ABERDEEN CITY COUNCIL

COMMITTEE Council

DATE 19 August 2009

CORPORATE DIRECTOR Gordon McIntosh

TITLE OF REPORT Links with , (WECP member city)

1. PURPOSE OF REPORT

The report describes the request from fellow WECP city Dongying to send a business delegation to visit Aberdeen on 26th and 27th August to 1) meet local oil and gas companies; 2) sign a Letter of Intent as a first step towards signing a bilateral co-operation agreement; 3) invite a representative from Aberdeen City Council to attend the China International Oil and Gas Conference in Dongying on 18th and 19th October 2009.

2. RECOMMENDATION(S)

It is recommended that Council

1. Considers whether to authorise officers to proceed with the preparation of a Letter of Intent as a first step towards a bilateral co-operation agreement with the City of Dongying under the auspices of WECP. 2. Considers whether to accept the invitation from Dongying to send a senior officer to attend the China International Oil and Gas Conference in Dongying on 18th and 19th October 2009.

3. FINANCIAL IMPLICATIONS

The budget for international trade development was agreed by Council in February 2009. This includes funding to cover membership of WECP and hosting inward visits by international business delegations.

4. SERVICE & COMMUNITY IMPACT

International trade development is one aspect of the Council’s strategy to achieve diversification of the local economy by assisting the business community to access global markets. Internationalisation of the city’s oil and gas industry is one of the main Aberdeen City and Shire Economic Manifesto (ACSEF) objectives, and is one of the key strategies included in the single outcome agreement 2008 – 2011. Additionally, participation by the City Council and Aberdeen City and Shire companies at major overseas events furthers the Council’s objective of presenting a strong image of the city internationally. 5. OTHER IMPLICATIONS

Implementation will be managed by the International Trade team. Officer time necessary to fulfil any agreed actions will be subsumed within the day to day activities of existing staff. Signing additional bilateral co-operation agreements will create additional work for the 2.3 FTE-strong International Trade team. Agreements should therefore be limited to actions that are deliverable within existing budget and staffing capacities.

The Council is a key player in the provision of international trade development assistance to the local business community. Through the development of strategic links, the Council helps companies gain access to, and a competitive advantage in, overseas markets. It is important that the Council maintains links in key markets and at key events, otherwise momentum is lost, possibly leading to companies being disadvantaged, ultimately affecting the economic prosperity of the city.

The city is also positioned overseas as a centre of business excellence for skills, knowledge and technology. Business development and promotion ensures economic growth and increased employment opportunities, consequently improving the economic sustainability of the city.

Regarding inward and outward visits, given the fast-changing global situation with H1N1 influenza, there is some risk, as could be said for any planned international travel, that visits could be changed, postponed or cancelled, including at very short notice, due to H1N1 developments.

All proposals contained within this report comply with the diversity, equal opportunity and human rights statutory duties and policies of Aberdeen City Council.

6. REPORT

The Chinese city of Dongying, a fellow member of the World Energy Cities Partnership (WECP), has signalled its intention to send a business delegation to visit Aberdeen on 26th and 27th August, with the intention of:

• meeting local oil and gas companies; • both cities signing a Letter of Intent as a first step towards a bilateral co- operation agreement; and • inviting a representative of Aberdeen City Council to attend the China International Oil and Gas Conference in Dongying on 18th and 19th October 2009.

A short profile of Dongying by UK Trade and Investment can be found at Appendix One, and the WECP City Profile of Dongying can be found at Appendix Two.

