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- 2. 3CHINA2 PLUS 3 Since first being published in May 1990, MESSENGER magazine has under- gone a number of changes, including a drastic overhaul last year. As part of the magazine’s progress and modern look, it is only natural that we cast off the tradi- tional name andembraceournewimage. Asaresult,thisisthefirstissueofCHINA PLUS,whichcontinuestoprovideindepth informationinthesameveinasprevious issuesofMESSENGER. Itisonlyfittingthereforethatthethemeof thisissueisForwardThinkingChina,as weasamagazinelookaheadtothefuture andattempttostaycurrentinarapidly changingChinesesociety.CHINAPLUS looksatentrepreneurialspiritinChina, assessingthemindsetbehindsomeofthe nation’sforwardthinkers.Thisissuealso examinesvocationaleducationandthe country’sprogressivepoliciesdesignedto reducecarbonemissions.Asidefromthese extensivesections,CHINAPLUSexplores thechancesofachangeintheglobalcredit system,includinganinterviewwithformer AustralianPrimeMinisterKevinRudd, alongside the future internationalization oftheRenminbi. Editor’s Message Editor-in-chief Stuart Wiggin 2 CONTENTS The start-up buzz in beijing HIRE ME, I’m an entrepreneur tsinghua x-lab chinese education and entrepreneurship insider perspective 2025 coal no return the need for a new credit rating system interview with former australian prime minister kevin rudd long time coming: rmb overtakes yen on international currencies list opinion: china eu relationship should go further and deeper In search of a vocation China’s efforts on carbon emissions reduction Averting future crises p3 p16 p14 p8 back to school Leading the way Interview with fergus green (LSE) co-author of China’s new normal, structural change, better growth and peak emissions interview with prof. Dao zhaojiong peking university WHAT CHINA NEEDS TO DO TO AVOID GOING BACK TO COAL p24 p26 p23 p25 p19
- 3. 5PLUSCHINA4 F rom co-founder dating to all-night hack- athons, Beijing’s start-up scene is buzz- ing with action. Foreign entrepreneurs and Chinese talent with experience in top global companies are all flocking to the city to hash out business ideas over hotpot. As more Venture Capitalists start looking to the East for the next big idea, Beijing is poised to take off as the next Silicon Valley By Poornima Weerasekara When I walked into my first “co-founder dating event” last month, I didn’t know what to expect. The setting was a Mao-era factory that has been turned into a micro-brewery in Beijing’s bohemi- an quarter, Sanlitun. The first step, take a series of personality tests on Projio, a new home-grown app that helps you understand what you want and what you’re looking for in a perfect business partner. Next, you dive into the endless chatter of people jostling to find business partners, potential em- ployees or funding for their ideas, which ranged from a high-tech sex toy to a Chilean company that is using bit-coins to transfer funds between China and Latin America. The event organized by the Chaoyang local govern- ment (COTC) and the Beijing Tech Hive, a support group for entrepreneurs, managed to attract talent from all across the world; from the Bahamas to the Netherlands, from Colombia to Libya. And of course, there was also the ambitious Chi- nese, returning after years of studying or working abroad; a group often referred to as the “haiguis” (or those returning after crossing the ocean). They have global exposure, local insights and most importantly a strong local network, meaning that many of them are ready to hit the ground running when they enter the start-up race in China. Zuo Yue is one such entrepreneur, who decided to quit a job with Microsoft in Seattle after 8 years, in order to follow his dream of creating the next generation cloud computing platform. “When I was growing up I read a lot about Bill Gates and dreamt of joining Microsoft and then starting my own company. My first dream came true in 2006, when I joined Microsoft and I was working on cloud computing for Windows. But the thing is I could see my future and my career, how it would be in the next 10 years. That is not what I wanted. I felt I could try something more exciting, because I’m still young,” Zuo Yue explained during the event. For Zuo Yue, the toughest thing was to uproot his two children from their friends in Seattle and help his family cope with the reverse culture shock when they returned to Beijing after 12 years of living in the United States. But his wife, who worked for Boeing, was willing to quit her job and run with his idea. Zuo Yue’s Beijing based start-up alauda.io, uses disruptive “container or docker technology” to help applications run on a wide range of platforms including Android to Linux to Apple’s iOS without having to change their code. His product, which was launched in June, has already caught the attention of the global app development community. Even Microsoft is onboard as an enterprise user and the company that had already secured 2 million US dollars in seed funding last year is now getting ready for another round of fundraising. This time, Zuo Yue wants to scale up and is looking for around 5 to 10 million US Dollars. The founder of alauda.io says there is a booming Venture capitalist (VC) scene in Beijing, with savvy investors con- stantly on the prowl for the next big idea. One investor, who spoke on grounds of anonymity, says she looks for four key elements in companies before pouring money into them. The strength of the intellectual property owned by the com- pany (i.e. how many patents said company owns, and how difficult is it to replicate the core-technology) tops her list. Next comes the potential to scale up, a good exit strategy, in terms of either listing in the stock exchange or being bought over by another big fish and the chemistry between the co-founders. The experienced VC says she has seen good start-up ripped apart by feuding co-founders. (Ambitious Chinese returnees) have global exposure, local insights, and most importantly a strong local network, meaning that many of them are ready to hit the ground running when they enter the start-up race in China. COVER STORY
- 4. 6 7CHINA PLUS Zhangchi is another fresh foreign returnee. After studying industrial engineering at Texas A&M he made a beeline back home and plunged into the start-up scene in Beijing. His new app Bendi (the local) wants to give Instagram a run for its money. Bendi is a location based photo sharing app that enables you to connect with other locals with simi- lar passions around you. The app launched last November is working with Greenpeace China, to see how non-profits can do more good by tapping into the world of social me- dia. “Greenpeace needs volunteers for their rubbish recycling programs. With our app, we can take the photos of rubbish collection programs in different areas and plot it all on a map, real-time and you can join the closest one to you,” Zhangchi said. Some start-ups like Bendi, are fueled by the relative isolation of China’s netizens, who are unable to access similar global services. The Chinese govern- ment is now playing a more active role in fostering start-ups, to add fuel to the country’s growth en- gine that has been slowing down in recent months. The government published a new white paper outlining a host of incentives from tax-breaks to networking support. They have also slashed the red tape involved with getting licenses and permits. There is even a “New Third Board” on the Bei- jing stock exchange that allowed Start-ups that are not making any money to transfer shares and raise capital. Since it was launched in 2012, it has enlisted more than 2,800 companies with a total market valuation of just over 1.1 trillion yuan. And although it may sound like a recipe for another dotcom bubble, many start-up founders say it is a chance for the public and investment funds to invest in cutting-edge ideas, and get a piece of the action early, without waiting for the companies to turn a profit and become hot stocks. But for Zhangchi the biggest positive outcome of the govern- ment’s new-found love for smart risk takers like him is that it has helped to “change the way how the world looks at you.” Zhangchi goes on to explain, “Five years ago, if you graduated from a top university and don’t go to work in a big state-run corporation, your parents will think that is not right. But now you can proudly tell them that you’re working on a project that excites you, that you’re taking risks to build a start-up.” Similar start-up hot spots are emerging in Shanghai and Shenzhen. In Shanghai, the new Free-trade zone with lax rules is creating a vibrant eco-system especially for financial sector startups. Shenzhen has the location advantage of being a stone’s throw away from the buzzing port of Hong Kong and the non- stop industrial complexes of Guangdong, China’s manufactur- ing heartland. But locating a business in smoggy, grimy Beijing has its own advantages. Entrepreneurs who want to do things at a national level with a broader impact, in tough industries like education, health or energy that are harder to break into than mobile apps, and require playing hardball with the government, tend to locate close to the seat of power in the nation’s capital. But what are differences between the start-up cultures in Bei- jing’s