2. 3CHINA2 PLUS 3
Since first being published in May 1990,
MESSENGER magazine has under-
gone a number of changes, including a
drastic overhaul last year. As part of the
magazine’s progress and modern look, it
is only natural that we cast off the tradi-
tional name andembraceournewimage.
Asaresult,thisisthefirstissueofCHINA
PLUS,whichcontinuestoprovideindepth
informationinthesameveinasprevious
issuesofMESSENGER.
Itisonlyfittingthereforethatthethemeof
thisissueisForwardThinkingChina,as
weasamagazinelookaheadtothefuture
andattempttostaycurrentinarapidly
changingChinesesociety.CHINAPLUS
looksatentrepreneurialspiritinChina,
assessingthemindsetbehindsomeofthe
nation’sforwardthinkers.Thisissuealso
examinesvocationaleducationandthe
country’sprogressivepoliciesdesignedto
reducecarbonemissions.Asidefromthese
extensivesections,CHINAPLUSexplores
thechancesofachangeintheglobalcredit
system,includinganinterviewwithformer
AustralianPrimeMinisterKevinRudd,
alongside the future internationalization
oftheRenminbi.
Editor’s Message
Editor-in-chief
Stuart Wiggin
2
CONTENTS
The start-up buzz
in beijing
HIRE ME, I’m an entrepreneur
tsinghua x-lab
chinese education and entrepreneurship
insider perspective
2025
coal no return
the need for a new
credit rating system
interview with former australian
prime minister kevin rudd
long time coming:
rmb overtakes yen on international
currencies list
opinion: china eu relationship
should go further and deeper
In search of a vocation
China’s efforts on
carbon emissions
reduction
Averting
future crises
p3
p16
p14
p8
back to school
Leading the way
Interview with fergus green (LSE)
co-author of China’s new normal,
structural change, better growth and
peak emissions
interview with prof. Dao zhaojiong
peking university
WHAT CHINA NEEDS TO DO TO AVOID
GOING BACK TO COAL
p24
p26
p23
p25
p19

3. 5PLUSCHINA4
F
rom co-founder dating to all-night hack-
athons, Beijing’s start-up scene is buzz-
ing with action. Foreign entrepreneurs
and Chinese talent with experience in
top global companies are all flocking to the city
to hash out business ideas over hotpot. As more
Venture Capitalists start looking to the East for
the next big idea, Beijing is poised to take off as
the next Silicon Valley
By Poornima Weerasekara
When I walked into my first “co-founder dating
event” last month, I didn’t know what to expect.
The setting was a Mao-era factory that has been
turned into a micro-brewery in Beijing’s bohemi-
an quarter, Sanlitun. The first step, take a series of
personality tests on Projio, a new home-grown app
that helps you understand what you want and what
you’re looking for in a perfect business partner.
Next, you dive into the endless chatter of people
jostling to find business partners, potential em-
ployees or funding for their ideas, which ranged
from a high-tech sex toy to a Chilean company
that is using bit-coins to transfer funds between
China and Latin America.
The event organized by the Chaoyang local govern-
ment (COTC) and the Beijing Tech Hive, a support
group for entrepreneurs, managed to attract talent
from all across the world; from the Bahamas to the
Netherlands, from Colombia to Libya.
And of course, there was also the ambitious Chi-
nese, returning after years of studying or working
abroad; a group often referred to as the “haiguis”
(or those returning after crossing the ocean). They
have global exposure, local insights and most
importantly a strong local network, meaning that
many of them are ready to hit the ground running
when they enter the start-up race in China.
Zuo Yue is one such entrepreneur, who decided
to quit a job with Microsoft in Seattle after 8
years, in order to follow his dream of creating
the next generation cloud computing platform.
“When I was growing up I read a lot about Bill
Gates and dreamt of joining Microsoft and then
starting my own company. My first dream came
true in 2006, when I joined Microsoft and I was
working on cloud computing for Windows. But
the thing is I could see my future and my career,
how it would be in the next 10 years. That is
not what I wanted. I felt I could try something
more exciting, because I’m still young,” Zuo Yue
explained during the event.
For Zuo Yue, the toughest thing was to uproot his two children
from their friends in Seattle and help his family cope with the
reverse culture shock when they returned to Beijing after 12
years of living in the United States. But his wife, who worked
for Boeing, was willing to quit her job and run with his idea.
Zuo Yue’s Beijing based start-up alauda.io, uses disruptive
“container or docker technology” to help applications run
on a wide range of platforms including Android to Linux
to Apple’s iOS without having to change their code. His
product, which was launched in June, has already caught the
attention of the global app development community.
Even Microsoft is onboard as an enterprise user and the
company that had already secured 2 million US dollars
in seed funding last year is now getting ready for another
round of fundraising. This time, Zuo Yue wants to scale up
and is looking for around 5 to 10 million US Dollars.
The founder of alauda.io says there is a booming Venture
capitalist (VC) scene in Beijing, with savvy investors con-
stantly on the prowl for the next big idea. One investor, who
spoke on grounds of anonymity, says she looks for four key
elements in companies before pouring money into them.
The strength of the intellectual property owned by the com-
pany (i.e. how many patents said company owns, and how
difficult is it to replicate the core-technology) tops her list.
Next comes the potential to scale up, a good exit strategy,
in terms of either listing in the stock exchange or being
bought over by another big fish and the chemistry between
the co-founders. The experienced VC says she has seen good
start-up ripped apart by feuding co-founders.
(Ambitious Chinese
returnees) have global
exposure, local insights, and
most importantly a strong
local network, meaning that
many of them are ready to
hit the ground running when
they enter the start-up
race in China.
COVER STORY

4. 6 7CHINA PLUS
Zhangchi is another fresh foreign returnee. After
studying industrial engineering at Texas A&M he
made a beeline back home and plunged into the
start-up scene in Beijing. His new app Bendi (the
local) wants to give Instagram a run for its money.
Bendi is a location based photo sharing app that
enables you to connect with other locals with simi-
lar passions around you.
The app launched last November is working with
Greenpeace China, to see how non-profits can do
more good by tapping into the world of social me-
dia. “Greenpeace needs volunteers for their rubbish
recycling programs. With our app, we can take the
photos of rubbish collection programs in different
areas and plot it all on a map, real-time and you
can join the closest one to you,” Zhangchi said.
Some start-ups like Bendi, are fueled by the relative
isolation of China’s netizens, who are unable to
access similar global services. The Chinese govern-
ment is now playing a more active role in fostering
start-ups, to add fuel to the country’s growth en-
gine that has been slowing down in recent months.
The government published a new white paper
outlining a host of incentives from tax-breaks to
networking support. They have also slashed the red
tape involved with getting licenses and permits.
There is even a “New Third Board” on the Bei-
jing stock exchange that allowed Start-ups that
are not making any money to transfer shares and
raise capital. Since it was launched in 2012, it has
enlisted more than 2,800 companies with a total
market valuation of just over 1.1 trillion yuan. And
although it may sound like a recipe for another
dotcom bubble, many start-up founders say it is
a chance for the public and investment funds to
invest in cutting-edge ideas, and get a piece of the
action early, without waiting for the companies to
turn a profit and become hot stocks.
But for Zhangchi the biggest positive outcome of the govern-
ment’s new-found love for smart risk takers like him is that
it has helped to “change the way how the world looks at you.”
Zhangchi goes on to explain, “Five years ago, if you graduated
from a top university and don’t go to work in a big state-run
corporation, your parents will think that is not right. But now
you can proudly tell them that you’re working on a project that
excites you, that you’re taking risks to build a start-up.”
