INSIGHTThe Journal of the American Chamber of Commerce in Shanghai - Insight June 2016

Shanghai Disney Resort opens this month to high excitement and great expectations Mickey P.06 Mouse www.amcham-shanghai.org Mania

FEATURES P.10 POLICY P.20 MEMBER NEWS P.38 Readjusting business models Analyzing China’s Playing Go during the during an economic slowdown Value-Added Tax reform Cultural Revolution www.amcham-shanghai.org

2 Commerce inShanghai.E ditorial contentand may bereproduced withoutwrittenconsent sponsors' announcementsare independent of theChamber. Nopartofthispublication Insight isafree monthlypublication forthe amcham shanghai Veomayoury "Titi"Baccam and donotnecessarilyreflect theviewsof the governors, officers,membersorstaffthe governors, members ofTheAmericanChamber [email protected] comments onInsight:Pleasecontact VP ofAdministration&Finance Communications &Publications Government Relations&CSR Government www.amcham-shanghai.org Shanghai Centre, Suite568 VP ofPrograms &Services Snap Printing,Inc. Sponsorship (86-21) 6279-7119ext.4583 Gabriele Cordioli 1376 NanjingWest Road Shanghai, 200040China Kenneth Jarrett Senior AssociateEditor Business Development, fax: (86-21)6279-7643 Story ideas,questionsor tel: (86-21)6279-7119 Kathryn Grant Scott Williams of thecopyrightholder. Linda X.Wang Ruoping Chen Marketing &Events Membership &CVP Ian Driscoll Content Manager (86-21) 6279-7119 Jessica Wu INSIGHT INSIGHT Helen Ren Ruoping Chen Committees Patsy Li

Directors President Printing Design

38 36 34 32 31 30 26 23 22 20 18 14 10 06 INSIGHT Memoirs of GoduringtheCultural Revolution Esoterica With David E Committee Chair’s Corner Highlights from theannual Membership Satisfaction Survey Selected photos from lastmonth’s Month inPictures Notes from lastmonth’s BOGmeeting Board of Governors Briefing Event Report Former China-basedDow Corningmanager onhisChinaexperience MEMBER NEWS N Troublesome Insurance Informatization Policies Law firmhighlights consequences of China’s new NGOlaw Foreign NGOLaw: A New Framework Analyzing China’s China VAT Reform: History intheMaking POLICY PERSPECTIVES A Hold theSpinach Q& Up, Up and Away Expert advice onreadjusting businessmodelsinaslow economy Survival of theFittest Shanghai Disneyland’s impactandtargeting theChineseconsumer Mickey Mouse Mania Arrives FEATURES Member Survey R Exit Interview The Journal of the AmericanChamberofCommerceThe Journalofthe inShanghai-InsightJune2016 ecap of selected monthly events lookat China’s organic food industry ew provisions oninsurance system informatization raise concern A with United Special thankstothe2015-2016AmChamhanghaiPresident’s Circle Sponsors

ttinger, Chair of theFood, Airlines onthefuture of U.S.-China travel

V alue-

A dded Tax reform

AmCham events

A griculture & Beverage Committee

Movers and Shakers CAREER 3 June 2016 Why do we live and work in China? Here local level. Mobility and urbanization, and Chairman’s at the Chamber, this question has as many the end of cradle-to-grave benefits, have answers as we have members. Reasons changed that dynamic, creating a greater Letter will likely include the idea that people are need for charitable organizations. The looking to make an impact and create a number of Chinese NGOs, many of which difference, whether it’s with a company, our collaborate with a foreign partner, more family or the community. than tripled between 2000 and 2013. Is this Some are motivated to simply do what the kind of “Western influence” about which they can to help their fellow human beings, Beijing seems so concerned? Do foreign and they came to the one place on earth NGOs need to be treated as a potential that has the most of them. They build security threat? libraries and schools, feed the poor and The NGO law is just one example of the protect the weak. negative headlines coming out of China. Last year, AmCham provided financial As we break for the summer, many of us support to expand a program helping will return to the U.S. to visit family and displaced and homeless people in friends. They will ask about China’s attitude Shanghai. I recently visited the Renewal toward the United States and if something Center to check progress. They have has changed. Tension surrounding the doubled the number of people for whom South China Sea only reinforces the feeling they provide hot meals, clean showers that the bilateral relationship is troubled. and fresh clothes. They opened the “Fresh After decades of enjoying a peaceful and Start” cafe to offer training and a path to mutually prosperous relationship, have the employment for people who have been Chinese people somehow become our living on the street. Numerous AmCham enemy? members have contributed money, put in Just as we each have our own reason time and donated products to the Renewal for living in China, we will have our own Center. It’s working. narrative as we address these questions. Ker Gibbs Now, China has placed new restrictions We have an opportunity to present a Chair of the Board of Governors on organizations like the Renewal Center, nuanced view of the realities on the ground. making official recognition and fundraising People outside China need to hear about even more difficult. Has China had a conversations we’re having with our local change of heart toward foreigners who are friends, neighbors and coworkers. There looking to help? Following in the wake of are multiple voices in China, and they are other policies, some people point to this expressing very different things. Headlines as one more step in the process to reduce have a way of hiding the common story, Western influence on Chinese society and the story that may be uninteresting but is the economy. China wants foreign network nevertheless true. On the ground level, security products removed from their far from Beijing, people here get on with banks, they want our publishers blocked the business of business. Today, business from their readers, and they want new in China includes foreign firms. Chinese restrictions placed on foreign charities. people gladly work with us. The headlines This may be the view of some policy coming from Beijing may obfuscate that makers in Beijing, but is it what the Chinese part of the story. I 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 Movers and Shakers

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

Private Sector CFA GOVERNMENT CFA Institute, the global association of investment Fu Zhenghua was Ogilvy professionals, named executive vice and Mather appointed Nick minister and vice party Paul Heath, currently Pollard as managing secretary of the Public CEO & chairman of director of Asia Pacific. Security Ministry in O&M Asia Pacific, Pollard will support CFA Institute across the May. This has been his takes up a new role as APAC region as it continues its mission to fifth promotion in the worldwide executive advance the investment profession for the past three years. Fu director, chief growth ultimate benefit of society. He will lead became the party secretary and director officer. In this role, Heath will lead and further growth in the region, especially the of the Beijing municipal public security manage a worldwide growth plan for fast growing China and India markets. bureau in 2010 and was promoted to be the securing new clients and managing a Pollard previously served as CEO of The deputy minister of public security in 2013. portfolio of clients across the globe. He will Royal Bank of Scotland's Coutts Asia also support the development and delivery division and most recently was head of of Ogilvy & Mather’s worldwide strategic International Learning and Professional Wu Hansheng was plan. Heath will continue as chairman for Development for Coutts International. His appointed secretary of Asia Pacific and will join the Board of the career spans more than 30 years across the Liaoning provincial newly formed WPP AUNZ and represent banking, wealth management and talent committee. He served Ogilvy’s interests in that market. Heath first development. Pollard holds a Bachelor of as vice mayor of joined Ogilvy as a graduate trainee in Arts Degree from University College Shenyang, capital of London in 1987 and left in 1990. He London. Liaoning province, from returned in 2003. November of 2010 to January of 2013. After that, he became a Twitter member of the Shenyang municipal standing Interbrand Kathy Chen was committee. Most recently, he was secretary Interbrand, the world’s appointed managing of the municipal committee of Yinkou, leading brand director of Greater another big city in Liaoning province. consultancy, named China by Twitter. In this JP Sharp CEO of role, Kathy will lead Interbrand China. Twitter’s growth across Yuan Tongli recently Sharp will continue to Mainland China, Hong joined the Hebei shape the strategy and Kong and Taiwan to expand the company’s provincial standing growth of the business, as well as provide enterprise offerings (advertising, customer committee. Prior clients with best-in-class innovative service, data analytics and developer to this, he was the solutions. Most recently, Sharp served as platform), and help grow the technology secretary of the Tianjin CEO of TMF Group in China where he led ecosystem in Greater China. Most recently, political and legal the redevelopment & expansion strategy Chen was general manager of Strategic committee. Yuan for operations and pioneered new service Partner Ecosystem at Microsoft's Cloud and worked in various positions in Wuqing offerings. Prior to joining TMF, he was APAC Enterprise Product Group, overseeing the district of the Tianjin municipal government regional director at Frog Design and, before strategic development and business from 1983 to 2011, before he became a that, he was Executive Director of Greater management of all partnerships for cloud member of the Tianjin provincial standing China for PwC. Earlier in his career, Sharp ecosystem for C&E product and leading committee. held leadership positions at Dupont, Trend the Microsoft Cloud transformation in Micro and Oracle. Sharp holds a BSc in China. Prior to Microsoft, she was general If your company has Business Administration from Boston manager of Cisco China East Region. Chen executive personnel changes, University and Executive MBAs from both holds a bachelor’s degree in computer please contact Junling Cui at June 2016 Stanford and Northwestern. science from North Jiaotong University. [email protected]. 5 Mickey Mouse Mania Arrives

cover Shanghai Disney Resort is expected to draw in story thousands of visitors, promising an “authentically Disney, distinctly Chinese experience”

By Ruoping Chen

n a rainy Labor Day weekend park in Shanghai’s Pudong district, government’s economic reform this May, thousands of visitors then just an endless vista of farmland. policy focused on promoting Odisembarked from Shanghai’s Shanghai Disney Resort has surely the development of domestic subway and crowded into the spaces exceeded his expectations. The consumption-based economic surrounding Shanghai Disneyland. development, which cost US$5.5 growth, and for Shanghai specifically, They snapped photos of the closed billion and currently covers 3.9 square it supports the development of gates, posed beside not-yet- kilometers, began construction in Shanghai’s tourism and cultural operating retail and entertainment 2011 after a decade of negotiations industries sectors and overall service Everything complexes and donned oversized with the Shanghai government. industry development,” said Murray we do... Mickey Mouse gloves. A preliminary As the first Disney resort in King, Vice-President of Public Affairs is designed estimate by the Shanghai Daily put mainland China (there is a Disneyland for Shanghai Disney Resort. to create the visitor numbers that weekend, a in Hong Kong), it encompasses a Experts expect the investment weekend when Shanghai Disneyland Magic Kingdom-style theme park to provide big returns, and not only immersive was not open, at 30,000. (Shanghai Disneyland), two onsite from the millions of people who will experience Anticipation had been building hotels called Toy Story Hotel and visit the park itself but also from the since the start of the year when the Shanghai Disneyland Hotel, boost it will give to retail and tourism Murray King, VP of Public Affairs, Disney announced that its park would and Disneytown, an expansive retail for the entire region. According to the Shanghai Disney Resort open on June 16, 2016. In late March, and recreational area. Fifty-seven Shanghai Daily, Chinese academics Shanghai Disneyland launched ticket percent of the resort is owned by predict that Shanghai Disney Resort sales, and accumulated more than Shanghai Shendi Group, a state- may add US$3.3 billion to Shanghai’s five million hits on their website in owned investment holding company, economy every year and account for less than 30 minutes. Within hours, while 43 percent is owned by The one percent of annual GDP. tickets for opening day had sold out. Walt Disney Company. Disney Shanghai Disneyland’s origins maintains a 70 percent majority in the Demographic bounty date to 1990, when then-mayor management of the park. There are several reasons to be of Shanghai Zhu Rongji visited “I think the development of optimistic. Ninety-five percent of Disneyland in Los Angeles and Shanghai Disney Resort is perfectly visitors to the park are expected to proposed putting a Disney theme aligned with the Chinese central be Chinese, and Disney research www.amcham-shanghai.org

