OCTOBER 2014

2014

A new way of doing business in China is emerging, as articles in this issue of China Call Report indicate.

Many Chinese firms and many foreign firms, as well, are looking to produce products and services for Chinese consumers, not just for export abroad. Foreign firms must take into account, more than ever before, Chinese culture, Chinese v i s i o n , a n d C h i n e s e b u s i n e s s practices, if they are to succeed.

Almost the same situation exists for the growing number of Chinese firms striving to do business in the West. Solid understanding of Western practices is necessary for entering markets and obtaining success.

These new situations require knowledge, patience, a commitment to cooperation.

Anita Tang, Managing Director

Te m p e r e d o p t i m i s m s u m s up corporate America’s view of i ts business prospects in China, according to the US-China Business Council’s 2014 survey – even as China’s leader announces plans to make the market play a bigger role in China’s economy and potentially widen investment access for foreign companies.

How and when will these reforms play out was the focus of discussion at a corporate program held by the Chicago Council on Global Affairs September 23, 2014, and attended by some 150 guests – including 40 high school and college students – at the InterContinental Chicago hotel.

P a n e l i s t s w e r e S t e p h e n Chipman, Chief Executive Officer, Grant Thornton LLP; John Frisbie, President, The US-China Business Council; Adolfo Laurenti, Chief International Economist, Mesirow

Financial. The moderator was Phil Levy, Senior Fellow on the Global Economy of the Council.

Mr. Chipman noted that a recent survey showed uncertainty about the reform process, as Chinese firms move up the value chain, pursuing the domestic market. He cited the difficulty in keeping up with reform rules being spelled out slowly.

Mr. Frisbie said that lack of transparency is part of the problem, and lack of due process. He said that if reform means change, stability is the opposite, and stability was wanted.

Mr. Laurenti noted that China’s challenge in the short term was to move from an export-led to domestic consumption-led economy. In the long-term he was pessimistic, because an open market would be controlled by party leaders who will face a fork in the road in the future as to whether to also become more politically open.

Business GoalsAre Changing

Experts Examine China's EconomyFor How Efforts To Reform Play Out

Phil Levy and John Frisbie

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US-China Business Council SurveyReveals Competition, Policy Uncertainty

Chicago BridgesChina And Brazil

Mainland China And Hong KongSend Joint Investment Mission To Chicago

T h e U S - C h i n a B u s i n e s s Council’s 2014 Survey of members’ experience in China reports their number one issue is competition with Chinese companies in China.

U . S . c o m p a n i e s r e m a i n overwhelmingly profitable in the China market, but the increasing local competition and rising costs are continuing to pressure profit margins.

“Policy uncertainty continues to temper execut ive opt imism. Companies have seen little tangible impact f rom China’s economic reform and report little improvement in any of the top 10 issues over the past year.”

T h o s e i s s u e s a r e (2 ) I P R enforcement; (3) Foreign investment r e s t r i c t i o n s ; (4– t i e d ) H u m a n resources in talent recruitment and retention, and Cost increases; (6) Uneven enforcement/implementation of Chinese laws; (7) Licensing; (8) Transparency; (9) Nondiscrimination/rational treatment; (10) Overcapacity in the China market.

While American companies report that their primary competition i s wi th o ther U.S . and fo re ign

companies in China, competition from domestic industry is growing. Some observers focus concern on preferential treatment received by Chinese state-owned enterprises, but survey data shows again that nationality may trump ownership – Chinese companies, whether state-owned or private, receive benefits that foreign companies do not.

The l ingering challenges of protecting intellectual property rights in China are well-known, says the Report. While the enforcement environment continues to slowly improve, such improvements have been modest. American companies continue to limit their operation and IP exposures in China because of the lack of adequate protection.

The Report notes that China’s environmental pollution is starting to impact staffing. Forty percent of companies said that air pollution has made it difficult to retain or assign expatriate staff to China. Pollution has also increased the use of sick leave by expatriate and local staff.

China’s ramped-up enforcement of its relatively new antitrust and

compet i t ion regime has gained attention in recent months. While both foreign and domestic companies are being investigated, foreign companies appear to be fac ing increas ing scrut iny. Eighty-s ix percent of respondents are concerned about the lack of transparency, due process, and other issues surrounding competition-related investigations.

Of the Council's 220 member companies, 110 responded to the survey. Half of those surveyed are

China-based, half are based in the United States, and 85 percent of participants have been in the China market for more than 10 years, with the majority bringing more than 20 years of experience to the Survey.