Zhongguancun and the Silicon Valley in the Bay Area? As Zao Yue sees it, “In the US, small companies only need to focus on one single idea and execute that very well and go very deep into something in terms of technology.” In China however, Zuo Yue claims, “It is difficult to find a value chain that will supply some of the services you need, so you need to provide an end- to-end solution. So collaboration is not that good here.” On the other hand, the fact that more people are packed into urban enclaves has created new opportunities for Chinese en- trepreneurs that elude their US or European counterparts. “The US might be ahead in terms of technology but China is ahead in terms of launching innovative business models, because the market conditions are so different,” Zao Yue proclaims. He says that businesses in the O2O space (online-to-offline service providers) can thrive when they operate in densely populated areas. “For example, my company orders lunch using a mobile app that connects us with housewives who cook during their spare time. Such businesses will not take off when the population density in a place is too low,” he added. These unique opportunities offered by the Chinese market have at- tracted local tycoons like Alibaba’s Jack Ma and JingDong’s Liu Qiangdong who are now betting on the success of smart young entrepreneurs. Ma recently launched a special university for entrepreneurs in Hangzhou, close to Alibaba’s headquarters. The new JingDong milk tea bar in Zhongguancun, China’s Silicon Valley equiva- lent, is serving as a conduit for young start-ups to pitch their ideas to JD executives. But another crucial cultural question remains - How often are you allowed to fail here in China, without losing face? Jason Misium, who launched his startup Projio, the app that was used to “make the perfect co-founder match” at the startup dating event says it is almost inevitable that some start-ups will run out of steam eventually but it could prove a bit more trickier when failing in Beijing. “My feeling is that there are a lot of start-ups here (in Beijing) funded by private investors rather than professional funds, and in those cases some of those investors can make “face” a bigger issue,” Misium says. “They want to invest in something successful to look like a savvy investor, but they can’t invest in a dozen or more projects at one time to spread their risk like a fund can. So if you fail for them, it’s far more personal, whether they intended it or not,” he explains. Despite the risk of losing face or even losing your lifelong savings, many youngsters are now will- ing to take the plunge. I just stepped into a newly opened juice bar near my apartment, only to find that the young man blending fruits behind the counter had just quit his job as an accountant at a big firm, in order to follow his dream of building his very own “juice empire.” The budding entrepreneur has already started two outlets in the same number of months and hopes that Beijing will soon be dotted with other fran- chises using his brand. Despite the slowing down of China’s economy, it seems that the start-up bug is infecting everyone. C 100% What Venture Capitalists Assess before Investing their Funds The strength of Intellectual Property - the number of patents a company owns. The potential of a company to scale up A good exit strategy in terms of listing in the stock exchange or being bought by a big fish. The chemistry between co-founders The US might be ahead in terms of technology but China is ahead in terms of launching innovative business models, because the market conditions are so different. (Investors) want to invest in something successful to look like a savvy investor, but they can’t invest in a dozen or more projects at one time to spread their risk like a fund can. So if you fail for them, it’s far more personal, whether they intended it or not. FORWARD THINKERS
- 5. 8 9CHINA PLUS Nowadays I think it is actually not that difficult (to obtain funding) as long as you are really able to develop your project plan. 8 9 E ntrepreneursareoftenregardedassome ofthemostforwardthinkingindividuals withinsociety,possessingtheknow-how, businessskillsandaccumentobesuccessful inthecut-throatworldofbusiness.Chinahasproduced anumberofnotableindividualswhohavespearhead- edtheirrespectiveindustriesandasaresultbecome householdnamesacrossthenation.Themostnotable oftheseforwardthinkingentrepreneursistheincom- parableJackMa,themanbehindtheAlibabaempire. ButindividualssuchasMaareoftentheexceptionrath- erthantherule,andthatisespeciallythecaseinChina;a countrycryingoutformorepeopletobecomeentre- preneurssoastocreatevibrantbusinesseswhichcould bolsteraneconomyintransitionandsolvetheproblem ofacompetitivejobmarketwithtoofewpositions. Despite preferential policies designed to make it easi- er for graduates to start their own business, there still remains several problems related to the policy side and the educational side when it comes to producing a cohort of entrepreneurs who are ready to start their own business immediately after university. Chinahasbeenencouragingmassentrepreneurship andinnovationsincethestartofthisyearandtheState In order to learn more about China’s attempt to create a new breed of leaders and entrepreneurs, China Plus spoke to three individuals well placed within the subject of entrepreneurship in China to explore different aspects of the equation. Ms. Mao Donghui, is the Executive Director of Tsinghua’s X-Lab. Since its creation, 8000 students and alumni at China’s Tsinghua University have so far benefitted and all students are eligible to benefit from the operation of the lab. It has received 600 projects over the past two years, all at different stages of development. Almost 250 of these projects went on to register new compa- nies or are in the process of registering. What is X-Lab and how does it work? Tsinghua’s lab was founded in April 2013, and it’s an educational platform to provide resources and services to the innovative and entrepreneurial stu- dents of Tsinghua University. We mainly focus on current students but we also provide services to our alumni and faculty members. We mainly provide new courses, training sessions, workshops, and also some competitions like the present challenge innovation compeitition. We also provide project nurturing services for those projects where stu- dents would like to turn their ideas and technology into new products and new services. What are challenges for people seeking help from the lab with their projects? The main challenges for them come from the mar- ket. For students to start a new business, they often have some pretty cool technology or idea, but they don’t really pay good attention to the market; they don’t really go off campus and carry out investiga- tion or survey customers. Sometimes they ignore the real market needs and simply put themselves in a very ideal situation and want to create some cool products, but often those products may not be well accepted by the market or customers. So, we often want to remind them to put down your technology, put down your ideas, and just go out and try to identify the target market and target customers and figure out what the real demands or needs are from those people and identify what oth- er functions do they require and then come back and develop your new product and new services. After they do that, they often find out that they need to make a lot of changes to their product or service; so they need to redo their prototype and redo their product design. How do teachers help as part of X-Lab? We mainly try to help them in three ways: Knowledge, skills and mindset. Because this is an educational platform, we’re not simply an incubator. We want our students to learn by doing. Unlike outside people, when they start their entrepreneurial projects, they probably learn from other people’s experiences and intuition. But in our university we want students to learn from experiences but not only from real experiences, but also learn methodology and to also have a good business mindset, and also grasp some useful skills. We help them to understand the lean startup mindset and cross-functional team building, how to use business plans and methodology to develop their project’s plan. After doing all that, students often find it’s much better for them to have some useful skills to develop their project strategy. They have a much clearer understanding of how to position their products and services and how to analyze the market. We have many practitioners come to help guide the students. Professors only offer some courses and give them knowledge or framework. But professors cannot give students very applicable skills or tools to students. So, we have developed a large pool of mentors; we call them angels in residence and entrepreneurs in residence. Many of them are Tsinghua alumni, they have all worked in investment firms or companies and some of them are entrepreneurs. We invite those people to come back to our X Lab and provide one-to-one counseling or some training sessions or workshops. We do this so students can learn from practitioners. The market is a challenge, but what about financing channels? Nowadays I think it is actually not that difficult (to obtain funding) as long as you are really able to develop