INSIGHTThe Journal of the American Chamber of Commerce in Shanghai - Insight November 2016 FIRING UP THE HEALTHCARE www.amcham-shanghai.org INDUSTRY

Measuring the pulse of China’s healthcare industry, including opportunities for private hospitals, senior care and the biotech sector.

FEATURES P.16 POLICY P.22 ESOTERICA P.34 Q&A with Overview of drug On post-partum medical devices company and devices regulation monthly confinement

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34 31 30 28 26 25 24 22 19 16 13 10 07 The Journal of the AmericanChamberofCommerceThe Journalofthe inShanghai-November2016 INSIGHT Post-partum: sittingthemonth Esoterica With David Basmajian,chair of theHealthcare Committee Committee Chair’s Corner With Carl Wegner, former managingdirector at DeutscheBank Selected photos from lastmonth’s AmCham events Notes from September’s meeting MEMBER NEWS Streamlining regulation oninboundinvestment for non-restricted sectors New GuidelinesonRegulating InboundInvestment China’s Integration of Healthcare andMedical Device Regulatory Reform POLICY PERSPECTIVES Best practices for boards to follow High ImpactBoards Q&A with Stryker’s William Jin onChina’s medical device market Surgeon’sThe Toolbox A lookat theopportunitiesandchallengesinChina’s biotech industry China’s ComingBiotech Revolution How China’s elderly could create thecountry’s biggestindustry Old People, New Problems How private hospitalsare reshaping thehealthcare landscape Slowly Severing theState’s Hand FEATURES Exit Interview Month inPictures Recap of selected events from lastmonth Event Report Board of Governors Briefing Legal experts share insights onevolving policies Special thankstothe2015-2016AmChamhanghaiPresident’s Circle Sponsors

Movers and Shakers CAREER 3 November 2016 attract at least 20 primary Another giant Toyota has been in TEDA component makers to for 16 years. Toyota’s three existing settle in TEDA. production lines can produce 530,000 vehicles annually. Early this year, the TEDA’s cooperation with Tianjin FAW Toyota Motor Corporation the auto giant Volkswagen started building its fourth plant in TEDA already started since 2012, and will produce new models by the when Volkswagen decided middle of 2018. The annual capacity of to build a new transmission the new production line is expected to production base here, reach 200,000 vehicles. namely DQ380 and DQ500. The two kinds represented The automobile manufacturing industry cutting- edge technologies is one of the pillar industries of TEDA, that were rst introduced which has gathered world-known Auto joint venture FAW-Volkswagen to China. With a convenient atmosphere, vehicle makers including Volkswagen, Automotive is building a new whole- Volkswagen further added DL382 Toyota, Great Wall Motor, Qingyuan vehicle manufacturing base in Tianjin. products to its TEDA base and more Electric Vehicle, Xingma Automotive, The new base, with an investment of possibilities are still ahead. Now its total and many component providers like 19.5 billion Yuan ($3 billion), is expected investment on transmission alone has Aisin, Audi, Denso, Continental, Yazaki, to be nished in 2018 and to make reached 13.85 billion Yuan ($2.1 billion). Hyundai Hysco, Mobis, TI Automotive, 300,000 cars per year. Minth Group, Freescale etc. TEDA has German auto parts supplier Continental formed a complete auto industry chain Covering 108 hectare of land, the new AG also invested 80 million U.S. dollars of whole cars, motors, transmissions, base is located at Tianjin Economic in a new factory in TEDA scheduled auto electronics, auto moulds, tires and & Technological Development Area to start operating in 2017. Continental coatings. According to TEDA’s plan of (TEDA). When put into operation, the launched a business here in 2007 auto industry, the annual output will base will require 6,000 employees, and producing automotive electronic reach 2 million vehicles and a total value will certainly attract its components products for global clients and now of 30 million Yuan by the end of the 13th suppliers to follow suit. Based on normal expects to produce a greater range of Five-Year Plan. practice, a whole-vehicle base will products in China.

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4 Meiguo da xuan, as America’s pres- to help with this, but we need to do more. Chairman’s idential election is referred to here, We need real answers to these problems should finally be over by the time you and a serious approach to education and Letter read this. Our nation’s ritual of dividing retraining that will give American workers into camps and viciously criticizing ev- the skills they need to compete. China and eryone and everything is now behind Taxing imports to protect uncompet- us, at least for another four years. Im- itive industries doesn’t seem like the an- the American Election migrants and foreigners have always swer either. Do we really want to close our been easy targets during America’s po- borders and risk a trade war just to main- litical campaigns, and this year was no tain low wage, dead end jobs? exception. Mexico took the brunt of the If we want to continue to enjoy the ben- attacks, but China was also blamed by efits of open trade, then we need to do a both parties for all manner of crimes. better job of explaining and sharing the The Republican nominee was partic- benefits of globalization. ularly sharp in his criticism of China and This year’s election process has left America’s policies in Asia. He accused America’s two-party system badly dam- China of everything from currency ma- aged. In some sense, this system is the nipulation and intellectual property theft political corollary to the checks and bal- to using “weapons of job destruction.” ances that prevent excessive concentra- The Democrats, for their part, shamefully tion of power in government. Two strong backed away from pro-trade positions and parties accommodate our nation’s var- focused on China’s alleged hacking and ied interests and opinions. For decades, stealing of trade secrets. competition between Republicans and Now that it’s over we heal the wounds. Democrats has given us choices. Which- China, normally thin skinned and suscepti- ever party is in power faces constant ble to “hurt feelings,” has been remarkably criticism from the other and must justify unfazed. This shows maturity, but also a and defend policy choices at every step high level of awareness and understand- of the way. ing about our unique political system. Still, The GOP is in disarray, to say the least. Ker Gibbs this hasn’t stopped Beijing from pointing This is not good for us, no matter who we Chair of the Board of Governors out flaws in American style democracy or wanted in the White House. We need both comparing it to “House of Cards.” parties to govern. The second place candidate in this Post election, what will the Republican election should now fade away, but the party look like, and what will be its position issues championed remain. Many in toward China? Will the GOP fix itself, and America have not benefited from global identify a set of core values and a strong trade, and through our election process position from which to lead? they have made their views known. The Historically, Republicans have advo- debates have brought to the surface real cated open trade, active investment, and problems that exist in America because of political engagement in Asia. They have trade. Factories have closed and people championed a balance between eco- have lost jobs. nomic and military strength in the region. Those of us who work in China see the These policies, which have enjoyed bipar- benefits from globalization but millions of tisan support, have served us well. Asia Americans do not. More to the point, the and America have prospered. Let’s not benefits from trade tend to be disbursed forget that it was a Republican, Richard widely in the form of lower cost products. Nixon, who took the first steps toward nor- Economists estimate that Americans re- mal relations with China. ceive on average about 10% more dis- With the election behind us we have an posable income due to low cost products opportunity to reset. Both parties need to from China. The costs, however, tend to work together to develop an effective pol- be concentrated. A closed steel mill or icy for continued prosperity in Asia. Open shuttered shoe factory can put thousands trade and investment has always been of people out of work in a single town. the foundation of our relationships. Can There are no simple answers here. Ad- America’s leaders address the problems justment is difficult. Laid off steelworkers at home in a way that accommodates free do not get jobs at Facebook. Trade Adjust- trade? We have a narrow window to pass

ment Assistance programs are intended the TPP. Let’s not waste it. I November 2016

5 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 GOVERNMENT Extreme Networks APCO Simon Naylor was Xin Changxing was APCO Worldwide named vice president named vice party appointed James of Extreme Networks’ secretary of Anhui Robinson as Asia-Pacific sales province. Previously, managing director of team. In this role, Xin was the head of its Shanghai office. Naylor is tasked with overseeing the the State Robinson will take company's regional growth through its Administration of the lead in linking APCO’s China business software-driven, solutions-based go-to- Civil Service. In September 2010, he with its global operations and in market initiatives while also accelerating became the vice minister of Human connecting its clients’ local and global new product launches. Resource and Social Security. He also communications. Naylor has more than 25 years' served as vice mayor of Xi’an, the Robinson has spent his whole career experience establishing and leading IT capital of Shaanxi province. at APCO. He joined the firm in 2001 and companies in Asia. Most recently he led worked in Beijing for three years. Then sales in Southeast Asia and Japan for he went to New York, serving in different Riverbed Technology. Before that, he Zhou Chunyu was positions, most recently senior director held VP roles at RSA, Sonus Networks, named vice governor and SVP of APCO Worldwide. Since Infinera and Transmode. He holds a BA in of Anhui province. 2008, he has led the firm’s work for the Economics from the University of Zhou is from Anhui. Clinton Global Initiative. Manchester. Most recently he was Robinson graduated with both a the party secretary Bachelor of Arts and Master of Arts in of Bengbu, a large Oriental (China) studies from the Polycom.Inc city in Anhui province. From 2007 to University of Cambridge and speaks Alex K.S. Lee was 2010, he was the mayor and vice party Mandarin proficiently. appointed by Polycom secretary of Ma’anshan, another major as vice president, city in Anhui province. sales, Greater China. In KKR this role, Lee will KKR appointed Paul oversee all operational Liu Qi was promoted Yang as head of aspects and bring renewed focus on to be governor of Greater China. In his partner alignment to address new Jiangxi province. Liu new role, Yang will opportunities in this market. became vice party lead a team of over Lee has been in the industry for more secretary of Jiangxi 20 professionals from than 30 years. He joins Polycom from province at the the Beijing office as the firm continues unified communications software company beginning of this building its China business. Most Pexip where he was the president of year. He was the party secretary of recently, Yang was president and CEO of Greater China. From 2009 to 2013, he was Ningbo, a major city in Zhejiang China Development Financial the managing director of the collaboration province, and before that served as Corporation ("CDFC"). He joined CDFC in business unit of Cisco Greater China and deputy director of the Zhejiang 2005 as its chief investment officer and prior to that, president and chief Provincial People’s Congress Standing head of its private equity business. Prior representative for Tandberg, Greater China. Committee from 2008 to 2011. to CDFC, Yang served as MD and head of He was also part of the team that led its private equity at DBS Bank for four years. integration into Cisco. Lee also served as If your company has He has an MBA degree from Harvard president of SGI Greater China from 2003 to executive personnel changes, Business School and a Master of Science 2007 and Greater China president for please contact Junling Cui at degree from MIT. Compaq from 1999 to 2002. [email protected]. www.amcham-shanghai.org

6 T new site, set to openin2017, will ex population of Shanghai.SEIMC’s service the growing international developing Pudongdistrictto help healthcare partnersinto therapidly- sult of adesire to draw international venture hospital inShanghai,there- joint foreign-invested first the be to Opened in2004,SEIMCisbelieved ternational Medical Center (SEIMC). international wing, ShanghaiEast In- public hospital anditsjoint venture will housetheexpansion of both its Hospital’s massive new buildingthat -communicable disease rates have tion andincreasing chronic andnon sues, while arapidly agingpopula- have longfaced overcrowding is- hospitals. PublichospitalsinChina encourage alarger role for private ernment policieshave emerged to eign-invested hospitals. been driven by private andfor care sector that has increasingly modernization of China’s health- amid abroader wave of growth and also scheduledto opennext year. ners HealthCare International, is in collaboration with Boston’s Part million dollar facility that will work ternational Hospital, aprivate $500 Shanghai’s Xuhui District, Jiahui In- than five times. pand its original floor space by more In recent years, numerous gov These projects are occurring Meanwhile, across theriver in underway onShanghaiEast ers of Lujiazui, construction is wo blocksfrom theskyscrap- How private hospitalsare reshaping thehealthcare landscape the State’s Hand Slowly Severing - - - -