Similar start-up hot spots are emerging in Shanghai and
Shenzhen. In Shanghai, the new Free-trade zone with lax rules
is creating a vibrant eco-system especially for financial sector
startups. Shenzhen has the location advantage of being a stone’s
throw away from the buzzing port of Hong Kong and the non-
stop industrial complexes of Guangdong, China’s manufactur-
ing heartland.
But locating a business in smoggy, grimy Beijing has its own
advantages. Entrepreneurs who want to do things at a national
level with a broader impact, in tough industries like education,
health or energy that are harder to break into than mobile apps,
and require playing hardball with the government, tend to
locate close to the seat of power in the nation’s capital.
But what are differences between the start-up cultures in Bei-
jing’s Zhongguancun and the Silicon Valley in the Bay Area? As
Zao Yue sees it, “In the US, small companies only need to focus
on one single idea and execute that very well and go very deep
into something in terms of technology.” In China however, Zuo
Yue claims, “It is difficult to find a value chain that will supply
some of the services you need, so you need to provide an end-
to-end solution. So collaboration is not that good here.”
On the other hand, the fact that more people are packed into
urban enclaves has created new opportunities for Chinese en-
trepreneurs that elude their US or European counterparts. “The
US might be ahead in terms of technology but China is ahead
in terms of launching innovative business models, because the
market conditions are so different,” Zao Yue proclaims.
He says that businesses in the O2O space (online-to-offline
service providers) can thrive when they operate in densely
populated areas. “For example, my company orders lunch
using a mobile app that connects us with housewives who cook
during their spare time. Such businesses will not take off when
the population density in a place is too low,” he added. These
unique opportunities offered by the Chinese market have at-
tracted local tycoons like Alibaba’s Jack Ma and JingDong’s Liu
Qiangdong who are now betting on the success of smart young
entrepreneurs.
Ma recently launched a special university for entrepreneurs in
Hangzhou, close to Alibaba’s headquarters. The new JingDong
milk tea bar in Zhongguancun, China’s Silicon Valley equiva-
lent, is serving as a conduit for young start-ups to pitch their
ideas to JD executives.
But another crucial cultural question remains -
How often are you allowed to fail here in China,
without losing face?
Jason Misium, who launched his startup Projio, the
app that was used to “make the perfect co-founder
match” at the startup dating event says it is almost
inevitable that some start-ups will run out of steam
eventually but it could prove a bit more trickier
when failing in Beijing.
“My feeling is that there are a lot of start-ups here
(in Beijing) funded by private investors rather
than professional funds, and in those cases some
of those investors can make “face” a bigger issue,”
Misium says. “They want to invest in something
successful to look like a savvy investor, but they
can’t invest in a dozen or more projects at one time
to spread their risk like a fund can. So if you fail for
them, it’s far more personal, whether they intended
it or not,” he explains.
Despite the risk of losing face or even losing your
lifelong savings, many youngsters are now will-
ing to take the plunge. I just stepped into a newly
opened juice bar near my apartment, only to find
that the young man blending fruits behind the
counter had just quit his job as an accountant at a
big firm, in order to follow his dream of building
his very own “juice empire.”
The budding entrepreneur has already started two
outlets in the same number of months and hopes
that Beijing will soon be dotted with other fran-
chises using his brand. Despite the slowing down
of China’s economy, it seems that the start-up bug
is infecting everyone.
C
100%
What Venture Capitalists
Assess before Investing
their Funds
The strength of Intellectual
Property - the number of patents a
company owns.
The potential of a company
to scale up
A good exit strategy in terms of
listing in the stock exchange or
being bought by a big fish.
The chemistry between
co-founders
The US might be ahead in
terms of technology but
China is ahead in terms
of launching innovative
business models, because
the market conditions
are so different.
(Investors) want to invest in
something successful to look
like a savvy investor, but they
can’t invest in a dozen or more
projects at one time to spread
their risk like a fund can. So
if you fail for them, it’s far
more personal, whether they
intended it or not.
FORWARD THINKERS

5. 8 9CHINA PLUS
Nowadays I think it is
actually not that difficult (to
obtain funding) as long as you
are really able to
develop your project plan.
8 9
E
ntrepreneursareoftenregardedassome
ofthemostforwardthinkingindividuals
withinsociety,possessingtheknow-how,
businessskillsandaccumentobesuccessful
inthecut-throatworldofbusiness.Chinahasproduced
anumberofnotableindividualswhohavespearhead-
edtheirrespectiveindustriesandasaresultbecome
householdnamesacrossthenation.Themostnotable
oftheseforwardthinkingentrepreneursistheincom-
parableJackMa,themanbehindtheAlibabaempire.
ButindividualssuchasMaareoftentheexceptionrath-
erthantherule,andthatisespeciallythecaseinChina;a
countrycryingoutformorepeopletobecomeentre-
preneurssoastocreatevibrantbusinesseswhichcould
bolsteraneconomyintransitionandsolvetheproblem
ofacompetitivejobmarketwithtoofewpositions.
Despite preferential policies designed to make it easi-
er for graduates to start their own business, there still
remains several problems related to the policy side
and the educational side when it comes to producing
a cohort of entrepreneurs who are ready to start their
own business immediately after university.
Chinahasbeenencouragingmassentrepreneurship
andinnovationsincethestartofthisyearandtheState
In order to learn more about China’s attempt to
create a new breed of leaders and entrepreneurs,
China Plus spoke to three individuals well placed
within the subject of entrepreneurship in China to
explore different aspects of the equation.
Ms. Mao Donghui, is the Executive Director of
Tsinghua’s X-Lab.
Since its creation, 8000 students and alumni at China’s
Tsinghua University have so far benefitted and all
students are eligible to benefit from the operation of
the lab. It has received 600 projects over the past two
years, all at different stages of development. Almost
250 of these projects went on to register new compa-
nies or are in the process of registering.
What is X-Lab and how does it work?
Tsinghua’s lab was founded in April 2013, and it’s
an educational platform to provide resources and
services to the innovative and entrepreneurial stu-
dents of Tsinghua University. We mainly focus on
current students but we also provide services to our
alumni and faculty members. We mainly provide
new courses, training sessions, workshops, and
also some competitions like the present challenge
innovation compeitition. We also provide project
nurturing services for those projects where stu-
dents would like to turn their ideas and technology
into new products and new services.
What are challenges for people seeking help from
the lab with their projects?
The main challenges for them come from the mar-
ket. For students to start a new business, they often
have some pretty cool technology or idea, but they
don’t really pay good attention to the market; they
don’t really go off campus and carry out investiga-
tion or survey customers. Sometimes they ignore
the real market needs and simply put themselves in
a very ideal situation and want to create some cool
products, but often those products may not be well
accepted by the market or customers.
So, we often want to remind them to put down
your technology, put down your ideas, and just go
out and try to identify the target market and target
customers and figure out what the real demands or
needs are from those people and identify what oth-
er functions do they require and then come back
and develop your new product and new services. After they do
that, they often find out that they need to make a lot of changes
to their product or service; so they need to redo their prototype
and redo their product design.
How do teachers help as part of X-Lab?
We mainly try to help them in three ways: Knowledge, skills
and mindset. Because this is an educational platform, we’re not
simply an incubator. We want our students to learn by doing.
Unlike outside people, when they start their entrepreneurial
projects, they probably learn from other people’s experiences
and intuition. But in our university we want students to learn
from experiences but not only from real experiences, but also
learn methodology and to also have a good business mindset,
and also grasp some useful skills.
We help them to understand the lean startup mindset and
cross-functional team building, how to use business plans and
methodology to develop their project’s plan. After doing all
that, students often find it’s much better for them to have some
useful skills to develop their project strategy. They have a much
clearer understanding of how to position their products and
services and how to analyze the market.
