Short-term concerns must not distract from longer-term intent
Nov 6, 2015
Speech given by Simon Henry, Chief Financial Officer (CFO) at Shell, at the 8th International Roundtable of Multinational Corporations Leaders in Beijing, China, on November 6, 2015.
Shell expects average growth rates in China of around 5 to 6% for the next 10 to 15 years. In this speech, Simon Henry explains the reasons behind this bullish outlook. He emphasises the importance of long-term decision making, highlighting China’s One Belt One Road initiative as an ambitious long-term plan designed to drive economic growth.
Vice Chairman Zheng Wantong, distinguished guests, ladies and gentlemen.
I am delighted to be here with you today. Vice Chairman Zheng – thank you for your kind invitation.
Two years ago, I had the privilege of being appointed Vice President of the China International Council for the Promotion of Multinational Corporations. It’s a huge honour for me to remain in this role, as the significance of the Council increases day by day.
We live in an interconnected world in which effective partnerships have never been more important. And that’s exactly what this Council focuses on – facilitating exchanges as well as promoting direct co-operation between Chinese and foreign businesses.
This work is one powerful example of the ongoing efforts in China to encourage investment from multinational companies within the country. I would like to express my gratitude to the government for this.
This focus from the government has – without doubt – spurred the impressive growth of China’s economy. Growth which is apparently stalling, if you listen to some commentators.
Shell does not believe this is the case. For reasons I’ll go into shortly, we expect average growth rates of around 5 to 6% for the next 10 to 15 years.
Interestingly, the projected 7% growth for this year is, in fact, adding more to the global economy than the 13% growth from 2006. This is, of course, because China’s economy has more than doubled in that time.
There are a number of reasons behind our bullish outlook.
For one thing, there’s still a massive transition underway of people moving from rural to urban areas, which will clearly have an impact on the economy. As will the positive allocation of capital to growth sectors, from services to sport to retail. On top of this, China has built-up significant reserves, which will help manage any economic shocks.
Then there’s the focus on forging partnerships, which I’ve already mentioned. A vital element.
One example of an effective partnership in action is Shell’s work with the State Council of China’s Development Research Centre. Back in 2011, we began studying China’s medium to long-term energy development strategy.
In the first joint study, our teams proposed pragmatic solutions to the energy challenges facing this country, from the liberalisation of energy prices to carbon trading. The second study focused on policy recommendations for the development of natural gas, and looked at the role natural gas can play in everything from diversifying China’s energy mix to fuelling economic development.
During President Xi Jinping’s recent State visit to the UK, Shell and the DRC signed the agreement for a third phase. We will look at China’s energy revolution in the context of the transition of the global energy system to a progressively more efficient and less carbon-intensive model.
Our co-operation works well. The DRC brings deep understanding of China’s energy system; Shell brings knowledge of global energy markets. Working together, we are coming up with fresh ideas for China’s energy evolution.
In addition to building strong partnerships, I believe that future economic growth will be achieved because of China’s continued long-term approach to expanding its economy.
Whether you’re a company or a government, there’s always the pressure of balancing short-term challenges with long-term decision-making. I face this on a daily basis in my role as CFO of Shell. Short-term concerns are important, but they mustn’t distract from the longer-term intent.
The One Belt One Road initiative to revive ancient overland and maritime silk routes to Europe is the epitome of an ambitious long-term plan designed to drive growth.
It could lead to enormous social as well as economic benefits – not just in China, but throughout Asia and Eurasia. Human progress is intrinsically linked with building infrastructure – from schools, businesses and hospitals to motorways. So by opening up these trade routes, this initiative has the potential to boost prosperity significantly.
It’s a win-win. China has the production capacity in everything from steel to manufacturing. And countries such as Cambodia, Pakistan, Kazakhstan and Turkmenistan have the demand.
China’s leadership with this plan is perhaps best illustrated by the Asia Infrastructure Investment Bank. China’s financial contributions highlight the scale of the government’s determination to increase infrastructure investment.
For me, what’s most noteworthy is that while the AIIB is a Chinese initiative, it is led multilaterally. This will ensure strong partnerships as the countries involved work closely together in the years ahead.
For most of the past four thousand years China has been a global economic leader.
Looking at the range of efforts currently underway, from the work of this Council to the One Belt One Road initiative, it looks like this trend is set to continue in the decades to come.