6 FEATURES

estimates that over 330 million increase in spending. A park with Chinese

income-qualified consumers live According to McKinsey’s 2016 China characteristics Y within a three-hour ride of the Consumer Report, 55 percent of Chinese At the center of Disney’s success resort. Easy access to the city via a consumers were confident their is the way it brings stories to life developed network of transportation incomes would increase significantly through experiential immersion. links, including plane, high-speed rail over the next five years. The study Escaping from ordinary urban lives, and car, has made things even easier. went on to say that consumers are visitors find themselves thrown

“Geographically, as you radiate placing greater value on experiential into a battle for Davy Jones’ sunken OR out, probably 50 percent of our consumption, allocating more of treasure on the “Pirates of the

guests will be coming from the their income to lifestyle services and Caribbean” boat ride, immersed in T greater Shanghai area, which experiences such as travel, leisure the tales of classic Disney princesses is defined, for our purposes, as and entertainment, with almost three- at the Enchanted Storybook Castle, Shanghai, southern Jiangsu province fourths of consumers believing travel lost on a remote tropical island with and Zhejiang,” said King. helps them to better connect with their a mythical tribe, or zooming along on Beyond the greater Shanghai family. the TRON thrill ride’s Lightcycle. region, King expects a significant “On the demand side, you have “Everything we do, from the number of visitors to come from the this enormous population that’s guest service to the quality of what east China region, stretching from moving into the middle class, and we create, all of the theming, the Shandong down to Fujian province, theme parks are really a middle characters they interact with, the and central China, extending as far as class product,” said Chris Yoshii, Vice technology behind the scenes is Chengdu and Chongqing in Sichuan President Economics at AECOM. designed to create the immersive province. “If you look at the demographics experience,” said King. “Just as when Another reason for the positive of theme park visitors in the U.S. or you go to a film, you’re immersed outlook is consumption. Although Europe, [it’s] everyone from the low in the story of the film, we’re a

China’s economic slowdown and middle class all the way through.” storytelling company.” S OVER unstable markets have worried According to Yoshii, investment For Chinese consumers, some sectors of the economy, many in theme park projects is increasing experiencing that storytelling and believe that the changes to China’s as well. Local governments view enjoying a true and traditional Disney C consumer behavior will benefit theme parks as a positive asset experience are fundamental. But companies like Disney. A study by the because they are a clean industry, Disney also understood that the Boston Consulting Group, The New create jobs and can improve a city’s approach to the market here had to China Playbook, projects consumer image. Governments are providing be different to accommodate China’s spending to grow by nine percent more incentives to developers, giving strong culture, long history and annually through 2020, citing rising discounts on the land, allowing related vast population. Shanghai Disney incomes, consumer confidence, developments to be built alongside Resort was developed on the basis demographic trends and the role of the theme parks, and sometimes of the vision that Chairman and CEO e-commerce as contributors to the becoming investors themselves. Bob Iger first presented on April 8,

TRON Lightcycle Power Run at Shanghai Disneyland June 2016

7 2011 at the park’s groundbreaking or sit on park benches to watch the broadcast live and was viewable by ceremony. Shanghai Disney Resort, parades passing by and feel like mobile phone through a partnership Y he said, would be “authentically they, too, are having an authentically with Tencent. When the company Disney, distinctly Chinese.” Disney experience. gave sneak previews of inside the The park, in other words, would park to selected guests, photos and offer a full Disney experience What the customer videos they took with their phones while allowing Chinese visitors to wants were quickly shared across social

OR comfortably enjoy those experiences A primary source of the inspiration media platforms. Dishes of Chinese in an environment that resonated for the design of the resort is the cuisine such as braised beancurd with them. trove of consumer research that (mapo doufu) and red braised pork T “Authentically Disney, distinctly informed Disney on the needs and molded into Mickey Mouse shapes Chinese” is the creative lens through wants of the Chinese consumer. This went viral as users debated the flavor which every decision related to was led by Eddie Chien, Shanghai and pricing of the food. the park has been viewed. It is Disney’s Director of Consumer “I think we are learning how can reflected in park details ranging Insights. He and his team reached we fit into the environment here and from the selection of cuisines to into multiple channels and platforms find the right channel to talk to our Disneytown’s architectural style and to conduct their research, interacted right consumers,” said Wayne Huang, merchandise, and to the festivals with online communities of young Director of Marketing at Shanghai that will be celebrated around the netizens, sought opinions in market Disney Resort. “And so we do spend year. Attractions and experiences focus groups, and used their own a lot of effort nowadays on those are designed with multi-generational employees and shareholders WeChats and Weibos. That’s one of families of four grandparents, two to provide guidance on what our focuses.” parents and one child in mind. consumers want. Huang added that through Gone is the famous Main Street “We go through a series of tests spending a great amount of time with in the Disneylands in the U.S., a to make sure that what’s coming those consumers, they discovered S OVER concept that harkens back to small out of those tests will be tailored that on a deeper level, visitors to town America. Disney says they to the Chinese consumer,” said the park did not just want a one-

C searched for the equivalent of the Chien. “Seventy or 80 percent of day experience. Instead, they want “small town” in China and found it in our restaurants offer Chinese food an emotional bond with the park China’s gardens. Thus they created [because] we want to make sure that allows them to leave with a the Gardens of Imagination in front of that this is not only our Disneyland, memory that will last. A commercial the iconic Magic Kingdom-inspired but this is a park for our Chinese delivering a grand promise to “点亮心中奇梦点亮心中奇点亮 castle, a themed area that serves consumers.” 心中奇梦” or “light up the magical as the “hub” of the park and features Chien was also involved in the dream within your heart,” speaks to seven Chinese-themed gardens as merchandising process and spent that desire, featuring people of all well as tamer traditional attractions years on consumer research to ages departing Shanghai and flying such as Dumbo the Flying Elephant create the “vintage Shanghai” theme, off to Disney in Cinderella’s pumpkin and the Fantasia Carousel ride. The which was used to develop buildings carriage, in Jack Sparrow’s pirate ship gardens are made to feel all-age and merchandise, such as Disney or on Dumbo’s back. inclusive. Grandparents are able to characters wearing qipao, the stylish Huang explained that the hop on rides with their grandchildren Chinese gown on 1930s Shanghai. purpose of the commercial was not “That is something that resonates to show what exciting rides Shanghai so well among several different Disneyland has to offer, but to make options with our Chinese consumers. that experience relevant to people’s So it’s not just a random pick. It’s lives and have a positive impact on actually through engaging with our them. consumers and listening to them “We start from the grand promise,” and making sure that we gauge and he said. “We consider what the incorporate some of the Chinese customer wants in their experience elements into our design,” he said. in emotional connection, and we To market Shanghai Disneyland develop communication to make – and build anticipation with the that connection happen. That’s one Chinese public – Disney turned to thing that goes back to the consumer social media as one of the most needs – back to the core. It’s not powerful tools. just selling the ride. It’s selling the When Disney unveiled the experience.” I plans for Shanghai Disney Resort

www.amcham-shanghai.org Quite a mouseful for the first time in July 2015, it was

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K 10 www.amcham-shanghai.org By I Jon operational andcommercial businessmodels, Jay H competitive, many foreign manufacturers are reassessing their As China’s economy slows andlocal firmsbecome more of theFittest Survival mid-90s China sincethe rolesexecutive in and corporate senior consulting in avarietyof Jon hasserved staff development. development and China, business projects ingreater EWA ofall cution oversight andexe- is responsible for West China.He Director forEast & Managing President Vice of position the currently holds Jon Anderson

Jon Anderson an Driscoll Anderson of E economicconditions F firm that helpsforeign SME Hoenig of E saytimes, and Jay Jon Anderson become complacent during the good predict, some companies had ering theunprepared. increasing labor costs are endang- factories. Slowing markets and in some cases close or consolidate are under pressure to turnaround or (FIE many foreign-invested enterprises market sectors. Caught off-guard, severe slowdown across many more GDP growth, China faces a profitable. mediocre companies to remain export markets thus allowing even in both the China domestic and overshadowed by therobust growth the impactof thesefactors was and governance/ethics issues.But challenging regulatory environment downward pricingpressure, a limited to, growing local competition, These include,butcertainly are not Adjustingtonew While theslowdown was hard to Now, after years of 10 percent or s) inthe manufacturing sector tude of business challenges. have always faced amulti- oreign companies inChina ast West Associates, a ast West s solve A ssociates tell while, particularly if accompanied by in, fly-out approach may work for a understands market realities, the fly- erienced, professional and fine.” Butthefinancialsdon’t lie. on andtypically are told thingsare manager to tell them what’s going They depend on the local general standing of how to operate inChina. really develop adepth of under- says Anderson. “As such,they never management andgoback home,” shake hands with thelocal statistics to confirm that they’re okay, the suppliers,review thetop-level the operation for a week, meet with where company management visit management hasnot worked. “It’s the ‘Fly-in, Fly-out’ styleof China-based manufacturing plants. to resolve theresulting issuesat their corrective actionsthey needto take these companies made –andthe have identified several oversights companies, Anderson and Hoenig experiencestheir such working with manufacturing operations. Basedon management problems intheir China operational, commercial andrisk Fly-in,fly-out If thelocal manager isexp- At small companies in particular, Insight senior managers with Chinese factories inChina. They donot have and restructuring strategies at their developing andexecuting turnaround executives lacktheexperience of a result, many general managers and have experienced slower growth. As current economy isthefirsttimethey many peopleintheir early 50s, this careers. Anderson noted that for downturn in their professional experienced aprolonged economic team members have never of Chinesegeneral managersand this unprecedented growth, anumber New Normal economy. As aresult of accept what has been termed the Chinese executives now have to many years, many Western and produced significant growth for so notice until it’s too late. executives may betoo remote to person isincharge, company distance canberisky. If the wrong environment, management from a in today’s evolving economic addressing performance issues.But setting of metrics andalacrity in strong company oversight, rigorous

Interaction While China’s economy has oenig and consequences, consequences, headquarters VP at Bechtel. VP atBechtel. viously AsiaPacifc He wasalsopre- Associates (PRC). & Chairman ofHill Group and and Associates Asia PacificforHill Officer Operating is aformerChief assignments. He projectsclient and planning, andall strategy, strategic business including through ME), (Japan operations East and Middle West’s AsiaPacific sponsible forEast Mr. Hoenigisre- management unattainable Establishing say theE ast

