Category Archives: News

Dr2 White-paper: ‘Time to enter Chinese cosmetics market WITHOUT ANIMAL TESTING’

In the past few months, China has been updating its cosmetics regulations, which brings great opportunities for foreign brands that have been blocked by previous complicated regulations. Dr2 Consultants Shanghai presents the key takeaways in this white paper for cosmetic brands who would like to enter the Chinese market without animal testing.

What you should know before entering the Chinese market

  1. How are cosmetics products classified in China?
  2. What are the dossiers necessary for cosmetic registration/recordation?
  3. What are the requirements of cosmetics labeling?
  4. How to avoid animal testing?
  • Option 1: Cross-border e-commerce
  • Option 2: Do the filling in China
  • Option 3: Animal testing exemptions

 

Interested? Contact shanghai@dr2consultants.eu for a free copy!

Helping China’s food waste problem

Through the rapid growth and urbanization rate, the amounts of waste are increasingly growing in China. First steps in the classification and sorting of municipal solid waste have been initiated in recent years. This has provided more insights into the troubling situation regarding food waste. Different research indicated that Chinese cities waste 17 to 18 million tonnes of food annually which is enough to feed 30 – 50 million people for a year.

To illustrate, in Shanghai food waste has increased by 27.5% in recent years, which is mainly generated by the catering sector. And even though Shanghai is the first urban city to implement strict sorting policies, there are challenges to overcome. Firstly, insufficient treatment capacity, it is estimated that Shanghai produces more than 9.000 tonnes of food waste daily but the treatment capacity can only handle 5.000 tonnes. Secondly, because of the insufficient quality composition of sorted food waste, using it for composting for example becomes more difficult.

As the priority for China is to become more self-sufficient, dealing with the food waste problem in a sustainable way is key to decrease the immense amounts of food imports for example. A transition to prevention will become increasingly important. The coming years will see more investments in experimenting with new valorization techniques. Finding more efficient and effective ways for the collection & sorting systems, finding new ways to reuse outputs from the existing treatment facilities back into the food chain but also creating new solutions that can deal with the urban-rural context.

Together with colleagues from our headquarters in the Netherlands, Dröge & van Drimmelen, our partners, New Economy, and Acclime, we are working together with the Netherlands Enterprise Agency and the Consulate General of the Kingdom of the Netherlands in Shanghai, conducting a market study for business opportunities of Dutch enterprises within the Yangtze River Delta. The study is currently being finalized and scheduled to be published in July 2021.

Please contact us at shanghai@dr2consultants.eu if you are interested in knowing more or if you are in relevant food waste fields and would like to be updated and involved in future events regarding combating food waste in China.

Dr2 White-paper: ‘The Rise of Live Commerce in China, how will the West follow?’

Digital developments go with the speed of light in China. In this whitepaper, Dr2 Consultants Shanghai outlines the do’s and don’ts for retailers that want to jump on board with the latest trend in e-commerce: Live commerce.

live-commerce

What is live commerce?

Live Commerce = E-commerce + Live Streaming

The live-streaming industry has developed very quickly in China over recent years. It has influenced the further professionalization of the e-commerce industry with;

– new innovations,
– instant consumer engagement,
– platform integrations, and
– changing regulations.

This paper brings insight on the opportunities live-streaming can create in an integrated e-commerce strategy.

Interested? Contact shanghai@dr2consultants.eu for a free copy!

 

 

 

 

 

E-Commerce in a Green World

 

Author: Bernard Scheffens

In Today’s world, with COVID-19 raging through the world, the digital demand for goods and services has exploded. No surprises. E-Commerce was already growing strong, with digital ordering, delivery at home, easy does it!

However, in beginning of 2018, the Government in China already foresaw a couple of issues here: what to do with the packaging waste? How to produce more sustainable packaging products to reduce waste, prevent using natural resources as trees, as you need them for producing paper->carbon board etc.

The problem is huge. In 2018 over 130 million packages are distributed on a daily basis in China, of which roughly 50% is carbon board. It has risen significantly since… and numbers in Hong Kong have grown as well.

Initiatives to tackle this has been undertaken. Companies signed up for an effort to do something, Government at State and Provincial level were involved. Simultaneously, using ‘circular economy ready’ packaging was woven into the effort, although not much available yet to implement.

See: design by Dröge & Van Drimmelen/Dr2, Netherlands/Shanghai, 2018

The slide demonstrates the items involved to organize a process to the benefit of all players: governments, e-commerce companies, package-manufacturers, transport companies etc. It shows that things can be done.

