Building Bridges between the UK and Chinese Business Communities

Trust is the foundation of any successful business relationship, regardless of nationality and industry. – Jean Jameson

On Tuesday, 5 March, Jean Jameson, UK CEO of Hampton Group, was invited to speak on a panel organised by the Leadership Council. The panel was held under the theme of Reaching out to China.

The panel saw the launch of the latest research report of the Leadership Council which presents “nuggets of wisdom” in an easily portable and accessible format.  The report is based on interviews with industry leaders. “Reaching out to China” is the tenth in a series of papers on topical concerns for leaders. The Leadership Council brings together senior figures from commercial and public life. Chaired by Lord Janvirn, the Council provides a powerful perspective on leadership agenda.

“It was refreshing to see so many senior business leaders have a real interest in building bridges with China. When doing business with China it is crucial to understand its culture and people and to see so many UK business leaders interested in learning about that, made me feel very positive about the future of UK China business relations.” commented Jean Jameson.

The panel discussion made it clear that it is not only western business leaders who need to learn how to communicate with Chinese business leaders but also the Chinese business community that needs to learn how to tell their story to a Western audience. “China is looking to the UK for best practice.” commented Jean Jameson. Countries like the UK play a vital role in serving as a role model for China in various areas such as corporate governance.

Hosted by Lord Janvrin, Deputy Chairman of HSBC Private Bank (UK) Ltd, the panel saw business leaders from Chinese and non-Chinese backgrounds tell their story on how to reach out to China. Panellists included: Suwei Jiang, Partner of China Business Group of PwC, Phil Swash, Former Director and CEO of GKN Automotive and Martin Newman, Founder of the Newman Partnership.

To do well in China you have to keep an open mind and be ready to discard preconceived ideas. It is best to learn about China with your own eyes. – Suwei Jiang, Partner of China Business Group of PwC.

Founded in London in 2005, the Leadership Council brings together senior figures from commercial and public life. The Leadership Council meets regularly to debate the leadership agenda, annually publishing the findings of their research into a specific leadership issue.

What have you learned when doing business in China? What challenges do you still face? Let us know in the comment section on our LinkedIn.

South East Asia is Growing Together

On Thursday, 28 February, Andrew Methven, Vice President and Head of Strategic Consultancy of Hampton Group, was invited to deliver a keynote speech at the 2019 South & Southeast Asia Commodity Expo and Investment Fair (SSACEIF). The conference was held under the theme of exploring global collaboration opportunities with Yunnan Province.

The SSACEIF was attended by senior government officials, international business leaders, and foreign dignitaries. ZHANG Guohua, Deputy Governor of Yunnan Province, also attended the conference. Representatives from over 86 countries including Malaysia, Pakistan and Afghanistan attended the conference. The exhibition attracted over 4,000 enterprises of which over 40% came from outside China.

“The atmosphere was so refreshing. While in the West all we talk about is getting divorced, all the attendees here were talking about getting married and growing together,” commented Andrew Methven. South East Asia is one of the least connected areas in the world. Building connections throughout the area to increase economic development and improve people’s living conditions was a key aspect of the conference. As such building economic partnerships through the Belt and Road Initiative, the “Bangladesh China Indian Myanmar economical corridor” and the “China and Indo-China Peninsula economical corridor” were major discussion areas.

Yunnan is not only the door to South East Asia it also has curious connections to the UK. The earliest reference of Yunnan in the UK can be traced back to a British novel in the 1930s called “Lost Horizon.” This book describes a place called “Shangri-La”, which is a harmonious and peaceful valley far from the mountains of the East. In the novel, the people who live at Shangri-La are almost immortal, living hundreds of years beyond the normal lifespan and only very slowly ageing in appearance.

The second curious connection is a man named George Forrest. George Forrest was one of the first explorers of Yunnan Province, which is generally regarded as the most biodiverse province in all of China. During his first expedition to Yunnan in 1904 he helped with the inoculation of thousands of locals against smallpox. In his lifetime he brought back perhaps 31,000 plant specimens, amassing hundreds of species of rhododendron.

