January 2015CCIFC Beijing

Encouraging an Innovative and ImpactfulResponsible Economy in China

Photo : ESA

Summary

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

Innovation must target and address and curb “development liabilities”

More attention is needed to the “extended” economic space

Corporate leaders are willing to lead impactful and targeted initiatives

GDP growth alone is not good enough to assess economic quality

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 forChina growth and development

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Comments :

• Approved by PNC on March 2011, morequalitative growth for China, and possiblyslower GDP growth

• But much more focused on externalitiesand creating a sustainable environment

• The shift from market consumptioneconomy to more qualitative economytakes time to bear fruits

• It requires significant investments,persistence and trust between economicagents

Economists focused on growth, and specifically wealthaccumulation, before starting transitioning to other criteria

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Comments :

• Redefining shared capital is key:

− Shared trustable environment

− Shared business values

• Global impact

− Velocity of knowledge andliabilities diffusion worldwide

− How to define good growth andnavigate through the “dirty”growth trap ?

− How can the real growth impactbe better captured by 360°economic indicators ?

18th century(mercantilism)

20th century(positivism)

Smith Economicframework

Moral framework

Growth

19th century(classical)

Ricardo

Marx

VirtuesMill

Smith

First industrial revolution

21th century(quantitative)

Agraria

n

Industrial

Post Industrial

Responsibility

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

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Comments :

• The growth of the “Classic” economicspace is measured by GDP growth

• GDP is an aggregate measure ofproduction equal to the sum of thegross values added of all residentinstitutional units engaged inproduction1

• The “360° extended” economic spaceintegrates all factors related todevelopment, including those usuallyunaccounted for by GDP

• The non visible face of growth createslong term liabilities or benefits e.g.environmental, ethical and societal

«Classic»Economic space

«360° extended»Economic space

1 Source: OECD

Impact ?

The economic vision of managing Assets - Liabilities (ALM)has been over-simplified to a GDP / Public Debt approach

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Comments :

• GDP measures only production flows,and sometimes misses important ones(e.g. unreported fin. transactions)

• GDP flows can be used to approximatepart of national asset value but residualunaccounted for assets must be added

• Liabilities could be calculated based onremedy cost to damages caused byhuman activity to “life” supporting assets

• Direct impact on environment quality:national accounting systems still havedifficulty to capture it, as it stands aspotential liability and not national debt

« Assets » « Liabilities »

China Inc.

N N W 1

1 « Net National Wealth »

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

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Comments :

• CEOs of industry leaders realize theimportance for their firms to establisha strong footprint beyond the classiceconomic

• One of their priority is to better positionthe corporate brand in the extendedeconomy

• Prudence is to “sacrifice currentpleasure for future pleasure” is notencouraged by GDP only indicators

• Direct impact on environment qualitybut national accounting systems stillhave difficulty to capture it

Quant power:

- GDP growth- GDP per capita- Total national debt

Soft power – externalities :culture, environment,

justice, excellence

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 …

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“Chinese people used to feel a sense of pridefor being the world’s factory. Now, everyonerealizes what it costs to be that factory. Ourwater has become undrinkable, our foodinedible, our milk poisonous, and worst of all,the air in our cities is so polluted that weoften cannot see the sun.”

Jack MaHarvard Business Review

November 2013

We have no replacement planet …

“China’s reform has entered a deep waterzone, where problems crying to beresolved are all difficult ones. What we needis the courage to move the reform forward. Touse a Chinese saying, we must “get ready togo into the mountain, being fully aware thatthere may be tigers to encounter.”

Xi JinpingCollege of Europe

Bruges, April 1 2014

Photo : NASA

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EthicsEfficiency

21st century corporateeconomics

1. Brand recognition

• Quality, excellence

• Real claim, honesty

2. International legitimity

• Ethics

• Responsibility

• Dilemna between flows and ALM

3. Innovation

• Sustainability

• Social mission

Psychology

Trust(Smith, Akerlof, Marshall)

“An economist should not only be interested by pure economics, there is nogreater danger ” [ Maurice Allais, Nobel 1988 ]

Trust must be the currency of the 21st century as it representsultimately the cornerstone of human economic activity

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Corporateleaders

NGOs

Government

Impact on“extended“economy

Corporate leaders• Wish to position themselves as long

term leaders in extended economy– Brand value creation– Sustainable reference position

NGOs• Sector in infancy in China despite

numerous institutions, may undergomajor reform to deliver better andmuch needed results

GDP economics provides too limited insights

Government• Provides initial direction and guidance,

set long term objectives such asthose appearing in 12 FYP1

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Corporate leaders realize that they have a duty to contributebeyond the « classic » economy model which is aging

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Comments :

• Based on a 3 year research programmeled by Maverlinn and its team andauthored by Pr. Benoit Vermander. It wasfirst published in English, then in Chinese

• It was supported by industry leaders whonot only provided support but also keyinsights for the research

• Aside explaining what can be CSR in aChinese context, the research focuses onidentifying key soft operational successfactors for the development of the Chinaeconomy

• The research initially set for aninternational audience also received awarm welcome from Chinese firms

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

Another example includes the Netspring Green ITclassroom programme

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Again industry leaders are supporting green recycling andeducation 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 powerprogrammes such as MAV-GEPS (video)

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

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

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

Concluding words

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Moving forward to create both impactand goodwill over the long term

• Large scale negative side-products of currentgrowth jeopardize future growth and threaten thesustainability of our ecosystem

• Political leaders are putting more emphasize onthis aspect to mitigate and solve complex issuesimpacting the extended economy

• The next steps will be based on a series oftargeted actions to find solutions to issuesimpossible to solve under « classic » economicse.g. reducing certain pollutions

• Increasingly real industry leaders will supportimpactful and innovative programmes

Olivier CoispeauMaverlinn, Founding Partner

Leading a world of change, together