牛津能源研究所：2023全球能源经济主题（英文版）（44页）.pdf
January 2023 OIES Paper:SP 21 Key Themes for the Global Energy Economy in 2023 OIES i The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its members.Copyright 2023 Oxford Institute for Energy Studies(Registered Charity,No.286084)This publication may be reproduced in part for educational or non-profit purposes without special permission from the copyright holder,provided acknowledgment of the source is made.No use of this publication may be made for resale or for any other commercial purpose whatsoever without prior permission in writing from the Oxford Institute for Energy Studies.ISBN 978-1-78467-215-7 ii Contents.ii Figures.ii Tables.ii 1.Introduction rebalancing the energy trilemma.1 2.Oil markets in 2023:the year of the aftershocks.4 3.European gas demand:key factors to keep an eye on in 2023.6 4.2023:A year for the EU to deliver the legislative framework of the Green Deal.8 5.Storage as an indicator of European market tightness.10 6.Final agreement on wholesale gas price caps foreshadows future challenges for EU energy policy .12 7.The EU regulatory framework governing solidarity during a gas crisis.14 8.Where will Europe get its gas from in 2023?.16 9.China in 2023:A year of two halves.18 10.Indias G-20 Presidency.20 11.Revisiting the Africa-Europe energy relationship.22 12.The Global Stocktake A critical update on climate action,or lack of it.24 13.Progress with climate finance ahead of COP28 will be vital in 2023.26 14.Article 6 post-COP27.28 15.Outlook for Carbon Removals Post-COP27.30 16.Methane emissions:the increasing importance of measurement,reporting,and verification.32 17.As China reopens,expect volatility.34 18.Electricity wholesale market design in Europe.36 19.Nuclear power in 2023:the nuclear renaissance resurrected?.38 20.How will the US Inflation Reduction Act affect hydrogen developments in 2023?.40 Figures Figure 1:Balance of risks.4 Figure 2:Monthly gas demand in EU27 UK,2019-2022(Bcm).7 Figure 3:European gas storage stocks(Bcm).10 Figure 4:Europe Balance 2023.17 Figure 5:Timetable for the Global Stocktake Process.24 Figure 6:Climate finance flows,actual and needed to limit warming to 1.5C.27 Tables Table 1:Canadian Methane Emissions Reduction Plan(megatonnes of CO2e).33 Table 2:Nuclear reactor plans,by country.38 Table 3:US Inflation Reduction Act hydrogen tax credits.41 Contents 1 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.1.Introduction rebalancing the energy trilemma In this latest edition of our Key Themes series we examine a number of topics which we believe will be highly relevant to the global energy economy in 2023.The past twelve months have seen a huge re-prioritisation of energy policy away from environmental issues and towards energy security and affordability.Many of the articles in this document question whether this will be a long-term trend or whether sustainability will return to the top of the policymaking agenda once the short-term need to focus on security of supply has passed.Indeed,many of our contributors argue that the short-term rebalancing of the energy trilemma towards energy security may even bring environmental benefits in the longer term given the desire of many countries to reduce their exposure to hydrocarbons in the aftermath of the war in Ukraine and its energy-related consequences.The re-balancing of the energy trilemma The energy trilemma has been a major plank of energy policy thinking over the past decade,focusing on the balance between achieving sustainability(decarbonisation of the energy system),equity(accessibility and affordability for consumers),and energy security(ensuring adequate supply).In developed economies,growing concern about the environmental impact of the energy economy meant that sustainability had increasingly become the priority,especially since the Paris Agreement at COP21 in 2015,with affordability and accessibility being related concerns of the energy transition,while energy security was seen as a lesser issue thanks to the availability of diversified supplies delivered through increasingly fungible global markets.In contrast,in many parts of the developing world,energy equity and security arguably ranked above sustainability,although the growing frequency and impact of extreme weather events has clearly placed the low carbon transition higher on policy agendas.Russias invasion of Ukraine has not only caused a dramatic reconsideration of this prioritisation,with energy security becoming the number one focus globally,but it has also highlighted the difference in perceptions of the trilemma around the world.In addition,a fourth dynamic government intervention is further highlighting the differences in perception and the difference in ability to manage the energy trilemma.The provision of finance is also a major topic of debate,especially in the Global South where countries are demanding support from the developed countries which are seen as responsible for the current environmental issues.2023 will see further debate about the rebalancing of the energy trilemma from a global perspective,with a number of key themes set to dominate policymaking,corporate decision-making,and academic debate.Differing regional perspectives In Europe,and especially the EU,the drive to diversify away from imports of Russian energy will continue.However,while the need to secure adequate supply for the winter of 2023/24 will necessitate a focus on short-term access to alternative sources of natural gas,2023 could also be a year in which EU plans for a faster energy transition start to crystallise.The REPowerEU plan that was catalysed by the Russian invasion of Ukraine is based on the thinking that a more rapid decarbonisation of the European energy system can provide more energy security over the long-term as well as helping to achieve the continents climate ambitions.However,two key questions that will be intertwined in 2023 are firstly whether energy security issues will continue to dominate and distract politicians away from the longer-term sustainability goals,and secondly whether the longer-term goals themselves,especially the aim to reduce gas demand set out in the REPowerEU plan,could undermine efforts to secure new supplies in the short term.The theme of short-term energy necessity merging into longer term climate strategy is also seen in other regions which are struggling to balance the energy trilemma.In many Asian countries,for example,high energy prices and the reduced availability of LNG taken by Europe have forced a reconsideration of energy strategy.Development of domestic coal resources,although clearly less environmentally friendly than many alternative energy sources,is becoming a priority again as cost and 2 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.availability trump climate impact,at least in the short term.Meanwhile in Africa,the EUs search for new gas supply has rekindled the drive to develop new gas export projects that can also supply the domestic market.In this case,a dual desire to generate export revenues and to provide energy access means that the priorities of the trilemma are being rebalanced.Assessing technology and financing options As the role of hydrocarbons is being reconsidered,and as the reality that they may remain important to the global energy system for longer than many would like becomes clear,so the sustainability element of the trilemma is being adjusted to cope.As evidenced at COP27 the development of carbon removal technologies,voluntary carbon markets,and carbon capture and storage business models is set to become an increasing theme in 2023 and beyond,at least with a medium-term perspective of facilitating a more orderly transition to a carbon-free energy system in the longer term.This does not mean that the expansion of renewables as soon as possible is not critical it clearly is and 2023 will provide more evidence of how growth is accelerating.However,another dynamic that will be a continuing focus in the coming year is the financing of the transition to a zero-carbon economy in the Global South.While rich OECD countries have the wealth to deal with a short-term energy crisis while also planning for a longer-term clean energy future,COP27 underlined that the developing world,where most of the growth in economic activity,population,and emissions will be seen over the next three decades,do not enjoy similar wealth and are demanding assistance from the Global North,which is the cause of the environmental problems in the first place.This finance dynamic that surrounds the energy trilemma in many regions of the world will be a huge focus in 2023,as the debate over the provision of funds for mitigation,adaptation and loss and damage develops ahead of COP28 at the end of the year.Geopolitics will be critical Beyond this issue,the rebalancing of the energy trilemma to focus on energy security has also highlighted some of the key emerging risks in the energy transition.With relations between the worlds two largest emitters,China and the US,becoming ever more competitive and assertive,a race to be the technology leader of the energy transition is well underway,and has been ratcheted up by the recent US strategy to dramatically limit technology transfer to China.While this will undoubtedly have a negative impact on Chinas ability to develop certain technologies it also highlights the cards which China has to play regarding security of supply of critical minerals and materials.Its dominance of the mining,and especially the processing,of key inputs to energy transition technologies is becoming a major element of the energy trilemma and of geopolitical debate,which is a further destabilising factor in resolving the rebalancing question.Two final points can be made on the impact of this rebalancing process and the uncertainties surrounding it.The first is that it increases the risk of stranded assets a short-term focus on hydrocarbons to replace Russian imports could lead to the development of new resources that have a limited lifespan should the elements of the trilemma be rebalanced again in the near future.This leads to a second key commercial risk for companies who are the key investors in the energy system.How do they balance short-term needs for energy security with longer term demands for a low or zero carbon environment?And how do they factor ESG requirements into their investment planning?One answer is that they will aim to develop any energy resources,hydrocarbons included,with as low a carbon intensity as possible,but 2023 is likely to be another year where this assertion is severely tested by the competing interests of energy consumers,environmental NGOs,demanding shareholders,and policymakers with multiple short-and long-term objectives.As a result,in 2023,the energy trilemma will remain critical for a number of reasons and will provoke a wide range of vital questions.First,as European countries seek new LNG supplies,will these undermine policies aimed at advancing the energy transition?Related to that,will ambitious targets to reduce emissions through lower gas consumption limit Europes ability to secure long-term gas supplies?Next,how will European policies and commercial strategies impact the availability and affordability of energy 3 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.in developing economies?Given sustainability concerns,can new hydrocarbon projectsrequired for supply securityget off the ground?And how will government policies impact these choices?Already,governments(and EU institutions)have been instrumental in dictating storage trends(both oil stock releases and gas stockpiling),which have in turn impacted price signals.Government perceptions of market risks and global trends will therefore be critical in 2023 as they inform policy choices and balance the trilemma.Finally,and related to this,government choices will lead to financing priorities:will governments opt to subsidise end users to shield them from the impact of high energy prices,or will they proceed with taxing fossil fuels and imposing carbon tariffs?Will developed economies invest in new hydrocarbon projects,grids,batteries or critical materials at home or abroad and how will these investment choices be perceived in developing countries?To help in assessing these questions and to provide some initial responses we have grouped the articles in this Key Themes paper as follows.We start within an assessment of,and outlook for,the global oil market,before continuing with a series of articles on Europe,including the outlook for gas demand,the need for significant regulatory activity in the EU,the importance of monitoring gas storage levels,and the potential impact of prices caps.We also look at whether EU member states will respond to solidarity agreements in a crisis situation.Moving to a more global perspective we then review the availability of LNG to meet European demand and what this might mean for other importing regions before assessing the impact of the re-opening of the Chinese economy,the energy implications of India taking over the G20 presidency,and the development of Africas hydrocarbon strategy as part of the energy transition.This takes us onto questions of a more environmental nature.We look at the issues that will likely be raised in the Global Stocktake which will take place in 2023 ahead of COP28 and also consider the critical financing issues that emerged from COP27 and need to be addressed during this year.We then review the need for further progress on Article 6 and the development of voluntary carbon markets,and related to this we consider the outlook for carbon removal technologies and the potential for further progress on the issue of accounting for greenhouse gas emissions in the energy value chain.We return to look at China,which has also pledged to issue a methane action plan this year but where a rapid rebound in energy demand could delay climate action and lead policy makers to focus on avoiding power shortages.Moving to the electricity sector,another contribution outlines why 2023 will be an important year for electricity market design in Europe.We also consider the resurgence of nuclear power across the world and ask whether 2023 will see a further acceleration of this trend.Finally,we discuss the impact of the USs Inflation Reduction Act on the development of hydrogen technology and ask whether it undermines activity elsewhere in the world.This list of themes is long but it is clearly not exhaustive.However,it highlights many of the topics which we will be researching at OIES during 2023 and we would encourage you to access our written output at www.oxfordenergy.org.For further details about how to join the discussion at the many events which we hold for our sponsors and benefactors,where you can meet our fellows and address issues in more detail,please contact Kate Teasdale at kate.teasdaleoxfordenergy.org.James Henderson Michal Meidan Head of Research,Gas Programme Head of Research,China Energy Programme (james.hendersonoxfordenergy.org)(michal.meidanoxfordenergy.org)4 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.2.Oil markets in 2023:the year of the aftershocks Oil markets were subject to a series of large shocks during 2022:Russias invasion of Ukraine in late February and the ensuing sanctions,embargoes,and the price cap on Russian oil imports;a coordinated response by oil-consuming nations(led by the US)to control prices by a massive release of strategic stocks;recessionary and inflationary pressures weighing on the global economy;Chinas domestic demand shocks from its strict zero-COVID policy;and the massive transformations in crude and products trade flows,to name but a few.Oil markets throughout the years have been subject to both supply and demand shocks,but 2022 also saw an increase in government intervention in global energy markets,including oil markets,as energy security and affordability concerns became key drivers of energy policy.These increased government interventions have elevated key uncertainties in the physical market,while oil futures have also witnessed a decline in liquidity and open interest,alongside rising costs of using these markets for risk management.These shocks and elevated uncertainties shaped balances and market expectations.That said,the global oil market adapted quickly and physical supplies were little affected.In fact the market built a small surplus of around 500,000 b/d in 2022 following a-2.3 mb/d deficit in 2021.The unwinding of OPEC cuts,the release of SPR oil,the ability of Russia to redirect its exports away from Europe,which limited the Russian supply disruption,and weak demand growth particularly in Q3 and Q4 all contributed to a fairly balanced market in 2022.The events that unfolded in 2022 have set the stage for another unpredictable year.Figure 1 below shows the balance of risks surrounding our reference outlook for 2023(in our reference case,Brent averages USD92.7/bbl in 2023).Even in the bearish scenarios(e.g.,deeper and prolonged recession,lower realisation of Russian supply disruptions,stronger US production growth)the oil price remains supported at around USD70/bbl as the low buffers in the system(i.e.,low spare capacity and low commercial stocks)keep prices sustained.The bullish scenarios in which prices move above USD100/bbl capture a perfect storm where large supply disruptions from Russia amid heightened geopolitical risks elsewhere are confronted by a mild recession and a strong rebound in Chinas demand.Figure 1:Balance of risks Note:Brent price Source:OIES(Oil Monthly)In 2023,pressures on global oil demand are shifting from recessionary concerns to the uncertainty over the extent and duration of a global recession.And even though inflation is set to decline this year,it remains uncertain how soon central banks will feel comfortable about easing monetary policy as well 5 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.as how much policy space there is to promote growth.But it is not all gloom for global demand prospects in 2023.The consensus continues to point towards only a mild recession in the US,and to Chinese demand growth in H2.Indian demand growth-a bright spot in 2022-is expected to soften slightly.In terms of oil products,the focus in 2023 will remain on middle distillates with jet fuel recovery a wildcard.Although jet fuel demand at the end of 2022 was only marginally improved from a year ago,estimated at around 20 per cent below pre-pandemic levels,we expect to see the recovery accelerating in 2023 even as the airline industry continues to face bottlenecks.Europe continues to rely heavily on Russian diesel imports(which accounted for an average of 45 per cent of the total in 2022).The upcoming embargo on imports of Russian products in February 2023 will force Europe to source supplies from other regions to substitute for nearly 500,000 b/d of Russian diesel import losses.Even the economic recession is unlikely to resolve the diesel supply deficit in Europe,while commercial stocks remain well below their five-year average.On the supply side,Russia will remain centre stage in 2023 as the EU embargo on Russian crude and oil products takes full effect.In 2022,Russia redirected sanctioned crude particularly to India,China,and Turkey,allowing its domestic oil production to remain close to pre-war levels.But with the EU embargo on crude and products exports in full force this could change.The full impact of the EU embargo and the price cap on Russias production and exports will not be fully understood at least until the end of Q1 2023 when the embargo on Russian products comes into effect on February 5.With its October decision to cut output,OPEC set the tone for 2023 and sent a clear signal that it is willing to act proactively and pre-emptively to balance the market.In the past,such moves were limited by weak cohesion within OPEC and the time it took to negotiate output cuts.As a result,OPEC responses always arrived late after market balances had weakened sharply.But OPEC cohesion is now stronger and the group can respond in a more timely manner.In the October meeting,OPEC signalled that it will take action at any time by calling an extraordinary meeting.Also,the dynamics within the group are shaped by the fact that most OPEC producers outside the Middle East are producing at maximum capacity and below their quotas.US shale continues to attract focus with the emergence of private operators as a new force within the shale industry while growth from public operators remains constrained due to investor pressure and bottlenecks,with US crude production growth projected to reach 800,000 b/d year-on-year in 2023 from 600,000 b/d in 2022.The use of the SPR as a tool for market management-a key feature in 2022-is likely to remain relevant in 2023.This includes announced buybacks but also potential releases should the market tighten.This reflects a more fundamental shift in US policy towards using the SPR to influence market balances and expectations.Lastly,geopolitical risks outside Russia in places like Libya also remain a wildcard,with a long speculated return of Iranian production now completely off the table in 2023.Last year also saw a massive and structural transformation in crude oil and products trade flows with US,West African,and Middle Eastern crudes finding their way into the Mediterranean and Europe,while Russian Urals crude has been competing in Asia with Middle Eastern and West African crudes,as well as other sanctioned crudes from Iran and Venezuela.In terms of products,Europe has increased its imports of non-Russian products attracting supplies from more distant places including the Middle East,India,China,and Brazil.In effect,the oil market in its various layers has been performing the key function of redirecting crude and products in the face of a massive shock,but as the trade routes have become longer,the adjustment in price differentials sharper,the tanker market more segmented,a new class of trading practices and entities is emerging.Refineries are having to change their crude slates resulting at times in sub-optimal use of crudes.These shifts in trade flows will accelerate and consolidate in 2023,with wide implications for the structure of the market,geopolitical relations,and the dominance of the dollar in oil trade.Bassam Fattouh(mailto:bassam.fattouhoxfordenergy.org)Andreas Economou(mailto:andreas.economouoxfordenergy.org)6 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.3.European gas demand:key factors to keep an eye on in 2023 European gas demand collapsed in 2022 on the back of mild temperatures,high gas prices,and changes in consumer behaviour(Figure).However,despite a strong decline in 2022,additional gas demand reduction will be needed in 2023 in preparation for winter 2023/2024 and even potentially for winter 2024/2025.Gas demand drivers are complex and specific,but there are a few key factors to keep an eye on during 2023.To begin with,the industrial sector has been the main source of gas demand flexibility in 2022,and it is expected to continue playing this role through voluntary reduction and demand response.For most manufacturing production(the chemical sector being a clear exception),strong output in 2022 suggested that record prices have not had as dramatic an impact as one could have expected(yet?)with significant switching to