========================================================================

Go Global:

China========================================================================

© C

hina

Tou

rs

Bigger. Greener. China.

Daniel Seemann

========================================================================

========================================================================

GO GLOBAL CHINAPage 2

China has become the world’seconomic engine in times of crisis. Thisis also true for the greentech sector,which is growing at a faster pace thanin many other countries around theglobe. However, China still has somework to do.

The past two years have been times of

growth and expansion for China’s green-

tech markets. Although the greentech

sector still faces macroeconomic chal-

lenges, China’s overwhelming need for

energy and environmental technology

continues to foster its rapid growth.

“China's strategy over the past 20

years was to build, build, build and

grow. Now, there is a strong focus on

energy and efficiency,” says Ellen Car-

berry, co-founder and Managing Direc-

tor of the China Greentech Initiative

(CGTI), the only platform between China

© China Tours

GO GLOBAL CHINAPage 3

and international partner companies

dedicated to identifying, developing and

promoting green technology solutions in

China. It was formed by 500 decision

makers from 100 organizations.

CGTI has just released their 2012

China Greentech Report, which summa-

rizes their institutional point of view for

Greentech in China.

Green growth with risks

ahead

Several macroeconomic challenges were

identified for China’s greentech markets

in the report. One big obstacle is the

focus on state-led growth in the energy

sector that may especially harm those

greentech industries dominated by

smaller private companies, such as

solar or energy services. In addition,

a general drop in Chinese exports has

particularly hurt manufacturers in these

energy sectors.

Furthermore, a frugal monetary po-

licy, together with a gradual decline in

investment and infrastructure spending,

has hurt financing for greentech-related

projects. And finally, demographic shifts

are increasing labour costs across the

greentech sector. Nevertheless, the re-

port predicts that this might lead to

greater innovation and automation in

renewable energy manufacturing and

consolidation in other energy fields.

Changing energy policy

Since 2011, the Chinese government

started to react to these circumstances

by lifting targets for energy efficiency,

solar and wind. In addition, the country

enacted new policies in the area of

energy taxes and carbon trading. How-

ever, in other areas such as biofuels,

progress has faced setbacks or has

been uneven. Still, based on targets in

the 12th Five Year Plan, the report pro-

gnosticates that China’s energy mix will

slowly shift from coal to other fuels.

This is based on strong macroeco-

nomic facts. When it comes to energy,

China already has to import over half of

its oil. The country is also heavily reliant

on coal, which produces high emis-

sions of carbon and other air and water

pollutants. Another major impetus for

a changing energy policy in China is a

rising public awareness, following a

number of major pollution incidents in

2011.

Invest locally,

export globally

China initiated several policies to sup-

port the domestic greentech industry.

But 2011 also saw the continuation of

an earlier trend, with the renewable

energy sector dominating outbound

Huxingting Tea House at Yu Gardens

© C

hina

Tou

rs

GO GLOBAL CHINAPage 4

investments and companies going

abroad to deal in this area.

2011 also saw a new push for inves-

ting in basic infrastructure abroad –

such as European water and power grid

utilities – to achieve asset diversifi-

cation and financial returns. The report

states that in the future, China will con-

tinue to deploy its capital, labour and

technology abroad, deepening interna-

tional collaboration and cooperation in

the area of greentech.

Greentech market

opportunities

CGTI identifies different sectors in

which the greentech industry might

grow in the future. The size of conven-

tional energy in China’s energy mix is

still huge – and although the govern-

ment continues to restructure the coal

mining industry, it will continue to

experience strong growth. The nuclear

and gas sectors will also continue pro-

fiting from government policy support

in the future.

However, stricter emission stan-

dards will affect coal plants, and the

government will introduce carbon tra-

ding pilot programs. And despite large

investments in the sector, China’s

domestic gas production is stretched to

the limit and has not kept up with

consumption, increasing reliance on

imports. These developments could

make energy from renewable sources an

incremental alternative for the future of

China’s energy supply.

Low priced renewables,

limited funding

2011 was a positive year for renewable

energy in China, especially for solar

and wind energy. In that year, the Cen-

tral Government published concrete

installation targets for renewable energy

by 2015, doubled the surcharge rate for

renewable energy and introduced spe-

cific carbon reduction policies.

However, Chinese solar module

makers suffer from severe overcapacity

problems and squeezed profits, as the

demand from European and U.S. mar-

kets for Chinese module sales weakens.

