www.amcham-shanghai.org Join our WeChat: INSIGHT The Journal of the AmericanChamberofCommerceThe Journalofthe inShanghai-InsightMarch/April 2019 transformation and localization strategy. andlocalization transformation P.5-22 From andcrisismanagementtodigital consumermarketing weighinon China strategy: Skinny andDaxueConsulting Experts from APCO,CEIBS,Prophet, China ITConsultis, essential toone’sessential well-being enoughsleepis Why getting FEATURES P.23 implications on China’s andbusiness datapolicy Cybersecurity expert SammSacks POLICY P.26 Tech Committee andInnovation JamesChou,chairofthe Q&A with MEMBER NEWS P.32

Commerce inShanghai.E ditorial contentand may bereproduced withoutwrittenconsent sponsors' announcementsare independent of theChamber. Nopartofthispublication Insight isafree monthlypublication forthe amcham shanghai Veomayoury "Titi"Baccam and donotnecessarilyreflect theviewsof the governors, officers,membersorstaffthe governors, members ofTheAmericanChamber [email protected] comments onInsight:Pleasecontact VP ofAdministration&Finance Communications &Publications Government Relations&CSR Government www.amcham-shanghai.org Shanghai Centre, Suite568 Trade &InvestmentCenter Snap Printing,Inc. Sponsorship (86-21) 6279-7119ext.4583 Gabriele Cordioli 1376 NanjingWest Road Shanghai, 200040China fax: (86-21)6279-7643 Story ideas,questionsor tel: (86-21)6279-7119 Juliusz Mosoni of thecopyrightholder. Ruoping Chen SHILPI BISW Ian Driscoll Content Manager VP ofOperations (86-21) 6279-7119 Doug Strub LEON TUNG Jessica Wu INSIGHT INSIGHT Helen Ren Editor-in-Chief Ker Gibbs Ruoping Chen Committees

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AS 38 36 34 32 31 29 26 24 23 20 18 15 12 08 05 INSIGHT Irreverent takes onthenews Weekly Briefing Bits&Bobs Selected photos from thepasttwo months’ AmCham events Month inPictures Recap of selected events from thepasttwo months Event Report With James Chou,chair of the Technology andInnovation Committee Committee Chair’s Corner Notes from January board meeting Board of Governors Briefing MEMBER NEWS Expected impactof thenew law on various e-commerce players Implications of China’s E-Commerce Law Samm Sacks,cybersecurity expert andfellow at New America, onChina’s policy implications On Data Governance Reforms are not drivingdecisive changeinChina’s economy A CautiousReform Diagnosis POLICY PERSPECTIVES A mounting body of evidence points to theimportance of sleepto physical andmental health The Importance of Sleep Localization versus maintaining product andbrand consistency Achieving Harmony The needto truly localize inChina Horizontal Skyscrapers to Consumer Products Steps to take increating a winning omnichannel strategy How to Deploy anOmniChannel Strategy An exploration of what exactly content strategy entails Content Strategy: A New Type of Advertising or aNew “Product” Category? Professor Yi Xiang of CEIBSonspendingtrends andChinamarket strategy How DoChineseConsumersSpend? Strategies businessescanadopt to navigate geo-political andgeo-economical complexities Crisis Management intheNew Era of China FEATURES The Journal of the AmericanChamberofCommerceThe Journalofthe inShanghai-March/April 2019 Special thankstothe2018-2019AmChamhanghaiPresident’s Circle Sponsors

FEATURES 3 March / April 2019 U.S.-China relations stand at a critical the reasons that we know well – maturity President’s juncture. The Chinese press is full of ac- of the market and localization of execu- cusations and skepticism about Ameri- tives. But it’s also true that thousands of Letter ca’s true intentions. In Washington, the new businesses are formed in China ev- one thing Democrats and Republicans ery day, many of them foreign-invested. seem to agree on is they are angry and High growth businesses in technology frustrated with China. Accusations of operate in different ways from the MNCs, hostage taking have been leveled on which have formed the core of our Cham- both sides. For the first time in decades ber. We may need to adjust in ways that people are using the term “Cold War” and are unfamiliar, but I’m confident the talking about the U.S. and China as if we Chamber is up to the challenge. are enemies instead of nations with a mu- Operationally, members can expect tually beneficial trade relationship. Most the Chamber to evolve in several ways. troubling of all, the term “de-coupling” First, I’d like to nudge us in the direction has entered our vocabulary. toward being more member-driven. With Could the situation get any worse? Yes, a large membership and enormous num- but I don’t believe it will. The two sides are ber of programs, Chamber staff naturally finally talking about the right issues in the play a strong role. Still, I want us to be in right way. Instead of harping on the trade more of a supporting and guiding role, deficit and manufacturing jobs, the bulk with members taking more of the spot- of which will never return to America, we light. I’ll be discussing this with Commit- are talking about structural changes and tee leaders in the coming weeks. the role American companies will play in Second, I plan to guide the Chamber China’s continued development. in a way that fosters our sense of com- As for AmCham, we are in good shape. munity. Each of us has chosen to live Thanks to our large size and diverse com- and work in China, and the Chamber position we retain a strong voice in the is fundamentally a network for mutual discussion. Chamber operations continue support. We will continue our core mis- to run well and smoothly. Strong leader- sion as a business network, but as long Ker Gibbs ship from the Board in recent years and as that’s happening we may as well have President of The American Chamber of the tenacity of my predecessor have put fun along the way! In addition to our tra- Commerce in Shanghai the Chamber in a good position, finan- ditional events informing members about cially and operationally. So where do we new customs clearance procedures and go from here, and what can members ex- tax laws, you can expect to see programs pect during my tenure? on the calendar that are just for fun. For one, we need to be prepared no Members can explore and appreciate the matter which way trade negotiations end great city of Shanghai in the pleasure of up. The situation may appear grim but each other’s company. it’s entirely possible that negotiations While this isn’t the easiest of times will produce a good outcome. We can’t to take over the Chamber, it could be a be caught flat-footed as the relation- time of great opportunity for U.S. busi- ship evolves for better or worse. If China nesses. Many of you have offered words agrees and truly adjusts its approach to of encouragement and excellent ideas intellectual property and opens markets for improving our Chamber, for which I in strategic industries, then our Cham- thank you. We are a self-governing, self- ber could see an influx of members. We financed and independent organization. are already adding programs to address Our community will be whatever we want blockchain and fintech. It’s unlikely we it to be. Despite the difficulties, with your will see internet media businesses like support and active participation AmCham Facebook and Twitter coming to China, will continue to thrive and play a construc- but not impossible to have cloud com- tive role in U.S.-China relations. We have a puting and other new businesses join our chance to make a difference. The world’s community. eyes are on China; political leaders are lis- We need to aggressively pursue new tening. AmCham Shanghai is an important business segments beyond our tradi- part of the conversation. I tional strengths and the large multina- tionals. Membership from our traditional

www.amcham-shanghai.org sources has been flat or shrinking, for all

4 FEATURES Crisis Management in the New Era of China

The emergence of This article explores various strate- geo-commercial gies businesses can adopt to navigate crises in China geo-political and geo-economical Last November, Dolce & Gab- complexities. It provides real-life case bana (D&G) released a series of pro- studies of foreign multinationals that motional videos titled “Eating with have recently experienced such crises Chopsticks” for a major fashion show in China. The first step is for businesses is Jiayi Lu in Shanghai. While intended as a to understand what a geo-commercial an associate playful look at cultural differences, crisis in China looks like. director at APCO Worldwide. She Chinese netizens viewed the video campaign as a mockery of their cul- Sparked a national boycott Three key has extensive characteristics experience in ture. The controversy escalated after public affairs, a fashion blogger posted screen- crisis was triggered by an upsurge of geo-commercial providing shots of a private chat with one of of nationalism related to the “China crises in China advisory services the company’s founders, Stefano Dream” ideals of President Xi. The emergence of geo-commer- to clients on Gabbana, on Instagram, in which China is not alone in dreaming of cial crises in China is the result of a matters related she confronted him about the vid- national rejuvenation. Nationalism is heightened notion of Chinese nation- to government eos. Gabbana responded by equat- on the rise globally. Over the last few alism that is centered on territorial relations, crisis ing China with a series of excrement years, the popularity of ideas such as integrity and absolute sovereignty. management, emojis and typing “China Ignorant “Brexit” and “America First” have sig- Over the past few years, it has become business strategy Dirty Smelling Mafia.” naled that many people and countries apparent that the Chinese govern- and market ment is less tolerant of multinational entry. Before Chinese celebrities pulled out of the are increasingly thinking and looking companies whose activities do not joining APCO, show and ended partnerships with the inwards rather than globally. The dislo- reflect its political agenda, particularly Lu worked in brand, and D&G was forced to cancel cation of wealth and people around the the government the event just hours before it was due world produced by globalization has regarding territorial integrity and sov- affairs to begin. As the backlash grew, some of caused growing distrust in multilater- ereignty. For example, last March the department China’s biggest online retailers, includ- alism and a resurgence of populism. government ordered foreign airlines at eBay Inc, ing Alibaba and JD.com, suspended The trend coincides with new strategic operating in China to “correct” their de- where she was sales of D&G products, and an active competition between the West, led by scriptions of Hong Kong, Taiwan and actively involved boycott remains in place today. the U.S., and the rest, arguably led by Macau on their websites to reflect the in advocacy This incident demonstrates China’s China. With both sides using nation- “One China” principle. programs that ability to set its own conditions of en- alism to strengthen domestic political Some companies that came aim to shape under attack due to this height- e-commerce gagement with the biggest brands of control, businesses face serious risks, ened notion of Chinese national- policies in China. the West. Most importantly, what D&G and many have already fallen victim to faced was a potent new “geo-com- related geo-commercial crises. ism were innocent. Beijing’s more mercial” crisis that occurs when com- Against this backdrop, foreign aggressive foreign policy approach panies become entangled in national multinationals need new guidelines has produced a rigid patriotism that is effectively disseminated by Chi-

political agendas. In D&G’s case, the to manage crises in China’s new era. / April 2019 March

5 6 www.amcham-shanghai.org investment. investment. global tradeand analysis inareas of research and conducting of Toronto, University at the Research Group analyst forG20 was aresearch joining APCO,she industries. Priorto respective in their key stakeholders to engagewith to supportclients market analysis and policy government She conducts financial services. and hospitality healthcare, sectors, including across different clients works with Worldwide. Zhang at APCO project consultant Freda Zhangisa Notquiteas boy band popular asa fifths of its Chinese supermarkets for supermarkets Chinese its of fifths ing practices and closing over four- advertis- its over company the fining ernment agencies went after Lotte, gov Multiple action. immediate took rea for THAAD’s construction, Beijing to provide agolf course inSouthKo- activities. Thus, when Lotte agreed could alsomonitor China’s military clear weapons, thedetection system nu- Korea’s North deterring of pose curity, asinadditionto itsstated pur serious threat to China’s national se- China market. Beijingsaw THAAD asa 2016, which endedinitsexit from the of the U.S. THAAD missile system in giant Lotte following thedeployment backlash faced by South Korean retail case of thisscenario isthesevere to survive in the market. it canhinder thecompany’s ability driven by theChinesegovernment, a political struggle. pany was caught inthecrosshairs of Beijing-Taiwan relationship, thecom- drop of theincreasingly troubled been innocent, againsttheback 7.5%. While thegesture may have of 85°C’s parent company to drop This boycott causedtheshare price Ing-wen when she visited thestore. sented a gift to the Taiwan leader Tsai boycott after abranch intheU.S. pre- which faced aChineseconsumer ple isthe Taiwanese bakery 85°C, content to product labels. An exam- that isrelated to China,from website move foreign multinationals make “frontline soldiers” inspecting every Chinese netizens, who are now the influencing in successfulparticularly nese media. This campaignhasbeen When acrisisisinitiated and A landmark - - - 又companies terly lossesof US$46million. quar successive suffered reportedly company the standoff, geopolitical ted thecompany. As aresult of this this, Chineseconsumers alsoboycot alleged safety violations. Following nese netizens. caused further backlashfrom Chi- gram. These insincere “apologies” Gabbana, removing itfrom Insta- apology video featuring Dolce and leaked. Then, they retracted the tos of Gabbana’s private chat were its Instagram account was hacked when the pho- that said first brand several times during the crisis. The ative publicdiscourse. usually effective at toning down neg- company assumes responsibility, is that a sincere apology, in which a a track record of caseshasproven if they have donenothing wrong. But logic that they shouldnot apologize of anapology, with theunderlying justification the question may many innocent. Under suchcircumstances, caught ingeo-commercial crisesare sponsibility. Sometimes, companies geo-commercial crisesinChina. in caught themselves find that nies are uniquely important for compa- tion focuses onsuggestionsthat con- be sistent in messaging, etc. This sec first, people put quickly, agement –betransparent, respond sal and golden rules for crisis man- Suggestionsfor Do not pickasidepublicly when Sincerity iskey. D&G “apologized” Apologize anddemonstrate re - There are anumber of univer - - - - lash from markets outsideof China. ment’s request andto avoid aback to comply with theChinesegovern - instead of region andcountry names city and airport codes on the website For example, someairlineshave used tions to create a“win-win” situation. should also look for alternative solu- to every critical demand.Businesses responsibility doesnot meangivingin seeking solutions.Demonstrating wi ī, hc ecmass both danger andopportunity. Post-crisis encompasses which jī), (wēi 危机 as written is crisis Chinese, In over. their reputation once thecrisisis measures to recover andrebuild take to fail companies Many crisis. age, especially ageo-commercial and create lasting reputational dam- image positive a company’s offset ment duringthecrisis.A crisiscan important asappropriate manage- do not enduponthe“other side.” Transparency is essential so that they cies to seekadvice andcooperation. gaging with local government agen- of acrisisshouldconsider actively en- chaos. Thus, companies inthemidst stability andseekto avoid public top –they prioritize socio-economic tends to be different from those at the mentality of local government officials pany duringacrisis.However, the ion leadersto advocate for acom- difficult to mobilize media or key opin- businesses canleverage. It is very ments may betheonly “ally” that Chinese government, local govern- reputational backlashintheU.S. – Chinatrade war. This hascaused U.S. ongoing Trump’s the amid tariffs supportive of Chinaandopposed is Apple. The company hasbeen ness inChina. Another example This is what damagedLotte’s busi- exposes businessesto greater risks. ing apolitical stance publicly always mise by choosing a side. But assum- and inturnare tempted to compro- ger to get themselves outof trouble geo-commercial crisistend to beea - However, companies involved ina rule when operations are smooth. off. entangled inageopolitical stand- Think outsideof thebox when Post-crisis remediation isas If thecrisisisnot initiated by the ot opne flo this follow companies Most -

