Industry leaders see opportunities in China
Editor's Note: The 20th National Congress of the Communist Party of China is to start a new chapter in the saga of reform and opening-up that energized the Chinese economy over the last four decades and made it the world's second-largest. It also sets the tone for improving the business environment for global firms, big and small, operating in the country. China Daily publishes a series of Q&As with business executives from leading MNCs featuring their outlook for the Chinese economy as well as their hopes for the future prospects of their businesses in China.
Q1 Against the backdrop of a much-troubled global economy, how will China's economy likely perform going forward, given that it has already made immense contributions to the tasks of stabilizing both the global supply chain and the world economy?
YE: China has now become an important stabilizer of the global economy and provider of confidence and support. Statistics indicate that after a series of challenges, China's economy witnessed positive growth in the first half of the year. The resilient Chinese market has always been an important one for Michelin Group.
Positive growth is no easy feat. Looking ahead, we believe that China's economy will continue to move forward in a stable manner. We see that the Chinese government is taking various measures to stabilize the macro market to maintain social stability in the face of new challenges. The steady advance of the Chinese market gives enterprises confidence that we can continue to grow in the country.
ZHANG: Our connection with China can be traced back to a century ago. Benefiting from China's fast economic development over the past four decades, Hitachi Energy is now deeply rooted here with a full range of activities, including R&D, consulting, sales, engineering, manufacturing and services. Compared with the previous emphasis on growth speed, China is now shifting the focus to quality and sustainable development. The sound performance of China's economy over the past decades is the most convincing evidence for us to believe in the country's future quality growth.
GUO: Despite the challenges facing the global economy and a tough trade environment, the Chinese economy has shown strong resilience. The enormous potential of the Chinese market has presented significant opportunities for foreign companies including Herbalife Nutrition. In addition, China has created an economic miracle through continual reform and opening-up. We can see China has been pushing its commitment for a broader and deeper opening-up by sharing market opportunities and economic achievements with the outside world. This will help boost the confidence of foreign companies operating in China and promote the development of the global economy.
GAO: For over 40 years after China's launching of reform and opening-up, the country's economy has demonstrated great vitality and strong resilience at times of challenge. I believe that the government will take effective measures to stabilize the economy to ensure that China maintain a reasonable growth rate in the years to come, which is essential for the country to achieve its second centennial goals. I also believe that China will continue to function as a critical growth engine for the global economy and a reliable manufacturing and supply hub for the world. Bayer views China as an important and strategic market and we will continue to invest in China.
Fok: China continues to support the world economy with advanced manufacturing even as countries around the world are struggling to move from stagflation to reflation cycles. Reduced demand from declining economies could affect China's export. To maintain economic growth China should continue to innovate and support the growth in domestic consumption. Cost of some critical raw materials also continues to increase in the world and China will continue its major role in this global supply chain.
Joon: As the world's second-largest economy, China's economic rise and development have a stabilizing influence in the global arena. With the 14th Five-Year Plan (2021-2025) leading her strategic direction, we are confident that China's integration with the global economy will continue. Additionally, with increased engagement between China and the rest of the world, we believe that she will continue to play a crucial role in shaping the dynamics of the global economy.
Q2 China has been deepening its reform and opening-up policy, particularly at the institutional level, so as to ensure equal treatment and an optimized business environment for foreign companies operating in China, and to persuade more of them to invest in China and benefit from the country's thrust on tech and innovation. How do you view China's efforts? How can China intensify such efforts, particularly in the context of any potential external or internal barriers?
YE: China's continuous high-level opening-up has brought about a multi-win situation. For foreign enterprises in China, there are more opportunities for our own development and industrial transformation and upgrading.
For China, the economy and society have seen opportunities for more innovative and greener development, and the consumer market has seen a new pattern of higher quality. For the world, its high-level opening-up has facilitated the sharing of cutting-edge technologies and ideas, contributing to the sustainable growth of the global economy.
Under the pattern of continuous promotion of high-level opening-up, the government can further improve market access and legal protections to create an institutional open highland, bringing more opportunities to enterprises at home and abroad.
ZHANG: China's reform and opening-up are widely acknowledged initiatives that benefit not just the country itself, but also the world. So far, Hitachi Energy has set up 16 local companies with over 5,000 employees across 50 locations in the country. We are delighted to see that China is building up an increasingly healthy marketplace, with a special emphasis on innovation. As a pioneering technology leader, we collaborate with customers and partners to enable a sustainable energy future — for today's generations and those to come. We look forward to a more transparent and level playing field with all contributors to China's economic development.