Jay Hoenig West team is ashort with long solution goals to please say theE solution with long consequences, headquarters management isashort unattainable goals to please a longterm view. E on themarket realities isessential for to set realistic financial goalsbased marketplace. Having theconfidence she is facing in this new evolving describe thenew challengesheor municate with U.S. management and professional confidence to com- have theexperience, judgement and base, etc.,’” heasks. inventory, can we expand our client how can we reduce overhead and three shifts,can we cutbackto one; operation andsay, ‘we are running company. “Canthey lookat their minimize thefinancial riskto the tactics and remedial actions to determining andactivating theright been calledfor. these skillsbecausethey have never company may be an expert in them into trouble,” says Hoenig. “A core competency. “That’s what gets efficient at activitiesoutsidetheir get bigger andbloated and less cost effectively,” says Hoenig. can doalot more efficiently and resources to do what outsourcing when you’re buildinginternal operation to internalize things. This is expanding yourstart when you internal expenses. “The‘fat’ forms managers canget buriedingrowing operations, even well intentioned find areas of cost reduction. decisions needto beaddressed to competencies. Tough “make or buy” areas outsidethecompany’s core common example isexpanding in annual growth is now a burden. A that was builtto meet doubledigit companies with highcosts. Capacity internal resources hassaddledmany acquisition or buildingof non-core especially inadownturn. The any company’s profitability, but Costcontainment Local managers also needto Many managersneedsupportin In goodtimes,many companies As companies overextend their Containing costs iselemental to ast West team. stablishing

selling directly? petition usingdistributors or are they department correct? Is thecom- zational structure of thesales right salespeople? Is theorgani- themselves are: Dothey have the West encourages companies to ask feedback ontheir wants. surveyed their customers for understand the sales process or assessed their own salesteam to who adds that few companies have are really critical,” says Anderson, sales andmarketing assessments Organizational assessments and traditional baseof foreign customers. to expand salesoutsidethe China to supportafew OEMs need outperform their foreign competitors. where many local companies now also infects salesandmarketing, economic conditions. This thinking ago, andunsuited to today’s models designed five, 10 or 15 years foreign firmsinChinausebusiness operating in China, even when selling ensure profits for foreign companies “good enough” was sufficient to that for a long time the culture of listening to customer feedback. improving product designor improving sales performance, revenues, whetherthrough they alsostress theneedto boost number of production shifts,etc. But reducing inventory, curtailing the contracts, rationalizing fixed assets, limiting travel, renegotiating supply reduction opportunitiesare plenty: West executives say that cost production, there isstill hope.E decrease thescope of their and other components.” producing transmissions, lights, tires assembling cars,butnot in Sales&marketing

the salesproposition complacency and Strategic &tactical Among thequestions that E “Foreign firms initially ‘pulled’ to According to E Executives at E For companies seekingto ast West, many ast West argue ast ast says Hoenig. questions they shouldbeginasking, sourcing?” are justafew of the need to re-compete all of your noncompetitive suppliers?Do you it thesourcing? Do we have Is itthepricing?Is ittheleadership? Is it theproduct? Is itthe organization? operating methods andproducts. “Is assessing and questioning their engagement iscritical.” on individualssoemployee drop 50percent -somuchdepends people andonequits,salesmay expectations. product with lower price competition is producing better competitorwill.” local And, industry wise, one day your geographycustomeror wise, wise, your operation, product wise, overtake you. If you’re not expanding is, your competition is going to not growing while your competition areas?’” says Anderson. “Butif you’re we explore new geographical better localize our product? How can we sell our product? How can we “They’re not asking ‘Where else can “strategic andtactical complacency.” has identified is what itterms no longer profitable inChina. and the U.S. Today, good enough is an SM still grindforward,” says Hoenig. “At performers andtheorganization will companies canembedaverage operations and performances. “Big astutely aware of their company enterprises inparticular mustbe means that small andmedium-sized to indifferent performance. are more susceptible and sensitive smaller FIE That luxury is rarely available to to the winds of economic change. house skillsandresources to adjust multinationals have thetime,in- financial capital resources, many in ways similar to those in Facing thefuture SME One common fault that E This lackof deepresources With their large human and E s then,needto berelentlessly if you have only two sales Movers and s, which E I ast West says FEATURES Shakers ast West E

urope 11 June 2016 12 www.amcham-shanghai.org that East West Associates say shouldbeaddressed: improvements are applicableor not, downsizing andplant closures may bethefinal option. Listed below are several key issues After assessing a company’s operations and determining whether restructuring, reengineering, and functional process the employee-company relationship history. raged to better understandthecommunity and 5. A local area riskassessment isstrongly encou - especially taxes andsocial welfare requirements. ensure current compliance with all regulations, to labor unrest, labor bureau complaints and 4. Review your company’s history with respect large operations inthearea that will remain open. expect supportunless you asacompany have bureau and PSBisnecessary; however, donot 2. Notification to thelocal andmunicipal labor or closure. when they hear of your reduction in workforce local officials inthepositon of beingsurprised 3. Know how much“guanxi” you have. Donot put This shouldberegarded asthebaselevel. res at leastonemonth’s notice per year of service. ave andother provisions. The law currently requi- severance pay, retirement, enforced or unpaidle- 1. Follow thecurrent labor laws for terminations, A China WFOE manufacturingplant (Jon Anderson) Case Study: Interim general management of aU.S.-owned efficiency, EWA focused internal resources final on assembly, testing used to aslower-paced work environment. To increase the WFOE’s overstaffing, become employees lowtoand had and due sales cent pany’s operating strategy. Its operator utilization was below 60per also suffered from alargely mistrustful and cynical employee base. of transparency, lack nagement’spoorstafftocommunication and it overalloflack teamwork poorand staff utilization. Due earlierto ma- personnel turnover andminimal accountability, matched with an current businessclimate. What EWA found was limited depth, high utilization, boost employee morale and scale the organization to its WFOE’s human resources department, looking to improve people functions of thegeneral manager with profit andlossaccountability. traditional the fulfill as wellas operation WFOE’sthe of assessment (IGM). The role of the IGM was to lead an operational and commercial E its parent company dismissedthelocal general manager andasked experiencedthree yearsof suffered and sales flat surging expenses, China for eight years. After the WFOE was unprofitable for four years, ast West Associates (EWA) to provide aninterim general manager Concurrently, EWA found significant complications in the com- the in complications significant found EWAConcurrently, the assessed first EWAyear, a within even break to goal a With goods, anda variety of other logisticsapplications operated in production of specialized equipment for mining,seaportbulk Wholly Foreign OwnedE Re gula tions nterprise (WFOE) specializinginthe not expect muchhelpfrom your JV partners. trouble startsanddonot like to get involved. Do JV5. partners,if any, tend to disappear when and injury. the law isbroken. This meansphysical violence The PSB 4. will not intervene or get involved until help to keep emotions reasonably calm. the supportof local officials, however, thiscan intervene oneither side.If you are ableto enlist Local 3. officials will likely stay away and may not and protect thecompany’s staff, assets andIP. and created acrisismanagement planto secure team to identify theimpactonall stakeholders the companies all establishedamulti-functional 1. Successful closures share onecommon factor: valuable if theinternal resources are not experienced. issues associated with closingsmay beextremely handling theriskmanagement andcommunications 2. The services of outsideexperts with experience Outside Assist - finished goods costs. in decrease percent 23 a to lead goods finished and materials raw percent reduction ininventory value, while EWA’s elimination of aged and discovery of “lost” items accounted for anadditional two to three from theSG&A budget. The expense linecost by about12percent, lion incost reduction opportunities,about20percent of which came ment and validated thesevere cost pressures inthemarketplace. Importantly, theprocess alsoprovided realistic ideasfor improve- dicated that someof thecompany’s value-add resonated with them. questions onthecompany’s value proposition to many endusers,in- clients to ensure larger andsteadier orders. to OEM clients instead of maintenance, repair and overhaul (MRO) sion program to encourage year over year improvement andturned commis- sales the force,EWAmodified Tosales sales. the re-focus company’s budget calledfor anunachievable 20percent increase in commercial target. Despite negative signalsinthemarketplace, the efficiency by 25percent and reduce slow moving stock. subassemblies, allowed EWA to increase assembly andpackaging tegy, paired with anincrease inoutsidepurchases of higher order and packaging inorder to reduce production cycle time. This stra- Within a nine-month time frame, EWA identified over US$1 mil US$1 over identified EWAframe, time nine-month a Within Additionally, EWA’s Voice of theCustomer exercise, which posed One severe obstructionto the WFOE’s success was itsunrealistic ance then some.Research local practice. 5. Give laidoff workers what they deserve and ty onannouncement day isnot recommended. 4. A town hall-type meeting oncompany proper IP and your brand. plan to mitigate therisksto management, assets, lops, it’s too late to develop acrisismanagement 3. Remember that if labor unrest suddenly deve- termination packages andthetermination process. company’s reasons for termination or downsizing, ment. The announcement itself should explain the make thetermination or plant closure announce- 1. Careful consideration shouldbegiven to who will others. percent that docausetrouble who often incite accept terms offered if treated fairly. Itisthefive 2. Typically 95percent of the workforce will Empl oyee s - - AmCham Shanghai Future Leaders of the Year Awards Nomination Deadline: June 15, 2016

Show your current future employers that you’re a trailblazer in the community! Recognize your own achievements or nominate another young professional for AmCham Shanghai’s Future Leaders of the Year Awards.