To help absorb excess solar produc-

tion, the Chinese government stimu-

lated its domestic market by raising the

feed-in tariff for solar power. In the

wind sector, China installed a capacity

of about 18 gigawatts in 2011. Biomass

power generation also experienced ra-

pid growth thanks to favourable policies.

Given the high cost of renewable

energy projects, limited funding sources

have become a bottleneck for project

development. Debt – such as bank

loans and bonds – is currently the main

source for wind and solar financing,

but good terms are only available to

the largest enterprises or state-owned

enterprises. At the very least, there is

direct financial support available from

the Chinese government for wind and

solar energy – including tax credits,

preferential land-use policies and low-

interest loans.

The biggest smart power

grid ever

Energy efficiency targets and the rising

share of renewable energy in the coun-

try’s energy mix represent a big chal-

lenge to the Chinese power grid as it is

currently designed and operated. For

this reason, China has begun with the

construction phase of its “Strong and

Smart Grid Plan”. It aims to establish

Shanghai, China Ellen Carberry

© S

iem

ens

AG

© p

riva

te

GO GLOBAL CHINAPage 5

the world’s largest smart power grid by

2020, including ultra-high voltage lines

and distribution networks in urban and

rural areas, remote monitoring, two-

way communications and an electric

vehicle (EV) charging infrastructure.

China’s energy storage market con-

tinues to grow consistently. Using the

potential of the expanding smart grid,

this sector has the potential to improve

the connectivity of intermittent rene-

wables, such as wind and solar. Yet,

high costs, unproven technology and a

lack of governmental policy direction

make storage a tough sell over the next

few years, as CGTI reports.

Electric mobility

on the rise

China’s automotive market is the

world’s largest and is growing rapidly.

However, it will still be dominated by

conventional vehicles for the next

decade, as indicated by the CGTI

report. Yet cleaner transportation is an

important element of China’s plan to

reduce carbon emissions and use of

fossil fuels. To improve fuel efficiency,

China continues to raise conventional

vehicle emission and fuel economy

standards. In contrast, there have been

few developments in the past year on

biofuels.

China focuses a strong policy sup-

port on electric vehicles, which has

raised expectations for the growth of

the EV industry in the country. Several

companies have already taken the lead

in the development of the battery-char-

ging segment by building infrastructure

for EVs across the country.

The Chinese greentech

forest

“China is like a vast forest, a vast

ocean. It is a rapidly changing market,

where information and relationships

are not transparent,” explains Carberry.

“Because of that problem, CGTI was

created. The annual reports can be

taken as a compass for understanding

China’s rapidly changing greentech

market.”

The Chinese market could become

more and more interesting for inves-

tors, notably from Germany. “China

and Germany will become an economic

intersection for the future,” Carberry

says. “This is especially true for the

mindset and the innovation power of

both countries.”

It is an opportunity not to be missed

by German greentech entrepreneurs –

especially in times of crisis.

� www.china-greentech.com

Beijing, Beijing Opera

© C

hina

Tou

rs

GO GLOBAL CHINAPage 6

Europe has emerged as a keydestination for Chinese outboundabroad. In the second quarter of 2012,the region received US$5 billion ininvestment – up from US$ 1.7 billionin the first quarter – and accounted for48 percent of all mergers & acquisi-tions and 95 percent of all non-resources deals.

Indeed, Chinese companies are diversi-

fying their investment profiles world-

wide into a range of industries beyond

the traditional outbound areas of ener-

gy and natural resources. This reflects

the range of experience and goals

among investors in the People’s

Republic of China (PRC): while some

are seeking to increase their market

share or procure a steady supply of raw

materials, other investors are aiming to

expand their knowledge base, acquire

new technologies, expand their busi-

ness scope and/or tap new markets for

their products.

The challenges for

outbound investors

In undertaking an outbound invest-

ment project, Chinese companies and

individuals are inevitably faced with

challenges at each stage in its lifetime.

These range from fundamental matters

such as understanding the language

and culture of the target jurisdiction, to

complex matters such as how to work

with local management personnel, how

to finance business development, how

to operate within the local legal frame-

work, and how to resolve disputes. As

with any area of business, the details

of every transaction are different and

present a unique set of issues to

address.

