www.amcham-shanghai.org China’s andHeckman. ofKeller DavidJ.Ettinger foodimportlawswith How haveforeign KFCandMcDonald’s brandslike fared? Plus,navigating China’s 1990s. changedsincethe fastfoodmarkethasdramatically INSIGHT The Journal of the AmericanChamberofCommerceThe Journalofthe inShanghai-InsightMarch/April 2018 economic complexities Paul Clifford onChina’s POLICY P.18 what itmeans forbusiness Trump’s taxreform and policy P.24 WeForShe conference Report onAmCham’s MEMBER NEWS P.26

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 Kenneth Jarrett Senior AssociateEditor fax: (86-21)6279-7643 Story ideas,questionsor tel: (86-21)6279-7119 of thecopyrightholder. DEBORAH TANG Ruoping Chen SHILPI BISW Ian Driscoll Content Manager VP ofOperations (86-21) 6279-7119 Doug Strub Associate Editor LEON TUNG Jessica Wu INSIGHT INSIGHT Helen Ren Ruoping Chen Committees

Directors President Printing Design

AS 34 32 30 29 26 24 23 21 18 15 12 09 06 INSIGHT Facing aDouble-Edged Sword Esoterica Selected photos from thepasttwo months’ AmCham events Report onthe Women’s Executive Network’s 3 MEMBER NEWS With analysis from David M. Allgaier, ataxpartner with Deloitte China Understanding U.S. Tax Reform Information tableonChina’s regulations around outboundinvestment The ChinaParadox author Paul G.Clifford discussesthe contradictions inChina’s economy The ChinaParadox POLICY PERSPECTIVES Interview with consumer marketing expert Tom Doctoroff Selling to ChineseConsumers How commercial-use drones will disrupt andbenefit industriesinthenear future Unconventionaland Viable Interview with David J. Ettinger of Keller andHeckman Navigating China’s Food ImportLaws KFC andMcDonald’s: Adapting to anew paradigm Fast Food, BigChanges FEATURES Recap of selected events from thepasttwo months Event Report Notes from the January board meeting Board of Governors Briefing WeForShe: Beyond theNumbers Chinese ODIRestrictions A conversation with Peking University’s Michael Pettis China’s Debt Burden andProspects for Economic Reform Month inPictures The Journal of the AmericanChamberofCommerceThe Journalofthe inShanghai-March/April 2018 Special thankstothe2017-2018AmChamhanghaiPresident’s Circle Sponsors

rd AnnualConference FEATURES 3 March/April 2018 Could you tell us something about your- How do we continue to grow and provide Interview self, where you’re from and a little about better service to our members in the cur- your professional life? rent changing environment? Having been with I’m originally from Shanghai. I grew up in deeply involved in the Chamber in the past a Shanghai that was very different from the 12 years, I felt that I would be able to con- Eric Zheng Shanghai today. Back then, Pudong was tribute more to the growth of the Chamber Chair of AmCham Shanghai still considered a rural area with no high- by serving as the chairman’s role. rise buildings. There were no bridges or tunnels connecting Puxi and Pudong. That What are the biggest challenges and op- was a different era. portunities the Chamber faces? And what I moved to the U.S. in the 1980s to pur- will 亦you prioritize as Chairman? sue graduate studies. My professional China continues to grow, albeit at a career spans both the private and public new normal pace. Globalization, urban- sectors. For a number of years, I worked for ization, consumption and digitization will PricewaterhouseCoopers (PwC) as a man- continue to drive the growth for many agement consultant based in the Washing- years to come. The Chamber should help ton, DC area, with a focus on market entry its members better leverage those op- and operating strategies for China. After portunities by sharing relevant informa- PwC, I moved to Guangzhou to work at the tion and best practices and by dealing U.S. Consulate as Principal Commercial Of- with regulatory issues. A major challenge ficer. I was responsible for promoting U.S. that AmCham Shanghai is faced with is products and services and for assisting how to stay relevant in a changing envi- American companies with their operations ronment by providing value-added ser- in South China. I subsequently joined AIG vices to its members. Our membership in Hong Kong to plan for China expansion comprises companies of different sizes and moved to Shanghai in 2005. I now run and from different industries. To achieve AIG China, the largest wholly-owned inter- sustainable growth, the Chamber should national property-casualty insurance com- aim to add value to its members of all pany in China. kinds.

What has been your history with Am- What new Chamber initiatives are you Cham? When did you join and what ex- most excited about? periences with the Chamber did you find It is exciting to see the progress the most important for your business? Chamber is making in growing its presence My association with AmCham goes back in Suzhou and Nanjing. There are many to my time in Guangzhou when I served as American companies in Jiangsu. I believe an honorar言y board member of AmCham we should continue to grow our member- South China representing the U.S. Consul- ship by expanding beyond Shanghai to its ate. I joined AmCham Shanghai soon after neighboring provinces such as Jiangsu. I moved to Shanghai. Over the years, I’ve The Chamber is also taking additional been an active Chamber member. I ini- steps to strengthen ties with the Chinese tially was involved in the Financial Services business community. This can be valuable Committee serving as vice chair and later chair. Since 2011, I’ve served several terms as a board member as well as treasurer, vice chair and now chair. I always believe that the Chamber provides its members with a great platform for information-shar- ing, policy advocacy and networking.

What interests you about the Chairman’s role? AmCham is a membership organiza- tion that needs volunteers to play various leadership roles including the chairman. AmCham Shanghai is already the larg- est American chamber of commerce in

www.amcham-shanghai.org Asia Pacific with about 3,000 members.

4 FEATURES

to our members. Many of our members are involved in supporting Chinese companies as they invest overseas and an even larger number of our members look to Chinese companies as customers and business partners. In addition, the Chamber is paying more attention to alternative ways to deliver valuable content to members. There is a new podcast series, more use of videos and we are exploring ways to stream pro- grams that take place in Shanghai to our branches in Suzhou and Nanjing. These are all signs of the Chamber gradually joining the digital age. Eric Zheng, AmCham Shanghai Chair, meets with officials at the Nanjing Center Government Dialogue and Dinner What is the most important U.S.-China bi- lateral issue today that concerns Cham- invest in the U.S. We should certainly help the key challenges, and how we believe ber members and their companies? those members and affiliates invest in the the U.S. government can assist. The U.S.-China bilateral relationship is U.S. if they so choose. one of the most important and perhaps the What are the biggest commercial chal- most complex bilateral relationship. As Chi- The U.S.-China relationship faces some lenges that the U.S. and other Western na becomes more influential on the world challenges. How would you describe companies will face in China over the stage and the U.S. turns more inward-look- the overall relationship and what role next decade? ing under the current administration, it is can AmCham play in solving some of the Since China opened up to foreign in- more important than ever to manage bilat- problems that exist? vestment, many U.S. and other Western eral relations so that our Chamber mem- I think the U.S.-China bilateral relation- companies have seen significant growth bers can continue to benefit from China’s ship has never been more strategically in China. Over the next decade and be- growth and prosperity. The last thing our important than now. The U.S. and China yond, foreign investors will face more and members would want to see is a trade war are now the largest and the second larg- more competition from domestic players, between the two countries. That would not est economies in the world. Both countries both state-owned enterprises and private be in the best interest of either side. recognize the importance of their bilateral companies. Government initiatives such as The Trump administration wants to relations. Both countries also have an ob- China 2025 will undoubtedly help create support American business. Thus, it is im- ligation to properly manage their relations powerful domestic champions that rival portant for the Chamber to make sure the so as to contribute to peace and prosperity foreign companies. In addition to those administration understands our priorities. in the world. problems of industrial policy and growing Our members need U.S. government sup- One new challenge the bilateral rela- domestic competition, other challenges port and we want to make sure that sup- tionship faces is how to deal with trade remain such as market access restrictions, port is directed at the areas that would be disputes as China’s trade surplus with the lack of regulatory transparency, weak in- of greatest benefit. U.S. remains high and there is a grow- tellectual property rights protection, and a ing feeling in the United States that the general sense that local companies enjoy Outbound investment is growing. Do you U.S. is paying a cost in terms of fewer preferential treatment. think the Chamber should be more ac- domestic jobs. Regrettably, U.S.-China tively helping Chinese companies enter bilateral trade is oftentimes politicized. As a long-time China hand, are there any and invest in the U.S. market? It is important to manage trade disputes books you recommend to new Chamber Our member companies are in China within internationally recognized dispute members? And, what was the last book because of China’s open policy for foreign resolution frameworks and with sufficient you read? direct investment and its gradual inte- consultation with the business com- For an introduction to China, I would gration with the rest of the world. China’s munity. As a membership organization, recommend On China by Henry Kissinger. outbound investment is essentially the AmCham Shanghai should continue to The book offers a sweeping overview of continuation of its globalization process, advocate on behalf of its members by China by one of the most respected for- albeit in a reverse flow. The global econ- supporting free-market principles such eign-policy thinkers of our times. I’ve just omy is increasingly integrated. It is more as globalization, free trade, market ac- finished reading Fire and Fury: Inside the and more difficult to label a company cess and national treatment. As the voice Trump White House by Michael Wolff. While 2018 simply by its origin. Some of our member of American business in China, we can people may dispute certain aspects of the companies are headquartered in China play a role by ensuring that Washington book, Wolff provides many fascinating in- but with substantial operations in the U.S. policymakers have an accurate under- side scoops about President Trump and his

Our Chinese Affiliates may have plans to standing of business conditions in China, White House. I March/April

5 By David Hicks

hina’s fast food market has also been plagued by tepid growth vate equity investments make Jeffrey dramatically changed since and an image problem. (Consumers Towson, professor of investment at CKFC became the first foreign described the brand as a “backup Peking University, optimistic about brand to enter the country in 1987. boyfriend” – “nice” but “not very de- McDonald’s future in China. “McDon- Now generating US$125 billion in sirable” – according to Bloomberg ald’s just upgraded to the Ferrari of annual sales, according to market re- News.) management ownership structures,” search firm Euromonitor, China’s fast In late 2015, Yum Brands’ China he said. “They’re going to move fast.” food industry has kept pace with the unit generated over half of Yum’s How fast? McDonald’s announced country’s rapidly expanding middle total global operating profits, which that they plan to have 4,500 outlets class. Today, foreign fast food brands meant their declining performance by 2022 and, by that date, be open- like KFC and McDonald’s serve this had a substantial impact on com- ing 500 new restaurants every year. new working middle class along- pany share value. Responding to the That’s quite the jump for a company side popular local brands like Dicos, downturn, an activist investor pro- that took 18 years to build their first Kungfu, Mr. Lee and Yonghe King. posed the spinoff in May 2015, and a 1,000 stores in China. But the last several years suggest few weeks later, plans for the spinoff “The whole point of being a that the golden years for KFC and Mc- were announced. In an interview with restaurant chain is to franchise,” Donald’s (which first came to China The Wall Street Journal, Greg Creed, said Towson, and both Yum China in 1990) might be over. Both brands Yum! Brands’ chief executive, said and McDonald’s have stated their began to see their China revenue the goal of the spinoff was to achieve intention of being more franchised growth start to decline beginning in “greater stability and lower volatility” in China. But, for U.S. companies, 2012，, and amidst disappointing num- for the parent company, while still building a franchise in China is dif- bers, they began to recalibrate. giving Yum! Brands “meaningful ex- ferent than on their home turf. “In Yum! Brands, the owner of KFC, posure to China through the [3%] roy- the U.S., companies are more likely acted first when, in November 2016, alty [on all revenue that Yum China to work with small, individual fran- the company spun off Yum China into must remit to Yum! Brands]”. chises – a family who buys one or its own NYSE-listed company, effec- McDonald’s has also made seri- two businesses – whereas in China, tively making Yum China the largest ous changes. In 2017 they completed typically your franchise partners are franchisee of Yum’s fast food brands. the sale of a majority stake in their big. They’ll be someone who says Yum China operates 7,983 restau- China operations to Chinese state- ‘we’re going to do all of Shanghai, rants in over 1,200 Chinese cities. Its owned conglomerate CITIC and the or all of North China,’” said Benjamin KFC brand alone constitutes 5,000 Carlyle Group, a U.S. private equity Cavender, principal at China Market of those restaurants and Euromoni- group, retaining just a 20% direct Research Group. tor estimates they hold a 30.2% share stake in their China outlets. Although Working with a large franchise of China’s fast food market. The vast their 5.6% market share and 2,500 partner can pose challenges for majority of Yum China’s remaining outlets across China puts them at multinational brands (the larger the stores belong to Pizza Hut, which has nearly half the size of KFC, these pri- partner, the more power they wield), www.amcham-shanghai.org

