Editor’s note: At the World Economic Forum’s three-day meeting in Dalian, Liaoning province, China’s economic growth is once again in the spotlight. More than 1,700 participants from 90 countries are attending “Summer Davos”, opening on Sept 9, to chart a new course for growth as global recovery sinks into uncertainty. Before the conference began, business leaders from international companies shared their opinions with China Daily about China’s economic prospects and what strategies they may take to readjust to the nation’s new normal of growth.
Economic slowdown pressures have increased in China since the second half of 2014. During the first six months of this year, GDP growth fell to 7 percent, while deflation pressures have risen in the manufacturing sector. What are the challenges that you have faced or are continuing to face in China, especially in terms of development strategies and actual operations?
How do you see economic reforms in China playing out? What do you think are the ongoing reforms’ key lessons for your business?
Have you been facing more pressures from the nation’s moves to conserve energy and reduce emissions? If so, what are those pressures and what measures have your business taken to work within these new parameters? Did the moves entail additional investments to conserve energy and reduce emissions?
How would you rate your company’s performance in China in 2014? Over the next five years, do you see an increase or decrease in China’s contribution to your global business? Do you foresee any major risks in the Chinese market over the long term?
What are your views on the government’s added focus on public-private-partnership projects? Has your company been part of any such projects? If so, share some interesting anecdotes or case studies. Does your company plan to be a part of China’s PPP projects in the future?
Feike Sijbesma, CEO of Royal DSM
The current, somewhat lower, growth rate in the Chinese economy is still impressive and relatively high compared to other economies. The challenge will be to increase the part of China’s economic growth coming from domestic consumption instead of investments in, among others, infrastructure. It is also desirable that China reduces overcapacity as it happens in several industries. DSM’s business in China is doing well－in 2014 we have grown by double digits here. Currently we see more pressure to grow strongly in China.
The drive of the Chinese leadership toward the so-called new normal is a very good and logical one. China is expected to face a somewhat slower economic growth, although it’s still relatively high. China will most likely focus more on innovation and domestic consumption than on manufacturing and investments. We see ongoing reforms to keep China as one of the world’s leading economies. Its State-owned enterprises are becoming more agile and issues like climate change are being strongly addressed by the Chinese leadership.
China is clearly addressing climate change and reducing carbon emissions. This is a benefit to China since it is a precondition for economic growth and keeping cities comfortable for people to live in. Royal DSM is contributing to these developments with reductions of its own emissions in China and the development and introduction of new forms of alternative energies, such as new coatings that increase the yield of solar panels and the introduction of new technologies that are turning agricultural waste into green energy.
The growth in DSM’s business in China has been impressive in recent years. Today, we are seeing more pressure regarding our growth. Still, due to ongoing urbanization, DSM sees good growth opportunities in, for example, animal nutrition and human foods and nutrition. In human foods, we are investing in new ingredients, such as in texturizing food ingredients.
Royal DSM works with several universities and governmental agencies. Private-public partnerships will enhance innovation as an economic growth driver for China. We clearly see the drive of the new Chinese leadership to address energy, pollution and climate change, which we welcome and believe offers great opportunities for collaboration.
Nicolás Aguzin, chairman and CEO for Asia Pacific at JPMorgan Chase & Co
The recent economic slowdown is in part a result of China’s efforts to transition its economy from an investment-led to a consumption-led growth model and shifting focus from the manufacturing to the service industry. We believe the restructuring and rebalancing will bring about sustainable growth in China’s economy in the long run.
Despite the slower growth of 6 to 7 percent, China will still become the world’s largest economy. It may happen a little later than expected but we remain very confident in the future of China.
The Chinese government still has policy tools to support the economy. On the fiscal front, they have expanded the local government debt swap program, increased policy bank lending via re-capitalization and financial bond issuance, as well as encouraged public-private partnerships. It could also further reduce taxes and fees to help new enterprises and ease the 30 percent startup equity requirement for new project investment. On the monetary front, interest rates have been cut five times and the required reserve ratio three times since November 2014.
