Trading Places: U.S.-China Perspectives on Trade Partnerships

EXECUTIVE SUMMARY

Beijing, China | October 26 - 27, 2014

LEADERSHIP SPONSORS

CV Starr & Co. EY Grand Overseas Economic Development Co.

Omni Commercial Investment PepsiCo Atlas Merchant Capital

ENN Group UPS Xinyuan (China) Real Estate Yale CEO Summit October 26-27, 2014 | Beijing, China Trading Places: U.S.-China Perspectives on Trade Partnerships

Table of Contents

Key Themes from the Yale CEO Summit 5

Keynote Address 7

Speaker Max Baucus, 11th U.S. Ambassador to the People’s Republic of China

Friends in Need Are Friends in Deed: Mutual Interests Between U.S. and China on Economic and Diplomatic Fronts 8

comments XU Niansha, Chairman, China Poly Group PAN Gongsheng, Deputy Governor, People’s Bank of China PAN Shiyi, Chairman, SOHO China Maurice R. Greenberg, Chairman & Chief Executive Officer, CV Starr & Co.; Founder, AIG Edward A. Snyder, Dean, Yale School of Management Hugo Shong, Founding General Partner, IDG Capital Partners LING Wen, President & Chief Executive Officer, Shenhua Group CHEN Zhiwu, Professor of Finance, Yale School of Management

responses Eric Braverman, Chief Executive Officer, Clinton Foundation CAI Hongbin, Dean, Guanghua School of Management, Peking University Mark Duval, President, American Chamber of Commerce in China LIU Dashan, Deputy Chief Executive Officer, China Genertec Company Keng Zhou, Dean, International Piano Academy, Shanghai Conservatory of Music CAO Wenlian, Director General, International Cooperation Center, NDRC Linda Lorimer, Vice President for Global and Strategic Initiatives, Yale University David Bach, Senior Associate Dean, Yale School of Management Nancy Yao Maasbach, Executive Director, Yale-China Association

© 2014 Chief Executive Leadership Institute. All rights reserved. 2 Trans-Pacific Partnership:Recipe for Compact or Conflict 10 K evin Rudd, 26th Prime Minister, Commonwealth of Australia Max Baucus, 11th U.S. Ambassador to the People’s Republic of China comments Maurice R. Greenberg, Chairman & Chief Executive Officer, CV Starr & Co.; Founder, AIG FU Chengyu, Chairman, Sinopec CHEN Zongsheng, Vice Secretary-General, Tianjin People’s Municipal Government Keith E. Williams, President & Chief Executive Officer, UL John F. Lundgren, Chairman & Chief Executive Officer, Stanley Black & Decker J. Stapleton Roy, 5th U.S. Ambassador to China (1991–1995) Ann M. Veneman, 27th U.S. Secretary of Agriculture (2005–2010) QI Chunsheng, Chairman, Grand Overseas Economic Development Co. XIE Ping, Executive Vice President, China Investment Corporation

Responses Yan Liu Johnson, Co-Founder & Principal, Pacific Partnership Advisors Christopher K. Johnson, Former Senior China Analyst, Central Intelligence Agency Colm Rafferty, Chairman, Vermeer China Ltd. WANG Hongyan, Vice Chairman, Gifore Agricultural Machinery Group Ping Liang, Managing Director, AlphaMax Advisors Joe E. Harlan, Executive Vice President, The Dow Chemical Company Peter Schott, Professor, Yale School of Management SUN Zhenyu, Ambassador, World Trade Organization (2002–2010) ZHANG Yesheng, Vice Chairman & Executive Director, ENN Group Alan Liu, Chief Executive Officer, AXL Musical Instruments Co. James Levinsohn, Director, Yale Jackson Institute for Global Affairs Cindy Zhang, Chairman, Omni Commercial Investment Marian Chertow, Professor, Yale School of Forestry & Environmental Studies Graham Webster, Senior Fellow, The China Center, Yale Law School Lokesh Todi, Chief Operating Officer, Yeti Polychem

Fairness in Finance and Foreign Exchange 12

Comments TIAN Guoli, Chairman, Bank of China MIAO Jianmin, President, China Life Insurance (Group) Company Stephen S. Roach, Senior Fellow, Yale Jackson Institute for Global Affairs ZHANG Lei, President, Hillhouse Capital Management Bob Diamond, Founder & Chief Executive Officer, Atlas Merchant Capital Albert Ng, Chairman, EY China

responses YAN Ming, Chairman, Yin Tianxia Zili Shao, Chairman & Chief Executive Officer, JPMorgan China James A. Lawrence, Chairman, Rothschild North America Shirley Chen, Managing Director, CICC CUI Yong, President, Xinyuan (China) Real Estate ChinHwee Tan, Founding Partner, Asia, Apollo Global Management MA Xutian, President, Asset Management Center, Bank of Communications China Eddie Tam, Chief Executive Officer, Central Asset Investments Shirley Yeung, Founder & Managing Partner, Dragonrise Capital Jeremy A. Samuel, Managing Director, Anacacia Capital Lawrence Hu, Chairman, Beijing Goldenet IOT Technology Co. Yehong Zhang, Chief Executive, Aetna China Operations David Schamis, Founding Partner, Atlas Merchant Capital