achieving thesegoals. hospitals will play akey role in goals. Private and foreign-invested means to achieve itshealthcare ernment recognizes itneeds new budgetary challengesandthegov significant created has insurance over, therapid expansion of public care facilities remains poor. More- tries, andthequality of rural health- low compared to Western coun- coverage, expenditure per headis has expanded to near-universal care. While publichealthinsurance resulted inmore peopleneeding privatization continued asanew at theendof 2015. nearly achieved –reaching 19.4% government data, thisgoal was share in2015. According to recent of private beds,callingfor a20% targets for increasing thenumber 12th Five-Year Plan,itset specific when thegovernment released its for only 11%of total beds.In2011, despite this34%share, accounted hospitals tend to besmaller, and most 34%of thetotal. Butprivate this number reached 7,068 – al over 17% of all hospitals.By 2010, operating inChina2005,or just port, 3,220private hospitals were Boston ConsultingGroup (BCG) re- gradual process. According to a vate hospitalshasbeenalongand he shifting The healthcare landscape In early 2015,policiesfavoring China’s encouragement of pri- - - for 5%of private hospitals. early 2016 EIU report now account on therise,andaccording to an But foreign-invested hospitalsare than 100 were foreign-invested. New YorkTimes stated that fewer these, theChineseeditionof the private hospitalsinChinaandof BCG estimated there were 8,440 At theendof 2011,consultancy ten cannot usepublicinsurance. foreign-invested hospitals of more significant challenge isthat partner(s) holdingat least30%. A venture structure, with adomestic limited to a70% ownership joint foreign-invested hospitalsare market. Onekey restriction isthat imized their role inthehospital facing foreign investors have min- pitals hasbeenrapid, challenges hospitals. to over 12,000,or nearly 50%of all private hospitalshadballooned tive.” By that point, thenumber of sically earmarked asakey initia- the reforms, privatization was ba- research consultancy. “And within telligence Unit’s (EIU)healthcare at Clearstate, theEconomist In- sultant andHead of Greater China Con- Principal Senior Frick, Li Jin and expansion of insurance,” says ture development, cost reduction, that were emphasized: infrastruc forms, there were three main areas market emerged. “Withinthesere- bobulating thechaotic hospital round of reforms aimed at com - While growth of private hos- Movers and By DougS FEATURES Shakers trub - - 7 November 2016 8 www.amcham-shanghai.org additional clinic[all inShanghai] opening two new hospitalsandan continues to grow today. “We’re has expanded to sixcitiesand Beijing in1997. Since then,UFH with itsfirstlocation openingin eral hospital establishedinChina, vested international standard gen- tice.” UFH was thefirstforeign-in- quality of service to be bestprac and thereby improving service and there beincreased competition of thegeneral population that “It’s very muchbeingdemanded hai United Family Hospital (UFH). Smith, General Manager of Shang- quality medicine,” says Heather an improved andbest-evidenced of theChinesepopulation to have an increasing appetite onthepart tinuously growing, becausethere’s gence of private hospitalsiscon- and better services. “Theemer class are drivingdemandfor more levels and an expanding middle icy environment, growing income Patient basegrowth In additionto asupportive pol - - - focusing almostentirely onlocal expatriate communities, CHCis markets or are aimedmainly at niche smaller, fill to emerged have tration system) general hospital. in China’s three-tier hospital regis- Class III(thehighestclassification bed publichospital into a500-bed 2014. This project converted a150- Zhejiang province, openedinmid- with thelocal government of Cixiin 30% joint venture arrangement cities. CHC’s firsthospital,a70%- ence inChinathrough middle-tier (CHC) hasbeengrowing itspres- Chinaco Healthcare Corporation Founded in2008,Nashville-based and expanding into new localities. vested ventures are ontherise But more recently, foreign-in- dominated by domesticplayers. growth of private hospitals was long-established inChina,early pitals suchasUFHhave been looking to expand our footprint.” 2017,” Smith says. “We’re constantly While many private hospitals While foreign-invested hos- ing to survive without government says, “For our scale, we’re not go- bao [government insurance],” Guan Shanghai are not includedinyi- “Foreign-owned hospital clinicsin lic insurance at private facilities. as more flexibility when usingpub- ture andcanoffer incentives, such prove their healthcare infrastruc to draw inforeign capital to im- local governments are often eager cities more attractive. Additionally, cal patient focus makes lower tier III hospitals,andCHC’s size andlo- cities already have plenty of Class cisions. Oneisthat mosttier-one offers several reasons for their de- set to opennext year. in Zhenjiang, Jiangsu province, and ond hospital isunder development stream population field.” CHC’s sec for CHC.“We really play inthemain- Vice President Executive & General Counsel Guan, Ling says here,” capital invested private hospitals tinguishes us from other foreign- patients. “That’s onethingthat dis- As for choosinglocations, Guan - -

private insurance system. doctors and the lack of a developed cant involve theproblems of hiring remain.cles Twosignifi- most ofthe in theprivate hospital market, obsta- tions can drive investment decisions icies andattractive economic condi- to make our contribution.” vides a very bigopportunity for us lieve that themarket inChinapro- efficiencyon quality, and be- do we a player like usthat really focuses for therefore, “So Limited. Hospital Artemed Shanghai of Officer utive vices,” says Ellon Xu, Chief Exec to demandbetter andbetter ser income groups inChinaare starting ponent of thehospital.“Themiddle expertise to Chinaasakey com - they planto bringtheir orthopedic Shanghai’s Free Trade Zone, where 200-bed, ClassIIgeneral hospital in Group is currently developing a interest as well. Germany’s Artemed hospitals hasattracted European that’s not our goal.” not goingto fill our hospitals,and much higher. Just having expats is much more, andour volume isso pay, because we’re servingso vancement. CHC’s Guan says this better opportunity for career ad- intangible advantages, suchasprestigeand offer hospitals public and astate pension. Additionally, long employment, a steady income as life- such benefits guarantees ernment for many occupations that the safety net provided by thegov – rice bowl” iron “the from benefit when hiringdoctors. lenges remain for private hospitals has since spread. But several chal tion, andrelaxation of thispolicy nicipality to eliminate thisrestric 2014, Beijingbecamethefirstmu- ability to acquire talent. In August, nificant barrier to private hospitals’ employs them. This posesasig- seek work outsidethehospital that pitals have not beenallowed to

T iron rice bowl While favorable government pol This surge of foreign-invested Doctors inthepublicsector still Typically doctors at public hos- rapped inthe ------

encouraging thesehospitalsto ex the onehand,government is constrains private hospitals. On private insurance. people inChinahave supplemental port found that only aboutonein20 impressive increase, a 2016 BCG re- over thepasttwo years. Despite this saw growth rates of 41%and52.5% total medical insurance premiums to RMB2.4trillionin2015,andthat grew from RMB1.5trillionin2014 the private healthinsurance market faces many obstacles. help bridgethisdivide,butittoo has beengrowing rapidly andcan sues indoingso.Private insurance of coverage, butfaces fundingis- now seeking to improve the quality it at 95-97%. The government is in 2009, various estimates now put creasing coverage were launched Since reforms aimedat further in- from 23%to 87% of the population. ance), coverage inChinajumped ban Residents BasicMedical Insur Basic Medical Insurance, andUr ical Scheme,UrbanEmployees (the New Rural Cooperative Med- of publichealthinsurance in2003 of itscurrent three-tiered system the five years following thelaunch no other direction.” “but thetrend hasto bethat, there’s shifts. “It’ll take time,” Guanadds, additional ways to prevent such hospitals so where possibleseek pitals fear losing talent to private complicating theissue,publichos- sicians itmeansnothing.” Further if they don’t have theskilledphy how goodtheir infrastructure is, veloping, becauseitdoesn’t matter blocking private hospitalsfrom de- to get ridof this. They know thisis ally from thecentral level istrying Guan says. “Government conceptu- offers,” government the what offer pete for talent, because you can’t now private hospitals cannot com - culties private hospitalsface. “Right diffi- significant most the among is Private insurance – the missinglink This lack of private coverage Ernst & Young estimates that According to the World Bank,in - - - - privatization healthcare choosing to act. pears more andmore investors are favorable policy environment, itap- the emergence of an increasingly has sofar beenminimal.Now, with vestors, yet investment inhospitals long drawn interest from foreign in- and rapid economic growth has sector.” China’s massive population out theinvestment of theprivate support of theprivate sector, with- they can’t doitalone, without the says EIU’s Frick. “They recognize universal care to all itspopulation,” government ispursuingprovision of that theselinesare shifting.“The of private insurance demonstrates private hospitalsandrapid growth for sometime,thelarge increase in try. While theresults won’t beseen acceptable inthehealthcare indus- the linesof how muchprivatization is surance companies are redrawing some time.” insurance, butadds“that will take the right direction regarding private optimistic that thingsare headingin the payment source.” Guan remains til private insurance comes into be tals are never goingto develop un- with thegovernment. Private hospi- we have no such negotiation power we have thepower. Butright now as we’re thebest hospital in town, gotiate,” Guansays. “Thenaslong can we set a fair price and can ne- vate insurance company coming in hospitals. “Only when there’s apri- in successfully developing private and considers thisakey element surance, 50% government pay mix, thing closer to a50%commercial in- CHC’s Guan wants to seesome- private hospitalsinto suchareas. also incentivizing theexpansion of zens’ access to quality care, while insurance could increase rural citi- Affordablehospitals. private private afford cannot population general hand, theseare theareas where the derserved areas –butontheother pand –particularly into rural andun-

The future of Today, private hospitalsandin- I S hakers Movers and FEATURES 9 November 2016 RETIRE COMM

Old People, New Problems How China’s elderly could create the country’s biggest industry

By David Hicks

hina has an aging problem. What is physical and emotional support of their off- nies are preparing to help them shoulder unclear is whether it will be a source spring as they aged and became increas- the burden as they begin turning to the Cof disaster or opportunity. The sta- ingly dependent. But Chinese society is market for support. As it meets this need, tistics are staggering: In 2015, according to quickly changing, and this response is no the senior care industry is expected to be the National Statistics Bureau (NSB), the longer tenable for most people. One rea- worth RMB 1.8 trillion by 2020 and 7.6 tril- number of Chinese citizens over the age of son is that many young people have moved lion by 2050. 60 was 222 million, or 16% of the total pop- to new cities for school and work, leaving The senior care industry looks very dif- ulation. The NSB estimates elderly citizens their parents and grandparents far away ferent in different parts of China. Some- (65 years old and over) will constitute one- and in need of support from those outside times the government constructs com- third of the population by 2050. As this hap- the family. According to the China National munities designed to meet the needs of pens, the U.S. Census Bureau projects that Committee on Aging (CNCA), 70% of elders the elderly and leaves the operation of the working age population will fall by 5% – in mid-size and large cities live alone. these facilities to the private sector; other approximately 53 million people – between Yet even when families remain geo- times, the government simply subsidizes 2015 and 2030. A United Nations study es- graphically close, today’s Chinese chil- the private sector. In a 2016 press confer- timates that there will be 64 retired elderly dren face a unique burden as a result of ence, a vice mayor of Shanghai explained Chinese citizens for every 100 workers by the one-child policy. Within the next ten the history of the Shanghai government’s 2025. years, the first interaction with the senior care industry: For those that generation to “In the past, senior care services were pro- get it right, meet- have their family vided by organizations under the govern- ing the new needs Senior care is size dictated by ment. They were subsidized by the gov- of this aging popu- the one-child pol- ernment. Now, the government purchases lation will be a prof- expected to become icy will enter their services from social organizations... Seniors itable endeavor: China’s largest industry eighties and face are subsidized and can choose services Senior care is ex- the “4:2:1” problem themselves.” In-home care was declared pected to become within the next - the difficulties a the government’s preference in 2010 when China’s largest in- twenty years. single child faces the 12th Five-Year Plan outlined the govern- dustry within the when they are ment’s goal for a “90-7-3” system, under next twenty years. expected to care which 90% of the elderly are cared for in Historically, the for two parents their homes, 7% receive care in their com- Chinese emphasis on filial piety was - suf and four grandparents. This is an unreal- munity, and 3% receive around-the-clock ficient to sustain the elderly. Parents and istic expectation for many children, so the care in a residential facility. The interests

www.amcham-shanghai.org grandparents could count on the financial, Chinese government and private compa- of China’s elderly seem to align with their

