APRIL 2016

2016

As th is issue of China Call Report takes note, opportunities for business continue to open as China and America devote attention to their infrastructure, as consumers develop new buying habits, and, not least, as conferences are arranged for the exchange of crucial f inancial and marketing knowledge.

Royal Roots is working with Chinese organizations to better link U.S.-China business knowledge and exchanges to create new business oppor t un it ies for the prepared. Agriculture, education, f inancial, and consumer products are all being discussed.

I n t h i s p e r i o d o f c h a n g e , opportunities abound.

Anita Tang, Managing Director

The Chicago Transit Board has announced a cont ract with CSR Sifang Amer ica that wil l create 170 jobs and build a US$40 million assembly facility in the City that could provide as many as 846 rail cars over the next few years.

The new 7000-series rail cars – the largest rail car order in Chicago Transit Author ity history – will be built by CSR Sifang America JV, which as par t of its winning bid has pledged to build a brand-new rail car assembly facility in Chicago – the first of its kind in 35 years. CSR Sifang America is a joint venture between Qingdao-based CRRC Qingdao Sifang Co. Ltd. and Chicago-based CSR America.

The new cars, the 7000-series, will look similar to those that have been in operation since the 1980s, the 2600 ser ies. The purchase, which will replace about half of its rail cars, will give Chicago one of

the youngest rail fleets in the United States, with the average age of a rail car dropping from 26 years in 2011 to 13 years once the order is delivered. The prototype cars are scheduled for delivery to the CTA in 2019 and go into service the following year. The base order of 400 rail cars will arrive in 2024, with options for a further 446 railcars later.

Installation of the new rail cars is expected to cut Chicago’s rail-car maintenance bill by US$7 million annually.

CSR is one of the world’s largest rail-car manufacturers, and since 1962 has built more than 30,000 rail cars for more than 20 countries in Asia, South America and in the Middle East. In the United States, CSR is building rail cars for Boston’s transit system.

Photos: conceptual renderings, courtesy of CTA.

(Continued to page 2)

A Time Of ChangeAnd Opportunity

Chicago To Build New Rail CarsWith China-America Joint Venture

Asian Financial Forum AttendeesCautious On Economic Outlook

Chicago New Rail Cars

The 2,800 f inancial exper ts, CEOs, professional investors and high net-worth attendees at the Asian Financial Forum held in Hong Kong in January 18-19 were pessimistic or neutral about the global economic outlook with only 15.8 percent of participants optimistic.

Co - orga n i zed by t he Hong Kong SAR Gover nment and the Hong Kong Trade Development Council, the forum at Hong Kong Convention and Exhibition Center a t t r ac t ed pa r t ic ipa nt s f rom 38 countries and regions to hear more than 90 prominent speakers from around the world, including keynote luncheon speaker Dr. Ben Bernanke, former Chairman of the U.S. Federal Reserve.

Fo r m a r ke t s of fe r i n g b e s t i nve s t me nt r e t u r n s , a t t e nde e s surveyed ranked China first with 30.3 percent of votes, followed by the U.S. (23.4%), Southeast Asia (17.5%) and India (12.7%).

In terms of industrial sectors with g reatest potent ial to d r ive g loba l g row t h , 23.4 pe rcent of respondent picked green industries/environmental goods and services, followed by telecom, media and technology (20.1%), e-commerce

(20.1%) and healthcare (18.7%). Real estate and infrastructure garnered 6.4% and financial services 6.2%.

About the mainland economy, 37.6 percent thought opening up and structural reform will be the main growth factor, followed by domestic demand (20.4%), proactive f iscal policy (14.5%) and speedy urbanization (12.1%).

Greatest threat to the mainland e c o no my i n 2016 wa s s e e n by 27.1 percent of voters to be local government debt and shadow banking problems, fol lowed by a global economic crisis (24.8%), collapse in the property sector (17.4%) and decline in export demand (13.6%).

During the panel discussion on prospects for ASEAN, more than 70.9 percent of participants believe that China’s Belt and Road Initiative will bring significant benefits to most, if not all, ASEAN countries.

In other Forum activities, deal-flow matchmaking sessions arranged more than 570 meetings for more than 370 investment project owners, private equity f irms, companies, investors, high net-worth individuals, and professionals from intermediaries and professional services providers.

Photo: courtesy of AFF

(Continued from page 1)“With th is ag reement , CTA

riders will get state-of-the art rail cars and Chicago returns to our roots as the place where the next generation of rail cars are built, providing good jobs for our residents. This is a classic win-win for Chicago,” said Mayor Rahm Emanuel. “This historic agreement was the result of strong col laborat ion between the City, our federal partners, the Chicago Federation of Labor, and Jobs to Move America, and I cannot thank them enough for their partnering in making it possible. Working together we will continue to bring more 21st

century manufacturing to Chicago while also building a modern CTA to help power our 21st century economy.”