© 2014 Chief Executive Leadership Institute. All rights reserved. 3 Trading Places and Trading Stories: The Freeflow of Entertainment and News 14 comments Peter Salovey, President, Yale University Neil Shen, Founding Managing Partner, Sequoia Capital China LIU Aili, Executive Vice President, China Mobile Wendi Murdoch, Co-F ounder, Artsy XU Xiaoping, Founding & Managing Partner, ZhenFund CHEN Zhiwu, Professor of Finance, Yale School of Management responses LANG Yongchun, Producer/Anchor, CCTV Robert B. Simonds, Film Producer, STX Entertainment Victor Liang, Vice President & General Counsel, Baidu John P. Pecaric, President of International Operations, RR Donnelley & Sons Kevin Ye, Chief Executive Officer, Salubris Pharmaceuticals ZENG Renxiong, Founder, Chairman & Chief Executive Officer, Oasis International Medical Group Kehai Xie, Senior Vice President, Founder Group Stacy J. Kenworthy, Chairman & Chief Executive Officer, OptiGlobal Group Jeremy Daum, Beijing Office Director, Yale China Law Center Andrew Bate, Chief Executive Officer, SafelyStay Peter Knez, Chief Executive Officer, Incapture LI Jie, Professor, Shanghai Jiaotong University Robert Blocker, Dean, School of Music, Yale University Klaus Heymann, Founder & Chief Executive Officer, Naxos Group of Companies Lixin Song, President, Talents Magazine Chris Tam, Founder & Chief Executive Officer, Si-nang.com Ravi Dhar, Professor of Marketing, Yale School of Management K. Sudhir, Director, China India Consumer Insights Program, Yale School of Management Kaveh Khoshnood, Professor, Yale School of Public Health

Lifetime in Leadership Award: GAO Xiqing, President & CIO (2007–2014), China Investment Corporation 15 co-presenters Stephen S. Roach, Former Chairman, Morgan Stanley Asia CHEN Zhiwu, Professor, Yale School of Management Edward A. Snyder, Dean, Yale School of Management

Legend in Leadership Award: JIANG Jianqing, Chairman, ICBC 15 co-presenters FU Chengyu, Chairman, Sinopec Peter Salovey, President, Yale University

Key Themes from Yale CEO Summit

The Yale CEO Summit, led by Yale Professor Jeffrey Sonnenfeld, was held October 26 and 27, 2014 in Beijing. This Summit brought together business executives, Chi- nese and U.S. government officials, leading academics, and other thought leaders with the theme of “Trading Places: U.S.-China Perspectives on Trade Partnerships.” This Summit focused on the challenges and opportunities of trade. U.S. Ambassador Max Baucus offered the U.S. perspective on the U.S.-China relationship, and sessions focused on trade, financing, the Trans-Pacific Partnership, and the implications of China’s evolution to a knowledge-based economy. Also, GAO Xiqing was honored with a Lifetime in Leadership Award, and JIANG Jianqing was honored with a Legend in Leadership Award.

The U.S./China relationship is the most important geopolitical relationship in the world. U.S. Ambassador Max Baucus reiterated the U.S. perspective that the U.S.-China relationship is the most important economic and political relationship in the world. The two countries are joined at the hip in many ways and the interconnections are growing at a stunning rate. Areas of connection include economic, security, health, environmental, and energy. As a result of these many connections, there are significant areas where U.S. policy touches China. Some people believe that interactions and disagreements between the U.S. and China will lead to inevitable conflict. Ambassador Baucus disagrees. He sees increas- Jeffrey Sonnenfeld ing convergence. He termed this an exciting moment in history, sees economic reforms taking place in China, and sees opportunities to Institutes in the U.S. are not consistent with containment; they are improve the trade and collaboration between the two countries. characteristics of engagement. Representatives from both countries called for better understand- U.S. and China have mutual interests, yet both feel ing. There was agreement that educational exchanges—of students and business leaders—provide an important bridge to create greater misunderstood. Educational exchanges provide a understanding. Numerous educational exchanges exist, and Yale is bridge. playing in key role in such exchanges. Business leaders from the U.S. want to invest in China because of the huge market potential and fast rate of growth. Business leaders from Views about the Trans-Pacific Partnership vary, but China want to invest in and compete in the U.S., as the world’s largest, most stable economy. there is long-term optimism. However, despite the interest among leaders from both countries Despite the huge market in China and the growing middle class, ex- in expansion, investment, and growth, there is misunderstanding, ports by U.S. companies to China are not keeping pace. U.S. business misperception, miscommunication, and some suspicion about the leaders see an uneven playing field that disadvantages foreign compa- other. Chinese attendees commented that leaders in China know nies. The U.S. Chamber of Commerce, the Business Roundtable, and much more about the U.S. than U.S. leaders know about China; some the National Association of Manufacturers are all on the same page in American leaders agreed with this perspective, while others see grow- wanting trade agreements that are comprehensive and ambitious. ing knowledge of China among U.S. business and political leaders. The prominent CEO of a leading Chinese company is in favor of Professor Sonnenfeld asked whether it doesn’t go both ways, with TPP. He believes China, as the world’s leading economy, should work China not accurately understanding U.S. actions. For example, a in partnership with the U.S. He knows there are concerns in China prevailing view in China is that the U.S. has a policy of containment about TPP, but there were even greater concerns about joining the toward China, which Ambassador Baucus and other U.S. attendees WTO, which has been beneficial for China. Others expressed doubts disputed. Professor Sonnenfeld shared data indicating that while just and concerns about the TPP. 16% of Americans believe the U.S. has a strategy of containment, 80% • Many in China believe China is being excluded from the TPP, and of the Chinese population holds this view. In fact, almost 60% of many see TPP as a mistake. Summit participants believe the Trans-Pacific Partnership is intended Many in China believe the TPP has a hidden agenda of sustaining in part to contain China. But more than $500 billion in trade, 235,000 • U.S. economic dominance and reinforcing U.S. military might. Chinese students studying in the U.S., and more than 100 Confucian

