www.amcham-shanghai.org INSIGHT The Journal of the American Chamber of Commerce in Shanghai - Insight July/August 2021 SCALING THE VALUE CHAIN FEATURES P.05 Why more employees are choosing local firms Whether in talent recruitment, environmental regulations or data security, China is proving its competitive advantage POLICY P.20 The economic impact of the 14th Five Year Plan MEMBER NEWS P.28 A chat with Beast of the East brewmaster Matthew Jimenez Join our WeChat: FEATURES AMCHAM SHANGHAI President KER GIBBS VP of Administration & Finance HELEN REN Directors Committees JESSICA WU Communications & Publications IAN DRISCOLL Corporate and Commercial KAREN YUEN Government Relations & CSR VEOMAYOURY "TITI" BACCAM Trade & Investment Center LEON TUNG INSIGHT Editor in Chief KATE MAGILL Content Manager IRIS FU Design GABRIELE CORDIOLI Printing SNAP PRINTING, INC. 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No part of this publication may be reproduced without written consent of the copyright holder. 27F Infinitus Tower 168 Hubin Road Shanghai, 200021 China tel: (86 21) 6169-3000 www.amcham-shanghai.org INSIGHT The Journal of the American Chamber of Commerce in Shanghai - July/August 2021 FEATURES 05 Think Local Why foreign firms are losing young talent to domestic companies 08 A Global Education The future of US higher education institutions in China 10 China’s Chemical Industry How one major chemical producer is adapting to changing environmental regulations 13 Career Coaching A look at digital-first coaching firm GloCoach 16 Expanding East How SMEs can successfully enter the China e-commerce market POLICY PERSPECTIVES 20 The Next Five Years China’s 14th Five Year Plan aims to shore up domestic security in energy, food and supply chain 24 A Regulatory Maze How to navigate China’s confusing and fast-changing data regulations MEMBER NEWS 28 Member Interview A chat with Beast of the East brewmaster Matthew Jimenez 30 Month in Photos Find your face among the crowd from recent AmCham events 32 Event Report A recap of recent speakers, outings and conferences 34 Bits & Bobs Our selected favorites from the Weekly Briefing newsletter Special thanks to the 2021 AmCham Shanghai President’s Circle Sponsors 3 July / August 2021 PRESIDENT’S LETTER KER GIBBS President of The American Chamber of Commerce in Shanghai In six months AmCham Shanghai will have a new president. As we prepare the Chamber for the transition, we have some unfinished business and strategic issues to address. US-China relations will remain challenging, that much we know. Our member companies feel caught in the middle, putting the Chamber in a delicate position. We continue to provide information about sanctions and entity lists, but as the two governments go head-to-head on national security and other issues, we know that more action and advocacy will be needed. In the US, negative feelings toward China are at an all-time high, fueled in part by the perception that America hasn’t enjoyed the same economic benefits of the bilateral relationship that China has. The Biden administration is focused on American jobs, a position that AmCham fully supports. We need to continue explaining that American companies investing in China is consistent with that position, even though China is now defined as a “strategic competitor.” Politicians in the US will keep challenging us to show how our investments benefit the US and support jobs at home. For this reason, we now bring programming to a US audience, where we can explain how the commercial relationship benefits both countries. The pandemic halted many of our plans for the West Coast initiative, but we have continued our online programs, our outreach to state-level officials in California and have started to offer more services for those trying to export to China. We are now expanding this to Illinois and Washington state. I hope my successor builds on this momentum. Our advocacy and engagement with both countries’ governments has never been more important. We have been running task forces for various issues including local tax changes and vaccines. We have also expanded our outreach in Jiangsu, Zhejiang and Anhui provinces and strengthened our relations with the central government to encourage more reforms and clarify policies. The Chamber needs to continue and expand these efforts. The Chamber will continue helping our members tap into China’s vast market potential. As the economy grows there will be new market-changing innovations. Our new retail committee is tracking these trends; we need to continue creating new committees and programs to help companies take advantage of the opportunities that China has to offer. Operationally, like any good organization, we are constantly looking to improve. There are several tactical initiatives that are works in progress. As one example, members still get too much email and not enough information. We keep track of thousands of email addresses and meta data on members, but we don’t yet effectively target members with customized offerings. We need to find a way to do this better. In recent years, the Chamber has developed a number of new programs that generate revenue. We still depend mainly on membership dues and sponsorships, but we have recently added business development fairs, student programs and other offerings that generate revenue. The challenge is to continue adding innovative programs without losing focus from our core mission. As a membership organization, our most significant threat is the shrinking foreign population in Shanghai. As much as we advocate around the tax laws and other issues that affect foreigners, there is little we can do to stop the trend. Our member companies are becoming increasingly localized and local managers who replace foreigners are less inclined to engage with the Chamber in the same way. We need to adjust. The Chamber’s Chinese Affiliate program can be a source of new members, but we need to be careful. Chinese companies can view chambers as transactional platforms, which clashes with our culture. We want members coming to the Chamber to share ideas and insight, not necessarily to fill order books. We have brought a few interesting Chinese companies into the Chamber, such as Alibaba and Meituan, but we need to do better at engaging and retaining them as active members of our community. These and many other issues will confront my successor and the Board of Governors. The Chamber is well positioned to meet the challenges. We have a strong balance sheet, a superb management team and committed members who support the organization and our mission. The future is bright. A new president will begin their journey from a good place and a strong position. I www.amcham-shanghai.org 4 FEATURES Can MNCs win the Talent Battle? By Ruoping Chen Last year, Huawei founder Ren Zhengfei embarked on an extended tour of some of China’s top universities in a bid to attract the country’s best graduates to his company. His schedule included stops at Peking, Tsinghua, Fudan, Shanghai Jiao Tong, Nanjing and Southeast Universities. At each spot, he touted the opportunities his company could provide students to “realize their dreams and give them real-life applications.” Over the years, Huawei’s heavy recruitment drive has reaped enormous benefits. In both 2019 and 2020, Tsinghua University reported Huawei as the top employer of its postgraduate students. Simultaneously, other Chinese companies have upped their own on-campus recruitment drives. The second and third most popular companies in 2020 were Tencent and Alibaba, and state-owned enterprises such as China’s State Grid and CITIC Group were also favored. No foreign multinational company cracked the top 20. The rankings reflect a wider change in Chinese graduates’ employment preferences compared to the early aughts. A 2005 report by the McKinsey Global Institute noted: “…large foreign multinationals and joint ventures alone will take up almost 70% of China’s suitable graduates before demand from smaller multinationals or Chinese companies even enter the picture.” Back then, multinational companies enjoyed an outsized advantage when it came to not only attracting graduates, but employees at all levels. They were seen as more prestigious, with better salaries and career prospects. In 2007, 41% of Chinese professionals preferred working at a Western MNC, compared to 9% who preferred working at a local company, according to a Corporate Executive Board survey. By 2010, while MNCs were still the top choice for 44% of professionals, 28% of professionals preferred working at private local companies. And according to LinkedIn’s 2021 rankings, Huawei, Bytedance, Alibaba and Tencent make up four of the top five 5 July / August 2021 companies to work for in China, with SAP Yang notes that concurrent with the ranked third. country’s increasing economic might has “For young talent, their top choices these been the rapid expansion of Chinese pri- days are the local tech giants,” says Jessi- vate companies, leading to an increase in ca Dou, Asia human resources director at demand for talent. Technology localization chemical firm Celanese. “They are also more policies have prompted tech giants to em- willing to work for big state-owned compa- bark on large hiring sprees each year, fur- nies or for the government, taking all kinds ther adding to the recruitment challenge for of national exams to become a government companies that are fighting for a share of employee. That’s the big trend these days.” the same talent pool. Challenging times At the organizational level, the pay local employees receive at MNCs no longer ex- Over the past ten years, several factors ceeds that of local private companies – and have contributed to the growing attraction in some cases is less. In one recruitment ad between local companies and young Chi- targeting young graduates, Huawei boasts nese talent. The 2008 financial crisis, which that it offers salaries at least five times high- created economic strain er than that of the grad- in much of the Western world but left China largely unscathed, caused many Western For young talent, their top choices these days are the uate’s peers. Another point against multinationals is that compensation, raises companies – including local tech giants,” says and bonuses are often multinationals with China operations – to cut costs, downsize or restructure, often leading Jessica Dou, Asia HR director at chemical firm Celanese. “They linked to global business performance. “Some Chinese staff were discouraged in the first half of to a cut in Chinese staff. are also more willing 2020 because their Chi- In decades past, global training prospects held greater appeal. Chinese local staff were given the chance to work for big stateowned companies or for the government, taking all kinds of na performance greatly outpaced that of other markets, but this was not reflected in the salary review cycle,” says Yang. to gain valuable experience overseas, acquiring knowledge directly from a global HQ. But according to a 2011 article by national exams to become a government employee. That’s the big trend these days Finally, another frequently cited challenge of working at MNCs is the degree to which headquarters gets in- Harvard Business Review, volved in and controls for many Chinese professionals, working in local decision-making processes, often cre- the fastest-growing market – their home ating lower operational efficiencies. country – was increasingly seen as a speed- “Normally, if you are at a certain level with- ier way to advance their careers. in a multinational firm, you have matrix re- Many Chinese employees also believed porting lines, reporting to your regional boss, they would eventually hit a “bamboo ceiling” your functional boss, and sometimes to other at MNCs, perceiving that the highest posi- business partners,” says Yang. “The communi- tions still went to expatriates working in Chi- cation cost is higher, and it can become very na. By contrast, working at a local company challenging for local staff to react quickly.” that is expanding quickly could hold more Utilizing a more