Sara Harari Program Coonrdinator: (86 21) 6279 7119 - 5695 or email [email protected] I Q&A

Up, Up and Away

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

The number of Chinese visitors to number. the U.S. has grown exponentially in How many of these passengers is How many U.S. destinations does recent years. Can you tell us about United carrying to the U.S. each United serve with flights to and those numbers and how you see year? from China, and which Chinese the trend for the next five years? We don’t break out the numbers, cities? In 2000, the total number of but you can safely say that we have From both Beijing and Shanghai, arrivals in the U.S. from China was the largest market share between which are considered Tier 1 cities in about 250 thousand, although the United States and China. the aviation treaty, we operate four subsequent to 9/11, the number Historically, for a number of different flights a day to the U.S. We also declined to 157 thousand as late as reasons, the Chinese carriers operate three flights a day from 2003. But since 2003, it has grown at tended not to use all their Hong Kong and those flights are double digits each year. The frequencies. One reason was that utilized by people from southern breakout year was 2010, when the there were greater numbers of China. In 2014, we launched a service number hit 800 thousand for the first visitors coming to China from the three times a week from Chengdu, time, an explosive 52 percent United States than going the other and from this summer we will fly four increase over the previous year. In way. That is changing with these times a week. Eventually, our goal is 2014 it was about 2.2 million, a 24 explosive growth rates in Chinese to have a daily Chengdu service. percent increase over the previous outbound travelers, and in the past We also launched a new service year. Forecasts by the China National 18 months Chinese carriers have from Shanghai to the closest U.S. Tourism Administration predict over been adding new routes to the U.S. point to China, the beautiful resort 6.6 million passengers will be going island of Guam. to the U.S. by 2020. That’s a huge The success of the Chengdu www.amcham-shanghai.org

14 these famous as theycould say theyhad destinations destinations Historically, D in asmany would jam Chengdu andthe787Dreamliner over traveling from onebighubto another bighubandthentran - that thetravel market isfragmenting. People prefer nonstop service have been possibleinthepast.” revolutionary aircraft inthat itisopeningmarkets that would never length of a747 or a777,” hesaid.“Becauseof this,the787istruly a been toall in order to customer the China Boeing’s market research andcustomer surveys have shown ias saidtheonly aircraft suitablefor United’s Chengduser about the same size as the 767, but it can fly the mission the fly can it but 767, the as size same the about vice was the787Dreamliner. “Theaircraft isrelatively small, Instruments, Apple and Intel. Anotherand Instruments, Apple companies like Dell, Texas need to fly. InChengdu,there are customers asto where their people wanting to fly there. pushed itover thetop asfar asus multinationalcompanies. That agreementsFDI withvarious signed an additional US$18 billion of with government hosted aCE location for manufacturers. The proactive inmaking itadesirable Province government hadbeen government as well as the Sichuan big IT city inChengdu,andthecity Chengdu first. They were buildinga those cities. That’s thereason we did the corporate activity ineach of their population, income per capita, happening inthesecond-tier cities– monitoredSo we what was growing the economy in the interior. Plan in 2011 includedafocus on the Chengduservice? What motivated United to begin allbut year-round. service will bethree-times-weekly, July 25,2016,as well. The Hangzhou service to SanFrancisco effective We’re goingto launchaHangzhou operating itduringoff-peak periods. peak periodsandpossibly also increasing that frequency during significant demand, we will lookat October 29,2016.If we see starting onMay 10andendingon be seasonal andthree-times-weekly this year.flight servicewill Xi’an The operating a Xi’an to San Francisco flight encouraged us,and we will be We also listen to our corporate The advent of the 12th Five-Year Fortune [in2013] where they O forum free check-in bag. on domesticroutes andallow a airlines still serve food anddrinks in thepast20or 30 years. InChina, on U Some peopleseein-flight service income citiesinthecountry. also oneof thehigher per capita cities we consider, and Hangzhou is demographics andeconomics of the Again, we look very carefully at the San Francisco andSilicon Valley. set of traffic that will want to goto that area as well. So there isanatural of new business isbeingbuiltaround Hangzhou now like Alibaba, anda lot need to belinked to Silicon Valley? by thecity’s tech status andthe I do thejob(seebox). of theaircraft inour fleet that could was because we finally had enough reason we decided to do it in 2014 cabins, whether it’s infirstclass, Chinese-style dishesfor all the we have alot of different choices for the catering side, we make sure that expect to seeonboard theaircraft. On they’re flying from and what they our customers basedon where offer to our customers. We listen to returns to reinvest intheproduct we profitable and we are usingour financially. The U.S. industry isnow carriers astheindustry recovers improving dramatically on U.S. competition? flights to standoutfrom the planning to make on China- China, what changesare you s the Hangzhou service motivated There are bigcompanies in Actually, in-flight service is .S. airlinesashaving changed - habits anddemands better thanitsE lopment of the 787, Diassuggested, Boeinghasjudgedpassenger another before connecting to their final destination. With the deve- loped the A380 to take hundreds of passengersfrom onehubto you cannot economically usea747,” Diassaid. which on and traffic, of amount small a with but market long-haul built theaircraft for what theindustry calls‘long,thin’ markets -a and designed “Boeing destinations. their to flight smaller a to siting Boeing’s approach contrasted with that of Airbus, which deve - A s you grow in U .S. They are flying over ontheir own traveling FIT [Free Inclusive Tour]. is definitely more interested in adventurous and the younger crowd people are becoming more alone or just with their family? groups or dopeopleprefer to travel Are Chinese visitors still traveling as and Hawaii. Angeles, SanFrancisco, Las Vegas destinations are New York, Los past. Probably themostpopular trip, soitis destinations on you destinations there are at least four or five the pastfour or five years, andnow market hasevolved alittlebitover a once-in-a-lifetime opportunity. The partly because peoplefelt that it was itinerary with seven citiesin10days, destinations. You would seean had beento all thesefamous as they could in order to say they would jam in as many destinations network to visit other cities? to justonecity, or dothey use your Does thetypical Chinese visitor fly aircraft servingChina. Wi-Fi service on100percent of our China. Inaddition, United now offers attendants on all the flights serving we have Mandarin-speaking flight for passengers. We alsomake sure typically at least50Chinesemovies entertainment system, there are meals. In regards to the inflight we increase thenumbersof Chinese Chinese customers on board a flight, reservation system shows more business classor economy. When the Group travel is still popular, but Historically, theChinacustomer uropean rival. lessthanit was inthe r average leisure FEATURES 15 June 2016 ticket, getting a rental car and have a more Chinese travelers? What opportunities do marketing product also needs to be in open itinerary than group tour package see you opening up to U.S. businesses simplified Chinese. Customers from China travelers. It presents challenges and that cater specifically to Chinese? are becoming more adventurous and opportunities for American companies in The biggest challenge is making sure looking for different travel destinations the travel industry that cater to Chinese you have sufficient numbers of Mandarin and experiences. That’s an opportunity for tourists. If you position yourself correctly, speakers in your properties or in your destinations that haven’t seen Chinese you can really take advantage of this trend. optional tour operations. Destination cities customers before. They will be entering need to make sure they have more on the ground floor of an historic What do you think that U.S. hotels and simplified Chinese-language signage at opportunity. I other providers should do to better court airports and in hotel lobbies. Your

Number of mainland Chinese visitors to the U.S., total arrivals (1000s)

2,200 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200

2007 2008 2009 2010 2011 2012 2013 2014

U.S. Department of Commerce International Trade Administration www.amcham-shanghai.org

16 20160426_ASIA_AdAmchamInsightMagazine Trim: 213x291mm - Bleed: 3mm 300dpi - CMYK Hold the Spinach Organic produce is gaining popularity in China among both consumers and farmers but reading the fine print is important

By Lisa M. Mulvey

Antioxidants. Heavy metals. which can be three to five times The good news is that authentic Folic acid. Veterinary drug residue. more expensive than conventional organic produce does exist in China. Vitamin C. Biotoxins. foodstuffs. But consumers seem will- Passionate farmers are working hard What’s on your plate? ing to invest in safer produce. Leafy to ensure top quality and safe pro- vegetables such as lettuce varia- duce. According to the Institute for ating organic in China – pesti- tions, kale, spinach and broccoli are the Control of Agrochemicals, Ministry cide-free, toxin-free – is getting particularly in demand as they are of Agriculture, two million hectares of Eeasier in the major cities, but if most vulnerable to absorption of land are under organic cultivation. you take a close look at what’s ac- cadmium. But consumers still need to be tually going on at farms and stores, But are even organics in China vigilant. Organic does not automat- there is good reason to be skeptical. safe? Kimberly Link, a Shang- ically mean completely healthy. For China’s issues with food safety are hai-based life coach, admits she re- instance, not all pesticides are pro- well documented, and although the mains skeptical about the safety and hibited within the organic farming government is stepping up enforce- legitimacy of organic produce. process and the amount of allowed ment, playing catch-up with bet- “I try my best to control other fac- pesticides used on crops is not ter-regulated systems requires time, tors – air quality, exercise, sleep, eat- closely regulated (see box). money and education. ing a balanced diet – and accept that One nearby locale where there is An estimated one-tenth of China’s I’m consuming a lot of heavy metals a committed effort to the production farmland is now contaminated with in my fruits and veggies,” she says. “I of organic food is Chongming Island, heavy metals according to the Min- don’t trust the soil or the water, so I regarded as “Shanghai’s last piece istry of Environmental Protection, don’t buy rice here, we don’t eat po- of pristine land.” The island has also and domestic organic produce sales tatoes, tomatoes or grapes. I also been recognized as a national devel- have surged. According to predictions limit root vegetable consumption opment zone for sustainable green by organic trade fair BIOFACH, the because of the ground pollution.” development and has recently been Chinese organic market scale could Most larger chain supermarkets recognized by the United Nations reach RMB59.4 billion this year with such as Carrefour, City Shop, Ole and Environment Program (UNEP). the market share of organic food to- City Super now have whole sections Located 50 km northwest of the taling two percent of the overall food and smaller local markets are in- city center in the Yangtze River es- market, up from one percent in 2007. creasingly stocking organics to com- tuary, Chongming is home to several Lured by the promise of clean, pete. Online retailers specializing in organic farms, as the land is afford- healthier produce, organic options organic products have also stepped able and the fertile alluvial soil is present a tempting alternative for up to meet the growing demands for cleaner than in other parts of Shang- those who can afford the prices, natural and organic products. hai (see box). www.amcham-shanghai.org

18 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:

No pesticides No synthetic fertilizers No animal antibiotics No animal Use of farmland that has been free from prohibited chemical inputs for a number of years growth hormones No GMOs (genetically modified organisms) No sewage sludge (usually a three-year conversion process)

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.

Shanghai is also home to a bevy of pas- Verdura produces year-round baby an organic product with maximum nutrition sionate growers and innovators that may not greens, microgreens, edible flowers and harvested and delivered on the same day for be officially certified as organic but strictly -fol herbs grown in a greenhouse setting. They optimal freshness and quality. low Western organic standards, or as close to use soil-free, pesticide-free, pollutant-free When asked about how to quash skepti- them as feasibly possible. Beat Poltera, Gen- hydroponic and aquaponic methods that cism among potential consumers, Beat says, eral Manager for Verdura, a Shanghai-based also involve recycling water supplies. Poltera “To clients with concerns on trust, there is no specialty grower of herbs and microgreens, emphasizes that “90 percent of our products other way than source inspection.” He adds talks proudly about this. “We don’t use any are grown hydroponically.” In such an envi- that many Michelin-starred chefs he works toxins or pesticides,” he says. ronment growers utilize precise controls in with, as well as purchasing groups, regularly Technically, Verdura’s products are organic terms of air and water temperature, humid- visit and inspect the farm. I but certification is prohibited as the growing ity and light. The only additives needed are methods are based on a soilless environment. natural vitamins and minerals. The result is

Chongming Island

pproved 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- A 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. June 2016

19 20 www.amcham-shanghai.org Deloitte. services unitof advisory and business tax in the is aDirector Candy Tang

