Chamber presents Position Paper in Guangzhou, Shanghai, Tianjin

On October 19 and 24 and November 8, the European Chamber offices in Guangzhou, Shanghai and Tianjin presented the European Business in China Position Paper 2007/2008 to consulates, national chambers and European Chamber members.

In Guangzhou, the Chairman of the Pearl River Delta Board, Keith Poon, highlighted the achievements of the European Chamber in the region since it opened its office last year and the Secretary General of the European Chamber, Michael O'Sullivan, gave an introduction to the Position Paper.

This introduction was followed by an overview of the IPR, Legal, Environment and Human Resources Position Papers from Elliot Papageorgiou from Rouse & Co International, Vivian Desmonts from DS Avocats and member of the board, Gary Moys from Sogreah China, and Audraie Lecocq from ClarkMorgan Corporate Training.

In Shanghai, Michael O'Sullivan opened the presentation by welcoming everyone and giving an update on the recent meetings with European and Chinese authorities. He was followed by Kiam-Kong Ho, Chairman of the European Chamber in Shanghai, who discussed the main points in the Position Paper, and by representatives of the Working Groups who gave a more detailed overview of their particular areas.

In Tianjin, the presentation of the Position Paper was given by European Chamber President Joerg Wuttke, who summarised members' key recommendations for improving China's business environment The European Chamber in Shanghai would like to thank the gold sponsor of the event Coni+Partner, and the silver sponsors Deloitte, DTZ and Yantai Agrati Fasteners.


The European Chamber Business Confidence Survey 2007: Findings

During the summer the European Union Chamber of Commerce in China, in partnership with Roland Berger Strategy Consultants, invited European companies in China to participate in the European Chamber Business Confidence Survey 2007.

This year's survey was undertaken against a background of strong growth in two-way trade between the European Union and China, a ballooning trade deficit in China's favour (€128 billion in 2006), and increasing activity by EU investors in China, particularly in terms of established investors expanding their operations to second and third-tier cities. The respondents to the survey are around 200 EU companies with established operations in mainland China.

The survey attracted a larger response than last year and the composition of the respondents reflects some significant trends: first, there are more small and medium-sized enterprises (SMEs); and second, more companies choose to operate as wholly foreign-owned enterprises (WFOEs) rather than as joint ventures (JVs) with Chinese partners or representative offices. Most companies' operations are focused on the Chinese market. For those companies that have established Asia-Pacific regional headquarters outside mainland China, Singapore and Hong Kong are the preferred locations. Within mainland China, Shanghai is the favoured location for regional headquarters.

The results

The data from this year's survey - our first since China completed its WTO accession process in 2006 - reveals a number of very interesting aspects of European companies' current perceptions of the Chinese market.

Their overwhelming reason for being in China is to reach China's domestic market with their goods and services, even more so than last year's survey suggested. Low labour costs remain a minor factor.

Half of the companies are undertaking research and development (R&D) in China, or intend to do so. Apart from reducing R&D costs by using local skills, the other main reason is to adapt their products to China's domestic market (suggesting that product development is often the main focus of R&D operations, rather than innovative research).

Companies' profitability in China tends to be reasonable but not outstanding compared to their operations in other countries. Most are as profitable or more profitable in China than elsewhere, but a significant number actually say they are less profitable here than in other countries. A growing share of companies report losses. The picture improves in respect of companies which are larger or have been operating longer in China.

Mounting pressures

Companies expect that competition in their sectors will get tougher in the years ahead.

Despite all of the above, most companies expect to increase their activities in China, and most think they will perform better financially in the future. The clear reasons for this optimism are increasing domestic consumption and continuing strong economic growth.

As companies hire more and more Chinese workers, shortages of qualified staff, especially at skilled and more senior levels, are an increasing problem. Improvements in salary and other benefits resulting from these shortages are socially beneficial. However, they move the problem around without solving it - there are still not enough skilled workers to meet the overall needs of foreign and domestic companies.

Not surprisingly, the scarcity of skilled Chinese personnel means that localisation at the upper levels is not going as fast as companies expect. European companies in China with an exclusively foreign management board still outnumber those with an all-Chinese top management team.

While most companies believe China will take steps to implement its World Trade Organisation commitments, a sizeable number of companies still think that China is following the letter of the WTO accession agreement while seeking to circumvent implementation in practice.

Areas of concern

Companies are critical of insufficient action by the government to address environmental problems, but tend to look forward to improvements in this area with some confidence.

With regard to the investment environment, companies are for the most part strongly critical concerning the lack of transparency in the regulatory process and insufficient protection of intellectual property rights.

A number of other factors affecting the investment environment also drew criticism: cumbersome registration processes and customs procedures, lack of alignment of technical standards with international standards and discrimination in favour of local companies.

