THE 32ND LEADERSHIP PROGRAM ONJAPAN

PROMOTION OF

JAPAN-CHINA BUSINESS INTERACTION February 21-25, 2005 Hiroshima, Takamatsu

organized by

Institute for International Studies and Training

co-organized by

Chugoku Bureau of Economy, Trade and Industry

Shikoku Bureau of Economy, Trade and Industry

THE 32ND LEADERSHIP PROGRAM

SYMPOSIA ON

PROMOTION OF JAPAN-CHINA BUSINESS

INTERACTION

February 21-25, 2005

Hiroshima, Takamatsu

The 32nd Leadership Program has focused on “Promotion of Japan-China

Business Interaction”. Many Japanese enterprises are now starting their operations in China, whose economy is growing remarkably. Given this situation, IIST has held the symposia in Hiroshima and Takamatsu on the themes of “The Strategy of Japanese Enterprises on Intellectual Property Rights in China” and “Key to the Successful Business in China”, respectively. Four Chinese exparts, as participants of the 32nd Leadership Program, have participated in the symposia and exchanged opinions on the topics. Hiroshima Program Monday February 21 Evening Welcome Dinner in Hiroshima Tuesday February 22 10:30-13:00 Meeting with program organizers 13:30-17:15 Symposium： Promotion of Japan-China Business Interaction

–The Strategy of Japanese Enterprises on Intellectual Property Rights in China－

Organized by: Institute for International Studies and Training Co-organized by: Chugoku Bureau of Economy, Trade and Industry

Supported by: Ministry of Economy, Trade and Industry (METI), Japan External Trade Organization (JETRO), Chugoku Technology Promotion Center (CTPC), Chugoku New Business Conference,

Chugoku Economic Federation

Opening Remarks: Hiroyasu Tamagawa, Director, International Exchange Department, IIST

Teruaki Yamashita, Director-General, Industries Department, Chugoku Bureau of Economy, Trade and Industry

Keynote Speeches: “Protection and Utilization of Intellectual Property Rights in China” Zhang Qinghua, Attorney at Law, Partner, East Associates

“The Issue of Intellectual Property Rights in China and the Response of Japan” Kenji Hidaka, Director of Patent Strategy Planning Section, General Affairs

Division, Japan Patent Office Panel Discussion:

Coordinator: Kenji Hidaka, Director of Patent Strategy Planning Section, General Affairs

Division, Japan Patent Office Panelists: Zhang Qinghua, Attorney at Law, Partner, East Associates Kenji Ota, General Manager, UFJ Institute (Shanghai) Ltd. Masashi Kurose, Vice-President, Patent Attorney, Kyowa Patent and Law Office Masayuki Hosokawa, Chief Representative, Beijing Office, Yamaha Motor Co.,

Ltd. Masayoshi Miki, General Manager, Intellectual Property Department, Matsushita

Electric (China) Co., Ltd 17:30-19:00 Reception Remarks: Hiroyasu Tamagawa, Director, International Exchange Department, IIST

Teruaki Yamashita, Director-General, Industries Department, Chugoku Bureau of Economy, Trade and Industry

Zhang Qinghua, Attorney at Law, Partner, East Associates Kenji Hidaka, Director of Patent Strategy Planning Section, General Affairs

Division, Japan Patent Office

Wednesday February 23 Morning Visit to Satake Corporation Masayuki Kishida, Executive Vice President Hideharu Maruyama, Deputy Department Director Hajime Harada, Head of Management Control Office Afternoon Visit to Hakuho-do Co., Ltd. Kazuo Takamoto, President Hikari Takamoto, General Manager, Management Division Visit to Hirosima Peace Memorial Park

Takamatsu Program Wednesday February 23 Evening Welcome Dinner in Takamatsu Thursday February 24 10:30-13:00 Meeting with program organizers 13:30-17:15 Symposium: Promotion of Japan-China Business Interaction - Key to the Successful Business in China - Organized by: Institute for International Studies and Training (IIST) Co-organized by: Shikoku Bureau of Economy, Trade and Industry

