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FEATURES P.10What lies ahead forChina’s Belt and Road

Policy P.16What MNCs need to know about commercial bribery

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The Journal of the American Chamber of Commerce in Shanghai - Insight July/August 2018

INSIGHTT H E N E X T D I S R U P T O R ?

We look at how blockchain technology

can change traditional business, and the

obstacles it will face along the way. Plus,

a summary of our China Business Report,

an in-depth look at BRI opportunities, the

growth of the grocery industry in China,

and legal analysis of commercial bribery.

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FEATURES

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INSIGHTThe Journal of the American Chamber of Commerce in Shanghai - July/August 2018

FEATURES

2018 China Business Report A brief overview of key results from this year’s survey

Building on the BlockchainHow the technology is changing traditional business

What Lies Ahead for China’s Belt and Road?Dissecting investment opportunities for U.S. businesses

Keeping Things FreshFive trends driving growth in China’s grocery retail market

POLICY PERSPECTIVES

Cleaning HouseAs China takes a firm stand on commercial bribery, what MNCs need to know

Mass IntegrationIntegration plans for the Yangtze River Delta and Guangdong-Hong Kong-Macau Greater Bay Area

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MEMBER NEWS

Celebrating America’s Independence DayScenes from AmCham’s annual summer party

Board of Governors Briefing Notes from May and June’s board meetings

Event ReportRecap of selected events from the past two months

Month in Pictures Selected photos from the past two months’ AmCham events

Committee Chair’s CornerQ&A with the chair of the Supply Chain Committee

Esoterica Favorite apps

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AmCham Shanghai has just released its an-

nual China Business Report. The report is based

on the results of an annual survey of our mem-

ber companies and is one of the longest-running

surveys of U.S. businesses in China dating back to

1999. Over the years, the CBR has been a window

into the operations of U.S. companies in China

as well as the broader business environment. It

provides insights into business results such as

revenue, profitability, investment and labor costs,

as well as regulatory environment issues such as

market access, transparency and IP protection.

By allowing members to compare their operat-

ing results with peers, the survey is also a helpful

barometer of business sentiment in Shanghai, the

Yangtze River Delta region and beyond, and thus

as an important feedback mechanism to local,

provincial and central governments in China. It

is also a source of reference for policymakers in

the U.S.

One highlight of the CBR this year is that

companies are performing well. With the excep-

tion of the services sector, most of our members

are profitable and their revenues continue to

grow. Optimism levels about the next five years

mirror the past several years, though they have

slipped from the headier results seen in the sur-

vey’s infancy. Companies continue to invest, de-

spite the overhang of trade frictions.

However, many of the traditional barriers

to success continue to confront businesses.

Transparency continues to be a challenge; a

lack of IP protection deters companies from

bringing their best technologies to China;

and the unnecessarily onerous data local-

ization laws have spiked IT costs at many

companies. Meanwhile, competition for tal-

ent is making expansion more difficult for our

members, as it has for several years.

With China’s business environment chang-

ing rapidly, our member companies have to

adapt their strategies, develop new business

models and incorporate new technologies.

Those new ideas are then applied to other inter-

national markets or even in their home markets.

Indeed, trade and investment are not only a

two-way transaction of goods, but also of ideas.

Another interesting finding is that many

member companies believe that a lack of au-

tonomy from their U.S. headquarters disadvan-

tages them when competing against domestic

companies in China. Domestic companies tend

to be fast and nimble and are more prepared

to experiment to meet the demands of fast

changing consumer behavior. MNCs, however,

are hampered by slow decision-making at U.S.

headquarters and a lack of autonomy at their

subsidiaries in China. The results show that de-

volving more decision-making power to China

from the head office could pay dividends.

As with previous China Business Reports,

the survey seeks insights into issues beyond the

regulatory or operating environments, to learn

what our members are thinking about the wider

issues that frame the business landscape. We

asked questions about policies such as Made in

China 2025 and the Belt and Road Initiative, as

well as on more pressing issues such as tariffs,

investment reciprocity and forced technology

transfers. The answers are revealing, and not al-

ways what one might expect.

The issue of forced technology transfer

has long dogged U.S.-China trade discussions.

While companies are reluctant to be quoted on

the topic for fear of retribution, our survey re-

veals that in certain technology-based indus-

tries, such as aerospace, the pressure to trans-

fer technology clearly exists.

Interestingly, many companies see Made in

China 2025 as an opportunity, rather as a threat.

That finding is contrary to the prevailing view

that such state-directed support for 10 strategic

industry sectors may ultimately undermine for-

eign companies competing in the same areas.

It is also noteworthy that most of our

members are opposed to using tariffs to

resolve trade disputes. The results are con-

sistent with the views of most mainstream

economists. Bilateral trade wars rarely have

a victor, just two losers.

More members are predisposed to using

investment reciprocity as a trade tool, partic-

ularly those companies in the services sec-

tor, which has more market entry barriers.

Such a view is understandable. Some West-

ern law firms, for example, are exiting China,

frustrated by a regulatory environment that

prevents them from properly practicing law.

Another statistic from the report, one at odds

with much of the political discourse around trade,

is that U.S. companies in China actually create

jobs in America. Twenty percent of respondents

say that their China operations have added to

production or employment in the U.S., whereas

only 2.8% say they have taken away jobs or pro-

duction from the U.S.

The China Business Report captures the

views of our member companies, who have

first-hand knowledge of doing business in

China. They understand that an open and fair

business environment can bring benefits to

both China and the U.S. If some of the sur-

vey findings differ from the prevailing views

of U.S.-China bilateral trade and investment,

it is all the more necessary for policymakers

in both countries to pause for thought. I

ChaIRman’s nOTE

ERIC ZHENGChairman of The American Chamber of Commerce in Shanghai

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FEATURES

Figure 1: Performance

Figure 2: Revenue growth

The annual China Business Climate

Survey, taken this year between

April 10 and May 10, 2018, is one of

the longest running surveys of U.S. busi-

ness in China. The 2018 report reflects the

views and insights of 434 member com-

panies and measures trends in company

performance, challenges and investment,

and also members’ views about trade pol-

icy, cybersecurity policy, trade policy tools

and Chinese industrial policies.

The report found that 76.5% of com-

panies were profitable in 2017 versus

76.9% in 2016. Profitability was higher

in manufacturing (83%) and retail (81%)

than services (65%). More companies (up

7.6%) reported significantly higher

(11% or more) revenue growth in China

versus their worldwide revenue growth.

And five-year optimism was steady at

80%, but again below the 90% consis-

tently reported several years ago.

Survey takers believe Chinese govern-

ment policies favor local companies

(54.5%); 60% reported that China’s regu-

latory environment lacks transparency,

no improvement on last year; and lack of

IPR protection and enforcement (61.6%),

obtaining required licenses (59.5%), and

data security and protection of commer-

cial secrets (52%) remain top regulatory

hindrances.

Thirty-six percent of companies said they

expect to indirectly benefit from the Belt

and Road Initiative (BRI), 29% said they

will derive no benefit and only 16% be-

lieve they will directly benefit from China’s

ambitious cross-continental infrastructure

development initiative. Some 48% of com-

panies saw Made in China 2025 as a reve-

nue opportunity.

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Figure 3: Five-year business outlook

Figure 5: Top regulatory hindrances Figure 6: Top 3 operational challenges

Figure 8: Where companies face the most competition for talent from local companies

Figure 7: In recent years, Chinese government policies toward foreign companies have:

Figure 9: Impact of the Cybersecurity Law and data localization

Figure 10: How companies view Made in China 2025

Figure 4: Investment growth

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Ten years have passed since its

beginning, but to write about

blockchain in 2018 still feels

like an exercise in speculation. Most

people don’t know what a blockchain

(the Blockchain? some blockchains?)

is. It feels new. While organizations

like Walmart, JD.com, Microsoft, Bank

of America and the Alibaba Group’s

Hema supermarkets stand among

its most prominent early adopters,

industry groups and governments

are still struggling to determine what

role blockchain could (and should)

play in our future.

Meanwhile, the technology is ad-

vancing. The $945 million that corpo-

rations spent on blockchain software

in 2017 will expand to $2.1 billion in

2018, according to researcher In-

ternational Data Corp. Application

across the public sector is similarly

on the uptake: a district in Guangzhou

is linking wearable and blockchain

technology to help track the location

and evaluate the creditworthiness

of ex-offenders. This article aims to

show how blockchain technology is

currently being applied, how it could

advance, and the obstacles it will

face along the way.

What’s a “blockchain”? ‘Blockchain’ refers to a digital led-

ger of transactions that is distributed

across millions of computers, which

rely on cryptography to continuously

verify new transactions (“blocks”)

as being genuinely part of a given

“chain.” Blockchain specialist William

Mougayar describes it like a Google

Document, which grants synchro-

nous access to any number of parties

for a given document; decentralized,

but with a single version constantly

available to all of them. By relying on

cryptography and consensus among

the computers on a given blockchain

platform, the technology allows its us-

ers to know beyond reasonable doubt

that a chain’s transactions are genuine.