6

in China.” advantage big a [franchising] makes inates thisproblem completely and has goodaccess to real estate elim- making and someone elsedoit who hopefully books your off rants ing therent. “Getting thoserestau - greater share of that success by rais- ful – landlords will often try to take a rants because–if they are success- particular problem for small restau- ender points outthat real estate isa especially trueinreal estate. Cav local partner canbegreat. This is a strong having of benefits the but that a supplier to Yum! Brands and a Shanghaistate TV station revealed blow, when anundercover investigation by final the brought 2014 filing. like KFC, according to a Yum! Brands on brands impact” negative nificant, over 100peopleandhaving a“sig - infecting China, across out broke flu avian 2013, in Then, companies. both Donald’s products, denting salesat growth hormonesinKFC andMc reports regarding antibiotics and CCTV began a series of negative In 2012,Chinesestate broadcaster of scandalsunderminedthistrend. But after justafew years, aseries turned to foreign brands for security. trusting of domesticbrands and Chinese consumers becamedis- as concerns, these from benefited in 2008to 40%in2016. be a very big problem grew from 12% nese who considered food safety to found that the percentage of Chi- scandal, thePew Research Center In the wake of the2008milkpowder many Chinese parents traumatized. milk powder left sixinfants deadand when aChinese company’s tainted Chinese consumers adecadeago, these changes. mance andmight have expedited have negatively impacted perfor but certain China-specific challenges try –thetrend towards franchising – development inthefast food indus- a normal reflect changes erational

new challenges New times, Initially, foreign fast food brands Food safety beganconcerning Yum! Brands andMcDonald’s op- - - - their Chinaoperations as well.) suggests that the scandalsdamaged filing 2016 a in China” in issue supplier but reference to “recovery from a2014 divulge country-specific financial data, to 2015 these incidents. (McDonald’s doesnot and 2014 2013, in industry) the restaurant in metric financial key uted decliningsame-store sales(a annual reports, Yum! Brands attrib- eign fast food brands inChina:their that precipitated adownturn for for these reports, they ignited concerns went wrong.” always betheposter childfor what giant multinationals isthat they will perspective. But the trouble for many very smartfrom thegovernment’s ing theproblem onto thebrands. It’s fix of stress the all “push to media monkeys” usingthepower of the So they “kill the chicken to scare the country’s thousands of food processing plants. the check effectively to argues, does not have the resources and Drug Administration, Cavender their country of origin.China’s Food targeted because of their size, not Yum! Brands and McDonald’s were concern. vey respondents identifying it as a sur of 30% with China, in challenges business five top the of one became “Increasing Chineseprotectionism” China’s 2014 BusinessClimate Survey, favor of local businesses.In AmCham selectively asaprotectionist tool in toward usingfood safety regulations foreign brands suggested atrend 2012 and2014reports againstthese McDonald’s was sellingoldmeat. Would that? pommesfrîteswith youlike Whatever theimpetus was for But someanalysts argue that For many foreign companies, the - - -

oads n KC wn t control to want KFC] and Donald’s brands from their customers. “[Mc dis-intermediating foreign fast food ance onthird-party applications risks to their customers, the increased reli- delivery service once only available rapid same the offer to able being dreds of small,local restaurants now Besides thechallengeposedby hun- body’s business up,” saidCavender. livery platforms has“screwed every forms. consumers who buy ontheplat war has meant deep discounts for price whose companies two Ele.me, dominated by Meituan Dianpingand online food delivery market is largely food delivery apps. The US$37 billion been undercut by therapid growth of Hut’s independent delivery fleets has offered by McDonald’s, KFC and Pizza For instance, theconvenience once try have contributed to their decline. woes, butother changesinthecoun - Yum! Brands andMcDonald’s China safety scandalsasthesolesource of Where’s deepfried chicken? the Food delivery and health This rapid expansion of food de- It iseasy to point to thesefood - - - FEATURES 7 March/April 2018 8 www.amcham-shanghai.org McDonald’s ora space? co-working cus onhealthy options isapushto and made-to-order salads. (Thefo- offers paninis, freshly squeezed juice, menus, like congee andfruit,KPRO been taggingonto their Chinese tions that KFC andMcDonald’s have China. Goingbeyond thehealthy op- food might respond to achanging the clearest indication of how fast in Hangzhou. The concept is perhaps cept restaurant that opened last year green aprons at KPRO, aKFC con- Healthy” were plastered onto the Cavender. also fast butmore healthful,” said were looking for something that was out of thenovelty of theideaand started losingcustomers that grew it in2012.“IthinkKFC andMcDonald’s points below the 67% who consumed con- consumers sumed Western fast foods in 2015, 16 Chinese of 51% that found McKinsey by report 2016 seeking healthier food options. A as Chineseconsumers have begun ple that give you money.” someone between you and the peo- professor Towson. “You don’t want their delivery andtheordering,” said No double mocha latte with whippedcream with Nodoublemochalatte here And thusthe words “Tasty, Fresh, Food delivery’s risehasoccurred a Yum Chinapress release.) of sophisticated diners,” according to meet theneedsof a“new generation of the 461 million smartphone users smartphone million 461 the of research firm eMarketer projects that payment ishugely popular:Market are key inacountry where mobile panel China. These digital upgrades general manager of Kantar World- with their customers,” said Jason Yu, the ways that they digitally engage escalate to working are McDonald’s] kiosk to order food. “Both [KFC and table or standingat atouch screen yourself scanningQRcodes on your in China and you are now likely to find tail onitshead.” happening right now ...It’s turningre- Towson, “maybe thebiggestthing to according is, that trend a reflects technology to order aquickmeal truly stand out. This useof advanced cial recognition fa- payment, are what of application commercial world’s first the offers which KPRO, at ing desires, thedigital capabilities do meet their customers’ chang-

Adapting to themarket Walk into any McDonald’s or KFC offerings food healthy the While bile payment in2017. in China, three-quarters will use mo- ership. they hope to maintain market lead- delivery services – will beessential if tions, or investing more indigital and a regularly-changing offering mixof food op- image, their upgrading ing tastes – whether that requires respond to their customers’ chang- effectively to Yum way a off Finding China). spun they when sought during recalibration (as Yum! Brands the inevitable bumpsthat will come ald’s hasinCITIC)or insulation from (as McDon- partner local influential a new playbook, whether that bean stand that thisenvironment requires McDonald’s, show that they under by steps similar and spinoff, China ing inanew environment. The Yum understands that they are operat technology show that thecompany furbishing stores and upgrading ture growth to come. from where many analysts expect fu- ones in third- or fourth-tier cities, a fresh look,rather thanbuildnew ing stores with new technology and use themoney to refurbish exist and Ant Financial, they decided to million investment from Primavera receivedwhen Yuma China it isnotable butnot surprisingthat to KFC’s salesrecovery inChina.” So ordering innovation will becentral customer engagement andmobile report, Yum Brands said that “digital via mobileand,intheir 2014annual Donald’s China outlets are made bu 4% f ucae a Mc at purchases of 45% About Yum China’s investment in re- I ＵUS$460 - - - - food to Chinaright now? Western companies trying to import What are thebiggestobstaclesfor misdemeanor andfelony cases. prosecutor,prosecuted I where various Keller andHeckman, I was acriminal tojoining Prior office. Shanghai our of 2012, becametheChief Representative in then, and office, Brussels firm’s our for about12 years, spent some time in office DC our in FDA group firm’s our in ing of lawyers andscientists. Ipracticed packaging teams inthe world, consist has oneof thelargest food andfood and Washington,DC,， in headquartered is firm The laws. packaging food and emphasis andfocus onglobal food regulatory law, but we have aunique of areas various in specializes firm The and Heckman for thepast18 years. Keller of firm law the with been have area of expertise? Please explain your background and I amoriginally from New York and When importingfoods, foreign