Supported by: Ministry of Economy, Trade and Industry (METI), Japan External Trade Organization

(JETRO), Shikoku Economic Federation, Shikoku Chamber of Commerce and Industry, Japan-China Economic Association Opening Remarks: Hiroyasu Tamagawa, Director, International Exchange Department, IIST Hiroaki Egoshi, Director-General, Shikoku Bureau of Economy, Trade and Industry Keynote Speeches: “Economic Growth of China and Economic Relation to Japan”

Zhao Jin Ping, Deputy Director, Foreign Economic Relations Department, Development Research Center of the State Council of PRC

“Experience of Katokichi in China” Yoshikazu Kato, Executive President, Katokichi Co., Ltd. Panel Discussion: Coordinator: Kazuhisa Minakuchi, Professor, Faculty of Law and Literature, Ehime University Panelists:

Li Ming-Xing, Representative of the National Congress of CPC, Director of International Department of CEC

Ruan Yuan, President, Shanghai Citistar Business Consultants Co., Ltd Kenji Hidaka, Director of Patent Strategy Planning Section, General Affairs

Division, Japan Patent Office

Itsuhiro Ochi, President, Ichihiro Co., Ltd. Masutatsu Yoshioka, CEO, SSR Co., Ltd.

17:30-19:00 Reception

Remarks: Hiroyasu Tamagawa, Director, International Exchange Department, IIST Hiroaki Egoshi, Director-General, Shikoku Bureau of Economy, Trade and Industry Satoru Tobita, Director-General, Industries Department, Shikoku Bureau of Economy, Trade and

Industry Zhao Jin Ping, Deputy Director, Foreign Economic Relations Department,

Development Research Center of the State Council of PRC Kazuhisa Minakuchi, Professor, Faculty of Law and Literature, Ehime University

Friday February 25 Morning Visit to Katokichi Co., Ltd. Yamamoto Factory Satoru Shirakawa, General Manager, Yamamoto Factory Naoki Otani, Overseas Enterprise Department Afternoon Visit to Mabuchi Textile Co., Ltd. Yoshio Mabuchi, Executive President

THE 32ND LEADERSHIP PROGRAM

SYMPOSIA ON

PROMOTION OF JAPAN-CHINA BUSINESS INTERACTION

February 21-25, 2005 Hiroshima, Takamatsu

List of Participants

HIROSHIMA

Zhang Qinghua (China) Attorney at Law, Partner East Associates TAKAMATSU

Zhao Jin Ping (China) Deputy Director, Foreign Economic Relations Department Development Research Center of the State Council of PRC Li Ming-Xing (China) Representative of the National Congress of CPC Director of International Department of CEC Ruan Yuan (China) President Shanghai Citistar Business Consultants Co., Ltd.

Zhang Qinghua, Keynote Speaker

Kenji Hidaka, Keynote Speaker Coordinator

Panelists

Symposium in Hiroshima

Symposium in Takamatsu

Zhao Jin Ping, Keynote Speaker

Yoshikazu Kato, Keynote Speaker

Kazuhisa Minakuchi, Coordinator

Panelists Visit to Mabuchi Textile Co., Ltd.

Zhang Qinghua Attorney at Law, Partner East Associates

Practice area: Intellectual Property International Investment Enterprises’ Legal Consultant Education background: Bachelor University of Politics and Law, China Master of Law Hitotsubashi University (Completed PhD. Course) Practice Experience: Prior to 1994 Research Section of Law Committee of NPC 1994 Qualified as a Chinese Lawyer 1994-March 2001 N&P Law Firm, Tokyo, Japan 1994-March 2001 Visiting Lecturer of Chinese law and Japanese Private

International Law in Kanton University, Japan Representative of Beijing East Associates Law Firm in Tokyo