© 2014 Chief Executive Leadership Institute. All rights reserved. 5 • Several attendees cited benefits in developing, promoting, and • Some see governance and transparency improving as more Chinese harmonizing standards. However, there is a perception among U.S. companies move to compete globally and go public, and are forced leaders that China is becoming more assertive in setting standards to comply with various regulations. However, a contrary position is and rules. that SOEs and other private companies in China have actually been better governed because they have been more patient and focused While the Obama administration strongly supports the TPP, there • on the long term. As Western models have become adopted, com- is opposition from organized labor and the agricultural sector, panies are becoming more short-term oriented. which often oppose trade pacts. There are also concerns related to security and intellectual property. • One participant sees an excessive fixation on SOEs, with a view that China’s economy is controlled and driven by SOEs. But SOEs Despite near-term uncertainty and tensions regarding China’s role in are declining as a share of the economy. The growth and dynamism the TPP, most Summit participants (almost 90%) see it as a positive in the non-state-owned sector is dramatically outstripping the sign that China has shown some interest in eventually joining the state-owned sector; it is private companies that are driving and will TPP. continue to drive China’s growth. Differing views of transparency, governance, and the Regarding the free flow of information, China is a paradox. There free flow of information present obstacles, though remain strong censorship and restrictions, which are seen by Chinese progress is being made. business leaders as a fact of life, to be accepted. But some from the West believe that restricting the free flow of information will hinder The West often ascribes a lack of transparency and lack of sound China as the country works to transform to more of a knowledge- governance to Chinese businesses. The West also questions whether based economy. In an economy where ideas and information matter, China’s economy can continue to grow and whether Chinese compa- limiting the flow of ideas and information could also limit the nies can globalize as long as censorship and various restrictions limit economy. the free flow of information. One Chinese investor said that even with China’s limitations, there Regarding governance and transparency, several points were raised: are still huge opportunities. He said that companies must know how • China’s businesses are not monolithic. There are different practices to play the game, which is a learning process for foreign companies. among different companies, and even SOEs (state-owned enter- Others believe that as China develops and becomes a more middle- prises), which are often painted by the same brush, are far from the class consumer society, it will become a more open society. A Chinese same. leader commented that as China becomes more open and information • An important index that measures corporate governance in China begins to flow more freely, what matters is not necessarily the pace of shows that overall, governance has improved. However, just as in change, which will be inconsistent, but the overall direction of prog- the U.S., there is significant variability. There are well-governed ress toward a more open society. and poorly governed private companies, and well-governed and poorly governed SOEs.

Keynote Address

Speaker Max Baucus, 11th U.S. Ambassador to the People’s Republic of China

Overview As a result of these connections there are many significant areas The relationship between the U.S. and China is the world’s most im- where U.S. policy touches China. portant. In addition to economic connections, the two countries share interests related to security, health, energy, and the environment. They also share significant interests related to investment and trade. “Massive amounts of policy touch While challenges exist, a new era is commencing with opportunities for mutually beneficial collaboration and cooperation. China.” —— Max Baucus Context Ambassador Max Baucus kicked off this Summit This is an exciting moment in the history of the by discussing the importance of the U.S.-China relationship between the U.S. and China. relationship, assessing the state of this relation- Some people believe that interactions and disagreements between the ship, and advocating for passage of a U.S.-China U.S. and China will lead to inevitable conflict. Ambassador Baucus bilateral investment treaty (BIT). Amb. Max Baucus acknowledged that there are areas of disagreements, such as issues surrounding intellectual property. However, he doesn’t see inevitable Key Takeaways confrontation; in fact, he sees increasing convergence and cooperation. He termed this “an exciting moment in history” and sees op- The U.S.-China relationship is the most important portunities for the relationship to strengthen. geopolitical relationship in the world. Baucus emphasized the important of understanding the other party’s U.S. Ambassador Max Baucus reiterated the U.S. perspective that the point of view. He said that China wants respect regarding sovereignty U.S.-China relationship is the most important economic and political and the U.S. wants respect for the rule of law. Baucus believes that relationship in the world. He emphasized that the U.S. knows this China’s leadership is undertaking economic reforms out of national to be the case. The U.S. sees China helping improve living standards self-interest, but such reforms will result in improvement of IP worldwide and having aspirations to accomplish further great things. protections, as it is in the interest of Chinese firms to have strong IP The two countries are “joined at the hip in so many ways” and the in- protection. terconnections between these nations are growing at a stunning rate. People often ask Ambassador Baucus, “What’s going to happen?” Important areas of connection include: His answer is, “What do you want to happen?” He sees a new era of cooperation and collaboration, with abundant opportunities. • E conomic. Trade between China and the U.S. is more than $500 billion per year, catapulted by China’s involvement in the WTO. • Security. The U.S. and China share concerns about security, par- Greater progress can be made in advancing trade ticularly related to North Korea, Iran, Syria, and elsewhere in the between the U.S. and China. Middle East. A Summit participant commented that progress made in advancing • Health. Issues such as Ebola and SARS, as well as other potential trade has been uneven and somewhat disappointing. Ambassador pandemics, are of concern to both countries and are an area where Baucus replied that discussions on a bilateral investment treaty are cooperation could improve. moving along, as China is raising the topic. The reason China cares • Climate change. Years ago, China would not engage in a discus- is because China wants to invest overseas and a BIT with the U.S. is sion about pollution or climate change. But now, with air pollution seen as the best way to open markets. Similarly, U.S. companies want in China being so bad, the environment is on China’s agenda, as to invest in China because of the growth opportunities. the country’s leaders recognize it must be addressed. Because a BIT is a treaty it must be approved by a two-thirds vote of • Energy. China’s appetite for an interest in energy is immense. This the U.S. Senate. This will take time and passage by the U.S. Senate is is creating conversations about and opportunities for new energy uncertain. Senator Baucus believes a BIT would be a good step and and environmental technologies. supports its passage.

