w w w. a m c h a m - s h a n g h a i . o r g
INSIGHT The Journal of the American Chamber of Commerce in Shanghai April 2011
U.S. Ambassador Jon M. Huntsman INDUSTRY FEATURE
Reading China’s Retail Consumers MANAGER’S NOTEBOOK
Tips from The King’s Speech
China’s 12th Five Year Plan
China’s newest Five-Year Plan will be used by the government to achieve its development objectives. Understanding the plan is critical to your company’s success in China.
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INSIGHT April 2011
The Journal of the American Chamber of Commerce in Shanghai
David Turchetti DIRECTORS
BUSINESS DEVELOPMENT & MARKETING
Karen Yuen COMMITTEES
Siobhan M. Das INSIGHT EDITOR-IN-CHIEF/ COMMUNICATIONS & PUBLICATIONS
David Basmajian EVENTS
Jessica Wu FINANCE & ADMINISTRATION
MEMBERSHIP & CVP
Linda X. Wang
INSIGHT ASSOCIATE EDITOR
Ryan Balis DESIGN
Alicia Beebe LAYOUT & PRINTING
Ella Shan Snap Printing, Inc.
INSIGHT SPONSORSHIP SPONSORSHIP MANAGER
(86-21) 6279-7119 ext. 5667 Story ideas, questions or comments on Insight: Please contact David Basmajian (86-21) 6279-7119 ext. 8066 firstname.lastname@example.org Insight is a free monthly publication for the members of The American Chamber of Commerce in Shanghai. Editorial content and sponsors' announcements are independent and do not necessarily reﬂect the views of the governors, ofﬁcers, members or staff of the Chamber. No part of this publication may be reproduced without written consent of the copyright holder.
Shanghai Centre, Suite 568 1376 Nanjing West Road Shanghai, 200040 China tel: (86-21) 6279-7119 fax: (86-21) 6279-7643 www.amcham-shanghai.org
Special thanks to the 2010-2011 AmCham Shanghai President’s Circle Sponsors
11 A Sense of Déjà Vu
V I C E P R E S I D E N T, P RO G R A M S
F E AT U R E S
By Andrew McGinty
Andrew McGinty of Hogan Lovells discusses a recently issued circular that reimposes restrictions on purchases of property in China by foreign entities and individuals. What will be the likely impact of the regulations moving forward?
14 Cracking the Chinese Retail Market INDUSTRY FEATURE
By Esther Young
Best Buy’s recent troubles are indicative of the immense challenges of the China market, especially for foreign retailers who are unfamiliar with the market landscape. But there is great opportunity for retailers as well.
22 Seeking Common Ground INTERVIEW
By David Basmajian
U.S. Ambassador to China Jon M. Huntsman speaks on the state of the U.S.-China relationship and what China could be doing better to level the playing ﬁeld for U.S. companies in the China market.
30 China’s 12th Five-Year Plan COVER STORY
By Kenneth Jarrett
China’s 12th Five-Year Plan (FYP) is a critically important tool used by the government to achieve its development objectives by mapping China’s future progress. How does the FYP work, and what is in store for the next ﬁve years?
40 Who Wants to be a Billionaire? INTERVIEW
By Esther Young
The Forbes Billionaires List has become a window into the changing global wealth and economic landscape, says Forbes Shanghai bureau chief Russell Flannery.
I N S I G H T S TA N DA R D S
3 News Briefs
19 Chinese Visas
8 Manager’s Notebook
Cao Baodi of the Shanghai ExitEntry Administration Bureau provides updates on changes to the Chinese visa process
48 Deal of the Month
26 ERP Selection Made Easy INDUSTRY INSIGHT
Eberhard Hoffmann, general manager of ABiC information systems in Shanghai, caps off Insight’s ﬁve-part series on implementing an Enterprise Resource Planning (ERP) system in China.
37 New Member Listing 38 From the Chairman: Reaching out to the YRD 39 Board of Governors Meeting
43 CSR Highlights 45 Events in Review 47 Committee Highlights
DAVID BASMAJIAN EDITOR-IN-CHIEF/ DIRECTOR COMMUNICATIONS & PUBLICATIONS
n March 14, the Fourth Session of the 11th National People’s Congress approved China’s 12th Five Year Plan. China’s Five-Year Plan for National Economic and Social Development (FYP) is an important tool used by the government to achieve its development objectives. Understanding the FYP, its focus and direction, is perhaps just as critical to your company’s success in China. In our cover story this month, Kenneth Jarrett, Chairman, Greater China at APCO Worldwide and former U.S. Consul General in Shanghai, provides an overview of the FYP and highlights implications for the foreign business community in China. Just as the Five Year Plan often signals a transition in government in China, this month, the U.S. Embassy in Beijing will undergo a transition of its own. On April 30th, Jon M. Huntsman will oﬃcially step down as U.S. Ambassador to China. With speculation mounting that Ambassador Huntsman will seek the Republican nomination for president of the United States, Ambassador Huntsman talks with Insight to give us his views on the state of the U.S.-China relationship, where it needs to go from here and a few popular
misperceptions Americans have about China. In February, U.S. retail titan Best Buy announced it would close its doors in China. They’re not the ﬁrst American brand to come and go in the world’s fastest growing market, but what happened and why? More importantly, what does it take to win in the hypercompetitive China retail landscape? This month’s industry feature attempts to answer these questions and tells us that while Best Buy might be down, they are not necessarily out. We’ve all seen the ﬂashy cars, the endless parade of designer hand bags, clothes and accessories and we’ve heard the stories about their sumptuous lifestyles. But just how many billionaires are there in China? Russell Flannery, Shanghai bureau chief of Forbes magazine, talks to Insight about the 2011 Forbes Billionaires List. Now in its 10th year, Flannery tells us why the List is important and, of course, who is this year’s number one! Finally, AmCham Shanghai Chairman Eric Musser writes about one of the Chamber’s strategic objectives – expanding the services and beneﬁts oﬀered to Chamber members throughout the Yangtze River Delta region.
N NE EW WS S B BR R II E EF FS S
China to build new economic zone China’s State Council approved a plan to create a new economic zone in southwest China, as the country moves to spread economic development inland and away from the highly developed coastal regions. The new Cheng-Yu (Chengdu-Chongqing) economic zone will integrate 31 districts and counties in Chongqing and 15 cities in Sichuan province, including Chengdu, its provincial capital. The government is prioritizing advancement in certain industries, including automobiles, aerospace, electronics, information technology, energy, chemical engineering, food, textiles and healthcare. China’s leaders hope to build the zone into a major manufacturing base by 2015, leveraging the area’s rich supply of natural resources, manpower and transportation infrastructure.
Report: China becomes No. 2 art market A report commissioned by the European Fine Art Foundation ﬁnds China overtook the United Kingdom last year to become the world’s second-largest art market, behind only the United States. In 2010, art sales in China, which include auction and gallery sales, nearly doubled to US$8.3 billion, or a 23% global market share. By comparison, the U.S. controls 34% of the global art market, while the U.K., Europe’s largest market, has a 22% share, down 27% from 2006. The global art market is generating brisk sales by transaction value, recovering from a down year in 2009 to an estimated total of US$60 billion in 2010, up 52% yearon-year.
Gary Locke tapped for ambassador post President Obama nominated U.S. Commerce Secretary Gary Locke to serve as the next U.S. ambassador to China. If conﬁrmed by the U.S. Senate, Locke, a former governor of Washington state, would become the U.S.’s ﬁrst ethnic Chinese ambassador to China. Ambassador Jon Huntsman, the current China envoy, announced his resignation last February and will step down on April 30th. AmCham Shanghai President Brenda Foster welcomed Locke’s nomination. “Secretary Locke’s focus on increasing U.S. exports to China and promoting free and fair access to the fastest growing market in the world makes him an excellent choice as the next U.S. ambassador to China,” says Foster. “We’ve had the honor to work with Gary Locke while he was Governor of the State of Washington and again as Secretary of Commerce.We look forward to continuing our work with him as U.S. ambassador to China and we anticipate his swift conﬁrmation.”
Entertainment industry to double by 2016 China aims to more than double its entertainment industry over the next ﬁve years to US$460 billion. To help grow the industry, the government will speed along bank loans and public listings of entertainment companies. The government’s focus will help export Chinese culture abroad and complement China’s broader
push to expand domestic consumption and rely less on export-driven growth. China’s booming domestic ﬁlm industry produced 526 ﬁlms last year, a 15% increase year-on-year, generating a 64% increase in revenue year-on-year to RMB10.2 billion (US$1.6 billion). Revenue from China’s entertainment industry amounted to an estimated RMB1.3 trillion in 2010. However, foreign producers face access challenges, as
only 20 foreign ﬁlms were allowed to be screened in Chinese theaters last year.
Automakers discount impact from quake In the aftermath of Japan’s massive earthquake and tsunami, state-owned Guangzhou Automobile Group Co. says production thus far has been unaﬀected at its joint-venture plants with Japanese automakers Toyota Motor Corp. and Honda Motor Co. Production on Nissan Motor Co.’s cars in China is also unaﬀected. Although companies caution that it is too early to assess the full impact, any potential disruption would be felt less among smaller Chinese automakers. Geely Automobile Holdings Ltd. and Great Wall Motor Co. source core auto parts domestically and from overseas suppliers, respectively. Meanwhile, in other parts of the world, automakers and manufacturers are closely monitoring Japan for potential supply shortages of parts or already have taken steps to ﬁnd new suppliers. CORPORATE NEWS
PetroChina proﬁt up 35% PetroChina Co.’s reported net proﬁt in 2010 increased 35% to roughly RMB140 billion (US$21.3 billion), up from RMB103.4 billion the previous year. The state-owned oil producer, China’s largest by output, predicts a 5.4% boost to its oil and gas output in 2011 and plans to maintain its partnering eﬀorts internationally to expand upstream exploration and production. PetroChina expects an increase in oil and gas demand in China following the State Council’s move to slow the country’s nuclear power expansion. The company also expects Japan will need to ﬁnd an energy replacement for its crippled Fukushima Daiichi nuclear plant and will oﬀer the country 220,000 metric tons of reﬁning products as assistance.
Starbucks offerings expand in China Starbucks Corp. is rolling out single-
serving instant-coﬀee packets across more than 800 of its cafes in China, Hong Kong and Taiwan. The “Via” packets, available from April 6, will also be distributed at grocery marts and eventually hotels and entertainment venues. The Seattle-based coﬀee chain is planning a rapid increase of its mainland presence to 1,500 stores by 2015, up from 450, and is exploring avenues to oﬀer a wider selection of products in China. The company is setting up a R&D center in Shanghai to create tea products. Instant coﬀee sales in China increased 13% to RMB5.1 billion (US$777.9 million) last year with Swiss-based Nestlé SA commanding a 70% market share.
Dunkin’ Brands plans China expansion Dunkin’ Brands, Inc., the parent company of Dunkin’ Donuts and Baskin-Robbins restaurants, is looking to expand the number of its stores in China by the thousands over the coming years, though the company has not released a detailed timetable. The Massachusetts-based company operates about three dozen Dunkin’ Donuts locations in China. Although its China presence is relatively small compared to other U.S. restaurant chains, the company views China’s fastgrowing domestic market as its top international target for expansion. The company is looking to expand ﬁrst in a few cities, such as Shanghai, before attempting a larger rollout, calling its expansion plan a “disciplined” approach. MACROECONOMICS
Government trims GDP target Chinese Premier Wen Jiabao announced China is setting an economic growth target of 8% in 2011, down from actual GDP growth of 10.3% last year, and an annualized growth target of 7% over the next ﬁve years. China raced past its growth target of 7.5% over its previous Five-Year Plan, posting an annualized rate of 11.2%. The aim to moderate China’s growth over its next Five-Year Plan (2011–2015) complements the country’s larger economic rebalancing
eﬀort from export and investment-driven growth. Instead of encouraging brisk economic expansion, China is focusing on raising citizens’ living standards, boosting domestic consumption, tackling inﬂation pressures and improving the quality of economic growth.
Consumer prices up 4.9% National Bureau of Statistics data show China’s Consumer Price Index (CPI), a key measure of inﬂation, increased 4.9% in February year-on-year. February’s reading, which slightly exceeded expectations, keeps pace with January’s 4.9% increase but remains above last December’s 4.6% mark. Food prices increased 11% in February from a year earlier, while nonfood prices increased 2.3% year-on-year. China’s Producer Price Index, which tracts wholesale price levels, jumped 7.2% year-on-year in February, up from 6.6% in January. China’s leaders have said their main economic priority for 2011 is to curb price rises. At the opening to the National People’s Congress last month in Beijing, Premier Wen Jiabao said the government hopes to contain this year’s inﬂationary growth to 4%.
China records trade deﬁcit General Administration of Customs data show China recorded a trade deﬁcit of US$7.3 billion in February, the country’s ﬁrst deﬁcit in 11 months. The deﬁcit is larger than the US$7.2 billion deﬁcit recorded in March 2010 and is China’s largest trade deﬁcit in seven years. The Spring Festival holiday disrupted exports, causing exports to fall to US$96.7 billion in February, up 2.4% year-on-year. Imports expanded 19.4% year-on-year in February to US$104 billion. Some analysts caution that the trade data should be taken only as a seasonal snapshot. Although combined data from last January and February show that imports expanded at a faster pace than exports, export growth is still impressive, rising 21% in January and February over the same period last year to US$247.5 billion.
Retail sales up 15.8% in early 2011 National Bureau of Statistics data show China’s retail sales on consumer goods increased 15.8% year-on-year to RMB2.9 trillion over the ﬁrst two months of the year. Despite positive growth, the expansion was below market expectations of 19%, as well as 3.3% lower than last December’s growth. Analysts point to a decline in consumer conﬁdence in recent months to help explain the ﬁgures. A consumer conﬁdence index compiled by Xinhua News Agency and China UnionPay Co. shows a 0.59 point decrease last February and a 1.28 point drop last January compared to the previous year. Sales growth was roughly similar in urban centers and rural areas at 15.9% (RMB2.5 trillion) and 15.4% (RMB384.5 billion), respectively. U.S. - CHINA
U.S., China team up on C919 jetliner U.S.-based Hamilton Sundstrand Industrial Corp. and China’s AVIC Electromechanical Systems Co., Ltd. announced a joint venture to develop electricity generation and distribution systems for the C919 jetliner, China’s ﬁrst homegrown jumbo jet. The US$145 million venture will be evenly split by the two companies, which will temporarily set up development in Xi’an, capital of Shaanxi province, and begin production before 2012. The C919 is scheduled to go into commercial service in 2016. The Commercial Aircraft Corp. of China (COMAC), the plane’s builder, has received orders for 100 planes and forecasts sales of 2,300 to 2,700 planes by 2030.
Momentum gains for Hawaii– China direct ﬂights A bid to open direct ﬂight service between Hawaii and China apparently is gaining momentum following Shanghai-based China Eastern Airlines Corp.’s application to the General Administration of Civil Aviation of China, the country’s airline
regulator. In Hawaii, the state’s tourism oﬃcials have pushed unsuccessfully for years to establish direct air links from China to tap the growing demand of mainland visitors to Hawaii. However, the latest eﬀort follows the ﬁrst-ever direct charter ﬂights from China earlier this year, bringing a total of about 775 passengers on three ﬂights and drawing great interest. China Eastern, China’s second-largest carrier, also needs regulatory approval in the U.S. and the countries over which it will ﬂy.