Each of the parties have their own interest. The Government wants to have an overview how this will result in less waste, less or no use of natural resources. E-Commerce companies are interested to find ways to reduce their cost. Package manufacturers are keen to understand to stay in business as number of packages to be used will be reduced, but the price of a package will go up. Transport companies will be tasked to return the package, how will that be done?

Role of Government: this requires a level playing field that only Government can provide, by law, regulations, enforcement and to impose this to all players in this branch. It will prevent that companies will only be interested in their own role, with a risk that several different systems will be established, creating an indispensable industry. At the same time, they can be provided data to monitor the process.

E-Commerce companies of course want a competitive advantage if they can use cheaper way of packaging. Just a theoretical example: Suppose a standard carbon board package will cost 10 HKD. A more sustainable package may cost 100 HKD. But if it can be used 20 times, the package would cost only 5 HKD. These efforts need a closer look of course, to build a sustainable business case with all cost involved. But early signs tell us, it is worth the effort and can be done.

The transport companies need a solution where to return the package. Once the owner of the package can be identified (data management), the package can be returned and re-used by those who invested in the package.

Want to know more about the happenings of circular economy? How to integrate your business with the circular economy? Please do not hesitate to contact us! Our email address is: shanghai@dr2consultants.eu!

‘Revenge travel’ in China boosts economic recovery

Tourist sites across China were packed to bursting in the beginning of this month as millions of locals and citizens celebrated the 71st anniversary of Golden Week, the eight-day public holiday marking the mid-autumn festival and China’s national day.

Economic spending is a key indicator of the success of economic recovery against Covid-19. China’s retail and restaurant sales reached 1.6 trillion yuan (US$235.5 billion) over the ‘golden week’ holiday, with daily sales up 4.9 per cent compared to last year. The holiday shows China’s success in reopening the economy after a hard-fought victory over the virus. Furthermore, the holiday drew in huge crowds; the Ministry of Culture and Tourism claims tourism revenue for the year totaled 76.7 billion yuan, 70% of last year’s.

“China’s tourism market is expected to see a wave of growth led by people’s desire to ‘revenge travel,’ said the state-owned Workers’ Daily ahead of Golden Week. The term, which has been used widely in Chinese media recently, reflected the government’s hope that people would travel or consume more than they usually do during the weeklong holiday because of pent-up demand from being cooped up.

China’s Ministry of Culture and Tourism estimated 600 million domestic tourists or about 40% of the total national population have traveled amid the coronavirus. While the number may have shrunk compared to the nearly 800 million tourists last year, it is still a stunning figure in an era where global travel is not expected to rebound for several years.

China’s National Day commemorates the establishment of the people’s Republic of China on October 1, 1949, by the Chinese Communist Party after winning the Chinese civil war. Nowadays China’s National Day is surrounded by consecutive days of nation-wide holidays also known as ‘Golden Week’. The name is given to the week because it falls at the beginning of Autumn, when most regions in China boast some of the best weather of the whole year.

While the rest of the world continues to struggle with the deadly coronavirus pandemic and are discouraging unnecessary travel, pictures from Chinese social media show thousands of tourists freely traveling domestically during the week – the latest sign that life in China is almost back to normal eight months after the first outbreak leads to severe quarantines. This is a far cry from the first few months of 2020 where, during the Chinese Lunar New Year, the biggest Chinese traveling season of the year was cut short to prevent the further spread of the virus.

The number of tourists at top attractions across the country jumped by 159% in the second quarter of the year compared to the first, at the height of the pandemic. Meanwhile, the number of rural tourists in July and August was nearly back to normal at 90% of last year’s.

Hotel bookings are 50% higher compared to last year, and airline reservations are on a par with 2019, helped by discounts for hotels and flights. People have been observed to be complaining online about the lack of tickets and rooms for hotels that sometimes make it difficult to move.

Transactions on WeChat Pay, the digital payment service operated by Chinese internet giant Tencent Holdings, grew 83 percent at tourist sites and 71 percent at hotels during the first three days of the holiday, according to a report by WeChat on Sunday. Meanwhile, the number of WeChat Pay transactions at shopping malls increased by 30%.

With the coronavirus currently still raging in the West and in other parts of Asia, for this Golden Week Chinese have had few options for overseas holidays, with many opting to travel domestically instead. Tourists who would normally have done so otherwise have said they are not willing to undertake the lengthy quarantine times required on both ends of their travel. Thailand, Japan, Vietnam, some of the most popular destinations among travelers, closed its airports to international commercial flights and have yet to fully reopen.