Have you travelled to Yunnan before? Are you going to now? Let us know in the comment section on LinkedIn.

China is Leading the Integration of Multi-energy Sources

“Think big” – under this motto, a new multi-energy power plant has been built in China. The power plant integrates wind power (400 MW), photovoltaic (200 MW), concentrated solar energy (50 MW) and an energy storage system (100 MWh) into a uniform network system. It was built as part of the “Luneng Haixi Multi-Mixed Energy Demonstration Project” and is expected to generate around 126,000 MWh of electricity per year. After a 17-day test phase, it is now on the grid.

Operators hope that this project will signal the adoption of novel regenerative energy generation systems and smart grids around the world. HUANG Shilin, Vice Chairman and Chief Strategy Officer of battery specialist CATL, believes that this centralised multi-functional power plant will provide “incentives for more differentiated renewable energy projects around the world” due to its reliable technology and cost-effectiveness.

Equipped for adverse conditions

CATL is the largest Chinese battery supplier specialising in the production of lithium-ion batteries for electric vehicles and energy storage systems. Participating in the multi-energy power plant posed some challenges for CATL. Especially the heat management of the power plant was unusually complex. The new power station is located in Golmud, a remote region in the southwestern mountains of China. For the operation of batteries the area was less than suitable. Temperatures can vary between -33.6 and +35.5 degrees Celsius – a real stress test for the batteries. To allow the battery to last at least 15 years, CATL has installed a cooling system with air vents and airflow designs that keeps the temperature in the cabinet at a constant level. A battery management module activates the cooling system as soon as the temperature limit is exceeded and pre-stored electricity protects the battery from capacity drop.

Temperatures are not the only problem in the remote region. Golmud is located in an active earthquake area. Protection against vibrations and shocks were therefore absolutely necessary. In a Test & Validation Center, CATL provided evidence that the batteries can withstand a magnitude eight earthquake. By comparison, the highest earthquake ever measured had a magnitude of around 9.5. It destroyed a Chilean town and triggered a 25 meter high tsunami.

In Europe, the Chinese battery manufacturer plans to build a plant near Erfurt, Germany. CATL intends to increase its capacity by 14 GWh and from 2026 on it will increase its capacity to a three-digit range. This is what Matthias Zentgraf, European leader of the Chinese cell manufacturer, said at the Car Symposium in Bochum. If the plans become reality, CATL will outperform Elon Musk’s Gigafactory in Nevada, California, which currently has a capacity of 20 GWh.

Chinese energy companies are looking to Europe to collaborate with innovative companies on creating new projects. But where are European energy companies looking? What are the opportunities for European energy companies and what challenges exist? Let us know in the comment section on our LinkedIn profile.

3 Lessons I Learned from Studying Chinese

I am a final year student at the School of Oriental and African Studies graduating this July with a BA Chinese (Modern and Classical) degree.

I grew up in a small town close to Florence with a Chinese mother and an Italian father. But I only began to study Chinese when I finished high school. I was 19 and hadn’t made up my mind about what to study at university. So, I decided to take a year off and went to China.

A couple of months after I finished my final exams, I was on a plane to China to study Chinese language at Zhejiang University in Hangzhou. My experience there completely changed my view of China. I fell so in love with the local language and culture that I decided to pursue this interest at university.

West Lake, Hangzhou

For anyone who is thinking about taking Chinese studies at university, I can think of 3 reasons why the answer should be yes.

1) It helps you to understand centuries of Chinese culture

China boasts more than 5,000 years of history that underpin the culture and the way of life of the Chinese people.

Learning Chinese is the first step to fully understand the Chinese people and their millennial culture. The Chinese language contains words and expressions that reflect their traditions and values.

Take the character for home and family家 (pronounced jiā). It if formed by the roof radical 宀 (pronounced mián) and the character 豕 (pronounced shǐ) which means pig. But how can a pig under a roof contribute to a home or family? Interestingly, in ancient China families would keep their pigs (most likely the earliest domesticated animals) in their home; thus, having a pig under the roof indicated that this was a place where people lived.

This example demonstrates how language and culture are deeply intertwined. Learning Chinese opens up your door to one of the world’s oldest civilizations.