We have many practitioners come to help guide the students.
Professors only offer some courses and give them knowledge or
framework. But professors cannot give students very applicable
skills or tools to students. So, we have developed a large pool of
mentors; we call them angels in residence and entrepreneurs
in residence. Many of them are Tsinghua alumni, they have all
worked in investment firms or companies and some of them are
entrepreneurs. We invite those people to come back to our X Lab
and provide one-to-one counseling or some training sessions or
workshops. We do this so students can learn from practitioners.
The market is a challenge, but what about financing channels?
Nowadays I think it is actually not that difficult (to obtain
funding) as long as you are really able to develop your project
plan. So, often we help many teams to seriously develop their
project plan and make it logical and cover all the important as-
pects that investors would want to understand. If we see some
projects and they still have something missing, for example
they’re missing market analysis or they’re missing information
on IP protection or their intellectual property rights situation,
we will tell them they need to go back and do more work and
come back to us again.
CREATING GRADUATE
ENTREPRENEURS
THINKERSFORWARD
Councilrecentlyissuedanopinionondeepeningthereformofinno-
vationandentrepreneurshipeducationinschoolsofhighereducation.
Universitiesareencouragedtodesignentrepreneurialcoursesforstudents
whoareinterestedinstartingtheirownbusinessandpatentsorstart-
upsthatdemonstrateastudent’ssenseofinnovationcanbeconverted
intocredits.
AreportreleasedbyTsinghuaUniversityrevealedthatyoungpeople
arethemostactivegroupinentrepreneurialactivities.However,
studentsareconcernedwiththechallengestheyfacesuchasfinancing
andtheredtapethattheyneedtogothrough.Questionsremainover
whetherthelatestroundofpreferentialpolicieswillbeabletohelp
thosewhohavealreadyenteredtheuniversityeducationsystemto
starttheirownbusiness,andmanyremainuncertainoverwhatskills
canbeacquiredfromentrepreneurialtraining.
In 2013, Tsinghua University launched an initiative called X-Lab,
with the goal of exploring new models for educating students
while seeking to inspire them to combine the merits of different
subjects in order to foster their own sense of innovation. This an
example of a departure from traditional education methods in
order to foster entrepreneurial spirit amongst China’s most elite
students, but of course this initiative is only open to a small num-
ber of China’s total student population. Preferential policies may
certainly help, but there is the question of addressing deep-rooted
societal values, which spill over into education and within the
workplace, which only serve to hinder an entrepreneurial mindset.

6. 10 11CHINA PLUS
Students will then do more work on their projects,
do more market analysis, provide more information
about their team, and work on their IP and other
issues, and after a while you will see that their project
plan is much more logical and complete. At that time,
we will help them to pitch to investment firms. We al-
ready have more than one hundred investment firms
that have connected with the investment lab, so we
are able to help them match with the right firms. After
several rounds of pitching and discussion, most of the
projects are able to find funding.
Financial support from government
There is some support available now (from the
government) but the process for government sup-
port leads to small (amounts) of money but a very
complicated process.
Red tape
That’s something that has always been part of the
situation. We see more and more willingness from
the government to provide services or provide
financial support to China’s startups because a few
years ago, you wouldn’t see that being available at
all. They only paid attention to overseas returnee
entrepreneurs. They didn’t pay attention to young
college startup entrepreneurs. But now they are
more willing to support (this group) but it is still a
matter of simplifying their processes or developing
the right policies to really offer some useful sup-
port. Now we see that there is a mismatch situation;
the government is willing to provide some support
but the policies simply don’t match with many
student’s situation as they have difficulty in actually
applying and taking advantage of those policies.
Intellectual Property Rights
In the very early days, when X Lab was first estab-
lished, we paid a lot of attention to IP protection.
With support from big companies like Microsoft,
we have already established an IP center within the
X Lab umbrella. The IP center mainly provides IP
counseling and also IP connections between teams
and IP agents.
So, when students come to us with their new
projects, we often give them an IP evaluation. Our
counselor can tell them what work they need to do
and help them to understand the importance of IP
protection and innovation strategy. The students
will be able to know the importance of IP for small
companies to become large companies, and be
competitive in the market and have a good com-
petitive advantage.
Professor Zhao Yong works with the Department of Educa-
tional Methodology, Policy and Leadership, at the College of
Education, University of Oregon.
Professor Zhao answers questions on entrepreneurship looking
specifically at the impact of the Chinese education system, and
how it helps or hinders students from fulfilling their entrepre-
neurial potential.
How do preferential policies help university students be-
come entrepreneurs?
I think the policies are great; they’re a good start but it may be
too late. Entrepreneurs require a different kind of preparation. I
think education, for a long time, has been preparing people to be
employees, to look for jobs, to graduate. So, I think what’s needed
is a different kind of education. I think the policies are maybe a
short-term fix and might help those people who already have the
entrepreneurialspirit,theentrepreneurialmindset.Butforthemajori-
ty of students, I’m not sure that (the policies) can be very effective.
Will training and workshops in higher education help?
It will help a little bit but it’s not going to be fundamentally
changed. As I said, it’s not about training. You cannot train an
entrepreneur overnight. Just because you want entrepreneurs,
you can’t just produce one; it doesn’t happen like that. It’s a
much bigger culture shift. It’s about changing the mindset.
People cannot think you take a course in entrepreneurship and
then become an entrepreneur; it doesn’t happen like that.
A survey conducted by Chinese job website zhaopin.com
says that there are now more young people with the inten-
tion to start their own business from about 3.2 percent last
year to 6.3 percent now. What is behind this trend?
I think that change is very small, it’s not very big. A 3 percent
change in increase is very little. Even 6 percent is very small.
Policies can change the effect short-term, in a small amount,
but not in a big amount.
DOES CHINESE
EDUCATION HELP
OR HINDER?
You cannot train an
entrepreneur overnight.
Just because you want
entrepreneurs, you can’t just
produce one...
PLUS
What should be done? How to develop an entre-
preneurial mindset?
That requires change in the whole education
(system). It’s the same thing not only in China but
all over the world. Traditional education does not
prepare people to do this. Traditional education
prepares people to find jobs. So, this has to change
from kids onwards, from early on, it’s a very differ-
ent sort of education; it’s called entrepreneurship
oriented education versus employee oriented edu-
cation. But also in China it’s a different situation.
You also have situation driven entrepreneurs. They
may not be able to come up with great enterprises
but when there are no jobs, people will have to
become entrepreneurs. If there are no jobs then
entrepreneurship becomes a form of employment
and that means you will see some increase in en-
trepreneurship. But that does not necessarily mean
they’ll bring out innovative enterprises; they’re just
doing this to make a living.
What is needed in entrepreneurial training?
I don’t think training works. For example, an entre-
preneur has to be very problem oriented; they have
a sharp eye to work opportunities. Entrepreneurs
have to be very confident; they have to learn to
take risks; they have to learn how to manage the social relation-
ships and social intelligence; they have to be very creative and
they have to be willing to challenge the status quo. All of these
are not part of our traditional education. In fact, traditional
education discourages people from being creative, from being
curious, and from taking risks. People are born creative but
our schools make them less creative because in order to pass
the tests, in order to take the exams, in order to become a good
student, you actually lose creativity and you lose the entrepre-
neurial mindset.
What are the obstacles for university students looking to
start their own business?
The first obstacle is thinking; are they able to take the risk. And
the second thing is resilience. Are they able to survive failures?
