourself (company/website) on other sites. To do this, you must first identify the key influencers, or online figures who are regarded as experts in your field who already have a strong online following and get them to promote your company. As the divide between the real world and digital world continues to fade, the Internet has become a strong tool to not only get your company known, but build long lasting relationships with your customers. In the coming years, companies will all be rushing to build their own social influence eco-systems, so Weber asks why not get a head start? (April 25)
Suzhou Suzhou Session Highlights How AmCham Shanghai Can Support YRD Companies’ CSR Programs AmCham Shanghai hosted a CSR information session at Ollie’s Suzhou for companies in the Yangtze River Delta. Oliver Yang, AmCham Shanghai Corporate Social Responsibility and Government Relations Manager, explained the concept of Government Relations Manager Oliver Yang speaks on corporate social responsibility, introduced CSR development CSR development trends trends in China and shared with attendees how companies in the Yangtze River Delta can launch their own CSR programs off the ground with the support of AmCham Shanghai. “Corporate social responsibility (CSR), also referred to as corporate citizenship, covers a wide range of areas such as community outreach, employee volunteerism and responsible workplace practices,” said Yang. “Engaging in social responsibility programs develops employee loyalty, builds new communication channels between staff and management and strengthens a company’s connection with the surrounding community.” (April 26)
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Commerce Secretary John Bryson Meets with AmCham Shanghai AmCham Shanghai partnered with the US-China Business Council (USCBC) to host U.S. Secretary of Commerce John Bryson, who met with the American business community to discuss the business environment and their on-the-ground operations in China. U.S. Secretary of Commerce John Bryson Both the U.S. and China are committed to building a mutually beneficial (center), with, from left, Julie Walton, Kenneth environment for investment and business, said Secretary Bryson, and Jarrett, Brenda Foster and Robert Griffiths bilateral trade last year topped US$500 billion. U.S. exports to China reached US$100 billion for the first time last year. However, according to Bryson, the Obama administration believes there is still a need to open the market to allow American companies the opportunity to meet the demand for their products and services in the China market.
The roundtable discussion led off with a focus on three key industries – financial services, healthcare and the automobile sector – identified in advance by Secretary Bryson’s team as areas of interest. The conversation then moved to a broader discussion on issues facing major industries in China and their experiences with intellectual property protection, competition from local companies and other day-to-day challenges. Members in attendance discussed a wide range of issues, and many expressed that China was a vital component in their company’s growth. Secretary Bryson assured that many of these issues were directly addressed in the recently concluded bilateral Strategic and Economic Dialogue in Beijing and that engagement and follow-up would continue in the run-up to the U.S.-China Joint Commission on Commerce and Trade (JCCT) this Fall. (May 7)
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NGOs Meet Businesses AmCham Shanghai, BSR’s CiYuan initiative, Shanghai Association of Enterprises with Foreign Investment and Intel China co-organized a NGOs Meet Businesses workshop on Collaboration and Innovation at 1933 Shanghai. Around 100 attendees gathered to learn about partnerships between non-profit organizations and businesses. Representatives from three local NGOs – Safe Kids Worldwide, Huizeren and Stepping Stones – and their corporate partners presented their joint projects and discussed how to build successful, sustainable relationships. “Investing time in understanding your partner and making NGO representatives highlight corporate volunteer adjustments to support them is one of the key points for successful opportunities partnerships” said Monica Cui, the chief representative & executive director of Safe Kids Worldwide-China, a global network of organizations with a mission of preventing unintentional childhood injury. “At the same time, engaging senior leadership early and consistently can lay a solid foundation to effective collaboration between both parties.” BSR presented a case study on the partnership between Nike and China Youth Development Foundation (CYDF). This case study examines the evolution of the partnership between Nike and CYDF and highlights the issues in developing partnerships between a company and an NGO, challenges of promoting an innovative approach to address issues. BSR also explored how to widen the program's reach and engage the broader public. (May 5)
Ambassador J. Stapleton Roy Speaks on U.S.-China Relations Former U.S. Ambassador J. Stapleton Roy, director of the Kissinger Institute on China and the United States, addressed a group of AmCham Shanghai members and took a variety of questions. Roy drew upon his 45 years of experience in the U.S. Foreign Service to speak on the current state of U.S.-China relations.
