p.06 mania - amcham-shanghai.org 16 i… · shanghai disneyland launched ticket sales, and...
TRANSCRIPT
INSIGHTT h e J o u r n a l o f t h e A m e r i c a n C h a m b e r o f C o m m e r c e i n S h a n g h a i - I n s i g h t J u n e 2 0 1 6
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FEATURES P.10Readjusting business models
during an economic slowdown
Shanghai Disney Resort opens this month to high excitement and great expectationsP.06
POLICY P.20Analyzing China’s
Value-Added Tax reform
MEMBER NEWS P.38Playing Go during the
Cultural Revolution
Mickey Mouse Mania
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June
201
6
Movers and shakers
3
amcham shanghai
PresidentKenneth Jarrett
VP of Programs & Servicesscott Williams
VP of Administration & Finance helen ren
Directors
Business Development, Marketing & Events
Patsy liCommittees
Jessica WuCommunications & Publications
ian DriscollGovernment Relations & CSR
Veomayoury "titi" BaccamMembership & CVP
linDa X. Wang
insight
Senior Associate Editor ruoPing chen
Content Manager Kathryn grant
Design gaBriele corDioli
Printing
snaP Printing, inc.
insight sPonsorshiP
(86-21) 6279-7119story ideas, questions or
comments on insight: Please contact ruoping chen
(86-21) 6279-7119 ext. [email protected]
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 2015-2016 amcham shanghai President’s circle sponsors
INSIGHTThe Journal of the American Chamber of Commerce in Shanghai - Insight June 2016
FEATURES
Mickey Mouse Mania Arrives shanghai disneyland’s impact and targeting the Chinese consumer
Survival of the Fittest expert advice on readjusting business models in a slow economy
Up, Up and Away Q&a with United airlines on the future of U.s.-China travel
Hold the Spinach a look at China’s organic food industry
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POLICY PERSPECTIVES
China VAT Reform: History in the Making analyzing China’s value-added Tax reform
Foreign NGO Law: A New Framework Law firm highlights consequences of China’s new NGO law
Troublesome Insurance Informatization Policies new provisions on insurance system informatization raise concern
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MEMBER NEWS
Exit Interview Former China-based dow Corning manager on his China experience
Event Report recap of selected monthly events
Board of Governors Briefing Notes from last month’s BOG meeting
Month in Pictures selected photos from last month’s amCham events
Member Surveyhighlights from the annual Membership satisfaction survey
Committee Chair’s Corner With david ettinger, Chair of the Food, agriculture & Beverage Committee
Esoterica Memoirs of Go during the Cultural Revolution
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CAREER
Why do we live and work in China? Here
at the Chamber, this question has as many
answers as we have members. Reasons
will likely include the idea that people are
looking to make an impact and create a
difference, whether it’s with a company, our
family or the community.
Some are motivated to simply do what
they can to help their fellow human beings,
and they came to the one place on earth
that has the most of them. They build
libraries and schools, feed the poor and
protect the weak.
Last year, AmCham provided financial
support to expand a program helping
displaced and homeless people in
Shanghai. I recently visited the Renewal
Center to check progress. They have
doubled the number of people for whom
they provide hot meals, clean showers
and fresh clothes. They opened the “Fresh
Start” cafe to offer training and a path to
employment for people who have been
living on the street. Numerous AmCham
members have contributed money, put in
time and donated products to the Renewal
Center. It’s working.
Now, China has placed new restrictions
on organizations like the Renewal Center,
making official recognition and fundraising
even more difficult. Has China had a
change of heart toward foreigners who are
looking to help? Following in the wake of
other policies, some people point to this
as one more step in the process to reduce
Western influence on Chinese society and
the economy. China wants foreign network
security products removed from their
banks, they want our publishers blocked
from their readers, and they want new
restrictions placed on foreign charities.
This may be the view of some policy
makers in Beijing, but is it what the Chinese
people want? It’s certainly not what the
Chinese people at the Renewal Center
want. Here in Shanghai, what’s the message
we hear?
To me, local people seem pretty much
unchanged. They welcome foreigners and
they’re glad we’re here. They see initiatives
like the Renewal Center as something
to admire and emulate, not a dangerous
element to guard against.
A large number of foreign NGOs operate
here in China, and have done so for many
years, helping China address pressing
social needs. Charity and social support in
China has typically been at the family and
local level. Mobility and urbanization, and
the end of cradle-to-grave benefits, have
changed that dynamic, creating a greater
need for charitable organizations. The
number of Chinese NGOs, many of which
collaborate with a foreign partner, more
than tripled between 2000 and 2013. Is this
the kind of “Western influence” about which
Beijing seems so concerned? Do foreign
NGOs need to be treated as a potential
security threat?
The NGO law is just one example of the
negative headlines coming out of China.
As we break for the summer, many of us
will return to the U.S. to visit family and
friends. They will ask about China’s attitude
toward the United States and if something
has changed. Tension surrounding the
South China Sea only reinforces the feeling
that the bilateral relationship is troubled.
After decades of enjoying a peaceful and
mutually prosperous relationship, have the
Chinese people somehow become our
enemy?
Just as we each have our own reason
for living in China, we will have our own
narrative as we address these questions.
We have an opportunity to present a
nuanced view of the realities on the ground.
People outside China need to hear about
conversations we’re having with our local
friends, neighbors and coworkers. There
are multiple voices in China, and they are
expressing very different things. Headlines
have a way of hiding the common story,
the story that may be uninteresting but is
nevertheless true. On the ground level,
far from Beijing, people here get on with
the business of business. Today, business
in China includes foreign firms. Chinese
people gladly work with us. The headlines
coming from Beijing may obfuscate that
part of the story. I
Chairman’s Letter
KeR GIBBSChair of the Board of Governors
5
June
201
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Movers and shakers Movers and shakers
GOVeRNMeNT
Fu Zhenghua was
named executive vice
minister and vice party
secretary of the Public
Security Ministry in
May. This has been his
fifth promotion in the
past three years. Fu
became the party secretary and director
of the Beijing municipal public security
bureau in 2010 and was promoted to be the
deputy minister of public security in 2013.
Wu Hansheng was
appointed secretary of
the Liaoning provincial
committee. He served
as vice mayor of
Shenyang, capital of
Liaoning province, from
November of 2010 to
January of 2013. After that, he became a
member of the Shenyang municipal standing
committee. Most recently, he was secretary
of the municipal committee of Yinkou,
another big city in Liaoning province.
Yuan Tongli recently
joined the Hebei
provincial standing
committee. Prior
to this, he was the
secretary of the Tianjin
political and legal
committee. Yuan
worked in various positions in Wuqing
district of the Tianjin municipal government
from 1983 to 2011, before he became a
member of the Tianjin provincial standing
committee.
PRIVATe SeCTOR
OGilvY
and MaTHerPaul Heath, currently
CeO & chairman of
O&M Asia Pacific,
takes up a new role as
worldwide executive
director, chief growth
officer. In this role, Heath will lead and
manage a worldwide growth plan for
securing new clients and managing a
portfolio of clients across the globe. He will
also support the development and delivery
of Ogilvy & Mather’s worldwide strategic
plan. Heath will continue as chairman for
Asia Pacific and will join the Board of the
newly formed WPP AUNZ and represent
Ogilvy’s interests in that market. Heath first
joined Ogilvy as a graduate trainee in
London in 1987 and left in 1990. He
returned in 2003.
inTerBrandInterbrand, the world’s
leading brand
consultancy, named
JP Sharp CeO of
Interbrand China.
Sharp will continue to
shape the strategy and
growth of the business, as well as provide
clients with best-in-class innovative
solutions. Most recently, Sharp served as
CeO of TMF Group in China where he led
the redevelopment & expansion strategy
for operations and pioneered new service
offerings. Prior to joining TMF, he was APAC
regional director at Frog Design and, before
that, he was executive Director of Greater
China for PwC. earlier in his career, Sharp
held leadership positions at Dupont, Trend
Micro and Oracle. Sharp holds a BSc in
Business Administration from Boston
University and executive MBAs from both
Stanford and Northwestern.
CFaCFA Institute, the
global association of
investment
professionals,
appointed nick
Pollard as managing
director of Asia Pacific.
Pollard will support CFA Institute across the
APAC region as it continues its mission to
advance the investment profession for the
ultimate benefit of society. He will lead
further growth in the region, especially the
fast growing China and India markets.
Pollard previously served as CeO of The
Royal Bank of Scotland's Coutts Asia
division and most recently was head of
International Learning and Professional
Development for Coutts International. His
career spans more than 30 years across
banking, wealth management and talent
development. Pollard holds a Bachelor of
Arts Degree from University College
London.
TWiTTerKathy Chen was
appointed managing
director of Greater
China by Twitter. In this
role, Kathy will lead
Twitter’s growth across
Mainland China, Hong
Kong and Taiwan to expand the company’s
enterprise offerings (advertising, customer
service, data analytics and developer
platform), and help grow the technology
ecosystem in Greater China. Most recently,
Chen was general manager of Strategic
Partner ecosystem at Microsoft's Cloud and
enterprise Product Group, overseeing the
strategic development and business
management of all partnerships for cloud
ecosystem for C&e product and leading
the Microsoft Cloud transformation in
China. Prior to Microsoft, she was general
manager of Cisco China east Region. Chen
holds a bachelor’s degree in computer
science from North Jiaotong University.
Movers and Shakers highlights major personnel changes within the Chinese government at various levels and senior management-level movements within multinational companies in China
If your company has
executive personnel changes,
please contact Junling Cui at
6
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On a rainy Labor Day weekend
this May, thousands of visitors
disembarked from Shanghai’s
subway and crowded into the spaces
surrounding Shanghai Disneyland.
They snapped photos of the closed
gates, posed beside not-yet-
operating retail and entertainment
complexes and donned oversized
Mickey Mouse gloves. A preliminary
estimate by the Shanghai Daily put
visitor numbers that weekend, a
weekend when Shanghai Disneyland
was not open, at 30,000.
Anticipation had been building
since the start of the year when
Disney announced that its park would
open on June 16, 2016. In late March,
Shanghai Disneyland launched ticket
sales, and accumulated more than
five million hits on their website in
less than 30 minutes. Within hours,
tickets for opening day had sold out.
Shanghai Disneyland’s origins
date to 1990, when then-mayor
of Shanghai Zhu Rongji visited
Disneyland in Los Angeles and
proposed putting a Disney theme
park in Shanghai’s Pudong district,
then just an endless vista of farmland.
Shanghai Disney Resort has surely
exceeded his expectations. The
development, which cost US$5.5
billion and currently covers 3.9 square
kilometers, began construction in
2011 after a decade of negotiations
with the Shanghai government.
As the first Disney resort in
mainland China (there is a Disneyland
in Hong Kong), it encompasses a
Magic Kingdom-style theme park
(Shanghai Disneyland), two onsite
hotels called Toy Story Hotel and
the Shanghai Disneyland Hotel,
and Disneytown, an expansive retail
and recreational area. Fifty-seven
percent of the resort is owned by
Shanghai Shendi Group, a state-
owned investment holding company,
while 43 percent is owned by The
Walt Disney Company. Disney
maintains a 70 percent majority in the
management of the park.
“I think the development of
Shanghai Disney Resort is perfectly
aligned with the Chinese central
government’s economic reform
policy focused on promoting
the development of domestic
consumption-based economic
growth, and for Shanghai specifically,
it supports the development of
Shanghai’s tourism and cultural
industries sectors and overall service
industry development,” said Murray
King, Vice-President of Public Affairs
for Shanghai Disney Resort.
experts expect the investment
to provide big returns, and not only
from the millions of people who will
visit the park itself but also from the
boost it will give to retail and tourism
for the entire region. According to the
Shanghai Daily, Chinese academics
predict that Shanghai Disney Resort
may add US$3.3 billion to Shanghai’s
economy every year and account for
one percent of annual GDP.
demographic bountyThere are several reasons to be
optimistic. Ninety-five percent of
visitors to the park are expected to
be Chinese, and Disney research
shanghai disney resort is expected to draw in thousands of visitors, promising an “authentically disney, distinctly Chinese experience” By ruoping Chen
coverstory
Mickey Mouse Mania Arrives
everything we do...
is designed to create the
immersive experience
Murray King, vP of Public Affairs,
shanghai Disney resort
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June
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FEATURES
estimates that over 330 million
income-qualified consumers live
within a three-hour ride of the
resort. easy access to the city via a
developed network of transportation
links, including plane, high-speed rail
and car, has made things even easier.