flexible, leaner corpo- promise for exciting career prospects and rate structure can provide staff with greater the possibility of leadership positions. autonomy and decision-making power. An “I remember at one HR conference, a article by Duke Corporate Education de- pharmaceutical executive asking the ques- scribes Xiaomi as having no business units tion: ‘Who stole my people?’” Sharon Yang, and retaining a relatively flat organizational chief human resources officer at SPD Silicon structure. The cofounders work only one Valley Bank recounts. “I tend to look at the management line away from the engineers reasons why MNCs may be losing ground and sales staff who make up the majority of from both a macro and an organizational its employees. perspective.” Entrepreneurial local companies can adapt to changes in the market more quickly by making faster business decisions. According to AmCham Shanghai’s 2020 China Business Report, 64% of foreign businesses felt local companies had the upper hand in speed-to-market strategies. Upsides and downsides By certain measures, local private companies seem to offer employees many benefits missing from MNCs. Employees at Chinese tech firms, for example, can see their careers advancing each year, reaching senior positions much more quickly than they would at a foreign multinational. There is also a newfound prestige and sense of national pride in working for top Chinese companies today. And then there are financial incentives such as pre-IPO stock options, and with national champions expanding overseas, global leadership roles have opened to Chinese employees in ways not seen at multinational companies. “In January, AmCham Shanghai’s HR committee organized a closed-door forum, inviting the head of global talent acquisition from one Chinese startup which has undergone rapid global expansion to give a talk. He was so proud of his career – as a Chinese person, commanding talent recruitment from all over the world,” says Yang. “This was after 20 years of working for a multinational company [in non-global leadership roles].” Of course, downsides remain. Local tech employees must often submit to the infamous 996 work culture (working from 9 am to 9 pm, six days a week) or an even more extreme 007 culture (being online 24 hours a day, seven days a week). This schedule leaves them little to no time for life outside work and many suffer quick burnout. In the past year, headlines around these grueling work hours, as well as the deaths of some overworked employees, have cast a harsh light on some tech work environments. The so-called “wolf culture” prevalent at local companies is another problem. Although Huawei advertises itself as employee-owned, it also urges its “owners” to devote themselves to the company and “fight like wolves.” www.amcham-shanghai.org 6 FEATURES Winning the talent battle In this more competitive environment, how can multinational companies fight against the outflow of talent? One way would be to rebuild employment branding efforts. Western MNCs still hold many employment advantages, from having a more egalitarian management culture to offering a better work-life balance or providing employees with robust training and development programs. “The tech giants focus a lot on employer branding,” says Dou. “Young university talent spends a lot of time on social media, and that’s where most of their information comes from. We need to learn how to get greater awareness from these channels.” Yang adds that while pay is still the number one consideration for young talent in the China market, it has become less important compared to previous generations. That is doubly true for job seekers who are native to Shanghai or Beijing. “They have family support… so they would put more weight into things like organizational structure and whether or not the manager is nice.” “The tech giants focus a lot on employer branding,” says Dou. “Young university talent spends a lot of time on social media, and that’s where most of their information comes from. We need to learn how to get greater awareness from these channels While many believe that the bamboo ceiling still exists, in reality, the path for local talent to rise to senior positions at foreign multinationals is much more open than a decade ago. Celanese has found that a more targeted on-campus recruitment strategy has benefitted its hiring. “Based on the position we have open, we are more targeted in our searches. We also focus on establishing a long-term relationship with certain schools instead of going to many schools,” says Dou. In Bain & Company’s 2018 China Lead- ership Report, which looked at the reasons why local business leaders in China had moved from multinationals to local companies at five times the rate (versus in the opposite direction), it proffered that MNCs need to redefine career development for the Chinese population. The report advised creating a sense of ownership and purpose among Chinese staff and giving local operations more direct influence over key strategic decisions. According to Dou, it is important to orient HR strategy to understand the needs of local employees – which sometimes means adjusting HR practice in China to fit local needs. “We provide different opportunities for people to grow faster in the company. We don’t really care how many years you have been with us, but we do care about how well you can handle the job,” she says. “And we did tailor pay and promotions for the China market as we felt that that was necessary to retain great talent. At the same time, we put very clearly what is required to accomplish those goals.” I 7 July / August 2021 US HIGHER EDUCATION IN CHINA: Keep the Long View Tectonic forces underlie the ongoing engagement between US higher education and China By John Darwin Van Fleet John Darwin Van Fleet chairs the Education Committee of the Chamber and serves as Director of Corporate Globalization for the Antai College of Economics & Management, Shanghai Jiao Tong University. His multimedia project, “First Time in History,” about China’s macroeconomic development over the past four decades, is being published in sections. China has famously fared rather better than most of the rest of the world in dealing with the pandemic – not just the direct effects of the virus (infection rates, deaths, etc.) but also in pace and scope of economic recovery. And while the pandemic has thwarted most students around the world who wanted to begin or continue their overseas studies, US higher education institutions (HEIs) with a China presence have provided a temporary (at least) alternative for tens of thousands of stranded young Chinese. In the year before the pandemic, New York University had nearly 10,000 Chinese students on its home campus; in the past year, a few thousand of those have been studying at the NYU Shanghai campus in Pudong, nearly tripling the typical 2,000-person student population at the campus. Duke Kunshan University in Suzhou has provided educational infrastructure not only for Duke University students unable to travel to the North Carolina home campus, but for students blocked from attending classes at other overseas institutions. Tens of thousands of other Chinese students registered in US-affiliated university programs have been studying on the Chinese campuses of those affiliations, such as the University of Michigan – Shanghai Jiao Tong University Joint Institute. But in education circles, many wonder what broader changes, if any, may follow this short burst of positive collaboration. Some observers remain more pessimistic that the years-long deterioration in China-US relations, exacerbated by the pandemic, has cut demand for US-affiliated university programs. Covid-enforced distance learning has taught us how we can use evolving technology to bring disparate students and faculty together. That rubber band need not and will never snap all the way back. For US HEIs engaged with China, while there are economic and geopolitical factors at play in shaping their continued viability, the two countries also have a rich and deep history of higher education exchange and collaboration. These factors and this history have the potential to make US HEIs’ presence in China stronger than ever, but only for institutions that are willing to both globalize themselves and foster a global mindset in their students. Rhyming history The first US-affiliated university in China predates China’s own establishment of a university system. St John’s College was founded in Shanghai in 1879 with backing from US missionaries. China’s first domestic universities were launched in the 1890s – they are now Shanghai Jiao Tong, Tianjin and Wuhan Universities. From 1909 to 1927, the Boxer Indemnity Scholarship program brought more than a thousand Chinese scholars to the United States and led to the foundation of Tsinghua University in 1911. Following the beginning of China’s era of reform and opening in the late 1970s, we saw a steady increase of Chinese graduate students going to the US starting in the 1980s. 8 www.amcham-shanghai.org FEATURES These students were funded in part by Chinese government entities, but primarily by scholarships from their host institutions. The early 2000s saw a dramatic demographic change in the Chinese student composition, driven by two factors. The first was the nearly 25% appreciation of the RMB against the dollar that began in summer 2005. The other was rapidly rising property prices, which made millionaires out of tens of millions of Chinese families and gave them the funds to send their children to university. In the early aughts about 90% of all Chinese university students in the United States were graduate-level and on scholarships; by 2014 half were undergraduates, with tuition paid primarily by their families. Today, 370,000 graduate and undergraduate Chinese students form the largest cohort of international students in the US, one-third of the total foreign student population. Over the past two decades, US HEIs have inaugurated and fostered formal collaborations with China, with degree-granting affiliations springing up around the country (scores are on offer now), and stand-alone campuses launched in several cities, including New York University Shanghai, Duke Kunshan University and Wenzhou-Kean University. Julliard recently launched the Tianjin Julliard School, offering (initially) graduate and pre-college programs. Why choose a US HEI? At the undergraduate level in particular, these US affiliated institutions and programs in China are usually several times more expensive than domestic alternatives. In her new book, Ambitious and Anxious: How Chinese College Students Succeed and Struggle in American Higher Education, Syracuse University Prof Ma Yingyi writes about the importance to Chinese families of what she calls ‘cosmopolitan capital’ – a foundation of understanding of the increasingly global, interconnected socioeconomic environment. Her research suggests that Chinese families are increasingly investing in overseas study for their children not just for the value of the degree – a bullet point on the CV – but so their children can better engage with the 21st century world to come. While the cost of an in-China experience will not be as high as a fully overseas experience, the market has already proven that parents are willing to pay a premium for more globalized options in China that offer diverse curricula and first-rate teach- ing, not to mention a name-brand school. Supply and demand This year marked the first that more than 10 million Chinese young people took the gaokao. China’s higher education system has made enormous strides over the past 40-plus years, but the demand is simply overwhelming. That spells opportunity for alternatives from foreign institutions. This is buoyed by the fact that many municipalities around China want to broaden their urban palettes and often see an affiliation with a foreign institution as a bright new color. Moreover, China’s higher education system suffers from a phenomenon that afflicts the university sector across the globe. Because published research is a key component of a university’s global