INSIGHTThe Journal of the American Chamber of Commerce in Shanghai - Insight October 2016 Education www.amcham-shanghai.org nation

We cover China’s booming education industry, including: · Why joint ventures are increasing · Opportunities for foreign investors · The role of vocational education

FEATURES P.18 POLICY P.23 MEMBER NEWS P.26 Q&A with an Recap of AmCham Shanghai’s Q&A with Pierre Cohade, education consultancy DC Doorknock former CEO of Triangle Tyre

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

Directors President Printing Design

34 33 32 30 26 25 23 20 18 16 14 10 07 INSIGHT MEMBER NEWS Recap of AmCham Shanghai’s four-day DCDoorknock AmCham ShanghaiGoesto Washington Opportunities andthreats facing multinational manufacturing companies inChina Short Term,Long Term POLICY PERSPECTIVES Q&A with DanChen,co-founder of theeducation advisory firm Aegis Advisors Journey to the West Vocational education inChinaanditsimportance to theeconomy Vocational Education: Answer to Talent Shortage? How theincreased globalization of education isreshaping theindustry Evolving Educational Pathways Experts from Deloitte delve into opportunitiesfor foreign investors Opportunities intheChineseEducation Market Why joint ventures between Chineseand American universities are increasing Joint-Venture Universities inChina FEATURES Recap of selected events from lastmonth Event Report Selected photos from lastmonth’s AmCham events Month inPictures With Pierre Cohade,former CEO of Chinesecompany Triangle Tyre Member Focus On AmCham Shanghai’s recent visit to Washington President’s Note Book review -China’s Economy Esoterica With Robert Abbanat, chair of theEducation & Training Committee Committee Chair’s Corner The Journal of the AmericanChamberofCommerceThe Journalofthe inShanghai-October2016 Special thankstothe2015-2016AmChamhanghaiPresident’s Circle Sponsors

Movers and Shakers CAREER 3 October 2016

We recently returned from our annual ments for voting should be non-controver- Chairman’s Washington Doorknock, where we wit- sial. We propose that international affiliated nessed the messy process of governing members – both corporate and individual Letter in our nation’s capitol. Democracy truly is – be given voting rights. the worst form of government, as Winston A more sensitive decision concerns Churchill famously said, except for all the how we select our chair, currently elected others. Elsewhere in Insight, our president by direct vote of the members. The board Ken Jarrett has written about our meet- recommends that we move to a process by ings with the Obama administration and which Chamber members elect the board, on Capitol Hill. I encourage you to read his which in turn selects the chair. Besides be- column. ing a more conventional approach used by Here at AmCham we have our own im- corporate boards and most other cham- perfect form of democracy. Soon we will bers, this has several advantages. elect new governors to our board. Thank- First, this change will strengthen the fully, we don’t have trade agreements working relationship between the chair or investment treaties to ratify, but the and the board. A chair elected by the board Chamber still faces challenges. Like all of will have explicit support for an agenda as our businesses, AmCham must adjust to a opposed to the general support of mem- new more competitive environment. In re- bers at large. Moreover, the requirements sponse, the board has already made diffi- for chair differ somewhat from the board cult decisions regarding expenditures and role. Board governors are best positioned how we organize ourselves, which is its to evaluate the suitability of candidates main function. whereas the distinction between board The board has also improved its internal and chair may be less clear to others. governance. Two-year terms promote con- Second, the election for the chair has tinuity and deepen the commitment that been uncontested in the last several elec- Governors make to the Chamber. We also tions. There is a simple explanation for this. Ker Gibbs expanded our pool of qualified candidates The role would be impossible to perform Chair of the Board of Governors by dropping the requirement for the chair without support from within the board. to be an American citizen. Lastly, the board Therefore, any sensible candidate gauges is now more balanced with respect to gen- enthusiasm among the current board gov- der, which better reflects the demograph- ernors before deciding to run. This process ics of our membership. naturally results in a single candidate. We should continue this work with more Third, the change would simplify the changes that will improve governance and election process. We currently vote sepa- strengthen the Chamber. Some are minor rately for board seats and chair. What if a procedural adjustments. Others involve the candidate wins the chair but not the board Chamber’s constitution, which requires the seat? If a governor in the second of a two- general membership’s approval. year term runs for chair, must we use one of On procedure, we will improve transpar- our six votes to elect him/her? We should ency by identifying which members enjoy adopt an election system that precludes voting rights. Large companies often have these scenarios. many Chamber members but are limited to We recommend these changes and three voters so they don’t skew our elec- hope you support them. Your decision tion results. The confusion about who has about candidates for the board is equally voting rights has led to inefficient cam- important. As members, our duty is to paigning and numerous invalid ballots. This study the ballot and scrutinize each per- year, candidates will know who is entitled son’s qualifications. Do they have experi- to vote. ence managing budgets and solving gov- Other anomalies exist around our voting ernance issues? Board governors – any rights, which are still largely associated with one of whom could subsequently become U.S. citizenship. When asked in 2014 if non- chair – interact with government and will -U.S. citizens should be allowed to serve as be asked about a wide range of issues. chair, an overwhelming 84 percent agreed Can the person you choose represent your that senior executives of U.S.-based compa- views? Elect who you believe are the most nies should be able to serve as chair regard- qualified people to represent AmCham and less of their citizenship. Therefore, further promote the interests of American busi-

changes to relax American citizen require- ness in China. I October 2016

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

Private Sector GOVERNMENT Salesforce American customer EY relationship Ying Yong was Harsha Basnayake management (CRM) appointed vice mayor of was named Asia-Pacific company Salesforce Shanghai. He has served leader of transaction announced the as the city’s deputy advisory services for appointment of Mark party secretary since EY. In his new role, Innes as its general manager for Asia July 2014. He is also the Basnayake will lead a Pacific. first vice president of the team of more than 2,000 professionals across In this role, Innes will be responsible China Executive Leadership Academy the Asia-Pacific region in providing services for the growth of the company within the Pudong. Prior to that, Ying served as the focused on buy-side and sell-side deals, Asia Pacific region, assisting customers president and secretary of the party strategy and operations, turnaround and from a diverse range of industries and committee of Shanghai Higher People's Court restructuring. backgrounds with their business between January 2008 and April 2013. From Basnayake has been with EY for almost 30 transformations through the use of 2013 to 2014, he was head of the Shanghai years. He joined the organization in Colombo, Salesforce’s various CRM platforms. municipal government’s organization Sri Lanka as a trainee in 1987. He moved to Innes has over 30 years of experience department. Before that, he was president and Singapore in 1997 and progressed to lead the working in various industries including secretary of the party committee of Zhejiang country’s Transaction Advisory Service (TAS) global finance and telecommunications. Province Higher People's Court. practice. Since 2009, Basnayake has served He joined Salesforce in 2012 and was the as ASEAN regional TAS leader, driving its senior vice president of enterprise ICBC (Industrial and transformation into a 600-strong team by business in Australia and New Zealand Commercial Bank of building out its deal origination, execution, until 2014 when the division was China) promoted vice strategy and operations capabilities. Prior to expanded to the entire APAC region. president Gu Shu to this, he established the Valuation and president. Gu joined Business Modeling practice in the Far East. ICBC in 1998 and MasterCard worked in several MasterCard different positions. Before he became vice Cohn & Wolfe promoted Julienne president in October 2013, he was the head of Cohn & Wolfe, a global Loh to be executive ICBC’s Shandong branch. He has communication agency vice president of postgraduate degrees in economics from appointed Matt global products and Shanghai University of Finance and Stafford president, marketing, Asia Economics and Dongbei University of Finance Asia-Pacific. Stafford Pacific. In her new role, Loh will oversee and Economics. He was a visiting scholar for a will oversee the the firm’s regional Products & Marketing year at Pennsylvania State University. agency’s 12 Asia-Pacific offices, working division, including Core Products, Digital closely with market leaders across Greater Payments & Labs and Marketing & Li Jinbin, the governor China, India and Southeast Asia to increase Communications. of Anhui province, was collaboration and further the agency’s Loh joined MasterCard in 2005. Her named provincial party expansion in the region. past appointments include lead of secretary in September. Stafford has over 15 years of Consumer Credit for Asia Pacific and Li became vice party communications experience in Asia, general manager of MasterCard secretary of Anhui including senior agency and government Singapore. Prior to MasterCard, Loh led province in April 2013. leadership roles. From 2011 to 2014, he was the sales and marketing team at Before that, he was a member of the standing CEO of Burson-Marsteller’s China and Hong Singapore Press Holdings for more than committee of Shanxi province and the head of Kong practice, leading a network of more six years. the provincial organization department for six than 250 employees across six offices in years. From 2002 to 2007, he was the vice Greater China. In addition to his recent governor of Jilin province. cabinet secretary appointment, Stafford has www.amcham-shanghai.org also served as director of policy in the office If your company has executive personnel changes, please contact Junling Cui at [email protected]. 6 of the Australian Prime Minister. E number of Chinesestudents at years. From 2011 through 2015, the revenue generator, becausethere in Chinadohopethat it will bea ploring campusesandrelationships kins-Nanjing Center (HNC). shan University (DKU)or theHop- such asNYUShanghai,Duke Kun- nese campusof aforeign institution, their child’s education at theChi- deep-pocketed parents to invest in with aforeign degree, entice many pled with theprestige associated value placed oneducation, cou- potential is certainly there. The high crative education market, andthe China to reap thebounty of alu- American universities come to are successful? here, how dothey ensure that they to establishtiesto China? And, once opportunities. What entices them sector, face both challengesand schools, trailblazers inabooming tion with Chineseinstitutions. These gree-granting programs in associa- de- full-fledged, developed have ing number of American universities study-abroad programs, anincreas- ventures are short-term, including is growing. While many of these sities in operation, and the number American andChineseuniver over 2,000joint ventures between cation estimates that there are now both ways. China’s Ministry of Edu- increase of 93%.Butthetrend goes to 304,040–anaggregated total tending universities intheU.S. rose “Many universities that are ex A popular assumption is that Universities inChina grown stronger inrecent United States andChinahave ducation tiesbetween the - - - they alsomadeitclear that they but support, financial require would York knew that Chinese students a year per student place. NYUNew charges approximately US$45,000 for example, NYUShanghai, which versities aspire isexpensive. Take, students to which mostforeign uni- Chinese nationals andinternational a roughly equal balance between itocratic admissionsprocess and sparse isthat maintaining themer do it,” hesaid. make money, this isnot the way to Denis Simonagrees. “If one wants to sity School of Transnational Law. founding deanof thePeking Univer NYU Shanghai’s vice chancellor and Lehman, Jeffrey says home,” profits things inChinaandbrought net academic institutionthat hasdone be slim.“Idon’t know of any foreign foreign universities sofar appear to some time.” the world for auniversity inquite have beenprobably thefastest in over 10,000. The rate of growth must 164 students,” hesays. “It’s now got with off started “It 2006. in opening since firsthand growth this enced is around 90%Chinese,hasexperi- student body at itsSuzhoucampus O’Connor notes that XJTLU, whose ment asan“academic goldrush.” sity (XJLTU), describestheenviron- Xi’anat Jiaotong-Liverpool Univer of R Washington Office. Madelyn R are so many students in China,” says Joint-Venture A key reason why profits are profits why reason key A DKU’s executive vice chancellor the for benefits financial the But Professor David O’Connor, dean esearch andGraduate Studies oss, Director of theHNC’s - - - are other ways in which universities director for theChina Institute. university,” said Jiajia Wei, executive additional revenue stream for our our programming, ascreating an [our pathway program], like all of education system. “We dothinkof students prepare for the American grams to helpChinesehighschool alongside its semester-long pro- program a pathway offers Institute does not grant degrees, the China of tuition,room andboard. While it count ontheUS$53,000annual cost ner universities are given a70% dis- Students from their Chinesepart campus andpartner universities. to attract students from their home with nearly 20Chineseuniversities China Institute usespartnerships zhou, theUniversity of Dayton’s Su- In profit. a turn to ways found studies. affairs international in leader global kins andSAIS areputation boostasa campus inChinagives Johns Hop- (SAIS).” of Advanced International Studies kins andthePaul H.Nitze School extent still subsidized by Johns Hop- years of operating inChina,“to some the that Hopkins-Nanjing Center is,after 30 notes Ross profitability. a school from overseas also limit on itsown bottom.” This was going to be financially a tub to bearevenue source for New York. says, NYUShanghai“was not going students. Becauseof this,Lehman would not subsidize costs for those Besides the profit outlook, there outlook, profit the Besides Some institutions,though,have Despite the costs, maintaining a Costs associated with operating Movers and By David Hicks FEATURES Shakers - 7 October 2016 8 www.amcham-shanghai.org something where onesideissay fear isthat we’re goingto runinto might oneday beuntenable. “Our acknowledges that thisposition requirements of both countries, but man says. Which onedo you abideby?” Leh- requirements, andthequestionis: requirements, there will beUSlaw be Chineselaw zoning andsafety ulation andcompliance. “There will was how to address issuesof reg - University].” agreement [of intent with Nanjing first our signed we when ago years ment than what we negotiated 35 stricter Chineseregulatory environ- of complications, includingamuch – andthey’ve hadto face a variety have found a way to make it work have beenreally dedicated to this years, only “a few universities who regulations. environment, particularly in terms of campus are entering anuncertain that want to develop aChinese He addsthat NYUabidesby the One of NYU’s biggest problems HNC’s R oss notes that inrecent - universal values, press freedom, search inseven areas...including decrees prohibit teaching andre- Government Chinese “Official issue: Christopher Smithsummarized the tee meeting in2015, Congressman States Congressional subcommit academic freedom. DuringaUnited from their homecountries regarding must alsocontend with concerns joint venture. ners who share their vision for the they carefully select Chinese part foreign universities mustensure that away,” says Lehman. Becauseof this, ance with Chineselaw, andthenrun come andpretend to beincompli- China isthat someforeigner would tive for theinstitution.“The worry in who serves asthelegal representa- be helmedby aChinesecitizen, quite abit.” is something that was talked about We haven’t runinto that yet, butit ‘you have to drive on the right side’... side of theroad’ andtheother says ing ‘you have to drive ontheleft Foreign universities inChina Joint venture universities must - - to happenopenly andexplicitly.” pus. That’s adiscussion that needs as itisusedonthe American cam- the concept of academicfreedom university will beonethat respects understanding bereached that the the [preliminary conversations], an Lehman says “it’s important that in comment. for requests to respond not did fice ical consequences. R Shanghai says they faced nopolit rights record, aspokesman for NYU man was critical of China’s human record. Although theCongress - a publictalkonChina’s humanrights invited Congressman Smithto give tion dollars?” dom inexchange for China’s educa- of free inquiry andacademic free- promising their imagesasbastions U.S. colleges anduniversities com- Are question: important and nificant the judiciary...which begsa very sig- nomics, andtheindependence of of theParty’s pastneo-liberal eco- civil society, citizen rights, criticism To ensure academicfreedom, In February 2016,NYUShanghai ep. Smith’s of - - buffed invitations from the Chinese the from invitations buffed ter saidthat their university hasre- Ivy League university’s Chinacen- more thana year.” The director of an who wanted to come andteach for get faculty to difficult really was it “there have been periods where says Ross but years, five of tenure faculty members with an average HNC now has nine international operation. challenges inlaunchingtheir China versities, thisisoneof thebiggest Chinese campuses.For many uni- their homecampusto teach at their sities struggleto enlistfaculty from of themany reasons foreign univer promises will beupheldisjustone tected, convincing faculty that these that thesefreedoms will bepro - Nanjing University.” that might not beaseasy to a doat conference have or film a show it’s at theCenter, HNC students can Nowadays, R cussions leadingto their founding. bottom line” principlesinthedis- formation were all “non-negotiable, speech, discussionandaccess to in- R the 1989 Tiananmen Square events. ence ondemocracy inthe wake of China andhosted apublicconfer uncensored, open-stacklibraries in only the of one offers which HNC, This echoestheexperience of the oss says that freedom of research, After 30 years of operations, the But even if a university is assured They like to know what they’re getting into.” law. “Universities don’t like unclear regulatory environments. website beth R regulatory climate that makes universities nervous,” says Eliza- interest.” But what exactly crosses theselinesisnot entirely clear. “must not endanger China’s national unity” or “harmsocietal public vernmental organizations, or NGOs,states that foreign schools much room for interpretation. The recent law addressing non-go- unexpected, andoften vaguely-worded declarations that leave Uncertainty ineducation policy “Certainly Ithinkitaddsanelement of uncertainty to the Policy changesintheeducation sector inChina are frequent, edden, who hascovered education policy in China for the Inside Higher Ed for several years, referring to theNGO oss says, “as longas - - and Long-term Education China’s National Planfor Medium ment released the“Outlineof are known. ucation experience for which they enough faculty to provide theed- part becausethey could not attract granting Chinacampusinlarge government to develop adegree- to compete intheglobal market the capacity of Chinesestudents education market andto increase hance thequality of thedomestic toen- reform, to help is influence ing theeducation market to foreign Plan states that thegoal for open- and Development (2010-2020).” The things bluntly: “Everything turnson better,” echoesR and similar curriculuminterests, the find that you really have similar goals more you and your Chinesepartner the right location,” saidSimon.“The sure [they] select the right partner in want to come to Chinamust“make Higher education institutionsthat in selectingtheright local partner. venture hingedonbeingdiligent viewed saidthat thesuccess of their campus. when openingadegree-granting to partner with local universities foreign universities are still required plan (seesidebar).Furthermore, measures appear to contradict the place. However, recent government In 2010,theChineseGovern- Most of the administrators inter oss. Lehman puts R shing aChinacampus. acted as a red flag for foreign universities considering establi- did thiscontradict publicly stated policy goals,butsurely also a push to remove foreign textbooks from campuses. Not only year, atop-level directive against“Western values” resulted in stated that “quality textbooks shall beimported.” Yet early last cipate” students’ minds. Among thespecifics of theplan,it “quality education resources from abroad,” and“further eman- rhetoric seekingto openChina’s education sector, make useof for education reform, a22-chapter document full of promising cational reform agenda.In2010,Chinaunveiled its10-year plan eform Much of thisuncertainty arisesfrom China’s conflicted edu- - - looking reasonably good.” – but,for themoment, thingsare we have to be cautiously optimistic icy changeto knock things out.So, and itjusttakes onereally badpol in, to work difficult that’s ronment would admitthat Chinaisanenvi- ger term,” hesays. “Ithinkeveryone seen how this will panoutinthelon- their work in China. “It remains to be how many administrators feel about situation at XJTLU seems to echo market,” says Simon. to stay intheChineseacademic here is it that confidence build and China, mustestablishitscredibility thus, like almostall foreign brands in University isastartup venture and with the reality that Duke Kunshan a strategy muchmore consistent initial approach andhave developed gaged inacomplete re-think of our learned otherwise. “We have en- rels of theDuke brand, they quickly thought they could rest onthelau- takes time. Although DKUinitially kinks that come with anew venture partner and working outall of the strongrelationshipthe working with doing.” academically a project that is worth ect...Each sidehasto feel that thisis and belief inthenobility of thisproj- the right philosophy, appetite for risk right partners, and they have to have the partners. You have to have the O’Connor’s assessment of the Once selected, developing a I By DougStrub - FEATURES 9 October 2016 10 www.amcham-shanghai.org By Charlotte Lu andR Education Market in theChinese Opportunities education. software and data, Internet, big computing, telecom, cloud de newmedia, inclu- expertise His areas of Research.loitte manager atDe- TMT is the Roger Chung partner. industry leading education and national group leader TMT audit eastern region Deloitte is the partner. She is anaudit Lu Charlotte