- Laws Food Import China’s Navigating essence. tion are perishableandtime isof the particularly when thegoodsinques- situation with higheconomic stakes, the portof entry. This canbeaserious high probability of beingdetained at Standard), theimported product hasa the applicablelist(or Guobiao(GB) contain food additives that are not on products they want to export to China list of food additives, soif thefood ple, Chinamaintains itsown positive China’s regulatory scheme. For exam - may still encounter problems under U.S. Food andDrug Administration dients, etc., that are cleared by the foods, food additives, food ingre- brand owners who seekto bring nately, thisisnot thecase.Foreign to market andsell inChina.Unfortu- okay be must also it then Europe, or a healthfood ispermitted intheU.S. conception that if aproduct suchas lations inChina.Itisacommon mis- sumptions about the laws and regu- companies often make incorrect as- ger was a trademark attorney with the U.S.PatentandTrademark the with ger wasatrademarkattorney Office. Food, Agriculture- andHeckman,Ettin PriortojoiningKeller &BeverageCommittee. the chairofAmChamShanghai’s lawfirms)andis network ofover90international Board Executive isonthe and Asia.Ettinger ofMackrell (agloballegal International and food-related products toensure regulations with compliance U.S.,Europe inthe China office.the importandexportoffood companieson Hecounselsmultinational ChiefRepresentative isthe David J.Ettinger andHeckman’s inKeller Shanghai, ments. Looking at itfrom theother the corresponding legal require- a goodhandleon your product and import iseasy, unless you really have and why? in Which products are easiestto bring interpretation of thesamelaw. different official’s local the on based uct, theimportcould be rejected Shanghai, to importthesameprod- it decidesto useother ports,like running into any problems, but when tently through Guangzhou without have imported itsproducts consis- For example, a foreign company may ous portsin which they dobusiness. companies to navigate at the vari- for difficulty of deal great a causing cal enforcement agencies can vary, the interpretations issuedby thelo- developed at thenational level, but regulatory system. Laws are typically when you lookat China’s complicated Well, Idon’t thinkI would say any There are additional challenges FEATURES 9 March/April 2018 10 www.amcham-shanghai.org labeling violations improper location foreign exporters on thelabel,and other innocuous goods stuckat required tobe We seemany port forfood of markings having their to fontsize, pertaining issues risk foods. With lessthantwo years the new requirement alsoincludeslow such as poultry and meat products, have beeninplay for high-risk foods, try/region. While similar requirements food authority in the exporting coun- the of supervision effective the under transported andexported to China is manufactured, processed, stored, stating that theindividual shipment authority intheexporting country, competent the by issued certificate, a food products to beaccompanied with sentially requires virtually all imported es- It 2019. September30, until poned post was date effective the reasons, effect into back onOctober 1,2017, butfor go various to set was that ment require- certification import food new cult to importproducts to China? diffi- more be orit will adapt to time years? Have companies enough import laws, set to beginintwo What will betheimpactof thenew quirements are satisfied. compliant, andother applicablere- vided thelabel andingredients are have a better chance of entry, pro- as confectionary products, these may one thinksof lower-risk foods, such regulatory spotlight. Perhaps when testing) andfall under amore intense (e.g., more frequent inspectionand ically subject to stricter requirements borne-illness, sothesefoods are typ- not handledproperly, to result infood or theelderly, or have thepotential, if by asensitive population, like infants These are foods that are consumed typically considered high-riskfoods. dairy products, meat, poultry, etc., are side, foods suchasinfant formula, Gastronomic orbacteriasource? delight China is looking to implement a China islookingto implement a - cause bigheadaches for U.S. food nothing to do with thesafety, butcan U.S. companies? are theother noticeable pitfalls of Outside of food import laws what create undueburden onexporters. foods safe, butat thesametime,not mise regarding their objective to keep a compro- reach can officials ernment years, unlessforeign andChinesegov with thesameissueinlessthantwo foreign companies will beconfronted requirement, certification import food delay theimplementation of thisnew convinced theChineseauthoritiesto have countries other and EU, the U.S., their homeauthorities. feasible for companies to obtain from and every batch, which issimply not will berequired for every shipment Another problem is that the certificate with applicablelaws andregulations. United States, provided itcomplies and may besoldandmarketed inthe in questionfalls under itsjurisdiction food the that stating certificate a sue willis- it At best, products. specific not make suchrepresentations about is safe. However, theU.S. FDA does shipped andexported ina way that product in question is made, stored, the U.S. FDA will needto certify the a U.S. company exports food to China, when requirements, certification quirements. for foreign companies to satisfy all re- cases in many difficult extremely be language remains unchanged,it will this new requirement, assumingthe of date effective the until remaining There are laws in China that have the from officials high-level While For example, under theexport - ment? ment? tively –by consumers or thegovern- targeted at all –negatively or posi- once they make itinto China? Are they Are U.S. products are treated equally will reject the imported product. there isahighprobability theauthority cations or requirements are not met, specifi- more or one if and will, ties authori- the box, every off check not on heavy metals, etc. If companies do specifications cocoa, of levels tration identification, which may includeminimumconcen- of standard product brought into thecountry, including must follow before chocolate canbe are various requirements that one the GBstandard for chocolate, there with China’s food laws. a product complies or doesnot comply at thesesamestandards to determine if compliance, astheauthorities will look and startto usethemaschecklistsfor get translations of thosestandards, GB standards apply to their products, companiestoadvise identifyfirst which standards for their products. We always understanding of theapplicableGB Thus, companies must have a good to cure even minor labelingerrors. be a real problem, as itcan take time exporting perishablegoods,thiscan corrections are made. Again, if you are hold theproducts unlessanduntil the sues. Nevertheless, theauthority will on thelabel,andother innocuousis- location of markingsrequired to be tions pertainingto font size, improper stuck at portfor food labeling viola- foreign exporters having their goods companies. For example, we seemany Take chocolate, for example. In If afood ismadedomestically, the They will purchase theproduct know comply with theFood Safety Law. a product that they believe doesnot consumer issomeone who targets with theauthorities. The professional called “professional consumer,” than problems with theconsumer, or so- seen U.S. companies having more challenge. foreign companies have agreater regard, that In officials. port and toms be more closely scrutinized by cus- from another country will, by default, the portof entry. A product brought in the issues we seerelate to issuesat cedures. A very highpercentage of through all importcontrols andpro- manufacturer doesnot have to go professional consumers canpoint to sistencies between the two labels, the Chinese labels;if there are any incon- and English both bears food ported a foreign product. For example, anim- issues potentially canbespotted with after foreign products becausemore same or similar claims. make more purchases to make the moves on to the next jurisdiction to as theprofessional consumer often various provinces throughout China, defending thecaseover andover in yourself find can you otherwise care, dled, butthey mustbehandled with that thesecasesneedto behan- awarded. There are very specific ways out whether damagesshouldbe uct; thetwo sides will have to work the company that produced theprod- volves thedistributor, andultimately contact thestoreowner, who thenin- will authority the and office FDAlocal The products will bebrought to the ingredient listof theproduct label). ple, aprinting typoappearsinthe of non-compliance issue(for type exam - some identified has she or he sand RMB worth of candy because a consumer purchases afew thou- price. So, we have seencases where be awarded 10timesthepurchase successful, if and, localofficials the to non-compliant canbringacomplaint purchases andproves aproduct to be der existing laws, aconsumer who not comply with thelaw because,un- ing and hopingto demonstrate it does Over thepastfew years, we have Professional consumers tend to go - should bethinkingof? Is there anything elseour members back thepublictrustinthissector too. potential andare takingsteps to bring Chinese companies seethe market product’s quality. That beingsaid, a stronger senseof trustaboutthe chase foreign brands where there is fant formula, andare lookingto pur of buyingdomestically produced in- mula, Isuspectmothers are still wary popular. With respect to infant for ucts of thiskindare becoming more is coming backanddomesticprod- ucts, butthetrends suggestthetrust produced milkandother dairy prod- would not purchase domestically of timemostChineseconsumers that, for example, there was aperiod trend isscalingdown. Iunderstand fer Western products, but I thinkthis categories where consumers pre- egory of food. There are still certain attitudes toward foreign products? Can you describeChineseconsumers’ it isnot to betaken lightly. for many professional consumers, and This hasbecome afull timebusiness in full compliance with applicablelaws. the product label ismisleadingandnot these discrepancies and demonstrate pace. In the area of food, CBEC is still is CBEC food,of area the In pace. in the Western world at a very rapid up theChineseconsumer to products opened obviously has This (CBEC). eye oncross-border e-commerce I think you still needto keep aclose At the other end,shemayneedalawyer other Atthe I dothinkitdependsonthecat In terms of market opportunities,

- - - it could bea win-win for everyone. seeing how thisplays out inChina,as standpoint, we are lookingforward to in the near future. From a regulatory that canbenavigated more easily but itislikely going to beaterritory seen, be to remains products CBEC regulatory requirements imposedon grace periodor more guidance onthe Whether there will beanadditional it cancontinue to market inChina. ter the2018 window closessothat af CBEC regulate will authorities the companies are watching to see how the feedback isfavorable, thesesame the Chineseconsumer and,provided as a way to introduce their products to foreign brands have been using CBEC but duringthisopen window, many edge of what therequirements are, be donecarefully and with full knowl must CBEC via Importing import. of when compared to traditional modes regulatory requirements to follow of the2018, whereby there are less there isagrace perioduntil theend formany products sold CBEC, via and some of theregulatory requirements relaxed has authority The CBEC. via to befollowed when foods are sold to navigate theregulations that need companies often struggle with how opportunities are massive. However, the etc.，, products, health vegetables, we are talkingaboutfresh fruitsand were justafew years ago. Whether buying foods onlinetoday thanthey are muchmore comfortable with the ideaof buyingfood online;they becoming more andmore opento are Consumers floor. ground the at FEATURES I - - 11 March/April 2018 Unconventional and Viable Commercial-Use Drones

By Joseph Rogus

hina’s DJI, the world’s largest recre- images and more. ational drone manufacturer, brought Sensefly’s multirotor drones come with Cunmanned autonomous vehicles three different flight options – manual, au- (UAVs) into the spotlight by making them tonomous and “assisted manual” – combin- affordable and accessible. Less obvious has ing the omniscience of sensors with the dis- been the rise of commercial drone technol- cretion of a human operator. Clobotics goes ogy. Yet UAVs can go where humans can- even further on the autonomy play. “We’re not, bringing efficiency and endurance to monitoring the entire process from the jobs traditionally done by people. backend in Shanghai. We make the drone Safety is a key selling point. George Yan, smart enough to require minimal training CEO of Clobotics, a China-based full-spec- to operate. No maneuvering, no flying, just trum drone service company specializing in one big red button that says ‘fly’ and ‘come wind turbines and telecom tower inspection, back’,” says Yan. says that using a drone cuts liability risks, saves time and produces higher quality data. Future more precise The clients of Sensefly, a European In addition to the efficiency and simplic- manufacturer of multipurpose surveying ity of autonomous flight, a major difference craft, laud drones for their productivity, between industrial and consumer UAVs is says the company’s chief sales and mar- the professional user’s need for consistent, keting officer, Jean-Thomas Celette. “Our reliable equipment that delivers data to customers in surveying found that what remarkable degrees of accuracy. Precision would take up to a week to do with tradi- sensors and sophisticated software ad- tional instruments, they could finish in just vancements tend to reach industrial users half a day with a drone.” first. While the average cell phone GPS can Clobotics’ drones need just 25 minutes to pinpoint your location to within five or 10 inspect one wind turbine – an eight-to 12- meters, Sensefly’s drones do so within just hour job for a human. In the mining industry, one to three centimeters. inventory tracking is effortless with 3D mod- More technical improvements are on the els captured from above. And farmers ben- horizon, and not just in navigation. Accord- efit from increased accuracy in crop moni- ing to Michal Mazur, head of PwC’s Drone toring with high-resolution models, infrared Powered Solutions team, mapping just 10 www.amcham-shanghai.org

12 livery drones inChinaandtheU.S. purportedly producing prototype de- door. JD.com and Amazon are both carry products to a consumer’s front items around highshelves or even not justcount inventory butalsomove warehouse stock management will flight capabilities, and drones used for Combine this with improved indoor a keypad, new applications abound. move anobstacleor inputacode on When adrone canpickupabox, and manipulate objectsaround them. ment isdrones that caninteract with faults on wind turbines. tomatically detect cracks andother machine learningcapabilities to au- Clobotics’ drones already usesome data collection inthe years to come. to nohumaninput, will revolutionize and even actonraw data with limited software that canmanage,analyze vancements inmachinelearning,or as often asfour timesa week. Ad- inspecting hundreds of milesaday of data, achallengefor companies miles of railway canproduce 400GB around the world. Few countries adoption is a lack of clear regulations biggest inhibitor to UAV technology or not, but when”. people are goingto switch to drones happens, it’s not amatter of whether the solution. Once theeducation you get results, they quickly buy into “Once clients seethespeedat which itself: sell will concept the confident technology, Celette notes. Yet he is ways alearningcurve with any new providers to the market. There is al efits of drones, and this will lure more are increasingly discovering theben- companies that he notes But offers. are unaware of thefull capabilitiesit not know thetechnology exists or notes that industrial users either do latter two go hand-in-hand. Mazur experienced service providers. The regulation, education andalackof are three mainbarriersto adoption: using UAVs? Mazur says that there tunities, why aren’t more companies

