By Jörgen Centerman, President & CEO, ABB Ltd. Date: May 9, 2001 Your Excellency Mayor Liu Qi, distinguished guests, ladies and gentlemen, Let me begin by saying thank you for inviting me to speak here today – it is an honor. It is with great pleasure and appreciation that I take this opportunity to share a few words with you. After practicing more than two decades of open policy, China is on the verge of joining the World Trade Organization. All of you here today are well aware of this fact. Many of you have been instrumental in bringing about China’s accession to the WTO. You have worked long and hard to get to this point. This is a moment for reflection: a moment to savor the achievements that are behind you, and a moment to reflect on the challenges that still lay ahead. For each of those victories, overcoming political setbacks and concessions on trade barriers, attracting foreign direct investment, igniting a passion in the public for accession and driving structural reform, among other things, there comes a challenge in its wake. Integrating China is far more than gaining accession to the WTO. This much is clear. We now must start to move beyond what will happen in the coming weeks and months, what will happen when China is granted accession. We at ABB hope for China to become one of our top three markets and fully support quick accession to the WTO. We must plan for the future prosperity of China as a full member of the WTO and tap the opportunities that this will bring. Today, I will structure my remarks in four parts. The first will address the implications of China’s accession to the WTO. The second part will touch on some challenges and opportunities for the future development of Beijing. The third part of my remarks will touch on what companies like ABB can contribute during this time of change. I will also touch on Beijing’s huge advantages and how we at ABB will work locally to help exploit these advantages. I will close with some remarks about our strategy in China and how we can move forward together. First, a few words about the implications of China’s accession to the WTO, which will bring many changes, both challenges and opportunities to Beijing. China’s accession to the WTO would mean easier access to the Chinese market by the best companies of the west, resulting in great advantages to the Chinese consumers. But, it will also increase competitive pressure on Chinese domestic industries, especially those that are not yet at a level which allows them to compete confidently with the best in the world. Many sectors will be opened almost for the first time. It is therefore foreseen that only the most competitive industries and companies in China will continue to grow both in the domestic market as well as through exports. One of government’s biggest concerns is most likely the reform of State Owned Enterprises (SOEs). Dedicated efforts and special policies such as debt to equity swap have yielded positive results and have helped solve certain financial problems, but only temporarily. These SOEs require modern corporate management systems and world class technologies to improve business processes. In addition, experience has taught us over the years that an emphasis on research and development is key to creating competitive advantage through unique competencies. The globalization of trade and the ongoing deregulation of monopolized sectors are accelerating change in competitive patterns. Customers, be they large industrial groups, or niche customers, are looking for practical and local solutions. They demand more efficient and more cost effective services. They need responsive providers who can react quickly to their changing business requirements. My question for you is: are the companies in China prepared for this challenge? My predecessor Göran Lindahl visited you around this time last year. He acknowledged the great strides you have made as a country. No one who visits China from time to time can come here without being impressed by the scope and speed of change. Göran Lindahl pointed to the obvious advantages of moving forward. You have set a strong foundation for success. The impressive ring roads and highway development are one good sign. The new airport is another. Air quality has improved and the electricity system is far more reliable. All to your benefit. But, there are other pressing issues now coming to light. So, as the second part of my remarks, let me talk a bit about the challenges and opportunities facing Beijing as a major global metropolitan area. The success of Beijing, as you would agree with me, is vital to the success of China’s WTO membership. Presently, it appears as though you have hit some stumbling blocks in agriculture and its subsidies, and in a number of service sectors. In the global arena, which will be more open to China after accession, these areas must be addressed in Internet time, as I like to express it. There are three Internet years in each calendar year. So, there is no room for slow moves. Competitors in other countries are willing – and able – to take business away if an opportunity arises. Here I see great possibilities for Beijing to further enhance infrastructure development in areas like energy, transportation and telecommunications. It is vital that all of these areas be developed with minimum impact on the environment. In the context of what ABB and companies like ABB can offer in this time of change, these challenges are of course opportunities in disguise. New opportunities exist also in sectors that will soon be allowed to open outside Pudong, Shenzhen, or Guangzhou, such as banking, insurance, communications, agriculture, just to name a few. The first three of these are new areas of business that Beijing should focus on. A whole new industrial base can be developed on these service industries. And, Beijing’s existing manufacturing businesses will become more competitive as they exploit the infrastructure benefits of these upgraded service industries. Alongside this, Beijing should continue to attract direct investment by leading world class foreign enterprises. There must be more