Morning Morning pick-me-up firms inChina/Asiaandunderstandhow to achieve results. manufacturers leading with responsibilities westernP&L held have principals EWA All to China/Asia. in operating solutions management risk and commercial operational, innovativeimplementing West& delivering (EWA)East been Associates Since2005, has Shanghai Office /4/FFuxingCommercial Building,Room427/139RuijinRoad(No.1) TO ARRANGE APERSONALVISITORTELEPHONEAPPOINTMENT, PLEASE CONTACT: Jon Anderson,MDChina /[email protected] Compliance &EthicsInvestigations measures canprepare companies for entirely avoided, proper preventative vention. diligent be avoided if companies are more ries into positive narratives. spotlight to reshape their Chinasto- ment for companies to leverage the involved. This isanopportunemo- paying closeattention to theparties public may seemquiet, butare still is auniquetime when themediaand Alex President/+1(704)807-9531 / [email protected] Bryant, Many geo-commercial crisescan Reputational DueDiligence Performance Improvement Risk &CrisisManagement Business Assessment in Even incasesthat cannot be risk identification ea core specialization a socite Commercial, Ope and pre- st ra tional &RiskManag fied response. nism that allows for aquickanduni- be internal alignment. quick responses to crises. all surprises. to respond can staff that ensure build cross-cultural bridgesand and at home,isnecessary to and spokespersons both inChina ers, includingdecision-makers tive issuesfor internal stakehold- sensi- culturally on briefings and are unfamiliar with China. Training can bestrange to people who Bridging. timent andnationalist trends. Monitoring. products. all communication channels and the region, country andmapsacross ereignty –includingdescriptions of China’ sovreflect can that symbols conduct rigorous inspectionsof all Minesweeping. Companiesshould Finally, riskprevention canonly And risk prevention starts with effected ASEAN Country AnalysisASEAN &Investment Country ement Specialist when Geo-commercial crises M&A DueDiligence &Integration Be alertto publicsen- wes Interim General Management Supply ChainManagement Plant Relocation &Closure there s forChina is a /A t mecha- sia ® - one occurs. what to expect andhow to cope if that eachinternal functionknows mercial crisesto themanual so crises. It is time to addgeo-com- navigating traditional operational a crisismanagement manual for foreign multinationals already have manual. crisis your Revise guide communication duringacrisis. on the “foreign policy” decidedto help based stakeholders different sages andtalkingpoints that target messaging. your Craft backlash from theothers. into one“market” can helpavoid a eggs all putting Not policy.” eign “for its defining when vironment values, businessandexternal en- to carefully analyze acompany’s nomical complexities, itiscrucial global geo-political andgeo-eco - sary for multinationals. Amid new eign policy” isincreasingly neces- ization, adopting a“corporate for foreign policy.” Inthecontext of global “corporate your Define I FEATURES Craft mes- Most - - - 7 March / April 2019 8 www.amcham-shanghai.org our spendingfor food andclothing with we observe categories, different If you decompose the spendings into areas. retailing different in slowdowns different observe do we that, said ing growing at quite ahealthy level. Hav spending is not slowing down; it’s was even 10% growth. That means 6.8% last year. For rural areas, there spending for city dwellers was roughly the data, thegrowth rate of consumer consumer spendingisnot. If you lookat to slow down to 6%? given that theeconomy is expected for consumer goodssalesin2019 tail sectors. What do you expect slowing growth across certain re- omy. Butlately we’ve beenseeing been apositive for China’s econ- Consumer spendinghashistorically efficiencyinformation ofmarkets,andcompetition’s impactonmarketevolution. His research strategy, advertising andcompetition, consumption focusesonmedia products, ofinformation marketing the degree inMaterialsScience&Engineering.Hereceived hisMasterandDoctoraldegrees inManagementfrom INSEAD. atHongKongUniversityofScienceandTechnology.Marketing Xianggraduated from Tsinghua abachelor’s Universitywith Yi Xiangisanassociateprofessor atCEIBS.PriortojoiningCEIBS,heservedasanassistantprofessor ofMarketing of The economy isslowing down, but - By Ruoping Chen Q&A withProfessor Yi Xiang, CEIBS Spend? Consumers Chinese How Do 10% 15% 20% 25% 30% 35% 40% Chinese consumer spendingbreakdown, by category (urban residents) 0% 5% Source: CEICData 2009 Education, cultureEducation, andentertainment Healthcare Housing Food 2010 2011 2012 2013 2014 Other productsOther &services Transportation &communication Household goods&services Clothing 2015 2016 2017 2018 Walk walk fashion, baby they’re spendingon,how much,etc.? where consumers are spending, what years that you’ve seeninterms of trends or changesover the pastfew What are someof thekey market tion, healthandentertainment. increase your life quality, like educa- to spendmore onthings that will like food andclothing. You dotend to spendlessonordinary necessities villages. When you are rich, you tend matter if you’re in the cities or in the ally people are becoming richer, no are spendingmore oneducation. healthcare, andinrural areas, people percentages. But what isincreasing is ing down butdecreasing —interms of that both are decreasing —not slow 10% 15% 20% 25% 30% 35% 40% 45% When you lookat theChinese My take on that data is that gener Chinese consumer spendingbreakdown, by category (rural residents) 0% 5% Source: CEICData 2009 Education, cultureEducation, andentertainment Healthcare Housing Food 2010 2011 2012 - - 2013 the years from 2014. The particu- dustry hasbeenslowing down over you account for that number? time inalmosttwo decades.How do Auto on mortgages butonrental. spending onhousing,Idonot mean keep spendingmore onhousing. By you shouldnever forget ispeople goods, plushealthcare. And oneitem munication, family equipment, white ral areas, they spend more on com- healthcare andentertainment. Inru- ies basically spend slightly more on then the people who live in the cit eas. If we take those two segments, should putitinto citiesandrural ar ket. Ona very fundamental level, you market, you don’t take itasonemar 2014 The growth rate inthecar in- Other productsOther &services Transportation &communication Household goods&services Clothing sales 2015 fell

3% 2016 last year 2017

– the 2018 first - - -

throughout the years. This isoneex tomers andhasbeen very successful strategy towards their targeted cus - Korean brand shapedtheir pricing income isrelatively limited, sothe of their younger age,their disposable geting girlsat a younger age. Because younger brand, more natural, andtar They now positionthemselves asa different totally positioning and branding strategies. with market nese theChi- to back came they try, first can doit[as well]. They couldn’t. other French brands, andthey said we success of L’Oreal, at the success of be premium, andthey looked at the any foreign skincare product should fail. They cameto Chinaassuming draw from the market. It was a huge and within two years they hadto with- products. They cameto Chinain2004 inskincare specializes that firm rean ful. Oneexample isInnisfree. It’s aKo- strategies andbecame very success- ning, butthey quickly adjusted their two that had begin- firms the failed at years] they hadto closethem. stores in major cities, but [after six They cameto Chinaandhadnine Buy. Best like failed, that firms eign There are also many examples of for successful throughout the years. to Chinain1981andhave been very most successful the is Coca-Cola. They came of One firms. foreign ful and operations? clude abouttheir Chinastrategies pany that failed? What can we con- in Chinaandanexample of acom- that has built a successful business eign consumer products company Can you give an example of a for they’re not slowing down. nications suchascellphone sales, good sales,if you lookinto commu - amounts. Butif you lookinto white more stringent onlarge spending less optimal, sothey tend to be expec tation of salary growth hasbeen that Now income. future had positive expectations for their for thefuture. In the pastpeople from people’s willingness to spend lar hitlast year might partly come In 2012,six years after their failed What I want to share with you are There have beenmany success- FEATURES - - - - - 9 March / April 2019 10 www.amcham-shanghai.org Source: emarketer Print Radio Television 2:35 Digital 3:18 and above (2017) consumers, aged18 breakdown ofChinese Media consumption 0:07 0:12 good startandmoney. that isbigenoughfor you to make a proper segment —justonesegment a find to need you is market Chinese derstand when you try to come to the show usthat onething you mustun- consumers. Sothosetwo examples that particular segment of Chinese ment andpositionthemselves to seg- proper market, proper the find has been very successful. Again, they ple who wear Uniqlo every day. Uniqlo rich. Iknow quite afew super richpeo- classes. They even include the super ers, especially inthecity’s middle has been attracting a lot of consum- strategy that and stuff, enough good you get ordinary clothing, but you get the fabrics. You get average design, quality clothes — by quality I mean pay areasonable price, you get good ratio. So you come to the store, you that provides high price performance firm clothing a themselvesas sitioned strategy. their callymodified They po- cheap inChina.In2006,they dramati - company in Japan doesnot mean positioning of beingacheapclothing cessful. Unfortunately, their relative similar norms, they should be suc assumed they share asimilar culture, should work. in JapanThey positioning to China,they believed their original were losingmoney. When they came 2002. By 2005,all their stores inChina in to China came firm The Uniqlo. is What absolute numbersit’s ahugemarket. portions issmall; when itcomes to ment, which interms of proper pro - consumers. They found a small seg- ment of consumers within Chinese because they found theproper seg- strategy, modified a with back came ample of acompany that failed and to persuade them. Those two funda - to keep throwing information to them them know. Then after that you have to try to increase theiris awareness, always to let stage first The stages. sumers, you mustgothrough several ger important inthismarket? tional advertising channelsnolon- it through social media? Are tradi- target Chinese consumers today? Is Another example Icangive you If you try to sell something to con - are the most effective ways to - they’re fast andthey’re smart— you try to learneverything from you and you face suchcompetitors —they midable competitive force. And when competitors is,Ithink,themostfor the eagernessto learnby Chinese to learnfrom you. That learningand thing that makes money, they will try up with they will learnfrom you. Any firms learn fast, so whatever you come counterparts? leapfrogging aheadof their Western In what ways are local companies from their Chinese competitors? What canforeign companies learn cellphones versus facing abigscreen. digital on different totally is mation a role. The way peopleprocess infor dia and TV andeven magazinesplay story. There Ibelieve both digital me- differenta that’s — consumers to tion viding detailed, convincing informa- When itcomes to persuasion—pro- that, thisisjustto increase awareness. thing againstthetrend. Having said don’t thinkany company can doany their cellphones. If that trend ishere, I newspapers anymore. They lookat like my momfor example, don’t read egy. Even senior people, retired ones probably have to adjust your strat municatewith your customers, you com- to If trying media. firm areyoua to digital media, especially mobile gradually shifting from newspapers probably understandthat peopleare dramatically. Magazines are okay. are the one thing that has been hit particularly newspapers. Newspapers What hasbeenlosingisthepress, ally decreasing butnot dramatically. TV hasbeenrelatively stable,gradu- two hourson TV. The timespent on quite a lot of time. I think they spend of that is on digital media, and that’s they spendsixhours[onmedia].Half time on digital media. On average they spendtime,they dospend more they collect theinformation, where information sources, interms of how how consumers spendinterms of the you lookinto thedata, if you lookat cate to your targeted customers. If account when you try to communi- mental stageshave to betaken into They needto know that Chinese So if you thinkaboutthat, you - - - - - stores all over China. that reason, they have beenopening the consumer is very important. For availability of theproducts infront of the words, other In stuff. real see to to shoppingfor clothing, women have that and they know that when it comes 200-square meter stores. They know and store managersthat canmanage there are tons of goodsalespersons But Idoknow interms of labor supply, ity to have giant store management. I donot have thecompetitive capac because H&M, with directly compete Their strategy is very simple:Idonot roughly 9,000stores all over China. are 200square meters, andthey have don’t open bigstores. They openstores that they H&M, from different But and Gap—slightly cheaper thanthem. and Shanghai. It’s a competitor of H&M Hong Kong in both listed firm public a advisor to their board. The company is an actually I’m and firm Chinese a It’s is of a company called La Chappelle. that you can spend 150 RMB to buy a a buy to RMB 150 spend can you that vertisements on TV stations telling you tisement regulation. You would see ad- years ago,there was virtually noadver kinds of regulations inChina.Fifteen when theaudience isChinese? product Do advertisements for thesame in China versus Western countries? How they are lookingfor. about theChineseculture and what ness practices. They alsoknow more from you aboutall themodernbusi- know two things.One,they’ll learn look into Chinesecompetitors, you’ll people’s health.Inother words, if you things are goodandmore natural for Chinese consumers believe herbal successful, becausetraditionally, more herbal,andthat hasbeen very ing skincare products positionedas hai Jahwa. They have beenproduc there isonecompany calledShang- at theskincare industry inChina, L’Oreal, of French brands. If you look an example. We see the success of mid-term andlong-term strategies. have to take that into account in your Another example Icangive you Advertising has gonethrough all Let’s take skincare products as