T try. Firstandforemost, Chinesegov driving the acceleration of the indus- rate of 12.7%. Inparticular, the training with acompounded annual growth 2020, upfrom RMB1.6trillionin2015, tion market will reach RMB3trillionby will continue to beahot topic. innovation of onlineeducation which sion of new technology has led to the the education sector. Finally, anexplo- have taken theinitiative to invest into Tencent (collectively referred to asBAT) companies suchasBaidu, Alibaba and players from other industries.Internet try has attracted theattention of major the future. Further, theeducation indus- in expected is inflow capital more 76%, With thenumber of IPOsgrowing by total M&A amount increased by 165%. bled from theprevious year while the ment into theindustry more thandou- education industry. In2015,total invest private capital has been flowing into the invest intheeducation industry. while encouraging private capital to community in the country by 2020 vide pre-school education inevery which, for example, proposes to pro- evidenced inthe13thFive-Year Plan, for many segments of themarket as velopment goalshave beenoutlined the education market. R tion to fully supportindustrialization of ernment policiesreveal itsdetermina- We estimate that China’s educa- Besides government policy support, approaching. Four factors are nese education market isfast he “golden age” of theChi- oger Chung elevant de- - - 0% Edu 0.02% Online Children Figure 1:Market size of China’s education market (2015-2020E) Source: Analysis Deloitte (see figure 1). tiveness astheir spendingpower rises training to improve their own competi- consumers are more willing to pay for guage training. For personal training, demand for K12test tutoring andlan- and international education will drive dition, therisingtideof further studies boost demand for K12tutoring. Inad- number of school-aged children will new demand. Similarly, thegrowing the market is set to take off with instant Policy” by theChinesegovernment, implementation of thenew “Two-Child childhood education, thanksto the driver of growth inthefuture. For early porate andpersonal), will bethemain ing and vocational training (both cor early childhood education, K12tutor education segment, which includes Kindergarten 3.14% Degree Edu Higher Edu Online K12Edu0.84% Middle & Market sizein2015:RMB1.6432Trillion Primary 12.43% School 9.17% Public Public Public Public

20% iddle & Private Middle& Primary School Online Edu7.25% igher Private Higher Kindergarten Degree Edu Edu 6.23% T Online Degree 21.73% raining 4.3% Private Private 6.77% 40% 60% Online CorpT Individual T Corp T Early du1.33% K12 T T raining Edu 11.43% 20.17% 7.59% T Online Individual 80% raining 0.27% raining raining 1.83% raining raining 100% - -

China (on page11,seefigure 2). K12 schoolsfor foreign children livingin up foreign wholly-owned international that foreign entities are allowed to set Sino-Foreign Joint Venture (JV)rulesis illustrated. The only exception to the into theChineseeducation industry is of regulations onforeign investment sory education segment. A summary investment, particularly inthecompul regulations inplace limitingforeign ernment hasputsomequite stringent closely correlated to ideology, thegov as a whole isahighly sensitive sector tors. Butgiven that education inChina caught theattention of foreign inves- nese education market hascertainly 0% Edu 0.03% Online Children Kinderg. 2.08% R Degree Edu Primary Primary Middle igher Higher School 6.10% 7.93% Public Public Public Online K12Edu2.31% The attractiveness of theChi- Public Market sizein2020:RMB2.9235Trillion and roadblocks Edu & Public

estrictions du Private HigherEdu Primary School4.64% 20% Private Middle& Kindergarten 23.87% Private 4.15% Online Edu10.54% Degree Edu T Online Degree raining 5.28% Private 40% Online CorpT 60% 0.47% Individual T Corp T Early du2.41% K12 T 17.43% 22.35% T 9.04% raining Edu raining raining raining raining T Online Individual 80% raining 2.44% raining 100% - - (thousands) Figure 4:Sino-foreign joint programs Source: Analysis Deloitte Figure 2:R international schools(thousands) Figure 3:Students enrolled in Source: Chinese Ministry of Education Source: ChineseMinistryofEducation tions have established Sino-foreign 70% of tertiary educational institu- been given thegreen light. Currently, foreign cooperative programs have managed operations andChina- ing number of China-foreign jointly- education as an example: a grow Chinese counterparties. Take tertiary tions mustbeheldinmajority by rectors andkey management posi- majority ownership, the board of di- foreign entities are permitted to hold with Chinese counterparties. While and tertiary education by way of JVs including pre-school, highschool non-compulsory education segment foreign entities to investment in the ment (2015R dustries for GuidingForeign Invest cation industry. ItsCatalogue of In- several restrictions onChina’s edu- the State Council hasprescribed R 100 150 200 50 eform Commission(NDRC)under 0 100 150 200 250 The National Development and 50 0 79,1 2009 95,5 2010 2014 207 estrictions onforeign investment intheChineseeducation industry evised Edition) restricts 115,2 2011 2015 215 137,2 2012 2016 230 156,5 2013