Groupon goes live in China Groupon, Inc., the world’s largest coupon website, is partnering with Tencent Holdings Ltd., China’s largest Internet ﬁrm, and private equity ﬁrm Yunfeng Capital to oﬀer daily deals for meals, entertainment and more to online bargain hunters in China. The collaboration allows the Chicago-based company to launch group-buying website GaoPeng. com initially for consumers in Beijing and Shanghai and later in other major Chinese cities. China’s growing e-commerce sector generated US$78 billion in sales last year, and this ﬁgure is expected to double by 2013. Groupon faces competition from hundreds of Chinese players that already oﬀer deals catered to local tastes, as well as the challenge of adapting to China’s fragmented market in which factors vary enormously by city. GOVERNMENT & POLICY
China suspends nuclear approvals Following the devastating earthquake and ongoing nuclear crisis in northern Japan, the State Council suspended approvals on 28 new nuclear power plants to examine safety standards. China will conduct immediate safety checks on the 20 to 25 plants under construction, as well as existing facilities housing the country’s 13 operational reactors. Nuclear power accounts for about 1% of China’s total energy output, but production capacity had been planned to increase to 86 gigawatts by 2020, up from 10.8 gigawatts today. Meanwhile, in Shanghai, authorities
with the Shanghai Entry-Exit Inspection and Quarantine Bureau are tightening checks on Japanese imports, including food and cargo, for radiation, as well as screening travelers and their luggage arriving from Japan.
Tax reform ﬂoated, targeting lower end The State Council is proposing new tax measures that would raise the minimum threshold for collecting individual income tax and would adjust existing tax rates and brackets. The proposals are intended to boost consumption by easing the tax burden on low income earners who would have less of a tax obligation or none at all. The government could raise the income level exempt from taxation to RMB3,000, up from RMB2,000. The Standing Committee of the National People’s Congress is expected to review the proposals in April. Implementation could follow in the second half of the year, though no oﬃcial timetable exists. China’s tax revenue grew 23% year-on-year to RMB7.3 trillion (US$1.1 trillion) in 2010.
PBoC squeezes China’s banks The People’s Bank of China (PBoC), China’s central bank, raised the ratio of deposits it requires banks to hold in reserve by half a percentage point to a record 20% for large banks and up to 18% for small- and medium-sized banks. PBoC has increased the reserve ratio three times this year, following six increases in 2010, in a bid to tighten lending and keep the economy from overheating. Inﬂationary pressures continue to be a major concern for China, especially rising food costs and producer prices. Analysts anticipate PBoC will again raise the reserve requirement and also increase the benchmark interest rate, which it has hiked three times since October. SHANGHAI BUSINESS
Grand Prix adds title sponsor Swiss bank UBS AG agreed to become
the title sponsor at this year’s 2011 FIA Formula One World Championship race held in Shanghai on April 15–17. The deal, signed for an unspeciﬁed amount, gives Formula One a welcome boost amid slumping attendance ﬁgures for the race’s Chinese leg. Last year’s race in Shanghai attracted 155,000 spectators, down from 260,000 in the 2004 inaugural year. In 2009, China Petroleum & Chemical Corp.(Sinopec) ended its contract with Formula One management, citing a decrease in race attendance. In 2004, the state-owned energy giant, which is Asia’s biggest oil reﬁner, signed a three-year title sponsorship deal with Formula One for an annual cost of US$20 million.
Shanghai raises minimum wage Many of Shanghai’s workers are set to enjoy a wage hike beginning April 1. According to new city wage laws, the minimum monthly wage will increase to RMB1,280 (US$195), up 14%. The minimum hourly wage will also increase
from RMB9 to RMB11 and applies to all employees in the city, including migrant workers. Mayor Han Zheng, following through on an earlier promise, wanted a minimum wage increase to help oﬀset the rising cost of living in Shanghai, especially soaring food prices. The government hopes the increases will lead to higher domestic consumption, as China rebalances its economic growth model to rely less on exports. Shanghai is one of four Chinese cities or provinces to increase its minimum wage this year.
Wi-Fi coverage added to phone booths Shanghai residents can now surf the web or check their e-mail at 500 telephone booths-turned-Wi-Fi hot spots across the downtown area, including such popular locations as Yu Garden and People’s Square. By using their Wi-Fi enabled laptop, iPad or mobile device, users can connect to the Internet within a 50 squaremeter radius at booths marked with a Wi-
Fi sign. The city upgraded the booths soon after the Spring Festival and rolled out the service on March 15th, giving new life to the antiquated telephone booth. Users are charged RMB0.03 per minute for the service and are oﬀered download speeds up to two Mbps, or about 10 times faster than a 3G connection.
Metro coverage to expand Shanghai Metro oﬃcials announced work is under way to add three new subway lines and extend an additional line. Workers are laying more than 500 kilometers of track for the system’s latest expansion round to build Metro lines 12, 13 and 16, which are planned to have 32, 14 and 13 stations, respectively. When fully complete by 2014, the city will have a total of 14 subway lines on what is already the world’s longest subway system at over 1,400 km in length. The city also will add 21 km of track to extend both ends of Line 11 by 13 stops, spreading into the southernmost part of Pudong.
CHINA & THE WORLD
SOUTH AMERICA ASIA-PACIFIC
JAPAN: China sends rescue team to quake-hit zone China is contributing to the relief efforts in Japan, following the March 11 earthquake, dispatching a 15-member rescue team to the disaster-hit zone. The team is conducting rescue operations in the worst-hit Ofunato city of Iwate prefecture. Japan’s Foreign Minister Takeaki Matsumoto thanked China for its participation in the rescue effort and generous contribution of relief supplies and aid. China’s latest emergency aid includes 10,000 tons of gasoline, 10,000 tons of diesel and RMB30 million in humanitarian assistance. Chinese Premier Wen Jiabao noted that Japanese rescue teams contributed greatly to relief operations after China’s 2008 Sichuan earthquake.
TANZANIA: China-Africa Hope Project launched The World Eminence Chinese Business Association and the China Youth Development Foundation launched the China-Africa Hope Project in Dar es Salaam, Tanzania, breaking ground on the construction of a new primary school. The China Hope Project is an educational charity program, which was founded in 1989. The school in Tanzania is the project’s ﬁrst venture abroad. Plans to build primary schools in Ethiopia, Kenya, Rwanda, Uganda and Burundi are under way. The China-Africa Hope Project is also supported by the United Nations Food and Agriculture Organization and the Chinese-African People’s Friendship Association. The China Hope Project has so far raised RMB5.67 billion in donations and built 15,940 Hope primary schools in China.
China, EU to increase cooperation on food standards The European Union and China announced plans to create a mutual regulatory system for granting Geographical Indication (GI) marks, hoping for a greater exchange of quality food products. In 2007, the EU and China introduced a pilot program using colored labels to guarantee quality, tradition, good taste, authenticity and high environmental and animal welfare standards. Last year, 10 new European food products were granted approval for sale in China with GI marks. Ten Chinese products, including Longjing tea from Hangzhou, apples from Shaanxi province and vinegar from Zhenjiang in Jiangsu province, are sold in Europe using the program’s marks. A European business delegation is holding events in China to promote the recognition of GI signs. In 2010, trade of agricultural products between the EU and China grew 50%.
EUROPE MIDDLE EAST
SAUDI ARABIA: Aramco to supply crude to Chinese oil reﬁnery Saudi Arabian Oil Co. (Aramco) has signed a memorandum of understanding (MOU) with PetroChina Company Ltd., a subsidiary of China’s state-owned China National Petroleum Corp. (CNPC) to supply crude oil to a planned reﬁnery in southwest China. Saudi Aramco will supply the project with up to 200,000 barrels per day of crude through a long-term contract. The 10 million metric-ton-a-year reﬁnery, in Yunnan province, will produce ultra-low sulfur gasoline, diesel and other reﬁned products. CNPC is building China-Myanmar oil and gas pipelines to bring energy supplies overland from the Middle East, using a crude oil port in Myanmar.
SOUTH AMERICA MIDDLE EAST AFRICA
ASIA-PACIFIC AFRICA NORTH AMERICA
UNITED STATES: Congressional panel praises Chinese participation in international organizations The U.S.-China Economic and Security Review Commission, a Congressional panel, released a report lauding Beijing for its constructive engagement in international institutions. The report, titled “The Evolving Role of China in International Institutions,” looks at China’s participation in the World Bank, United Nations, International Monetary Fund and other organizations. The report notes that much of Chinese diplomatic work happens behind the scenes on security issues. Reported trends include greater inﬂuence in international organizations, increased numbers of high-level posts and a growing effectiveness in directing organizational agendas. China’s role in peacekeeping operations also has evolved, beginning with the dispatching of peacekeepers to Haiti in 2004.
EUROPE NORTH SOUTHAMERICA AMERICA
BRAZIL: Mining giant to begin iron ore project in China The world’s largest miner of iron ore, Vale SA, will start production at its iron ore project in China. Vale has a 25% stake in the project, with the rest owned by Anyang Iron & Steel Co. With an annual capacity of 1.2 million metric tons per year, the joint venture is part of Vale’s broader strategy to increase its production capacity of pellets, a form of iron ore used in steelmaking. The company also is building pellet plants in Brazil and Oman. China accounted for slightly more than 33% of Vale’s operating revenue in 2010. In 2008, China replaced the U.S. as Brazil’s largest trading partner.
SOUTH AMERICA ASIA-PACIFIC
M A N A G E R ’ S N OT E B O O K
The King-Size Fear of Public Speaking
Tips to improve your next speech
n the opening scene of the Academy Award-winning ﬁlm The King’s Speech, Prince Albert, played by Colin Firth, is unable to ﬁnish even the ﬁrst line of a speech given in front of hundreds of his subjects and countless thousands of radio listeners. The scene is painful viewing, and it surely reminds us of our own less than magniﬁcent public speaking moments. But looked at in another light, how Prince Albert, who later was elevated to King George VI, learned throughout the ﬁlm to manage his stammer is a teachable moment for all of us wishing to improve our public speaking skills. First and foremost, we learn that the fear of public speaking is conquerable. Though he has a speech impediment, the King steadily improves his speaking abilities thanks to an inner drive to succeed and assistance from his speech therapistturned-mentor. By movie’s end, we watch as the King delivers a live radio address that gives hope to the British people during one of the darkest hours of World War II. While most of us aren’t carrying the weight of a nation on our shoulders, we all have public speaking opportunities that have the potential to elevate ourselves, our company or organization. Inspired by the King’s triumph, I’ve prepared a list of King’s Tips to help you overcome – and thrive – the next time you encounter your
own moment in the spotlight.
The King’s Tip: Always stand up to deliver a speech of importance Many business presentations are delivered through teleconferences or meetings where the speaker has the opportunity to sit. Avoid this temptation. Instead, stand up to place yourself in an assertive posture and allow deeper breathing from your diaphragm. Opera singers employ this advice, knowing that standing up improves vocal quality projection. King George VI gave his historic radio address in a small room with only his mentor as witness. But he stood, rather than sat, ensuring that his voice would project forcefully and clearly. Standing up also gives you the freedom to use body gestures and other visual cues to keep the audience’s attention. In a standing position, it’s physically easier to see a larger number of audience members, giving you valuable information whether your listeners understand your message and are engaged.
The King’s Tip: Get comfortable projecting your voice An engaging speaking voice is a key part
of success in the business world. Strength and authority start with becoming comfortable with the sound of your own voice. Most of us are shy and self-conscious when speaking to groups, especially if it’s not something we do on a regular basis. To become comfortable with public speaking, practice speaking aloud, ideally in a meeting room. Work on projecting your voice so that someone at the back of the room would hear. The King’s mentor encouraged him to sing out of an open window. While you don’t necessarily need to wake up your neighbors, ﬁnd other fun excuses to raise your voice. Play a sport or referee a soccer match at your children’s school. Aside from vocal improvements, conditioning exercises to strengthen your abdominal muscles will enable you to better ﬁll your lungs with air. The King’s mentor instructed his wife to sit on his stomach while speaking, but my advice is traditional sit-ups. Now you have another reason to get to the gym!
The King’s Tip: Great speakers are made, not born Few are born naturally great public speakers. However, the good news is, like any skill, your public speaking skills can be developed. While you won’t become a
great public speaker overnight, hard work and determination are the greatest success factors in becoming an eﬀective public speaker. How many presenters could match King George’s dedication of completing 82 speech therapy sessions before a sixmonth world tour? Many presenters do not set aside any time to rehearse their speech, but development of good public speaking requires you to ﬁnd time to practice. If you have three weeks to prepare for a 20minute presentation, schedule 30 minutes to one hour per day for preparation. For important talks, consider simulating the environment or actually visiting the venue where you will speak. In the ﬁlm, the King visited and practiced at Westminster Abbey before speaking at his coronation. This is important for all presenters because by walking on the stage you get a feel for the microphone, seat arrangement and acoustics. Every room is diﬀerent, so the best business presenters, like Steve Jobs, CEO of Apple, make live rehearsals at the venue part of their preparation.
The King’s Tip: Learn to self-evaluate Good public speakers don’t learn by doing; they learn by re-doing. One great way to advance your public speaking skills is to listen (or watch) recordings of your speeches. In The King’s Speech, the King learned that he had the potential to be a ﬁne public speaker after listening to a recording from his speech therapy session. Like King George discovered, hearing your own voice on tape is a highly eﬀective method for helping you become more aware of your strengths and weaknesses. Try this exercise the next time you prepare for a speech. First, divide a piece
of paper into two halves. Next, while reviewing a taped performance or practice session, write down all the positive aspects you notice on one side and areas for improvement on the other side. You’ll learn two lessons. One, your performance probably is better than you imagined. And two, you’ll learn to become your own worst critic. Most audiences don’t judge us as harshly as we judge ourselves.
The King’s Tip: What not to do While The King’s Speech highlights many important speech lessons, the ﬁlm also is rich in examples of what not to do. One tip to avoid in the ﬁlm is smoking deeply into your lungs to relax your throat! Voice care is important, so drink plenty of water and add lemon or honey. You can also lightly massage your vocal chords before your presentation begins. But don’t smoke! Another bizarre technique we see in the ﬁlm is when the speech therapist asks King George to ﬁll his mouth with marbles and start speaking. This was supposed to improve his articulation. While I wouldn’t recommend this technique, clear articulation is an important aspect of a good speaking voice. Instead, ﬁnd a private space to practice reading your script or a book aloud at half your normal speed. Focus on pronouncing every syllable in every word. This exercise brings attention to clear pronunciation and will help you deliver your speech more crisply when you return to normal speed.
Warwick John Fahy is a thought leader on executive communication in China and works with senior executives to help them speak like C-level executives. Contact Warwick at warwick@warwick johnfahy.com.
Got an article idea for “Manager’s Notebook”? Contact Insight Editor-in-Chief David Basmajian at email@example.com.
BY ANDREW MCGINTY
A Sense of Déjà Vu
n November 2010, China’s Ministry of Housing and Urban-Rural Development (MOHURD) and the State Administration of Foreign Exchange (SAFE) jointly issued the Circular on Further Standardizing the Administration of Property Purchases by Overseas Institutions and Foreigners (“Circular 186”), which reimposes restrictions on the purchase of properties by foreign entities with a presence in China and foreign individuals. Although many of the details are unclear and the implications to be determined, a concern is the Circular could make it more diﬃcult for foreigners to buy property in China. The Circular continues the central government’s efforts in recent years to implement rules designed ostensibly to cool down China’s real estate market. Although the latest Circular targets foreign buyers of real estate in China, the reality is foreign owners account for less than one percent of the market in China, with ownership levels relatively concentrated in the main cities. Why is the government focused on a small percentage of home buyers, and what will be the likely impact of the regulations moving forward?