alternative energy sources and improved operational efficiency.However,after over a year of high prices,most of the low hanging fruit is likely to have been harvested by now,so it is unclear how easy it might be to further reduce gas use without reducing production.In addition,it seems likely that most of the decline has come from reduction measures(as opposed to major demand destruction),which means that when gas/electricity prices go down,be it as a result of the market rebalancing or as a result of support measures from governments,a significant proportion of gas demand in the industrial sector(which seems to have gone down by about 15-20 per cent in 2022)could come back within a few weeks,as seen in October when gas prices reached their lowest levels in months and fertilizer producers restarted production in Europe.Secondly,warm weather at the beginning of the year and similarly at the beginning of the winter season 2022/23,limited the need for gas use in space heating in 2022.Mild temperatures and continued high gas prices seem to have also facilitated an important demand response from small residential and commercial consumers,a usually rather inelastic sector in the short term,in the form of lower production and fuel switching in small businesses and lower energy use in the buildings sector.Continued participation of consumers in demand saving measures in buildings is going to be essential throughout 2023.There are two main uncertainties:first,government intervention in subsidizing energy bills and campaigns to save energy will need to send the right signals in order to keep consumption low;and second,temperatures:cold weather may erode consumers willingness to reduce their energy for heating (and possibly increase gas demand by up to 15-20 bcma).Finally,in contrast to the trends observed in the industrial and heating sectors,gas used for electricity generation increased year-on-year in 2022.Three main elements influenced the need to use more gas in the power sector(despite aims to reduce consumption):continued high electricity demand in the first eight months of the year,before energy-saving measures and economic slowdown finally started to have an impact from September onwards,and the low availability of both nuclear and hydropower.French nuclear generation typically covers as much as 15 per cent of European electricity needs,but in 2022,the French utility EDF faced a wave of repairs following the discovery of corrosion issues and also delays to its scheduled 10-year maintenance due to the COVID pandemic(as well as strikes in France in October).This forced a record number of reactors offline for most of the year.EDF is racing against the clock to put as many reactors as possible back in service as soon as possible.By late December the company had confirmed its expectations for 300-330 TWh of nuclear generation in 2023,which would still be relatively low for the French nuclear fleet but around 18-19 per cent higher than 2022 levels.However,uncertainties remain as the company revised its predictions for nuclear generation downwards four times in 2022.In conclusion,the key issues to keep an eye on in 2023 will be the pace of return of French nuclear reactors,the willingness and ability of large and small consumers to continue adapting their usual behavior in order to use less energy(especially during cold days in the winter),and last but not least,the depth of a looming economic recession.And while the main drivers are largely similar across Europe,the evolution of gas consumption will continue to be diverse,which can be explained by a number of country-specific factors including the role of gas in the energy mix,access to alternative fuels 7 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.and the levels,and extent,of support measures from governments to shield their national consumers from the worst impacts of high energy and gas prices.Figure 2:Monthly gas demand in EU27 UK,2019-2022(Bcm)Source:Data from Eurostat,IEA,Entsog,GRTgaz,Terega,THE,SNAM,Enagas,NationalGrid and Fluxys.Calculations and graph by the author Anouk Honor(mailto:anouk.honoreoxfordenergy.org)8 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.4.2023:A year for the EU to deliver the legislative framework of the Green Deal Since the Commission tabled the Fit for 55 packages in July/December 2021,the European Council(the Council)and the European Parliament(EP)have worked diligently to advance these initiatives.Besides the acts already agreed in November and December 2022,all the legislative acts of the two Fit for 55 packages,complemented by a new proposal regarding electricity market design and a Hydrogen Bank,need to be adopted by European legislators before the end of 2023.This timing is not only crucial in order to speed up the implementation of the Fit for 55 packages but is indispensable because the EP will not be able to exercise its role as co-legislator after Q1 2024 due to the European elections in June 2024 and the start of the election campaign in April 2024.The following sections provide an overview of the legislative process that needs to happen in 2023 and highlights the major issues which are at stake in each area:Legislation adopted relating to the two Fit for 55 Packages and due to come into force in 2023 The Council and the EP reached a provisional political agreement on the reform of the ETS1 and the CBAM2 in November/December 2022 pending formal adoption by both institutions which is due in early 2023.The Council also formally adopted new measures on Joint Purchases of Gas and a Solidarity Mechanism in December 2022.In addition,in December 2022 the Council adopted a regulation that establishes a Market Correction Mechanism to protect citizens and the economy against excessively high prices.The regulation aims to limit episodes of excessive gas prices in the EU that do not reflect world market prices,while ensuring security of energy supply and the stability of financial markets.All three measures are due to come into force in 2023.Ongoing legislative debate relating to the two Fit for 55 Packages Renewable Energy Directive:Discussions are continuing,with the key areas of debate being the headline renewables target,the obligation to replace 75 per cent of grey hydrogen in industry with renewable hydrogen by 2030,and the revision of guarantees of origin for renewable sources.REPowerEU Amendments:Discussions will start in January and the key issues are the renewable energy headline target,the framework for renewables permitting,and the definition of overriding public interests.Hydrogen and Decarbonised Gas Package:Discussions can only start once the EP and the Council have respectively adopted their report and general approach,likely in Q1.Methane Regulation:Discussions can start once the EP has adopted its report(likely in January)with the key issues being leak detection and repair obligations,monitoring and reporting obligations for underground coal mines,and the role of the International Methane Emissions Observatory.Energy Efficiency Directive:Discussions are ongoing around the scope of the energy efficiency first principle and the EU-wide 2030 energy efficiency target.1 Emissions Trading System 2 Carbon Border Adjustment Mechanism 9 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.Energy Tax Directive:Discussions within the Council are continuing with the main remaining issues being to allow more flexibility for Member States specific national circumstances,potential exemptions for aviation and maritime,and a potential transition period for the increased taxation of fossil fuels.In addition,EP and Council have to start and finalise the discussions on the following legal proposals:Energy Performance of Buildings Directive;Alternative Fuels Infrastructure Regulation;ReFuelEU Aviation Regulation and ReFuelEU Maritime Regulation New legislative discussions to be started by the European Commission in 2023 Electricity market redesign:A targeted,structural reform of the EU electricity market framework was announced by the Commission President in September 2022 as a reaction to criticism of the present system in the light of the current energy crisis.However,the Commission may well limit its proposal in Q1 to those elements that can be seen as an improvement on the Clean Energy Package,such as grandfathering the inframarginal clawback,consumer protection,notably against high energy prices,long-term contracts,and peak-shaving demand reduction.For the more controversial topics(notably the possible replacement or deeper reform of the merit order and the marginal pricing system,the introduction of a kind of nodal system,and the EU wide introduction of capacity markets),more consultations and analysis are needed.The Commission might undertake such analysis in 2023/24,leaving the tabling of the legislative proposal to the new Commission in 2025.Hydrogen Bank proposal:this proposal was also announced by the Commission President in September 2022.Funding of around EUR 3 billion will be proposed,to be administered via the Innovation Fund.The pilot phase of the Hydrogen Bank would start in Q3 2023 with a CfD3 scheme allocated via a competitive bidding mechanism,with a view to covering the cost gap between renewable hydrogen and methane or hydrogen produced from natural gas in the EU.Assessment This work program for 2023 represents a huge challenge for the European institutions.However,the EU must deliver on all its ambitious legislative actions if it wants to live up to its climate targets.This needs to happen at a time where the energy crisis is causing economic and social challenges in the shadow of the ongoing Russian war against Ukraine.If in previous times when the EU had to go through economic or political crises there was always the expectation that it would emerge even stronger from the crisis,this expectation cannot been taken for granted this time.The negotiations will show whether or not the Member States in the Council,the different political groupings in the EP,and the Commission are capable of striking compromises that truly deliver on all three overarching energy policy objectives:fostering sustainability by agreeing on an ambitious but also realistic path toward a high level of renewable energy in the European mix;safeguarding the security of energy supply for all Member States by moving forward in solidarity and accepting hydrocarbons and technologies like CCUS as important stepping stones for reaching carbon neutrality without jeopardizing security of supply;and guaranteeing households and industries affordable energy prices by developing the necessary support instruments at EU and national levels,including targeted measures to help the most vulnerable and energy poor.Only if all actors conduct negotiations with all three objectives in mind can one expect an outcome that not only makes the European energy system more resilient and fairer but also lays the foundation for an acceleration of the decarbonisation of the European economy in future years.Klaus-Dieter Borchardt(mailto:klaus-dieter.borchardtoxfordenergy.org)3 Contract for Difference 10 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.5.Storage as an indicator of European market tightness Gas storage,and its vital role in balancing the European gas market,increases in prominence during times of market imbalance.The rapid drawdown of stocks during a period of unusually cold weather in Europe(The Beast from the East)in Q1 2018 was followed by the use of storage to absorb excess volumes from an oversupplied market in summer 2019 and summer 2020.In Q1 2021,rapid withdrawals from European storage offset the drop in European LNG imports,with cargoes being drawn away to northeast Asia by a spell of very cold weather and a related surge in regional demand.In each of these cases,the rate of storage injection or withdrawal,along with total stock level,has been an indicator of market over-supply or under-supply,with those injections and withdrawals motivated by pricing signals that themselves reflect market conditions.2022 was different,insofar as the period between 1 April and 1 October saw record net injections despite record high prices.It was not summer oversupply,low prices,and the promise of wide sesasonal spreads that motivated those injections,but a strong concern over likely future market tightness in winter 2022/23.Such was the level of concern that net injections continued throughout October and into mid-November.This record injection through into early winter was made possible by a combination of policy-driven and price-driven demand reductions,robust pipeline supplies from non-Russian suppliers,and record LNG imports with cargoes attracted by high prices.Summer 2023 is likely to see a similar policy-driven push to replenish storage even if conditions for doing so are unfavourable.Figure 3:European gas storage stocks(Bcm)Source:Data from Gas Infrastructure Europe Aggregated Gas Storage Inventory.Graph by the author.In the period between 14 November and 31 December 2022,European net storage withdrawals totalled 12.6 Bcm.This was 8.7 Bcm(41 per cent)lower year-on-year,and 5.5 Bcm(30 per cent)below the average for the same period in 2017-2021.Indeed,2022 was the first year since 2010 that stocks actually grew between 24 and 31 December.This lower-than-average withdrawal reflects a market that remains relatively well-balanced,albeit with high prices necessary to continue attracting supply.Looking ahead,there are several signposts to look for.Firstly,storage stock levels in mid-winter(on 1 February 2023)will provide an indicator of how much of a buffer remains to balance the market in the event of a late-winter surge in demand,as happened in late February-early March 2018.Secondly,stock levels at the end of winter(on 1 April 2023)will indicate how much would need to be injected during summer 2023,in order to bring stocks back to capacity by 1 November 2023.Thereafter,stock levels will be monitored throughout the summer,to assess progress in bringing those stocks back to full capacity by 1 November.It should be remembered that Europe benefitted from 0102030405060708090100110 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 11 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.unusually benign weather conditions in October and the first half of November 2022,and a repeat of such conditions cannot be guaranteed in 2023.Therefore,Europe needs to be as close to its storage target as possible by 1 October,with stocks as close as possible to filling the 105 Bcm storage capacity.On 31 December 2022,European storage stocks were just over 87 Bcm,which was almost 32 Bcm higher than on 31 December 2021 and just over 14 Bcm higher than the 31 December average for 2017-2021.The average storage withdrawal in Q1 in 2018-2022 was 37.4 Bcm,peaking at 48.1 Bcm in Q1 2018 and reaching a low of 28.1 Bcm in Q1 2022.If that Q1 2018-2022 average withdrawal were to be repeated in Q1 2023,Europe would have around 50 Bcm left in storage on 1 April 2023.If the maximum or minimum storage withdrawals(in the cold and mild Q1s of 2018 and 2022,respectively)were to be replicated in Q1 2023,Europe would be left with a minimum of 39 Bcm and a maximum of 59 Bcm in storage on 1 April 2023.Average withdrawals in Q1 2023 would leave net injections of 50 Bcm sufficient to bring stocks back to full capacity by the start of winter 2023/24.The Mild Q1 or Cold Q1 withdrawals would mean summer net injections of 40 Bcm or 60 Bcm would be needed to bring storage back to full capacity.For comparison,European net injections in summer 2022 were around 72 Bcm.In Q1 2023,the supply-demand balance that will determine withdrawal volumes will be rather different to recent years.Demand looks set to be lower,Russian pipeline supplies also lower,and LNG imports higher.If pipeline supply from Russia remains at the December 2022 level(78 MMcm/d),the year-on-year decline in Russian pipeline supply to Europe in Q1 2023 will be 19.2 Bcm.In a benign scenario,continued subdued demand and robust LNG imports could offset that loss.For example,if LNG imports in Q1 2023 were maintained at the level of Q4 2022,the year-on-year increase in Q1 2023 would be 5.6 Bcm.Similarly,demand in Q4 2022 was 20 per cent lower year-on-year.Even if demand in Q1 2023 were just 10 per cent lower year-on-year,this would imply a drop of 14.9 Bcm.If non-Russian pipeline imports were to remain unchanged year-on-year,this balance -with lower demand and higher LNG supply fully offsetting lower Russian pipeline supply-would allow storage withdrawals in Q1 2023 to also remain virtually unchanged year-on-year,and the Mild Q1 scenario would be achieved.In a more challenging scenario,a surge in European gas demand and Asian LNG demand,combined with the year-on-year decline in Russian pipeline supply,could make the drawdown of storage stocks more substantial.For example,if non-Russian imports(pipeline and LNG)and production remained at the level of Q1 2022(thus reversing the gains in LNG imports in recent months),demand returned to the level of Q1 2022,and Russian pipeline supply remained at 57 MMcm/d(the average for the first half of January),a net withdrawal of 49 Bcm would be required to achieve a physical balance on the European market a withdrawal volume similar to the Cold Q1 scenario noted above.It is also possible to conceive of an extremely challenging scenario,in which cold weather across the northern hemisphere brings European demand back to the level of Q1 2018 and causes LNG imports to decline by 10 per cent year-on-year in the face of strong demand from Asia,while the other challenging scenario assumptions regarding production and pipeline imports remain unchanged.This would require storage withdrawals of 72 Bcm.If Russian pipeline supplies halted in mid-January,Q1 2023 storage withdrawals in this extremely challenging scenario would rise to 77 Bcm.As a result,although prices remain of critical interest because they may rise or fall dramatically in the space of a day or several days,storage stocks are a more fundamental indicator of market balance even though they may take weeks and months to be accumulated or drawn down.If Europe were to approach mid-August with stocks well short of the 1 October target,even a concerted effort to build stocks would be hampered by constraints on daily injection capacity.Conversely,if Europe were to begin winter 2023/24 with storage relatively full,this buffer would last for several months.This slow-moving nature of storage akin to a very large concert hall with very few,narrow entry-exit doors means that progress towards replenishing stocks in mid-to-late summer 2023 is likely to influence market sentiment(and,by extension,forward prices)for winter 2023/24.Jack Sharples(jack.sharplesoxfordenergy.org)12 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.6.Final agreement on wholesale gas price caps foreshadows future challenges for EU energy policy In late 2022 the EU Council finally agreed on a wholesale gas price cap mechanism in response to the record high gas prices.However,the market correction mechanism is problematic as it does not address the underlying causes of high gas prices,primarily the reduction of Russian gas supplies from 41 per cent of the EU gas market to 9 per cent,and the lack of low-cost alternatives to fill the gap.It serves as a warning that,even in the face of a serious and immediate emergency,the EU Council lacks either the will or the imagination to develop and implement policies which meet its stated objectives.This bodes ill for the decisions that the Council will need to take to transform the EUs energy systems to meet its climate goals and it raises questions about what will happen in the EU gas market when the mechanism takes effect in February 2023.The Council was divided on the value of a price cap and its level.The Commission was against a price cap,and it tried to avoid one by creating a framework without any detail.When this was rejected by several Member States,the Commission proposed a price cap at such a high level(275/MWh)that it would be unlikely to be triggered.This was also rejected prior to agreement on a price cap of 180/MWh at the TTF and if the TTF price was at least 35/MWh above a benchmark price for LNG for at least three working days.The mechanism applies from 15 February 2023,and will last for at least twenty working days if triggered.If the TTF price falls below the cap for at least three consecutive working days,the cap is automatically deactivated.There are also safeguards so that the cap is deactivated if it causes an increase in gas demand,a reduction in LNG imports,a significant drop in TTF liquidity,or if the EU Commission declares a supply emergency.The Commission,and the European energy and financial market regulators,ACER and ESMA,are charged with monitoring the functioning of the mechanism.If the mechanism causes market problems,the Commission will suspend it.The legislation makes grimly amusing reading.The drafters tie themselves in sophistic knots trying to justify the price cap,while at the same time explaining the need for all the safeguards to prevent it from harming the EU gas market.This is a circle which cannot be squared as the problems of a price cap are inherent to its nature.4 For the cap to have an impact it must override the prices which result from normal market functioning.Current prices are not caused by a market malfunction,but by a fundamental change in the supply-demand balance.It is no wonder that prices have increased dramatically as the EU has lost a third of its gas supply.Moreover,the recent falls in gas prices have been driven by demand reductions as the consumers have reacted to price increases,and the EU has been blessed with mild weather.Only by rebalancing supply and demand will prices be reduced sustainably.By implying that current prices are not a reflection of market reality,the very name of the market correction mechanism is disingenuous.Some may take comfort from the safeguards in the package but in reality,the problem of the price cap has only been kicked down the road.At the lower level of 180/MWh,gas prices in 2022 would have been above the cap for a fifth of the time,compared to a fiftieth of the time with the Commissions original proposal of 275/MWh.If the price cap is triggered at any point after February 15 then the market will need to find some other way of balancing which makes it more likely the safeguards will be triggered.But if the cap is suspended and prices rise to their natural level the price cap proponents will likely cry foul.As a result,the agreement is fragile and could lead to significant political dispute during the year if prices rise about 180/MWh.Germany reluctantly agreed to the mechanism in return for more ambitious renewable targets,but Austria and the Netherlands abstained.Agreement seems to have been driven more by the need to unblock the Councils agenda than any real meeting of minds.For example,price 4 For a detailed examination of the issues see Barnes(2022)EU Commission proposal for joint gas purchasing,price caps and collective allocation of gas:an assessment Oxford Institute for Energy Studies 13 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.cap discussions have delayed progress on key elements of the Fit for 55 package put forward by the Commission in 2021,including legislation