ranking, China’s system resolutely focuses on research output, especially at leading institutions, inevitably nudging teaching quality into secondary status. This degradation in classroom quality could be one reason why despite a record number of students taking the gaokao nationally, the number of students sitting the exam in the top four top metropolitan hubs (Beijing, Guangzhou, Shanghai and Shenzhen) has declined recently, by up to 10% in the June 2021 session. A growing population of students are opting out of the test in favor of alternative futures at global institutions. Meanwhile in the US, critics like New York University professor Scott Galloway have gained notoriety for their assertations that the American university system is “more ripe for disruption than nearly any other industry.” Galloway suggests that the financial model itself is broken, and that as many as 25% of the country’s HEIs may be bankrupt within several years. Institutions facing financial pressure may well find that a more strategic engagement with China, not just recruiting students for their home campus programs, but establishing a more robust presence here, offers an opportunity not only for financial survival. Educational entrepreneurship Many US HEIs’ initiatives have failed in China, usually for want of leadership that can drive the changes required to succeed in an overseas environment. One of the key challenges is typically around faculty and curriculum. Can the institution foster a more globalized experience than that offered on the US campus, while still retaining much of the essence of the home campus experience and maintaining the accreditation? This challenge is increasingly important for all HEIs in the US if they want to better engage with students from anywhere in the world. The underlying forces of history, supply and demand have powerful implications for US HEIs that seek to establish or expand a presence in China. Absent any preciptious decline in US-China relations, the (intuitive) trend lines – more and younger Chinese students seeking an international education experience, and for more than just a credential – suggest that HEIs willing to do more than just put a Zoom camera in classrooms on opposite sides of the globe, but also willing to invest the time and effort required to ensure that their students acquire Ma’s cosmopolitan capital, have real promise here. They will surely find an outstanding return on investment, one that pays dividends for decades to come. I Not gaokao, gao-can! 9 July / August 2021 A CHANGING INDUSTRY Interview by Kate Magill www.amcham-shanghai.org Celanese is one of the world’s leading chemical and specialty materials corporations. Celanese began doing business in China in the 1960s through three joint ventures with China Tobacco. The corporation established its first solely owned local manufactory site in Nanjing in 2003. Since then, Celanese has expanded its production in China to include three locations: the Nanjing Chemical Complex, a Suzhou site, and a Shanghai Songjiang site with plans for expansion. We spoke with Kevin Liao, managing director of China and Martin Laycock, senior director of manufacturing, about how the company has localized and expanded their operations and how China’s chemical industry is evolving. How is Celanese expanding in China, and what is the strategy behind it? KL: Recently, we announced several expansion plans to increase our production capacity to meet the growing market demands in China. Those plans include vinyl acetate monomer, acetyl-chain polymers and engineered materials. Our expanded engineered materials include liquid crystal polymer, a very high-end plastic used for materials like compact camera modules in mobile phones that is in high demand and is listed by the central government as an “encouraged material” for investment. There are several considerations here. The most important is the proximity to the market. For example, when we first came to China, our sales in the engineering materials business were via our agents instead of our own direct sales. With the fast growing market in China, we set up our own sales force, built our own manufactories in China and 10 FEATURES are now further investing. Our growth strategy for our engineer- ing materials business is in line with China’s market growth. In 2018, we identified four key growth areas: 5G, electric vehicles, medical and sustainability. Starting from then we set up program teams globally. China is leading in the 5G industry and part of EV. We have a good product for the lithium battery market, an ultra-high molecular weight polyethylene, which we have a very big share of. We work with technical innovation leaders in the market to identify the next generation market so that we meet their requirements. Expansion in China is very good for our significant reductions in all our units. In localization of production, the majority of our emulsions unit, we’ve had many small our raw materials are now locally sourced. projects which have reduced the amount We see China as the manufacturing hub of of waste that we produce and ultimately Asia—and from a logistics perspective, sup- the waste intensity. We have processes to plying Southeast Asia, Korea, Japan and even significantly reduce the [chemical oxygen India from China is convenient and quick. demand] before the material is sent out of the site to be fully processed. Over the Is your localization of supply a strategy to past years, our Nanjing site has invested a limit your supply chain risk? lot in projects focused on sustainability to reduce the source in addition to process- KL: That’s one of the key considerations. ing optimization. In the last decade, China has produced more and more chemicals. For ex- ample, China is still short of ethylene supplies, but it’s building up its capac- ity and producing more locally. In two years, eth- ylene will be fully sup- plied in China, which is one of the key raw mate- rials for us. In the past, we mostly imported ethylene. Throughout the past few years there has been a stricter implementa- tion of environmental protection. We’ve seen more big players We look at our intensities across the with good compliance to government globe typically with a five-year timeline. standards, and that makes us more com- For example, if you look at the years 2013 fortable buying raw materials from local to 2018 for Celanese globally, we reduced players. The local supply is more secure our waste intensity by 40%, our green- and sustainable. house gases by 31% and our energy in- tensity by 19%. And we do that through How have you adjusted operations at your process optimization and investment in facilities to utilize green technology and leading technology. increase sustainability? What have been some of the biggest mac- ML: We constantly strive to improve our ro level changes in China’s chemical in- sustainability and utilize synergies between dustry in the last several years? our technologies and translate process im- provements globally. KL: The biggest To reduce our energy intensity, for example, we use the energy cre- In 2018, we identified four changes have been in the regulations, especially safety and envi- ated by our acetic acid process to support and fuel the vinyl acetate process. You’ll see [those operations are] key growth areas: 5G, electric vehicles, medical and sustainability ronmental regulations. In the past few years, we’ve seen those regulations get tighter and tighter. Some of the seated next to each regulations were there other [at the plant] and for years but have only it’s a very efficient process in terms of ener- been implemented more recently. gy. It’s a great example of where we’ve sig- With the changes in EHS regulations, nificantly reduced our energy intensity. chemical manufactories are paying more On our waste intensities, we have made attention to safety training and have to up- 11 July / August 2021 grade their sites to meet these regulations. As for environmental, chemical emissions are one of the key focus areas. For example, there is a regulation in Jiangsu province, that if you want to apply for one ton of emission quota, you need to reduce two from the existing site . There’s also an increased focus on quality and safety standards from the government. We brought our best technology and best in class standards when we built our plants in China. The enhancement of EHS regulations has helped to filter out those small producers who are not in compliance. In addition, the Chinese government also has strict regulations on chemical transportation, which means increased costs for some small producers. But, for sure, with the continuous focus on environmental and safety standards in the industry, the permitting process for new chemical projects is expected to take a longer time and the cost for operation may also increase. How has competition with domestic players changed in recent years? KL: With the continuous enhancement on regulations by the government, we have seen consolidation in the market. Those big players such as SOE and big private players are standing while some other small and medium sized have been consolidated. In the engineered materials market, we see more and more strong local players – most in difficult-to-recycle consumer applica- are private companies and they’re get- tions. ting investment from the stock market and The Chinese government has an- gaining more capacity. They are investing nounced new targets for carbon neutrality in R&D. Although MNCs are facing strong and carbon reduction. However, it is not competition from local players, there is still clear how the government will implement room for us to grow. these targets and de- When it comes to Celanese’s future in Chi- We’ve seen more big players with tailed plans have yet to be published. The challenge is on how na, what are the biggest opportunities for growth versus the biggest challenges? good compliance to government standards, and that makes us more to calculate a carbon footprint. A lot of companies have their own formulas and it is not clear how the govern- KL: There are a lot of opportunities in this market— 5G, EV, medical, sustainability. But the biggest opportu- comfortable buying raw materials from local players. The local supply is ment will implement the detailed rules. Sustainability is good for the country but sometimes can increase nity area is sustainability. The Chinese government recently more secure and sustainable operation costs. When you ban single use plastic it’s positive for announced a ban on the environment, but single-use plastic, your costs may triple. and millions of tons of materials are re- To produce biodegradable products there quired for new biodegradable materials is a lot to consider operationally and tech- to replace, for example, single-use plastic nologically to maintain the same level of grocery bags. Now you don’t see straws in performance. So, the regulations bring your Starbucks because they’ve banned opportunities and challenges. them. In the future our biodegradable There will be a lot of uncertainties mov- plastic can be used in this type of prod- ing forward related to changing regula- uct. Last year, we launched our BlueRidge tions. However, China has a growing mar- Cellulosic Pellets, a product intended to ket where we will continue to invest and be an alternative to conventional plastics grow. I Chemical engineering in action www.amcham-shanghai.org 12 FEATURES CAREER COACHING FOR THE DIGITAL AGE Interview by Ian Driscoll Rob Abbanat is CEO of GloCoach, a serial edtech entrepreneur and a former member of the Board of Governors at AmCham. Trained as an aerospace engineer, Rob consulted for NASA for 10 years before earning his MBA at MIT and moving to China. In his spare time, he serves as Cubmaster for Boy Scouts of America, Pack 12 in Shanghai. How was GloCoach conceived and born? GloCoach was inspired by another business that we still run called International Learning Enterprises, which provides business English training to corporates. It was a relatively difficult business model for several reasons. But I was enamored with this concept of using technology to deliver a highly customized, scalable learning experience. That is where the concept of leveraging a platform to deliver coaching as opposed to business English training was born. GloCoach is an online-based coaching platform. How did the advent of Covid accelerate acceptance of online coaching versus in-person coaching? Prior to COVID, talent development was moving towards a digital format. But when you are selling into the mid to junior level HR business function, they tend to be conservative. It was starting to change before COVID, but COVID accelerated it because nobody was going to anybody’s office anymore. So, if they were going to do anything like this, it was going to be online. Some customers still say, “That’s really interesting, but can you just send a coach to our office?” We only do when the offline part is accompanied by an integrated online coaching program. For example, if we’re kicking off a large program, in order to provide coaching to a large group of people we may first do a two-day face-toface seminar for the group. Then it splits into the one-on-one coaching, all of which is online. 