Ambassador Roy speaks on the next decade’s greatest challenges
The next decade, said Roy, is a decisive time for U.S.-China relations, as China’s economy continues to rise. Managing this relationship will be one of the most important challenges for the U.S., as it also has implications for the U.S.’s relationship with other countries, including the ASEAN nations. Part of the challenge is navigating the balance between leadership and engagement in the region, with the latter being an ideal way to preserve U.S. interests while maintaining ASEAN centrality.
Current public rhetoric, however, may not support those ends, said Roy. Leaders in both Washington and Beijing are genuinely committed to a stable bilateral relationship, said Roy, but the debate in the public sphere of whether the other is a friend or foe continues and the lack of trust remains a point of contention. The U.S.’s message of welcoming China as a rising power, and China’s message of welcoming engagement, is not being effectively communicated. In the U.S.’s relationship with Taiwan, the communication of the U.S.’s position of improving cross-strait relations is often lost. Time is of the essence in amending the rift. “Inattention will not get us where we need to go,” said Roy. “What is needed now is constructive diplomacy and not policies that strengthen the drift of confrontation.” (April 20)
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Briefing Highlights Chamber’s SME Center Initiative At May’s Monthly Member Briefing, AmCham Shanghai’s Chair Kenneth Jarrett discussed the Chamber’s new SME Center and introduced members of the Center’s Advisory Committee that was formed to provide guidance during the Center’s development. SMEs make up more than 95 percent of all U.S. companies, Jarrett noted, and are increasingly interested in China as an export market. But they often lack the resources, knowledge and expertise readily available to large U.S. multinationals to compete in China’s challenging and increasingly competitive market. AmCham Shanghai’s new SME Center will act as a bridge between U.S. SMEs and the China market by providing resources that include referrals to member service providers well suited to support SMEs, best-in-class research tools and databases, informational briefings on issues critical to an SME’s success in China and a platform to connect SMEs with new customers and potential investors. During the Q&A session, Jarrett was joined by Andrew Au, Chair of the Advisory Committee, Aaron Chang, Chair of the AmCham Small Business Committee, and Brenda Foster, President of AmCham Shanghai. All reiterated the fact that the Center is a resource and referral platform to drive business success for both SMEs and members who serve them. The briefing also welcomed Jim Mullinax, the Political and Economic Section Chief at the U.S. Consulate General in Shanghai, who provided comments on the 4th round of the China-U.S. Strategic & Economic Dialogue (S&ED), as well as Douglas Dongtao, Assistant President of the Shanghai Foreign Investment Development Board, who discussed the current business environment for investment. (May 8)
From left – Kenneth Jarrett, Andrew Au, Aaron Chang and Brenda Foster discuss the Chamber’s SME Center
Reporting by Ryan Balis, Ally Chiu, Matthew Garner, Libby Maese, Krisanna Oopik, Simon Smith, Jane Yan, Esther Young and Ink Zheng
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EXECUTIVE traveler In this issue, we ask executives to share their best travel tip Mike Shih, Vice President, China Strategy and Business Development, Cessna Tip: “I always travel with noise cancelling earphones. It’s a small thing, but it makes an enormous difference in comfort, especially in air travel.”
Julliet Pan, Founder, She&Jul Films, Shanghai Tip: “I often need to travel on short notice - I like to pack my basic stuff aside, so when I need to go, I just need to grab some clothes. I have a set of skin care and makeup products ready. I also have a set of spare chargers for my computer, phones, iPad and stuff and a universal adaptor. Finally, I have a compact power outlet with multiple charger heads that allows me to charge five devices at the same time.” Dan Whitaker, Managing Director Asia, MRI Software, Shanghai Tip: “Treat your bag and briefcase like the airlines treat their planes. You've all read the stories about how airlines in America stopped carrying olives on the salad so they could save a little bit of weight. Do that with your own things.” Also: “Always fly nonstop. Planes are so small nowadays that it is hard to plan to use your laptop to get caught up on work and emails. Do use the time for thoughtful exercises like strategy documents or key presentations.”
Oliver Yang, Government Relations Manager, AmCham Shanghai Tip: “If you have to fly internationally or in United States on Star Alliance, I recommend joining Aegean Airline’s Frequent Flyer program. You only need to fly 20,000 miles in coach to achieve Gold Status which gives you three years access to all Star Alliance Lounges in the United States for free.”
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