on energy efficiency,renewables,reform of the gas market,and hydrogen.Therefore,it will be vital to monitor all reactions should gas prices start to rise towards the price cap level,not only from politicians from the various member states but also from market participants who will have to deal with the consequences of their actions.As with all state-interventions in markets,the unintended consequences could be significant.Alex Barnes(mailto:alex.barnesoxfordenergy.org).14 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.7.The EU regulatory framework governing solidarity during a gas crisis5 The EU has witnessed a severe gas(and energy)crisis since late 2021 and,in certain circumstances,the crisis could become more acute next winter.In this case,sharing of limited gas supplies across the EU could become a necessity.The Security of Supply Regulation(SOS Regulation,2017),the Gas Demand Reduction Regulation(GDR Regulation,2022),and the(draft)Enhancing Solidarity Regulation(ES Regulation,2022)all contain solidarity provisions,aimed at alleviating any such crisis.However,2023 could test the effectiveness of these provisions,particularly in respect of Germany,Czechia,Slovakia,Austria,and Hungary.SOS Regulation The SOS Regulation,adopted in 2017,introduced a solidarity obligation,under which a Member State which is directly connected to a requesting Member State,is obliged to reduce gas supplies to its own non-solidarity protected customers to support solidarity-protected customers in the requesting Member State.Solidarity-protected customers include all household customers connected to a gas distribution network and may include district heating installations in so far as they deliver heating to households(thus excluding small or medium-sized enterprises)or essential social services(including services such as healthcare,essential social care,emergency and security services but excluding educational and public administration services),and essential social services,as long as they are protected customers.A Member State can only request the application of the solidarity mechanism when the market cannot deliver the supplies for its solidarity-protected customers and after it has declared an emergency the highest crisis level(preceded by an early warning and an alert).Member States were required to conclude their bilateral solidarity agreements,stipulating technical,legal,and financial arrangements,by 1 December 2018 but by January 2023,only six such agreements have been concluded(between Germany and Denmark,Germany and Austria,Italy and Slovenia,Latvia and Estonia,Latvia and Lithuania,and Estonia and Finland).Enhancing Solidarity Regulation In December 2022,the EU adopted the ES Regulation,which alongside the joint purchasing platform and the price correction mechanism,included provisions on solidarity,complementing the SOS Regulation.In particular,the ES Regulation extended solidarity protection to critical gas volumes for security of supply of electricity.This obliges a Member State to reduce gas supplies to its own customers,except(essential)volumes to solidarity-protected customers,critical volumes for security of supply of electricity,volumes for the electricity needed for the production and transportation of gas,and volumes necessary for the operations of various critical installations and infrastructure for a requesting Member State that is unable to cover(the essential volumes of)its solidarity-protected customers and supply the critical gas volumes for electricity security of supply.It has also extended the solidarity obligation currently applicable only to Member States directly connected to a requesting Member State to Member States with LNG facilities,provided that the necessary infrastructure is available.Importantly,the Regulation has introduced the default rules governing the implementation of the solidarity mechanism for those Member States which failed to conclude their bilateral solidarity agreements by the time of a solidarity measure being requested.GDR Regulation Following an estimation by the EC that a 15 per cent reduction of gas demand would be sufficient for the EU to see through the winter of 2022/23 even if all Russian gas supplies were to be cut off in August 2022 the EU adopted the GDR Regulation,which stipulates a voluntary 15 per cent gas demand reduction by each Member State between 1 August 2022 31 March 2023(compared to their average consumption between 1 August and 31 March in the preceedeing five year period).It becomes mandatory when the Council,acting on a proposal from the EC and supported by a qualified majority,5 This article is based on Yafimava(2023 forthcoming)EU solidarity at a time of a gas crisis.15 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.declares a Union alert,obliging each Member State although exemptions are possible to reduce its gas consumption by 15 per cent,taking the already achieved reductions into account.EU gas demand had already declined by almost 15 per cent in 2022 compared to 2021,mostly due to very high prices(forcing industrial closures)and mild temperatures(leading to lower demand for residential heating).Should EU gas demand remain on this trajectory,an EU alert might not be triggered.The EC must propose triggering an EU alert if at least five Member States have declared a national alert,or if there is a substantial risk of a severe gas shortage or exceptionally high gas demand resulting in a supply shock but where the market is still able to manage the disruption.As the criteria is not clearly defined,the EC has significant discretion over whether to make such a proposal,and the factors capable of prompting it to do so include a complete halt in Russian gas flows to Europe,a significant deviation from the 15 per cent demand reduction trajectory,lower LNG imports,and colder weather causing an accelerated storage depletion.Once the EU alert is declared,Member States would determine whose supplies get cut off,prioritising supplies to protected customers.Industrial consumers would likely be the first to experience reductions,but difficult trade-offs would have to be made with each Member State determining which industries are considered more critical than others.There would also be measures aimed at reducing gas consumption by the electricity sector.Overall,the process of implementing the mandatory gas demand reduction provision has a significant scope for disagreements within Member States,between Member States,and between Member States and the EC over who is going to be cut off and who is going to be exempted,thus potentially undermining its effectiveness during an actual crisis.Conclusions:Possible Impact of Solidarity Measures During a Gas Crisis The solidarity measures stipulated in SOS,ES,and GDR Regulations would likely have a limited albeit not negligible impact on the gas supply situation for the central and east European sub-region,should Russian flows be cut off.Even if these measures are agreed and implemented and there are significant difficulties associated with this process,some of which could be resolved by next winter infrastructure and capacity constraints would limit the volume of solidarity gas which would be freed up and which could flow to these countries from the adjacent Member States.In the short term possibly until 2025,by which time more LNG supply and more LNG terminals and interconnections are expected to be available even with maximum assistance from the other Member States,the central and east European sub-region could have problems coping with the consequences of any further significant reduction in Russian flows.Therefore,although gas rationing appears increasingly unlikely during the current winter,there is a significant risk that rationing will be needed in the winter of 2023/24,unless a recession triggers an even more significant gas demand reduction than is currently being observed in Europe.Katja Yafimava(mailto:katja.yafimavaoxfordenergy.org)16 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.8.Where will Europe get its gas from in 2023?At the beginning of 2022,if someone had told you that European6 pipeline gas imports from Russia would decline by 55 per cent or some 83 bcm and that not only would gas supply to buildings be maintained in the depths of winter,but there would be record gas storage injections,you would have questioned their analytical capability and probably their sanity.While that is precisely what happened,Europe was very lucky in that the weather in 2022 was extremely warm at the beginning and end of the year,significantly reducing heating demand for gas,and the region also managed to increase its LNG imports by some 63 bcm over 2021,a rise of over 60 per cent.The very high prices also significantly reduced gas demand in industry and probably also affected household behaviour to limit energy consumption as winter approached.The rise in LNG imports reflected not only a rebound in global LNG supply of some 28 bcm(6 per cent),after the issues and constraints in 2021,but also diversions of cargoes away from other markets,especially China,where LNG imports were down by some 21.5 bcm,wiping out almost all growth since 2019.Europes overall 2022 balance saw the decline in pipe imports from Russia by 83 bcm being more than offset by a 74 bcm demand reduction,increased LNG imports of some 63 bcm,plus a slight increase in production and net pipeline imports from other sources which were higher by some 5 bcm.This additional supply of around 59 bcm enabled net storage injections of 32 bcm in 2022,compared to a net withdrawal of 22 bcm in 2021.7 Turning to 2023,we are already looking at a year-on-year reduction in pipe imports from Russia of around 40 bcm,assuming that flows continue at current rates via Ukraine and Turkstream.Even including flows to Turkey,pipe imports from Russia will be down to roughly 45 bcm,8 against 168 bcm in 2021.However,if gas demand were to remain at the same level in 2023 as in 2022(although this assumes another very warm year and no rebound in industrial gas demand)and the level of production,net pipeline imports(other than from Russia),and LNG imports were unchanged,then the reduction in pipe imports from Russia could be met by net withdrawals from storage of some 10 bcm(compared to the net injection of 32 bcm in 2022,so a net change of around 40bcm),as shown below.The net withdrawals from storage could be reduced by additional LNG imports,especially into Germany,with the new LNG import terminals coming onstream in 2023.The growth in overall LNG supply looks reasonably robust in 2023 with prospective growth of just under 30 bcm,although there are very few new export terminals coming onstream this year.The growth mostly comes from technical issues being resolved at projects in Norway,Malaysia,and the US(Freeport),additional feedgas in Trinidad and Nigeria,and the ramp up of volumes from projects which started up in 2022,such as Calcasieu Pass in the US and Coral FLNG in Mozambique.Europe might be expected to be able to get at least half the 30 bcm rise in LNG supply,which would eliminate the need for net storage withdrawals in 2023.However,LNG imports seem likely to bounce back in the rest of the world.China is likely to see some recovery in LNG imports even as domestic production and pipeline imports are likely to meet much of the incremental demand.The emerging southeast Asian markets are also growing.Any recovery in the very price sensitive markets of India,Pakistan,and Bangladesh may depend on LNG spot price levels in 2023.6 Europe includes the EU27 plus the UK,Norway,Switzerland,Serbia,Bosnia-Herzegovina,North Macedonia,Albania,and Turkey.7 The additional supply(based on changes in flows between 2022 and 2021)is 59 bcm(74 bcm lower demand plus 63 bcm more LNG,5 bcm more production and other pipeline imports minus 83 bcm loss of Russian pipe import)which accounts broadly for the change in the net storage injections/withdrawals of 54 bcm(32 bcm net injection in 2022 minus the 22 bcm of net withdrawals in 2021).8 Around 20 bcm to Turkey and 25 bcm to the EU and Balkans.17 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.Figure 4:Europe Balance 2023 BLUE demand is met by ORANGE supply Source:IEA,ENTSOG,KPLER data,NexantECA WGM,OIES estimates There are,however,some dangers to this potentially benign outlook for Europe,which has assumed that the other key parameters in terms of supply and demand in Europe in 2023 remain the same as in 2022,plus a rising global LNG supply.The IEA,in a recent note,9 suggested that European gas demand could be higher by some 20 bcm as a result of slightly colder 2023 weather and avoiding production curtailments in energy-intensive industries.In addition,there remains a strong possibility that flows of Russian pipeline gas through Ukraine could be completely cut off as the war continues and if President Putin decides to tighten the energy screw even further.At current rates around 40 mmcmd the full year flows of gas along the Ukraine route would be some 14.5 bcm.A shutdown for half the year would increase Europes need by some 7 bcm.This could also lead to Ukraine and Moldova requiring more imports from the EU,adding more supply requirements.If Europe were to need another 30 bcm in supply in 2023,compared to the initial relatively benign outlook,significant pressure would be placed on the LNG market and the level of global prices.LNG volumes to the more price sensitive Asian markets would be particularly at risk.Ultimately,Europe could be faced with an inability to refill storage during the summer and/or more curtailments of industrial gas demand,if LNG could not be diverted from other markets.As a result,although the outlook for 2023 appears more positive than many might have thought even three months ago,the risks of a supply shortage and higher prices cannot be discounted and the key parameters will need to be carefully monitored throughout the year.Mike Fulwood(mailto:mike.fulwoodoxfordenergy.org)9 How to Avoid Gas Shortage in the European Union in 2023.IEA,Paris,December 2022 18 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.9.China in 2023:A year of two halves A seemingly mundane announcement on 7 December 202210 effectively signalled the end of Chinas strict zero-COVID policy.The policy reversal has come as a surprise to many,especially given that the government seems to have made few preparations for it,such as rolling out vaccinations for the elderly or preparing intensive care units.And with limited data,the severity of the impact remains unclear.Since early December,the virus has been spreading in Chinas large cities-with estimates pegging the number of infected at around 250 million in the first twenty days of December11-alongside anecdotal reports of a spike in deaths.But the official death toll reported on 4 January 2023 was 5,253 since the start of the pandemic.Meanwhile,the economy continued to slow,with factory activity in December China shrinking for the third consecutive month as COVID infections sweeps through production lines.This deceleration will likely continue through early 2023 as infections continue,although Chinas National Health Commission reportedly expects outbreaks to peak in January.12 What is clear,then,is that China is learning to live with COVID and that much of the economic fallout will be felt in the first quarter of 2023,with some lingering effects in the first half.Whether infections peak in January,as the government expects,or later in the winter,remains to be seen.This,in turn,will be critical for Chinas economic outlook as well as for its energy demand.But the longer the economic deceleration,the sharper the rebound is likely to be as the government seems to be switching to a pro-growth mind-set.The Central Economic Work Conference(CEWC)-the most important Party-led annual economic meeting-which convened on 15-16 December,focused on the real estate sector and efforts to ensure that stalled construction projects are completed and that developers have sufficient credit to execute them.Bank funding and credit lines have since been made available to developers.The CEWC also gave a nod to a more proactive fiscal policy and indicated potential support for the tech sector.Put simply,announcements in December seem to be hinting at the unravelling of almost three years of macroeconomic policies that squeezed the real estate sector and private entrepreneurs alongside the strict COVID controls.The extent to which these are short term measures to support growth or a deeper U-turn in government priorities,will be a key question for 2023.The steepness of the recovery,after the initial hit,is also an open question.The Chinese government did not set a GDP growth target at the CEWC(it might still issue one during the Parliamentary sessions in March),but the IMF now expects Chinas GDP to grow by 4.4 per cent year-on-year in 2023,after a weaker expansion of 3.2 per cent in 2022.13 To be sure,views of Chinas growth potential vary widely,with estimates ranging from 3 per cent to 5 per cent for 2023.Proponents of lower growth rates highlight structural macroeconomic factors that will impede a return to the heyday of rapid growth,such as high levels of local debt and a long-term slowdown in housing demand which will hold back expansion in infrastructure that had served as a main growth lever for over a decade.But the domestic structural issues may not manifest themselves in 2023.The reopening of the country will likely result in a rebound in consumption and travel-with travel already beginning to recover in large cities-as well as fewer supply chain disruptions.As Chinas supply chains return to normal,business sentiment within China as well as international confidence in China as a manufacturing base could 10 National Health Commission,“Notice on Further Optimising and Implementing the Prevention and Control Measures of COVID-19”,7 December 2022,http:/ 11 Qianer Liu,Cheng Leng,Sun Yu,Ryan McMorrow,“China estimates 250mn people have caught Covid in 20 days”,Financial Times,25 December 2022,https:/ 12“Chinese Cities See Covid Peaking in January as Official Data Gets Obscured,”Bloomberg,26 December 2022,https:/ 13 Based on Xi Jinpings New Years speech,however,the economy grew in 2022 at over 4 per cent,Laura He,“Xi Jinping estimates Chinas 2022 GDP grew at least 4.4%.But Covid misery looms”,CNN,2 January 2023,https:/ 19 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.improve,leading not only to a catch-up in production,but potentially to a further boost in demand for manufacturing,even though the recession in Europe could dampen appetite for exports.The low growth forecasts may prove overly pessimistic,but equally,there are headwinds buffeting a very strong economic expansion.In light of this,energy demand is likely to remain subdued initially,and see a strong recovery in the second half of 2023.Both oil and gas demand are set to grow as economic activity rebounds.Oil product demand will see growth across the barrel:from industrial fuels for construction activity through to transport fuels as domestic and international travel resume.At the same time,crude imports and product exports depend on quotas and licences.And in a pro-growth environment,the government may issue additional allowances for independents to import crude and for the majors to export products as a means of boosting growth.Nonetheless,in the first half of the year,in the context of weak domestic demand,crude import growth could be muted even as product exports rise.What is more,it will be important to watch if environmental control policies and tax crackdowns will be softened,allowing the Shandong independents as well as new refineries to thrive.If environmental protection takes a backseat to growth,crude imports and refinery throughputs will rise strongly this year,but domestic demand increases will moderate product exports in the second half of the year.Gas demand may only pick up later in the year,although spot LNG purchases are slowly resuming.Even though an uptick in industrial activity will support gas demand,it will only lead to more spot LNG purchases if prices do not spike.Indeed,with additional flows on the Power of Siberia and a strong policy mandate to focus on domestic production,most of the incremental gas demand will be met by pipelines and domestic supply.That said,with new LNG terminals and SPAs starting up,LNG flows will pick up from their 2022 levels,rising by 6-8 bcm,after a close to 20 bcm drop in 2022.The potential,at least for the second half of the year,is likely skewed to the upside.Michal Meidan(mailto:michal.meidanoxfordenergy.org)20 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.10.Indias G-20 Presidency The energy trilemma(balancing energy affordability and accessibility while maintaining security of supply and ensuring environmental protection)shifted in 2022 to an overwhelming emphasis on energy security,particularly in developed countries.This created negative consequences for developing countries,regarding energy affordability and the 3Fs:food,fuel,and fertilizers.In light of these challenges,global dialogue and coordination fora have assumed added importance.The G-20 is a grouping of 19 developing and developed countries(including China),plus the EU.14 Together these countries represent 90 per cent of global GDP,80 per cent of global trade,and 67 per cent of the worlds population.India holds the G-20 Presidency in 2023 and will lead a nine-month global deliberation to shape the agenda for a September summit.Indias priority areas include the energy transition,climate finance,clean technology-sharing instead of dominance,pursuit of the Sustainable Development Goals(SDGs)including the 3Fs,and digital public infrastructure.15 For the first time,all G-20 troika members are developing countries(Indonesia,India,and Brazil).16 They will reinforce a common set of relevant priorities,address the 3Fs,and seek more balance in the energy trilemma,away from energy security alone and towards a greater emphasis on affordability and access,as well as environmental protection.The work of the G-20 takes place on two tracks,leading up to the summit:the Finance track,and the Sherpa17 track.The latter will set the development and energy agenda for the G-20 leaders.Sherpa will lead 13 working groups covering:energy,trade,investment,development,employment,tourism,agriculture,digital infrastructure,health,education,culture,environment,and anti-corruption.India has planned over 200 meetings across 32 workstreams in 50 cities,involving ministers,government officials,and civil society members in the lead up to the summit.India aims to influence the global conversation in three primary areas:(i)energy transition,including pushing for equal treatment of all fossil fuels;(ii)multilateral development bank(MDB)reforms to support climate finance through new financial instruments that do not increase developing country indebtedness when borrowing for global public goods;and(iii)digital public infrastructure to support energy efficiency and SDG progress,through enabling adoption of emerging technology areas such as 5G,IoT,artificial intelligence,machine learning,blockchain,drones,robotics,additive manufacturing,nano-based devices,etc.India has some experience with digital technology in SDG applications in agriculture,health,cyber security,smart cities,and automation,with special focus on solving real-life problems with information technology leading to increased energy efficiency/carbon credits.18 Smart meters are another 14 Argentina,Australia,Brazil,Canada,China,EU,France,Germany,India,Indonesia,Italy,Japan,Mexico,Russia,Saudi Arabia,South Africa,South Korea,Turkey,UK,and USA.15 Digital infrastructure refers to physical resources necessary for the use of data,computerised devices,systems for scaling and faster impact,and monitoring and verification.India has nearly half a billion internet users and many indigenous digital services,platforms,and solutions it is willing to share with peers.16 The“troika”refers to the past,present,and next presidency of the G-20.Its mandated collaboration ensures continuity of initiatives underway,as well as buy-in to new areas.17 Sherpas are personal representatives of leaders of member countries at such international summits,with the term being derived from the Nepalese who serve as guides for mountaineers in the Himalayas.18 India has a large ongoing government program to reduce the use of fossil fuels(including diesel)in agricultural pumping and to incentivize farmers,through direct digital payment transfers,to shift to solar powered pumps.There are also numerous ICT-based energy efficiency applications(apps)and pilot projects being tried in various parts of the country,for intelligent water management,smart buildings,solar powered refrigerated warehouses to reduce post-harvest losses,smart transport etc,all with a view to saving energy and realizing quantifiable savings.All these technologies use the internet for real-time communication and data capture,which is essential for entering these initiatives in the carbon credits market.India has frequently offered to share its digital technologies with other developing countries at cost or as a donation,eg COWIN which is its Covid vaccine tracking portal that contains details of over 2 billion administered vaccinations.21 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.application that can lead to better energy management,provided that the underlying digital infrastructure is in place.India will support other developing countries by offering some of these digital technologies.Other priority areas include:Green Grids Initiative/OSOWOG:19 Cross-border transmission networks for trade in solar energy during evening peaks,taking advantage of time differences e.g Oman/Qatar have afternoon sunshine when India and southeast Asia are dark;solar trade can avoid the use of fossil fuels at the evening peak.Global capacity building and climate resilience-building associations such as the International Solar Alliance;Global Biofuels alliance(Biogas,Ethanol);nature-based carbon sink solutions(e.g.,Mangrove Alliance);the coalition for Disaster Risk Reduction etc.These will be strengthened for continuity beyond Indias presidency.Green hydrogen and shared R&D to lower costs in pursuit of clean fuels for industrialisation and transport needs.Innovative low-cost cooling technologies(in the face of life-threatening temperature rises).Adaptation in the face of climate hazards(heat,drought,flood,fires)that jeopardize food security and SDG nutrition achievements.2023 is the UNs international year of millets,a drought-and heat-tolerant crop.