is advertising carry

different content messages different - - -

One day it will Onedayitwill be electric kinds of illegal behaviors and practices. has putalot of force to regulate these China. The regulatory agency inChina have beendecreasing dramatically in those kindsof “deceptive elements” ing. Inour businessschool language, Rolex. Recently that hasbeenchang- that showed thecar passingby apal They usedto have a TV commercial Lexus. It’s a Japanese luxury car brand. sumers. One example I can give you is con- Western to compared differently nese consumers may perceive them and becauseof languageissues,Chi- differences cultural of because ment, yes andno.For thesameadvertise- uct, includingbrand, probably price very basicinformation abouttheprod - it masksinformation andonly contains One way to say “uninformative” isthat professor at theUniversity of Toronto. towards beinguninformative? tising. Why is it that most ads tend tising versus content-rich adver that studieduninformative adver You wrote apaper afew years ago not bow to a Japanese car. emperors, meansChinese. They should tion meanskin,respect, means because stone lionsinChinesetradi- but hasirritated Chineseconsumers, advertisement shouldhave beenokay, so attractive andhashighstatus. That cally, they triedto show that thecar is statues were bowing to thecar. Basi- stone statues of lions,andthoselion ace. Infront of thepalace there are two In terms of content, my answer is It’s apaper Ico-authored with a - - - from the market. Sometimes to be curate estimate of what you canget take. You musthave aprecise, ac small when itcomes to what you can market isbig.Itbig,butitmight be not bepersuadedthat theChinese I thinkthenumber onethingis:do China, into enter to trying firm sized course to market their product? what would you adviseasthebest relatively new to theChinamarket, brands inthemarket, as well as small compared to established big For acompany that’s relatively many more uninformative ads. products, andthat’s why we observe stop searching for other competing is good enough for consumers to uninformative, and that sometimes do thefundamentals, which we call must firm a features.So added other consumer may putmore value on for fundamental thingsandsome son isthat every consumer islooking both inChinaand Western societies. only contain very basicinformation, locations. We observe that alot of ads clean they are, what are thenearby is, how goodthemattresses are, how the hotel islocated, how big theroom ads tell you tons of information: where content-rich advertisements, where the the other endof thespectrum,there are ads, then we’ll call ituninformative. On mation are theonly information inthe to. If that very fundamental basicinfor and what kindof category itbelongs For amedium-sized andsmall- There’s areason for that. The rea- - - ent consumer; for shirts he’s aShopper. sumer, with soccer boots, he’s an Afflu- from Uniqlo.Sofor thisparticular con- He might beokay with anaverage shirt less sensitive when itcomes to shirts. he canpick. The samepersonmay be in terms of what kindof soccer cleats A soccer player might be very picky can be very picky in terms of shoes. products. For example, oneconsumer long to different categories for different gory? The sameconsumers may be- particular category or another cate- production technology suitable for that petition. Is your cost structure, is your segment will you befacing more com- In which out wherego. youto want figure to have you consumers, of ries they justtake thehighestquality. price sensitive to acertain product, so income level. Imeanthat they are less their mean do not I By affluent, fluent. consumers nowadays. and they are themajority of Chinese satisfy, to difficult very are shoppers ular features of theproducts. Those the attributes, thebrands, thepartic They have to compare the prices, ing, they docomparison shopping. dle-class. When itcomes to consum- Shoppers. They are relatively mid- ber isnot small;it’s roughly 300million. going to begoodenough. Their num- something onthescreen with color, is have a TV, soany TV, aslongitshows increase their life quality. They don’t sumers are lookingfor things that can callis what we Aspirers.con- Those there are three levels. The bottom level sumers’ willingness to pay, Ibelieve look at thepyramid of Chinesecon- Chinese consumers nowadays, if you pessimistic isoptimal for you. that particular segment. for suitable firm your is and facing out what kindof consumers you are ter into the market, you have to figure scan theQRcode: Professor Xiang, interview with To seeour video The third category is what Icall Af The second category iscalled into look you when is: two Number So as a foreign firm, when you en- If you look into the three catego- FEATURES I - - 11 March / April 2019 12 www.amcham-shanghai.org By YuHuang new a new “product” cate

type of C

University. He hasanMBAfrom MITSloanSchoolofManagement,anMSEEfrom andaBSfrom RensselaerPolytechnicInstitute Peking U.S.patents. firms.Huangholdsmultiple consulting ofseveralleading experienceandisaformerseniorexecutive consulting Yu HuangisapartneratProphet, ingrowth specializing strategy, andexperiencedesign.Hehas15yearsof marketing digital digital mediaplatforms? tising that tells stories with KOLs on KOLs? Or isitanew typeof adver cial mediato tell astory? Is itabout what exactly isit?Is itaboutusingso- membership, thepurchase of over key categories –thelaunchof paid of number a in platforms first the of China’s content industry. It was one website hasbeenat theforefront of Since its inception in 2010,this video “U CanUBibi” and“Idol Producer.” shows, suchas“TheRap of China”, China andproducer of many popular a top Internet broadcast platform in iQiyi, was 2018 in IPOs NASDAQ sidered as oneof themostpowerful 158 millionmobileusers,andis con- now has over 76 million PC users and tion of its own shows. As a result, iQiyi seas content copyright, andproduc IQiyiandadiff type of advertisement n o te ot high-profile most the of One marketer istalkingabout.But new magic phrase every ontent strategy –that isthe

ad vertising or gory? erent - - - during theshow, by bundling itsprod- creased itsonlinesalesby 500times Nongfumineralsors, Spring water,in- increasingly popular. Oneof thespon- huge rewards astheshow became while, theparticipating brands reaped Mean- Weibo. on mentions billion 13 was viewed over 2.8billiontimes with ing 78 days, the program’s website over itgenerated 100million views. Inthefollow airing, of hour first the launch on January 29,2018.During ceived enormousattention since its boy group reality show which has re- Take, for example, “Idol Producer,” a also directly generate consumption. to not only generate awareness, but the useof bigdata, brands are able lyzing consumer behavior ana- through By consumers. influence also tunity to both better understand and oppor aunique brands offers they a more individual basis. As a result, mental way: they reach consumers on differ from traditional TV in one funda- ond only to WeChat. digital media platforms in China, sec a Internet content platforms like iQiyi

- - - attention, thegoal isto sell products. is merely ameansto attract people’s other words, for thebrands, content different. are In players the but world, from that of thetraditional advertising different no is ecosystem The forms. veraging digital andnew mediaplat come aset of advertising tacticsle- brands, “content strategy” hasbe- its sponsors,itisclear that for many young consumers. capture theheartsandmindsof many one of thereasons why Vivo isableto many years, anditisconsidered to be tic that Vivo hasbeenthemaster of for most talked-about popicons isatac as itsspokesman. Partnering with the signed the show’s winner Cai Xukun est mobilephonemanufacturer, it ended. Vivo, the world’s sixth-larg- benefit from theprogram’s to impacteven after continued have Brands icated channelsfor the winning idols. to itsown platform by setting upded- traffic directedsuccessfully RED, app e－-commerce social sponsor, Another uct with theaudience’s voting rights. From the example of iQiyi and and iQiyi of example the From - -

relevance competition: preference. This iscalledcompeting onbrand and services astheir competitors. product same exact the offering are they are superior, even thoughthey same category tryingto prove that that brands often compete within the Competitors Irrelevant, hepoints out his book defines brand competition in two ways. In Prophet, at chairman vice fathers of branding theory andnow model for traditional advertising celebrities. it with ingful innovation, butby associating mean- any offering by not another, making onebrand preferred over mentally, such content is aimed at funda- Because Model.Preference under what Aaker callstheBrand doing advertising. Butitstill falls version hasbecome anew way of con- sales and traffic online rities, bination of popular shows, celeb- provement –faster, cheaper, better.” im- continuous about all is It efficient. or effective more program marketing the or costly, less offering the liable, the brand ever more attractive or re- in incremental innovation to make Aaker says, is“thestrategy to engage Marketing messageinabottle Marketing The brand The Two typesof preference model Preference vs. David Aaker, one of the early god- This approach isbecoming the In theexample above, thecom- Model, Preference Brand The Brand Relevance: Making

to create “relevance”. this brand will have theopportunity component of itsadvertising, then new product category, rather thana Brand Relevance Model. become “irrelevant”. This iscalledthe brand is“relevant”, while other brands consumer makes a choice, only this with consumers, sothat when the a brand to create new connections loyalty.and New categories help can establish incredibly strong relevance phone that thebrand was ableto of theuser experience of amobile challenged people’s preconceptions cal keyboard. It was because Apple a large touch screen andnophysi- people felt theneedfor aphone with few iPhone, first-ever the launched perience.” For example, when Apple the purchase decisionanduser ex ries that alter the ways they lookat ating new categories or subcatego- to change what people buy by cre- ond route to competitive success is Of course. ducing, distributing and promoting are investing indeveloping, pro- smart brands are exploring. They uct” category because thisis what We call “content” a separate “prod- they alsoneedto “sell” emotions. just sellingproducts andservices, of everything, brands are nolonger alties,” Aakersays. or motivated to changebrand loy because customers are not inclined success intoday’s dynamic market to path difficult increasingly an is classic brand preference model something isseriously wrong. “This differentiator, thenmain the comes be- celebrity the that insignificant so are brands between differences rity from thehottest show. Butif the association with thehottest celeb- today. Brands are competing to get The brand The Buildingstrong brand relevance model content strategy relevance through If abrand leverages content asa Aaker states inhis book:“Thesec Are there any other approaches? In today’sIn oversupply world with - - - Liaoyuan, founder of Three Squirrels. busters in the future,” says Zhang Squirrel Pictures, and invest in block our own movies and TV series with the beginning. We also want to make plantation in film and television is just rels had the same idea. “Brand im- dentally, itscompetitor Three Squir a mediacompany second.” Coinci- and first, company technology a are founder Yang Hongchun says, “We Tencent Video of over 35million.Its videos with a total playback count on of snacks. community that reinforces the value a senseof belongingandbuildinga Many of the videos focus on creating shows, under thebrand “Walnut TV.” and varietyateshort videos various set upateam of 15peopleto cre- ing popular TV shows, Bestore has of that emotion. Ontop of sponsor cially important inthe visualization example. Content becomes espe- for loneliness, fighting – something gry, but because they are longingfor snacks not becausethey are hun- needs of consumers. People eat category that satisfies the emotional foods, which isessentially aproduct sight into theconsumption of snack store hasdemonstrated profound in- years. Behinditsrapid growth, Be- 11 just in USD) million 800 RMB (almost billion 5.4 of sales achieved a lesser-known Bestore, snack company, has (PGC). content erated or so-calledprofessionally-gen- relevance through original content, cal product. physi- a for would they as benefits content for thesamecommercial Makesnackinggreat again! To date, Bestore hasreleased 303 For example, brands cancreate FEATURES - - - 13 March / April 2019 14 www.amcham-shanghai.org urbanites. the train, touching theheartsof lonely on reviews music 85 print to Metro Hangzhou with worked also NetEase “living aloneinthecity.” Additionally, love”“first or as such experiences,life consumers’ emotions around unique evoke to able was Nongfu reviews, music specific selecting carefully By given itsown themesongandstory. bot tles, sothat eachbottle of water is water Spring Nongfu on print to 30 selected NetEase reviews, lion is a classiccase.From their 400 mil Spring Nongfu and Music Cloud NetEase between collaboration The alized musicconsumption demands? impress intheface of highly person- example. How do they manage to sumers. pull at theheartstringsof con- but thegoal remains —that is,to parents thatIhadnomoney. Now, I ●“When I was young, I used to lie to my but to wish only you happiness is real.” “It isalieto wish you both happiness, an as Music Cloud NetEase Take The form of PGCcanbe varied, - - business of sellingcontent? the production of content andinthe gory? Should all brands engage in best articulation of Airbnb. 158 citiesacross 43countries are the from users of experiences The Mai. ing upto ahightree houseinChiang for my future homein Taipei; climb- template the Kenya;finding in house the world: living in a Hollywood star’s of staying in Airbnb homesaround can share their uniqueexperiences bnb launched “Stories”, where users a strategy of Airbnb. To thisend, Air personal stories to thebrand isalso nection to themselves. Linkingusers’ essarily thecelebrity, butthecon - what truly touches peopleisnot nec that us tellsNetEasecontent (UGC). evance” through user-generated Final Brian Chesky, co-founder of Air Is content anew “product” cate- Brands canalsogenerate “rel ●“May all ‘good nights’ be reciprocated.” tell themthatIhave enoughmoney.” 禾thoughts - - - - rather thanshort-term buzz. content that creates brand relevance consistent storytelling andmeaningful is reinforced andcommunicated by belief, which firm a share customers its story happenedbecause Airbnb and ing inphysical homes.Butthisinspiring Airbnb isaservice with customers stay small world –one world, onepeople.” connect people with eachother. “Itisa He believed that Airbnb’s legacy is to isolated anddisconnected as ever.” imagine, and yet peopleare aslonely, will changeour lives in ways we can’t the story and wrote: “Technologies riences hehadbrought to them. to Chesky, thankinghimfor theexpe- and the younger sister wrote aletter The elder sister later diedof cancer, and their lives becamemore colorful. guests from all around the world, Airbnb “host” welcoming interesting side world. Then they becamean had limited connection to theout their parents since childhoodand sister lived inatreehouse builtby bnb, once told astory: agirl andher Chesky was greatly touched by I - - By AurélienRigart strategy an OmniChannel How to deploy G know that openingbrick andmor a soundmarketing strategy. We all colleagues, to thecenterpiece of jargon usedto impress clients or from beingapiece of marketing and more brands are finding out finding are brands more and ers are forced to leave, andmore play some that extent the to fierce play, must-win. Yet competition is brands, theChinese market ismust- many For expressions. finest its of some offers integration niChannel world, Chinaistheplace where Om- gagement andnurture sales. are spendingtimeonto drive en- customers onevery platform they Brands strive to reach potential are theright adjustments to make. competition andunderstand which also a must to keep ahead of the Collecting reliable feedback is delivering high-quality content. all the touchpoints, consistently smooth andcomfortable through The purchasing journey mustbe about thecustomer experience. is nolonger enough. Today, itisall tar stores andsetting up websites Organization) andFrench Tech Shanghai. entrepreneurs,markets. Rigartisalsoacoachforstartupsandother board amemberofthe ofDirectors ofEO(Entrepreneur globalbrandsthrough mostambitious tech, designanddata,empoweringthe infast-movingAsian transformation digital company, strategy, the andleading instrategy, firmspecialized isadigital andHRdepartments.ITConsultis sales,marketing Aurelien Rigartisvicepresident Heisresponsible andco-founderofITConsultis. developmentandexpansionofthe forthe While thisistrueall around the word: theterm hasmoved niChannel was just a buzz one are thedays when Om- - - - ning andlosing. making the difference between win- OmniChannel strategy isessential to tiple channels,deploying aclear customers are spread across mul bad comment away, where potential where cultural missteps are justone where competition iscutthroat, always ontop of itsgame? Inaland on. How canabrand besure to be e-commerce strategy. The list goes get PinDuoDuo anditsdisruptive of social commerce. And don’t for mon passion,isreshaping themodel platform for users who share a com- Red Book,asocial network bornasa lion usersinlessthanone year. Little and music,amassedover 100mil mated through many editingoptions users canuploadshort videos ani- ples, Douyin,asocial network where leveraged. To provide two exam - to be order in flexibility and action appear every day, requiring quick channels untapped promising, New from MVP to a fully fledged solution. strategy progressively scaled up a well-orchestratedOmniChannel through creativity, innovation, and that theonly meansto standoutis There are afew steps to take to This is no easy task in China. - - - infrastructure tation. standing OmniChannel implemen- provide real-life examples of out goals. To illustrate thesepoints, we tal assets andsupport your business brand to make the most of your digi- egy. Following them will allow your create a winning OmniChannel strat whole landscape? How can you be fully deploy your assets across the How can you besure to success- parallel andcompeting platforms. innovation at thesamepace buton as Tencent and Alibaba are boosting even bigger since digital giants such to you. The challenge is actually growth if you misschannelsof value vious potential threats to abrand’s and ontheother hand, there are ob- evident, are benefits potential the of access points. Ontheonehand, with brands through a wide variety This involves theability to interact customers isincreasing by theday. number of channelsfrom brands to seamlessly. As mentioned, the frastructure to reach all channels nel success is to create asoundin- Create across-channel The first step towards OmniChan - FEATURESFEATURES - - 15 March / April 2019 16 www.amcham-shanghai.org Narcissism- enabler? advertises its shows and sells tick The ShanghaiGrand Theatre, which without having to startfrom scratch. allows you to address challenges nance costs. A headlessarchitecture development and ongoing mainte- touchpoint, drastically cuttinginitial mizes anddisseminates itto every a centralized database which opti - architecture: ituploadscontent to organization employed a headless and conversion rate. To doso,the of performance, user-friendliness talizing itsdigital assets interms versary with the clear goal of revi- users. much better user experience for its requires asmaller investment anda each case,anew implementation a loyalty program knowing that in a WeChat mini program, or integrate then decideto create amobileapp, ets onanumber of front ends,can form for itsupcoming 20 its Shanghai Grand Theatre revamped nel approach. For example, The brands to manageanOmniChan- increasingly popular asitenables tent to thepotential customer. one place, delivering seamlesscon - touch-points are all coordinated in in which themultipleconsumer a horizontally integrated framework back-end. The resulting structure is end channelsto oneintegrated different front- the all connecting of a headlesstechnology andconsists tion to address thisneed:itiscalled reaching ROI? There isadigital solu- present inall thechannels while still For most of theinternational This architecture isbecoming -omre n cnet plat content and 月e-commerce th anni- - - amongoffline retail, ance. ensure full connectivity andcompli- play by therulesof thecountry and velop aprominent partof themto fully often meanshaving to rede- brands, localizing their ecosystem could represent thebest solution, population. For many brands, they due to the scale of China’s online counterparts elsewhere inthe world have many more followers thantheir usually China in KOLs Micro dustry. the backboneof the whole KOL in- just aspopular andare becoming also areKOLs Micro hire. to pensive for thisreason, are extremely ex followed by millionsof peopleand, are influencers Popular thriving. is to assuperstarsandKOL marketing Key opinionleadersare looked up their virtualions with communities. and are willing to share their opin- advice of other network members cial networks. They greatly value the but are alsoextremely active onso- point of itbecoming anew lifestyle embraced onlinecommerce to the people. Chineseusershave not only shape theonlinebehavior of its and digital features of China directly capabilities. networks deploying e-commerce providing social features, andsocial the two, with e-commerce platforms that itishard to distinguishbetween commerce now overlap to thepoint platforms.” E-commerce andsocial anywhere, theanswer is“on social likely befound. InChinamore than where potential customers canmost tegrated shoppingexperience. the different channels towards an in- tion entails blurringthelinesamong a successful OmniChannel integra- convenient way. The second step for products or services inthemost that every customer canaccess your ney ascomfortable aspossible,so need to make thepurchasing jour tive cross-channel framework, you Blurringthelines social commerce e-commerce and The uniquecultural, historical of topic the address first let’s But effec an up set have you Once - - -