Candy Tang

reform. RMB500 billionasaresult of the VAT for this year is estimated to be around Keqiang, thetaxreduction amount investment. According to Premier Li burden ontaxpayers andto promote der theBT scheme,to reduce thetax solve thedoubletaxation issuesun- within thescope of VAT. means all businessin Chinaisnow effectively VAT, which of scope the consumer included within services werealso and services financial cluding construction, real estate, On May 1,2016,other industriesin- tion, postandtelecommunications. sectors, includingrailway transporta- expanded to more andmore service pilot was rolled out nationwide and pilot project in2012. After that, the service industriesinShanghaiasa portation industry andcertain other to BT to VAT, starting with the trans- form to convert businessessubject The State Council launched VAT re- ByCandy Tang event, how dothe changesaffect your business? changes are beingimplemented very quickly. With thislandmark placed by of Chinataxlaw becausethat isthedate businesstax(BT) was re- May 1,2016, will beconsidered asignificant milestone inthehistory China V osrcin ra ett, financial services and consumer services in- estate, real construction, History intheMaking Whoisimpacted? Whyisthereaneed The key aimof VAT reform isto re - to transitionVAT? In the VAT reforms of 2016, with V alue- A dded Tax (VA A cent VAT). per 11 current the percent five BT to tax rates (e.g. from three percent or pact of theincrease in theapplicable mitigate the potential negative im- These measures are expected to similar to thecurrent BT mechanism. method taxation simplified a under allowing taxpayers to opt to pay VAT construction/real estate projects, introduced inconnection with old hand, transitional ruleshave been real estate companies. On the other VAT which could adversely impact mismatch of input VAT andoutput final settlement to solve the potential visional VAT was paid followed by a duced a mechanism whereby a pro- VAT incertain situations. Italsointro- from the sales amounts to compute contracting payments andlandcosts ers inthesesectors to deductsub- rates. Butthe VAT rulesallow taxpay sales andleasingof real estate) BT (for construction) and five percent (for much higher thanthethree percent input on VAT credit oncost. while taxpayers are allowed to claim will besubjectto a VAT of 11percent, and leasingof real property inChina of construction services and the sale cluded inthe VAT scope, thesupply The new 11 percent VAT rate is eform: T Reform: T) for all industriesinChina.Many - -

payers in the financial and consumerfinancial and the payersin method could beappliedto all tax taxation simplified the that expected had been It impacted. significantly their overall taxburden will not be reforms, itisgenerally expected that may claiminput VAT credit after the that taxpayers inthesetwo sectors its scope. restaurants andhotels are now within of services to private individuals,so that primarily focus onthesupply compasses anumber of industries of financial products). gross revenue (for example, thesale by deductingcertain items from the taxable base(i.e.sales)iscomputed and “net base” treatment where the interest from inter-bank transactions) emptions (for example, exemption of rent BT rules including various BT ex rent VAT ruleslargely follow thecur financial services so broadly. The cur tax to country only and first the ably sion isboldbecauseChinaprob- percent from May 1,2016. The deci- cial services sector at therate of six broad application of VAT to the finan- Financial and Taking into consideration thefact The consumer service sector en- China took abolddecision with a consumer services - - - - MoversPOLICY andPERSPECTIVES Shakers

service industry sector after the reforms. is very determined to lower the tax burden booking. In this regard, new VAT payers But this treatment is not reflected in the final on all sectors. It is expected that this policy would be wise to establish their own VAT rules. So taxpayers in the financial and con- will encourage investment in commercial compliance and control systems to accu- sumer sectors must apply for general taxa- real estate. rately calculate VAT liabilities and manage tion terms as long as they qualify for general the potential tax compliance risks. They are VAT payer status. For these taxpayers, com- also recommended to study the new rules pliance costs may increase. Implementation and explore preferential policies that can challenges be enjoyed, for example, whether and how Although the full-scale rollout of the re- to adopt the transitional rules for old proj- Other industries forms is a very positive move, considering ects for construction and real estate tax- Taxpayers in other sectors are also expected the complexity and fluidity of the economy payers, whether to apply for VAT exemp- to directly or indirectly benefit from the final and business activities, the newly-issued tion or zero-rating treatments to reduce rollout of the reforms. In particular, busi- rules are still to be tested in business real- VAT burden, etc. nesses will have the opportunity to get input ity. Many taxpayers have focused on being Lastly, how to manage commercial is- VAT credit from vendors in the four sectors ready for May 1, 2016, so many expect that sues (e.g. pricing negotiations) as a result and reduce their own tax burden. The most the areas for improvement will be identified of the reforms is an imminent and crucial eye-catching highlight in the final rollout post-implementation. Also, although the challenge for taxpayers. After BT is replaced program is the inclusion of newly-acquired Ministry of Finance (MOF) and State Ad- by VAT, taxpayers need to perform a finan- real estate within the scope of input credit. ministration of Taxation (SAT) have already cial/tax impact analysis to understand the There had been expectations among many issued several clarifications, there remain potential impact in terms of revenue, costs, that the credit period could be 20 years, many more issues to be clarified by the au- profit and tax burden. On this basis, compa- with 5 percent of the input VAT on real es- thorities. In the meantime, there are multi- nies can revisit their pricing policy and com- tate being credited each year. But the final ple levels of VAT rates in the current system, municate with suppliers and customers. VAT rules provide for a two-year credit pe- which may limit the neutralization effect Commercial contracts and related legal riod, i.e. 60 percent of the input VAT can be that the VAT regime is supposed to have. As documents should be amended to support credited in the first year, and the remaining a result, businesses should closely monitor the new pricing agreement and to protect 40 percent in the second year. This credit further developments of the reforms. the company’s interests to the greatest ex- period is much shorter than was generally Moreover, VAT is quite different from BT tent possible. I expected. It is obvious that the government in terms of tax treatment and accounting June 2016

21 22 www.amcham-shanghai.org Office Myers Shanghai O’Melveny & associate of Sabrina Shi, Office Piper Shanghai partner ofDLA Li Qiang, A NewFramework Foreign NGOLaw O primary regulator authoritiesas of foreign NGOsinChina. auditing and day-to-day operations the registration, supervision,funding, (though lessdesirable for some) for operated inalegal “gray zone”. official sanction;others have Some have doneso with Chinese have carriedoutactivitiesinChina. governmental organizations (“NGOs”) been mixed andlukewarm. So far, publicreaction to theLaw has during thelonglegislative process. groups have triedto provide their input governmental and non-governmental Many Chineseandinternational 1, 2017, after many years inthe works. The Law will take effect on January within Mainland China(the“Law”). GovernmentalOrganizations’ Activities the Management of Foreign Non- investigate any conduct of foreign build-out. The PSB is authorized to to thePSBonorganizational be well-positioned to provide input process, someforeign NGOsmay supervise foreign NGOs;duringthat infrastructure to helpregister and scramble to buildanorganizational the CAA. Foreseeably, thePSB will organizations andindividualsthan in dealing with international authority) ismore experienced (as China’s de facto immigration comparatively speaking, the PSB This is not entirely asurprise as Public Security Ministry (“PSB”). security authorities under the NGOs are regulated by the public Affairs Ministry (“CAA”), foreign affairs authoritiesunder theCivil NGOs are regulated by the civil Publicsecurity The Law provides aframework For decadesforeign non- While domestic Chinese the much-awaited Law on People’s Congress passed n April 28,2016,theChinese prove time-consuming andexpensive. this dual supervisionregime may the previous year). Compliance with and approval of theannual report for execution and useof funds,andreview the following year, includingproject approval for ROs’ activity plans for their operations (e.g., thereview and in separate catalogues inrelation to (DIC), to bedesignated by thePSB relevant “departments in charge” to substantive supervisionby the management of their ROs),butalso recruitment andbankaccount such asestablishment, personnel by thePSB(inrelation to matters subject to extensive supervision Chinese partner. of afiling with thelocal PSBby the Chinese local NGOafter completion than one year) inpartnership with a activities” (generally for not more are allowed to conduct “temporary without registered ROsinthePRC by establishing ROs. Foreign NGOs Foreign NGOsmay operate inthePRC surprised alot of thesegroups. are all subject to theLaw, which associations andinterest groups foreign universities, professional think tank organizations, nonprofit of foundations, social groups and of thePRC.Besidestraditional forms established outside of theterritory social organizations legally as non-profit andnon-governmental facility or personal properties. any relevant property, bankaccounts, relevant documents, andfreezing removing or reproducing any questioning theindividualsinvolved, NGO’s representative offices (“ROs”), on-site inspectionof aforeign with theLaw, includingconducting NGOs which isnot incompliance Dual supervision Broad definitions Foreign NGOsare not only Foreign NGOsare broadly defined

fundraising anduse Article 9. run afoul of theabove-mentioned long assuchanapproach doesnot under thecorporate legal regime, as as for-profit “businesses” in the PRC NGOs to conduct their operations might make more sense for foreign wonders whether inmany casesit foreign NGOsunder theLaw, one relevant Chinesepartners. account openedinthenameof the be managedthrough aseparate bank “temporary activities” are required to NGOs without onshore ROs, funds for funds for theprevious year. For foreign which alsoreviews theactual useof year mustbeapproved by theDIC, plans for useof fundsfor thefollowing be registered with thePSBandROs’ the PRC.Bankaccounts of ROsmust sustainability of some foreign NGOs in may throw into doubt thelong-term come from offshore sources, which NGOs’ missionsinthePRCmay most of thefundingto achieve foreign donations) inthePRC. This means activities (includingaccepting PRC) are prohibited from fundraising which (together with their ROsinthe sources of funding for foreign NGOs avoid any potential violations. restructuring their operations to this broad prohibition andconsider operations shouldtake notice of “captive” local entities to conduct PRC. Foreign NGOs which have used the foreign NGOs’ operations inthe or individualsinthePRCto conduct directly or constructively) any entities or from engagingor funding(either directly or constructively) in the PRC, from conducting operations (either filings for “temporary activities”, in thePRCnor have completed NGOs, which neither have ROs R Given all theselimitations for The Law only permitslimited Article 9broadly prohibits foreign estrictions on I MoversPOLICY andPERSPECTIVES Shakers