GUO: We appreciate China's efforts in constantly deepening its reform and opening-up and improving the business environment. In recent years, China has created more development opportunities for foreign-funded companies by improving government services and promoting the reform of reducing paperwork, approval procedures, time and fees for business registrations, so as to inject more dynamism into market entities. During the COVID-19 pandemic, we received strong support from local government departments in terms of resuming production, helping foreign staff return to China and so on. All of these made us even more determined to deepen our roots in China.
GAO: China has made tremendous reforms and improvements in the business environment, especially since the launch of reform and opening-up in 1978. For example, the regulatory reforms have greatly sped up the pace of new pharmaceuticals entering the Chinese market. We believe that the continuing opening-up policy for foreign investment will create a win-win outcome both for China and the international community.
Joon: We greatly respect the country's efforts to create a more equitable investment environment for foreign enterprises. A key theme of the 14th Five-Year Plan is a deeper integration of China's economy with the global economy. On this note, it would be good for China to continue her engagement efforts with local, foreign enterprises and investors to understand how their investment and business needs evolve as the country emerges from the shadow of the pandemic.
Q3 Innovation has been the bedrock of China's modernization. What new opportunities can you foresee for the world in China's pursuit of innovation-powered high-quality development?
YE: At present, China is vigorously promoting high-quality innovation to lead high-quality development, and Chinese industries are going through a dual transformation toward digitalization and sustainability. In this context, the Chinese market witnessed ever-increasing demand for digital technologies and low-carbon solutions, as well as unlimited opportunities. The creation of an innovative environment and a favorable policy climate makes companies more willing to innovate. Innovation is a long-term investment, so companies value favorable policies for business. Over the past 30 years, China has continued to improve its business policies, including investment facilitation initiatives, tax and fee reductions and R&D incentives.
ZHANG: Over the years, China has made remarkable achievements in innovation. On its journey toward a high-quality and sustainable future, the country's innovation efforts will surely attract deeper cooperation with global players. Collaboration plays a key role in strengthening an innovation-driven development mode. This has brought huge opportunities for MNCs. For instance, ultrahigh voltage (UHV) power transmission has been regarded as one of the most innovative technologies originating in China. We are very proud to actively participate in multiple milestone projects in the country and support our customers in building up reliable, resilient, and flexible power grids that transmit electricity from resource-rich regions in the west to load areas in the east.
GUO: China is focusing on high-quality development and is encouraging innovation in all sectors. Innovation is also the driving force for Herbalife Nutrition's long-term development. We are committed to strengthening our local R&D and product innovation capabilities in China. Our China Product Innovation Center (CPIC) in Shanghai was put into operation in 2020 with an investment of 160 million yuan ($21.9 million). It is also the company's first product innovation center globally, allowing Herbalife Nutrition to establish a full supply chain of new products from concept to commercialization.
GAO: As China enters into the high-quality development stage, innovation becomes more important and critical than ever. Senior leaders have emphasized the role that innovation plays in China's future development. Bayer shares this sentiment to fuel our own business in China through innovation. Bayer has already established two research and development centers in China for our pharmaceuticals and consumer health businesses, respectively, in order to combine our global expertise with local creativity to bring products and solutions to the Chinese market faster. It is my understanding that China will continue to loosen up market access to foreign investment while ensuring national security in critical areas.
Fok: Large investments by the Chinese government have built a strong foundation for the digital economy with many new infrastructure projects in big data centers, artificial intelligence, industrial internet, 5G and so on. It is important for China to also focus investment on software development innovation as IDC projects that 750 million cloud-native applications will be created worldwide by 2025. The number of apps is exploding partly because enterprises are increasingly relying on software to drive internal efficiencies, grow revenue, and achieve other strategic business outcomes. At the corporate level, the scale of the digital landscape is as dramatic as the worldwide statistic.
Joon: China will take more efforts to turn into a self-reliant technological and manufacturing powerhouse. We have complete confidence that these efforts will bear fruit. As a result, we anticipate a surge in demand for MICE events centering around innovation, design, and technology for the hospitality and other feeder industries in China. Additionally, this will attract high-caliber talent to work in China worldwide. This augurs well for the entire hospitality industry as we will be able to leverage innovations to improve our operational efficiencies.
Q4 What's your take on China's dual carbon goals, which have received a thumbs-up globally? Do you see big business opportunities arising from the country's carbon goals?