2001-present Beijing East Associates Law Firm Main Published Literature: Foreign Relationship Law of PRC, International Business Legal Affairs, published in December, 1997 Legislation Procedure of Regulation of Software Protection of PRC (serialization), JCA Periodical July-August, 1992 Detailed Interpretations of Regulation of Software Protection of PRC (serialization), JCA Periodical Dec. 1992-Mar. 1993 Legislation Procedure and Main Contents of Anti-unfair trade Law of PRC (serialization), JCA Periodical Mar. 1994 Detailed Interpretations of Anti-unfair Trade Law of PRC (serialization), JCA Periodical Apr. 1994-Sep. 1994 Legislation Procedure of Arbitration Law of PRC, Detailed Interpretations of Arbitration Law, JCA Periodical Jan. 1995, Jun. 1995-Jan. 1999 Unscramble of Contract Law of PRC (serialization), Japanese Business Legal Affairs, Jun.-Nov. 1999 Accession to WTO and Common Products Issues, Law and Technology, Jul 2002 Protection on Technology Permission and Fruit of Technical Research in PRC, Intellectual Pro-seminar, 2003

Zhao Jin Ping Deputy Director Foreign Economic Relations Department, Development Research Center of the State Council of PRC

Working Experiences: 1982 – 1987: a teacher of Economics Department of Shanxi University; 1987 – 1995: studying in Japan Rikkyo University, awarded a degree of Master of Economics

and a PhD degree, successively an assistant in Economics Department of Rikkyo University, a visiting researcher of Industrial Research Institute of Keio University and of Trade & Industrial Research Institute of the METI

1995: coming back to China and working with Development Research Center of the State Counci

1996: active as Head of Research Office 1998: Vice Director of Department of Macroeconomic Research; 2001: Vice Director of Research Department of Foreign Economic Relations, and awarded a Government’s Special Subsidy by the State Council in 2001. Representative Works: 1. Shock at the Century End: Lessons and Inspiration out of Asian Financial Crisis (in

collaboration with others) 2. Researches on China’s Economic Structure During the Course of Trans-century Strategic

Development (in collaboration with others) 3. Report on China's Macroeconomic Policies (in collaboration with others) 4. China’s Economic Growth at the Century End (in collaboration with others) 5. Considerations on China’s Macroeconomic Policies (in collaboration with others) 6. Utilization of Foreign Investment & China’s Economic Growth 7. Retrospection & Prospects of China-Japan Economic Relations 8. Analysis & Prospects of China-Japan Trade Relations 9. Strategic Considerations on Utilization of Foreign Investment in the New Period 10. Utilization of Foreign Investment & International Balance between Revenues &

Expenditure and many others

Latest Research Achievements: Utilization of Foreign Investment & China’s Economic Growth, written by Zhao and published by People’s Publishing House in June 2001, has won in 2001 the Third Treatise Prize of the Prize of the Third Outstanding Achievements in Foreign Trade & Economic Cooperation of MOFTEC, and the Second Treatise Prize of the 2001 Ninth An Zijie Research Prize in International Trade.

Li Ming-Xing Representative of the National Congress of CPC Director of International Department of CEC

Current posts

Director of the International Department of CEC

Representative of the National Congress of CPC (elected in 2002)

CCTV Economic Analysis Committee Member

Vice Chairman of the China Foreign Economic Collaboration Promotion Committee

Education and Professional Career

Feb. 2004 - Present Director of the International Department of CEC etc.

Apr. 2003 – Jan. 2004 Director of the International Research Department of

State-owned Assets Supervision and Administration Commission

of the State Council of China

Oct. 1995 - Mar. 2003 Assistant Section Chief and successive Section Chief of the

China State Economic and Trade Commission

Apr. 1995 – Sep. 1995 Short-term research at the University of London, UK

Apr. 1990 – Mar. 1995 Completion of a doctoral course in economic studies at Kwansei

Gakuin University, Japan

Sep. 1984 – Mar. 1990 Completion of a degree course in International Studies at Jilin

University, China

Ruan Yuan President Shanghai Citistar Business Consultants Co., Ltd.