Troublesome Insurance Informatization Policies Submitted to WTO

By Elyssa Gao

he latest battlefield for cybersecurity their data, while bearing full responsibility use a different standard in China. in China has emerged from a for any breach of that data. Multi-Level Protection Scheme: T rather unexpected place: the China Cross-Border Data Transfer: All Sets information system security Insurance Regulatory Commission (CIRC), international data transfers must be requirements in accordance with the China’s national insurance regulator. In conducted in accordance with relevant Multi-Level Protection Scheme (MLPS) October 2015, CIRC circulated a draft law Chinese regulations, but the CIRC has without specifying the linkage between called Provisions on Insurance System not yet specified the content or identity specific insurance industry information Informatization. The original draft contained of such regulations. systems and national security. This many problematic sections that increase the ”Secure and Controllable”: The would disproportionately impact foreign- government’s control of the internet, limit provisions would require insurance invested insurance institutions whose data flow, and require insurance companies institutions to give preference in the operations outside China would be under to only use “secure and controllable” IT. procurement of informatization products no such obligation. Moreover, this may After a backlash from the insurance to those that are “secure and controllable”. result in the restriction of procurement industry, CIRC circulated a new draft to The definition of “secure and controllable” to domestic hardware and software the World Trade Organization’s (WTO) is unspecified but believed to mean products without relation to China’s Committee on Technical Barriers to Trade ownership of domestically-owned and essential security interests. in April. According to WTO procedures, registered IP. Similar language has Security Certification: Requires the draft is open for comments for 60 appeared and been later dropped by the that insurance companies apply for days, after which the WTO Secretariat will Chinese banking regulator. certification of their information security approve it. It will then come into effect six This would affect both commercial management systems from an institution months afterwards. and public procurement in a sector that that is recognized by China. Industry Some are worried that the regulators is not commonly considered “critical participants are concerned that the draft will not make any further modifications infrastructure” in other markets. Additionally, would prevent insurance companies from during this period as the proposed date this may negatively impact companies’ using foreign certification institutions that of adoption has been set for the day after global information security regimes as the may not appear on China’s recognized the final comment submission date. The “secure and controllable” products may be list, which is inconsistent with existing provisions will apply to all insurance entities incompatible with or otherwise inferior to international standards. established in China, including insurance their global IT management standards. AmCham Shanghai will continue to work asset management companies. Cryptography: This mandate would with insurance companies, the ICT industry While the provisions contain some force foreign-invested insurers to and other interested members in pushing positive steps, including allowing implement Chinese algorithms that may for meaningful changes to be made to the companies to use cloud computing, there differ from those used by their parent draft provisions. I are several areas of concern: company, increasing the risks that a Data Localization: Data originating company’s systems could be illegally from China must be stored within China, infiltrated. Firms use international effectively instituting geographic restrictions encryption standards to minimize on data flows. According to industry problems across systems in different companies, this rule will not lead to greater countries and ensure that client data is data security. Insurance companies would as well protected, and this regulation may need to partner with local entities to host raise security concerns by forcing them to June 2016

23 24 25 26 www.amcham-shanghai.org incredible to witness thechangerelative to thepace of change I spent 24months inShanghai, butjustinthat periodof timeit was not change? here?in yourtime did change And what biggest the What was being repaid inspadesopportunity andexperience. this opportunity was for us,andthat eachof thechallenges was was at that moment that we started to truly appreciate how special holiday trip to Southeast Asia, though, about three months in. It first our following different feel to start did experience entire the I think we’d prepared ourselves for challengesfrom thestart.But We didn’t gothrough atough integration phase,partially because Was and there aturningpoint for you? confused out start China enjoylaterdepressedsometimesand but immensely.adjust it to come who expats Many similar andfamiliar like KFC andbookstores, justfelt so...Chinese. are incredibly that things the even Everything, culture. different was really moving halfway around the world andinto anentirely something elseentirely, and was themoment that itset inthat I house-hunting tripandknowing I was goingto belivinghere was percent of my timeinhotels or conference rooms. Landingfor my I hadonethree-day businesstripin2011,during which Ispent 90 Did you have Chinaexperience before your posting? in early 2014. over asManager of Governance &Compliance for Greater China U.S. This putmetop-of-mind when aneedarose, andItook better andmet acompany need,includingthoseoutsidethe 2012, Itold himI’d beopento any opportunitiesthat mademe When Dow CorningCorporation got anew general counsel in How did you first come to China andinto what position? tion of Corporate Counsel inShanghai. committee, and worked to found achapter of the Associa- ning for Greater China, was vice-chair of AmCham’s legal tly, hemanagedgovernance andcompliance for Dow Cor company’s electronics andlighting businesses.Until recen- MI., where heserves asglobal commercial counsel to the now working outof their global headquarters inMidland, Matt Nolan isSenior Counsel for A Chat with Matt Nolan Exit Interview Dow CorningCorporation, could ever imagine,andfailing to dosohasastrong correlation once. Doingthat inShanghai will open more doorsthan you local friendsandrecognize that you only get eachday here within the expat bubble, push yourself to try new things, make better thananything, was to truly “dive in” to China–don’t stay Ifeel like thebestdecision we made,andthething we did there for peoplejustarrivinginChina? are opportunities what and success greatest your was What lack of alignment. Have thetough conversations upfront. tough thingto manageandcancreate frustration when there’s a a mandate for thechangesI wanted to drive intheregion. That’s a I probably didn’t pushhard enough with my company to carve out What was your biggestmistake during your timeinChina? Success dependsonit,andthat fails to happentoo often. be afraid to askquestionsuntil you really understandsomething. strive to live by. Other thanthat, listen more than you talk,anddon’t of success, butrather to become of personof value” –that’s oneI point, only goodthingscancome. “Try not to become aperson look to make thecompany better eachday. If that’s our starting those aligned with theadvice Igave. Ithinkeachpersonshould I liked to post quotes on my office door to spur conversations, and give your Chinesestaff? What advice did you give your successor? What advice did you over timefor us. “different”reallyfeelscity the saywouldn’t I so though, Shanghai, generally have exploded inpopularity. Changeis a constant in buildings! The traffic got worse, and running as a hobby and sports to theShanghaiMuseum when we got to town, andnow that’s all back intheU.S. We hadacleanlineof sight from theLupu bridge - engagement andresults. local team. Finding theright blendcanmassively increase a bitmore toward flex theperspectives, desires andneedsof the headquarters global having is potential that unlocking to have incredible untapped potential, andthat partof thesecret companies foreign most of divisions China the believe I first. at before you judge,becausethingsare not always what they seem wide variety of perspectives andseekto listen andunderstand should have their perspectives heavily discounted. Gather a China. Anyonetellto tries who youdifferently imposter an and is Nobody, not even Xi Jinping, truly understandseverything about could benefit head office culture? What did you learn from your Chinese colleagues that you feel us areal chance to make adifference. of spiritandtheir welcoming of measapartner intheregion gave benefitted from and will continue to benefit from. Their generosity insights into thingsIhadnocontext for previously are all thingsI willingness to usetheir timeto teach meandguideme,their Of course. My colleagues’ patience with my poor Mandarin, their better person? a or manager better a you make colleagues Chinese your Did E with expats who wish they’d beableto gohomeabitsooner. mbrace theexperience! access andcontrols; it forever but you canholditlonger if you very closely manage time. Information ismeant to be free, meaning you can’t control you’re willing to let that information bepublicat somepoint in or to someone whom you trustimplicitly at thetime,unless elsewhere, which is twofold: advice my from differ wouldn’t China in advice My China with regard to IP protection? to coming companies advice wouldtoChina. give What you in infringement IP by concerned often are companies Western China’s doingapretty good jobof that. Those who listen andincorporate thebest will win, andright now from the others, and that goes for each of our companies as well. term. Chinaandevery other country onE doesn’t learnfrom all available sources canstay strong inthelong going to changeany timesoon.Idon’t thinkany philosophy that from another nation, culture, company or group, andthat’s not company or group learningaboutandthen incorporating ideas human history hascome from peopleinonenation, culture, Most innovation and development throughout the course of its do or management? terms Chinese on businesses need a purelyhybrid of Western and Chinese thinking and succeed China Can (A) Never discloseinformation to anyone, even under NDA arth hasmuchto learn MEMBER NEWS 27 June 2016 28 www.amcham-shanghai.org of theChineseeconomy. This hasthepotential to serve asabarrier to thepotential growth and goals (the word “Socialist” is very key in that turn of phrase). toward further alignment of thecourts with CCP political directives language of the West, theactual direction seemsto beheaded strengthen the “Socialist Rule of Law,” but despite usingthe China speaksof improving legal institutions with itsdesire to creates trust, and trust is a necessary precondition for investment. certainty regarding interpretation andenforcement. Certainty business inChinaisnot any particular law, butrather thelackof I thinkthemostcommon complaint by Western companies doing Western companies? and Chinese benefit most would think you do law Chinese to changes what China, in worked who lawyer U.S.-trained a As E good or better (seriously!) safety performance thanour plants in this area isnot optional for us,andour Chineseoperations have as in Discipline them. yourselftoholding culture, and and standards major chemical facilities, andthat comes from setting appropriate track record inChina,both inour operations andinconstruction of Dow Corninghasnot found itto beso. We have anexcellent safety or complex regulatory structures? in China because of the lack of a safety tradition in China and/ implement and navigate to issue bigger safetya workplaceIs around thoseprotections and with themappropriately. under business your available manage and is appropriate, what as protect and system, the you for critical is what on focus urope or theU.S. (B) Consider your businessproposition andstrategy closely, foot onChinesesoil. lifetime. This certainly won’t have beenthe last time we touch a chance to maintain friendshipsthat we hopeto maintain for a haven’t found anywhere elseto date. WeChat andemail give us and constant changecreates anenergy andfusionthat we expats andlocals,high-endlow-end, E Shanghai isaspecial place. The uniqueblendandbalance of million people), andhave found a way to behappy ineach,but then Bay City, Michigan(30,000people), andthenShanghai(24 Immensely. My wife andIhave lived inChicago(3millionpeople), Will you missChina? democratic societies isusually muchmore severe anddrastic. of thedemandsof both, history hasshown that changeinnon- on anagenda,or thegovernment isn’t ableto meet aplurality day comes where rural andurbanChinesecitizens can’t agree time, and competing priorities can behashed out in public. If a that changecanbemore easily managedandassimilated over doing enoughfor them. forward. Each move and portion of thepopulace isat riskof believing thegovernment isn’t setpriorities to the Party for difficult of society continues to grow, meaningitbecomes more andmore with therest of the world, thegapbetween thosetwo segments urban Chinacontinues to develop andlinkmore andmore closely As cities. and countryside the differences between incredible the biggest challengesthat Chinafaces inthefuture will bemanaging economy, I’m not sure that I would usethe word “worry,” China’s butIthinkoneof the about most society, etc? the you worries What The cost of democracy is that it’s messy, but the benefit is benefit the but messy, it’s that is democracy of cost The I astern and Western, “Business SustainabilityStrategies for Today’s China” “Business SustainabilityStrategies forToday’s China” E: [email protected] T: (8621)62797119-5658 Events Associate Ms. Edith Zhang E: [email protected] T: (8621)62797119-5658 Events Associate Ms. EdithZhang For ticket information and partnership opportunities, pleasecontact: andpartnership For ticket information For ticket information and partnership opportunities, pleasecontact: andpartnership For ticket information 2016 CORPORATE SOCIALRESPONSIBILITY 2016 CORPORATE SOCIALRESPONSIBILITY Wednesday, Wednesday,

