2013 APEC CEO Forum China in Transition: New Leadership, New Prospects (Day Two)

Zheng Xinli
“Government should focus on public service of providing clean air and clean water,” said Zheng Xinli at APEC China CEO Forum

2013 APEC CEO Forum

China in Transition: New Leadership, New Prospects

Sheraton Dongcheng Hotel, Beijing

13-14 July 2013

 

Please Note: The bullet points are a faithful recount of what panellists and speakers said during the course of a nine hour conference. In some cases, however, the speakers were simultaneously translated from Mandarin to English and then recorded. There are no doubt flaws in reporting. Instead of a faithful transcript of the second day, this post provides an overview of the major issues.

 

For more information on the conference, visit here: http://www.apecchinaceoforum.com/

 

Day Two

Keynote Address by Li Yizhong, Standing Committee of the CPCC National Committee, Deputy Director of Economy Committee of CPCC

“Innovation Reform and the New Industrialisation”

。        CPCC National Congress proposed by 2020 we will realize industrialization

。        Increase resource efficiency, apply advanced technologies, break energy-resources constraints

。        Protect ecological environment. Build economy in harmonious manner with ecology

。        Be quality oriented to satisfy consumption demands of people

。        Chinese characteristics of developing economy

Use resources carefully – not like Western societies who used resources without care and led to environmental disasters. We need to engage in clean production

Integrate ICT and industrialization – leverage era of advanced technologies. Great engine to improve company performance

Develop agriculture sector using industrialization and ICT

。        Must use modern technology

。        Accelerate industrial restructuring to innovate, transform China’s economy

。        Deep level problems and structural issues with China’s economy

China grew by leaps and bounds since earlier development, yet structural issues remain that constrain growth

Many key technologies are not owned by China – we must import green technology. China accounts for 3% of world’s patents – far below South Korea, as example

Electronic manufacturing is #1 in world – yet 80% of high end chips need to be imported

Aeronautics and navigation rely on imports and foreign patents. Now decided by CPCC a priority industry

High speed rail still requires advanced technology imports

。        2.5% of industries in China are in technology. We don’t have big groups that can compete internationally.

。        We need to compete on quality. You cannot say that Made in China means low quality

。        Balance between different regions and different industries. Oil and water imported within China. We need to t plan industry to ensure better balance of industries across regions

。        We should not follow blindly number of GDP

。        Currency conflicts mean price of resources increase

。        Posing significant challenges

。        Try to catch up with industrialized nations

。        We must innovate in key technologies and move from lower end to higher end. We cannot buy key or core technologies. In the past we could exchange technology in market. That era has passed. Now we must develop within.

。        Improve independent innovation capacity. We can import from abroad and re-innovate on their technology. Must invest in academic research and technological innovation

。        Need to open market to rely on allocation of resources. Allow domestic demand to balance international demand to ensure balanced economy

。        Micro and small organisations need to be healthy

。        30 years of opening up. Public policies of an advancing economy are essential

。        Return focus to real economy, not financial economy

。        Environment beneficial to real economy

。        Currently our economy has integrated into world economy. As a developing economy we still have challenges to be well integrated into global economy

。        Without the resources and labour of the middle and Western parts of the nation, the Eastern part will not be able to realise full industrialization

。        Develop industrial chain led by large enterprises but supported by SME and micro companies. Allow companies of different sizes to complement each other

。        All companies must contribute to the realisation of China’s dream

 

DIALOGUE ON NEW PROSPECTS

“New Prospects: New Indexes For Measuring Economic Success Required?

What indexes are best to determine China’s current economic performance? What is the silver lining for the China’s economic index?

  • Zheng Xinli, Executive Vice Chairman, China Center for International Economic Exchange

。     How can we stabilise growth?

