Private © EdelmanPrivate & Confidential © Edelman

November 2, Beijing

Private © Edelman

Agenda

Welcome, Decentralization Alan VanderMolen, Asia Pacific President, Edelman

Overview of Survey: Three Pillars of Modern Public Affairs in China Mark O’Brien, Vice President, PAA

Government RelationsFrank Lavin, Public Affairs Chairman, Edelman Yuan Haiying, President, Yuan & Associates

CSR & Corporate EthicsSteven Cao, Founder, Pegasus Communications

Digital Dialogue Mark Hass, President, Edelman China

Conclusion: Looking forward on complexity & decentralizationAlan VanderMolen

Cocktail Reception

Private © Edelman

DECENTRALIZATION

Private © EdelmanPrivate © Edelman

Decentralization

Economic growth

– Drives strengthening of Provincial and Municipal governments

– Ability/need for Central Government to delegate authority

Web and mobile technologies

– Flood of sources and channels for consumers of news and information

– Domestic voices and foreign sources

Legal compliance complemented by social compliance

– Changing legal and regulatory environment

– Great social expectations

Private © Edelman

Pyramid Model of Authority

Organization

Mass Audience

Traditional Influencing Model

Your Name Here

Private © Edelman

A new model has emerged: Public Engagement Cloud

Your Name Here

A New Era Of Public Engagement

Private © Edelman

ABOUT THE SURVEY

Private © EdelmanPrivate © Edelman

About the Survey

Aims and Objectives of the 2nd Dialogue- Research and benchmark- Debate and challenge- Distil into white paper

Three Pillars of Public Affairs in China- Government Relations: Tough and getting tougher- CSR: Social license to operate - Social Media: The digital citizen

Methodology- 104 respondents- Online between October 1-28

* Chatham House rules – open debate* White paper: answers and questions…and more questions

Private © Edelman

GOVERNMENT RELATIONS

Private © Edelman

Government Relations: Tough and Getting Tougher

76% believe GR is more difficult in China than in the West

0%

10%

20%

30%

40%

50%

60%

70%

80%

More challenging Less challenging

68% feel GR will be even more challenging in the future

Q 14. Practicing government relations in China is: Net top & bottom 2 box Q15. The government relations landscape confronting Western MNCs in China is becoming: Net top & Bottom 2 box

0%

10%

20%

30%

40%

50%

60%

70%

80%

More difficult Less difficult

Private © Edelman

Decentralizing Government Relations Practices

Agree Disagree Neutral

Local government in China is rapidly rising in importance as it

takes on a greater role in economic development and

commercial investment issues

78% 2% 20%

The rise of second tier cities means government relations and

public relations strategies must be devolved from national to local

levels

70% 8% 22%

Q16. State your levels of agreement/disagreement with the statement (Net top & bottom 2 box)

Private © Edelman

Government Relations: Tough and Getting Tougher

More potential for change in China’s business environment than any other major economy

Strong positive commercial prospects for most MNCs, balanced against more difficult regulatory environment.

Ongoing debate in China between economic rationalism and economic nationalism

Provincial and municipal decision-makers increasingly involved in operating decisions

Even at Central level, diffusion of decision-making authority requires MNCs to help shape a consensus across multiple institutions

– Bloomberg

Private © Edelman

Government Relations: Tough and Getting Tougher

Sustained over-performance of China’s economy contributes to nationalism, protectionism and creates local champions

Increasingly open architecture and multiple decision-makers and regulators heightens the complexity for MNCs

Opportunities in China have never been greater; risks have never been higher

– US exports to France vs China

Private © EdelmanPrivate © Edelman

Implications for Government Relations

1. Are your PA-PR-CSR functions coordinated?

2. Do you just monitor/consult in GA or do you try to influence government activity/policy?

3. How do you tackle challenges at the provincial and local level?

4. How is your PA budget in China set?

5. How do you build-up PA operations, including head office calling schedule?

Private © Edelman

CSR & CORPORATE ETHICS

Private © Edelman

Impact of Rapid GDP Growth

0% 10% 20% 30% 40% 50% 60%

Higher

Same

Lower

35%

54%

Q12. The development of GDP-focused growth in China means that companies will face (Net top & bottom box)

China’s GDP growth is set to place higher explicit and implicit obligations as companies are expected to address societal needs

11%

Private © Edelman

A View on Social Responsibility

Agree Disagree Neutral

Chinese government expects foreign MNCs to have a higher standard of CSR than domestic operations & SOEs

72% 7% 21%

CSR in China is more central to our overall corporate strategy than it is in the West

21% 47% 32%

CSR in China is more closely aligned with government strategy than in the West

61% 18% 21%

The government in China is committed to ensuring that companies treat workers better

48% 11% 41%

Q13. State your levels of agreement/disagreement with the following statement (Net top & bottom box)

Private © Edelman

CSR and Corporate Ethics: Social License to Operate Greater number of participants in the debate about a corporation’s responsibility to society

All corporations are exposed to pressures to be “good”, with social media used when they fall short.

