This year marks the 40th anniversary of China’s economic reform and opening. In December 1978, China’s “open door” policy signposted a turning point in its economic management and trajectory.

During this period, the character of China’s economic management has evolved from being strictly centrally planned, export-oriented and state-led to one that is more market-led and oriented towards domestic consumption.

China’s gross domestic product has achieved an average annual growth rate of 10 per cent in the past 40 years – three times the rate in the United States over the same period.

Its GDP per capita increased from US$156 (Bt4,900) in 1978 to $8,123 in 2016, lifting more than 800 million people out of poverty. By comparison, the US GDP per capita was $57,638 in 2016, indicating there is still growth in the China story.

Today, China is the world’s largest economy on a purchasing power parity basis. It is the world’s largest manufacturer, exporter and holder of foreign exchange reserves. And China is actively aiming for a leadership role in globalisation and in combating climate change.

All of these impressive achievements are thanks to the perseverance and far-reaching changes in China’s economy and society, from the decollectivisation of agriculture to the expansion of international trade and the welcoming of foreign direct investment.

The Chinese government has also committed to reforms in banking, securities and insurance. These included diversifying banks’ equity structures and transforming state-owned banks into joint-stock banks. Key securities companies were restructured, while reforms in the insurance sector also progressed.

Another key phase of reform is allowing more foreign participation in China’s capital markets. The country’s capital account is becoming increasingly open in de facto terms. China now has the second-largest equity market in the world. From a total market capitalisation of $513 billion in 2003, it has grown 17 times to $8.7 trillion last year. The country’s domestic bond market is now the third-largest in the world.

Significant progress has already been made to internationalise the yuan. Just over a decade ago, yuan usage was largely confined to the mainland. Today, more than 10 per cent of China’s trade is settled in the currency.

After primarily being a recipient of FDI for four decades, China has now emerged as a major FDI-originating country as well, with non-financial outbound direct investment rocketing from less than $1 billion in 2000 to $170 billion in 2016. China’s “reform and opening” efforts have also allowed it to enter an era of new economic growth, with consumption, innovation and green energy leading the way.

Changes are already taking place. Domestic demand has steadily expanded, with final consumption contributing 58.8 per cent of economic growth last year, nearly four percentage points higher than five years prior.

The country has also become the global leading force in digital technology and innovation, driven by its rising middle class and a young, free-spending, digitally connected new generation of consumers.

China has more e-commerce activity than any country in the world. It accounts for 42 per cent of global e-commerce, a third of the world’s most successful tech start-ups and conducts 11 times more mobile payments than the United States.

There are challenges ahead, including healthcare for its ageing population, as well as making its economy sustainable and green.

Still, China is at the centre of Asia’s economic growth by increasing regional connectivity through its “Belt and Road Initiative”.

This will help turn Asia into the dominant global economic force, providing an estimated 52 per cent of global GDP by 2050. As a result, China is on course to overtake the United States as the world’s largest consumer market and economy.

Contributed by PETER WONG, deputy chairman and chief executive, The Hongkong and Shanghai Banking Corporation Limited.

After 17 years at the helm of AMCHAM here in Thailand, Executive Director Judy Benn is stepping down this month, having fulfilled her mission to build a diverse membership community guided by a meaningful purpose.

During these 17 years, Amcham transformed itself from an organisation composed primarily of blue-chip multinationals to a diverse cross-section of businesses operating in Thailand.

“When I first started as Executive Director in 2001, we had less than 500 members and the majority of them were US multinationals,” said Benn. “Today we have over 600 members, but less than 40 per cent of them are U.S. based. The rest are Thai or other foreign organisations.”

As world economies rebounded from the double whammy global financial crises in 1997 and 2008, Benn recognised the opportunity to increase the impact Amcham’s could have on the growth and influence of American business. Rather than limiting the role of Amcham to serving US multi nationals, however, Benn expanded its role to include any entity that could contribute to the welfare of American business.

To achieve this, she adopted a compelling purpose: “Our purpose became to attract members who were interested in supporting American business and the community here in Thailand,” said Benn. “We became more inclusive and expanded our reach.”

This purpose opened the door to a whole new category of members, including local Thai companies seeking partnerships with US multinationals, such as McThai, which holds the franchise rights of McDonalds, as well as American entrepreneurs looking to serve the Thai community, as in the case of Bourbon Street restaurant.

More recently, there has been stronger interest from Thai companies to join Amcham, who are looking to expand their presence overseas, such as Thai Union, said Benn.

To support this change, under Benn the Amcham has established a number of special interest committees, including Young Professionals and “SME” [Small & Medium Enterprises] that provide its diverse members with opportunities to learn about new trends and opportunities, as well as to continue networking.

To help serve communities, Benn also expanded several outreach programs, including a scholarship programme which offers 175 scholarships to qualifying underprivileged university students from rural provinces.

As Amcham looks to its future, there are other challenges and opportunities, such as how to leverage digital technologies, how to attract Millennials and entrepreneurs without alienating corporate audiences, and how to deal with the onslaught of Chinese and Japanese investors in Thailand. These are the issues Benn’s successor will have to address.