13 July / August 2021 Did Covid cause the business to slow sive operational experience. They might down ? have reached a mid-level point in their ca- reer and then jumped to become a coach. Absolutely. The first six months of last Yet customers want a coach with 20-25 year were painful. That’s because we’re years of experience in a particular industry primarily selling B2B. Eighty-five percent or job function because they value that ex- of our customers are perience. multinationals, and from February to June of 2020, there wasn’t much going on in cor- Through trial and error, we have learned that certain things must We recruit coaches first based on their professional experience in a par- porate sales. In many be done in order to ticular industry or cases, the people with whom we had a relationship had left for the CNY holiday. guarantee an outstanding outcome of the coaching experience. These function. Then we train them to our own coaching methodology, and then Some still haven’t re- include how we involve we match them with turned. So, for the first six months of last year, our business nosedived. This was less stakeholders such as the coachee’s line manager, how we identify areas for a customer using a seven-point AI algorithm that considers things like language than 24 months into improvement, and and career level. operations. We started in 2018, how we set goals And the coach might not be in Shanghai, and in 2019 our busi- but in London. ness grew 78%. In 2020, we still managed The second key differentiator is our to grow 15%. We largely made it up in the platform, which enables us to deliver second half of the year. Now we are poised this service anytime, anywhere. Our sys- to grow at least 100%. In fact, we might ex- tem handles aspects of account set up, ceed last year’s revenues before the half- scheduling, progress tracking, and pro- way mark this year. vides other tools that make it convenient how we involve stakeholders such as the coachee’s line manager, how we identify areas for improvement, and how we set goals. We have built a systemic approach to coaching that delivers exceptional results time after time, yet from the coachee’s perspective, is highly customized. When a company seeks a coach for an employee, what are the motives for doing so? Preparation for a promotion? Improving someone’s management skills? Ironing out weaknesses observed by someone’s manager or underlings? All of those. Another is what we call “emergency room cases” — where the customer says, “We’re at a near impasse with this team member and we need to correct some of their behaviors. If we can’t do that, this person needs to find a new home.” The conversation usually ends with, “And can you begin as quickly as possible?” We’ve developed themed coaching because we’ve uncovered other needs that people might not associate with coaching. For example, we recently launched an eGility program to help companies realize a transformation initiative. Almost all com- www.amcham-shanghai.org What are three of your USPs? Quality coaches. Prior to GloCoach, if you wanted a coach, often you found someone who’s certified by the International Coaching Federation. What we learned is that many certified coaches don’t have exten- for a corporate customer to track and roll this out across an organization. Third is our process. Through trial and error, we have learned that certain things must be done in order to guarantee an outstanding outcome of the coaching experience. These include panies at some point go through a transformation initiative where the senior leaders say, “We need to transform in some way.” Only about 30% succeed. {This happens} for many reasons, but it’s largely the inability of the leader or leaders who have the transformation vi- 14 FEATURES sion to make it happen. Targeted coaching is an effective tool because once you’ve laid out the transformation, you’ll have a team of people with their own weaknesses or lack of focused agenda. We come in with a team of coaches and match them to help their transformation agents align and effect the transformation. Do you observe any thematic differences between the US and China in how people are coached/what needs to be coached? China’s economy has grown so rapidly over the last 30 or 40 years that people are promoted to levels of authority at a much younger age here. But when they have to influence their Western counter- parts the cultural tendency to not speak out of turn or defer to perceived authority can be an issue. One of the more common issues we hear from BU leaders is, “My guys know what to do, but as soon as we get on a conference call they’re just not speaking up. I need you to help them become more con- Our platform has made coaching scalable because we’ve aggregated a the coach in the decision-making process. For example, which goal should I set given this person’s particular chal- fident and better at influencing when the time is right”. That is just one of a handful of “blindspot behaviors” that we see large pool of highly capable coaches. We’ve trained them to deliver in a consistent lenge that needs to be solved? We’ve already built in the first level of artificial intelligence to do the coach matching over and over again. It’s not something that can be taught in a 2-day seminar; it requires effort over time with the right format. And we’ve provided them the tools and methodology to deliver and now we’re improving that. AI will greatly improve the identification of behaviors that need coach. that service anywhere to be addressed and the Businesses like yours are in the world setting of goals and engagement activities. And highly scalable. What are then these engagement your future plans? activities are becoming a built-in product that go beyond one- Our platform has made coaching scal- on-one coaching. People can come to our able because we’ve aggregated a large platform, do an assessment and work on pool of highly capable coaches. We’ve engagement activities without a coach. trained them to deliver in a consistent format. And we’ve provided them the Are some people uncoachable? tools and methodology to deliver that service anywhere in the world. Our prices Yes. Not everybody thinks that they are reasonable because we take work- have room for improvement. It could be for load off the coach. The coach no longer a number of reasons. Often it’s to do with has to do their own selling, their own cli- the relationship between the coachee and ent management, etc. their boss or company. The next step is building AI into this But it’s not always cut and dry that process. We are building tools that assist the coachee is wrong and the boss is GloCoach’s AI Match GloCoach’s aim is to continually update its algorithm to produce the best coach-coachee match. This begins with matching based on career level, language, gender and job function. It then looks at particular needs. “If you’re not good at presenting in a global way, we’ll find somebody who’s got a lot of coaching experience in that,” says Abbanat. Situational experiences such as “whether a business is going through a merger” are also fed into the algorithm. Weightings are then made according to a candidate’s particular needs or situation. For some people, says Abbanat, a coach’s gender matters; for others, it does not. The aim is simply to get the right match. right. There are cases where it’s the boss who needs coaching. Those are tricky situations. But usually if we encounter a situation where we feel the coachee is not open to the experience, we will tell the customer that we think this won’t work out. I 15 July / August 2021 PATHWAYS TO SUCCESS CHINA CROSS-BORDER E-COMMERCE By Charles Oliver A story of expansion: DermiClean looks to China “DermiClean” [a fictional US company] is a medium-size but growing US brand of skincare products, with a wide selection of creams and lotions. Products are made in the US, and a small but effective team runs the company. Over the past three years, they have mastered Amazon and now have over 20 stock keeping units (SKUs) on the platform, including three products with more than 10,000 reviews and growing sales. The next strategic marketing step is international expansion. DermiClean is in a few foreign markets—a result of early success – but wants to expand while still managing the brand and channels. There are various markets to consider, though one looms large: China, the world’s largest skincare market. China is both intriguing and foreboding, a market with conflicting scenarios: China seems easy to enter, China is really difficult; the market is full of opportunities, or it’s saturated and rife with questionable players and methods. DermiClean executives know that success in China will bring substantial rewards. Not only will it drive sales units and revenues, but for a young company like DermiClean it will prompt a substantial gain in corporate valuation. For qualifying companies that imagine a liquidity event in the not-too-distant future, China success is an alluring objective. The company has received unsolicited emails from China from “Tmall Partners” (TPs) and distributors, even arms of the big e-commerce platforms, offering to bring them into the China market at minimal cost. A perusal of Taobao shows that DermiClean products are already unofficially sold in China at different prices through multiple resellers, despite the company having never contracted with a distributor. DermiClean is not an MNC and cannot write a check and expand at will. Executives must weigh their choices carefully. What to do? What DermiClean needs to first understand First, DermiClean should understand that for them, e-commerce is the dominant channel in the China market, with about 65% of skincare products sold online and growing year-on-year. In three years, this www.amcham-shanghai.org Charles Oliver is COO China at Market Performance Asia, which specializes in bringing quality products to China and Asia through e-commerce. Charles supervises e-store management, logistics, customer service and analysis. Prior to this, Charles co-founded and managed a China-based market consulting firm. He lives in Shanghai. 