2) It benefits your brain

Studies have demonstrated that learning a foreign language can have cognitive benefits. It helps to build multitasking and decision-making skills, and it improves memory.

Learning Chinese is a further exercise for the brain. Unlike English, Chinese is a tonal language and its writing system is not based on an alphabet of 26 letters but on characters each of them holding a specific pronunciation and meaning. It is estimated that 3,000 characters are required to be able to read a newspaper.

Mastering thousands of characters can be daunting especially for people whose first language is alphabetic, but research suggests that it has noticeable benefits on the brain. Why? Because learning Chinese utilizes areas of the brain that other languages do not. Compared to many European speakers who use only the left temporal lobe, Chinese speakers use both.

Therefore, challenging your brain with all these characters may indeed have positive effects and makes you smarter.

3) You will make new friends

When I was in China, I noticed that speaking the local language made a great difference compared to using English. Although younger generations in urban areas usually can speak English, I realized that using Chinese made communication much easier (some people were even too shy to use their English language skills).

Speaking the local language means that you are putting in an extra effort to understand the culture and it impresses the person in front of you. I have found that Chinese people are very curious, especially when it comes to foreign cultures, and friendly, meaning that it is easy to make new friends. During my year in Hangzhou I met people whom I am still in contact with. New friends but also new connections.

So, don’t be afraid to speak Chinese outside of the classroom: it’s good practice (we learn from our mistakes) and it will be fun!

Now I would like to ask you: Have you started studying Chinese yet? What do you like about it? And, what are the biggest challenges you have encountered so far?

This article was written by our guest writer and intern Elena Yumin Paci.

The World’s Largest Human Migration

The journey home to the Chinese Spring Festival begins on the 21st of January. Over the past weeks China has been preparing to ensure the smooth running of services during Earth’s largest annual human migration. According to a National Tourism Conference on Spring Festival on Monday, 4th February, a total of 406 million train journeys are expected during this period, an increase of 30.89 million (8.2%) over the previous year. This year marks the first time that passenger traffic during the travel season for the Spring Festival exceeds 400 million.

GUO Zhuxue, vice president of the China Railway Corporation, stated the country would continue to expand the frequency and range of its Fuxing express trains. The 17-car Fuxing high-speed train and the centrally-driven electric Fuxing trains reach a top speed of 160 kilometres per hour and will be used for the first time this year.

China’s rail system will serve more than 10 million passengers daily during the holiday period, and more than 60 percent of its passengers will travel home on high-speed trains. Last year, China built 86,000 kilometres of roads, including 6,000 kilometres of highway, bringing the total road length to 4.86 million kilometres. With 190 million private cars currently driving across the country, there will be a greater number of people traveling on the road during Chinese New Year. “Motorways will continue to be free for small cars during this year’s Spring Festival,” said Deputy Transport Minister LIU Xiaoming.

The cause the world’s largest annual human migration is the desire to spend Chinese New Year at home with one’s family. Like Christmas in the West, the Spring Festival is a time spent with family and loved ones. As Chinese New Year is upon us, we find ourselves reflecting on the past year and those who have helped to shape our business. It’s been an exciting year for us all! We hope the year of the Chicken has been just as memorable for you, your colleagues and your loved ones. We look forward to working with you in the years to come. We wish you all a happy and successful year of the Pig.

China Business Intelligence

The China Securities Regulatory Commission appoints a new Chairman with new plans

YI Huiman, the newly appointed chairman of the China Securities Regulatory Commission (CSRC), could introduce innovative strategies to boost the country’s capital markets, experts say.

YI Huiman, former chairman of the Industrial and Commercial Bank of China (ICBC), was appointed Chairman of the China Securities Regulatory Commission (CSRC), taking over LIU Shiyu’s responsibilities, as Xinhua reported on the weekend.