Friends in Need Are Friends in Deed: Mutual Interests Between U.S. and China on Economic and Diplomatic Fronts

Comments Responses XU Niansha, Chairman, China Poly Group Eric Braverman, Chief Executive Officer, Clinton Foundation PAN Gongsheng, Deputy Governor, People’s Bank of China CAI Hongbin, Dean, Guanghua School of Management, Peking University PAN Shiyi, Chairman, SOHO China Mark Duval, President, American Chamber of Commerce in China Maurice R. Greenberg, Chairman & Chief Executive Officer, CV Starr & LIU Dashan, Deputy Chief Executive Officer, China Genertec Company Co.; Founder, AIG Keng Zhou, Dean, International Piano Academy, Shanghai Conservatory of E dward A. Snyder, Dean, Yale School of Management Music Hugo Shong, Founding General Partner, IDG Capital Partners CAO Wenlian, Director General, International Cooperation Center, NDRC LING Wen, President & Chief Executive Officer, Shenhua Group Linda Lorimer, Vice President for Global and Strategic Initiatives, Yale CHEN Zhiwu, Professor of Finance, Yale School of Management University David Bach, Senior Associate Dean, Yale School of Management Nancy Yao Maasbach, Executive Director, Yale-China Association

Overview However, despite the opportunities for both The opportunities for collaboration between China and the U.S. are countries, there were multiple comments of mis- great, but so too is the level of misunderstanding and miscommunica- understanding and miscommunication. Some tion. Greater understanding is needed to overcome misconceptions Chinese attendees commented that business and and lack of trust. government leaders in China know much more about the U.S. than their American counterparts An important way to develop deeper understanding is through edu- E dward Snyder know about China. Snyder agreed that there is cational exchanges where individuals are immersed in another culture not as much commitment in America to learn about China as there is for an extended period. While both America and China are involved in China to understand the United States, and there is less expertise in various educational exchanges, China’s interest and commitment in the U.S. about China than in China about the U.S. Yet, the leader to learning about the U.S. seems greater at this moment, providing an of a major American trade organization remarked that he sees U.S. opportunity for deeper understanding of China by U.S. officials and executives and officials, including mayors and governors, spending a executives, which is beginning to occur. When understanding exists it great deal of time learning about China. has benefitted all parties, evidenced by the reapplication of successful U.S. models in creating the insurance and venture capital industries in China. “The U.S. officials and executives I see are spending lots of time Context Summit participants discussed the U.S.-China relationship and the learning about China.” role of educational exchanges in building trust and understanding. —— President of a major American organization

Key Takeaways China has benefitted from The U.S. and China have many common interests, yet understanding U.S. industries. understanding of the other is lacking. AIG, under founder Maurice Greenberg, was Yale School of Management Dean Edward Snyder said that China and the first foreign company to get an insurance the U.S. share many similar values, such as commitment to education, license in China, at a time when the insurance culture, history, and the arts. The countries also have many overlap- business in China was embryonic. He noted that ping economic interests, with differing economic strengths, which is foreign companies won’t dominate in China, Maurice Greenberg good for trade. but they can develop successful businesses.