China has reported fewer locally transmitted coronavirus cases since August causing local governments to ease restrictions on daily life, and allowing tourism sites to operate at 75% capacity. To encourage tourism in local attractions, more than 500 scenic locations across the country were giving free admission or discounts to visitors. Armed with hand wash, face shields, masks, temperature checks, and social distancing, citizens traveled all across the country to celebrate with friends and family.

The rebound in China’s tourism is shadowed by the country’s widening wealth gap as a result of the pandemic. Due to a lack of financial aid, China’s poorest populations are struggling more than their richer peers. The poorest families, who earned less than 50,000 yuan in the first three months of the year, are among the groups that saw the biggest reduction in living standards.

Despite this, China is still determined to accomplish the tasks for winning the battle against poverty this year. Chinese President Xi Jinping has underscored the perseverance and determination of the nation to win the battle against poverty.

He calls for enhancing the development capacity of the low-income population in underdeveloped and rural areas via education, encouraging low-income populations with the capacity to achieve prosperity through hard-work and facilitating the gradual realization of common prosperity.

For more details, please do not hesitate to contact us at: shanghai@dr2consultants.eu

Sustainable Development Goals strengthen public affairs

The Hague, 24 September 2020 – This is evident from the “Annual Trend Report 2020, Sustainable Development Goals” that Jan Peter Balkenende received from Marieke van der Werf and Frans van Drimmelen – both partners at consultancy firm Dröge & van Drimmelen. The report was presented to Balkenende due to his chairmanship of the Dutch Sustainable Growth Coalition, a coalition of eight leading companies committed to sustainable growth and the SDGs.

For the annual trend report, Dröge & van Drimmelen investigated which trends are prominent at the intersection of public affairs and the SDGs. Discussions were held with fifteen representatives of leading organizations from all over the world and the conclusion is clear: the SDGs and public affairs are becoming increasingly intertwined. Many organizations choose to make the SDGs part of their public affairs strategy. The SDGs offer companies, governments, knowledge institutions and NGOs a common international language to communicate about their social involvement. On the other hand, organizations use public affairs to get the SDGs higher on the political agenda. It is with some regret that the Netherlands is one of the few European countries that lacks a national SDG strategy.

Click here to download the Dr2 ‘Annual Trend Report 2020 SDGs’

Trends

The report includes interviews with representatives from amongst others Philips, Mærsk, Port of Rotterdam, NOGEPA, Consulate Shanghai and SDG Netherlands. Four trends were discovered in the interviews:

First, the SDGs do not only create a better world, but also create stronger organizations. As Mirjam van Praag, chairman of the board of the VU University Amsterdam points out the following in her interview for the report: companies, governments, NGOs and knowledge institutions realize that economic growth must go hand in hand with sustainable growth. Organizations that include the SDGs in their mission or strategy generally generate more impact on social goals as well as image, employee engagement, public-private partnerships, appreciation and ultimately continuity and profit.

  • Jan Peter Balkenende “I am a huge supporter of the SDGs, due to their content, goals and effect to connect everyone. The SDGs relate to everything and everyone in this world. To realize them you need common knowledge, common language and common action. Public affairs and communication make this possible. It is about vision, strategy development, making things transparent and conveying an honest story. There are great opportunities for the SDGs. And everyone plays a role in this: governments, companies, social organizations, knowledge institutions and citizens. My compliments for asking attention for this in the Trend Report”

Second, a framework-setting role for the government is important. As Herman Mulder of SDG Netherlands points out, it is crucial that the government provides a simulation framework. Various organizations argue for a national SDG strategy and more incentives for sustainable business.

Third, the SDGs strengthen a public affairs strategy. They provide guidance for communication and reporting. Arendo Schreurs, Director-General of NOGEPA, indicates that the SDGs can be used to represent the environmental performance (and challenges). Anders Würtzen, VP Global Head of Public Affairs at Maersk indicates that the SDGs shape the narrative of an organization.

  • Marieke van der Werf, partner at Dröge & van Drimmelen: “Every year we write a trend report on an important development in the field of public affairs. Given the increasing interest in corporate social responsibility, we have chosen to highlight the role of the SDGs this year. As a socially involved agency, we are pleased to see that the importance of the SDGs in this context is widely recognized and is increasing in importance”

And fourth, we’re moving forward! According to the words of Jan Willem-Scheijgrond, chairman of the UN Global Compact Network in The Netherlands, among others: “we are moving from awareness to implementation”. At Philips he sees how the SDGs are increasingly becoming part of the core business. Others also see a shift from the SDGs as a communication vehicle to the heart of the company.