“Geographically, as you radiate
out, probably 50 percent of our
guests will be coming from the
greater Shanghai area, which
is defined, for our purposes, as
Shanghai, southern Jiangsu province
and Zhejiang,” said King.
Beyond the greater Shanghai
region, King expects a significant
number of visitors to come from the
east China region, stretching from
Shandong down to Fujian province,
and central China, extending as far as
Chengdu and Chongqing in Sichuan
province.
Another reason for the positive
outlook is consumption. Although
China’s economic slowdown and
unstable markets have worried
some sectors of the economy, many
believe that the changes to China’s
consumer behavior will benefit
companies like Disney. A study by the
Boston Consulting Group, The New
China Playbook, projects consumer
spending to grow by nine percent
annually through 2020, citing rising
incomes, consumer confidence,
demographic trends and the role of
e-commerce as contributors to the
increase in spending.
According to McKinsey’s 2016 China
Consumer Report, 55 percent of Chinese
consumers were confident their
incomes would increase significantly
over the next five years. The study
went on to say that consumers are
placing greater value on experiential
consumption, allocating more of
their income to lifestyle services and
experiences such as travel, leisure
and entertainment, with almost three-
fourths of consumers believing travel
helps them to better connect with their
family.
“On the demand side, you have
this enormous population that’s
moving into the middle class, and
theme parks are really a middle
class product,” said Chris Yoshii, Vice
President economics at AeCOM.
“If you look at the demographics
of theme park visitors in the U.S. or
europe, [it’s] everyone from the low
middle class all the way through.”
According to Yoshii, investment
in theme park projects is increasing
as well. Local governments view
theme parks as a positive asset
because they are a clean industry,
create jobs and can improve a city’s
image. Governments are providing
more incentives to developers, giving
discounts on the land, allowing related
developments to be built alongside
the theme parks, and sometimes
becoming investors themselves.
a park with Chinese characteristics
At the center of Disney’s success
is the way it brings stories to life
through experiential immersion.
escaping from ordinary urban lives,
visitors find themselves thrown
into a battle for Davy Jones’ sunken
treasure on the “Pirates of the
Caribbean” boat ride, immersed in
the tales of classic Disney princesses
at the enchanted Storybook Castle,
lost on a remote tropical island with
a mythical tribe, or zooming along on
the TRON thrill ride’s Lightcycle.
“everything we do, from the
guest service to the quality of what
we create, all of the theming, the
characters they interact with, the
technology behind the scenes is
designed to create the immersive
experience,” said King. “Just as when
you go to a film, you’re immersed
in the story of the film, we’re a
storytelling company.”
For Chinese consumers,
experiencing that storytelling and
enjoying a true and traditional Disney
experience are fundamental. But
Disney also understood that the
approach to the market here had to
be different to accommodate China’s
strong culture, long history and
vast population. Shanghai Disney
Resort was developed on the basis
of the vision that Chairman and CeO
Bob Iger first presented on April 8,
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TRON Lightcycle Power Run at Shanghai Disneyland
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2011 at the park’s groundbreaking
ceremony. Shanghai Disney Resort,
he said, would be “authentically
Disney, distinctly Chinese.”
The park, in other words, would
offer a full Disney experience
while allowing Chinese visitors to
comfortably enjoy those experiences
in an environment that resonated
with them.
“Authentically Disney, distinctly
Chinese” is the creative lens through
which every decision related to
the park has been viewed. It is
reflected in park details ranging
from the selection of cuisines to
Disneytown’s architectural style and
merchandise, and to the festivals
that will be celebrated around the
year. Attractions and experiences
are designed with multi-generational
families of four grandparents, two
parents and one child in mind.
Gone is the famous Main Street
in the Disneylands in the U.S., a
concept that harkens back to small
town America. Disney says they
searched for the equivalent of the
“small town” in China and found it in
China’s gardens. Thus they created
the Gardens of Imagination in front of
the iconic Magic Kingdom-inspired
castle, a themed area that serves
as the “hub” of the park and features
seven Chinese-themed gardens as
well as tamer traditional attractions
such as Dumbo the Flying elephant
and the Fantasia Carousel ride. The
gardens are made to feel all-age
inclusive. Grandparents are able to
hop on rides with their grandchildren
or sit on park benches to watch the
parades passing by and feel like
they, too, are having an authentically
Disney experience.
What the customer wantsA primary source of the inspiration
for the design of the resort is the
trove of consumer research that
informed Disney on the needs and
wants of the Chinese consumer. This
was led by eddie Chien, Shanghai
Disney’s Director of Consumer
Insights. He and his team reached
into multiple channels and platforms
to conduct their research, interacted
with online communities of young
netizens, sought opinions in market
focus groups, and used their own
employees and shareholders
to provide guidance on what
consumers want.
“We go through a series of tests
to make sure that what’s coming
out of those tests will be tailored
to the Chinese consumer,” said
Chien. “Seventy or 80 percent of
our restaurants offer Chinese food
[because] we want to make sure
that this is not only our Disneyland,
but this is a park for our Chinese
consumers.”
Chien was also involved in the
merchandising process and spent
years on consumer research to
create the “vintage Shanghai” theme,
which was used to develop buildings
and merchandise, such as Disney
characters wearing qipao, the stylish
Chinese gown on 1930s Shanghai.
“That is something that resonates
so well among several different
options with our Chinese consumers.
So it’s not just a random pick. It’s
actually through engaging with our
consumers and listening to them
and making sure that we gauge and
incorporate some of the Chinese
elements into our design,” he said.
To market Shanghai Disneyland
– and build anticipation with the
Chinese public – Disney turned to
social media as one of the most
powerful tools.
When Disney unveiled the
plans for Shanghai Disney Resort
for the first time in July 2015, it was
broadcast live and was viewable by
mobile phone through a partnership
with Tencent. When the company
gave sneak previews of inside the
park to selected guests, photos and
videos they took with their phones
were quickly shared across social
media platforms. Dishes of Chinese
cuisine such as braised beancurd
(mapo doufu) and red braised pork
molded into Mickey Mouse shapes
went viral as users debated the flavor
and pricing of the food.
“I think we are learning how can
we fit into the environment here and
find the right channel to talk to our
right consumers,” said Wayne Huang,
Director of Marketing at Shanghai
Disney Resort. “And so we do spend
a lot of effort nowadays on those
WeChats and Weibos. That’s one of
our focuses.”
Huang added that through
spending a great amount of time with
those consumers, they discovered
that on a deeper level, visitors to
the park did not just want a one-
day experience. Instead, they want
an emotional bond with the park
that allows them to leave with a
memory that will last. A commercial
delivering a grand promise to “点点点点点点点点点点点点亮
心中奇梦” or “light up the magical
dream within your heart,” speaks to
that desire, featuring people of all
ages departing Shanghai and flying
off to Disney in Cinderella’s pumpkin
carriage, in Jack Sparrow’s pirate ship
or on Dumbo’s back.
Huang explained that the
purpose of the commercial was not
to show what exciting rides Shanghai
Disneyland has to offer, but to make
that experience relevant to people’s
lives and have a positive impact on
them.
“We start from the grand promise,”
he said. “We consider what the
customer wants in their experience
in emotional connection, and we
develop communication to make
that connection happen. That’s one
thing that goes back to the consumer
needs – back to the core. It’s not
just selling the ride. It’s selling the
experience.” I
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10
adjusting to new economic conditions
Foreign companies in China
have always faced a multi-
tude of business challenges.
These include, but certainly are not
limited to, growing local competition,
downward pr ic ing pressure , a
challenging regulatory environment
and governance/ethics issues. But
the impact of these factors was
overshadowed by the robust growth
in both the China domestic and
export markets thus allowing even
mediocre companies to remain
profitable.
Now, after years of 10 percent or
more GDP growth, China faces a
severe slowdown across many
market sectors. Caught off-guard,
many foreign-invested enterprises
(FIes) in the manufacturing sector
are under pressure to turnaround or
in some cases close or consolidate
factories. Slowing markets and
increasing labor costs are endang-
ering the unprepared.
While the slowdown was hard to
predict , some companies had
become complacent during the good
times, say Jon Anderson and Jay
Hoenig of east West Associates, a
firm that helps foreign SMes solve
operational, commercial and risk
management problems in their China
manufacturing operations. Based on
their experiences working with such
companies, Anderson and Hoenig
have identified several oversights
these companies made – and the
corrective actions they need to take
to resolve the resulting issues at their
China-based manufacturing plants.
Fly-in, fly-outAt small companies in particular,
t h e ‘ F l y - i n , F l y - o u t ’ s t y l e o f
management has not worked. “It’s
where company management visit
the operation for a week, meet with
the suppliers, review the top-level
statistics to confirm that they’re okay,
s h a k e h a n d s w i t h t h e l o c a l
management and go back home,”
says Anderson. “As such, they never
really develop a depth of under-
standing of how to operate in China.
They depend on the local general
manager to tell them what’s going
on and typically are told things are
fine.” But the financials don’t lie.
I f the local manager is exp-
e r i e n c e d , p r o f e s s i o n a l a n d
understands market realities, the fly-
in, fly-out approach may work for a
while, particularly if accompanied by
strong company oversight, rigorous
setting of metrics and alacrity in
addressing performance issues. But
in today ’s evo lv ing economic
environment, management from a
distance can be risky. If the wrong
person is in charge, company
executives may be too remote to
notice until it’s too late.
interaction with Chinese senior managers
While China’s economy has
produced significant growth for so
many years, many Western and
Chinese executives now have to
accept what has been termed the
New Normal economy. As a result of
this unprecedented growth, a number
of Chinese general managers and
t e a m m e m b e r s h a v e n e v e r
experienced a prolonged economic
downturn in their professional
careers. Anderson noted that for
many people in their early 50s, this
current economy is the first time they
have experienced slower growth. As
a result, many general managers and
executives lack the experience of
developing and executing turnaround
and restructuring strategies at their
factories in China. They do not have
survival of the FittestAs China’s economy slows and local firms become more competitive, many foreign manufacturers are reassessing their operational and commercial business models, Jay hoenig and Jon anderson of east West associates tell Insight By ian driscoll
Jon Anderson
Jon Anderson
currently holds
the position of
Vice President
& Managing
Director for East
West China. He
is responsible for
oversight and exe-
cution of all EWA
projects in greater
China, business
development and
staff development.
Jon has served
in a variety of
senior consulting
and corporate
executive roles in
China since the
mid-90s
June
201
6
Movers and shakers
1111
Movers and shakers FEATURES
these skills because they have never
been called for.
Many managers need support in
determining and activating the right
tactics and remedial actions to
minimize the financial risk to the
company. “Can they look at their
operation and say, ‘we are running
three shifts, can we cut back to one;
how can we reduce overhead and
inventory, can we expand our client
base, etc.,’” he asks.
Local managers also need to
have the experience, judgement and
professional confidence to com-
municate with U.S. management and
describe the new challenges he or
she is facing in this new evolving
marketplace. Having the confidence
to set realistic financial goals based
on the market realities is essential for
a long term view. establ ishing
u n a t t a i n a b l e g o a l s to p l e a s e
headquarters management is a short
solution with long consequences,
say the east West team.