Policy changes On the face of it, Circular 186 was issued to
implement the wider macro-economic policies set out in the State Council’s April 2010 Circular on Firmly Restraining Rapid Growth of Real Property Prices in Certain Cities and to strengthen the implementation of the Opinions on Regulating Foreign Investment in Real Estate Market Access and Administration of Foreign Investment in Real Estate, which was jointly issued by six ministries in July 2006 (“Circular 171”). Circular 186 is very similar to Circular 171 in terms of the line it takes. It clariﬁes that, except as otherwise speciﬁed in laws and regulations: • Foreign individuals are only permitted to purchase one set of commodity housing in China for self-occupation purposes; and • Branches and representative ofﬁces established by foreign entities in China are only permitted to purchase a non-residential property located in the place where the branch or representative ofﬁce is established. When carrying out presale registration and title registration, Circular 186 speciﬁcally requires that foreign individuals who purchase commodity housing for self-occupation purposes must provide a letter certifying the foreign individual’s residence status in China. The letter is to be issued by the relevant authorities conﬁrming that such individual has been a resident in China for more than one year. This letter is in addition to other
A recently issued circular reimposes restrictions on purchases of properties in China by foreign entities and individuals.
Unclear rules and uncertainties on how enforcement will play out mean the speciﬁc implications of Circular 186 are yet to be determined.”
documents required by laws and regulations. An additional letter of undertaking is required to certify that the foreign individual does not own any other commodity housing in China. This latter requirement may be difﬁcult to enforce on a nationwide basis, as there is no national database of property ownership in China. Shanghai, which is one of the wealthier and more modern cities, has only recently announced its intention to establish a searchable database of real estate ownership. Presumably, this is some way off in many other cities. Similarly, Circular 186 requires that a foreign entity that purchases property for self-use purposes must, in addition to other documents required by laws and regulations, present the business licence or registration certiﬁcate of its branch or representative ofﬁce and a letter of undertaking certifying that the purchase of commercial property is genuinely for self-use purposes. One positive aspect about Circular 186 is it does not appear to impose any additional restrictions on foreign-invested real estate developers. This group already operates under heavy restrictions under Circular 171 and other related regulatory documents issued around the same time.
Uncertainties remain Unclear rules and uncertainties on how enforcement will play out mean the speciﬁc implications of Circular 186 are yet to be determined. First, there is no reference at all in Circular 186 to the purchase of properties in China for purposes other than for self-occupation. We assume, therefore, that such purchases must still strictly follow the principal of “commercial presence” set out in Article 1(1) of Circular 171. That Circular speciﬁes that the foreign investor would ﬁrst have to establish a wholly foreign owned enterprise (read: a taxable presence) in China to purchase property. Second, it is still not clear as to whether the properties bought by foreign individuals and foreign entities can be freely leased or sold after purchase. We can look to an earlier episode in
Beijing for possible clues, but the answer remains unclear today. In January 2007, the Beijing Municipal Government issued a circular titled Circular on Regulating the Purchase of Commodity Housing by Foreign Entities and Foreign Individuals (the “Beijing Circular”). That Circular provides that such properties bought by foreign entities and foreign individuals must not be leased or sold after purchase without permission. Although the Beijing Circular should not apply to places outside Beijing, it does seem designed to put foreigners off purchasing property in Beijing. Having been the ﬁrst municipality to have expressly relaxed the “one property rule” applicable to foreigners subsequent to the issuance of Circular 171 and then reintroducing the rule later, it appears that Beijing seems to have executed more policy ﬂip-ﬂops than most, perhaps because of the higher reported percentage of foreign buyers. Foreign investors and residents could be forgiven for seeking a more stable and predictable policy in this regard. Finally, as noted above, it is foreseeable that it will be difﬁcult for the Chinese authorities to ascertain in practice whether the purchase of a property is genuinely for self-occupation, given that China does not have a nationwide property registration system. Ofﬁcials would presumably have to visit the property in person to see if any tenants are living there, although they might be able to trace it through the lease registration process. Circular 186 is silent on the penalty for breach of these restrictions, but it is clear that banks are being told to tighten up their scrutiny of documents before agreeing to carry out any conversion of foreign currency into RMB as part of a purchase by a foreigner or foreign entity. The immediate impact may be a delay in approvals or refusals by banks to convert where they believe the conditions are not met.
Why the move? The motivation behind reapplying these restrictive policies to foreign investors is somewhat questionable, given the relatively modest share of
foreign investors in the market taken as a whole. One possible theory is Chinese regulators are attempting to control the inﬂow of so-called “hot money” into China. While there is a genuine and understandable concern about foreign investment being used as a proxy for speculation on the RMB, the difﬁculty in extracting money from the real estate market for foreigners makes it difﬁcult to imagine that this is an obvious target for hot money. Extensive foreign exchange controls largely thwart the rapid and free ﬂow of funds that hot money normally demands. A concern over Circular 186, therefore, is that the Chinese authorities’ efforts that are being directed at the small percentage of foreign ownership of real estate in China do not focus on the more fundamental issues that are causing price surges in the market and putting home ownership further out of reach of most ordinary people in China. However, Circular 186 should not be seen in isolation. Recent restrictions on the number of
property purchases by domestic buyers suggest that it is part of a wider campaign and policy to rein in real estate prices, which have rapidly spiralled upwards in many places in China in recent years, particularly the main cities. That said, we note that real estate markets in China are essentially regulated and administered day to day at the local level, so each local authority will have its own “spin” on which of these restrictions will be strictly enforced (and which less so). This will depend on local policies and priorities, but makes it difﬁcult to generalize about enforcement of Circular 186 nationwide. Andrew McGinty is the local managing partner of Hogan Lovells in Shanghai and co-coordinator of the ﬁrm’s corporate and commercial practice in China. He can be contacted at andrew. firstname.lastname@example.org. This article is adapted from a November 2010 China Corporate Alert. For the complete version, visit www.hoganlovells.com.
Recent restrictions on the number of property purchases by domestic buyers suggest that it is part of a wider campaign.”
I N D U S T RY F E AT U R E
B Y E S T H E R YO U N G
Cracking the Chinese Retail Market Best Buy’s recent troubles are indicative of the immense challenges of the China retail market, but with the right strategies, there are opportunities as well.
n late February, U.S. consumer electronics retailer Best Buy announced that it would close its nine branded stores across China after ﬁve years in the market. Though its move came as a surprise to many, that Best Buy was struggling to compete in China was not breaking news. Best Buy’s 2008 ﬁrst-to-third quarter ﬁnancial report, for example, shows its net earnings were down 77 percent from a year earlier to US$52 million. In 2009, the company said it would cut its spending by around 50 percent, slowing expansion plans. During its stay in China, Best Buy lagged behind local rivals Gome and Suning, capturing less than one percent of the domestic electronics market. The closing of Best Buy’s stores in China was not because of a lack of eﬀort. When Best Buy announced its entrance to the China market in 2005, the company strived to meet Chinese consumer needs. The company opened “lab stores” to
“accelerate learning about the diverse consumers in China.” In addition, Best Buy banked on established relationships with manufacturers so that, in turn, it could oﬀer Chinese consumers competitive prices on products for sale. Best Buy seemed to be prepared for the long haul. “It’s a marathon, not a sprint,” said then-CEO Bob Willett. But now, the Best Buy brand is gone from China. Best Buy is not the only U.S. retailer in China to retreat of late. Home Depot, the U.S. home improvement store, closed its last store in Beijing last January, its sixth store closing in two years. Mattel’s six-story ﬂagship Barbie store in Shanghai closed its doors in February. The high-proﬁle travails of Best Buy – the largest electronics retailer in the U.S. by sales – is a cautionary tale for any retail company heading into the China market. Though the China market is becoming more competitive by the day, many foreign companies continue to enter China because
of its explosive growth potential. Real per capita disposable household income doubled over the last decade, helping to drive China’s growing consumer class. McKinsey & Co. estimates that China’s middle class, the key to driving consumption in any economy, will reach 400 million people by 2015. Yet, as Best Buy, Mattel and Home Depot’s stories indicate, entering the China market with an established brand doesn’t guarantee success. China’s consumers are not easily driven to any particular foreign company or any particular form of shopping. While expatriates living in China might revel in the home-grown tastes of their favorite home-grown brands, retailers must ﬁnd a way to sell in a local way to Chinese consumer tastes. Best Buy’s troubles are indicative of the immense challenges of the China market, especially for foreign retailers who are unfamiliar with the market landscape. But there are opportunities for retailers as well, and there are clear trends in China’s consumer landscape that could guide companies attempting to serve the world’s largest market. Companies should pay heed to the importance of deconstructing how retail consumers shop, the necessity to assess their competition and the value of brand ﬂexibility.
The perception of value is king Best Buy chose to take an alternative approach to the China market: it focused on a service-based business model. It sold the same installation, repair work and guarantees oﬀered to customers at U.S. Best Buy stores and staﬀed its outlets with knowledgeable employees who did not push for sales. To prepare for its entrance into China, Best Buy handpicked customer service representatives from China and trained them at company headquarters in Minnesota to provide a higher level of service not typically found in China, much less in China’s bargain electronic retailers. Best Buy would provide what they thought the China market needed: service with a smile. However, the problem for Best Buy was Chinese consumers believed that Best Buy was the more expensive outlet because it was billed as a foreign electronics brand. The service-oriented format
diﬀered enormously from familiar domestic retailers, especially compared to rivals Suning and Gome’s aggressive bargaining-based stores. The paradox is Best Buy’s prices on individual products were comparable to those at competing retailers. Another major problem was Chinese buyers on the whole were not interested in paying for installation or guarantees. With access to relatively cheap electronics repair services, they simply wanted the best value they could get. Best Buy’s service-oriented model seemed like a reasonable strategy given that China’s maturing consumer class is increasingly looking for product value. Though a better shopping experience would appear to be in line with those expectations, the price factor cannot be underestimated. Chinese consumers are looking to upgrade their purchases, but the electronics market in China is known for being extremely price sensitive. Best Buy may have had the best of intentions with its elevated service model, but the price to pay for that level of service seemed too high to the average Chinese shopper. In addition, Best Buy was not selling a unique catalog of products. Customers could easily get the same product literally down the street. Chinese shoppers – known for spending more time researching their products before a purchase – may have stopped by Best Buy and enjoyed the knowledgeable staﬀ, relaxed atmosphere and hands-on demos, but they had little incentive to buy immediately and were more inclined to wait for the right – and ostensibly cheaper – deal. The perceived price hike was a severe impediment to Best Buy’s success, and the additional service was not an attractive enough incentive to entice customers to buy exclusively at Best Buy. “Best Buy represented the shopping, not purchasing, stage of consumption,” sums up consumer researcher Mary Bergstrom.
Reading the Chinese market Best Buy’s price issue is indicative of the overall challenge to foreign retailers that hope to enter and succeed in China: reading the China market and meeting them “where they are.” Foreign brands cannot wait for Chinese consumers to
Best Buy represented the shopping, not purchasing, stage of consumption.”
CHINA SPECIFIC: Japanese retailer Uniqlo tailors its stores to the China market.
come to them and expect them adjust to a form of shopping that they may not be used to. While they may have once been attracted to new brands and new retail outlets and may have once searched out the latest foreign brand, the market is increasingly saturated with choices. Competition is ﬁerce and is only getting more competitive. If the ﬁrst lesson for foreign retailers in China is that that the perception of price is key to entice customers, the second lesson is that they must meet them where and when they shop. In Best Buy’s case, its duplication of a megastore model that garnered success in the U.S. may have been an impediment in China. “A classic mistake is to follow the same model that worked in Europe or in the U.S., without ﬁtting the China market,” points out retail market consultant Carl Preller. Above all, Chinese consumers are practical. Best Buy was up against the ﬁerce sales tactics and aggressive expansion of Gome and Suning, the two dominant electronic retailers. While Best Buy was concentrating on building a few big stand-alone stores, competitors Gome and Suning were opening hundreds of small-scale outlets in malls with heavy foot traﬃc. Compared to Best Buy’s nine China outlets, Suning, the largest electronics retailer, has over 1,200 stores. Gome plans to expand to 2,200 stores by 2015, up from its current 800 stores. The advantage for Gome and Suning is their customers can ﬁnd an outlet without going out of their way. Best Buy’s struggles against Suning and Gome also reveal a third lesson: foreign retailers must not
only determine how their brands are perceived and what they oﬀer the China market, but also scrutinize their competition. Foreign retailers must quickly determine which local retailers are doing well in China and why. By deconstructing what is successful in the model, retailers can not only use it to formulate their own strategy, but also get a clearer vision of how they can meet Chinese consumer demand. “Brands need to develop a relationship with their consumers based on adding real and appreciable value to their customers,” adds Bergstrom. In China’s case, succeeding in the consumer electronics market seems to mean oﬀering convenient locations and rock-bottom prices, not installation support and guarantees.
Revisiting your brand Successful retailers are the ones that are willing to adjust to the particularities of the China market. In order to do so, retailers often have to revisit their brand image and their core values, which may not align with the demands, attitudes and beliefs of Chinese consumers. Consumers may have simply not cared about Best Buy’s service oﬀerings. “A primary issue that Best Buy had was not being objective with what their brand truly oﬀers China,” says Bergstrom. “They need to ask themselves: what are the needs in China, and how does my brand ﬁt this need?” The landscape, of course, is not equal. Electronics giant Apple, in keeping the same marketing and store format in China as it does worldwide, sells more products per square foot in its Shanghai stores than in any of its other worldwide locations. But Apple may be a special case. The allure of its sophisticated and fashionable electronics has overcome any disconnect with how Chinese shoppers usually shop. “It is the rare, strong word-of-mouth brand,” says Preller. Other retailers have had to adjust to succeed in the China market – but when they do well in China, they do very well. Foreign companies like H&M, Zara and Uniqlo successfully built their brands in China by placing multiple outlets in malls and oﬀering a high turnover of styles and exclusive, limited edition lines. H&M, one of the
Once retailers do succeed in China, they must continue to ﬁnd ways to ﬁt the ever-changing market.”
more successful foreign retailers in China, posted a proﬁt of US$219 million in 2008/2009, an 81 percent rise year-on-year. In the restaurant industry, Yum! Brands, which owns KFC and Pizza Hut, changed its food menus to use local ingredients and spices and hired local managers who could better assess local tastes. KFC’s menu features congee, egg tarts and Sichuanﬂavor wraps – decidedly non-American oﬀerings. Yum!’s eﬀorts have paid oﬀ with 2010 proﬁts in China increasing 23 percent. China accounts for 36 percent of Yum!’s estimated US$2 billion worldwide operating proﬁt, surpassing its proﬁts in the U.S. for the ﬁrst time last year. There is good indication that demand for Yum!’s restaurants remains strong: the company currently opens a new restaurant in China every 18 hours. In addition, what works in one region does not work in another. Mattel’s closure of their Barbie store in Shanghai is a possible example. Shanghai blogger Christine H. Tan, a fan and frequent customer of the Barbie store in Shanghai, muses that Mattel’s model could have worked very well elsewhere. “Only the Japanese friends I brought to the store loved it, and they willingly spent hundreds of renminbi on Barbie merchandise,” she says. “Perhaps a kitschy ﬂagship megastore of this sort would have worked better in Japan, with smaller stores opened around Shanghai to increase the Barbie brand in China.” The retail journey, of course, is never over. Retailers must continue to evolve with the rapidly changing tastes of the Chinese market and the rise of competitors. Walmart, the largest grocery chain in China by market share, saw its value share slide from 8.2 percent to 7.5 percent in 2010 and its territory challenged by domestic rivals CR Vanguard and RT-Mart. Just as retailers cannot rely on their established reputation in their home markets to succeed in the China market, once retailers do succeed in China, they must continue to ﬁnd ways to ﬁt the everchanging market. Uniqlo, sensing the growing importance of e-commerce, was one of the ﬁrst retailers in China to open a platform on the dominant online shopping portal, Taobao.com. “Their platform is a Uniqlo shopping experience, but their purchase model was one that
Chinese e-consumer customers were comfortable using,” points out Bergstrom.