CONFERENCE AND FAIR CONFERENCE AND FAIR

June 22, The Peninsula Shanghai

June 22, The Peninsula Shanghai

E: [email protected] T: (8621)62797119-5272 Manager, Social Responsibility Corporate Ms. Daisy Lu E: [email protected] T: (8621)62797119-5272 Manager, SocialResponsibility Corporate Ms. DaisyLu Movers and Shakers 29 June 2016 30 www.amcham-shanghai.org China’s land use, lifestyle, recycling and water showcased their products energy,ronment, farming, filtering, environmentaland monitoring commitment to theenvironment. Jarrett welcomed guestsby thankingthemfor their continued in their daily operations. AmCham ShanghaiPresident Kenneth and environmentally-friendly technologies, products andservices ganizations to demonstrate how they are integrating innovative 22 at ShanghaiCentre. non-profit organizationson Apriland Dayovercompanies with 35 AmCham Shanghai’s E AmCham Celebra have onInternet startupsandSME dressed anumber of issues,includingtheimpactFYP could cluding optical fiber broadband, 4Gand5Gmobilenetworks. about China’s commitment to improve network infrastructure, in- spoke also energy technology.efficient He and tech high in ment tion of IT isapriority under theFYP andhow itencourages invest lopment. Fu spoke abouthow thedevelopment of anew genera- ble andhigh-quality growth inthecoming decades. development, with structural reforms aimedat securingsustaina- noting that President Xi ispushingfor a“New Normal” of economic security andbigdata. Fu provided abasicintroduction to theplan, of the13thFYP, including Internet Plus,cloud computing, cyber sues inChina,spoke to membersaboutthetechnology aspects Year Plan(FYP)onMay 17 at thePortman Ritz Carlton. importance of technology andtheInternet within China’s 13thFive AmCham Shanghaihosted APCO Director Bruce Fu to discussthe nol BruceFu Participating organizations related to advocacy, thebuiltenvi- Held outdoors, thepublicfair provided aplatform for local or His presentation was followed by alively Q&A sessionthat ad- The 13thFYP makes astrong call for innovation-driven deve- Fu, anexpert onInternet andcommunications technology is- Event Report ogic 13 al Moderniza th Five Year Plan Serie te s Ear nvironmental Committee celebrated E tion th D a s. y s: Interne and Te ch- arth - - trade zone developments. child policy, service sector reforms andfree ments suchastherelaxation of theone- development programs andpolicy adjust Road; Made inChina 2025;anddomestic reforms;global initiatives suchasOneBeltand financial and economic include tions. These solutions, according to Dr. Rui, the Chinese government will need to look to comprehensive solu- which is already contributing nearly RMB4 billion to China’s GDP, investment-driven economy to oneof consumption-led growth, nese economy. and lackof SOEreform have also helpedto putadrag ontheChi- economy inthepast.China’s rising labor andmanufacturing costs which policy makers hadseenastheeasiest way to drive the was approaching themaximumamount of debt itcould incur— economic adjustments, theChinesegovernment hadreached or previous and crisis financial global the slowdown, this of result a shift and not simply acyclical economic condition. However, as what President Xi Jinping callsthe“new normal,” isastructural three specificareas: costs, efficiency and leverage. ticular, Dr. Rui noted that theChinesegovernment could focus on choose to reform various partsof theChineseeconomy. Inpar use when examining when, where, how and why China’s leaders in thefuture. Dr. Rui outlinedaframework that thepublicshould the current state of theChineseeconomy and where itcould go the China Rui from Oliver Dr. Briefing, Member Monthly 4 May the During A to decrease their environmental footprint. how every company, regardless of industry, cantake small steps and services. The diversity of represented organizations showed Mid-Year Repor Earth DayfairvendorsandAmChammembers Earth In order to continue Chinaonitstransition from anexport and Dr. Rui saidthat hefelt that China’s economic slowdown, to E urope International Business School (CEIBS) examined t onChina’s Economy I - - ghai’s yearly operational budget. The Board asked that AmCham fee to supportthenew systems will come from AmCham Shan- vestment funds.Ian Driscoll added that the annual management ment system. The initiative will befundedfrom theChamber’s in- ber’s website, upgrade the CRM and install a new event manage- President Helen Ren reviewed thecosts to redesign theCham- Communications andPublications Director Ian Driscoll and Vice Digt the problems highlighted inthesurvey. that theIT and website upgrade shouldhelpto address someof Investment Center (formerly theSMECenter). Ken Jarrett said ted that thesurvey shows alackof awareness of the Trade and results indicate that the latter could beimproved. E business trends andto generate businessleads,thoughsurvey 77.3 percent. The top reasons for joining were to stay ontop of rall satisfaction rate haddropped approximately three percent to extremely last higher than membersyear, satisfied was ove the - Membership Satisfaction Survey. Although the percentage of AmCham President Ken Jarrett reported on the results of the Membership Highlights from the April 2016Board of Governors Meeting Website Re-design Board Gets Update onMembership Satisfaction Survey, Board of Governors Briefing al Upgrade International PaperAsia International Vice Chair CHAIRMAN Cecilia Ho Ker Gibbs ChinaBio Sa tisf a ction Survey The AmCham Shanghai The AmCham

ric Zhengno- FedEx Express Jimmy Chen DuPont Hsien Yang Helen Ching- GAP Inc. Aina E.Konold

2016 Board of Governors changes in visa rules, with longer term visas now thenorm. reflectsshortfall CVP The anticipated. than lowerrevenuewere new membershiprevenue andCorporate Visa Program (CVP) because target revenue quarter first its of short somewhat fell Chamber Vice President Helen Ren reported that theChamber Financial Repor provide quantifiable data to measure theprograms’ success. Shanghai report backat anappropriate timeontheproject and MEETING ATTENDANCE Helen Ren, Titi Baccam, Ian Driscoll, Patsy Li Attendees: Apologies: Cameron Werker (by phone) Glen Walter, Helen Yang, Vincent Yang (by phone) Tim Huang,CeciliaHo, Aina Konold, NingLei, Gentry Sayad Present: GO VERNORS KerGibbs, Jimmy MichaelChen, Crotty, Duff,William Ken Jarrett (by phone), Scott Williams (by phone), SKF Vincent Yang Navistar Ning Le MKT &Associates Michael Crott t

i y MEMBER NEWS AIG Insurance Eric Zheng Coca-Cola Glen Walter LynchMerrill Bank ofAmerica Timothy Huang 31 June 2016 AmCham celebrates Earth Day

AmCham Shanghai

Marketing and Media Committee event about virtual reality

Monthly Member Briefing with former U.S. Ambassador to China Gary Locke FTZ briefing with Pudong 王government officials

A briefing on the new Foreign NGO Law AmCham Shanghai Month in Pictures

AmCham President Kenneth Jarrett at the Earth Day Fair

Leo Li discusses the new Foreign NGO Law

Monthly Member Briefing 34 www.amcham-shanghai.org W respondents indicated that they were either extremely/somewhat last year’s 80 percent. On a very positive note, some 94 percent of from last year, buttheblendedsatisfaction rate was adrop from points of 7 percentage an increase percent, 22 to rose satisfied satisfied or satisfied. The number of members who were extremely Overall, satisfaction remained positive with 77percent extremely trip ticket onDelta Airlines from Chinato theU.S. lucky draw, Richard Ren of Vitasoy China, who receives a round- but we are endeavoring to address areas that needimprovement. generally are good, very results effectively The needs. meet your or adjustments that we canmake to ensure that we continue to the Chamber, butitalsoallows usto identify improvements and/ the 370 respondents not only gives usa view of what is working at Stay ontopofbusinesstrends provided information with atevents SatisfactionLevel But we first offer our congratulations to the winner of the survey compiled by YouGov, asurvey andpollingspecialist feedback about our performance, offerings and value proposition. Thedata was Our Member 2015 Member Satisfaction Survey Results Access to business information onChinamarketviaChamber Access tobusinessinformation Generate businessleadsand/ordevelopnetwork Build relationships govtofficials with (ChineseandU.S.) February to late March of 2016. The feedback from membership satisfaction survey, conducted from late e thankall members who participated intheannual (such as employee training, discounted insurance) (such asemployeetraining,discounted Satisfaction Survey provides theChamber with measurable year-on-year Access to the Corporate VisaAccess tothe Program (CVP) Access to services other than CVP than Access toservicesother website andpublications (industry, jobfunction) Reasons toJoinAmChamShanghai Other AmCham event each year, onpar with last year’s results. thirds of respondents alsosaidthat they participate inat leastone likely to recommend that someonejointheChamber. About two- will putmore emphasisonquotidian businessandpolicy issues. will fortify over thecoming months. Insight magazine,for example, publications was a reason to join,itisanarea that theChamber information on theChinamarket via theChamber website and business leadsamongmembers. members saidthat theChamber shoulddomore to facilitate generate business was a value proposition. However, some or somewhat agreed that theChamber’s ability to helpthem question, 79 percent of respondents either strongly agreed and/or develop their businessnetwork. Inanswering another 56 percent said it was to help them generate business leads of businesstrends with information provided at events, while 74 percent of memberssurveyed saidit was to stay ontop When asked for their top reason for joining AmCham Shanghai, 4% 8% 16% 19% 22% 56% 74% ReasonstoJoinAmchamShanghai While only 22percent saidthat theability to access business MEMBER NEWS

Events/Committee Satisfaction Improved Value Proposition

4.33 Analysis of AmCham Shanghai’s value proposition to members Daily Events 4.43 reveals that our two biggest value-added areas are high quality events and conferences, and high-quality information on industry 3.98 Committee Events and job function business issues. Close behind are the 89 percent 4.02 of respondents who either strongly or somewhat agree with the proposition that membership in AmCham provides positive value 3.8 Conference to their business. 3.9

3.98 Special Events 3.79 Information Sources When asked how they rate information sources provided by the 4.45 Training Chamber, 88 percent of members surveyed gave satisfied rates for 4.52 our weekly email newsletter Communique, while the annual China

3.9 Business Report and AmCham website both received an 87 percent Master Class 4.65 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 2014 2015 expansion of our WeChat presence should improve these numbers.

Events/Committee Satisfaction Levels Membership Experience Satisfaction rates improved slightly overall for Chamber events, A good membership experience is fundamental to our mission with AmCham Shanghai’s Master Class programs scoring and it is an area in which we mostly perform well. While there the highest on a 5-point scale. Satisfaction with Daily Events, has been a small decline in the number of people who find it very Committees Events, Conferences and Training also rose slightly, easy or easy to access our online resources (84 percent versus with Special Events seeing a small decrease. 87 percent in 2014), our website overhaul and the implementation Almost 17,000 people attended Chamber events in 2015, with of a new event registration system should make members’ online Committees-related events the most popular among Chamber experiences far better. Expect to see this implemented in the members. Growth in attendance at YRD events reflects the fall. An area for attention is in the provision of opportunities for efforts of our dedicated YRD team to expand membership members to partner as a speaker, panelist, sponsor or vendor at numbers as well as deepen links between members and the Chamber events. While respondents felt we had done this better Chamber. in 2015 than 2014, there’s room for improvement. I

Membership Experience

Registering, paying, and attending events 45% 51% 3 1

Signing up/renewing/transferring your membership 28% 59% 4 9%

Addressing any inquiries about AmCham Shanghai’s 24% 60% 5% 11% programs and services

Accessing online resources, such as the Membership Directory, 27% 57% 7% 1 8% calendar of events and business articles