sales on Tmall.sales s o mc dt aalbe Nt to Not available. data much too is deed gotten to apoint where there has beenalready built. We have in- global ecosystems to leverage what it needsto beconnected to their channel in which they operate and every from flows data that finding last few years. Infact, brands are long time, and even more so in the concerned with data collection for a Brands andcompanies have been happening onall of your channels. to have aclear picture of what is it was 4 it was 2018 Single’s Day ShoppingFestival enue isjustonesmall step: during munity. From engagement to rev so doesEstée Lauder anditscom- changes and,associal mediagrows, brand ismoving inline with market KOLs can foster engagement. The channels with thehelpof theright high-quality content through many an integrated ecosystem. Delivering key to beingsuccessful isto build Estée Lauder understood that the on both Weibo andLittleRed Book. onate strongly andbecome trendy res- message its see to influencers help of carefully-chosen beauty drating Jelly, was able through the Hy Different Dramatically product when launchingitsnew skincare als. Oneof itssub-brands, Clinique, content to target Chinesemillenni- Estée Lauder developed tailored ern marketing campaignsto China, Instead of tryingto adapt its West braces andintegrates all channels. em- effectively which strategy ing and its ability to conceive a market investment inadigital ecosystem in themarket andstandsoutfor its the mostappreciated beauty brands This American company isamong strategy isprovided by Estée Lauder. marketing integration inabusiness which require nicheexpertise. consumer groups, or for products especiallytargetingwhen younger

Focus on大大data boundaries of thelaw being aware of the consolidation while Last butnot least, you need A successful example of KOL th inoverall beauty brand - - - - egy thecompany isfollowing to national players inChina. The strat is oneof themostsuccessful inter embedded in the digital world. P&G tion anddrastically cutthe waste fective approach to data consolida- can leadto aleaner andmore ef streamlined internal data systems operation, but implementation of analysis can easily turn into a costly data that acknowledged (CGTN), Network Television Global China Mark Pritchard, inarecent interview with (P&G) Gamble and Procter the law. and stepping outsidetheborders of being overwhelmed by the volume to turn it into effective action without mation contained in the flow in order lies inhow to consolidate theinfor that purpose. The problem rather hundreds of software solutionsfor about obtaining data, as there are times. The issuenowadays is not and caneven beambiguousat vary agreat deal amongcountries mention thefact theregulations The Chief Marketing Officer of Officer Marketing Chief The - - - - and tastes of itscustomers which geographically map the preferences collection andmanagement can campaigns on. marketing its base to P&G for view and usesitto produce aclearer from each market and touch point system gathers thedata coming is that of data fusion. An internal tion coming from themarketplace informa- of flow huge the channel #MeToo movement Alibaba, through efficient data efficient through Alibaba, resulting ina win-win situation. enjoy cross-channel loyalty rewards, and profiles their to in log channel, access data consistently onevery gration, customers are also ableto inte - data effective With brand. the likely to step into aspecificshop. the characteristics of theusersmost smart supermarkets according to tory andrefurbishment initsHema allows thegroup to adjustinven- The benefits are not limited to limited not are benefits The FEATURES I 17 March / April 2019 Horizontal Skyscrapers to Consumer Products The Need to Truly Localize in China By Mark Tanner

Mark Tanner is the managing director of China Skinny, a market research and strategy agency that has worked with more than 150 brands in 24 categories including IHG, IKEA, SAIC Motors, Tourism Australia, Colgate and Reckitt Benckiser. Every week, China Skinny publishes the most-read newsletter on the topic of marketing to Chinese consumers.

he city of Chongqing sprawls across ous sources of big data and social feedback, one of China’s most dramatic urban we developed an understanding of entertain- Tsettings. Tall, steep banks rise abruptly ment, leisure, food and beverage preferences from rivers bound with masterful feats of en- in Chongqing – influences both local and for- gineering, from temples to buildings to high- eign – spanning everything from coffee con- ways and rail lines clinging onto a theatrical sumption to the uptake of the fad for running. landscape. We could then compare consumer trends At its heart, rising from a historic site where with other Chinese cities. the Yangtze and Jialing rivers meet, is a de- Qualitative research with Chongqing in- velopment that pales all around it. Raffles City fluencers and thought leaders, grounded in Chongqing, designed by Moshe Safdie of Sin- wide-ranging discussions, provided deep gapore’s Marina Bay Sands fame, features a emotional cues and highlighted influences 1,000 foot “horizontal skyscraper” placed along that cannot be gleaned from data alone. We the top of four 800-foot-high towers, and con- also drew on less obvious insights that in- necting with two more towers 50% higher still. fluence decision-making. An example is the When completed, the skybridge linking the impact that travel has on food and other pref- buildings will be the world’s highest. erences. If we look at Chongqing, there has China Skinny worked with IHG which plans been a notable increase in the number of di- to open a flagship hotel in the development, rect airlinks to Thailand. Our previous studies which will see their lobby, restaurants and en- have found that traveling to a country creates tertainment options housed in the enormous affinities with their food, lifestyle and products. “horizontal skyscraper” tube. While cities like With this in mind, the likelihood of shifting Shanghai, Beijing and Shenzhen provide preferences towards Thai food was a proba- plenty of inspiration for the themes and fea- ble outcome for the hotel group to consider in tures to be included in the landmark hotel, the terms of their offering. group recognized that affluent residents and Although it will be tweaked before the visitors to the city have tastes and preferences opening (expected to be 2020), the hotel that are distinct. They wanted a proposition group’s strategy for their flagship Chongqing that was unique, locally relevant and substan- property will need to be rooted in a deep cul- tiated by insights. tural, emotional and functional understanding We were tasked with defining the best lo- of the city to ensure that it connects with the calized proposition for the development using target market to guarantee an excellent con-

www.amcham-shanghai.org our localization methodologies. Using numer- sumer experience and ultimately profitability.

18 FEATURES

China Skinny has since worked on many nationalistic and likely to buy a Chinese car research methods and even purchase other hotel localization projects covering most brand. channels for the same target profile dif- of China. Each project highlights just how dif- Features aside, to really connect with con- fer from one city to the next. There are TV ferent consumers’ preferences are from city sumers, brands are increasingly attempting to shows and resulting celebrities that are to city and reinforces the need to understand do it at an emotional level. Men in Beijing ex- hugely popular in the north, that southern and localize marketing strategies. hibit much more machoistic traits than their folk don’t even watch. Consumers in some more metrosexual counterparts in Shanghai cities will respond much more positively China: Everyone knows it’s who are known for even carrying their partner’s to in-store tastings than those in other cit- diverse. Most roll out a handbag and doing the cooking and cleaning. ies. Apps and the social network used will one-size-fits-all strategy also be quite different from one city to the “China is like Europe with as many differ- next. Well known differences between tier ent states,” has become a common adage 1 & 2 and lower tier cities include Tmall vs for foreigners operating in China, yet in the Pinduoduo (e-commerce) and Douyin vs same breath many will develop a homoge- Kuaishou (short video), and our studies nous strategy spanning the country. The have found cities like Beijing have a higher sheer size and opportunity of the China mar- concentration of Baidu users than other big ket provides justification for localizing by city cities for certain categories. Chengdu users or region. Look at a city like Shanghai where often have lower usage of many popular residents have a purchasing power parity as channels. akin to the Swiss, a GDP bigger than Thai- After the proposition and messaging land’s and a population larger than Australia’s hierarchy is defined by city, communica- – all countries’ brands are likely to employ an tions can be tailored to the specific loca- element of localization. Macho, macho men tion. This could be as simple as ensuring The allure of Shanghai has seen it be- Even in Guangzhou and Shenzhen – two that the Pearl Tower backdrop is used just come one of the world’s most competitive tier-1 cities which are only 30 minutes apart for Shanghainese consumers, right through markets, and without effective marketing and on the fast train – you have a completely to providing different landing pages and products that connect to Shanghai’s con- different family structure and resulting keywords on e-commerce and websites. sumers’ unique characteristics, it is difficult to emotional connection. Guangzhou is an Although it will take more work, ensuring stand out from competitors. But, while some established city where most unmarried mil- communications are relevant, resonant and folk living in Shanghai sometimes forget it, lennials live with their parents, and likely see provided through the right channels will see the city accounts for less than two percent of them daily. Down the tracks in Shenzhen – much higher cut-through and conversion China’s population, and there is plenty of di- a village as recently as 1979 – you have a and a subsequent growth in ROI that is dra- versity and subsequent opportunity beyond. city of domestic migrants who have moved matically higher. there to seek their fortune and may only China’s variances女 span see their parents once every few months, or What to c又onsider when far deeper than food even once a year during the Spring Festival. localizing for China tastes and weather Family-bonding, which is deeply important For many companies, it is likely to be im- Anyone familiar with China will be aware of in China and the theme of much marketing, practical to have a specific strategy for each differing food preferences between regions. will have a different meaning for someone in different city. When China Skinny works with Disparate climates shape varied lifestyles, be- each of these two cities. brands, we recommend an umbrella strat- havior and even the attraction of holiday des- Understanding the functional and emo- egy that holds the widest appeal possible tinations – even among different tier-1 cities. tional needs in a city can also provide direction for Chinese consumers, making specific Brands selling skincare, for instance, would for formats and packaging, where different tweaks in terms of communication chan- be wise to identify that consumers in the cold, imagery and sizes can mean different things. nels, products and target profiles by city. It dry and often-polluted winters of Beijing have China Skinny has also found that the openness ultimately comes down to understanding different needs to consumers in the subtrop- to environmentally-sustainable initiatives such the differences between cities and acting ical and less-polluted cities of Shenzhen and as packaging varies between cities. upon them to maximize the effectiveness of Guangzhou in the south. But the differences Whilst we have only covered tier-1 cities, your execution in China. don’t stop there. there is additional layer of complexity when When Chongqing’s horizontal skyscraper Consumers living in Guangzhou are on av- factoring in lower-tier cities, which will ac- is complete, it will likely have a tailored local- erage two to three inches shorter than those count for most of China’s growth in the future. ized charm that will appeal to residents and living in Beijing. Beijingers are also twice as visitors to the region, ensuring a more prof- likely to be overweight than the national av- The 大different ways itable proposition. Whether it involves spec- erage. Such factors can impact clothing sizes to reach consumers tacular structures in the sky, automobiles that a fashion brand should stock in the north When we study consumers across Chi- or fast-moving consumer goods, there are versus the south, and it could even alter au- nese cities, we always research the cus- few products and services that won’t benefit tomobile size preferences, not taking into ac- tomer journey for purchasing a product or from an element of city/regionally-specific

count that people in the north are much more service. Without exception, the influences, localization. Go forth and tailor! I / April 2019 March