Education

1990 – 1994

Graduated from the Faculty of Sociology, Kwansei Gakuin University, Japan

Professional Career

2001 – Present:

Investment consultant for Shanghai Citistar Business Consultants Co., Ltd.

1997 – 2000

Air-conditioning sales for Shanghai Yailang Industry Co., Ltd.

1994 – 1997

Trading services at the Shanghai office of Japan Vendor Planning Ltd.

THE 32ND LEADERSHIP PROGRAM SYMPOSIA ON

PROMOTION OF JAPAN-CHINA BUSINESS INTERACTION

SUMMARY － HIGHLIGHTS

February 22, Hiroshima Symposium

-The Strategy of Japanese Enterprises on Intellectual Property Rights in China-

Keynote Speeches:

Zhang Qinghua, Attorney at Law, Partner, East Associates

Following accession to the World Trade Organization (WTO), China has revised legislation to comply

with the global standard for the protection of intellectual property rights. Those attracting particular attention

are revisions to the Patent Law, revised on 25 August 2000, and the Trademark Law and the Copyright Law,

both revised on 27 October 2001. The number of litigation cases relating to intellectual property in China has

been rising steadily in recent years, and in 2004, 12,213 cases were filed, up 31.73% over the preceding year,

including those in the first and second trials and appeals to higher courts. Actions involving copyright,

patents and trademarks, among others, registered particularly big increases. As many as 4,264 copyright

disputes were taken to court in 2004 alone, a rise of 70.99% from 2003. Also, penal regulations on

intellectual property crimes have been tightened in China. Approximately 385 criminal cases involving

intellectual property rights were concluded in 2004, in which 653 persons were found guilty.

Kenji Hidaka, Director of Patent Strategy Planning Section, General Affairs Division, Japan Patent Office

Although China has almost completed revisions and improvements to its intellectual property

legislation in accordance with WTO agreements, the problem of pirated products remains. Over the last few

years, more damage has been caused by patent infringements involving the DVD player and other advanced

technologies than by the copying of outer designs, typically those of motorbikes and automobiles. It is

predicted that technological disputes with Chinese companies will intensify as China is now transforming

itself into a market from a production center. Meanwhile, European and American multinational companies

have accelerated research and development investments in China. These companies have put on their

payrolls Chinese students studying in the U.S.A. who supported the Silicon Valley boom in the 1990s and

elite graduates of Beijing University and Qinghua University. Perhaps the biggest threat to Japan is this

combination of American capital and Chinese brains.

Panel Discussion:

Kenji Ota, General Manager, UFJ Institute (Shanghai) Ltd.

- Branching out into China without strategy is the source of all troubles. General managers must have

awareness of being a proprietor, not a mere factory head.

- The key to success in China is to manage the organization based on low operating yields as a

prerequisite. Systems should be devised assuming that humans are evil by nature, but operated

assuming that humans are good by nature.

- Constructing a Chinese intellectual property management platform that is also accessible to medium-

and small-sized businesses is another challenge. The government and big business should take the

initiative here.

Masashi Kurose, Vice-President, Patent Attorney, Kyowa Patent and Law Office

- Secure rights. Without patents, it is difficult to eliminate technological imitations. Ensuring licensing

fees (technical fees) is important.

- Survey rights. This will help prevent claims by third parties and hence infringement of rights as well.

- Link risk management with patent strategy by systematically keeping all evidence in readiness for any

sudden litigation.

Masayuki Hosokawa, Chief Representative, Beijing Office, Yamaha Motor Co., Ltd.

The Intellectual Property Group (IPG) in Beijing was set up by the Japanese Chamber of Commerce

and Industry in China in May 2000. Supported by some 70 companies, IPG sponsors seminars, study

meetings, information exchanges and various surveys and reports to assist its member firms in working out

appropriate measures to cope with intellectual property issues in China. Current issues that IPG is tackling

include, in addition to the problem of pirated products:

- R&D in China: the problem of business secret leaks, the ownership of results, rewards and

remuneration, etc.