16 FEATURES should exceed 70%. Retail and other channels still matter, especially from a strategic branding and product awareness standpoint, but are much less important than before. So e-commerce shops are the solution. Furthermore, they know of a way to sell products in China called “cross-border e-stores.” The cross-border e-commerce channel is a clever model introduced by the Chinese government over 10 years ago. The channel allows foreign suppliers to sell products in China via approved and regulated e-commerce platforms without first registering their products. Prior to the cross-border channel, the vast array of approvals, registrations and restrictions formed a formidable entry barrier for many products. While not all products require such registration, most do, and some are restricted by other protectionist and regulatory barriers. Depending on the province, the process can take several months and real and this is the definitive place to buy. The launch process for a flagship cross-border store takes 10-12 weeks once all materials are ready. Concurrent or prior to the registration process, DermiClean needs to decide its branding, positioning and marketing strategies. An ecosystem of service providers, channels, other platforms and group- and content-oriented entities could form part of the mix. Working with Tmall Partners DermiClean is thinking seriously about partnering with TPs. How to start? They could launch and run the e-store themselves and establish a team in China. That’s a no-go for DermiClean, as it involves another level of structure and regulatory compliance, large management loads and high costs. This all before product, logistics, selling and marketing expenses. China e-commerce is on steroids. A number of unique demands are placed on the TP and the company to be successful in China. For companies where e-commerce is a secondary channel in its home market, this can lead to poor decision making. It is critical that a company’s product value proposition, presentation, positioning and pricing be thought through. Sometimes companies underestimate the sophistication of their target customers or the competition’s abilities. This can lead to disaster. It is rare that a product will do well in China without modification to home market practices. The international cachet of the product is a critical element, but a company often needs to alter or upgrade elements of its offering. In China consumer markets, there is both strong competition from domestic companies, as well as the best of international competition vying for 30,000 RMB per product, even at its most efficient. So, a brand can start with a cross-border e-store and then move to domestic sales if warranted. The main platforms that offer cross-border sales, Tmall and JD, both provide complete logistics solutions. Tmall, for example, will have DermiClean’s products picked up at their Florida warehouse and shipped to a warehouse in China, including customs clearance, at competitive rates. And pay-out is in USD, direct to DermiClean’s foreign bank account. A flagship store is usually the best option, as this shows customers that this store represents the brand in China, products are The majority of SMEs and even many MNCs contract with TPs, companies that are officially approved by Tmall and other platforms to operate stores. There are different TP models, such as the management contract model or the general distributor model. TPs work on the following: • store management - running the store on a daily basis • logistics • customer service (may be outsourced) • digital marketing Remember that e-commerce in China is a 24/7 real-time business. It is always ‘on’. Deep interaction with e-commerce in the home market gives a flavor of this, but in the same consumer attention. Such adjustments need not be expensive but overlooking real conditions may undermine success. Digital marketing is a world to itself. An integrated approach where elements work in parallel and serial fashion is typically the best approach. For some brands KOL live broadcasts may be optimal, whereas for others these have lower utility. In the first stage of the e-store, spending on internal pay per-click programs is important to generate traffic. The ratings of the store, comments and volumes are key evaluation criteria for many Chinese consumers. These elements require constant attention. 17 July / August 2021 What kind of product can succeed in China e-commerce? Any type of imported product can potentially succeed in this market, but value-add is necessary. Due to the costs of importing and marketing, your product will need to sell at a premium, often 20-50% higher than in the US. Will this work? Not for every brand. A few things to consider when assessing this market: 1. Check if your products are being sold on Taobao by cowboy resellers (or dai gou). A good number of resellers and some sales volume is a good sign. 2. Map out the competition and see what they are selling and at what price and volumes. How do your products compare? 3. Which of your SKUs can be stars? How can second-tier SKUs ride their coattails while also supporting the star SKU successes? Star SKUs are critical for crafting expanded exposure and driving not only sales, but comments, store volumes and ratings. Their light must shine over the rest of the product line to achieve integrated, sustainable success. And this is before you address the variety of shopping festivals for which China e-commerce is famous, including 11-11. vision and are more like a partner than an outsource contract. A company like DermiClean should ask itself: “Are these people Select the right TP It makes sense to select a TP with a good track record both in general and in your industry, with the right type of contract and terms. Choose a TP that you trust, can work with and will communicate clearly with you. They will be managing your business from thousands of miles away with imperfect super- going to be straight with us, look after our brand and show ownership? Or will they just add our brand to E-commerce in China is a 24/7 real- their nameplate?” The ties that bind you with your TP are essential time business. It is to success across time. always ‘on’. Deep interaction with e-commerce in the And depending on how the store was registered, changing TPs can be tricky and expensive. home market gives a flavor of this, but in China e-commerce is on steroids Tips for a successful cross-border e-commerce launch www.amcham-shanghai.org 18 FEATURES Display material on the e-store. Have TPs may be good at selling your product, but high-quality material for online store display, at the long-term cost of your brand. Brand including pictures, videos and descriptions. owners should sign off on marketing plans, While two pictures may work on Amazon, design, messaging, etc. At our company, for Tmall wants at least five pictures per SKU. example, we have both a brand manager and Chinese consumers want to see quality visu- store manager, with the former “owning” the als and we recommend a range of product, brand. Re-branding in China can only stretch lifestyle and how-to videos. so far. If you are a drugstore brand at home, Make sure products and materials then you won’t be able to re-position yourself are “China-ready.” China is the world’s as premium luxury in China. most competitive market for consumer Be aware of platform algorithms. Plat- goods—if some of your products are only form algorithms determine your rankings, “good enough,” leave them at home. Pay and your rankings have direct influence on attention to packaging. Defective pack- many components of your program. These aging or packaging that does not meet are “black boxes,” and the components and Chinese consumers’ expectations will ex- relationships within are not public. But there plode in your comments, causing reputa- are sensitivities built-in that must always tional damage. be considered. These algorithms will take Be prepared to spend on marketing. down shops that have negative comments, There is no point in launching e-commerce out-of-stock products, poor customer ser- in China for a brand like vice, and flat or negative DermiClean unless they are willing to invest in marketing for a sustained period. Just showing There is no point in launching e-commerce in trending traffic and sales. If for your product, slower traffic growth is more sustainable, then do that up does nothing. They can design the nicest e-store, but their brand is basically unknown, and no one will find the store. China for a brand like DermiClean unless they are willing to invest – rebuilding is expensive and time consuming. Have proper expectations. Great products, marketing and an effec- To get visitors to buy re- in marketing for a tive partner can take a quires creative and sustained spending, both sustained period company like DermiClean a long way, but manage on-store and throughout your expectations. Sales the ecosystem. Effective e-commerce TP will not explode in the first three months. It partnering will be much more cost efficient takes time for consumers to find you, try your than any of the other paths. Use the com- product, tell their friends, return for more, and parative savings to ensure success. to see organic traffic and conversion increase. Keep your brand well managed. Some What is your time goal for $1 million? For $5 million, $20 million? Be aggressively realistic and focus on execution. China is rewarding for those that make the cut. I JD or Tmall? Tmall (Alibaba) has far more customers than JD. Because of the huge subscriber base, no matter which category or product type, you have a higher chance of finding target customer segments suited for your brand/ product. Nearly half of Tmall users are under age 24. Because of this, apparel, skincare and cosmetics are major categories on Tmall. On the flip side, competition is intense. As a new store, you will need to invest in traffic building and sales growth. Tmall ranks stores on seven levels, according to sales performance and store management metrics. As you move up one level, your store will be assigned more share of organic traffic. JD’s positioning of quick delivery times and authentic goods has helped the platform garner loyal users. These customers value quality and are less price sensitive. Due to its fulfilment speed, for brands that focus on servicing repeat customers, JD might be a better platform. But because of the underlying business model and JD’s search algorithm, store identity and brands receive less focus. JD is good for brands that already have mindshare among Chinese consumers. July / August 2021 19 China’s 14th Five Year Plan A Supply-Side Solution By Dan Wang Dan Wang is chief economist at Hang Seng Bank China, based in Shanghai. Dan was previously an analyst at the EIU and holds a PhD in economics from the University of Washington. Her postdoc was with the Chinese Academy of Sciences. She’s regularly quoted in international and state media and write columns for FT China and Caixin. China’s 14th Five Year Plan, to run from 2021 to 2025, abandoned a numerical growth target for the first time since 1953. Instead, it underscored self-sufficiency. In the past five years, trade disputes with the US have only accelerated China’s effort to reduce reliance on foreign technologies. To guarantee economic security, the plan highlighted three areas: industrial supply chain security, food security and energy security. Supply chain security Technology is a core focus of the plan. The semiconductor industry—particularly the integrated circuits industry—has the highest priority. China has committed massive capital investment and policy support. State-backed R&D during the next five years is expected to grow by 7% annually, exceeding that of the potential GDP growth rate. In 2020 more than 50,000 firms registered their business as related to chips, gaining access to the $100 billion in government subsidies set aside for the industry. The stock market is also directed to support this goal, exemplified by the establishment of the Shanghai Technology Innovation Board in 2018, a quick route for tech firms to access the capital market. Although it’s generally thought that innovation would be most efficient if it is market driven, government support will nonetheless accelerate technology advancement. The plan also vows to upgrade the complete supply chain. Despite increased wages and land costs in the past 15 years, China’s share of global manufacturing has steadily increased, surpassing that of the US in 2009 and EU in 2011. The combina- tion of a complete industrial value chain, skilled labor and advanced infrastructure has made China particularly competitive. Some production lines have been transferred to ASEAN to seek lower costs or circumvent punitive tariffs, but mostly in lower value-added sectors such as clothing. These relocated production lines still www.amcham-shanghai.org 20 POLICY PERSFPEEACTTUIRVES rely on intermediate