I think our students are not very good at learning from lessons,
and also socially, our children spend all their time preparing
for the tests, following the teachers, reading textbooks, doing
their homework. They have no time to socialize and make
friends and learn how to deal with other people. And that
affects their ability to spot opportunities; do they look at
challenges as opportunities.
So these are all obstacles, because we have been educating our
students to follow a pathway of success but entrepreneurship is
not a smooth pathway or a straightforward pathway to succeed
and there are a lot of uncertainties. I think our students are not
very well (prepared) for that.
11
THINKERSFORWARD

7. 12 13CHINA PLUS
FORWARD THINKERS
What can China learn from international prac-
tices when it comes to producing entrepreneurs?
There are a lot of things we can perhaps learn from
other systems. But all the traditional education
paradigms, including the US, Australia and others,
have been focused on helping people find jobs as
employees, to meet other people’s expectations.
However, from what the research shows, the sys-
tems with less focus on one pathway towards suc-
cess, like going through universities to find a job,
show a diversity of talent which is very valuable.
We have to diversify and help people understand
that there are different ways toward success; college
is not the only way towards success. I think China
and others have been doing this, but we’ve got to
encourage individuality and always help people to
learn to take risks. Chinese culture and Chinese
education does not encourage risk taking very well
and that needs to be changed.
When looking at entrepreneurship education now,
it has risen as a very important part of education
reform in almost every country now because we’ve
realized that not only China needs entrepreneurs,
everybody needs entrepreneurs because many jobs
are going to be taken on by machines or out-
sourced to other low cost countries.
Robert Parkinson, the founder and CEO of RMG
Selection, a leading Asia focused executive search
business; spoke to China Plus from an insider’s
perspective regarding what it takes to be an en-
trepreneur in China.
I have heard it be said that the more academic and
intellectual people are too smart to be entrepre-
neurs. You need an element of the blind leading the
blind to be a good entrepreneur and I think one
of the qualities is absolute conviction and drive in
what you’re doing.
As an entrepreneur myself, I have the feeling that
from a very early age I had a desire to make money
and be an entrepreneur and I can remember selling
stuff to my parents at the age of 6 and then running
a kind of direct marketing business at the age of 16,
and now I’m running three businesses in various
different areas. I think a desire not to have a boss is
a key point. I spent ten years working for a company and I felt
that that was very much my education in business because it
was a brilliant company but I was a nightmare to manage. My
bosses, I’m sure, were delighted when I finally disappeared to
do my own thing. Entrepreneurs are so self-confident and self-
willed, they don’t want to be managed; they’ve got their own
ideas about what they want to do. I think you’ve got to have
that self-belief, or desire, or willingness not to give up and to
keep gong whatever the odds.
The leadership requirement is an interesting scenario because
it’s something that a lot of business owners lack. I would say
that I’m probably one of the worst leaders that I know. Of
course I aspire to be better and I aspire to be a good manager
but there are many people I know who are far better managers
than I am and indeed people in my company who are better
leaders and better managers. But you have got to grasp that
willingness to be a leader.
How to lead someone that challenges you or thinks they
know better?
Actually, you want that in an organization. I think part of being
a mature leader is that you can’t run a company if you’ve got a
company full of people who are less well qualified than you or
less good than you. You want brighter people. You’re doing well
as a manager or a leader if you hire good people so if someone
has a piece of criticism for me, the first thing I do is reframe
that as not being criticism but feedback. It’s not good, it’s not
bad; it’s just feedback.
The second thing is, you’re showing great respect for the people
that work for you if you are open to listening to their ideas. One
of the things we stress at RMG is the concept of teamwork as a
point of differentiation. And I know that we are far stronger by
combining and sharing ideas and showing our willingness to
do so because of that respect.
In many ways, entrepreneurship is a means to an end. It’s a way
of providing that standard of living that you aspire to or you
require, or you’re motivated to gain. Once you get to a certain
level I think you see past that. Look at Bill Gates for example,
or Bill Clinton, they get to a certain level where they have so
much money that they don’t want to make anymore. They get
to what’s called a higher plain and they start to be interested in
charitable activities.
There is an index called the ease of doing business
index, which I think China has risen within that
list. To set up a wholly foreign owned entity in
China, it takes about 6 months whereas to register
a company in the United Kingdom it takes about
60 minutes. There’s a certain difference there.
In fairness to the Chinese government, I think
they are taking steps to make things easier and to
make things like dealing with the tax bureau more
transparent; generally cutting red tape and admin-
istration. If you compare being an entrepreneur in
China to being an entrepreneur in the West, maybe
not places in Europe but certainly in America or
the UK, I would say you need a lot of patience in
China. You need a person who is prepared to smile
and play the long game wins. The person that gets
easily irritated and loses their temper and wants
everything done this second does lose out.
I think that native Chinese obviously from a
cultural perspective understand the relationships
and how important they are. For the westerners,
the question is how do you eat an elephant, and the
answer is slice by slice. It won’t happen overnight
but if you’re good and you’re in it for the long term
and you don’t see China as this wonderful cash ma-
chine that will produce lots of money really easily,
(then you can succeed).
There’s a very famous quote from a guy who ran a
major British company in China, he said the first
thing you’ve got to do with somebody who has
got an MBA is unlearn it because what he wanted
was people with practical real life experience. But I
think MBAs do have a place and they tend to have
a place and tend to be appropriate for major mul-
tinational companies which require those kinds of
specialist skills.
There are some people in the world who are clearly
brilliant. There are, I’m sure, many Mark Zucker-
bergs in China. But is everyone that graduates with
a business major an entrepreneur? I don’t think so.
If I look at my own example, I worked for a very
talented guy for ten years and I saw that really as an
educational period in my own life before I set my
own thing up. Working and learning how to do it
properly stood me in great stead. Some people
will be bright enough to start their own
thing straight off but the majority
should get some experience first.
WHAT IT TAKES.
AN INSIDER’S
PERSPECTIVE
You’re showing great
respect for the people
that work for you if you
are open to listening to
their ideas
13
Failed the country’s national college entrance examination
twice but would later gain a bachelors degree in English;
enabling him to become a teacher.
April 1995, started an Internet company with his wife after
raising 20,000 US dollars worth of investment. The compa-
ny made 800,000 US dollars within 3 years.
1999, founded e-commerce company Alibaba with 17 of
his friends.
November 2012, Alibaba’s online transaction volume
exceeded 1 trillion Yuan.
September 2014, Alibaba raised over 20 billion US dollars
as part of an IPO on the New York Stock Exchange.
China’s Most Successful
Entrepreneur: Jack Ma

8. 14 15CHINA PLUS
One of the biggest
challenges is the
issue of losing face
and admitting one’s
shortcomings.
FOOD EDUCATION
T
he month of June once again saw mil-
lions of university students graduate
and officially enter China’s job market.
This year, 7.5 million students will
leave their campuses and while most of them
are intent on finding a position in a competitive
market, some are choosing to go back to voca-
tional school to develop practical skills in order
to sharpen their competitive edge.
Despite being regarded as a step back by some,
many are starting to appreciate the forward think-
ing nature of pursuing practical schooling in order
to maximize one’s chances in the job market.
Guizhou, a populous province in the southwest
of China, continues to pump out thousands
of graduates each year. According to statistics
from the Ministry of Human Resources and
Social Security, the number of college grad-
uates in Guizhou province was more than
120,000 last year.
Amongst this group, the employment rate for
college graduates in the province is about 91 per-
cent. However, the employment rate of graduates
from vocational schools is above 95 percent.
According to Fu Xiaogang, Dean of Guizhou Aviation Tech-
nology Vocational School, for the past ten years, many col-
lege graduates have studied at the school in search of better
jobs; and this group of students now account for 7 percent of
all students at the school.