It is particularly critical to conduct

solid due diligence at the beginning of

a project, to understand the tax impli-

cations of an investment, and to have

China Goes Abroad:

Challenges and Opportunities

The CGA Team

© China Tours

========================================================================

========================================================================

GO GLOBAL CHINAPage 7

access to knowledgeable consultants

and legal advisors. As has been well-

reported, it is also often the case that

Chinese investment in foreign coun-

tries or new industry sectors face resi-

stance by local officials or community

groups. It is thus critical that new

projects have the right government

relations and public relations strate-

gies, so that relevant stakeholders are

informed and on board with the new

Chinese partners.

Working towards

a solution

Jesse Chang, Managing Partner of the

Chinese firm TransAsia Lawyers, has

advised on PRC-related investments

for nearly 30 years. While representing

Chinese clients with regard to their out-

bound investment projects, Jesse rea-

lized that there was no comprehensive,

convenient source of information for

investors to consult about the ques-

tions and challenges that they face in

“going abroad”. Together with his col-

leagues from TransAsia’s outbound

investment practice, Jesse has launched

ChinaGoAbroad.com (CGA), a platform

dedicated to providing practical, autho-

ritative data to PRC investors.

CGA was co-founded by TransAsia

and the China Overseas Development

Association (Association) under the

National Development & Reform Com-

mission (NDRC, the PRC ministry in

charge of inbound and outbound

investments). The Association joined

the project after the NDRC decided that

CGA’s website was not only useful, but

was critical to the success of Chinese

investments abroad.

The NDRC’s endorsement of CGA

followed the appointment of Mr Zhang

Guobao as the new President of the

Association. Mr Zhang was formerly

the Vice Chairman of the NDRC and

head of the National Energy Bureau.

His appointment reflects the importance

to the NDRC of outbound investments,

and how CGA is aligned with the

Association’s mission to support such

transactions.

CGA offers numerous services to

outbound investors from China, inclu-

ding advice on making overseas trans-

actions from leading international ser-

vices providers and information about

industries worldwide that are of specific

interest to Chinese investors. They also

offer details of actual investment

opportunities around the world, the

ability to connect directly to service

providers, and the opportunity to make

connections during workshops, con-

ferences and other events.

The platform also enables service

providers and industry experts to reach

out to one another offline and form

teams to support Chinese companies

in “going abroad”. The provision of

informative, reliable, and easily acces-

sible information and advice in this

manner is just one important way of

helping Chinese investors to interact

globally and encouraging outbound

investment.

� www.chinagoabroad.com

Chongqing, China

© Siemens AG

China: Inbound & Outbound Investment

The CGA Team

========================================================================

========================================================================

GO GLOBAL CHINAPage 8

Opportunities for investment between China and Europecontinue to abound, with European companies seeking toaccess China’s consumer market and build good relationswith the world’s new economic power-house, and Chinesecompanies seeking to expand their knowledge base anddiversify their businesses overseas. However, in both casesit is important to be well-prepared and thorough: while thefinancial newspapers are full of success stories and high-profile deals, in reality few achieve their full potential.

Setting the stage

The central government in China has placed a significant

emphasis on outbound investments as a sustained policy. In

large part, this is due to the country’s need to secure a relia-

ble and long-term supply of natural resources. To a lesser

extent, it is due to swelling foreign exchange reserves and

upward pressure on the Renminbi. Meanwhile, businesses,

and even governments across the globe, are actively seeking

Chinese investors to help bolster their economies, many of

which are still recovering from the global financial crisis.

Notwithstanding the explicit “Going Abroad” policy of the

Chinese government, and the efforts that have been made to

increase access to foreign exchange and streamline domestic

approvals, the outbound investment process itself remains

complex, unpredictable and time-consuming. This is true of

both the internal and external procedures required of Chinese

investors. As a result, investments involving Chinese entities

are often delayed, or fail altogether. Just as Chinese investors

must anticipate this difficult approval process when underta-

king projects abroad, their foreign partners are advised to

study and understand it thoroughly.

Meanwhile, even as political and economic reforms have

opened up further opportunities to foreign investors in China,

subtle shifts have taken place in the environment for compa-

nies seeking to invest in the People’s Republic of China (PRC).

While the desire for foreign technologies and know-how

remains strong, Chinese companies, government officials and

consumers alike have become increasingly sophisticated and

selective with regard to how, and with whom, they do busi-

ness. For example, localization through training and overseas

higher education is creating a strong, multi-lingual force of

managers in Chinese companies. This has clear advantages

for those companies as they explore investments overseas. It

makes it easier for investors from outside China to interact

with them; but it also means greater competition among foreign

enterprises, experts and job-seekers in the PRC market.