© 2014 Chief Executive Leadership Institute. All rights reserved. 8 The leader of one of China’s largest insurance companies explained Educational exchanges represent a critically important that at the time, Chinese insurers were extremely worried about AIG’s way to improve understanding. entry into the market. But these fears were misplaced, as having AIG as a competitor actually proved beneficial in developing the entire Educational exchanges of both students and business leaders provide insurance industry. an important bridge to promote greater understanding. Numerous educational exchanges exist, and Yale is playing a key role in fostering such exchanges. “The competition [from AIG] was There are currently more than 500 Chinese students at Yale; after the helpful in developing the insurance United States, there are more students from China than any other country. For years Yale has conducted immersive educational experi- business in China.” ences for executives and has formed partnerships with educational —— Leader of one of China’s largest insurance companies institutions in China, and the Yale Center Beijing will provide further opportunities for significant cross-cultural exchanges. These exchanges involve spending time abroad immersed in another culture; Another example of bringing learning from they build mutual understanding and result in greater trust. Those the U.S. to China is adapting the successful from the East learn about the West; those from the West learn about American venture capital model. Hugo Shong the East; and when individuals from different cultures come together of IDG was involved in creating the first small something entirely new is created. venture fund in China in the early 1990s. While not visionary at the time in the U.S., bringing However, again participants stressed that in gen- this model to China at that time proved to be Hugo Shong eral, China has done a better job than the United extremely visionary. Venture capital in China States of sending leaders abroad on educational has played a key role in financing some of the country’s most success- exchanges, not just to America, but to Canada, ful companies, such as Tencent and Baidu. Mr. Shong currently sees England, Singapore, and elsewhere. Improv- great opportunities in the mobile Internet space. He noted that the ing participation in educational exchanges is an VC business in China has similarities to the U.S. model, but is differ- opportunity for American students and business Chen Zhiwu ent as it has had to adapt to the uniqueness of China. leaders.

Trans-Pacific Partnership: Recipe for Compact or Conflict

Presenters Responses K evin Rudd, 26th Prime Minister, Commonwealth of Australia Yan Liu Johnson, Co-Founder & Principal, Pacific Partnership Advisors Max Baucus, 11th U.S. Ambassador to the People’s Republic of China Christopher K. Johnson, Former Senior China Analyst, Central Intelligence Agency Colm Rafferty, Chairman, Vermeer China Ltd. Comments WANG Hongyan, Vice Chairman, Gifore Agricultural Machinery Group Maurice R. Greenberg, Chairman & Chief Executive Officer, CV Starr & Ping Liang, Managing Director, AlphaMax Advisors Co.; Founder, AIG Joe E. Harlan, Executive Vice President, The Dow Chemical Company FU Chengyu, Chairman, Sinopec P eter Schott, Professor, Yale School of Management CHEN Zongsheng, Vice Secretary-General, Tianjin People’s Municipal SUN Zhenyu, Ambassador, World Trade Organization (2002–2010) Government ZHANG Yesheng, Vice Chairman & Executive Director, ENN Group Keith E. Williams, President & Chief Executive Officer, UL Alan Liu, Chief Executive Officer, AXL Musical Instruments Co. John F. Lundgren, Chairman & Chief Executive Officer, Stanley Black & James Levinsohn, Director, Yale Jackson Institute for Global Affairs Decker Cindy Zhang, Chairman, Omni Commercial Investment J. Stapleton Roy, 5th U.S. Ambassador to China (1991–1995) Marian Chertow, Professor, Yale School of Forestry & Environmental Ann M. Veneman, 27th U.S. Secretary of Agriculture (2005–2010) Studies QI Chunsheng, Chairman, Grand Overseas Economic Development Co. Graham Webster, Senior Fellow, The China Center, Yale Law School XIE Ping, Executive Vice President, China Investment Corporation Lokesh Todi, Chief Operating Officer, Yeti Polychem

Overview company’s products are produced in Asia and China, yet less than Many in China believe that U.S. policy is focused on containment, 10% of revenue comes from China. He noted that the U.S. share of and many U.S. business leaders believe the playing field in China is exports to China has declined by 30-40% in recent years. He and not level. But U.S. government officials, business leaders, and aca- other U.S. manufacturers see the issue as an uneven playing field that demics all see the U.S. as pursuing a policy of engagement, reflected disadvantages foreign companies trying to compete for business in through trade, educational exchanges, and cultural acceptance. And, China. China appears to be gradually warming up to participating in the Perceptions differ on whether the U.S. strategy toward China is one Trans-Pacific Partnership. Though the Trans-Pacific Partnership of containment or engagement. faces obstacles in the U.S. and China, it represents an important step in fostering greater trade cooperation. In addition to working A prevailing view in China is that the U.S. has a to decrease policy-related barriers to trade, companies also recognize policy of containment toward China. Professor Son- that success in the market comes from understanding the market and nenfeld shared data indicating that while just 16% localizing products. of Americans believe the U.S. has a strategy toward China of containment, 80% of the Chinese popula- John Lundgren tion hold this view. And this isn’t just the perception Context of the masses. In fact, almost 60% of Summit participants believe the Panelists and Summit participants discussed the playing field for Trans-Pacific Partnership is intended in part to contain China, 77% trade between the U.S. and China, the Trans-Pacific Partnership believe the U.S. military pivot toward Asia is a response to China’s (TPP), and the keys to successfully competing in China. growing economic might, and 49% believe the U.S. government is actively encouraging social unrest in Hong Kong . Key Takeaways - U.S. companies perceive the playing field in China is not level. Despite the huge market in China and the country’s growing middle class, exports to China by many companies are not keeping pace. The CEO of one major U.S.-based manufacturing company said that 50% of the company’s revenue is outside of the U.S. and 20% of the * Results from real-time survey of Summit participants.