177,4 2014 - -

Figure 5:Possible foreign entry models and political education. in ventures relating to military, police ests are prohibited from investment sports andaccounting. Foreign inter guage, information technology (IT), encourged, includinginEnglish lan- ment in vocational education is strictive. Foreign capital to invest segments, regulations are lessre- joint programs (seefigures 3&4). Low Capital sources input(seefigure 5). online education, andeducation re- institutional investment andM&A, cooperative education, franchise, self-owned schools,China-foreign There are six potential entry models: of capital outlay andengagement. ket invariably dependsonthelevel enter theChineseeducation mar Multi-entry models For non-compulsory education How foreign investors chooseto 6. Education Resource6. Education Input Organizational Structure T extbooks &T Course System English T 3.Franchisees Kindergarten eachers raining - - - Language T Course SharingPlatform Low Engagement High Engagement tee the features andquality of these in control of operations to guaran- educational institutions which are interest of someforeign-invested and self-management piqued the guage learning. Self-owned schools alization anddemandfor English lan- as aresult of increased internation- ing institutionsare coming to China more foreign-invested English train- create any branch faciliies. national schoolsare not permitted to to thoseschools,andforeign inter only foreign children canbeadmitted Children of Foreign Nationals inChina, on theEstablishment of Schoolsfor ernment’s current Interim Provisions ers. According to theChinesegov are international schools for foreign- international schools,of which 20% tutions. some English languagetraining insti- focusing onK12education as well as mon for foreign international schools eral, self-owned schoolsare com- cutting-edge infrastructure. In gen- sional education atmosphere and international management, a profes- accompany thismodel includesound that benefits cost, high the Despite model with tangibleassets output. investment. This isacapital intensive self-driven andoperated by foreign struction and post-management are in which site selection,design,con- 5. Online Education 5. Online Self-owned schools For English training institutions, As of 2016,Chinahasalmost600 Self-owned schoolsare entities raining Platform Jointly-run InstitutesofVocational Education Jointly-run InstitutesofHigherEducation Cooperative Education Education Cooperative Early Childhoodducation T raining forStudyAbroad Investment AndM&A 2. China-Foreign 4.Institutional 4.Institutional K12 T Foreign InternationalSchool English LanguageT S hakers Movers and 1. Self-Owned School 1. Self-Owned raining - - School Source: Analysis Deloitte High Capital FEATURES raining raining 11 October 2016 12 www.amcham-shanghai.org English proficiency. and have thedesire to, improve their ber of students who make timeto, tinue to tapinto theincreasing num- language training institutions will con - training institutions.Similarly, English to starttheir university studiesover intend to gostraight to thesource English language,they may now tion andabetter command of the to international education informa- university students having access appeal to students. foreign cooperative schoolsandtheir determines thequality of Chinese- tion essence of both countries largely gestion andintegration of theeduca- During thecourse of cooperation, di- in cultures andeducation philosophy. differences to regard with risks ment exist certain integration andmanage- resources of both countries, there gregate andshare quality teaching ag- effectively can education erative signed cooperation agreements. of the21stcentury, only 12%have decade first the in programs ucation 374 major cooperative vocational ed- ration. Statistics show that amongthe stantive communication and collabo- still inanearly stage with littlesub- schools in vocational education are tive programs. to ensure quality of all the coopera- this new action aimsat raising thebar versities to doso.Itisbelieved that since 2013, allowing only top-tier uni- number of new cooperative programs Ministry of Education has limited the ries. Itis worth noting that theChinese ment, penetrating all three catego- mature inthehigher education seg- cooperative education isrelatively operative programs. Chinese-foreign institutes, and Chinese-foreign co - jointly-managed departments and managed schools,Chinese-foreign three into categories: Chinese-foreign jointly- classified be can cation seas rather thanchoosing coopera- China-foreign Further, with more andmore Although Chinese-foreign coop- By comparison, thecooperative China-foreign cooperative edu- cooperative education - Figure 6:F expansion plans. ized development to speeduptheir chised institutionsalsoneedlocal have bigappeal. Additionally, fran- institutions, foreign characteristics ness. Compared to local educational ternationalized thinking andaware- instill intheir children asenseof in- and more Chinese parents hope to As globalization accelerates, more the key for afranchise to succeed. tics andlocalized development are most foreign investment. tinue to bethebiggestchallengefor ded inthefranchise model will con - loose management system embed- over quality through an otherwise under thismodel. Thus, strictcontrol differentiatorkey a is reputation and fierce, is training Language English of early childhoodeducation and field the in companies among tition reputation. Currently, price compe- which may leadto deteriorating across all franchises andbranches, to maintain consistent standards that foreign capital may not beable expansion. Buttheproblem remains front while largely reducing costs for up- outlay capital significant avoids lish languagetraining. The model early childhood education andEng- the future. a major challengefor thismodel in while attracting new students will be ing quality of theexisting programs universities. As aresult, maintain- Chinese by offered programs tive F In addition,foreign characteris- This model mainly focuses on 10 Source: CVSource, Analysis Deloitte availableamount Note: Onlyoneinvestmentin2012without ranchises ranchises 0 2 4 6 8 Largest amountavailable oreign PE/VC investment intheChineseeducation market 2011 2012 2013 Investment number -

tems Limited isacompany that uses the equity of thedomesticentity. ments rather thandirect holdingof through a series of agreed arrange - investor controls the domestic entity training company, while theforeign can invest inadomesticeducational ment. For example, adomesticentity restrictions imposedby thegovern- eign investors to bypass mostof the the VIE structure, which enables for Chinese government doesnot forbid through contractual agreements. The control over theonshore company which give offshore investors effective able Interest Entities” (VIE)structures foreign investors often resort to “Vari- ment inChina’s education industry, terprises (Seefigure 6). eration and management of such en- control of difficulties op- and the over the invested educational enterprises foreign investors with development of low engagement level on the partof this model isitshighriskdueto its education market. The caveat with foreign capital to enter theChinese ments are arelatively easy avenue for lion in2014.Ingeneral, PE/VC invest US$100 millionin2015from $20mil est investment each year surged to tively. The value of thesinglelarg- 2015 numbered 6,1, 2, 8 and5 respec projects each year between 2011and number of foreign PE/VC-invested quantity andamount. Publicly, the ments have increased rapidly inboth Institutional China Maple Leaf Educational Sys- Given thecurrent barriersto invest In recent years, foreign invest investment andM& 2014

2015 0 2000 4000 6000 8000 10000 A

Ten thousand US$ ------Arrangement) (seefigure 7). CEPA (Closer Economic Partnership Hong Kong governments, known as agreement between theChineseand empted thanksto thetaxreduction ment of nolessthan5%canbeex registered inHong Kong, ataxpay payments. If the holding company is ally quite effective and can reduce tax plex onthesurface, butitisactu- alizing thegoal of transferring profits. of Maple Leaf Education Systems, re- from thedomesticoperational entity services for andreceives payments velopment Co.,Ltd., which provides Beipeng Educational Software De- Dalian affiliated its controlling pany set upaHong Kong holdingcom- tic operational entity. The group also directly holding shares in the domes- tive control of theschoolsinstead of contractual arrangements, took effec in the Cayman Islands, and through Leaf Education Systems registered in citiesacross China.In2007, Maple lian in1995andnow has40schools Maple Leaf International School inDa- the VIE model. The group established to provide onlineeducation be- establish related businessinChina China. Somecompanies prefer to es through companies registered in online education market. mainly two ways to enter theChinese online andoffline channels. the key to profitability is connecting sources. As for related derivatives, and sharingof various teaching re- their consumer base via integration generate revenue by expanding stance, course sharingplatforms completeness of resources. For in- the other hand,isthe diversity and on sharing, content of point profit ing uniqueteaching content. The forms attract consumers by creat example, language training plat lies inoriginal teaching content. For production content of point profit the maindevelopment trends. The sharing andrelated derivatives are ment, content production, content nline education Onlineeducation The VIE structure may seemcom - The first is offering online cours- online offering is first The For foreign investments, there are In theonlineeducation seg------resources ucation websites candirectly oper companies. Someforeign onlineed- line education directly via overseas education websites.online nels. This model canbetter promote chan- offline and online connect to need significant a is there and use, cause it is convenient and easy to ready beenforced to drop out. will survive andmany players have al the mostcreative content provides buy market share. Butintheend,only companies are now burningcashto Many profitability. to path clear a tify panies needto take actionto iden- current stage,online education com - be highinthecoming years. At the and therate of growth isexpected to potential inthisnew businessmodel, na’s Premier LiKeqiang. There ishuge garnered thepublicsupportof Chi- new concept of “Internet+,” which has cation may befurther fuelledby the Chinese Internet regulations. ject to restrictions by therelevant product promotion andcanbesub- costs, althoughitcould beinferior in export which reduces operational ate inChina.Itisatypeof “asset-light” Figure 7: tional content andcurriculum materi- may include non-compulsory educa- Exportof education Development Co.,Ltd. The second way isproviding on- The development of onlineedu- Export of educational resources Educational Software Educational Software Hong Kong holding Hong Kongholding By VIEContractualAgreements, operationalentities Limited (Incorporated in the Cayman Islands Limited (IncorporatedintheCaymanIslands Dalian Beipeng Dalian Beipeng deliver profits toMaple LeafEducationalSystems China MapleLeafEducationalSystems company by purchasing servicesfrom DalianBeipeng A generic VIE structure of Maple Leaf Educational Systems with limitedliability) Foreign investors Educational Software Holding company incorporated Holding companyincorporated in theBritishVirgin Islands operational entity - - Domestic Domestic foreign investor seeks. capital inputandengagement that a choice will dependonthelevel of tors to choosefrom. The ultimate entry modelsexist for foreign inves - careful. Despite thesehurdles, many ing themarket, and will needto be navigat difficulties have inevitably sector. Thus, foreign investors will larly inthecompulsory education involvement intheindustry, particu- has set up many hurdles to foreign ternationalized. Butthe government ucation asChinabecomes more in- to embrace foreign cultures anded- parents andstudents are also willing of foreign education. Both Chinese them to afford the higher price points bility of Chineseconsumers allows capa- improvedfinancial The China. ness to spendcontinue to behighin quality education andthe willing- quality across both languages. calization work to ensure consistent approach ishow to carefully planlo- factor to consider while adopting this international exposure. An important be favored by customers who seek be introduced, thisapproach could tionable. If highquality content can ability inthisarea issomewhat ques- industry thus far and long-term profit content hasbeenintroduced into the But thefact isthat very littlegenuine tering theChineseeducation market. als. This is yet another approach to en- In summary, thedemandfor high School -DalianHigh Maple Leaf International Maple LeafInternational Schools forforeigners International School International Maple Leaf I Movers and - - FEATURES Shakers 13 October 2016 Evolving Educational Pathways How the increased globalization of education is reshaping the industry

By Doug Strub

hina is known for achieving change high school, Chinese high school students in the U.S. has been a boon for many univer- at an unprecedented speed and are not accustomed to practices such as sities. Beginning in 2008, the growth rate of C scale, and the realm of education is writing self-statement essays, preparing for incoming Chinese students exceeded 20% no exception. Total college enrollment sur- western examinations like the SAT or GRE for four consecutive years and has since passed the U.S. nearly a decade ago, and or incorporating extracurricular or personal remained above 10%. In the process, Chi- Chinese students are studying abroad in experiences into their college applications. nese students have become far and away record numbers. Although universities seek- “On the private industry side, I think it’s a the largest foreign student body in Amer- ing to expand into China’s education sector very exciting time for the education space,” ica, growing to well over twice the size of face many challenges (see Joint-Venture says Andrew Sohn of Due West, a Bei- second place India. Foreign students often Universities in China, pg. 7), this boom none- jing-based education consulting company. pay two to three times the tuition rates of theless offers a wide range of opportunities. When Due West opened in 2009, Chinese in-state students and thus contribute sig- Education consultancies have prolifer- high school students were offered little as- nificant revenue streams to universities. ated, offering young Chinese students col- sistance from their schools if they wanted Recent data shows that Chinese students lege application assistance, test-taking pro- to learn more about studying abroad. But now make up nearly one third of all foreign grams and preparation for studying abroad. according to Sohn, a huge shift has taken students in the U.S. and contribute US$9.8 Meanwhile, many western universities – place in the past four to five years. Chinese billion a year to the economy. With this weary of high costs, low guarantees of en- high schools are increasingly opening in- rapid influx of Chinese students, many U.S. rollment and unclear policies in China – are ternational divisions which allow students universities have chosen to focus on max- choosing instead to stay at home and seek to diverge from the traditional gaokao track imizing gains from this aspect of China’s innovative new ways to draw these students and instead begin preparation for studying education boom rather than navigate the to them. Beyond university education, ex- abroad. This has contributed greatly to the rocky waters of overseas expansion. ecutive training and professional skills pro- current wave of Chinese students overseas. One such approach is underway at the viders are adapting to changing demands in “As China has become more interna- University of California, Berkeley, which China in an attempt to capitalize on emerg- tional, a desire from the student side as well rather than build branch campuses abroad ing opportunities. as the family side for children to spend a has chosen to create what Chancellor Nicho- certain amount of time outside of China to las Dirks has called “a new form of interna- College prep on the rise become more international and develop a tional hub.” Last year, Berkeley started devel- With a record 523,700 Chinese students more global view [has become increasingly opment of a new 130-acre zone earmarked studying abroad last year, a rapidly grow- important],” Sohn says, adding that this has for a cluster of global centers consisting of ing industry of college entrance prepara- opened up “an opportunity for creative and partnerships with foreign universities. The tion consultancies has arisen (see Journey committed institutions to really be able to goal is to bring global partners to Berkeley, to the West, pg. 18). Because acceptance engage families.” rather than Berkeley going abroad. Describ- into elite universities in China is based ing this vision last year, Dirks said, “As other solely on a student’s score in the national Staying at home Western universities have developed branch

www.amcham-shanghai.org gaokao examination that marks the end of This surge of Chinese students studying campuses in places like Abu Dhabi, China

14 Movers andFEATURES Shakers

and Singapore, they’ve faced persistent China right now,” Wiesner says. “The last new opportunities. With the proliferation questions about whether they can uphold couple of years, what is more broadly called of online courses offering new modes of their commitments to academic freedom... ‘austerity measures’ has affected the ability educational engagement and the rise of At home we are on much more solid ground for Chinese organizations – especially state- vocational schools (see Vocational Edu- when it comes to protecting and supporting owned enterprises – to send management cation: Answer to Talent Shortage, pg. 16) academic freedom, transparency, different groups overseas for training. So there is re- demonstrating another means of engag- forms of advocacy and political engage- newed interest in delivering training on the ing China’s education boom, the afore- ment, and protection of intellectual property.” ground in China. The market is shifting.” mentioned sectors only scratch the sur- The increasing demand for such services, face of the possibilities emerging in this Executive education Wiesner says, has led many foreign business realm. Opportunities for engaging China’s edu- schools to consider establishing facilities in For companies seeking to get involved cation boom are not just limited to standard China. Pursuing this plan too vigorously, how- in this burgeoning sector, opportunities university courses. Targeted skills acquisi- ever, means that programs lose one of their abound. But it is important to remember tion and leadership training of senior man- key elements – the international focus. “You that education in China is quite different agement and executives is proving profit- lose the ability to bring people out of their en- from that of the West. Policies and atti- able for many institutions. Bruce Wiesner, vironment, expose them to new thoughts, new tudes toward education vary greatly, and associate dean of executive education at environments,” Wiesner says. “It’s really forcing Chinese students are often not seeking University of British Columbia’s Sauder us to rethink our delivery models. It’s a huge the same things as their Western coun- School of Business, works extensively with opportunity, but we’re going to have to be very terparts. “Stay very customer and market- Chinese participants in this capacity. Con- market-focused.” focused. Focus on what it is that the cli- trary to the trend of major North American ents want to learn,” says UBC’s Wiesner. universities opting to stay at home, Wiesner Engaging China’s “Really understand their market, the notes that an opposite trend is taking place education boom challenges that they’re facing in a Chi- with executive education. The rapid growth of China’s education nese context, and not just simply export a “There are a lot of changes going on in sector has given rise to a wide range of North American point of view.” I