Students from vocational schools usually become skilled
blue-collar workers, a career path generally not favored by
China’s university graduates. However, be it out of interest or
necessity, this attitude is gradually changing. Graduates are be-
coming far more pragmatic when searching for jobs as a result
of an increasingly competitive job market.
Graduates acquire practical skills on second-
ary vocational courses and use them during
a course of pragmatic training, which is then
combined with the theoretical knowledge they
have picked up at university. This allows them
to apply newly acquires skills in areas they are
interested in. Liang Yihan is a graduate with a
degree in business administration. After grad-
uating, Liang discovered that his degree simply
wasn’t enough to guarantee him a job.
“I am not good at expressing myself, so I always
have some awkward pauses when I am talking
with the interviewers. I never know what to say
at that moment, so I am often rejected by the
interviewers,” says Liang, talking about his em-
ployment setbacks.
“I was working in an insurance company for
about three or four months, but I didn’t make a
single sale.” It was at this point that Liang real-
ized that his shy personality would hinder him
in finding a job related to his university degree.
As a result, Liang took a friend’s advice and
decided to go to a secondary vocational school;
something he had never previously considered.
As Liang pointed out, despite not being particu-
larly outgoing or confident in social situations,
his strong operational skills would be a perfect
fit for vocational training. 26-year-old Liang is
now enrolled at a vocational school and is ma-
joring in engineering.
The mode of teaching at Chinese universities
focuses mostly on academic study. But with
the popularization of higher education and the
chance of pursuing higher incomes, China no
longer lacks graduates in the field of higher
education. Even though many college students
receive high scores from their universities, they
still lack many specific skills required in the
workplace.
Similar to Liang Yihan, Wang Chencheng, a
24-year-old female was a senior student in a
university in Guiyang, majoring in the ex-
tremely competitive field of broadcasting and
hosting. But following her graduation, she is
now studying in a vocational school, seeking
qualifications in editing and announcing.
As Wang matter-of-factly explains, “The purpose
of studying in the university or the vocational
school is just to find a good job. I’ll study two
more years and get more certificates. That will
help me find a job.” Like Wang Chencheng, more
By
Guo Menghan
and more graduates are learning practical skills in just a
couple of years at vocational schools instead of taking a job
immediately after leaving university.
Fu Xiaogang from the Guizhou Aviation Technology Vocation-
al School explains that, “Because university students are better
educated, when they start to learn techniques, they are more
creative than the vocational school’s (regular) student. The
enterprises prefer university students with grass-roots experi-
ences. Some students are even transferred from the professional
skilled positions to the management positions.”
But many people still believe that going back to vocational
school comes at a price. One of the biggest challenges is the
issue of losing face and admitting one’s shortcomings. When a
graduate leaves university and decides to go to secondary voca-
tional school, many of that person’s peers wrongly assume that
this person is or has been wasting their time and is a lost cause.
Secondly, there is the issue of money, as tuition for at least two
years of vocational school comes at a cost; one which is often
borne by the student’s parents. Tao Jun graduated in the field
of human resource, but two years ago, he decided to leave
his job as a trainer in a pharmaceuticals company due to
limited career development prospects and low salary.
As a result he enrolled at a vocational school and is now
studying electrical engineering. “I have experience in ad-
ministrative work, and I also have experience of working at
the grass-roots level. These experiences are good for me in
the future,” Tao proclaims.
Chen Hailiang, principal of Guizhou Water Power School,
explains the reality of today’s job market for prospective
graduates and comments on the need for attitudes to change
in relation to vocational training. “The job market is driven
by the demands of employers.
University students are now beginning to face this reality.
And the society is paying more respect to skilled labour.” In
the context of modern China, going back to secondary vo-
cational school to learn practical skills is a viable option for
some graduates and should certainly not be scoffed at.
Even though many
college students receive
high scores from their
universities, they still lack
many specific skills required
in the workplace.

9. 16 17CHINA PLUS
C
hina is gradually gaining interna-
tional recognition for its achieve-
ments in reducing carbon emissions
and is certainly fulfilling its role as a
leader in this field. The London School of Eco-
nomics recently published a report predicting
that China’s greenhouse gas emissions will
likely peak in 2025, five years earlier than the
target stated previously. The head of the Inter-
national Energy Agency Maria van der Hoeven
has also said that China deserves more credit
for its renewable energy efforts, as it spends
as much as the US and Europe put together on
developing sources of clean power.
China is moving forward on its path of carbon
emissions reduction amid its economic restructur-
ing. But in order to learn how China’s energy sys-
tem will be shaped by its economic policy and what
the challenges are for China as it shifts towards a
low-carbon development model, China Plus speaks
to one of the men involved with the report men-
tioned above, Fergus Green, policy analyst at the
Grantham Research Institute on Climate Change
and the Environment, at the London School of
Economics, and Zha Daojiong, professor of inter-
national studies at Peking University and expert in
Chinese energy policies.
DESIGN GREEN
CHINA16
2025According to a report written by Fergus Green
and Professor Nicholas Stern from LSE, entitled
“China’s new normal, structural change, better
growth and peak emissions,” it is estimated that
China’s greenhouse gas emissions are likely to
peak by 2025. China Plus spoke to Fergus Green
to learn more about his findings.
FERGUS GREEN
We think that that estimate if anything is a conser-
vative estimate. It could even be that China’s emis-
sions could peak earlier than 2025. So, we think
it’s very likely that emissions will peak by 2025. In
terms of what the analysis is based on, we look at a
number of trends in China’s macro economy and
also policy, and then we look in much more detail
at trends in three key sectors: electricity, transport,
and industry, which together account for about 80
percent of China’s greenhouse gas emissions.
More specifically, the key trends that we focused upon, first
of all we see a change in China’s economic structure and
activity; that involves firstly a lower growth rate than we’ve
seen for most of China in the last few decades. We’ve seen
the growth rate fall from around 10 percent per year to now
7 or 8 percent per year; that’s one factor that’s reducing the
demand for energy.
In addition to that, we’re seeing a change in the composi-
tion of China’s economic growth, as China is increasingly
moving away from heavy industrial investment in things like
steel and cement plants, towards industries that tend to use
less energy such as the service sector and more innovative
manufacturing industries, and also a rebalancing towards
consumption away from investment overall. And the final
key trend is the changing energy supply in the electricity
industry. We’re seeing a shift away from coal, particularly in
electricity and also coal in industry, towards more renewable
sources of energy, nuclear and gas.
The Chinese government’s determination to reduce carbon
emissions.
The Chinese government has, I think, shown a very strong de-
termination to reduce China’s emissions. It seems this is part of
a wider strategy of shifting towards a new development model
that, in addition to being good for the climate for reducing
greenhouse gas emissions, is also beneficial to China’s future
economic development and for reducing pressures on China’s
local environment, in particular pressures around air pollution.
I think China is taking all of these challenges seriously, and
quite intelligently it’s tackling them all together.
I think we’ve seen the government take this issue more serious-
ly than a lot of governments in rich countries, and that’s very
promising. I think the bulk of efforts over the last five to ten
years has been energy conservation; reducing the use of energy
and the generation of energy in industry and the electricity
supply. And increasingly in the last few years, we’ve seen a
stronger focus on changing the sources of the energy supply, in
particular controlling the use of coal and we’ve seen very, very
strong investments in renewable energy.
The relationship between China’s new normal strategy and
its environmental protection efforts
There are a number of different important relationships
here. The first one is the change in China’s economic struc-
ture: a combination of the lower growth rate, the shifting
of economic activity towards consumption, and then the
shifting of investment away from heavy industry towards
services and higher value added manufacturing. What that
means for the environment and for the climate, because
of that change in economic structure, China is now using
much less energy overall. That puts a lot less pressure on the
need to use fossil fuels and other sources of energy.