It is also immutable: erroneous trans-

actions cannot be deleted, only re-

versed in future transactions. Because

of this, transactions that occur over a

blockchain are far more reliable and

trustworthy than anything previously

available in the digital age.

The tamper-resistant and distrib-

uted nature of blockchain technology

makes it a potentially industry-chang-

ing tool. Participants in a 2018 cross-in-

dustry survey conducted by consul-

tancy PricewaterhouseCoopers and

the blockchain platform VeChain iden-

tified security traceability, distributed

data storage, identity authentication

and supply chain management as

some of the most valuable applica-

tions of blockchain technology to their

businesses. It is no accident that these

are applications which require sig-

nificant trust: blockchain technology,

its supporters are quick to point out,

stands out for the trust it creates. Party

#1 need not worry about any mistrust

they might have of Party #2 because

transacting on a blockchain ensures

complete transparency as they inter-

act.

Resolving the problem of trust

could be particularly helpful in China.

Microsoft China CTO Jiang Li point木s

out, “In China, trust – especially outside

of the organization – is very valuable

and very hard to achieve... It’s a major

challenge for people doing business

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Buildingon the lock haiNhow the technology is changing traditional business

By David Hicks

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in China.” Traditionally, he noted, busi-

nesses could rely on intermediaries to

increase the level of trust, “but this can

increase costs.” Additionally, “some

people feel that working through the

intermediary isn’t comfortable, be-

cause it decreases contact with their

customers.” In circumstances such as

these, blockchain technology provides

a solution.

Blockchain and China Conversations about technology in

China largely gravitate toward artificial

intelligence and mobile payment, both

relatively mature domains, particularly

when compared with blockchain. But

2018 is looking to be the year when

that will change. This May, President Xi

Jinping publicly identified blockchain,

for the first time, alongside artificial

intelligence, quantum information,

mobile communications, and Internet

of Things as having “breakthrough ap-

plications.”

Xi’s comment was significant, but

is also unsurprising amidst the long

trend of expanding official support for

the technology. Since 2016, when it

was first mentioned in the State Coun-

cil’s 13th Five-Year Plan, local govern-

ments have sought to incorporate

blockchain in their development plans.

Hangzhou, Shenzhen and the Xion-

gan economic zones are among the

regions that have established funds

for blockchain investments; in 2017,

the number of blockchain startups in

China shot to 456, six times more than

in 2014, according to a May 2018 white

paper on the industry released by

China’s Ministry of Industry and Infor-

mation Technology. The country could

have its first unified national standard

for blockchain technology by the end

of 2019, a director of the Standardiza-

tion Administration’s blockchain re-

search institute told local media.

When many people hear ‘block-

chain,’ they think ‘Bitcoin.’ The asso-

ciation is understandable, since the

technology was originally devised in

2008 as the technical backbone for the

world’s first cryptocurrency. For casual

observers, China’s increasing official

enthusiasm for blockchain technol-

ogy stands in apparent contradiction

with increasing restrictions on digital

currencies. Last September, just as

China was becoming the world’s top

filer of blockchain patent applications

(submitting 225 of 2017’s 406 block-

chain-related patent applications, far

surpassing the United States’ 91 appli-

cations), regulators banned initial coin

offerings (ICOs) and required all cryp-

tocurrency exchanges to close.

Conflating blockchain and cryp-

tocurrency is tantamount to saying a

computer won’t work without an inter-

net connection. Does lack of connec-

tion to the web limit a computer’s po-

tential usefulness? Absolutely. But can

a computer work within that limitation

to change the world in all sorts of other

ways? Sure it can.

That’s China’s bet. While spurn-

ing digital currency, the technology’s

potentially transformative impact on

everything from supply chain man-

agement to insurance is spurring ex-

ecutives across the country to find

ways to apply it to their operations.

Applying blockchainLogistics is oft-noted as one of

the industries most likely to be trans-

formed by blockchain, and for good

reason. All of the 130 respondents to

the PwC survey said they believed that

the technology would be very helpful

for supply chain management. As Zen-

non Kapron, founder and director of

consultancy Kapronasia, noted, “The

authenticity and origin of products, like

say an apple, can also be tracked on

the blockchain. As there are multiple

different parties involved in a cold-

chain supply chain, it would be some-

thing difficult to do with traditional

technology and platforms.”

A high-profile vote of confidence

in this application came last Decem-

ber when Walmart, JD.com, IBM and

Tsinghua University collaborated to

launch a Blockchain Food Safety Alli-

ance, which aims to address the chal-

lenges posed by traditionally “complex

and fragmented data sharing systems

that are often paper-based and can be

error-prone” with a “standards-based

method of collecting data about the

origin, safety and authenticity of food”

based on blockchain technology, ac-

cording to the Alliance’s press release.

Through a simulated food recall, Wal-

mart had already demonstrated the

Blockchain, tracking your steak from pasture to plate

IMA

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FEATURES

effectiveness of its blockchain sys-

tem when they traced a bag of sliced

mangoes back to its source in just two

seconds; under the company’s other

systems, the same process required

nearly seven days.

JD.com’s application of blockchain

serves as a good example of how the

technology could be applied in China

to address food safety concerns.

Through a partnership with Kerchin, an

Inner Mongolia-based beef and dairy

company, they were able to ensure

the quality of their beef’s supply chain.

Yongli Yu, the company’s president

of supply chain research and devel-

opment, wrote, “We generated serial

numbers for every cow slaughtered at

the very beginning of this supply chain,

which enabled us to track where any

cow was raised, all vital information, and

how the resulting beef was handled,

checked for quality, and transported,

up to the point it reaches customers.”

In the insurance industry, where

confirming the details and process-

ing claims pertaining to an incident

can require a lot of time and money,

blockchain could make pertinent in-

formation immediately accessible to

all parties. (This is exactly what China’s

largest online insurer ZhongAn Online

Property & Casualty Insurance is doing

via its blockchain-based data-sharing

agreement with over 100 hospitals

throughout China. By uploading im-

portant data to the blockchain, “insur-

ance clients no longer need to file pa-

per documents as proof, instead they

can just say when and which hospital

they attended,” said the chief of the

company’s technology incubator.)

Also worth noting are smart con-

tracts, a computer program stored on

a blockchain that executes once cer-

tain pre-specified conditions are met,

a function which could help expand

the impact of blockchain technol-

ogy on all sorts of industries. Accord-

ing to the MIT Technology Review,

“Using a smart contract, two people

could create a system that withdraws

funds from one person’s account – a

parent’s, let’s say – and deposits them

into a child’s account if and when the

child’s balance falls below a certain

level. And that’s just the simplest ex-

ample – in theory, smart contracts can

be used to program all kinds of finan-

cial agreements, from derivatives con-

tracts to auctions to blockchain-pow-

ered escrow accounts.”

All of these examples share a

theme of reducing inefficiencies. As

Kapron points out, “Most of the current

applications of blockchain technology

help lower costs, but there are a few

that drive revenue.” And as the tech-

nology scales up, the cost-cutting

potential will increase. For instance,

companies now interested in using

blockchain technology can turn to one

of the many “blockchain-as-a-service”

(BaaS) platforms that several technol-

ogy companies now offer. Customers

can pay BaaS providers like Microsoft,

IBM, Baidu, or Tencent to setup and

manage the backend hardware re-

quired for blockchain’s implementa-

tion. BaaS is an important gateway to

popularizing blockchain, as it hugely

reduces the risk a company might

shoulder in setting up its own block-

chain platform from scratch.

What else is neededFor many enterprises, Microsoft

China’s Li says, “[Blockchain] is still very

sensitive; they don’t have a clear road-

map to leverage the blockchain.” His

point is affirmed by the PwC survey, in

which 35% of companies that had not

yet applied blockchain technology at-

tributed this to management not hav-

ing yet decided, while 19% pointed to a

lack of industry standards.

Regulatory standards, too, are a

barrier. While adopting a set of national

standards – as China is endeavoring to

do - would be a boon for businesses

with a domestic scope, international

standards could allow the technology

to transform domains like global sup-

ply chains, contracts, and banking. Ad-

ditionally, the development of various

blockchain platforms has resulted in

a hodgepodge of technical protocols

that vary based on the platforms the

chain is built upon – these differences

raise interoperability problems when

users want to transact across plat-

forms. As one of 35 participating mem-

bers of the International Organization

for Standardization’s (ISO) technical

committee (TC) 307 to adopt global

blockchain standards, China is working

to resolve issues pertaining to interop-

erability, smart contracts, digital iden-

tity and more. “Once policy normaliza-

tion is established at all levels,” PwC

predicted, “there will be a huge num-

ber of enterprises and industries taking

chances on Blockchain technology.”

While blockchain is not yet diffuse

enough to be useful to regulators,

its assurance of transparency might

eventually make it a valuable tool

in ensuring regulatory compliance

across any given industry. “Blockchain

technology does provide an efficient

regulatory and audit platform, so we

should start seeing the technology

being used more for regulatory report-

ing in the next 3-5 years,” predicted

Kapron. Watch how governments

experiment at the local level to get a

sense for how blockchain might even-

tually be applied. This May, the Shen-

zhen Municipal Bureau of State Taxa-

tion partnered with Tencent to develop

digital invoices that rely on blockchain

technology to streamline the tax and

invoicing process. Speaking about

these invoices, Li Wei, deputy director

of the bureau, said they include “fea-

tures such as complete traceability of

the whole process and non-disruptive

information, which... can effectively

avoid false invoices, and improve the

invoice supervision process.”