Change and innovation in study abroad

While many universities and education companies are seeking cities across 10 countries. In 2014 it launched its Follow the Smart Phone to capitalize on the education boom taking place in China, sig- Trail program, which has gained much attention for its creative ap- nificant opportunities have also arisen over the past decade from proach to short-term study abroad. Western students coming to Asia. Beginning with the 2003-2004 The Smart Phone program takes students on a multi-city journey school year, when, according to the Institute for International Edu- to follow the end-to-end supply chain of a smart phone. The trip in- cation’s (IIE) Open Doors data, the number of U.S. students studying cludes visits to component manufacturers (such as factories making in China grew by 90% from the previous year, study abroad in China the microphones, USB connectors, power plugs, etc.) as well as the saw nearly a decade of high growth. factories assembling these parts into a final product. But it is much China has long been the top destination in Asia, with more than more than just a series of factory visits. Students also tour a shipping twice as many U.S. students as other popular spots such as Japan port, where they learn about importing, exporting and other trade and India, and since 2006 has been the fifth most popular destina- issues surrounding electronics and smart phones. Additionally, tion globally. But since 2012 this industry has regularly seen neg- the program includes site visits to phone carriers in China to dis- ative growth, retracting slightly from its peak of nearly 15,000 stu- cuss digital platforms and phone plans, as well as mobile telecom dents per year to less than 14,000 in the most recent data available stores to learn about customer engagement and marketing. “I think from IIE. This change has been accompanied by a shift away from it’s a really valuable out of the class learning experience,” says Brad traditional semester or year-long programs toward short-term ones. Feuling, chairman and co-founder of the Asia Institute, “where you’re As demand for such programs has risen, the industry has evolved touching and feeling and seeing a product that you use every day, and developed new approaches. The Asia Institute, which has seen but you didn’t really think about how it came together.” Following the an average annual growth rate of over 35% for the last five years, has program’s success, the Asia Institute has since expanded this con- emerged as an innovative leader in this field with its creation of new cept, and now features ‘follow the supply chain’ programs focused types of short-term study abroad programs. on a variety of sectors including medical, food and retail fashion. The Asia Institute, celebrating its 10-year anniversary this year, fo- Initiatives such as this are providing exciting new ways to learn cuses on a wide variety of activities ranging from middle school to and offering students new methods to gain insight into globalization executive training, and a key focus is on short-term study abroad pro- through experiencing it firsthand. Just as the globalization of educa- grams for U.S. students coming to Asia. The Asia Institute has worked tion has given rise to new industries and reshaped others, it is also

with over 1500 students and faculty, and has hosted programs in 48 redefining what is possible in the realm of study abroad. October 2016

15 IMAGINE CHINA

Vocational Education: Answer to Talent Shortage? Vocational education in China and its importance to the economy

By Ruoping Chen

uiding their child’s entry into a top ucation is now especially important. The is a mismatch in what employers want from university is the primary goal of life economy was once driven by low-end their hires today and the skills that gradu- G of many Chinese parents. Their rea- manufacturing, infrastructure investment ates can supply. The same McKinsey report soning is not without merit: entrance to a and exports, but today, rising costs and a found that workers often do not have the university like Fudan can profoundly impact long, slogging economic slowdown have necessary technical training or skills that a person’s social status and lifetime earning accelerated the need to transition to an enable them to work effectively in teams, potential. Children of lesser means, or those economy based on services, consumerism think critically and innovate. A second mis- who fail in the gaokao, the grueling national and value-added production, thus avoid- match was found in geographical distribu- exams that comes at the end of high school, ing the middle-income trap. To accomplish tion. As more and more graduates test their will likely lead very different lives. But the sustainable growth, China will need to in- ambitions in Shanghai, Guangzhou or Bei- focus on universities is beginning to change vest in new technologies and a skilled pro- jing, the supply of graduates in these top- in favor of a greater role for vocational ed- ductive workforce in its effort to modernize tier cities has exceeded the demand. Con- ucation. its manufacturing industry, a goal that has versely, a lack of skilled labor is evident in Such practical market-driven education been widely promoted through the “Made smaller cities. in countries like Germany sets the less aca- in China 2025” plan. demically-inclined on a path toward a com- And therein lies the problem. Though A work in progress fortable middle-class existence and lifetime China’s labor force is massive, today there Vocational education in China has un- employment, but in China it has long been are fewer workers adequately skilled to fill dergone significant growth over the last 20 an afterthought. Not any more. the shifting demands of the job market. One years, as has the entire education sector. Chinese leaders have in recent years of the biggest challenges companies face According to government estimates, the pledged strong support in developing and is in hiring and retaining skilled workers. In number of students in vocational institutions improving the sector. In 2015, Premier Li AmCham Shanghai’s 2015 China Business (including secondary vocational schools and Keqiang stressed vocational education’s Report survey, 91% of companies said that vocational colleges) grew to 28 million in importance to the economy, calling for its “talent and capabilities” was a hindrance 2014, double the number of students in 1996. rapid development and reform in order to to their business. Extrapolating into the fu- Annual investment in the sector has also train China’s 800-million-strong labor force ture, McKinsey research found that by 2020, expanded, from RMB114 billion in 2006 to in skilled work and thereby boost employ- Chinese employers will require 142 million RMB345 billion in 2013, although the increase ment and productivity. The State Council more high-skilled workers (defined as those is still short of government plans. Vocational vowed to increase the number of students with university degrees or vocational train- institutions have also expanded educational in vocational educational institutions from ing), 24 million more than China is likely able opportunities to more of the population, en- 29.34 million now to 38.3 million by 2020. to supply at that point. rolling students from rural areas and low-in- There are ample reasons for why the While university graduates last year come families, who would otherwise have

www.amcham-shanghai.org development of Chinese vocational ed- reached a record high of 7.5 million, there had little opportunity to pursue continuing

16 MoversMovers andandFEATURES Shakershakers

education in secondary schooling. signed to promote competence-based and workshop on advanced manufacturing, thus Since the 1980s, vocational colleges in demand-driven education reform. Guide- providing students with an environment sim- China have partnered with foreign govern- lines for cooperation between schools ulating that of a manufacturing enterprise. ments and institutions to improve training. and industry were established, teachers “What the students learned about in Germany, with its gold standard dual voca- and administrators received training, and modern manufacturing was actually from tional system, was the first cooperative partner, curriculum materials and textbooks were the textbooks. But not so many students bringing in experts, funds and technical assis- developed, among other operational im- are offered the opportunity at college to tance through joint ventures with local institu- provements. Lasting from 2009 to 2015, the operate a machine,” says Reggie Lai, the tions. Over the years, China has expanded part- program resulted in a significant increase senior director of government affairs in nerships with other countries such as Japan, in graduates who passed skills certification Asia for TE Connectivity, speaking about Singapore, Australia and the United Kingdom. exams and found employment, and the the type of coursework often seen in voca- The growth of vocational education has project was used to inform the develop- tional institutions. been significant, but so has the number of ment of national-level guidelines. To further arm students with the skills challenges it must overcome to improve. To motivate schools to improve and ad- needed to succeed in industry, the com- Its structure is fragmented, containing, dress the lack of systematic monitoring and pany also offers a scholarship that includes broadly, lower secondary schools, upper accountability in vocational education, the an internship and one-on-one mentorship secondary schools, vocational colleges international Electronic Industry Citizenship with their engineers. In addition, the head and adult education, with no integration Coalition (EICC) and Stanford University’s of TE Connectivity China sits on the board with general secondary or university edu- Rural Education Action Program (REAP) of IVT, which gives the company input on cation. While over 90% of vocational gradu- partnered with the Henan government, cre- developing a curriculum that better suits ates are able to secure a job, their salaries ating a pilot credentialing program. Schools industrial needs. are far below the average for all workers. were assessed on quality and compliance Lai believes that corporate partnerships Generally, vocational graduates are also standards to determine whether they could with vocational colleges and universities unlikely to be promoted from the produc- be credentialed schools. Credentialed not only improves the skills of would- tion line to management positions. schools in turn could receive preferential be employees, but also fosters loyalty The sector also operates in a complex government funding and partnership with amongst existing staff. For TE Connectivity regulatory environment. Regulation of vo- EICC members (which include IBM, Dell, engineers who want to hone their skills, the cational higher education, for example, Cisco, Ford and many others). company also maintains a long-distance falls under the State Council, the National Pilot programs are just a first step. Liu master’s program with the Wuhan Univer- Development and Reform Commission, the stresses that China’s central government sity of Technology on their campus in Su- Ministry of Education, Ministry of Finance, cannot be solely responsible for reforming zhou. It takes a TE engineer approximately Ministry of Human Resources and Social the entire vocational sector. As the industry four to five years to complete the compa- Security, as well as a range of provincial and economic needs of different regions vary ny-sponsored degree program. And these and local government bodies. This makes widely, it is important for provincial govern- program participants will tend not to leave it hard for institutions to innovate and adapt ments to be directly involved to implement after four to five years of service with the to a changing economy. broader, lasting reforms. company, says Lai. Moreover, many vocational institutes often Still, he acknowledges that vocational lack the equipment and resources to teach Corporate governance education has much room for improve- practical applications, use narrow and out- According to Liu, while provincial govern- ment and regards one of the biggest chal- dated teaching materials and employ a teach- ments have been slow, some individual vo- lenges as being management of percep- ing staff with limited industry experience. cational institutions have made great strides. tions – both how vocational students look “Chinese vocational education is in a pe- “For almost every course, they will partner at themselves and how potential employ- riod of change,” says Alexander Liu, CEO of with companies within that industry to help ers look at those students. Yucui Education Consultancy. “It used to be them upgrade their curriculum, find good “Normally people will think, after high similar to that of universities. They are teach- staff and give the students a chance to have school I need to get admitted to a top uni- ing lots of theoretical things and are not very some industry experience.” versity, then I’ll pursue a white-collar ca- practical.” He adds that many vocational One such participating company is TE reer,” he says. “So naturally people will see teachers enter the field right from gradua- Connectivity, a technology company that these students as less qualified compared tion, and therefore lack the working experi- designs and manufactures smart connectors to those who go to university. Sometimes ence necessary to teach practical skills. and sensors, which has long suffered from a these students have a similar perception of The government has recognized these talent shortage in technicians who have the themselves too.” issues and in recent years, local and re- skills necessary to turn engineering innova- At least for today, the golden ideal of gional authorities have begun pilot pro- tions into precision manufacturing solutions. higher education at an top-notch university grams to address them, often partnering They partnered with the Suzhou Industrial is in no danger of waning. And while vo- with international institutions. Park Institute of Vocational Technology’s cational education will certainly not solve The World Bank, for example, estab- (IVT) departments of precision engineer- China’s talent shortage, continued develop- lished a pilot program in partnership with ing and electronics engineering, donating ment of the sector can do a great deal to

the Guangdong provincial government de- equipment and establishing an engineer-led lessen the economic burden. I October 2016