Hurdles to uptake Another expected major improve- With all these benefits and oppor All theseexperts agreed that the - - governing low airspace, constituting operate? Inmostcountries thelaws space, where do almost all drones sible for overseeing low altitudeair of sight? Who isultimately respon- flight? Can pilots fly beyond their line What are the rules on autonomous both usersandproviders at aloss: you really can’t useit yet,” hesays. places, off-limit and restrictions tude but without regulations dictating alti- ate anautonomous swarm right now, pabilities. “You might beableto cre- that laws lagfar behindtechnical ca- Technologies Leader at PwC,says Emerging and Services New Likens, ance requirements, andsoon.Scott fly, insur to how fly, to permission licensing, pilot on rules havespecific The selfie stick justgotlonger stick Theselfie DJI maintain itsdominance in therace for industrial applications. own models and seize this market opportunity. Only time will tell if DJI can their produce to racing Sensefly are like firms other while needs, their to professional drone service companies take DJI products andmodify them hasn’t yet translated into dominance over thecommercial market. Some preeminence in the recreational drone field, while ostensibly hard to beat, thanks to thepresence of other tech giants like Tencent andHuawei. DJI’s Silicon Valley, whereinflows of information talentand exchanges abound company frombenefits Shenzhen, also often China’s in location called its The months. six to five every launched being product new a and lines, model different six across world the over all logged hours flight of lions ubiquity of DJI products gives thecompany anexperiential edge with mil the sets of acclaimed productionsof like Thrones Game , for example. The on filmmakers by used are products their and market, drone consumer global the of 70% over controls DJI that suggest estimates Some 2017. as the youngest Asian billionaire ontheForbes 100Richest in Tech listin University of Science and Technology, propelled himto worldwide fame Kong Hong the at still wasWangFrank founder while 2006 in launched manufacturer of UAVs andcamera stabilization systems. The company, The endlesslegal questionsleave The mostrecognizable nameindrones today isDJI, aShenzhen-based - - agement of low airspace zones and sight body will allow for safer man- clear guidelines andadedicated over Establishing societies. their low-altitude airspace will impact nologies andevaluate how abusy time to understanddrone tech- Likens notes. Governments need Federalthe Aviation Administration, under making the in years 60 been airspace management system has 2.8-pound DJI Phantom 3drone. should not be transposed onto a jetliner A350 Airbus 150-ton a to ply argues Likens. The dictates that ap- titude airspace. Nor shouldthey, those currently governing high-al a few thousand feet up, won’t resemble to fifty between everything Yet patience isessential. The U.S. FEATURES - - - 13 March/April 2018 14 www.amcham-shanghai.org UAV pilots have already enrolled in flights. commercial-use Some forward-thinking Chinese all for tration of China(CAAC) isrequired Civilthe Aviationfrom Adminis- such technologies. only major world city to welcome in a UAV test zone, andDubai is the fly to permission EHang given has ments. Yet only theState of Nevada gers across crowded urbanenviron - with thegoal of shuttlingpassen- car, flying autonomous an of totype has produced a fully functional pro- EHang Guangzhou-based off. take drone delivery andeven drone taxis let revolutionary UAV services like Doesnotsuffer acrophobia and assistinginskyscraper construction. tainment, with synchronized drones lifting heavy objects for purposes such as building bridges in difficult locations show with over 1200drones, shattering theprevious world record. Swarm applications will progress beyond enter Coachella musicfestival andtheSydney opera house. Intel drones have performed increasingly impressive synchronized shows at venues suchastheLas Vegas strip,the of the local market, it has nonetheless continued developing its own drones. Over the past few years, hundreds of provide vast opportunities for foreign companies. While Intel works with Chinese companies to meet the demands survey andanalysis to target customers inthat industry. manufacturer. The partnership will combine DJI’s affordable drones with 3DR’s specialized software dronefor largestworld’s the construction DJI, Shenzhen-based with up teamed (3DR) Robotics 3D startup Berkeley-baseddrone Zerotech and internet giant Tencent to produce drones that stream video directly to WeChat and QQ. More recently, create what Intel CEO BrianKrzanichcalled“the world’s firsttruly intelligent consumer drone.” 2015, Intel invested $60 million in Chinese drone company Yuneec, which has used Intel’s 3D camera technology to ogy to capitalize onChinesedrone companies’ large manufacturing capabilitiesandestablishedcustomer base.In electing to partner with their Chinesecompetitors instead. This allows foreign companies with specialized technol By DougStrub All Abuzz: Competition andCooperation inChina’s Drone Market InChina,licensing andapproval This year, for the winter Olympics inPyeongchang, SouthKorea, they successfully performed asynchronized still potential uses endless affordable their drones, consumer in market the lead companies Chinese Although maker drone Chinese with partnered Qualcomm company technologies mobile and semiconductor 2016, In China, often outof coming drones mass produced low-cost, with to compete struggled have firms Foreign lays acostly waste of time. deadlines that make regulatory de- corporate usersoften face project individuals might beableto wait, permission and pay a fee. While bai, acompany must obtain written up to several days for aresponse; inDu- wait and permission flight must write a paper letter to request minutes; intheUK,companies within fly to permission obtain and system management flight tronic operators canloginto anelec staggering: inPoland, commercial are differences regulatory Global latory environment isstill chaotic. licenses, even thoughtheregu- flightcommercial obtain to classes - the skies. commercial drone services take to neurs to helpthenext generation of It isupto lawmakers andentrepre- worldwide. businesses for efficiency manager, UAVs are already boosting works department or a warehouse rural thelocal Heilongjiang, public and data analysis ispreferable. provider for both drone operations full-spectrum services, butusingone offer not need entrants New alytics. an- data in specializing firms as well as pilots, qualified license and train vehicles, butalsocompanies that that manufacture or customize the ers. This meansnot only businesses experienced drone service provid- Mazur says there isstill ashortageof slowly entering thisspace. However, other large military-focused firms are Chi- nese drone powerhouse DJI and field, UAV commercial the in leaders are Sensefly and Clobotics reational usersare needed. While tions for both commercial andrec overly complex, where more op- peripheral area of opportunity, not will abound.Drone insurance isa works are inplace, opportunities Whether it’s helpingfarmers in Once clear regulatory frame- I - - - By Ian Driscoll andRuoping Chen industry expert Tom Doctoroff interviewAn with Consumers Chinese Selling to Daoism, stability Confucianism or and stabilityis Regarding the tantamount to regardless of whether it’s world view, is sublime, progress protection of economic andsocial in- ple between projection of status and a tension intheheartof Chinese peo- is there And future. the in confidence a needfor stability inorder to have of what generation you’re in,there is what I’mbasically saying is:regardless I talkabouttheChinese world view, Sowhen axis. its off spinning not it’s changed over the years? How has the Chinese world view upgraded. People know. tomer experience quickly andhighly into China,and you seeingthecus- pecting that standard to come back international standard. They are ex proof andanexperience that isof an be given apromise; peopledemand when you are worldly you justcan’t and they are not soobvious. And reflected inthe responses of brands? How are you seeingthosechanges experiences. individualized more ing ing. People travel more, they are seek Chinese consumer tastes are chang- , Bloomberg BusinessWeek, FinancialTimes asinthe aswell Radio, TheWall Street, andTheNewYork Journal . Times Chinese Want and Twitter asafrequent isNotaStrategyaswell commentatoronCNBC,NBC,Bloomberg, Public andNational commercialAsian the Tomand landscape. JWT. of CEO roseAsia-Pacific the become to of author the also is He Tom Doctoroff,officerinsights cultural chief Prophet, at world’sthe of one is foremost behavior consumer Chinese on experts China isevolving very quickly, but People are more worldly now, - - world. Sothere are still tensions. But that the world isanold,regimented suing their passion,despite thefact als are ableto leave their markby pur You want to make sure that millenni- don’t want to justsay: gohave fun. when you market to millennials, you the burden reasserts itself. But even become more traditional because start having families, their behaviors number one:millennials,once they enjoying experience...but, ultimately, in Chinaisthesame.Livingnow, language that we useinthe West and to other people. A lot of themillennial their obligations and responsibilities of independent themselves define And by individualisticImeandothey ing individualisticina Western sense. 00s, the post-90s, thepost-95s, thepost- happened. Now when you get into ket, justtake alookaround at what’s But of course Chinaisadynamicmar stability is tantamount to progress. or Daoism,stability issublime,and gardless of whether it’s Confucianism terests. Regarding the world view, re- the question is are they becom- they are is question 禾the - - that every strand of fiber is safe. And And safe. is fiber of strand every that to beabigchallengeto make sure every mother andfather’s eye, it’s got to babies,the vulnerable, theappleof category concern is. When itcomes that you’re reassuring on whatever the you dohave to startfrom makingsure you do have to start from scale, and at Xiaomi, at Ofo, scale reassures. So through the roof. When you take a look management andawareness went the reliability of their supply chain did animagecampaignto talkabout foods, nobody knew what it was. We COFCO, which isbasically theP&Gof remember after themelaminecrisis, scale helps.SoCOFCO, for example I safety? sumer biasover product quality and How doChinesebrands combat con- timelessly Chinese. acknowledgement, andthat remains This isa way of generating external social networks, WeChat moments. the importance of social currency, of when you say, leave your mark,thisis When itcomes to food, even, Billions, WhatBillions, FEATURES 15 March/April 2018 16 www.amcham-shanghai.org were to happen, it would bequite arev are plannedby theend of 2018.If this stores, butIhave read that 1,000stores 13 about only are There reassurance. of benefit the providing it’s time same provide for lifestyle elevation, but at the its provenance. There are recipes that freshness, thequality guarantee and and get information onitsheritage, has abar code, you canscanthat code portant attributes: every singleproduct im- two has It offline experience. to line behind it,but what isspecial istheon- scale of benefit reliable the has it baba; supermarkets which is owned by Ali- become iconic inChina.OneisHema and two brands have thepotential to emotionally engagedinlocal brands. rency. People are becoming more have that translated into social cur people can share their opinions and and Netease music, with the way that of thesocial currency they generate; lives andidentities of peoplebecause to become extremely important inthe gaming companies have thepotential iconic, that aren’t inthetop 50. The But there are brands that will become ready to assumethat sortof stature. tion, I don’t think any companies are which represent suchlifestyle libera - icon brand like WeChat and Alipay, becoming dominant inthefuture? which Chinesebrands do you see Outside of Alipay and WeChat, works. soit’s alongterm road to hoe. ciety andhow corporate governance based onthestructure of Chineseso- less. But ultimately it’s institutional, it’s up the value chain,fear might become think that asChinakeeps onevolving a natural advantage. Onemore thing:I in that senseinternational brands have And now we know everything else about you elseaboutyou Andnowweknoweverything But thetop 50 will not remain static, If thestandard isbecoming an - - are they indrivingpurchases? effective How consumers? today’s What purposedo TV ads serve for challenge andthecost isachallenge. tional. Buttheexecution inChinaisa tion, however, the ABCs are interna- comes to thepositioningandexecu- here to establishawareness. When it discounting, andit’s more expensive nance of e-commerce platforms and reasons. Firstbecauseof thedomi- India andBrazil? difficult thanitisincountries like Is marketing inChinaany more finement. people want understatement andre- blingy itgets. Inhotels, for example, the socio-economic pyramid theless ished attribute, sothemore you goup be obvious; understatement isacher be more subtle. Chinesedon’t want to goods the visual iconography hasto from substance, andeven with luxury for a long time. Everything has to shine change the way they market? China andhave companies hadto Are you seeingthat shifthere in often become more understated. As peoplebecome wealthier they car brands are perceived. resent abreakthrough inhow local doesn’t yet have scalebutit will rep - car that Chinesecancall their own. It styling to customer experience, it’s a out Tesla Tesla! From performance to that peopleare liningupto buy. It will car Chinese a finally Tencent,it’s but seven-seat SUV, andit’s backed by Nio. It’s anelectric,highperforming, come asource of national prideis line that Ihave seeninthe world. online-to-off ofexample best the ably capabilities are amazing,andit’s prob - olution inhow peopleshop.Itsdelivery a position,anidentity. Butthrough- is that sopeople canpassively receive not justa TV ad. The TV ad’s purpose purchase process is. And that’s why it’s to your life, themore complicated the category is,themore important itis ing that the higher involvement the This isjustabasictruthof market I thinkitis,andfor acouple of on going be月en it’s and course, Of Another brand Iexpect to be-

- - - way.evolving. That’s need to do itinthe same, very obvious want to project identity, but they don’t as astatement of identity. They still consumers andneedthebadgeless as self-confident more becoming are is because I think first-tier city denizens second- andthird-tier cities. And that in more‘relevant’ than first-tier cities in take alookat thebrand Huawei, it’s becoming much more confident. If you want empty status anymore. They’re just don’t cities first-tier that is index), saw thisintheBRI(brand relevancy But onethingthat’s changing,and we so themessagesneedto besimpler. And they’re alsonewer consumers, of your marketing budget onsafety. example, you doneedto focus more you’re marketing anautomobile, for as things much for granted interms of safety. If take don’t They benefits. cities tend to needmore protective a longtime,andthat isthat lower-tier there’s something that’s been true for right as well. Generally speaking, that you’re doingthetimelessthings ing margins, you have to make sure ever-declin- with satisfied are people ation is just shortof disaster. Unless to brand buildingandequity gener tating. Ithinkthedegradation of tactics platforms ande-commerce isdevas- on winning onsocial mediaplatforms? Do you thinkthere isanoveremphasis reinforcing brand message. Volkswagen, it’s doingitina way that’s if you’re talking about fuel efficiency for every timepeopleengage with it,even tity andpurpose. And make sure that iden- define way brand your saying:of efficient most the it’s because is films, vocating, andthereason why Ishow to buildingthat brand. What I’mad- require amultidimensional approach definitely they death, and life are that project your identity, andalsoones that advance your life, onesthat help volvement categories, which are ones ciency or color. In general, the high in- effi- fuel safety, whether about, know to want people that specifics product that, butalsogoinginto alot of the gagement that’s not only reinforcing beyond, you have to have active en- out theentire purchase process, and I thinkthat thelurch toward social I - FEATURES 17 March/April 2018 The china paradox

An interview with author Dr. Paul G. Clifford

By Ian Driscoll

Dr. Paul G. Clifford, president, Paul G. Clifford & Associates, LLC, has just published a book on China’s reforms, The China Paradox – At the Front Line of Economic Transformation. He has worked in China as a corporate banker, strategy consultant and with a global high technology firm. He studied at the University of London and at Peking University.