Other problems – including the

cost of a blockchain platform and en-

suring data privacy – will need to be

addressed as blockchain technology

advances. But for the business com-

munity, lack of understanding and

regulatory barriers are often identified

as the main barriers keeping the pres-

ent technical capabilities of blockchain

from being taken advantage of. The

slow creep of companies cautiously

integrating blockchain into their sys-

tems could very well reach a tipping

point once these early adopters have

proven the value of the technology. I

By Charles Oliver and Soh Siao Tin

Since the Belt and Road Ini-

tiative (BRI) was officially an-

nounced in 2013, there has

been no lack of studies and reports

trying to decipher what it entails

and what commercial opportunities

it presents. We focus on what lies

ahead and examine how U.S. compa-

nies both large and small can benefit

from the initiative.

What is driving the BRI?

The BRI is often seen as China

projecting its geopolitical influence,

though politics is not the focus of

this article. From a business stand-

point the BRI consists primarily, but

not solely, of infrastructure projects.

There is great need for infrastructure

construction and upgrading in Asia

and beyond. China is able and willing

to provide this. Most BRI projects are

not considered fundable by normal

funding sources such as the ADB.

According to the 2017 Global In-

frastructure Outlook report by Ox-

ford Economics, global infrastructure

investment needs are estimated at

about USD$94 trillion over the 25

years between 2015 and 2040 or

about $3.7 trillion per year. Com-

pared to 2007 and 2015, global in-

frastructure spending estimates

through to 2040 should increase by

more than 60%. Based on data from

the same report, the share of global

infrastructure spending in Asia has

already increased from 49% in 2007

to 59% in 2015. Beyond all the hype

and controversies over the BRI, the

infrastructure needs are real – driven

by systemic factors like population

increase and GDP growth.

What about the supply side?

What the Chinese government wants

from the BRI is multifaceted and cer-

tainly more than just infrastructure

projects. By building roads, rail roads

and ports along critical trade routes,

the Chinese government wants to

secure access to crucial imports like

machines, mineral resources, chemi-

cal products, and food. On top of en-

hanced physical linkages, China’s ef-

fort in internationalizing the renminbi

is also partly aimed at helping Chi-

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What Lies Ahead for China’s Belt and Road?

Charles Oliver is a co-founder and partner at GCiS China Strategic Research. Charles works with a wide range of multinationals in diverse business to business sectors in understanding their markets in China better and shaping their strategies for these.

Soh Siao Tin is an analyst at GCiS China Strategic Research, has been living in China since 2008 and follows China’s market and industry development closely. She studied at Singapore Management University and Peking University.

Figure 1: Global Infrastructure Investment spending – share by Region (2007 – 2015)

Source: Oxford Economics, 2017 Global Infrastructure Outlook Report.

Asia Europe Americas Africa Oceania

23%17%

4% 4%2% 2%

22% 18%

49%

2007USD 1.8 Trillion

2015USD 2.3 Trillion

59%

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nese companies mitigate exchange

rate risks when venturing into other

markets.

The Chinese government has not

published official statistics on 木木木its BRI

spending, but some estimates put

the figure at around $1 trillion from

2013 to now, mainly in the form of

loans. It is very difficult, though, to

put a number on the actual amount

spent on the BRI, as these estimates

don’t account for private sources of

funding. For example, HNA Group

announced in February that it will set

up a private equity fund to invest in

BRI projects. Some industry experts

expect infrastructure investments to

become an investable asset class in

the future.

With more funding that will even-

tually flow toward infrastructure fi-

nancing, more infrastructure projects

will follow – whether labeled BRI or

not. GCiS has documented over 120

large BRI projects, though Chinese

government figures mention over

1,000 such projects. And the working

scope of BRI varies by source, some-

times including only Asia and Africa,

and in other cases extending to the

Americas.

How can U.S. companies get in-

volved in the BRI?

Partnership is key, not only be-

cause many of the infrastructure

projects in BRI countries are led by

Chinese engineering, procurement

and construction companies. The

sheer scale and risk of most projects

make this necessary. U.S. companies,

large and small, should explore their

relevance to BRI projects, align their

common interests, and forge mu-

tually beneficial opportunities with

other companies. This could include

both Chinese and foreign firms al-

ready active in this area.

Large U.S. companies like Honey-

well, Cummins, GE, Rockwell, Cater-

pillar and Dell have longstanding re-

lationships with key BRI players, and

thus a seat at the BRI table. Some

also have a presence in BRI coun-

tries, something viewed favorably

by Chinese partners especially when

maintenance and plant operation

service is required.

Long before the formalization of

the BRI in 2013, Chinese SOEs had

already undertaken projects in BRI

countries. U木.S. companies – like Hon-

eywell and GE – have been supply-

ing products and systems for these

projects. For these companies, en-

gagement of their Chinese partners

and stakeholders often straddles

many different business units and

some have already set up internal

coordinating mechanisms and struc-

tures to optimize this.

But what about companies that

are just starting out? Assuming there

are synergies between your prod-

ucts and BRI project needs, there are

the normal issues of sales in China:

price competition, preference for lo-

cal products, effort involved in sales,

understanding the market, etc. Yet

higher quality products will still be

competitive because Chinese en-

gineering procurement companies

(EPCs) involved in BRI projects are

liable for performance guarantees.

This means critical component fail-

ures will be extremely costly, hence

the importance of partnering with a

reputable and established vendor.

As Chinese companies venture into

overseas markets, they will face

growing pressure to comply with in-

ternational standards.

Based on a sample of 100+ BRI

projects that GCiS tracks and mon-

itors, we find that the majority of

BRI projects are in transportation

or power generation infrastructure

building. In general, products that

are used in a high-speed rail system,

power plant or port will see the best

opportunities. Some examples are

listed below.

For equipment or components

not procured directly by Chinese

contractors, the relationship is likely

to be with an OEM, system integra-

tor, subsystem contractor or design

subsidiary of a Chinese SOE. Besides

supplying equipment or materials,

other areas such as IT and logistics

are also developing.

Case Example

Honeywell supplied SCADA

control systems to support the

Uzbekistan-China Gas Pipe-

line Line A/B project in 2009.

Subsequently, for the Central

Asia Gas Pipeline Line C proj-

ect in 2012, Honeywell was also

brought in. In this project, Hon-

eywell served as a subsystem

supplier to Huawei, which was

the main contractor for build-

ing the communications and

monitoring infrastructure for the

pipeline.

Direct Use(via Chinese EPCs)

Indirect Use (via OEMs, design contractors, etc.)

Primary power equipment (e.g. turbines) Power components, etc.

Construction & materials handling equipment Components, coatings, etc.

Industrial controls Drives and related products.

Core IT and telecom equipment IT components, etc.

Figure 3: Examples of relevant products for BRI projects

note: Based on 100+ well-known BRI projects tracked and monitored; may not be fully representative. shares are for number of projects.

Source: GCiS China Strategic Research

Source: GCIS, SASAC

Figure 2: Breakdown of BRI projects by industry

Industrial parks3%

Power25%

Transport70%

Others2%

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Who are the key players?

Large BRI projects (e.g. power

plant construction) are often di-

vided into numerous sub-con-

tracts, which are then awarded in

phases to different players. Usu-

ally, a project will be awarded by

the owner to tier-1 players, who are

typically the larger/SASAC groups.

The general contractor then breaks

the entire contract into smaller

packages and subcontracts rel-

evant parts to tier-2 and/or tier木-3

players. The detailed value chain

will vary from project to project but

most will have the basic structure

as shown above in Figure 4.

Procurement entry points vary

based on one’s product, and un-

derstanding a firm’s point of entry

is essential. Procurement is usually

done in China, but not always. Deal-

ing with large Chinese firms or SOEs

is difficult for all, and especially for

SMEs. However, teaming up with

partners that are connected to the

local and state political and com-

mercial ecosystem is vital. SMEs

with niche infrastructure project ex-

pertise, or who are within the supply

chains of larger U.S. companies will

stand to benefit.

SMEs can also explore partner-

ships by collaborating with Chinese

companies in the U.S. or by forging

partnerships with larger U.S. compa-

nies on projects as a sub-contractor.

For a start, smaller U.S. suppliers

may see more success collaborat-

ing with U.S. firms already involved

in the BRI. It is also important to have

a good ground game in China, which

includes both sales and service.

For this, U.S. firms can take ad-

vantage of existing BRI networking

platforms and the resources of busi-

ness associations such as AmCham

and other platforms provided by the

U.S. embassy’s BRI working group.

There are also numerous BRI-re-

lated events and forums facilitated

by fellow U.S. companies and gov-

ernment-sponsored think tanks.

The China International Contractors

Association (CHINCA) also plays an

important role in foreign companies’

involvement in BRI activities.