17 Journey to the West Q&A with Dan Chen, co-founder of the education advisory firm Aegis Advisors

By Ian Driscoll

an Chen is a co-founder of the graduate level versus in the U.S. where law student ends up. Other companies have fee education advisory firm Aegis and medicine are generally only graduate structures where bonuses or success fees DAdvisors, which specializes in options. are paid based off ultimate admission re- admissions to boarding schools and uni- sults. I think given the wide range of compa- versities in the U.S. and U.K. He manages its Many of the parents seeking your assis- nies and options out there, you really want Hong Kong and Singapore advisory teams, tance want their child to attend a name- to do some due diligence and make sure and formerly interviewed candidates for brand university. How do you help them whatever you sign on for is suitable for your admissions on behalf of the Columbia achieve that aim? particular circumstances. Alumni Representative Committee. He has Well, first off, we like to work off -a pol over a decade of experience across edu- icy of what is in a child’s best interest, and Are parents now looking for kindergarten cation, startups, human rights law and the that won’t always be going to a name-brand to university education advice? U.S. Foreign Service. university. Second, for parents who have ex- Yes. Kindergarten placement can be a pectations that are completely out of sync complicated and competitive process, and Your company helps students from China, with reality, managing expectations is very many parents see value in seeking such Hong Kong and Singapore enter foreign important in this business. That all said, advice. We have also seen an increasing universities, particularly those in the how we engage with students will vary de- number of parents seeking advice for in- United States and United Kingdom. Can pending on specific goals and needs, but ternational school and boarding school ad- you explain the appeal of a foreign uni- generally the scope of our services include missions, all of which have implications for versity education? private tutoring, test prep, mentorship, ap- university admissions later on. I think the appeal really depends on plication help, interview prep and even par- what you see the purpose of an education ent coaching. From your perspective, where do you see being and your end goal. There will always future business growth opportunities in the be those who see university as an ends to a Are parents in Asia looking beyond the education sector? means, be it in getting a job or having brand Ivy League? As industries and the job sector evolves, recognition. But there are also those who We see more and more families who the education sector will likewise need to view university as a place to gain a quality are interested in schools beyond the evolve to prepare students for the real world. education, to explore what they want to do Ivy League. There are so many amaz- There is a disconnect between what stu- in life, or specialize in a particular field of ing schools out there, including liberal dents are taught in school and the skill sets study. Between the U.S. and U.K., there are art schools such as Williams, Amherst, they actually need to succeed in the real also some key differences. The U.S. tends to Pomona, etc. that some would argue are world, so there are business growth oppor- be more broad in its curriculum and allows even better than certain Ivy Leagues. Even tunities for those who can help bridge that students to apply undecided. The educa- within the top 10 universities, a fair number disconnect. I also think there is a lot of oppor- tion is generally more well-rounded, though aren’t Ivy League, including Duke Chicago, tunity for those who can evolve beyond the certain schools have specialized programs Stanford, MIT and Hopkins, all of which are traditional brick and mortar business model. in business, engineering, architecture, etc. actually higher ranked than some Ivies. The U.K. is more specialized and stu- The University of Hong Kong, Fudan, Pe- dents generally apply to specific subjects, Some companies in your business have fee king University and Tsinghua are notori- so for those who don’t know what they want structures that include bonuses for getting ously difficult to enter. To what extent are to study or do in life, the U.S. might be a bet- a child into a ‘stretch’ school. How exactly your clients applying to U.S. universities ter option. That said, for those who do know does this work? because admittance to an elite Chinese or what they want to do, the U.K. can be a great There are a wide range of companies Hong Kong institution is so difficult? option, especially since certain subjects like and fee structures out there. Some compa- The clients we work with generally aren’t

www.amcham-shanghai.org law and medicine are possible at the under- nies have a flat rate irrespective of where a interested in attending such universities.

18 Movers andFEATURES Shakers

If or when the elite Chinese universities American universities seem to put weight medicine interviews will be highly technical rank alongside their western peers in uni- on extra-curricular activities. The response and involve both prerequisite knowledge versity league tables, will demand for a for- has been a CV arms race, with children in- and problem-solving skills. The candidate eign university education taper off? creasingly performing Mother Teresa-like might get a fish question, might be shown I don’t see demand for U.S. and U.K. acts of philanthropy. What’s your advice? a piece of bark and asked to talk about it, higher education tapering off anytime soon. Gearing everything you do to get into col- or might be asked to describe how the hu- In fact, we see the exact opposite, with an lege sounds like a terrible way to live, and I man brain works depending on the subject. increasing number of international appli- think admission officers and interviewers see To many, the questions would seem very cants coming predominantly from China. past students who do things just for the CV. I specific, but from an interviewer’s point of prefer the process being a more organic one, view, if a candidate is applying to a specific Do fresh Asian graduates of U.S. institutions where students genuinely think about what field, it is generally expected the applicant have better employment prospects than they’re interested in, take action to explore be knowledgeable and read materials be- their domestically educated peers? those interests and get engaged in larger yond the high school level. Interviewers Not necessarily. I think it depends on the conversations that matter in life. are looking to see how candidates react to role and industry. Technology is making it and deal with “out of left field” questions. possible to conduct assessments on knowl- Given that their applicants sport similar Similar styles of question are also known edge, skill sets and other meaningful vari- academic results, the elite U.K. universities to have been asked during British boarding ables, so school name carries less weight, often use interviews to whittle down the school interviews. if any at all, in employee hires. Plus, for cer- field. A recent question purportedly posed In the U.S., interviews tend to happen at tain roles, hiring overseas-educated can- to an Oxford applicant was: “If you were a the Ivy League or top tier level, and inter- didates doesn’t always necessarily make fish, what kind of fish would you be?” How viewers are looking more for passion, inter- sense. That said, there is still a large majority do you coach a student for that hurdle? est and fit. Unlike the U.K. it’s more of a per- of employers and recruiters who are very Interviews in the U.K. and U.S. are very sonality and motivational assessment than a pedigree focused, especially in more tra- different. subject specific or intellectual assessment. ditional industries like banking, finance and In the U.K, at the Oxbridge level and Applicants can’t fully prepare for these law. There is a reality that by studying over- for certain specialized programs, they interviews, so we try to prepare students seas, you do end up gaining a certain type tend to be very academic and specific to to think on their feet. These are not ques- of knowledge, skill set and experience that the subject for which the candidate is be- tions for which you can memorize or re- domestically educated peers just don’t get. ing interviewed for. For instance, maths or gurgitate answers. I

AmCham Shanghai11.11 M2M (Member to Member)

Join cardbenefits.amcham-shanghai.org to promote your products and services to members on November (双) 11 (十一). October 2016 Fill-in the commitment form and send your exclusive discount and offer to [email protected] 19 20 www.amcham-shanghai.org By R Opportunities andthreats facing multinational manufacturing companies inChina Short Term, LongTerm Suzhou Center. Chamber’s chair ofthe serves asvice and mittee Affairs Com- Government Shanghai’s AmCham also co-chairs tivity. Reggie for TEConnec- Affairs Asia, Government senior director, Reggie Laiis eggie Lai C cated industrial needsandconsumer liability, andinability to meet sophisti- ductivity, unsatisfying quality and re - implies lackof innovation, low pro- ded manufacturing, which often still dictated largely by low value-ad- costs. Also, thesector’s expansion is ity costs are soaringalong with labor util and rents office and prices, land low, are risingrapidly with industrial facturing costs, once competitively term growth prospects. First,manu- problems hinder thesector’s long- it is also agreed that two underlying of China’s manufacturing sector, but causes of thelackluster performance demand were themore immediate weak domesticandinternational the manufacturing sector. sures wanes, castingashadow over effect mea- ofthe earlier stimulus as all economic growth isstill increasing that thedownward pressure onover high of 50.4,many economists agree reading in August was at a22-month the mostrecent manufacturing PMI stimulate theeconomy. Even though series of measures to stabilize and Chinese government released a traction spectrumin July, after the the PMIagainreturned to thecon- pansion from contraction. However, exceeding 50, which separates ex rebounded to thelevel equal to or ufacturing sector’s development, providing a snapshot of the man- Purchasing Managers’ Index (PMI), official China’s then Since 2016. ary three-and-a-half years inFebru- Worsening market conditions and decline inactivity inalmost experienced thesteepest hina’s manufacturing sector - - - ogies andequipment. of advanced manufacturing technol innovation andpromoting application aging investment in technological tegic emerging industries,encour ness by directing investment to stra- improve manufacturing competitive- labor andadministrative fees; andto to lower costs inenergy, logistics, with two major objectives, namely vorable to themanufacturing sector has released aseriesof policiesfa- as a whole. The Chinesegovernment upgrading themanufacturing sector turers to bemore competitive, thus a better environment for manufac ment is now determined to create economic growth. And thegovern- achieving robust andsustainable manufacturing asimperative to moving into higher value-added decade. position from Chinaby theendof the competitive manufacturing nation the U.S. would take over themost dex by Deloitte, CEOs predicted that Manufacturing Competitiveness In- survey conducted for its2016Global demands. According to aglobal CEO innovation anddevelopment.” due to thepolicy focus on“indigenous term capabilitiesto grow thetop line jeopardize foreign manufacturers’ long manufacturing competitiveness could geted at strengthening thecountry’s help improve thebottom line;butthosetar to benefits tactical short-term government incentives do provide those aimedat reducing costs and operating inChina.Ontheonehand, plications for foreign manufacturers These policieshave profound im- The Chineseleadershipregards - - - -

expect between now and2025. pate what foreign manufacturers can short and long term and try to antici - foreign manufacturers inboth the impacting are policies specific how turers. For instance, oneforeign-in - benefits tangible to foreign manufac might take timeto beimplemented. traction, thoughactual revisions balanced for employers have gained and regulations to make them more sions onrevising relevant labor laws minimum wages. Meanwhile, discus- mandatory annual increases to on off ment, have even announced holding the Guangdongprovincial govern- Some local governments, suchas ted by companies in thepast year. unemployment insurance submit announced therefund of 30-50%of in 2014. Most local governments also some of themstarted thecutbacks to social insurance funds,though have cutcompanies’ contributions lines. This year, all local governments while setting general national guide- labor costs basedonlocal conditions dates local governments to reduce quantifiable results. costs andhasalready provided some component of surging manufacturing labor costs. Labor cost isacrucial number of measures to helpreduce costs Measures to lower manufacturing

the bottom line benefits to improve The following sectionsexamine These measures have brought The central government man- The government hasannounced a Short-term tactical - - MoversPOLICY andPERSPECTIVES Shakers

vested manufacturing company anticipated Long-term strategic the vehicle’s range with a single charge, and an annual saving of US$1.2 million from the concerns to grow almost the same amount from local gov- reduction in companies’ contributions to so- the top line ernments. But only domestically-produced cial security funds. The refund of part of un- Although the Chinese government has BEVs can enjoy these subsidies. employment insurance could save a further stated reform objectives such as granting $1 million in 2016. “national treatment” to foreign companies, Policies lead to disadvantageous positions Other announced measures to reduce foreign manufacturers still identify obstacles of foreign manufacturers manufacturing costs include lowering ad- that impede their ability to achieve growth. It is also observed that certain newly-re- ministrative fees，, loosening requirements A major concern is the government’s policy leased government policies are unfavor- and reducing prices/fees for buying and initiatives to increase Chinese manufacturers’ able for foreign manufacturers in terms of utilizing industrial land, the promised low- competitiveness in key industries by provid- heightened market entry requirements and ering of logistic and energy costs and, last ing substantial government support. Another reducing dependency on foreign technol- but not least, providing better infrastruc- is that certain policies are in essence putting ogies. The most prominent example is that ture support. However, it still requires time foreign manufacturers at a disadvantage in foreign manufacturers find themselves un- to understand the quantifiable benefits of the broader competitive landscape. der much closer scrutiny from the Chinese these measures. government over their technologies and Measures to increase Chinese manufactur- products in the information industries, as Government incentives to promote better ers’ competitiveness in key industries well as those applied to the informatization manufacturing operations The government’s emphasis on “indig- of other industries, due to the requirement Another key area foreign manufactur- enous innovation and development” has for “secure and controllable.” Unless they es- ers could directly benefit from is various impacted almost every major policy initia- tablish joint ventures with Chinese partners, government incentives aiming to upgrade tive announced recently, including Made in which usually requires transfer or disclosure manufacturing and achieve a cleaner pro- China 2025. This is not just a slogan; the Chi- of certain, often core technologies and pro- duction process. nese government is marshaling substantial duction processes, it is quite a challenge for Governments at all levels set up an resources to help Chinese manufacturers to them to expand sales in the China market. overarching subsidy for guiding the re- achieve it. Another good example of the policy structuring and upgrading of industries. Governments at all levels have set up tools that encourage companies to further Under it, subsidies are in place to en- investment funds to directly invest in stra- develop R&D capabilities while reducing courage energy-saving and circular eco- tegic emerging industries such as energy dependency on foreign technologies is the nomic development, to support automa- saving and environmental protection, new newly revised regulations for high and new tion retrofitting projects, to achieve better information technology, new energy, etc. technology enterprises (HNTEs). This has environmental protection and to support The integrated circuit (IC) industry is an ex- important ramifications for foreign manu- the development of core industries, etc. ample. The National IC Industry Investment facturers with a significant presence in the Foreign manufacturers that conduct en- Fund (“the Fund”) was established in Octo- China market. ergy-saving retrofitting or automation ber 2014 and currently has total funding of As one of the few remaining tax advan- projects, or undergo cleaner production about RMB140 billion, almost half from the tages, the Chinese government provides a audits, can receive government subsidies Ministry of Finance and the China Develop- lower company income tax (CIT), i.e., 15% to cover at least a portion of their invest- ment Bank Capital Co., Ltd., a state-owned compared to the common rate of 25%, to ment as long as the projects meet certain bank, and RMB60 billion from SOEs such as HNTEs to encourage more investment in requirements. China Mobile. There are also many regional R&D and innovation. In general, recent pol- Meeting these requirements is not ‘mis- government-driven or affiliated IC funds icy moves lower the qualification criteria for sion impossible.’ For instance, to qualify with total funding estimated at RMB100-150 being an HNTE but enhance the require- for local governments’ automation sub- billion based on a research by The United ments for intellectual property (IP) own- sidies, such projects are expected to: 1) States Information Technology Office (US- ership as well as compliance. It requires have a minimum amount of investment in ITO). These investment funds are very active a qualified HNTE to maintain ownership equipment; 2) have been approved by lo- and all of the leading Chinese IC companies, of the technological IP that is essential to cal economy and information technology including Tsinghua Unigroup, Semiconduc- its production of products or provision of authorities; 3) be completed within a cer- tor Manufacturing International Corporation services. Such ownership can derive from tain period of time; and 4) are conducted and Changjiang Electric Technologies, have proprietary R&D, purchase, donation, ac- by companies that have a minimum annual received strategic investments. quisition or other means. But IP made avail- revenue/submission of taxes and have no Government support not only exists on able to a company through an exclusive record of breaching relevant regulations the supply side, but also encourages con- licensing arrangement, upon which many governing subsidies. sumption of certain products so that their foreign companies relied to get qualified For instance, one foreign-invested manu- manufacturers can further grow. The new previously, would no longer qualify. These facturing company located in the Pearl River energy vehicle sector is a good example. foreign companies are now in a disadvan- Delta received an incentive valued at 5% of Buyers of battery electric vehicles (BEVs) tageous position compared with their Chi- its total fixed asset investment in automation can receive as much as RMB55,000 in cen- nese peers and are either forced to own IP

projects. tral government subsidies, depending on locally or lose the preferential 15% CIT. October 2016

