Q&A: What the year has in store

2017-01-18
China Daily

Editor’s note: The World Economic Forum, which began on Jan 17 in Davos, Switzerland, will go on until Jan 20. It is focusing attention on the prospects for the Chinese economy and how it will intertwine with global finances against the backdrop of increasing uncertainties. China Daily has interviewed 18 chief executives of leading multinational companies to know their outlook for China as well as their corporate strategies for 2017. This is the second of the three full-page special reports. The final installment will appear in Jan 19’s edition.

1. What’s your expectation for China’s economic growth in 2017? In this regard, what are the major opportunities and challenges for China?

2. How would you align your business strategy with the main themes of China’s 13th Five-Year Plan (2016-20) like innovation, upgrade of manufacturing capability, green growth and urbanization?

3. What are your expectations with regards to 2017 revenue and profit of your business in China?

4. What kind of impact will a stronger US dollar and a more flexible renminbi exchange have on your business in 2017?

5. Do you plan to increase your investment in China?

Mark Costa, chairman and chief executive officer of Eastman Chemical Company

A1 Although the country is shifting from a high-growth economy to a moderate-growth economy, China is and will continue to be one of the world’s most important growth engines. We believe the country will continue to head in a healthy direction in 2017. Some of the positive signs include strong income growth for consumers and consumption and a drive for a greener China such as water and air quality improvements. However, sometimes it is challenging for China to keep its growth in an appropriate range while solving many development problems as part of its structural reform efforts.

A2 The main themes of innovation, manufacturing upgrades and “green” growth for China’s 13th Five-Year Plan period match what we at Eastman are striving for and are also our key growth drivers. As the global specialty chemical company, we are focusing our growth efforts on key global market trends including Health & Wellness, natural resource efficiency, the emerging middle class and feeding a growing population and we have a strong product portfolio that addresses these issues. We will continue to drive local innovations to meet the local business needs, expand our investments in China and help the country to achieve sustainable development through our innovative products and solutions and corporate responsibility efforts.

A3 For Eastman globally, we are accelerating our journey toward a specialty chemical company. We enter 2017 well positioned to benefit from our strong portfolio of specialty businesses which leverage world-class technology platforms to deliver solid growth in attractive end markets and accelerated earnings growth from high value and innovative specialty products. China is in an important phase of its development with an improved legal and social system to benefit people’s living standards. With growing needs for high-quality products and solutions especially in new materials, we believe we will achieve good business development in China in 2017 with local application businesses.

A4 The impact of a stronger US dollar and a more flexible renminbi exchange rate on Eastman is limited if the exchange rate change is not very significant. While a weaker renminbi provides some benefits to local players, customers choose us for our consistent records of delivering innovative products and solutions while maintaining a commitment to safety and sustainability.

A5 China is and will continue to be a key market for Eastman. Chinese labor cost may be rising fast, but so is Chinese productivity. China is still the world’s largest exporting nation and its talent pool is large and flexible. The country’s supply chain is sophisticated and flexible. China is a large market with a middle class larger than both the US and EU, and China’s consumer market is very attractive for companies like Eastman. With China’s focus on green GDP and sustainability, we are seeing it as an attractive place to do business and we are committed to expanding our investment here.

Vicki L. Dawkins, president of Emerson Asia-Pacific

A1 While growth has slowed in China, the economy is still growing at 6.7 percent which is much faster than many developed Western economies. We believe that the Chinese government will continue to achieve its goals.

We have been in China for close to 35 years and China is an important market for Emerson. Like every other nation, the economy goes up and down, but we’re very positive about the Chinese economy and our prospects in China leading into 2017.

A2 Our areas of focus for 2017 align closely with the 13th Five-Year Plan and include:

·Energy conservation and emission reduction for manufacturing and power generation facilities to address climate change,

·Sustainable food waste management and energy efficient heating and cooling technologies for residential and commercial buildings,

·Industrial internet of things solutions to improve efficiency and safety in manufacturing.