Opportunities amidst the challenges When announcing its store closings, Best Buy was careful to emphasize that it would not be leaving China altogether. Best Buy will divert its focus and funds to Jiangsu Five Star, a local electronics retailer that Best Buy purchased for US$180 million in 2006. Best Buy saw Five Star as a way to assess the local market, and now Five Star is wholly owned by Best Buy. Best Buy’s move to focus on Jiangsu Five Star seems to indicate lessons learned in its ﬁve-year experience in China. “The company believes that Five Star provides Best Buy with an excellent strategic growth option in the important China marketplace,” says Best Buy spokesperson Liu Ting, regarding the new Best Buy strategy. Instead of focusing on a service-based model, Jiangsu Five Star will focus on a model similar to Gome and Suning’s retail system. Five Star also represents an opportunity: by having access to the methodology and sales tactics of a local retail chain, Best Buy is able to assess the needs of the China market in a way that its branded stores could not. Best Buy is poised to leverage its experience in China to reinvent its model to one that more directly meets the needs of the Chinese consumer. Despite a challenging business environment, there is a bright future for foreign companies in China retail. AmCham Shanghai’s 2010–2011 China Business Report ﬁnds U.S. retailers outperformed U.S. companies in both the manufacturing and services sectors. The speciﬁc success of Yum! Brands, Apple and others support the report’s ﬁndings. And even the Best Buy service-centered brand may not be entirely gone. When polled, Chinese customers indicate a changing attitude towards the aggressive sales tactics commonly found in leading retail electronics stores, suggesting service-oriented retail models may someday have a place in the Chinese retail market. Esther Young is Associate Editor of Insight. She can be contacted at email@example.com.
R E G U L ATO RY U P DAT E
BY ASHLEY CAHILL
Regulatory Update: Chinese Visas
he visa application process can be long and frustrating for foreigners living in China. Multiple visa categories, long lines and changing policies can cause headaches for even the most patient expatriate. The visa process can be equally frustrating for foreign companies, demanding time and resources to understand the many rules and procedures to get the process right. An unwelcome complication at the visa oﬃce may mean doing without key employees when they are needed the most. Still, there is hope. There are new policies, processes and tools to get and renew your Chinese visa and, with a little preparation, expats and foreign companies can become more knowledgeable and comfortable with the application process. In Shanghai, the Shanghai Exit-Entry Administration Bureau is attempting to make the visa process more user-friendly. In early 2010, the Bureau launched several new measures intended to simplify entry into and exit from China for foreign high-level skilled personnel and investors. The policy change allows some foreign nationals to apply for long-term residence permits, generally up to ﬁve years. To further simplify the visa application process, in January 2011 the Bureau launched a new English-language website (www.police.sh.cn, then click on the “English” link) to make it easier for foreigners to extend their visas. The website allows users to download application forms, complete online applications, check the status of their
application and make online inquiries.
Long-term visas Since January 2010, a foreigner who has been working and residing in Shanghai for ﬁve years continuously can apply for a two-year residence permit. There are also several special cases in which foreigners are able to apply for long-term residence permits. Special cases Legal representatives, general managers and vice general managers from companies can apply for a two-year residence permit with a recommendation letter from the Shanghai Municipal Commercial Committee. Ordinary foreign staﬀ from companies with registered capital above US$30 million can also apply for a two-year residence permit. For companies with registered capital of at least US$3 million, the company’s legal representative, general manager, vice general manager and chief ﬁnancial oﬃcer (CFO) can apply for a ﬁve-year residence permit. A department manager may apply for a three-year residence permit. All applicants in this category require a recommendation letter from the Shanghai Municipal Commercial Committee. Other special cases include foreigners who have received a Magnolia Gold Award, Magnolia Silver Award or the foreign “honorary citizen of Shanghai” distinction. These recipients may apply for a ﬁveyear residence permit. Of course, these cases apply to only a handful of foreigners. In 2010, the Shanghai
Cao Baodi, vice director of the visa division of the Shanghai Exit-Entry Administration Bureau, updated AmCham Shanghai members last month about changes to the Chinese visa process and provided useful tips for foreigners to bear in mind to avoid complications.
How to Apply for an Employment Residence Permit 1. Obtain Working License from the Aliens' Employment Administration Center 2. Collect Working Visa Notice from the Shanghai Commercial Committee 3. Apply for Working Visa from a Chinese Embassy/Consulate Abroad 4. Obtain Health Certiﬁcate from Exit-Entry Quarantine Administration 5. Apply for Employment Permit from the Aliens' Employment Administration 6. Apply for Residence Permit from the Exit-Entry Administration Bureau
Municipal Government presented 10 expatriates with the annual Magnolia Gold Award. According to Shanghai Daily, a total of 235 foreigners have been honored with the award since 1993. Strategic emerging industries In line with China’s attempts to promote development of Strategic Emerging Industries (SEIs), Shanghai has created visa incentives for certain high-level employees in new and hi-tech enterprises, foreign-invested enterprises and advanced technology enterprises. These industries include new energy cars, biotechnology, new generation information technology (IT) and highend equipment manufacturing. Within these industries, the company’s legal representative, general manager, vice general manager and chief ﬁnancial oﬃcer (CFO) can apply for a ﬁve-year residence permit. A department manager can apply for a three-year residence permit. All applicants in this category require a recommendation letter from the Shanghai Municipal Commercial Committee. The Shanghai regional headquarters of a multinational corporation (MNC), research and development (R&D) center or foreign invested enterprise can apply for a long-term residence permit for top executives and legal representatives.
Top employees of regional operation centers also enjoy long-term residence visa preferences. All applicants here require a recommendation letter from the Shanghai Municipal Commercial Committee.
New channels Shanghai’s Entry-Exit Bureau has created new application channels to simplify and expedite the visa application process. Foreigners are now able to apply for visas using on-site, online and selfservice applications. The online option intends to add eﬃciency and simplicity to the visa application process, allowing applicants to complete the bulk of the steps from the comfort of their home. When applying online (www. police.sh.cn), foreigners can apply for an “L” or “F” visa extension or one-year residence permit issued in Shanghai. Following the online reservation process, which takes one working day, applicants can collect their new visa in only 30 minutes at the Bureau’s headquarters (1500 Minsheng Road, Pudong). By contrast, applications submitted on-site take ﬁve working days to process. Applicants can use self-service machines to process their application if they are applying for an “L” or “F” visa extension or one-year residence permit issued in Shanghai. These applicants must also go to the Bureau’s Pudong headquarters. Finally, if applying on-site at one of the Bureau’s six sites, applicants must submit materials to the visa oﬃcer, pay the application fee and return to collect their passport after ﬁve working days.
Common mistakes Even as Shanghai’s Entry-Exit Bureau attempts to simplify the visa application process, foreigners still encounter misunderstandings, owing to an unfamiliar and sometimes complicated visa process. According to Vice Director Cao, the most common misunderstandings are related to the number of entries allowed through each visa type. Some foreigners also end up overstaying their visa because of confusion between the visa’s validity
period and the duration of stay allowed on each entry. For example, a tourist may be issued a sixmonth “L” visa but permitted to stay in China only for a speciﬁed duration, usually 30 or 60 days. The six-month time frame speciﬁes the window during which the visa holder may enter and exit China. Cao advises foreigners to become knowledgeable and familiar with the visa process before visiting the Bureau. Cao recommends checking the government’s online English-language resources (http://18.104.22.168/eemis_tydic/) for the latest requirements before beginning the application process. By following this advice, applicants can be proactive at avoiding some of the bigger visa headaches later. Another common misunderstanding relates to the loss of a passport. Cao notes that foreigners often do not realize that if they lose their passport, they must apply for a new visa. This requires the passport holder to report the lost passport to the
Shanghai Exit-Entry Administration Bureau, apply for a new passport from their national consulate or embassy, re-register at the local police station and, ﬁnally, apply for a new visa or residence permit from the Shanghai Exit-Entry Bureau.
Final thoughts A complicated visa process will likely remain a part of doing business in China. However, visa incentives for emerging industries and new procedures intended to ease visa extensions are welcome developments for foreigners who wish to live and work in Shanghai. While the visa process can be diﬃcult to understand, Shanghai’s Exit-Entry Bureau is working to demystify the process for everyone. AmCham Shanghai looks forward to working with the Bureau to help make the visa process more understandable, simple and predictable.
Applicants can be proactive at avoiding some of the bigger visa headaches later.”
I N T E RV I E W
B Y DAV I D B A S M A J I A N
Seeking Common Ground U.S. Ambassador to China Jon M. Huntsman discusses the U.S.-China relationship and the importance of cooperation.
n his 18 months as U.S. Ambassador to China, Jon M. Huntsman has won praise from both the Chinese Foreign Ministry for boosting economic ties between the U.S. and China and from American executives for pushing back on rules that would make it harder to do business in the China market. Jon Huntsman brings a lifetime of experience with Asia to the job. He was previously ambassador to Singapore, the youngest ever to be named a U.S. ambassador, a deputy U.S. trade representative and a deputy assistant secretary of Commerce. As an aide to President Ronald Reagan, he escorted the president on his ﬁrst trip to China. He learned to speak Mandarin as a Mormon missionary in Taiwan. A strong advocate of engagement with the Chinese, Ambassador Huntsman has nonetheless
voiced his concern regarding China’s lack of transparency and rule of law, intellectual property rights enforcement and protection, market access limitations that directly impact U.S. companies and restrictions imposed on the media in China. On April 30, 2011, Jon M. Huntsman will oﬃcially step down as U.S. ambassador to China. Rumored to be considering a run for the White House, Ambassador Huntsman took time out to talk to Insight on the state of the U.S.-China relationship, what China could be doing better to level the playing ﬁeld for U.S. companies and how hu xiang bang zhu, hu xiang xue xi has informed his ambassadorship. How would you characterize America’s relationship with China today? I believe, as President Obama has stated, that
there is no more important bilateral relationship in the world than the U.S. and China. In any relationship of that size and signiﬁcance, there are bound to be occasional disagreements. We both want peace and stability in Asia, and a strong global economy, because these are essential to the healthy development of both our countries. The real challenges and opportunities for the United States and China are global in nature, such as economic rebalancing, regional peace and stability, and a clean energy future. In facing these challenges, China is an essential partner. If you take a step back and look at the bigger trends, whether people to people, increased trade ﬂows, advancing our military to military activities, there is clearly a lot of momentum. We also just had a very successful visit of President Hu Jintao to the U.S. You have spoken about the role of misperceptions in the relationship. What do you see as some of the more prominent misunderstandings of China in the U.S.? I’m sure you’re aware that there are some commentators in America who believe that China’s rise is an imminent threat to the United States. This is not the oﬃcial view of the U.S. government. Recent opinion polls in the U.S. suggest that a majority of Americans welcome China’s peaceful rise (Pew Research). Another misperception is that China has developed rapidly economically but has not progressed socially or politically in the last 60 years. Of course the situation in China is far more complicated and nuanced. Nevertheless, as China’s leaders themselves acknowledge, much remains to be done to ensure the basic rights of the Chinese people are fully realized and protected, and political reform is needed to consolidate and to advance the tremendous achievements brought about over the past three decades. As President Hu Jintao noted during his visit to the US, much remains to be done…. Finally, there is also a misperception that the situation in China is as simple as it appears in some of the newspaper articles in the U.S. As I indicated earlier, China, like any other country in the world, is a complex place, and no event that happens
here can be completely understood from reading a single article in the morning paper or watching a 90-second story on the evening news. I would also like to say, however, that restrictions imposed by the Chinese authorities on journalists here prevent them from traveling and reporting freely in order to present a complete picture of China to the world. In the absence of credible, independent reporting, rumors have greater space to spread and take root in people’s minds. The great slogan in the early days of China’s movement toward “reform and opening” was “seek truth from facts.” It is diﬃcult for journalists to realize that goal if the authorities restrict their ability to travel and to report. What about the other way? What do you see as some of the misunderstandings of the U.S. in China? I have been working in and around China for many years and I have heard, more times than I can count, that the U.S. is trying to “contain” China, or more ominously, to “split” China. Interestingly, in all the times that I have heard this sentiment, never once was it said by an American, only by Chinese commentators. The U.S. Government, from the President on down, has no policy of seeking to contain or split China. Indeed, our policy is the opposite—we want to engage China, to see China fully assume the role of a stable and responsible member of the international community. A second misperception is that the U.S. protects its economy at China’s expense. According to this mistaken worldview, every U.S. economic policy is seen as some kind of thinly veiled attempt at slowing or reversing China’s economic development. In fact, nothing could be further from the truth. We’ve opened our markets to Chinese manufacturers and purchased trillions of dollars of Chinese products over these decades. Our universities have welcomed millions of Chinese students to study in the United States and then bring the knowledge they gained back to their homeland. American companies invest billions of dollars every year in China; they give jobs to Chinese citizens and pay taxes to the Chinese government. This is not the behavior of a country determined to limit China’s economic development.
The real challenges and opportunities for the United States and China are global in nature, such as economic rebalancing, regional peace and stability, and a clean energy future.”
numerous non-tariﬀ barriers to important U.S. industries such as quotas on foreign ﬁlms that can be screened here, or policies that limit market access for foreign ﬁrms to compete in various sectors or for government contracts. The fact of the matter is that the United States is the freest market in the world for Chinese goods, likely even including China itself. Ask yourself: Why is it that “made in China” products like the iPad cost more in China than in the U.S.? Hint: It’s not because American companies are gouging Chinese consumers. In addition, Shanghai would like to be a leading ﬁnancial center. A strong commitment to rule of law and transparency as well as market liberalization will be necessary to attaining that goal. FAMILY MAN: Ambassador Huntsman introduces his family to Shanghai Vice Mayor Tang Dengjie.
Finally, many Chinese believe that the U.S. is just like what they see in the movies. I’ve lost count how many times Chinese friends have told me, “Mr. Huntsman, Chinese and American culture are very diﬀerent. You see, to us Chinese, family is very important...” And that disturbs and saddens me, because as you might be aware, I have a rather large family, and they are extremely important to me. Many Chinese would be surprised to learn that the majority of Americans do not lead lifestyles remotely resembling the soap operas and movies that entertain us. Many Americans are just as, if not more, socially conservative than most Chinese. And in poll after poll, the vast majority of Americans consistently rank family as the highest priority in their lives. The AmCham Shanghai 2010-2011 China Business Report found that U.S. companies in China had a great 2010 and are committed to the China market. But looking ahead, there are issues of concern. In terms of creating a healthy business environment for foreign companies, can you tell us where there is still more work to be done? Well, there has been progress but there is more that China needs to do. For instance, China imposes higher tariﬀs and taxes on imported goods—including those originally manufactured in China—than the U.S. does, and there are
The issue of protecting and enforcing intellectual property rights in China has been a focus of yours. What role does IPR play in the U.S.-China relationship and do you think conditions for IPR in China are improving? I actually think that this is an area where we can make a positive impact on the U.S.-China relationship. Innovation, whether it occurs in Chicago or Xi’an, is the clearest and most direct route back to new jobs and bigger economies. Pick any one of the major issues confronting us today; from the environment, to security, to public health, biotechnology, clean energy. On any one of them, innovative new technologies are a part of the solution. Ten or ﬁfteen years ago, IPR protection didn’t have much traction here in China because most people saw it as something only U.S. or foreign companies really needed. Not anymore –those days are gone. One of the things that surprised me most in my return to Asia is the level of sophistication and dynamism of China’s private sector and entrepreneurs. Now Chinese companies and Chinese ideas are also creating new breakthroughs and new innovation. Not surprisingly, with billions of dollars on the line, these industry leaders are starting to pay attention to IPR issues. But missing still is a real consensus on how to measure those shortcomings. What are the real costs and how do we know whether we’re actually
making progress in the ﬁeld? To address this I believe all of us need to work together to establish certain benchmarks. One, to deﬁne the scope of the problem; two, to quantify what the lack of strong IPR protection costs China in terms of lost commercial activity and innovation; and three, to establish a baseline to measure our progress in improving IPR protection. Only with these clear measurements can we truly tell that we are indeed making meaningful progress. You keep a wall-hanging emblazoned with the characters hu xiang bang zhu, hu xiang xue xi, which means “help each other, learn from each other.” How has that phrase informed your ambassadorship? We don’t always need to agree. We don’t need to be the same. But we do need to listen to one another and respect one another and learn to work together and that is why I particularly like
huxiang bangmang, huxiang xuexi, gongtong jinbu (We help each other, learn from each other and make progress together). As two of the nations to whom the rest of the world looks to lead, it is more important than ever that we understand one another better. Today the reality is that the United States and China for the ﬁrst time in history, in what may be one of the more important stories of the 21st century, are both featured on the world stage. The rest of the world is looking at both the United States and China and expecting us to cooperate, expecting us to ﬁnd common ground. We won’t always do that 100 percent of the time, but we’re expected to take leadership positions and solve problems and deal with, for example, the Korean Peninsula and deal with weaponization in Iran and deal with global rebalancing issues – very large and very challenging and complicated issues lie ahead.