your project plan. So, often we help many teams to seriously develop their project plan and make it logical and cover all the important as- pects that investors would want to understand. If we see some projects and they still have something missing, for example they’re missing market analysis or they’re missing information on IP protection or their intellectual property rights situation, we will tell them they need to go back and do more work and come back to us again. CREATING GRADUATE ENTREPRENEURS THINKERSFORWARD Councilrecentlyissuedanopinionondeepeningthereformofinno- vationandentrepreneurshipeducationinschoolsofhighereducation. Universitiesareencouragedtodesignentrepreneurialcoursesforstudents whoareinterestedinstartingtheirownbusinessandpatentsorstart- upsthatdemonstrateastudent’ssenseofinnovationcanbeconverted intocredits. AreportreleasedbyTsinghuaUniversityrevealedthatyoungpeople arethemostactivegroupinentrepreneurialactivities.However, studentsareconcernedwiththechallengestheyfacesuchasfinancing andtheredtapethattheyneedtogothrough.Questionsremainover whetherthelatestroundofpreferentialpolicieswillbeabletohelp thosewhohavealreadyenteredtheuniversityeducationsystemto starttheirownbusiness,andmanyremainuncertainoverwhatskills canbeacquiredfromentrepreneurialtraining. In 2013, Tsinghua University launched an initiative called X-Lab, with the goal of exploring new models for educating students while seeking to inspire them to combine the merits of different subjects in order to foster their own sense of innovation. This an example of a departure from traditional education methods in order to foster entrepreneurial spirit amongst China’s most elite students, but of course this initiative is only open to a small num- ber of China’s total student population. Preferential policies may certainly help, but there is the question of addressing deep-rooted societal values, which spill over into education and within the workplace, which only serve to hinder an entrepreneurial mindset.
- 6. 10 11CHINA PLUS Students will then do more work on their projects, do more market analysis, provide more information about their team, and work on their IP and other issues, and after a while you will see that their project plan is much more logical and complete. At that time, we will help them to pitch to investment firms. We al- ready have more than one hundred investment firms that have connected with the investment lab, so we are able to help them match with the right firms. After several rounds of pitching and discussion, most of the projects are able to find funding. Financial support from government There is some support available now (from the government) but the process for government sup- port leads to small (amounts) of money but a very complicated process. Red tape That’s something that has always been part of the situation. We see more and more willingness from the government to provide services or provide financial support to China’s startups because a few years ago, you wouldn’t see that being available at all. They only paid attention to overseas returnee entrepreneurs. They didn’t pay attention to young college startup entrepreneurs. But now they are more willing to support (this group) but it is still a matter of simplifying their processes or developing the right policies to really offer some useful sup- port. Now we see that there is a mismatch situation; the government is willing to provide some support but the policies simply don’t match with many student’s situation as they have difficulty in actually applying and taking advantage of those policies. Intellectual Property Rights In the very early days, when X Lab was first estab- lished, we paid a lot of attention to IP protection. With support from big companies like Microsoft, we have already established an IP center within the X Lab umbrella. The IP center mainly provides IP counseling and also IP connections between teams and IP agents. So, when students come to us with their new projects, we often give them an IP evaluation. Our counselor can tell them what work they need to do and help them to understand the importance of IP protection and innovation strategy. The students will be able to know the importance of IP for small companies to become large companies, and be competitive in the market and have a good com- petitive advantage. Professor Zhao Yong works with the Department of Educa- tional Methodology, Policy and Leadership, at the College of Education, University of Oregon. Professor Zhao answers questions on entrepreneurship looking specifically at the impact of the Chinese education system, and how it helps or hinders students from fulfilling their entrepre- neurial potential. How do preferential policies help university students be- come entrepreneurs? I think the policies are great; they’re a good start but it may be too late. Entrepreneurs require a different kind of preparation. I think education, for a long time, has been preparing people to be employees, to look for jobs, to graduate. So, I think what’s needed is a different kind of education. I think the policies are maybe a short-term fix and might help those people who already have the entrepreneurialspirit,theentrepreneurialmindset.Butforthemajori- ty of students, I’m not sure that (the policies) can be very effective. Will training and workshops in higher education help? It will help a little bit but it’s not going to be fundamentally changed. As I said, it’s not about training. You cannot train an entrepreneur overnight. Just because you want entrepreneurs, you can’t just produce one; it doesn’t happen like that. It’s a much bigger culture shift. It’s about changing the mindset. People cannot think you take a course in entrepreneurship and then become an entrepreneur; it doesn’t happen like that. A survey conducted by Chinese job website zhaopin.com says that there are now more young people with the inten- tion to start their own business from about 3.2 percent last year to 6.3 percent now. What is behind this trend? I think that change is very small, it’s not very big. A 3 percent change in increase is very little. Even 6 percent is very small. Policies can change the effect short-term, in a small amount, but not in a big amount. DOES CHINESE EDUCATION HELP OR HINDER? You cannot train an entrepreneur overnight. Just because you want entrepreneurs, you can’t just produce one... PLUS What should be done? How to develop an entre- preneurial mindset? That requires change in the whole education (system). It’s the same thing not only in China but all over the world. Traditional education does not prepare people to do this. Traditional education prepares people to find jobs. So, this has to change from kids onwards, from early on, it’s a very differ- ent sort of education; it’s called entrepreneurship oriented education versus employee oriented edu- cation. But also in China it’s a different situation. You also have situation driven entrepreneurs. They may not be able to come up with great enterprises but when there are no jobs, people will have to become entrepreneurs. If there are no jobs then entrepreneurship becomes a form of employment and that means you will see some increase in en- trepreneurship. But that does not necessarily mean they’ll bring out innovative enterprises; they’re just doing this to make a living. What is needed in entrepreneurial training? I don’t think training works. For example, an entre- preneur has to be very problem oriented; they have a sharp eye to work opportunities. Entrepreneurs have to be very confident; they have to learn to take risks; they have to learn how to manage the social relation- ships and social intelligence; they have to be very creative and they have to be willing to challenge the status quo. All of these are not part of our traditional education. In fact, traditional education discourages people from being creative, from being curious, and from taking risks. People are born creative but our schools make them less creative because in order to pass the tests, in order to take the exams, in order to become a good student, you actually lose creativity and you lose the entrepre- neurial mindset. What are the obstacles for university students looking to start their own business? The first obstacle is thinking; are they able to take the risk. And the second thing is resilience. Are they able to survive failures? I think our students are not very good at learning from lessons, and also socially, our children spend all their time preparing for the tests, following the teachers, reading textbooks, doing their homework. They have no time to socialize and make friends and learn how to deal with other people. And that affects their ability to spot opportunities; do they look at challenges as opportunities. So these are all obstacles, because we have been educating our students to follow a pathway of success but entrepreneurship is not a smooth pathway or a straightforward pathway to succeed and there are a lot of uncertainties. I think our students are not very well (prepared) for that. 11 THINKERSFORWARD