 

About Jan Peter Balkenende

In addition to being chairman of the Dutch Sustainable Growth Coalition – a coalition of eight companies committed to sustainable growth, Jan Peter Balkenende is currently a partner at Ernst & Young and professor of Governance, Institutions and Internationalization at Erasmus University. Balkenende was Prime Minister of the Netherlands from 2002-2010.

About Dröge & van Drimmelen

Dröge & van Drimmelen is a strategic consultancy that is active at the intersection of public affairs and corporate communication. With offices in The Hague, Brussels, Denmark, New York and Shanghai we advise governments, companies, knowledge institutions and NGOs all over the world on how to acquire social and political support for their issues. We are very involved in the SDGs. For example, through our sister company Dr2 New Economy, we are actively committed to accelerating the transition to a circular economy that uses renewable energy.

China’s new data protection legislation: Are there lessons to be learned from Europe?

As an indispensable factor in modern communication, the use of data by public and private organizations has spread to all aspects of social life. In Europe, the General Data Protection Regulation (GDPR) has provided what is widely considered as the world’s toughest framework to protect people’s privacy. On May 25, the first anniversary of the GDPR, China’s Standing Committee announced that its next major project focusing on national security and social governance would be to implement the national personal information protection law (also known as the Personal Information Security Specification) and China’s Cyber Security law.

A brief history of data security law in China

As early as 2003, the expert proposal draft of the Personal Information Protection Law was started and submitted to relevant authorities in 2005. “Due to the importance and urgency of legislation on personal information protection,” Hanhua Zhou, head of the research team and a researcher at the Institute of Law at the Chinese Academy of Social Sciences, said he believed drafting the law would “not take too long”. For now, the law is still in the works as China’s legislators are trying to keep up with rapidly evolving online business models.

In the recent years, data protection has become more of a prominent issue in China’s booming online economy: According to CCTV, the Beijing district court alone has confirmed the disclosure of more than 160 million pieces of citizens’ personal information between 2010 and 2016. An investigation report on APP Personal Information Leakage released by the China Consumers’ Association in September 2018 also showed that 80% of respondents had been exposed to personal information leakage.

In March 2017, at the “two sessions” of the National People’s Congress, Xiaoling Wu, deputy director of the financial business management department, the director of the National People’s Congress, the President of the People’s Bank of China Xue-dong Zhou, and 45 members of the Standing Committee of the National People’s Congress submitted a bill ” To develop the personal information protection law of the People’s Republic of China as soon as possible”. The bill included a first draft of the Personal Information Protection Specification as an annex.

The Personal Information Protection law falls into category I of the legislative plan released in March 2019, which means that the implementation of the law has the highest priority, and that it could be introduced very rapidly by the end of 2020.

In the meantime, the 10th session of the standing committee of the 13th National People’s Congress held on June 28-30 2019 deliberated the draft of the Data Security law for the first time. On July 3, the full text of the draft was released to solicit public comments. On August 16 that year, the public consultation on the draft of China’s first data security law ended. Also the Data Security law is expected to be implemented by the end of 2020.

A brief history of data security law in Europe

The EU’s General Data Protection Regulation (GDPR) which came into effect on May 25, 2018, is the most significant change in the field of data privacy protection globally in the past 20 years. The act applies to any party who is an EU citizen or legal person who collects the data, provides the data (the user from whom the data is collected), and processes the data (such as a third party data processing

agency). The implementation of GDPR is a huge challenge to data utilization and online business operation in the current age of data. It has led to major Chinese enterprises such as Tencent, Xiaomi, and other leading domestic technology companies to announce their withdrawal from the European market.

Enterprises are supervised in customer information protection by GDPR mainly as follows:

1. Failure by the relevant organizations to fulfill their obligations will expose them to the risk of serious administrative fines from active regulators in EU countries (such as the “Autoriteit Persoonsgegevens” in the Netherlands). Fines can be as high as 20 million euros or about 4 percent of a company’s global turnover, whichever is higher.

2. Operators of websites must explain to their customer in advance that it will automatically record the customer’s search and shopping records and obtain the user’s consent; otherwise, it will be punished as “not telling the user to record the behavior”.

3. Companies can no longer use vague, hard-to-understand language or lengthy privacy policies to obtain permission to use data from users.

4. The “right to be forgotten” is enshrined in text, with the individual user having the right to ask responsible parties to remove their records about their data.