Cost containmentContaining costs is elemental to
any company’s profitability, but
especia l ly in a downturn . The
acquisition or building of non-core
internal resources has saddled many
companies with high costs. Capacity
that was built to meet double digit
annual growth is now a burden. A
common example is expanding in
areas outside the company’s core
competencies. Tough “make or buy”
decisions need to be addressed to
find areas of cost reduction.
As companies overextend their
operations, even well intentioned
managers can get buried in growing
internal expenses. “The ‘fat’ forms
when you start expanding your
operation to internalize things. This is
when you ’ re bu i ld ing interna l
resources to do what outsourcing
can do a lot more efficiently and
cost effectively,” says Hoenig.
In good times, many companies
get bigger and bloated and less
efficient at activities outside their
core competency. “That’s what gets
them into trouble,” says Hoenig. “A
company may be an expert in
a s s e m b l i n g c a r s , b u t n o t i n
producing transmissions, lights, tires
and other components.”
Fo r c o m p a n i e s s e e k i n g t o
d e c r e a s e t h e s c o p e o f t h e i r
production, there is still hope. east
West execut ives say that cost
reduction opportunities are plenty:
limiting travel, renegotiating supply
contracts, rationalizing fixed assets,
reducing inventory, curtailing the
number of production shifts, etc. But
they also stress the need to boost
r e v e n u e s , w h e t h e r t h r o u g h
improv ing sales performance,
i m p rov i n g p ro d u c t d e s i g n o r
listening to customer feedback.
Sales & marketingAccording to east West, many
foreign firms in China use business
models designed five, 10 or 15 years
a g o , a n d u n s u i te d to to d ay ’s
economic conditions. This thinking
also infects sales and marketing,
where many local companies now
outperform their foreign competitors.
“Foreign firms initially ‘pulled’ to
China to support a few OeMs need
t o e x p a n d s a l e s o u t s i d e t h e
traditional base of foreign customers.
Organizational assessments and
sales and marketing assessments
are really critical,” says Anderson,
who adds that few companies have
assessed their own sales team to
understand the sales process or
s u r veye d t h e i r c u s to m e r s fo r
feedback on their wants.
Among the questions that east
West encourages companies to ask
themselves are: Do they have the
right sales people? Is the organi-
zat ional structure of the sales
department correct? Is the com-
petition using distributors or are they
selling directly?
Strategic & tactical complacency and the sales proposition
executives at east West argue
that for a long time the culture of
“good enough” was sufficient to
ensure profits for foreign companies
operating in China, even when selling
in ways similar to those in europe
and the U.S. Today, good enough is
no longer profitable in China.
One common fault that east West
has ident i f ied is what i t terms
“strategic and tactical complacency.”
“They’re not asking ‘Where else can
we sell our product? How can we
better localize our product? How can
we explore new geograph ica l
areas?’” says Anderson. “But if you’re
not growing while your competition
is, your competition is going to
overtake you. If you’re not expanding
your operat ion , product wise ,
geography wise, customer wise, or
i n d u s t r y w i s e , o n e d a y y o u r
c o m p e t i t o r w i l l . ” A n d , l o c a l
competition is producing better
p r o d u c t w i t h l o w e r p r i c e
expectations.
Facing the future
With their large human and
financial capital resources, many
multinationals have the time, in-
house skills and resources to adjust
to the winds of economic change.
That luxury is rarely available to
smaller FIes, which east West says
are more susceptible and sensitive
to indifferent performance.
This lack of deep resources
means that small and medium-sized
enterprises in particular must be
astutely aware of their company
operations and performances. “Big
companies can embed average
performers and the organization will
still grind forward,” says Hoenig. “At
an SMe if you have only two sales
people and one quits, sales may
drop 50 percent - so much depends
o n i n d i v i d u a l s s o e m p l o y e e
engagement is critical.”
SMes then, need to be relentlessly
assessing and questioning their
operating methods and products. “Is
it the product? Is it the organization?
Is it the pricing? Is it the leadership? Is
i t t h e s o u rc i n g ? D o w e h a v e
noncompetitive suppliers? Do you
need to re-compete all of your
sourcing?” are just a few of the
questions they should begin asking,
says Hoenig. I
Jay Hoenig
Mr. Hoenig is re-
sponsible for East
West’s Asia Pacific
and Middle East
operations (Japan
through ME),
including business
strategy, strategic
planning, and all
client projects and
assignments. He
is a former Chief
Operating Officer
Asia Pacific for Hill
and Associates
Group and
Chairman of Hill &
Associates (PRC).
He was also pre-
viously Asia Pacifc
VP at Bechtel.
establishingunattainable
goals toplease
headquarters management
is a short solution
with long consequences,
say the east West team
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After assessing a company’s operations and determining whether restructuring, reengineering, and functional process
improvements are applicable or not, downsizing and plant closures may be the final option. Listed below are several key issues
that East West Associates say should be addressed:
reGulaTiOnS OuTSide aSSiSTanCe eMPlOYeeS
1. Follow the current labor laws for terminations,
severance pay, retirement, enforced or unpaid le-
ave and other provisions. The law currently requi-
res at least one month’s notice per year of service.
This should be regarded as the base level.
1. Successful closures share one common factor:
the companies all established a multi-functional
team to identify the impact on all stakeholders
and created a crisis management plan to secure
and protect the company’s staff, assets and IP.
1. Careful consideration should be given to who will
make the termination or plant closure announce-
ment. The announcement itself should explain the
company’s reasons for termination or downsizing,
termination packages and the termination process.
2. Notification to the local and municipal labor
bureau and PSB is necessary; however, do not
expect support unless you as a company have
large operations in the area that will remain open.
2. The services of outside experts with experience
handling the risk management and communications
issues associated with closings may be extremely
valuable if the internal resources are not experienced.
2. Typically 95 percent of the workforce will
accept terms offered if treated fairly. It is the five
percent that do cause trouble who often incite
others.
3. Know how much “guanxi” you have. Do not put
local officials in the positon of being surprised
when they hear of your reduction in workforce
or closure.
3. Local officials will likely stay away and may not
intervene on either side. If you are able to enlist
the support of local officials, however, this can
help to keep emotions reasonably calm.
3. Remember that if labor unrest suddenly deve-
lops, it’s too late to develop a crisis management
plan to mitigate the risks to management, assets,
IP and your brand.
4. Review your company’s history with respect
to labor unrest, labor bureau complaints and
ensure current compliance with all regulations,
especially taxes and social welfare requirements.
4. The PSB will not intervene or get involved until
the law is broken. This means physical violence
and injury.
4. A town hall-type meeting on company proper-
ty on announcement day is not recommended.
5. A local area risk assessment is strongly encou-
raged to better understand the community and
the employee-company relationship history.
5. JV partners, if any, tend to disappear when
trouble starts and do not like to get involved. Do
not expect much help from your JV partners.
5. Give laid off workers what they deserve and
then some. Research local practice.
Case Study: Interim general management of a U.S.-owned China WFOE manufacturing plant (Jon Anderson)
A Wholly Foreign Owned enterprise (WFOe) specializing in the
production of specialized equipment for mining, seaport bulk
goods, and a variety of other logistics applications operated in
China for eight years. After the WFOE was unprofitable for four years,
experienced three years of flat sales and suffered surging expenses,
its parent company dismissed the local general manager and asked
east West Associates (eWA) to provide an interim general manager
(IGM). The role of the IGM was to lead an operational and commercial
assessment of the WFOE’s operation as well as fulfill the traditional
functions of the general manager with profit and loss accountability.
With a goal to break even within a year, EWA first assessed the
WFOe’s human resources department, looking to improve people
utilization, boost employee morale and scale the organization to its
current business climate. What eWA found was limited depth, high
personnel turnover and minimal accountability, matched with an
overall lack of teamwork and poor staff utilization. Due to earlier ma-
nagement’s poor communication to staff and lack of transparency, it
also suffered from a largely mistrustful and cynical employee base.
Concurrently, EWA found significant complications in the com-
pany’s operating strategy. Its operator utilization was below 60 per-
cent due to low sales and overstaffing, and employees had become
used to a slower-paced work environment. To increase the WFOe’s
efficiency, EWA focused internal resources on final assembly, testing
and packaging in order to reduce production cycle time. This stra-
tegy, paired with an increase in outside purchases of higher order
subassemblies, allowed eWA to increase assembly and packaging
efficiency by 25 percent and reduce slow moving stock.
One severe obstruction to the WFOe’s success was its unrealistic
commercial target. Despite negative signals in the marketplace, the
company’s budget called for an unachievable 20 percent increase in
sales. To re-focus the sales force, EWA modified the sales commis-
sion program to encourage year over year improvement and turned
to OeM clients instead of maintenance, repair and overhaul (MRO)
clients to ensure larger and steadier orders.
Additionally, eWA’s Voice of the Customer exercise, which posed
questions on the company’s value proposition to many end users, in-
dicated that some of the company’s value-add resonated with them.
Importantly, the process also provided realistic ideas for improve-
ment and validated the severe cost pressures in the marketplace.
Within a nine-month time frame, EWA identified over US$1 mil-
lion in cost reduction opportunities, about 20 percent of which came
from the SG&A budget. The expense line cost by about 12 percent,
and discovery of “lost” items accounted for an additional two to three
percent reduction in inventory value, while eWA’s elimination of aged
raw materials and finished goods lead to a 23 percent decrease in
finished goods costs.
AmCham Shanghai
Nomination Deadline: June 15, 2016
Future Leadersof the Year Awards
Sara Harari Program Coonrdinator: (86 21) 6279 7119 - 5695or email [email protected]
Show your current future employers that you’re a trailblazer in the community!
Recognize your own achievements or nominate another young professional for
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14
Q&a
Up, Up and Away
The number of Chinese visitors to
the u.S. has grown exponentially in
recent years. Can you tell us about
those numbers and how you see
the trend for the next five years?
In 2000, the total number of
arrivals in the U.S. from China was
about 250 thousand, a l though
subsequent to 9/11, the number
declined to 157 thousand as late as
2003. But since 2003, it has grown at
d o u b l e d i g i t s e a c h ye a r . T h e
breakout year was 2010, when the
number hit 800 thousand for the first
t ime, an explos ive 52 percent
increase over the previous year. In
2014 it was about 2.2 million, a 24
percent increase over the previous
year. Forecasts by the China National
Tourism Administration predict over
6.6 million passengers will be going
to the U.S. by 2020. That’s a huge
number.
How many of these passengers is
united carrying to the u.S. each
year?
We don’t break out the numbers,
but you can safely say that we have
the largest market share between
t h e U n i te d S t a te s a n d C h i n a .
Historically, for a number of different
reasons , the Ch inese car r ie rs
t e n d e d n o t t o u s e a l l t h e i r
frequencies. One reason was that
there were greater numbers of
visitors coming to China from the
United States than going the other
way. That is changing with these
explosive growth rates in Chinese
outbound travelers, and in the past
18 months Chinese carriers have
been adding new routes to the U.S.
How many u.S. destinations does
united serve with flights to and
from China, and which Chinese
cities?
From both Beijing and Shanghai,
which are considered Tier 1 cities in
the aviation treaty, we operate four
flights a day to the U.S. We also
operate three flights a day from
Hong Kong and those flights are
utilized by people from southern
China. In 2014, we launched a service
three times a week from Chengdu,
and from this summer we will fly four
times a week. eventually, our goal is
to have a daily Chengdu service.
We also launched a new service
from Shanghai to the closest U.S.
point to China, the beautiful resort
island of Guam.
The success of the Chengdu
According to the U.S. National Travel and Tourism Office, more than 5
million mainland Chinese people are expected to fly to the U.S. each
year by 2020, part of a trend that is fueling a boom for both Chinese
and U.s. airlines. Walter dias, United airlines’ Managing director for
Greater China and Korea, talks about the future of U.S.-China travel
By ian driscoll
June
201
6
15
FEATURES
flight encouraged us, and we will be
operating a Xi’an to San Francisco
flight this year. The Xi’an service will
be seasonal and three-times-weekly
starting on May 10 and ending on
O c t o b e r 2 9 , 2 0 1 6 . I f w e s e e
significant demand, we will look at
increasing that frequency during
peak periods and possibly also
operating it during off-peak periods.