Some examples include Emerson’s Plant web digital ecosystem for manufacturing enterprises, to optimize their process controls and safety network, helping them achieve top performance, and Emerson’s heat pump solution for homes, which removes the need for environmentally harmful coal fires and replaces them with more efficient electrical heating.

A3 In 2017, we’re expecting sales growth for our Commercial & Residential Solutions business in China, and recent orders trends for our Automation Solutions business have stabilized. So we are cautiously optimistic about our China business and expect to see low single-digit growth in 2017.

A4 The impact to Emerson from currency fluctuations is minimal as compared to more export-driven companies due to our regionalization strategy. Globally, more than 80 percent of our sales transactions are supported by local manufacturing and a local supply chain. In other words, most of what we sell in China is made in China which helps to mitigate the negative impact of currency fluctuations.

A5 Currently, we have 15 engineering and development centers and 17 manufacturing facilities throughout China. We will continue to invest and fine tune our presence in China to maintain high quality service to our customers. For example, we are currently investing $27 million in Beijing to relocate our instrument manufacturing plant from Daxing to Dongcheng district.

Jiang Zong, general manager of Fischer China

A1 I would expect that China could keep the steady and sustainable growth in economy in 2017. The upgrade of manufacturing and consuming in 2017 would be opportunities for us to promote more good-quality products in the market. The major challenges for China is how to maintain the sustainable economic growth and at the same time to enhance its economic transition in different industries.

A2 Innovation and green growth are our group’s strategy for years. It’s good to see that in China’s 13th Five-Year plan, China will insist on more green growth strategies and pay more attention to human living conditions, which are exactly the same strategies of our group. Since our company mainly focuses on construction, the further urbanization of China will give us more opportunities in the sector.

A3 We would expect to have above double-digit growth in 2017 for our company. Although with more new entrants in the market, the price and profit are not as satisfied as previous years, we still expect a slight increase in our total profit, with a new product launching, innovation and total solutions.

A4 Since we are a German company and most products are imported from Germany or locally produced in China, the stronger US dollar may not have much influence on us. On the contrary, the weaker euro may reduce our costs for the Chinese market. However, we are willing to see a steady currency exchange internationally to reduce any uncertain risk and balance strength from Europe, US and China.

Ondrej Frydrych, chief executive officer of Home Credit Group in China

A1 We are quite optimistic about China’s economic prospect and believe the country’s stable economic growth will remain a major driving force of the world’s economic growth momentum.

China has made remarkable progress in the marketization of interest rates, the internationalization of renminbi and urbanization, and is now putting great efforts to deepen its economic transformation from investment-driven to a consumption-driven one. In the context of “new normal”, the smooth transformation will not only benefit China itself, but also will be conducive to the world economy.

A2 China’s 13th Five-Year Plan stresses a deep integration of technology and economy, and in the context of mass entrepreneurship and innovation, a lot of new industries and business models have been fostered, with many coming from the finance industry.

One important innovation coming from Home Credit’s business model is that we have developed into a highly-efficient business that captures lending relationships through our extensive multichannel distribution network, which consists of over 140,000 point-of-sales outlets cooperated with the leading electronics retailers, supermarkets and cell phone chains in China.

A3 Thanks to the Chinese government’s efforts to further open up the country’s consumer finance market, Home Credit has achieved a high-speed growth in China in 2016, and has more than 60,300 employees and set 140,000 points-of-sales outlets across the country by the year end.

In 2017, we are confident in continuing the momentum by putting more focus on optimizing our products and services to improve customer experience and deepening our business deployment. We expect to stably extend our network of more than 200,000 points-of-sales outlet with more than 20 million active clients by the end of 2017.

A4 We see the optimistic side of this situation. The internationalization of renminbi is conducive to reducing the exchange rate risk and promoting the development of China’s international trade and investment, which will provide a larger arena where Chinese companies can play greater roles and seek to “go global”.As a long-term partner of many Chinese companies, Home Credit is more than willing to strengthen our collaboration with them and share our best practice in global market, so as to help our Chinese partners to explore the overseas markets.