19 20 www.amcham-shanghai.org By AllisonMalmstenandSofyaBakhta Localization vs.MaintainingProduct andBrandConsistency Harmony Achieving L University. andsales. marketing Shehasexperienceinbranding, degree Businessprogram andManagementhascompletedaMasterofInternational inMarketing inShanghaiJiao Tong graduatedfromSofya Bakhta,marketstrategyanalystatDaxueConsulting, F.M. abachelor’s DostoevskyStateUniversitywith relations.such assupplychain,marketstrategyandpublic completed acapstoneprogram atNanjingUniversitytospeakMandarinaprofessional level.Shehasexperienceinfields graduatedfrom Malmsten,marketstrategyanalystatDaxueConsulting, Allison UniversityofMinnesotaandhas the their existing brand image. tween localization and honoring how brands find the balance be- entry cases, we canshedlight on calize? By analyzing Chinamarket out to what extent they needto lo- So how doesaforeign brand work each sector, brand, and product. line falls inadifferent place with is thecaseinall industries,the international image. Though this tween localizingandkeeping their companies walk afinelinebe- not beto Chinesetastes. Foreign enough, andtheproduct may not palatable for average Chinese the sugary American snack was their donutsto localsinBeijing.But moted their store by handingout Never stop learningabout and theChinesemarket In 1994,DunkinDonutspro - Chinese consumers thenticity. Fail to localize may lose your brand’s au- ocalize too much, and you was simply not funenoughfor Chi- shop locations, andathemethat low brand awareness, inconvenient 2008. It still suffered, however, from in China re-entered Dunkin flavors, recipes like mochiringsand melon better. Using lesssugary, localized ond Chinaentry attempt went abit thorough taste tests, andthesec calize therecipe, Dunkinconducted from their mistake of failing to lo- China inthelate 1990s.Learning citizens, andDunkinpulledoutof LikeGlastonbury, butwithfewerpeople.Photocredit Cameron Carlson - sales could move to another player requires continuous research, or build consistent demand. To do that is to have sustainablesuccess and gaining traction isnouse. The goal dent George McAllen. decided by international vice presi- rather than a donutshopfeel, as the focus to creating acafé feel its approach in 2015 and changed third timelucky. Dunkinre-vamped nese consumers. It was acaseof Entering themarket without be tomorrow’s customers.” The at cally says, “today’s visitors could turnover, andthebrand optimisti- in China has high foot traffic but low would enjoy aplace to relax. IKEA knowing that Chinesecustomers up displays inplaces like airports the local culture, andset uppop- ple up.Intheend,IKEA embraced tinely make therounds waking peo- rou- employees having by it fight to tried first theystores, its in riods beds andhangingoutfor longpe- sumers sleepingontheir display casual day inthepark. ket of families wanting atent for a it would have missedthehugemar tents inChinaasitdoesthe West, same the offered Decathlon Had recommended for overnight use.” parks andsuburbs” andiseven “not protection andshortrests while in tection. Itis“recommended for sun rain protection, but UPF 50 sun pro- UK site: afamily tent with only light a product not even available onthe the best-selling Decathlon tent is overnight camping. Yet on Tmall, proof, two-person tent meant for cathlon in the UK is a sturdy, water park. The best-selling tent for De- sun protection duringaday at the overnight, butrather usingthemfor were not buying tents for camping market share. Chineseconsumers modify their products, or risklosing well that they realized theneedto gating why tents were sellingso tents, butit wasn’t until investi- has hadremarkable success with lon’s tent salesinChina.Decathlon Let’s take theexample of Decath- that better understandsconsumers. IKEA and Muji setting up pop-up displays. Photocredit: uppop-updisplays. IKEAandMujisetting DaxueConsulting When IKEA was faced with con- - - - Chinese culture. untouched and what to adapt to market, andstudy what to leave your product popular inthelocal down theelements that make or brand culture, butrather break to turn your backon your identity ful market entry. The ideaisnot market isakey aspectof success- for products aimed at theChina a dedicated development process product promotion ideas,having aptation, product adaption, or displays are appearinginmalls. displays, andother furniture brands followed in IKEA’s steps, setting up pop-up has Muji surroundings. closely interact with their shopping ment andtherefore want to more as aform of leisure andentertain- from that inthe West –they enjoy it fundamentallyis shopping different titude of Chinesepeopletowards

of thebranding agency BSUR, liarities of thelocal market. time taking into account the pecu- authentic brand while at the same requires apresentation of your age. Entering theChinesemarket and localization of thebrand’s im- brand identity with all its history is abalancingactbetween your your brand imageinanew market cho-emotional level andbuilding influence peopleonadeeppsy will come to your mind.Brands fee andairlines,” brand images formula, cosmetics, fast food, cof Branding: Know when Whether interms of taste ad- s i Go mngn partner managing Guo, Qin As When you read words like “baby and how to rebrand - - ample, have a unique history and tinguished identity. Clarets, for ex by promoting their classicanddis- wine brands have found success inChina Many Bordeaux. from eties two mostprominent grapes vari- Cabernet Sauvignon, which are the and Merlot were volume by 2015 in biggest-selling red wines inChina ing to Euromonitor International, the tion asacategory in1855. Accord- classifica- formal its to back dating in Chinabecause of itsrichhistory most popular region for wines sold inChina. Bordeaux quickly becamethe sales wine red affected quality. The emphasisonstatus has gevity of abrand andtheperceived there iscorrelation between thelon- international success. highly evaluate brand history and categories, Chineseconsumers sulting across many B2Cproduct based onresearch by DaxueCon- of thebrand identity. After all, tion, otherwise nothing will remain individuality, charmandrecogni- brands mustbecareful not to lose the pursuitof brand localization, ipe suitable for every brand. In tuition. There isnouniversal rec knowledge andprofessional in- on richexperience, deepmarket two elements requires drawing taining abalance between these the details, of findingandmain- choice. The process of working out golden meanisalways thebest cal or international identity, the tional identity ciding between local or interna- Reinvent your brand, or not! De- around 20%higher thanintheU.S. with prices for itscoffee in China ing. Starbucks isagoodexample image can warrant premium pric the bottom.” An aspirational brand to price; putting you inarace to a brand, differentiation isleft up yourwith products.tion Without ers to make anemotional connec and different, andallows custom- your company, making you unique people’s mind when they thinkof put it:“Brand is what comes to For instance, inthe wine industry When decidingbetween lo- FEATURES - - - - 21 March / April 2019 recognized quality, a point promoted ef- mainland China within days of its launch. Brand naming process: fectively to Chinese consumers. International brands can still learn 80% research, 20% creativity In the baked goods industry, there is much from the success of local leaders. A brand name is central to a brand’s im- a correlation between a brand’s interna- The Forbidden City, the former imperial age. The challenge is to present a brand tional success and the perceived nutri- palace from the Ming to the end of the competently and professionally in China, tional value and quality. A growing niche Qing dynasty, is the beating heart of Bei- taking into account the local cultural, histori- of Chinese consumers go to popular jing, and it now houses the Palace Mu- cal and linguistic landscape. All international Western franchises such as Costa Coffee seum. The Forbidden City has launched companies face the challenge of China brand or Starbucks to buy baked products that a number of branded goods and each of naming, regardless of industry or scale. taste the same as those in Europe or North them has become a hit on social media, Based on Daxue Consulting’s experi- America. They are looking for “real” Euro- marking a return in the appeal of tradi- ence with brand naming, the naming pro- pean bread with nuts and a crispy crust tional Chinese culture in high-end prod- cess can be broken down into four stages, rather than something adapted to Chinese ucts. The last hit was a line of lipstick, namely: Preparation, Name Development, preferences, which tend to be softer, more which was embraced by Chinese women Testing and Finalization. sugary breads. These customers “have to the extent that it went viral on social Preparation begins with initial research strong brand perception and high aware- media. The set was targeted at middle to gain a comprehensive understanding of competitors in China to understand the playing field. Next, we understand a client’s brand positioning and identity, with the goal of discovering the central theme that reso- nates throughout the brand. Researching the market landscape and brand percep- tion in China sets the foundation for nam- ing research. From there, we begin name development. Through brainstorming, we generate as many keywords as possible that relate to the brand, then the keywords are arranged into possible names. We do a legal check on these names, including Carb-loading trademark and domain checks for main- land China and Hong Kong. ness of authenticity. They want to buy and high-end consumers and the cost The name options that clear the legal French quality at a controlled price,” says or each lipstick was set at around 200 check continue onto name testing, which François-Xavier Colas of the French group RMB (approximately US$30.00); 50,000 is conducted through focus groups with Le Duff, who owns the bakery “La Brioche lipsticks and other makeup products consumers and a mini-survey of 50 mar- Dorée” in China. The strategy of these were sold during the first ten hours after ket insiders in the target sector. Western bakeries is to keep the original the collection’s launch, with total sales Five to 10 top names then go through taste of wheat and grains and to offer au- reaching over 5 million RMB. a linguistic check in Mandarin, Canton- thentic products like pretzels, baguettes, Both these cases highlight the use of ese, Shanghainese, etc. and kornspitz. For example, Baker & Spice traditional Chinese culture, but the cos- This process generates three to five high (from the UK) is a French-style bakery of- metics brand M.A.C, on the other hand, potential names from which a brand can fering wheat and multigrain breads, deco- has recently dazzled fans by instead em- choose. Without the help of local experts, rated cakes and delicate desserts. bracing modern Chinese culture. After creating a brand name that both appeals to On the other side of the spectrum monitoring the social media comments of consumers and resonates with your brand im- from bakeries and wines that do not its target market of young women, M.A.C age is nearly impossible. Especially for a for- adapt their product, are brands that discovered that people were trying to eign brand, every step in the naming process work hard to echo Chinese culture. To match lipstick shades with the characters requires research, which is why a solid naming demonstrate how to successfully em- from the popular mobile game, Honor of procedure is 80% research and 20% creativity. brace Chinese culture in products and Kings. M.A.C recognized this as an op- In conclusion, these successful China promotions, we can deep dive into the portunity, and partnered with the game market strategy cases vary on the extent to lipstick segment. to promote the exact lipstick shades which brands localized to the culture, yet in To launch its “Red on Fire” lipstick for five characters, and created product each case, the product and name adapta- series, Maybelline created a mah- packaging that aligned with the theme of tions were rooted in research. Each industry jong-themed lipstick set, with traditional the game. The result was that searches and even brand within an industry needs Mahjong symbols on the tiles replaced for M.A.C spiked on Baidu, the promotion its own unique formula for mixing its own with lipstick and the Maybelline M logo exploded on Weibo, and all five lipstick characteristics and history with Chinese el- on the back. Maybelline China’s “Red On shades were sold out within 24 hours of ements, proving that there is no singe path

www.amcham-shanghai.org Fire” collection is said to have sold out in the launch. to success in China. I

22 FEATURES The Importance of Sleep By Ruoping Chen

igh achievers who boast about their abil- tion, risk of type 2 diabetes increases with lack “If you check internet data, before 2013, [ur- ity to get by on very little sleep are likely of sleep because the body produces less in- ban] Chinese slept longer... now the average Hfooling themselves. Even if they are not, sulin (which regulates blood sugar) and more Chinese person sleeps six and a half hours, they should know that they may be increasing stress hormones such as cortisol that raise women a little bit longer than men,” says Dr. their risk of developing Alzheimer’s disease. A blood glucose levels. Baum. They usually go to bed at around mid- study conducted by researchers at the National Other conditions that may develop from night, at the upper limit of the optimal window Institutes of Health (NIH) last year demonstrated lack of sleep, Dr. Baum adds, include weight of opportunity, according to the National Sleep that beta-amyloids, a metabolic waste found gain, anxiety, depression, cardiovascular dis- Foundation: between 8:00pm and 12:00am. in the brain (and long linked to Alzheimer’s) eases and a compromised immune system. A One contributing factor to the sleep prob- increases after just one night of sleep depriva- 2013 study by the University of Colorado, for lem in China is that its workplace culture in- tion. By comparing beta-amyloid levels after example, showed that participants who slept creasingly values long work hours. Witness one night of rested sleep with one of lost sleep five hours per night over the workweek and for example the unspoken “9-9-6” schedule (subjects were awoken every hour), researchers had unlimited access to food gained an aver- in Chinese tech firms, where employees work found a 5% increase in beta-amyloid levels in age of two pounds. The body requires more from 9:00am to 9:00pm, six times a week. But the brain. While previous studies linked acute energy to stay awake for longer periods, while employers and policymakers should con- sleep deprivation with elevated beta-amyloid the extra calories consumed during that pe- sider the economic costs of a sleep-deprived levels in mice, the NIH study is one of the first to riod tend to exceed the extra calories burned. workforce that operates on reduced produc- demonstrate such a link in humans. Studies have also linked sleep depriva- tivity and with elevated mortality risk. A 2016 It is unclear whether the beta-amyloid tion with changes to appetite-regulating report by the RAND corporation found that buildup is due to sleep deprivation disrupting the hormones leptin and ghrelin. Subjects who the U.S. sustains economic losses of up to brain’s natural “waste clearing” ability or because on average slept less than five hours a night US$411 billion per year and an equivalent of it produces more beta-amyloids as a result of produced significantly less leptin (low levels 1.23 million working days per year due to in- being awake for extended periods. It may be that of which are a signal of starvation) and more sufficient sleep. Workplace accidents are -of elevated beta-amyloid levels lead to sleep prob- ghrelin (an appetite stimulant). ten linked to sleep deprivation, not to mention lems in the first place. Regardless, a mounting In a 2018 study published by Nature Com- the rise in healthcare costs associated with it. body of evidence in recent years points to the im- munications, researchers at the University of portance of adequate sleep to one’s short-term California, Berkeley, found that sleep-deprived How to get a better and long-term physical and mental health. participants felt lonelier and less inclined to night’s sleep engage with others. Through brain scans, the In today’s high-stress corporate world, it may Consequences of researchers observed heightened activity in a be hard to “find the time” to get enough sleep inadequate sleep neural circuit that activates when the brain per- each night. For these individuals, Dr. Baum rec- “The general recommendation is usually be- ceives potential incoming human threats. The ommends that “when they are sleeping, they tween 7 and 9 hours,” says Dr. Michaela Baum study also recruited volunteers to view video- should make sure that they have a good sleep of ParkwayHealth Medical Services China, re- tapes of the test subjects (both sleep-deprived with deep sleep phases [REM sleep].” ferring to guidance published by leading spe- and well-rested). The volunteers consistently To maximize uninterrupted sleep, light cialists and organizations such as the National rated those who were sleep-deprived as being should be blocked out as much as possible Sleep Foundation on the recommended hours lonelier and less socially desirable. and the room should be comfortably cool, as of sleep for adults (26-64 years old). “your body temperature should go down. This Many benefits arise from a good night’s The economic cost of helps to achieve quality deep sleep.” sleep. Baum explains that a well-rested per- insufficient sleep Other methods to help achieve quality son will be able to focus more on tasks and Insufficient sleep is more than just an indi- sleep include not drinking alcohol before have better concentration throughout the day. vidual problem. It is becoming a public health bedtime, because while alcohol allows the “You are more alert, you are fitter... long-term problem in many countries. The proportion of body to fall asleep faster, it reduces REM benefits are, for example, you are healthier in people sleeping fewer hours in industrialized sleep. Exercise, especially in the morning, will general. You have less memory loss and are nations is rising, spurred by longer work hours, also help in extending deeper sleep cycles as less likely [to develop] type 2 diabetes.” a modern 24/7 society, stresses and exces- it kickstarts one’s body clock for a day of activ-