The majority of USCBC’s 220 member companies report they are doing business in China to access China’s domestic market. Twenty-one percent use China as an export platform to reach other markets around the world, though only 13 percent use their China operations to produce products that are shipped back to the United States.

Wi th connec t ions be tween Chicago government and businesses g r o w i n g s t r o n g e r w i t h C h i n a entities, the Chicagoland Chamber of Commerce continues to cultivate relationships for businesses with Brazil, one of the BRICS countries along with China.

I t presented i ts f if th annual discussion of opportunities with

Brazilian and Chicago enterprises on September 3 at the City’s 1871 Digital Incubator in the Merchandise Mart, with an emphasis on IT/new media tech, and medical technology. M r . Greg Stevens, the Brazil-experienced International Trade Manager of the Chamber, helped facilitate the event.

The 2014 “Mainland China-Hong Kong Joint Investment & Partnership Mission to North America” called at Los Angeles, Toronto, Boston, and, for the first time for such missions, spent a day in Chicago, September 16, meet ing with area business representatives at the Swissotel.

Business owners across the Midwest, including Illinois, Indiana, Wisconsin, Missouri, Ohio and Kentucky attended the all-day program.

An overview on the investment environment in the U.S. Midwest for Chinese Mainland enterprises was provided during the morning by a number of speakers: Mr. Raymond Yip, Assistant Executive Director, Hong Kong Trade Development Council; Mr. Sun Tong, Deputy Director-General, Department of Ta i w a n , H o n g K o n g & M a c a u Affairs, MOFCOM; Ms. Shu Luomei, Commercial Counsellor, Consulate General of the People’s Republic of China in Chicago.

Also: Mr. Daniel Goff, Deputy Director, Illinois Department of Commerce & Economic Opportunity; Ms. Shaina Doar, Office of the Mayor of Chicago; Mr. Jeff Malehorn, President & CEO, World Business

Chicago. There was an overview of the investment environment by three representatives of the Association for Corporate Growth: Mr. Craig Miller, Mr. Tom Turmell , and Mr. John McGuire.

Mr. Richard Paullin, Chairman, Illinois District Export Council & Executive Director, ITAGC, was luncheon speaker.

O n t h e i r U . S . t o u r, t h e 54 executives from 37 Chinese companies met with 370 U.S. companies over the course of 570 meetings. Up to 60 percent of the Mainland’s outbound inves tment was d i rec ted to , or channeled through, Hong Kong.

More than 100 Hong Kong b u s i n e s s l e a d e r s w i l l b e a t McCormick Place, Chicago, on June 10, 2015, to share insights on how to benefit from Asia’s growth, particularly in China.

Anita Tang and Paulo Camargo, Consul General of Brazil in Chicago Sun Tong, Shaina Doar, and Raymond Yip

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Chicago Is A Leader In Fast-Growing Businesses

Chicago ranks second in the nation, behind New York, for the number o f f a s t -g rowing sma l l businesses, according to the list of some 5,000 by business magazine Inc.

It has 95 companies on the list, and five are in the top 500 fastest growing in the nation.

“S m a l l b u s i n e s s e s a r e t h e backbone of Chicago’s economy, and these rankings reinforce the idea that the city is a place where entrepreneurs want to start and grow their business,” said Chicago Mayor Rahm Emanuel.

“It is a tribute to the great work ethic and opportunities in the city of Chicago that has made them thrive on this very competitive list. What surprises me, even though I know it’s coming, is the sheer variety of

the paths our entrepreneurs take to success, thematically reflecting how our economy has evolved,” said Inc Media President and Editor-in-Chief Eric Schurenberg.

“This year, there are far more social media and far fewer computer hardware businesses than there were, say, six years ago. But what doesn’t change is the fearsome creativity unleashed by American entrepreneurship and Chicago is right in the forefront.”

Chicago's Art MuseumVoted Top In World

The Art Institute of Chicago was chosen the top museum in the world, according to mill ions of reviews and opinion of travelers us ing TripAdvisor, the world’s largest travel site. www.tripadvisor.com/TravelersChoice-Attractions-Museums

Founded in 1879, this great museum has more than 300,000 pieces of art, and hosts 30 rotating exhibitions and hundreds of gallery t a l k s a n d p e r f o r m a n c e s e a c h year. “The building itself,” says TripAdvisor, “is architecturally significant and breathtaking. The collections are world-renowned.”

Photograph by: Charles G. Young, Interactive Design Architects