10 RETIRE COMM

MoversMovers andFEATURES Shakershakers

government: a 2010 survey by CNCA found and lifestyle purchases, so the question of tax exemptions and other fiscal benefits to that about 85% of elderly Chinese prefer in- whether China’s aging population will be eligible non- and for-profit senior care in- home care to living in a nursing home. willing to pay for the services from which stitutions. In-home treatment is preferable to the these organizations profit is fundamental. But these benefits have not been Chinese government because it is cost ef- This helps explain why China’s insurance enough to entice foreign providers to offer fective. Yvonne Wu, managing partner of companies have been among the most the in-home care that the Chinese govern- Deloitte’s Life Services and Health Care prominent Chinese players in the senior ment knows is needed. As Shobert notes, division, noted that “due to the very tight care industry. Insurance companies like the government’s incentives do not “give funding, the government still sees com- Taikang Life Insurance and Union Life have any meaningful reimbursement for home munity care a suitable model to mitigate invested billions of RMB in building continu- health care providers.” Foreign companies funding pressure.” The government’s tight ing care retirement communities (CCRCs), also continue to face an uncertain and funding was reflected in a 2012 World Bank bundling the services their CCRCs provide burdensome regulatory environment. “The study which found that only 38,000 institu- with the sale of long term care insurance. regulatory framework that guides home tions had been built for senior care, enough Access to long-term capital puts China’s health care is still very out of sync with to serve 1.6% of the population over 60 – far insurance companies at an advantage in what we can do in the West, from a clinical short of the Bank’s 8% coverage standard developing CCRCs – where short- and me- and care point of view,” says Shobert. “Many for developed nations. dium-term returns are usually slim but grow times the Ministry of Health doesn’t have The high costs and minimal profits of over the long-term. Because they have di- the regulatory capacity to approve a home community care have hindered some of versified revenue streams and established health care provider as a home health care the most ambitious government efforts reputations with Chinese elderly, China’s life business, so what they end up doing is to equip urban neighborhoods to serve insurance companies are well equipped to regulating a home health care provider the their elderly citizens. For example, in 2001 build CCRCs that serve the middle class. same way they would a hospital.” the government began a four-year effort Meanwhile, foreign real estate and insur- However, regulation has not deterred known as the Starlight Program to bolster ance companies, along with venture capi- Chris Alford, director of Asia operations for community care services for the elderly. tal and professional retirement home man- Home Instead Senior Care, one of the world’s Under this program, the Chinese govern- agement firms, have been quick to meet largest home care service providers. “I don’t ment reported investing RMB13.4 billion the needs of China’s wealthier citizens with think the [regulatory] uncertainty is a big deal. (approximately US$2.1 billion) in communi- residential service offerings. In 2011, Cas- That’s one of the costs of doing business ty emergency aid, day care, health services cade Healthcare, a joint venture between here, there’s always uncertainty,” he said. and recreational activities for seniors. By Seattle-based investment management Home Instead is a franchise business with 2005, however, despite having established firm Columbia Pacific Advisors and senior Chinese branches in Shenzhen and Wuhan. 32,000 Starlight Senior Centers and report- living community manager Emeritus Senior According to Alford, one of their biggest edly benefitting over 30 million elderly Living, became the first foreign firm to re- challenges has been educating Chinese citizens, the program began losing finan- ceive approval for a for-profit senior care consumers on the value of in-home service. cial support. A 2012 paper by a group of facility. Cascade Healthcare’s first facility In his view, “We are probably two or three Chinese researchers noted that, since the opened in Shanghai’s Xuhui District in 2012 years away from home care really taking off. Starlight Program wound down, “Self-sus- on a 50,000 square foot site with 100 beds. But right now the main component is edu- taining, community-based long-term care They have since opened additional facili- cation. It’s easier to sell a nice nursing home services remain largely nonexistent, except ties in Shanghai’s because you can in a few major urban centers like Shanghai.” Pudong District point to tangibles – Cost-consciousness is not exhibited by and Beijing. These are not ‘the beds are nice, the government alone. When Ben Shob- The Chinese it’s a new build- ert, managing director of Rubicon Strat- government has management teams that ing.’ But for Home egy Group, looks at China’s projected de- acknowledged know how to take Instead, when we mographic changes, his understanding that it needs the say ‘here’s why our of price sensitivity among older Chinese help of foreign something to Toronto, care is professional, consumers makes him skeptical of the de- ventures like Cas- let alone Tianjin. here’s our training, mand that China’s elderly will have for se- cade Healthcare certifications, etc.’ nior care services. “[This cohort of Chinese to meet the needs – those things are elderly] lived through some of the worst of the elderly pop- very hard for [Chi- moments of China’s history, and they are ulation. In mid-2013, the State Council indi- nese consumers] to really feel and under- very, very savvy and wary consumers,” he cated through an Opinion that they wanted stand why they should pay a premium.” says. “One big question is whether they are to encourage foreign investment in the While no Chinese institutional care going to make a lifestyle-based purchase senior care industry. This was the first time providers would comment for this article, decision, or if they are going to wait until it’s that the potential of foreign capital in se- it seems clear that the cultural challenges purely needs-based.” nior care was explicitly recognized by the of educating a country on the value of hir- Senior care service providers usually government. In 2015 the Ministry of Com- ing specialized in-home care providers or

make most of their profit from amenities merce followed suit and began offering convincing a thrifty generation to indulge November 2016

11 in the amenities of a nursing home, along as potential platforms that could be export- are certain, but the ability of foreign busi- with the regulatory uncertainties as the in- ed into a market like China have very little nesses and the Chinese government to dustry begins to mature, might play a ma- to no international experience of any sort,” satisfactorily address the senior care in- jor role in dissuading foreign companies said Shobert. “They are heavily domestic, dustry’s many regulatory, financial and from expanding into China. neighborhood-by-neighborhood business- cultural challenges is not. Yet creating a Another reason foreign companies may es ... These are not management teams that reliable and affordable senior care indus- be reticent to come to China is simply a lack know how to take something to Toronto, let try is essential for China to meet one of its of international experience. “Most of the se- alone Tianjin.” greatest social challenges. I nior living companies that you would view China’s coming demographic changes

In-Home Care and the Ayis

In-home care providers in China face a unique challenge from ayis in-home care companies hope to supplement the services that ayis and and baomus. While live-in ayis and baomus are not in direct compe- baomus provide with caretakers who are specially train月ed大 and always tition with home care providers, the companionship and support that dependable. “Caregivers are backed by 24/7 office support. If an ayi gets they can provide to the elderly does overlap with the service offerings sick, there is no substitute. That’s fine for house cleaning but doesn’t work of in-home care providers. As these providers educate consumers, if a senior is relying on someone showing up for daily living activities.” they are paying attention to how they can differentiate themselves If China’s army of ayis and baomus were properly trained in senior from these mainstays of Chinese culture. “What does a caregiver re- care, they would be of major benefit to China’s burgeoning senior ally look like? How are they different from an ayis or abaomu ? Why is care industry, which is greatly limited by a lack of properly trained specialized care more important? Those conversations are starting to local staff. The Ministry of Civil Affairs has set a professional standard happen, but at this stage we are basically educating from the ground for the industry, but only 40,000 of the over one million staff in the in- up,” said Chris Alford, director of Asia operations for Home Instead dustry meet the standard. The costs for foreign firms associated with Senior Care, one of the world’s largest home care service providers. identifying and training caregivers to service their China operations While Home Instead is not aiming to replace ayis, Alford notes that are thus usually greater than in their home country. www.amcham-shanghai.org

12 for MNCs. roundtable an executive for IMAAsia, white papers She alsowrites for BioWorld. tech industry on China’s bio- been reporting years, shehas past three Nike. Forthe Beijing, and embassies in and British Canadian the Chinese NGO, worked fora has Ellis 1998, Shannon China since A resident of N excels in basic research - where cost environment. Today, China lar stretches farther inChina’s lower what theU.S. invests, theR&Ddol 2010 and2015. Although lessthan R&D pharmainvestments between government spent US$6billionin Year Plans.Itisestimated that the industry inthe12 nology hasbeencalledoutasakey worked hard to supportit.Biotech- years. tion to patients within thenext 10 reliably deliver meaningful innova- follow-on biologics,looksset to generic chemical drugsandafew bar, with amarket dominated by fail. ButChina,startingfrom alow start their biotech industry only to governments have triedto jump- with obstaclesandsetbacks. Many a high-risk,costly endeavor riddled nology to patients. Biotech isalso takes to deliver innovative biotech- sophisticated entrepreneurship it from thescientific excellence and therapy, national pride gets a boost Whether itbealifesaving drugor The government hascertainly Biotech Revolution biotechnology industry. arrived quite like athriving othing says acountry has th and13 China’s Coming th Five- - turnees’ (often called‘sea turtles’) have afloodof experienced ‘re- army of doctorates andmuchmore. zations (CROs) patient groups, an pharma, contract research organi- only apartial list;italsotakes big with aprofitable exit. And thisis cial markets that provide investors and trade secrets and robust finan- an IP culture that protects patents safe, effective drugsandtherapies; to global standards for approving dictable regulations that adhere liver cleandata; transparent, pre- follow clinical trial protocols to de- qualified hospital investigators that scientific vision;neurship with ployees that combine entrepre- start-ups; biotech CEOs andem- venture capitaliststo finance the function. Itrequires science-savvy system for abiotech industry to seed; it takes a flourishing eco- the complex system of thebody. exciting labdiscoveries to work in medicine: thetough taskof getting but remains weak intranslational journals andquantity of patents - published papersinpeer reviewed it tops rankings for thenumber of China hasbeenfortunate to This isbecauseR&Donly the more generous the enticements tablished ahigh-tech park is,the government. ufacturing facility from thelocal for aUS$120millionbiologicsman- sic example; itreceived financing based inSuzhouBioBay, isaclas- Innovent, asuccessful biotech prefer to invest in tangible assets. governments, hi-tech parks often in thepark.Backed by municipal tech workers they hope will settle living environment for thehigh- and thepromise of anamenable manufacturing facilities, taxbreaks generous financingfor labsand centives includefree office space, tech parksthat dot thecountry. In- offers madeby the100-plusbio- to passup. become anopportunity too good market, after theU.S., Chinahas the world’s second largest pharma ence industry. Now that China is filling positionsacross thelife sci- valuable industry experience, are in North America or Europe with China-born scientists, educated of itsbiotech ecosystem. These to accelerate the development The more remote or lesses- Many are lured by thegenerous Movers and By ShannonEllis FEATURES Shakers 13 November 2016 14 www.amcham-shanghai.org bicon Strategy Group. Shobert, managingdirector at Ru - ogy products,” explains Benjamin that represents higher technol to create a new export industry to produce basicmedicinesand domestic manufacturing capacity ensure the country has a viable system. China’s objectives are “to market authorization holder (MAH) tract manufacturing by institutinga and biosimilars,allowing con- quiring bioequivalency for generics good clinical practice (GCP), re- ufacturing practice (GMP) and standards –mandating goodman- pharma sector isadopting world applications. freed upto focus onhigher quality agement, theregulators are now problems with clinical trial man- sure highlights theseriousnessof this unusual government disclo- of themfor genericdrugs. While plications for fraudulent data, most recently kicked out1200drugap- cus onmakinggenerics. The CFDA 3,000 pharmacompanies that fo- changes have beenhard onChina’s and speeding up review times. The backlog, hiringmore reviewers substantial progress; clearingthe matic reforms. The CFDA hasmade (CFDA) themandate to make dra- Food and Drug Administration issued Circular 44,giving theChina gust 2015 when theState Council in theU.S. That all changedin Au- tive step that usually takes 30-days testing inhumans,anadministra- fore they would begreenlighted for delayed for two years or more be- tion. New drugapplications were government’s pushto spur innova - system hadnot caught up with the ent retention canbetough. but competition isfierce, andtal concentration of top employees, In theseparks,there isahigher of genomicediting,Shenzhen. Suzhou BioBay and,inthearea Hi-Techhai Zhangjiang Park, and mature biotechs, are Shang- where onecanfindbigpharma tract top talent. The older parks, might bebuttheharder itisto at In important ways China’s But until recently, theregulatory - - -