You suggest that the success of firms like ernment and Party hierarchy intervene in Party at arm’s length. Lenovo, Wanxiang and Geely is partly be- such firms as they see fit. That said, when people ask me about in- cause they “put distance between them- Now there are reports of pressure on vestment in Alibaba, I highlight the key risk selves and the debilitating interference of them to give the government some share- or critical uncertainly as being Jack Ma’s re- government and the CCP.” The Party has holding and a board seat. This may be rec- lationship with China’s rulers. reportedly pressed for stakes in compa- ognition of where things stand in terms of nies such as Alibaba and Tencent, does these firms’ incorporation in “China Inc” and The Chinese state subsidizes industrial that suggest these firms could be under- seems a predictable development in light development. Is Chinese government sup- mined by Party interference? of the more assertive role of the Party and port as effective as government industrial Massive private firms such as Alibaba government across the economy. planning and support was in Japan and and Tencent which dominate the most But I would argue that this does not mean South Korea? strategic and sensitive heights of the econ- the Party automatically throws its weight And to that list of territories that re-in- omy inevitably must pay close attention to around since it is smart enough to permit vented themselves and moved up the tech- the Party. these firms to innovate and grow. Such su- nology ladder, we should also add Taiwan While those two technology giants com- pervision over private firms is different from and Singapore. pete independently and pursue their own the day-to-day interference experienced by In the course of its economic reforms, rational business strategies, there can be old-style SOEs. Much will depend on the China has consciously learnt from the ex- little doubt that the Party is already active extent to which the management of these perience of its neighbors and much of this in them and that Leading Groups in the gov- private firms can keep the government and government support has been extremely www.amcham-shanghai.org

18 POLICY PERSPECTIVESFEATURES

effective, despite bureaucratic limitations ZTE to emerge and flourish. capabilities but also due to the high qual- and wastage. We saw it in the early years Once Chinese players are strongly en- ity of the after-sales service networks they of China’s mobile phone industry. The gov- trenched, China naturally feels little threat bring to China. ernment, through providing loans to China’s from loosening restrictions on FDI, as we have In contrast, the main challenge to foreign hand-set manufacturers and putting up for- recently seen in banking and real estate. auto makers will come from China’s likely eign trade restrictions, was able to nurture There are still areas where China is hun- strong innovation not just in electric vehi- a series of Chinese players who were able gry for foreign investment and with it the cles and batteries but also in new mobility to take on Nokia and Motorola. When later it related technology. This is the case with solutions, including shared ownership and came to smart phones, the picture is rather batteries for electric vehicles. China drives a autonomous vehicles, all linked by the inter- different. Government support and interven- very hard bargain, as witnessed by the pres- net. To me, that is a massive story that will tion was not the decisive factor. New play- sure on Korean battery firms to form 50/50 unfold in China and globally. ers such as Xiaomi had alternative sources JVs and to transfer core technology. of capital. I certainly do not see China completely Some observers say that China’s eco- Chinese government support and “guid- shutting the door to FDI. It still has much to nomic reform effort is backsliding be- ance” for industrial R&D continues across gain from foreign firms playing a transfor- cause of renewed favoritism toward SOEs many sectors from bio-tech and genetics to mative role in the economy. Moreover, we over private enterprises. Is this an asser- cloud computing and artificial intelligence. should not underestimate how attractive tion of Party control, or is it a coordinated But since the dismantling of central plan- the domestic Chinese economy remains to state plan to create a dirigiste economy ning, R&D has increasingly been devolved foreign investors as it further urbanizes. like France’s? from Soviet-style research institutes to the Nonetheless, as you mention, China’s in- China’s economy is already highly diri- emerging new companies where the re- dustrial policy continues to favor local firms, giste. Nothing like the now dismantled cen- search is more rationally linked to its com- for example in the manufacture of wind tur- tral planning, but certainly one in which the mercialization. bines. Some foreign players will scale back government plays a very strong “guidance” their China investment plans or even pull role, channeling financial investment into ar- You argue that China is less open to FDI out of China altogether. eas it deems important, rather than relying than in the past and may even abandon on the market to determine the outcome. any belief it ever had in a true open door. Chinese auto companies are finally pro- SOEs have throughout the reforms received As Chinese industrial policies increasingly ducing vehicles that people want to buy. the lion’s share of state lending. Today you favor domestic firms, what future do you Do you see Chinese auto companies as a might argue that capital allocation has im- see for foreign companies in China, espe- long-term existential threat to Western proved somewhat in terms of large private cially those in manufacturing? auto manufacturers, at least in China? enterprises in strategic sectors also being My point is that China continues to wel- The traditional auto is mature tech- recipients of loans from state banks. come FDI to the extent that it fills a gap in nology and the barriers to entry are low. But the backsliding you are referring to is the economy or provides technology that China-designed cars already account for somewhat different. While in the economic can “rub off” on Chinese players seeking to around half of the market, in volume but not hybrid which has developed over the last make it up the ladder of innovation. At the in value terms. Though they have been held four decades the Communist Party never same time, by dint of its control of large back by poor design skills and low customer departed from SOEs, it was willing to exer- parts of the economy, the government appeal, they will continue to improve. Still, cise a light hand in SOE governance. But in carefully manipulates the market share that we should expect foreign competitors to the last five years we have seen a strong re- foreign firms can achieve in China, to permit maintain a very strong position in the China assertion of the Party role in SOEs, so that it “national champions” such as Huawei and market due not just to their global design insists on actively participating in decision- 2018 March/April March/April

19 standing team of executives boldly em- braced Western organizational principles and business processes, setting the firm on its path to global standards of technology, quality and service. Then there is Hangzhou-based Wanx- iang, a large private manufacturer of auto components now with factories worldwide. You mentioned them earlier. Having grown from a commune workshop into a private Like a credit card but easier to use firm, it found itself in the midst of the pro- tracted dismantling of central planning, but making on issues ranging from employee markets more to accommodate the EU still excluded from government support, compensation to corporate strategy, even and the U.S? If not, where do these trading raw materials allocation and sales channels. in the listed entities established by SOEs. relationships go next? It had no choice but to patiently rely on its While SOE governance was never much to It is right and proper to pressure China to own internal resources to fuel its remark- write home about, this trend undermines uphold multilateral arrangements on trade able growth. some of the key aspects of the reforms and and investment, insisting on adherence to Finally we should mention the small and as such is widely criticized (in private) by both the letter and the spirit of such treaties. medium-sized private businesses I have SOE executives. Notwithstanding the recent moves by worked with in Zhejiang, Fujian and Guang- the U.S. administration, I believe that a dong. Their story is about farmers who, on Is there a danger that too many foreign full-scale trade war with China is unlikely in the back of suburban land wealth, built economists view China through a Western the near term. Underlying my view are two highly profitable export–oriented enter- lens? Given that China’s banking system is factors: firstly China does not want a trade prises which are now confronted with un- relatively cut off from the rest of the world, war (and is prepared to make small conces- relenting market pressure to innovate, learn that it has little overseas debt, that its sions to avoid one); and secondly the U.S. new skills and move up the value chain economy is increasingly less dependent in particular cannot afford one and would since China is no longer the cheapest place on exports, and that the Party has – so come off worst. The U.S. consumer benefits to have things produced. far – delivered economic growth that has greatly from the global division of labor in sated the population, is it possible that which China is the “world’s factory.” You consulted in and lived in China for China creates an entirely new economic many years. What broad advice would you model? Your consulting work puts you in contact give now to foreign enterprises wanting to Yes, I fully agree with you. People often with many privately held Chinese com- succeed in China? try in vain to assess China risk by the mea- panies. Of those you encounter, has any Push back against the idea that China sures used in true market economies. Those one company been especially impressive? is mysterious. It certainly is complicated. who over the four decades of the reforms If yes, what is it doing that others should Things happen behind the scenes. But it can have predicted the collapse of the Party or emulate? be understood. Take control. Don’t let China of China have so far been proven wrong. Let me give you three contrasting examples. be a “black box.” You would not do that in China’s banking system, corporate debt There is plenty to admire in Huawei other markets. I mountain, real estate bubble(s) and risky Technologies, notwithstanding security “wealth management products” are justifi- concerns which have dogged its efforts in ably a serious concern, but we should not the USA. Its CEO Ren Zhengfei and his long- Apple eater underestimate the ability of China’s hybrid model to withstand such tests. I do focus on those systemic market risks. But what troubles me more is the deepen- ing political autocracy which threatens to disrupt the delicate balance of forces that has propelled China forward. When asked about China these days, I tend to emphasize the risks of poor political governance rather than that of an economic meltdown.

The European Union and the United States are pushing back on Chinese investments, arguing that their trading relationships with China needed to be founded in rec-

www.amcham-shanghai.org iprocity. Do you think China will open its

20 By Ian Driscoll andRuoping Chen and prospects foreconomicreform debt burden on China’s Michael Pettis cial markets. Chinese finan- in specializes where he Management, School of sity’s Guanghua Peking Univer of financeat is aprofessor Michael Pettis - port, and in a lot of cities in China, no reason to buildthe second air isn’t being fully utilized, thenthere’s port. Butif you have anairportthat it makes senseto buildasecond air then flights, many too way gets that infrastructure. If you have anairport productive investment, including in much investment you candothat is debts? over-investment andabuild-upof why the economic system leads to Can you explain inlayman’s terms rates startto drop significantly. straining growth once GDP growth are extremely serious about con- have theother. We will know that they target, andif you want one you must plicitly also setting acredit growth set aGDP growth target you are im- cantly. And that’s theproblem. If you signifi- down slow activity economic at thesametimethey cannot yet let wanting to rein incredit growth but than inthepast? ment to tamingdebt more serious and isthegovernment’s commit How malignare current debt levels rennial worry for many observers. China’s debt levels have beenape- The problem isthat there’s only so I thinkthey are very seriousabout - - - the bankingsystem andthebanks the system. But mostof thedebt goesthrough within pressures cific spe- find to look should you where youunderstand it helps and fine is creasing? ernment focus on controlling or de- And what debt(s) shouldthegov Where isdebt mostconcerning? want to continue employing workers. But infact it’s probably becausethey grow time. to over traffic expectthey because official answer is them?The question is why are they extending highways are beingextended. Sothe ceive very, very little traffic, and those multilane highways inChinathat re- tive. For example, we have beautiful economically nonviable, nonproduc tion of that infrastructure became above that level, anincreasing por continue to invest ininfrastructure as they then rates, growth different for the next several years assuming needs have beenmet, including in which mostof itsinfrastructure high andto keep peopleemployed. they wanted to keep growth rates because they needed it, but because they’ve builtthat second airport,not Identifying different areas of debt of areas different Identifying Once Chinareached thelevel - - - safety net. ment or providing some sort of social alternative ways of creating employ find to have they down; them close of unemployment. They can’t simply levels significant of risk the run you of workers. If you closethemdown, productive, butthey employ alot sons. These projects may not be very nomic activity for employment rea- cal component. lines, airports,etc. So,there’s a politi- that are buildingrailroads, subway assets, by servicingthecompanies fitting: by control of local government economic activity that they are bene- called ‘vested interests’, it’s through it. From thepoint of view of theso- layoffs? the social consequences of mass What drives this?Is itface? Fear of are real, attainable or realistic. gets, regardless of whether they China appears wedded to GDP tar ber that matters. is growing; it’s the overall debt num- to worry too muchabout where debt government debt. I tell my clients not effectively all it’s so government, the are basically contingent liabilitiesof But it’s also very muchabouteco - There are two thingsthat drive