 

 

When GDPR first came into effect in 2018, the penalties imposed by government regulators were modest. By 2019, GDPR fines were rising, more organizations were receiving fines and regulators were stepping up their efforts. According to the statistics, GDPR fines totaled a record 417.5 million euros in 2019, almost 1,000 times the amount imposed in 2018. This year alone, 750 companies received GDPR fines, with an average fine of 500,000 euros, equivalent to 3.89 million yuan.

 

 

It can be seen that the fines on GDPR have become stricter as regulators in various countries are paying more attention. In terms of the reasons for the fines, more than one third of the fines are due to improper legal basis for data processing, while another third of the fines are due to insufficient technical and management measures to ensure information security, such as data leakage incidents.

The top ten fine incidents in GDPR are as follows:

It can be seen that the fines on GDPR become stricter as regulators in various countries paid more attention. The law defines the right of individuals to own data in the digital world, protects the privacy of netizens, and reduces the security risks of data and the problems related to personal privacy.

Prospects for the Personal Information Protection law in China

In terms of personal information protection legislation in China, most legislators express the need for a balance between netizens’ protection and promotion and economic development. As China has a large number of internet users and a booming e-commerce economy, merely copying the GDPR may not be feasible. China’s political sentiment is that the goal is to develop the most appropriate, the most complete and the most suitable rule of law for the future network situation of its country. Legislators call upon online companies to “strengthen self-discipline in the basic spirit of protecting personal privacy, to abide by basic moral norms and network order, and to enhance the social responsibility of network enterprise citizens”.

While China’s Cybersecurity Law summarizes fundamental principles of personal information, the Personal Information Specification provides detailed guidance for compliance in information processing. China’s new specification will most likely function as a guideline for legislators making related laws. Experts expect that implementation of the framework will probably contain most of the personal data protection elements featured in the GDPR, though it might show more tolerance.

Like the GDPR, the Specification includes guidance on user consent, data protection, data access, the obligation of disclosure, and the evaluation of data security, but overall it is more permissive. For

instance, the GDPR has provided six lawful bases that allow data controllers to process personal data, such as user consent, legal obligation, and vital interests, but the specification only lists four circumstances where data controllers are not allowed to process personal data.

It remains to be seen how strict China’s data protection law will prove to be in practice. Dr2’s experts will continue to monitor legislative and political developments. If you would like to be kept informed on the latest news surrounding data protection in China and the consequences it can have for your business, please don’t hesitate to contact us at shanghai@dr2consultants.eu.

Source(s):

[1] https://baike.baidu.com/item/ personal information protection law / 8343360

[2] https://m.china.caixin.com/m/2020-08-17/101593429.html

[3] http://www.gov.cn/xinwen/2020-06/20/content_5520865.html

[4] http://www.gov.cn/xinwen/2020-05/14/content_5511677.html.

[5] https://www.infoq.cn/article/pCqvqVaD46m4NAWcoLIC

[6] http://finance.sina.com.cn/review/20090310/08535953619.shtml? from=wap

 

 

 

 

Beauty in times of pandemic: China’s consumers develop new cosmetics buying habits

With COVID-19 sweeping the globe, we have been forced to adapt to a world of reduced income and spending most of our time at home. In a post-pandemic world, the global beauty and cosmetics industry is accelerating towards digitalization and innovation. In China specifically, both local and international brands have been quick to adjust by strengthening their online presence and by capitalizing on “mask-beauty”.

The global beauty industry has suffered as a whole while online sales have grown rapidly

With the implementation of various countries’ travel blockade policies, a large area of duty-free shops in airports have been closed, and the offline retail of beauty products driven by tourism has suffered a heavy blow. Global sales are expected to fall by 20-30 per cent this year as a result of the epidemic. According to a recent beauty industry study, purchases in offline stores in major global beauty markets before COVID-19 accounted for 85 per cent of worldwide purchases made.

Store operations have been seriously affected by the epidemic, and online sales channels have become a lifeline for retail brands. During COVID-19, there was a huge expansion in online beauty sales. In the first half of this year, global online sales of beauty products from Sephora and Amazon increased by 30% compared with last year. The online beauty market in the Chinese mainland also grew by 20% to 30%.

 

New trends in the Chinese Beauty&Cosmetics consumer market

In China, the Spring Festival is often a national holiday to boost the overall consumer economy. During the outbreak of the epidemic at the beginning of this year, sales in offline stores were sluggish during the Spring Festival, and their performance fell sharply. The supply chain was also hit by the delay in resuming work. Data from Gridsum shows that as the Chinese people’s social behavior decreases, consumption of beauty products decreases, and the desire to buy beauty products is all but forgotten. Online sales of beauty products fell by 30% year-on-year from the first day to the third day of the first lunar month this year, with high-end beauty products even dropping by 40%.