by immunology, neurology anddi- oncology topping thelist,followed cant unmet medical needs with indications follow China’s signifi- for over 70%. The hot therapeutic billion with biologicsaccounting deals last year totaled US$3.5 nounced cross-border pharma ern firmsandChina,publicly an- acts asabridgebetween West Shanghai-based consultancy that a LLC, ChinaBio by compiled data Korea and Japan. According to techs from theU.S., Europe, South up deals with bigpharmaandbio- biotechs that have beensnapping China’s emerging crop of start-up partner. This hasbeenaboonfor market requires astrong local that navigating theChinapharma drugs inChina,for China. to manufacture and develop new ters inChinaandfiguringouthow beefing up their global R&D cen- how they canpartner locally, are phased out. MNCs are looking at pricing for imported drugsisbeing able patent time while preferential be muchslower, eating into valu- ported drugpath still exists but will manufactured inChina. The im- but they must bedeveloped and able regulatory path for new drugs, government reforms now offer a vi- trials for first-in-class drugs. The when developing global clinical mium. China was anafterthought ent drugsthat enjoyed aprice pre- have relied onimported, off-pat past decade,MNCssalesinChina figure their Chinastrategy. For the forms are forcing themto recon- companies, theregulatory re- in response to thereforms. ufacturer looking to invest in China man- a contract PaizaBio, of officer said David Deere, chief commercial just hopethey don’t move again,” landing striphave beenset, now we the changes.“The white linesof the municate andpredictably execute ment’s ability to transparently com - mains concerns aboutthegovern- biotech industry, althoughthere re - warmly received by leadersinthe There is widespread recognition For theMNCpharmaceutical The policy changeshave been - - 2015. Hengrui isalsoleadinga wave Incyte Corp.for US$795 millionin drug, PD-1 antibody, to U.S.-based censed apreclinical immunotherapy Jiangsu Hengrui Medicine Co.out-li- milestone, industry significant a as discovery. Inadeal that was viewed strating China’s strength indrug global rights to their assets, demon- are makingmoney by licensing out with WuXition AppTec. with Innovent as well acollabora- up aten-year, US$1billiondeal with Chinesecompanies, setting has been very active partnering logics arm of AstraZeneca. Eli Lilly nology, andMedimmune, thebio- apy company with CAR-T tech- leading U.S.-based immunother joint venturesup aset withJuno, up the pharma value chain, has service company that has moved ventures. WuXi AppTec, aplatform ger-term partnershipsandjoint control inChinahave set uplon- biotechs disclosefinancial terms. hard to assess since few Chinese sweeten thedeal,butthisremains payments, relying onmilestones to reputation for paying low upfront in China.Chinesebiotechs have a candidates with market potential ing west, lookingto buy novel drug last forever, have alsobeenhead- business casefor generics will not companies, recognizing that the October. China’s traditional pharma betes drugsfrom AstraZeneca in maker, nabbed two marketed dia- commercially successful biologics are for early stageassets, 3SBio,a ception in 2014. While most deals Hanmi, UCBandSanofi since itsin- GlaxoSmithKline, Tesaro,with deals particularly is onfire, having signed Labs Zai founded Newly year. that signedin-licensing dealslast among the dozen or so companies clone, CanSinoandCANBridge are Sci- Pharma, Lee’s smoothly. way navigate thedevelopment path- seek to leverage local expertise to technology,while Western firms companies searching for Western abetes. Increasingly, Chinese biotechs Western firmslookingfor more Many dealsinvolve Chinese - while western leverage local firms seekto for Western Many deals technology, companies searching expertise Chinese involve of Chinese biotechs that are initiat But Chinaremains atough place the development of their assets. with bigpharmato helpfinance that leveraged out-licensing deals nies with richoncology pipelines lion. Both are clinical stage compa - few months later, raising $650mil 2016 with Chi-Med goingpublica raised US$756 millionin January the Chinabiotech story. Beigene to get U.S. investors interested in foreign-bornCEOs whowere able - andboth companies were ledby biotechs -BeigeneandChi-Med ble Nasdaq IPOsfor China-based more quickly thaninChina. allows themto collect clinical trial regulatory system in the U.S. that advantage of themore predictable larger U.S. market butalsoto take looking to get apiece of themuch ing clinical trials in the U.S. They are Last year there were two nota- two were there year Last - - finance western biotechs if they outside of Chinaandare willing to million. Many VCs are investing raised rounds inexcess of US$100 Labs, Innovent and CStone have all ing isnot aproblem. Beigene,Zai biotech CEOs say that fundrais- this capital -not surprisingly, most now have to get busy investing according to ChinaBiodata. VCs in drugs,devices andservices, increase over 2014for investments three-quarters of 2016;a19-fold lowed by $7 billionmore inthefirst over US$10billion was raised fol raising for life sciences. In2015, explosion of venture capital fund- public market hasnot stopped an Beijing offers littleliquidity. from listing,andthe Third Board in rules banpre-revenue companies capital onthestock market. The for clinical stagebiotechs to raise But not beingableto exit onthe - in the13 any biotech industry anywhere. And that are sure to happen,asthey doin failures trial clinical high-profile the dustry hasto brace itself for surviving issue. Moreover, China’s biotech in- biotechs for novel drugsisacrucial ment will price andcompensate sales by volume, how thegovern- China market promises substantial for innovation? While thesize of the remains:imbursement whowill pay be overcome. The questionof re- arrived, afew barriersstill have to but before onecansay ithastruly been growing by leaps and bounds, technology. can see a China connection to the buster drugto the world. block first its delivers China when will beforgiven andforgotten if and its investment. But,intheend,much ment will start looking for a return on The biotech industry inChinahas th Five-Year Movers and ＰPlan, the govern- FEATURES I Shakers - 15 November 2016 The Surgeon’s Toolbox Stryker China’s Managing Director William Jin on China’s medical device market

By Ian Driscoll

You trained as a general surgeon but there is more competition in our industry, technology. There have also been many moved into the medical business. Why so fewer people are trying to jump in. changes on the policy side, and technol- did you change careers? Another factor is the overall coverage ogy today is also very different. I graduated from Shanghai Sec- of healthcare by the government, by in- Looking at the future, while some fore- ond Medical University in 1989, when surance companies, or by an association casts see GDP growth dropping below China was starting the open policy. A like Xin Nong He, where all the farmers 6% next year, we anticipate healthcare lot of doctors like me left the so-called put money together, and if someone spending as a percentage of GDP will ‘state system’ to join hotels or multi- gets sick, it pays the bill. When I first keep increasing. And healthcare costs national pharmaceutical companies. I came into this industry, less than 20 or will also increase. earned about 200 RMB a month, and if 30% of the population was covered by you joined a multinational in China you the government or by an association. Can you tell us more about the regis- earned about double that and you felt Now about 90 to 95% of the population tration fee and clinical trials? that your efforts would be rewarded. In has coverage, although the value is still It depends on the product’s nature. my industry there are many people who relatively very small. Products are divided based on risk, and are former doctors or English teachers. Third, market access is getting the highest risk level is Class Three. The Now it is not like that. Not many people tougher. Ten or 20 years ago it was not so registration fee alone, not including test- are leaving medicine. hard to get an import license. Now there ing or samples, is about US$51,000. A big are a lot of controls, starting from an im- multinational company easily has 20 or Since you left medicine and joined in- port license, post market surveillance, 30 new products every year, so it’s a siz- dustry, what are the three or four most tendering requirements, and now clini- able payment. If the market for a product significant changes that have taken cal trials for imported medical devices. is small, it may not be worthwhile. place in the Chinese healthcare market? These kinds of controls can be good for Class Three devices need clinical tri- First, there are fewer doctors joining our patients but can also cause unnecessary als, and it takes five to six years to fin- industry because the overall environment lead times. The Chinese patient may not ish the registration and clinical trial. To-

www.amcham-shanghai.org for doctors is improving. On the other hand, be able to be treated with latest medical gether the registration fee and clinical

16 MoversMovers andFEATURES Shakershakers

trial fee can be about US$2-3 million. wants to protect patient safety and cure This is the biggest challenge for U.S. more patients; on the other hand, they medical device companies: in our indus- want to control healthcare expenses. Ad- try, average product life circle is five to ditionally, there are many new start-up six years, so as soon as something is ap- companies in China, and they [the gov- proved here, it’s out of date in the U.S. ernment] not only want to regulate them When you start to register a new Class but also help them grow. Three product, you need to anticipate a China is trying different ways to control five to six year timeline, and you need to healthcare costs in addition to tender- check with manufacturing and R&D that ing, such as the DRG payment scheme, you will still have that product in five or two-invoice requirement, etc. six years. Overall, the registration of medical de- Will the central government exert more vices is getting more and more rigorous. control over healthcare in the future? Yes, but It’s hard to anticipate how. Some AmCham members say it’s harder I think that in the next five to ten years William Jin for Western medical device compa- there may be more streamlining of mar- nies to compete with local companies ket access regulations such as around because the playing field is no longer clinical trials. If the government feels Where do you see the biggest growth level. Is this true? there are too many hurdles to execution, opportunities for domestic and foreign Compared with 10 or 20 years ago, they may make adjustments, such as pro- companies? Or do you think foreign that’s correct. But the government viding an excepted product list, accept- companies will be forced out by local should have been doing then what it is ing more clinical evaluations, etc. They competition. doing now. For imported products, for may either centralize more regulations or Multinationals will prevail in sectors example, multinational companies must the central government will give clearer where there are more innovative prod- now hold clinical trials. Previously only rules to provincial governments on what ucts, like in the high-technology or local companies were required to have they should do. This is because a lot of life-threatening areas. Locals will pre- clinical trials. The imported products payments for healthcare come from the vail in commodity-type products and in need clinical trials even if they are U.S. provincial government, not from the cen- areas like chronic diseases. It depends FDA approved or have been trialed in tral government, so there is a lot com- on the product and the nature of the other markets. If you dig into the details plexity to manage. treatment. For example, the pacemaker there are some differences, but it’s fair to market is dominated by multinationals say that it is now equal. because no patient or doctor wants to The other area to consider is market risk their life. There’s very high technol- access. Ten to 20 years ago, every com- ogy inside a pacemaker, it keeps being pany enjoyed 20 or 30% growth and the upgraded, and it’s difficult for local com- provincial and municipal governments panies to keep up with the development had little control over pricing and reim- pace. If you look at products like hip and bursement. Now there are strict controls knee replacements, they’re more reli- over pricing and reimbursement with the ant on design, on materials, and they go ‘green book’. On the pricing side, each through many upgrades, so people want province has a so-called ‘tender’, which imported products. is different from the western world. In On the other hand, stents are now al- the U.S., the tender means you agree most a commodity. There’s not much de- on a price, and they [the hospital chain] sign, they are very similar, and the market commit to a volume and you sell the is now dominated by local players. Even committed volume at a certain price. But J&J has withdrawn from the market. More in China, a tender is like a price cut. So and more of the trauma market is also they pick the lowest price you can sell going to the local market. This is because in that particular province. Then you go trauma is emergency surgery and if you to each hospital, and they negotiate with get hit by a car, you have to be treated you again regarding what is the lowest very quickly. The products used to treat price. And this process is getting tougher Modern mobility aid you won’t be very different whether they and tougher. are foreign or local. Also, local companies What I am also seeing and expect, and will prevail with diseases like diabetes or Are government healthcare policies it’s not to do with policy, is improvements hypertension, where it’s not immediately driving these changes? in IT, robotics, and other things that will life-threatening, but where you need

On the one hand, the government make the system more efficient. something that is required every day and November 2016

17 which needs to be conveniently reached can give you a book and say read this and pay the rest by yourself. If you select the like a consumer good. you will know the rules. And every six to local product, you may get a 100% or 90% twelve months, new rules come out. reimbursement, but the maximum may Are western companies in this industry Our industry associations like Ad- be RMB 5000. So it’s your choice. It’s the slower than local competitors when it vaMed, like AmCham, all try to lobby same with stents. If a guy is lying on the comes to marketing? the government about how to improve operating table, the doctor may come If you look specifically at the China the market access for U.S. medical de- out and say to the family member: “He market, western companies sometimes vice companies, for example, using FDA needs two stents; do you want local or are slower, simply because there are a or other western countries’ data to try to imported?” If you select imported prod- lot of hurdles to entering the China mar- prove that this is a valid product, a good ucts, there will be different prices. ket. But if you look at the global market, product, and to except it from a clinical I think that in our industry, western com- trial. This has gone to the JCCT, but it’s Do you ever wish you were still a sur- panies are much more advanced and pi- still being discussed. geon? oneering than the local companies. One I’m still very interested in surgery and I of the advantages for local companies Can patients choose whether their new think being a surgeon is very good thing. in China is simply that because they are hip or knee joint is a foreign or domes- But I still don’t want to be a surgeon in based here, it’s easier to get to the end tic product? Can you say you want a Chinese medical system. I user market. particular brand? Normally, the doctor won’t ask you When Chinese companies go to the which brand. The doctor normally U.S., do they face similar hurdles as U.S. asks you which kind of reimbursement companies coming here? scheme you have. For example, if your Similar, but bringing products to China product costs RMB 10000, the govern- is more complicated. In the U.S. there ment may say RMB 8000 is the maximum are clear rules for companies. In China, reimbursement it will pay if you choose a lot of rules are not written, so no one the imported product, and you need to www.amcham-shanghai.org

18 High Impact Boards A common practice that high impact boards follow

By Bob Arciniaga and Alan Hepburn

This chart demonstrates that the high impact boards that were Bob Arciniaga is the Founder of Advisory surveyed (boards with a strategic impact score above 4.5 on a Board Architects (ABA) 1-5 scale) had a percentage (in orange) of these different impact points. As you can see, 76% of these boards conducted evalua- Alan Hepburn is the Managing Partner of ABA tions. This is the second-most common factor, only topped by the Asia based in Singapore. number of board meetings per year. Another interesting statistic revealed by our survey of private companies considering building a board in 2015 is that 71% of ABA is a global firm that works with companies them were planning on implementing a board evaluation process. to create greater strategic impact from their In addition, 80% of those companies were planning on conducting boards. board evaluations annually. However, once these companies build their boards the odds n our discussions with CEOs and board members around the are that they will not follow through on implementing a board world, we are often asked the question: what is the one thing we evaluation process. This is shown in the data collected in 2015 Ican do to get more value from our board? The complexities of from directors and CEOs of private companies: a board mean that there is rarely one simple answer that will help achieve this outcome. But based on our data, we have identified a common factor that many high impact boards have that other less 2015 Board Evaluation Survey impactful boards do not. Actual data from ABA web application survey of 716 private companies with boards One common trait of most high impact boards is that they conduct formal evaluations of the board, and in some cases Yes No the individual independent board members. We are not imply- ing causation from this one data point, as we feel this is one of a Do you conduct board evaluations? 28% 72% number of common traits that, when combined, yield the greatest

board value. But the correlation is compelling and we believe this The 28% that do evaluate their members have an average increase is an important component of an high impact board, as demon- of 43% in strategic value vs those that do not. strated in the following chart.