“As an experienced business leader, the hiring of YI Huiman is an important signal that China is continuing to push the agenda set out in the Third Plenary Session of the 18th Party Congress announced in November 2013 – allowing the markets to play a decisive role. As an entrepreneur, Mr Yi understands the capital markets more from a market perspective,” commented Andrew Methven, Head of Strategic Consultancy at Hampton Group. “Mr Yi could take action to encourage investment firms to play a more important role as a market-based and efficient way to stimulate the market.” Chinese investment firms acting as investment banks, brokers or asset managers are crucial entities in the capital markets, but face a much less favourable regulatory environment than their global competitors.

YI Huiman began his career as a junior loan officer with ICBC in Zhejiang Province in 1985, spent 34 years with the world’s largest lender, and was appointed chairman in 2016. Due to his rich experience in the financial sector, where he had to make market-based decisions in real time, YI Huiman was rarely exposed to regulatory work, which distinguishes him from his predecessors.

DONG Dengxin, Director of the Wuhan University of Science and Technology’s Institute of Finance and Securities, agrees that YI Huiman would stick more to market-oriented measures to develop the capital markets. For example, YI Huiman could rationalise bond issuance procedures and avoid excessive administrative controls to address funding issues in the private sector.

In October, YI Huiman said liquidity bottlenecks in private companies were partly due to clogged direct funding channels, including difficulties in issuing bonds.

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Hampton Group offer specialist China Business Intelligence services catering towards international businesses that want to thrive in China. We provide Policy Insight, analysing changing policies and regulatory environment that can impact business approach.

Artificial Intelligence speaks Chinese

From the 33rd floor of the office building has a breathtaking view. Toward the north, visitors look at densely forested hills. In the south, are the enticing sea and Hong Kong. “We want to remain attractive to our employees through our new location,” said BING Xia, Deputy Chief Executive for International Business at the Chinese startup Malong, headquartered in Shenzhen.

The company is just four years old. However, it has expanded so much that it had to move into new premises. The company operates additional offices in Beijing, Shanghai, Tokyo and Arkansas. Furthermore, Shenzhen City Government also supported the company in moving into the new premises. Chinese cities like Hangzhou, Xian and Shenzhen compete with each other and have a lot of attractive offers for innovative startups.

The company, founded by American Matthew Scott and Chinese HUANG Dinglong – the company name Malong is made up of their first names – deals with computer-aided vision, a subfield of artificial intelligence. “We are just in the early stages of development and cannot predict what computer vision will be able to do one day,” says BING Xia.

Nowadays, everyone is talking about facial recognition, in which China, with young companies such as Megiiv Technology and Sense Time, is leading technological development. Instead of identifying faces, Malong focuses on product recognition and works with retailers and consumer goods manufacturers worldwide. “Such cooperation is helpful for both sides. We understands the needs and difficulties of each industry better and our partner’s benefit from our services,” adds BING Xia.

Until now, consumers are faced with the problem that if they like a piece of furniture or clothing, for example, during the holidays, back at home, they are lacking the right words to describe shape, colour and pattern and are unable to find the item in search engines or in stores. Malong offers a solution: Consumers photograph the products and then upload the photos in an app. In a matter of seconds they can see which comparable models Malong’s partners have on offer. The product can then simply be ordered through the app. This technology also describes patterns and colours of fabrics of fashion designs without them having to manually describe them. Product descriptions can therefore be produced more efficiently and faster.

Malong has already taken new paths to gradually conquer the vast field of computerised vision. For example, with this technology, it will be possible to take less than a second to determine which parts of the brain are affected by a stroke based on computed tomography scans. According to Malong, this procedure is 308 times faster than the human eye. For patients and health insurance, the technology offers great opportunities. Diseases are diagnosed faster and more accurately than traditionally.

Recently Malong announced a cooperation with the University of Bern. The cooperation is a result of the agreement between the Canton of Bern and Shenzhen nearly four years ago. Both sides want to promote economic cooperation. In mid-November last year, a Memorandum of Understanding was signed in Shenzhen in the presence of Bern’s Economics Director Christoph Ammann. In the future, synergies between artificial intelligence and brain tomography will be explored in two research institutes in Bern and Shenzhen.