According to the National Sleep Founda- sive electronics usage, among other factors. ity and nighttime rest. I / April 2019 March

23 AA CautiousCautious ReformReform DiagnosisDiagnosis By Nicholas Consonery

Nick Consonery is a director and head of China Engagements at Rhodium Group, an independent economic analysis firm.

very quarter Rhodium Group and Here is one example: to measure For foreign firms in China, the economic the Asia Society Policy Institute pro- whether China is opening its capital mar- reforms of highest importance are those Educe the China Dashboard, a public kets to foreign investment, as promised that affect competition conditions within the research project meant to inform policy in the Third Plenum, we measure the sum China market, such as to policies that allow and business discussions about reform in of cross-border capital flows as a share Chinese state-owned enterprises (SOEs) China. Our Dashboard assesses whether of China’s GDP since 2013 commitments and even private firms to compete on an or not the Chinese government is imple- were made. If China’s capital markets were unequal footing with foreign peers, and also menting the set of economic reforms that opening, we would expect that number to generate spillovers of excess production it committed to in the Third Plenum of the increase and converge with levels in ad- into global markets. 18th Communist Party Congress in Novem- vanced economies. Our latest Dashboard shows that ma- ber 2013. The Dashboard is an objective Instead, at 6.9% of GDP (as of the third jor benchmarks of fair competition are attempt to assess whether those reforms quarter of 2018), China’s cross-border flows deteriorating, even as an overall slow- are succeeding, based not on rhetoric or are still well below levels seen in developed down in China’s economy highlights the commitments but on actual data. markets. And more concerning, those lev- importance to China’s growth outlook of The latest Winter 2019 edition of our els have actually fallen, from 8.25% in 2013 attracting more foreign investment. These China Dashboard went live in mid-February. when the Third Plenum commitments were findings are consistent with recent- sur announced. This is an important indicator vey work done by the American Chamber Latest Dashboard findings that China has not become more open to of Commerce in Shanghai, including its shows reforms not playing capital inflows and outflows over the past 2018 China Business Report from last July, through six years, despite some ostensible policy which flagged persistent levels of concern In this edition we find that reforms are progress in that time period. among U.S. firms about a lack of regulatory not driving decisive change in economic We see modest forward movement in transparency and increasingly challenging data in almost all major areas where the only two areas: environmental policy and competition from SOEs. Indeed our findings Chinese government has committed to the promotion of innovation. In other ar- show that China’s domestic competition progress. This is a continuation of what we eas, we find that reforms are either stuck policy regime exhibits substantial shortfalls observed in the previous Fall 2018 edition. in neutral (cross-border investment flows in areas like transparency and equal treat- In eight of the ten major reform clusters and financial reform) or deteriorating (state- ment, despite several years of regulatory we track, Beijing is either making no ob- owned enterprises, trade, competition, fis- and bureaucratic reform in these areas. servable progress or conditions are back- cal affairs, land, and labor). Indicators of SOE reform are among the sliding – meaning that data movement Competition policy indicators are among most concerning: SOEs are growing, not

www.amcham-shanghai.org contradicts reform objectives. the most concerning. shrinking, in China’s economy today. Dash-

24 POLICY PERSPECTIVESFEATURES

tainty about China’s M&A review process as Figure 1. Return on Assets by Ownership Type, 3Q 2013 – 3Q 2018* Beijing was unwilling to approve a number

18% of high-profile deals cleared by other global competition regulators. 16% Our indicator shows that foreign firms are 14% targeted disproportionally in M&A reviews, 12% despite bureaucratic reforms announced 10% at that National People’s Congress in March 8% 2018 which were meant to level the playing

6% field. SAMR reviewed 30% of eligible M&A deals involving foreign firms in the latest 4% Dashboard review period, compared with 2% just 6% of domestic deals (Figure 2). All sup- 0% plemental data point to continued weak- nesses in China’s competitive environment: 3Q2013 4Q2013 1Q2014 2Q2014 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015 4Q2015 1Q2016 2Q2016 3Q2016 4Q2016 1Q2017 2Q2017 3Q2017 4Q2017 1Q2018 2Q2018 3Q2018 judicial transparency remains inadequate and SOEs maintained preferential access to Source: State-owned Assets Supervision and Administration Commission, Rhodium Group. capital despite their declining pricing power. *HMT = Hong Kong, Macau, and Taiwan.

Private Enterprises’ Return on Assets Shareholding Enterprises’ Return on Assets HMT & Foreign Enterprises’ Return on Assets SOEs’ Return on Assets Nowhere to go but up? Our Winter 2019 Dashboard edition comes just weeks before the U.S. and China face a deadline in economic ne- board indicators measure SOE’s share of capacity in the latest Dashboard review. gotiations, wherein the U.S. is insisting on industrial assets in the economy, leverage Meanwhile private firms’ share of industrial fundamental structural reform to China’s rates, return on assets, profitability, and assets fell to 13.1% in 3Q2018, down from economic system in areas like industrial, share of employment. Over the past year 13.9% in the same period a year prior. This innovation and competition policy. U.S. private sector firms were hurt dispropor- adds to global fallout over the unlevel play- negotiators have implied that any deal tionately by government-led capacity cuts ing field between private and foreign firms will be contingent on U.S. ability to ver- and controls on credit, while SOEs enjoyed in the China market. ify whether policy promises drive out- better pricing power, maintained access to Our primary indicator of competition comes aligned with market principles credit, and sometimes were able to acquire conditions is a simple count of mergers and and transparent governance. At the core troubled private firms. acquisitions (M&A) reviews conducted by of the U.S. ask is for Beijing to implement These trends continue: only SOEs saw China’s State Administration for Market Reg- long-standing promises to reduce mar- increased returns on assets (Figure 1), lower ulation (SAMR). This indicator is highly rele- ket access barriers for foreign industry, leverage ratios, and improved debt service vant today, in a context of growing uncer- diminish the role of the state in driving industrial outcomes, and open financial markets to market forces and fair compe- tition. Our Dashboard was built to gauge exactly whether these changes are hap- Figure 2. China’s Treatment of Merger Reviews, 3Q 2013 – 3Q 2018 pening. A course correction is possible, and 35% certainly the Dashboard reveals plenty of 30% room for improvement. If Beijing imple- 25% ments meaningful and structural policy 20% changes, perhaps in the context of nego-

15% tiations with the U.S. or perhaps on its own accord, our Dashboard indicators would 10% improve. In some discrete areas we already 5% see modest progress, such as increased 0% foreign investment inflows related to new openings offered in Chinese equity and

3Q2013 4Q2013 1Q2014 2Q2014 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015 4Q2015 1Q2016 2Q2016 3Q2016 4Q2016 1Q2017 2Q2017 3Q2017 4Q2017 1Q2018 2Q2018 3Q2018 bond markets, or a reduction in import tar- iffs imposed on highly-protected goods. Source: Ministry of Commerce, Bloomberg, Rhodium Group. But these changes have so far proven inad- Percentage of foreign-involved mergers reviewed equate to move our overall reform gauge in Percentage of domestic mergers reviewed

a positive direction. I / April 2019 March

25 On Data Governance Q&A with Samm Sacks

By Doug Strub

Samm Sacks is a Cybersecurity Policy and China Digital Economy fellow at New America. She leads “Charting China’s Data Governance,” which publishes translation and analysis of policies related to cross border data transfer, data security and privacy, and the implications for artificial intelligence (AI). Her new study on Data & Great Power Competition assesses different data regimes emerging across Europe, Asia, and the United States in comparative context. Previously she was a senior fellow at CSIS, where she authored a widely cited report on how Chinese cybersecurity standards impact doing business in China. She received a MA from Yale University and BA from Brown University, and reads and speaks Mandarin.

Could you give an overview of China’s data, but important data refers to the kind istries announced an audit that launched data protection regimes? of data that would affect national secu- in January where they’re going to inspect There has been a patchwork of dif- rity, the economy and people’s liveli- 1000 mobile apps in services from food ferent laws and regulations that have hoods. There’s no official definition yet of delivery to online payments, looking spe- touched on data protection for years. important data. We’re expecting a regula- cifically at how the apps are collecting Since the Cybersecurity Law was imple- tion to come down sometime in the next personal information. The Cybersecurity mented in June 2017, we’ve seen the gov- year that would put some more meat on Law laid out a broad requirement that ernment accelerate efforts to build out the bone around that meaning and the there must be consent to collect and use data governance in a more comprehen- different requirements around it. personal data. There’s a lot of uncertainty sive and coordinated way, including nu- My colleague Graham Webster and around what exactly that means, but gov- merous regulations and standards meant I just launched a new project at New ernment regulators are already beginning to flesh out the details. The Cybersecurity America called “Charting China’s Data to look more carefully at what businesses Law laid out high-level principles related Governance.” We have a timeline of major are doing. to two categories of data – one which developments as well as ongoing trans- They also wrapped up at the end of is called “important data,” and the other lations and analysis as this regime con- last year a separate audit where a num- “personal data.” In addition to the Cyber- tinues to take shape. Beijing is likely to ber of apps were inspected and they security Law there are a number of other make this topic a priority in 2019. published what they called a “black list” laws, for example, the Consumer Protec- – they were all Chinese apps that were tion Law and the E-Commerce Law, that How does this impact businesses and found to have excessively collected per- touch on this issue. individuals working and living in China? sonal information. These included Ctrip, I think it’s first important to unpack Even though there is still a lot of de- which is a popular travel website, and what is “important data” and “personal bate and discussion inside China about Tencent’s QQ Music. This is something data.” In a piece recently written by Dr. what these rules mean and how they that companies are definitely already be- Hong Yanqing and published on the Cy- will be implemented, we’ve already seen ginning to feel the squeeze on. berspace Administration of China’s web- both foreign and Chinese businesses fac- site, he said that personal data relates to ing increased scrutiny over the way they That’s interesting. Has it only been Chi- having autonomy and control over one’s handle personal data. This year four min- nese companies, and they haven’t found www.amcham-shanghai.org

26 POLICYMEMBER PERSPECTIVESFEATURES NEWS

On Data Governance Q&A with Samm Sacks

fault with any foreign companies’ apps? standards is quite vague, as with any kind it, and it’s effective, because you get a I have heard that foreign companies of Chinese law. To give you an example, score based on all this criteria.” The prob- have been visited and there’s been dis- one of the issues that’s been a long- lem is that when we broke down some of cussion around their collection of per- standing concern for the U.S. business those standards, the language of the cri- sonal information. But these particular community in China has been the phrase teria is still highly subjective and open to audits, which were published in Chinese “secure and controllable,” and what re- interpretation. So if we get in a scenario media, only focus on domestic compa- quirements certain kinds of products and where there’s a sort of tit-for-tat between nies. I think that is consistent with a pat- tern we’ve seen under the broader rubric of the Cybersecurity Law, which is that the majority of enforcement action so far has been focused on local companies. The thing about standards is, unlike the Cybersecurity Law, they’re not tech- nically mandated. They’re considered recommendations for industries to follow. The problem is, in practice they can be required in order to do business in China. If a company needs a certain certification or to go through an evaluation to get a license it’s like a form of regulation. And then the question is, what is the process like to get the certification. So I think Somewhere in here you will find your pictures these standards need to be in some ways treated like laws in the way that compa- services must meet to be deemed secure Beijing and Washington this could be a nies are preparing for them. and controllable. channel to put up barriers or inflict costs There’s been pushback because on businesses in China. Again, I have not You have also written that these regu- there’s no official definition of secure seen examples yet. lations could potentially be used as a and controllable. But now there’s a whole tool to retaliate against U.S. companies batch of standards, and these standards Given the vagueness of the language, if trade tensions continue to escalate. are meant to provide details to measure do you have any advice on how com- Have you seen any evidence of this hap- security and controllability. There’s a panies can mitigate concerns over how pening? graded metric that certain kinds of prod- these laws will be implemented? I haven’t seen any evidence yet that ucts and services undergo, where they I always say “In China you cannot be in standards have been used as a form of get a score to see how secure and con- a reactive position, you have to be proac- trade retaliation. It’s a tool that’s available trollable they are. This is something the tive.” I think sometimes there’s a tendency to the Chinese government and regula- government can point to and say “this is to wait until a certain regulation comes tors if they so choose. The language in transparent and we have a definition for down and then prepare to comply with it. March / April 2019 March