We have some theories as to why these boards do not follow through on the seemingly logical idea of evaluating the board’s im- Common Traits of High Impact Boards pact on the organization. For example, it can be difficult and time- From 2015 ABA web application survey of 647 private companies consuming to set up an objective board evaluation process if the company has not had a system like this in the past. It can also be Non fiduciary (advisory) 62% 38% difficult to initiate a board evaluation system from a cultural perspec- Conduct evaluations 76% 24% tive in different parts of the world or for certain types of companies. 3-5 meetings per year 82% 18% Board members from other countries 48% 52% 4-5 independent board members 52% 48% Why is a formalized board Provide upside compensation 57% 43% evaluation process beneficial?

Regardless of why it may be difficult to implement this initiative, November 2016

19 20 www.amcham-shanghai.org powerful component of highimpactboards. the impact that has been realized by those companies, this is a are many more, and when combined with our objective data of that have implemented evaluation processes have realized. There world hasprovided someof thefollowing qualitative benefits: example, our first-hand experience working with boards around the For value. strategic greater of potential the beyond benefits other strategic value of boards that doconduct evaluations. And there are perform their counterparts, we seeanaverage 43%increase inthe uation system may not bethesolereason that theseboards out evaluations may greatly enhance aboard’s impact. While aneval These are only a few of the subjective benefits that companies for any capital expenditure of acompany. stand and justify the cost of the board. This would be normal board isgenerating for anorganization, itiseasier to under porting theexecutive team inachieving thedefined strategic goals. meetings becausetheboard membersare more focused onsup- tem. This alignment results in more engaging board and committee organization, which isoften thebasisof theboard evaluation sys- tive team with thestrategic initiatives that are mostimportant to the cated. when theobjective value of theboard isassessedandcommuni- greaterfamily harmony conflictless and some with executive teams pendent board members bring to the organization. This can create cess provides alevel of objective analysis to the value that theinde- � � �

Boards are costly. By analyzing the value (return) that the This process often alignstheboard membersandtheexecu- For many family-owned businesses,aboard evaluation pro- - - - seems only logical. board isdirectly responsible for drivingshareholder value, it and the value itgenerates for your organization? Given that the impact of the CEO, so why not evaluate the impact of the board is common practice for many boards to objectively evaluate the board performance asthey doto therest of theorganization. It companies rarely apply the samerigor to theevaluation of a phasedapproach that becomes more objective over time. contrary, we suggestthat anevaluation process might needto be bility of dysfunction within theboard andtheorganization. Onthe not having anevaluation process cangreatly increase theproba- should prohibit theimplementation of anevaluation process, since pects needto beconsidered. We are not suggestingthat culture impact thannoevaluation process at all. subjective board evaluation system cangenerate ahigher board effective than other evaluation processes. However, even the most objectively based, such as 360-degree evaluations, are far more by hundreds of boards around the world. used systems evaluation common the of some are below Listed a company. to beneficial most be would that system evaluation the cultural nuances of anorganization will dictate thetypeof Caption

T Our data, andother data collected onboards, shows that Regardless of the evaluation system that is used, cultural as- We have learnedthat board evaluation systems that are more � � � � Not all boards are created equal,andaboard’s structure and ypes of evaluation systems 360 evaluation Peer assessment Self assessment No evalution I The Power of anObjective Board Evaluation Process Case S ful completion of theboard metrics (strategic initiatives). but upside was provided that was tieddirectly to thesuccess- that was tied to these outcomes. Board stipends were lowered goals, andtheoutcomes, was collected. ber played insupportingtheexecutive team to achieve its was tracked. The role that eachindependent board mem- also tasked with these same metrics and this information the executive team. The difference was that theboard was outcomes andobjectives were set for thecompany and meetings annually. Similar to many companies, specific prehensive analysis of the aggregate of all of the board tributed through thegovernance committee. ing. Results were analyzed andrecommendations were dis- members andexecutive team membersafter eachmeet pact of board meetings and was completed by theboard format measured the level of engagement and strategic im- were integral to the company’s success. This questionnaire cess could bemore focused onthestrategic initiatives that value of eachboard meeting to identify how theboard pro- ofthe evaluation asubjective was step first The process. titles and would not beopen to aformal evaluation process. sated, thefamily felt that they hadimpressive resumes and process. While theboard members were highly compen- that was missing was acomprehensive board evaluation of many listed companies intheUnited States. Oneaspect oped aset of strictgovernance procedures that rivals those they were invited to join the board. The board has devel isting relationships with thecompany or thefamily before four independent board members who did not have pre-ex bers working inthebusinessmiddlemanagement. there are a few fourth- and third-generation family mem- The family hasinstituted aprofessional executive team and 22 years andhas worked inthebusinessfor over 30 years. owns thebusiness.Shehasbeenrunningcompany for is currently athird-generation member of thefamily that over$400 milion in annual turnover andthe chairman and CEO has company The America. Latin in based business Solution Background Board compensation changedto a“riskadjusted” model This “real time” analysis was combined with amore com- The organization implemented atwo-step evaluation The board hasamajority of family membersbutalsohas Our client isafourth-generation food manufacturing tudy - - - ecutive team beganquestioningits value. expensive board, both thefamily shareholders andtheex a lackof transparency with regard to therole of this very Due to difficulties. significant into run to began teamby the a seriesof missteps, theinitiatives that were implemented be more reactive to information andlessproactive. Dueto The problem was that theboard process was designedto markets in different countries and a new innovation strategy. that includedgrowth through acquisitions, establishingnew to embarkonanaggressive international expansion strategy to continue to support thecompany. creased and the board members were more highly engaged shareholders, board membersandtheexecutive team in- pecially for thechairmanandCEO. Trust between thefamily greater for thecompany thanhadpreviously beenachieved. successes andtherisk-adjusted model,but returns were far board cost more since thecompensation increased dueto the accomplished in a shorter time frame than first envisioned. The volved. Not only were thegoalsaccomplished, butthey were to clarity of the value of theboard to all of thestakeholders in- Issue Outcome The family businessboard andexecutive team decided Ultimately, his led to much greater family harmony es- This alignment of board focus, outcomes andmetrics led

Not justasinecure - 21 November 2016 22 www.amcham-shanghai.org By John Balzanoand Anna Zhao and MedicalDevice RegulatoryReform China’s Integration ofHealthcare D.C. office. Washington, in Covington’s groupPractice and Drug Food in the an associate Anna Zhaois Burling. Covington and York office of New in the groupPractice and Drug Food to the is counsel John Balzano K 2020, available athttp://trade.gov/topmarkets/pdf/Pharmaceuticals_China.pdf. grow from $108billion(2015)to $167billionby 2020. Total healthcare expenditures are expected to double from $640 billionto $1.1trillionby 1. According to theU.S. International Trade Administration Chinaisthesecond largest pharmaceutical market inthe world andexpected to third, ithasbeenreforming its deems to behighpriority. And, search inareas thegovernment and other grants for medical re- promote personalized medicine), medicine initiative (aneffort to programs, suchastheprecision pies through government-funded broadly, includingmedical thera- vation inscience andtechnology taking steps to encourage inno- ral residents. Second, ithasbeen residents andemployees andru- run healthcare plansfor urban medical devices, under thestate- for reimbursement for drugsand care system, includingthesystem it hasbeenreforming itshealth- policy reform onthree fronts. First, has beenpushingfor legal and ing for abreakthrough by 2020. pens gradually, butChinaislook This isaprocess that usually hap- advanced technologies very fast. ing thedevelopment of themost drastically, while alsoencourag- raise thestandard of healthcare daunting becauseitsgoal isto China’s challengeisparticularly ond-largest healthcare market. cluding China-the world’s sec for many healthcare systems, in- vices isasignificant challenge To meet thischallenge,China ogies andhealthcare ser in drugs,medical technol eeping pace with advances - - - - 1

ical needs. that fill key currently un-met med- facilitate theapproval of products devices, includingprocedures to tribution of drugsandmedical approval, manufacturing anddis- regulations onthedevelopment, these reforms have taken shape. This articleexamines how someof only begunimplementation this year. space, whereas drugreforms have taken place inthemedical device a more comprehensive reform has for drugsasitisfor medical devices, vation.” While thisiscertainly astrue ments from thegovernment is“inno- in many healthcare-related docu- needs. Indeed,thebuzz-word now product innovation andhealthcare of patient needs,thereby integrating devices that serve a broader range higher-quality drugsandmedical orously examine ways to encourage (“MoST”), have begunto more vig- Ministry of Science and Technology Administration (“CFDA”), and the (“NHFPC”), theChinaFood andDrug and Family PlanningCommission cies suchastheNational Health ing theState Council anditsagen- the central government, includ-

Over thelastthree to four years, Incentives for innovation have reform for devices comprehensive policy Innovation and Council issued a12 tions to ensure safety. The State grown upalongsidenew regula- ufacturing rulesandGoodMan- ing GoodClinical Practices, man- rules onmedical devices, includ- plete revision of all of theCFDA’s was thestartingpoint for acom- istration Regulation. This reform Device Supervisionand Admin- vices, referred to astheMedical and distributionof medical de- and development, manufacturing regulation governing the research Council amendedthe framework domestic innovation. and products to steadily increase sored or encouraged programs The overall goal isfor state-spon- Technology inSeptember, 2016. by theMinistry of Science and Innovation released for comment Device Scientific and Technical teenth Five Year PlanonMedical Plan Regarding Items inthe Thir peated more recently in the draft tion.” These goals have been re- drug andmedical device innova- technical innovation andincrease nies to engageinscientific and “support andencourage compa- would reach patients, butalsoto not only to ensure that safe drugs ernment would make ita priority document made it clear the gov Plan onDrugSafety in2012. That Meanwhile in2014,the State th Five-Year - - MoversPOLICY andPERSPECTIVES Shakers