The inward delegation will comprise: 1. The Mayor of People’s Government of Dongying District 2. The Director of Dongying Municipal Foreign Affairs and Overseas Chinese Affairs Office, Secretary-General of Chamber of Commerce for Petroleum Equipment 3. The Director General of Dongying Area Economical Trade Bureau 4. The President of Shengli Oil Field Freet Petroleum Co., Ltd 5. The President of Shengli Oil Field Shengji Petroleum Equipment Co., Ltd 6. The Executive Director of Technology Development and Equipment Supply Australia Pty Limited 7. The Office and Product Manager of Technology Development and Equipment Supply Australia Pty Limited 8. President of Shandong Creat Group 9. President of Shandong Hi-tech Chemical Group 10. Translator from Shandong Chamber of Commerce for Petroleum Equipment

At the time of writing, the delegation is not able to confirm the exact date or time of arrival until visas have been obtained and flights then booked. Itinerary- planning therefore remains subject to change. The provisional programme is for three site visits, one-to-one presentations by local companies, and a civic dinner following the signing of the proposed agreement.

Both the University of Aberdeen and the Robert Gordon University (Univation) have indicated their willingness to be involved in the visit, with a view to exploring opportunities for further links in the higher education, training, and research and commercialisation sectors. The University of Abertay Dundee has also expressed a wish to meet the delegation. Around a dozen local companies have indicated their interest in meeting the delegation.

Scottish Development International, UK Trade and Investment, China Britain Business Council, the Chinese Consulate General and the Scottish Parliament Cross Party Group on China have also been advised of the visit and will be kept informed as the programme is finalised.

The Scottish Government has a refreshed Plan for Engagement with China. The Plan outlines the Scottish Government’s aspirations for Scotland’s engagement with China, and sits as one element within the Scottish Government’s International Framework, which “shows how the Scottish Government maximises the impacts of our international activity and demonstrates how engagement with China will contribute to the key purpose of this government, namely to focus the Government and public services on creating a more successful country, with opportunities for all of Scotland to flourish, through increasing sustainable economic growth; and the need to place Scotland as a responsible nation and partner on the world stage.”

The proposed activity outlined in this report fits extremely well with the aspirations in the Plan for Engagement with China. Furthermore, Dongying is located in Shandong Province, which is one of the target geographic areas in the plan. The inward visit itself is an excellent opportunity to: • strengthen existing links with another WECP city; • facilitate business links to a fast-developing and increasingly powerful export market • facilitate business links to a city that is home to China’s 2nd largest oilfield • significantly raise the profile of Aberdeen’s oil and gas expertise in China • provide opportunities for Aberdeen’s universities to develop engagement with China • provide opportunities for Aberdeen’s businesses to increase their exports

The request for a Letter of Intent as a precursor to signing a bilateral co- operation agreement requires careful consideration in light of the Council’s existing position of not increasing twin city partnerships and Memoranda of Understanding beyond their current levels (5 and 6 respectively), partly due to resource levels.

Given the fact that Dongying and Aberdeen are both existing members of the World Energy Cities Partnership (WECP), it could be argued that these are special circumstances, since this is a pre-existing vehicle or framework for co- operation. Therefore any agreement between the two cities would necessarily be framed within the context of WECP.

The ability to resource a new agreement is reliant on budget and staffing capacity within the international team, and an agreement would therefore require to be carefully worded to ensure any agreed actions are achievable and are limited to activity that can be undertaken under the auspices of WECP.

To enable Council to consider this request in more detail, a draft Letter of Intent is attached at Appendix Three.

Brief background research into Chinese business culture emphasises that one of the most important elements of doing business in China is the notion of “guanxi” or “connections”, ie, meeting the right people and building long-term relationships/establishing friendly relationships as a precursor to doing business. It can therefore be seen why a friendship agreement may be viewed as an appropriate starting point and how it could potentially go a long way to opening doors for Aberdeen companies and/or attracting Chinese investment in Aberdeen.

A city-to-city link would also help place Aberdeen and what it has to offer in context for the Chinese market. There is a perception that Aberdeen’s oil and gas expertise is currently less well-recognised in China than in other global energy cities.