To stand apart from the crowd and conclude transactionssuccessfully, it is important for any investor venturing intoa foreign country – including to or from China – to be wellprepared. This sounds obvious and easy, but in practicedemands focus and dedicated resources.

� Identify clear goals, and prioritize them.� Select and identify the right opportunity:

know your partner’s background.� Make sure your company qualifies for the bid and/or

meets local regulations.

� Think carefully about the market consequences both at

home and abroad.� Understand labor laws and employment regulations: do

not assume that what applies in one’s home country will

apply in the target jurisdiction.� Become familiar with the local business environment,

community, customs and practices. � Be flexible and innovative – this will help you deal with

issues you could not anticipate.� Surround the project with good advisors.

Doing business internationally: be prepared and open-minded!

From “Made in China” to “Designed in China”:

China’s seven StrategicEmerging Industries

Patrik Lockne

========================================================================

GO GLOBAL CHINAPage 10

In March 2011, China announcedits 12th Five Year Plan. The aim of theplan is to see China develop from aneconomy driven by investment andexport of manufactured goods towardsone that is more innovative andwhere domestic consumption drivesgrowth.

To achieve this, China will need to

create consumer confidence by streng-

thening social security, make sure

growth is more evenly distributed, and

foster a new set of industries. A popu-

lar way of phrasing the change is to say

the country wants to go from “Made in

China” to “Designed in China”.

The Chinese government is hoping

that seven Strategic Emerging Indus-

tries will generate 15 percent of Gross

Domestic Product (GDP) by 2020. They

are: alternative energy, biotechnology,

information technology, advanced

equipment manufacturing, advanced

materials, alternative-fuel cars, and

energy-saving and environmentally

friendly technologies. Three of the

seven are directly related to sustaina-

bility issues.

This means foreign cleantech com-

panies looking to China for sales or for

Research & Development can expect a

great number of policy changes.

First, the good news: companies in

these industries can expect favourable

tax policies, easier access to capital,

increased willingness among state-

owned enterprises to invest in solu-

tions, and a welcoming attitude from

local authorities who will eagerly com-

pete to attract foreign investment and

know-how.

However, companies can also expect

increasing Chinese competition, price

pressure from local manufacturers,

demands for technology transfer and

perhaps even an increased risk of intel-

lectual property rights violations as do-

mestic companies scramble to compete.

========================================================================

Beijing, China

© P

atri

k Lo

ckne

GO GLOBAL CHINAPage 11

It will be impossible to ignore the

Chinese market, particularly for com-

panies in new industries where stan-

dards have yet to be firmly set and

established. Given the size of the

Chinese market, what becomes a stan-

dard there could well become a global

standard.

The Chinese government, in con-

trast to some Western counterparts,

can also afford to take a long-term

approach to economic development.

This is very beneficial in cleantech

areas, where initial investment may be

large and the returns some time away.

Companies looking to do business

in the Chinese market should do their

homework. Try to get an understanding

of what is happening in your specific

industry. What policy tools will be

used? What are the main companies

and government agencies and how do

they work together? What are the main

challenges for China in this industry?

What does China want to accomplish?

Once this is understood, the compa-

ny should try as best possible to show

how it can contribute. Demonstrate

how your offering supports the direc-

tion China wants to take its economy.

To which Strategic Emerging Industry

does it correspond? How does it

address the challenges there?

An economic five-year plan may

sound like an anachronism, but in an

economy that is still dominated by

state-owned companies, and where

government actively directs economic

development, they still play an impor-

tant role. It will pay off to know what is

in China’s plan.

Li River near Guilin in southern China

© C

hina

Tou

rs

© private

Patrik Lockne has worked as a com-

munications consultant since 1997,

and was based in Beijing from 2006

to 2012. He helps clients in industries

ranging from aviation to beverages

with corporate communications and

public affairs. He has also chaired the

European Union Chamber of Com-

merce in the China Marketing and

Communications Forum. He currently

works as a PR consultant for the

Swedish PR agency Springtime, which

is part of the GlobalCom PR Network.

About the Author

Lost in

Wibke Sonderkamp

GO GLOBAL CHINAPage 12

In terms of culture and communication, there is no

such thing as “The European Market” that so many

companies are looking to cover today. You’re looking at 27

member states with 23 official languages and centuries-old

cultural differences. It’s helpful to define a number of focus

countries and expand the outreach step by step.

Local expertise is key. It is advisable to define an

umbrella strategy which is then locally adapted and

executed in the European key markets. This would include

preferences of customers, partners or investors in each mar-

ket.