China’s reform has made significant progress in many areas. Some bigger steps have been taken in financial reform, such as interest rate liberalization, the exchange rate regime and renminbi internationalization, fiscal reform, administrative reform and SOE reform. We expect continuous reform such as land and household registration reform.
Renminbi internationalization and the pilot programs conducted by the People’s Bank of China and State Administration of Foreign Exchange related to cross-border renminbi and foreign currency transactions have brought substantial benefits to our clients and businesses in China. Not only are our international clients leveraging these new policy developments with JP Morgan’s help but our Chinese clients are also capturing opportunities to establish their global treasury management network, which is an important part of their “going out” strategy.
As a global provider of financial advisory, underwriting and lending services for clients across sectors and geographies around the world, we recognize that our business decisions have the potential to impact surrounding communities and the environment. We believe that balancing nonfinancial factors such as environmental and social issues with financial priorities is fundamental to sound risk management and a core part of corporate responsibility.
In China, we are guided by the Green Credit initiative and strictly comply with Green Credit laws and regulations, as well as environmental protection compliance requirements.
Our company performed very well across all lines of businesses in 2014. Our strategy in China is to focus on serving our clients and making sure we are able to provide them with the necessary financial needs, both inbound for multinational corporations and outbound for large Chinese enterprises and financial institutions.
I expect China’s contribution to our global business to increase over the next five to 10 years. As China continues to grow at a faster pace than the rest of the world and Chinese companies become more international, I see growing opportunities for JP Morgan to serve them.
We are confident in China’s long-term future and will therefore continue to invest in our people, products, systems and infrastructure to better serve our clients.
We believe the PPP model will help address the local governments’ financing constraints and provide support for projects within the infrastructure investment area. A backdrop is the fiscal reform introduced last year that will tighten fiscal discipline for local governments. The PPP model can ensure investors’ proper due diligence to avoid excessive investment. And in the current situation, it is also an offsetting measure to mitigate the fiscal drag faced by local governments. However, the PPP model has high requirements on contractual, legal and other arrangements. We think that PPPs should be complemented by other fiscal measures.
Chen Yudong, president of Bosch (China) Investment
China is an important location for the Bosch Group, both as a local production and engineering hub as well as a market for our innovative products and solutions. In addition, China is the second-largest market outside Germany for Bosch, with sales of 6.4 billion euros ($7.2 billion) in 2014, representing annual growth of 27 percent. Bosch business continued to develop healthily in the first half of 2015.
The economic situation in the second half of 2015 becomes more challenging for everyone. But Bosch is convinced of the long-term potential of the Chinese market. For the coming years, we expect comparably modest growth and a new normal in China. The expected growth will still be considerable. In order to achieve the target of doubling sales by 2020 in the Asia-Pacific region, Bosch China will remain an important contributor for the company.
Improving legislation and building up an open market have been the two major drivers for the development of China over the past few decades. With enhanced implementation of policies and increasing market openness, Bosch is confident it will maintain growth in China. Mutual growth with China is our primary target.
Saving energy and reducing emissions have become a growing basic demand in China. As a company focusing on sustainable development, Bosch utilizes green products via innovative technologies.
It also integrates green concepts into its corporate culture and company management, placing an emphasis on employees’ environmental consciousness.
Besides cutting-edge innovations in clean diesel technologies, electrification systems or advanced water heaters, Bosch’s efforts in Industry 4.0 technologies is another recent example in how it is saving energy and reducing emissions.
In an Industry 4.0 pilot project at Bosch, the application of smart manufacturing helped Bosch save about 25 percent in energy consumption every year.
Gao Feng, president and chief country officer of Deutsche Bank China
In the next phase of China’s economic development, reform-led enhancements will replace growth driven by commoditized exports and low labor costs. The country’s policies are gearing toward a more open economy with a convertible currency. Reforms will give China’s marketplace greater financial and operational efficiency. I expect to see corporations mobilize savings and allocate financial resources domestically and increasingly globally, leading to greater productivity. Labor force, regional disparity and internal consumption challenges are not unconquerable. The right reforms can substantially boost the nation’s productivity and economic potential.