What lies ahead?

The BRI is scheduled to run through

2050, so it is just getting started. Dur-

ing the previous ‘reform and opening

up’ phase, China’s development was

driven by export-led growth as well

as local economic development. In

China’s 33 provincial-level adminis-

trative units and thousands of county

level cities, China’s development in

the past has incubated and nurtured

many leading local companies. The

next phase will see these companies

scrambling for a piece of the BRI ac-

tion. So apart from tier-1 or national

Chinese SOEs, engagements can also

extend to include local, quasi-govern-

ment entities as well as large private

Chinese firms. Interest in cooperating

on smaller scale projects should re-

main high over the next few years.

U.S. firms should exercise caution,

and not just in normal operations.

There are risks in terms of cost of

entry, licensing, performance re-

quirements, technology transfer and

adherence to U.S. law.

Despite these concerns, there

should be opportunities for U.S. com-

panies which have appropriate prod-

ucts and are willing to do the leg-

work necessary to access projects.

As China shifts to a new economic

growth model, many believe that the

BRI will be the key to China’s inter-

national growth in the next few de-

cades. It is not too late for U.S. firms

to form their BRI strategy, or start

competing for project work.

(GCiS China Strategic Research

has also published a report in Amch-

am’s July Issue of GPS Quarterly on

China’s BRI. ) I

Figure 4: Typical EPC value chain (examples from Central asia-China Gas Pipeline Project)

Tier-1 PlayersE.g. JV of China National Petroleum Corporation (CNPC) & Kazakhstan Oil (KTO)

For overseas BRI projects, this may be a consortium comprising China’s sOE and host country’s companies.

Tier-2 Players

E.g. Huawei TechnologiesIn some projects, tier-2 players

could be subsidiaries of tier-1 players.

Tier-3 Players

E.g. Honeywellhoneywell supplied an entire sCaDa solution

for the Central asia-China Gas Pipeline project.

Source: GCiS China Strategic Research

Owner

EPC Contractor

DesignSubcontractor

MachinerySupplier

MaterialSupplier

ConstructionSubcontractor

EquipmentSupplier

Tier-1

MoneyFlow

MoneyFlow

InfoFlow

InfoFlow

MoneyFlow

Point of Entry of

MainEquipment

Point of Entry of

MainEquipment

MaterialFlow

MaterialFlow

MaterialFlow

Tier-2

Tier-3

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FEATURESFEATURESFEATURES

The latest research from inter-

national research organisa-

tion, IGD, indicates that China’s

leading grocery retailers are forecast

to grow at nearly double the rate of

China’s total grocery retail market to

2022. Shirley Zhu, IGD’s programme

director, explores what this means

and the trends that are driving growth.

China’s leading retailers to grow by 10.4% by 2022

Based on IGD’s report of Asia’s top

ten leading retailers, we are predict-

ing annual average growth of 10.4%

to 2022, compared to 5.8% of growth

for the overall market. However, we

anticipate this growth will come in

different ways through several chan-

nels and at varied speeds.

The future of grocery shopping is

being reinvented in China, where the

boundaries between ecommerce,

supermarkets and restaurants are

blurring fast. Facing rapid changes,

the leading retailers are stepping

up their efforts to build omnichannel

capability, enhance in-store experi-

ences and create differentiation. All

these measures will help retailers

to better understand and serve their

shoppers, gain a stronger foothold in

the market and tap into a larger cus-

tomer base in the future.

In our research, we explored the

strategies that keep the leading

retailers ahead in a dynamic mar-

ket and identified five key drivers of

growth for China’s top ten retailers.

1. Accelerating online and offline

integration

China’s retail landscape is evolv-

ing at a fast pace, with digital savvy

customers demanding quick, simple

and convenient methods of shop-

ping. The acceleration of online and

offline integration has been accen-

tuated by partnerships between re-

tailers.

Bricks-and-mortar retailers in

China recognize the importance of

providing a seamless experience on-

line to offline as a means of adapting

to the needs of consumers, offering

greater personalization and more

convenience in shopping.

One example of this is Walmart’s

strategic partnership with JD.com

which integrates their platforms,

supply chains and resources across

China. This has enabled over 160

Walmart stores to offer one-hour de-

Shirley Zhu leads IGD’s

research

program for

SE Asia. She

has extensive

experience

in the FMCG

industry, helping

multinational

and local

clients achieve

strategic

objectives. Her

role includes

strategic

planning,

expanding

research

coverage in Asia

and supporting

members in the

region.

livery services and has also enabled

the introduction of pickup points in

stores.

Another example of a retailer part-

nering with JD.com is Yonghui, which

has opened a flagship store with the

online retailer that carries over 550

SKUs across 40 product categories.

Yonghui aims to reach an even wider

customer base through its strategic

partnership with JD.com – in 2017, the

retailer’s online operation accounted

for 27% of sales.

On the supplier side, suppliers

should look to strengthen their ca-

pabilities and be part of the retailers’

“test and learn” process for different

initiatives, all while providing excel-

lent and consistent brand experi-

ences across all retail channels.

2. Stepping up food service

Our research also highlights retail-

ers in China blending retail with food

service. Some of the key examples

identified include allowing shoppers

to choose live seafood, get it cooked

in front of them and eat in a spacious

seating area in the store.

Two retailers that have recently

introduced cafés into their stores are

CR Vanguard and Carrefour. CR Van-

KeepingThingsFreshBy Shirley Zhu

Five trends driving growthin China’s grocery retail market

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guard’s Olé premium supermarket

integrates seating areas for its café,

bakery and sushi bar. The ‘O’VAMOS’

café is an ideal location for lunch,

serving sandwiches, burgers, salads,

snacks and drinks. Similarly, Carre-

four’s Gubei store has an impressive

food court, a fresh bakery, café and

an in-store dining area. It provides

a convenient space for customers

looking to dine after shopping. This

has been so popular that the retailer

is planning to add more food courts

in other stores.

Similarly, Alibaba’s Hema Fresh

O2O supermarket has a strong focus

on food service. Hema Fresh, which

has around 40 stores, has aggressive

expansion plans and is targeting a

network of 2,000 stores in the next

three to five years.

The option to shop for groceries

and dine in one place plays an im-

portant role in driving new custom-

ers to the store. Food service also

increases the number of customer

touchpoints, which in turn continues

to help engage returning customers.

There are many opportunities for

suppliers in the food service area and

these businesses should experiment

more within the sector. This will help

to ensure that brands are getting

involved in food service operations

and explore how their category can

benefit from this growing trend.

3. Rolling out new store formats

Retailers in China are seeking bet-

ter ways to accommodate shoppers

and maximise space. With shopper

preference moving towards online

and mobile channels, smaller for-

mats can target specific customer

segments more easily. New small

formats can also be a more cost-ef-

fective option for testing demand

when entering a new city.

We are seeing many different re-

tailers rolling out new small formats

across China. From hypermarkets to

online operators, these new stores

vary in size and purpose, but play an

important role in offering something

different to what they have already.

Auchan Minute is a great example

of this – the stores are 18 sq m, un-

staffed convenience stores. The store

carries 500 SKUs, mainly focusing on

grab-and-go items. With 178 stores in

the network, Auchan Minute is plan-

ning 1,200 stores in 2018 and 2,000

more in 2019. Auchan also plans to

take the format to other countries.

An increasing number of small

bricks-and-mortar Tmall stores can

also be found in Hangzhou. These

smart outlets are connected to Al-

ibaba’s retail platform, using big

data for assortment planning and

ordering. They also have dedicated

shelves for Tmall products.

It is important that suppliers recog-

nise that smaller stores have different

demands. Suppliers should design

their portfolio for the smaller stores

with less shelf space, flexing their of-

ferings to different retailers’ needs.

4. Digitizing loyalty schemes

Digital loyalty programs are sim-

ple for members to access, easy for

retailers to update, and appeal to

today’s digital consumers. It gives re-

tailers the means to collect customer

data, both online and offline.

Many retailers are digitizing

their operations, and digital loyalty

schemes are only part of the pro-

cess. We expect to see more digiti-

zation in marketing activities, opera-

tions and the wider supply chain in

the near future.

Wumart’s loyalty program has

moved to Dmall, an online shop-

ping platform. The Dmall app holds

shoppers’ membership information

and enables shoppers to checkout

in-store through their mobile phones.

Furthermore, China Resources Group

is expanding its Hua Run Tong, a

digital system that integrates all its

members across its businesses, in-

cluding retail, hotels and shopping

centres. Hua Run Tong members can

accumulate and redeem points in all

its outlets, providing great customer

service.

Suppliers should think about in-

vesting in digital loyalty schemes to

gain a competitive edge. Both de-

signing your product portfolio for

smaller stores with less shelf space

and adapting your offer to different

retailers’ needs will help achieve this.

5. Rethinking private label

In the past, many private brands

aimed to be alternatives to main-

stream brands. The latest wave of

investment in private labels has a

different feel, with leading retailers

not trying to win purely on price but

building trusted consumer brands

as a competitive advantage. As

retailers successfully build recog-

nised private labels, they will likely

extend these brands to more cat-

egories.