- 7. 12 13CHINA PLUS FORWARD THINKERS What can China learn from international prac- tices when it comes to producing entrepreneurs? There are a lot of things we can perhaps learn from other systems. But all the traditional education paradigms, including the US, Australia and others, have been focused on helping people find jobs as employees, to meet other people’s expectations. However, from what the research shows, the sys- tems with less focus on one pathway towards suc- cess, like going through universities to find a job, show a diversity of talent which is very valuable. We have to diversify and help people understand that there are different ways toward success; college is not the only way towards success. I think China and others have been doing this, but we’ve got to encourage individuality and always help people to learn to take risks. Chinese culture and Chinese education does not encourage risk taking very well and that needs to be changed. When looking at entrepreneurship education now, it has risen as a very important part of education reform in almost every country now because we’ve realized that not only China needs entrepreneurs, everybody needs entrepreneurs because many jobs are going to be taken on by machines or out- sourced to other low cost countries. Robert Parkinson, the founder and CEO of RMG Selection, a leading Asia focused executive search business; spoke to China Plus from an insider’s perspective regarding what it takes to be an en- trepreneur in China. I have heard it be said that the more academic and intellectual people are too smart to be entrepre- neurs. You need an element of the blind leading the blind to be a good entrepreneur and I think one of the qualities is absolute conviction and drive in what you’re doing. As an entrepreneur myself, I have the feeling that from a very early age I had a desire to make money and be an entrepreneur and I can remember selling stuff to my parents at the age of 6 and then running a kind of direct marketing business at the age of 16, and now I’m running three businesses in various different areas. I think a desire not to have a boss is a key point. I spent ten years working for a company and I felt that that was very much my education in business because it was a brilliant company but I was a nightmare to manage. My bosses, I’m sure, were delighted when I finally disappeared to do my own thing. Entrepreneurs are so self-confident and self- willed, they don’t want to be managed; they’ve got their own ideas about what they want to do. I think you’ve got to have that self-belief, or desire, or willingness not to give up and to keep gong whatever the odds. The leadership requirement is an interesting scenario because it’s something that a lot of business owners lack. I would say that I’m probably one of the worst leaders that I know. Of course I aspire to be better and I aspire to be a good manager but there are many people I know who are far better managers than I am and indeed people in my company who are better leaders and better managers. But you have got to grasp that willingness to be a leader. How to lead someone that challenges you or thinks they know better? Actually, you want that in an organization. I think part of being a mature leader is that you can’t run a company if you’ve got a company full of people who are less well qualified than you or less good than you. You want brighter people. You’re doing well as a manager or a leader if you hire good people so if someone has a piece of criticism for me, the first thing I do is reframe that as not being criticism but feedback. It’s not good, it’s not bad; it’s just feedback. The second thing is, you’re showing great respect for the people that work for you if you are open to listening to their ideas. One of the things we stress at RMG is the concept of teamwork as a point of differentiation. And I know that we are far stronger by combining and sharing ideas and showing our willingness to do so because of that respect. In many ways, entrepreneurship is a means to an end. It’s a way of providing that standard of living that you aspire to or you require, or you’re motivated to gain. Once you get to a certain level I think you see past that. Look at Bill Gates for example, or Bill Clinton, they get to a certain level where they have so much money that they don’t want to make anymore. They get to what’s called a higher plain and they start to be interested in charitable activities. There is an index called the ease of doing business index, which I think China has risen within that list. To set up a wholly foreign owned entity in China, it takes about 6 months whereas to register a company in the United Kingdom it takes about 60 minutes. There’s a certain difference there. In fairness to the Chinese government, I think they are taking steps to make things easier and to make things like dealing with the tax bureau more transparent; generally cutting red tape and admin- istration. If you compare being an entrepreneur in China to being an entrepreneur in the West, maybe not places in Europe but certainly in America or the UK, I would say you need a lot of patience in China. You need a person who is prepared to smile and play the long game wins. The person that gets easily irritated and loses their temper and wants everything done this second does lose out. I think that native Chinese obviously from a cultural perspective understand the relationships and how important they are. For the westerners, the question is how do you eat an elephant, and the answer is slice by slice. It won’t happen overnight but if you’re good and you’re in it for the long term and you don’t see China as this wonderful cash ma- chine that will produce lots of money really easily, (then you can succeed). There’s a very famous quote from a guy who ran a major British company in China, he said the first thing you’ve got to do with somebody who has got an MBA is unlearn it because what he wanted was people with practical real life experience. But I think MBAs do have a place and they tend to have a place and tend to be appropriate for major mul- tinational companies which require those kinds of specialist skills. There are some people in the world who are clearly brilliant. There are, I’m sure, many Mark Zucker- bergs in China. But is everyone that graduates with a business major an entrepreneur? I don’t think so. If I look at my own example, I worked for a very talented guy for ten years and I saw that really as an educational period in my own life before I set my own thing up. Working and learning how to do it properly stood me in great stead. Some people will be bright enough to start their own thing straight off but the majority should get some experience first. WHAT IT TAKES. AN INSIDER’S PERSPECTIVE You’re showing great respect for the people that work for you if you are open to listening to their ideas 13 Failed the country’s national college entrance examination twice but would later gain a bachelors degree in English; enabling him to become a teacher. April 1995, started an Internet company with his wife after raising 20,000 US dollars worth of investment. The compa- ny made 800,000 US dollars within 3 years. 1999, founded e-commerce company Alibaba with 17 of his friends. November 2012, Alibaba’s online transaction volume exceeded 1 trillion Yuan. September 2014, Alibaba raised over 20 billion US dollars as part of an IPO on the New York Stock Exchange. China’s Most Successful Entrepreneur: Jack Ma
- 8. 14 15CHINA PLUS One of the biggest challenges is the issue of losing face and admitting one’s shortcomings. FOOD EDUCATION T he month of June once again saw mil- lions of university students graduate and officially enter China’s job market. This year, 7.5 million students will leave their campuses and while most of them are intent on finding a position in a competitive market, some are choosing to go back to voca- tional school to develop practical skills in order to sharpen their competitive edge. Despite being regarded as a step back by some, many are starting to appreciate the forward think- ing nature of pursuing practical schooling in order to maximize one’s chances in the job market. Guizhou, a populous province in the southwest of China, continues to pump out thousands of graduates each year. According to statistics from the Ministry of Human Resources and Social Security, the number of college grad- uates in Guizhou province was more than 120,000 last year. Amongst this group, the employment rate for college graduates in the province is about 91 per- cent. However, the employment rate of graduates from vocational schools is above 95 percent. According to Fu Xiaogang, Dean of Guizhou Aviation Tech- nology Vocational School, for the past ten years, many col- lege graduates have studied at the school in search of better jobs; and this group of students now account for 7 percent of all students at the school. Students from vocational schools usually become skilled blue-collar workers, a career path generally not favored by China’s university graduates. However, be it out of interest or necessity, this attitude is gradually changing. Graduates are be- coming far more pragmatic when searching for jobs as a result of an increasingly competitive job market. Graduates acquire practical skills on second- ary vocational courses and use them during a course of pragmatic training, which is then combined with the theoretical knowledge they have picked up at university. This allows them to apply newly acquires skills in areas they are interested in. Liang Yihan is a graduate with a degree in business administration. After grad- uating, Liang discovered that his degree simply wasn’t enough to guarantee him a job. “I am not good at expressing myself, so I always have some awkward pauses when I am talking with the interviewers. I never know what to say at that moment, so I am often rejected by the interviewers,” says Liang, talking about his em- ployment setbacks. “I was working in an insurance company for about three or four months, but I didn’t make a single sale.” It was at this point that Liang real- ized that his shy personality would hinder him in finding a job related to his university degree. As a result, Liang took a friend’s advice and decided to go to a secondary vocational school; something he had never previously considered. As Liang pointed out, despite not being particu- larly outgoing or confident in social situations, his strong operational skills would be a perfect fit for vocational training. 