A5 Absolutely YES. Home Credit will continue our commitment to China market, by further supporting the country’s efforts to drive financial inclusion and boost consumption. We plan to invest up to 6 billion yuan in China in next two years combined to support the sustainable and solid development of our business. In October 2016, we have issued more than 1.3 billion yuan of asset-backed securities in China for the purpose of diversifying our financing channels with lower costs to provide more inclusive consumer finance services to customers. In the coming year, we are planning to issue our first financial bonds in China to further reduce the financing costs.

Rachel Duan, senior vice-president of GE and president of GE China

A1 We expect the Chinese economy to grow at a rate of about 6 percent in 2017. This is a growth rate that many countries would be happy with. There are two demographic trends that support this growth. By 2020, more than 800 million people will be urbanized and 180 million people will be over the age of 65. With China’s increasing urbanization and aging population, we see huge opportunities arising out of mass transportation, affordable healthcare and cleaner energy. In addition, China’s national strategies of Made in China 2025, The Belt & Road, and internet+ will further spur growth in advanced manufacturing in these areas.

A2 At GE, we have spent time studying China’s 13th Five-year Plan, not only for China but for our global business growth. We have aligned GE China’s 2020 growth strategy closely with the Plan to tap into China’s mega needs. Our strategy is simple: building a digital industrial platform and applications to help our Chinese customers; all-in localization throughout the value chain to make China an advanced manufacturing base for GE globally; and building strong and long-lasting partnerships with Chinese national champions to help them win both at home and abroad.

A3 We don’t make predictions on our revenue and profit targets publicly but we expect our business in China to grow in line with or exceeding China’s GDP growth.

A4 China is GE’s single-largest market outside the US. GE has a strong commitment to investing and growing in China. We have built a strong presence in the country, including 20,000+ employees, 37 manufacturing sites, 84 offices in 43 cities, 34 joint ventures and 7 R&D centers with 60+ technology labs & 3000+ engineers. Earlier this year, we added to this list a digital foundry with $11 million investment in Shanghai at GE’s China Technology Park — it is the first digital foundry in operation outside the US for GE. The foundry will add over 200 jobs and will be working with over 1,000 developers over the next couple of years. GE will continue to invest over $20 million over the next two years to boost our technical and commercial capabilities in digital industrial in China.

A5 Managing foreign exchange risks on an ongoing basis is essential to a global company such as GE so we will manage these risks in 2017 as we do always.

Kevin Rogers, CEO of Elanders Beijing Printing Co

A1 My growth expectations in China in 2017 are for slow but steady growth. The major opportunities will come from the expanding middle classes, providing services to more international companies in China and offering global supply chain services to Chinese companies who export their goods. For example, the expanding middle class will drive demand for high-quality products from major brands and this requires high-quality packaging, which is an area of expertise at Elanders China. The challenges include the competitive nature of the domestic market where it seems that “best price wins” even if the higher price offers better value for money.

A2 Elanders have had innovation, green production and upgrade of manufacturing in our strategy for a long time. This aligns perfectly with China’s 13th Five-Year Plan. We have introduced innovation in our business through online ordering (e-commerce), digital print production and 3D printing. We are focused on driving more automation and upgrade through investment in more automated processes and equipment. This will allow us to be more competitive as labor costs increase and also increase our capacity so we can produce and process more orders with the same number of people.

A3 My expectation for revenue and profit will be a slow but steady improvement. I expect to see increased demand for quality products and better customer service. The higher quality will commend a slightly higher price and customers will want to receive a professional and reliable service from their partners. The expanding middle class will drive more demand for quality goods and I expect this to positively influence revenue at Elanders.

A4 This will allow us to export more to the US and this is one of our target areas for our “European Quality Made in China” packaging service. We are targeting major brands in the US to produce high-quality packaging in China and export back to the US, this can be a better-value option for US businesses than some US-based packaging manufacturing. The more flexible renminbi does make it more expensive for US brands to export their products to China, this may limit our growth for providing supply chain services to US companies who want to sell their products in China.

A5 The Elanders Group does have plans to invest more in Asia and China is one country that has great interest for us. These investment plans are still to be confirmed but China is an important market for us and we are always positive about investment to maintain a market leading status.