Fresh food categories are a good

starting point to build a private la-

bel brand and Carrefour has been

developing its private label offering

in this category. Carrefour’s Jia You

Xian sources products directly from

farms to ensure their sustainability

and traceability. The retailer plans to

expand its offer with more imported

produce through Socomo, Carrefour’s

subsidiary specialized in fresh foods.

Fruit and vegetables, fish and

meat are typical categories that are

led by retailers, rather than by brands.

They are now packaged nicely under

But do they sell foie gras?

And now for the bisque

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FEATURES

the retailers’ own brands, ready to be

picked for in-store purchase or online

orders.

Emphasizing the origin of the

products, freshness and its supply

chain capabilities, JD.com’s 7Fresh

supermarket offers a wide range of

private label products, from fruit and

vegetables, to meat, seafood and

ready-to-eat meals.

Suppliers should focus on work-

ing alongside private label operators;

look at this as a collaboration oppor-

tunity. Show how your brands can

drive category growth and work har-

moniously with private label brands

to deliver a better experience. I

For further insights into the Chi-

nese grocery market and to down-

load a free report into the five drivers

of growth for China’s leading retailers,

visit events.igd.com/asia.

What is your favorite Chinese saying?

One of my favorite expressions is 五十步笑百步. It roughly corresponds

to “the pot calling the kettle black.” I like it because it’s a good life phi-

losophy but also because it’s typical of the experience that many Chi-

nese learners face. The characters are simple enough; we can all un-

derstand them. But without the context this phrase is an enigma indeed!

The story as I understand it goes something like this: A famous general asked for volun-

teers for a dangerous mission, ordering those willing to go to step forward. Half his men,

fearing certain death, stepped backwards by 50 steps. The other half were even more

fearful and stepped back 100 steps, whereupon the first group laughed at the second

group as cowards. Thus, 50 steps laughing at 100 steps is the pot calling the kettle black.

-Ker Gibbs, Managing Director, Korn Ferry Futurestep

为天地立心，为生民立命，为万世开太平。It is a Confucianism slogan – defining an educated person’s guiding principles. It is chal-

lenging to make a faithful translation, so I’ll try to be expressive here: “To devote his/her

heart to nature, to devote his/her life to the people, and to establish a peaceful era for

generations to come.” A person needs courage, determination and wisdom in delivering

these.

-Reggie Lai, Vice President and General Manager, TE China

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As China takes a firm stand on commercial bribery,

here’s what MNCs need to know

Shaun Z. Wu and Nan Wang are lawyers in the Shanghai office of Kobre & Kim, an Am Law 200 law firm

focused on disputes and investigations, often involving fraud and misconduct. Wu has extensive experience

representing clients in China and across greater Asia in cross-border government enforcement actions and

internal investigations. Wang represents clients in cross-border disputes and internal investigations that

often stem from PRC regulatory actions that have international implications.

Multinational corporations (MNCs)

on the ground in China have new

reasons to pay close attention to

local enforcement of commercial bribery

laws, as local enforcement gradually shifts

from targeting only domestic companies

to foreign MNCs. China’s new commercial

bribery regulator, and the evolving regula-

tory landscape over the past year, signal a

widening in scope of regulatory enforce-

ment action against commercial bribery,

aimed at domestic and foreign entities alike.

The new regulator in townThree months ago, the State Administra-

tion for Industry and Commerce (国家工商行政管理总局, or “SAIC”) – the agency that his-

torically enforced commercial bribery – was

merged into a “super” agency called the

State Market Regulatory Administration (国家市场监督管理总局, or “SMRA”). All respon-

sibilities and powers previously owned by

the SAIC were placed under the umbrella

of SMRA, which was officially established on

March 21, 2018. Also merged into the SMRA

were the antitrust enforcement functions of

three agencies, the China Food and Drug

Administration, which supervised product

quality; the Certification and Accreditation

Administration; and the Standardization Ad-

ministration of China.

The newly-merged agency will effec-

tively have a more senior position within the

Chinese administration than its predeces-

sors, as the SMRA is equipped with powers

to regulate commercial bribery, anti-mo-

nopoly, drug and food safety, and product

quality. The SMRA will be led by Mr. Mao

Zhang (张茅), the former head of the SAIC.

The SMRA is set to fully launch this fall, and

its predecessor agencies will continue to

operate during the transition period. Before

it is fully functioning, there is still some un-

certainty and details left to be ironed out –

including how the transition will unfold, how

the new leadership will streamline the var-

ious priorities inherited from predecessor

agencies, and how efficiently it will function.

The merger, part of a sweeping govern-

ment restructuring plan, is widely consid-

ered to be China’s most comprehensive of

the past few decades. So far, the restruc-

turing mandates that the agency cover an-

ti-graft, financial regulation, pharmaceuti-

cals and healthcare, tax, entertainment and

media, and environmental protection.

Despite its breadth, the SMRA views crack-

ing down on commercial bribery as one of its

top priorities. In less than two months after its

establishment, it has launched a nationwide,

five-month campaign to crack down on unfair

competition, with a special focus on commer-

cial bribery in the pharmaceutical, medical

device and education sectors – areas tradi-

tionally prone to bribery.

In its announcement, the SMRA states

that its campaign will center on the pur-

chase and sale of medicines and medical

equipment in China, and the payment of

bribes to both private counterparties and

public officials. It will also target bribes paid

to health care providers or government offi-

cials through third parties and agents.

The ever-changing landscape

The establishment of the SMRA follows

two other regulatory moves on commer-

Cleaning House

Cleaning House

By Shaun Z. Wu and Nan Wang

17

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FEATURESPOLICY PERSPECTIVES

cial bribery –– the amendments to China’s

Anti-Unfair Competition Law (反不正当竞争法, or “AUCL”), the key statute related to

commercial bribery enforcement, and the

establishment of the National Supervision

Commission (国家监察委员会, or “NSC”).

China’s revised AUCL, which came into

effect on January 1, 2018, expanded the

scope of, and increased the penalties for,

commercial bribery. Specifically, it provided

that all companies and individuals are pro-

hibited from giving money or property to a

business counterpart or public official, and

that includes using other means to obtain

a business opportunity or competitive ad-

vantage. Both private and public bribery are

prohibited, as well as bribery via a third party

(an individual or entity). What this means for

MNCs is that they need to be even more

cautious when doing business in China,

especially because employers will now be

held vicariously liable for their employees’

acts of bribery.

Violation of commercial bribery law

comes with significant penalties. Under

the revised AUCL, penalties include fines

ranging from RMB 100,000 to 3,000,000

(~$15,000 to $470,000), confiscation of ille-

gally obtained income, and even the revo-

cation of business licenses in serious cases.

On a broader scale, China is currently

undergoing the biggest government re-

organization in a generation. In addition to

the SMRA, China has also established the

NSC, which formally set up in mid-March. It

replaced the Communist Party watchdog,

the Central Commission for Disciplinary In-

spection (中国共产党中央纪律检查委员会木木木木木木木木木木木木木木, or

“CCDI”), and expanded its scope beyond the

Communist Party.

Historically, anti-corruption enforcement

has been spread across multiple agencies,

and has been limited to party members. The

NSC, now armed with enhanced investiga-

tive powers, oversees all parties involved

in corruption, not just party members. The

NSC will share offices and personnel with

the CCDI, and will oversee corresponding

supervisory commissions set up at lower

rungs of government all the way down to

the county level. Additionally, the well-re-

sourced commission can now supervise,

investigate and render punishment for vio-

lations with the powers normally reserved

for prosecutors and courts, including the

ability to interrogate and detain suspects

and freeze assets.

Implications for MNCs operating in China

While recent changes demonstrate en-

hanced enforcement efficiency and consis-

tency, MNCs can expect to face heightened

risk of commercial bribery enforcement

actions, now that regulators are armed with

more enforcement tools and resources.

For example, the SMRA has powers to

bring civil actions against companies oper-

ating in China under the amended AUCL. In

addition, it can refer cases to the Public Se-

curity Bureau or the Chinese Procuratorate

for criminal prosecution under the Chinese

Criminal Code. Therefore, it is possible that the

SMRA may want to bring a significant case to

demonstrate their enforcement intent under

the amended law and new reorganization.

Also, SMRA officials might have access

to databases and enforcement records that

were previously spread across respective

regulatory bodies. After the merger, it may

become easier for different enforcement

teams to share information and coordinate

enforcement.

Meanwhile, MNCs operating in China

should remember that running afoul of Chi-

nese regulations may have consequences

back home. With Chinese government

officials’ broad powers and the increased

interest in anti-corruption enforcement

worldwide, there is now a heightened risk

that an investigation in China could attract

the interest of U.S. and UK regulators, which

can lead to far more serious consequences

for a company and its corporate officers in

its headquarters territory. In particular, the

newly-passed Supervision Law codifies an

entire chapter specifically on international

cooperation against corruption, signaling

China’s commitment to cross-border coop-

eration and clamping down on corruption.