© 2014 Chief Executive Leadership Institute. All rights reserved. 10 Ambassador Baucus replied that the U.S. government is not at all • One leading U.S. business leader is not in involved in stirring unrest in Hong Kong. He sees far more coopera- favor of the TPP, believing it focuses on the tion than conflict, and more mutual upside than downside. wrong things and terming it as “very narrow.” A U.S. academic explained that when a country feels it is being He strongly prefers a free trade agreement. contained it reacts in unproductive ways. He went on to say that He knows that an FTA would take many years while the U.S.-China relationship has problems, with mutual military to negotiate but feels it would build trust and Ann Veneman suspicions, he still sees engagement. More than $500 billion in trade, would have much greater long-term impact. 235,000 Chinese students studying in the U.S., and more than 100 Ambassador Baucus understands and appreciates the desire to Confucian Institutes in the U.S. are not signs of a containment policy; proceed towards a comprehensive free trade agreement, as he has they show engagement on trade, education, and culture. long been a supporter of trade negotiations with Asia. But he sees the TPP as a positive step in the right direction. • While the Obama administration strongly supports the TPP, there There are short-term concerns about the TPP but is opposition in the U.S. from organized labor and the agricultural long-term optimism. sector, which typically oppose trade pacts. There also are concerns related to security and intellectual property. One U.S. business leader said the U.S. Chamber of Commerce, the Business Roundtable, and the National Association of Manufacturers Despite near-term uncertainty about the TPP and tensions regarding are all on the same page in wanting trade agreements that are com- China’s participation and role, most Summit participants (almost prehensive and ambitious. He termed himself as “rabidly in favor of 90%) see it as a positive sign that China has shown recent interest in TPP,” which he believes will help create a more level playing field. eventually joining the TPP. To the surprise of some, the prominent CEO of a leading Chinese company also is in favor of TPP. His view is that the U.S. is currently, and will remain for the foreseeable future, the world’s leading economy, and China should work in partnership Fu Chengyu with the United States. He knows there are concerns within China about the TPP, but he heard even greater concerns within China about joining the WTO, which has proven beneficial for China. His attitude is, “Only when you participate can you win.” * Results from real-time survey of Summit participants. Others expressed doubts and concerns about the TPP. • Many in China believe that other countries are Competing successfully in China requires designing working in concert to exclude China from the products for the market. TPP, and many in China with experience in global trade issues see the TPP as a mistake. While participants from global companies are working to overcome structural barriers to trade, they are also working to make their offer- Many in China believe the TPP has a hidden • SUN Zhenyu ings more competitive in the Chinese market. This doesn’t mean just agenda of sustaining U.S. economic dominance reducing a U.S. product’s manufacturing costs by 10% and decreasing and reinforcing U.S. military might. (In a real-time poll, 53% said the price by 20%; that won’t work. Multiple CEOs said that compa- that the TPP is intended to reinforce U.S. military defense of Japan, nies have to localize their products—designing them in the market, the Philippines, and Vietnam. for the market. • Several attendees cited benefits in developing, promoting, and Strategies that U.S.-based companies are taking in China include harmonizing standards between countries. The argument for hiring locals with market-specific knowledge, as opposed to send- standards is that the fragmentation of international rules increases ing expats to a market; listening closely to the potential customers in the costs of trade, and harmonization of standards would decrease a market, and acquiring Chinese producers to learn how best to do costs. However, in developing and agreeing on standards there is business in China. some hesitation, as there is a perception among some U.S. leaders that China is evolving from a passive “rules taker” to a more ag- gressive, assertive “rules maker.” “You can’t take a U.S.-centric view. You must be global, adapt to the market, and you have to listen.” —— President of a U.S.-based manufacturing company

Fairness in Finance and Foreign Exchange

Comments TIAN Guoli, Chairman, Bank of China Shirley Chen, Managing Director, CICC MIAO Jianmin, President, China Life Insurance (Group) Company CUI Yong, President, Xinyuan (China) Real Estate Stephen S. Roach, Senior Fellow, Yale Jackson Institute for Global Affairs ChinHwee Tan, Founding Partner, Asia, Apollo Global Management ZHANG Lei, President, Hillhouse Capital Management MA Xutian, President, Asset Management Center, Bank of Communications Bob Diamond, Founder & Chief Executive Officer, Atlas Merchant Capital China Albert Ng, Chairman, EY China E ddie Tam, Chief Executive Officer, Central Asset Investments Shirley Yeung, Founder & Managing Partner, Dragonrise Capital Responses Jeremy A. Samuel, Managing Director, Anacacia Capital YAN Ming, Chairman, Yin Tianxia Lawrence Hu, Chairman, Beijing Goldenet IOT Technology Co. Zili Shao, Chairman & Chief Executive Officer, JPMorgan China Yehong Zhang, Chief Executive, Aetna China Operations James A. Lawrence, Chairman, Rothschild North America David Schamis, Founding Partner, Atlas Merchant Capital