Attractive Prospects

 The company’s international reputation is in part due to its hiring choices. Malong has attracted international talents such as HUANG Weilin who leads the research department. Previously, HUANG Weilin obtained his doctorate in the prestigious Visual Geometry Group at the University of Oxford where he worked as a postdoctoral researcher. HUANG listed several reasons why he was drawn back home, despite his promising academic career. “At Malong, I can help people with my developments,” he emphasises. In addition, working with Malong does not have the anonymity of universities or large companies such as Alibaba or Tencent. Furthermore, his move to Malong did not mean leaving academia. About half of the published studies come from the research departments of companies, HUANG Weilin estimates.

Startups like Malong may one day be financially attractive. The employees are involved in the young companies through stock options. If the IPO or the company is sold, a lot of money can be generated. Just over a year ago, venture capital firm Softbank China Capital invested RMB 220 million (£25 million) in Malong. In August of last year, it was announced that Accenture, one of the world’s leading management consultancies, invested in the Chinese startup and signed a cooperation agreement.

Race between America and China

In parts of the Western world, there is still the persistent misconception that China is a world champion in copying and imitating and is unable to develop and bring innovative ideas to the market. But times have changed. Shenzhen, with young companies like Malong, is a stronghold of innovative and modern China.

China has just recently started play a role in artificial intelligence research. The theoretical foundations for artificial intelligence were created in American, British and Canadian institutes. Now, the next step is to develop business models. And that’s where China is leading.

According to Lee Kai-fu, who previously headed Google China and now invests in young Chinese high-tech companies as the head of Sinovation Ventures, China leads the future in artificial intelligence.

China has more than 800 million internet users who reveal a lot about themselves on the Internet

So far the practical application of artificial intelligence has faced the problem that there were not enough data and computers with high computing performance. This has now changed. China, with more than 800 million internet users sharing much about themselves online, provides the ideal environment to test the theoretical foundations of artificial intelligence. In addition there are powerful technologies and ambitious entrepreneurs who want to fulfil their dreams.

China has a moved ahead in all these fields of foreign competition. Malong is aware of this. “In the past, China had to catch up with foreign countries on already pre-tracked paths. Those days are over. Now we pave the way for the rest of the world.”

China is speeding up the development of delivery drones

China wants to play a leading role worldwide in the production of unmanned aerial vehicles (UAVs). In December 2017 the government has published new guidelines for the civilian unmanned aircraft industry to support UAV development. The government expects the market value of the industry to increase by an average of 40 percent by 2020 to RMB 60 billion (£7 billion). The long-term growth goals are even more ambitious. By 2025 the Chinese government aims to more than triple the UAV industry to RMB 180 billion (£21 billion).

The new guidelines already had a positive effect on China’s UAV industry. One of the country’s largest online retailers, JD.com, announced a US$ 2.5 billion round of financing for its logistics subsidiary, including investments in automation, drones and robotics. The announcement was made by Richard Liu, Chairman and CEO of the Group in February 2018.

He even got support from Google. The search engine group invested US$ 550 million in JD in June, which was a likely move to improve the company’s standing compared to US logistics leader Amazon. In August 2018, a startup accelerator was announced to support the company’s UAV ambitions.

JD’s drone delivery plans focus on China’s remote rural areas which currently incur high delivery costs. With drone delivery the group wants to be able to deliver goods faster and cheaper to these regions, Richard Liu said in an interview with CNBC. Richard Liu expects that fully automated logistics will reduce costs by 70%.

Chinese online marketplace Alibaba also has made a move towards drone technology. According to the US magazine Popular Science, the e-commerce company has concrete plans to offer deliveries via drones. In tests drones collected meals and other packages in restaurants and shops at Jinshan Industrial Park and flew them to their delivery points. From there, human drivers transported them the last stretch to the customers. “By using planes the delivery services can bypass Shanghai’s crowded streets. This can reduce the total delivery time for customers in the area by over 20 minutes”, reporters observed. In the next few years Alibaba wants to roll out this service to other cities.

This delivery robot can transport up to 300 kilograms.

This delivery robot can transport up to 300 kilograms.

Chinese drone logistics isn’t solely focused on the last delivery stretch, which can account for more than 50% of the total delivery costs. Long-range drone delivery is another fiercely competitive development area.