“Mission LiFE”which pushes climate action from the country level down to individuals,companies,and governments,with proposals for their respective roles India believes that todays energy transition by only those who can afford it must not continue to be the way forward.Mohua Mukherjee(mohua.mukherjeeoxfordenergy.org)19 One Sun-One World-One Grid,an initiative of PM Modi that is backed by several countries including the UK,currently at feasibility study.22 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.11.Revisiting the Africa-Europe energy relationship Last year,Europes frantic search for alternative natural gas supplies to replace Russian gas imports led to an unexpected interest in African gas.Presently,Europe accounts for the bulk of Africas natural gas exports,and European governments are hoping to temporarily increase Africas share of these imports still further.Thus,an effective energy relationship between these two regions is crucial.Until the eruption of the Russia-Ukraine war and the worsening of Europes energy crisis,this relationship was mainly conducted in a commercial way by European or international energy companies and relevant African hydrocarbon entities(national companies and/or national/international company partnerships).This seems to be changing with the European Union(EU)taking a more interventionist role in the management of Europes gas imports.20 Unfortunately,there has been a lack of consistency in recent EU policies which is creating some confusion among gas suppliers.Two EU policy announcements issued in December 2022 could raise tension this year between Europe and its non-EU gas suppliers.The first is the EU climate action regarding the Carbon Border Adjustment Mechanism or CBAM21 and the second is its gas price cap mechanism decision.22 Although the yet-to-be fully adopted CBAM does not cover hydrocarbon imports,it does target energy-intensive products exported by African and Middle Eastern hydrocarbon producers.Nevertheless,it was the gas price cap decision,which directly relates to natural gas trade,which triggered immediate African reactions.Algerias energy minister was the first to respond by stating that Algeria does not support the idea of capping gas prices.The Algerian minister added that,open,transparent,non-restricted,and non-discriminatory gas markets are more than necessary.23 Interestingly,this was something the European Commission strongly pushed for a few decades ago during its gas market liberalization negotiations with gas exporters.Incremental African gas volumes are planned to be supplied to Europe starting this year and new international gas project investments are also expected to be sanctioned in 2023 and future years(e.g.,the final investment decision-FID-for the next phase(s)of Mauritania-Senegals Grand Tortue Ahmeyim LNG project).The EU gas price cap is temporary,and it is not clear how it would be implemented,if at all.But it could unnecessarily affect FIDs of potential new or expanded African gas export schemes.Could 2023 bring the moment of truth for all the African gas supply plans and expectations announced last year?Could an increase in African gas exports to Europe and African gas project FIDs materialize this year?All this is taking place against the background of Africas search for an as yet elusive fair energy transition.After the mixed results of COP27,the road to COP28 this year will again be a challenging one for African policymakers.Existing and future African gas exporting countries are at different stages in the formulation of their energy transition strategies,but for all of them,natural gas is expected to play a fundamental role not only in their energy transition strategies,but in their overall economic development.It would be nave and irresponsible to think that gas production in Africa could suddenly be stopped,significantly reduced,or avoided altogether.20 As formally framed in the EUs REPowerEU plan and including the recent gas price intervention announcement(footnote 3 see below).21 European Council(2022).“EU climate action:provisional agreement reached on Carbon Border Adjustment Mechanism(CBAM)”,13 December.https:/www.consilium.europa.eu/en/press/press-releases/2022/12/13/eu-climate-action-provisional-agreement-reached-on-carbon-border-adjustment-mechanism-cbam/22 European Council(2022).“Council agrees on temporary mechanism to limit excessive gas prices”,19 December.https:/www.consilium.europa.eu/en/press/press-releases/2022/12/19/council-agrees-on-temporary-mechanism-to-limit-excessive-gas-prices/pdf 23 Algerie Presse Service(2022).“Arkab:lAlgrie ne soutient pas lide de plafonnement des prix du gaz naturel”,20 December.https:/www.aps.dz/economie/149037-arkab-l-algerie-ne-soutient-pas-l-idee-de-plafonnement-des-prix-du-gaz-naturel 23 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.However,the long-term uncertainties about the future of unabated gas supplies pose a problem not only for gas exports to Europe,but also for supplies to African domestic energy markets.It is highly likely that European or international companies investments in African gas development projects will be affected by future European decarbonization measures,and therefore both African gas producers and international investors will need to focus on carbon capture,storage and utilization projects and the urgent reduction of associated gas flaring and methane emissions.Europe could play a role in assisting African hydrocarbon-producing countries in their energy transition strategies.A series of Africa-Europe initiatives,including the Africa-EU Energy Partnership,24 were set up,but these have had limited impact so far.Initially,there were African concerns about the EU Green Deal,specifically that it was imposed on them and that it was focused on mitigation,circular economy,and carbon taxes.25 In some cases,attempts by EU governments to develop clean energy initiatives in Africa have been based on old energy trade models applied to new clean products,such as the ambitious plans to export North African green hydrogen to Europe using massive dedicated renewable energy capacity in North Africa,while levels of clean electrification in Africa remain far from satisfactory.Therefore,the Africa-Europe energy relationship will need to be revisited to address not only Europes short to medium term gas import needs,but also Africas longer-term domestic energy consumption and energy transition concerns.Could 2023 be the trigger year for a more effective and sustainable Africa-Europe energy partnership or will it be a year of accentuated tensions between Europe and its African gas suppliers?Mostefa Ouki(mostefa.oukioxfordenergy.org)24 https:/africa-eu-energy-partnership.org/25 Hanne Knaepen(2020).“Barriers to Europe-Africa Cooperation on Climate Change”,ISPI,21 December.https:/www.ispionline.it/it/pubblicazione/barriers-europe-africa-cooperation-climate-change-28645 24 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.12.The Global Stocktake A critical update on climate action,or lack of it COP27,held in Egypt in November 2022,boasted a few notable successes,in particular the establishment of a Loss and Damage Fund to compensate developing countries for the impact of climate change.However,one of the most obvious deficiencies was the lack of significant progress on setting and implementing more ambitious emissions reduction targets.Prior to the conference a series of IPCC reports had highlighted that the world is not on target to meet its 1.5o warming target and during the event itself the NGO Climate Tracker highlighted that on the basis of current policy implementation the world will warm by 2.7o by 2100.26 To mitigate this,countries had agreed at COP26 in 2021 to update their national plans(or nationally determined contributions,NDCs)during 2022 with more ambitious targets,but only 20 of the 193 parties had done this by November.27 As a result,UN Secretary-General Antonio Guterres felt compelled to warn,we are on a highway to climate hell with our foot still on the accelerator.28 This situation has highlighted the importance of a process established under Article 14 of the Paris Agreement known as the Global Stocktake(GST).Its purpose is to assess progress on mitigation,adaptation,and the means of implementation and support,and in the light of equity and the best available science.29 In other words how are countries doing in their efforts to bring down emissions,how prepared are they to adapt to a changing environment,and what progress is being made to provide help to poorer countries,especially with climate finance.The GST takes place once every five years in tandem with the setting of new NDCs,as shown in the chart below.In the current cycle,progress on implementing the NDC targets set in 2020/21(a process that was delayed by COVID 19)is being reviewed in 2022/23 ahead of the presentation of new NDCs in 2025.These will then be reviewed in 2027/28 ahead of a further set of new NDC targets in 2030,as part of the ratcheting process established in the Paris Agreement.Figure 5:Timetable for the Global Stocktake Process Source:Author COP27 marked the end of the second of three phases in the current cycle.Phase 1,which began at COP26,has involved the gathering of information,while phase 2 has been the technical assessment of that data and a review process which commenced at COP27.The Sharm El Sheikh Implementation Plan,published at the end of the conference,30 noted the importance of this periodic review and it is significant that the discussions around the GST took place at numerous roundtables that involved 26 Bloomberg,10 November 2022,“Climate Projections Again Point to Dangerous 2.7C Rise by 2100”27 See Climate Action Tracker at https:/climateactiontracker.org/climate-target-update-tracker-2022/28 IISD Daily Report from COP27,Monday 7 November 29 https:/unfccc.int/sites/default/files/english_paris_agreement.pdf 30 Sharm El Sheikh Implementation Plan,Section XII,UNFCCC,at https:/unfccc.int/documents/624444 20202030202820252023NDC updates announcedNDC updates announcedNDC updates announcedGlobal Stocktake ProcessInformation collection and preparationTechnical AssessmentConsideration of OutputsCOP28COP35COP30COP33COP26(deferred from 2021 due to COVID)Global Stocktake ProcessInformation collection and preparationTechnical AssessmentConsideration of OutputsPublication of IPCC Synthesis ReportsPublication of IPCC Synthesis Reports 25 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.participants from a wide range of affiliations,underlining the intended inclusive and collaborative nature of the process.However,although the COP27 discussions on the GST were positive,despite some complaints about the presence of oil and gas industry lobbyists,31 the real test of the process will come in 2023 when the results are made public and the political negotiations about how to respond to them begin.One major issue will be the pledge by developed countries to provide USD 100 billion of climate finance for the developed world by 2020.This goal has already been missed,but a new promise to achieve it by 2023 will be reviewed in the GST and the outcome will no doubt be highlighted.Furthermore,although the performance of individual countries will not be a focus,in order to avoid excessive finger-pointing,it should also become abundantly clear whether the world as a whole is implementing emissions reduction plans and is on target to meet its climate objectives.As this is unlikely to be the case,controversial questions about why not and what can be done will no doubt be raised and vociferously debated.The first sign of results from the GST process should start to emerge in February 2023 when the 193 parties in the UNFCCC process,as well as interested non-parties(such as NGOs)have been invited to offer thoughts on how the outputs should be considered.A more specific consultation process is then planned for April before an in-person workshop in October,ahead of COP28 which is due to take place in the UAE from 30 November to 12 December.To further emphasize the importance of the GST,the UN Secretary-General has invited all parties to a climate ambition summit ahead of the conclusion of the GST to ensure that the outputs are fully understood and that resulting plans of action are considered.As a result,although the GST has been described as something of a sleeper issue its importance is set to become very clear in 2023 as it takes centre stage in the debate about the worlds progress,or lack of it,towards meeting climate goals and about the plans that need to be put in place to close any gaps.This could therefore be the moment when the reality of the climate emergency is laid bare and could act as an important catalyst for policy-makers to start to make more concrete plans to rectify the situation,with significant implications for countries and companies alike.James Henderson(james.hendersonoxfordenergy.org)31 https:/www.carbonbrief.org/cop27-key-outcomes-agreed-at-the-un-climate-talks-in-sharm-el-sheikh/#:text=Back to top-,Sharm el-Sheikh implementation plan,last years Glasgow Climate Pact.26 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.13.Progress with climate finance ahead of COP28 will be vital in 2023 One of the major themes for advancing climate mitigation and adaptation in 2023 will be the status and progress of climate finance.The years following the Paris Agreement in 2015 were marked by a sustained growth of capital allocation towards climate mitigation and adaptation,32 with major innovations also in terms of financing instruments adopted to channel capital.33 However,2022 marked a major break in this trend with the focus of global policy-makers moving from long-term environmental governance to short-term energy and debt affordability,while investors became less interested in pro-environmental investments and more concerned about inflation,interest rate,and currency risks.While the current energy crisis is likely to increase the longer-term motivation to develop low-carbon energy sources,it has also highlighted that the costs of the energy transition and of limiting climate change are far higher than previously thought.As a result,in 2023 the challenges of navigating the current uncertain economic environment could undermine hope for any major innovations in climate finance,despite the fact that it will become increasingly clear that more finance is needed if the world is to get back on track to meet its climate goals.Looking back at 2022,two main themes are particularly notable and whose consequences will be particularly relevant to monitor for 2023.First are the outcomes and consequences of recent international climate negotiations.A core objective of delegates at COP27,particularly those representing developing countries,was to bring the spotlight back onto the role of climate finance.The fact that COP27 was hosted in Africa gave major impetus for the host country to ensure this topic was high on the agenda,despite the major headwinds created by the energy and geopolitical crises in 2022.34 The main achievement was the announcement,on the final days of the conference,of the commitment to set up a fund for loss and damage arising from climate change.While the announcement has huge significance and reiterates once again the principle of common but differentiated responsibilities35,the operationalization and actual financial commitments still need to be agreed with the details expected to be part of more complex negotiations between developed and developing countries in 2023 and during future COPs.The second key issue for 2023 is whether there will be a recovery in the scale of climate financing,following a sharp decline in global issuance volumes in 2022 as a result of the global economic headwinds.Recent developments in instruments such as green bonds(and more generally Green,Social,and Sustainability Bonds collectively referred as GSS bonds)and Sustainability-Linked bonds,have marked an important milestone in facilitating the allocation of capital towards projects and assets for climate mitigation and adaptation.However,the current global economic environment,with rising interest rates in major economies,has created major challenges for the ability of emerging countries to attract investors and repay current outstanding debts due to the sharp appreciation of the US dollar against other currencies.Against this background,multilateral development banks(MDBs)can play an important role in supporting risk mitigation and promoting financing structures for developing countries.While MDBs have historically mostly focused on private blended finance transactions,2022 marked the first transaction in which the World Bank supported the de-risking of publicly-traded green bonds issued 32 Global investment in assets and projects directed to climate mitigation and adaptation reached USD 650 billion in 2022 alone according to IMF estimates.The International Energy Agency(IEA)estimated total investments between 2016 and 2020 averaged USD 1.5 trillion.See:“Net Zero by 2050.A Roadmap for the Global Energy Sector”,2021,https:/www.iea.org/reports/net-zero-by-2050.33 For instance green and other thematic loans/debt market as well as carbon markets in its various forms.Green bonds grew as an important asset class in the same period reaching the milestone of USD 1 trillion of debt outstanding in 2021.34 Already ahead of COP27,developed countries had promised to meet their USD100 billion financing target,as agreed in COP15 in Copenhagen,by 2023 at the latest after a delay from 2020 due to the covid pandemic.Limited results have been achieved so far on that front.35 The common but differentiated responsibilities in the United Nations Framework Convention on Climate Change acknowledges that developed economies carry a major responsibility in addressing the current climate crisis 27 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.by developing countries.36 The role of MDBs globally will be carefully monitored in 2023,especially as the need for change was actively discussed at COP27.The global stocktake will also have significant implications for climate finance in 2023.It will review the performance of countries against their climate plans and will outline what is needed to achieve the 2050 climate goals,most likely highlighting the need to scale-up investments(and thus financing)towards climate mitigation and adaptation.Current figures estimated by the IMF show a large gap between current commitments and the required scale.Only USD 630 billion were invested in 2022 compared to the need to achieve stable flows of investments of the order of USD 3-6 trillion between 2030 and 2050,see Figure 1.37 With the total share of global financial assets at USD 470 trillion,38 the main challenge that policymakers will face in 2023 and for the years ahead is how to shape incentives to direct capital towards climate mitigation and adaption assets and projects while navigating the current challenging economic and geopolitical environment.Figure 6:Climate finance flows,actual and needed to limit warming to 1.5C Sources:Georgieva K.,Adrian T.,Global Landscape of Climate Finance 2021,Climate Policy Initiative,IMF,August 2022,https:/www.imf.org/en/Blogs/Articles/2022/08/18/public-sector-must-play-major-role-in-catalyzing-private-climate-finance Andrea Maino(andrea.mainooxfordenergy.org)36https:/pressroom.ifc.org/all/pages/PressDetail.aspx?ID=26688 37 The International Energy Agency(IEA)estimates that in a net-zero scenario(NZE),investments in the global energy system need to increase from the current level of USD 1.5 trillion a year to USD 4.55.0 trillion a year between 2030 and 2050.Total investments range between USD 100 trillion and USD 150 trillion between 2020 and 2050.See:“Net Zero by 2050.A Roadmap for the Global Energy Sector”,2021,https:/www.iea.org/reports/net-zero-by-2050.38 In 2020 total global financial assets exhibited strong growth in 2020,increasing by 11 per cent with the global non-banking financial Intermediation(NBFI)sector,constituting mainly pension funds,insurance corporations,and other financial intermediaries experiencing asset growth of 8 per cent,reaching USD 230 trillion.See:https:/www.fsb.org/2021/12/global-monitoring-report-on-non-bank-financial-intermediation-2021/28 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.14.Article 6 post-COP27 At COP26 in 2021 the rulebook for Article 6 of the Paris Agreement(which covered the creation of a market for carbon credits)was finally established,and the focus then shifted towards putting the crediting mechanisms and frameworks included in it into operation.However,despite the optimism in the lead-up to COP27,market participants were left with a bittersweet feeling,with the resolution of many key issues pertaining to Article 6 being pushed back to COP28 in 2023.Negotiations in the lead-up to and during COP28,alongside the recommendations of various initiatives such as the Integrity Council for the Voluntary Carbon Market(IC-VCM)and the Voluntary Carbon Markets Integrity Initiative(VCMI),will have important implications for the development of wider carbon markets,including voluntary carbon markets(VCMs),and more generally,for the spectrum of policies that countries can implement to attract climate finance via carbon markets.In terms of advancing the operationalization of Article 6 in COP27,the Parties agreed on key reporting templates,particularly the Initial Report and the Annex to the Bilateral Transparency Report.Some observers believe the finalization of these templates should enable countries to start developing cooperative approaches and signing bilateral and multilateral agreements under Article 6.2.Under Article 6.2,a host country has the right to authorise the transfer of Internationally Traded Mitigation Outcomes(ITMOs)which can be used either by credit-buying countries towards achieving their nationally determined contributions(NDCs),in market-based schemes such as the Carbon Offsetting and Reduction Scheme for International Aviation(CORSIA)or by companies to offset their emissions.Perhaps the most contentious issue which remains unresolved is the optionality of host countries to revoke the authorisation for corresponding adjustments(CAs)of credits issued under Article 6.2(but also under Article 6.4).This is particularly important for investors,project developers,and the wider market which need predictability to be able to attract the necessary finance for scalability and for carbon projects to be bankable.This issue also relates to host countries concerns of over-selling cheaper credits at the risk of increasing the cost of achieving their climate targets.This has led a few countries such