There were few concerns about controls on capital flows and repatriation of profits, ownership restrictions, media pressure on foreign brands and the impact of environmental regulations on companies' own operations.

A majority of EU companies are engaged in corporate social responsibility (CSR) programmes in China.

The overall picture that emerges is that EU companies are increasingly embedded in China as long-term corporate citizens serving Chinese consumers, attempting to localise their management despite recruitment and retention problems, and achieving reasonable financial performance. They are strongly supportive of the Chinese government's intentions to improve the regulatory environment and tackle environmental and IPR problems, but they would like to see more effective action on these issues soon. They expect to be treated equally, but do not always experience fair treatment at present.

For now, their commitment to China remains firm, and indeed most look forward to expanding their business in China and are not deterred by the increasingly competitive business environment. Their optimistic view is mostly based on the continuing strength of China's economic development and the resulting growth in domestic consumption.

EU companies' engagement in China is strong and long-term. It can be expected to grow further if economic growth is maintained and if action is taken to improve several negative aspects of the investment environment. Low economic growth, lack of improvement or deterioration in the investment environment - or a combination of these scenarios - could trigger a shift in sentiments, but currently EU companies remain committed to their China businesses and want to expand them.

If you would like more information on the European Chamber Business Confidence Survey 2007 or would like to purchase a copy, please email euccc@euccc.com.cn, or call

+86 (10) 6462 2066.

Visit to the Shanghai AIC

On October 29, representatives of the European Chamber's Shanghai office including chairman K.K. Ho, board member Piter de Jong and government relations manager David Martin visited the Shanghai Administration of Industry and Commerce. The delegation was received by Shanghai AIC deputy director Chen Xuejun, director of trademark supervision and administration Xing Dongsheng and Chen Yanfeng, director of the Foreign Investment Enterprise Registration Division. The goal of the meeting was to continue the recent trend of increasing the profile of the European Chamber with important government bodies in the municipality.

Ho introduced the organisation and responsibilities of the European Chamber, while also praising the achievements of China in international trade. He said that the European Chamber acknowledges the various efforts of the municipality in enhancing bilateral trade with the EU. In order to bring further understanding, the board members presented the European Business in China Position Paper 2007/2008 to the AIC by stressing three issues of great concern to European companies. Firstly, bilateral trade may be booming, however, a balanced development strategy is needed particularly with regard to the increasing trade imbalance. Secondly, sufficient time should be granted between the promulgation and the effective date of laws and regulations. This was in particular reference to the June changes in the value-added tax (VAT) rebate scheme. Finally, further enhancing IPR protection is essential for sustaining the current boom in trade.

Director Chen from the Shanghai AIC acknowledged that existing problems do create tensions in Sino-EU trade relations. He explained the AIC's current position in a number of areas, highlighting some recent developments, particularly in the area of IPR. One of the biggest difficulties, according to Chen, is to balance the needs of so many interested parties, be they local or international. Another difficulty that causes misunderstanding is that legal counsels in international companies sometimes lack a comprehensive understanding of administrative laws in China. He also pointed out how European companies could do more to solve particular IPR problems, suggesting that companies should be more proactive in reporting abuses. According to the AIC, less than 5 percent of cases are reported by companies, with more than 90 percent discovered by the AIC's own monitoring process.

The whole meeting was carried out in a relaxed and positive atmosphere. Both sides saw the clear benefit of more dialogue and cooperation in the near future through legal assistance and advice of Chamber members to the AIC, as well as the organising of relevant seminars and conferences. The European Chamber highly appreciates the openness and willingness of the AIC to engage our members. As the independent voice of European business in China, together with the support of the Shanghai Municipal Government, the Chamber is confident of making further steps in bringing about a fair, open, and healthy business environment for European companies.

Understanding the 17th Party Congress

On October 15, almost 2,300 senior representatives, of a party with 73 million members, in a country of 1.3 billion met in the Great Hall of the People in Beijing. The priorities on that day were the "scientific development" of China, reflecting a more responsible and environmentally conscious development of the market economy; the development of a "harmonious society" that bridges the widening gap between rich and poor, urban and rural, one with a strong welfare system; and "indigenous innovation" - seeing China's manufacturing move further up the value chain while also promoting home-grown technology.

In the years between these meetings, China and its Communist Party have witnessed an ebb and flow of change, stories and images that will echo long though history, judged and interpreted with varying opinions, much like we judge almost every facet of human history. All of this ultimately defines today's China. From humble beginnings, the Communist Party is steering the greatest economic transformation in human history.

Reggie Lai, Senior Associate Director in APCO's worldwide investment and government relations practice in Shanghai, made a presentation to contextualise the most recent Communist Party Congress and how it affects society and the business environment in China. Lai spoke on the political and social structure in China, highlighting the changing demographic and the effect it will have over the coming years. While the single children may currently enjoy a mollycoddled childhood with as many as six people doting over them, a day will come when those only children may have to support all six, as well as their own little emperors, whether they have one or more.