In terms of assessing the value in developing further links between Aberdeen and Dongying, the following points should be taken into account:

• The 2008 Export Survey placed China as the number one new market for current exporters, up from 5th place in 2006 and 11th place in 2004. • 32 companies identified this as a new target market, 25 of those being oil and gas companies. • Dongying is home to China’s 2nd largest oilfield, Shengli, and to the China University of Petroleum. Many senior oil and gas executives have studied there. • The inward visit is generating interest from a number of companies and, as China is perceived as one of the more challenging markets to enter successfully, the support created through a city-to-city link could prove invaluable. • Of the other local authorities with links in China, Angus Council has arguably the most developed partnership (with ) and the Head of Economic Development at Angus has been very encouraging of Sino- Scottish city-to-city links.

Regarding the invitation to send a representative of Aberdeen City Council to attend the China International Oil and Gas Conference (CIOGC) in Dongying on 18th and 19th October 2009, Dongying Government and the CIOGC Committee has offered to meet the cost of flights, accommodation, meals, conference fees, catalogue entry and 6m x 6m x 3m of stand space at the exhibition.

It is evident from initial dialogue that Dongying is keen to work with Aberdeen to promote their respective oil and gas shows, China International Oil and Gas Conference and Offshore Europe.

Council is therefore asked to consider the above and provide a steer for officers to take forward, given the imminent inward visit.

7. REPORT AUTHOR DETAILS

Elaine Robertson International Strategist [email protected] 01224 814599

8. BACKGROUND PAPERS

Scottish Government Plan for Engagement with China UK Trade and Investment Dongying city profile WECP Dongying city profile

Basic Information Source: China City Statistical Yearbook, 2004-2006 Province Shandong UK Twin City – Population (2005) 1.8m DONGYING GDP (2005) RMB 116bn (£8.6bn) GDP per capita (2005) RMB 64,907 (£4,793) FDI (03-05 Avg) US$225.5m (£112.7m)

Groupings by Activity • Port city on the Overall D Shandong Production domestic D peninsula. • The city in China’s Production export D second-largest oilfield R&D A (after Daqing). Sales E • Oil, gas and chemicals are the main contributors Groupings by Sector to the city’s economy. Advanced Engineering F Energy Technology F Environment E Financial Services F ICT D Infrastructure E Life Sciences D

Key Industries Despite the city’s strength in hydrocarbons, Useful Contacts • Oil & gas there has been little foreign investment in UK Support • Petrochemicals this sector due to government restrictions. • British Embassy: • Salt-based chemicals www.uk.cn • Fine chemicals About 55 per cent of FDI into the city • UK Trade & Investment: • Tyres in 2005 was directed towards the www.uktradeinvest.gov.uk • Textiles manufacturing sector (e.g. chemicals, • China-Britain Business Council: • Machinery electronics and pulp & paper machinery). www.cbbc.org • Electronics • British Chamber of Commerce: • Food processing Three Fortune 500 companies have www.britcham.org • Pulp & paper invested in Dongying: • Dupont Local Government Dongying is rich in oil, gas and salt. • Sanyo • Dongying Foreign Trade & Economic Most of its key industries are built around • Stora Enso Co-operation Bureau: these commodities. www.dongyingbusiness.gov.cn Opportunities • Dongying Administration for It is located within China’s second- largest • Oil & gas: production equipment and Industry & Commerce: oilfield (Shengli oilfield). Its hydrocarbons components; oil recovery technology; www.dygs.gov.cn industry comprises 69.5 per cent of the storage and transmission technology. • Dongying Economic & city’s manufacturing sector. • Chemicals: manufacturing; equipment Trade Commission: and component sales; technical www.dyetn.gov.cn The government is striving to move its consultancy; training. industry up the value chain. It is Development Zones emphasising the development of tyre, Dongying’s oil and gas industry has been • Dongying Economic Development Zone machinery, food processing and pulp & established for 30 years and the city is (provincial level): paper enterprises. keen to expand its output. www.dyedz.gov.cn

Foreign Investment There are also plans to upgrade and Dongying received US$225.5 million further develop supporting industries, such (£112.7 million)-worth of FDI in 2005. as petrochemicals and processing, to take advantage of its natural resources. Dongying, China

Dongying city is located at the estuary of the in the north of China’s Shandong Province. It is the central city on the delta. The main production areas of Shengli Oilfield, the second largest one in China, are within Dongying’s territory. It is the hometown of Sunzi, the ancient military strategist. The city covers an area of 8053 square kilometers with a population of 1.83 million.

