Mon, Oct 30, 2017 page7

• From Starbucks to Tesla, big business faces Xi’s new reality

  • By Bruce Einhorn and Jing Yang de Morel / Bloomberg
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  Chinese President Xi Jinping (習近平) emerged from last week’s 19th National Congress of the Chinese Communist Party radiating more power than a supernova. He also might have shifted the corporate terrain by presenting a new economic vision in which rising living standards take primacy over high-speed growth.

  One big takeaway from Xi’s marathon three-and-a-half-hour policy speech last week is that the next five years will be less about stoking economic growth and more about improving quality of life in a nation with a vast wealth gap, housing bubble and world-class pollution challenges.

  From Intel Corp to Ford Motor Co, Western firms have long recognized the commercial advantages of being a good corporate citizen in China and have opened research centers, shared know-how with local partners and invested in start-ups.

  Now, the expectation is that foreign companies will need to demonstrate a willingness to improve the lot of ordinary workers to stay in Beijing’s good graces.

  “Multinationals and local companies will need to cope with this agenda of more balanced growth and the focus on the quality of life,” said Han Weiwen (韓微文), Greater China managing partner for Bain & Co in Shanghai. “When they look at China as an opportunity, they cannot seek growth as the primary target.”

  While policies such as those governing technology transfers and electrification in the automotive industry tend to be black and white, Xi’s remarks leave plenty of room for interpretation.

  Some companies have gotten ahead of the curve with initiatives targeting workers and their families. Starbucks Corp, which has 2,800 outlets in China, in April said it would provide its local workers with health insurance that extends coverage to their parents.

  The policy is a response to traditional values in China, the company said, as children often care for their parents and grandparents in a society that does not have a comprehensive safety net for the elderly. The plan covers 30 critical illnesses and some surgeries, the company said.

  Yum China Holdings Ltd in November last year announced it would give shares valued at US$2,000 to more than 6,000 managers of its KFC, Pizza Hut and other restaurant chains. The move is an unusual one in the fast-food industry where compensation plans are modest.

  The push to improve the living standards of employees comes as Western firms are still clamoring for greater market access.

  In a January survey of 462 US companies by the American Chamber of Commerce in China, 81 percent said they felt less welcome in China, while more than 60 percent have little or no confidence the nation will further open its markets in the next three years.

  Chinese officials counter such complaints by pointing to the years of tax breaks and other special treatment afforded to large foreign companies to encourage them to invest in China, said Shaun Rein, managing director of Shanghai-based China Market Research Group.

  “There’s a feeling among the government that foreign companies have made a lot of money on the back of poor Chinese,” Rein said. “Now the government feels foreign companies need to give back.”

  Chinese executives might also face new demands.

  Domestic property developers such as China Evergrande Group and Sunac China Holdings Ltd, whose stock prices have soared this year, likely took note of Xi’s line in his speech that “housing is for living, but not for speculation.”

  The white-hot property market “has probably been the greatest cause of inequality in China, not only among the different income cohorts, but also across generations,” said Alan Jin, a Hong Kong-based property analyst at Mizuho Securities Asia Ltd. “Curbs on housing speculation are just part of the grander aim of promoting equality.”

  Changing all that will require a big increase in affordable housing coupled with ongoing curbs on property speculation.

  “During the next five years, the focus will probably be supplying more affordable homes in top cities and pushing forward urbanization in third and fourth-tier cities,” said Zhang Hongwei (張宏偉), a research director at Shanghai-based Tospur Real Estate Consulting Co.

  The pressure might increasingly come from within, as party representatives assigned to foreign companies become more assertive about promoting the government’s quality-of-life program, McKinsey & Co senior adviser and Lenovo Group Ltd board member Gordon Orr said.

  “I think there’s a chance that party committees in multinationals will become more visible going forward,” he said. “It would be on people-related topics: Are people getting all of their benefits, are people’s personnel reviews being handled appropriately, are those being let go handled appropriately.”

  The greater attention from the government on quality-of-life issues will also create new opportunities for multinationals to meet the growing demand for more options from middle-class Chinese, several analysts said.

  “If you focus on quality, you need to think about introducing more high-end services and goods to satisfy the middle class,” Bloomberg Intelligence economist Fielding Chen (陳世淵) said.

  The public outcry over the environment looks like an opportunity for carmakers including Tesla Inc and Ford, which in August partnered with Anhui Zotye Automobile Co to develop a new line of battery-powered models.

  “Quality of life is also freedom of mobility,” Ford chief financial officer Bob Shanks said in an interview on Thursday. “We will have electric vehicles. We will have plug-in hybrids. We will have hybrids.”

  Meanwhile, Tesla is in talks with Shanghai’s government about investing in a local factory. The company opened its largest charging station this month, a Shanghai facility capable of charging 50 cars, the official China Daily newspaper reported.

  Even some Western makers of watches and other luxury items, which had been hit by Xi’s campaign against corruption and gift-giving during his first term, have reason to be hopeful.

  Swiss watch exports last month rose for a fifth consecutive month thanks to demand for expensive timepieces in China as well as Hong Kong and Singapore, where many Chinese tourists shop for high-end goods.

  Xi deserves credit for addressing issues like inequality, LVMH watch division head Jean-Claude Biver said. “I can now only welcome his speech.”

  That said, life could turn difficult for Western firms that disregard the new quality-of-life drive coming out of Beijing, said Geoffrey Crothall, communications director for China Labour Bulletin, a Hong Kong-based organization that promotes worker rights.

  “If these major corporations want to stay and do business in China, they have to fall in line with what the Communist Party wants, and that’s to improve wages and working conditions for their employees in China,” he said.
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