26-year-old Liang is now enrolled at a vocational school and is ma- joring in engineering. The mode of teaching at Chinese universities focuses mostly on academic study. But with the popularization of higher education and the chance of pursuing higher incomes, China no longer lacks graduates in the field of higher education. Even though many college students receive high scores from their universities, they still lack many specific skills required in the workplace. Similar to Liang Yihan, Wang Chencheng, a 24-year-old female was a senior student in a university in Guiyang, majoring in the ex- tremely competitive field of broadcasting and hosting. But following her graduation, she is now studying in a vocational school, seeking qualifications in editing and announcing. As Wang matter-of-factly explains, “The purpose of studying in the university or the vocational school is just to find a good job. I’ll study two more years and get more certificates. That will help me find a job.” Like Wang Chencheng, more By Guo Menghan and more graduates are learning practical skills in just a couple of years at vocational schools instead of taking a job immediately after leaving university. Fu Xiaogang from the Guizhou Aviation Technology Vocation- al School explains that, “Because university students are better educated, when they start to learn techniques, they are more creative than the vocational school’s (regular) student. The enterprises prefer university students with grass-roots experi- ences. Some students are even transferred from the professional skilled positions to the management positions.” But many people still believe that going back to vocational school comes at a price. One of the biggest challenges is the issue of losing face and admitting one’s shortcomings. When a graduate leaves university and decides to go to secondary voca- tional school, many of that person’s peers wrongly assume that this person is or has been wasting their time and is a lost cause. Secondly, there is the issue of money, as tuition for at least two years of vocational school comes at a cost; one which is often borne by the student’s parents. Tao Jun graduated in the field of human resource, but two years ago, he decided to leave his job as a trainer in a pharmaceuticals company due to limited career development prospects and low salary. As a result he enrolled at a vocational school and is now studying electrical engineering. “I have experience in ad- ministrative work, and I also have experience of working at the grass-roots level. These experiences are good for me in the future,” Tao proclaims. Chen Hailiang, principal of Guizhou Water Power School, explains the reality of today’s job market for prospective graduates and comments on the need for attitudes to change in relation to vocational training. “The job market is driven by the demands of employers. University students are now beginning to face this reality. And the society is paying more respect to skilled labour.” In the context of modern China, going back to secondary vo- cational school to learn practical skills is a viable option for some graduates and should certainly not be scoffed at. Even though many college students receive high scores from their universities, they still lack many specific skills required in the workplace.
- 9. 16 17CHINA PLUS C hina is gradually gaining interna- tional recognition for its achieve- ments in reducing carbon emissions and is certainly fulfilling its role as a leader in this field. The London School of Eco- nomics recently published a report predicting that China’s greenhouse gas emissions will likely peak in 2025, five years earlier than the target stated previously. The head of the Inter- national Energy Agency Maria van der Hoeven has also said that China deserves more credit for its renewable energy efforts, as it spends as much as the US and Europe put together on developing sources of clean power. China is moving forward on its path of carbon emissions reduction amid its economic restructur- ing. But in order to learn how China’s energy sys- tem will be shaped by its economic policy and what the challenges are for China as it shifts towards a low-carbon development model, China Plus speaks to one of the men involved with the report men- tioned above, Fergus Green, policy analyst at the Grantham Research Institute on Climate Change and the Environment, at the London School of Economics, and Zha Daojiong, professor of inter- national studies at Peking University and expert in Chinese energy policies. DESIGN GREEN CHINA16 2025According to a report written by Fergus Green and Professor Nicholas Stern from LSE, entitled “China’s new normal, structural change, better growth and peak emissions,” it is estimated that China’s greenhouse gas emissions are likely to peak by 2025. China Plus spoke to Fergus Green to learn more about his findings. FERGUS GREEN We think that that estimate if anything is a conser- vative estimate. It could even be that China’s emis- sions could peak earlier than 2025. So, we think it’s very likely that emissions will peak by 2025. In terms of what the analysis is based on, we look at a number of trends in China’s macro economy and also policy, and then we look in much more detail at trends in three key sectors: electricity, transport, and industry, which together account for about 80 percent of China’s greenhouse gas emissions. More specifically, the key trends that we focused upon, first of all we see a change in China’s economic structure and activity; that involves firstly a lower growth rate than we’ve seen for most of China in the last few decades. We’ve seen the growth rate fall from around 10 percent per year to now 7 or 8 percent per year; that’s one factor that’s reducing the demand for energy. In addition to that, we’re seeing a change in the composi- tion of China’s economic growth, as China is increasingly moving away from heavy industrial investment in things like steel and cement plants, towards industries that tend to use less energy such as the service sector and more innovative manufacturing industries, and also a rebalancing towards consumption away from investment overall. And the final key trend is the changing energy supply in the electricity industry. We’re seeing a shift away from coal, particularly in electricity and also coal in industry, towards more renewable sources of energy, nuclear and gas. The Chinese government’s determination to reduce carbon emissions. The Chinese government has, I think, shown a very strong de- termination to reduce China’s emissions. It seems this is part of a wider strategy of shifting towards a new development model that, in addition to being good for the climate for reducing greenhouse gas emissions, is also beneficial to China’s future economic development and for reducing pressures on China’s local environment, in particular pressures around air pollution. I think China is taking all of these challenges seriously, and quite intelligently it’s tackling them all together. I think we’ve seen the government take this issue more serious- ly than a lot of governments in rich countries, and that’s very promising. I think the bulk of efforts over the last five to ten years has been energy conservation; reducing the use of energy and the generation of energy in industry and the electricity supply. And increasingly in the last few years, we’ve seen a stronger focus on changing the sources of the energy supply, in particular controlling the use of coal and we’ve seen very, very strong investments in renewable energy. The relationship between China’s new normal strategy and its environmental protection efforts There are a number of different important relationships here. The first one is the change in China’s economic struc- ture: a combination of the lower growth rate, the shifting of economic activity towards consumption, and then the shifting of investment away from heavy industry towards services and higher value added manufacturing. What that means for the environment and for the climate, because of that change in economic structure, China is now using much less energy overall. That puts a lot less pressure on the need to use fossil fuels and other sources of energy. There are a couple of other important relationships.