There are a couple of other important relationships.

10. 18 19CHINA PLUS
GREEN GREEN
One is that a number of these new industries that
China is heavily investing in, higher value add-
ed, more hi-tech manufacturing and so on, are
themselves the industries that are needed to green
China’s and indeed the world’s environment and
to reduce emissions. So, we’re seeing investments,
for example, in the production of energy efficiency
goods and services; in environmental protection
technologies; in low carbon and zero carbon ener-
gy supplies like solar and wind. So these industries
are not only good for the climate and the environ-
ment but they are also sources of future industrial
opportunities for China.
And then of course, finally, the shift away from coal
and towards low carbon energy sources is good for
China’s air pollution in particular and can be good
for greenhouse gas emissions as well. So that’s good
for China in the short term in terms of reducing air
pollution and helps to contribute to avoiding the
worse effects of climate change over the long term,
which would also be devastating for China’s long-
run economic growth.
To what extent can China’s own greenhouse gases
policy contribute to keeping the world’s green-
house gas emissions within safe limits, namely
global warming of 2 degrees C?
The basic conclusion is the earlier China peaks
its emissions, the easier it will be to stay within
those limits. So a 2025 peaking year will make it
more likely the globe will be able to avoid more
dangerous climate change and stay within that 2
degree limit. But of course, there would still be
a long way to go to that, and whether the world
does ultimately stay within those limits depends
to a large extent on what happens in the rest of
the world, which is the other 75 percent of global
greenhouse gas emissions.
And of course, it also depends on what China does after its
emissions peak; how quickly will China be able to reduce its
emissions after they peak. I think that’s an open question,
and I think that’s where a lot of policy effort is going to be
focused on over the next 5 or 10 years to lay the foundations
for China to reduce its emissions strongly after they peak.
According to the study, emissions from electricity generation
and industry are very likely to fall in the near future but in
the transport sector, China’s oil consumption and carbon
dioxide emissions are likely to continue growing over at least
the next decade. What is the impact of this trend and how
will China deal with it?
The transport sector is a really interesting one. It is one of the
sectors that we look at where there is probably the highest risk
of continued growth in oil consumption and in carbon dioxide
emissions. As we point out though, it’s also the one where the
trajectory is the most uncertain.
There are many different possibilities and that’s because
there are so many different factors that will influence the
trajectory of China’s transport emissions. On the demand
side, one big factor is that China is increasing standards for
the energy efficiency of its vehicle fleet and towards the end
of this decade those standards will be in line with European
Union standards. So that will help to reduce oil consump-
tion and emissions.
Other factors on the demand side include how successful
China’s new urbanization model is in designing, develop-
ing and extending cities in ways that are more compact;
that are less prone to congestion of vehicles; that are more
reliant on public transport, walking, cycling and things
like that. And finally, we’re likely to see over the next five
or ten years shifts, as we’re seeing in a lot of other coun-
tries, in social norms in relation to how people perceive,
and own, and use vehicles; and that could help to reduce
congestion, pollution and also transport emissions.
And then on the supply side, we’re seeing a lot
of innovation in vehicles towards electric and
hybrid vehicles, lower emitting fuels, and also
innovation in things like driverless vehicles. So,
there are so many uncertainties in transport and
what this means is that China has a lot of oppor-
tunities to actually reduce its congestion and its
pollution in cities by trying to tweak all of those
different levers as best it can.
The UN conference on climate change will be
held in Paris in December of this year. Will
China’s efforts and progress help with confidence
building and boost cooperation between devel-
oped and developing countries?
I think the fact that China’s emissions are
likely to peak earlier than 2030, in our view by
2025, will definitely help to build confidence
in relation to the Paris negotiations. And
hopefully what it should also do is spur rich
countries who often point to China’s emissions
as an excuse for not acting in their own coun-
tries, that will hopefully make that excuse no
longer viable; it was always unfair but now it
can’t really be used given the amount of effort
that China is exerting.
Hopefully that will help build confidence and
change the politics in rich countries. I think
it would also build the confidence of other
developing countries that look to China as an
important model for growth, and as an im-
portant example, and of course as an import-
ant investor in many cases in those countries.
And I think what China has shown is first of
all, it has unfortunately shown the dangers
of a very pollution and emissions intensive
development and some of the unintended
consequences in terms of air pollution and
environmental degradation.
But now on the more positive side, it’s also showing the ben-
efits of cleaning that up; that we can reduce air pollution,
reduce energy insecurity; develop more innovative indus-
tries and so on whilst also reducing greenhouse gas emis-
sions. I think if those opportunities are better understood
by a lot of other developing countries, China could play an
important leadership role with regard to those countries and
that would also help achieve a successful outcome.
The basic conclusion is the earlier China peaks
its emissions, the easier it will be to stay within
those limits. So a 2025 peaking year
will make it more likely the globe will be able to
avoid more dangerous climate change and stay
within that 2 degree limit.
Zha Daojiong, Professor of International Studies at Peking
University, and expert in Chinese energy policies.
China’s efforts to reduce greenhouse gases.
Between the US and China, it’s not so much a climate accord,
in other words we don’t have a mechanism to verify or check
each other’s progress, it was a joint statement endorsed by the
two presidents. The joint statement nevertheless provides a very
important cover for making domestic policies on both sides.
Secondly, in terms of China’s efforts in reducing greenhouse gas
emissions there are two dimensions to this.
One is that we target greenhouse gas emissions as a sepa-
rate issue and second is that regardless of how our efforts are
evaluated internationally, China has been trying to diversify its
energy consumption away from a heavy reliance on coal and
other forms of fossil fuels, and at the same time we have been
trying very hard to improve energy efficiency including energy
efficiency of using fossil fuels.

11. 20 CHINA
GREEN
At a meeting of the national leading group on
climate change, energy conservation and emis-
sions reduction, Premier Li Keqiang vowed
that China will formulate a long-term roadmap
for low carbon development. He also said that
growth of energy saving and environmentally
friendly industries will be integrated into the
nation’s campaign to boost mass entrepreneur-
ship and innovation. Can we keep our promises
of reducing carbon emissions while maintaining
steady economic growth?
We have this new notion of pursuing economic
growth, called the new normal. My understand-
ing of the new normal is that when we look at
the overall situation of the Chinese economy,
we no longer fixate our eyes on GDP growth.
Instead, we look at such indicators as employ-
ment, which also brings China to the interna-
tional norms. But the difficulty as I see it, at least
in the electricity industry, is that there is still not
so much of a societal acceptance of the need for
China to install more nuclear power.
Nuclear power has its own share of controversy, but
here in China, if you really want to reduce carbon
emissions you want to avoid a reversal of the trend.
What do I mean by that reversal? In more recent
years, especially in the past two or three years, a
good deal of the reduction of carbon emissions
comes from the slowdown of the economy; that is
to say, less of a demand for coal fired power.
This may reverse, so how do we avoid a reversal.
You want to take advantage of the situation now,
and start installing new sources of electricity
supply and prevent the return of coal into the
picture. Nuclear is an option. Another option is
of course renewable energies such as solar and
wind. China is a leader in investment in these
wind and solar industries. But China has much more to do
in terms of effectively installing and making use of the wind
and solar potential in this country.