While the epidemic has temporarily suppressed some impulse consumption, high-end beauty brands hold a positive attitude and are optimistic about a rebound in consumption. Some brands, such as L ‘Oreal, have continued the advantages of the previous e-commerce channels and continuously strengthened their online layout. Many domestic brands started online live broadcast to save themselves, digitalized their sales across the board, and conveyed the brand’s social responsibility and established emotional connection to consumers through a series of actions to support the “anti-pandemic” campaign.

The pandemic has given rise to many new consumer habits: safe, healthy, online and convenient are now key decision factors. Wearing masks has become a normal part of people’s lives in China. And masks do not seem to hinder people’s love of beauty; in China “mask makeup” – light base makeup with heavy eye makeup – has attracted much online consumer attention. Tmall data in mid-February showed a 150% increase in sales of eye makeup products compared to the previous month. Personal cleaning after taking off the mask is also more valued by consumers; basic skin care products are being consumed a lot.

In the post-epidemic era, the growth rate of the beauty makeup category is considerable. In 2020, Tmall 618 Beauty&Cosmetics sales section increased by 55% compared to the same period last year. It is predicted that the market size will continue to increase in the next two years, bringing good opportunities for brand development for both local and overseas companies. Although overseas beauty cosmetics and personal care have taken the lead in this year’s 618 shopping festival, emerging domestic brands have also performed very well. There has been an online explosion of niche brands which is increasingly noticeable, making the future of domestic beauty and cosmetics brands in China promising.

 

The outlook of China’s Beauty&Cosmetics industry

Experts predict that consumers will spend less on beauty products in the short term as the economic crisis hits, but the beauty & cosmetics industry has proven to be more resilient than other industries. After the pandemic, the beauty industry would do well to focus on marketing and sales through digital channels as global consumers shift from offline to online consumption. In terms of operation, because safety and health considerations fundamentally break the link between product testing and on-site consultation, brands can try to use artificial intelligence to ensure the safety of sales. As a new marketing channel, live broadcast is also completely changing the rules of the beauty industry. It not only broke the traditional market margin of beauty makeup retail, but also exceeded its geographical limits. Many predictions show that after the outbreak, live streaming will become as regular a channel as e-commerce.

Beauty brands need to realize as soon as possible that the impact of the COVID’19 crisis on the beauty industry is irreversible. Consumers are increasingly demanding in terms of experience, and the challenge for the beauty industry is how to make consumers enjoy a high-quality shopping experience while staying at home. At the same time, consumers’ definition of “beauty” is also advancing with time, caring more about comfort in life.

Dr2 Consultants Shanghai helps European companies entering Chinese markets as well as Chinese companies entering European market. Would you like to know more opportunities in overseas market? Contact us at: shanghai@dr2consultants.eu for more details!

 

China will stimulate foreign investment in these industries in 2020 and beyond

On July 31, 2020, the China National Development and Reform Commission and the Ministry of Commerce issued a draft version ofthe Catalogue of Industries to Encourage Foreign Investment (2020 Edition). The document specifies the sectors in which foreign direct investment (FDI) will receive preferential treatment and expands the scope of FDI on the basis of the 2019 edition. The draft is still open to public consultation, but we have already summarized the key takeaways in the article below. 

 

Behind the 2020 edition of the foreign investment catalogue update  

Within more than 40 years of Chinese economic reform, China has gradually become one of the main choices for cross-border investment from Europe and the U.S. through more policies of  opening up, furthering investment facilitation and strengthening investment protection. The further introduction of foreign capital has led to the growth of China’s economy and promoted the all-round development of China’s international trade and foreign investment.  

 

In recent years, China has aimed to further advance its policy of opening up to the outside world, by continuously updating its foreign investment policies and regulations. In 2019, under the complex conditions of slow global economic growth, sluggish cross-border investment and intensified competition in various countries, China’s actual use of foreign capital amounted to RMB 845.94 billion from January to November, an increase of 6% year-on-year, continuing to become the world’s second largest cross-border capital inflow.  

 

 

Of course in 2020, the world economic situation has become more complex due to the spread of COVID-19, which increases uncertain factors affecting foreign investment, such as travel restrictions, unilateralism and protectionist policies. Accordingly, from January to June in 2020, China’s actual use of foreign capital amounted to RMB 472.18 billion, down 1.3% year-on-year. Amid the global economic challenges posed by tensions with the United States and the epidemic, China now needs to further attract foreign investment to meet its goal of ensuring stability in foreign investment throughout the year.  