27 We have a sense of what’s in the pipe- have a high level of integration right now. line. A lot of these standards are still in And I think there’s a misconception that draft form, and the same with a number innovation just flows one way – that China of the regulations – specifically regula- steals IP and technology from Western tions around data protection. So use this companies and therefore we need to pull opportunity to get ahead and prepare out and put up barriers. But the reality to comply with them before you have today for a lot of U.S. companies in cut- to. And don’t assume that just because ting edge fields is that being in the China something is a voluntary recommenda- market is not just because of its scale, tion for industry that it won’t be required but because of the kind of innovation in practice to do business in China. that’s going on in areas like AI, it’s also a The other thing is, as I mentioned, net gain. And it’s important to have that Chinese companies have been hit partic- kind of joint research and development ularly hard from an enforcement stand- ogies, which is still being discussed. It’s going on. Otherwise we could be falling point on these issues. This is an area not clear yet what that’s going to mean in behind as well. So I think this whole tech where I think there’s a kind of counter- practice, but it will require greater atten- Cold War concept is dangerous, because intuitive alignment between U.S. and tion to make sure that any kind of export it implies that we’re going to cut off from Chinese companies. Chinese companies involving these broad categories from AI a highly integrated system where there who are operating abroad don’t want to to semiconductors has the appropriate li- are benefits. The question is how do we have restrictions on sending data across cense and review process. Then you have weigh that against the real national se- borders. This is an area where I think it’s the U.S. government going out to partners curity and market access challenges that important to work with stakeholders in and allies around the world saying “Don’t this administration is taking on. the Chinese system that have a shared use Huawei in your 5G networks because interest in how these regulations play out. there’s a national security threat.” And just How can the U.S. prevent escalation of a general pressure from Washington for these technological and cyber tensions Technology has been playing an in- companies to unwind supply chains that between the two countries while still creasingly prominent role in U.S.-China involve China. My sense is that unwind- protecting its national interests? tensions, and terms like “Digital Cold ing those supply chains is extremely dif- A concept that my colleague at the War” and “Digital Iron Curtain” are ap- ficult to do in practice. These are highly Council on Foreign Relations, Lorand pearing more frequently in the media. Is integrated systems from the perspective Laskai, and I have written about is what this just sensationalism, or are we really of research, development and manufac- we call a “small yard, high fence.” This entering a Cold War-type technological turing, but there is pressure to do it. So wasn’t our phrase – I believe this was standoff? that’s kind of the view from Washington. from former secretary of defense Robert What I’m seeing is there’s sort of a I think there’s been a sea change that’s Gates – but the idea is to identify what perfect storm brewing both in Washing- happened, where China is now seen as an needs to be protected and erect strong ton and Beijing, which increases the risks existential threat and technology is at the barriers to do so. Don’t take a blunt in- of the so-called “Digital Iron Curtain.” But center of that. strument approach where any sort of Chi- I think those terms are problematic. In Meanwhile, in Beijing you have the ad- nese company or individual is targeted Washington you have a whole of gov- ministration of Xi Jinping doubling down as a security threat. One area where I ernment effort, which is aimed at what on reducing reliance on foreign suppliers think this is going to be important is the we call technology decoupling between in what are deemed “core technologies.” export control regime. The Commerce the U.S. and China. It’s not just focused on Again, there’s no official definition of “core Department is in the process of figuring Huawei, though that gets a lot of media technologies” – that’s something that out how do we scope these broad cate- headlines. Last fall you had a Department changes and could be very political. But gories of technology to figure out where of Justice initiative where they basically it could include things like certain kinds we need to erect more barriers. They’re said “we are giving a green light to the of semiconductors, operating systems, or taking comments from industry and I be- law enforcement community to pursue hardware involved with AI – the list goes lieve there’s a good faith effort to find the any case of a Chinese company or indi- on. We’ve published on this topic on New right balance. But it’s going to be very vidual involved in criminal economic ac- America, so I point you to our DigiChina important to have that dialogue between tivity.” You have an expanded and beefed website for more discussion on what ex- industry and the U.S. government. Other- up Committee on Foreign Investment in actly “core technologies” is. wise we could end up with broad cate- the United States (CFIUS) review process, Then you also have the potential new gories, which is the opposite of the small where Chinese investment here is going market access barriers related to this yard, high fence approach. The important to undergo much more scrutiny than it vast cybersecurity legal and regulatory thing is, let’s not discriminate based on has in the past. system. So I think it’s a perfect storm be- national origin, let’s be more targeted in At the same time you have a new ex- tween Washington and Beijing. The prob- our approach. I port control regime. There’s a category in lem is, decoupling comes with enormous

www.amcham-shanghai.org it for emerging and foundational technol- costs. Unlike a Cold War scenario, we

28 POLICYMEMBER PERSPECTIVESFEATURES NEWS Implications of China’s E-Commerce Law

By Sara Xia

Sara Xia is an attorney at Harris Bricken. She splits her time between the United States and China advising companies on corporate and business operations and transactions, with a focus on China related cybersecurity and data privacy compliance. She also works on international commercial litigation and arbitration matters. Xia has law degrees from the University of Washington School of Law and Shanghai University of Finance and Economics.

hina’s new E-Commerce Law has ators to register as market entities, except must verify the identity, business registration, been in effect for a few months now individuals who sell their own agricultural tax registration and any other required permit Cand in this article I discuss its expected and agricultural byproducts or handcrafts, or licenses of any on-platform operator. If any impact on various e-commerce players. or who carry out occasional and small trans- on-platform operator does not have proper actions. The Law further requires all e-com- registration, the platform operator must re- E-commerce and merce operators report and pay taxes ac- mind them of their noncompliance and offer e-commerce operators cording to applicable laws and regulations. them assistance in registering. If the platform The E-Commerce Law defines “electronic In addition, e-commerce operators must operator discovers that an on-platform oper- commerce” as business activities related to do all of the following: ator does not have administrative approval selling goods via information networks such 1) Display their business license and any for certain goods or services, or reports that as the Internet, as well as services that pro- administrative permits, or provide a statement an on-platform operator to relevant govern- vide news, audio and video programs, as well making clear that they are not required to reg- ment authorities if its goods or services do as publications, cultural products and other ister. If an e-commerce operator voluntarily not comply with the requirements for per- content services provided via information discontinues its e-commerce business, it must sonal or property security or are prohibited networks. It expressly does not include finan- notify the public by continuously displaying at by law or regulation, the platform operator cial products or financial services. least 30 days in advance of the date on which it must report such noncompliance to relevant E-commerce operators include individuals, will cease conducting its e-commerce business; government authorities. legal persons and other organizations that op- 2) Disclose information regarding its goods Third, the E-Commerce Law makes a erate an e-commerce business. The E-Com- or services in a comprehensive, authentic, ac- platform operator jointly and severally liable merce Law puts e-commerce business opera- curate and timely manner so as to protect the for goods and services sold by its platform tors into the following three categories: consumer’s right to know and right to choose; operators that do not comply with personal 1) Platform operators. These are entities 3) Provide non-targeted options if it provides safety or property security requirements if that provide virtual space for online vendors, targeted search results based on the con- the platform operator knew or should have act as a go-between for transactions, or pro- sumer’s interests, habits or other personal traits; known about the failure to comply. If an vide information to parties in transactions that 4) Not use any tie-in sale as a default option; e-commerce platform operator fails to verify enable them to carry out business activities. 5) Clearly set forth its procedure for refund- the qualifications of an on-platform vendor 2) Operators on e-commerce platforms. ing any deposits collected. This procedure for selling goods or services related to con- These are vendors that sell goods or ser- cannot set unreasonable refund requirements. sumer health the platform operator will be li- vices on e-commerce platforms. able for any harm caused to consumers. This 3) E-commerce operators. These are Additional rules applicable to entails diligent and comprehensive investi- entities that sell goods or services through e-commerce platform operators gation and verification by platform operators self-established websites or other network The E-Commerce Law specifies addi- before allowing individual businesses to sell services (e.g. social media sites). tional obligations and responsibilities for anything health related on their platforms. The legal definition of an e-commerce e-commerce platform operators. E-commerce platform operators are also operator covers most online sellers and First, e-commerce platform operators required to establish rules for intellectual selling activities, which means the E-Com- must build comprehensive systems for prod- property protection and to cooperate with merce Law applies to e-commerce plat- uct and service evaluation, keep records of IP owners to enhance intellectual property forms such as Taobao and JD.com, to any goods and services published and trans- protection. If an e-commerce platform oper- vendor on any of these platforms, as well as acted on their platform, and establish fair and ator receives notice of IP infringement it must to an individual selling as daigou on a social transparent rules for their platform services take necessary actions, such as deleting, media app such as WeChat. and transactions. blocking or disconnecting links and termi-

The Law requires all e-commerce oper- Second, e-commerce platform operators nating transactions or services that infringe / April 2019 March

29 * Notice of the Ministry of Commerce, the National Development and Reform Commission, the Ministry of Finance, the General Administration of Customs, the State Administration of Taxation, and the State Ad- ministration for Market Regulation on Improving the Supervision over Cross-border E-commerce Retail Imports, 六部门关于完善跨境电子商务零售进口监管有关工作的通知, Shang Cai Fa [2018] No.486, the “Notice.” on an IP holder’s rights. If a platform operator Impact on foreign businesses seas. According to this definition, all foreign fails to take timely action it will be jointly and Certain provisions in the E-Commerce businesses that sell goods to Chinese con- severally liable for any additional damages Law will directly impact cross-border sumers at a retail level can be considered caused by such infringement. In practice, e-commerce activities. For example, ar- cross-border e-commerce companies. many of the e-commerce platforms have ticle 26 of the E-Commerce Law requires This Notice also requires cross-border already established rules for IP protection. e-commerce operators that engage in e-commerce companies register with China For example, if you find a supplier on Alibaba cross-border e-commerce to comply with customs through a company registered in using your trademark or a copyrighted photo China’s import and export laws and regu- China and report real-time transaction data without your authorization, you can report the lations. Chapter 5 of the E-Commerce Law, of retail imports. It is not entirely clear how infringement to Alibaba (along with proof of Promotion of E-Commerce, provides that these requirements will be enforced. Theo- your IP rights) and request Alibaba take down China shall promote cross-border e-com- retically, all cross-border e-commerce com- the infringing product page or photo and it merce development, establish and improve panies must register with Chinese customs usually will. Because China’s e-commerce the management systems of customs, and comply with all applicable requirements platforms operate mainly within China, proof taxation, entry-exit inspection, payments and China customs will block entry of any of IP rights in Chinese or certificates issued and other systems relating to cross-border goods that violate these requirements. It will by Chinese authorities will usually lead to e-commerce, and support cross-border though be difficult for foreign companies, faster platform operator action. e-commerce platforms in warehousing, especially smaller businesses, to comply E-commerce platform operators must also logistics, customs declaration and inspec- with these requirements. China customs will utilize technological measures to ensure the tion services. Accordingly, several national likely enforce these requirements by block- security and stability of their networks and plat- level government agencies have issued ing noncompliant goods from entering the forms so as to safeguard electronic transactions. their own rules, circulars and other admin- country or by shutting down the websites of istrative rules for cross-border e-commerce foreign sellers that do not comply. Already, Contracts, dispute resolution businesses. some foreign department stores that used and other aspects of For example, six government agencies to ship directly to China for their online sales e-commerce have issued a notice regulating cross-bor- have switched to opening shops on large The E-Commerce Law also provides rules der e-commerce retail imports. This Notice Chinese e-commerce platforms (such as regarding formation and performance of defines “cross-border e-commerce com- Tmall) through a Chinese distributor or sub- e-commerce contracts, delivery of products pany” as a company formed outside China sidiary. Others have pulled out of the Chi- and services, payments, and dispute resolution. that sells to consumers in China from over- nese market entirely. I

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30 Highlights from the position of Board counsel. vid Basmajianasmembers. Walker Wallace was nominated to the tee. Eddy Chan will continue aschair, with theBoard chair andDa- The chair suggested nochangesto theCompensation Commit has appointed themembers. that theEthics committee selectsitsown chair, once theBoard ed Helen Yang to jointhecommittee. The president pointed out was elected to theBoard hemustbereplaced. The chair nominat non-BOG members. The current chair is Tom Ward, andsince he The chair explained that theEthics Committee mustconsist of will betheBoard chair andHelen Hu. surer is normally the chair of that committee. The other members With regard to theFinance Committee, thechair saidthat thetrea- surer andnominated Han Linto replace her inthat role. serving as vice chairs.He thanked Helen Hufor her service astrea- The Chair nominated Eddy ChanandChristineLamto continue Chair’s Report APCO Worldwide David A.Basmajian Attendees: Wallace Walker, Ker Gibbs Regrets: Jonathan Heimer, ChristineLam Tony Acciarito, Tom Ward, Han Lin,Grace Xiao Governors: MEETING ATTENDANCE Board of Governors Briefing Eric Zheng, David Basmajian, Eddy Chan, Helen Hu, Nancy Leou, Simon Yang, Stephen Shafer,Yang,Stephen Simon Leou, Nancy Hu, Helen Chan, Eddy Basmajian, David Zheng, Eric Board ofGovernors Chairman ofthe Eric Zheng J anuary 26,2019meeting Wells Fargo Han Lin The AmCham Shanghai The AmCham 3M Stephen M.hafer FedEx Express Eddy Chan Board Chair Vice - - 2019 Board of Governors Shanghai. attract on ing many of the high growth technology startupcompanies in focus a and (AMP) Program Membership Alumni Several growth initiatives were announced includinganew gagement of employees within existing corporate members. overall membershipnumbers,butalsohelpdrive deeper en- membership base. The initiatives are designedto not only grow growth initiatives that will beusedthis year to helpgrow the Membership sales manager Eric Waugh presented the targeted Membership potential of theNanjing Center. themed around blockchain, was cited as an example of the further expected to grow participant numbers. The Nanjing Next Summit, is (LDF) Forum Development Leadership the success, initial ing jing Center will emphasize briefings over breakfast events. Follow Nan- the future, the events.In ofnumber likewisethe 2016, since doubled has Membership years. three after even broke Center Nanjing Chamber’s the that reported director, YRD Tung, Leon Nanjing Office PIM ChinaLtd. T Citigroup Christine Lam Board Chair Vice om Ward