In July 2014, Mayor Emanuel and the Chicago Federation of Labor announced a partnership to encourage the creation of U.S. manufacturing jobs, by work ing with the CTA to include a “U.S. Employment” provision in the bids for the new 7000-series cars. The bid solicitation asked bidders to provide the number and type of new jobs they planned to create related to the production of the new rail cars as well as an outline of their job recruitment and workforce training plans.

CSR submitted the lowest bid of US$1.309 billion for 846 railcars and got the contract.

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growth and market volatility.One key target of the plan is

to increase the share of the service sector from current 50.5 percent to 56 percent of GDP in 2020. The urban residency will be up to 60 percent of the population from 56.1 percent. To improve the rapid transportation of people, there will be 30,000 km of high-speed railways linking 80 percent of big cities nationwide.

International obligations like tack l ing pol lut ion are also par t of the new plan. The government has decided to cut carbon dioxide emission by 18 percent and demand of other major pollutants like sulphur dioxide and chemical oxygen will be slashed by 10-15 percent.

I m p o r t a n t t o t h e p l a n i s increasing spending in research and development to 2.5 percent of GDP in 2020. It will bring China closer

China's New, 13th Five-Year PlanCalls For 6.5-7% Growth Through 2020

C h i n a’s Na t io n a l Pe o p l e’s Congress held its annual session March 5-16, in Beijing with some 3,000 delegates rev iewing past government work and adopting a new, 13th, five-year economic plan aiming for at least a 6.5 percent annual growth through 2020.

This year’s growth target is in the range of 6.5 to 7 percent follows a 6.9-percent economic growth in 2015, according to the government work report delivered by Premier Li Keqiang at the Congress, China’s top legislature, and the Chinese People’s Political Consultative Conferences National Committee, which makes up the annual meeting called “Two Sessions.”

The 2016 target is aligned with Ch ina’s goal of complet ing the building of a moderately prosperous society in all respects, and takes into consideration the need to advance structural reform, Li said, according to China News Service (CNS).

China is transitioning from an export-driven economy to one driven more by domestic consumption, as it goes through a period of slower

to the developed economies, said CNS. “It is the key sector which spearheads creation of new ideas and development of technologies.”

The 13th Five-Year Plan aims to create more than 50 million new urban jobs. It wil l be the major s t imulus to t ack le pover t y and increase prosperity.

The government work report to the Congress noted that innovations and sustainable growth will herald changes in China’s economic growth and development agenda, but it will require university and key institutions of higher learning to take up the challenge of “bringing newness,” said CNS.

“With the educational reform, entrepreneurship should be promoted. small-and-medium-size enterprises have a role to play despite global love for big industry. New ways to save energy and protect environment are also important in addition to the development of infrastructure and construction of sky-high buildings.”

Premier Li Keqiang warned that “China will face more and tougher problems and chal lenges i n i t s development this year.” He said that people should be prepared for facing these challenges. “China has laid a solid material foundation, and its economy is hugely resilient and has enormous potential and ample room for growth.”

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allocating more of their income to lifestyle services and experiences – over half plan to spend more on leisure and entertainment. “At the same time, spending on food and beverage for home consumption is stagnating or even declining.”

Chinese consumers are also increasingly trading up from mass products to premium products: we found that 50 percent now seek the best and most expensive offering, a significant increase over previous years. It’s no surprise that the growth of premium segments is outpacing that of the mass and value segments,

McKinsey & Company Surveys The Modern Chinese Consumer

McKinsey & Company’s 2016 China consumer report of buying habits of 10,000 people aged 18-56 across 44 cities found that days of broad-based market growth are coming to an end.

“Consumers are becoming more selective about where they spend their money, shifting from products to services and from mass to premium segments.”

Their purchases reflect a desire for a balanced life where health, family, and experiences take priority.

The popularity of international t ravel is “astounding,” as is the adoption of trends such as mobile payments. Despite similar it ies , c o n s u m e r b e h a v i o r c a n v a r y “significantly” across the country’s 22 city clusters.

McKinsey found consumers

and foreig n brands s t i l l hold a leadership in that premium market.

Consumers are less willing to consider a brand they hadn’t before, the number dropping from about 40 percent in 2012 to just below30 percent in 2015.

“With a few notable exceptions, such as Huawei’s growing share of the premium smart-phone market, Chinese brands have not gained much t ract ion in many premium segments, such as skincare, cars, sports, and fashion. That contrasts starkly with the mass segment of the market, where local brands are winning market share from foreign incumbents by of fer ing a much stronger product proposition.”