YE: The dual carbon goals have moved from a commitment to a concrete action plan, which again reflects the speed of China. In the past two years, we have seen the initial achievements of government planning, industry consensus and corporate response for the goal, which gives us confidence that the ambitious goals will be achieved.
In Michelin's view, innovation, changes in thinking and behavior, as well as broad cooperation are significant to steadily achieve the dual carbon goals and ultimately create a sustainable ecosystem. In this process, companies will also have broader space for development. Green innovation can also lead companies to high-quality development.
ZHANG: The dual carbon goals show China's commitment to coping with climate change and demonstrate its sincerity in accelerating energy transformation. Hitachi Energy has placed sustainability at the heart of our purpose. Our business is perfectly positioned to support China's dual carbon goals. For example, our innovative technologies can help integrate large-scale renewables into the grid system. Digital solutions will also be vital to overcome the complexities of energy transition, and enable the future energy system to become more scalable, reliable and resilient.
GUO: China is demonstrating to the world that it is feasible to strike the right balance between economic development and environmental protection, which will lead to profound and long-term benefits. Herbalife Nutrition is also committed to doing its part to mitigate environmental impacts by committing to zero net emissions by 2050 and improving efficiency in our manufacturing operations.
In China, under the company's ESG strategy, we have launched a series of energy-saving and emission reduction measures. We initiated 12 energy-saving and water-saving projects in our three facilities in Changsha, Suzhou and Nanjing and saved 1.2 million kilowatt-hours of electricity and reduced carbon dioxide emissions by 800 metric tons last year.
GAO: Without China, the world would not be able to deal with climate change effectively or achieve the targets set by the Paris Agreement. China's goal to control greenhouse gas emissions to peak by 2030 and to achieve carbon neutrality by 2060 is of utmost importance for the global community to tackle climate change.
Bayer has set targets to achieve carbon neutrality globally at Bayer's own sites and plants by 2030 and to further reduce carbon emissions throughout the value chain. In agriculture, Bayer has set specific goals to reduce greenhouse gas by 30 percent by 2030(versus the base year of 2019) in major crops that we serve, and to decrease the negative environmental impact of agrochemicals by 30 percent by 2030.
Fok: China has progressively come up with policies and measures in reducing emissions in industries such as energy, manufacturing, and agriculture. In general, environmental, social, and governance issues are "front of mind" for global CEOs. The importance of these issues continues to rise on the C-suite agenda and boardroom metric lists that executives focus on. IDC believes that even with this attention, more must be done on sustainability, diversity, and inclusion to build a culture of accountability across the organization. There will be increased scrutiny of the impact of technology on the environment as well as the ethical use of tech such as the application of AI.
China is beginning the transition to net-zero by measuring the carbon emission levels at city and provincial level, which is a huge opportunity for IT industry, including building platforms to collect data and monitor emissions. For example, each enterprise will have emissions automatically tracked and this has created an opportunity for internet of things, cloud, and application vendors. Industries will also rely on ICT solutions to drive their production and operation efficiency so that they can reduce energy consumption.
Joon: I applaud China's aspirations towards achieving the dual carbon goals in due course. As China continues its journey toward a carbon-neutral economy, the hospitality industry will pay close attention to the unveiling of national climate targets. The targets will provide insights into how China plans to transit towards a more sustainable growth model and empower us to cast a long-term strategic view towards our design and development process with our owners. In addition, this will mean endless opportunities for the hospitality franchising companies like us to improve and innovate our current operations.
Q5 What's your view on modernization in China that has spawned common prosperity? What does this pursuit mean for foreign businesses?
YE: Common prosperity is an important feature and a valued pursuit of China's modernization, which reflects that the country is highly concerned with the happiness of everyone.
The realization of common prosperity requires the joint efforts of the whole society. Foreign companies in China should contribute to the endeavor. Michelin has planted deep roots in the Chinese market, and we hope to actively participate in solving social problems and creating more social value while generating economic value. We also rely on our resource advantages and technological capabilities to help boost the high-quality development of the transportation industry.
ZHANG: The modernization of China's power industry has effectively supported social and economic development. The rapid growth rate of electrification across industries, transport and infrastructure is a key indicator of China's modernization development process. As a global energy technology company that offers solutions across the electrical value chain, from power generation to transmission and consumption, we are honored to support China in meeting the country's increasing demand for electricity.
For example, in just over 30 years, we participated in over 40 high voltage direct current transmission lines in China to enable long-distance and highly efficient power transmission, bringing electricity to millions of households.