We’re going to launch a Hangzhou
service to San Francisco effective
July 25, 2016, as well. The Hangzhou
service will be three-times-weekly,
but all year-round.
What motivated united to begin
the Chengdu service?
The advent of the 12th Five-Year
Plan in 2011 included a focus on
growing the economy in the interior.
S o w e m o n i t o r e d w h a t w a s
happening in the second-tier cities –
their population, income per capita,
the corporate activity in each of
those cities. That’s the reason we did
Chengdu first. They were building a
big IT city in Chengdu, and the city
government as well as the Sichuan
Province government had been
proactive in making it a desirable
location for manufacturers. The
government hosted a CeO forum
with Fortune [in 2013] where they
signed an additional US$18 billion of
F D I a g re e m e n t s w i t h va r i o u s
mult inat ional companies . That
pushed it over the top as far as us
wanting to fly there.
We also listen to our corporate
customers as to where their people
need to fly. In Chengdu, there are
c o m p a n i e s l i k e D e l l , Te x a s
Instruments, Apple and Intel. Another
reason we decided to do it in 2014
was because we finally had enough
of the aircraft in our fleet that could
do the job (see box).
is the Hangzhou service motivated
by the city’s tech status and the
need to be linked to Silicon Valley?
There are big companies in
Hangzhou now like Alibaba, and a lot
of new business is being built around
that area as well. So there is a natural
set of traffic that will want to go to
San Francisco and Silicon Valley.
Again, we look very carefully at the
demographics and economics of the
cities we consider, and Hangzhou is
also one of the higher per capita
income cities in the country.
Some people see in-flight service
on u.S. airlines as having changed
in the past 20 or 30 years. in China,
airlines still serve food and drinks
on domestic routes and allow a
free check-in bag. as you grow in
China , what changes are you
planning to make on China-u.S.
f l ights to stand out f rom the
competition?
Actual ly, in-f l ight service is
improving dramatically on U.S.
carriers as the industry recovers
financially. The U.S. industry is now
profitable and we are using our
returns to reinvest in the product we
offer to our customers. We listen to
our customers based on where
they’re flying from and what they
expect to see onboard the aircraft. On
the catering side, we make sure that
we have a lot of different choices for
Chinese-style dishes for all the
cabins, whether it’s in first class,
business class or economy. When the
reservation system shows more
Chinese customers on board a flight,
we increase the numbers of Chinese
meals. In regards to the inflight
entertainment system, there are
typically at least 50 Chinese movies
for passengers. We also make sure
we have Mandarin-speaking flight
attendants on all the flights serving
China. In addition, United now offers
Wi-Fi service on 100 percent of our
aircraft serving China.
does the typical Chinese visitor fly
to just one city, or do they use your
network to visit other cities?
Historically, the China customer
would jam in as many destinations
as they could in order to say they
had been to a l l these famous
destinations. You would see an
itinerary with seven cities in 10 days,
partly because people felt that it was
a once-in-a-lifetime opportunity. The
market has evolved a little bit over
the past four or five years, and now
there are at least four or f ive
destinations on your average leisure
trip, so it is less than it was in the
past. Probably the most popular
destinations are New York, Los
Angeles, San Francisco, Las Vegas
and Hawaii.
are Chinese visitors still traveling as
groups or do people prefer to travel
alone or just with their family?
Group travel is still popular, but
p e o p l e a r e b e c o m i n g m o r e
adventurous and the younger crowd
is definitely more interested in
traveling FIT [Free Inclusive Tour].
They are flying over on their own
Historically, the china customer
would jam in as many
destinations as they could
in order to say they had
been to all these famous
destinations
Chengdu and the 787 Dreamliner
Dias said the only aircraft suitable for United’s Chengdu ser-
vice was the 787 Dreamliner. “The aircraft is relatively small,
about the same size as the 767, but it can fly the mission
length of a 747 or a 777,” he said. “Because of this, the 787 is truly a
revolutionary aircraft in that it is opening markets that would never
have been possible in the past.”
Boeing’s market research and customer surveys have shown
that the travel market is fragmenting. People prefer nonstop service
over traveling from one big hub to another big hub and then tran-
siting to a smaller flight to their destinations. “Boeing designed and
built the aircraft for what the industry calls ‘long, thin’ markets - a
long-haul market but with a small amount of traffic, and on which
you cannot economically use a 747,” Dias said.
Boeing’s approach contrasted with that of Airbus, which deve-
loped the A380 to take hundreds of passengers from one hub to
another before connecting to their final destination. With the deve-
lopment of the 787, Dias suggested, Boeing has judged passenger
habits and demands better than its european rival.
16
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U.S. Department of Commerce International Trade Administration
Number of mainland Chinese visitors to the U.S., total arrivals (1000s)
2007 2008 2009 2010 2011 2012 2013 2014
2,200
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
ticket, getting a rental car and have a more
open itinerary than group tour package
travelers. It presents challenges and
opportunities for American companies in
the travel industry that cater to Chinese
tourists. If you position yourself correctly,
you can really take advantage of this trend.
What do you think that u.S. hotels and
other providers should do to better court
Chinese travelers? What opportunities do
see you opening up to u.S. businesses
that cater specifically to Chinese?
The biggest challenge is making sure
you have sufficient numbers of Mandarin
speakers in your properties or in your
optional tour operations. Destination cities
need to make sure they have more
simplified Chinese-language signage at
a i r p o r t s a n d i n h ote l l o b b i e s . Yo u r
marketing product also needs to be in
simplified Chinese. Customers from China
are becoming more adventurous and
looking for different travel destinations
and experiences. That’s an opportunity for
destinations that haven’t seen Chinese
customers before. They will be entering
o n t h e g ro u n d f l o o r o f a n h i s to r i c
opportunity. I
20160426_ASIA_AdAmchamInsightMagazineTrim: 213x291mm - Bleed: 3mm300dpi - CMYK
18
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Antioxidants. Heavy metals.
Folic acid. Veterinary drug residue.
Vitamin C. Biotoxins.
What’s on your plate?
eating organic in China – pesti-
cide-free, toxin-free – is getting
easier in the major cities, but if
you take a close look at what’s ac-
tually going on at farms and stores,
there is good reason to be skeptical.
China’s issues with food safety are
well documented, and although the
government is stepping up enforce-
ment, playing catch-up with bet-
ter-regulated systems requires time,
money and education.
An estimated one-tenth of China’s
farmland is now contaminated with
heavy metals according to the Min-
istry of environmental Protection,
and domestic organic produce sales
have surged. According to predictions
by organic trade fair BIOFACH, the
Chinese organic market scale could
reach RMB59.4 billion this year with
the market share of organic food to-
taling two percent of the overall food
market, up from one percent in 2007.
Lured by the promise of clean,
healthier produce, organic options
present a tempting alternative for
those who can afford the prices,
which can be three to five times
more expensive than conventional
foodstuffs. But consumers seem will-
ing to invest in safer produce. Leafy
vegetables such as lettuce varia-
tions, kale, spinach and broccoli are
particularly in demand as they are
most vulnerable to absorption of
cadmium.
But are even organics in China
safe? Kimberly Link, a Shang-
hai-based life coach, admits she re-
mains skeptical about the safety and
legitimacy of organic produce.
“I try my best to control other fac-
tors – air quality, exercise, sleep, eat-
ing a balanced diet – and accept that
I’m consuming a lot of heavy metals
in my fruits and veggies,” she says. “I
don’t trust the soil or the water, so I
don’t buy rice here, we don’t eat po-
tatoes, tomatoes or grapes. I also
limit root vegetable consumption
because of the ground pollution.”
Most larger chain supermarkets
such as Carrefour, City Shop, Ole and
City Super now have whole sections
and smaller local markets are in-
creasingly stocking organics to com-
pete. Online retailers specializing in
organic products have also stepped
up to meet the growing demands for
natural and organic products.
The good news is that authentic
organic produce does exist in China.
Passionate farmers are working hard
to ensure top quality and safe pro-
duce. According to the Institute for
the Control of Agrochemicals, Ministry
of Agriculture, two million hectares of
land are under organic cultivation.
But consumers still need to be
vigilant. Organic does not automat-
ically mean completely healthy. For
instance, not all pesticides are pro-
hibited within the organic farming
process and the amount of allowed
pesticides used on crops is not
closely regulated (see box).
One nearby locale where there is
a committed effort to the production
of organic food is Chongming Island,
regarded as “Shanghai’s last piece
of pristine land.” The island has also
been recognized as a national devel-
opment zone for sustainable green
development and has recently been
recognized by the United Nations
environment Program (UNeP).
Located 50 km northwest of the
city center in the Yangtze River es-
tuary, Chongming is home to several
organic farms, as the land is afford-
able and the fertile alluvial soil is
cleaner than in other parts of Shang-
hai (see box).
Hold the spinachorganic produce is gaining popularity in China among both consumers and farmers but reading the fine print is important By lisa M. Mulvey
19
June
201
6
Shanghai is also home to a bevy of pas-
sionate growers and innovators that may not
be officially certified as organic but strictly fol-
low Western organic standards, or as close to
them as feasibly possible. Beat Poltera, Gen-
eral Manager for Verdura, a Shanghai-based
specialty grower of herbs and microgreens,
talks proudly about this. “We don’t use any
toxins or pesticides,” he says.
Technically, Verdura’s products are organic
but certification is prohibited as the growing
methods are based on a soilless environment.
Verdura produces year-round baby
greens, microgreens, edible flowers and
herbs grown in a greenhouse setting. They
use soil-free, pesticide-free, pollutant-free
hydroponic and aquaponic methods that
also involve recycling water supplies. Poltera
emphasizes that “90 percent of our products
are grown hydroponically.” In such an envi-
ronment growers utilize precise controls in
terms of air and water temperature, humid-
ity and light. The only additives needed are
natural vitamins and minerals. The result is
an organic product with maximum nutrition
harvested and delivered on the same day for
optimal freshness and quality.
When asked about how to quash skepti-
cism among potential consumers, Beat says,
“To clients with concerns on trust, there is no
other way than source inspection.” He adds
that many Michelin-starred chefs he works
with, as well as purchasing groups, regularly
visit and inspect the farm. I
FEATURES
In China, what is organic?Organic, in terms of food, simply means grown without the use of artificial chemicals. To be more precise, to be considered organic, the
following standards must be adhered to no matter which country they come from:
The Chinese National Organic Product Standard (CNOPS) is founded on international norms with a sharpened focus on pollutant and prohi-
bited substance contamination and quality management aspects, such as record keeping and traceability. According to Hangzhou-based
ReACH24H Consulting Group’s research completed in December of 2015, China’s regulations for organic agriculture certification remain no-
torious for being among the strictest in the world. However, Chinese standards concerning pesticide use are less stringent than those of the
european Union and the U.S. Currently, 12 highly toxic pesticides remain in circulation in China as listed by the Ministry of Agriculture (MOA).
Furthermore, a more functional difference exists within their implementation and the governance structure that oversees these standards.
Supervision of the 23 organic food certification groups within China is often reported as understaffed and negligent. According to
the USCHPA (U.S.-China Health Products Association), in the span of just one year over 200 organic produce products certified by an
authorized center failed to meet government standards. Cheats and frauds notoriously slip into the markets and onto shelves. Fake
organic labels can even be bought on Taobao for a mere 0.03 Yuan as opposed to an organic farm certification that can cost upwards
of RMB50,000 to 60,000 per organic item registered. An analyst with CIC Industry Research Center (a Shenzhen consulting company),
states that rules for using organic food labels are not strictly applied or understood, which makes consumers lack confidence when
buying organic food.