Sitting in the financial industry we have witnessed the country’s commitment to reform. Key measures include interest rate liberalization, renminbi convertibility and the gradual opening of capital accounts. These measures will shape China’s new financial market, which will have a deeper market structure, stronger regulatory and legal infrastructure and more efficient financial resource allocation. These will enable the financial sector to better support real economic growth.
Deutsche Bank believes in the benefits of acting sustainably and combating climate change. Environmentally friendly technologies will help create new industrial sectors. Being environmentally conscious is expected to drive higher returns in the long term. Deutsche Bank was one of the first signatories of the United Nations Global Compact in 2000 and we have committed ourselves to adhere to 10 principles relating to human and labor rights as well as environmental protection and anti-corruption. We have plans to set up China-focused clean energy investment vehicles to bring in investment in related technology and companies. Furthermore, we have built up an environment and sustainability management system at the bank that fulfils the requirements of ISO 14001.
In 2014, Deutsche Bank China continued its strong momentum that we have enjoyed since we locally incorporated in 2008. I’m certain that China’s contribution to our global business will further increase. This is driven by both China’s vast market potential and our headquarter’s plan to further build up the China franchise. In addition to making sound business efforts, the rate of growth for international banks is tied to the rate of renminbi internationalization and capital account opening as these are main catalysts for cross-border financial activities.
The bank manages the Global Climate Partnership Fund that allows public financing to catalyze private investment. Fund investors include a German doctor’s pension fund; Germany’s Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety; and the United Kingdom’s Department of Energy and Climate Change. The fund is a strong example of international climate finance and the international goal of providing $100 billion of support to developing countries. The Deutsche Bank Americas Foundation is in long-term partnership with the New York City Economic Development Corp to support immigrant communities in New York, particularly to identify talent and top-shelf companies that show promise in their respective industries. We would be honored to participate in PPP projects in China.
Ahmad O. Al Khowaiter, chief technology officer of Saudi Aramco
Companies like Saudi Aramco make investments in the upstream and downstream oil and gas industry.
We believe there is great potential for us not only to supply energy in the form of crude oil to China but also to invest in converting this into useable fuel and petrochemical products by investing locally in these industries.
While the GDP growth rate may be low by historic Chinese standards, growing the world’s largest economy at 7 percent per year is still very impressive. We remain very positive about the future growth prospects of China and our business there.
Over the last three decades we have witnessed the reform process in China lead to the rapid economic growth. It is generally accepted that further economic reforms will be needed to unlock the next stage of China’s economic development.
Adopting reforms to encourage the right economic outcome through thoughtful regulation and positive incentives will be a challenge. Fortunately, China’s leadership has a very good track record of making reforms that lead to positive economic and social outcomes.
Energy conservation and emissions reduction is truly a global challenge. A hallmark of our commitment to society is Saudi Aramco’s great emphasis on minimizing our operational impact on environmental and human health.
We have reduced our CO2 footprint six-fold over the last four decades through a number of measures extending across our different operations.
We had an excellent 2014 performance, we had many accomplishments, and are going strong in meeting China’s growing oil and chemicals demand. To serve our Chinese crude-oil clients better and emphasize our role as China’s most reliable crude oil supplier, we expanded our Asian headquarters in Beijing and branch offices in Shanghai and Xiamen.
We definitely see China as a growing contribution to our business, not only over the next five years but for many more years to come. As we expand our presence in China, we have moved beyond the sale of crude oil to investments in higher-value chemicals with our petrochemical ventures.
Due to the scale of our operations and projects, and our unique role in the development of the Kingdom of Saudi Arabia, we have had very positive experiences with public-private partnerships. Given our experiences, we understand and appreciate the Chinese government’s added focus on such projects.
With regard to projects in China, we continue to evaluate opportunities that expand our business and contribute to the growth of China in a win-win manner.