GUO: Over the years, raising the living standards of people in underdeveloped areas and reaching common prosperity has been prioritized in China's national agenda, and the government has introduced a series of policies to create equal opportunities for people to pursue a better life. The rural vitalization strategy plays a key role in China's pursuit of common prosperity, and Herbalife Nutrition is committed to making contributions to this effort.
GAO: Reduction of inequality is among the 17 sustainable development goals of the UN for 2030. I believe the Chinese government's call for "common prosperity" is in line with the goals. The welfare of all people is the ultimate goal of economic development, and the Chinese government has made the notion explicit through the national agenda of "common prosperity". Growth should be balanced, accessible and inclusive, and this is in sync with Bayer's corporate vision.
We have set a sustainability target — to expand access in China to everyday health for 100 million people in underserved communities and to empower 100 million small-scale farmers by 2030.
Joon: One of the key theme of China's path to modernization is achieving "common prosperity" through rural vitalization and new urbanization. This modernization drive will facilitate the expansion of the middle class and unleash the full potential of China's consumer economy. For the entire hospitality industry, this represents continual, sustainable growth of consumer demand in China. As such, we will continue to pursue development opportunities with our owners and partners to cater to a broader profile of domestic and foreign guests in cities across the country.
Q6 Although the COVID-19 pandemic has changed, disrupted or transformed some businesses around the world, new opportunities have also emerged for others. How do you view this phenomenon?
YE: The COVID-19 pandemic has had a significant impact on the global economy, but it has also created new opportunities in all walks of life. As a matter of fact, opportunities often favor those who stay sharp and dare to think and do. In recent years, the transportation industry has continued to change and upgrade. The transformation toward the "new four modernizations" of electrification, interconnection, intelligence and sharing is also reshaping the industry. In addition, the pandemic has also had a particularly obvious impact on the whole value chain. Companies must stay sharp and accelerate the necessary pace of transformation.
ZHANG: We appreciate the government's efforts to prevent and control the pandemic, and its measures to ease the burden for businesses, which help ensure business continuity.
Due to the difficulties of travel, there's an increasing need from our customers for digital solutions and services. As such, we have strengthened investment and portfolio development in power automation, digitalization of traditional equipment and remote services.
Digital solutions are also becoming critical to enhance operation efficiency and reduce costs. Our Lumada Asset Performance Management (APM) solution, for example, has served multiple grids and industrial customers in China, helping avoid critical asset failures and reduce the frequency of in-person maintenance by identifying risks with real-time data monitoring.
GUO: The pandemic has indeed brought challenges for our business operations, but we see it as a test of our abilities to cope with the changes. As a matter of fact, thanks to an early investment in digital transformation, we successfully ensured our smooth operation during the pandemic and upgraded our digital capability to a new level. Our "Herbalife Nutrition Personal Store" platform enabled service providers' efficient interactions and quality service to customers. Now with the Business Middle Platform, we are efficiently linking our online and offline offerings with a focus on consumer needs, driving business development forward.
GAO: Each crisis poses threats and offers new opportunities simultaneously, and the COVID-19 pandemic is no exception. The pandemic severely disrupted global supply chains and dealt a significant blow to the Chinese and global economies. Meanwhile, the pandemic has also promoted people's health awareness. With the impact of the pandemic, people are more likely to prioritize healthy choices and equip themselves with self-care knowledge. We shoulder the responsibility to educate the public while providing trusted over-the-counter medicines and dietary supplements which improve people's health literacy and quality of life.
Fok: The COVID-19 pandemic illustrated why an organization needs to be able to rapidly adapt and respond to business disruption. But we also understand that it will not be the last disruption organizations will face. The digital economy will create more cycles of disruption to business operations and new business models for success than we have seen in any previous economic period. It requires and ensures the continued global flow of goods and services, together with new technology platforms and business innovations in a symbiotic way.
Success for organizations in the digital economy requires them to excel at pivoting rapidly as disruption happens so that they can continue business operations in a timely and probably new way.
Joon: In Chinese, the word "crisis" comprises two characters — "danger" and "opportunity". Over the past two decades, the hospitality industry has had its fair share of shocks and adversities, but the sector has consistently displayed strong robustness and resilience despite that. As we have navigated through the pandemic in the last two years, we have been encouraged to receive a positive response from our owners and partners to grow our hospitality pipeline together. Concurrently, we continue to witness a rebound in travel demand for consumer travel in the Asia Pacific region. These signs point to a positive outlook for the travel and hospitality industry.