Chongming Island
Approved by the local Shanghai government in 2000, 33 square kilometers of the Chongming island have been set aside as an eco-agriculture-oriented zone. Organic farms in this area repor-tedly spend millions of dollars (often supported by government funding) on water filtration and
circulation systems to further minimize contamination.Mahota Farms is located on the island and is working to create a self-subsistent ecosystem within 120
acres of the farm’s pesticide-free land. The farm integrates animal husbandry with organic vegetables, but also devotes 15 acres of land to waste and to resource management facilities. Manure from the farm’s livestock is used to make compost and biogas production is currently being explored. Mahota says he builds trust with customers by offering transparency.
Winner Wang explains, “each package of leafy vegetables has a unique QR code. Consumers can scan it to get more information, including the time when it was sowed, planted and harvested.” Mahota emphasizes their passion for protecting the environment by prac-ticing energy conservation, using methods that create a low-carbon footprint and recycling resources in innovative ways. She explains that visitors are encouraged to engage in activities and workshops, which include planting, harvesting and cooking.
Georgia Zhou, co-founder of Sprout Lifestyle which promotes nutrition and learning in Shanghai, runs a catering business and offers cooking and nutritional workshops. Zhou works with Mahota, BIOFarm and other smaller certified organic farms around Shanghai to supply trustworthy organic products. Georgia cited BIOFarm’s line of sprouts (under the name of Ambrosia), which she offers in her store as they represent China’s first certified sprout factory. Zhou advocates for accountability and emphasizes the importance of building connections with the growers.
No pesticides No synthetic fertilizers
No sewage sludge
No animal antibioticsNo animal
growth hormones
Use of farmland that has been free from prohibited chemical inputs for a number of years
(usually a three-year conversion process)No GMOs (genetically modified organisms)
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Candy Tang
Candy Tang
is a Director
in the tax
and business
advisory
services unit of
Deloitte.
china vAt reform: History in the MakingMay 1, 2016, will be considered a significant milestone in the history of China tax law because that is the date business tax (BT) was re-placed by value-added Tax (vaT) for all industries in China. Many changes are being implemented very quickly. With this landmark event, how do the changes affect your business?
By Candy Tang
Why is there a need to transition to VAT?
The State Council launched VAT re-
form to convert businesses subject
to BT to VAT, starting with the trans-
portation industry and certain other
service industries in Shanghai as a
pilot project in 2012. After that, the
pilot was rolled out nationwide and
expanded to more and more service
sectors, including railway transporta-
tion, post and telecommunications.
On May 1, 2016, other industries in-
cluding construction, real estate,
financial services and consumer
services were also included within
the scope of VAT, which effectively
means all business in China is now
within the scope of VAT.
The key aim of VAT reform is to re-
solve the double taxation issues un-
der the BT scheme, to reduce the tax
burden on taxpayers and to promote
investment. According to Premier Li
Keqiang, the tax reduction amount
for this year is estimated to be around
RMB500 billion as a result of the VAT
reform.
Who is impacted?In the VAT reforms of 2016, with
construction, real estate, financial
services and consumer services in-
cluded in the VAT scope, the supply
of construction services and the sale
and leasing of real property in China
will be subject to a VAT of 11 percent,
while taxpayers are allowed to claim
input on VAT credit on cost.
The new 11 percent VAT rate is
much higher than the three percent
(for construction) and five percent (for
sales and leasing of real estate) BT
rates. But the VAT rules allow taxpay-
ers in these sectors to deduct sub-
contracting payments and land costs
from the sales amounts to compute
VAT in certain situations. It also intro-
duced a mechanism whereby a pro-
visional VAT was paid followed by a
final settlement to solve the potential
mismatch of input VAT and output
VAT which could adversely impact
real estate companies. On the other
hand, transitional rules have been
introduced in connection with old
construction/real estate projects,
allowing taxpayers to opt to pay VAT
under a simplified taxation method
similar to the current BT mechanism.
These measures are expected to
mitigate the potential negative im-
pact of the increase in the applicable
tax rates (e.g. from three percent or
five percent BT to the current 11 per-
cent VAT).
Financial and consumer services
China took a bold decision with a
broad application of VAT to the finan-
cial services sector at the rate of six
percent from May 1, 2016. The deci-
sion is bold because China is prob-
ably the first and only country to tax
financial services so broadly. The cur-
rent VAT rules largely follow the cur-
rent BT rules including various BT ex-
emptions (for example, exemption of
interest from inter-bank transactions)
and “net base” treatment where the
taxable base (i.e. sales) is computed
by deducting certain items from the
gross revenue (for example, the sale
of financial products).
The consumer service sector en-
compasses a number of industries
that primarily focus on the supply
of services to private individuals, so
restaurants and hotels are now within
its scope.
Taking into consideration the fact
that taxpayers in these two sectors
may claim input VAT credit after the
reforms, it is generally expected that
their overall tax burden will not be
significantly impacted. It had been
expected that the simplified taxation
method could be applied to all tax-
payers in the financial and consumer
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Movers and shakers POLICY PERSPECTIVES
service industry sector after the reforms.
But this treatment is not reflected in the final
rules. So taxpayers in the financial and con-
sumer sectors must apply for general taxa-
tion terms as long as they qualify for general
VAT payer status. For these taxpayers, com-
pliance costs may increase.
Other industriesTaxpayers in other sectors are also expected
to directly or indirectly benefit from the final
rollout of the reforms. In particular, busi-
nesses will have the opportunity to get input
VAT credit from vendors in the four sectors
and reduce their own tax burden. The most
eye-catching highlight in the final rollout
program is the inclusion of newly-acquired
real estate within the scope of input credit.
There had been expectations among many
that the credit period could be 20 years,
with 5 percent of the input VAT on real es-
tate being credited each year. But the final
VAT rules provide for a two-year credit pe-
riod, i.e. 60 percent of the input VAT can be
credited in the first year, and the remaining
40 percent in the second year. This credit
period is much shorter than was generally
expected. It is obvious that the government
is very determined to lower the tax burden
on all sectors. It is expected that this policy
will encourage investment in commercial
real estate.
implementation challenges Although the full-scale rollout of the re-
forms is a very positive move, considering
the complexity and fluidity of the economy
and business activities, the newly-issued
rules are still to be tested in business real-
ity. Many taxpayers have focused on being
ready for May 1, 2016, so many expect that
the areas for improvement will be identified
post-implementation. Also, although the
Ministry of Finance (MOF) and State Ad-
ministration of Taxation (SAT) have already
issued several clarifications, there remain
many more issues to be clarified by the au-
thorities. In the meantime, there are multi-
ple levels of VAT rates in the current system,
which may limit the neutralization effect
that the VAT regime is supposed to have. As
a result, businesses should closely monitor
further developments of the reforms.
Moreover, VAT is quite different from BT
in terms of tax treatment and accounting
booking. In this regard, new VAT payers
would be wise to establish their own VAT
compliance and control systems to accu-
rately calculate VAT liabilities and manage
the potential tax compliance risks. They are
also recommended to study the new rules
and explore preferential policies that can
be enjoyed, for example, whether and how
to adopt the transitional rules for old proj-
ects for construction and real estate tax-
payers, whether to apply for VAT exemp-
tion or zero-rating treatments to reduce
VAT burden, etc.
Lastly, how to manage commercial is-
sues (e.g. pricing negotiations) as a result
of the reforms is an imminent and crucial
challenge for taxpayers. After BT is replaced
by VAT, taxpayers need to perform a finan-
cial/tax impact analysis to understand the
potential impact in terms of revenue, costs,
profit and tax burden. On this basis, compa-
nies can revisit their pricing policy and com-
municate with suppliers and customers.
Commercial contracts and related legal
documents should be amended to support
the new pricing agreement and to protect
the company’s interests to the greatest ex-
tent possible. I
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Li Qiang, partner of DLA
Piper Shanghai
Office
Sabrina Shi, associate of
O’Melveny &
Myers Shanghai
Office
Foreign NGo LawA New Framework
On April 28, 2016, the Chinese
People’s Congress passed
the much-awaited Law on
the Management of Foreign Non-
Governmental Organizations’ Activities
within Mainland China (the “Law”).
The Law will take effect on January
1, 2017, after many years in the works.
Many Chinese and international
governmental and non-governmental
groups have tried to provide their input
during the long legislative process.
So far, public reaction to the Law has
been mixed and lukewarm.
For decades foreign non-
governmental organizations (“NGOs”)
have carried out activities in China.
Some have done so with Chinese
official sanction; others have
operated in a legal “gray zone”.
The Law provides a framework
(though less desirable for some) for
the registration, supervision, funding,
auditing and day-to-day operations
of foreign NGOs in China.
Public security authorities as primary regulator
While domestic Chinese
NGOs are regulated by the civil
affairs authorities under the Civil
Affairs Ministry (“CAA”), foreign
NGOs are regulated by the public
security authorities under the
Public Security Ministry (“PSB”).
This is not entirely a surprise as
comparatively speaking, the PSB
(as China’s de facto immigration
authority) is more experienced
in dealing with international
organizations and individuals than
the CAA. Foreseeably, the PSB will
scramble to build an organizational
infrastructure to help register and
supervise foreign NGOs; during that
process, some foreign NGOs may
be well-positioned to provide input
to the PSB on the organizational
build-out. The PSB is authorized to
investigate any conduct of foreign
NGOs which is not in compliance
with the Law, including conducting
on-site inspection of a foreign
NGO’s representative offices (“ROs”),
questioning the individuals involved,
removing or reproducing any
relevant documents, and freezing
any relevant property, bank accounts,
facility or personal properties.
dual supervision
Foreign NGOs are not only
subject to extensive supervision
by the PSB (in relation to matters
such as establishment, personnel
recruitment and bank account
management of their ROs), but also
to substantive supervision by the
relevant “departments in charge”
(DIC), to be designated by the PSB
in separate catalogues in relation to
their operations (e.g., the review and
approval for ROs’ activity plans for
the following year, including project
execution and use of funds, and review
and approval of the annual report for
the previous year). Compliance with
this dual supervision regime may
prove time-consuming and expensive.
Broad definitionsForeign NGOs are broadly defined
as non-profit and non-governmental
social organizations legally
established outside of the territory
of the PRC. Besides traditional forms
of foundations, social groups and
think tank organizations, nonprofit
foreign universities, professional
associations and interest groups
are all subject to the Law, which
surprised a lot of these groups.
Foreign NGOs may operate in the PRC
by establishing ROs. Foreign NGOs
without registered ROs in the PRC
are allowed to conduct “temporary
activities” (generally for not more
than one year) in partnership with a
Chinese local NGO after completion
of a filing with the local PSB by the
Chinese partner.
Article 9 broadly prohibits foreign
NGOs, which neither have ROs
in the PRC nor have completed
filings for “temporary activities”,
from conducting operations (either
directly or constructively) in the PRC,
or from engaging or funding (either
directly or constructively) any entities
or individuals in the PRC to conduct
the foreign NGOs’ operations in the
PRC. Foreign NGOs which have used
“captive” local entities to conduct
operations should take notice of
this broad prohibition and consider
restructuring their operations to
avoid any potential violations.
restrictions on fundraising and use
The Law only permits limited
sources of funding for foreign NGOs
which (together with their ROs in the
PRC) are prohibited from fundraising
activities (including accepting
donations) in the PRC. This means
most of the funding to achieve foreign
NGOs’ missions in the PRC may
come from offshore sources, which
may throw into doubt the long-term
sustainability of some foreign NGOs in
the PRC. Bank accounts of ROs must
be registered with the PSB and ROs’
plans for use of funds for the following
year must be approved by the DIC,
which also reviews the actual use of
funds for the previous year. For foreign
NGOs without onshore ROs, funds for
“temporary activities” are required to
be managed through a separate bank
account opened in the name of the
relevant Chinese partners.