The presentation continued with Lai going into depth on the structure, roles, responsibilities and powers of the different arms of the government: the Central Committee of the Communist Party, the National People's Congress, the State Council and the Chinese People's Consultative Conference. The promotion of the fifth generation of leaders to the critical executive positions has seen President Hu consolidate his position, while also respecting the needs and interests of other groups that exist inside the government.

Lai concluded his comprehensive presentation with the statement "business as usual," meaning that FDI will continue to grow but increasing focus will be on sustainable growth, avoiding over-heating in certain sectors and the development of key sectors.

It is clear that upper echelons of the party are as complicated and fiercely contested a web as any government structure around the world. This web is woven around issues of stability for the party, experience in dealing with the economic engine of the coastal regions and also rural issues for the less developed regions.

The old guards are consolidated, their scripts clearly written and the new generation waits in the wings, conceiving and developing their political ideologies and aims for China. These new men wish to realise the ambitions of their predecessors and see China continue its move to centre stage in the global economics and politics.

Reggie Lai
(rlai@apcoworldwide.com) and his colleague Berenice Voets
(bvoets@apcoworldwide.com) can be contacted at (021) 5298 4668.

Customs seminar held in PRD

In October, seminars about the Recent Changes to Processing Trade Regime & Indirect Tax Costs Impact on your Exports were organised. One was held in Shenzhen on October 22 and the other in Guangzhou on October 23.

William Chea, executive director at Ernst & Young, highlighted the significance of the processing trade to China, gave an update on Chinese processing trade policy and showed the link between the processing trade and the value-added tax (VAT) refunds in his very interesting and informative presentation.

Chea said that the processing trade regime and export VAT refund policies are likely to be continued to be used as tools to drive the development of China's export trade and economic policies. One should expect further changes to both the export VAT refund rates and processing trade regimes. These changes can significantly affect a company's operations and profitability. Chea stressed that there are strategies that can partially mitigate some of the impacts from these changes.

Each month, the European Chamber Pearl River Delta office organises business seminars on different topics with high-level speakers in Guangzhou and Shenzhen. Please check our website for upcoming seminars. www.europeanchamber.com.cn

HR Working Group meets

The 4th Human Resources Working Group meeting of 2007 was held on October 30 to discuss the implementation of the new Labour Contract Law.

At the meeting was a presentation by Winnie Wen from Siemens, who has long experience in HR management. Her expertise includes labour law, compensation and benefits, and mergers and acquisitions.

Wen gave an introduction of the Labour Contract Law and an analysis of the changes in internal regulations and policies handling, employment contracts, training and service terms, competition, local secondments and terminations. At the end of the meeting, she shared the successful experiences of implementing the new law at Siemens with the attendees.

Chamber attends Logistics Forum

The Fifth Pacific Economic Cooperation Council (PECC) International Trade Investment Exposition/China International Logistics Real Estate and Service Trade Fair 2007 was held on November 8 in the Binhai New Area in Tianjin. The European Chamber's Tianjin office was invited to attend the opening ceremony and the International Ports, Modern Logistics and Regional Economic Development Forum. The forum featured international ports and modern logistics and showcased not only the achievements of the Tianjin logistics sector in basic logistic facility construction, technology, equipment and management, but also the latest logistic concepts, technologies and equipment of PECC members and EU countries.

Metropolitan Living in Tianjin

Nanjing Road in Tianjin

Honoured as the "First Road in Tianjin," Nanjing Road abuts the Binjiang Street central business district, the Xiaobailou CBD and Pub Street on Youyi Road. This area will soon boast numerous large-scale shopping malls with brand name shops, high-end office buildings, hotels and professional business facilities. Here, a new landmark by Hutchison Whampoa Properties Limited (HWPL) will sit majestically on top of the Yingkou Road Metro Station.

Metropolitan Living

With the theme of a "Metropolitan Lifestyle," this project will occupy a site area of 19,617 square meters and a total gross floor area of over 320,000 sqm. The project comprises three blocks of luxury residential premises, a state-of-the-art office building and a large-scale shopping mall. The luxurious residence will offer personalised service and a prestigious clubhouse. The office tower is the business destination for the Fortune Global 500 and renowned mainland institutions. And with its array of international brands and restaurants, the mall is ideal for a trendy, contemporary lifestyle. Upon completion of this innovative complex by HWPL, Nanjing Road will be transformed from a transportation hub into a vibrant commercial centre for international business activities and stylish living.

Deciphering the Party Congress

The Danish Chamber invited Li Xin, a senior journalist at Caijing magazine to decipher the major issues deliberated at the 17th Communist Party of China National Congress. Li is currently the chief of the English desk at Caijing, the most influential financial and economic magazine in China. She started Caijng's first bureau in Washington, DC, as Caijing's United States bureau chief, and has been covering various issues ranging from finance and business to corruption to public heath.