In the meantime, Amcham continues to thrive and prosper in its diversity. “The more the merrier,” said Benn. “As long as members are aligned with our purpose and abide by good business principles and rule of law.”

Contributed by LARRY CHAO, managing Director of Chao Group, an organisation change consultancy established in Bangkok and New York in 1995 [www.chaogroup.com]

Fox arrived in Thailand on Wednesday on a visit aimed at boosting trade relations between the two countries.

In the meeting yesterday, Somkid told Fox that he wants the UK to invest more in Thailand in those areas where British investors have expertise, such as the services sector, software, and the development of educational institutions in Thailand.

British investors were invited to invest in the Eastern Economic Corridor (EEC), which covers the provinces of Chachoengsao, Chon Buri and Rayong, he said.

The UK sent a clear signal that it needs to seek alliances in many areas after it leaves the European Union, said Somkid, adding that Fox told him that the UK economy has improved.

His visit to Thailand is aimed at further strengthening bilateral ties with Thailand and the trade and investment flows between the two countries – under the shadow of Brexit, a process that is resetting Britain’s international outlook.

Somkid said he would lead the ministers at the helms of the commerce, digital economy and society, and education ministries – as well as leading business figures – on a delegation to the UK in the near future.

Thailand is the second-largest economy in Southeast Asia and bilateral trade with the UK increased by 2.8 per cent to 5.6 billion euros (Bt246 billion) in 2015-16. Machinery, vehicles and mechanical appliances account for the bulk of Britain’s exports to Thailand.

On Wednesday, Fox met Digital Economy and Society Minister Pichet Durongkaveroj and they discussed possible collaboration to develop human resources in the digital sector.

The British minister also had talks with Commerce Minister Sontirat Sontijirawong.

The first UK trade minister to visit Thailand in 15 years, Fox was expected to raise the subject of the national election that has been promised for Thailand by early next year.

“The UK’s trade with Thailand is growing steadily, but there is still huge untapped demand for British goods and services across the Thai economy, which is growing strongly and has a large middle class,” Fox said in a press statement.

“The IMF (International Monetary Fund) predicts 90 per cent of global growth in the coming years will come from outside the EU, and this government is putting the UK in a position to benefit, particularly by boosting export finance and showcasing British companies to the Asian market.”

Thailand is implementing its Thailand 4.0 industrial strategy, with an emphasis on moving towards a digital economy, from initiatives such as rolling out high-speed Internet access for all villages to setting up a Big Data analytics centre. Fox will highlight how the UK’s world-class digital sector can support this strategy.

The trade minister’s arrival follows a recent visit by representatives of Thai digital technology companies to the UK.

On his trip, Fox will also promote the capability of UK companies in areas such as financial services, and transport, the statement said.

But for the time being, it looks like the priority is more economic-driven than political. The Asia-Pacific region is without question becoming an increasingly important market for its oil and gas in the face of tightening Western sanctions. And Thailand, looking to diversify its energy sources, certainly sees great opportunities in Russia’s eastward move.

Executives of PTT Public Co Ltd visiting Moscow recently were reassured by representatives of Russia’s major energy companies that countries in this region have always been in their sights. Executives of Rosneft, one of Russia’s biggest global energy companies, pointed to the dramatic increase in Russian oil exports to the region – by 140 per cent – over the past five years.

Thailand has already taken modest steps in responding to Russia’s eastward policy in the field of energy. PTT has signed memorandums of understanding (MOUs) with three of Russia’s leading oil and gas companies – Gazprom Neft, Rosneft and Novatek – aimed at cooperation in the field of LNG supplies, upstream operations, crude and oil products trading, refining and petrochemical projects.

But cooperation so far is limited to purchases of liquefied natural gas from Gazprom. Tevin Vongvanich, the chief executive officer of PTT, admitted that Russia, despite its geopolitical role and vast economic potential, still needs to be better understood before Thai businessmen can really make an inroad into the Russian market.

“We look at this as an opening of the door to a better understanding of Russia,” said Tevin, referring to the MOUs that PTT signed with the Russian energy firms. Tevin late last month led a delegation of PTT executives and senior Thai journalists to Moscow and St Petersburg for a series of meetings with key players in Russia’s energy companies, including Rosneft, Gazprom Neft and the Ministry of Energy.

As Thai businessmen are still trying to find their way in Russia, Tevin believes that their Russian counterparts seem to have better and more specific ideas as to what they want to do in Thailand. This was clearly demonstrated during a recent visit to Bangkok by a Russian business delegation, described as the biggest to Thailand so far, led by Deputy Minister of Economic Development Alexei Gruzdev.

The Russian minister singled out transport, logistics, energy, biotechnology, pharmaceuticals, medical equipment, robotics and Internet technology as being among the areas that Russian businessmen are interested in and raised the prospects of Thailand being a hub for Asean.