21 What’s next and to start with products and then extend to How to deal with it? how to deal with it? both manufacturing processes and core The China market is too huge to be ig- In the past two years, aiming to ad- components. The government will build a nored, especially for foreign manufacturers dress the underlying problems of China’s standardization framework to ensure com- with a significant presence in China. They manufacturing sector, the government pliance with “secure and controllable” re- need to make a strategic decision – in order has implemented a number of policy ini- quirements by 2025. It is expected to invite to achieve topline growth in the China mar- tiatives. As analyzed above, foreign man- leading Chinese companies and domestic ket, they might need to trade something for ufacturers benefit from the measures to research institutes to jointly develop na- it. If such a decision is made, here are two reduce manufacturing costs and from gov- tional standards of product quality and recommendations. ernment incentives to encourage better safety. Standards are likely to be labelled Firstly, they are encouraged to identify manufacturing operation. But they are at a as “recommendations for reference” and Chinese domestic market leaders they can disadvantage as the government provides companies will be “recommended” to partner with to get indirect involvement in substantial support to nurture national adopt these standards. The participation of the standards-making process to maximize champions in strategic industries. foreign manufacturers in the standardiza- opportunities for technology “spec-in.” tion process might be limited. Secondly, they need to address the Chi- What’s next? When it comes to intelligent manu- nese government’s security concerns from Looking forward, it is expected the gov- facturing, which promises to have huge a “technology neutrality” perspective. That ernment will continue its effort to create growth potential in strengthening com- means they should not have any prefer- a better policy environment for reducing petitiveness, the government is likely to ence for certain technology routes to ad- manufacturing costs as the economy nav- promote compulsory standards in smart vanced manufacturing and not discriminate igates uncertain territories. manufacturing and the integration of in- against different sources of technologies, The Chinese government will certainly dustrialization and informatization based either from the U.S. or China. Further, given continue to groom national champions on experience gained from the imple- the Chinese leadership’s mindset of tech- for global competitiveness and encour- mentation of “recommended standards.” nology independence, foreign manufactur- age leading Chinese manufacturers to Meanwhile, the government shall explore ers probably need to evaluate the feasibility establish global brands. opportunities to promote Chinese stan- of establishing equity joint ventures with a The so-called “indigenous innova- dards to international standardization or- minority stake, with a Chinese partner to tion and development” initiative is likely ganizations, e.g., ISO. further develop this market. I

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AmCham Shanghai Goes to Washington Recap of AmCham Shanghai’s four-day DC Doorknock

ith the presidential and con- Rick Larsen (D-Washington), among others. role in that relationship, and the future use gressional elections looming on During these meetings the AmCham Shang- (or not) of the current bilateral dialogues, Wthe horizon, AmCham Shanghai hai delegation continued to press for the namely the Security & Economic Dialogue traveled to Washington, D.C. for its annual passage of TPP and noted its importance for (S&ED) and the Joint Commission on Com- DC Doorknock from September 19-22. The American businesses in China and the region merce and Trade (JCCT). These meetings annual AmCham Shanghai DC Doorknock, more broadly. While some members of Con- often included scholars with different view- led by AmCham Shanghai Chairman Ker gress remained hopeful that a vote would points, giving the delegation a wide range Gibbs and President Kenneth Jarrett, gives come up, most of the members and staff of opinions. AmCham Shanghai an opportunity to en- felt that it was unlikely to pass, even after the The 2016 AmCham Shanghai DC Door- gage with key Washington stakeholders presidential election in November. knock was led by Board Chairman Ker Gibbs on important issues affecting American and included 13 other members: AmCham businesses in China. In addition to pro- Shanghai President Kenneth Jarrett; Am- viding an “on the ground” perspective on Cham China President Alan Beebe; B&L China, the delegation this year stressed the (Shanghai) Engineering Consulting Presi- importance of passage of the Trans-Pacific dent Phil Branham; MKT& Associates CEO Partnership (TPP) and a U.S.-China Bilateral Michael Crotty; KPMG Markets Strategy Investment Treaty (BIT) to American compa- Partner David Frey; Sigmatex Asia General nies and the need for the U.S. government Manager Cameron Johnson; Technology to maintain pressure on China regarding Consultant and Investor Caroline Pan; Kil- cybersecurity concerns, internet controls patrick Townsend & Stockton LLP Co-Chair and limitations, and the slow progress in fi- of Asia Practice and Partner Gentry Sayad; nancial services reform. The delegation also Meeting with Congressman Joaquin Castro (D-Texas) Coca-Cola Bottling Investments Group highlighted the positive impact of Chinese China CEO Glen Walter; AmCham South- direct investment on the U.S. economy. In addition to meeting with Administration west China Chairman Benjamin Wang; The first day of the Doorknock saw the officials and Congressional members and Dupont Managing Director of Communi- AmCham Shanghai delegation calling on the staff, the AmCham Shanghai delegation met cations, Marketing, & Sales for North Asia, Obama Administration with meetings at the with nearly 25 influential academics and busi- Australia, and New Zealand Helen Yang; U.S. Department of State, U.S. Department of ness association representatives during the International Learning Enterprise General Treasury, U.S. Department of Commerce, and two-and-a-half days in Washington, D.C. The Manager Vincent Yang; and Allergan China the Office of the U.S. Trade Representative. U.S.-China Business Council’s (USCBC) Vice Country President Shirley Zhao. The administration officials assured the del- President Erin Ennis and the U.S. Chamber egation that the Obama Administration was of Commerce’s Vice President for Asia Tami committed to getting TPP passed and urged Overby and Jeremie Waterman, the executive the business community, when engaged in director for China all felt that TPP faced an up- TPP advocacy, to underline the important hill climb, but that both organizations would be impact that TPP has on businesses in China. pushing for its passage. They also noted that as The delegation also met with the Interna- election day approaches, the anti-China rheto- tional Monetary Fund’s (IMF) China Mission ric would only increase, making it more difficult Chief, James Daniel, to discuss the IMF’s view to address China-related issues. of China’s evolving economy. The AmCham Shanghai delegation also The following day and a half of the Door- met with noted scholars from the Center for AmCham Shanghai President Ken Jarrett with Alan knock was spent on Capitol Hill meeting with Strategic and International Studies (CSIS), Beebe, President of AmCham China, and Zhao Zhenge, more than 40 members of Congress and the Brookings Institution, the American En- General Representative of CCPIT in the U.S. their staff, including visits to Senators Cory terprise Institute (AEI) and the Administra- Gardner (R-Colorado) and Mark Kirk (R-Illi- tion Transition Task Force. These meetings For more information on the 2016 DC nois) and Congressmen Joaquin Castro (D- focused not only on TPP but on the broader Doorknock, please visit AmCham Shang- Texas), Mike Kelly (R-Pennsylvania), Ami Bera U.S.-China relationship, the direction it is hai’s Insight website for daily recaps of the

(D-California), Darin LaHood (R-Illinois) and headed and the business community’s meetings held throughout the trip. I October 2016

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Our 2016 Washington DC Doorknock, number of senior staffers. We focused PRESIDENT’S ably led by Board chair Ker Gibbs, is now on those officials with responsibility for successfully behind us. Chamber mem- foreign affairs, trade, finance or those in NOTE bers may have followed our daily WeChat leadership positions. To be expected, we dispatches, but allow me to offer this encountered misperceptions about the AmCham Shanghai 35,000 foot perspective on the visit. I use conditions for U.S. companies in China as Goes to Washington the term “35,000 foot” both figuratively well as an eagerness to be of assistance. and literally, as I write this column in the On TPP, we left Washington with a better sky en route to Shanghai from New York. appreciation of how difficult it will be to What did we say in Washington? Who win Congressional approval of this agree- did we see? And what was the reaction? ment. Free trade has become a dirty word Those are the obvious questions you may and one could not imagine a more diffi- have about the Doorknock. Let’s start with cult climate for turning TPP into a reality. our message. We had three main points. That said, the situation will change after The first was that the operating environ- election day and it would be a mistake to ment for U.S. firms in China is getting write off TPP at this stage. As a business tougher, but most American companies chamber, we will continue to make the remain successful even if performance case that even for U.S. companies oper- metrics are trending downward. In this ating in China, TPP is a plus and should context we highlighted Chinese industrial be approved. policies affecting information and com- The Doorknock also included meet- munication technology (ICT) companies ings with China analysts at leading think and the slow pace of financial services tanks – Brookings, CSIS, American En- liberalization. Second was the impor- terprise Institute, Peterson Institute of tance of Congressional approval of the International Economics – colleagues at Trans-Pacific Partnership (TPP) agree- the U.S. Chamber of Commerce and US- ment, which would establish a new high China Business Council and a discussion standard trade agreement and provide with the head of the China mission at the Kenneth Jarrett external pressure on China to improve IMF. In those meetings, our goal was to President of The American Chamber of its investment climate in order to attract share our insights about China but also Commerce in Shanghai continued foreign investment. Third was to build up our profile and strengthen re- the importance of reaching agreement lationships with other key players in US- with China on a bilateral investment China relations. Last but not least, we had treaty (BIT). In addition to those main a lively dinner discussion with a group of topics, we discussed the sharp growth of luminaries preparing recommendations Chinese direct investment in the United on China policy for the next Administra- States, which we described as a positive tion. That group included former ambas- development. sador to China Stapleton Roy, former U.S. We delivered those messages dur- Trade Representative Charlene Barshef- ing 40 meetings over the course of three sky, prominent academics such as David hectic days. With the Administration, we Shambaugh and Orville Schell, and other met with Commerce Secretary Bruce experts. Andrews, Deputy USTR Ambassador All in all it was a packed and produc- Robert Holleyman and senior officials at tive week. Allow me to thank the entire State, Treasury, National Security Council delegation for supporting this effort and and Trade Development Agency. It was being so generous with their energy and evident from those discussions that the time. Once again we end the Doorknock Administration remains focused on China with a keen appreciation of how impor- issues even with the presidential election tant these visits are and of how much only weeks away. Approval of TPP is a top work we still have ahead of us. I priority, but the BIT negotiating teams re- main hard at work and preparations are underway for the November meeting of the Joint Commission on Commerce and Trade (JCCT). There was strong interest in cyber-security related issues. On the Hill, we met a dozen senators