POLICY PERSPECTIVES FEATURES - - 21 March/April 2018 22 www.amcham-shanghai.org evidence doesnot letting themarket suggest thatatall for theeconomy, AlsoknownasGDP that liberalizing play astronger always tellyou role —isgood economy and the historical — lettingthe the economy even though Economists back as2007 to make rebalancing do they have what ittakes? making brave economic decisions, political system? When itcomes to Is thecountry held hostage by the unemployed peopleonfarms. are politically more problematic than is that unemployed peopleina city tage of keeping peopleonthefarms make that transfer. The bigadvan- diffi- cult adjustment periodin which you a think, I be, to going There’s can’t simply transfer oneto theother. investment-driveneconomy. You inan those from different very are in a consumption-driven economy types of workers that are needed economic activity high,thenthe levels growing andusethat to keep night. If you cankeep consumption and turnhiminto ahairdresser over not asif you cantake asteel worker It’s sectors. different very in growth but arebalancing China will require ily concentrated in certain sectors, seen that happen yet. government assets, and we haven’t way to pay for itisby liquidating local rebalancing problem. The only real household sector, itdoesn’t solve the pay for itintheform of taxes onthe the underlying debt problem; if you form of borrowing itdoesnot solve how it’s paidfor. If you pay for itinthe is not theexistence of thenet but areas of thenortheast? as hasbeenencouraged insome steel off laid workers? Will of they return to farming fate the be will sources for theseprograms? What Has the government got the re - Wen Jiabao promised as far Chinese growth hasbeenheav The key to thesocial safety net - - lead to greater trouble, not less the market-oriented reforms, often bankruptcy, liberalizing reforms, financial or near bankrupt system is got way too muchdebt, when the growth, but when acountry has ing reforms tend to generate more conditions under which liberaliz evidence suggestsisthat there are gest that at all. What thehistorical historical evidence doesnot sug- for theeconomy, even thoughthe ket play astronger role —isgood the economy and letting themar liberalizing theeconomy —letting terize hiseconomic policy? economy. How would you charac strengthen state control over the most now think his main aim is to market to play abigger role. But Xi when hesaidthat he wanted the Initially some observers believed adjustment costs. a disproportionate share of the of rapid growth, butrefuse to pay portionately from three decades benefited. They benefited dispro- verse theprocess from which they powerful and very reluctant to re- and of course thesegroups are portionately from Chinesegrowth, certain groups benefited dispro- sically reverse aprocess by which ment becausethesereforms ba- they know they needto imple- to implement thereforms that incidence. Ithinkit’s very difficult interests. Idon’t thinkthat’s aco - press abouttheso-called vested to see complaints in the Chinese his promise that we first began years. It was shortly after he made ances got worse for thenext five the priority, butinfact theimbal Qingdynastystate spending Economists always tell you that you tell always Economists - - - - relative to thesetwo. other reforms are quite secondary big order. It’s very tough to do. All the expense of local governments. It’s a the debt burden, once againat the And secondly, you have to reduce at theexpense of local governments. come share of GDP, almostcertainly in- household the increase to first is qua nonof theadjustment process, very important reforms, thesine two the me, For years. five for level debt cancontinue to grow at this years? China to enactinthenext five economic reforms that you expect Are there any truly consequential to worryabout. think that’s something that Chinahas than four timesinover adecade.SoI closing them down went up by more and thecost to thegovernment of they got into even deeper trouble, What endeduphappening was that bankruptcy. Well it didn’t happen. letting themgrow their way outof money by deregulating themand the government decidedto save 1970s, rather thanclosethemdown, companies were all bankrupt in the Loan to gofor theeconomy. right waynecessarilythe you want excessive debt levels. That’s not move in the direction of managing to system financial the cause tives ability andproductivity, theincen- profitincreasingof direction the in remove controls, instead of moving change dramatically, so when you is bankrupt, theincentive structures system financial the and debt trouble. When there istoo much big challengethat Beijingfaces. are able to doit, in practice it’s the a political problem. In principle they governments to liquidate assets, it’s thing. But it’s not easy to force [local] they doliabilities,sothat’s agood ernments have far more assets than as they doliabilities.InChina,gov roughly the same amount of assets negative. Inother words, they have ernment positioniszero or slightly In mostcountries thenet gov Yes, all of them.Idon’t thinkthat When the American Savings and soito ad te thrift other and 工Association I - - - POLICY PERSPECTIVESFEATURES Chinese ODI Restrictions By Jessie Niu

ince late 2016, the Chinese government has taken dramatic steps to curb Chinese overseas direct investment (ODI). According to the United Nations Conference on Trade and Development (UNCTAD), ODI has increased by 200 times since China began its “Going Out SStrategy” in 2000 and reached a total of US$183.1 billion in 2016. Regulators feared that the increase in ODI was leading to improper overseas investments by companies, depreciation pressure on the RMB, and potential systematic risks (brought by highly-leveraged borrow- ings). In December 2016, the Chinese government vowed to scrutinize the validity and compliance of future ODI deals, especially in sectors including real estate, hotel, film, entertainment and sports clubs, which all showed an “irrational investing trend.” In 2017, the government rolled out a series of new regulations to impose additional capital controls and to crack down on suspicious deals. The following table out- lines several major policies. I

Effective New regulations Regulator(s) Highlights and Key Provisions Date

Guiding Opinions to Further August 4, National Development The Guideline lays out three categories of overseas investment: encouraged, restricted Direct and Regulate Out- 2017 and Reform Commis- and banned. All outbound investment deals are categorized according to their alignment bound Investment sion (NDRC), People’s with policy initiatives and will receive different treatment based on their category. (released to public on August Bank of China (PBoC), ➢- Encouraged: Participation in the Belt and Road Initiative 18, 2017) Ministry of Commerce - ➢Restricted: The document formally categorizes deals in real estate, hotel, film, enter- 《关于进一步引导和规范境外 (MOFCOM), and Min- tainment and sports clubs as “restricted.” It also includes the establishment of overseas 投资方向的指导意见》 istry of Foreign Affairs Special Purpose Vehicles (SPVs) (MFA) - ➢Banned: Deals in military technology and gambling fall under the “banned” category

Conduct Code for Private Decem- NDRC, PBoC, As the first regulation regarding Chinese private enterprises’ overseas investment and Enterprises’ Outbound ber 6, MOFCOM, MFA, and operations, the document highlights its strict ban on any “illegal foreign exchange trading, Investment and Operations 2017 National Federation asset transfer or money laundering under the guise of overseas investment”. (released on December 6, of Industry and Com- ➢- The document provides guidance and standards for private companies in five areas: op- 2017) merce eration management, social responsibilities, environmental protection, legal compliance 《民营企业境外投资经营行 and risk control. 为规范》 ➢- It also requires private companies to enhance the supervision and reporting of their overseas branches’ financial activities.

Measures for the Administra- March 1, NDRC The new regulation will replace NDRC’s existing outbound investment regulations (2014 tion of Enterprises’ Outbound 2018 version). Investment (released on ➢- The new Measures removes some administrative hurdles, such as existing requirement December 26, 2017) on companies investing greater than US$300 million to report and seek approval from 《企业境外投资管理办法》 the NDRC prior to the project. ➢- It expands its applicable scope to include overseas entities and investment projects “controlled” by Chinese investors. ➢- New supervisory tools: It also includes a plan to establish an online platform that records and tracks overseas investment application submitted by Chinese firms, all of which will be subject to inspection and verification by the government.

Interim Measures for January MOFCOM, PBoC, The Measures require investors to submit reports (containing key information of their ODI Reporting and Record-filing 18, 2018 State-owned Assets deals) on a regular basis to the government. All related government departments will be (or Approval) of Outbound Supervision and Admi- able to monitor and analyze the submitted information. Investments nistration Commission The document also requires higher transparency in reporting and management of the (released on January 18, 2018) (SASAC), State Admi- investment fund flow, which should connect the investor subject directly to its ultimate 《对外投资备案（核准）报告 nistration of Foreign destinations. Intermediate companies or shell firms are prohibited from any official filing or 暂行办法》 Exchange (SAFE), three government approvals. top financial regulators (CBRC, CIRC, and CSRC)

2018 List of Sensitive Sectors March 1, NDRC In February 2018, the NDRC released its latest version of sensitive projects in out-

in Outbound Investment 2018 bound investment. The full list includes a “sensitive” list containing: 2018 (Released on February 11, ➢- Exploitation and use of cross-border water resources 2018) ➢- News and media 《境外投资敏感行 ➢- Development, production and repair of weapons 业目录（2018版）》 Also includes the “restriction” list, which contains the same six areas as found in the March/April March/April Guiding Opinions to Further Direct and Regulate Overseas Investment. 23 24 www.amcham-shanghai.org U.S. TaxReform Understanding By David M. Allgaier with subsidiariesinChina Implications for U.S. multinational companies U.S. TaxReform Understanding T ies in China. The content that follows groups withwhollyowned subsidiar U.S.-parented multinational corporate in the Act that may directly apply to of someof theprovisions contained law. This articleprovides anoverview read inconnection with existing tax excess of 500pagesandneedsto be tities. The original text of the Act is in entities), estates, andtax-exempt en- partnerships (andother pass-through impacting individuals,corporations, ries of taxlaw –namely, provisions makes revisions to several catego - least inpart,to thefact that the Act at due, is assertion This 1986. since prehensive U.S. federal taxreform been referred to asthemostcom- Trump onDecember 22,2017 andhas 97; the“Act”) was signedby President Reform Act of 2017 (PublicLaw 115- monly referred to, as the Tax duced in Congress, and com- he legislation originally intro- at ChinaandcurrentlyDeloitte AmChamShanghaiTax servesasChairofthe Hecanbecontacted Committee. isaU.S.taxadvisoryprofessionalDavid M.Allgaier basedinShanghaisince2008.Heisataxpartnerwith [email protected] - rules. lect number of some fairly complex is a very simplified discussion of a se- or-law graduated corporate tax rate news isthat the Act replaces thepri- the most welcome anddiscussed impacting U.S. corporations. Perhaps favorable and unfavorable revisions DonaldScissorhands Domesticprovisions The Act contains ahostof both provisions income generated by aU.S. corpo- by non-U.S. subsidiaries. Taxable ation onactive income generated the opportunity existed to defer tax ject to taxona worldwide basis and come of U.S. corporations was sub- production activities. repeals thedeductionfor domestic for net business interest expense and imposes new limitsonthededuction to thesefavorable changes,the Act offset an As service. in placed and fully expensed inthe year acquired life of an asset) under prior law to be ated (i.e.,expensed over theuseful depreci- were that assets qualified In addition,the Act permitscertain rate alternative minimum tax(“AMT”). corpo- the fullyrepeals and rate 21% flat a with 35%) (generally, structure