- European and American R&D strategy in China: R&D investments and capturing of ‘the best brains’

by European and American businesses, an increasing number of young Chinese people taking a

greater interest in the U.S.A. than in Japan, etc.

- Rising Chinese enterprises: Government’s policies to provide privileges to repatriated students from

Europe and the U.S.A. (‘haigui’), a government- sponsored investment company dedicated to IT and

biotechnological research, whole-nation efforts to implement global patent acquisition strategy, etc.

Masayoshi Miki, General Manager, Intellectual Property Department, Matsushita Electric (China) Co., Ltd.

Matsushita Electric Industrial Co., Ltd. has moved most of its production and sales activities from

Japan to other countries. This has made it necessary to secure our intellectual property rights in accordance

with the magnitude of our local business. In China, we opened an office in Beijing in 1995 and another office

in Guangzhou in 1998. Imitations of our products in China come in various patterns. They range from what

we call ‘dead copies’ (imitations), which are identical to the real thing both in trademark and design, to those

labeled with an imitated trademark or those only identical or imitated in design. These imitations have

become so good in quality in recent years that it is almost impossible to distinguish them from real products.

The pirates are working in a division-of-labor system, and are increasingly cunning such as attaching a stolen

trademark to the imitations after they have entered distribution channels. The imitations are produced mostly

in the three provinces of Southern China: Guangdong, Fujian and Zhejiang. The situation is the worst in

Guangdong. In China, securing intellectual property rights is essential to protect our genuine products.

Crackdowns on imitations in China must be carried out in cooperation with the central and/or local

government agencies, so it is also necessary to establish good relationships with them. To solve Chinese

intellectual property problems including patent issues, negotiations should be raised to the

inter-governmental level between the two countries.

February 24, Takamatsu Symposium

-Key to Successful Business in China-

Keynote Speeches:

Zhao Jin Ping, Deputy Director, Foreign Economic Relations Department, Development Research Center of

the State Council of PRC

China has set forth its economic growth goals up to 2020. The country’s gross domestic product in

2020 will rise to 5 times that in 2000, to 4 trillion U.S. dollars or $2,000 per capita. Annual exports and

imports will each amount to $1.25 trillion and total consumption will be $2.5 trillion. What is important in

this long-term scenario is that China not only attaches importance to economic growth rates but also focuses

on sustainable development. The plan aims at harmonious development between economy and society, and

cities and farming areas, as well as between different local communities, between humans and nature, and

between China and other countries. The population structure of China will also change. In 2003, 40% of the

Chinese population lived in cities and 60% in rural areas, but this ratio will reverse by 2020. Such population

structure changes may be attributable to the effects of China’s joining the World Trade Organization, driven

by foreign-capital companies. China is opening doors to foreign investors not only in the manufacturing

industry but in all other industries including services and logistics. China also encourages Chinese

enterprises to invest in other countries. More than 8,000 Chinese companies are already in operation

overseas.

Yoshikazu Kato, Executive President, Katokichi Co., Ltd.

Katokichi Co., Ltd. opened its first factory in China a decade ago. Today, about 14,000 people are

working at our more than 10 plants in China producing a variety of processed products for Japanese

consumers. In producing Japanese processed marine products, the plant’s location is very important for

reducing costs. A piece of fried fish snack food, for example, would cost ¥4 to ¥5 if made at a Shikoku plant,

but costs only ¥0.3 in China. The transport time and cost from Shikoku to Tokyo are almost the same as from

China. There are 1.3 billion hardworking people in China and the country will develop further as a whole. If

we can utilize our experience in that huge market, it will contribute to developing the entire business of the

two countries.

Panel Discussion:

Li Ming-Xing, Representative of the National Congress of CPC, Director of International Department of

CEC

There are several points that foreign companies investing in China will have to take into account. It

has often been pointed out that personal connections are important to succeed in doing business in China.

Today, however, investors are recommended to run their companies in China in an appropriate way

according to Chinese law and policy because the government has earnestly sought to improve legislation.