and representatives, and a much larger October 2016

25 26 www.amcham-shanghai.org talent. What Kodak did very well in the early days was to recruit talent –andrelentlessly work ondeveloping andretaining that ing updistribution...andbranding. Both clickandmortar! much more advanced, butthere’s still aneed to focus onbuild- train with suitcases full of Kodak film。. Today, it is a different China, infrastructure. Inthemid-1990s, we hadsalesmentraveling by in place theretailing, logistics, warehousing andtransportation to create our retail distributionnetwork inevery city by putting tribution structure. Every city was like anisland.So we needed by usingtheattributes of safety andinnovation. name that comes to mind.ButinChina, we positionedGoodyear first the be notGoodyear mightsafety ofChina, ate with outside they are outsideChina.If Iask you what tire brand you associ- what from different be might analogy, paper of sheet white the brand musthave; andthoseattributes, asIexplained earlier with ing abusinessinChinameansthinkingabouttheattributes your stability result in your gainingagreat businesspartner. value-add andemployment, andthefact that they seeksocial the success of thelocal government, their interests ineconomic the city level. Aligning with themetrics that are usedto measure those of thegovernment –particularly thelocal government at and builta very goodchainof hotels. competencies inhotel management andreservation systems is Howard Johnson. Howard Johnson Chinahastaken their core successful foreign companies inChinahave done.Oneexample technology and come to China and reinvent yourself. This is what you take your bestcompetencies, your bestproducts, your best brand you use, may be different from what you do elsewhere. So position your business, the way you communicate, even the your roles at DanoneandGoodyear? learn thenaboutmanaginginChinathat you later appliedin You worked for Kodak inChinathemid-1990s. What did you Finally, what iscritical to success inChinaisto hire thebest In Kodak’s early years inChina,there were nostores, nodis- The third key lessondeals with brands anddistribution.Start The second key lessonistheneedto align your interests with First, Chinaisa white sheet of paper, meaningthe way you notably ChinaVest andtheCenter for Creative Leadership. ness inChina.He alsoadvise大sU.S. businesses,most Kodak’s consumer imagingbusinessandGoodyear’s tire busi- China’s largest private tire manufacturing.Previously, heled Pierre Cohade was mostrecently theCEO of Triangle Tyre, Member Focus - to reduce thenumber of fatalities. pressure isimportant, how to safely drive ontheroads andhow China didn’t have. We focused onhow to maintain acar, why tire stincts andsafe practices that come with drivingexperience – of driving experience. years So what foreigners take for a granted few –thein- only with drivers first-generation were drivers local TV, local radio stations, local newspaper andretailers. dor to putinplace road safety programs with local governments, and thelocal governments. We leveraged theSafety Ambassa- everycity whereflew,it met successwe huge with with retailers sometimes literally flying at theheight of somebuildings. Goodyear blimpflying over theHuangpuor over Yan’an R notoriety, becauseChineseconsumers remember seeingthe imagined. So we had an amazing breakthrough in terms of pilots –andbeingfighter pilots, they flew itin ways we never out the operation of the blimp and it was flown by fighter jet controlled by themilitary. Eventually, Goodyear contracted cated process because–as we know –theairspace isstill by aflying blimp. That meant goingthrough a very compli- in China, so we knew that consumers would be mesmerized were acouple of tethered blimps,there were noflying blimps one to China. the world, Goodyear isassociated with ablimp,so we brought tiate ourselves andcutthrough theadvertising clutter. Around expensive to communicate onCCTV and we neededto differen- in China was that it was not very well known. It was prohibitively as amarketing tool inChina? Can you retell a story about the Goodyear blimp being used you are aimingfor infive years. size of your company today, butrather for the size of company the for not talent hire you and – find could we people best the Back then,10 years ago, when we started theprocess, most The blimp was calledtheGoodyear Safety Ambassador, andin Bringing ablimpto China was anadventure. While there One critical challenge when establishingtheGoodyear brand oad, ufacturing volume. inventory neededby products, andcalculate theresulting man- forecast, compare it with the current inventory and the minimal operating plan. The fundamental process was to take thesales ated in90days aprocess to buildamonthly salesforecast and mand-based model and move away from beingsupply-driven. been encouraging Chinesecompanies to quickly embrace ade- ing capital andminimize inventory. Also, thegovernment has gle’s upcoming IPO, andour objective to properly manage work to ademand-basedmodel. Another reason to change was Trian- markets mature anddemandslows down, Triangle hadto move 2014, Triangle soldall thetires itmade,andthensome!Butas That model works if you have soliddemand–andup to 2013, manufacturing capacity, and transfer these tires to inventory. as many tires aspossibleto optimize itsproduction costs and driven model where it would, onamonthly basis,manufacture demand- company the driven rather thansupply-driven. How did makeyou achieve this? to was Triangle at task One and make itregional, andthen global. the other side, which was takingasuccessful Chinesecompany China into a very successful company. Now I wanted to work on gional andglobal player. I was fortunate to have builtGoodyear in portunity to take anational championandtransform itinto are- Trianglebuilding. was the years, Igainedrespect for thetalent andcompetencies that company to acompany that becameanational champion.Over Over 10 years I watched how fast Triangle developed from asolid ing someof our non-Goodyear branded tires to alocal partner. What made you take upthe Triangle offer? on Goodyear tires. strong base.By 2010,oneoutof 10new carsinChina was riding faster thantheindustry to gain market share andestablisha very we not be satisfied by double-digit growth but rather by growing enough? We hadto continually stimulate theorganization sothat became not how much do we grow, but are we growing fast automotive industry, between 2005and2015.Sothequestion fast enough? Growth inChina was tremendous, especially inthe happened. Itmustbetaught. roundings. In the case of China, much of that heritage has not to civicassociations, andreceive ethics education from their sur Goodyear way. Young peoplein Western countries goto church, ics – and it was important that our talent in China understood the ern company –ithas very strong values andstrong businesseth- What was your mostdifficulttask atGoodyear? For that to succeed, three other thingsneededto happen. Thanks to thestrong supportof Triangle’s chairman, we cre- Like many companies inChina, Triangle operated onasupply- What was alsoattractive abouttherole at Triangle was theop- I discovered Triangle in2005 when we evaluated outsourc The second challenge was to keep asking:are we growing a Midwest Goodyear ethics. is task teaching difficult was One

- - - - cesses andinitiatives difficult. communication difficult,andmakes cross-functional pro- vertically-oriented creates silosintheorganization andmakes opment to work together, they don’t do that very well. Being and marketing andmanufacturing andresearch anddevel processes, suchas innovation, that require market research each function is a silo. So whenever you think about horizontal Chinese company isorganized vertically, by function,and the top] to make them. The second key issueisoften that a decisions inaday, sooften you have to wait for someone[at zation isusedto executing. So you have very strong alignment. a decisionismade,thingsmove very fast, becausetheorgani- work on a seven-day basis, and you work with intensity. Once of theChinesemodel from your experience? at the very top. What are theadvantages anddisadvantages Chinese management style can concentrate decision-making and new opportunities inthesemarkets. go outandbuildnew manufacturing sites overseas, creating jobs ers meansleadingcompanies like Triangle have nochoice butto companies face so many anti-dumping issues or non-tariff barri- world where Triangle tires are beingused. The fact that Chinese also aboutlocalizingproduction incritical markets around the taining talent that Triangle needs in manufacturing anddistribution,alsoonattracting andre- China. That expansion isfocused onresearch and development, nancial resources that canbeleveraged for expansion outsideof fi- and sheet balance strong a Trianglehas billion, US$6 about and Japanese tire manufacturers. How will it achieve this goal? Westernwell-known with overseas compete to Triangleaims the political aimof that organization. nomic enterprise” – in that order. So clearly the first alignment is to litical andeconomic role that SOEs play. Itisa“political andeco- Chinese name of an SOE does not capture the essence of the po- state-owned enterprise isbasically amistranslation, because the come demand-driven? Do you think that the state-owned sector has the ability to be- manufacturing andprocurement. cation between sales,thelogistic warehousing organization and time. The third measure was to create muchbetter communi- to rewards for makingtheright tire at theright quality at theright tive program from rewards for making as many tires as you could, turing andtraining of operators. Second, we changedtheincen- improve quality, equipment maintenance, reliability in manufac pacity becoming available. We focused onactivitiesdesignedto capacity so we hadto create initiatives to usetheproduction ca- First, themanufacturing organization was not goingto useitsfull The firstdisadvantage isthat you canonly make somany veryis because effective.youit is that This is advantage The Following itssuccessful IPO, which valued thebusinessat Not under the current environment and leadership. The term R&D and manufacturing. It’s Movers and MEMBER NEWS Shakers - - 27 October 2016 28 www.amcham-shanghai.org . Wang wanted:Wang Mrs。. that cars the provide to started companies not do with policy, consumers madehappen when Chinesecar ket share isbetween 35%and37%. What thegovernment could Today, data suggeststhat the Chinesecar manufacturers’ mar cars that consumers wanted, particularly SUVs and crossovers. then, in2013/2014, Chinesecar manufacturers started to make facturers lostshare. Ithinkthelowest point was a27%share. And to have 35%market share. Butevery year theChinesecar manu- continuously claimingthat it wanted Chinese car manufacturers ful. For example, between 2005and2014thegovernment was examples of government initiatives that have not beensuccess- the consumer, who isnow incharge. Icangive you numerous initiatives. may have arole to play to coordinate or support private business thinking, and you have sectors of the economy where thestate of the economy where you need laissez-faire and market-based in place. SotheU.S. model demonstrates that there are sectors highways, the infrastructure that the U。.S. needs is not necessarily the U.S. isadisgrace. Whether you lookat airports,railways or ter yet, energy via fracking. At thesametime,infrastructure in other country. Look at what’s happeninginSilicon Valley, or, bet and isableto bounce backfrom arecession faster –thanany There isnoquestionthat theU.S. innovates more andfaster – considered to be themostmarket-driven –theUnited States. there isnoonemodel that isperfect. Let’s take amarket that is market-baseda economy,within haveyoudifferent and shades, model retains dirigiste elements, do you thinkthisis wise? economic whose country a of national a As sectors. certain dominating companies state-owned large with organization, economic ofmodel dirigiste a following be to appears China a consortium. to businesses or asking togetherofwork China, parts cific within spe- developing industries, specific developing performances, initiatives. These initiatives can be focused on improving specific related other or five-year plan the of part as initiative economic That’s the vertical axis. how you operate, how things work andhow you lookat issues. study our operations. Government officials typically want to know to coming governmentinvestedseniorofficials intowasas ance or thecentral state –seeksconsultation. government Imeanlocal governments, provincial governments, vides guidance andinstructions,or when thegovernment –by vertically andhorizontally. Vertical is when thegovernment pro- bothby affiliation.government’s hands is the tionship sense You and both private andstate-owned businesses. A lot of thisrela- private companies. How doesthat work? The hand of the state in China is said to frequently extend into From my perspective, it is very clear that in China it’s Mrs. Wang, I think that a market-based economy is the proven model. But The horizontal axis is when the government puts into place an The sameamount of time was invested into receiving guid- There isa very closerelationship between thegovernment - - nity for Western and American businesses. have asuccession plan. This isboth abigriskandopportu- of very successful private Chinesecompanies that today donot maybe theheirsare not interested. Sothere are asizablenumber other Chinesecompanies there isnot. Maybe there are noheirs, been developed, ismotivated, isready, isinterested. Butinmany cessor, there isachildor nephew who hasbeengroomed, has for succession. And inmany Chinesecompanies there isasuc men, theleadership,are all intheir 60s,sometimes 70s. It’s time were created between 1975 and1985.Dothemath. The chair panies face? existentialbiggest the is What privatethat risk com Chinese - remains oneof thebiggestchallenges. establishment of aninternational healthclinicandsoon.Butit the government for theestablishment of international schools, beauty and environment of the city. We had strong support from Shandong –from better housingconditions to leveraging the support our globalization strategy. Shanghai inorder to hire that talent, someof which isneededto find ways of attracting and retaining talent. Triangle has offices in companies –onenow sponsored by theState Council –isto ing, healthor anurbanlifestyle. Soacritical initiative for Chinese talent wants to live inlarge citiesbecauseof housing,school – when you operate outof asmaller city. Increasingly, national talent international or talent – national talent attract to difficult matters when you lead a Chinese company is that it is extremely made to improve retention of talent? you efforts the about talk you Can China. in companies ican Talent retention and acquisition can be very difficult for Amer to consult, askfor assistance, or to negotiate investment. China, and will naturally turnto thegovernment when they need effectivelymore fasterand toadjust will - bypassport countries the state plays arecognized role –even if they are not from such executives who have spent timeoperating inacountry where state plays astrong role. And somy observation isusually that groomed, educated anddeveloped inanenvironment where the prepared for suchanenvironment, becausethey were raised and executives coming from continental Europe are usually better a businesspartner, even though you are private. And Ithinkthat to runningcompanies inChinathan American executives? countries where the hand of the state is strong are better suited Given China’s economic structure, do you think executives from a splendidachievement of ChinaInc. a role to play: high-speedtrains come to mindasanexample of lated, investment-intensive industry, Ithinkthegovernment has good value, goodquality, gooddesign. But,ininfrastructure-re- Their succession process. Most private Chinesebusinesses in to Weihai talent attract to initiatives different at lookedWe We all compete for talent, often the same talent. But what To besuccessful inChina, you mustlookat thegovernment as - - - - from a Western or American business that would inject technol favor apartnership,analliance, ajoint-venture or anacquisition nues andtheemployment base. The local government would another Chinesebusiness;they face theriskof losingtaxreve- one of itsprecious successful local businessesbeingbought by the company. Meanwhile, thelocal government doesnot want have money in their bankaccounts. That meanssellingpartof to monetize their wealth. They are richonpaper, butthey don’t nal talent or external talent options. within suchanorganization, somostcompanies don’t have inter It’s very rare to have astrong number two or strong number three style may not have contributed to growing homegrown talent. ers andexecutives inChina.Second, achairman’s leadership in China? First, it’s because there are very few professional lead- going to sell themselves becausethere isnosuccession. are services, or products competitive and differentiated products businesses with very strong balance sheets, goodtechnology, continuity. The opportunity isthat some very successful Chinese ships we have with themcontinue uninterrupted. That’s business and make sure that over thenext 10 years thesuccessful relation- to audit our key customers’ and key suppliers’ succession plans At thesametime,chairmanandleadershipteam want But why isthelackof asuccession strategy suchachallenge It isariskbecauseof businesscontinuity. We musttake thetime - - angle to play! nities. Look at their succession processes andseeif there isan tify businesses that could be attractive external growth opportu- businesses to maptheir industry andtheir ecosystem andiden- have noreason to sell, will beselling.It’s important for Western next 10 years, successful Chinesebusinesses, which apparently that protects thetaxbaseandemployment base.Soover the ogy, know-how andinvestment into thelocal community; one I interview with Pierre Cohade, Tosee AmCham’svideo scan theQRcode: Movers and MEMBER NEWS Shakers 29 October 2016 AmCham Shanghai 2016 E-Commerce & Digital Conference