International Under prior law, thetaxable in- - having beensubjectto theSubpartF eral income tax(e.g., asaresult of not previously been subjectto U.S. fed- non-U.S. subsidiaries that have not of profits and earnings accumulated participation exemption system, all tion exemption.” commonly referred to asa“participa- received deduction(“DRD”). This is dividend 100% a ofway by achieved to U.S. federal income tax. This is subsidiary are nolonger subject by aU.S. corporation from anon-U.S. provisions, any dividendsreceived the anti-deferral SubpartF andGILTI corporate income taxrate). 21% new the of 50% (or 10.5% of rate such income to a low-taxed effective inclusion amount, thussubjecting GILTIthe of 50% to equal deduction U.S. parent corporation isallowed a the non-U.S. subsidiary. However, the used intheproduction of income by the U.S. taxbasisof tangibleassets returnon 10% excess deemed in ofa gross income of anon-U.S. subsidiary iary. Inessence, GILTI income isany als as“guilty”) of anon-U.S. subsid- pronounced amongst tax profession- intangible low-taxed income (“GILTI”; a current basistheso-calledglobal provision that isdesignedto taxon the Act includesanew anti-deferral non-U.S. subsidiaries.Inaddition, continue to apply to theincome of Act, the by modified as provisions, F ble assets. Inparticular, theSubpart return oncertain tangible deprecia- except to theextent of adeemed subsidiaries is nolonger available to income generated by non-U.S. for deferral of taxation with respect uted to theU.S. parent corporation. F” provisions or was actually distrib- generally referred to asthe“Subpart of anti-deferral rulescommonly and only if theincome ran afoul of a set federal income taxonacurrent basis a U.S. corporation was subjectto U.S. non-U.S. subsidiaries(e.g., China)of dition, taxable income generated by domestic or foreign sources. Inad- gardless of whether derived from income taxonacurrent basisre- ration was subject to U.S. federal In order to transition to thisnew Under the Act, after application of Under the Act, theopportunity considerations ipation exemption). sions butnot inrelation to thepartic respect to SubpartF andGILTI inclu- to limitation, FTCs are available with subject (i.e., modification with apply credit (“FTC”) system continues to tions. Also note that theforeign tax of certain conditions and/or excep- plex andsubjectto thesatisfaction visions discussedabove are com- alents and8%for all other earnings). held intheform of cashor cashequiv are earnings ifratessuch duced(15.5% ject to U.S. federal income taxat re - whether actually distributed) andsub- U.S. parent corporation (regardless of included inthetaxable income of the ally distributed) will berequired to be provisions and not having been actu- the federal changes resulting from In such“rolling conformity” states, effect. in currently (“IRC”) Code nue ically conform to theInternal Reve- computation, certain states automat income. As astartingpoint for this ing point for calculating state taxable is usedby moststates asthestart for U.S. federal income taxpurposes modified over time. some provisions phaseoutor are tive from January 1,2018.However, effec are Act the ofprovisions the of Golfer, taxcutter State andlocal tax Effective dates It’s important to note that thepro- The calculation of taxable income For calendar-year taxpayers, many - - - - - than ever. tions of the Act ismore important modeling of thepotential implica- regular andproactive quantitative unwary. Onethingthat isclear isthat the well-prepared and pitfalls for the which may provide opportunitiesfor ture andinteractive with oneanother, new provisions are formulaic inna- Act. Having saidthat, many of the come more complicated under the tax provisions, that thelaw hasbe- spect to thecorporate international people will argue, at least with re- Many simplification. was reform tax One of thestated intentions of U.S. cations of the Act. in connection with theU.S. taximpli- should beconsidered holistically and efficiencytax for China Opportunities erating models and supply chains. direct impactonChinabusinessop- contains provisions that may have a be considered. Inaddition,the Act regulatory requirements will needto foreign exchange controls andother ration, withholding taximplications, subsidiary to its U.S. parent corpo- to repatriate earningsfrom aChina For example, if adecisionismade the Act should also be considered. -tax implications associated with factor. computation of theapportionment income calculation as well as the GILTI taxable state regime)affect the sions of the Act (e.g., theanti-deferral expensing) and international provi- sions of the Act (e.g., full capital asset mine if andhow thedomesticprovi- regime mustbeexamined to deter tax law. As such, each state’s tax ing point consistent with prior federal eral pro forma taxable income start date, potentially necessitating afed- “fixed” or specific a of as IRC the of contrast, other states adopt a version as thefederal taxconsequences. By sult inthosestates at thesametime certain state tax consequences to re - from theIRC;companies canexpect proactive legislative decoupling the Act will beincorporated absent

Concludingthoughts China taximplications The potential Chinataxandnon I POLICY PERSPECTIVES FEATURES - - 25 March/April 2018 WeForShe: Beyond the Numbers

mCham Shanghai’s WeForShe conference, held at the Manda- rin Oriental Hotel on March 2, and calling for men and women Ato work together to end gender inequality in the workplace, attracted some 300 attendees to a day of panel discussions and work- shops. Held in conjunction with the Chamber’s Women’s Executive Network (WEN), the conference builds on the work of the HeForShe movement launched by the UN in 2014. Previous conferences have focused on the business case for greater diversity and on the drivers and challenges around address- ing the corporate gender gap. As explained by Sarah Köchling, co- chair and co-founder of AmCham WEN, “This year, the aim of the newly minted WeForShe gathering was to look broader, beyond the data, at the softer side of things – to call attention to the empathy and awareness required to move things forward.” The conference agenda included tackling unconscious bias, exploring key differ- ences between mentorship and sponsorship, and both the overt and subtle ways that everyone, both male and female can support women to advance at all levels. Köchling further laid out the case for the conference by highlight- ing the effort still needed to achieve parity between men and women in the workplace: “There is plenty of data to support the positive fi- nancial and governance impact of employing more women at senior operating levels. And as women rightly vocalize their concerns, cor- porates are deploying programs and policies in response. Yet there remains a huge shortage of women at the top,” said Köchling. The conference keynote was given by Gebi Liang, partner director at Microsoft’s Cloud and Enterprise Engineering unit. Liang reflected on her upbringing during the Cultural Revolution and how the difficul- ties of that period, including the dearth of career opportunities and fracturing of family units, spurred her to seek a better future for herself. Referencing her own family’s temporary separation due to family and career demands, she ended with sage words: “Family is the glass ball, once shattered it cannot be put back; careers are a rubber ball, they can bounce back.” The first panel discussion, Inclusive Leadership: Moving Beyond Unconscious Bias, featured a quartet of experienced HR professionals. Vikram Cardozo, senior HR director Greater China at GE, said that un- conscious bias is part of anyone’s cultural upbringing, but emphasized that “being aware of it is what’s important” before one can ameliorate it. www.amcham-shanghai.org

26 MEMBERFEATURES NEWS

Asked what could be done to alleviate unconscious bias, Alice Wong, HR d大irector Greater China at EY, said that making diversity and inclusion (D&I) a business imperative at EY, with the compa- ny’s chairman as leader of its steering committee, had helped im- bed D&I in the company. Janet Mi of Aperian Global, seconded that view, saying that when a leader actively encourages inclusion and the removal of biases, this philosophy trickles down to other em- ployees. Linda Keister, director of HR for 3M, also noted that sometimes generation and culture lead women to have their own biases against themselves and the roles they should aspire to and suggested that viewing marriage as genuine partnership goes a long way toward helping women overcome these cultural and self-imposed hurdles. A panel on the benefits of mentoring versus sponsoring was re- vealing, with Adele Bai of EF offering a pithy summation of their funda- mental differences: “The mentor speaks with you; the sponsor speaks for you.” Christine Lam, CEO of Citibank China, encouraged attendees not to rely on formal programs but instead seek out mentors. “Someone you trust, someone with whom you can brainstorm...someone with whom you can celebrate happy moments,” said Lam, adding the coda that mentoring “relationships take effort, and both parties need to be will- ing to invest in it.” Terry Endsor, a colleague of Lam’s and the Citibank Asia Pacific HR head, urged attendees to seek out mentors who were not from their own business units, thereby gaining exposure to other departments, experiences and managers. The head of EF China, Jacob Toren, lauded mentorship programs as a way to keep close to your organization. He also said that one way to ensure inclusion and advancement of women was to ensure that every manager at a company be graded on their ability to grow other people. His message was reiterated in the morning’s final panel, Supporting Female Inclusion and Advancement at Every Stage, when both lawyer Lesli Ligorner and Nike’s Christine Mao suggested that D&I should be a KPI. The morning’s loudest applause came in response to a comment by GE’s Cardozo. He proffered a glaringly simple question, one that may eventually be answered (resolved) by groundswell efforts like this conference: “If your market is 50% female, why shouldn’t your organi- zation be 50% female?”

Workshops

Following a lunchtime “fireside chat” on Advancing Women in Government and the Public Sector, the conference concluded with a number of workshops designed to address attendees’ careers and personal brands. These included discussions on building your exec- utive presence, how to give a Ted Talk, cross-cultural management challenges, building trust, mental and physical resilience and using 2018 concise communication to influence stakeholders. There was also a session around leveraging executive skillsets to contribute to NGOs as a means of achieving greater personal fulfillment as well as career

development. March/April

27 Government Policy Support (GPS) Program Helping members navigate China’s regulatory landscape

MEMBER BENEFITS

● Quarterly briefings and publications by industry experts

● Chamber delegations to government agencies

● Exclusive in-house meetings with government officials

● Ad hoc support from the GPS Helpdesk

FOCUS GROUPS

MANUFACTURING TECHNOLOGY

HEALTHCARE FINANCE Highlights from the January 20,2018meeting subsequent dinner. quests. In one case, there was immediate follow up during the ficials at theroundtable were responsive to comments andre- positively abouttheroundtable. The Nanjing government of commented also event, the attended who Zheng, Eric Chair Nanjing government officials andChamber members.Board dinner was preceded by a90-minute roundtable with senior ficials. This strengthens theChamber’s positioninNanjing. The 18 with nearly 140participants includingover 20Nanjing of cessful Government Dinner andDialogueinNanjing January President Kenneth Jarrett saidthat theChamber heldasuc Nanjing Dialogue pointments. the Compensation Committee. The Board approved theseap- chair will Chan Eddy while Committee, Finance the chair will He alsoasked Helen Huto stay onasboard treasurer. Helen Hu nominated Eddy Chan and Christine Lam to and serve as members vice chairs. BOG new the welcomed Zheng Eric Chairman Bo APCO Worldwide David A.Basmajian ard Officers Attendees: Ken Jarrett, Helen Ren, ShilpiBiswas, Titi Baccam Regrets: Gentry Sayad M. Shafer, Cameron Werker, Grace Xiao, Helen Yang, Simon Yang Governors: MEETING ATTENDANCE Board of Governors Briefing Eric Zheng, Robert Abbanat, David Basmajian, Eddy Chan, Helen Hu, Sarah Köchling, Christine Lam, Nancy Leou, Stephen Board ofGovernors Chairman ofthe AIG Insurance Eric Zheng and Committee Positions and Dinner Consulting Co. Consulting Shanghai Blossom Sarah Köchling The AmCham Shanghai The AmCham

3M Stephen M.Shafer FedEx Express Eddy Chan Board Chair Vice - - - 2018 Board of Governors basis. the Chamber will continue to at least operate on a break-even several years of operating at aloss,theexpectation now isthat year-end target andendedthe year with aslight surplus. After Final Financial Report. Ren reported that theChamber hitits Vice President Helen Ren provided anoverview of theFY2017 entiate theCEO andGPSprograms from thecompetition. examining otherwhat organizations are orderin doing to differ interact with peers.BOGmembersstressed theimportance of and socialize to CEOs for opportunity an provides also series CEO the that added Chair The program. (GPS) Support Policy Government and Series CEO Chamber’s the of launch the on Shilpi Biswas, vice president of operations, provided anupdate the additionof another associate member. as such benefits more included package newmembership the The President saidthat while membershipprices hadincreased, Membership UCB Grace Xiao Citigroup Christine Lam Board Chair Vice