Overview theft. (A leading Chinese investor who has met with Huawei’s leaders Foreign business leaders don’t see competing in China as fair. The said the company’s reclusive CEO is a genuine person but is uncom- general view is that China’s state-owned enterprises have a clear fortable with others. The CEO is distrustful of bankers, was reluctant advantage due to access to capital, close relationships with the to go public, and has given most of the company’s shares to employ- government, and lack of transparency. But others disagree. They see ees. This investor sees Huawei not as having a hidden or nationalistic an excessive fixation on state-owned enterprises (SOEs) and believe agenda, but as being led by a unique, eccentric person). that China’s dynamism and growth is coming from the private sector. Others cautioned that not all SOEs and not all large Chinese compa- Transparency and governance are seen as improving due to domestic nies are the same and shouldn’t be painted with a broad brush. For reforms in China and as Chinese companies go public and globalize. example, Lenovo is a public company that is extremely transparent; purchasing assets from IBM transformed the company. Lenovo is a Context global company, is the largest personal computer maker in the world, and is interested in mobile computing. Based on its openness, Lenovo Summit participants examined the fairness of competing against is viewed quite differently from Huawei. SOEs and the governance and transparency of China’s companies, and assessed the economic situation in Europe. Finally, one participant argued that there is excessive fixation on China’s SOEs, with a general perception that China’s economy is controlled and driven by SOEs. Yet SOEs are declining as a share of Key Takeaways the economy and are significantly less important now than they have been in the past. The growth Foreign companies have significant concerns about and dynamism in the non-state-owned sector is SOEs and Chinese companies with close ties to the dramatically outstripping the state-owned sector. Chinese government. It is private companies that are driving and will continue to drive China’s growth. A former U.S. government official said it is hard for non-Chinese Stephen Roach companies to compete against China’s SOEs. SOEs receive steady and significant support from the Chinese government, often lack trans- “There is a disturbing fixation on parency, and are suspected of engaging in industrial espionage. SOEs that paints the picture of “It is hard for non-Chinese China as one big SOE . . . but this companies to compete with SOEs.” gives an erroneous impression. It is —F— ormer U.S. government official the private sector that is driving the country’s economic dynamism.” There are also advantages to some private companies, such as telecom equipment maker Huawei, which like many SOEs is suspected of be- —F— ormer financial services leader ing heavily subsidized by the Chinese government and engaging in IP

© 2014 Chief Executive Leadership Institute. All rights reserved. 12 Corporate governance and transparency in China are “It is not clear if banks [in Europe] improving. have the capacity to continue An important index that measures corporate governance in China shows that overall, governance has improved. However, just as in lending. . . . There are still big the U.S., there is significant variability. There are well-governed and poorly governed private companies, and well-governed and poorly structural issues about capital governed SOEs. markets in Europe that will hinder Some see governance and transparency in lending.” China improving because companies are under greater pressure due to domestic reforms —F— ormer European bank CEO and global expectations. U.S. business leaders see reforms in China having a positive impact Summit participants expressed support for the and are generally pleased with anti-corruption actions of European Central Bank president activities. Also, as more Chinese companies Mario Draghi, but the structural issues are so move to compete globally and be listed on Albert Ng great that stimulus and other policies may not public exchanges, they are forced to comply help much in the short term. One participant with various regulations. However, a contrary view is that SOEs and said that austerity in Germany is dragging other private Chinese companies have actually been better governed down Europe. Another said that banking Bob Diamond because they have been more patient and focused on the longer term. system reforms are minor, but not fundamen- In this view, as companies go public and as Western models are ad- tal. This individual believes that changes that have been made may opted, companies are becoming more short-term oriented. spread out crises and make them less frequent, but it won’t prevent them. The general consensus is that the overall economic outlook for Europe is poor. One participant said Europe is going down the road Europe’s outlook is poor, with major structural issues. that has been traveled by Japan. Yet amid this gloom opportunities still exist. That said, current conditions in Europe are presenting some attractive Participants believe the new ECB banking stress tests are important opportunities. After 30 years of banking consolidation and a focus on and necessary, yet the overwhelming view was that these stress tests globalization, the big banks are now selling off assets. This presents alone will not restore faith in Eurozone banking or in the Eurozone opportunities to buy and build smaller, focused, entrepreneurial fi- economy. Europe’s banks have structural issues that limit the ability nancial services businesses in areas such as asset management, private of European banks to lend, such as capital requirements required by wealth management, and commercial banking. Basel III and the need for European banks to keep loans on the bal- Those focused on investments in Asia aren’t allowing Europe’s slug- ance sheet. As a result, European banks aren’t lending and are even gishness to distract them. Even with a slight slowing of economic bringing capital home that has been deployed abroad. One former growth in Asia, they continue to see enormous opportunities. bank CEO said that prior to the financial crisis about 50% of all trade credit in Asia came from European banks, but today that is zero.