 

New and improved areas that encourage foreign investment 

 With the introduction of the 2020 edition of the foreign investment list, foreign investors can enjoy preferential policies in more industries. The draft law adds 56 new industries in the Midwest, and 69 new industries in the Northeast. Compared to last year, 40 stimulated industries were revised nationwide.  

 

Regions 

Central China: China’s gradient development has turned to the rise of central China 

The central region of China has always been the most prominent region of the national three rural areas”, and has been a key area to promote a new round of industrialization and urbanization. The region holds great potential for domestic demand growth, and plays an important strategic role in current and future national regional development patterns. [1] The high-quality talent resources in Central China so far have already been found by foreign enterprises. Among them, the successful foreign-funded enterprises in Central China include  major automobile industry projects  attracting talent in Hubei, and  chip industry projects profiting from Anhui’s investment attraction policies.  

 

Western China: from great development to great development 

China’s One belt, one road policy has been instrumental in opening up Western China. Although the region already started gradually opening up in 1992, since the “one belt and one road” initiative was put forward in 2013, the Western region has become the frontier of China’s opening up to the outside world. The development of the provinces and cities along the western border brings new historical opportunities for foreign companies. [2] 

 

First of all, foreign capital in the western region has certain tax preferences. Secondly, new enterprises in transportation, power, water conservancy, postal, radio and television in the western region will get further preferential treatment. Import tariffs and import VAT will be exempted for all equipment imported for use in these encouraged industries – with the exception of commodities listed in the non-tax free import catalogues for foreign investments (these catalogues were revised in the year 2000) [3]. 

 

Northeast China: redevelopment of an old industrial base 

Northeast China has always been an important industrial area in China, with good natural conditions. Its many agricultural resources have been unique advantages of the old northeast  industrial base. The rapid development of the high-tech industry has also created a good core condition for the adjustment of economic structures and industrial evolution in this area. 

 

Industries 

The service industry: Guiding the development of FDI 

The development of cross-border investment in the Chinese service industry has benefitted from the increasing trend of economic globalization and the rapid growth of global total international direct investment. The service industry directly helps foreign-funded enterprises to speed up their integration into the Chinese market and to reduce risks and operation information costs after entering this unfamiliar market environment. China will continue to stimulate foreign investment in its services market to increase the overall competitiveness of this sector. 

 

Manufacturing: From old industry to high-tech 

Although  China’s manufacturing industry is not as strong as the manufacturing industry in Europe or the U.S., its position of large volume has been basically established, and brings competitive advantages at least in terms of scale. Among the 22 international industrial categories, China ranks first in 7 major categories, and the output of more than 220 kinds of industrial products such as steel, cement and automobile ranks first in the world. China’s manufacturing output accounted for 19.8% of the world’s manufacturing output in 2010, surpassing the United States to become the world’s largest manufacturing country. Since 2010, China is also the world’s largest net exporter of manufacturing products.  

 

90% of China’s foreign investment economy is highly concentrated in the manufacturing industry, with the high-tech manufacturing industry attracting foreign investment at a high growth rate. In China’s manufacturing industry, state-owned enterprises have a relatively large share, and technological transformation and equipment upgrading progress is relatively backward. Accordingly,  attracting foreign investment in technology and equipment will perform an immeasurable function in the development of China’s high-tech manufacturing industry. 

Based on the 2019 edition, the 2020 edition of the catalogue of foreign investment has significantly increased its encourage for foreign investment in some areas. Among them, there are manufacturing-related industries including raw materials, parts and components, final product manufacturing and other industries. The further optimization and upgrade of the policy to encourage foreign investment will attract more foreign investment to participate in the development of China’s high-end manufacturing industry, not only for the domestic technology-intensive heavy industry and high-tech industries to bring more successful management models and manufacturing technologies, to help  develop China’s manufacturing market, but also to promote domestic market competition, enhance the relative competitiveness of manufacturing industry, and accelerate the development of high-quality manufacturing industry.  

 

The 2020 edition of the catalogue of foreign investment has significantly increased its encouragement for foreign investment in many manufacturing-related industries including the raw material industry, parts and components, and final product manufacturing. The upgrade of the policy aims to attract more foreign investment to stimulate the development of China’s high-end manufacturing. The Chinese government puts great emphasis on the domestic technology-intensive heavy industry and high-tech industries to bring more successful management models and manufacturing technologies, to help develop China’s manufacturing market.  Additionally the government wants to promote domestic market competition, to enhance the global competitiveness of its high-end manufacturing industry.  