The difficulties facing China in terms of implementing ener-
gy diversification policy
With regards to the Chinese capacity to produce the equipment
for wind and solar energy, for many of the Chinese companies,
their eyes are fixated on generating electricity and from wind and
solar sources and selling it to the grid. Then the electricity grid is
not very interested in purchasing new sources of supply from wind
and solar because wind and solar are more expensive than coal
fired electricity. We should encourage Chinese companies, when
theygetintothesolar and wind industry, to create more and more
of what’s called mini grids;theydon’thavetorelyonthelargegrids.
Companies are all benefit driven. How to encourage them?
One is tax incentives, another is actual administrative guid-
ance, and the third is that we need to actually allow cities and
different towns to be more flexible in pricing their electricity.
Right now, electricity pricing goes province by province, but in
realistic terms that needs to be further decentralized; different
towns have to pay their own share of electricity differently. In
addition to the mini grids, what China can do better is to give
direct subsidies, massive direct subsidies to households, espe-
cially in the countryside.
So that means, when you have more and more of the small
towns, especially what we call the third or fourth tier of new
towns in China as we continue to urbanize, when you have
more and more of these new buildings installed from the
beginning with solar power or wind power, that builds a path
dependence. If we don’t do that now, by giving direct subsidies
to the households so that they get on the path dependence for
renewables, then these new houses and new towns will contin-
ue to depend on coal fired power. Subsidies should go more to
the consumers rather than the producers of the equipment, or
the middlemen entrepreneurs.
Youwanttotakeadvantageof the
situationnow,andstartinstalling
newsourcesof electricitysupplyand
preventthereturnof coal intothepicture.
PLUS 21

12. 22 23PLUSCHINA22
CINEMA
P
rior to this year’s World Credit Rating
Forum in Beijing, China called for a
new international credit rating system
that would be objective, just, rational
and balanced. Such calls come amid claims from
certain economists that global credit chains have
become more vulnerable and that the world is
thus facing the challenge of another credit crisis.
Guan Jianzhong, Chairman of Universal Credit
Rating Group (UCRG) explained that this year’s
World Credit Rating Forum was held to raise
awareness of the flaws of the incumbent world rat-
ing system and to promote reform of the system.
“The credit rating practice that has been proven as
faulty in the credit crunch is still playing a lead-
ing role in directing international capital flow. In
this context, increasing credit bubbles are very
likely to trigger another worldwide credit crisis,”
Guan stated, adding that accusations on the faulty
credit rating system have yet to be converted into a
worldwide consensus and commitment to a global
rating system reform.
In this case it is imperative for the international
community to reach a consensus to building a
renewed international rating system. Guan’s appeal
has been echoed by former French Prime Minister
Dominique de Villepin who is also chairman of
the International Advisory Council of UCRG. de
Villepin believes that it is imperative to take the
initiative because the world’s economy is facing
threats as never before.
As de Villepin explains, “The first threat is depen-
dency on debt that has in no way been reduced
since 2008. Public debts keep growing despite the
austerity policies particularly in Europe. Greece
remains today an important political issue.
The country is unable to pay for its debts without
further destruction and damage for the Greek peo-
ple. But the country is still unable to default on its
debt because remaining in the Euro zone it will not
boost its economy by a strong devaluation.”
Dominique de Villepin also points out that private and
public debts are creating financial threats all over the
world adding that the failure of risk evaluation has led the
world to the situation it finds itself in today, while noting
that the world’s current credit rating system is highly mo-
nopolistic, with the top three raters all from the United
States. “The existing credit rating system is dominated by
the big three credit rating companies S&P, Moody’s and
Fitch,” de Villepin points out.
He goes on to explain, “They are all US-based who repre-
sent 96 percent of the rating’s market. The existing system
has failed in many ways. This risk evaluation has proved
inefficient in the past in assessing the risks. These ratings
are proven to have (had) a pre-cyclical effect in the finan-
cial crisis; too high ratings before the crisis have produced
speculative effects while quick downgrading after the crisis
in order to protect the credibility of the rating agencies led
to a deepening of the downward trend.”
To face these difficulties and challenges, China’s vice finance
minister Zhu Guangyao has noted that the country is ready
to work with all other countries to push for the perfection
of the existing credit rating system and the establishment
of an Asian credit rating system and standards that suit
regional characteristics. “Our basic policy is to protect and
perfect the existing global financial system to make it better
promote global economic growth and the stability of the
International financial market.”
AVERTING FUTURE CRISES:
THE NEED FOR A NEW CREDIT RATING SYSTEM
Our basic policy is to
protect and perfect the
existing global financial
system to make it better
promote global economic
growth and the stability
of the International
financial market.
FINANCE

13. 24 25CHINA PLUS
A
recent report published by Renmin
University and Bank of Communi-
cations noted that the Chinese yuan
(RMB) will replace the Japanese Yen
in fourth place on the list of international cur-
rencies. It also points out that the RMB is like-
ly to be included in the Special Drawing Right
currency basket this year. By the first half of
this year, the RMB internationalization index
stood at 2.9 percent, less than one percent-
age point lower than the internationalization
index of the Yen, which is ranked fourth on the
list. China Plus spoke to Mike Bastin, director
of China Business Center based in London, to
learn more about the significance of this news
for China and the global economy.
How significant is this milestone of overtaking
the Yen on the currency list?
I think it’s very significant and it’s been on the
cards for quite some time. It’s been accelerated a
little bit by China’s very recent lead role in an Asian
economic integration and initiatives such as the
new Silk Road and the Asian Infrastructure Invest-
ment Bank as well; that’s helped things. It’s really
putting the RMB and the internationalization of
the Chinese economy in general on the map.
How significantly will the belt and road initiative influence
the internationalization of the RMB?
Very significantly, this is a very major initiative; part of the
current regime of the Chinese government’s policy in not just
promoting the internationalization of the Chinese economy but
taking the lead in Asian economic integration and emergence
generally. These (initiatives) will all play a major role in pro-
moting China’s currency as an international currency to rank
ultimately alongside the US dollar, the Pound and the Euro.
How do you view the trend of the Australian dollar, Canadi-
an dollar and Chinese Yuan as emerging currencies?
I think this trend is likely to continue, we still don’t see much
stability in the mature markets; the US economy is still fairly
sluggish; the Eurozone is still beset with problems. So, it is
emerging markets and Asia in general and China in particular
where I think the balance of power will continue to change.
Taking over as the fifth biggest payment currency recently, and
overtaking the Australian dollar and the Canadian dollar is
very, very significant. I see no reason why this would change,
and the Chinese currency in particular will start to become one
of the major currencies around the world.
If the RMB is included in the IMF Special Drawing Right
currency basket, what impact will this have on currency
structure around the world?
Again, that will be another major impact when this comes un-
der review very soon and the IMF do actually include the RMB
alongside the Euro, the Pound, the Yen and the US dollar, that
will again signify major structural change in the world econ-
omy; the balance of power; and the rise of China’s economy;
and the Chinese currency in particular as a major currency for
trading around the world.
C
HINA PLUS spoke with Kevin Rudd,
former Prime Minister of Australia
and current member of the interna-
tional advisory council of the Uni-
versal Credit Rating Group to gain a deeper
perspective on the global credit rating system.
Problems with the global credit rating system.
Essentially, the challenge of the system is wheth-
er in fact they have learnt from the mistakes of
7 years ago. And this is an open question. The
US courts found recently against Standard and
Poor’s that their advice prior to the crisis in 2007
was not correct. As a result, a large fine of 1.4
billion dollars was imposed.
So, it’s not a matter of subjective opinion
whether the three big credit rating agencies
got it wrong. They did and it has been es-
tablished in the courts. So therefore, the real
question is have these credit rating agencies
worked out how to reform themselves in order
to remove the conflict of interest which exists
between on the one hand, being paid by a firm
for a credit assessment, and on the other
hand, providing that assessment. That’s the
number one concern.