Given all these limitations for
foreign NGOs under the Law, one
wonders whether in many cases it
might make more sense for foreign
NGOs to conduct their operations
as for-profit “businesses” in the PRC
under the corporate legal regime, as
long as such an approach does not
run afoul of the above-mentioned
Article 9. I
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Movers and shakers
troublesome Insurance Informatization Policies submitted to Wto By elyssa Gao
POLICY PERSPECTIVES
The latest battlefield for cybersecurity
in China has emerged from a
rather unexpected place: the China
Insurance Regulatory Commission (CIRC),
China’s national insurance regulator. In
October 2015, CIRC circulated a draft law
called Provisions on Insurance System
Informatization. The original draft contained
many problematic sections that increase the
government’s control of the internet, limit
data flow, and require insurance companies
to only use “secure and controllable” IT.
After a backlash from the insurance
industry, CIRC circulated a new draft to
the World Trade Organization’s (WTO)
Committee on Technical Barriers to Trade
in April. According to WTO procedures,
the draft is open for comments for 60
days, after which the WTO Secretariat will
approve it. It will then come into effect six
months afterwards.
Some are worried that the regulators
will not make any further modifications
during this period as the proposed date
of adoption has been set for the day after
the final comment submission date. The
provisions will apply to all insurance entities
established in China, including insurance
asset management companies.
While the provisions contain some
positive steps, including allowing
companies to use cloud computing, there
are several areas of concern:
data localization: Data originating
from China must be stored within China,
effectively instituting geographic restrictions
on data flows. According to industry
companies, this rule will not lead to greater
data security. Insurance companies would
need to partner with local entities to host
their data, while bearing full responsibility
for any breach of that data.
Cross-Border data Transfer: All
international data transfers must be
conducted in accordance with relevant
Chinese regulations, but the CIRC has
not yet specified the content or identity
of such regulations.
”Secure and Controllable”: The
provisions would require insurance
institutions to give preference in the
procurement of informatization products
to those that are “secure and controllable”.
The definition of “secure and controllable”
is unspecified but believed to mean
ownership of domestically-owned and
registered IP. Similar language has
appeared and been later dropped by the
Chinese banking regulator.
This would affect both commercial
and public procurement in a sector that
is not commonly considered “critical
infrastructure” in other markets. Additionally,
this may negatively impact companies’
global information security regimes as the
“secure and controllable” products may be
incompatible with or otherwise inferior to
their global IT management standards.
Cryptography: This mandate would
force foreign-invested insurers to
implement Chinese algorithms that may
differ from those used by their parent
company, increasing the risks that a
company’s systems could be illegally
infiltrated. Firms use international
encryption standards to minimize
problems across systems in different
countries and ensure that client data is
as well protected, and this regulation may
raise security concerns by forcing them to
use a different standard in China.
Multi-level Protection Scheme:
Sets information system security
requirements in accordance with the
Multi-Level Protection Scheme (MLPS)
without specifying the linkage between
specific insurance industry information
systems and national security. This
would disproportionately impact foreign-
invested insurance institutions whose
operations outside China would be under
no such obligation. Moreover, this may
result in the restriction of procurement
to domestic hardware and software
products without relation to China’s
essential security interests.
Security Certification: Requires
that insurance companies apply for
certification of their information security
management systems from an institution
that is recognized by China. Industry
participants are concerned that the draft
would prevent insurance companies from
using foreign certification institutions that
may not appear on China’s recognized
list, which is inconsistent with existing
international standards.
AmCham Shanghai will continue to work
with insurance companies, the ICT industry
and other interested members in pushing
for meaningful changes to be made to the
draft provisions. I
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Exit Interview
A Chat with Matt Nolan
Matt Nolan is Senior Counsel for Dow Corning Corporation,
now working out of their global headquarters in Midland,
MI., where he serves as global commercial counsel to the
company’s electronics and lighting businesses. Until recen-
tly, he managed governance and compliance for Dow Cor-
ning for Greater China, was vice-chair of AmCham’s legal
committee, and worked to found a chapter of the Associa-
tion of Corporate Counsel in Shanghai.
How did you first come to China and into what position?
When Dow Corning Corporation got a new general counsel in
2012, I told him I’d be open to any opportunities that made me
better and met a company need, including those outside the
U.S. This put me top-of-mind when a need arose, and I took
over as Manager of Governance & Compliance for Greater China
in early 2014.
Did you have China experience before your posting?
I had one three-day business trip in 2011, during which I spent 90
percent of my time in hotels or conference rooms. Landing for my
house-hunting trip and knowing I was going to be living here was
something else entirely, and was the moment that it set in that I
was really moving halfway around the world and into an entirely
different culture. Everything, even the things that are incredibly
similar and familiar like KFC and bookstores, just felt so...Chinese.
Many expats who come to China start out confused and
sometimes depressed but later adjust and enjoy it immensely.
Was there a turning point for you?
We didn’t go through a tough integration phase, partially because
I think we’d prepared ourselves for challenges from the start. But
the entire experience did start to feel different following our first
holiday trip to Southeast Asia, though, about three months in. It
was at that moment that we started to truly appreciate how special
this opportunity was for us, and that each of the challenges was
being repaid in spades in opportunity and experience.
What was the biggest change in your time here? And what did
not change?
I spent 24 months in Shanghai, but just in that period of time it was
incredible to witness the change relative to the pace of change
back in the U.S. We had a clean line of sight from the Lupu bridge
to the Shanghai Museum when we got to town, and now that’s all
buildings! The traffic got worse, and running as a hobby and sports
generally have exploded in popularity. Change is a constant in
Shanghai, though, so I wouldn’t say the city really feels “different”
over time for us.
What advice did you give your successor? What advice did you
give your Chinese staff?
I liked to post quotes on my office door to spur conversations, and
those aligned with the advice I gave. I think each person should
look to make the company better each day. If that’s our starting
point, only good things can come. “Try not to become a person
of success, but rather to become of person of value” – that’s one I
strive to live by. Other than that, listen more than you talk, and don’t
be afraid to ask questions until you really understand something.
Success depends on it, and that fails to happen too often.
What was your biggest mistake during your time in China?
I probably didn’t push hard enough with my company to carve out
a mandate for the changes I wanted to drive in the region. That’s a
tough thing to manage and can create frustration when there’s a
lack of alignment. Have the tough conversations up front.
What was your greatest success and what opportunities are
there for people just arriving in China?
I feel like the best decision we made, and the thing we did
better than anything, was to truly “dive in” to China – don’t stay
within the expat bubble, push yourself to try new things, make
local friends and recognize that you only get each day here
once. Doing that in Shanghai will open more doors than you
could ever imagine, and failing to do so has a strong correlation
June
201
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27
with expats who wish they’d be able to go home a bit sooner.
embrace the experience!
Did your Chinese colleagues make you a better manager or a
better person?
Of course. My colleagues’ patience with my poor Mandarin, their
willingness to use their time to teach me and guide me, and their
insights into things I had no context for previously are all things I
benefitted from and will continue to benefit from. Their generosity
of spirit and their welcoming of me as a partner in the region gave
us a real chance to make a difference.
What did you learn from your Chinese colleagues that you feel
could benefit head office culture?
Nobody, not even Xi Jinping, truly understands everything about
China. Anyone who tries to tell you differently is an imposter and
should have their perspectives heavily discounted. Gather a
wide variety of perspectives and seek to listen and understand
before you judge, because things are not always what they seem
at first. I believe the China divisions of most foreign companies
have incredible untapped potential, and that part of the secret
to unlocking that potential is having global headquarters flex
a bit more toward the perspectives, desires and needs of the
local team. Finding the right blend can massively increase
engagement and results.
Can China succeed purely on Chinese terms or do its
businesses need a hybrid of Western and Chinese thinking and
management?
Most innovation and development throughout the course of
human history has come from people in one nation, culture,
company or group learning about and then incorporating ideas
from another nation, culture, company or group, and that’s not
going to change any time soon. I don’t think any philosophy that
doesn’t learn from all available sources can stay strong in the long
term. China and every other country on earth has much to learn
from the others, and that goes for each of our companies as well.
Those who listen and incorporate the best will win, and right now
China’s doing a pretty good job of that.
Western companies are often concerned by IP infringement
in China. What advice would you give to companies coming to
China with regard to IP protection?
My advice in China wouldn’t differ from my advice elsewhere,
which is twofold:
(A) Never disclose information to anyone, even under NDA
or to someone whom you trust implicitly at the time, unless
you’re willing to let that information be public at some point in
time. Information is meant to be free, meaning you can’t control
it forever but you can hold it longer if you very closely manage
access and controls;
MEMBER NEWS
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(B) Consider your business proposition and strategy closely,
focus on what is critical for you and what is available under
the system, protect as appropriate, and manage your business
around those protections and with them appropriately.
Is workplace safety a bigger issue to navigate and implement
in China because of the lack of a safety tradition in China and/
or complex regulatory structures?
Dow Corning has not found it to be so. We have an excellent safety
track record in China, both in our operations and in construction of
major chemical facilities, and that comes from setting appropriate
standards and culture, and holding yourself to them. Discipline in
this area is not optional for us, and our Chinese operations have as
good or better (seriously!) safety performance than our plants in
europe or the U.S.
As a U.S.-trained lawyer who worked in China, what changes
to Chinese law do you think would most benefit Chinese and
Western companies?
I think the most common complaint by Western companies doing
business in China is not any particular law, but rather the lack of
certainty regarding interpretation and enforcement. Certainty
creates trust, and trust is a necessary precondition for investment.
China speaks of improving legal institutions with its desire to
strengthen the “Socialist Rule of Law,” but despite using the
language of the West, the actual direction seems to be headed
toward further alignment of the courts with CCP political directives
and goals (the word “Socialist” is very key in that turn of phrase).
This has the potential to serve as a barrier to the potential growth
of the Chinese economy.
What worries you the most about China’s economy,
society, etc?
I’m not sure that I would use the word “worry,” but I think one of the
biggest challenges that China faces in the future will be managing
the incredible differences between the countryside and cities. As
urban China continues to develop and link more and more closely
with the rest of the world, the gap between those two segments
of society continues to grow, meaning it becomes more and more
difficult for the Party to set priorities and move forward. Each
portion of the populace is at risk of believing the government isn’t
doing enough for them.
The cost of democracy is that it’s messy, but the benefit is
that change can be more easily managed and assimilated over
time, and competing priorities can be hashed out in public. If a
day comes where rural and urban Chinese citizens can’t agree
on an agenda, or the government isn’t able to meet a plurality
of the demands of both, history has shown that change in non-
democratic societies is usually much more severe and drastic.
Will you miss China?
Immensely. My wife and I have lived in Chicago (3 million people),
then Bay City, Michigan (30,000 people), and then Shanghai (24
million people), and have found a way to be happy in each, but
Shanghai is a special place. The unique blend and balance of
expats and locals, high-end and low-end, eastern and Western,
and constant change creates an energy and fusion that we
haven’t found anywhere else to date. WeChat and email give us
a chance to maintain friendships that we hope to maintain for a
lifetime. This certainly won’t have been the last time we touch
foot on Chinese soil. I
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Movers and shakers
29
2016 CORPORATE SOCIAL RESPONSIBILITY CONFERENCE AND FAIR
“Business Sustainability Strategies for Today’s China”
Wednesday, June 22, The Peninsula Shanghai
For ticket information and partnership opportunities, please contact:
Ms. Edith ZhangEvents AssociateT: (86 21) 6279 7119-5658E: [email protected]
Ms. Daisy LuManager, Corporate Social ResponsibilityT: (86 21) 6279 7119-5272E: [email protected]
2016 CORPORATE SOCIAL RESPONSIBILITY CONFERENCE AND FAIR
“Business Sustainability Strategies for Today’s China”
Wednesday, June 22, The Peninsula Shanghai
For ticket information and partnership opportunities, please contact:
Ms. Edith ZhangEvents AssociateT: (86 21) 6279 7119-5658E: [email protected]
Ms. Daisy LuManager, Corporate Social ResponsibilityT: (86 21) 6279 7119-5272E: [email protected]
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Event Report
CHina’S 13TH Five Year Plan SerieS: inTerneT and TeCH-
nOlOGiCal MOderniZaTiOn
AmCham Shanghai hosted APCO Director Bruce Fu to discuss the
importance of technology and the Internet within China’s 13th Five
Year Plan (FYP) on May 17 at the Portman Ritz Carlton.