ufacturing Practices, and distribution the applicant had to have the necessary keted in or outside China, and certain rules and Good Supply Practices. The facility, personnel and quality systems to drugs with clinical advantages and for last pieces of this reform, such as regu- hold the manufacturing license. specific indications: HIV/AIDs, tubercu- lations on post-market surveillance, are Innovative device pathway changed losis, viral hepatitis, orphan diseases, still being finalized. It also led to other that. Qualifying applicants are permit- oncology drugs, those with pediatric more targeted reforms, such as the “in- ted to contract out manufacturing with- uses, and those for diseases prevalent novative device” pathway. out holding their own manufacturing among the elderly. license. This type of marketing autho- In line with Document 44, on Octo- A. Innovative Devices rization holder concept has now been ber 25, 2016, CFDA finalized a priority Created by a new CFDA rule in 2014, adopted in a fuller fashion for drugs in review pathway for medical devices. the innovative device pathway provides a recent pilot program authorized by This is a new pathway primarily for benefits in the application review pro- the National People’s Congress and medical devices that address unmet cess to applicants who can meet certain implemented by a plan issued by the medical needs and is distinct from the criteria. Specifically, they must own the State Council in 2016. The intention of innovative device pathway. The priority patent rights to the core technology in this type of a program, as made clear categories under this pathway include China (or have received those rights or by recent documents is, at least in part, devices that treat orphan or oncolo- usage rights via transfer) and demon- to permit “research institutions” and gy-related indications, devices that strate that their device is internationally individual inventors to hold marketing treat diseases prevalent amongst chil- regarded as innovative technology that permissions, incentivizing biotechnol- dren or the elderly, devices that treat a would represent a clear clinical advance- ogy innovation by smaller stakehold- condition for which there is no existing ment in China. The applicant must also ers. However, these reforms may also effective clinical treatment in China, have completed the research and an ini- present companies that might have and devices that correspond with na- tial prototype, and the research must be restricted themselves to offshore man- tional initiatives and priorities for scien- complete and traceable. ufacturing with the opportunity to ex- tific research. The new priority pathway Applicants must file materials sup- plore domestic options in China. will become accessible to applicants porting these criteria for evaluation by a Recent annual reports from the CMDE from January 1, 2017. commission of experts organized by the indicate that it has reviewed 166 inno- While these reforms are still in their CFDA’s Center for Medical Device Eval- vative device applications, granted 29 infancy, they show how CFDA continues uation (“CMDE”). Preliminary decisions products with the innovative device re- to expand regulatory reform to meet on innovative devices are also released view status, and ultimately approved goals regarding innovation and broader publicly on CMDE’s website and must, nine innovative devices in 2015. access to healthcare. Companies that are like other priority review items now in operating in this and the drug space may China, be made available for public com- B. “Examination and Approval” Systems continue to find these types of oppor- ment. Those admitted to the pathway Another concrete reform to further tunities presenting themselves as China do not get an express expedited time- innovation at the regulatory level was and CFDA seek to implement such re- line for approval, as they might in other the effort to facilitate faster approvals, forms to meet larger goals and targets, jurisdictions. Rather, they get access to particularly efforts to facilitate drugs such as those in the 13th Five-Year Plan meetings and communications with re- and devices that meet un-met medi- which is a driving force in encouraging viewers at CMDE (not granted regularly cal needs. In August 2015, China’s State innovation. as a matter of right) to better tailor their Council issued an Opinion on Reform of application to agency expectations, and the Drug and Medical Device Review Future prospects the CMDE will prioritize the substantive and Approval System ( known as “Doc- In the past year, according to the CDE “technical review” of the application and ument No. 44”) -- in part, a plan to en- and CMDE websites, a number of inno- related testing. This aims to drive the sure that CFDA has regularized and effi- vative drugs and medical devices have process forward faster. cient procedures in place for approving been granted special review status. How- Beyond these benefits, the innovative drugs and medical devices, in particular ever, the programs mentioned above are device pathway offers another incentive. those that meet un-met medical needs. still new, and their impact remains to be It was arguably an initial step in China to- In consultation with the National De- seen. For example, China will have to ward adopting a marketing authorization velopment and Reform Commission, at determine whether in future revisions holder concept. Under normal circum- roughly the same time, CFDA also in- to medical device or drug legislation stances prior to the innovative device creased the fees associated with reg- there will be a more permanent place for pathway, an applicant for a domestically istration applications, in part, in order concrete special review timelines and a manufactured device has to hold a man- to provide the resources necessary to more generally applicable marketing au- ufacturing license and a product license. meet these goals. thorization holder concept. I This was true even if the applicant in CFDA has now created procedures China wanted to contract out manufac- to implement priority pathways in this The views expressed in this article are not turing in whole or in part to another fa- respect. For drugs, this includes inno- necessarily those of Covington and Burl-

cility that it did not own. This meant that vative drugs that have not been mar- ing, or of its clients. November 2016

23 New Guidelines on Regulating Inbound Investment

By Trevor Clark

n October 8, new legislative guide- High-tech industries and will be encouraged in various sectors, in- lines were approved during a R&D encouraged cluding healthcare, education, culture and OState Council executive meeting General manufacturing is now, reportedly, sports. However, a number of these indus- and were followed by the issuance of the much more open for investment and invest- tries face significant regulatory challenges Temporal Method of the Establishment and ment in modern agriculture and services, in market access, equity caps and pricing, Alteration Filing Management of Foreign-in- high-tech industries, new energy and green among others that American companies vested Enterprises by the Ministry of Com- business is being strongly encouraged by struggle to navigate. merce. These new guidelines are, according the Chinese government. In particular, China These new regulations and reforms to the Chinese government, designed to is hoping to attract more foreign investors come as China is trying to modernize its improve the procedures regulating inbound that will invest in research and development economy and move away from export- investment into China. According to the Xin- in China and generate new technology within driven growth and into consumption and hua News Agency, “those willing to invest its borders. China also hopes that these domestic-driven growth. These goals are in China no longer have to go through ap- types of reforms will signal that the market hampered by the decrease in global foreign proval procedures if they invest in non-re- and industry are playing important roles in investment in China in the past year. Ac- stricted sectors outlined by the Catalog of the development of China’s domestic econ- cording to the United Nations Conference Industries for Foreign Investment which was omy, with the government releasing control on Trade and Development, global foreign approved last year, and do not contradict and enhancing transparency. investment flows this year will decrease by with the special requirements regarding eq- 10-15% compared to 2015. uity rights and level of management.” Limited impact on To jumpstart investment, the Chinese These new rules are designed after the mergers and acquisitions government experimented with regis- negative list approach used in China’s free For mergers and acquisitions, the new fil- tration and administrative reforms in the trade zones (FTZs) in Shanghai, Guangdong, ing management program will apply when China (Shanghai) Pilot Free Trade Zone Tianjin and Fujian. The negative list process foreign investors purchase existing for- (FTZ). It also introduced the concept of a allows foreign investors to register their com- eign-invested enterprises in China. However, negative list as a way to manage invest- pany, as long as that company’s industry is if foreign investors purchase domestic, non ment in the FTZ. In addition, it used the not on the negative list, rather than apply foreign-invested enterprises, both equity negative list mechanism in its negotia- and wait for administrative licensing. To ac- mergers and asset mergers will continue to tions with the United States on a Bilateral complish this, the new legislation creates a be regulated by the current administrative Investment Treaty (BIT). While the pace new filing management system that will al- system and they will need to get approval ac- of reforms in the FTZ has been slow, with low for online processing – when previously cording to the regulation of the Provisions on many noting the need for China to more firms had to apply for approval and wait for a the Merger and Acquisition of Domestic En- aggressively reduce the negative list, the license to be issued, allowing them to invest. terprises by Foreign Investors. And, if the tar- introduction of new national guidelines that get company is listed on a domestic stock ex- will reduce filing and registration burdens Registration wait change, the Measures for the Administration for foreign-invested firms could be seen times reduced of Strategic Investment in Listed Companies as an improvement and an example of the Under the new filing management sys- by Foreign Investors will continue to apply. positive impact of the FTZ. However, many tem, for any industry that is not restricted or observers have noted that the guidelines banned, companies will be able to complete Streamlined administrative have just come into effect and more time an online registration, which will be processed approvals and increased is needed to determine the actual impact and completed within three working days. local government powers of the reforms. This is a dramatic decrease from the more China’s State Council has also moved Pushing for further reforms of China’s in- than 20 days it took under the previous ap- to streamline administrative approval and vestment regulations and for the finalization plication system. The Chinese government give more power to local governments to of a strong, effective BIT are two of AmCham estimates this change will reduce administra- promote investment projects related to Shanghai’s key advocacy priorities. Be on tive procedures by 95%, and some 500 enter- container terminals, vehicle engines, urban the lookout for future AmCham Shanghai prises submitted applications within the first transit systems and inland water transpor- Government Relations events on these and

www.amcham-shanghai.org week of the new legislation being in place. tation. In addition, more private investment other topics in the months ahead. I

24 that become vacant thiscycle. The NEC recommended that the inations for theupcoming Board election. There are sixseats NEC Chair Jimmy Chenreported that theNEC approved 15nom- NEC Repor all membersoutliningtherecommended changes. present adraft to theBoard for review, andthensendanotice to amendments, three all for language the refine to Advisor Legal with voting rights. The President saidhe will work with theBoard’s the redefine of members Chair, definition the expand and officers Boardof Boardstructure the for process election the modify during theupcoming Board elections. These amendments would stitutional amendments to the general membership for approval The Board authorized AmCham Shanghaito propose three con- C Chamber hasplaced this year. China intheSouthMorning Post. This isthethird op-edthe AmCham Shanghairecently placed anop-edonInternet controls in Leon Tung asthenew welcomed Director for BusinessServices. The Chair also noted that Chair The Board. the of member honorary Consulate asthePolitical/Economic SectionChief and will bean the ChairreplacedBill Duff at The Nancywelcomedhas Leou who Chair’s Repor onstitutional Highlights from theSeptember 25,2016,Board of Governors Meeting Board of Governors Briefing International PaperAsia International Vice Chair CHAIRMAN Cecilia Ho Ker Gibbs t ChinaBio t AmendmentsApprovals The AmCham Shanghai The AmCham FedEx Express Jimmy Chen DuPont Hsien Yang Helen Ching- GAP Inc. Aina E.Konold

2016 Board of Governors (See theDoorknockarticlein August Insight for more details.) representatives. association business and academics 25 and staffers, and Congress of members 40 approximately officials, Administration cused ongainingsupportfor the TPP andBIT. The delegation met with fo- that message a and staffers, Hill with roundtables Commerce, of orknock includedajoint reception with theChineseGeneral Chamber According to AmCham GR/CSR Director Titi Baccam, this year’s Do- Wa that all Board membersare knowledgeable abouttheChamber. before someoneiseligibleto runfor theBoard. This would ensure Chamber establishaminimumperiodof Chamber membership MEETING ATTENDANCE cam, Patsy Li,Leon Tung, Jessica Wu Attendees: Apologies: (by phone), Aina Konold (by phone), Vincent Yang (by phone) Helen Yang, Eric Zheng, Jimmy Chen (by phone), Mike Crotty Present: shing GOVERNORS t Ker Gibbs (Chair), Tim Huang, Ning Lei, Nancy Leou, on Doorknock Cecilia Ho, Gentry Sayad, Glen Walter, Cameron Werker Kenneth Jarrett (President), Helen Ren, Titi Bac Individual Member Individual Vincent Yang Lei Group Ning Le MKT &Associates Michael Crott i

y (Sept. 19-21) S hakers Movers and MEMBER NEWS AIG Insurance Eric Zheng Coca-Cola Glen Walter LynchMerrill Bank ofAmerica Timothy Huang - 25 November 2016 26 www.amcham-shanghai.org F owned enterprises, and post-deal integration. Jerry Lou followedLou Jerry integration.post-deal and enterprises, owned state- and enterprises private-owned between differences M&A, in participating industries different regarding acquisitions bound pine Capital,andHarry Spencer, consultant at Interfoot. were Stella Yuan, Ernst and Young partner, Jerry Lou, founder of Ever acrossdifferentacquisitions bound industries. The keynote speakers out of acceleration firms’ Chinese discussing 19 October on tions Briefing onChina agreed that consumers may befor or indifferent to sustainability. companies driven by theagent of consumers. Both Miller and Sun what hebelieves was thedrivingforce for CSRandsustainability— on input his gave Xiaohui Liang goals. sustainability their achieve to parel products, and the criteria and targets companies have used sumer awareness onsustainability, recycling ‘end-waste’ of ap- but alsoof consumers who aren’t aware of sustainability infashion. therefore sustainability isn’t solely thefault of themanufacturers, He believes that all businessactivitiesare demandoriented, and “Sustainability meanslesshumanimpactonour planet,” saidSun. tual growth to contribute to theadvancement of green fashion. Co. aimsto provide opportunities for more material and intellec proving sustainability. Sun Wei’s Hangzhou Sino-Tytex Weaving as a globally trusted industry standard for measuring and im- Sustainable Apparel Coalition.Miller seeksto usetheHiggIndex global partner at Brunswick Jianzhong, Group, moderated theevent. Lu Centre. Information Textile National the at omist Sino-Tytex Weaving Co. Ltd, and Liang Xiaohui, deputy chief econ- Sustainable Apparel Coalition(SAC), Sun Wei, CEO of Hangzhou ers includedScott Miller, director of businessdevelopment at the and sustainability trends within theapparel industry. Guestspeak CSR Executive Dialogue Series with a discussion on current CSR a Panel discussion onfashionsustainability Paneldiscussion shionable Future:Sust Stella Yuan discussedtheoverall environment of China’s out Acquisi- Outbound China on briefing a held Shanghai AmCham During theQ&A session,participants raised topics suchascon- Scott Miller describedthe“HiggIndex” asthecore tool of the On October 13,2016, AmCham hosted itssecond sessionof the Event Report Outbound A ainable isKey cquistionS