Due s and New Service Aptiv Simon Yang Paper International Helen u Treasurer s MEMBER NEWS DuPont Ching-Hsien Yang Helen ILE Robert Abbanat FEATURES

- 29 March/April 2018 30 www.amcham-shanghai.org Another topic of discussioninvolved identifying new andemerg - priorities. life diversified and knowledge consciousness, health of levelsdifferent with consumers to appeal and with resonate can erences andbehaviors. Speakers alsoelaborated onhow brands pref purchasing their as well as choices life their influenced has presented with afocus onhow consumers’ perception on“health” Monday, January 29.Inthesession,evolution of “health” was care Committees heldthe“BigHealth Trends inF&B” event on A BriefingonigH ealth Trends inF&B questions from theaudience. nies; their experience as well as expertise answered many difficult ists have all madetheswitch from multinationals to local compa- nior manager from ChongbangGroup Frances Rong. The panel EasternMitchell,BellDavid Venturese- Lei,and CapitalLisa COO Shanghai. The panelistsincludedinternational HRprofessional moderated by Alice Wong, chair of the HR Committee at AmCham compared with local ones. pany andthe working environment of multinational companies hind thetalent shift,challengesfaced by talent ina Western com- a few topics regarding thisphenomenon,includingreasons be- Charlie Liu,partner at Heidrick &Struggles International, explored increase incompetition for talent from local Chinesecompanies. past several years, multinational companies inChinahave seenan mittee held an event on the issue of talent shifts in China. Over the Insight AmCham Shanghai’s Food, Agriculture &Beverage andHealth- The speaker’s presentation was followed by a panel discussion On January 24, AmCham Shanghai’s HumanResources Com- Event Report into T alent ShiftsinChina - - the 21 most pertinent questionsandunderstandthisbreakout sportof the of some navigate us help to Sports Nielsen and Gaming ESL sembled a panel of industry experts from Riot Games, Alisports, the global center of e-sports. city of Shanghaihasrecently announced aninitiative to become fans online,andawarded atotal prize pool of US$5,000,000. The onship in Beijing filled the Bird’s Nest Stadium, attracted 60 million by 2016. In November 2017 the League of Legends World Champi- fans engaged in e-sports, but that number exploded to 264 million million 73 just 2013 In today.industry sports the in phenomenon developing fastest the is E-sports Hotel. Seasons Four the at 23 held asessiononthee-sportsphenomenon Tuesday, January The E-Spor an attentive audience. views onthehealthy food industry andanswered their questionsfrom shared Experts Committee. Beverage & Agriculture Food, was moderated by Shirley Lu, co-chair of AmCham Shanghai’s Ashton andNuSkin’s director of research, Yiping Ren. The panel health experts includingco-founder of Sprout Lifestyle, Kimberly at Mintel, and was followed by apanel discussion with food and power of technology andtheimportance of ethics. ing business opportunities for food anddrinkscompanies with the tor of partnerships at AEG. Panelists discussed various questions various discussed Panelists AEG. at partnerships of tor direcglobal and Committee Entertainment & Sports the ofchair AmCham Shanghai’s Sports and Entertainment Committee as- Committee Entertainment and Sports Shanghai’s AmCham The presentation was given by Alina Ma, associate director st century. The panel was moderated by ZachMueller, vice- ts Phenomenon - 08 AmCham 2018 Administrative Committee. District New Suzhou of chairman Xinming, Wu and RIET, of man compliance. environment andtheir ongoinginvestments inenvironmental portance U.S. companies attach to beinggoodstewards of the participate instandard setting. Jarrett alsounderscored theim- He noted that U.S. companies would welcome thechance to jective (like reducing pollution),but also its economic impact. tation ina way that not only focuses ontheoriginal policy ob- standard settings as well as environmental policy implemen- forward to seeing RIET play a constructive role in environmental the businesscommunity. In his remarks, Jarrett saidhelooked which will have training andconsultation capabilitiesof value to ofEnvironmentalthe Risk Management Emergencyand Center establishment the from benefit can community business U.S. from theforeign businesscommunity, Jarrett noticed that the resentatives from thebusiness community. As theonly speaker environmental riskandemergency management, as well asrep- of field the in leaders industry and experts 200 over attracted SchoolofEnvironment,and (RIET) Tsinghuahua Universityand Tsing - (Suzhou), Innovation Environmental for Institute search ment Forum inSuzhou. The Forum was co-hosted by theRe- EmergencyEnvironmentalManage- & China Risk the attended Emergency DialogueDinner and Pre be paying attention to. global hubfor e-sportsand which teams andstarsshouldpeople micro view, discussions varied on which city would become the ities of e-sports becoming the next major global sport. On a more e月-sports presents asboth aplatform andsport,to exploring thepossibil opportunities and challenges major the from ranging AmChamShanghai NanjingCenterGovernmentDialogue andDinner Before theforum, Jarrett joineda VIP meeting with Liu Yi, chair On January 19, AmCham ShanghaiPresident Kenneth Jarrett On January 18, AmCham Shanghai’s Nanjing Center hosted sident J arrett Man Shanghai gement

attends C hina F g Center Nanjing orum Environmenta l Government Risk & - -

mers alsogreatly contributed to theevent’s success. Cortland, AIG, Celanese, JLL, GZClinic,IQAir andSummitPoly and welcomed further investment. companies for their contribution to Nanjing’s development Deputy Secretary-General ZhuChanghui(朱长会)thanked tance of competition asadriver of innovation andefficiency. relationship based on reciprocity and highlighted the impor ment. He also encouraged the establishment of a U.S.-China ration for thecity of Nanjing andsupportof thelocal govern- Consul General inShanghai SeanStein expressed hisadmi- continued supportof American businessintheregion. U.S. opening remarks thanking the Nanjing government for their gave Zheng Eric Chair Shanghai AmCham 2018 companies. tween government officials and AmCham Shanghaimember efforts. and businessesinfurtheringthecity’s internationalization portance of continued communication between government educated workers. Participants alsoacknowledged theim- agreed ontheimportance of retaining Nanjing’s large pool of centers intheregion. Companiesandgovernment officials greater investment by foreign companies inestablishingR&D cle, andsmartmanufacturing sectors. They alsoencouraged especially thoseinthefinancial services, new energy vehi- government officials expressed their supportfor companies, the attractiveness of Nanjing for foreign companies. Nanjing jing businessenvironment andsuggestionsfor increasing shared with thegovernment their opinionstowards theNan- internationalize Nanjing andsupportinnovation. Companies the Nanjing Government. from officials 30 including dinner, 130-person a as well as with key Nanjing government agenciesandmember companies logue andDinner. The event featured aclosed-door roundtable the 2018 AmCham ShanghaiNanjing Center Government Dia- Ganbei! The Nanjing Center Advisory Council anddinner sponsors The roundtable discussion was followed by adinner be - Discussion at theroundtable focused onhow to further MEMBER NEWS FEATURES I - - 31 March/April 2018 AmCham Shanghai Nanjing Municipal Government Dialogue and Dinner

AmCham Shanghai

Deputy Secretary General Zhu Changhui of Nanjing Municipal Government

U.S. Consul General Sean Stein discussing the U.S. Consulate’s priorities for the upcoming year U.S. Consul General Sean Stein conversing with members Future of e-sports

A discussion on executive education in China Tom Doctoroff on the golden rules of marketing in China AmCham Shanghai Month in Pictures

Shaun Rein providing insights on China’s “New Era” consumers

Does growth matter? A synopsis of 2018 manufacturing trends

A discussion on talent shifts in China MEMBER NEWS

Esoterica

Facing a Double-Edged Sword

By Deborah Tang

Disclaimer: The Asian-Americans mentioned her lack of Chinese limited her options. they afraid of making mistakes, but they’re in this article are of Chinese heritage. We Unlike Rose, Esther, a ‘third culture dependent on their managers’ inputs.” understand that Asian-Americans cover a wide individual’ (born in Hong Kong to Expats of all races and nationalities face range of cultural heritages including South Shanghainese parents and educated in the cultural differences and language barriers Asians, Southeast Asians, and East Asians. U.S. since she was 15), used her bilingual skills when working in China. Do race and being Names have been altered. to her advantage when she worked for a local Asian-American ultimately play a role when law firm and international services company. working in China? Jack, an innovation manager ‘Expat’ often conjures up an image of a Bilingualism enabled her to receive higher pay who identifies as ABC, believes that Asian- white businessman in his late 40s. An Asian than her equally competent local colleagues. Americans in China are “kind of in the middle with fluent English and adequate Mandarin Yet Esther lacked certain Chinese cultural in terms of ‘white privilege.’ We don’t get a lot rarely comes to mind. So where do Asian- knowledge which ultimately created a slight of privileges, but we have a lot of problems Americans fit in China’s business world? What divide between her and her colleagues. that comes with white expats.” Sylvie explains are the challenges and identity issues Asian- Speaking with China-educated friends, that Asian-Americans are more likely to be Americans face, but also the advantages of it’s clear that our motherlands’ education reprimanded when committing a cultural which fellow expats and local colleagues systems are markedly different. Education in faux-pas. However, if you look like a non-Asian might be unaware? America emphasizes creativity, debate and foreigner, you’ll easily be excused. A challenge I often encounter as a independent thought; China, meanwhile, Sometimes being more “American” brings Taiwanese-American when applying for new encourages obedience, quantitative skills, advantages. Working at a global sourcing jobs is my Chinese language ability. My skill, conformity and rigor. Yet educational practices company in China, Jack says “it’s clearly or lack thereof, has aided or imperiled my trickle into the workplace, and I am now more distinguishable in the corporate world chances of landing one. HR personnel have empathetic to my local colleagues’ work between how much Chinese you know rejected me solely because “your Chinese styles. Esther also faced cultural differences and your pay.” Knowing Chinese does not isn’t good enough.” Asian-Americans face a when she worked at a local law firm: “Because equal a higher paycheck – for Jack, a higher double-edged sword. labor is not valued in China, the firm’s system educational background and supplementary “If you speak fluent Chinese, you’re compared was unsustainable and unreasonable – I skills eliminates the need to speak Chinese. with a local Chinese candidate; if you don’t speak refused to participate.” The ‘system’ required Providing they avoid any cultural faux-pas Chinese, you’re compared with a foreigner,” Esther’s needless hours of overtime and and play to the Chinese hierarchical work says Rose, who identifies as an American Born proactive busy-work. system, Sylvie believes that Asian-Americans Chinese (ABC) woman. “As an Asian-American, Managing is hard. Managing in China is have another advantage compared to non- you have to deal with that initial awkward and harder. Sylvie Tournier, a principal & senior Asians when working in China. If Asian- embarrassing moment when you look Chinese coach specializing in cross-cultural training Americans were raised in a “traditional Asian but don’t speak the language.” with C-level expats and lower-level expat household,” they’re more likely to adapt to China has solidified Rose’s identity as an managers in China, France and America, and understand the Chinese mindset. Locals American. Her first two years as a recruitment finds that regardless of the expats’ identity may view them as having a similar mindset, consultant in China were successful because and management style, the conundrum ultimately making them more successful. her client base required a solid grasp of they often face when managing in China Being an Asian-American in the Middle English but not of Chinese. Over the phone, comes from Chinese employees’ actions or Kingdom is not easy. We blend in without she gained respect and credibility because of inactions. “[These managers] feel that their a glance. We speak fluent English in order her fluent English. But when meeting clients, Chinese employees have no job ownership to advance. When we can’t speak fluent she believes she could have forged better or accountability; at an early age, due to Chinese, we are looked down on by locals relationships with better Chinese. When she their upbringing, they were conditioned to and expats. But we’re here, and we’ve thrived. wanted to change jobs within the HR industry, be obedient and accept orders. Not only are We’re expats, too. I www.amcham-shanghai.org

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