。     Urban and rural income will be doubled within ten years from 2010 – one key growth target

。     Economic growth rate must be higher to meet needs of social welfare. We need 8% GDP growth rate

。     High investment, high resource usage, high pollution – that model must be transformed to realise rapid growth of GDP

。     Iron, steel, aluminium, plate glass, home appliances – production capacity already accounts for 50% of global total. Shipbuilding in China – capacity already exceeds global demand. Home appliances account for 1/3 of global demand. Overcapacity significant issue facing China

  • Must expand domestic demand

。     We forecast recovery in Q4 after 11 quarters of decline. “The economy is not what we can wish.”

。     Tomorrow statistics of first half of year – we will review and make important macroeconomic decisions

。     Fresh air and clean water – these public products are in short supply

。     Government should focus on public service of providing clean air and clean water. We need to develop green market

。     First source of haze is power generation via coal, then chemical industry, then cars, then dust of construction

。     Need to move to coal that has lower sulphur

。     We have the technology but companies are not using it 24 hours a day – they only use it when superiors and auditors arrive

。     We need to focus again on high speed railway –steel mills and cement plants and labour salaries will increase. It is a key way we will drive domestic demand

。     Provide same benefits to rural migrants – 200 million contribute to economic development, yet they live in awkward situations. Provide low cost housing, healthcare, education. Have government encourage developers

。     Provide kindergartens in urban areas to reunite rural migrant workers to get their children to live with them

。     Financial sector needs to support real economy. Market based interest rate reform requires preceding reform first

 

  • Gu Shengzu, Member of the Standing Committee of the NPC, Deputy Director, the NPC Financial Committee – From investment-driven to innovation-driven economy

。     Prior investment driven modernisation relied on cheap labour

。     Investment provided 92% of GDP growth. Innovation only 4% of growth

。     (Writer’s apology – Gu Shengzhu shouted more than he spoke, drowning out any chance of hearing the soft-voiced interpreter.)

 

  • Li Dongsheng, Chairman, TCL Corporation: “China’s economy needs the world economy”

。     Representing the business community of China on this panel

。     In the future the growth of China’s economy will rely on the competitiveness of the real economy

。     In Fortune 500 list, Mainland enterprises increased significantly – now 89 companies. But only 7 are from private sector.

。     50% of total profits from China’s corporations come from the financial sector.

。     Encourage private capital to invest in the real economy

。     Global growth shows private companies have very good competitiveness

。     Private enterprises will play a great role in China’s economy, if there is a level playing field

。     Future opportunities? Global economic restructure

。     In past 10 years electronics, home appliances and ICT industries – Chinese portion of manufacturing increased. Last year in colour televisions China exceeded manufacturing of Japan

。     High speed internet technologies and cloud computing, we are comparable to other economies

。     Last year China spent more on chips than oil

。     We cannot compete on low cost – we need to innovate and achieve higher profit, only that way will China’s economy be more healthy. Last year TLC achieved 1.8% margin

。     Role of government cannot be overlooked – Korea has invested heavily in technology at government level

。     Samsung revenue levels well above what Chinese companies can expect to achieve

。     Skill levels of China’s companies much higher than years ago, but still lagging behind Korea and Japan. Hope China government encourages more global brands from within China

。     Suggestions? Less reliance on finance economy, Many industries have sever overcapacity. Need an innovative economy. Government can be more of a propeller than an involver (eg, associations, policies, overseas support)

。     The internationalisation of Chinese enterprises needs to be enhanced

。     How can companies improve long term profitability? First to innovate, then to leverage foreign markets and drive internationalisation

 

  • Thomas Byrne, Senior Vice President, Sovereign Risk Group, Moody’s Investors Service

。     Moody’s downgraded Chinese sovereign debt and Hong Kong banks

。     Ratings provide a stable base to allocate capital

。     Moody’s system more than 100 year sold – founded in 1900

。     Advantages? Simple (21 symbols from AAA to C). Expresses objective, independent opinions on credit worthiness (not subject to commercial or political considerations). Accurate and time tested – since 1920 published default studies, and find robust associations between high rating and low default rate

。     Good ratings reduces information asymmetry

。     Ratings agencies “enhances man’s confidence in man” said Daniel Webster

 

Keynote Address by Xia Bin, 
Counsellor, the State Council, Director Emeritus, the Finance Research Institute of Development Research Center of the State Council

。        Companies with interest payments at same rate as margins (7%)

。        Interest rate payments total 500 million RMB per month. Must improve growth rate

。        Excess overcapacity. High interest rate payments. Local governments relying on bankrupt businesses for revenue.