- 10. 18 19CHINA PLUS GREEN GREEN One is that a number of these new industries that China is heavily investing in, higher value add- ed, more hi-tech manufacturing and so on, are themselves the industries that are needed to green China’s and indeed the world’s environment and to reduce emissions. So, we’re seeing investments, for example, in the production of energy efficiency goods and services; in environmental protection technologies; in low carbon and zero carbon ener- gy supplies like solar and wind. So these industries are not only good for the climate and the environ- ment but they are also sources of future industrial opportunities for China. And then of course, finally, the shift away from coal and towards low carbon energy sources is good for China’s air pollution in particular and can be good for greenhouse gas emissions as well. So that’s good for China in the short term in terms of reducing air pollution and helps to contribute to avoiding the worse effects of climate change over the long term, which would also be devastating for China’s long- run economic growth. To what extent can China’s own greenhouse gases policy contribute to keeping the world’s green- house gas emissions within safe limits, namely global warming of 2 degrees C? The basic conclusion is the earlier China peaks its emissions, the easier it will be to stay within those limits. So a 2025 peaking year will make it more likely the globe will be able to avoid more dangerous climate change and stay within that 2 degree limit. But of course, there would still be a long way to go to that, and whether the world does ultimately stay within those limits depends to a large extent on what happens in the rest of the world, which is the other 75 percent of global greenhouse gas emissions. And of course, it also depends on what China does after its emissions peak; how quickly will China be able to reduce its emissions after they peak. I think that’s an open question, and I think that’s where a lot of policy effort is going to be focused on over the next 5 or 10 years to lay the foundations for China to reduce its emissions strongly after they peak. According to the study, emissions from electricity generation and industry are very likely to fall in the near future but in the transport sector, China’s oil consumption and carbon dioxide emissions are likely to continue growing over at least the next decade. What is the impact of this trend and how will China deal with it? The transport sector is a really interesting one. It is one of the sectors that we look at where there is probably the highest risk of continued growth in oil consumption and in carbon dioxide emissions. As we point out though, it’s also the one where the trajectory is the most uncertain. There are many different possibilities and that’s because there are so many different factors that will influence the trajectory of China’s transport emissions. On the demand side, one big factor is that China is increasing standards for the energy efficiency of its vehicle fleet and towards the end of this decade those standards will be in line with European Union standards. So that will help to reduce oil consump- tion and emissions. Other factors on the demand side include how successful China’s new urbanization model is in designing, develop- ing and extending cities in ways that are more compact; that are less prone to congestion of vehicles; that are more reliant on public transport, walking, cycling and things like that. And finally, we’re likely to see over the next five or ten years shifts, as we’re seeing in a lot of other coun- tries, in social norms in relation to how people perceive, and own, and use vehicles; and that could help to reduce congestion, pollution and also transport emissions. And then on the supply side, we’re seeing a lot of innovation in vehicles towards electric and hybrid vehicles, lower emitting fuels, and also innovation in things like driverless vehicles. So, there are so many uncertainties in transport and what this means is that China has a lot of oppor- tunities to actually reduce its congestion and its pollution in cities by trying to tweak all of those different levers as best it can. The UN conference on climate change will be held in Paris in December of this year. Will China’s efforts and progress help with confidence building and boost cooperation between devel- oped and developing countries? I think the fact that China’s emissions are likely to peak earlier than 2030, in our view by 2025, will definitely help to build confidence in relation to the Paris negotiations. And hopefully what it should also do is spur rich countries who often point to China’s emissions as an excuse for not acting in their own coun- tries, that will hopefully make that excuse no longer viable; it was always unfair but now it can’t really be used given the amount of effort that China is exerting. Hopefully that will help build confidence and change the politics in rich countries. I think it would also build the confidence of other developing countries that look to China as an important model for growth, and as an im- portant example, and of course as an import- ant investor in many cases in those countries. And I think what China has shown is first of all, it has unfortunately shown the dangers of a very pollution and emissions intensive development and some of the unintended consequences in terms of air pollution and environmental degradation. But now on the more positive side, it’s also showing the ben- efits of cleaning that up; that we can reduce air pollution, reduce energy insecurity; develop more innovative indus- tries and so on whilst also reducing greenhouse gas emis- sions. I think if those opportunities are better understood by a lot of other developing countries, China could play an important leadership role with regard to those countries and that would also help achieve a successful outcome. The basic conclusion is the earlier China peaks its emissions, the easier it will be to stay within those limits. So a 2025 peaking year will make it more likely the globe will be able to avoid more dangerous climate change and stay within that 2 degree limit. Zha Daojiong, Professor of International Studies at Peking University, and expert in Chinese energy policies. China’s efforts to reduce greenhouse gases. Between the US and China, it’s not so much a climate accord, in other words we don’t have a mechanism to verify or check each other’s progress, it was a joint statement endorsed by the two presidents. The joint statement nevertheless provides a very important cover for making domestic policies on both sides. Secondly, in terms of China’s efforts in reducing greenhouse gas emissions there are two dimensions to this. One is that we target greenhouse gas emissions as a sepa- rate issue and second is that regardless of how our efforts are evaluated internationally, China has been trying to diversify its energy consumption away from a heavy reliance on coal and other forms of fossil fuels, and at the same time we have been trying very hard to improve energy efficiency including energy efficiency of using fossil fuels.