Although the NSC will not have enforce-

ment jurisdiction over private companies or

non-government-affiliated individuals, and

therefore will not have a direct impact on

multinational companies, it will very likely

have an indirect impact. More investiga-

tions into government-affiliated individuals

means more information about the source

of bribes will make its way to enforcement

officials (and sometimes, will be publicly

disclosed in courts). In connection with its

investigations into government-affiliated in-

dividuals, the NSC has the power to collect

evidence from private companies and indi-

viduals, including search and seizure, and to

restrict witnesses from leaving the country.

How to prepareWhile these Chinese regulatory develop-

ments are widely seen as a step in the right

direction, and will provide more guidance

and certainty for MNCs operating in China,

MNCs must also prepare themselves for the

dynamic changing regulatory landscape.

MNCs should stay vigilant and closely mon-

itor the policy announcement: it will be im-

portant to watch how quickly new policies

are released and how functions within the

SMRA are to be organized.

MNCs should also carefully examine

their dealings with Chinese government

partners and affiliated enterprises by iden-

tifying high-risk activities and reassessing

their current business model to take into ac-

The friendly face of the regulators

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count the implications brought by the new

regime. For example, companies should

conduct thorough reviews of their existing

incentive or benefits programs, including

evaluations of the structure and anti-cor-

ruption and anti-bribery compliance of such

programs.

MNCs should be ready to interface with

Chinese regulators, including the poten-

tial of dawn raids. Inspections done by the

SAIC typically include seizure of comput-

ers, files, ledgers, books and records, which

are searched for evidence of wrongdoing.

Local employees can be slow to cooper-

ate, and the press is often fast to report

the story. In fact, Chinese regulators are

increasingly aggressive when carrying out

these investigations, and MNCs have re-

portedly been the subject of various such

investigations and subsequent media cov-

erage. MNCs should prepare their domes-

tic subsidiaries and local employees with

standard procedures and internal training

to ensure they are equipped to deal with

any intense questioning and to cooperate

with these Chinese regulatory investiga-

tions should they arise.

Finally, MNCs must prepare them-

selves with localized compliance policies

and internal trainings. Of course, pre-

vention is better than cure – an effective

compliance policy can often serve an

important function to prevent on-the-

ground instances of commercial bribery.

But MNCs should be prepared to adjust

policies drafted in the U.S. to take into

account considerations that are unique

to China, instead of implementing them

wholesale. For instance, familiar U.S. con-

cepts like attorney-client privilege need

to be reconsidered for China. There is

also difficulty in translating policies to ac-

count for cultural norms like “guanxi” and

specific business practices that require

localized risk monitoring across different

regions in China. Rather than a one-size-

fits-all approach, MNCs in China are in-

creasingly looking to a decentralized but

coordinated strategy for their compliance

functions.

Looking aheadThe heightened scrutiny and aware-

ness of multijurisdictional cross-border

regulatory enforcement have solidified the

view that foreign MNCs operating in China

need to pay close attention to recent de-

velopments in regulatory enforcement

against commercial bribery. As MNCs

continue to operate in China, a thoughtful

plan implemented by experienced coun-

sel with the relevant knowledge of local

laws and customs can ensure that the

MNCs are well-prepared for a higher level

of scrutiny of their operations. I

Save The Dateth

Limited Sponsorship Opportunitieszoe.zhang@amcham-shanghai.org

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Sunday, October 28 2018

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Team Building . Kids Zones . Networking . Tournaments . Bubble Football . Interactive Games . Lucky Draw . Food & Beverage

19

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FEATURES

China recently unveiled ambitious plans

to transform the Yangtze River Delta

(YRD) and Pearl River Delta (PRD) into

integrated and specialized economic zones to

serve as engines of future economic growth.

Yangtze River Delta (YRD) Integration Plan

Area: Approx. 211,700 sq km, covering

Shanghai, Jiangsu (9 cities), Zhejiang (8 cities),

Anhui (8 cities)

Economic data: RMB 17.72 trillion in 2016

(20% of national GDP)

Background

China’s Yangtze River Delta (YRD) Eco-

nomic Zone, which includes Shanghai,

Jiangsu, Zhejiang and Anhui (officially in-

cluded by the State Council in 2016) is

drafting an ambitious Three Year Plan

(2018-2020) that will establish the founda-

tion for a world-class city cluster by 2030

and spearhead China’s economic develop-

ment. Though just over 2% of China’s land

mass, the region generates nearly 20% of

national GDP. A YRD Regional Cooperation

Office was established to oversee the inte-

gration process and a Collaborative Advan-

tage Fund worth RMB100 billion launched

to support future collaborative projects in-

cluding public transportation infrastructure,

cross-boundary economic projects, and

a coordinated environmental governance

system. The plan also hopes to reduce re-

gional “overcapacity, duplication, environ-

mental pollution and congestion problems.”

High technology development

The Three Year Plan expects each city to

stretch their expertise and comparative ad-

vantage to form a “coordinated and integrated

development pattern.” To boost the region’s

digital economy, it will jointly promote ICT in-

dustries (cloud computing, big data, Internet

of Things, and artificial intelligence), aviation

and aerospace, biotech, equipment manufac-

turing, finance and trade, and logistics.

Enhanced interconnectivity

The integration plan prioritizes physical

infrastructure within the region. Current proj-

ects include an expressway between Hang-

zhou and Taizhou, a high-speed rail between

Hangzhou and Wenzhou, and the Yangtze

River Deep-water Channel.

Guangdong-Hong Kong- Macau Greater Bay Area

Area: Approx. 56,000 sq km, covering 9 cit-

ies in the Pearl River Delta and 2 autonomous

regions (Hong Kong and Macau)

Economic data: RMB 10.49 trillion in 2017

(12.5% of national GDP)

Background

China’s Pearl River Delta (PRD) has been

a success story of the country’s “reform and

opening-up” policy. In the past few decades

it has gone through rapid urban and eco-

nomic development and transformed from

a mostly rural area into a world-class man-

ufacturing and export center. The inclusion

of China’s two free ports, Hong Kong and

Macau, also makes it increasingly crucial to

China’s economy.

National development strategy

In the October 2017 19th CPC National

Congress report, the central government of-

ficially unveiled its plan to integrate the PRD

with neighboring Hong Kong and Macau to

create a Guangdong-Hong Kong-Macau

Greater Bay Area as an integrated economic

region. Later in March 2018, at the 13th Na-

tional People’s Congress (NPC), Premier Li

Keqiang reinforced the plan and elevated

it to a national development strategy in the

2018 Government Work Report.

In the light of this, the soon-to-be released

Development Plan of the Guangdong-Hong

Kong-Macau Greater Bay Area will promote

connectivity and integration among the re-

gion to “rival the Tokyo Bay, New York Bay

and San Francisco Bay.” The plan also seeks

to leverage Hong Kong’s financial and profes-

sional services strength, entertainment and

tourism in Macau and Zhuhai, innovation and

high technology in Shenzhen, and advanced

manufacturing in Guangzhou and Dongguan.

Next steps

The plan will introduce numerous infra-

structure projects (tunnels, highways, rail, ship-

ping and aviation) to enhance connectivity and

integration within the region. The upcoming

Hong Kong-Zhuhai-Macau Bridge will signifi-

cantly reduce the time needed to travel from

Hong Kong to Macau and Zhuhai. Accompa-

nying projects include the Shenzhen-Zhong-

shan bridge (completion expected in 2024),

Humen’s Second Bridge (completion ex-

pected in 2019), Ganzhou-Shenzhen high-

speed rail (completion expected in 2020), and

Guangzhou-Shanwei high-speed rail (com-

pletion expected in 2021).

In addition, in May 2018, the State Council

released a plan for deepening reform in the

Guangdong Free Trade Zone, which includes

expanded access to Guangdong’s financial

sector and policies to “promote free trade in

services between Guangdong, Hong Kong

and Macau.” At the same time, Shenzhen is

also exploring the possibility of upgrading its

current free trade zone to a free trade harbor

that will remove most of the restricted invest-

ment and trade policies.

 

Challenges

Both plans still face many chal-

lenges. Specifically the Guangdong-Hong

Kong-Macao Greater Bay Area, where differ-

ent legal systems and currencies in the re-

gion may pose more hurdles to the integra-

tion. The cities in the region are all subject to

different customs zones as well as legal and

administrative systems, so improvements in

cross-border movements are highly depen-

dent on inter-city cooperation. I

Mass IntegratIon

By Jessie Niu

POLICY PERSPECTIVES

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Kiddy LandNaming RightSponsor

GoodieBag Sponsor

AmCham Shanghai Celebrates America’s Independence Day

AmCham Shanghai held its annual Stars and Stripes

Independence Day celebration on Saturday, June

30 at Radisson Blu Plaza Xing Guo Hotel. Every

year, event festivities include indoor and outdoor games,

delicious food and beverages, as well as live music and

entertainment provided by Studio 188. This year, more

than 1100 people joined us in celebrating America’s 242nd

birthday – creating a lively afternoon of fun.

The day kicked off with an opening skit featuring

“Abraham Lincoln,” America’s 16th President, followed by

the national anthem and remarks from AmCham President

Kenneth Jarrett and U.S. Consul General Sean Stein.