She offered her insights on the major decisions made and the impact on the country's business environment, including the change in priorities of China's economic development, reactions to the trade deficit with the EU and the US and changes in investment priorities.

Li's presentation was followed by questions from participants on how the Chinese government will substantially improve the quality of the environment if it is heavily subsidising the oil industry, as it will not improve energy efficiency. She pointed out that this is actually a dilemma for the Chinese government, because on the one hand China depends on the relatively cheap oil to fuel the economic growth, but on the other hand it needs to increase energy efficiency. Many other interesting questions were raised.

If you are interested in participating in the events organized by DCCC in the future, please contact DCCC Secretariat at +86 6467 5748 or mail@dccc.com.cn.

A rising star in the Chinese media market

An interview with Jesper Levy of Reach Media by Danish Chamber.

Danish Chamber: Who is Reach Media?

Jesper Levy: Reach Media is a newly formed company that publishes theme-based, free magazines and supplements for major Chinese newspapers. All supplements are financed by adverts, and as such we are an independent, commercial publishing company.

We are a partnership between the Beijing-based Media Flyer advertising agency and the Hong Kong-based but Swedish-owned Icapital Group that has been active in China for more than five years. While financed by Swedish and Chinese investors, the CEO is Danish, namely me. I am a former advertising professional with more the 20 years experience in marketing and communication from Scandinavia, Eastern Europe and South East Asia. So I feel quite at home, both in this business and in China.

DCCC: What is the story behind Reach Media?

JL: Reach Media is actually taking on the best of a very proven business idea in Europe - supplements in newspapers which have been increasingly successful over the last decade. Icapital Group HK Ltd is the foreign entrepreneur and partner, with prior experience in this business idea from Europe.

Together with local Chinese partners, embedded with strong connections inside Chinese media, government and businesses, we had a swift and successful launch in China. And with our first distribution agreement we have secured exclusive rights to distribute supplements with Global Times of the People's Daily Newspaper Group.

DCCC: Why a start-up in China?

JL: China offers huge potential for all sorts of businesses, but even more so in media. Advertising spending is increasing at twice the speed of the gross national product and compared to Europe and other Western markets there are still a lot of untapped opportunities here.

However, the Chinese media market is maturing rapidly, with advertisers facing increasing difficulties with reaching their primary and most potential consumers. Even though TV commercials will be the main media used to create awareness, print media will always be a strong media to convey detailed information about products. And this is where Reach Media is adding value - with theme based supplement that gives advertisers a shortcut to their most potential customers.

DCCC: What expansion plans do you have in order to have maximum media market share in China?

JL: Of course, we are expanding Reach Media and our supplements into newspapers in all major cities in China - such as Beijing, Shanghai, Guangzhou, Chongqing and Shenzhen. We are developing exclusive and long lasting cooperation with powerful newspapers in each city. This will enable us to insert the same supplements with identical themes and content into a range of newspapers PECC members and EU - and give advertisers access to a large target group.

For more information and inquiries, please contact Jesper Levy at:
Jesper.Levy@reachmedia.cn
Tel: +86 139 1158 7173

upcoming events

Breakfast Seminar on China's Luxury Market
Guangzhou
9am
Venue TBC
Members: RMB150
Non-members: RMB300
The luxury market in China is booming and many international brands are hoping to benefit from it. In a country that has more millionaires than Japan and is one of the fastest-growing markets, it is not surprising that China is now the third-largest consumer of luxury items after Japan and the United States.

The Chinese luxury market is attractive for any luxury label. But it is also a complex terrain that takes tactical and long-term planning to navigate successfully.

To help companies stay informed of the developments in the luxury market and its future, the European Chamber's Pearl River Delta office is pleased to invite you to a seminar about this strongly debated topic. We are delighted to have Jancu Koenig, business director from JWT, and Francois Cnockaert, general manager of The Ritz Carlton Guangzhou as speakers.

HR/Legal and Taxation Joint Working Group Meeting

Guangzhou
4pm
Venue TBC
Price TBC
In December the Human Resources Working Group will meet with the Legal and Taxation Working Group to discuss the Labour Contract Law and its implementation. Experts on the field will discuss the issues and positive changes this law will cause when it goes into effect on January 1, 2008.Your active participation in this joint Working Group Meeting will be highly appreciated.

2nd Government Appreciation Dinner

7pm
Venue TBC
Price TBC
After its 2006 successful edition, the European Chamber is hosting its annual appreciation dinner with senior representatives of the local municipality to further strengthen its ties with Chinese counterparts as well as to give them a chance to meet with member companies.

The European side will be led by HE Ambassador Serge Abou. From the Shanghai Municipality, we are anticipating a vice mayor as well as other senior figures from government departments.