 

Conclusion: Opening up to more FDI is a win-win process 

Since the recent economic reforms and opening up strategies China’s competitiveness and manufacturing quality ] have greatly improved, but state-owned and private enterprises still have  certain resource limitations and internal deficiencies. The introduction of foreign investment can inject capital and vitality into the country, bringing needed technical and management experience. Foreign investors are  optimistic about China’s sound economic outlook and optimized business environment, hoping to capitalize on China’s huge market.,  

 

If you would like to learn more about the opportunities the new foreign investment law can bring your business,  contact Dr2 Consultants Shanghai through: shanghai@dr2consultants.eu 

 

Reference data sources and literature: 

  1. “National Absorption of Foreign Direct Investment In November 2019” http://www.mofcom.gov.cn/article/tongjiziliao/v/201912/20191202923875.shtml 
  2. “China’s Absorption of Foreign Investment in the First Half of 2020” http://www.mofcom.gov.cn/article/i/jyjl/m/202007/20200702984165.shtml
  3.  the financial sector. Further expand the scope of encouragement to promote foreign investment. Financial industry, the later issue of 2019 07. 
  4.  Yang Zhihuang. Foreign capital’s participation in the rise of central China in the new era should take new actions [J]. Journal of Shaanxi University of administration One belt, one road initiative,  
  5.  Duan Xiufang, Kou Ming long, has an impact on China’s western provinces’ regional economic growth. 
  6. https://zhidao.baidu.com/question/289002601.html 

 

Ecommerce platform has become a stepping stone for overseas imports and exports

An interview with Wijnand Jongen, president of the E-Commerce Europe and Chairman of the Dutch E-Commerce Association. He has been working in ecommerce sector for more than 25 years. Wijnand is also the author of the book The End of Online Shopping, which was translated and published into 10 languages.

Onlification

The overwhelming adoption and use of the Internet have resulted in people’s lives unfolding online more than ever. Wijnand Jongen uses the term “onlife” to refer to this phenomenon.

The key of the new retail model is the combination of online and offline. We call the process of the combination as “onlification”. The whole society and the whole world are turning “onlife” right now.

For customers, that want their demands to be met at anytime and anywhere. Customize service is essential to the future online retail model.

This is both an opportunity and a challenge for enterprises. As the coverage of online retail continues to increase, from every business to every step in the specific process, this economy is intelligent, shared, platform, and circular. On the one hand, companies need to make good use of the characteristics of the online economy, but also need to consider how to improve meeting consumer needs.

E-commerce platforms have become a stepping stone for overseas import and export

At present, most European retailers use e-commerce. E-commerce has become the main means of overseas import and export. However, to stand out on the global stage, using one of the biggest ecommerce platforms to offer and sell your product is the best choice. Although e-commerce platforms can help companies open up overseas markets, the economies of scale provided by the platforms cannot be achieved by small retailers themselves. The logistics infrastructure of different countries is different, how to integrate and deal with this will be important for the success.

What’s important

Current status and advantages: According to the data from World Economic Forum, nearly 42% of ecommerce transactions worldwide occurred in China, and this number was 1% ten years ago. The high penetration rate of mobile devices has provided more transaction opportunities for e-commerce; online payment has become the norm in daily life.

Issues to take into account:

  1. Understanding cultural differences. When entering a new market, you must first understand its market forces and policy frameworks
  2. Focus on customers: understand your target audience, their behavior and preferences, not only to meet their needs, but also to create them.
  3. Pay attention to the accuracy of logistics information and tax implications

Challenges under the new coronavirus

Mr. Wijnand Jongen believes that the new coronavirus crisis has accelerated the transformation of the retail industry, whether it is online or offline. Businesses need to be tougher and more flexible. Small businesses need to be agile, making better use of digital channels; websites, online stores, and social media platforms. Instagram influencers post shopping links for their favorite products to increase brand awareness and promote sales. Especially during the epidemic, these celebrities engaging in live broadcasting selling goods seemed to have gained a lot of popularity by the public. He mentioned, that from the perspective of purchasing power, the younger generations are the future for the retail industry. During this crisis, many retailers have realized that they have to close their brick-and-mortar stores. It is a reminder that our normal lives will change from now on and companies will need to develop and prepare for this are of change.

 

Would you like to read The End of Online Shopping? How to handle the COVID-19 outbreak oversea? For more details, please do not hesitate to contact us at: shanghai@dr2consultants.eu!