industrial goods made means that these investments have not yet in China. In 2020 China signed the land- progressed to commercialization. None- mark RCEP deal with 14 other Asia-Pacific theless, the commercialization of more economies, which will reinforce China’s GM foods will likely accelerate as China’s existing advantage in manufacturing. Al- next agricultural productivity breakthrough though RCEP is not a dramatic liberaliza- must rely on seed technology. So far Chi- tion of Asian trade, it will greatly integrate na has only commercialized the planting of supply chains in the Asia Pacific region GM cotton and papaya. Many agricultural through tariffs cuts for intermediate goods experts believe that corn is next in line for produced and traded among member commercial cultivation. countries. Food security Energy security The green energy transition will be Food security was included for the first China’s most important industrial policy. time in this Five-Year Plan. China is not The plan is vague on details but clear on facing an immediate or long-term food its goal: to reach peak carbon emissions shortage, especially in staple grains. Even by 2030 and carbon neutrality by 2060. in 2020 when Covid disrupted the normal Accordingly, local governments issued production schedule, Chi- carbon emission quotas na’s grain output hit a record high. Food security is in reality a feedstock problem, because China can- The combination of a complete industrial value and capacity cutting plans for polluting sectors. Corporates are all stepping up efforts to align with not produce enough feed chain, skilled labor the goals, with an under- grains (such as soybeans) to support its rapidly growing livestock industry and thus must rely on and advanced infrastructure has made China standing that those goals will eventually translate into actual legal and environmental costs. More imports. In 2020 soybean particularly companies have begun to imports accounted for 85% of domestic consumption. competitive stress ESG in their investment strategy or daily op- We expect China to diver- erations. From a govern- sify its source countries and expand its ag- ment relations perspective, early actions ricultural overseas investment in the com- to comply with national policy, though ing years. The investment strategy won’t they may result in higher costs, will often be to just buy farmland, but also to control win the government’s favor. logistics and trade. The plan also highlighted seed securi- ty—a new concept introduced by central authorities in late 2020. This strategy en- visages Chinese crops all originating from Chinese seeds, comparable to the nation- al policy guiding the chip industry. China’s vegetable seeds and breeding animals are highly dependent on foreign supplies, mostly from Australia and Europe, agri- cultural trade relations that have grown complicated amid strained geopolitics. As such, the plan emphasized protecting Chi- na’s native germplasm resources to reduce dependence on foreign technologies. Though not specified in the plan, genet- ic modification (GM) is the most important biotechnology in the seed industry. From China’s industries will be reshaped in a 2008 to 2020, China invested at least 24 drastic manner in the next five years, with billion RMB in the R&D of GM varieties of rapid build-up of new-energy sectors like animals and plants, according to official solar and wind and further capacity cutting estimates. Yet opposition from consumers in traditional industries like steel and coal. 21 July / August 2021 However, in the first one to two years, the pace may be slow. Commodity prices have surged due to supply bottlenecks caused by Covid. To prevent inflation, capacity cutting may be slow at first and then quicken when supply returns to normal. Meanwhile, imports of coal and steel will accelerate to compensate for the production shortage at home. One implication is that the housing Post-pandemic, inequality between differ- market is likely to cool in the coming years, ent income groups is likely to be further ag- as it is the largest consumer of steel. gravated. The finance industry has started to de- China’s economy was consumption driv- sign ESG-related products, while issuing en before Covid, which contributed to about more green loans and green bonds. Despite 60% of GDP growth. However, with income poor yields and low liquidity at present, one growth falling and household debt rapidly cannot underestimate the growth potential of State-backed R&D rising, consumption may no longer be as strong. Urban the green finance mar- during the next five strategy is increasingly con- ket. A group of globally competitive companies has started to emerge in the new-energy sec- years is expected to grow by 7% annually, exceeding that of centrating on city clusters instead of a more balanced growth between regions. As such, the housing market in tor, including upstream the potential GDP small cities and counties will battery producers (like CATL) and downstream NEV makers (like NIO). China targets NEVs to growth rate. In 2020 more than 50,000 firms registered their face higher risks of a downturn given that migrants are flowing into large urban centers. make up 20% of all new business as related The latest census also vehicle sales by 2025, up from 11% as of May 2021, according to data from the China Associa- to chips, gaining access to the $100 billion in government showed faster population decline over the past ten years, which dims the prospect for future con- tion of Automobile Man- subsidies set aside sumption growth. One en- ufacturers. The potential for greening vehicles is for the industry couraging facet from the census, however, is that therefore high. despite a decline in labor, Risks in domestic demand human capital growth remains strong. Fifteen percent of the population now The 14th Five Year Plan is a continuation holds a college degree, and every year, of the 2015 Supply-Side Reform, which fo- about eight million students graduate cused on strengthening production capac- from college. At this rate, by 2040 China ity. The industrial sector entered a rising will catch up to the US, where currently cycle last year, but demand remains weak about 35% of the population hold de- due to slow income growth. The plan prom- grees. China can count on a vast talent ised reforms in income redistribution, pen- pool of engineers to realize its ambitions sion funds and education, but changes in in technology. However, tackling inequal- the coming five years will be small due to ity and weak consumer demand will re- the long-term nature of those problems. quire more drastic structural reforms. I www.amcham-shanghai.org 22 Follow Us on WeChat now Committed to Global Education WeChat: AmChamShanghai 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. LinkedIn: www.linkedin.com/company/american-chamber-of-commerce-in-shanghai/ Facebook: www.facebook.com/amchamshanghai Twitter: @AmChamSH It’s the Regulations, Stupid (and Politics Too) By Carly Ramsey and Julia Coym Carley Ramsey and Julia Coym are both directors in the political, regulatory, and compliance risk practice for Control Risks China & North Asia, based in Shanghai. Carly leads the political and regulatory risk practice and has 12 years of experience in China advising multinationals on China policy developments. Julia has 10 years of experience advising clients on how to respond to strategic challenges stemming from regulatory and operational risks. 24 www.amcham-shanghai.org POLICY PERSFPEEACTTUIRVES Control Risks is a specialist global risk consultancy that helps organizations manage risks, seize new opportunities and resolve complex issues or crises. With over 100 experts on the ground in China, we provide insights and advice that are actionable, useful and deliver for our clients. US companies with operations or major investments in China are worried, and who could blame them? Daily headlines in major international media paint a grim picture about the state of US-China relations and the future of US business in China. Here are two recent examples: “US and China relationship ‘going down a path of great confrontation’”; and “China’s new anti-foreign sanctions law sends a chill through the business community.” Certainly, any US company hoping that a Biden administration would end strategic rivalry with China is sadly mistaken. Recent G7 statements about countering China, or China’s introduction of a new law to neutralize foreign sanctions, show that geopolitics will continue to impact our clients in notable ways. It’s unsurprising then that we get many questions from anxious The consistent problem we see is that our clients lack the people and processes to understand and manage emerging political and regulatory developments executives: will Chinese authorities re- Data Security Law (DSL), set to take ef- taliate against my business because the fect on September 1. The DSL outlines a US government went after my Chinese globally unique approach to managing competitor in the US? Will I be detained data that is tied to national security, so when I travel to China? Will my company be placed on an “un- reliable entities” list? Over the years that we have sup- ported our clients in China, one thing that stands out is the difficulty they have in determining whether a govern- ment action is (a) political or (b) reg- ulatory in nature. Even more worry- ingly, many of our clients did not see these developments coming. But knowing unsurprisingly headlines about the DSL how to make these distinctions (or even are pretty scary: “China’s new Data Secu- better, understanding where the emphasis rity Law promises steep punishments” and lies) and projecting enforcement timelines “China’s new power play: more control of are both very achievable. tech companies.” Our years tracking government en- Looking at the law, there certainly are forcement shows that almost all cases aspects that are worrying for business have clear regulatory drivers that flow – particularly the possibility of data lo- from political imperatives. The consistent calization – but is it all concerning? Us- problem we see is that our clients lack ing the DSL as an example, here are the the people and processes to understand practical steps we take to help our clients and manage emerging political and reg- see the bigger picture, understand if this ulatory developments. Many of our MNC pertains to them and embark on manag- clients came to China ing the actual risks: when industrial politics • What is this was relatively simple – when it was all about growth – and regulations were few and The CSL launched the government’s all-out effort to about? The DSL is a part of a broader political, legal and regulatory framework that enforcement was lax. If they did have someone to manage risk ensure that all organizations, started with China’s Cyber Security Law (CSL) in 2017. The CSL and compliance, they including launched the govern- were almost always exclusively focused on compliance with US government, critical infrastructure and ment’s all-out effort to ensure that all organizations, including anti-corruption laws businesses have a government, critical (and not even China’s emerging anti-corruption regime). Times minimal baseline level of cyber infrastructure and businesses have a minimal baseline level have changed. China’s security and data of cyber security and bureaucracy is significantly more professional and transparent privacy protection practices data privacy protection practices. The cyber security situation than it was even a few in China, where our years ago. And it has lives are lived online – been given a strong mandate to improve more so than in many other countries – the business environment. was and continues to be grim. Rampant A great example is the newly finalized online theft of personal and financial 25 July / August 2021 information. Critical infrastructure, such the board. as hospitals, banks and airlines, with But here’s the good news: while little to no cyber security processes in companies may be unable to influence place, exposed to hacks and breaches. geopolitical