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1st Quarter 2023SVB Asset Management views on economic and market factors affecting global markets and business healthOverviewDomestic EconomyForeign ExchangeCentral Banks and Fiscal PolicyCorporate Bond MarketMarkets and PerformanceThe US dollar(USD)bull run takes a pause.The USD reversed sharply in Q4 as Fed rate hikes became priced in and global economic conditions improved.Further tightening of monetary policy by the Fed is likely.The Fed remains focused on lowering inflation to its target 2%rate,and ongoing increases to the fed funds rate,albeit less aggressive,are expected in the near term.Corporate credit spreads tighten in Q4 2022.Indications that the pace of Fed policy tightening would slow along with signs of cooling inflation contributed to corporate credit generating positive returns and outperforming US Treasuries in Q4.Improvements in inflation have affected central banks expectations.The US,UK and EUR have lower expectations for rates in 2023 and 2024,while Japan and China are expected to slowly raise rates over time.Global equity markets experience 2022 losses.Persistent inflation,rising interest rates,geopolitical events and slowing corporate profits all contributed to global equity shortfalls.The Federal Reserve has aggressively raised the fed funds rate.In 2022,the rate was increased by 425 basis points(bps)in response to high inflation data.The labor market remains solid,with the unemployment rate at a 50-year low while inflation remains elevated.Although the Q1 and Q2 2022 gross domestic product(GDP)releases were negative,Q3 rebounded to 3.2%while the initial reading for Q4 GDP came in higher than expected at 2.9%.Front-end yields remain elevated and inverted relative to longer-term rates.Although the Fed is forecasting keeping rates restrictive for some time,bond yields in 2023 will reflect incoming data,most notably around inflation.Labor markets remain strong.The labor market has sustained economic growth and remains strong,although the pace of job growth may be moderating.QUARTERLY ECONOMIC REPORT|#0223-0181AD-0228243Source:Bureau of Economic Analysis,Congressional Budget Office and SVB Asset Management.Data as of 1/30/2023.2022 and 2023 data points are estimates.GDP values shown in graph are percent change vs.prior quarter on an annualized basis.Q4 2022 GDP read 2.9%(quarter-over-quarter QoQ,annualized rate)down slightly from 3.2%in Q3 due to rising interest rates and elevated inflation.For the full year 2021,GDP growth was 2.1%,with personal consumption and domestic investment heavily contributing.Growth is expected to slow down in 2023,with market consensus showing expectations for 0.1%for Q1 2023 and-0.6%for Q2 2023.QUARTERLY ECONOMIC REPORT|#0223-0181AD-0228245-40.0-30.0-20.0-10.00.010.020.030.040.0Q4 2013Q1 2014Q2 2014Q3 2014Q4 2014Q1 2015Q2 2015Q3 2015Q4 2015Q1 2016Q2 2016Q3 2016Q4 2016Q1 2017Q2 2017Q3 2017Q4 2017Q1 2018Q2 2018Q3 2018Q4 2018Q1 2019Q2 2019Q3 2019Q4 2019Q1 2020Q2 2020Q3 2020Q4 2020Q1 2021Q2 2021Q3 2021Q4 2021Q1 2022Q2 2022Q3 2022Q4 2022Personal consumptionPrivate domestic investmentNet exportsGovernmentGDPSource:US Bureau of Labor Statistics,Bloomberg and SVB Asset Management.Data as of 1/30/2023.During the fourth quarter of 2022,the average number of jobs grew by approximately 242,000 per month.The unemployment rate stayed historically low,ending the period at 3.5%,the same rate that it was before the onset of the COVID-19 pandemic in the US in February 2020.There continue to be more jobs available(10 million)than unemployed Americans(5 million),as companies continue to report difficulty in hiring despite rising wages.QUARTERLY ECONOMIC REPORT|#0223-0181AD-0228246-25-20-15-10-505202020212022Percent0.02.55.07.510.012.515.0202020212022Percent02,0004,0006,0008,00010,00012,00014,000012345678Thousands-PersonsPercentHire RateQuit RateJob Openings RateJob Openings(RHS)Source:Bloomberg and SVB Asset Management.Data as of 1/30/2023.Consumption for Q4 2022 increased 2.1%from the prior period and increased 4.4%on a year-over-year(YoY)basis.Market expectations are for personal consumption to moderate to 0.8%in Q1 2023.Retail sales excluding vehicles rose 6.1%on a YoY basis at the end of December 2022,down from 18.9%in December 2021.Higher wages and savings rates should lead to continued consumer spending.The rotation from goods to services should also be in effect.QUARTERLY ECONOMIC REPORT|#0223-0181AD-0228247020406080100120-40-30-20-1001020304050Household debt to disposable income ratioPersonal consumption(%)Personal consumptionHousehold debt to disposable income ratio 5 7 9 11 13 15 17 19 21 23 25-100 200 300 400 500 600 700 800Vehicle sales(units in millions)Retail and food services sales($billions)Retail sales excluding vehiclesVehicle salesSource:Bloomberg,US Bureau of Labor and Statistics and SVB Asset Management.Data as of 12/31/2022.*FED AIT is average inflation targeting.The CPI measures the weighted average price change in the prices paid by consumers for household goods and services.*Month over Month.Inflation has started to cool down with the December 2022 consumer price index(CPI)YoY reaching 6.5%.Core personal consumption expenditures(PCE),the Feds preferred inflation indicator,rose 4.4%on a YoY basis,down from 5.2%in September 2022.In addition to market forecasts,the Fed continues to reiterate that it expects inflation to decline over the course of 2023.QUARTERLY ECONOMIC REPORT|#0223-0181AD-0228248All itemsFoodFood at homeFood away from homeEnergyGasoline(all types)ElectricityNatural gas(piped)All items less food and energyCommodities less food and energyApparelNew vehiclesMedical care commoditiesServices less energy servicesShelterMedical care servicesEducation and communicationDec-226.50.40.80%8.30%7.30%-1.50.30.30%5.70%2.10%2.90%5.90%3.20%7.00%7.50%4.10%0.70%Nov-227.10.60.00%8.50.10.10.70.50%6.00%3.70%3.60%7.20%3.10%6.80%7.10%4.40%0.70%Oct-227.70.90.40%8.60.60.50.10 .00%6.30%5.10%4.10%8.40%3.10%6.70%6.90%5.40%0.00%Sep-228.20.20.00%8.50.80.20.503.10%6.60%6.60%5.50%9.40%3.70%6.70%6.60%6.50%0.20%Aug-228.30.40.50%8.00#.80%.60.803.00%6.30%7.10%5.10.10%4.10%6.10%6.20%5.60%0.50%Jul-228.50.90.10%7.602.90D.00.200.50%5.90%7.00%5.10.40%3.70%5.50%5.70%5.10%0.50%Jun-229.10.40.20%7.70A.60Y.90.708.40%5.90%7.20%5.20.40%3.20%5.50%5.60%4.80%0.80%May-228.60.10.90%7.404.60H.70.000.20%6.00%8.50%5.00.60%2.40%5.20%5.50%4.00%0.80%Apr-228.30%9.40.80%7.200.30C.60.00.70%6.20%9.70%5.40.20%2.10%4.90%5.10%3.50%1.00%Mar-228.50%8.80.00%6.902.00H.00.10!.60%6.50.70%6.80.50%2.70%4.70%5.00%2.90%1.50b-227.90%7.90%8.60%6.80%.608.00%9.00#.80%6.40.30%6.60.40%2.50%4.40%4.70%2.40%1.60%Jan-227.50%7.00%7.40%6.40.00.00.70#.90%6.00.70%5.30.20%1.40%4.10%4.40%2.70%1.60c-217.00%6.30%6.50%6.00).30I.60%6.30$.10%5.50.70%5.80.80%0.40%3.70%4.10%2.50%1.60%Nov-216.80%6.10%6.40%5.803.30X.10%6.50%.10%4.90%9.40%5.00.10%0.20%3.40%3.80%2.10%1.70%Oct-216.20%5.30%5.40%5.300.00I.60%6.50(.10%4.60%8.40%4.30%9.80%-0.40%3.20%3.50%1.70%1.80%Sep-215.40%4.60%4.50%4.70$.80B.10%5.20 .60%4.00%7.30%3.40%8.70%-1.60%2.90%3.20%0.90%1.70%Aug-215.30%3.70%3.00%4.70%.00B.70%5.20!.10%4.00%7.70%4.20%7.60%-2.50%2.70%2.80%1.00%1.20%Jul-215.40%3.40%2.60%4.60#.80A.80%4.00.00%4.30%8.50%4.20%6.40%-2.10%2.90%2.80%0.80%1.10%Jun-215.40%2.40%0.90%4.20$.50E.10%3.80.60%4.50%8.70%4.90%5.30%-2.20%3.10%2.60%1.00%2.10%May-215.00%2.20%0.70%4.00(.50V.20%4.20.50%3.80%6.50%5.60%3.30%-1.90%2.90%2.20%1.50%1.90%Apr-214.20%2.40%1.20%3.80%.10I.60%3.60.10%3.00%4.40%1.90%2.00%-1.70%2.50%2.10%2.20%1.70%0.01.02.03.04.05.06.07.08.09.0Core PCEFED AIT*Average Hourly EarningsSource:Bloomberg and SVB Asset Management.Data as of 1/30/2023.*Federal Housing Finance Agency.*The Case-Shiller 20-City measures the prices of residential real estate in 20 major US metropolitan areas.Home sales have slowed significantly,while inventory has slightly increased.For 2023,the market will be focused on the impact that multiyear highs in mortgage rates could have on home sales.QUARTERLY ECONOMIC REPORT|#0223-0181AD-0228249*0.02.04.06.08.010.012.014.00.01.02.03.04.05.06.07.08.09.0Home supply(months)Home sales(units in millions)Total sales(new and existing)Existing home supply0501001502002503003504004502004200520062007200820092010201120122013201420152016201720182019202020212022$in thousandsMedian home priceFHFA purchase*Case-Shiller 20-City*Source:Bloomberg,Organization for Economic Co-operation and Development(OECD,2022)and BCI(indicator).Updated 1/27/2023.Heatmap colors are based on the indices and time periods shown and summarizes businesses plan for economic activities.For the Fed surveys,the number represents business sentiment and the higher number represents higher business sentiment.For ISM indexes,the neutral number is usually 50.50,the economy is likely to expand;50,the economy is likely to contract.Business sentiment has declined over the past several quarters and dropped to below average in Q4 2022.Economic activity continued steadily throughout the fourth quarter.Institute for Supply Management(ISM)data remained in solid territory,and companies continue to be impacted by supply-chain issues and geopolitical events.#0223-0181AD-0228241095969798991001011021032008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022US Business Consumer IndexAverageDallas Fed Manufacturing SurveyPhilly Fed Manufacturing SurveyNew York Feds Empire Manufacturing SurveyKansas City Fed Manufacturing SurveyRichmond Fed Manufacturing SurveyISM Manufacturing PMI SAISM Non-ManufacturingDec-22-19.4-7.1-9.1-2.0-10.050.054.5Nov-22-14.4-15.54.5-2.0-9.049.055.5Oct-22-18.8-13.7-11.2-4.01.048.449.2Sep-22-17.2-9.9-1.51.00.050.956.7Aug-22-12.96.2-31.33.0-8.052.856.9Jul-22-22.6-12.311.113.00.052.856.7Jun-22-17.7-2.8-1.211.0-9.053.156.0May-22-7.33.5-11.621.0-9.056.156.4Apr-221.113.124.622.07.055.957.5Mar-228.723.2-11.832.011.057.058.4Feb-2214.012.73.125.03.058.457.2Jan-222.020.8-0.723.06.057.660.4Dec-217.815.531.927.014.058.661.7Nov-2111.541.430.925.014.060.867.6Oct-2114.425.319.831.012.060.466.6Sep-214.632.934.323.0-1.060.762.1Aug-219.019.718.327.014.059.661.7Jul-2127.327.343.027.024.060.064.0Jun-2131.131.417.428.027.061.161.2May-2135.732.724.328.021.061.963.9Apr-2138.145.626.330.017.061.063.0Mar-2128.951.817.426.017.064.762.3Feb-2117.223.112.124.014.060.855.3Jan-217.026.53.517.014.058.758.73%3%7%7%-2%2%3%-5%6%1%3%9%8%6%3%2%-6%-8%-9%-9%-11%-11%-12%-13%-13%-14%-17%-17%-18%-18%-20%-25%-20%-15%-10%-5%0%5%Brazilian RealMexican PesoSingapore DollarSwiss FrancIndian RupeeCanadian DollarChinese RenminbiColombian PesoAustralian DollarIsraeli ShekelTaiwanese DollarEuroSouth Korean WonBritish PoundNew Zealand DollarSwedish KronaJapanese YenQ1-Q3Q412Source:Bloomberg.Data as of 12/31/2022.The USD was strong through the first three quarters of 2022,but reversed sharply in Q4 as Fed rate hikes became priced in and equity markets recovered.Looking ahead,however,it is premature to call an end to the USD bull run.Two-way risk in currencies will persist as long as inflation uncertainty remains,and the ultimate impact on economic growth is still not known.The USD has the tendency to do well in times of financial distress due to its flight-to-quality status.Intervention from developed and emerging central banks has helped lift currencies from stressed levels against the USD.QUARTERLY ECONOMIC REPORT|#0223-0181AD-02282413Central banks have engineered demand slowdowns to manage down price pressures.Economic contraction has arrived,but recessions are probable as tightening has gone for longer than many expected.Central banks were late to get started and had to play catch-up and they have operated under pressure not to be labeled complacent on inflation.Central banks continue to measure progress by tracking backward-looking metrics,and assumed the responsibility of undoing the excesses of the previous decades loose policies.The USD has been positively correlated to risk aversion in and around recessions going back 30 years.It has traded lower heading into the recession,likely on optimism that the recession will be brief up during the recession on flight-to-quality inflows;and then down heading out of the recession associated with a relief rally in risk assets.Analysis uses DXY Index to compute USD returns.Recession periods selected per the definition outlined by the National Bureau of Economic Research(NBER).Recession startLength(months)12m before6m beforeDuring recession6m after12m after7/31/19908-10.6%-5.8%5.5%-2.3%-2.6%3/31/2001811.3%3.6%-1.1%-3.7%-8.4/31/200718-8.3%-6.4%4.5%-2.8%7.3%2/29/202022.1%-0.8%0.9%-5.0%-7.8%Average9.0-1.4%-2.3%2.5%-3.5%-2.9%Sources:Bloomberg and NBER.QUARTERLY ECONOMIC REPORT|#0223-0181AD-022824The end to Chinas zero-COVID policy and the reopening of its economy will result in a boost to global demand for goods,services,raw materials and commodities.On expectations of this trend to manifest over the coming quarters,the currencies of commodity-producing countries have outperformed so far in 2023.Most notably,the pesos of Colombia(key exports crude oil,coal,coffee)and Chile(key export copper)are leading the way,up roughly 10%and 6%respectively.0.981.001.021.041.061.081.101.121/5/20231/9/20231/13/20231/17/20231/21/2023Colombian PesoChilean PesoAustralian DollarBrazilian RealNew Zealand DollarCanadian DollarNorwegian Krona14All exchange rates vs.USD are normalized at 1.0 as of 1/05/2023.Source:Bloomberg.Data as of 1/05/2023.QUARTERLY ECONOMIC REPORT|#0223-0181AD-022824The Fed slowed the pace of rate hikes as it allows the impact of 400 bps of higher yields to flow through the economy.Source:Bloomberg and SVB Asset Management.Data as of 12/31/2022.Q3 2020:The Fed announced it would aim to achieve inflation moderately above 2%“for some time.”Fed projections showed rates remaining near zero through 2023.QUARTERLY ECONOMIC REPORT|#0223-0181AD-02282416Q2 2021:The stronger recovery triggered the Fed to revise growth and inflation expectations.The dot plot was updated to reflect two potential rate hikes in 2023.Q1 2022:The Fed turned hawkish in an effort to slow persistently elevated inflation.Seven or more rate hikes along with balance sheet reductions pushed interest rates to multiyear highs.Q3 2022:The Fed remains very hawkish with three consecutive 75 bps rate hikes in Q3 2022.Inflation stays elevated,and all Fed speak is unified in the message to raise rates until there is evidence inflation is heading toward the2%target.Q2 2022:Inflation and deteriorating consumer confidence forced the Fed to hike 50 and 75 bps in May and June.The Fed warned that the likelihood of a soft landing would be challenging as growth slowed.0.000.250.500.751.001.251.501.752.002.252.502.753.003.253.503.754.004.254.504.755.00Jul-20Aug-20Sep-20Oct-20Nov-20Dec-20Jan-21Feb-21Mar-21Apr-21May-21Jun-21Jul-21Aug-21Sep-21Oct-21Nov-21Dec-21Jan-22Feb-22Mar-22Apr-22May-22Jun-22Jul-22Aug-22Sep-22Oct-22Nov-22Dec-22Percent1-Year UST Yield2-Year UST YieldFed Funds MidpointQ4 2022:The Fed reduced the pace of rate hikes from 75 bps to 50 bps in December,as inflation has shown signs of abating and the market expects a fairly stable fed funds rate in 2023.Economic Projections202220232024United StatesChange in real GDP0.5%0.5%1.6%Core PCE4.8%3.5%2.5%Unemployment rate3.7%4.6%4.6%United KingdomChange in real GDP0.2%(1.9%)(0.1%)CPI10.9%5.2%1.4%Unemploymentrate3.7%4.9%5.9%EurozoneChange in real GDP3.4%0.5%1.9%CPI8.4%6.3%3.4%Unemploymentrate6.7%6.9%6.8%JapanChange in real GDP2.0%1.7%1.1%CPI3.0%1.7%1.9%UnemploymentrateNANANAChinaChange in real GDP3.0%5.0%5.0%CPI2.1%2.3%2.2%Unemploymentrate4.1%4.1%4.1%Recession predictions,slower global growth and persistent inflation push central banks to remain hawkish in their monetary policy.Source:Bloomberg.Data as of 12/31/2022.QUARTERLY ECONOMIC REPORT|#0223-0181AD-02282417Source:Bloomberg.Data as of 12/31/2022.Improvements in inflation have pushed central bank rate expectations lower in 2023 and 2024 for the US,UK and EUR,while Japan and China are expected to slowly raise rates over time.QUARTERLY ECONOMIC REPORT|#0223-0181AD-02282418-0.750.251.252.253.254.255.256.2503/30/202306/30/202309/29/202312/29/202303/28/202406/28/202409/30/202412/30/202403/31/2025Expected Central Bank Rate(%)USDEURGBPJPYCNYSource:Bloomberg Barclays Indices.Data as of 12/30/2022.Past performance is not a guarantee of future results.New issue of corporate bonds was slightly lower in 2022 than the prior two years,which is expected due to increased funding costs.Duration decreased noticeably YoY.372.1508.3492.2658.4659.1630.3855.9810.3857.01,062.71,084.11,136.7921.4993.41,661.41,310.71,154.30.0200.0400.0600.0800.01,000.01,200.01,400.01,600.01,800.020062007200820092010201120122013201420152016201720182019202020212022$BillionsIndustrialUtilityFinancial$285.95$485.59$539.18$175.00$331.00$456.000.050.0100.0150.0200.0250.0300.0350.0400.0450.0500.0550.0600.013yr 612yr15yr13yr 612yr15yr20212022$BillionsIndustrialFinancialUtility1%7%9%5%855A5FHI1EG%0 0Pp0yr 6-12yr1-5yr13yr 6-12yr1-5yr20212022AAAAAABBBQUARTERLY ECONOMIC REPORT|#0223-0181AD-02282420Source:Bloomberg.Data as of 12/30/2022.EBITDA Earnings before interest,taxes,depreciation and amortization.FCF Free cash flow.While credit metrics remained favorable in 2022 due to a stable debt balance and strong corporate earnings,leverage and debt coverage have started to normalize from 2021 levels.Shareholder buybacks tapered in early 2022 as companiesshifted from cash distribution to cash preservation amidst the economic slowdown.Meanwhile,dividends and capital expenditures remain elevated.QUARTERLY ECONOMIC REPORT|#0223-0181AD-02282421-2.0%0.0%2.0%4.0%6.0%8.0.0.0.0.0.0%0.01.02.03.04.05.06.07.08.0FCF/DebtDebt/EBITDA(times)Debt/EBITDA(LHS)FCF/Debt020406080100120Share price($)DividendCapExBuybackSource:Bloomberg.Data as of 2/03/2023.The risk premium between US Treasuries and corporate bonds has tightened from the elevated levels in late 2022.SVB ASSET MANAGEMENT|#0223-0181AD-02282422-15-55152535EnergyMaterialsIndustrialsConsumerDiscretionaryConsumerStaplesHealth CareInformationTechnologyTelecomServicesUtilitiesPercentDecember 2021December 20220100200300400500600700BPSOperating profitability,as measured by EBITDA margin,declined YoY for most sectors,with the exception of the Energy sector,which benefited from rising energy prices.All returns above are on a total return basis.YTD 2022 returns are on an aggregate basis up to 12/31/2022.US Aggregate refers to Bloomberg Barclays Aggregate Bond Index.US Treasuriesrefers to the US Treasury allocation of the Bloomberg Barclays Aggregate Bond Index.US IG Corporate refers to the IG Corporate allocation of the Bloomberg Barclays Aggregate Bond Index.High Yield refers to the US Corporate High Yield Bloomberg Index.Crude Oil refers to the Spot West Texas Intermediate Crude OilBloomberg-sourced.S&P 500 refers to the S&P 500 TotalReturn Index.Tech refers to the S&P Global1200 InformationTechnologyIndex.Biotech refers to the S&P BiotechnologySelect IndustryIndex.IPO Indexrefers to the RenaissanceIPO Index.Asset Class ReturnsSource:WSJ,S&P 500 Posts Worst First Half of Year Since 1970,12/31/2022.Bloomberg and Bloomberg Barclays Indices.Past index performance is no guarantee of future results.It was a difficult year for equity and fixed income markets as sticky inflation,aggressive Fed rate hikes,the Russia/Ukraine war,and volatile economic data kept markets on edge,weighing on investors sentiment throughout 2022.Meanwhile,crude oil outperformed for the second consecutive year after demand rebounded from 2020.Biotech32.91%IPO Index54.33%Biotech43.24%Biotech13.09%Crude Oil45.03%Biotech43.85%US Treasury0.86%Tech45.97%IPO Index109.60%Crude Oil55.01%Crude Oil6.71%IPO Index17.86%Biotech48.20%Tech14.23%Tech3.23%High Yield17.13%Tech39.65%US Aggregate0.01%Crude Oil34.46%Biotech48.10%Tech28.73%High Yield-11.19%S&P 50016.00%S&P 50032.39%S&P 50013.69%S&P 5001.38%Tech12.27%IPO Index35.75%High Yield-2.08%IPO Index33.87%Tech42.64%S&P 50028.71%US Treasury-12.46%High Yield15.81%Tech23.66%US IG Corporate7.46%US Treasury0.84%S&P 50011.96%S&P 50021.83%US IG Corporate-2.51%Biotech32.34%S&P 50018.40%High Yield5.28%US Aggregate-13.01%Tech14.52%High Yield7.44%IPO Index7.17%US Aggregate0.55%US IG Corporate6.11%Crude Oil12.47%S&P 500-4.38%S&P 50031.49%US IG Corporate9.89%US IG Corporate-1.04%US IG Corporate-15.76%US IG Corporate9.82%Crude Oil7.19%US Aggregate5.97%US IG Corporate-0.68%US Aggregate2.65%High Yield7.50%Tech-6.02%US IG Corporate14.54%US Treasury8.00%US Aggregate-1.54%S&P 500-18.11%US Aggregate 4.22%US IG Corporate-1.53%US Treasury5.05%High Yield-4.47%US Treasury1.04%US IG Corporate6.42%Biotech-14.99%High Yield14.32%US Aggregate7.51%US Treasury-2.32%Biotech-25.62%US Treasury1.99%US Aggregate-2.02%High Yield2.45%IPO Index-7.98%IPO Index-0.51%US Aggregate3.54%IPO Index-17.53%US Aggregate8.72%High Yield7.11%IPO Index-9.89%Tech-30.29%Crude Oil-7.09%US Treasury-2.75%Crude Oil-45.87%Crude Oil-30.47%Biotech-15.61%US Treasury2.31%Crude Oil-24.84%US Treasury6.86%Crude Oil-20.54%Biotech-20.38%IPO Index-57.06%QUARTERLY ECONOMIC REPORT|#0223-0181AD-02282424Rising bond yields in 2022 pushed returns negative in global bond markets as central banks underestimated the inflationary pressures caused by historically tight labor markets,rising commodity prices due to the war in Ukraine,and COVID-19 lockdowns in China,disrupting global supply chains.25Sources:Bloomberg and ICE BofA Indices.As of 12/31/2022.Indexes are unmanaged and cannot be invested in directly.Past performance is not a guarantee of future results.