Partnering as a speaker, panelist, sponsor or vendor 18% 48% 7% 1 26%

Using the CVP for expedited visas to the US 19% 34% 5% 42%

Very Easy Easy Difficult Very Difficult N/A June 2016

35 36 www.amcham-shanghai.org the outbreak. Muchof thelanguageinFSL was already in problem, itbecomes important to identify itssource andto control and traceability, theconcern being, when there isafood safety The new FSL puts a fair amount of emphasison record keeping down andare they working? cracked China has ways stricter what In safety. food with for regulations 2015 in revised was Law Safety Food China’s new U.S. laws for Chinesecompanies exporting food to theU.S.. like thisshouldgreatly enhance compliance awareness of the jointly conducted aFSMA training sessioninBeijing. Trainings Alliance andChinese Academy of InspectionandQuarantine April, experts from theU.S. Food Safety Preventive Controls various educational seminarsare beingorganized. This past ofChina published a Chinese translation of the FSMA documents, and Administration Accreditation and Certification the here to meet theU.S. FSMA’s requirements. For instance, this sector will besubjectto thesamerequirements. of “food” includesfood packaging materials, socompanies in obligations under FSVP. Under the FSVP program, the definition U.S. importer to conduct anon-site auditaspartof theimporter’s China exporting foods to theU.S. may receive arequest from the companies exporting food to the U.S. For instance, a supplier in aset establishes of requirements, which directly or indirectly impactChinese FSMA under (FSVP) Program Verification food to the U.S. For example, the new Foreign Supplier rules will have a widespread impactoncompanies exporting FDA’s Food Safety Modernization Act (FSMA) andimplementing food market? China’s for mean this does What 2017. in effect into goes Act Modernization SafetyFood FDA States United The The Chinesegovernment hasdonealot to guidetheindustry Committee. the AmCham ShanghaiFood, Agriculture &Beverage for Keller andHeckman law Firm.He isthechair of issue, we talk with David Ettinger, managingpartner know the AmCham Shanghaicommittee heads.Inthis This column isinten ded to helpour readers get to A Chat with David Ettinger Committee Chair’s Corner product reformulation. mayinclude which models, business flexible have must they China. Ihave found that if companies want to succeed inChina, are many ingredients that are legal elsewhere, butprohibited in or EU, they mustbelegal here, butthat’s simply not true. There assuming that if their ingredients are legal,for example, inthe U.S. front andcenter. Many foreign companies have entered China been asked years ago,soat leastthequestionanddialogueare questions since thenew law was released that likely shouldhave under agreater spotlight. As afood lawyer, Ihave received many new Food Safety Law attracted alot of mediaattention andputit the market. the capability to control product safety andquality will remain in brands that are currently onthemarket. Only thoseplayers with mechanism will greatly reduce thenumber of formulations and to-be established baby milk powder formulation registration scope to cover food traded online. For example, thesoon- of baby formula milkpowder andexpands itsregulatory and business. quickly and canhave asevere impactonacompany’s reputation for the media allegations that turnoutnot to betrue.Suchfalse reports spread in reported themselves finding are companies a company’s brand is,for obvious reasons, critical,andtoo often unsubstantiated rumors. This isparticularly important because if thenews isreported andlater found to befalse or based on the mediaaccountable, includingdismissal of employment and exaggerated mediareports by including languagethat will hold more accountability ontheindustry, italsodeals with false or comply. Onearea of notable interest isthat theFSL not only put place andimplemented more severe penalties for failure to the 2009 version, butthenew law putmore requirements into Food safety is,of course, always atop concern, butIthinkthe The new FSL alsoputsmore attention onthe management MEMBER NEWS

I do think the ‘crack down’ as you put it, is working. You see Is there language in the new law to prevent this kind of bounty this in different ways, however. For example, more and more hunting among professional consumers? companies are conducting self-inspection on factory operations Yes, there is. Previously, a successful claim raised by a professional on a more frequent basis and taking corrective measures, when consumer could receive ten times the value of the product they needed, to improve food safety management. purchased. Under the new law, that amount will not be rewarded In addition to industry response to the stricter regulations, unless the claim reported is related to food safety and misleads consumers are taking action to ‘oversee’ food safety. If you consumers. I think this is a very good change because it shows just look at what’s going on in Shanghai, the Shanghai FDA has that the authorities were seeing some abuse here and, while the reported that it received about 300,000 complaint calls related eyes and ears of consumers is important and can help foster to food safety via its hotline since it was set up about four years food safety, the system also needs to be fair to the industry. 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. In recent years there has been more awareness of cadmium levels in China’s waterways and rice paddies. Is China taking this seriously enough? Many multinationals in China, such as Walmart, have increased There have been various reports of high levels of cadmium spending on their own food inspections. With the newest set and heavy metals, much of which can occur naturally in the of regulations, is this standard practice still necessary? soil – so the adage ‘it’s the dose that makes the poison’ is At this point, I believe it is still very good practice to invest time important here. While I don’t know all of the details of what and money in food inspection programs – this eventually should actually occurred, I do know China is responding to it. The new lead to suppliers taking on their own individual responsibility. Measures for the Supervision and Administration of Marketing If a supplier knows that they are going to be inspected by their of Edible Agricultural Products went into effect on March 1, customers, they are more likely to get it right on their own 2016, and these measures specify supervision responsibilities so that they can continue the supplier-customer relationship. for central and local government agencies, and highlight This should continue until the recognition and observance of obligations for operators and sellers of edible agricultural food safety becomes more a part of the everyday mindset. products to ensure safety and quality. So, for example, rice It’s worth noting that the new Food Safety Law, in fact, manufacturers now need a certificate of origin to ensure requires that food producers and operators establish a food that the rice is manufactured properly. I’m optimistic that the safety self-check system and conduct routine inspection and situation will improve. evaluation of the food safety conditions. In this regard, self- inspection is actually mandatory for a food operator. How can AmCham contribute to improved food safety in China? Is there an uneven playing field when comparing domestic It’s important to continue to promote conversation and and international companies’ experience with the Food dialogue within membership. I was at a recent industry event Safety Law? where a food processor explained that his company rewards There is definitely an uneven playing field. In my experience, its employees with cash bonuses when they take action to help the implementation of these laws is very inconsistent, which is improve safety and sanitation in the plant. I think that’s a great one of the biggest challenges in operating a business in China. idea because it shifts the model from ‘whistleblower’ to giving Local authorities often have different interpretations of the law. employees incentives to help the company do better and help I see this most in the area of the “professional consumer.” This play a more proactive role in making sure daily operations are is the consumer that makes a living reporting typically foreign resulting in the highest level of food production and safety. products that allegedly do not comply with the regulations. This is the kind of idea that we can learn from engagement We have seen many foreign companies summoned into local with each other - AmCham creates a forum for engagement FDA offices for allegations that are often innocuous issues that and open dialogue, and we all benefit from that. I 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. June 2016

37 MEMBER NEWS

Esoterica

Memories of Go during the Cultural Revolution

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

hough the hundreds of students on the who observed frequently came to under- board. We would flush with anger over a with- factory farm in Heilongjiang had had stand novice moves and began to play the- drawn move, we would heave sighs of despair Ttheir studies interrupted by the Cultural mselves. An old hand who could not find a over our blunders. The memories of all our Revolution, there was no shortage of those partner of equal ability would grab one of schemes and obfuscation, tricks and ruses accomplished in the four classical arts – zither the novices, teaching them as they played. still amuse me. (the guqin), weiqi (Go), calligraphy and pain- Soon weiqi fever took hold in Dorm 3. During particularly bitter battles, we would ting. Li One and Li Two, for example, were During its height, the north-south kang would not even break when it came time to eat. Not both accomplished musicians. Chai One was have four or five games in progress simulta- having time for the canteen, we would eat our a fine painter and Chai Two a sublime calli- neously – quite a bustling atmosphere. When fill of steamed buns that our dorm mates had grapher, but the classical art that fascinated the players were many and the boards few, we brought back for us. And only after we had me was weiqi. Looking back on my farm-work would hold team games, two to a side, with made our move would we take a bite, com- years, I can say that though life was tough, I each player taking alternate turns. pletely unaware of the flavor. In intense bat- reaped rewards as well. Weiqi has become a Often it was unfathomable how we lost and tles, our wavering playing hand would drift to lifelong passion of mine. confusing how we won, but the pleasure lay in our mouths – but fortunately I have never Two weiqi masters resided at No. 3 the play itself. Between my friend Jie Ping’s heard of anyone swallowing their weiqi piece. Farmhouse. One, Zhang Jieliang, used to regale bedspread and mine, we had a wooden trunk Spectators would generously pour their half of Dorm 3 with the story of The Count of on top of which we placed a plastic board. A opinions down a player’s ear, and when they Monte Cristo (a banned book at the time) on sum- single game of weiqi between us could take saw they weren’t being listened to, they mer nights. The other was Yao Haibin, and it was three or four hours. At night, while sleeping, would grab their ears and scratch their through his lessons that I entered the weiqi world. weiqi formations would enter my dreams. I cheeks in frustration, barely able to stop the- At the “Weiqi Crash Course in Dorm 3,” you dreamed of the weiqi moves that would free mselves from intervening with a move of would find a plastic board laid out over our me from a losing situation, and my revelations their own. When two excellent players com- brick-bed (kang) with six heads bent over it in would startle me awake. I could retrace the so- peted, they would murmur approvingly and concentration. Teacher Yao’s instruction exten- lutions that had penetrated my subconscious in assume airs of refinement; the only other ded beyond strategies of combat. It began full clarity on a weiqi board the very next day. sounds in the room came from the clap of with where to place one’s first piece to show Nothing, no study or work upon my return to pieces being set on the board. respect, how to calculate the number of diffe- the city, would compare with the level of The golden age of weiqi at Dorm 3 lasted rent circumstances, formations, invasions and obsession I had for weiqi back then. for two years. In the waning period, students life-death moves, and it culminated in deep When talking about those times, I cannot turned to thoughts of their future and the nu- analysis of a completed game. The topic that leave out Dorm 1’s Sun Caiyuan. With his bur- mber of weiqi players declined to nine. Some left the most profound impression on me was ly, strong physique, he would often come to had found various means to leave the farm the “tortoise leaves his hole” life-death move. Dorm 3 to challenge us to battle, not depar- permanently while others did not return from When fall came, work decreased and ting until he had vanquished us. On rest days, their trips back home. A game of weiqi beca- days shortened. During these months, we Sun would battle from morning to night, me an occasional treat. received only two meals a day, and our lei- playing 11 or so consecutive games without a On all my wanderings through the fol- sure time between the afternoon meal and break. He was completely unafraid, even lowing decades, weiqi has remained with me. sleep lengthened to six hours. On cold win- when facing down five of us in a weiqi war. At leisure, it is still very hard to resist the allure ter days, air from one’s breath would turn to And we battled for the honor of our dorm. So of those black and white pieces. A few years frost, so everyone huddled indoors. Playing strong was our desire to win that sweat would ago, I happened to run into Yao Haibin in weiqi became our main cultural activity. For drip from our brows. When we wanted to con- Shanghai, but for various reasons I have not every game of weiqi, there were several stu- quer the lower-left board, we would tilt our sought weiqi lessons from him again. I do feel dents who stood around watching. Those heads, feigning attention on the upper-right a bit of regret about that. I www.amcham-shanghai.org

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