Innovation, whether it occurs in Chicago or Xi’an, is the clearest and most direct route back to new jobs and bigger economies.”
April 27-28, 2011 | Pan Pacific Hotel Suzhou
The First Annual AmCham Shanghai Suzhou Government Appreciation Dinner & Workshop
To be held on Wednesday, April 27, 2011 at the Pan Pacific Hotel Suzhou, the first Suzhou Government Appreciation Dinner is a great opportunity for the U.S. business community to express their appreciation to the Suzhou government for their efforts to create a steadily improving business environment for foreign companies in Suzhou. Following the dinner, an optional morning workshop will be held on Thursday, April 28, 2011. It will highlight trends in the China-Singapore Suzhou Industrial Park followed by tours of selected Suzhou industrial parks. For more information regarding the event and sponsorship opportunities, please contact the AmCham Shanghai office at (86 21) 6279 7119. APRIL 2011 INSIGHT www.AmCham-Shanghai.org/SZDinner
I N D U S T RY I N S I G H T
BY EBERHARD HOFFMAN E D I T E D B Y RYA N B A L I S
ERP Selection Made Easy
Eberhard Hoffmann, general manager of ABiC information systems, caps off Insight’s ﬁve-part Enterprise Resource Planning (ERP) series.
oreign companies in China, especially manufacturers and newly established small- and medium-sized enterprises (SMEs), increasingly are looking to Enterprise Resource Planning (ERP) systems to manage their China business more eﬀectively, complement larger global operations and hasten growth. An ERP system, which integrates company-wide business units under a uniﬁed and standardized information platform, has become invaluable for companies that want to control and visualize complex processes and operations. As competition intensiﬁes in an already crowded and challenging domestic market in China, installation of ever more sophisticated tools becomes a pressing need. “[T]he faster an ERP system can be implemented, the sooner the return on investment is realized and the better the operations will be able to support the future growth of the business,” writes Tony Cotterell, a partner with Deloitte Consulting in Shanghai, in Insight. Although ERP can yield considerable beneﬁts, companies should take great care when selecting these systems. Successful implementation is a major undertaking, requiring both a ﬁnancial investment and signiﬁcant staﬀ resources to train,
adapt to and eﬀectively operate the new system. Due diligence is critical in selecting the right system if companies are to realize the gains in eﬃciency, productivity and communication ERP can deliver. But how should companies go about evaluating an ERP system and an outside system support consultant necessary for proper implementation? What are the important features to check for so that the system can be operated in China where such sophisticated platforms are not yet a part of most companies’ operations? This article expands on four basic issues that foreign companies in China need to bear in mind when they pick out an ERP system. They are: 1) ERP must align with core business functions and be suitable for the industry in which the company operates; 2) Suﬃcient attention should be given to whether ERP fully conforms to Chinese local regulations, especially in regards to accounting standards and tax laws; 3) Careful evaluation should go into selecting an experienced consultant to guide the organization through implementation and provide ongoing support; and
4) Reference checks should be conducted in a thorough way, being mindful of common traps.
Matching company needs The ﬁrst step in selecting the right ERP system is to determine the elements that are necessary to satisfy core business functions and management requirements. A clear understanding of company needs will help when paring down available choices. Generally, ERP links many key business units and operations, including ﬁnancial accounting, sales and distribution, purchasing, human resources and production planning. But not all systems are alike, varying by complexity, structure and scale. ERP systems also diﬀer in their capacity to handle multiple currencies and languages, as well as support for various types of manufacturing. When determining the essential requirements, some companies in China, particularly multinational corporations (MNCs), model their ERP on the system used in their overseas headquarters. These companies’ ERP systems typically are well-established and integrated into the business processes. In these cases, the deﬁnition of the business requirements and corresponding ERP features may be borrowed from company headquarters and used to assess the functional capabilities of the systems available in China. In other cases, companies do not have a set of requirements and processes that can be readily borrowed. Managers who evaluate potential ERP systems must conduct their own in-depth investigation into the requirements of their China operations. These business requirements can then be translated into the functional requirements of a system. Next, companies should contact potential vendors for product demonstrations. Foreign suppliers that dominate the ERP market include SAP and Oracle, while Shenzhen-based Kingdee International is a popular Chinese domestic player, especially among SMEs. (Disclosure: ABiC is an authorized foreign business partner of Kingdee.) The evaluators who make up the company’s review team should assign weights to a given list
of requirements appropriate for an ERP system in the industry in which the company operates. For example, a manufacturing company would prioritize whether or not the system can support standard costing and enable variance analysis. An asset-intensive business would focus on whether the system supports ﬁxed asset purchase procedures. Once priorities are clariﬁed, it should be possible to assign a suitability score to the various ERP systems under evaluation. Managers may then choose the system that most closely ﬁts company requirements and is suitable for the Chinese local business environment. It is important that the ERP system be selected on how it will add value for the company. Larger systems that boast a wide range of features, while impressive, are expensive and take more time to implement. Tip #1: When evaluating the suitability of ERP features, be sure that suppliers provide a live demonstration.
Conforming to Chinese regulations The right ERP must have the capability to handle both international and Chinese-speciﬁc requirements. When choosing a system, evaluators should verify that it can process Chinese valueadded tax (VAT) requirements, issue government tax invoices, or “fapiao,” and is capable of meeting accounting and bookkeeping demands for both local and international enforcement agencies. Chinese law requires companies doing business in China to collect a tax on the added value derived from a company’s production, sales or services. The system should calculate the payable VAT automatically. Evaluators should also make sure the system is capable of determining both the input VAT on purchase invoices and output VAT on sales invoices. ERP for use in China should also book these amounts into the corresponding account code to help with maintaining reliable electronic record-keeping. VAT payment in China is controlled through a system of government invoices, commonly known as fapiao. Chinese tax law stipulates that fapiaos must be printed from the government’s oﬃcial
A clear understanding of company needs will help when paring down available choices.”
A solid consultant will ensure that the company deﬁnes its goals up front as to how ERP should add value.”
Jinshui system and bear a unique fapiao number generated by it. Evaluators should check whether the ERP system features an interface to integrate sales invoices with the Jinshui system. ERP should be able to convert invoice data into a readable format for the Jinshui system to process in a hasslefree manner both for government authorities and the company. Finally, an ERP system should accommodate both international and Chinese-speciﬁc accounting and ﬁnancial reporting standards, which diﬀer from international standards and are required to be submitted in Chinese. Diﬀerent rules and bookkeeping principles mean foreign companies in China often prepare two sets of ﬁnancial reports: a ﬁrst one to comply with China’s Generally Accepted Accounting Principles (GAAP); and a second, internationally-accepted report for the overseas headquarters. An evaluation should determine whether a system can operate two diﬀerent accounting principles simultaneously, as well as in both English and Chinese. If not, then the system should provide mechanisms to facilitate the adjustment of accounting entries to satisfy International Financial Reporting Standards (IFRS), a countryspeciﬁc GAAP or whatever global accounting principles a company relies on internationally. Tip #2: Typically, Chinese ERP systems provide more extensive “native” support for local accounting and tax regulations.
Selecting an implementation consultant The evaluation process extends beyond comparing an ERP system’s capabilities and compatibilities. Managers who have been involved with ERP implementation stress the importance of working with a quality consultant. The right consultant is essential for helping with the often demanding process of putting a new system in place and responding to problems in a timely manner once it comes online. Unfortunately, many companies overlook the importance of evaluating the skills of a consultant during the vendor selection process; instead,
they become preoccupied with evaluating ERP’s technical capabilities. What speciﬁcally should companies consider during this critical step, which can determine the success or failure of a project? Foremost, an implementation consultant should have an in-depth understanding of the ERP system’s functions. Successful implementation requires the consultant to lead the company through a rigorous training program to make sure users are up to speed on system functions prior to launch. The goal is for the diﬀerent levels of users to operate the new system comfortably and properly in their daily work without relying on the consultant’s help to complete ERP-enabled tasks. A qualiﬁed consultant should have more than four years of relevant experience in China or a demonstrated track record on more than 10 projects. Experience is the key because the consultant must accurately capture company requirements and translate these into the system conﬁguration. An experienced consultant also will anticipate functional and technical problems with the system and will be skilled at putting in place mechanisms to avert known dangers. A solid consultant will ensure that the company deﬁnes its goals up front as to how ERP should add value. Evaluators, therefore, should measure the consultant’s understanding of issues speciﬁc to the company and probe how the consultant will collaborate with the company to set up an eﬀective ERP system, looking always to help the company realize the business improvements expected. The consultant should know the principles of internal control in terms of analyzing management risks, the techniques to address those risks and how these techniques can best be fulﬁlled by the ERP system under evaluation. A manufacturing company would be wise to test the extent to which the consultant knows how to accumulate material, labor and overhead costs – and how to properly allocate costs to diﬀerent products. Evaluators should also gauge the extent to which the consultant has the following attributes: • Expert knowledge of Chinese market conditions, culture and speciﬁc challenges to doing business in China;
• Resources to keep abreast of fast-changing policy and regulatory changes and update the system accordingly; and • Grasp of ERP’s function for advancing the company’s larger global operations. Finally, and perhaps most importantly, evaluators must establish that the consultant will be available if emergencies occur that risk derailing key operations. Tip #3: Always insist on interviewing the consultant to be assigned by the vendor, especially if English-language support is a prerequisite. Question vendors that assign translators to the client site because third-party instruction usually is less than adequate for explaining complex ERPrelated issues.
Checking client references The ﬁnal step in choosing the right vendor to set up the ERP system and provide implementation support is to conduct a thorough reference check. Ask the vendor to supply a list of at least three client references either to help nail down which is the right vendor on a short list or to conﬁrm known information on the leading candidate. Evaluators should attempt to interview references with an eye to acquiring relevant information to help with the decision-making process. The goal is to assess the client’s satisfaction with the quality of the ERP product and uncover the true level of care the vendor provided on product support. Encourage references to expand on general questions with speciﬁc examples of their experience with the vendor. Here is a sample list: • To what extent does the ERP system provide eﬀective solutions to the key controlling requirements of the company? • What are the tangible and intangible business beneﬁts gained from using ERP? For example, to what extent has inventory turnover accelerated? • Is the implementation consultant skilled at guiding the company throughout the project
– why or why not? • In terms of support, does the vendor respond to the company quickly to rectify problems? How satisﬁed is the company with the vendor’s professionalism and problem-solving ability? A high satisfaction rate is a good sign that a vendor can be trusted to duplicate that same level of service. But when conducting a reference check in China, companies should pay close attention to the risk of cheating among vendors. In the context of reference checking, an unfortunate by-product of “guanxi,” the Chinese concept of relationship inﬂuence, is a client company may not reveal its true experience with a vendor to shield it from a negative review. In some cases, only positive results may be reported, reﬂecting the vendor’s close relationship with customer interface personnel. Tip #4: One way to ascertain objective information is to ask the client to explain in detail how the ERP system addresses an operational or management issue held in common. That answer will provide hints to whether the system is appropriate for company business operations and management.
Eberhard Hoffmann is general manager of ABiC information systems (Shanghai) Co., Ltd., a consulting company focused on delivering Kingdee K/3 ERP systems to foreign enterprises. Hoffman has 30 years’ experience in both ERP applications and project management. To ﬁnd out more about implementing ERP systems in China, visit www.abic-is.com or contact Hoffman by e-mail at firstname.lastname@example.org.
C OV E R S TO RY
BY KENNETH JARRETT & C A R LY R A M S E Y
12th Five-Year Plan China’s 12th Five-Year Plan (FYP) is a critically important tool used by the government to achieve its development objectives by mapping China’s future progress via ﬁve-year targets for policy makers at all levels of government. The FYP is critical for foreign-invested enterprises because it provides understanding of the government’s overall objectives, speciﬁc goals related to economic planning and promotion of key sectors, industries and regions. How does the FYP work, and what is in store for the next ﬁve years?
n March 14, 2011, nearly 3,000 delegates at the 4th Plenary Session of the 11th National People’s Congress (NPC) approved China’s 12th Five-Year Plan for National Economic and Social Development (FYP) (2011–2015). The 12th FYP is a bold initiative, emphasizing the quality, rather than the measurable quantity, of growth, and strives to ensure that more Chinese citizens beneﬁt from the country’s unprecedented development. At its core, the plan calls for an ambitious, inward-looking restructuring of the Chinese economy away from the last three decades of export-led growth. A more sustainable model for Chinese growth going forward will likely have enormous implications for foreign-invested enterprises (FIE) in China, especially in emerging industries of strategic importance for China. Meanwhile, the 12th FYP comes into force against a backdrop of rising property and food prices and increased risk of social instability. As a blueprint for China’s next ﬁve years of social and economic growth and industrial planning, the plan prominently addresses
these and other important issues. The 12th FYP lays out a road map to raise domestic consumption levels with new government healthcare spending, social safety net investments and targeted measures to increase disposable income and address social challenges such as the rising income disparity. The 12th FYP – China’s greenest ﬁve-year plan – also includes environmental goals and binding energyeﬃciency targets to develop a low-carbon economy while improving energy security. Not surprisingly, President Hu Jintao and Premier Wen Jiabao are seeking to use the 12th FYP to bed down their legacy as the ﬁrst leadership team in the postreform era with a strong focus on equality issues. Under Hu and Wen’s “harmonious society” and “scientiﬁc development concept” policy frameworks, the 12th FYP will continue the previous 11th FYP’s focus on moving away from “growth at any cost” and towards a more balanced and sustainable growth pattern. Implementing the initiatives of the 12th FYP will ensure policy continuity during the upcoming leadership transition in 2012/13, when President Hu and Premier
Wen are expected to be replaced by Xi Jinping and Li Keqiang, respetively. Xi has stated publically that he intends to follow Hu and Wen’s policy initiatives throughout the entire 12th FYP period. Although the Chinese government usually fares well with broad economic initiatives, including focused eﬀorts that splash large sums of money around, the sheer size of China’s economy, coupled with various entrenched interests to keep things as is, has meant that making a major shift in China’s growth model is quite diﬃcult. The previous two FYPs called for similar economic reforms to no avail. Nevertheless, if the government is serious about substantive change, like the opening-up policies of the late 1970s and the marketization reforms of the late 1990s, the 12th FYP may be remembered as one of China’s most signiﬁcant ﬁve-year plans.