-18%-16%-14%-12%-10%-8%-6%-4%-2%0%2%ICE BofA US Corporate IndexICE BofA Global Broad Market IndexICE BofA US Broad Market IndexICE BofA US Inflation-Linked Treasury IndexICE BofA US High Yield IndexICE US Broad Municipal IndexICE BofA 1-3 Year US Treasury IndexICE BofA 0-3 Month US Treasury Bill Index0%1%2%3%4%5%6%January-20February-20March-20April-20May-20June-20July-20August-20September-20October-20November-20December-20January-21February-21March-21April-21May-21June-21July-21August-21September-21October-21November-21December-21January-22February-22March-22April-22May-22June-22July-22August-22September-22October-22November-22December-22Federal Funds Target Rate(Upper Bound)10-Year US Treasury2-Year US TreasuryQUARTERLY ECONOMIC REPORT|#0223-0181AD-022824Unprecedentedmonetary policy tightening from the Fed has pushed all-in yields higher in 2022 for both global and domestic bonds to levels not seen since 2008-2009.Daily yields from 12/31/2021 to 12/31/2022.Sources:Bloomberg and ICE BofA indices.Indexes are unmanaged and cannot be invested in directly.Past performance is not a guarantee of future results.*US Treasuries pertain to on-the-run sovereign 10-year securities.QUARTERLY ECONOMIC REPORT|#0223-0181AD-02282426-1.000.001.002.003.004.005.006.00USGermanyUKItalySpainJapanFranceCanadaYield(%)AverageCurrent0.001.002.003.004.005.006.007.00USTreasuries*USAgenciesCorporatesUS MBSUS ABSUS CMBSYield(%)AverageCurrent0.001.002.003.004.005.006.007.001-3 Year USTreasuries1-3 Year USAgencies1-3 YearCorporates1 YearCorporatesAAA AssetBackedYield(%)AverageCurrentQUARTERLY ECONOMIC REPORT|#0223-0181AD-02282427Percentages in table represent total return.Red cells indicate the lowest returns and green indicates the highest returns.Gray boxes indicate there were no securities within the specific duration range for the evaluation period.Credit spreads tightened across the last three months of 2022 on improved risk sentiment.Indications that the pace of Fed policy tightening wouldslow along with signs that elevated inflation was cooling contributed to corporate creditgenerating positive returns and outperforming US Treasuries in Q4.Duration0-0.250.25-0.5 0.5-1.01.0-1.51.5-2.02.0-2.52.5-3.03.0-4.04.0-5.05.0-6.06.0-7.07.0-8.08.0-9.0 9.0-10.010.0-11.011.0-12.0Over 12.0AAA1.16%1.05%0.84%0.82%0.77%0.97%1.15%1.83%1.61%3.21%0.80%2.51%3.42%3.60%3.61%4.17%3.1810.91%0.65%0.70%0.90%1.01%1.09%1.76%2.37%2.45%3.06%3.98%5.02%3.08%3.0621.03%1.10%0.90%0.92%0.77%1.12%0.92%1.53%1.82%2.65%1.84%2.66%5.93%3.68%4.14%3.10%2.6731.06%1.00%0.92%0.81%0.98%1.40%1.45%1.82%2.14%2.69%3.65%3.27%3.69%5.84%4.79%4.59%4.391.12%1.04%0.97%0.88%1.07%1.28%1.63%1.87%2.47%2.74%2.95%3.26%3.80%4.34%4.50%4.85%3.671.22%1.13%1.11%1.10%1.23%1.70%1.87%2.43%3.14%3.46%3.53%3.90%4.09%5.16%5.38%5.67%4.671.16%1.18%1.05%1.09%1.05%1.58%1.94%2.42%3.30%3.54%3.48%3.88%4.42%5.31%5.45%6.65%5.08B11.28%0.99%1.20%1.09%1.14%1.73%2.13%2.55%3.18%3.44%3.88%4.10%6.00%5.07%5.71%6.80%5.44B21.20%1.34%1.05%1.21%1.18%1.64%2.25%2.61%3.32%3.94%4.28%4.54%5.30%7.09%7.86%7.61%5.97B31.29%1.46%1.41%1.48%1.49%2.62%2.48%3.20%4.39%4.84%5.32%4.90%7.56%7.47.14%8.06%5.97%Duration0-0.250.25-0.5 0.5-1.01.0-1.51.5-2.02.0-2.52.5-3.03.0-4.04.0-5.05.0-6.06.0-7.07.0-8.08.0-9.0 9.0-10.010.0-11.011.0-12.0Over 12.0AAA0.91%0.89%0.80%0.66%0.60%0.86%1.11%1.31%1.34%1.34%1.16%1.08%0.92%0.27%0.33%-0.40%Sources:Bloomberg and ICE BofA Indices.Performance data as of 12/31/2022.Past performance is not a guarantee of future results.28Source:Bloomberg.Represents price return from 01/01/2022 to 12/31/2022.Indices are unmanagedand cannot be invested in directly.Past performance is not a guarantee of future results.Global equity markets were down 20%at the end of 2022 the worst performance since 2008.It was a consistent theme for 2022,with high and persistent inflation,rising interest rates,the war in Ukraine and slowing corporate profits all weighing on investors,with signs pointing to a likely recession in 2023.-35%-30%-25%-20%-15%-10%-5%0%5%Return(%)MSCI EMMSCI EAFES&P 500RUSSELL 2000PriceReturn2022MSCI EM-22.4%MSCI EAFE-16.8%S&P 500-19.4%Russell 2000-21.6%QUARTERLY ECONOMIC REPORT|#0223-0181AD-02282429Source:Bloomberg.Represents total return of S&P 500 sectors for 2022.Sector weights as of 12/31/2022.Indexes are unmanaged and cannot be invested in directly.Past performance is not a guarantee of future results.9.8%7.3%2.7%.7%3.2%7.2.8.7%2.7%8.7%5.2%Index WeightUS equities generated positive returns in Q4,as investors balanced ongoing caution from the Fed that the pace of rate hikes would slow with signs that inflation may be cooling.On top of that,especially strong corporate earnings in certain sectors in Q4 served as an additional factor.-15%-10%-5%0%5 %Q4 2022 Return#0223-0181AD-022824Head of SVB Asset MPortfolio MSenior Credit AInvestment AManaging DirectorHead of Portfolio MCredit AFixed Income TSpecial ContributorIvan Asensio,Ph.D.Head of FX Risk ASenior ManagerFixed Income TCredit APortfolio MManaging DirectorHead of Investment RSenior Portfolio MSenior Portfolio MSenior Fixed Income TSenior Portfolio MPortfolio MSenior Portfolio MQUARTERLY ECONOMIC REPORT|#0223-0181AD-02282430This material,including without limitation to the statistical information herein,is 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标普：2023年日本保险业展望（研讨会资料）（英文版）（34页）.pdf
This report does not constitute a rating actionJapan Insurance Sector Outlook 2023Outlook Stable;Whats the impact of rising interest rate in Japan?Toshiko Sekine,DirectorEiji Kubo,DirectorFinancial Services RatingsFebruary 22,2023Agenda Global Insurance Sector Japan Insurance Sector Outlook Key Takeaways Macroeconomic Outlook Life Insurance Sector Non-Life Insurance Sector The Hazards of Rising Interest Rates The New Economic Solvency Regulation and Views on IFRS 17 Case Study Q&AGlobal Insurance Sector:Insurance Is One Of The Highest Rated Sectors Globally,But Adverse Economic Forces Are At Play Despite macroeconomic headwinds,insurance ratings remain among the highest globally.However,financial market volatility,economic slowdown,and inflation raise uncertainties.Rise in interest rates is positive for investment income.Covid-19 continued to affect insurance claims in the United States and Asia in 2022,but will it settle down in 2023?The outlook for the global reinsurance sector remains negative from 2020.The outlook for the US non-life insurance sector changed to negative in October 2022.Rising interest rates,inflation and natural disasters are the main drivers.Japan Insurance Sector Outlook-Key TakeawaysDespite financial market volatility,Japan-based insurers creditworthiness will likely remain stable in 2023,supported by enhanced capital bases.A moderate increase in domestic interest rates should benefit life insurers.Natural catastrophe-related losses remain non-life insurers largest risk.Interest rate increases puts downward pressure on the current solvency ratio but has a neutral or positive impact on the economic solvency ratio,complicating the transition to new solvency regulation.Macroeconomic Outlook(1)S&P forecasts GDP growth rate of major countries to decline in 2023.Japans real GDP is forecasted to grow 1.2%and the policy rate may turn positive in 2023.A rise in domestic interest rates will provide more income from investments in yen-denominated bonds.It will partially mitigate the negative impact from higher hedging costs and fluctuations in stock prices.It is a positive factor for economic solvency ratio(ESR)for life insurance sector.Macroeconomic Outlook(2)Source：BloombergJapan interest rate has been rising gradually.Rising FX hedge cost is expected to remain a burden on insurers profitability.0123456US&Japan Government Bond Yield and Hedge CostHedge costUST 10yrUST 20yrUST 30yrJGB 10yrJGB 20yrJGB 30yr%Life Insurance Sector(1)Core profit for the fiscal year 2022(ending March 2023)is expected to decrease due to(1)an increase in FX hedge costs and(2)an increase in COVID-19 related claims.In fiscal 2023(ending March 2024),COVID-19 related claims are expected to decrease due to changes in the treatment of deemed hospitalization.On the other hand,hedging costs continue to be a downward factor.Life Insurance Sector(2)Annualized premiums for new business has recovered to the level before COVID-19.Sales of foreign currency denominated products have been a driver for growth in fiscal 2022.In fiscal 2023,savings type products and third sector products(medical insurance,cancer insurance,etc.)are expected to drive the growth.Life Insurance Sector(3)In response to rising hedging costs,life insurers are selling hedged foreign bonds and shifting to domestic long-term bonds and foreign stocks.Stance on FX risk hedging varies among insurers,but the hedge ratio remains at a relatively high level.Life Insurance Sector(4)Japanese life insurers are working to reduce market risk,especially interest rate risk.A rise in domestic long-term interest rates is a positive factor.In fiscal 2022,consolidated net income for the three major domestic non-life insurance groups is expected to decline year-on-year.The main factors include natural disasters,an increase COVID-19 related payments,and an increase in the loss ratio for auto insurance.In fiscal year 2023,the impact of COVID-19 is expected to decrease,and factors to watch are the impact of natural disasters and inflation.Non-Life Insurance Sector(1)Net Combined Ratio and ROEProfitability sensitive to natural disastersNon-Life Insurance Sector(2)Source：S&P Global RatingsNatural disasters continue to be the biggest risk factor.In fiscal year 2022,major events included hailstorms,typhoons Nanmadol&Talas in Japan,and Hurricane Ian etc.overseas.Non-Life Insurance Sector(3)Reinsurance premiums continue to rise,and further increase is expected at the next renewal.Non-life insurers are trying to balance cost and risk by changing reinsurance schemes and terms.Non-Life Insurance Sector(4)For investments,non-life insurance groups have announced to accelerate the sale of strategically held stocks.Investments in foreign corporate bonds and alternatives are increasing.Increasing credit risk requires attention.Non-Life Insurance Sector(5)Major non-life insurance groups ESRs are expected to remain within their target range by appropriately controlling natural catastrophe risks and market risks.Pressure for shareholder returns remains strong and dividend increases are likely to continue.However,we expect that share buybacks will be conducted in a flexible manner.The Hazards of Interest Rate Hike(1)Subordinated debt issuanceThe trend of subordinated debt issuance for life insurers and non-life insurers is different.Life insurers,whose balances continue to grow,may also see their issuance slow as funding costs rise.The Hazards of Interest Rate Hike(2)Leverage ratios may go upA decrease in unrealized gains on securities may reduce net assets and increase the financial leverage ratio.However,we believe it will remain below the 40%threshold to change the Funding Structure assessment to“moderately negative.The Hazards of Interest Rate Hike(3)Regulatory solvency margin ratios dropThe current regulatory solvency margin ratio(SMR)and the economic value-based solvency ratio scheduled to be introduced in fiscal year 2025 move differently by the rising interest rates.Japanese insurers place more weight on ESR than SMR.However,there is a need to watch SMRs as they often serve as mandatory interest deferral triggers for subordinated debt.The New Economic Solvency Regulation and Views on IFRS 17(1)In June 2020,an expert panel on economic value-based solvency regulations published a report on new regulations.In June 2022,the Financial Services Agency announced the provisional decision on the basic content of economic value-based solvency regulations.Reconfirmed schedule for finalization of standards around spring 2024 and enforcement from April 2025.According to the latest FSA FT,if the March 2021 base ESR of all domestic life insurance companies is 212%,the ESR will be decreased by about 19 points assuming the yen interest rate is shifted downward by 50 basis points in parallel(but the ultimate interest rate(UFR)is fixed).If the March 2021 standard ESR for all domestic non-life insurance companies is 193%,the ESR will rise by about 0 points,assuming the yen interest rate is parallel-shifted downward by 50 basis points(but the ultimate interest rate(UFR)is fixed).The New Economic Solvency Regulation and Views on IFRS 17(2)IFRS 17 is effective for annual reporting periods beginning on or after 1 January 2023 with earlier application permitted as long as IFRS 9 is also applied.In March 2004 the International Accounting Standards Board(Board)issued IFRS 4 Insurance Contracts.IFRS 4 was an interim standard which was meant to be in place until the Board completed its project on insurance contracts.IFRS 4 permitted entities to use a wide variety of accounting practices for insurance contracts,reflecting national accounting requirements and variations of those requirements,subject to limited improvements and specified disclosures.In May 2017,the Board completed its project on insurance contracts with the issuance of IFRS 17 Insurance Contracts.IFRS 17 replaces IFRS 4 and sets out principles for the recognition,measurement,presentation and disclosure of insurance contracts within the scope of IFRS 17.In June 2020,the Board issued Amendments to IFRS 17.The objective of the amendments is to assist entities implementing the Standard,while not unduly disrupting implementation or diminishing the usefulness of the information provided by applying IFRS 17.Other Standards have made minor consequential amendments to IFRS 17,including Amendments to References to the Conceptual Framework in IFRS Standards(issued March 2018)and Definition of Material(Amendments to IAS 1 and IAS 8)(issued October 2018).The New Economic Solvency Regulation and Views on IFRS 17(3)Will S&P take rating action after the introduction of the new economic value-based solvency regulations?We analyze the economics underlying a companys financials and financial activities.Changes in regulations and accounting standards generally do not affect ratings unless they specifically affect the underlying economics.That said,changes in regulation and accounting standards may have secondary effects.Capital and Earnings is rated 8(vulnerable)if S&P determines that the risk of regulatory intervention in an insurer is high.Depending on the design of future solvency regulations,the risk of conflict may increase.The New Economic Solvency Regulation and Views on IFRS 17(4)The new regulations will use new indicators.How will S&P treat these new measures in its models and take into account the differences that arise when using different assumptions?Under Japans new economic value-based solvency regulations,the amount equivalent to the value of in-force business will be included in qualifying capital.IFRS 17 also introduces a new accounting element,the contractual service margin(CSM).Under our criteria,S&P will include up to 50%of VIF(before cost of capital)in total adjusted capital(TAC)in our capital model.Include up to 50%of either the VIF equivalent amount or the CSM in the TAC,as with VIF treatment,and in the absence of embedded value information.S&P Global Ratings view of the appropriateness of the assumptions used to calculate the VIF equivalent,particularly discount rates such as the ultimate interest rate,liquidity premiums,and credit spreads,may also influence S&P Global Ratings treatment.We may adjust an insurers capital and earnings assessment based on our view of the underlying assumptions underlying the CSM and VIF equivalents.We may also consider part of the IFRS 17 risk adjustment(RA)as a component of TAC.It may also take into account to some extent a margin over current estimate(MOCE)equivalent to the cost of capital,similar in concept to RA.The New Economic Solvency Regulation and Views on IFRS 17(5)Any issue happens if we assess competitive position/profitability based on new accounting/solvency rules?An assessment of an insurance companys profitability is important in assessing its business competitiveness.However,when IFRS 17 is introduced,there will be fundamental differences from current JGAAP.The loss of comparability extends to measures of income,expenses,profits and capital concepts.Reduced comparability of key financial metrics as defined in S&Ps criteria.For life insurers,the problem is even more acute,as life insurance products have longer contract terms than non-life insurance products.If IFRS 17 is voluntarily adopted,CSM and RA can be included in TAC to some extent.If IFRS is not voluntarily adopted,it might be an idea to use the VIF equivalent amount and changes in MOCE as supplemental information for regulatory economic value-based solvency.Economic ESR B/SEconomic ESR B/SAmortized HTM BondsStandard Policy Reserve ex.Excess over Zillmer MethodStandard Policy Reserve ex.Excess over Zillmer MethodBook Value Best Estimate Best Estimate Fair Value FVTPLCurrent EstimateCurrent EstimateFair ValueAmortized Policy Reserve Matching BondsClaim ReserveBook Value(TVOG)Fair Value FVTOCIRisk AdjustmentFair Value AFS SecuritiesExcess over Zillmer MethodMOCEAmortized Amortized CostContractual Service MarginFair Value Trading SecuritiesContingency ReserveReconciliation to Economic Value(Policyholders Liability)Common StockFair Value DerivativePrice Fluctuation ReserveTax Effect ReconciliationCapital SurplusCommon StockCommon StockRetained EarningsCapital SurplusCapital SurplusAOCIRetained EarningsRetained EarningsAOCI for AFS BondsAOCIAOCI for Deferred HedgeReconciliation to Economic Value(Investment Asset)*BuleIncluded in TACJGAAP&Insurance Business Act B/SJGAAP&Insurance Business Act B/SIFRS B/SIFRS B/SThe New Economic Solvency Regulation and Views on IFRS 17(6)Will new regulation affect ratings/equity content of hybrid securities?An insurers hybrid securities must meet regulatory qualifying capital requirements to be included in the TAC.We do not believe that the introduction of ICS version 2.0 will make the existing hybrid securities of Japanese insurers no longer eligible for regulatory capital.Existing hybrid securities issued by rated Japanese insurers are typically rated two notches below their long-term issuer ratings.The difference reflects the securitys subordination to senior debt and coupon nonpayment risk arising from optional deferral provisions.Most hybrid security contracts also include mandatory interest deferral clauses.The usual trigger for the mandatory deferral of interest payments is the failure to meet the minimum regulatory solvency margin ratio requirement in Japan,which is currently 200%.Additional clauses may also be included in hybrid securities contracts which stipulate that the current minimum solvency margin ratio requirement in the mandatory deferral of coupon clauses will be replaced by the new economic capital adequacy ratio(ESR)requirement after the introduction of the new solvency regulations,The New Economic Solvency Regulation and Views on IFRS 17(7)Will new regulation affect ratings/equity content of hybrid securities?Equity ContentThe New Economic Solvency Regulation and Views on IFRS 17(8)Will new regulation affect ratings/equity content of hybrid securities?(Continued)How close to the trigger level,sensitivity,and other factors can increase the likelihood of breaching minimum regulatory requirements.We may consider additional notching down to reflect the risk of mandatory deferral of interest payments in the rating.According to a series of field tests conducted by the Financial Services Agency,the ESR of all domestic life and non-life insurance companies is 212%and 193%,respectively,as of the end of March 2021.Furthermore,ESR of life insurers is highly sensitive to fluctuations in yen interest rates.Increased risk of not meeting regulatory minimum capital requirements in the future.0P00 0%0i-ichi GroupMeiji Yasuda GroupSumitomo Life GroupJapan Post LifeT&D GroupFukoku LifeFSA FT(Life)Tokio Marine Group(Before revision)Tokio Marine Group(After revision)MS&AD GroupSOMPO GroupFSA FT(Non-Life)2018/32019/32020/32021/32022/32022/9The New Economic Solvency Regulation and Views on IFRS 17(9)Will new regulation affect ratings/equity content of hybrid securities?