One thing was made clear during the recent PTT executives’ visit to Russia. Asia and the Pacific are becoming an increasingly important market for Russian energy export. But what is also clear is that while Russia has an eye on Southeast Asia, China remains its priority. Russia last year became China’s biggest oil supplier. An extension of the East Siberia-Pacific Ocean oil pipeline between the two countries completed in January has doubled crude oil exports from 15 to 30 million tonnes annually.

Rosneft has also invested in oil refineries and service stations in India and in 2016 established a US$13.8-billion joint venture with Indonesia’s Pertamina to develop a new oil refinery in East Java.

In his meeting with the Thai delegation, Deputy Minister of Energy Molodtsov Kirill Valentinovich said that to support Russia’s move towards Asia, Russia will intensify its exploration and drilling of oil in eastern Siberia for the Asia-Pacific markets and Russian oil companies will work with countries in the region to discover new energy sources.

He believes that the recent re-election of President Vladimir Putin reflected the Russian people’s support for his policies, including that on energy, which he said has been crucial to the country’s economic well-being. “President Putin has a strong interest in the energy sector and is most likely to continue with the present policy,” he said, adding that there will be a stronger drive for more efficiency and lower costs with the help of modern technology and artificial intelligence in energy production.

Under its energy strategy until 2035 is a plan to develop 2,000 new oil fields and at the same time to find ways to balance its dependency on oil and gas. And if Western countries think they can disrupt Russia’s energy sector with their sanctions, they are wrong.

“The sanctions are not a major problem. We know what we are doing and nobody can stop us except ourselves,” Valentinovich said.

Russia is now the world’s biggest exporter of oil and second-biggest producer of natural gas. And with its increasingly assertive geopolitical role, critics in the West believe it shouldn’t be a surprise if Russia were to aim to become a global energy superpower wielding its vast reserves of oil and gas as a foreign policy tool. But such a notion is quickly dismissed by those running one of the country’s leading oil companies.

“That is something far from reality,” said Pavel Baluta, project manager of the investor relations department of Rosneft, referring to what he described as distorted Western news reports about how Russia under Putin has been using oil to augment its diplomacy.

He insisted that Rosneft, which is 50-per cent government-owned, conducted energy sales transactions based on economic calculations without political interference. He said that although government representatives sit on its board of directors, Rosneft is independent in its day-to-day management and decision-making.

He admitted that sanctions imposed by Western countries may have a direct effect on deep-water oil exploration and drilling and certain aspects of financing, but do not interfere with on-shore operations.

Tevin said PTT’s cooperation with Russian energy firms is in its initial stage, involving purchases of the country’s liquefied natural gas, but this would gradually be expanded to include joint ventures in surveys and exploration in the future.

The Committee of Sponsoring Organisations of the Treadway Commission (COSO), that launched the Enterprise Risk Management – Integrated Framework in 2004, released an updated framework in September 2017. COSO engaged PwC as the principal author of the update.

The new framework, now titled Enterprise Risk Management – Integrating with Strategy and Performance, focuses on the role of risk management in strategic planning. While the framework maintains the strengths of its original version ie the key concepts of risk management, it gives more detailed guidance on the integration of risk and strategy.

To enhance the risk management practices in an organisation, it’s important for all parties to understand their roles. T

he three lines of defense model can be a very useful tool to enable effective Enterprise Risk Management (ERM), from the strategy-setting level to the business process or day-to-day operations level.

Then, internal control comes into play. For example, once a particular strategy is set, you will have an idea what direction the company should go. The controls then need to be put in place in order to support the execution of that strategy.

If your strategy is to reduce the delivery time of the finished product to your end-customers, and you decide to outsource some of the delivery operations to a local logistics service provider, you will need to put in place a rigorous process to oversee the performance of that vendor.

When we apply the three lines of defense model to our example, the first line is the process owner who oversees the vendor’s performance, who should be able to identify potential risks relating to that process and then design the key controls necessary to manage those risks. The second line is normally the risk management unit, which provides education and advice about risk and control to the first line, as well as putting in place the framework to manage the risk.

The third line is an internal audit function which is an independent party that will review the risk and control of the business processes to ensure they’re efficient and effective.

By adopting the updated COSO ERM Framework, all three lines of defense will result in the organisation being in a better position to identify and respond to key risks associated with its strategy.

Risk and control are two sides of the same coin. In order to make a meaningful risk assessment and implement a risk response, we need to understand internal controls. Controls help to give confidence to the management that things are going in the way they should be ie that business processes are being carried out to achieve the objectives through the efficiency of operations, the reliability of reporting, and compliance with relevant laws and regulations.

When implementing a risk response, control activities help to ensure that response is executed properly. Risk management is also a process, like any other process, where controls need to be in place to ensure that operations are performed as intended.

So, you need to ask yourself, is your organisation ready to link strategy to risk management and set up good internal controls?

Contributed by VARUNEE PRIDANONDA, Partner – Governance, risk and internal audit services at varunee.pridanonda@th.pwc.com