12th FYP’s key initiatives The cornerstone of the 12th FYP is a fundamental restructuring of the economy, as China moves from its current model of export-led growth in labor-
intensive manufacturing sectors to one driven by inward-led growth. To achieve this ambitious aim, the plan calls for four primary initiatives: slowing down economic growth; promoting strategic industries; increasing consumption; and implementing energy-saving and environmentalprotection measures. Each of these key initiatives is examined below. Slowing down growth A call for fundamentally rebalancing China’s economy inevitably will result in a trimming of GDP growth targets. Premier Wen announced that China’s GDP growth target for the 12th FYP plan period is seven percent, down from the 11th FYP’s goal of 7.5 percent. This largely symbolic goal – the 11th FYP period averaged a growth rate of 11.2 percent, and Wen announced a GDP growth target of eight percent for 2011 – indicates that the central government is aiming to reduce its focus on ﬁxed asset investment (FAI) and is giving itself some breathing space to set policies that will slowly increase consumption. As central-level and local-level objectives are
FYP Policy Development & Implementation Process China’s policy process is not known for surprises; rather, reﬂecting the heritage of a command economy and the engineering background of many senior leaders, the Chinese policy establishment prefers a predictable and steady regulatory environment conducive to meeting its long-term development goals. Although most consider the FYP to be a single document, it represents a complex web of Chinese policymaking, containing previously implemented regional and long-term development plans and hundreds of targeted policy initiatives – all of which undergo constant review and revision over the course of the ﬁve-year policy cycle. Preliminary phase Development of the next FYP begins several years in advance of implementation. Near the end of the outgoing FYP, the National Development and Reform Commission’s (NDRC) Strategic Planning Department convenes a task force of specialists to create draft proposals regarding the multitude of issues that the government will address within the plan.The task force will receive high-level guidance from CPC organs, such as the Central Committee and the Politburo, as well as input from municipal and provincial-level governments. Draft proposals from all levels of government are vigorously debated in-house and then validated by outside third parties, including contracted universities, think tanks and research institutions both foreign and domestic. Views are then funneled up and down government channels, 32
and some of the ideas are integrated into the plan itself. In the last year of the outgoing FYP, national ministries and local governments submit their ﬁnalized draft proposals to NDRC, which then will lay out the FYP’s basic overarching principles. The guiding principles go through two rounds of review and revision by the Central Committee, and then the “Guidelines” (建议 or jianyi) are published during its October plenary session. The Guidelines’ publication sets off numerous local government plenaries that in turn publish their own local FYP Guidelines. After publication of these Guidelines, public opinion, both foreign and domestic, is sought. National People’s Congress
Ratiﬁes national-level FYP
Provides overall guidance for the key themes within national FYPs
Constructs and oversees national FYPs
Constructs industry and issue-speciﬁc FYPs
Constructs local and regional FYPs
DECENTRALIZED DEVELOPMENT: A Five-Year Plan involves many government organs and input at the national and local levels.
diﬃcult to align, enforcement of this goal will be problematic. Every province and major city have growth goals that exceed the lower seven percent target. Shanghai’s 12th FYP posits eight percent growth, and several provinces already have announced growth targets of 13 percent or higher.
as much as RMB14 trillion (US$2.1 trillion), including both public and private sector funding, on these industries during the 12th FYP period. The aim is to increase SEIs’ contribution from today’s approximately ﬁve percent of GDP to eight percent by 2015 and 15 percent by 2020.
From “Made in China” to “Designed in China” The 12th FYP also includes another remarkable initiative: a plan to boost several so-called “Strategic Emerging Industries” (SEIs). No longer content with being considered the “world’s factory,” Chinese planners are expected to announce numerous preferential tax, ﬁscal and procurement policies designed to develop SEIs. The government hopes these industries will become the backbone of China’s economy in the decades ahead, and they have chosen sectors where Chinese corporations are expected to succeed on a global scale. The seven industries are biotechnology, new energy, high-end equipment manufacturing, energy conservation and environmental protection, clean energy vehicles, new materials and next-generation information technology (IT). The government reportedly is prepared to spend
Increasing consumption An increase to China’s relatively low consumption rate would be an important step in putting the country on the right track towards rebalancing its economy and meeting its long-term development goals. China is looking inward for growth for several reasons. These include: FAI overcapacity concerns; China’s dependency on exports leading to a high current account surplus and the need to maintain an artiﬁcially weak currency; and, perhaps most importantly, the potential for raising income and social-beneﬁt levels for all Chinese citizens to address the perceived threat of instability that can grow out of China’s rapidly rising income disparity. While a small proportion of individuals in China have become extremely wealthy, the income of many citizens has not kept pace with economic growth over the past decade. The 12th FYP aims
Implementation phase A detailed version of the FYP’s guidelines, called the “Outline” (纲要 or gangyao), is submitted to the NPC for ratiﬁcation in March. This document is what most consider to be the “Five-Year Plan,” but it is merely the document that sets off the ﬁve-year policy cycle. Hundreds, if not thousands, of policies, regulations and plans are developed by all levels of government over the entirety of the ﬁveyear period. Implementation requires a lengthy and decentralized process of consultation and coordination between public and private sector leaders, owing to the government’s ceding many of its former powers to the market over the past three decades. During the ﬁrst year of implementation, “Special Plans” are created at all levels of government that specify how the broad objectives of the FYP are to be realized. These policies are detailed, covering speciﬁc industries and issues, as well as plans for administration and
POLICY CYCLE: Five-Year Plans move through a complex and lengthy implementation phase.
Year 1 “Outline” ratiﬁed in March
Year 1-5 Policies executed
An increase to China’s relatively low consumption rate would be an important step in putting the country on the right track towards rebalancing its economy”
implementation. Local DRCs (NDRC’s provincial-level surrogate) are usually the lead agency for most Special Plans. The next step is the issuance of a plethora of policy documents that will detail how implementation will occur on the ground. Throughout the entire FYP period, local DRCs will monitor the plan’s quantitative and qualitative indicators and funnel those ﬁndings up to NDRC at the national level. The FYP also goes through a formal midpoint review process at all levels of government, with government ofﬁcials and outside experts participating, including the World Bank. The review’s objective is to monitor progress towards achieving FYP objectives, as well as to determine whether its targets need to be modiﬁed. At the midpoint review, preparing for the next FYP will begin, and the FYP cycle starts anew.
Year 3 Midterm review
Year 3-5 Revision
Year 4-5 Next FYP drafted
Year 5 “Guidelines” published in October
12th FYP calls for measures to reduce pollution, increase energy efﬁciency and ensure a stable, reliable and clean energy supply.”
12th Five-Year Plan: Key Targets Indicator
Change from 11th FYP
Reduction in energy intensity of GDP
Reduction in carbon intensity of GDP
Increase in urban per capita disposable income (annual average)
Increase in rural per capita income (annual average)
New urban jobs created (5-year total)
Urban registered unemployment rate
36 million units
Construction of affordable housing (5-year total) Source: GaveKalDragonomics
to increase household disposable income by an annual rate of seven percent, which is the same as the projected GDP growth rate during the FYP period. Speciﬁc measures to narrow the income gap include raising minimum wages (e.g., the Beijing Municipal Government announced its plan to increase minimum wages by 40 percent by 2015), initiating personal income tax reform to reduce the tax burden on low- to middle-income earners and improving rural land distribution. Another policy tool to promote consumption is an expansion of government-funded social welfare initiatives. The government announced at the NPC its intent to increase healthcare spending by 25 percent more than originally planned, build 36 million aﬀordable homes at a cost of nearly US$200 billion and boost its meager pension system to cover all rural residents by 2015. Increasing the rate that farmers move into the cities, partially through reforming the rigid and outmoded household registration system, is another key 12th FYP initiative. If these initiatives are successful, analysts say China’s consumption rate could increase to around 40 percent of GDP by 2015, up from a relatively low 35.1 percent given the size of China’s economy. However, this will be a challenging task, as household consumption as a percentage of GDP has been dropping in recent years despite the government’s eﬀorts on boosting such consumption. China’s greenest FYP Decades of double-digit economic growth combined with ineﬃcient use of resources have 34
caused extreme environmental degradation in China. To address this, the 12th FYP calls for measures to reduce pollution, increase energy eﬃciency and ensure a stable, reliable and clean energy supply. Several binding targets embedded in the plan may be the most concrete indication that China’s central government understands just how expensive and counterproductive resourceintensive FAI is for China’s future economic growth. The 12th FYP includes a new target for carbon intensity – emissions per unit of GDP – of 17 percent from 2010 levels by 2015. The target reﬂects the government’s recognition of the strategic value of developing a low-carbon economy to generate high-value jobs and carving out a strategic foothold in the 21st century economy. Analysts note that China is gaining, even in some respects surpassing, the United States in several low-carbon industries, such as electric vehicles, wind turbines and solar panels. The 12th FYP includes very preferential policies to further these sectors’ development. The government also announced a cap on total energy use of the equivalent of four billion tons of coal by 2015. However, it is not clear at this point if this target is mandatory. The 11th FYP included a non-binding cap on energy that was ultimately exceeded. The motivation may not solely be to protect the environment but rather to ensure energy security – a key concern for the government as China’s energy demands are expected to grow with its economic development.
Implications for foreign business A broad restructuring of the economy called for in the 12th FYP will likely have enormous implications for foreign-invested enterprises in China. We highlight four areas of major importance that will present both opportunities and challenges for foreign companies going forward. A shift to consumption-led growth If China’s economic restructuring ultimately succeeds, this decade could belong to the Chinese consumer, driving the global economy for years to come. Countries around the world, including the U.S. and Europe, could potentially see the creation of millions of jobs with the sole purpose of selling goods and services to China. In the short-term, though, China’s government will likely turn to the private sector for support on social welfare measures. FIEs should expect increased costs that arise from pension and healthcare reform and minimum wage hikes. FIEs can also expect to see policies that support the expansion of China’s lagging services sector. Industrial upgrading The 12th FYP’s initiative to promote SEIs should yield opportunities for foreign companies thanks to incentives created for private investment. But given China’s current drive to develop its indigenous innovation capabilities, these preferential policies may be biased towards domestic ﬁrms. Foreign ﬁrms must also be aware of the government’s proclivity to “reinnovate” foreign technology. Either way, increasing technological capabilities over a variety of sectors will have Chinese regulators welcoming advice and training from experienced foreign companies, oﬀering an opportunity to help guide implementation. Foreign ﬁrms may consider use of partnerships with local companies to better access signiﬁcant funding opportunities available. The 12th FYP also will present opportunities for foreign companies to bring over know-how to help local businesses meet the plan’s energy and environmental targets. Because most of these targets are mandatory and have the backing of China’s central government, several polluting industries will be scrambling to comply. A more complex operating environment Proposed reforms in the 12th FYP will introduce additional stakeholders into various industries.
China’s Estimated Energy Consumption 70%
20% 18% 7% 9% Coal
1% 2% Nuclear
0.8% 2% Wind/Solar/Bio
Source: Complied government date, APCO analysis
Foreign businesses should continue to update their understanding of relevant stakeholders emerging as a result of the 12th FYP, the development of SEIs and other reforms, as well as begin to develop targeted engagement strategies. The plan will likely introduce a host of new regulations. A clear understanding of the changes in China’s regulatory environment as a result of these developments, coupled with robust relationships with key institutions and actors involved in the plan’s execution, will enable foreign businesses to better monitor potential issues and eﬀectively inject their views into the policy process. Foreign input Implementation of certain 12th FYP goals, such as increasing technological capabilities in a wide range of sectors, will have Chinese regulators welcoming advice and training from experienced foreign companies. This oﬀers foreign companies an opportunity to help guide implementation. Assistance could range from informal consultations to more formal programs under the rubric of corporate social responsibility (CSR), improving understanding and institutionalizing government relationships.
Kenneth Jarrett is APCO Worldwide’s chairman for Greater China. Carly Ramsey is a Beijingbased consultant for APCO Worldwide. APCO Worldwide is a communications and public affairs consultancy with a presence throughout Greater China (Beijing, Shanghai, Guangzhou and Hong Kong), as well as over 25 other global cities. The authors can be contacted at email@example.com and firstname.lastname@example.org.
If China’s economic restructuring ultimately succeeds, this decade could belong to the Chinese consumer, driving the global economy for years to come.”
AmCham Shanghai New Members: February - March 2011 U.S. Corporate Membership
AZ Electronic Materials (Suzhou) Ltd. XIE Donald Da Ming ADR-ISM Supply Chain Management Consulting BDP Project Logistics (China), Ltd. (Shanghai) Co., Ltd. LIANG Yong WU Marshall Citibank (China) Co., Ltd. Shanghai Branch Celgene Pharmaceutical (Shanghai) Co., Ltd. MUR Deborah RUSSEL David Alan Collins Aviation Maintenance Services (Shanghai), Ltd. Dura-Bar Manufacturing (Changzhou) Co., Ltd. QI Qunhua ONTKO Gary Converse Sporting Goods (China) Co., Ltd. Exide Technologies (Shanghai) Company Ltd. KELDSEN Morgan LU Luke Corning China (Shanghai) Regional Headquarter Harvard Center (Shanghai) Co., Ltd. MIAO Belinda, YU Amy WILLIAMS Jeffrey R. Dow Chemical (China) Co., Ltd. Polaris Limited, China CHAU Henry Chun Nam, CHEN David, ZHOU Yunfei DONG Lingzhen, HEDGE David, SAF-Holland (Xiamen) Co., Ltd., Shanghai Branch LOU Po Pei Bobby, QIAN Kurt, SHAN Andi, CHEN Grace WU Paul, WU Tim J Chi Chueh, YEOH Sau Kheong, ZHAO Zhiqiang, ZHOU Martin Shanghai Sub-Branch, Covance Pharmaceutical Research and Development (Beijing) Co., Ltd. Duke Global, Inc. BI Honggang GOLDMAN Scott Eaton Industries (Wuxi) Co., Ltd., Shanghai Branch U.S. Associated Corporate LIU Hui Membership Gerber Scientiﬁc (Shanghai) Co., Ltd. ADM (Shanghai) Trading Co., Ltd. FINN Thomas ROIG Ismael Harman International (Shanghai) Management Co., Ltd. Akzo Nobel (Asia) Co., Ltd. LEE Bauer SEIERO Jorn Harvard Center (Shanghai) Co., Ltd. Ares Investment Advisors (Shanghai) Co., Ltd. DAI Hua, FRIEDMAN Yanqing, KUANG Mei, HE Sean PANG Zhiwei, WEI Lillian, ZHOU Baolin Avery Dennison (China) Co., Ltd. HUSCO Hydraulics (Shanghai), Ltd. LI Dagang DENOMME James Michael Caterpillar R&D Center (China) Co., Ltd. Jabil Circuit (Wuxi) Co., Ltd. SUN Brian GU Yu Covance Pharmceutical R&D (Shanghai) Co., Ltd. Kodak (China) Investment Co., Ltd. BI Honggang COOPER Andrew Michael, LEBEGUE Lois M LI Qiang John CSM Foods (Shanghai) Co., Ltd. RICE James Manitowoc Crane Group Asia Pte., Ltd., Shanghai Ofﬁce PRUNIER Jean-Francois FARO International (Shanghai) Co., Ltd. LU Cheng Marian (Suzhou) Co., Ltd. WITCHGER Brian nterstate (Shanghai) Hotels & Resorts Co. Ltd KASTEN David MulvannyG2 Architecture (Shanghai) Consulting Co., Ltd. CUTHBERT Peter, SIZEMORE Kenneth Jacobs Construction Engineering Design Consulting (Shanghai) Co., Ltd. Nalco (China) Environmental Solutions Co., Ltd. KUEHNE Bernd MURPHY Michael, WU Jiangming Nalco (China) Environmental Solutions Co., Ltd. Nu Skin (China) Daily-Use & Health Products Co., Ltd. MELIN Eric Gordon YEH Fengyi New Allyes Information Technology (Shanghai) Co., Ltd. OC&C Strategy Consultants (Shanghai) Co., Ltd. ZHU Hailong WILLIAMS Hunter Rockwell Collins (Shanghai) Avionics Trading Company Ltd. Polaris Limited, China HO Wai Cheong WEI Yuanqing, XIAO Qiang Sensata Technologies Baoying Co., Ltd. Rockwell Automation (China) Company Limited LI Hao KIM In-Hae Street Technology (Zhejiang) Co., Ltd. Non-Resident Individual Membership State JIA Xiaomei SMITH Mark Teleﬂex Medical Trading (Shanghai) Company Ltd. XU Robin Corporate International Afﬁliate The Walt Disney Company (Shanghai), Ltd. Membership GARCIA Tami MKT (Shanghai) Co., Ltd. Accenture (China) Co., Ltd. AUBERT Nicolas WADDEN Michael TUV Rheinland (Shanghai) Co., Ltd. Beijing Cadence Electronics Technology Co., Ltd., LUEBKEN Gerhard Shanghai Branch Universum Business Consulting (Shanghai) Co., Ltd. GUAN Jiao, LI Qian WU Gang Booz & Company (Shanghai), Ltd. Lehmanbrown Accounting and Financial Consulting, Ltd. BUTLER Sarah BROWN Russell Bristol-Myers Squibb (China) Investment Co., Ltd. Luxembourg Swiss Re International SE, Shanghai Rep. Ofﬁce ENDES Gyorgy WAGNER Martin CB Richard Ellis Property Consultants, Ltd. Shanghai WU Regina Associate Membership Dow Corning (China) Holding Co., Ltd. Alaris Consulting (Shanghai) Co., Ltd. REESE Herschel TRZASKOWSKI Mariusz DuPont China Holding Co., Ltd. Allen & Overy, LLP, Shanghai Representative Ofﬁce (UK) WANG Jian APRIL 2011 BAI Benjamin
Ecolab (China) Investment Co., Ltd. CHENG Michael EMC Information Technology Research & Development (Shanghai) Co., Ltd. HE Ning HSBC Bank (China) Co., Ltd. GIBBS Ker Intel Asia-Paciﬁc Research & Development, Ltd. MI Zhuoqi Kraft Foods Corporate Management (Shanghai) Co., Ltd. WANG Haiyan Lucent Technologies Nanjing Telecommunications Co., Ltd., LIU Jianxin McKinsey & Consulting Co., Inc., Shanghai HERMSEN Teun, HUANG Catherine Paciﬁc Strategies & Assessments (PSA) E Luna PolyOne-Shanghai, China MARTENS Tony PricewaterhouseCoopers Information Technologies (Shanghai) Co., Ltd. LENG Weiwei Right Management China, Ltd. DINEEN Sean The Walt Disney Company (Shanghai), Ltd. CRAWFORD Mike Wyeth Pharmaceutical Co., Ltd. SUI Jinguo
Individual U.S. Citizen Membership
Avia-Tek, Ltd. SIENA Jeremiah Todd Broadnet Technology Inc. CHEN Amy Dr. Debi Yohn Inc. YOHN Debi Export Now WINTER Henry Global Fine Chemicals (Shanghai) Co., Ltd. NG Winston IPL International HAKIM Jonathan LeanTech Consulting/ China Center for Operational Excellence, DEANS Christopher R MingJian Consumer Products Testing and Information Ltd. FELDKAMP James FESTA Susan FIEDLER Eric POTTER Andrew Pel Bio-Chem Technology (Shanghai) Co., Ltd. YEE Charlie Studley Inc. LI-BURNETT Yin Swissotel Grand Shanghai KINSEL Danid Tacony Corporation TACONY Kennon Wells Group Limited YOU Frances
Individual International Afﬁliate Membership Accelerating Value NELISSEN-BUCH Merijn George Food Enterprises Co., Ltd. KWUN Shirley CHOUTEAU Rene
Non-Resident Corporate Membership Patrica Choi Realty, Inc. INSIGHT 37 CHOI Cedric
Do you want to share more information about your company? Contact Sophia Chen at (86 21) 6279-7119 ext. 5667 or email@example.com for a “Standout Listing” opportunity in the New Members Section.