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FEATURESMEMBER NEWS

Booth Sponsors In-kind Sponsors

Food And Drink Sponsors

Throughout the day, families came together

on the field to celebrate and play football, the

sport of American culture. There was dancing

and music and lots of fun arts and crafts to

be made at the GM Kiddy Land. Between

these activities, traditional games such as

tug-of-war and watermelon eating contests

gathered the crowd, as everyone awaited the

lucky draw and the Liberty Raffle draw. The

lucky draw this year was a round trip ticket to

the U.S. courtesy of Air Canada. The Liberty

Raffle draw included two round trip tickets to

the U.S. courtesy of United Airlines, concert

tickets for Jazz at the Lincoln Center in New

York, as well as an IQair Purifier.

Every year, AmCham Shanghai looks

forward to gathering families from all over the

city to celebrate the birthday of the United

States. We are more than fortunate to host

you all, and to share this afternoon of joy with

you every year. In addition, this event would

not have been possible without our sponsors:

Eastern American, Bristol-Myers Squibb,

Air Canada, GM, Beyond Relocation, United

Airlines, Delta Airlines, American Airlines,

to name a few, as well as our many booth

sponsors. Again, thank you all and we hope

to see you next year! I

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Board of Governors Briefing

The AmCham Shanghai 2018 Board of Governors

Eric Zheng

Chairman of theBoard of Governors

Robert abbanatILE

Grace XiaoUCB

simon YangAptiv

sarah KöchlingShanghai Blossom Consulting Co.

helen huInternational Paper

Eddy ChanFedEx Express

Christine Lam Citigroup

David a. BasmajianShanghai Disney Resorts

stephen m. shafer3M

helenChing-hsien YangDuPont

Board Vice Chair Board Vice Chair Treasurer

MEETING ATTENDANCE

Governors: Eric Zheng, Robert Abbanat, David Basmajian, Eddy Chan, Helen Hu, Sarah Köchling (by phone), Christine Lam, Nancy Leou, Stephen M. Shafer, Grace Xiao, Cameron Werker

Regrets: Helen Yang, Gentry Sayad

Attendees: Ken Jarrett, Helen Ren, Shilpi Biswas, Titi Baccam

PRESIDENT’S REPLACEMENT SEARCH

The Chair reported that the search for a new president was under-

way. The Chamber sent an RFP out and received proposals from 10

firms. The search committee winnowed the list to 3 firms and met

with them all. The Chair provided more details during the executive

session.

AMCHAM CHINA DOORKNOCK

AmCham President Kenneth Jarrett joined AmCham China on its

annual Doorknock visit to Washington DC in early May and provid-

ed the BOG with highlights from the trip. The AmCham China del-

egation met with members of the Trump administration, represen-

tatives of the Chinese Embassy and approximately 50 members of

Congress and their staff. According to Jarrett, the mood in Wash-

ington DC is very negative and there appears to be a fundamental

reappraisal of the bilateral relationship underway. There was also

a feeling that China has taken advantage of the international eco-

nomic order at the U.S.’s expense and that the two countries are

headed toward a strategic rivalry.

CHINA BUSINESS REPORT (CBR) HIGHLIGHTS

The President shared some preliminary results. Business perfor-

mance continues to be strong and there was an improvement in

optimism. The survey also included questions on topical issues

such as VPNs, tariffs, and Made in China 2025. PwC is currently

compiling and analyzing the results. The CBR will be released on

July 12.

CHINESE AffILIATES PROGRAM

Vice President Shilpi Biswas provided an overview of the Cham-

ber’s Chinese Affiliates program. According to Biswas, the Cham-

ber is focused on growing the number of affiliates and expects to

have 100 by the end of the year. The Chamber is putting together

special programing to increase retention.

fINANCIAL fORECAST: DIGITAL MARKETING, CEO AND GPS

Biswas reported that the renewal rate was slightly lower than

last year and there was a need to develop more new member

leads. Governor Rob Abbanat urged the Chamber to hire a senior

marketing manager and develop a stronger digital strategy. This

would help increase the number of leads. According to Biswas,

the CEO Advisory series was stable, and the Chamber is working

hard to meet the targets. New revenue was coming from the Trade

and Investment Center (TIC), increased sponsorship and university

briefings.

AUDITING PROCESS

Board Treasurer Helen Hu reported that the auditing process was

near complete and the Chamber will get a clean audit for 2017.

JUNE BOARD MEETING, JUNE 21ST

Prior to its June informal dinner, the Board met in formal session

and approved Timothy Huang as Chairman of the Nominations

and Election Committee (NEC) for 2018-2019. Board Chair Eric

Zheng made the nomination木.

Highlights from the May 17, 2018, meeting

Government Policy Support(GPS) Program

Helping members navigate China’s regulatory landscape

MEMBER BENEFITS● Quarterly briefings and publications by industry experts

● Chamber delegations to government agencies

● Exclusive in-house meetings with government officials

● Ad hoc support from the GPS Helpdesk

FOCUS GROUPS

MANUFACTURING TECHNOLOGY

FINANCEHEALTHCARE

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Event Report

NANJING NEXT SUMMIT

One hundred and ten professionals interested in blockchain

technology gathered at the 2018 Nanjing NEXT Summit on Fri-

day, June 8 at the Nanjing Intercontinental Hotel to learn about

the technology’s real-world applications. This was the second

Nanjing NEXT summit, which aims to provide executives with

a 24-month view into the future for multinational businesses

operating in China. During three keynote speeches, a break-

out session, and a panel discussion, attendees heard from

executives at IBM, Microsoft, Walmart, JD.com, Deloitte and

NEO about the opportunities and challenges provided by this

groundbreaking technology.

Blockchain technology addresses the issue of trust, offering

a distributed ledger on which information can be shared in a

transparent and verifiable way. Blockchain’s potential applica-

tions – including supply chain management and food safety (i.e.

tracking the lifespan of a chicken from farm to table) – have

gained attention from executives keen to protect and enhance

their work. General consensus among the panelists held that

blockchain technology is still very new, especially when com-

pared with relatively more advanced technologies like artifi-

cial intelligence. Because of this, questions such as the lack of

global blockchain standards and compliance must be resolved.

AMCHAM SHANGHAI BUSINESS DELEGATION TO NINGBO,

SHAOXING AND HANGZHOU

From June 6 to 8, AmCham Shanghai led a 20-member del-

egation to the 20th China Zhejiang Investment and Trade Sym-

posium (CZITS). The delegation also had meetings and match-

making activities in Ningbo, Shaoxing and Hangzhou. CZITS

integrates investment negotiations, trade shows, conference

forums and cultural exchange.

Zhejiang Vice Governor Congjiu Zhu highlighted the eco-

nomic value of the “Three News” (New Industry, New Status,

New Mode) reaching RMB 1.25 trillion and that Zhejiang compa-

nies actively cooperate with international companies. AmCham

Shanghai President Kenneth Jarrett summarized the views of

U.S. companies toward the China market, emphasizing the im-

portance of improved market access and the need to avoid in-

dustrial policies that unfairly disadvantage foreign companies.

Other keynote speakers addressed new policies that benefit

foreign investment within the digital economy environment in

Zhejiang.

The delegation visited the industrial sector of SUPOR in

Shaoxing and joined a forum that introduced the Shaoxing Pao-

jiang Economic and Trade Development Area. The delegation

also joined the Capital and Technology Cooperation Match-

making Symposium in Hangzhou and heard presentations from

the Zhejiang Department of Commerce and the Hangzhou In-

vestment Promotion Bureau, with a special focus on the digital

economy and cloud technology.

NEXT PRACTICES IN HR CONfERENCE

AmCham Shanghai’s Human Resources Committee invited

32 panelists and moderators to speak at the Human Resource

Conference on June 6 at the JW Marriott Hotel. Next Practices

in HR focused on the deepening role of human resources as

a strategic partner in a changing and unpredictable business

climate.

The goal of this conference was to look at how HR can

ensure increased business performance in accordance with

increasing technological advancements, globalization and in-

dustry shifts. The potential for HR to ensure long term success

through new human capital strategies was explored through a

variety of discussions, including how to get Chinese individu-

als into the global sphere, how to ensure diversity and inclu-

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FEATURES

sion in a firm, how to find and retain talent in the millennial

generation and how technology can change the future of HR.

A TASTE Of TOMORROW: INNOvATION IN A CHANGING MARKET

More than 120 professionals from the food, agriculture and

beverage (FAB) industries gathered at AmCham Shanghai’s 8th

Annual Food, Agriculture and Beverage Conference on May

23rd at the Jing An Shangri-La Hotel. A Taste of Tomorrow: In-

novation in a Changing Market served up five panels featuring a

smorgasbord of 21 panelists and moderators.

With many large corporations present, particularly on the

keynote panel, there was discussion around how consumer

packaged goods (CPG) companies can compete with emer-

gent, smaller brands. For the elephants to beat the disruptive

mosquitoes, panelists emphasized the need for flexible supply

chains, customization and digitalization to identify consumer

purpose and lead consumer needs. If the cornerstones of inno-

vation are feasibility, viability and consumer desirability, corpo-

rations must balance all three.