Dongying is characterized with three features. The first is its favorable geographical location. It is located at the center encircled by Shandong Peninsula and Liaodong Peninsula, an intersection of Bohai Economic Ring with the Economic Belt along the Yellow River as well as a conjunction point of Beijing-Tianjin-Tangshan Economic Region with city clusters in Shandong Peninsula. It is strategically positioned as the hub connecting several important economic regions.

Secondly, Dongying enjoys abundant resources, most prominently, land, oil & gas, and fresh water. In terms of land, there are over 333,000 hectares of wasteland to be reclaimed. The city has the largest land reserve and the greatest development potential along China’s east coast. In terms of oil & gas, Shengli Oilfield’s verified reserves of oil and gas stand at 4.6 billion tons and 221.3 billion cubic meters, respectively; 80% of Shengli’s oil reserve and 85% of its oil output are concentrated in Dongying’s territory. In terms of fresh water, the Yellow River flows through the city over 138 km with an annual discharge capacity of 30 billion cubic meters. At present, the one-time water storage capacity across the city reaches 1.3 billion cubic meters. In addition, there are vast stretches of sea flat, brine, salt mine, subterranean heat, tourist attractions, etc.

Thirdly, Dongying enjoys a fine environment. Dongying was awarded “National Sanitary City” in the country and a model in environmental protection. The city’s green coverage has reached 30.3%. To build up the city’s unique brand, a plan to construct Dongying into a “Water City along the Yellow River” is under way. A network consisting of “nine horizontal canals and ten vertical ones” will be in place across the city’s urban area.

Furthermore, transportation is very convenient coming in and out of Dongying. Dongying Port is a first class one open to the outside world. Its berths, with a handling capacity of 10,000 tons, are now under construction. With the construction and improvement of a three dimensional transportation system, Dongying will be conveniently connected with the rest of China, and subsequently with the rest of the world. After two decades of development, Dongying has evolved into a prosperous diversified economy out of a solo industry structure. Apart from the traditional sector of oil & gas exploration and collection, the mainstay industries such as petro-chemical, oil equipment manufacturing, salt & salt chemical, paper making, textile, tyre, food processing, etc have taken shape. Modern agriculture is experiencing rapid development as well. Priorities have been given to advantageous industries, namely, animal husbandry, aquaculture, vegetable, cotton, etc. The tertiary industry which is mainly made up of tourism, logistics, banking & insurance, and catering is progressing and growing prosperous day by day.

Dongying has a bright future for development. Up to now, the development and construction of the Yellow River Delta has come to a new historical stage. The central government has incorporated “developing high efficiency eco-economy in the Yellow River Delta” into the nation’s “Eleventh Five-year Plan”. Shandong Provincial Government selected Dongying as the main arena to speed up the implementation of Yellow River Delta development strategy. Taking advantage of the opportunity, Dongying City gave its priorities to the plan and construction of “Four Mainstay-industry Zones” and a “Water City along the Yellow River”. Thus, the framework for further development and opening up has taken shape. In the near future, a modern city with harmonious ecosystem, beautiful environment, prosperous economy and progressing social undertakings will arise in Yellow River Delta.

More information from Dongying.

City of Dongying

Dongying City is a coastal city with a unique landscape. The city would impress new comers with a variety of novel architecture, clean green land, delightful residential areas, peculiar sculptures, small bridges, tranquil water and many others. Wetland Ecology

Low-lying and damp wetland lies between the river and sea. Seepweed is the only species of plant that can survive the wetland’s high salinity and frequent tides. In the autumn, seepweed turns a fire-like red colour and looks like a beautiful red blanket.