。        The bubble does not explode yet. The crisis hasn’t hit yet.

。        Interbank rate hit 30% on 20 June – a huge event. Now back to normal level. A matter of expectation and trust

。        If a crisis occurred? Banks would collapse, unemployment would spike, businesses would close. Middle class wealth would shrink. Cause he stress for society

 

DIALOGUE ON INDUSTRY OPTIMIZATION: RESPONSIBILITIES OF LARGE CORPORATIONS

What are the big responsibilities for large corporations in terms of industry optimization? How to increase innovation abilities to push industry optimization? How the large corporations motivate and lead the green development of the whole industry chain?

Moderator: Xiang Bing, China Business and Globalization Professor & Founding Dean, Cheung Kong Graduate School of Business
Discussion Participants:

  • Brian A. Gallagher, CEO, United Way Worldwide
  • Tang Min, Counsellor, the State Council, Executive Vice Chairman, China Social Entrepreneur Foundation
  • Chen Jinya, Global Vice President and Asia-Pacific President , Alcoa Inc.
  • Wang Jinlong, Global Vice President, Starbucks

 

。        CHEN @ Alcoa

  •     Global companies have global responsibility
  •     Your first obligation is to look after your company. “If you can’t clean your own room how can you clean the world?”
  •     Because of economic development we cannot avoid pollution. But we need to minimise and clean our pollution
  •     Develop sustainably on the global stage, not just the China stage

。        JINLONG @.Starbucks

  •     Feed the soul, in addition to the stomach. Nurturing and feeding the human spirit, one cup at a time
  •     Coffee a 500 year old commodity. Starbucks turned a commodity into an experience
  •     “It’s not what we sell it’s what we stand for.” Giving back to community a cornerstone of our business
  •     Doing well by doing good
  •     We are in the people business – our partners are the soul and heart of Starbucks. More money spent on training than marketing. Starbucks China University – training in coffee but how to become a better person (leadership skills). Success in the company and their lives. Last year 170,000 training hours
  •     Coffee production in Yunan Province – not to get a cheap supply, but to showcase next generation of China’s economy in an environmentally friendly way (reduce pesticides 80%, improve yields 25%)

。        GALLAGHER @ United Way

  •     Parallels between development of civil society and charitable organisations in USA and China – similarities and differences
  •     Chinese economy at inflection point – how become more mature, sustainable, inclusive
  •     More than 100 years ago USA went through industrialisation without NGOs
  •     USA contribute $350 billion annually each year. Yet NGOs didn’t exist before Industrial Revolution
  •     Then mass migration led to collapse of family structure across the USA
  •     NGOs arrived then government came behind to offer laws, services
  •     Same phenomenon occurring in China today – mass migration due to economic growth. NGO growing and becoming larger.
  •     When it happened in USA it was a national economy – constrained within USA. Today it’s a global economy. The business cycles and social disruption that much faster.

。        TANG MIN @ China Social

  •     Most large enterprises are state-owned, with money provided by large state-owned banks
  •     Consumers are relatively weak compared to power of large enterprises
  •     Life of large enterprises are better in China than anywhere else in world
  •     But these large enterprises are facing new challenges, such as technology. If they cannot wake up they might face risk of being phased out. Large, rigid enterprises are phased out
  •     China Mobile after years found TenCent as their real competitor – not China Telecom or China Unicom!
  •     Alibaba payment capability providing competition to banking sector
  •     Third manufacturing revolution – new materials, internet, new methods of production. A new round of competition.