- Trust Barometer: 75% in China more likely to trust a corporation that partners with an NGO to battle global issues

Citizens and competitors will fact-check and expose corporate wrong-doing in a continuous cycle of finger-pointing

Implicit and explicit obligations for MNCs

– Audit to preserve and enhance license to operate in China’s increasingly crowded and complex markets

The ‘citizen consumer’ is rising leading to Governments responding to increased call for action

Private © Edelman

To answer government’s new call, the upcoming 2010 Summer Davos in Tianjing

takes the theme of Promoting Sustainable Growth

Three Key Reflections of Central Leadership’s Attitude: Harmonious Society Scientific Development Sustainable Development

Sustainable Development has become a high-priority state policy, expected to guide the current transition in industrial restructure and upgrade – while China is gaining its economic strength and quickly converging with the world in all aspects.

CSR and Corporate Ethics: The New Government Decree

Private © Edelman

CSR and Corporate Ethics: Social License to Operate

Environment continues to be a key issue, leading to the creation of relationships between government, NGOs and corporations

Edelman’s 2010 goodpurpose study:

- 84% in China expect corporations to take action to preserve and sustain the environment

- 82% in China agree government and business need to work together more closely to ensure the environment is protected

- 80% in China would support legislation that requires government to fund partnerships between public and private organizations to help protect the environment

Labor laws: CSR and stakeholder engagement are being fused

- Employees are rapidly becoming one of the most significant stakeholder groups

Private © Edelman

Government ExpectationsLooking to Business Leaders to Participate in Public and Social Management as Pioneers and Thinkers

Investment, advanced products & technologies and contribution to the GDP are still important. More important is your role in helping China solve social and environmental issues that impede its sustainable development.

Chinese mainstream media are seeking out those who set good examples which promote China’s sustainability in social, economic and environmental arenas.

Private © EdelmanPrivate © Edelman

Implications for CSR & Corporate Ethics

1. How do you comprehensively integrate CSR into corporate strategy for business in China?

2. How do you align CSR strategy with government concerns and policies?

3. How can you achieve the step change from CSR to sustainability?

4. Government expects more of MNCs than local companies, but strategy doesn’t match up. Why?

5. To what extent do Chinese country managers have the ability to determine CSR priorities?

Private © Edelman

SOCIAL MEDIA

Private © Edelman

Digital is More Important, but Companies Are Engaging Less

0% 20% 40% 60% 80% 100%

We fully utilize social media platforms as part of public affairs strategy

Opinions expressed in online and social media are more influential than other channels

Social media is important to public affairs strategy in China

2010

200967%

79%

74%

10%

17%

Q7. Top 3 Box Important; Q9. Top 2 Box Influential; Q8 Top Box Utilize

54%

Private © Edelman

The Role of Social Media

Agree Disagree Neutral

Social media is beyond my company’s control 39% 38% 23%

Social media is beyond the government’s control 27% 40% 33%

Social media is a form of digital democratization 66% 25% 9%

The Chinese government is responding to representations made via digital platforms

58% 35% 7%

Social media is presenting increased challenges to the traditional mode of corporate communications and government relations

87% 6% 7%

Q10. State agreement/disagreement with the statement (Net top 2 box)

Private © Edelman

The Digital Citizen: A Populist Force

Internet is a broad public forum in China, both a source of public opinion information for companies and the government, and a force for shaping policy and news

Rapid user growth to continue: 380 million (2010); 840 million (2013)

Urban, young, educated: Half the nation’s population is urban; 75% of its internet users live in cities

Internet landscape is fragmented, but increasingly oriented toward social networks, mobile access

Private © Edelman

The Digital Citizen: Government vs. Community

The Government

The internet, once a force to control, must now be viewed as a release valve for social pressure and a portal into grassroots emotions

Substantial, but declining control of content

Wumao Dang: The 50 Cent Party

The Golden Shield: Blocked searches, vanishing social media posts

• Growth of online community makes long-term, real-time control technically unfeasible

The Social Media Community

The community exerts pressure on government because of its sheer size

• Social media are part of the news cycle

• Mainstream media quote social media and vice versa in an “internet amplification cycle”

• Eruptions of nationalism online are disruptive and troubling to Chinese policy

Growing importance of online influencers creates new, populist sources of information

• 60% of Sina Weibo’s 20m users follow top 10 bloggers

Private © Edelman

The Digital Citizen: Protesters, Vigilantes, Nationalists

Large Scale Internet Protests against corruption, unfair actions and “enemies” of China are a unique and powerful phenomenon of the Chinese digital community

2 large-scale protests targeted government in 2003; 12 in 2009

Typically aimed at local government officials, rather than national leaders or policies (with exceptions)

- July 2010: Internet community on behalf of Qiu Ziming vs. Zhejiang province paper company and police

- July 2009: Internet community vs. Ministry of Industry and Information Technology Green Dam software initiative

- July 2009: Online community vs. Hubei party and police officials over Shishou incident

Protests aimed at companies can be “scandals for hire”

Protests often reflect strong nationalist themes

- Japan, Nobel Prize

Private © EdelmanPrivate © Edelman

Implications of Digital for Public Affairs

1. Why have companies been unable to engage fully in social media for PA programs?

2. How do companies monitor and analyze the voice of the Digital Citizen?

3. How can companies prevent competitors from exploiting Digital Citizens for negative attacks?

4. Can corporate GA and CSR programs be positively aligned with the power of Digital Citizens?

Private © Edelman

Where from here?