Responsible Economy in China (abstract)

Encouraging an Innovative and Impactful Responsible Economy in China

Photo : ESA

CCIFC Beijing

January 2015

Summary

1.

The 12th FYP has opened a new window for qualitative growth

2.

GDP growth alone is not good enough to assess economic quality

3.

More attention is needed to the “extended” economic space

4.

Corporate leaders are willing to lead impactful and targeted initiatives

5.

Innovation must target and address and curb “development liabilities”

Disclaimer : this presentation was created for the exclusive use of our client who is entitled to use it for its own internal needs and further discuss with Maverlinn officers. This presentation must not be shared with third parties without the written prior consent of Maverlinn. This presentation is not fully understandable, complete and reliable without further analyses and oral explanations. Page 2

Presentation • •

What is at stake in redefining economy goals ? Thinking out of the box for better results: the next steps

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The China 12th Five-Year Plan has set new priorities for China growth and development

Comments : • Approved by PNC on March 2011, more qualitative growth for China, and possibly slower GDP growth • But much more focused on externalities and creating a sustainable environment • The shift from market consumption economy to more qualitative economy takes time to bear fruits • It requires significant investments, persistence and trust between economic agents

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Economists focused on growth, and specifically wealth accumulation, before starting transitioning to other criteria Smith Economic framework

Growth Marx Mill

an i Smith ar r g A 18th

century (mercantilism)

l

Responsibility u

Moral framework

Virtues

st

a ri

In

t us

l ia

st o P

d n I

r

Ricardo

20th

• Redefining shared capital is key: −

Shared trustable environment

−

Shared business values

• Global impact

d

19th

Comments :

21th

century century century (classical) (positivism) (quantitative)

−

Velocity of knowledge and liabilities diffusion worldwide

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How to define good growth and navigate through the “dirty” growth trap ?

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How can the real growth impact be better captured by 360° economic indicators ?

First industrial revolution Page 5

Economy initially a moral science gradually shifted approach to focus on quantitative approach and simple aggregates

Comments :

«360° extended» Economic space «Classic» Economic space

• The growth of the “Classic” economic space is measured by GDP growth • GDP is an aggregate measure of production equal to the sum of the gross values added of all resident institutional units engaged in production1

Impact ?

• The “360° extended” economic space integrates all factors related to development, including those usually unaccounted for by GDP • The non visible face of growth creates long term liabilities or benefits e.g. environmental, ethical and societal 1 Source:

OECD Page 6

The economic vision of managing Assets - Liabilities (ALM) has been over-simplified to a GDP / Public Debt approach Comments : • GDP measures only production flows, and sometimes misses important ones (e.g. unreported fin. transactions) China Inc. « Assets » « Liabilities »

NNW1

• GDP flows can be used to approximate part of national asset value but residual unaccounted for assets must be added • Liabilities could be calculated based on remedy cost to damages caused by human activity to “life” supporting assets • Direct impact on environment quality: national accounting systems still have difficulty to capture it, as it stands as potential liability and not national debt

1 « Net

National Wealth »

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This result is a large « gap » that needs to be funded as unaccounted for liabilities related to growth are surfacing

Soft power – externalities : culture, environment, justice, excellence

Comments :

Quant power: - GDP growth - GDP per capita - Total national debt

• CEOs of industry leaders realize the importance for their firms to establish a strong footprint beyond the classic economic • One of their priority is to better position the corporate brand in the extended economy • Prudence is to “sacrifice current pleasure for future pleasure” is not encouraged by GDP only indicators • Direct impact on environment quality but national accounting systems still have difficulty to capture it

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Presentation • •

What is at stake in redefining economy goals ? Thinking out of the box for better results: the next steps

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To start with, we may all wonder what is really at stake … We have no replacement planet … “China’s reform has entered a deep water zone, where problems crying to be resolved are all difficult ones. What we need is the courage to move the reform forward. To use a Chinese saying, we must “get ready to go into the mountain, being fully aware that there may be tigers to encounter.”

“Chinese people used to feel a sense of pride for being the world’s factory. Now, everyone realizes what it costs to be that factory. Our water has become undrinkable, our food inedible, our milk poisonous, and worst of all, the air in our cities is so polluted that we often cannot see the sun.”

Xi Jinping College of Europe Bruges, April 1 2014

Jack Ma Harvard Business Review November 2013

Photo : NASA Page 10

Trust must be the currency of the 21st century as it represents ultimately the cornerstone of human economic activity 21st century corporate economics

Trust (Smith, Akerlof, Marshall)

Efficiency

Ethics

1. Brand recognition •

Quality, excellence

•

Real claim, honesty

2. International legitimity •

Ethics

•

Responsibility

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Dilemna between flows and ALM

3. Innovation •

Sustainability

•

Social mission

Psychology “An economist should not only be interested by pure economics, there is no greater danger ” [ Maurice Allais, Nobel 1988 ] Page 11

Corporate leaders realize that they have a duty to contribute beyond the « classic » economy model which is aging GDP economics provides too limited insights 1

Government • Provides initial direction and guidance, set long term objectives such as those appearing in 12 FYP

2

Corporate leaders • Wish to position themselves as long term leaders in extended economy – Brand value creation – Sustainable reference position

3

NGOs • Sector in infancy in China despite numerous institutions, may undergo major reform to deliver better and much needed results

1

Government

Impact on “extended“ 3 2 economy NGOs Corporate leaders

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Our CSR in China initiative is an example of what can be done to raise awareness on responsibility

Comments : • Based on a 3 year research programme led by Maverlinn and its team and authored by Pr. Benoit Vermander. It was first published in English, then in Chinese • It was supported by industry leaders who not only provided support but also key insights for the research • Aside explaining what can be CSR in a Chinese context, the research focuses on identifying key soft operational success factors for the development of the China economy • The research initially set for an international audience also received a warm welcome from Chinese firms

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Another example includes the Netspring Green IT classroom programme

Again industry leaders are supporting green recycling and education projects in less favored areas … Reasonable investment … ambitious goals • Kill two birds with one stone : PC recycling + IT education in less favored areas • Work closely with local governments • Create impact and associate volunteers • Go beyond class rooms with green power programmes such as MAV-GEPS (video)

So far, Netspring has managed to support over 25,000 kids mainly in rural areas Page 15

Future projects shall not be shy to address sustainability issues and solve complex unbalanced economics

• MNCs sponsored programs to fund cleantech and curb environmental liabilities • Enhanced world citizenship footprint through innovation and responsibility Page 16

Concluding words Moving forward to create both impact and goodwill over the long term • Large scale negative side-products of current growth jeopardize future growth and threaten the sustainability of our ecosystem • Political leaders are putting more emphasize on this aspect to mitigate and solve complex issues impacting the extended economy • The next steps will be based on a series of targeted actions to find solutions to issues impossible to solve under « classic » economics e.g. reducing certain pollutions • Increasingly real industry leaders will support impactful and innovative programmes

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Leading a world of change, together

Olivier Coispeau Maverlinn, Founding Partner