Though food security and processing are improving, poten-

tially through the use of blockchain, corporations must know the

GB standards governing their industries. With professional con-

sumers sleuthing through products looking for errors in transla-

tion or nutritional composition, corporations must especially be

wary of regulations and false and exaggerated claims. I

MEMBER NEWS

SEPTEMBER 11-12, 2018

CHINAFOOD AND FOOD PACKAGING

CONFERENCE

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AmCham Shanghai Month in Pictures

U.S.-China Trade: Grand inquisitor meets learned zhongguotong

Nanjing Next: Four men explain blockchain

WeChat masterclass, a sage opines

The only way is up!

A packed house at the Bringing Sports and

Premium Entertainment Content To China conference

Imbibing the nectar of good HR management, the HR Conference

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28

Please describe your work with the supply chain committee.

I’ve been involved with the supply chain committee for

several years. I help organize events where we aim to lift the

curtain on supply chains in China, because it’s not as trans-

parent here as it is in other places. For example, the Chinese

Environmental Protection Agency (EPA) crackdowns last year

affected tens of thousands of factories. Yet, much of the gen-

eral news media were not aware of this. So, we organized an

event where we brought in several experts and practitioners.

We had around 100 people in attendance. We try to touch on

many of the hot topics affecting the supply chain industry in

China and to provide members with information they may not

get elsewhere.

How will new government regulations affect the logistics

and business practices of companies in China?

They have already affected supply chains, especially en-

vironmentally. This has been occurring through the Ministry

of Environmental Protection’s policies since last year. On the

whole it’s positive for China. Pollution is obviously hazardous

for everybody, so China is moving in the right direction. On

the other hand, measures are not as transparent. For exam-

ple, manufacturers may not have been aware of the details

of compliance. Here, improving communication is central.

It would be useful to have a resource (i.e. a website) that is

available for manufacturers to reference. This must be made

known to manufacturers. Often times there may be a resource

available, but also a lack of awareness about it; and to pro-

vide this information well in advance of any policy changes

gives manufacturers time to comply.

In terms of manufacturers being unaware of compliance

issues and the necessary improvement of communication,

is this noticeably particular to foreign companies or do-

mestic companies? Is it across the board?

It affects everyone across the board. To generalize, foreign

companies tend to operate at their own foreign standards.

These may be, from an environmental perspective, cleaner.

Whereas in China, manufacturing is traditionally a very low-

cost industry, which means pollution is a lesser consider-

ation. So that is why as China is cleaning up and moving up

the value ladder, many times the standards of manufacturers

may not be (or are no longer) compliant, and they may not be

aware of that. So if the terms are more clearly communicated,

there will be less of that shock factor. For example, it may

lead to the avoidance of tens of thousands of factories being

shut down, affecting all supply chains.

What are the greatest challenges for foreign companies

operating large supply chains in China?

One challenge now is the increasing costs: labor costs

and environmental costs. For example, a chunk of the pol-

luting low-cost manufacturing is leaving China. Supply

chains are going to India, to Southeast Asia, where coun-

tries have lower costs than China. These countries may have

lower labor costs, but they may also have less skilled labor,

decreasing efficiency. It may not be a net positive if you are

paying workers less, but getting even less output as a re-

sult. These countries are also not paying as much attention

to environmental controls as China. Overall, this expansion

extends the supply chain for many companies. For example,

CommitteeChair’s CornerWith Gary Huang, chair of theSupply Chain Committee

Gary Huang is the founder of 80/20 Sourcing.ＴThe company was founded

in 2015 to help online sellers and small business owners save time and

money when sourcing products from China and to scale and systemize

their online businesses to seven figures. Born and raised in Los Angeles,

Gary has been based in Shanghai since 2008. He has worked with

hundreds of Chinese suppliers, having managed multimillion dollar

sourcing campaigns for clients in the U.S. and Latin America.

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FEATURESMEMBER NEWS

you see multinationals like Nike, like Apple, they’re already

extending their manufacturing beyond China to Southeast

Asia just to take advantage of lower cost labor, so it is more

complicated for supply chains. China is a rich source of raw

materials. Other countries, such as Vietnam, may not be.

Thus, it may be necessary to move materials from China to

these countries, increasing costs, increasing lead time, and

increasing the complexity of managing the supply chain.

What competitive advantages do domestic companies in

China have over foreign companies operating in China and

how can foreign companies navigate this?

This is a tricky issue. Not only for supply chains, but also

across the board there are certain advantages that compa-

nies can have in terms of cultural understanding as well as

policies and incentives. For foreign companies operating in

China, many people say it’s not a level playing field in many

respects. It is a challenging issue. You see large corporations,

foreign corporations that are successful elsewhere, like Uber

for example. They try to come in, but it’s a different set of

rules that people play by here in China. So Uber was forced

to exit.

How big and what kind of an impact do U.S.-China trade fric-

tions have on both foreign and domestic companies in China?

There is a lot of politics involved. U.S.-China business is

good for everybody, but other ulterior motives may be at

play. That is why there’s a lot of friction now. I feel that certain

industries are facing a greater impact than others are. I work

primarily with consumer products, for example, products you

would buy on Amazon. New tariffs have not affected these

products. But on the other hand, in China obviously the gov-

ernment has to react to the Trump administration’s protec-

tionist policies in some way, otherwise it would be seen as

weak, not on par with the U.S. in terms of power. So that is

why I do expect some equivalent policies to come down in

China for U.S. imports. But as to the details, my guess is as

good as anyone’s as to what will happen exactly.

Will the tit-for-tat reciprocity grow to affect consumer

products in the long run?

In terms of the future, if Trump levied the 25% tariffs on

clothing and shoes that would really hit the pocketbook of

the U.S. consumer. I don’t think a lot of the average Joes in

the U.S. would be happy to see prices go up as a result. So,

I hope it doesn’t happen, but if things escalate there is a

chance it will happen. I

Interview conducted by Julia Peters,

intern at AmCham Shanghai

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MEMBER NEWS

Esoterica

MembersShare TheirFavorite Apps

DouyinDouyin is the hottest

app in the China inter-

net universe at the mo-

ment. In the West, it’s

called Tik Tok. It’s es-

sentially short 10 second videos of people

doing stupid things. But for some reason,

it’s very infectious and sticky. The recom-

mendation engine has a strong algorithm

that somehow “knows” what type of video

you would like and keeps serving it to you.

And you keep consuming it, 10 seconds at

a time. Next thing you know, it’s an hour

later and you have accomplished nothing

except for having laughed, cried and said

“OMG” multiple times.

- Paul Lin, Chief Strategy Officer, OMD

SmartShanghai (taxi translation feature)

I love hosting

guests from overseas

and always insist they

download the Smart-

Shanghai app when they arrive. When they

are out adventuring on their own through

Shanghai, this app gives them the flexi-

bility to change plans throughout the day

without asking me for assistance or rec-

ommendations. The greatest feature is the

taxi translation that enables them to simply

show their driver the Chinese instructions

of where they want to go. It keeps them

happy and allows my “hostess” role to be

confined to the weekends only.

BottlesXODoesn’t have the

greatest selection, but

they arrive at my door

faster than I can get

down to the store and

back. Works well for office parties as well.

- Pilar Dieter, Senior Partner, Solidiance

WunderlistI have taught

Franklin-Covey Time

Management courses

and take my “To Do”

lists very seriously. I’ve

tried many. Without a doubt, Wunderlist

is the best. It syncs seamlessly between

my 2 iPhones, iPad and 2 Macs and allows

me to separately categorize my work pri-

orities, professional priorities and personal

priorities.

Mila LivingAllows me to moni-

tor my room air purifiers

either at my apartment

or home. If I see that the

PM2.5 reading has gone

up (even if I am out of country), I can remind

my staff to close the office window or hall-

way door on a polluted day. It also shows

me the temperature, relative humidity and

even the outdoors PM2.5 readings for the

closest monitor in Shanghai.

MapMyfitnessEvery week, I com-

pete against pals around

the world to see who

can burn the most cal-

ories. MapMyFitness al-

lows the user to use the GPS function on the

phone for a bike ride, jog or even a dog walk,

and based on your entered height/weight

will calculate how many calories you burned.

You can also enter a gym work out (from

elliptical to weights lifting) and the time/

distance data, and it will calculate your cal-

orie burn. The competition with your mates

around the world is a great motivator.

NPROneI am a fan of National

Public Radio from the

U.S. This particular app

gives you on-the-hour

audio news reports, and

you can go further in-depth into particular

news stories if you choose to.

MobikeThe bike sharing app

works great and gives

me an exercise option to

go to work in the morn-

ing without the burden

of riding home after work if it’s raining. I

We asked AmCham members if they could recommend apps that they

have found interesting or useful in the past year, in China or generally.

Here is what some of them said:

- Daniel Krassenstein, Director of Asia Operations, Procon Pacific LLC

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FEATURES

AmCham Shanghai strives to bring you insightful news and content

relevant to your industry. Follow us on social media to receive our

latest features and interviews, along with events announcements

and membership promotions.

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Twitter: @AmChamSH