and political dynamics, The CSL, the DSL and the incoming Per- companies can address their regulato- sonal Information Protection Law (PIPL) ry issues. In most cases, companies can are aimed at closing these gaps, meet- achieve compliance with regulations, ing a critical societal (and therefore po- lowering their risk of enforcement, or litical) need. “targeting.” Companies should focus on • Who are the targets? The author- these three things: ities typically take a triage approach • Stop believing everything you read – the targets are usually the worst vio- in the newspaper: The headlines are lators. According to Control Risks data, giving our clients whiplash. And from over the past four years, nearly 80% our perspective, many are misleading or of CSL-related enforcement has been worse, factually incorrect. Be cautious against Chinese firms in sectors that about over-extrapolating profound oper- are, unsurprisingly, the major holders ational implications from these high-lev- of data or operate a el statements. Don’t critical organization. lose sight of the real- Foreign companies ity on the ground. with similar business models eventually become a focus. Be cautious about over-extrapolating • Devote more resources to keeping up with the ev- • What is the timing? DSL particulars are still vague, but the government has been profound operational implications from these high-level er-changing political and regulatory environment: Companies often do not flagging the possibility of data localization since the CSL entered into force over four statements. Don’t lose sight of the reality on the ground have the right people or processes in place for monitoring risks, understanding years ago. The next them and then en- step for them will be suring that the right to issue draft regula- people are responsi- tions and standards that outline targeted ble for mitigation. Time and time again data. Once those are out, regulators will our clients find themselves neck deep likely announce the onset, duration and because they failed to see the regulato- target of DSL enforcement campaigns. ry tidal wave headed their way. In almost • How do I prepare? Now that we know every major government-led investiga- the drivers, we can look at your business tion we have supported, the signs were through the lens of the regulators—how clear – but no one at the company was would they view your business and its looking for them. data, and how well you handle that data? • Give compliance a seat at the strat- If your firm could be a focus, the first cru- egy table: Compliance is your strongest cial step is to undertake a data review defense for mitigating both political and process – examine where your data is regulatory risk. In these tense times, do stored, whether authorities potentially not give the authorities any excuse. Com- consider it sensitive, the current security pliance professionals need to be senior processes surrounding that data and the to direct strategic business goals and implications and costs of having that data they need to have a broad focus. stored in China. The ongoing politicization of areas Beyond the DSL, there are multiple such as data and social credit, particu- other examples of sustained, regulatory larly in US-China relations, is only going enforcement that aim to solve broad- to continue amplifying the noise, mak- er political, societal and economic is- ing it harder for executives to distinguish sues: anti-trust and the crackdown on between regulatory and political drivers free-wheeling big tech companies, en- of risk. Remember that US companies vironmental enforcement and the clean- can significantly lower the odds of ma- ing up of heavy polluting industries, jor disruption – including from political anti-corruption and the high prices of factors – by understanding, responding drugs, for example. China’s social credit and adapting to the changing regulatory scheme, focused on ensuring compli- landscape. I ance, will amplify regulatory risks across Member-Exclusive Services Working with Essential, the AmCham Shanghai MBP offers members the opportunity to buy select insurance products at a discounted price. The CVP is a service administered by AmCham Shanghai in cooperation with the US Consulate General in Shanghai to facilitate US visas for select AmCham Shanghai member companies. AmCham Shanghai’s calendar is packed with education and training events, including half-day and full-day training sessions, Lunch & Learn Sessions, and online courses. AmCham Shanghai partners with Capital Tax to deliver quality US expat tax filing services for our members and member company employees. The University Briefing Program provides students the opportunity to gain insights into business trends and government policies from AmCham Shanghai’s senior staff as well as top level member company representatives. Whether you are looking to show your headquarter executives what’s really happening on the ground in China or want to hear from top policy experts in your field, our executive briefings bring you tailored, expert speakers to member companies in an exclusive setting AmCham Shanghai offers US Consulate approved notary services. We can notarize more than 50 types of documents, including documents for real estate transactions, affidavits and power of attorney. AmCham Shanghai’s well- established communications channels can bring companies’ information directly to our members and viewers through a variety of print and digital marketing platforms as well as event sponsorship opportunities. We offer multiple conference room sizes to fit your meeting needs, all in our centrally located Xintiandi offices. Rentals include complimentary access to WiFi, coffee and tea, as well as available events management services. Scan the QR Code to learn more or visit www.amcham-shanghai.org/en/services Beast of the East’s Matthew Jimenez Interview by Dominic Woetzel Photo courtesy of Beast of th e East Brewing www.amcham-shanghai.org Matthew Jimenez is brewmaster and partner at Beast of the East, a Shanghai-based craft beer brand. Matthew joined Beast of the East in September 2020 and has been leading the brand’s evolution to include an expanding menu of beers amid the growing popularity of craft beer in China. How did you become involved in the Shanghai brewing scene? I started in China about nine years ago just doing home brewing. There was a guy named Teddy Gowan who was the brewmaster at Dr. Beer and now is the director of brewing for Society. I saw him working in the brewery, had some of his beers and fell in love with what he was doing and how he was doing it. There was also a guy named Mike Sherretz, who’s a retired chemical engineer and the owner of a home-brew store. He had a house in Pudong that I would go out to every day to go through the beer and learn the process. When Teddy left to go back to the US he shot me a message saying, “Hey, do you want to come in and see what it’s like to commercially brew?” I was excited and said yeah, so that summer I worked at Dr. Beer and got an idea of what commercial brewing was like. It was a lot of fun but also a lot of hard work. It’s a lot of grinding and physical labor. Once I did that, I met Michael Jordan who later became my mentor. He was the brewmaster at Boxing Cat Brewery and we knew each other through acquaintances. When we were chatting he shot me a message saying, “Hey, we’re expanding the business. Would you like to come in and join our team?” I didn’t 28 have all the skill sets in brewing yet but he hired me because I loved beer and I had a passion for it. That’s when it really kicked off for me. Speaking of production, are your production facilities inside China? For our current operations we work in an OEM out in Zhejiang, a lot of craft brewers are out there actually. We do contract brewing, so we share a facility with another brewery where I’ll go in and work out what processes, flow and materials we’re using. Of the ingredients you use, what proportion are imported from outside of China? Everything’s pretty much imported. We receive the barley from Canada, Australia and France then malt it in Chinese factories. Our hop range comes from Germany, Czech Republic, United States, New Zealand and Australia. For yeast, we use a Belgian company and also a French company. They import their yeast through here from Fermentis and Lallemand. As for malts, we use English malts and malts made from Australian barley. We also use some barley from the Netherlands, but mainly for specialty malts. Why not use anything that’s local? I’ve visited a hop farm mountain in Ürümqi and the technology just isn’t there yet. It’s also really tough because in China, it’s mainly mass-produced volumes. So you have state government companies like Qingdao that purchase and use a lot of land, so opportunities to grow specialty hops are limited. It is changing though. There are more and more people wanting to try to figure MEMBFERATNUERWES Ah, that yeasty aroma out how they can produce different types of hops. For example, the cascade hop came from the Northwest in the United States. That hop is now being grown in New Zealand as well as in Germany, and I’ve heard rumors of it potentially being grown in China. I would say what holds China back is technology, but they are catching up very fast. In terms of the average Chinese consumers’ taste palate, are there any noticeable differences between that of someone from a Western country? Honestly, not really. I think as China opens up more people are going abroad and trying different flavors so when they come back to China, they want to have that same experience. The one thing I did learn is that when you say you have something in a particular flavor, like this beer right here, we call it a Bo Luo Tian Tang (Pineapple Paradise). When Chinese people read it, they expect that pineapple flavor and if it isn’t there, sometimes they might not buy another one. How competitive is the craft beer market in China? We had an all-Shanghai local craft beer festival about two weeks ago and there were breweries that I’ve never even heard of that were in Shanghai. The growth for craft is massive, more and more people are turning towards newer style beers. I feel like the Chinese consumer base has this craving for new tastes and flavors. And it’s definitely growing; what I’ve noticed is that whatever trends in the US tends to follow suit here. Right now I’d say Goses and Berliner Weisses from Germany, as well as sour beers in general, are starting to pick up in China. You mentioned that there was growth potential for the craft beer market. Which demographic do you think will drive that growth? I think it’s the young generation, between the age of 20 to 35 years old. There’s a big push for wanting to adapt and try different things in that demographic. Obviously, the older generation is probably not as turned on to craft. At the end of the day, it all comes down to education and how you’re educating the market for craft. Where are your products sold or served? Is it mainly in Chinese or foreign restaurants? Most of our beers are actually sold in Western places. But we are getting a large amount of Chinese consumers who are interested in our beers and want to put them into local markets as well. So that’s a transition that we’re learning more about because at the end of the day, we are the minority and the local consumer is the majority. I think that’s very important, especially for any business that wants to keep growing in China. Do you have any interesting experimental or unique projects going on right now? Currently we’re working on producing more of a pineapple coconut sour ale; we’ve learned through the market that people are really intrigued by it, especially the female demographic. For future brews we’re trying to develop a seasonal program where we’re able to launch seasonal styles of beer. I think there’s a lot of potential in doing those types of beers. For example, during the winter time, I’d like to release a stout that’s on the heavy side. I actually want to do something like a trail mix stout like back in the US where we have trail mix—peanuts, M&Ms, chocolate