- 11. 20 CHINA GREEN At a meeting of the national leading group on climate change, energy conservation and emis- sions reduction, Premier Li Keqiang vowed that China will formulate a long-term roadmap for low carbon development. He also said that growth of energy saving and environmentally friendly industries will be integrated into the nation’s campaign to boost mass entrepreneur- ship and innovation. Can we keep our promises of reducing carbon emissions while maintaining steady economic growth? We have this new notion of pursuing economic growth, called the new normal. My understand- ing of the new normal is that when we look at the overall situation of the Chinese economy, we no longer fixate our eyes on GDP growth. Instead, we look at such indicators as employ- ment, which also brings China to the interna- tional norms. But the difficulty as I see it, at least in the electricity industry, is that there is still not so much of a societal acceptance of the need for China to install more nuclear power. Nuclear power has its own share of controversy, but here in China, if you really want to reduce carbon emissions you want to avoid a reversal of the trend. What do I mean by that reversal? In more recent years, especially in the past two or three years, a good deal of the reduction of carbon emissions comes from the slowdown of the economy; that is to say, less of a demand for coal fired power. This may reverse, so how do we avoid a reversal. You want to take advantage of the situation now, and start installing new sources of electricity supply and prevent the return of coal into the picture. Nuclear is an option. Another option is of course renewable energies such as solar and wind. China is a leader in investment in these wind and solar industries. But China has much more to do in terms of effectively installing and making use of the wind and solar potential in this country. The difficulties facing China in terms of implementing ener- gy diversification policy With regards to the Chinese capacity to produce the equipment for wind and solar energy, for many of the Chinese companies, their eyes are fixated on generating electricity and from wind and solar sources and selling it to the grid. Then the electricity grid is not very interested in purchasing new sources of supply from wind and solar because wind and solar are more expensive than coal fired electricity. We should encourage Chinese companies, when theygetintothesolar and wind industry, to create more and more of what’s called mini grids;theydon’thavetorelyonthelargegrids. Companies are all benefit driven. How to encourage them? One is tax incentives, another is actual administrative guid- ance, and the third is that we need to actually allow cities and different towns to be more flexible in pricing their electricity. Right now, electricity pricing goes province by province, but in realistic terms that needs to be further decentralized; different towns have to pay their own share of electricity differently. In addition to the mini grids, what China can do better is to give direct subsidies, massive direct subsidies to households, espe- cially in the countryside. So that means, when you have more and more of the small towns, especially what we call the third or fourth tier of new towns in China as we continue to urbanize, when you have more and more of these new buildings installed from the beginning with solar power or wind power, that builds a path dependence. If we don’t do that now, by giving direct subsidies to the households so that they get on the path dependence for renewables, then these new houses and new towns will contin- ue to depend on coal fired power. Subsidies should go more to the consumers rather than the producers of the equipment, or the middlemen entrepreneurs. Youwanttotakeadvantageof the situationnow,andstartinstalling newsourcesof electricitysupplyand preventthereturnof coal intothepicture. PLUS 21
- 12. 22 23PLUSCHINA22 CINEMA P rior to this year’s World Credit Rating Forum in Beijing, China called for a new international credit rating system that would be objective, just, rational and balanced. Such calls come amid claims from certain economists that global credit chains have become more vulnerable and that the world is thus facing the challenge of another credit crisis. Guan Jianzhong, Chairman of Universal Credit Rating Group (UCRG) explained that this year’s World Credit Rating Forum was held to raise awareness of the flaws of the incumbent world rat- ing system and to promote reform of the system. “The credit rating practice that has been proven as faulty in the credit crunch is still playing a lead- ing role in directing international capital flow. In this context, increasing credit bubbles are very likely to trigger another worldwide credit crisis,” Guan stated, adding that accusations on the faulty credit rating system have yet to be converted into a worldwide consensus and commitment to a global rating system reform. In this case it is imperative for the international community to reach a consensus to building a renewed international rating system. Guan’s appeal has been echoed by former French Prime Minister Dominique de Villepin who is also chairman of the International Advisory Council of UCRG. de Villepin believes that it is imperative to take the initiative because the world’s economy is facing threats as never before. As de Villepin explains, “The first threat is depen- dency on debt that has in no way been reduced since 2008. Public debts keep growing despite the austerity policies particularly in Europe. Greece remains today an important political issue. The country is unable to pay for its debts without further destruction and damage for the Greek peo- ple. But the country is still unable to default on its debt because remaining in the Euro zone it will not boost its economy by a strong devaluation.” Dominique de Villepin also points out that private and public debts are creating financial threats all over the world adding that the failure of risk evaluation has led the world to the situation it finds itself in today, while noting that the world’s current credit rating system is highly mo- nopolistic, with the top three raters all from the United States. “The existing credit rating system is dominated by the big three credit rating companies S&P, Moody’s and Fitch,” de Villepin points out. He goes on to explain, “They are all US-based who repre- sent 96 percent of the rating’s market. The existing system has failed in many ways. This risk evaluation has proved inefficient in the past in assessing the risks. These ratings are proven to have (had) a pre-cyclical effect in the finan- cial crisis; too high ratings before the crisis have produced speculative effects while quick downgrading after the crisis in order to protect the credibility of the rating agencies led to a deepening of the downward trend.” To face these difficulties and challenges, China’s vice finance minister Zhu Guangyao has noted that the country is ready to work with all other countries to push for the perfection of the existing credit rating system and the establishment of an Asian credit rating system and standards that suit regional characteristics. “Our basic policy is to protect and perfect the existing global financial system to make it better promote global economic growth and the stability of the International financial market.” AVERTING FUTURE CRISES: THE NEED FOR A NEW CREDIT RATING SYSTEM Our basic policy is to protect and perfect the existing global financial system to make it better promote global economic growth and the stability of the International financial market. FINANCE
- 13. 24 25CHINA PLUS A recent report published by Renmin University and Bank of Communi- cations noted that the Chinese yuan (RMB) will replace the Japanese Yen in fourth place on the list of international cur- rencies. It also points out that the RMB is like- ly to be included in the Special Drawing Right currency basket this year. By the first half of this year, the RMB internationalization index stood at 2.9 percent, less than one percent- age point lower than the internationalization index of the Yen, which is ranked fourth on the list. China Plus spoke to Mike Bastin, director of China Business Center based in London, to learn more about the significance of this news for China and the global economy. How significant is this milestone of overtaking the Yen on the currency list? I think it’s very significant and it’s been on the cards for quite some time. It’s been accelerated a little bit by China’s very recent lead role in an Asian economic integration and initiatives such as the new Silk Road and the Asian Infrastructure Invest- ment Bank as well; that’s helped things. It’s really putting the RMB and the internationalization of the Chinese economy in general on the map. How significantly will the belt and road initiative influence the internationalization of the RMB? Very significantly, this is a very major initiative; part of the current regime of the Chinese government’s policy in not just promoting the internationalization of the Chinese economy but taking the lead in Asian economic integration and emergence generally. These (initiatives) will all play a major role in pro- moting China’s currency as an international currency to rank ultimately alongside the US dollar, the Pound and the Euro. How do you view the trend of the Australian dollar, Canadi- an dollar and Chinese Yuan as emerging currencies? I think this trend is likely to continue, we still don’t see much stability in the mature markets; the US economy is still fairly sluggish; the Eurozone is still beset with problems. So, it is emerging markets and Asia in general and China in particular where I think the balance of power will continue to change. Taking over as the fifth biggest payment currency recently, and overtaking the Australian dollar and the Canadian dollar is very, very significant. I see no reason why this would change, and the Chinese currency in particular will start to become one of the major currencies around the world. If the RMB is included in the IMF Special Drawing Right currency basket, what impact will this have on currency structure around the world? Again, that will be another major impact when this comes un- der review very soon and the IMF do actually include the RMB alongside the Euro, the Pound, the Yen and the US dollar, that will again signify major structural change in the world econ- omy; the