- - - - - and how theCommunistParty will tackle theneedsof thepeople. sented opinionson what theChinesepeople want for China’s future in textbooks, mediaandother educational outlets. All participants pre- about theimpactof President Xi Jinping’s crackdown on Western ideas level, thepotential housingbubbleburstinShanghai was alsoraised. pects for asuccessful passageof the TPP. At thedomesticandlocal portant as a global partner, correspondents were asked about the pros- gers aheadfor theChinese economy. As Chinabecomes ever more im- exports dropping, thecorrespondents spoke aboutthepotential dan- China’s current economic status. With corporate debt being highand was alsoraised by anaudience member. mocracy. China’s influence on the future of Hong Kong and Taiwan de- on views people’s Chinese the on effect any have willBrexit Participants debated whether or not theU.S. electionsas well as circles that President Xi Jinping will seek a third term as president. Onthe topic of leadership,correspondents discussedrumorsinpolitical future. China’s affect will media social as well as policy policy, correspondents alsoanswered questionsonhow internet political, economic andsocial future. Regarding China’s political China’s affect currently that policies and topics various dressed Communications andPublications, Ian Driscoll, moderated theevent. economics editor at The Economist. AmCham Shanghai’s Director of reported for Newsweek andtheBBC,SimonRabinovitch, Asia for litical future. Guestcorrespondents were Andrew Browne, columnist spondents for apanel discussiononChina’s economic, social andpo- China Reading theTea companies acquiring, sponsoringandinvesting infootball clubs. honed in on more industry-specific M&A regarding individuals and his ideasonthefuture trends of Harry ChineseM&A. Spencer cently during his founding of Everpine Capital. Lou also discussed up with hisexperiences while at Morgan Stanley andmore re- A worship of writers opine on the tealeaves Aworshipofwriters opineonthe The WallStreetJournal, DuncanHewitt, acorrespondent who has In regards to thesocial future of China,theaudience was curious AmCham participants asked the correspondents questions about During thepanel discussiontheguestcorrespondents ad- On October 20, AmCham hosted three esteemed foreign corre- ’s Future Leave sts DiscussJournalistss: Three I 22 a dynamicbusiness environment on Thursday, September ufacturers reposition their Chinamanufacturing strategies in General Managers Forum to discussstrategies onhow man- turing F Suzho CenterHoldsGeneral representative andpartner of Solidiance. hai Manufacturers’ BusinessCouncil;andPilar Dieter, chief gitude Management Consultingandchair of AmCham Shang- Strategy; T.T. Chen, operating partner of Shanghai Taplow Lon- Corkery, principal andheadof Fitfor Growth Platform for PwC ChristopherCenterCouncil；; Advisory Suzhou Shanghai Cham Wang, VP &GMof Eaton (China) and vice chair of the Am- and Microbenefits. Moderators for theevent included Aiying LiverpoolXi’anFlex,UniversityJiaotongCaterpillar, IDEX, tric, panels featuring speakers from Mettler-Toledo, General Elec director andchief economist of Citigroup, as well asthree managing Liu, Ligang and China 3M of director managing & note speakers DeniseRutherford, vice president Greater China nd The AmCham ShanghaiSuzhouCenter heldaSuzhou Suzhou Report , at theHyatt Regency Suzhou. The event featured key orum Networking Sponsor Corporate Sponsor木s Booth Sponsors In KindSponsor Venue Sponsor Managers Manufac- - - well asCorporate sponsor Eastern American. supported by Platinum sponsorsPPGand TE Connectivity as expatriates livinginSuzhou. 1000 American-invested projects inSuzhouandover 150,000 overare there that mentioned Lei sales. domestic and tional into areas where companies can increase both their interna- pair, as well astransitioning Suzhou’s export processing zones developing Suzhouinto a destination for global equipment re- focus onpromoting itscross-border e-commerce platform, and medical devices. The vice mayor alsodiscussedSuzhou’s sectors, particularly innew energy vehicles and biotechnology velopment inthesmartmanufacturing andnew technology in thecity andnearby. Suzhou, stating that 10%of U.S. investment inChinaislocated Hanscom Smithfollowed by emphasizingU.S. investment in on for future development. U.S. Consul General inShanghai velopment askey initiatives for American companies to focus vation and3+1 Initiatives for DeepeningInnovation Driven De- importance of the3-Year Action Planfor OpenEconomy Inno- of SuzhouMunicipal Government.” Jarrett alsomentioned the enth inChina, which strongly proves thegovernance capability of Suzhou,“Thegross domesticproduct of Suzhouranks sev ident Kenneth Jarrett said in his remarks about the importance city amidstthelaunchof the13 zhou over lunchto discussthemanufacturing outlookfor the ber companies. of senior government officials and AmCham Shanghaimem- Government Luncheon on October 19, attracting a wide range ernment Luncheon AmCham ShanghaiHosts 2016SuzhoMnicipal h 21 Szo Mncpl oenet ucen was Luncheon Government Municipal Suzhou 2016 The de- on focus Suzhou’s discussed Lei Sheng Mayor Vice prxmtl 8 atnes ahrd t hnr-a Su- Shangri-La at gathered attendees 80 Approximately AmCham Shanghai hosted its annual Suzhou Municipal Corporate Sponsor Platinum Sponsors In KindSponsor th Five-Year Plan.Chamber Pres- Movers and MEMBER NEWS Shakers Gov - - 27 November 2016 AmCham Shanghai hosts Suzhou Municipal Government Appreciation Luncheon

AmCham Shanghai

A panel discussion on the creative industry in China

AmCham Shanghai’s team building event in Moganshan Park A briefing on fashion sustainability A panel of distinguished journalists discussing China’s future

A panel discusses future sustainability trends Journalist Duncan Hewitt lobbing a profundity for the apparel industry AmCham Shanghai Month in Pictures

U.S. Consul General Hanscom Smith meets Suzhou Vice Mayor Sheng Lei

Members networking at the monthly member briefing

U.S. Consul General Hanscom Smith speaks with the Suzhou Vice Mayor 30 www.amcham-shanghai.org the market to openup–andthat was thetimeitreally started. tional marketplace. Itseemedthey hadbeenjustdormant, waiting for bilingual, well-educated and who were dyingto enter this interna- and outof the woodwork cameall thesepeople who were already Shanghai, of up opening the it was 1991, in people hired first I When What did you learnfrom your Chinesecolleagues? Zone, andbeingchoseninthefirstphase of CIPSclearingbanks. setting upasub-branch inthenewly formed ShanghaiFree Trade What was your biggestprofessional success inChina? sage backabouttheincredibly dynamicenvironment here inChina. being inaregional role buthopefully he will beableto take themes- of instead hand first China ofin working challenges the onlysee not tioned that when Icheckinsixmonths from now, Ihopethat he will your one-downs becausethey are key to beingsuccessful. Imen- What advice did you give your successor? 1995 to starttheCashManagement businessfor Chinaand Taiwan. Hong Kong andeventually moved to Standard Chartered Bankin and Hong Kong. After handingover to local reps, Imoved backto in each city, so commuted back and forth between the two cities for both locations I was required to spendat least10days amonth Rep Chief the I was as soon As Shanghai. and Beijing in offices rep Bank of Boston inHong Kong and was tasked to set upthebank’s When did you first work inChinaand what role? ticket for thenext city. Definitely nohighspeed rails backthen. visa to move from city to city andonly thencould you buy atrain cities ontrains. Backthenasaforeigner you needed to apply for a We worked our way from Guangzhouto Shanghaiandsurrounding Sinophile for sometime,buthadnever before hadachance to visit. to travel around Chinafor amonth with my father, who hadbeena opportunity the had I finished Taiwan.studies Afterin Chinese ing nese languageandhistory intheUSA, andhadspent a year study When did you first come to China? At DeutscheBank,it was helpingset upour Qingdao branch, As anewcomer to working inChina,Isaidmake sure to listen to for working was I 1990/91. in was work to came I time first The The first time I visited was in 1984 as a tourist. I was a major in Chi- a blockchain software startup. Deutsche Bank,henow runstheGreater Chinadivisionof R3, Services Committee. Previously amanagingdirector at Carl Wegner isaformer vice-chair of the AmCham Financial Exit Interview - dustries who you would not meet in your buildingor your complex. in- of kinds different all from people quickly, people of lot a meet to of years of knowledge, aboutChina.It’s aneasy place for newcomers that there’s atremendous amount of knowledge, literally thousands Do you have advice for AmCham Shanghaimembers? mies in these many cities and almost look at them as different markets. has scale,and you have to take advantage of thesemultipleecono- tier-two andtier-three cities. The advantage of Chinaisthat everything economy; infact, it’s multipleeconomies, from thetier-one citiesto the massive a still is China that is fact the But globally. world the affects you themostoptimism? What concerns you mostaboutChina’s economy and what gives and customers andthe whole ecosystem will benefit. the international banks will bringthat knowledge into themarket est range of products. As regulations inChina continue opening up, uct knowledge because regulations in China donot allow thefull landscape inthefuture? Howdo yousee Western financial Chinese into the fitting banks business. or other areas –it’s justcalledbuildingfriendships–andthat isgood the other ways that businesspeopleconnect inthe West, over sports is thisexotic challengethat we mustmaster inChina,just thinkabout as important asthelegal framework. Soinstead of thinkingthat guanxi ships are important wherever you are working andsometimes are just in Chinaall of thetime;it’s justapartof thelocal fabric. Butrelation- Western businessesshouldadopt? Are there elements of Chinesebusinessculture that you think perience to other locations in Asia andEurope. who wanted overseas roles move sothey could take theChina ex rewarding one,andI was happy to beableto helpsomeof them ble. It’s always achallengeto managesuchastrong group, buta people isamazing. They are multilingual,international andcapa- Between theoldmembers andthe [new] members, I would say it how and slowdown the by concerned am I else, everyone Like Western institutionsoverall have amuch broader range of prod- The importance of buildingrelationships andof guanxiisstressed ofthe –the caliber thing same the it’s later, Twenty-five years I - - and it’s alsointroduced somechallenges. given to our sector right now. That canbegoodfor industry, the provision of healthcare, so you’re seeingalot of attention and to encourage theprivate sector to play alarger role in to promote innovative domesticdruganddevice companies healthcare costs paidby Chinesepatients. They’d alsolike people, while at thesametimereducing thegrowth of broaden anddeepenhealthcare coverage for theChinese market. Butit’s safe to say that theoverall objective isto long-term impactonU.S. companies competing intheChina statements andpolicy speeches. What is lessclear isthe is apriority for President Xi. He’s madethisclear inpublic market? have theseimpacted U.S. companies inthehealthcare taken place inChinaover thepastseveral years. How Many significant reforms to healthcare policieshave the pharmaside, we saw anincrease inthenumber of drugs number of different ways with varying degrees of success. On working to reduce thosetimelinesandthey’re doingitina authorization in China,are still quite long.China’s FDA is timelines to get your product registered, to get market for theChinesegovernment. care, especially at thecounty hospital level, isatop priority have access to local facilities. Sodeveloping local primary They don’t have thetrustintheir local facilities, or they don’t in tier-one cities. This creates aproblem interms of capacity. Today, too many patients will go directly to top tier hospitals investors asa way to increase access for theChinesepeople. opening up the hospital sector to both domestic and foreign also anincrease inprivate investment. Chinahasidentified tier citiescanhave greater access to healthcare. There’s more resources to deliver primary care sopeopleinlower- that. We’re talkingaboutmore clinics,more hospitalsand investing in rural healthcare infrastructure is a big part of between rural andurbancitizens asatop priority, and The 13 There’s nodoubt that reforming China’s healthcare system In terms of market access for American companies, He isthechair of AmCham Shanghai’s Healthcare Committee. We talk with David Basmajian,headof policy, Asia Pacific for Baxter International. A Chat with David Basmajian Committee Chair’s Corner th Five-Year Planidentified narrowing thegap and quality. Doingso will helpChinameet itshealthcare China to implement policiesthat reward innovation, safety stakeholders on all of the above and more to encourage market moving forward. rewards innovation. The pilot they landon will shapethe that take into account thequality of thedrugor onethat considered that test more favorable reimbursement policies of thegenericdruginthat category. Other pilots are being reimbursement rates for off-patent drugsto match theprice Also of concern, officials are considering achangeof impacted reimbursement of foreign drugsinChina. to be updated every two years, Meant thisdelay hassignificantly (NRDL). List Drug Reimbursement National the member companies istheseven-year delay inupdating to slow thegrowth of healthcare costs. A key concern for the cutsto manufacturers to maintain their margins. what it’s alsodoneisputpressure onhospitals to passalong out throughout thecountry. Reform was clearly needed,but drug prices as well ascorruption concerns. This is beingrolled hospitals inorder to address what they perceived to behigh revenue. Chinahasinstituted a“zero markup” policy for generated from thesale of drugshasbeenanimportant in Chinareceive very littlepublicfundingandtherevenue too many casesfocused almostexclusively onprice. and pharmaceuticals. Tenders are muchmore rigorous andin process, butthishasn’t reduced pressure ontheprice of drugs for mostdrugsishandled at thelocal level via thetender which mostconsidered apositive development. Today, pricing pharmaceuticals. Butin2015they stepped away from that, is apriority for China.Inthepast,NDRCset prices for it’s still to bedetermined. being authorized inChinalast year. Ithinkonthedevice side Industry is working with our government partners andother The government seesreimbursement asanother way Also relevant ispublichospital reform. Publichospitals As Imentioned earlier, reducing thecost of healthcare Movers and MEMBER NEWS Shakers 31 November 2016 32 www.amcham-shanghai.org healthcare isdelivered inChina.Inthe13 in China? What are thebiggeststructural challengesfacing healthcare expenses for Chinesepatients. and drugsintheChinesemarket by reducing out-of-pocket also expand themarket for companies sellingmedical devices medical insurance that thegovernment provides. This could a way to provide more healthcare coverage on top of the basic citizens, isalsoastep intheright direction. Chinaseesthisas both domesticandglobal,to provide coverage to Chinese system inChina. serve theChinesepatient andcreate amore stablehealthcare an area where private investment isgrowing andcould really patients. Private hospitals–inparticular specialty hospitals-is to improve the access to andthequality of healthcare for Chinese allowing ahead, private sector Looking to play a bigger role in the market will continue everyone. for development better treatment to Chinesecitizens –isof course apositive commitment to deepeningcoverage –to provide safer and coverage of 95% of itspopulation. And the government’s industry inChina. Tell meaboutapositive development inthehealthcare the latest drugsandmostinnovative medical technology. objectives and will ensure Chinesepatients have access to tient population? and e-technologies. How do you thinkthese will helpthepa- Generally speaking,Chinahas been quick to adopt new mobile to compete intheChinamarket. companies can do that, they’re going to be in a better position other stakeholders to address thosechallenges. To theextent American companies to work with theChinesegovernment and capabilities of local healthcare systems. Opportunitiesexist for develop andexecute their planto increase thecapacity and healthcare andthequality of it. grows they’re goingto have greater expectations for access to good for economic growth. Butaspeople’s disposableincome a risingmiddleclass. This isagoodthingfor theeconomy. It’s than thepopulation of Germany today. And thenthethird trend, burden. By 2020 they’ll add more people over the age of 50 aging society, and with that comes anincrease inthedisease in patient volume. Another important trend is aging. China is an by the year 2020,andthisisexpected to result inanincrease China iscallingfor 100million peopleto bemoved into cities There are several macro trends that are impactinghow The encouragement of private healthinsurance companies, Over thepast15 years, China has achieved healthcare New, innovative technologies andsolutionsare already These trends are creating challengesfor Chinaasthey