(Continued)In some cases,there is a provision that the trigger will change to the changed regulatory minimum capital requirement,when solvency regulations change.New economic value-based capital regulations may be introduced from FY2025 at the earliest.If the trigger for mandatory coupon deferral is changed to the minimum requirements of economic value-based new capital regulations,the possibility of trigger conflict will increase significantly depending on the content of the new regulations andthe issuers capital level and market sensitivity.If S&P judges that the probability of hitting the trigger has increased,the risk of downgrading the subordinated bonds will increase.0102030405060708090100ICRHybridAAABBBBBBCCCCCCDCase Study：The Society of Lloyds Subordinated Debt Issue(1)July 2019：Downgraded to BBB from A-,reflecting the increasing mandatory deferral risk January 2023：Upgraded to A-against the backdrop of the improvement of SCR level/Stability and strong track record of ability to raise capital14644867790000000000 0c-15Dec-16Dec-17Dec-18Dec-19Dec-20Dec-21Jun-22DowngradeUpgradeCase Study：The Society of Lloyds Subordinated Debt Issue(2)January 2017：Assigned A-issue rating toSubordinated bonds（30NC10,fixed-to-floating rate）ICR（The Society of Lloyds）：ASubordination（1）,Optional/Mandatory deferral（1）July 2019：Downgraded to BBB ICR（The Society of Lloyds）：ASubordination（1）,Optional/Mandatory deferral（2）We previously only applied one notch to reflect payment risk due to coupon cancellation.We now believe that the payment risk on these notes is greater than for other similar hybrids,rated in the A range.While Lloyds cover of its regulatory capital requirement(The Solvency Capital Requirement or SCR)has improved in recent years(149%at year-end 2018 for its Market Wide SCR),it is materially closer to the point of mandatory deferral(below 100%SCR)than closely rated peers.We also note that Lloyds significant exposure to natural catastrophe risk provides the potential for volatility in the level of its solvency cover,although this is partially offset by the ability of the market to request that its members recapitalize following significant losses.Widening the notching between the ICR on Lloyds and the rating on Lloyds hybrid also allows for a smoother transitioning of the rating on the instrument if the markets solvency cover were to near mandatory deferral.We will continue to monitor Lloyds SCR coverage and capital plans to assess whether the subordinated debt ratings adequately incorporate the payment risk associated with Lloyds hybrid instruments.An unexpected deterioration or strengthening in the groups regulatory solvency position not accompanied by a change in ICR could lead us to raise or lower the rating on the notes by widening or narrowing the notching between them and the ICR.Case Study：The Society of Lloyds Subordinated Debt Issue(3)January 2023：Upgraded to A-ICR（The Society of Lloyds）：ASubordination（1）,Optional/Mandatory deferral（1）S&P Global Ratings today raised its issue-level rating on the Society of Lloyds(Lloyds)subordinated Tier 2 notes to A-from BBB .Lloyds(A /Stable)market-wide regulatory solvency ratio and central solvency ratio remained stable over 2022,despite significant reserving for the Russia-Ukraine conflict and Hurricane Ian,rising interest rates,and investments in private assets through its newly launched investment platform.Lloyds holds comfortable capital surpluses in both its half-year 2022 market-wide regulatory solvency ratio of 179%(year-end 2021 177%)and central solvency ratio of 395%(year-end 2021 388%).We expect both market-wide and central solvency ratios to remain robust even in extreme stress scenarios,such as catastrophic events,or if the current inflationary environment continues in 2023 and 2024.Hence,our rating on Lloyds Tier 2 subordinated notes is now two notches below the long-term issuer credit rating on Lloyds:-One notch to reflect the notes subordination to the companys senior obligations;and-One notch(previously two notches)to reflect the payment risk created by the mandatory and optional coupon deferral features.We previously applied two notches to reflect the higher payment risk due to coupon deferral compared with similar hybrids rated in the A category.This is because we considered Lloyds solvency level in the past to be materially closer to the point of mandatory deferral(below 100%solvency capital requirement)when considering its sensitivity to severe events.We note that Lloyds significant exposure to natural catastrophe risk,the challenging macroeconomic environment due to rising inflation,and uncertainty around the Russia Ukraine conflict provide the potential for volatility in the level of its solvency cover.However,this is offset by the stability in the solvency ratio maintained in 2022,better operating performance expectations,and ability to recapitalize when needed.The latter was demonstrated in 2017 when the market injected 3 billion following Hurricanes Harvey,Irma,and Maria;and in 2020,when it injected a further 3.5 billion following COVID-19-related losses.We expect Lloyds to report a combined ratio of about 95%at year-end 2022.This takes into account its combined ratio of 91.4%at half-year 2022,and reserving 1.1 billion for the Russia-Ukraine conflict and 2.2 billion for Hurricane Ian.For 2023,we forecast a combined ratio of close to 95%.Related ResearchGlobal Credit Outlook 2023:No Easy Way Out,Dec.1,2022Global Insurance Markets:Inflation Bites,Nov.30,2022EMEA Insurance Outlook 2023:In The Midst Of The Perfect Storm,Nov.15,2022U.S.Property/Casualty Insurance Sector View Dims On Weakening Capitalization,Oct.26,2022Credit FAQ:Japans New Solvency Rules For Insurers,Sept.14,2022Is The Global Reinsurance Sector About To Turn A Corner?Sept.6,2022How Will The Move To IFRS 17 Affect S&P Global Ratings Analysis Of Insurers And Reinsurers?,Aug.24,2022Insurance Industry And Country Risk Assessment:Japan Property/Casualty,Aug.22,2022Insurance Industry And Country Risk Assessment:Japan Life,Aug.22,2022S&P Global Ratings Latest Research&Insightshttps:/ ContactsFinancial Services RatingsToshiko SekineDirectorS&P Global Ratings,TEiji KuboDirectorS&P Global Ratings,TCopyright 2023 by Standard&Poors Financial Services LLC.All rights reserved.No content(including ratings,credit-related analyses and data,valuations,model,software or other application or output therefrom)or any part thereof(Content)may be modified,reverse engineered,reproduced or distributed in any form by any means,or stored in a database or retrieval system,without the prior written permission of Standard&Poors Financial Services LLC or its affiliates(collectively,S&P).The Content shall not be used for any unlawful or unauthorized purposes.S&P and any third-party providers,as well as their 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协力：2023年美国企业在华营商指南（英文版）（105页）.pdf
AN INTRODUCTION TODoing Business in China 2023 for US Companies Getting Ready for Chinas Rebound in 2023 US China Trade,Investment&Relations Key Sectors for US BusinessesSpecial FocusThis edition of Doing Business in China 2023 for US Companies was produced by a team of professionals atDezan Shira&Associates,with Qian Zhou as Editor and Yi Wu as contributor.Creative design of the guide was provided by Aparajita Zadoo.2023 Dezan Shira&Associates DisclaimerThe contents of this guide are for general information only.For advice on your specific business,please contact a qualified professional advisor.Copyright 2023,Asia Briefing Ltd.No reproduction,copying or translation of materials without prior permission of the publisher is permitted.VISIT US ON FACEBOOKFOLLOW US ON TWITTERDezanShiraChinaBriefingVISIT US ON LINKEDINChina GuideIndia GuideVietnam GuideASEAN GuideHong Kong GuideRussia GuideSingapore GuideBelt&Road GuideTHE DOING BUSINESS IN ASIA GUIDES SERIES3AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESAbout Dezan Shira&AssociatesDezan Shira&Associates is a pan-Asia,multi-disciplinary professional services firm,providing legal,tax and operational advisory to international corporate investors.Operational throughout China,India and ASEAN,our mission is to guide US companies through Asias complex regulatory environment and assist them with all aspects of establishing,maintaining and growing their business operations in the region.With more than two decades of on-the-ground experience and a large team of lawyers,tax experts and auditors,in addition to researchers and business analysts,we are your partner for growth in Asia.4AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESCONTACTDezan Shira&Associates 2022 turned out to be a difficult year for businesses operating in China.Unexpected lockdowns caused by COVID-19 outbreaks,weak consumption trends,a struggling real estate sector,and newfound geopolitical tensions caused serious disruptions to supply chains and damped global business confidence in the country.Still,the actual use of foreign direct investment(FDI)in mainland China expanded in the first ten months of 2022 growing 14.4 percent year-on-year to over US$152 billion from January to October.The whole years FDI is expected to create double-digit growth.Another silver lining has emerged out of the tough challenges overcome in 2022 an easing of the zero-COVID policy is now in sight,with Beijing proposing a relaxation of the travel restrictions.Economists expect China will fully reopen in the second half of 2023,pushing GDP growth to around five percent from three percent in 2022.Industries in line with Beijings policy priorities,such as the healthcare sector,green sectors,consumer market,and sectors related to industrial automation,are expected to be the biggest beneficiaries.Under these circumstances,it is vital that U.S.investors are familiar with the changes happening in Chinas business landscape to identify areas of risk in advance and take steps to prepare for new market opportunities.This is the only way investors can stay nimble in an otherwise difficult time.Designed to introduce the fundamentals of investing in China,this publication is compiled by experts at Dezan Shira&Associates,a specialist foreign direct investment firm providing corporate establishment services,business advisory,tax advisory and compliance,accounting,payroll,due diligence,and financial review services to multinationals investing in emerging Asia.Since its establishment in 1992,the firm has grown into one of Asias most versatile full-service consultancies with operational offices across China,Hong Kong,India,Singapore,Vietnam,and Indonesia.The firm also maintains partner firms across the ASEAN region and in Bangladesh and client liaison offices in the United States,Europe,and Russia.PrefaceKYLE FREEMANPartner,Head of the North American DeskDezan Shira&Associates5AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESWhats New in This Guide?Doing Business in China 2023 for US Companies introduces the fundamentals of investing in China.Compiled by the professionals at Dezan Shira&Associates in December 2022,this comprehensive guide is ideal not only for businesses looking to enter the Chinese market,but also for companies who already have a presence there and want to keep up to date with the most recent and relevant policy changes.To be more specific,the below changes are noticeable for your attention:Why China:A new section is added at the beginning to explain why China is still a market that cannot be overlooked by US companies.The section covers the countrys growth outlook,supply chain,workforce and labor market,market reforms and opening,trade and investment relations between the US and China and key sectors for US investment.Business suspension:A new section is added in the“How do I make changes to my business”chapter,introducing the requirements and benefits for companies to acquire a dormant company status amid business difficulty,while retaining its legal standing for a period of up to three years.Tax incentives:The tax incentive policies are updated for each tax in the“What are the major taxes in China”chapter,including corporate income tax,value added tax,stamp tax,surtaxes,resource tax,and property tax,and information is added on the vehicle purchase tax.E-fapiao updates:The“fully digitalized e-fapiao”is introduced in the“Value-added tax(VAT)”section,providing the latest developments in 2022.Accounting standards:Two other accounting standards have been added the Accounting System for Business Enterprises and the Accounting System for Non-governmental Non-profit Organizations(NGOs)in the“Accounting and bookkeeping”section.The Accounting System for NGOs applies to NGOs and the representative offices of NGOs in China.This chapter also examines the discrepancies between the Chinese accounting standards(CAS)and Chinas tax laws,in addition to the differences between CAS and the International Financial Reporting Standards(IFRS).Human resources and payroll:Brief introductions have been inserted on how to get approval for implementing the special work hour system and the calculation of severance pay in this chapter,both of which are among frequently asked questions by Dezan Shira&Associates clients.Cybersecurity and data protection:This chapter is updated with developments under Chinas major cybersecurity and data protection laws and regulations in 2022,explaining key compliance requirements for businesses and providing practical tips on preparing for these new obligations.6AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESTable of ContentsPreface04Whats New in This Guide?05Why China?09Overview of the US-China Bilateral Relationship13Key Sectors for US Investment in 202317Part 1|Establishing and Running a Business20What are my options for investment?21Representative office(RO)21Wholly foreign-owned enterprise(WFOE)22Joint venture(JV)23Foreign invested partnership(FIP)24Global staffing solutions(GSS)25Mergers and acquisitions(M&A)25Variable interest entity(VIE)26How do I establish a business?29Pre-establishment considerations29Corporate establishment33Key positions in a foreign invested entity35Office premises requirements38Opening a bank account39Intellectual property considerations41How do I make changes to my business?42Company name427AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIES7AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIES Part 2|Tax,Audit,and Accounting51What are the major taxes in China?52Income taxes52Turnover taxes56Other taxes59What are some of the key compliance requirements?64Accounting and bookkeeping64Annual compliance65Due diligence70Internal control and financial review71Transfer pricing72Foreign currency controls74Part 3|Human Resources and Payroll75How do I hire employees?76Direct hiring76Dispatch78Outsourcing79How do I manage foreign employees81Table of ContentsBusiness scope43Registered capital43Shareholder structure44RO to WFOE conversion45Relocation47Business suspension48Deregistration498AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESUnified work permit system and tiered talents system81Chinas visa system82Residence permit82Renewal and deregistration of foreigners work permit83What obligations do I have as an employer?84Minimum wages across China84Work hour system and overtime payent84Social security86Leave and vacations88Termination90Part 4|Cybersecurity and Data Protection92What are the major cybersecurity and data protection laws?93What are some of the key compliance requirements?96Personal information protection 96Cybersecurity and security review102Important data management104Table of Contents8AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIES 9AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESWhy China?Chinas growth potentialAlthough Chinas economic growth rate is slowing after years of breakneck expansion,especially in 2022 amid multiple economic headwinds,the size of its economy dwarfs almost all others,be they developed or developing.Simply put,foreign companies cannot afford to ignore the worlds second largest economy.With a population of 1.4 billion,Chinas GDP per capita was US$12,551 in 2021,about six times lower than that of the US.There is still significant room for economic activity and household wealth to continue to grow before leveling off at a saturation point.The British Consultancy Centre for Economics and Business Research(CEBR)projects Chinas economy to continue growing at 5.7 percent per year through 2025 and then 4.7 percent to 2030,at which point it will surpass the US to become the worlds largest economy.Although these growth rates are slower than in the past,the impact is still incredibly significant given the sheer size of the economy and reflects Chinas transition towards becoming a high-income country.Why China Remains an Attractive Investment DestinationGDP OutlookWorkforce and TalentsMarket SizeMarket Reforms and OpeningInfrastructure and Supply ChainChinas GDP per capita is about six times lower than the US,which means there is significant room for its economy to grow.China has the worlds largest labor market,and workers in the manufacturing sector tend to be more experienced,more educated,and better resourced than their Asian counterparts.Chinas rising purchasing power,expanding middle class,and a population over a billion,positions it to become the largest retail market in the near future.China is continuously opening its market and improving the business environment.Between 2017 and 2019,China moved from 78th to 31st on the World Banks Ease of Doing Business rankings.China has a sophisticated manufacturing and logistics infrastructure set up.10AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESChinas tremendous domestic marketChinas rising purchasing power,expanding middle class,and a large consumer base,all point to the fact China will likely become the worlds largest retail market in the near future.Despite the weaker than expected consumption performance observed in 2022,the domestic market will benefit from Chinas dual circulation strategy,which intends to spur domestic demand and simultaneously create conditions to increase foreign investment and trade,in the long run.The focus on tapping into Chinas internal consumption patterns and domestic markets will also buffer the impact of global economic headwinds on the countrys economic and financial stability.While the policy emphasizes self-reliance,it does not exclude foreign companies.A successful implementation will depend on robust performance in both domestic and foreign markets.Further,the focus on domestic consumption also creates new opportunities.Many foreign companies have started to produce goods specifically for local consumption in China,rather than use the country as a production and processing base for an export-led business model as in the past.For many companies,China is now their largest market for growth.Chinas supply chain and infrastructuresChinas advanced supply chain and logistics capacity ensures its significance in global trade:Its broad range of industrial capacities allows foreign firms to source goods easily;its well-connected infrastructure system also allows efficient transportation of products.Chinas supply chain is also hastening its pace to become digitized,with increased use of robotics in warehouses to improve efficiency and security.Chinese companies recognize and embrace the potential benefits of IoT and AI to digitize the supply chain.This process is increasing the importance of technical skills and automation.Chinas workforce and laborChina has the worlds largest labor market even though its working age population is shrinking.The labor force of China,which refers to the population aged between 16 and 59 and capable of working,stood at around 880 million in 2020.And by the end of 2021,the number of employed people in China amounted to around 746.5 million people.Despite the increasing concerns that Chinas labor cost keeps rising,Chinas labor force still earns considerably less than their counterparts in developed countries,while at the same being more experienced and efficient compared to lower-cost,emerging markets.11AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESFor example,in 2020,the average hourly cost for labor in the manufacturing sector was US$6.50 in China,compared to US$4.82 in Mexico and US$2.99 in Vietnam,two popular alternatives for manufacturing.However,while Vietnams labor costs in manufacturing are less than half of Chinas,Vietnams productivity per worker is about one-third of productivity levels in China.Workers in Chinas manufacturing sector tend to be more experienced,more educated,and better resourced than in competing countries,often making China a more cost-efficient option.The breadth of Chinas labor pool means that the countrys human resources are highly adaptable to business needs,as companies will be able to find workers and technical specialists experienced in a wide variety of fields.Further,Chinas labor market is becoming an asset not just for its size and cost efficiency,but for the quality of education.For instance,the Times Higher Education World University Rankings placed 10 Chinese universities in its 2022 top 200 list the most ever including two in the top 20.Chinas market reforms and openingChina has endeavored to attract greater foreign investment by relaxing more market access restrictions and continuously introducing improvements to the business and regulatory environment.Key among its reform actions,are changes to the negative lists.These lists indicate which industries are subject to special administrative measures for foreign investors,or in other words,are supervised by authorities when determining market entry,scope of operation,and access to local market.The 2021 National Negative List removed two restricted items from its 2020 version,cutting it down from 33 to 31,while the new 2021 FTZ Negative List removed another three items,cutting it down to 27 from 30.Taking auto manufacturing as an example,the restrictions on the share ratio of foreign investment in passenger vehicle manufacturing has been liberalized.Before,the Chinese party shareholding percentage in passenger automobile manufacturing was to be no less than 50 percent,now foreign investors can hold the majority share.In addition to the Foreign Investment Law and supporting regulations coming into effect in 2020,other reforms in the areas of company establishment,tax,finance,reporting and compliance management are enabling foreign investors to play on a more even ground with domestic competitors.China has also repeatedly and publicly stated its intentions to accelerate market opening reforms,most recently in President Xi Jinpings televised speech to kick off the fifth edition of the China International Import Expo(CIIE)in November 2022.And in July 2022,a couple of 12AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESwell-known companies in the financial sector,including Goldman Sachs and ICBC Joint Venture,received the green light for further collaboration.Such policy orientation towards high-tech innovation and market opening which was initially a key issue of US-China trade tensions will pave the ground for future and sustainable patterns of growth and investment in China.Innovation and emerging industriesOnce known as an economy rife with copycats and counterfeits,China-based businesses are advancing to the leading edge of innovation and experimental business models.While this space may be more sensitive or tricky to navigate in the near-term given the current U.S.China relationship,companies that do not pay attention to China will not just miss out on the market,but also the countrys increasingly dynamic innovation that is beginning to influence trends worldwide.Chinas spending on research and development is equivalent to about 2.5 percent of GDP,which is far higher than other countries at similar levels of development.This spending has contributed to the growth of dynamic and innovative business models in areas like e-commerce,fintech,and artificial intelligence that are competitive with or even lead advanced economies like the US.One unique advantage for data-fueled innovation in China is the size of its internet-using population.China has close to a billion internet users,which is more than the US and EU combined.About 800 million people in China use mobile payments on a daily basis over eight times more than the US resulting in a world-leading fintech industry.China also benefits from early adoptions of technology.Chinas digital payment development,for example,shows how applications can facilitate changes in lifestyle.Beyond tapping into an enormous market,investing in China positions international companies to gain experience with innovative products that can make themselves more innovative and competitive in their home countries.Our Business Intelligence experts help with Asia Country Benchmarking,Location Analysis and Market Entry support.For more information,please .RELATED SERVICES13AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESOverview of the US-China Bilateral RelationshipUS trade with China has grown enormously in recent decades and is crucial for both countries.The US imports more from China than from any other country,and China is one of the largest export markets for US goods.However,the bilateral trade relationship has also experienced multiple ups and downs,especially in recent years with political differences and the pandemic.The US and Chinas trade and investment tiesChina is an important global market for the US.In 2022,China was the fourth largest US goods trading partner(after the European Union,Canada,and Mexico)with total trade at US$690.6 billion,the fourth largest US export market at US$153.8 billion,and the largest source of US imports at US$536.8 