According to a report, Alibaba subsidiary Cainiao is working with the University of Beijing on a long-range drone which has a payload of one tonne and a delivery range of 1,500 kilometres. First tests have been scheduled for 2020 and it is scheduled to be put into services by 2025. Meanwhile JD is developing a similar project with a 300 kilometre flight radius and a payload of one tonne.

UAV delivery on the road is comparably easier to design and implement. Traveling delivery robots are long commonly used in China and are part of the automated supply chain: JD’s carry a payload of up to 300 kilograms in 30 parcels, drive 15 km/h on bike lanes, stop at red lights and orientate themselves with their radar sensors.

What is the next big thing in China’s venture capital sector?

The start of a new year often serves as a point for reflection and forecasting. What will happen in China’s capital markets over the next 12 months? What is the next big thing in China’s venture capital sector? Hampton Group has followed 9 leading Chinese venture capitalists. Over the next weeks we will find out from China’s leading experts what in their eyes important developments of 2018 were and what we can expect of 2019.

SHENG Xitai, Founding Partner at Hongtai Capital Holdings

Before even talking about the buzz topics “science and technology”, we have to focus on the fundamental basics: “What is the core purpose of a capital market?”  The capital market has two core functions:

The first one is in plain words: “to make money”, also known as financing.

The second is to increase the wealth of the people participating in the capital market.

Without liquidity, companies cannot “make money”, entrepreneurs cannot increase their wealth, and the core functions of the capital market are gone. This is the core issue. To increase the liquidity of the capital market, the most important strategy is to reduce the threshold for new investors to enter.

According to reports the current investment threshold for Science and Technology is set around RMB 500,000 (£57,000). I think this threshold should be lowered down to RMB 300,000 (£34,000), RMB 200,000 (£23,000) or even RMB 100,000 (£11,500). A reasonable investor threshold is an important condition for ensuring market activity. If you can’t help small and medium-sized enterprises to “make money,” the market eventually won’t be able to sustain itself.

A functioning capital market is reliant on a sound legal system. Therefore, there are two prerequisites for creating a strong capital market in the science and technology sector:

First, increase penalties for fraudulent enterprises, and impose severe penalties on issuers who have obtained significant benefits through fraud;

Secondly, more mature markets have a comprehensive information disclosure procedure.

The primary importance of the registration system is to improve the legal system. Therefore, full information disclosure key component. Disclosing sufficient information, stating the business model clearly, and disclosing suppliers and customers truthfully, are key decision making information in the capital market.

The registration system must be combined with penalties. Currently China’s securities supervision, after financial fraud in listed companies is found, severely penalises intermediary agencies, while the penalties for issuers and actual controllers is very mild. In practice, if a company is fraudulent, it can be difficult to even find their accountant. Channels and methods of investigating such companies are limited. This makes the risk of listing a fraudulent company worthwhile to some individuals.

From a regulatory perspective, it is also unpractical to use a company’s “net profit” as the main listing indicator. Companies have some flexibility in their accounting methods and can easily adjust them to reach their desired “net profit”. Some companies that are in their early development stages require continuous investment as they are not yet profitable, yet they may be the industry leader in their area.

In the past China’s science and technology enterprises were “forced” to look at overseas capital markets. There were no adequate provisions for them in China. I believe Alibaba’s listing in the US in 2014 was a great achievement in China’s development. Since its listing, the company’s market value doubled. However, because Alibaba is listed in New York, China benefited little of the listing. It is a shame that the Chinese capital market has missed a whole generation of internet technology.

This year, after the reform of the listing system by the Hong Kong Stock Exchange, a large number of new companies, including Xiaomi, went public in Hong Kong. Having worked in the venture capital over the past few years, I discovered that this group of unicorns was cultivated in the past ten years. If we miss out on them, we risk waiting another ten years.

Science and technology is a major opportunity for the revitalisation of China’s capital market. It carries the historical mission of leading China’s industrial transformation, and bridging entrepreneurial enterprises, venture capital and capital markets.

What kind of business will matter in the future? First, we need to change our mindsets, especially our regulatory environment. All companies must strive to catch up with the leaders in the stock market.