th Five-Year Plan, greater access to thefast growing Chinesemarket. they otherwise would while helping Western companies gain for both partners.Chinesepharmacos will develop faster than both active in thisarea. Ideally theserelationships are good AppTecWuXi and Labs areZai abroad. and market China the registration, commercialization and distributionof drugsfor strengths. Partnerships are focused onthedevelopment, partnered with foreign companies to leverage their respective developing innovative drugs as well. Chinese companies have 80% of themare genericdrugs.Butthey have their sights on look at the drugs waiting for approval from China’s FDA, already competitive inthegenericdrugmarket. And if you the world.around are competing with American companies here andinmarkets sector. Chinesemedical technology companies like Mindray and cost advantages to local companies inthemeddevice large-scale manufacturing hasbrought improved quality Chinese companies global leaders. Already, innovation and device sector, sothere isstrong government supportto make 10 priority industriesincludingpharmaandthemedical development of China’s manufacturing sector –hashighlighted healthcare companies? lines. Where do you seethemcompeting most with western Chinese healthcare companies are improving their product name justafew. the elderly ande-commerce inthehealthcare sector, to encouraging onlinehealthcare services like digital care for the government ishighly supportive of thistrend. They’re recovery of their patients. management tools for doctors to track thehealthand allowing doctors andpatients to communicate andincludes as a“mobilepartner” to doctors. Itintegrates with WeChat if he or she is the right fit. Trusted Doctors describes itself from actual patients before makingan appointment, to see Carevoice apphelpspeoplefinddoctors andread reviews and when they dothey don’t have alot of time with them. The Chinese consumers. Today itcanbedifficultto seeadoctor, profiled companies offering new andinnovative services to make more informed choices. have access to other sources of information allows themto informed decisionsabouttheir health.Sotheextent that they to empower Chinesepatients, allowing themto make more improving access to healthinformation andthat will continue In terms of pharmaceuticals, Chinesecompanies are China Manufacturing 2025–apolicy that aimsto leapfrog Reading through China’s new Internet+ policy, itisclear The Healthcare Committee hosted anevent inOctober that framework. We’re working with partners in government innovative medical technology. Chinese patients have access to thelatest drugsandthemost will helpChinameet itshealthcare objectives andensure priorities. A system that rewards quality andinnovation reform goalsand we lookfor ways to beinline with China’s healthcare companies are supportive of China’s healthcare sure that companies are rewarded for innovation. American market isgoing, where theopportunity might betomorrow. take off inChina.So we also want to lookforward to where the wellness industry, a US$260 billion sector in the U.S. poised to healthcare market here. Next onthelistisfast-moving the impactdigitally-empowered patients will have onthe has includedtrends inprivate healthcare and we covered But we’ve also kept a close eye on the future. Programming compliance andhow rulesaround compliance are changing. a seriesof off-the-record round tablediscussionsabout competing inthishighly regulated sector. And we’ve had and tendering, both fundamental issuesto any company speakers to talkabout where thingsare headed with pricing facing companies intheChinamarket. We’ve brought in Healthcare Committee? What are themostpressing goalsor concerns of the AmCham China’s inthemiddleof developing anew regulatory In terms of our mostpressing concerns, we want to make As acommittee, we’re focused ontheimmediate challenges sponsorship Before constrained market. yourself in what isincreasingly a very competitive, cost invest. You needto know how you’re goingto differentiate meet your particular drug,device or service before you more thanthere are alot of patients of acertain profile that understand themarket opportunity. That meansknowing to China’s healthcare priorities,it’s really important to while American companies are well positionedto respond basis, Chinese citizens have higher expectations. So greater numbersof itspopulation. And onanindividual cost-effectively provide safe and effective healthcare to growth rates may belower, Chinaisfocused onhow to compete. The sameistrueinthehealthcare sector. While companies have to besmarter abouthow and where they community here -GDP growth rates have slowed and normal interms of itsimpactonthe American business Business Report, AmCham Shanghailays outChina’s new care inChina? Any sageadvice for foreign companies working inhealth- for everybody. with theU.S., with theEU, with other markets, that’s good frameworks. To theextent that Chinacanbeharmonized companies aren’t dealing with several different regulatory standards. Regulatory harmonization isagoal,sothat intellectual property andisconsistent with international and in industry to make sure this framework protects Number one,themarket haschanged.InitsChina Zoe [email protected] Patsy [email protected] or Please contact: comphrensive marketingexposure foryourcompany. available atmajorconferences andeventsthatoffer 2017 firstquartersponsorship packagesarenow I sponsorship After Movers and MEMBER NEWS Shakers 33 November 2016 YCIS PDF for Kelly.pdf 1 10/27/16 2:24 PM

MEMBER NEWS

Esoterica

Sitting the Month

By Ruoping Chen

Like millions of Chinese women each that is expanding rapidly each year. year, I will voluntarily sequester myself this Many middle-class moms these days will winter within the confines of a small room choose to hire a live-in doula, called a yue- for a full month. I will putter around in my sao, who will care for, clean and burp the pajamas while being served meals and baby, as well as help the mother sit the snacks six times a day and undergo routine month. In first-tier cities, they can fetch a price check-ups by a team of state-certified of RMB15,000 per month. Some households She’ll start with a gentle stimulating massage, nurses and doctors. even hire an ayi in addition to the yuesao to followed by a 30-min hydrotherapy bath, followed No, I am not participating in a medical help with the cooking and cleaning, as the by a facial and mani-pedi… experiment on the effects of isolation, nor mother is not supposed to work at all. am I temporarily seeking asylum from a Others (like myself) may avoid all of the light-pink uniforms and princess-style furni- noisy, unpredictable world to purify my hassle and instead check themselves into ture set in public spaces. Boy and girl dolls mind, body and soul. I am pregnant and in- one of the many maternity hotels around hung on the doors of each room to denote

tend to partake of a time-honored Chinese their city that have sprung up, like bamboo the gender of the baby. C

tradition dating back thousands of years. shoots after a spring rain. In Shanghai alone, Though every hotel I visited claimed toM Immediately after giving birth, women in over 100 maternity hotels are now listed on have unique features, they shared common Y China have long been obliged to—or in Dianping.com, with prices for a 28-day stay themes. Representatives presented me more recent years, chosen to—remain in- ranging from RMB30,000 at the low end to with special menus of nourishing soups andCM

doors in a practice called zuo yuezi, literally, luxury establishments that exceed RMB foods that supposedly help new mothers (a)MY

sitting the month. It is believed that when a 100,000. From 2010 to 2014, maternity hotel recover vitality and (b) produce more milk.CY woman’s body is fragile after birth and her revenues grew by 40% per year on average, They explained that medical professionals CMY pores are open to the elements, she must reaching RMB5.6 billion in 2015. According to would conduct regular check-ups to make K be prescribed adequate rest, be shielded a report by GF Securities, an investment bro- sure the baby is healthy and growing ac- from cold and wind, and adhere to a strict kerage, the maternity hotel market is esti- cording to schedule (the baby’s weight and diet. This, it is believed, aids recovery. Not mated to grow to RMB6.9 billion for 2016 vitals are recorded every week by most ho- doing so may result in everything from pre- and hit RMB15 billion in 2019. tels; some do it every day). mature aging to arthritis later in life. I began my hunt for a maternity hotel in I will have a doula sharing my room to Many Chinese mothers, I suspect, would July, six months before my due date, as I help take care of the baby, as well as provide balk at the notion of getting plenty of fresh was informed that hotel bookings for key services such as giving me milk-stimu- air and exercise immediately after giving January/February were already in short sup- lating massages and hand-washing my birth, in the way that is often advised in ply. Prices have risen sharply in recent years. clothes (my husband will also be there, Western countries. One sales rep told me that this was due to a learning how to change diapers and burp But then in most cases, the traditional combination of rising incomes, the recent the baby). Yoga classes will be offered. There rules of zuo yuezi are also not followed to relaxation of the one-child policy and the will also be a “baby spa,” with the baby given the letter today as they once were. The rules preference of many couples to have a child light massages and plopped into a small tub were, after all, developed during a time in the Year of the Monkey (which ends in late (secured in a life preserver) to float around. when China was a largely agrarian society, January 2017). To Westerners, the practice of sitting the clean water was not as accessible and mor- New mothers may also find that sitting month may seem strange, and maybe even tality rates for new mothers were consider- the month at a maternity hotel, in the care outdated and superstitious. But for Chinese ably higher. The modern Chinese woman of professionals, feels more liberating than people, behind the strict diet and over-pro- desires her creature comforts while main- sitting at home, where well-meaning rela- tectiveness, there is a philosophy that a taining a patina of adherence to custom. tives can sometimes be a little too close new mother needs all the support she can Many new mothers still sit the month at for comfort. get during this intense period of her life. home, under the watchful eye of a mother or The maternity hotels that I visited resem- The first month after giving birth can be mother-in-law, but in this past decade the bled boutique hotels with distinctly feminine wondrous and exciting, but it can also be tradition has also been rebranded and com- atmospheres. The rooms were decorated in stressful and exhausting. Why not ease the

www.amcham-shanghai.org mercialized into a billion-dollar industry – one soft, pastel tones with nurses dressed in burden? The hard part comes next. I

34 YCIS PDF for Kelly.pdf 1 10/27/16 2:24 PM

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