Gro wth Initiati ves UCB Grace Xiao International Paper International Helen Hu Treasurer MEMBER NEWS Aptiv Simon Yang Scientific Thermo Fisher T ony Acciarito ony Acciarito FEATURES - - 31 March / April 2019 32 www.amcham-shanghai.org mous driving,and then you have levels 2and3of autonomous driv to bethenormonroad? How many years do you thinkit will take for autonomous driving because large ChineseLPs nolonger fundChineseRMB. think inthecoming years they may have ahard timeraising money barrier and they could just compete with each other on efficiency. I from VCs, just doing business model innovations, there was no players. Inthepast, when startups were justsimply raising money lar, especially intheareas of AI, blockchain, cloud,robotics. Nowofstartups. extremelykinds that’stech deep and popu- B2B certain to scene startup the in shift big a definitely is there think China andhave evolved into unicorns or even IPO’d. Currently I vations. A lot of B2Ctypestartupshave been very successful in mainly beendoingalot of what they call businessmodel inno- ness model into China.Inthelastfew years, Chinesestartupshave what we call “C2C,” copy to China. You copy asuccessful U.S. busi- China’s startupscene over that period.Firstof all,itusedto be seemed to have beenbooming.Have we hitaplateau? the startupscene like inChinatoday? For thepastfew years, it You are theCE the financial industry for fintech or manufacturing for Industry 4.0. verticals, I have to work with different committees, whether it’s with differentcrossedwith be to has it because transformation,digital Second isto helpconnect startups with corporate innovators. For ogy to helptraditional businesses with their digital transformation. highest prioritiesare, one,digital transformation —usingtechnol then learnedmore abouttheneedsof AmCham Shanghai. The your prioritiesfor 2019? As new chair of thetech andinnovation committee, what are You have different levels, so there are levels 4 and 5 of autono- of 5 and 4 levels are there Youdifferent so have levels, For theB2Ctypeof companies, there’s already BAT plusother For thelast18 years I’ve beenlivingChina,andhave witnessed I have beenhaving discussions with Jessica andothers and O of Microsoft for Startups Shanghai. What is By Ruoping Chen NEC inSilicon Valley for 7 years. listed Chinesetechnology companies. Prior to that, he worked at Hewlett Packard and senior management positions at AsiaInfo and UTStarcom, two of the earliest NASDAQ- has founded or co-founded three hi-tech companies in China. Previously, he served on the U.S. Before joiningMicrosoft, he was aserial entrepreneur anda venture investor. He ups inChina.He hasmore than20 years of experiences inthe TMT space inChinaand within Microsoft to scaleupthebusiness for someof thebestandmostinnovative start J and Innovation Committee With James Chou,chair of the Technology Chair’s Corner Committee is the CEO of Microsoft for Startups Shanghai where he leads the effort the leads he where Shanghai Startups for Microsoft of CEO the is ames Chou - - Where do you seethebiggestgrowth intech inChina? before itgets commercial-wide deployment. including severe weather, that probably hasafew more years to go involve automated systems that cancontrol the vehicle at all times, maybe inaport warehousing scenario. Butfor levels 4and5, which used inlast-mile delivery, somerestricted areas onthehighway or etc. We have also seen levels 2 and 3 autonomous driving being Bosch, bydeployedAudi, alreadybeing these seen havewe tion), ing. For levels 2and3(partial automation andconditional automa - ing applications andusecases. Things (IoT) and 5G in the horizon. Those will drive a lot of interest very important for AI. The other biggrowth areas are Internet of compared to the U.S., hasanadvantage ingetting data, which is phones and where peopleare not asconcerned aboutprivacy as In order to do AI you need massive data. China, with all its mobile research, butChina’s startupshave anadvantage interms of data. China. IthinktheU.S. ismore advanced incertain kindsof basic tor that much yet ascompared to other sectors. Actually, Iseethis war To what extent do you thinktheeconomic downturn andtrade Toextent,tradecertain the a affectedwarnot sec has tech the Right now AI isreally atwo-horse race between theU.S. and affect thetech sector inChina? - - - move more quickly, they’re getting more competitive. Ihave it isapolitical thing.Chinesecompanies are more agile,they a challenge that you see in terms of competition, more than very high-quality products at more reasonable prices. Sothat’s nies are getting very sophisticated themselves andbuilding the Chinamarket, butinreality, China’s mobilephonecompa- you alsosee,for example weaker Apple earnings. They blame IoEs “in-house.” As Chinesecompanies get more sophisticated, more developing and IBM EMC, (Dell) Oracle, example, for of, We’ve already seeninthepast that there’s a trend of getting rid ket becauseChina wants to develop their own technologies. IPR, or something else? nesses inthissector moving forward? Is itdomesticcompetition, What do you think will bethebiggestchallengesfor foreign busi- transformation, usingtechnologies to increase their productivity. of increased labor costs, alot of businessesright now needto dodigital positive direction. also feel somepressure if theU.S.-China trade talksdon’t goina industry, semiconductor the as such China, to sell who firms tech course face headwindsif they want to export. Likewise, someU.S. Huawei)(likeofwill companies Some companies. tech deep those you have talent inChinaor returnees from overseas formulating deep tech inChina,through government policiesor funding. And of thetrade war, theChinesegovernment wants to develop more companies here are still focused ontheChinamarket. Because as anopportunity for thetech sector inChina,asthemajority of tech I thinkthey will befacing more challengesintheChinamar As for theeconomic downturn, IseeopportunitiesinB2B.Because For more information: [email protected] - can scaleupand/or scaleoutthebusiness very quickly. think about whether thebusinessmodel isscalableandthen you to have you Then, offer. to want you services or product the test can you which through customers beachhead some find can you ers to enter thismarket. some uniquetechnologies —theseare sustainablebarriersfor oth - have you example, For differentiators. any create can services or build sustainablebarriers. That means whether or not your products erything happen. need to have goodoperations peopleto help you sell or make ev You needto have agoodCTO to buildtheproduct for you, and you opportunities. business find a product, define market, the define to need to have abalance, with aproject manager who knows how to dream big,make big, you needto form a very goodteam. You team, becauseit’s not justgoingto beaone-manshop.If you want want to bein,there hasto beahugemarket size opportunity. want to dosomething inahugemarket. For whichever vertical you What advice or lessoncan you draw uponfrom thosedays? you impartsome words of wisdom to buddingentrepreneurs? Before joiningMicrosoft, you were alsoaserial entrepreneur. Can they worry they may losetheir IP rights. hand, other the On China. from of revenue lot a generate firms in that, ontheonehand,Chinamarket ishugeandtech foreign are facing,some firms tech that dilemma the seen also And fourth, is it a scalable business model?business scalable fourth, a And it is When you start, first The third is, you needto thinkabout whether your company can Second, theteam is very important. You have to buildastrong First of all, when you want to beanentrepreneur, you have to MEMBER NEWS FEATURES I - 33 March / April 2019 34 www.amcham-shanghai.org AmCham HoldsGPSBriefingonPersnal reshape our understanding of automobiles. about several less-publicized trends that are poisedto similarly the evolution of vehicle andsystem architecture andspoke cob, partner and co-founder of Automobility. Jacob categorized as well as projections for 2019. The final presenter was Bevin 2018, Ja- in growth stalled industry’s of assessment an gave firm, aging director of AutoForesight, anauto industry forecasting overview of the EV and auto pilot market. Next, Yu Zhang, man- Division at CATARC, followed Russo’s opening remarks with an been absent inthemainstream press. auto sales decline in China, offering hints of optimism that have own.” He deconstructed someof thedata around thecurrent from China, where people move around on wheels they don’t different very are Europe and U.S. “The morning: the for tone Committee andfounder of consultancy Automobility, set the from thosethat developed inEurope andtheUnited States. landscape auto different very a be a to up shaping is what of provided anoverview of both theindustry’s current status and Look AmCham’s Aut and sector-specific and of build- midst the Now,regulations. in is China data regulation was fragmented across aseriesof laws, standards, information. Until recently, China’s policy framework for personal particularly for companies that managelarge amounts of personal ment, anddiscussedkey riskareas and how to managetheserisks, sonal data developments, includingregulations andtheir enforce - and associate director Carly Ramsay. They gave anoverview of per Controlby Benbriefing partner a Risks hosted Wootliffseries (GPS) t ory Liqing Shao,senior project manager of theIndustry Research In hisopeningremarks, Bill Russo, chair of the AmCham Auto This conference, attended by 90auto industry executives, On January 15, AmCham Shanghai’s Government Policy Support Event Report Risks Conference Ahead om tive Look B ack/ D ata Re gula - - will work for you and your employees. small or large business, we canhelp you create aprogram that environment. emotional Whether and a you’re fitness, wellbeing nutrition, medical, around activities effective wellness most the Well-Being Program enablesmember companies to implement afterwards. The relaxed felt and sitting, from stiffness and tigue stretched and shoulders opened fists, their ribs to relieve the fa- break of theseminar. Participants straightened arms,clenched led theparticipants for a10-minute wellness exercise duringthe business performance. Jack Guo, vice president of IWBI Asia, drive better employee retention, customer satisfaction, and incorporate employee wellness into company practices and of AWB health spoke to theattendees abouttheir strategies to ness at EF Education First;andChuanDeLaHosseraye, founder of well director Anna, Karin Bank; at Deutsche officer financial and officer operating chief Chen, Charlie China; Saint-Gobain at thony Chong Yuen Fatt, vice-president humanresources APAC event of AmCham’s new Health and Well-Being Program. An- first the in participated companies 50 than Moreemployees.for seminar onhow to create ahealthier andhappier environment ing Program AmCham ShanghaiLa and R&D水innovation workshops across three tracks: supply chains; U.S.-China relations; Law response programs. This year, theGPSprogram will holdnine pliant with Chineseregulations andbuildrisk-based Cybersecurity should conduct internal data assessments to ensure they are com - and theriskenvironment within their organizations. All companies to be aware of how regulators view data, what data is targeted, companies mustabideby to managetheir data. Companiesneed that rules of set strict a place in putting effect, into came cations Specifi- Security Information Personal the May, Last regimes. tory ing oneof the world’s mostcomprehensive personal data regula- On January 23, AmCham Shanghai hosted a workplace health unches Its Workplace Well -Be - - ronment, tax issues, Shanghai FTZ policies, opening up the finan- the up opening policies, FTZ Shanghai issues, ronment,tax environmental and land-use regulations, cross-border trade envi- including healthcare drugregistration andprocurement policies, ous issuespertinent to American businessinterests inShanghai, agencies. The three-and-a-half hour discussiondelved into vari- Bureau DDGSuGuodong,andrepresentatives from twelve other Shanghai Customs DDGDai Yonghua, Environmental Protection Min, Zhu DDG Commission Reform and Development Shanghai Government includedDeputy Secretary General Shang Yuying, hai’s businessenvironment. Representatives from Shanghai’s Amcham Shanghaifor aroundtable discussionaboutShang- Forum 2018 AmCham Shanghaihina n eray 0 te hnhi uiia Gvrmn hosted Government Municipal Shanghai the 20, February On OutboundInvestment

foreign businesscommunity inShanghai. other engagements onbehalf of our membersandthebroader and dialogues, briefings, schedule to agencies the of many with American businesscommunity. AmCham Shanghai will follow up cussion abouthow Shanghai’s government canbetter serve the weeks. This meeting provided a valuable opportunity for opendis- promised written answers to members’ questionsinthefollowing engage directly with thegovernment. Secrtary General Shangalso to American companies andencouraged American businessesto nicipalGovernment highlightedtheir moreeffort be to responsive Mu- Shanghai ofbehalfmembercompanies. The on questions 31 cial industry, andtalent policies. The AmCham delegation asked I MEMBER NEWS FEATURESFEATURES 35 March / April 2019 Discussing the future of autos

AmCham Shanghai

Active Participation

AmCham Shanghai President Ker Gibbs at Member Briefing Shanghai Property Market Forecast Government Policy Workshop

Delving into China’s New Innovation Discussing How to Develop Talent and Leadership AmCham Shanghai Month in Pictures

Panel on the Future of China’s Automotive Industry

Update on China’s Manufacturing Outlook

All smiles MEMBER NEWS

The snippets below are drawn from the Weekly cross reference variables ranging from bank services rendered. That Perfect Space went Briefing, the Chamber’s email newsletter. In statements and car purchases to housing unnoticed by authorities for several years addition to business, economic, legal and demolitions, contracts for infrastructure may be due to its workaday registered name: trade matters, it occasionally touches on the projects, and personal connections. It then Shanghai Wangzhongde Dining Services. more lighthearted, perplexing or downright produces sophisticated social relationship crazy aspects of life in the Middle Kingdom. maps and behavior analyses, calculating the probability that an official is corrupt. A Little Red Book for the Zero Trust was launched several years ago 21st Century in 30 lower-tier counties and cities and was One of the most popular apps in China is curiously kept away from political power centers. not the one that involves inane lip synching Despite the pilot areas making up just 1% of and dance moves, nor the one likened to the China’s total administrative area, the system Buzzfeed of China. Inconceivably, it’s “Study the has caught nearly 9,000 corrupt officials. In fact, YOLO Great Nation,” a little red app recently launched it’s so effective that many local governments by China’s Communist Party. It has been are shutting it down. Why? According to Startup Launches described as a multi-functional propaganda one researcher, officials “may not feel quite Autonomous Taxi App tool that dispenses education on Xi Jinping comfortable with the new technology.” Pony.ai, one of China’s leading driverless Thought and... Xi Jinping Thought, with token car start-ups, launched a pilot ride-hailing app nuggets of Chinese history and poetry thrown in. that enables customers to book driverless As the New York Times notes, users can catch taxis to certain preset areas and locations such up on the latest Xi Jinping (state-approved) as Pony.ai’s offices in Nansha, Guangzhou news, quiz themselves on Xi’s policies and Province. For now, only Pony.ai employees pronouncements, and, when they tire of Panda and VIPs can use the app. The program allows Cam, watch a show called “Xi Time.” Study Pony.ai to gather the data needed to build

points are awarded to the best Xi stans (you get The visible hand of corruption software for autonomous vehicles. The cars one point for every article you read or video you are sourced from local Chinese automakers watch). The app’s popularity might be ascribed Girls Just Wanna Have Fun such as BYD and GAC. The company hopes to to “encouragement” by universities and local Once upon a time, there was a magical expand its fleet of vehicles from 20 to 100 cars governments for Party members to download land in Shanghai called Perfect Space, where this year and eventually scale up the program it. Surprised Pikachu face. women of certain means were doted upon by to be able to compete with Didi Chuxing, young, buff male models in tuxedos, as they China’s reigning taxi app king. sipped champagne in luxurious elegance. Pony.ai is one of many companies pouring Alas, Perfect Space is no more. Recently, police money into the development of connected and shuttered the upscale club after it was leaked autonomous vehicles. Didi Chuxing and Baidu online that one male escort had received 28 are trying to develop their own vehicle fleets. extravagant gifts from a female client for his WeRide.ai, another Guangzhou-based Chinese 28th birthday. The not-so-miserly benefactions startup, has also tested out its driverless included an Audi (model unknown), a gold cup software with local taxi companies. I

First step to enlightenment: Xi Jinping Thought and RMB 280,000 in cash, according to the South China Morning Post. AI too Effective for Corrupt A recruitment notice that allegedly was Officials posted on the company’s official Weibo The Chinese government has harnessed the account offered tempting salaries of over power of AI to assist in its ongoing anticorruption RMB 80,000 and at least RMB 1,000 in tips campaign. But they’ve encountered a problem: for every customer served. No illegal activity it’s too effective. The system, dubbed “Zero would be involved, the notice claimed, Trust,” accesses more than 150 private which would seem plausible had the young

www.amcham-shanghai.org central and local government databases to buck in question received a Volkswagen for Hippies required

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