I think the number two concern is given that cred-
it assessments have a huge effect globally, do we
in fact now need not national systems of credit
rating agency regulation but an international regu-
lation mechanism. I think that is an open question
to be discussed further and be resolved.
There’s a third concern too which is the extent
to which Standard and Poor’s, Moody’s and Fitch
are properly equipped to assess project risk in
the developing countries of the world, partic-
ularly in the rest of Asia and to some extent in
Africa and Latin America, where we’re going to
see new waves of investment from countries like
China where frankly the availability of indepen-
dent credit ratings is going to be critical.
So, I see those as being three large questions and I see there be-
ing an opportunity for these matters to be addressed in the G20
Summit here in China next year when China chairs the G20.
With the establishment of organizations like UCRG, could
they help us avoid future financial crises?
The key question is the accuracy of credit analysis. The key
question is removing any conflict of interest in the construction
of those analyses. The key question is the proper regulation of
the credit rating industry. If those questions are got right, then
the risk of a return crisis is reduced.
But there is one further factor as well. Firms also need to
undertake their own credit risk assessment rather than simply
relying on the external assessment of a credit agency about how
their business is going; how their financial institution is going.
In other words, they need to have their own exposure and not
simply be able to point the finger at a credit rating agency and
say it’s their problem as opposed to your problem of internal
financial management. That is very much a corporate cultural
question but it can be addressed through the various corpora-
tions laws of the large economies as well.
So, we should not simply ask this question about do we need
more players in the credit rating agency field, the question is
will they be independent, are they properly regulated, do we
have an international system of regulation, and do we also
need to ensure that firms themselves undertake their own
ratings for the future.
AVERTING FUTURE CRISES:
KEVIN RUDD SPEAKS TO CHINA PLUS
The challenge of the
system is whether in fact
they have learnt from the
mistakes of 7 years ago.
It is emerging markets
and Asia in general and
China in particular where
I think the balance
of power will continue
to change.
FINANCE
Long Time Coming:
RMB Overtakes
Japan’s Yen on
International
Currencies List
FINANCE
What are the IMF Special Drawing Rights?
The special drawing right (SDR) is an international reserve
asset, created by the IMF in 1969 to supplement the ex-
isting official reserves of member countries. Countries can
exchange SDRs for hard currency at the IMF. The SDR also
serves as the unit of account of the IMF and some other
international organisations. Its value is based on a basket
of key international currencies.
The SDR is in some ways like a currency, but is currently
used only at the IMF. The value of the SDR is based on the
exchange rates of the US dollar, the euro, the yen and the
pound sterling. The basket composition is reviewed every
five years to ensure that it reflects the relative importance
of currencies in the world’s trading and financial systems.
www.brettonwoodsproject.com

14. 26 27CHINA PLUS 27
We should aim high and focus on even
more valuable goals to bring about
benefits for both peoples living in the
two large continents
OPINION OPINION
T
he ties between European Union
and China, two of the world’s most
important economic entities, have
been smooth and strong over the
past decades. EU is China’s largest trading
partner, while China is the biggest source of
imports and has become one of the fastest
growing export markets for EU. The daily
trade between the two sides now reaches
well over 1 billion euros. The latest trip by
Chinese Premier Li Keqiang witnessed more
deals, about 50 just in Paris, being struck.
But there’s much more the two sides could do
to build their relationship even stronger, given
the under-developments in a few aspects in-
cluding mutual investment which is minimal,
and people -to-people exchanges. Even in the
trade areas, there’s still a lot to do, such as a
Free Trade Agreement (FTA).
China-EU FTA
Brussels and Beijing are in the process of negoti-
ating a bilateral investment treaty, which is often
seen as a precursor of a FTA. China is to become
the world’s biggest overseas investor in five
years, with the outbound investment to double
the current 744 billion US dollars and reach 2
trillion. A Financial Times report says, given the
size, growth and complimentarity of Chinese
economy, there are unique opportunities for Europe.
French Prime Minister Manuel Valls obviously agrees to
that point, stressing to media that “during my trip to China,
I said many times that France was ready to welcome more
Chinese investments.”An early conclusion of a bilateral in-
vestment scheme serves both sides well and will also lay the
foundation for the talks of a free trade agreement.
As China’s economy continues to grow and is expected to
become the biggest in the world in a few years, close trade rela-
tionship is one of the most effective ways to bring the EU and
China together. A strong China-EU cooperation contributes a
great deal to global peace, stability and prosperity.
European countries, such as Britain, France, Germany, Italy
and others have shown encourage and wisdom in joining
the Asia Infrastructure Investment Bank initiated by Beijing.
They could once again demonstrate their leadership in
throwing their support behind the suggestion by the Chi-
nese side for a free trade deal.
China has forged FTAs with a multiple developed countries,
including Australia, New Zealand and Switzerland. If those
countries can take the decisive steps to consolidate their trade
with China and benefit from China’s rapid growth, European
countries should probably think of doing something similar.
High-Tech Exports to China
One of the concerns of some European countries in a China
free trade deal is trade deficit with Beijing – meaning they
purchasing more than selling products to China. Part of the
reason has been the EU restrictions on high-tech export to
China. Premier Li Keqiang again urged the European side to
relax the control in that respect.
China is determined to secure advanced technologies with
or without cooperation from EU countries. If EU sticks to
the outdated policy, China will be forced to look elsewhere,
as already is the case with Beijing purchasing military tech-
nology know-how from Russia.
At the same time, China is investing heavily in research
and development (R&D), nearly catching up with the EU
in terms of the portion of GDP. In fact, China’s
total R&D funding is expected to surpass that of
the US to become the world’s largest in 2022.
The restrictions on technology export to China
are increasingly pointless except for standing as
a barrier in bilateral trade and a factor giving
rise to trade imbalance. The restriction has far
outlived its usefulness and it’s time to change.
Person-to-Person Exchanges
Part of the outcome of Premier Li’s visit has
been that EU nations will set up 15 more visa
offices in Chinese cities to facilitate the visa
procedures of Chinese citizens. France agrees
to issue five-year multiple-entry visas to Chi-
nese visitors. These are all sound and positive
steps. But they are still too conservative and
far from exploiting the potentials of the huge
Chinese market.
Back in 2013, the UN World Tourism Organization
said that the Chinese had become the single biggest
source of global tourism income. A Morgan Stanley re-
port said Chinese tourists could be spending as much
as 194 billion dollars a year around the globe.
Boosted by a strengthening currency and a growing mid-
dle class, more Chinese travellers are to be seen around
the globe. By 2015, 100 million Chinese will travel abroad
and they could spend more than all the world’s luxury
shoppers combined. These numbers represent a huge
opportunity for other countries, including the EU, to take
advantage of the Chinese spending power.
The EU is lagging behind other competitors. The US ini-
tiated a 10-year multiple-entry visa scheme for the Chi-
nese last year and Canada followed suit. EU could further
reduce the hassles of visa application for Chinese people
to visit, study and do business in European countries.
Premier Li’s EU tour was a fruitful one, with both
sides agreeing to integrate China’s “Belt
and Road” initiatives with EU’s ambi-
tious Investment Plan as both focus
on infrastructure construction. The
two sides also promised to further
cooperation on climate change to the
benefit of global community.
As a brand new practice,
China and France agreed
to set up a mutual fund to
start join cooperation with
third parties. All of these
achievements are laudable
and deserve celebration. But
at the same time, we should aim
high and focus on even more
valuable goals to bring about
benefits for both peoples liv-
ing in the two large continents.
The China EU
Relationship
Could go Further
and Deeper
By Xu Qinduo

15. 28 CHINA
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