The Chinese market, meanwhile, has a complex structure with very big disparities in income between coastal

areas and the hinterland. Companies coming into China should have an effective management strategy to

cope with this situation. Another important point for small- and medium-sized companies planning to operate

in China is to establish an adequate risk-management system including labor management risks in addition to

business risks. One solution may be to build a Japanese industrial park that has an integrated risk

management system. On the Chinese side, we hope to offer the necessary services upon request.

Ruan Yuan, President, Shanghai Citistar Business Consultants Co., Ltd.

Although China and Japan are neighbors sharing the same cultural roots, there are big differences

today between the two countries. It is important, therefore, to promote exchanges and deepen mutual

understanding between China and Japan. The characteristics of the Japanese and the Chinese are often

compared to wood and bamboo, respectively. Household commodities used by Japanese people are typically

made from wood and are square or rectangular in shape. The Japanese temperament is orderly and square

like their wooden utensils. The Chinese, meanwhile, often use bamboo implements that are round, flexible

and easily bent. Likewise, the Chinese people are flexible like bamboo and dexterous, but sometimes sloppy.

They think rationally and act individualistically. The Chinese are more like Westerners and obviously

different from the totalitarian Japanese. To keep good relationships with Chinese citizens, it is important to

employ a reliable interpreter in the first place. It is also important to convince your Chinese counterpart of

the advantages and future prospects of your business instead of demanding something from them.

Kenji Hidaka, Director of Patent Strategy Planning Section, General Affairs Division, Japan Patent Office

Many Japanese companies suffer damage by infringements of intellectual property rights in China.

Meanwhile, China has almost completed all necessary arrangements of its intellectual property legislation

following accession to the World Trade Organization. Beijing has tightened regulations and given greater

authority to administrative organizations than the Japanese government does in Japan. So, the important

point in case of an infringement of intellectual property rights in China is to cooperate with the Chinese

government instead of criticizing it. Companies whose intellectual property rights are liable to be infringed

often have the following weaknesses in common: slipshod trademark management, sloppy trade secret

protection, underestimating the pirates’ abilities, abandoning violations without knowing what to do, leaving

infringements unresolved in view of cost-effectiveness, overly trusting the partner in China, attempting to

solve all problems under Japanese leadership, unable to convey local information to Japan, unwilling to

make use of specialists, and the home office and/or the local management lacking appropriate knowledge of

intellectual property. Japanese companies operating in China (or planning to branch out into China) should

address these points.

Itsuhiro Ochi, President, Ichihiro Co., Ltd.

Ichihiro is a towel manufacturer. We decided to branch out into China after taking part in an

inspection tour there in 1992. We chose Dalian as the location of our plant because the water quality there is

similar to that in Shikoku. At first, China proposed to us many good conditions concerning authorization and

permission, but things did not go as proposed. Naturally, it is a foreign country (and things do not always go

as expected in Japan). It is important to remain patient in negotiations and not to abandon midway. Now, our

Chinese factory plays a critical role in our business group. Going into China involves risks, but to succeed

you should step forward and not give up.

Masutatsu Yoshioka, CEO, SSR Co., Ltd.

Many of us have the illusion that the Japanese and the Chinese are identical in culture and customs.

This is not true; there are many differences between them. China is a multiethnic state which should not be

thought of as a single-race country. China should be understood as something like the European Union.

Japan and China have different political systems. Moreover, China has a vast territory and a large population

that is made up of many different races. When branching out into China, you should first determine the

purposes and the targets. You must have a clear-cut plan as to what to produce or what to sell, and in which

regions of the country.

This booklet was subsidized by the Japan Keirin Association through its Promotion funds from KEIRIN RACE.

IIST Institute for International Studies and Training

#10 Mori Bldg., 1-18-1, Toranomon Minato-ku, Tokyo Japan Phone: 81-3-3503-6621 Fax: 81-3-3501-0550 http://www.iist.or.jp