Oilfield

The Yellow River wetland contains abundant petroleum and natural gas resources. In the early 1960s, the Shengli Oil Field was founded in the Yellow River delta. After decades of development, it now boasts a vigorous modern petroleum industry.

Qingfeng Lake Park

Qingfeng Lake Park is the largest city park in Shandong Province showing the Yellow River culture. City of Dongying, China

The goal of the City of Dongying is to be a petroleum equipment industry base with international influence. Dongying is an important oil city in China, and it plays a significant role in China’s energy industry, including oil & gas exploration and oil equipment manufacturing.

Dongying, the central city in the Yellow River Delta, is also home to Sunwu, an ancient Chinese military strategist. Here locates Shengli Oil Field (the second largest oil field in China) and China University of Petroleum (the most prestigious learning institute in the field of oil in China). The City of Dongying enjoys both rich expertise and abundant natural resources such as oil, gas, brine and land, etc., giving birth to a strong oil industry with great potential.

The oil equipment industry in Dongying is a competitive one with local characteristics. Currently, there are more than 230 companies in Dongying engaged in manufacturing oil equipment and oil machinery parts, producing oil auxiliaries and providing technical services. The city’s oil equipment manufacturing industry has become a comprehensive one, integrating R&D, manufacturing, service and domestic & foreign trade.

With a tremendous market and a comprehensive industrial system, Shengli Oil Field, supported by its research institutes such as Geological Science Academy, Geophysical Prospecting Research Institute and Drilling Technique Research Institute, is capable of providing industrial and scientific support in oil & gas exploration and oil equipment manufacturing.

Dongying also prides itself on its superb location, sound infrastructure, convenient transport and telecommunication facilities, splendid culture and rich wetland resource.

The plan to develop the High Efficiency Eco-Economy Zone in the Yellow River Delta has been incorporated into the National 11th Five-Year Plan. It is our sincere hope to collaborate with friends from various nations and regions, enhance our friendship and share prosperity and development. To the fellow member cities of WECP, Dongying offers expertise in:

• Oil & gas exploration and oil equipment manufacturing. • Introduction for business opportunities. Each year, we hold the International Oil Equipment and Technology Exhibition. • Establishing cooperative relations in research and exchanges in areas such as oil related activities and oil equipment manufacturing through China University of Petroleum. • Expertise in wind power generation, salt chemical, textiles, newsprint making and rubber tyre production. LETTER OF INTENT BETWEEN DONGYING CITY OF THE PEOPLE’S REPUBLIC OF CHINA AND ABERDEEN CITY OF UK ON THE ESTABLISHMENT OF FRIENDLY EXCHANGE RELATIONSHIP WITHIN THE FRAMEWORK OF THE WORLD ENERGY CITIES PARTNERSHIP

Both being oil producing cities, Dongying City of the People’s Republic of China and Aberdeen City of UK share much in common and have great potential for co-operation within the context of their respective membership of the World Energy Cities Partnership. Through friendly consultation, both sides intend to establish a Friendly Exchange Relationship and reached consensus as follows:

. The two cities agree to further develop their existing links through World Energy Cities Partnership and carry out agreed activities of mutual interest and benefit, primarily in the fields of energy, economy and trade.

. They desire to enhance exchanges and cooperation in oil & gas related sectors, (for example through the World Energy Cities Partnership exchange program).

. Instigate and maintain biannual contacts and visits between the two cities, through the World Energy Cities Partnership AGM and the World Energy Cities Partnership meetings at Offshore Technology Conference, to facilitate exchanges and co-operation in mutually agreed fields of energy, economy and trade etc .

This Letter of Intent is written in duplicate in both Chinese and English languages, with both texts being equally authentic.

This Letter of Intent shall come into force from the date of signature and expire upon the signing of the Agreement on the Establishment of Friendship City Relationship between Dongying and Aberdeen.

Representative of Dongying City Representative of Aberdeen City The People’s Republic of China The United Kingdom of Great Britain and Northern Ireland

___/___/2009 Aberdeen