Fu, an expert on Internet and communications technology is-
sues in China, spoke to members about the technology aspects
of the 13th FYP, including Internet Plus, cloud computing, cyber
security and big data. Fu provided a basic introduction to the plan,
noting that President Xi is pushing for a “New Normal” of economic
development, with structural reforms aimed at securing sustaina-
ble and high-quality growth in the coming decades.
The 13th FYP makes a strong call for innovation-driven deve-
lopment. Fu spoke about how the development of a new genera-
tion of IT is a priority under the FYP and how it encourages invest-
ment in high tech and energy efficient technology. He also spoke
about China’s commitment to improve network infrastructure, in-
cluding optical fiber broadband, 4G and 5G mobile networks.
His presentation was followed by a lively Q&A session that ad-
dressed a number of issues, including the impact the FYP could
have on Internet startups and SMes.
aMCHaM CeleBraTeS earTH daY
AmCham Shanghai’s environmental Committee celebrated earth
Day with over 35 companies and non-profit organizations on April
22 at Shanghai Centre.
Held outdoors, the public fair provided a platform for local or-
ganizations to demonstrate how they are integrating innovative
and environmentally-friendly technologies, products and services
in their daily operations. AmCham Shanghai President Kenneth
Jarrett welcomed guests by thanking them for their continued
commitment to the environment.
Participating organizations related to advocacy, the built envi-
ronment, energy, environmental monitoring and filtering, farming,
land use, lifestyle, recycling and water showcased their products
and services. The diversity of represented organizations showed
how every company, regardless of industry, can take small steps
to decrease their environmental footprint.
a Mid-Year rePOrT On CHina’S eCOnOMY
During the May 4 Monthly Member Briefing, Dr. Oliver Rui from
the China europe International Business School (CeIBS) examined
the current state of the Chinese economy and where it could go
in the future. Dr. Rui outlined a framework that the public should
use when examining when, where, how and why China’s leaders
choose to reform various parts of the Chinese economy. In par-
ticular, Dr. Rui noted that the Chinese government could focus on
three specific areas: costs, efficiency and leverage.
Dr. Rui said that he felt that China’s economic slowdown, to
what President Xi Jinping calls the “new normal,” is a structural
shift and not simply a cyclical economic condition. However, as
a result of this slowdown, the global financial crisis and previous
economic adjustments, the Chinese government had reached or
was approaching the maximum amount of debt it could incur—
which policy makers had seen as the easiest way to drive the
economy in the past. China’s rising labor and manufacturing costs
and lack of SOe reform have also helped to put a drag on the Chi-
nese economy.
In order to continue China on its transition from an export and
investment-driven economy to one of consumption-led growth,
which is already contributing nearly RMB4 billion to China’s GDP,
the Chinese government will need to look to comprehensive solu-
tions. These solutions, according to Dr. Rui,
include economic and financial reforms;
global initiatives such as One Belt and One
Road; Made in China 2025; and domestic
development programs and policy adjust-
ments such as the relaxation of the one-
child policy, service sector reforms and free
trade zone developments. I
Earth Day fair vendors and AmCham members
Bruce Fu
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GOvernOrS
MEETING ATTENDANCE
Present: Ker Gibbs, Jimmy Chen, Michael Crotty, William Duff,
Tim Huang, Cecilia Ho, Aina Konold, Ning Lei, Gentry Sayad
(by phone) Glen Walter, Helen Yang, Vincent Yang (by phone)
Apologies: Cameron Werker
Attendees: Ken Jarrett (by phone), Scott Williams (by phone),
Helen Ren, Titi Baccam, Ian Driscoll, Patsy Li
Ker GibbsChinaBio
Cecilia hoInternational Paper Asia
CHairMan
viCe CHair
Jimmy ChenFedEx Express
michael CrottyMKT & Associates
timothy huangBank of America Merrill Lynch
aina e. KonoldGAP Inc.
ning Lei Navistar
Glen WalterCoca-Cola
helen Ching-hsien YangDuPont
Vincent YangSKF
eric ZhengAIG Insurance
Board of Governors Briefing
Board Gets Update on Membership Satisfaction Survey, Website Re-designHighlights from the April 2016 Board of Governors Meeting
MeMBerSHiP SaTiSFaCTiOn SurveY
AmCham President Ken Jarrett reported on the results of the
Membership Satisfaction Survey. Although the percentage of
extremely satisfied members was higher than last year, the ove-
rall satisfaction rate had dropped approximately three percent to
77.3 percent. The top reasons for joining were to stay on top of
business trends and to generate business leads, though survey
results indicate that the latter could be improved. eric Zheng no-
ted that the survey shows a lack of awareness of the Trade and
Investment Center (formerly the SMe Center). Ken Jarrett said
that the IT and website upgrade should help to address some of
the problems highlighted in the survey.
diGiTal uPGrade
Communications and Publications Director Ian Driscoll and Vice
President Helen Ren reviewed the costs to redesign the Cham-
ber’s website, upgrade the CRM and install a new event manage-
ment system. The initiative will be funded from the Chamber’s in-
vestment funds. Ian Driscoll added that the annual management
fee to support the new systems will come from AmCham Shan-
ghai’s yearly operational budget. The Board asked that AmCham
Shanghai report back at an appropriate time on the project and
provide quantifiable data to measure the programs’ success.
FinanCial rePOrT
Chamber Vice President Helen Ren reported that the Chamber
fell somewhat short of its first quarter revenue target because
new membership revenue and Corporate Visa Program (CVP)
revenue were lower than anticipated. The CVP shortfall reflects
changes in visa rules, with longer term visas now the norm.
The AmCham Shanghai 2016 Board of Governors
MEMBER NEWS
amCham shanghai Marketing and Media Committee event
about virtual reality
AmCham celebrates Earth Day
Monthly Member Briefing with former
U.S. Ambassador to China Gary Locke
amCham shanghai Month in Pictures
A briefing on the new Foreign NGO Law
Monthly Member Briefing
AmCham President Kenneth Jarrett at the Earth Day Fair
FTZ briefing with Pudong 王government officials
Leo Li discusses the new Foreign NGO Law
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34
2015 Member Satisfaction Survey Results
Our Member Satisfaction Survey provides the Chamber with measurable year-on-year
feedback about our performance, offerings and value proposition. The data was
compiled by YouGov, a survey and polling specialist
We thank all members who participated in the annual
membership satisfaction survey, conducted from late
February to late March of 2016. The feedback from
the 370 respondents not only gives us a view of what is working at
the Chamber, but it also allows us to identify improvements and/
or adjustments that we can make to ensure that we continue to
effectively meet your needs. The results are generally very good,
but we are endeavoring to address areas that need improvement.
But we first offer our congratulations to the winner of the survey
lucky draw, Richard Ren of Vitasoy China, who receives a round-
trip ticket on Delta Airlines from China to the U.S.
Satisfaction levelOverall, satisfaction remained positive with 77 percent extremely
satisfied or satisfied. The number of members who were extremely
satisfied rose to 22 percent, an increase of 7 percentage points
from last year, but the blended satisfaction rate was a drop from
last year’s 80 percent. On a very positive note, some 94 percent of
respondents indicated that they were either extremely/somewhat
likely to recommend that someone join the Chamber. About two-
thirds of respondents also said that they participate in at least one
AmCham event each year, on par with last year’s results.
reasons to Join amcham ShanghaiWhen asked for their top reason for joining AmCham Shanghai,
74 percent of members surveyed said it was to stay on top
of business trends with information provided at events, while
56 percent said it was to help them generate business leads
and/or develop their business network. In answering another
question, 79 percent of respondents either strongly agreed
or somewhat agreed that the Chamber’s ability to help them
generate business was a value proposition. However, some
members said that the Chamber should do more to facilitate
business leads among members.
While only 22 percent said that the ability to access business
information on the China market via the Chamber website and
publications was a reason to join, it is an area that the Chamber
will fortify over the coming months. Insight magazine, for example,
will put more emphasis on quotidian business and policy issues.
74%
56%
22%
19%
16%
8%
4%
Stay on top of business trends with information provided at events (industry, job function)
Reasons to Join AmCham Shanghai
Generate business leads and/or develop business network
Access to business information on China market via Chamber website and publications
Access to the Corporate Visa Program (CVP)
Build relationships with govt officials (Chinese and U.S.)
Access to services other than CVP(such as employee training, discounted insurance)
Other
35
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MEMBER NEWS
events/Committee Satisfaction levelsSatisfaction rates improved slightly overall for Chamber events,
with AmCham Shanghai’s Master Class programs scoring
the highest on a 5-point scale. Satisfaction with Daily events,
Committees events, Conferences and Training also rose slightly,
with Special events seeing a small decrease.
Almost 17,000 people attended Chamber events in 2015, with
Committees-related events the most popular among Chamber
members. Growth in attendance at YRD events reflects the
efforts of our dedicated YRD team to expand membership
numbers as well as deepen links between members and the
Chamber.
value PropositionAnalysis of AmCham Shanghai’s value proposition to members
reveals that our two biggest value-added areas are high quality
events and conferences, and high-quality information on industry
and job function business issues. Close behind are the 89 percent
of respondents who either strongly or somewhat agree with the
proposition that membership in AmCham provides positive value
to their business.
information SourcesWhen asked how they rate information sources provided by the
Chamber, 88 percent of members surveyed gave satisfied rates for
our weekly email newsletter Communique, while the annual China
Business Report and AmCham website both received an 87 percent
satisfaction rate. However, almost half of members surveyed were
unaware of our WeChat messages and SMe Center listings on
inbound and outbound investment. In both instances, continued
expansion of our WeChat presence should improve these numbers.
Membership experienceA good membership experience is fundamental to our mission
and it is an area in which we mostly perform well. While there
has been a small decline in the number of people who find it very
easy or easy to access our online resources (84 percent versus
87 percent in 2014), our website overhaul and the implementation
of a new event registration system should make members’ online
experiences far better. expect to see this implemented in the
fall. An area for attention is in the provision of opportunities for
members to partner as a speaker, panelist, sponsor or vendor at
Chamber events. While respondents felt we had done this better
in 2015 than 2014, there’s room for improvement. I
4.33
3.98
3.8
3.98
4.45
3.9
4.43
4.02
3.9
3.79
4.52
4.65
28% 59%
24% 60%
27% 57%
18% 48%
19% 34%
Registering, paying, and attending events
Daily Events
Committee Events
Conference
Special Events
Training
Master Class
2014 2015
Very Easy Easy Difficult Very Difficult N/A
Membership Experience
Events/Committee Satisfaction Improved
Signing up/renewing/transferring your membership
Addressing any inquiries about AmCham Shanghai’s programs and services
Accessing online resources, such as the Membership Directory, calendar of events and business articles
Partnering as a speaker, panelist, sponsor or vendor
Using the CVP for expedited visas to the US
45% 51% 3
4
5%
7%
7%
5%
1
1
9%
11%
8%
26%
42%
1
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36
Committee Chair’s Corner
A Chat with David Ettinger
This column is intended to help our readers get to
know the AmCham Shanghai committee heads. In this
issue, we talk with David Ettinger, managing partner
for Keller and Heckman law Firm. He is the chair of
the AmCham Shanghai Food, Agriculture & Beverage
Committee.
The United States FDA Food Safety Modernization Act goes
into effect in 2017. What does this mean for China’s food
market?