INSIDE AMCHAM FROM THE CHAIRMAN
Reaching Out to the YRD
he Yangtze River Delta, or YRD, with Shanghai as its hub, and encompassing parts of Jiangsu and Zhejiang provinces, has long been China’s economic powerhouse. Despite having only one percent of China’s land area and approximately six percent of the total population, the YRD accounted for almost 20 percent of China’s GDP in 2010. In fact, if the YRD were a country, it would be the tenth largest economy in the world.
This is no news to AmCham Shanghai members. In the 2010-2011 China Business Report, respondents reported that, while Shanghai remains their operational headquarters, more than half had expansion plans in second and third tier cities. YRD cities ﬁgure prominently in their expansion strategy – Nanjing, Hangzhou, Wuxi and Suzhou were among the top-investment destinations. Expanding AmCham Shanghai’s footprint in the fast growing Yangtze River Delta is a key element of the Chamber’s recently developed three-year strategic plan, and building our presence in Suzhou is a critical ﬁrst step. Suzhou, best known for its silk and classical gardens, has been transformed in recent years into a hub for manufacturing and industry. A city of more than six million people, Suzhou boasts one of the highest per capita GDPs in China. Suzhou’s development has been driven in large part by foreign investment – more than US$10 billion through 2010.
Eric S. Musser Chairman AmCham Shanghai
AmCham Shanghai is committed to supporting its growing membership in the Yangtze River Delta region.
AmCham Shanghai has more than 200 member companies located in the greater Suzhou area and is supported by the Chamber’s Suzhou Committee, a dedicated group of business people led by Committee Chairman Brian Noll of Suzhou Bibixi Communication System Company. Committed to delivering targeted and issue based programming to the American business community in Suzhou, the Suzhou Committee has held events focused on human resources, infrastructure development, transfer pricing and government relations. Perhaps just as an important, the Committee provides a platform for Chamber members to interact and address common issues, exchange ideas and share experiences concerning their businesses’ interests in Suzhou. AmCham Shanghai’s objective in Suzhou is to build on this strong foundation. On April 27, 2011, the Chamber will hold its ﬁrst annual Suzhou Government Appreciation Dinner – our ﬁrst government appreciation dinner to be held outside of Shanghai. The Suzhou dinner will demonstrate our appreciation to Suzhou ofﬁcials for their ongoing support of U.S. companies and is intended to strengthen the relationship between the Suzhou municipal government and the American business community. More than 50 Suzhou Municipal Government ofﬁcials have been invited, including the mayor of Suzhou, the Suzhou party secretary and the chairman of the China-Singapore Suzhou Industrial Park. If you’re interested in learning more about the Suzhou Government Appreciation Dinner please go to www.amcham-shanghai.org for more information. From Suzhou, AmCham Shanghai will explore other opportunities in the increasingly interconnected YRD with a focus on enhancing member beneﬁts and services in cities like Hangzhou and Nanjing. AmCham Shanghai will be reaching out to the membership to learn more – we want to hear about your local needs and how the Chamber can address them. As always, please email your thoughts to me at firstname.lastname@example.org.
B O A R D O F G OV E R N O R S B R I E F I N G
Highlights from the March 2011 Board of Governors Meeting Selection of Ethics Committee Member Chairman Eric Musser reported that Pierre Cohade had been notiﬁed of his election to serve on AmCham Shanghai’s Ethics Committee at the February 15, 2011 Board of Governors meeting and that he had agreed to serve on the Committee. Financial Report Helen Ren, Finance & Administration Director, reported that, due to the fact that the Board meeting is being held on March 1, 2011, a full ﬁnancial report for February was not yet available. However, she did indicate that the Chamber is on track to meet budget in FY2010/11. Spotlight Sessions Karen Yuen, Director of Business Development and Marketing, provided a detailed presentation highlighting the successful new Spotlight Sessions Program. Spotlight Sessions offer sponsors the opportunity to present their products and/or services to interested members for a small fee, while members attend for free. The sessions are also open to non-members. The Spotlight Sessions have been very popular with members with most having a wait list to attend.
2010-2011 China Business Report The key points from the 2010-2011 China Business Report were presented by David Basmajian, Director of Communications and Publications. The importance of having a broad distribution for AmCham Shanghai’s publications was highlighted. It was also noted that 40 copies of the China Business Report have been distributed to targeted policymakers in Washington, D.C. and approximately 100 have been sent to targeted Chinese ofﬁcials.
IN ATTENDANCE Governors: William Brekke, Paul Brown (by phone), Eddy Chan, Kenneth Jarrett, Jim Mullinax, Eric Musser (Chairman), Robert Roche, Matthew Targett, Kevin Wale and Eric Zheng Attendees: David Basmajian, Siobhan Das, Brenda Foster (President), Helen Ren, David Turchetti, Linda X. Wang and Karen Yuen APOLOGIES Andrew Au, Ted Hornbein and Marie Kissel
The AmCham Shanghai 2011 Board of Governors: Chairman
Andrew Au Citibank China
Matthew Targett Bayer Technology and Engineering
Ted Hornbein Richco
Eric S. Musser Corning China
Immediate Past Chair
Robert W. Roche Acorn International
Paul Brown International Paper Asia
Kenneth Jarrett APCO Worldwide
Eddy Chan FedEx Express
Marie Kissel Baxter Asia-Paciﬁc
Kevin E.Wale General Motors China Group
Eric Zheng Chartis Insurance
I N T E RV I E W
B Y E S T H E R YO U N G
Who Wants to be a Billionaire? Forbes Shanghai Bureau Chief Russell Flannery discusses China, ambition and the 2011 Forbes Billionaire’s List.
CHINA'S NO. 1: Robin Li of Baidu
ussell Flannery is the senior editor and Shanghai bureau chief of Forbes magazine. Now in his 10th year at Forbes, Flannery compiles the Forbes China Rich List, Hong Kong Rich List, and Taiwan Rich List, and is the editorial liaison between Forbes magazine and its Chineselanguage sister edition, Forbes China. He talks to AmCham Shanghai about the recently released 2011 Forbes Billionaires List. Tell us a little about the list this year - how was the China list put together? The list was a really interesting this year for many reasons. For one, we had a new number one for China – Robin Li, founder and CEO of Baidu. We put the list together in several ways. We interview listed companies, of which we see more and more. When I started on this list – that was back in 2003 – less than 20 percent of the individuals that were on the list actually got their wealth from a listed company, and now, it’s the overwhelming majority. We also spend a lot of time ﬁnding data for companies that are not listed. That is also a good way as so many people are tracking China now – market research, investment ﬁrms, consultants. Another source is overseas stock
listings, outside of China. We also talk to a lot of industry groups, especially for companies that are getting big valuations and private equity deals. All this information is a good thing – we print 12-15 issues of Forbes in China and we want to be covering all of these companies on an ongoing basis, not just once a year on a list. We want to give readers an introduction to China. We want to be a bridge for readers who are outside China, let them know who’s interesting, who’s successful here, what industries are doing well here. Since you have this coverage about individual companies and individuals, why a billionaire’s list? Why put this together for China at all? Lists simply have a human appeal. Everybody needs a pecking order in life, in some ways, and it’s our wealth list that gets the most attention. We have lists for many things: dead celebrities, the worst places to start a business. Lists are nice in that they can boil down things that are complicated to something that you can glance at for three or four minutes but provide a good picture of what’s going on. Do you think the wealth list has gained in relevance? The billionaires list, I think, has become a window into the changing global wealth and economic landscape. On our new list, for instance, China is number two, which is consistent with what you see in terms of big macroeconomic numbers. China has just surpassed Japan to become the number two economy in the world. It’s also not only the number of individuals on the list; it’s the change every year that gives you some insight. For instance, I ﬁnd it very interesting that we have 55 individuals from India on the list, but we have 51 new people from China. The number of people coming on the list from China is larger than the entire population of billionaires from India. That means quite a bit: India has a great economy, and it’s on the move, but if you look at the overall magnitude of these two places, the heft is clearly in China. Another interesting number on the list is 12, which is the number of people who came onto the
list through IPOs in the Shenzhen stock exchange. It compares to 10, which is the number of new people on the list from the U.S. from last year, bringing the total up to 413. The Shenzhen stock exchange produced more billionaires for this year’s Forbes billionaires list than the entire U.S. economy did. You can see there is a tremendous amount of wealth in the U.S.; with 413 billionaires compared to China’s 115, it’s still the biggest in the world. But when you’re looking at the ﬂow side, where things are happening – China’s the big story. Let’s look at the China list – 55 new billionaires is an impressive number. Was there something special about these entrepreneurs? Was there something that they had in common that may have fueled their success? I am lucky that I get to spend time with those in China who are very high up there – the most ambitious people in the world. Almost to a man, I think these are people who are focused on building. They are representative of an era where China as a country wants to make a mark in the world. The other remarkable thing I’ve noted from the people that I’ve met is their openness to new ideas and their interest in renewing their educational experience. When you’re in a fast paced environment like China, you can’t help but get caught up in this upgrade culture – you look for things that keep you going – and part of that is education. Is this correlated with a growth of innovation in China? I’m not sure just how much innovation there has been in China. I think that because the domestic market is so big, the reality is that you don’t have to be an innovator. You can be good at distribution and make a lot of money. I think, though, that there is deﬁnitely a structural change going on in the economy, and the days of relying on cheap exports are over. Everybody is cognizant of the growing need for innovation and upgrading. I think that many of the people that we are writing about have the resources to pursue that and have the smarts to pursue that. I would hazard a guess that many of the people on our list will have quite a bit of staying power.
The Richest in China: China’s Top 10 1. Robin Li US$9.4 billion Age: 42 Organization: Baidu Source: Internet, self-made Residence: Beijing Education: BA/BS, Peking University; MA, University of Buffalo Marital Status: Married Global Rank: 95
2. Liang Wengen US$8 billion Age: 54 Organization: Sany Group Source: Manufacturing, self-made Residence: Changsha, Hunan Education: BA/BS, Central South University Marital Status: Married Children: 1 Global Rank: 114
3. Zong Qinghou US$5.9 billion Age: 65 Organization: Wahaha Source: Beverages, self-made Residence: Hangzhou, Zhejiang Marital Status: Married Children: 1 Global Rank: 169
4. Li Li & family US$5.7 billion Age: 47 Organization: Shenzhen Hepalink Pharmaceutical Source: Pharmaceuticals, self-made Residence: Shenzhen, Guangdong Education: BA/BS, Sichuan University Marital Status: Married Global Rank: 179
5. He Xiangjian US$5.5 billion Age: 68 Organization: Midea Group Source: Appliances, self-made Residence: Foshan, Guangdong Marital Status: Married Children: 2 Global Rank: 185
6. Wu Yajun & family US$5.5 billion Age: 47 Organization: Longfor Properties Source: Real estate, self-made Residence: Beijing Marital Status: Married Global Rank: 185
7. Hui Kayan US$5.1 billion Age: 52 Organization: Evergrande Real Estate Source: Real estate, self-made Residence: Guangzhou, Guangdong Education: BA/BS, Wuhan University; BA/BS, Wuhan U of Science & Tec Marital Status: Married Global Rank: 200
8. Zhang Jindong US$5 billion Age: 47 Organization: Suning Appliances Source: Retail, self-made Residence: Nanjing, Jiangsu Education: BA/BS, Nanjing Normal University Marital Status: Married Global Rank: 208
9. Ma Huateng US$5 billion Age: 39 Organization: Tencent Source: Internet, self-made Residence: Shenzhen, Guangdong Education: BA/BS, Shenzhen University Marital Status: Married Global Rank: 208
10.Wang Jianlin US$4.6 billion Age: 56 Organization: Dalian Wanda Group Source: Real estate, self-made Residence: Dalian, Liaoning Marital Status: Married Children: 1 Global Rank: 232
Source: Forbes Magazine – The World’s Billionaires
Everybody needs a pecking order in life, in some ways”
The article related to the list emphasized the importance of technology in the rise of these billionaires. Do you think this will be a continuing trend? Yes. I think that China has beneﬁted from the mobility of capital and the mobility of technology and China very wisely spent a lot of money on infrastructure to pave the way for these things to be rolled into China. They have been responsible for all kinds of astonishing changes – hundreds of millions of people are online here, everyday, and buying mobile phones. I believe that as China’s income continues to grow, there is going to be a lot of room for wealth creation on the Internet. We’ll see more and more entrepreneurs coming from that space. Already, we have some – the number one, Robin Li. They will be highly educated, savvy and will be surrounded by very smart people. And they’ll be innovators in some sense, too.