Localization vs. translation: An ever-present challenge

is the many languages in Europe. A professional local

“translation” is therefore a critical success factor. Translators

should understand the topic so they are able to grasp the

meaning and message of the content. They should then trans-

fer this into a local version which should be more than a pure

translation and should take local aspects into account. This

includes simple things such as text structure or popular buzz-

words, as well as small content changes e.g. by including

local angles or references.

Communication channels and preferences differ from

market to market. Ask your local partners to recom-

mend channels; or whether you should choose between a

print, online and social media focus, phone or e-mail contact

or personal meetings vs. conference calls.

Backing up brand value: editors in many European

countries expect a lot more proof of marketing messa-

ges than, for example, in the USA. Make sure to include pro-

ven facts and figures, certifications or test results into the

communication.

Be prepared to be questioned about the proprietary

claims and quality of your offerings. Although Chinese

products have gained a lot of respect in certain industries,

many consumers are still biased by years of reports of

Chinese copies.

Be aware that there is a growing consciousness regar-

ding the sustainability of products among European

consumers, who look into production conditions, materials,

energy demand, etc.

Don’t expect advertisement or brand campaigns to

work 1:1 across continents. The audience’s taste as

well as the signals and meanings of images, colors and mes-

saging can be totally different in China than they are in

Europe.

Define clear goals and expectations with your clients

or communications consultants in order to avoid unre-

alistic expectations and to focus on key targets.

Work out a clear and transparent cost structure sho-

wing exactly what the budget includes and what it

doesn’t. Unexpected extras are very problematic and can en-

danger the relationship.

Interest is growing in inbound and outbound investmentacross continents, with European and Chinese companiesdiscovering the market potential for their products andsolutions abroad. Communication is becoming a key factorfor success in a market where the proven methods and mes-

saging of the home market can hardly ever be translated1:1. A campaign that has been a huge success in Chinamight leave European customers totally puzzled, and viceversa. Many companies are faced with the challenge ofadapting their marketing, PR and communications tactics

=================================================================================

=================================================================================

10.

9.

8.

7.

6.

5.

4.

3.

2.

1.

Marketing and Communications in Europe: 10 Dos and Don’ts

GO GLOBAL CHINAPage 13

Patrik Lockne

Don’t treat China as a single market, treat it like a

continent. There are large variations – more so than

in all of Europe – both when it comes to purchasing power

and knowledge about product categories and brands. Unless

you have massive resources, focus on a narrow area, perhaps

a single city.

Chinese customers sometimes value your offering in

a way that is different from what you are used to.

Perhaps at home you discuss the total cost of ownership with

customers – in China, upfront cost may be more important.

Prepare to educate.

Find out what government plans there are relevant

to your product category. The Chinese economy is to

a large extent directed by the state, so keeping abreast of

regulations and policy will be important.

Talk to your customers to find out what their needs

and expectations are. Don’t be surprised if you have

to adjust both product and messaging, as the Chinese market

is often different to your home market.

Communicate that you are taking the Chinese mar-

ket seriously by selecting a good Chinese brand

name, using highest-quality translations, localized photos,

etc. Don’t just use material from somewhere else, it won’t be

taken seriously.

Don’t expect to get free recognition by customers

just because you have a foreign brand. It doesn’t

impress Chinese customers the way it used to.

The Chinese media market is huge and has a frag-

mented geography and readership. Don’t expect to

advertise your way into the market, as it will be hard to reach

a narrow audience through paid media. Focus instead on a

strategy that aims to get your customers talking and influen-

cing one another.

Don’t accept having to pay journalists to write. If you

find you have to, you should rethink which journa-

lists you are talking to, and if the news or information you

offer is interesting enough. The same ethical standards on

relations to media should apply to China as to other markets.

Take online and social media seriously. In a country

as vast as China, online media offers good coverage,

and Chinese internet users are very active in sharing their

experience with products and services. It is necessary to have

a strategy that takes this into account.

Prepare to be copied. The Chinese market may call

for special efforts to make sure customers can

verify that the products they purchase are genuine.

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

to a new market situation. This is especially true in the fast-growing renewable energy market, where machines andcomponents make their way from Europe to China, whilemany large-scale production products from China toEurope.

Below are a few initial Dos and Don’ts provided by commu-nications experts who help companies successfully bridgethis communication gap in their every day work.

=================================================================================

=================================================================================

translation?

Marketing and communications in China: 10 dos and don’ts