and some fruit like cranberry. That’s what I’m lining up for winter, but for summer I’m focusing more on fruity sour ales as that’s the trend right now. What is your favorite beer? If I could get it here, Sam Adams, ‘76 light lager. It’s a great tasting beer. It’s citrus, grapefruit, very crushable low. When I was back home in the States last year, it’s what I drank. I’m a big lager drinker. In China, my favorite is the Yanjing beer based out of Beijing. They make some incredible lagers that pair really well with local cuisine like Dongbei or Sichuan food. I Quality control 29 July / August 2021 EducationUSA College Fair on May 9 at the Grand Hyatt Shanghai AmCham Moments AmCham Shanghai leaders meet with Chargé d’Affaires Rob Forden on May 19 The AmCham Shanghai Nanjing Center hosts its member briefing and summer mixer on May 28 The Food, Agriculture and Beverage conference on May 19 Spotlight Session for Great Place to Work’s 2021 awards on May 13 May & June May Monthly Member Briefing featuring The Economist’s Simon Rabinovitch www.amcham-shanghai.org May & June New Members AMCHAM SHANGHAI WELCOMES NEW MEMBERS Access members' contact details in the Member Directory Scan the QR Code below Or visit www.amchamshanghai.org/en/ directory/ 32 What You May Have Missed MEMBFERATNUERWES CHARGÉ FORDEN VISITS AMCHAM SHANGHAI AmCham Shanghai leaders met with Chargé d’Affaires Rob Forden on May 19 during the diplomat’s visit from Beijing. Chargé Forden has led the US mission to China since last year and brings more than 30 years of foreign service experience to his role as the top American diplomat in China. Forden, as well as acting Shanghai Consul General Jeff Graham, had a roundtable discussion with AmCham Shanghai Chairman and NYU Shanghai Vice Chancellor Jeff Lehman, AmCham Shanghai President Ker Gibbs and more than a dozen Chamber committee and industry leaders. Forden offered a briefing of the recent US-China diplomatic meeting in Anchorage, Alaska, as well as an update on US-China relations in areas including trade and pandemic response. Following the chargé’s remarks, AmCham Shanghai industry leaders each shared updates of their company’s performance in China and areas of particular concern. Executives from industries including automotive, hospitality, education, manufacturing and financial services briefed diplomats about some of their concerns related to employee mobility, market access, supply chain and US-China tech relations. Forden listened to the industry updates and offered insightful feedback on how the US government is working to address the business community’s concerns and help US businesses to continue thriving in the China market. Government advocacy on behalf of our members is one of the cornerstones of AmCham Shanghai’s work. The roundtable session with Chargé Forden served as a valuable opportunity for business leaders to speak directly with top diplomats and to keep an open dialogue with US officials. We look forward to more productive conversations in the future to help our companies navigate the China market. AMCHAM SHANGHAI 2021 FOOD CONFERENCE AND FAIR: RECIPE FOR GROWTH AmCham Shanghai brought together some of the city’s top restauranteurs, food and beverage executives and industry experts at its 2021 Food Conference and Fair: Recipe for Growth. The day included insights from leaders at restaurants including Shanghai staples Element Fresh and Brothers Kebab as well as new market players like Popeyes. AmCham Shanghai President Kerr Gibbs kicked off the half-day conference by celebrating the impressive growth the food and beverage industry has seen this year. AmCham Shanghai Food and Beverage Committee Chairman and Element Fresh founder Scott Minoie followed, commenting on the excitement and success that has sprung up in the months following China’s pandemic lockdown. The China F&B industry has been buoyed this year by consumers looking to spend money domestically while borders remain closed. 33 July / August 2021 The first panel of the day, “Unlocking Opportunities,” featured expertise from five industry leaders: James Chiu, president and managing director of General Mills China, Emily Chang, CEO of McCann Worldgroup China, Daniel Alymer, chief operating officer of IHG Greater China, Raphael Coelho, CEO of Popeyes China and Curt Ferguson, Managing Partner at Ventech China. Sustenture president Xin Li served as the panel moderator. Panelists discussed how they turned the crisis of the pandemic into new opportunities, such as renewed interest in domestic travel. They also touched on how they as leaders set the tone for their companies and need to be intentional with how they communicate with and deliver for employees. As the China market continues to grow at rapid speed, they noted that the companies that will win are those that stay agile and keep up with the fastest and most innovative local players. Another conference highlight was an interview between Scott Minoie, founder of the healthy lifestyle restaurant chain Element Fresh, and AmCham Shanghai Communications Director Ian Driscoll. In a wide-ranging discussion, Minoie spoke about how his early childhood passion for cooking eventually led to him to start a catering business in Shanghai and later the first Element Fresh. Minoie touched on a variety of topics, including the faith of a small group of investors who stumped up $275,000 to help open the first Element Fresh, to be followed later by several rounds of private equity financing as the chain expanded into today’s 38-outlet operation. Minoie spoke at length about the benefits and downsides of market research as well as the advice he has received from friends, namely, to trust his own instincts when it came to menus and the brand. Minoie spoke candidly about the chain’s struggles during Covid, and about how after stepping back from the business in 2019, his management team became overly focused on cost management. Now back at the helm of Element Fresh full-time, Minoie is overhauling the brand’s offerings with a revamp of its menu, a collaboration with the Roots and Shoots charity and other new developments. The second panel of the day, “Channel Surfing: How to Boost Your Growth,” focused on how companies can navigate the complex digital market in China and effectively reach consumers. It featured analysis from Yuwan Hu, associate director of Daxue Consulting, Nico Hua, head of marketing at Hormel, Tina Zhang, chief merchandising officer at Sam’s Club China, and Oliver Pearce, business development director of Hill + Knowlton Strategies. The final panel was “The Invisible Competitor: Threat of New Entrants” and offered a look at some of the up-and-coming players in the market, as well as the risks they may pose to more established firms. Speakers included Charlotte Chang, vice president at L Catterton, Gregory Prudhommeaux, co-founder of Urban Food Group and founder of NextStep Studio, Niko Moesgaard, partner at Brothers Kebab and co-founder of Impact Intelligence and David Ettinger, managing partner at Keller and Heckman LLP. Attendees had the chance to sample some of Shanghai’s favorite and budding eateries at the food and cocktail mixer that followed the conference. Booths sponsors included Bunge Winery, EJ Gallo Winery, Element Fresh, Laprin, Norbu Natural, Silvermile, ZEYA, Orange Cheese Co., Green Monday, Subway, LAIBA Beverages and Urban Tuk Tuk. Thanks to our sponsors who helped make this year’s event possible: cocktail sponsor Hormel, booth sponsor Keller and Heckman and networking sponsor Shiyao Investment. AMCHAM SHANGHAI HANGZHOU CENTER MAY MEMBER BRIEFING www.amcham-shanghai.org The AmCham Shanghai Hangzhou Center hosted a Member Briefing on May 18, focusing on US-China relations and its impact on two-way investment. Attendees from the textile, education, biotech and manufacturing sectors attended the briefing. Timothy Stratford, Partner at the Covington & Burling Beijing Office and a former Assistant US Trade Representative, and Sean Stein, former US Consul General in Shanghai 34 and current senior advisor at Covington, opened the event with remarks on US-China relations under the Biden administration. With rich experiences in inbound and outbound investment for Chinese companies, Daniel Levine from Covington provided insightful suggestions on areas of investment in the US for Chinese companies. The three speakers were optimistic about US-China trade relations and cooperation in business. I MEMBFERATNUERWES The snippets below are a few of our favorite recent pieces from the Weekly Briefing, the Chamber’s email newsletter. In addition to bringing you the latest business, economic and trade matters, we also highlight the more lighthearted, perplexing and occasionally mind-boggling aspects of life in the Middle Kingdom. Milking It Despite being the world’s third-largest milk producer, domestic production in China only quenches 70% of domestic demand, reports Reuters. Efforts to expand milk-producing herds in China are underway, but land and water shortages have slowed growth. High feed costs have also impeded profits in the industry. China is expected to add 500,000 heifers to its domestic milking homework lamp”—equipped with two surveillance cameras to allow parents to remotely monitor their child’s learning. The $120 lamps have proved wildly popular in China since debuting in October, selling 10,000 units in the first month. There’s also a smartphone-size screen attached to the lamp equipped with AI to help their studies. For an extra $50, the lamp will alert parents when their child slouches. Some have expressed privacy concerns for students, but ByteDance claims the lamp cannot remotely monitor without both child and parent consent. In a country where education continues to get more cutthroat and expensive, parents have welcomed the lamps as a tool to help oversee their child’s learning and ease their burdens while at work. Bacon imports and panic selling by farmers amid an African swine flu outbreak. The prolonged plunge has precipitated a sell-off of the hefty hogs, which could further postpone a price rebound. Some farmers have put an end to the feeding frenzy due to simple math: bigger pigs equal higher food costs that aren’t being recouped. This humble scribe’s sympathies go to the plump piggies, just enjoying a good meal (before they become one). Milk cartons herds over the next two years, with another 400,000 cows imported. Several Chinese milk producers have announced expansion plans, including Modern Dairy and Bright Dairy, while China Youran Dairy is planning to raise $800 million via an IPO. Fresh milk prices in China are double those in the US and Europe. This Lamp is Watching You Need a new way to monitor your student? Look no further than ByteDance’s “smart Those Poor, Fat Pigs China’s pig farmers are blaming a plop in pork prices on their pigs. Farmers have fed their hogs enough food to inflate them to double their normal poundage— transforming the porkers into the size of female polar bears and pygmy hippos— all in the pipe dream of higher returns once prices rebound. Instead, wholesale pork prices have deflated over 40% since mid-January due to low demand, higher Luckin Noodles The embattled ex-chairman of Luckin Coffee is embarking on a new venture: chain noodle restaurants. Charles Lu and other former partners of the controversial coffee chain will open restaurants under the name Noodle Diary, with the first location likely opening in the Wangjing area of Beijing. Lu, who has no catering experience, is expected to embrace Luckin’s business model. This involves opening stores across many cities to quickly collect customer information, before closing the struggling shops in order to focus on the popular spots, eventually expanding to a nationwide-network serving customers “on-the-go.” While small restaurants faced a tough pandemic year, there is potential for chain restaurants that offer better hygiene and quality control – which may explain Lu’s opportunism. It’s unclear if Luckin’s accounting standards will feature at Noodle Diary. I 35 July / August 2021
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