You touched on this a little already with the rise of the Internet, but are there any particular individuals or areas that you think are worth watching? Yes. I think, in the U.S., we’ve lost a lot of great American newspapers and journalists, but I think the media industry will reinvent itself, especially in China. There is simply going to be a demand for more and new ways for people to share information and enjoy themselves. The media leaders here in China – Robin Li of Baidu, Jack Ma of Alibaba – they’ll be monitoring each other closely. In the meanwhile, we have Victor Koo from Youku. To see how all these areas will intertwine will be fascinating to watch. I think the other area that will do well in China is transportation, as I think increasingly well oﬀ, intellectual, globally minded Chinese will be travelers for many years to come. Consumer spending and healthcare will also have a good way to go for growth.
The 2011 AmCham Shanghai Manufacturers’ Business Council Conference
Productivity: the New China Challenge May 12, 2011 | Four Seasons Hotel, Shanghai
Faced with rising factor costs and government policies aimed at supporting domestic industries, foreign manufacturers are being forced to improve efficiency to protect margins. They are investing in operational improvements more common in developed markets, not China. Through a series of case studies and panel discussions, the conference, to be held Thursday, May 12, 2011, will cover key productivity issues facing manufacturers in China. Sponsorship opportunities are now available! Contact Sophia Chen at (86 21) 6279 7119 ext. 5667 or email email@example.com for details.
APRIL 2011 www.AmCham-Shanghai.org/2011MBC
AmCham Shanghai Corporate Volunteer Alliance 2011 Program Launched Lydia Hua from Johnson & Johnson speaks on J&J’s volunteer programs.
AmCham Shanghai launched its 2011 Make a Difference Corporate Volunteer Alliance program with a kick-off event at Mesa & Manifesto. Thirty-six Corporate Social Responsibility (CSR) professionals from AmCham Shanghai member companies gathered to share 2011 work plans and best practices in corporate volunteerism. Attendees viewed presentations on corporate volunteer programs from AmCham Shanghai, Johnson & Johnson Medical China, Intel China and the Shanghai Youth Federation Volunteer Department.
The Alliance is a voluntary association of foreign-owned businesses in Shanghai who are committed to sharing best practices and providing opportunities for corporate volunteerism and community outreach. Throughout the year members can participate in well-organized corporate volunteer projects, learn how to develop corporate volunteer programs, gain recognition for corporate volunteer efforts and further link their company to all stakeholders in the community including employees, customers, the government, media, NGOs and the greater community. Alliance member company Mary Kay China led the ﬁrst Alliance volunteer initiative on Saturday, February 26 with two programs at a Jingan district retirement home and a Sunshine home. “We had a great volunteer turnout for these events,” said Mary Kay CSR Manager Jessica Chen. “As a member of the Alliance, it’s easy to share our planned events with other companies and to provide new volunteer opportunities for our employees.” (Feb 23)
AmCham Shanghai Shares Best Practices at Shenzhen Non-Proﬁt Organization Fair AmCham Shanghai shared Corporate Social Responsibility (CSR) initiatives at the 2011 Shenzhen Non-Proﬁt Organization Fair, which took place at the Shenzhen Convention and Exhibition Center in Shenzhen, China. More than 160 non-proﬁt organizations (NPOs) from all over China showcased their programs at the exhibition. The organizations focus on diverse issues including: elderly care, health and disability issues, environmental protection, social work, education promotion, economic development and minority affairs. Over 20,000 visitors attended the conference over three days, according to the Shenzhen Civil Affairs Bureau. AmCham Shanghai presented CSR best practices from the American AmCham Shanghai CSR and GR Manager Oliver Yang business community and the Chamber’s CSR Program, including the discusses CSR with fair attendees. “Make a Difference Corporate Volunteer Program,” the AmCham Shanghai Reviewed NGO Database, CSR-related special events and the annual CSR Conference and Awards Ceremony. “We wanted to spread knowledge about public-private partnerships and to enhance collaboration among business, government and NPOs throughout China,” said AmCham Shanghai CSR and Government Relations Manager Oliver Yang. “In this way we can help the private sector reach out to the communities they operate in and help NPOs make a positive impact for the society they serve.” The program was hosted by the Civil Affairs Bureau of Shenzhen, with support from the Ministry of Civil Affairs, the Department of Civil Affairs of Guangdong, the China Association of Social Workers, China Foundation for Poverty Alleviation, China Youth Development Foundation and the China Red Cross Foundation. AmCham Shanghai member companies Cargill, Microsoft and Wal-Mart were also in attendance. (Mar 16) APRIL 2011
Chris Cox discusses U.S. ﬁscal policy.
Breakfast with Chris Cox, Former Chairman of the U.S. Securities and Exchange Commission AmCham Shanghai was pleased to host Chris Cox, former chairman of the United States Securities and Exchange Commission, who spoke about U.S. ﬁscal policy and the future outlook on reducing the U.S. deﬁcit. Cox explained that President Obama projects his ﬁscal plan will trim one trillion dollars off the projected US$1.6 trillion deﬁcit in the next decade. However, according to Cox, the biggest problem might not be the deﬁcit, but the balance sheet and unfunded long-term entitlement programs, as the cost of these intergenerational programs - including Medicare, Social Security, Pensions Beneﬁt Guarantees and Civil Service Retirement System - dwarf the size of the U.S. deﬁcit.
Cox pointed out that the unfunded liabilities of Medicare add up to US$88.9 trillion and are rising each year, driven by the retirement of the baby-boomer generation. He added that even if taxes were raised on corporate earnings and wealthy individuals, this would not solve the problem and would not raise a sufﬁcient sum of money. He touched on the continued liability of the current U.S. ﬁscal path and the implications this has had in the political arena, with voters punishing incumbents during recent elections. During the question and answer period, Cox addressed a question about the attitude of Americans towards China’s massive holdings of U.S. debt and suggested that China’s interest in U.S. Treasuries is beneﬁcial. Cox also discussed the possible role of Chinese business in supporting Foreign Direct Investment (FDI) in the U.S. to create American jobs. (Feb 25)
March Monthly Member Brieﬁng AmCham Shanghai was pleased to host William Brekke, Principal Commercial Ofﬁcer for East China, to speak at the Chamber’s monthly members-only brieﬁng about U.S. Consulate General Commercial Service Programs in East China. AmCham Shanghai’s monthly brieﬁng is an exclusive opportunity to hear from top government ofﬁcials and issue-area experts discussing current events and politicaleconomic trends impacting business in China. Brekke explained that the United States Commercial Service serves as the trade promotion arm of the International Trade Administration (ITA) within the United States Department of Commerce. In China, the U.S. Commercial Service has locations at the U.S. Embassy in Beijing and at its consulates in Chengdu, Guangzhou, Shanghai, and Shenyang, as well as partners in 14 additional Chinese cities. Brekke discussed his organization’s commitment to promoting President Obama’s National Export Initiative (NEI) through improving trade advocacy and export promotion, increasing access to credit for small and midsize businesses and minimizing market access barriers. He also spoke about the efforts of other U.S. agencies to support American businesses in China. He noted that the U.S. Trade and Development Agency (USTDA) has awarded over 120 grants in China that have resulted in over US$4.2 billion in U.S. exports since 2001. During the question and answer period, Brekke encouraged members to consider using the U.S. Commercial Service’s Featured U.S. Exporters (FUSE) program to increase search result visibility in a cost-effective marketing effort. (Mar 1)
China’s 12th Five-Year Plan: How it Works and What’s in Store
Kenneth Jarrett outlines key points of the 12th FYP.
AmCham Shanghai recently launched a special series of presentations on China’s 12th Five Year Plan (2011-2015) (FYP). The series kicked off with a presentation by Kenneth Jarrett, Greater China Chairman for APCO Worldwide, on the expected outline of the plan and impact on American businesses in China. The 12th Five Year Plan, ratiﬁed by the National People’s Congress (NPC) on March 14, shapes the direction of the Chinese economy and has signiﬁcant implications at all levels. Jarrett observed that throughout the years, the Five Year Plan has evolved in several ways. As the Chinese leadership has become more focused on qualitative changes, the FYP has become less quantitative, with fewer numerical targets and quotas. The scope of the plan has also expanded from economic planning to include environmental and social planning. Jarrett spoke about the importance of Strategic Emerging Industries (SEIs), economic restructuring, promoting social equality and promoting the environment. It is estimated that RMB10-14 trillion will be spent to develop SEIs through national, local and private sector spending. Jarrett said that the Chinese government strives to increase SEIs’ contribution to the country’s GDP to 8% by 2015 and 15% by 2020.The FYP also focuses on promoting social equality in China by closing the urban/rural divide, promoting urbanization and supporting Western and Central China regional development.The Chinese government, in an effort to protect the environment, will also promote energy sayings and new energy industries. Jarrett discussed the 12th Five Year Plan’s potential implications for foreign businesses in China, noting challenges and opportunities. Challenges could include increased overhead costs, higher minimum wages, potential environmental taxes and a more complex operating environment. Jarrett also described opportunities through government procurement, an expanded service sector, emerging business opportunities in tier-2 cities and Central and Western provinces, potential collaboration opportunities with Chinese companies as government increases investment in R&D and tech innovation for joint projects. (Mar 3)
Vice Chair of Shanghai Commission of Commerce Mr. Huang Feng: Foreign Investment and Shanghai’s 12th Five Year Plan AmCham Shanghai was pleased to host Vice Chair of Shanghai Commission of Commerce Huang Feng, who addressed the issues covered in the 2010 Environment for Foreign Investment in the Shanghai White Paper, the city’s development goals relating to Shanghai’s 12th Five Year Plan (FYP)(2011-2015) and the importance of foreign direct investment (FDI) in Shanghai’s economic future. Vice Chairman of Shanghai Commission of Commerce Huang Feng speaks on foreign investment.
Huang began by providing an overview of Shanghai’s foreign investment environment, including the increase in overall FDI, the shift of FDI from manufacturing to servicebased companies and the increased presence of multinational companies establishing their regional or national headquarters in the city. For Shanghai’s 12th FYP, Huang explained, the government is encouraging foreign capital to participate in “four-center” initiatives, including initiatives to make Shanghai an international ﬁnancial center, an international trade center, an international shipping center and a “headquarter economy” center that frames Shanghai as a national (or global) headquarters hub. Government incentives to accomplish this include the facilitation of offshore RMB usage, the establishment of free trade zones and the provision of more ﬁnancing options for SMEs. Huang also touched on investment opportunities for foreign entities, especially in the high-end medical industry, education and emerging industries, including new energy and pharmaceuticals. He emphasized that Shanghai’s government is working on creating a favorable environment for foreign investment, including the clariﬁcation of regulations and increased transparency for investment procedures. (Mar 9)
Real Estate Committee Restrictions to Foreign Investment in Real Estate
Michelle Gon and Andrew McGinty reviews the real estate regulatory environment.
AmCham Shanghai’s Real Estate Committee hosted industry experts to discuss recent regulatory changes in the real estate sector affecting foreign investors. Michelle Gon, a partner at Baker & McKenzie, and Andrew McGinty, local managing partner of Hogan Lovells spoke to AmCham Shanghai members about the real estate regulatory environment and gave insights into potential challenges and opportunities in the sector. Recent austerity measures enacted by the State Administration of Foreign Exchange (SAFE), the Ministry of Housing and Urban-Rural Development (MOHURD) and the Ministry of Commerce (MOFCOM) aim to cool down the residential property market. The changes contribute to an increasingly challenging environment for foreign investors.
Gon spoke about a new restriction on foreign investment in the real estate sector, requiring that investment property be held by a locally incorporated entity. She also described the importance of the “new eight measures” introduced by the General Ofﬁce of State Council on January 26, 2011. The new measures create changes in business taxes and down payments. McGinty called the recent regulatory changes a “second wave” of restrictions, following a related series of measures passed in 2006 and 2007. McGinty identiﬁed potential opportunities in the real estate sector, advising foreign investors to look for growth in rising sectors, like the tourism property market and the retirement housing market. He also noted that investors are increasingly looking beyond tier-1 cities for investment opportunities. (Mar 1)
Education & Training Committee Originality, Innovation and Creativity in the Workplace AmCham Shanghai was pleased to host Trip Barthel, a well-known learning consultant based in Shanghai, who presented to the Education & Training Committee on “Originality, Innovation and Creativity in the Workplace.” Barthel discussed the role of creativity as an important tool in the workplace, and demonstrated how it contributes to engaging people in their work, increasing product quality and building new business models. He noted that employees are able to develop and improve their creative skills at work, and the importance of emotional intelligence and moods in setting the stage for creative and ﬂexible thinking. Barthel also spoke about the use of brain exercises to generate new ideas. Following the presentation, Bartel organized members into a group exercise, dividing the attendees into four different groups working together to complete a project. Participants within the groups were divided into three roles: designers, engineers and marketers. The groups engaged in brainstorming sessions, working to creatively design and present new products. Following the activity, Barthel discussed individual learning styles, explaining the 4MAT model, an innovative model for teachers and students. (Mar 14)
Events and Committee Highlights are reported by Ashley Cahill, Susan Lawrence, Krisanna Oopik and Esther Young
DEAL OF THE MONTH ISTOCKPHOTO
China Approves Kuwaiti Oil Reﬁnery
A project in Guangdong province will become China’s largest reﬁning venture with a foreign partner.
hina’s National Development and Reform Commission (NDRC) has given final approval for a joint venture between China Petroleum and Chemical Corp., known as Sinopec, and Kuwait Petroleum Corp. (KPC), Kuwait’s national oil company. The US$9 billion project took ﬁve years to negotiate and includes a reﬁnery with a capacity of 300,000 barrels per day, equivalent to 15 million tons annually, in Zhanjiang, Guangdong province and an ethylene plant with a capacity of one million tons per year, as well as jetties and oil pipelines and other related utilities. Both companies will hold a 50 percent stake in the project. Kuwait Petroleum International (KPI) is expected to develop designs for the project’s complexes, at a cost of up to US$500 million. Kuwait will supply the crude oil needed for the Zhanjiang facility, which is expected to be operational in 2013 and bolster Kuwait’s importance as an oil supplier to China. As China seeks to reduce its dependency on foreign oil imports, it has become more active in making deals with major oil producers to invest in joint domestic projects. In September 2010, China National Petroleum Corp. (CNPC) announced plans to build a reﬁnery in northern China with Russian oil company OAO Rosneft. Additionally, CNPC plans to build a refinery in Guangdong with Venezuela’s Petróleos de Venezuela SA.
The Sinopec-KPC venture was considered important enough to require approval from China’s State Council, or cabinet. The project will overtake Exxon Mobil Corp.’s US$5 billion Fujian project to become China’s largest reﬁning venture with a foreign partner. Within six months, Kuwait plans to choose a third partner to develop the reﬁnery. With this project, Kuwait will become the second OPEC nation, after Saudi Arabia, to have a major refining presence in China, the world’s fastest-growing major oil market. Kuwait aims to increase its crude exports to China to 500,000 barrels per day (bpd), more than doubling 2010 exports of slightly less than 200,000 bpd. Kuwait is the world’s fourth largest oil exporter but only the ninth largest exporter of crude to China. KPC has foreign operations across Western Europe, where its products are sold under a subsidiary’s name, Q8. KPC says it hopes to open its Q8 brand gas stations in China. Imported oil accounts for approximately 55% of China’s total oil needs. In the past two decades, China has made massive investments in the development of its refining sector to satisfy rapidly growing demand. The Sinopec-KPC venture is one of a few greenﬁeld reﬁneries China expects to add as part of its recently adopted 12th Five-Year Plan. – Ashley Cahill
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