Trading Places and Trading Stories: The Freeflow of Entertainment and News

Comments Kehai Xie, Senior Vice President, Founder Group P eter Salovey, President, Yale University Stacy J. Kenworthy, Chairman & Chief Executive Officer, OptiGlobal Group Neil Shen, Founding Managing Partner, Sequoia Capital China Jeremy Daum, Beijing Office Director, Yale China Law Center LIU Aili, Executive Vice President, China Mobile Andrew Bate, Chief Executive Officer, SafelyStay Wendi Murdoch, Co-Founder, Artsy Peter Knez, Chief Executive Officer, Incapture XU Xiaoping, Founding & Managing Partner, ZhenFund LI Jie, Professor, Shanghai Jiaotong University CHEN Zhiwu, Professor of Finance, Yale School of Management R obert Blocker, Dean, School of Music, Yale University Klaus Heymann, Founder & Chief Executive Officer, Naxos Group of Responses Companies LANG Yongchun, Producer/Anchor, CCTV Lixin Song, President, Talents Magazine R obert B. Simonds, Film Producer, STX Entertainment Chris Tam, Founder & Chief Executive Officer, Si-nang.com Victor Liang, Vice President & General Counsel, Baidu Ravi Dhar, Professor of Marketing, Yale School of Management John P. Pecaric, President of International Operations, RR Donnelley & Sons K. Sudhir, Director, China India Consumer Insights Program, Yale School of K evin Ye, Chief Executive Officer, Salubris Pharmaceuticals Management ZENG Renxiong, Founder, Chairman & Chief Executive Officer, Oasis Kaveh Khoshnood, Professor, Yale School of Public Health International Medical Group

Overview “People think of China as the factory China is rapidly moving into knowledge-based industries, with some of the world. But in the future, of the country’s most prominent, exciting companies being Internet China will also be the R&D lab and companies such as Alibaba. This evolution is taking place amid a con- tinuing environment of censorship and restriction on the free flow of the creative studio.” information. Some savvy leaders say that these are simply realities to —— Jeff Sonnenfeld be understood and balanced, while others believe that the migration to a knowledge-based economy will ultimately lead to a more open society. As China’s economy matures, information will have to flow more freely. Context China is somewhat of a paradox. There remain strong censorship and restrictions, which are seen by Chinese business leaders as a fact of Summit participants discussed the evolution of China’s economy life, to be accepted. But some from the West believe that restricting toward more knowledge-based industries and how this evolution will the free flow of information will hinder China as the country works affect Chinese society. to transform to a more knowledge-based economy. In an economy where ideas and information matter, limiting the flow of ideas and Key Takeaways information could also limit the economy. One Chinese investor said that even with China’s China’s future growth industries will be knowledge limitations, there are still huge opportunities. He based. said that companies must know how to balance the There will be a divergence in the growth rate of different industries. desire for a free flow of information with the reali- Traditional infrastructure and manufacturing industries will grow at ties of China. He said that savvy business people slower rates, while emerging sectors, such as IT, Internet and enter- learn to play the game, which is a learning process tainment companies, and pharmaceuticals, will become more promi- Neil Shen for foreign companies. nent. And not only will China have big companies in these industries, Others believe that as China develops and becomes a more middle- China will have companies that are globally competitive. Examples of class consumer society—which is happening incredibly rapidly—it will companies include Alibaba, Baidu, and companies in new businesses become a more open society. A Chinese leader commented that as China such as streaming music. becomes more open and information begins to flow more freely, what matters is not necessarily the pace of change, which will be inconsistent, but the overall direction of progress toward a more open society.

Lifetime in Leadership Award GAO Xiqing, President & CIO (2007-2014), China Investment Corporation

Presenters Stephen S. Roach, Former Chairman, Morgan Stanley Asia CHEN Zhiwu, Professor, Yale School of Management E dward A. Snyder, Dean, Yale School of Management

Stephen Roach, who has known GAO Xiqing for 20 years, described Mr. GAO—who has held multiple roles in China—as playing a leading part in making China part of the global economy, bringing about financial reforms, and dealing with many misconceptions. Roach characterized GAO as a man of great passion, conviction, and cour- age. This passion was devoted to improving, among other things, business practices and capital markets in China. CHEN Zhiwu, who has known GAO Xiqing for about 14 years and worked with him to start a successful educational exchange program at Yale, termed Mr. GAO a person of strong personal principles who could discuss the intricate details of security regulations or engage in dialogue about the way of life in China. Jeffrey Sonnenfeld, Stephen Roach, Gao Xiqing, Edward Snyder, and Chen Zhiwu GAO Xiqing, who traveled to the Grand Hyatt Beijing for this CEO Sum- mit on his bicycle, just as he goes to work most days, said that he views himself as cut out for public service and has simply tried to do his job.

Legend in Leadership Award JIANG Jianqing, Chairman, ICBC

Presenters FU Chengyu, Chairman, Sinopec P eter Salovey, President, Yale University

Under JIANG Jianqing’s stewardship, ICBC went from a deficit to profitability. ICBC has undergone massive restructuring and has made numerous acquisitions across the globe, including in Indonesia, South Africa, and the United States. ICBC has also been a pioneer of online banking. ICBC is now the largest bank in China, has increased its global footprint, and by market capitalization is the largest bank in the world. As Chairman of ICBC, Mr. JIANG is revered as a true legend in the finance industry. He has shown vision and foresight. He has been an inspiring voice for globalization and has led ICBC in expanding globally. He has been a persistent advocate for corporate social responsibil- Fu Chengyu, Jiang Jianqing, and Peter Salovey ity and for transparency, as well as for green banking. JIANG Jianqing is viewed by many as one of the most influential people in the world.

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