FDA’s Food Safety Modernization Act (FSMA) and implementing
rules will have a widespread impact on companies exporting
food to the U.S. For example, the new Foreign Supplier
Verification Program (FSVP) under FSMA establishes a set
of requirements, which directly or indirectly impact Chinese
companies exporting food to the U.S. For instance, a supplier in
China exporting foods to the U.S. may receive a request from the
U.S. importer to conduct an on-site audit as part of the importer’s
obligations under FSVP. Under the FSVP program, the definition
of “food” includes food packaging materials, so companies in
this sector will be subject to the same requirements.
The Chinese government has done a lot to guide the industry
here to meet the U.S. FSMA’s requirements. For instance,
the Certification and Accreditation Administration of China
published a Chinese translation of the FSMA documents, and
various educational seminars are being organized. This past
April, experts from the U.S. Food Safety Preventive Controls
Alliance and Chinese Academy of Inspection and Quarantine
jointly conducted a FSMA training session in Beijing. Trainings
like this should greatly enhance compliance awareness of the
new U.S. laws for Chinese companies exporting food to the U.S..
China’s Food Safety Law was revised in 2015 with stricter
regulations for food safety. In what ways has China cracked
down and are they working?
The new FSL puts a fair amount of emphasis on record keeping
and traceability, the concern being, when there is a food safety
problem, it becomes important to identify its source and to control
the outbreak. Much of the language in the FSL was already in
the 2009 version, but the new law put more requirements into
place and implemented more severe penalties for failure to
comply. One area of notable interest is that the FSL not only put
more accountability on the industry, it also deals with false or
exaggerated media reports by including language that will hold
the media accountable, including dismissal of employment and
if the news is reported and later found to be false or based on
unsubstantiated rumors. This is particularly important because
a company’s brand is, for obvious reasons, critical, and too often
companies are finding themselves reported in the media for
allegations that turn out not to be true. Such false reports spread
quickly and can have a severe impact on a company’s reputation
and business.
The new FSL also puts more attention on the management
of baby formula milk powder and expands its regulatory
scope to cover food traded online. For example, the soon-
to-be established baby milk powder formulation registration
mechanism will greatly reduce the number of formulations and
brands that are currently on the market. Only those players with
the capability to control product safety and quality will remain in
the market.
Food safety is, of course, always a top concern, but I think the
new Food Safety Law attracted a lot of media attention and put it
under a greater spotlight. As a food lawyer, I have received many
questions since the new law was released that likely should have
been asked years ago, so at least the question and dialogue are
front and center. Many foreign companies have entered China
assuming that if their ingredients are legal, for example, in the U.S.
or eU, they must be legal here, but that’s simply not true. There
are many ingredients that are legal elsewhere, but prohibited in
China. I have found that if companies want to succeed in China,
they must have flexible business models, which may include
product reformulation.
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MEMBER NEWS
I do think the ‘crack down’ as you put it, is working. You see
this in different ways, however. For example, more and more
companies are conducting self-inspection on factory operations
on a more frequent basis and taking corrective measures, when
needed, to improve food safety management.
In addition to industry response to the stricter regulations,
consumers are taking action to ‘oversee’ food safety. If you
just look at what’s going on in Shanghai, the Shanghai FDA has
reported that it received about 300,000 complaint calls related
to food safety via its hotline since it was set up about four years
ago. The agency also reported that, when the complaints led
to violations of food safety, it has issued rewards to over 3,400
individuals worth nearly RMB2.4 million.
Many multinationals in China, such as Walmart, have increased
spending on their own food inspections. With the newest set
of regulations, is this standard practice still necessary?
At this point, I believe it is still very good practice to invest time
and money in food inspection programs – this eventually should
lead to suppliers taking on their own individual responsibility.
If a supplier knows that they are going to be inspected by their
customers, they are more likely to get it right on their own
so that they can continue the supplier-customer relationship.
This should continue until the recognition and observance of
food safety becomes more a part of the everyday mindset.
It’s worth noting that the new Food Safety Law, in fact,
requires that food producers and operators establish a food
safety self-check system and conduct routine inspection and
evaluation of the food safety conditions. In this regard, self-
inspection is actually mandatory for a food operator.
Is there an uneven playing field when comparing domestic
and international companies’ experience with the Food
Safety Law?
There is definitely an uneven playing field. In my experience,
the implementation of these laws is very inconsistent, which is
one of the biggest challenges in operating a business in China.
Local authorities often have different interpretations of the law.
I see this most in the area of the “professional consumer.” This
is the consumer that makes a living reporting typically foreign
products that allegedly do not comply with the regulations.
We have seen many foreign companies summoned into local
FDA offices for allegations that are often innocuous issues that
usually relate more to technical noncompliance than a health
or safety concern – like when the font size on the label is not
correct. I’m not seeing this happen to domestic companies.
Professional consumers are likely targeting foreign brands
because they know they have the deep pockets.
Is there language in the new law to prevent this kind of bounty
hunting among professional consumers?
Yes, there is. Previously, a successful claim raised by a professional
consumer could receive ten times the value of the product they
purchased. Under the new law, that amount will not be rewarded
unless the claim reported is related to food safety and misleads
consumers. I think this is a very good change because it shows
that the authorities were seeing some abuse here and, while the
eyes and ears of consumers is important and can help foster
food safety, the system also needs to be fair to the industry.
In recent years there has been more awareness of cadmium
levels in China’s waterways and rice paddies. Is China taking
this seriously enough?
There have been various reports of high levels of cadmium
and heavy metals, much of which can occur naturally in the
soil – so the adage ‘it’s the dose that makes the poison’ is
important here. While I don’t know all of the details of what
actually occurred, I do know China is responding to it. The new
Measures for the Supervision and Administration of Marketing
of edible Agricultural Products went into effect on March 1,
2016, and these measures specify supervision responsibilities
for central and local government agencies, and highlight
obligations for operators and sellers of edible agricultural
products to ensure safety and quality. So, for example, rice
manufacturers now need a certificate of origin to ensure
that the rice is manufactured properly. I’m optimistic that the
situation will improve.
How can AmCham contribute to improved food safety in
China?
It’s important to continue to promote conversation and
dialogue within membership. I was at a recent industry event
where a food processor explained that his company rewards
its employees with cash bonuses when they take action to help
improve safety and sanitation in the plant. I think that’s a great
idea because it shifts the model from ‘whistleblower’ to giving
employees incentives to help the company do better and help
play a more proactive role in making sure daily operations are
resulting in the highest level of food production and safety.
This is the kind of idea that we can learn from engagement
with each other - AmCham creates a forum for engagement
and open dialogue, and we all benefit from that. I
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Esoterica
Memories of Go during the Cultural Revolution
Though the hundreds of students on the
factory farm in Heilongjiang had had
their studies interrupted by the Cultural
Revolution, there was no shortage of those
accomplished in the four classical arts – zither
(the guqin), weiqi (Go), calligraphy and pain-
ting. Li One and Li Two, for example, were
both accomplished musicians. Chai One was
a fine painter and Chai Two a sublime calli-
grapher, but the classical art that fascinated
me was weiqi. Looking back on my farm-work
years, I can say that though life was tough, I
reaped rewards as well. Weiqi has become a
lifelong passion of mine.
Two weiqi masters resided at No. 3
Farmhouse. One, Zhang Jieliang, used to regale
half of Dorm 3 with the story of The Count of
Monte Cristo (a banned book at the time) on sum-
mer nights. The other was Yao Haibin, and it was
through his lessons that I entered the weiqi world.
At the “Weiqi Crash Course in Dorm 3,” you
would find a plastic board laid out over our
brick-bed (kang) with six heads bent over it in
concentration. Teacher Yao’s instruction exten-
ded beyond strategies of combat. It began
with where to place one’s first piece to show
respect, how to calculate the number of diffe-
rent circumstances, formations, invasions and
life-death moves, and it culminated in deep
analysis of a completed game. The topic that
left the most profound impression on me was
the “tortoise leaves his hole” life-death move.
When fall came, work decreased and
days shortened. During these months, we
received only two meals a day, and our lei-
sure time between the afternoon meal and
sleep lengthened to six hours. On cold win-
ter days, air from one’s breath would turn to
frost, so everyone huddled indoors. Playing
weiqi became our main cultural activity. For
every game of weiqi, there were several stu-
dents who stood around watching. Those
who observed frequently came to under-
stand novice moves and began to play the-
mselves. An old hand who could not find a
partner of equal ability would grab one of
the novices, teaching them as they played.
Soon weiqi fever took hold in Dorm 3.
During its height, the north-south kang would
have four or five games in progress simulta-
neously – quite a bustling atmosphere. When
the players were many and the boards few, we
would hold team games, two to a side, with
each player taking alternate turns.
Often it was unfathomable how we lost and
confusing how we won, but the pleasure lay in
the play itself. Between my friend Jie Ping’s
bedspread and mine, we had a wooden trunk
on top of which we placed a plastic board. A
single game of weiqi between us could take
three or four hours. At night, while sleeping,
weiqi formations would enter my dreams. I
dreamed of the weiqi moves that would free
me from a losing situation, and my revelations
would startle me awake. I could retrace the so-
lutions that had penetrated my subconscious in
full clarity on a weiqi board the very next day.
Nothing, no study or work upon my return to
the city, would compare with the level of
obsession I had for weiqi back then.
When talking about those times, I cannot
leave out Dorm 1’s Sun Caiyuan. With his bur-
ly, strong physique, he would often come to
Dorm 3 to challenge us to battle, not depar-
ting until he had vanquished us. On rest days,
Sun would battle from morning to night,
playing 11 or so consecutive games without a
break. He was completely unafraid, even
when facing down five of us in a weiqi war.
And we battled for the honor of our dorm. So
strong was our desire to win that sweat would
drip from our brows. When we wanted to con-
quer the lower-left board, we would tilt our
heads, feigning attention on the upper-right
board. We would flush with anger over a with-
drawn move, we would heave sighs of despair
over our blunders. The memories of all our
schemes and obfuscation, tricks and ruses
still amuse me.
During particularly bitter battles, we would
not even break when it came time to eat. Not
having time for the canteen, we would eat our
fill of steamed buns that our dorm mates had
brought back for us. And only after we had
made our move would we take a bite, com-
pletely unaware of the flavor. In intense bat-
tles, our wavering playing hand would drift to
our mouths – but fortunately I have never
heard of anyone swallowing their weiqi piece.
Spectators would generously pour their
opinions down a player’s ear, and when they
saw they weren’t being listened to, they
would grab their ears and scratch their
cheeks in frustration, barely able to stop the-
mselves from intervening with a move of
their own. When two excellent players com-
peted, they would murmur approvingly and
assume airs of refinement; the only other
sounds in the room came from the clap of
pieces being set on the board.
The golden age of weiqi at Dorm 3 lasted
for two years. In the waning period, students
turned to thoughts of their future and the nu-
mber of weiqi players declined to nine. Some
had found various means to leave the farm
permanently while others did not return from
their trips back home. A game of weiqi beca-
me an occasional treat.
On all my wanderings through the fol-
lowing decades, weiqi has remained with me.
At leisure, it is still very hard to resist the allure
of those black and white pieces. A few years
ago, I happened to run into Yao Haibin in
Shanghai, but for various reasons I have not
sought weiqi lessons from him again. I do feel
a bit of regret about that. I
MEMBER NEWS
Written by Chang Chen - Translated by ruoping Chen
This year AlphaGo, an A.I. computer program developed by Google, managed to beat a former Go champion 4-1 in a five-game series. Like many afi-
cionados of Go, an ancient Chinese board game, my father was riveted by the competition. Go has been a passion of his ever since he learned how to
play in the countryside during the Cultural Revolution. Along with other “educated youth,” he was sent to labor on a farm in 1969 and stayed there for
nearly a decade. My father and his sent-down friends recently published a book of memoirs about that time. This is one of his tales. –Ruoping Chen
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MBP Full page.pdf 1 16-5-31 下午2:44
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