 

Keynote Address by Dong-Sung Cho,
Chief Staff ,National Competitiveness Council of Chong Wa Dae,
Professor, Seoul University – “Capitalism 5.0 – Cluster-Based Capitalsim

。        Ongoing research into corporate strategy into development of corporate clusters. Case study: Dongdaemun Fashion Cluster

。        Much like Toyota case study of bringing R&D, manufacturing, suppliers altogether under one roof

。        Evolution of Capitalism

  •     1.0: Market-based – Led by Adam Smith – Classical capitalism
  •     2.0: Government at centre (since 1929) – John Meynard Keynes
  •     3.0: Firm-led capitalism from 1979 led by Margaret Thatcher & Ronald Reagan – New capitalism – Anthony Giddens
  •     4.0: Society-based capitalism due to arrogance of firms in 2011 – rise of Occupy Wall Street – Anatole Kaletsky. People capitalism

。        Now in transition as society-based capitalism not strong enough to lead

。        5.0: Cluster-based capitalism is a new model for the future – Peter Drucker, Michael Porter key proponents. CSV Capitalism

Collective (versus individual CSR). Geographically densely populated, share infrastructure, easy to share information, high innovative spirit, high trust, high community spirit, self-regulations

。        Types of Clusters

Intra-City Cluster – Like Silicon Valley, Wall Street, NYC Fashion District

Street Cluster – Saville Row in London, Department Stores in Ginza, Fifth Avenue shopping, Seoul Shindanggong Dduck Bok-ki street serving rice cakes

Industrial Cluster – university parks

。        Cluster-based capitalism requires equal participation of firm, market, government and society

。        Case study: Dongdaemun Fashion Cluster in Seoul

 

 

DIALOGUE ON WOMEN & THE ECONOMY : “Drivers of Change” 
In the innovative technology field, men are still in the dominant position, how to advance an equal development for women? In the eyes of women leaders’, from where to drive the changes? By means of technology, how can women leaders use technology to change their current business for further development?

Moderator: Fion Song, President, Talents Magazine

Discussion Participants:

  • Liu Ping, Women’s Entrepreneur Network of China
  • Karen Chen, CEO of China & Executive General Manager, International Financial Services, Commonwealth Bank of Australia
  • Diane Wang, ABAC Alternate Representative, Founder & CEO,    DHGate.com
  • Jane YanCEO, Beijing Venus Information Technology Co., Ltd

 

。        Major push for China’s economy to ensure equal pay for equal work. Today 77% of salary for same work as men

。        Spoke to Bank of China, they hire more men than women. Why? Women will get married, etc. But China has highest employment rate of women in the world

。        In China women represent 70% of consumption decision power. In Internet proportion of women customers rising dramatically – well above 50%

 

DIALOGUE ON INTERNET ERA IN THE BUSINESS WORLD

“What can we expect from the Internet Era in the business world? What is the next big thing?” 
When internet is engaged in the basic business environment, from where can we generate profits? For traditional companies, how can they step into the era of internet? And whether using internet is the sole choice for them. What kind of business world will be reshaped by internet?

Moderator: Luo Zhenyu, Founder , the Talk Show “Luogic Show”

Discussion Participants:

  • John Liu, Vice President, Google Inc., General Manager, Google Greater China
  • Jia Yueting, Chairman, Letv.com
  • Yu Yongfu, Chairman and CEO, UCWeb Inc.

 

CONVERSATION ON THE NEW OPPORTUNITIES FOR HONGKONG’S ECONOMY

Participants:

  • Peter Wong Man Kong, Chairman, Fortitude (Group) Co., LTD.
  • Stanley Tong, H.K. Film Director
  • Dr. Jonathan Choi Koon-shum, Chairman, the Hong Kong-based Sunwah Group

 

 

 

 

 

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