AmCham Shanghai

Monthly Member Briefing

AmCham members enjoy VIP night at the PHOTOFAIRS event A briefing on the new transfer pricing laws AmCham Vice President Scott Williams with Sarah Shepard and Shen Wei at Shanghai PHOTOFAIRS event with fellow AmCham members

AmCham Chairman Ker Gibbs and AmCham members AmCham President Kenneth Jarrett with Steven Chan and meet Supreme Court Justice Samuel Alito (third from left) Andy Leung at AmCham Hong Kong AmCham Shanghai Month in Pictures

David Basmajian discusses health industry outlook at an Industrial Park Series event

Members network at the Auto Outlook event

Members network at the Auto Outlook event Event Report

Lunch with U.S. Supreme Court Justice Samuel Alito engage with the Chinese government on economic and busi- On Friday, September 2, AmCham Shanghai hosted a discus- ness climate issues. Participants agreed on the importance of the sion with U.S. Supreme Court Associate Justice Samuel Alito. Held U.S.-China BIT and the need to encourage more economic refor- at the Renaissance Shanghai Yu Garden Hotel, the event featured ms and market openings in China. a talk by Justice Alito on globalization and the rule of law and was attended by over 130 members. Justice Alito provided detailed AmCham Shanghai 2016 E-Commerce & Digital Conference case studies that demonstrated how globalization had impacted AmCham Shanghai hosted two days of e-commerce programs the law in the United States. He discussed international arbitra- and training that explored the online opportunities and challenges tion, treaty law and extraterritorial jurisdiction and highlighted the in digital strategy and online training. The first day of the event challenges associated with navigating differing legal systems in was held on September 21st at the JW Marriot Hotel, followed by an increasingly interconnected world. e-commerce training held at AmCham on September 22nd. With Following his talk, he engaged the audience in a lively Q&A a diverse set of speakers and panelists, the e-commerce confer- session which included questions on dynamics inside the U.S. Su- ence gave attendees insight into topics including the changing preme Court, his views on the impact on political correctness and e-commerce landscape for retail and O2O, how social media mar- his predictions on how the legal system would evolve in the future. keting drives sales, big data and brand strategy and the delivery Audience members appreciated the Justice’s insights and having revolution in the logistics and transportation industry. the opportunity to speak to a member of one of the most influen- On the day of the conference, Qian Yi, global business director at tial judicial bodies in the world. Alibaba Group, kicked off with the morning keynote. Yi explained the growing market opportunities that cross-border e-commerce has in China. “Import will grow from 16.9% to 25% in 2020 in total cross-bor- der e-commerce. Cross-border B2C is also growing fast,” he said. The first panel discussion of the conference examined the land- scape of O2O in China, during which the panelists collectively em- phasized the potential in e-commerce. The growth of cross-border e-commerce has significantly exceeded general import and export trade in 2015 and the penetration rate is continuously increasing. Three more panel discussions followed—the panels provided attendees with unique information on big data for companies’ brands, social media marketing as a sales tool, and the future of delivery in logistics. Day two included multiple training sessions that consisted of different case studies and practical solutions to successful e-com- U.S. Supreme Court Jusitce Samuel Alito merce practices in China. Joseph Chan, chief executive officer at AsiaPay Limited, and Dr. Jun Chang, CTO of Eventown.com, dis- AmCham Shanghai at the B20 Summit cussed various aspects of e-commerce practices such as short- AmCham Shanghai President Kenneth Jarrett attended the B20 ening the supply chain for organizing events and setting up suc- Summit in Hangzhou on September 2-4. The B20 Summit is a ga- cessful electronic payment services with technology. I thering of foreign and Chinese business leaders on the sidelines of the G20 Summit meetings. The B20 Summit featured a keynote speech by Chinese President Xi Jinping on China’s commitment to economic development and panel discussions with world leaders including Canadian Prime Minister Justin Trudeau, South African President Jacob Zuma, IMF Managing Director Christine Lagarde and World Bank President Jim Yong Kim. In addition to attending the B20 Summit, AmCham Shanghai co-hosted a roundtable with AmCham China and USCBC for Am- bassador Max Baucus and business leaders. Deputy U.S. Trade Representative Robert Holleyman and Assistant U.S. Trade Repre- sentative for China Assistant Jeff Moon also attended the meeting. During the meeting, U.S. business leaders provided Ambassador

Baucus with suggestions on how the U.S. government could best A panel disussion at the 2016 E-Commerce Conference becomes more widely adopted, it will changetheentire economic mobile phoneor pad.Once this typeof teaching (live, via theinternet) might be.Look for thistypeof service to soonbeavailable directly ona teacher howaway matter the far no teacher right the find to student a on-one or insmall groups via theinternet. This opensthepossibility for generation technology that enablesstudents to get live instruction one- classroom. However, companies like ILEare forging the way with next- same level of live interaction that a student can get in a face-to-face the internet. The downside of MOOCsisthat they don’t incorporate the take courses from someof the world’s mostprestigious universities via are oneapplication of technology ineducation, allowing students to How doestechnology play arole inhigher education? happy to have Chinesestudents capableof paying thefull tuition. school intheU.S., for example. Many of theforeign universities are are not thetop students butcanget accepted at asecond-tier whose parents are motivated to sendthemabroad are those who quality students. Infact, inmy estimation, many of thestudents institutions that are well branded and continue to draw high- overall student population. Secondly, Chinahassomeexcellent who are able to go abroad is relatively small compared to the away, Idon’t think it will. Firstly, thenumber of Chinese students negative impactonlocal institutions by drawing thebeststudents and getting larger. While somemight thinkthat this will have a higher education institutions? How will Chinese students looking to study abroad affect local or capital gainsoutsideof China. foreigndifficult forinvestors.is transferIt foreign to institutions profits for barrier a also are controls financial to related Regulations hired. there are heavy restrictions onthetypesof teachers that canbe Further, terms. less-than-favorable under time木s often market, the institutions inmostcasesmustpartner with alocal institutionto enter impossible for aforeigner to obtain aneducation license. Foreign are very restrictive, especially with respect to foreigners. Itisall but in international education inChina? investing when face institutions that challenges the are What Technology will play anever-increasing role ineducation. MOOCs The demandfor Chinese lookingto study abroad islarge To begin with, thecurrent regulations pertainingto education Training Committee. English. He isthechair of AmCham Shanghai’s Education & We talk with Robert Abbanat, CEO &co-founder of Ivy League A Chat with Robert Abbanat Committee Chair’s Corner travel time (to-from theclassroom) will begreatly reduced. structure of theeducation industry, since thecost of real estate and people are thuscapableof communicating with others usingEnglish. by theU.S. andU.K. hasengendered aculture that embraces English, and influenced heavily was that environmentpost-war a Holland, or France Nonetheless, in many Western European countries such as Germany, professionals to engageandthrive inaglobal businessenvironment. an enormouschallenge,andinsomecasesabarrier, for Chinese business communication. reasons, English has emerged as the de facto global language of heart of interaction iscommunication and,for a variety of historical rise of hugedeveloping economies suchasChinaandIndia. At the in recent decades,spurred onby theadvent of theinternet andthe Chinese government to fill employment gaps? the and forcompanies solutions and challenges the are What aren’t necessarily professional educators. people to learnfrom others who have theright experience but that distinguishesacoach from ateacher, enablingmillionsof of the world’s population. Further, we will seeablurringof theline economic barriersthat make education cost-prohibitive for much teacher than was ever possible before, reducing many of the and student between interaction cheaper enable and effective more far will Technology finance. transformed PayPal or media that Uber istransforming transportation, Amazon transformed transformed for thebetter by technology, muchinthesame way How do you view technology intheeducation industry? through gamification andsocial networking. only a solution that leverages the scalability and efficiency of efficiency and mobile/online technology will beableto address thisproblem. scalability the leverages that solution a only workforce andthespeed with which theglobal economy changes, European and American counterparts. Given thesize of China’s environment if Chinesecompanies are goingto compete with needs to improve itsability to communicate inaglobal business Globalization isaphenomenonthat hasaccelerated exponentially I thinkthat theeducation industry isthenext to beradically Other ways in which technology istransforming education is As China’s economy continues to globalize, its work force While convenient for native English speakers, this reality presents Movers and MEMBER NEWS Shakers

I 33 October 2016 MEMBER NEWS

Esoterica

Book Review: China’s Economy

By Doug Strub

Attention-grabbing headlines about China’s growth and further declined to merely one- economy usually split into two camps: those sixth by 2012. This may be the most significant declaring imminent collapse or those herald- indicator that China’s initial period of achiev- ing China’s immunity to danger. For many years ing growth by putting its massive labor re- analysts in the former camp have declared the sources to use through heavy investment is end of China’s rise, with repeated predictions of over, and it must now enter a phase dedi- a hard landing that has yet to materialize. cated to increasing the efficiency of those re- The catalyst of such doom-and-gloom sto- sources. ries changes – stock market volatility, a demo- Throughout the book, Kroeber regularly dis- graphic time-bomb, surprising SOE bankrupt- pels common myths and corrects over-simpli- cies, hidden debt in state-owned banks – but fied analyses. In exchange, he offers a more nu- What it mainly shows is that China’s invest- the sensationalism lingers. Noisy rebuttals are anced understanding of the predicaments fac- ment boom was unusually large.” aired frequently, many based on the premise ing China’s economic mandarins. For example, The concluding chapter discusses what that because analysts have so frequently been in his chapter on consumption, Kroeber provides China’s growth means for the world. Asking wrong about China’s economy, they must be an alternative perspective from those common whether or not China’s growth model can be wrong again. Enter Arthur Kroeber, founding in recent headlines. Although gross fixed capital used as a blueprint for other developing econ- partner and head of research at Gavekal formation grew from 27% of GDP in 1981 to 46% omies, and if China’s success has lent any Dragonomics. His book, China’s Economy: What in 2010 – “the highest figure ever recorded for a credibility to the ability of authoritarian govern- Everyone Needs to Know, is a refreshing, prag- major economy” – while household consump- ments to lead successful development cam- matic and balanced analysis of China’s econ- tion fell from 53% to 35% during the same pe- paigns, Kroeber points to a series of favorable omy that cuts through these divisive headlines. riod, this was an appropriate path for an econ- conditions that assisted China throughout its At the crux of China’s Economy is the ar- omy in China’s position. This goes back to the rise. Coming in the wake of high growth by gument that China’s growth model in the re- fact that the major task for China during the first neighbors such as South Korea, Japan and form era since the late 1970s – very simply, few decades of reform was to install the neces- Taiwan, Chinese leaders were already to increase its capital stock and put re- sary capital to put its massive labor force to equipped with a workable template for indus- sources to better use – has for the most part more productive work than the subsistence trial growth. Furthermore, with Hong Kong es- been well-suited to China’s economic situa- farming that dominated the pre-reform era. tablished as a major shipping port and global tion, but that this model has run its course. Although consumption in China fell signifi- trading hub, China could easily integrate much The solution, Kroeber says, is “to shift away cantly as a share of GDP, especially in the of its manufacturing exports into existing from a growth model based mainly of the wake of the financial crisis – when the gov- global trade routes. Finally, China’s manufac- mobilization of resources to one based ernment flooded the economy with invest- turing boom occurred alongside a global mainly on the efficiency of resource use.” ment-focused stimulus spending – this was surge in international trade, allowing China un- In the early reform period most of China’s largely a consequence of the massive precedented access to cheaper and larger massive labor pool was tied up in low pro- amount of capital-intensive growth, which led trade networks. Thus, not only have China’s ductivity subsistence farming, and any invest- to investment outpacing consumption and unique circumstances made it unlikely that a ment in capital stock such as machinery, fac- thus claiming a larger share of GDP. China development model can succeed in tories or infrastructure resulted in significant Nonetheless, average per capita spending other developing countries, but continuous contributions to GDP growth. Thus for the first grew far more quickly than in more advanced state intervention has also prevented greater two to three decades of reform, US$3-4 of economies, and at 7% average annual growth efficiency gains that could have been realized new investment created about $1 of GDP from 1990 to 2013, nearly twice as rapidly as if more privatization was allowed. growth. Following the global financial crisis, India, the next fastest-growing large econ- Throughout the book, Kroeber regularly this rate began to decline, and by 2013 it re- omy. This “explosive growth” resulted in a deconstructs commonly held assumptions quired more than $5 of investment to pro- fivefold increase in consumer spending dur- about China’s economy, making them more duce a dollar of growth. But there is more to ing this period. Kroeber’s analysis concludes accurate and meaningful. While many of the story. For most of the reform era, growth that although China’s current household con- his ideas will be familiar to those who follow occurred from roughly equal parts capital ac- sumption rate of 36% of GDP is low compared China’s economy, he brings new and nec- cumulation and productivity gains. But fol- to the 50-65% rate of most major economies, essary light to these topics and a depth and

www.amcham-shanghai.org lowing the financial crisis, gains from produc- “China’s low figure does not indicate that con- breadth rarely found in the international tivity dwindled to about a quarter of GDP sumption is weak; in fact it is quite strong. business media. I 34

LiQing Insight.pdf 1 16-9-30 下午1:32

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CY DLA PIPER has been a member of CMY AmCham Shanghai since the 1990s. K From my perspective, I wanted to participate in the Amercian business community to learn from other members, to explore synergies with them.

Li Qiang Co-Country Managing Partner, China DLA PIPER