investment to reduce energy costs, both by power generators and industrial power consumers. One suggestion I would like to make here is for Beijing to develop a high profile award system for Beijing’s best performing or most improved enterprises. These enterprises should be judged on the basis of their quality and environmental performance. Similarly, Beijing can benchmark its successful foreign joint ventures. This can set a strong precedent for new joint ventures, giving them targets to aim for. Moreover, there is an opportunity to go beyond this and encourage full privatization in some cases. Current reluctance, especially from foreign investors, stems from existing social costs, for example, excess personnel as well as the lack of a nationwide social security system. This situation is borne out of the aforementioned State Owned Enterprises, and should be addressed as soon as possible. One last comment in this area of my remarks: There is a tendency to form large conglomerates with diversified business portfolios. While we at ABB support the idea in general, we encourage you to take this route when the increased scale improves efficiency and competitiveness. Whatever you do, don’t overlook smaller niche-, skills- and labor-intensive industries. Which brings me to part three. Here I will share some comments on what ABB brings to this equation and a few remarks to enhance the city’s proud educational centers. ABB has a long history in China. We have worked here for the better part of a century. We are working in more than 25 fully owned or joint venture companies, training managers, engineers and workers. We are proud to collaborate with our Chinese partners and suppliers to establish better business practices. We had about US$ 1 billion in orders in China last year, and more than 5,500 employees. This is very important to us, and it is also very exciting. Beijing itself has one of the richest talent pools for young graduates worldwide. These high level talents will be needed in many disciplines for Beijing as well as for China to develop a truly competitive edge in the ongoing globalization of trade embraced in the new economic environment. To support the development of world class industrial and financial service businesses, Beijing’s academia should move more aggressively to position itself as the leading center for providing young professionals by embracing more Western style curricula. ABB has every intention of contributing towards this goal by offering opportunities in line with our growth strategy. On a similar note, you might want to consider developing more professional courses for non-degree holders. This could help a large part of your working population acquire management skills or just generally advance their learning curve. I think it is excellent, for example, that you’ve encouraged taxi drivers to speak some English. All of this goes a long way toward fostering a learning environment for your citizens. At the same time it makes Beijing a more attractive destination for tourists. The creation of the Mayor’s Advisory Fund of Beijing proposed during last year’s meeting is well supported. ABB is proud to be part of it. In the new ABB structure, we have created a new incubation business area called ABB New Venture Ltd. with an aim to speed up R&D initiatives to commercialization. Our many joint ventures here in China have taught us a great deal. For one, it is clear that there is now a good base for further infrastructure development and for leapfrog technology innovations. There is an obvious demand for new technologies for cleaner air, more efficient energy transmission and distribution, for example. Leapfrog technology will allow industries in Beijing, as well as in China, to avoid many of the environmental setbacks that have hit other nations in the past. Beijing has shown a real commitment to addressing environmental issues. However, the success of Beijing’s industrial and commercial development has resulted in growing strains on the air quality and road traffic conditions. Beijing has found the right formula such as to further expand its metro system, to further control emissions from cars, power plants, and industries. Beijing should continue encouraging the introduction and application of new technologies and solutions, which I am sure that companies represented around this table are more than willing to share. Beijing is now home for more than 16,000 foreign invested enterprises from about 100 countries and regions. Its accumulated contractual investment exceeded US$ 32 billion. It is now the headquarter city in China for many Fortune 500 companies. This advantage coupled with local talent and international technology expertise, position Beijing and China for success after accession. Through our long-term commitment, direct investments, cooperation with local partners, cultivating our employees and bringing them to Europe or sharing European employees into the country, we are determined to help contribute to your success. ABB’s future in China depends on a clear and simple strategy. ABB is working towards a goal of being truly customer-centric. This means that we have turned our organization inside out to address solely what customers need – fast, accurate decisions, new technologies, customized solutions that incorporate the entire value chain – what we call collaborative commerce capability. Our commitment is to work alongside Beijing and China in developing these areas together. We would like to help you build Beijing into a city where people, including foreigners, would like to live. We have never been a company to work outside a country and force our way in. Our philosophy has always been to be an insider, not an invader. We will continue, as we have done for many years, to work locally and to grow our expertise in China. This will include, but not be limited to, transferring more technology to China. This means working with partners in China to speed up integration and to scale up production efficiencies and facilities. Together, we can take on the challenges of China’s accession to the WTO. Thank you very much for your time. (END)