balance of power; and the rise of China’s economy; and the Chinese currency in particular as a major currency for trading around the world. C HINA PLUS spoke with Kevin Rudd, former Prime Minister of Australia and current member of the interna- tional advisory council of the Uni- versal Credit Rating Group to gain a deeper perspective on the global credit rating system. Problems with the global credit rating system. Essentially, the challenge of the system is wheth- er in fact they have learnt from the mistakes of 7 years ago. And this is an open question. The US courts found recently against Standard and Poor’s that their advice prior to the crisis in 2007 was not correct. As a result, a large fine of 1.4 billion dollars was imposed. So, it’s not a matter of subjective opinion whether the three big credit rating agencies got it wrong. They did and it has been es- tablished in the courts. So therefore, the real question is have these credit rating agencies worked out how to reform themselves in order to remove the conflict of interest which exists between on the one hand, being paid by a firm for a credit assessment, and on the other hand, providing that assessment. That’s the number one concern. I think the number two concern is given that cred- it assessments have a huge effect globally, do we in fact now need not national systems of credit rating agency regulation but an international regu- lation mechanism. I think that is an open question to be discussed further and be resolved. There’s a third concern too which is the extent to which Standard and Poor’s, Moody’s and Fitch are properly equipped to assess project risk in the developing countries of the world, partic- ularly in the rest of Asia and to some extent in Africa and Latin America, where we’re going to see new waves of investment from countries like China where frankly the availability of indepen- dent credit ratings is going to be critical. So, I see those as being three large questions and I see there be- ing an opportunity for these matters to be addressed in the G20 Summit here in China next year when China chairs the G20. With the establishment of organizations like UCRG, could they help us avoid future financial crises? The key question is the accuracy of credit analysis. The key question is removing any conflict of interest in the construction of those analyses. The key question is the proper regulation of the credit rating industry. If those questions are got right, then the risk of a return crisis is reduced. But there is one further factor as well. Firms also need to undertake their own credit risk assessment rather than simply relying on the external assessment of a credit agency about how their business is going; how their financial institution is going. In other words, they need to have their own exposure and not simply be able to point the finger at a credit rating agency and say it’s their problem as opposed to your problem of internal financial management. That is very much a corporate cultural question but it can be addressed through the various corpora- tions laws of the large economies as well. So, we should not simply ask this question about do we need more players in the credit rating agency field, the question is will they be independent, are they properly regulated, do we have an international system of regulation, and do we also need to ensure that firms themselves undertake their own ratings for the future. AVERTING FUTURE CRISES: KEVIN RUDD SPEAKS TO CHINA PLUS The challenge of the system is whether in fact they have learnt from the mistakes of 7 years ago. It is emerging markets and Asia in general and China in particular where I think the balance of power will continue to change. FINANCE Long Time Coming: RMB Overtakes Japan’s Yen on International Currencies List FINANCE What are the IMF Special Drawing Rights? The special drawing right (SDR) is an international reserve asset, created by the IMF in 1969 to supplement the ex- isting official reserves of member countries. Countries can exchange SDRs for hard currency at the IMF. The SDR also serves as the unit of account of the IMF and some other international organisations. Its value is based on a basket of key international currencies. The SDR is in some ways like a currency, but is currently used only at the IMF. The value of the SDR is based on the exchange rates of the US dollar, the euro, the yen and the pound sterling. The basket composition is reviewed every five years to ensure that it reflects the relative importance of currencies in the world’s trading and financial systems. www.brettonwoodsproject.com
- 14. 26 27CHINA PLUS 27 We should aim high and focus on even more valuable goals to bring about benefits for both peoples living in the two large continents OPINION OPINION T he ties between European Union and China, two of the world’s most important economic entities, have been smooth and strong over the past decades. EU is China’s largest trading partner, while China is the biggest source of imports and has become one of the fastest growing export markets for EU. The daily trade between the two sides now reaches well over 1 billion euros. The latest trip by Chinese Premier Li Keqiang witnessed more deals, about 50 just in Paris, being struck. But there’s much more the two sides could do to build their relationship even stronger, given the under-developments in a few aspects in- cluding mutual investment which is minimal, and people -to-people exchanges. Even in the trade areas, there’s still a lot to do, such as a Free Trade Agreement (FTA). China-EU FTA Brussels and Beijing are in the process of negoti- ating a bilateral investment treaty, which is often seen as a precursor of a FTA. China is to become the world’s biggest overseas investor in five years, with the outbound investment to double the current 744 billion US dollars and reach 2 trillion. A Financial Times report says, given the size, growth and complimentarity of Chinese economy, there are unique opportunities for Europe. French Prime Minister Manuel Valls obviously agrees to that point, stressing to media that “during my trip to China, I said many times that France was ready to welcome more Chinese investments.”An early conclusion of a bilateral in- vestment scheme serves both sides well and will also lay the foundation for the talks of a free trade agreement. As China’s economy continues to grow and is expected to become the biggest in the world in a few years, close trade rela- tionship is one of the most effective ways to bring the EU and China together. A strong China-EU cooperation contributes a great deal to global peace, stability and prosperity. European countries, such as Britain, France, Germany, Italy and others have shown encourage and wisdom in joining the Asia Infrastructure Investment Bank initiated by Beijing. They could once again demonstrate their leadership in throwing their support behind the suggestion by the Chi- nese side for a free trade deal. China has forged FTAs with a multiple developed countries, including Australia, New Zealand and Switzerland. If those countries can take the decisive steps to consolidate their trade with China and benefit from China’s rapid growth, European countries should probably think of doing something similar. High-Tech Exports to China One of the concerns of some European countries in a China free trade deal is trade deficit with Beijing – meaning they purchasing more than selling products to China. Part of the reason has been the EU restrictions on high-tech export to China. Premier Li Keqiang again urged the European side to relax the control in that respect. China is determined to secure advanced technologies with or without cooperation from EU countries. If EU sticks to the outdated policy, China will be forced to look elsewhere, as already is the case with Beijing purchasing military tech- nology know-how from Russia. At the same time, China is investing heavily in research and development (R&D), nearly catching up with the EU in terms of the portion of GDP. In fact, China’s total R&D funding is expected to surpass that of the US to become the world’s largest in 2022. The restrictions on technology export to China are increasingly pointless except for standing as a barrier in bilateral trade and a factor giving rise to trade imbalance. The restriction has far outlived its usefulness and it’s time to change. Person-to-Person Exchanges Part of the outcome of Premier Li’s visit has been that EU nations will set up 15 more visa offices in Chinese cities to facilitate the visa procedures of Chinese citizens. France agrees to issue five-year multiple-entry visas to Chi- nese visitors. These are all sound and positive steps. But they are still too conservative and far from exploiting the potentials of the huge Chinese market. Back in 2013, the UN World Tourism Organization said that the Chinese had become the single biggest source of global tourism income. A Morgan Stanley re- port said Chinese tourists could be spending as much as 194 billion dollars a year around the globe. Boosted by a strengthening currency and a growing mid- dle class, more Chinese travellers are to be seen around the globe. By 2015, 100 million Chinese will travel abroad and they could spend more than all the world’s luxury shoppers combined. These numbers represent a huge opportunity for other countries, including the EU, to take advantage of the Chinese spending power. The EU is lagging behind other competitors. The US ini- tiated a 10-year multiple-entry visa scheme for the Chi- nese last year and Canada followed suit. EU could further reduce the hassles of visa application for Chinese people to visit, study and do business in European countries. Premier Li’s EU tour was a fruitful one, with both sides agreeing to integrate China’s “Belt and Road” initiatives with EU’s ambi- tious Investment Plan as both focus on infrastructure construction. The two sides also promised to further cooperation on climate change to the benefit of global community. As a brand new practice, China and France agreed to set up a mutual fund to start join cooperation with third parties. All of these achievements are laudable and deserve celebration. But at the same time, we should aim high and focus on even more valuable goals to bring about benefits for both peoples liv- ing in the two large continents. The China EU Relationship Could go Further and Deeper By Xu Qinduo
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