billion.The total bilateral trade in 2022 increased by 5.2 percent compared to 2021.Total Goods Traded with China(in Millions)2010456,864503,493536,136562,176592,132599,075578,015635,162658,795555,592557,227656,378690,59120112012 2013 2014 20152016201720182019 2020 2021 2022Source:US Census BureauThe two countries trade on a broad spectrum of sectors,including electronic devices,agriculture and food,medical devices,biotechnology,and energy.Top US exports include advanced technology products while imports include consumer goods and electronics.China also supplies key intermediary goods(e.g.,auto components and active pharmaceutical ingredients).In comparison,current levels of services exports remain low.In 2020,China accounted for just six percent(US$40.4 billion)of all US services exports and three percent(US$15.6 billion)of US imports.FDI flows are also significant.In 2021,US investors held US$1.15 trillion in Chinese stocks and bonds while Chinese investors held US$1.4 trillion in US debt and US$720 billion in US equities,according to US government and private estimates.Net US FDI flows to China were US$9.3 billion and US$4.3 billion from China in 2020.The stock of US FDI in China was US$123.9 billion,while Chinas FDI stock in the US was US$54.9 billion.RELATED READINGUS-China Relations in the Biden-Era TimelineChina Briefing ArticleUpdates OngoingTimeline tracking key developments affecting US-China bilateral trade and business engagement under the Joe Biden administration.AVAILABLE HERE14AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESTrade war,trade deals,and their impact Trade between the two countries brings benefits to both markets.The US has profited immensely from access to Chinas market.Not only has the US household purchasing power been boosted by increased trade with China but exports to China supported millions of jobs in the US and vice versa.However,the bilateral trade relationship is not always amicable.While occasional business disputes emerge from time to time,the tension recently reached its peak during the Trump administration.In 2018,following an investigation under the Section 301 of the Trade Act of 1974(19 USC.2411),the US Trade Representative(USTR)imposed tariffs on an estimated US$250 billion worth of US imports from China.China then countered with tariffs on US$110 billion worth of US products.Most of these tariffs remain in effect.Since the imposition of the Section 301 tariffs,the USTR has granted a number of product-specific exclusions based on each partys requests.Most recently,the exclusions were extended for COVID-related products until the end of 2022.Once the exclusions expire,US importers will have to pay section 301 tariffs of up to 25 percent on these products.Amid the tensions,the US and China reached an agreement on a Phase One trade deal in 2020.The agreement,effective from February 14,2020,to December 31,2021,covered multiple sectors,including intellectual property,technology transfer,agriculture,financial services,and currency and foreign exchange.China committed to make substantial additional purchases of US goods and services,while the US agreed to modify some of its Section 301 tariffs actions.The agreement also established a strong dispute resolution system.In the end,the Phase One deal was only a moderate success.According to the Peterson Institute for International Economics,China bought only 57 percent of the US exports it had committed to purchase,falling short of expectations.While it facilitated certain structural reforms to Chinas IP laws and provided greater market access to US exports,some limitations and shortcomings existed including a failure to make purchasing commitments.Since the deal ended in 2021,there has been no follow-up action.While in Washington D.C.mention of the trade war has fallen out of the discourse,President Biden has largely maintained the tariffs on Chinese goods at an estimated US$40 billion each year.Although these tariffs hit Chinese imports hard,US consumers and manufacturers also bear the cost burden.The Biden administration is under increasing pressure from US businesses to lower the tariffs as one way to ease inflation,however,US Trade Representative Katherine Tai has suggested that the tariffs would not decrease until China adopts more structural changes.15AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESRecent developments2022 has added more complexities to the US-China bilateral trade relationship.In August 2022,President Biden signed the CHIPS and Science Act,intensifying the competition in technology.In a similar fashion,the US President signed an executive order in September to boost the domestic biotech industry which may limit the operations of Chinese biotech companies.Also in September,interest hikes in the US drove further RMB depreciation,breaching the 7:1 exchange rate at its peak.While raising dollar rates could cause capital outflows from China,it could also make Chinese products more appealing.On a relatively positive front,top leaders of the two nations met in Indonesia in November 2022 at the G20 Summit,thawing an unusually long period of no interaction.Though politically the two countries both acknowledged the need to refrain from getting into a“new cold war,”tariffs seem to remain frozen in place.In the meeting between USTR,Katherine Tai,and Chinas Minister of Commerce,Wang Wengtao,the two sides had“candid,professional and constructive exchanges”on US-China economic and trade issues.Such interactions spurred more exchanges between the two countries.In November,a group of former Chinese officials and scholars visited New York,and Chinas National Development and Reform Commission(NDRC)also met with US business representatives,including ExxonMobil,Boeing,and Emerson Electric.In December,US regulators gained access to the audit documentation of public companies headquartered in mainland China and Hong Kong for the first time in history.This was a requirement to prevent the delisting of Chinese firms listed on the NYSE,but it marked a major step for bilateral cooperation in this area.Many also have hope for the mandated review of Section 301,four years after its first implementation in 2018.The review period will run through January 17,2023 and will decide on whether and how the tariffs should continue,change,or be rescinded.Looking into the futureThe future of bilateral trade relations remains blurry and lacks a clear path forward.This uncertainty is further fueled by the political dynamic in the US.With a currently divided legislature,trade policies may be more difficult to predict,although being tough on China appears to be one of the few areas both US parties can agree on.The 2024 election may also completely change the narrative once again.Owing to COVID restrictions,geopolitical tension,and economic competition,interactions between the two powers have been severely limited with almost no engagement in recent months.However,there is little doubt that the US-China relationship will remain competitive at one level or another going forward.16AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESYet competition in some areas does not preclude cooperation in others.A strong interwoven relationship between the two largest economies still benefits many.Though after years of a trade war and decoupling actions,the two countries will need to establish a new tone to future dialogues.This quote by Secretary of the Treasury Yellen summarizes the current sentiment of many both in Washington and board rooms,“I expect,certainly hope and expect that there will continue to be very strong ties between China and the United States when it comes to mutually beneficial trade and investment”.While some industries may be more sensitive to geopolitics going forward,the two countries still have many opportunities to cooperate on transnational issuesclimate change,nuclear nonproliferation,and global health,among others and in business,particularly as China reopens to the world after dismantling its zero-Covid policy.The future at least,looks more optimistic now than it has in the previous five years.17AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESKey Sectors for US Investment in 2023Foreign direct investment(FDI)has played a crucial role in Chinas economic development.From 2010 to 2020,US investors put nearly US$150 billion into China.Annual investment flows peaked in 2012 at US$15.4 billion.However,growing geopolitical tensions and the COVID-19 pandemic have amplified concerns over the future of investment flows between the two countries.Despite the challenges,we identify some key sectors that still have potential opportunities for US businesses.Energy/green energyChina is a global leader in the energy sector,especially in renewables.In recent years,China has opened its energy sector to foreign investment as it seeks to balance energy security with a carbon neutral pledge.The country has lifted investment restrictions on coal,oil,gas,and power generation.Chinas pledge to two carbon goals also created many new opportunities in renewables,clean production,waste management,sustainable infrastructure,and services that support green development.The US still carries some advantages when it comes to clean energy,especially in terms of advanced technology and new industrial trends.For example,Tesla is the worlds top electric vehicle company and very popular among Chinese middle-and upper-class consumers.Chinas 2022 version of the encouraged catalogue for foreign investment lists around 100 items in the energy sector for foreign investment while energy techniques and equipment are major areas for investment.Consumer productsThe average purchasing power parity(PPP)of the Chinese people has increased rapidly in recent years.The Chinese consumer taste favors discretionary spending categories such as fashion,accessories,consumer electronics,and electric vehicles(EV).Upper-and higher-income consumers chase aspirational goods,such as luxury goods,premium beauty and personal care products,and high-end cars.In recent years,more emphasis has been placed on product quality and user experience,with a changing attitude towards domestic brands.Despite the large consumption base,there is still room for growth.Chinas household consumption is about 38 percent of its GDP,compared with 68 percent in the US.To boost consumption,China is promoting policies such as“consumption upgrading”and“dual circulation”.Chinas rebalancing to a more consumption-driven growth model should present opportunities for US companies in the e-commerce,logistics,and financial services sectors.According to Morgan Stanley Research,private consumption will reach US$9.7 trillion by 2030.Similarly,McKinseys data show that despite downward pressure on economic growth in China,inbound FDI in China has been running at historical highs,having hit a record US$181 billion in 2021,a 21 percent increase compared with the previous year.This creates huge potential in this market for US companies to take advantage of.RELATED READINGChinas Livestream Industry:Market Growth,Regulation,Enabling Technology,and Business StrategiesChina Briefing ArticleSeptember 1,2022We discuss why livestreaming is becoming an important brand and sales strategy for businesses in China.AVAILABLE HERE18AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESHealth and biotechAs the worlds second-largest healthcare market,China presents opportunities to US exporters in many healthcare and biotech sub-sectors.A variety of factors,including extended life expectancy,an aging population,and greater expectations about quality of life have driven the growth of Chinas healthcare market.Under the“Health China 2030”initiative announced in 2016,there has been significant investment in local healthcare infrastructure,market reforms,and support for innovation.Medical devices remain the most dynamic and strategically important healthcare sales sector for foreign businesses.High-end and technology-heavy medical devices are primarily imported,while domestic products dominate the low to mid-market segments.The medical device market in China is expected to expand to US$38.4 billion by 2025,where imports may comprise over two-thirds of the market share.Within the market,diagnostics imaging and consumables constituted a large share.Additionally,prospects in the pharmaceutical and biotechnology sectors are significantly large too.The industry is predicted to grow to US$111.76 billion in 2025.Opportunities for foreign investors include establishing incubators to foster early-stage innovation,opening technology platforms to Chinese innovators,and investing in R&D for commercialization.Some major acquisitions included Pfizers purchase of Cstone Pharmaceuticals(US$200 million)and GGV Capitals purchase of Shenzhen Hepalink Pharmaceutical Group(US$50 million).Food and agriculture China is a main importer of U.S agricultural and food products.While not too common in the agricultural industry,FDI still exists and supports the sector in China.For example,in Jiangsu Province,FDI in actual use in the agricultural sector reached US$283 million in the first half of 2022.Since 2010,Jiangsu has introduced nearly 1,600 foreign-funded agricultural projects,to a total of US$1.82 billion.The investment projects have also expanded from farming and breeding to processing,tourism and other sectors involving the primary,secondary and tertiary industries.The agriculture and food industry also received a critical amount of US investment,with US$1.4 billion in 2021.This was driven by larger acquisitions such as PepsiCos purchase of Be&Cheery(US$750 million)and Sequoia Capitals purchase of Shijiazhuang Junlebao Dairy(US$171 million).Smaller greenfield investments include Beyond Meat,Yum China,Starbucks,and Popeye Restaurants.Additionally,Chinas Rural Revitalization Strategy aims to promote more balanced economic and social development.Opportunities also exist for foreign companies in this strategy,especially in agricultural technology,food security,and environmental/waste management.19AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESService industry FDI in the service industry has grown enormously over the past 15 years.The share of services in Chinas total FDI increased from 24.7 percent in 2005 to more than 80 percent in 2021.This trend is in part due to Chinas huge service sector demand,particularly in the field of high-tech and manufacturing services,such as in legal,consulting,insurance,and banking.China is also keen on attracting foreign investment in the sector.At a press conference in September 2022,officials from the National Development and Reform Commission(NDRC)mentioned plans to build a national unified market to improve the overall domestic business environment.This initiative will reduce market segmentation and regional protectionism,and create a more transparent business environment for sustainable development.For US companies,this means fewer market entry barriers.High-tech manufacturing High-tech in China is an industry that receives both domestic and international attention domestically,the crackdown has altered certain business behaviors;internationally,competition with the US,especially through the CHIPS and Science Act,have fueled tensions.For China,high-tech manufacturing is critical to its strategic development in the near future.China has also hastened its pace in setting international standards in this field.Thus,despite the domestic and international challenges,opportunities still exist for US investors.From 2010 to 2021,the information and communications technology(ICT)sector received a total of US$25 billion US investment,which functioned as one the major sources of financing for Chinese technology startups.Facing growing uncertainties,particularly given geopolitical tensions,investors are suggested to remain agile and keep multifold strategies in place.RELATED READINGChinas Robotics Industry:Current Outlook and Market Scope for Foreign InvestorsChina Briefing ArticleSeptember 19,2022Chinas robotics industry requires collaboration with foreign sources of technology and expertise to achieve its high-tech innovation targets.AVAILABLE HERE20AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESWhat are my options for investment?How do I establish a business?How do I make changes to my business?Establishing and Running a Business121AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIES1Foreign investment into the Peoples Republic of China(hereafter“China”)can be made via one of several types of investment vehicles.Choosing the appropriate investment structure for your business depends on a number of factors,including its planned activities,industry,and investment size.In this section,we discuss:1 Representative office(RO);Wholly foreign-owned enterprise(WFOE);Joint venture(JV);Foreign invested partnership(FIP);Global staffing solutions(GSS);Mergers and acquisitions(M&A);and Variable interest entity(VIE).We will also discuss the impact of the Foreign Investment Law(FIL)on choosing the investment structure.Representative office(RO)An RO is an attractive way for foreign investors to get a feel for the Chinese market as it is the easiest type of foreign investment structure to set up.Unlike more robust vehicles,such as the WFOE,an RO is an extension of the foreign company without independent legal personality.That is to say,it does not possess the capacity for civil rights and cannot independently assume civil liability.When an RO signs a contract,it is the foreign company that is bound by the agreement.Besides,there are only a limited number of activities an RO is permitted to be engaged in.ROs are generally forbidden from engaging in any profit-seeking activities and may only be used to facilitate the activities of the foreign company in China.These are:Market research,display,and publicity activities that relate to company products or services;and Liaison activities that relate to product sales or services and domestic procurement and investment.ROs acting in violation of their allowed activities will be fined,and their illegitimate income will be confiscated.In addition,as an RO is not a capitalized legal entity in China,it is limited in its hiring ability.An RO cannot directly hire Chinese employees.Instead,it is required to employ local staff through a qualified labor dispatch agency.The agency acts as the employer for legal purposes,and sends employees to work at the RO for a fee.An RO may directly hire up to four foreign nationals as the representatives,and these do not need to go through the agency.What are my options for investment?SABRINA ZHANGPartner Beijing OfficeDezan Shira&Associates“ROs areoften used by foreigncompanies to facilitateactivities in China,suchas communicating andliaising with China-based agents and distributors.”1 Under the FIL,the terms of the WFOE Law and the JV Law are no longer binding.Nevertheless,we still use WFOE and JV to refer to relevant investment forms for consistency and easier communication.22AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESEven though an RO does not earn revenue,it is still subject to Chinese tax.ROs are taxed as a permanent establishment in China,which usually amounts to a liability of approximately eight percent of the total expenses of the RO.RO is generally a good solution for companies that are procuring from China and want to keep staff on the ground for quality control,or for maintaining short communication lines with China-based suppliers,agents,and distributors.Wholly foreign-owned enterprise(WFOE)A WFOE is a limited liability company wholly owned by one or more foreign investor(s),which offers a very straightforward management structure.Unlike an RO,a WFOE can make profits and issue local invoices in RMB to its suppliers.A WFOE can employ local staff directly,without any obligations to employ the services of an employment agency.A WFOE can also expand to create subsidiaries in China.And compared to a JV,a WFOE has better autonomy and flexibility to execute the company policies intended by the investors without considering the Chinese partner.It is also believed to be better at protecting the companys intellectual property and technology.However,the setup procedure of a WFOE is more complicated.And WFOE is not feasible if the targeted sector is listed as“restrictive”in the Special Administrative Measures on Access to Foreign Investment(“National Negative List”)or the Free Trade Zone Special Administrative Measures on Access to Foreign Investment(“FTZ Negative list”),where foreign investors need to have a Chinese equity partner to form the business.In other words,incorporating a WFOE to engage in these sectors would not be permitted.Investors that try to do so will see their application denied.WFOEs that engage in these activities illegally after being incorporated face fines or even the cancellation of their business license.There are three distinct WFOE setups available:Service(or consulting)WFOE;Trading WFOE;and Manufacturing WFOE.While all three structures share the same legal identity,they differ significantly in terms of their setup procedures,costs,and the range of commercial activities in which they are allowed to engage.Trading WFOEs and manufacturing WFOEs must derive the majority of their revenue from their namesake business,but can also provide associated services.Service WFOEs are additionally permitted to conduct trading activities related to their services.23AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESJoint venture(JV)A JV is formed by one or more foreign investor(s),along with one or more Chinese party.Previously,Chinese individuals were explicitly excluded from being shareholders in a JV with few exceptions.However,under the FIL,which took effect January 1,2020,this limitation has been eliminated.Chinese individuals can jointly invest with foreign investors,which offers more flexibility in choosing business partners.There are mainly two reasons for foreign investors to choose a JV structure:The foreign investor wants to invest in a restricted industry sector,where the law permits foreign investment only via a JV with a Chinese partner;and The foreign investor wants to make use of the sales channels and network of a Chinese partner who has local market knowledge and established contacts.Before the FIL was enacted,there were two types of JVs in China,and they differed primarily in terms of how profits and losses get distributed:Equity Joint Venture(EJV):Profits and losses are distributed between parties in proportion to their respective equity interests in the EJV;Generally,the foreign partner should hold at least 25 percent equity interest in the registered capital of the EJV;and An EJV should be a limited liability company.Cooperative Joint Venture(CJV):Profits and losses are distributed between parties in accordance with the specific provisions of the CJV contract;and A CJV can be operated either as a limited liability company or as a non-legal person.With the FIL coming into force,the newly established JVs will be subject to the provisions of the Company Law,which implies changes in many aspects,such as governing structure and operating rules.However,JVs established before January 1,2020 following the old EJV Law or CJV Law will have a five-year transitional period to arrange relevant transitions to be compliant with the new requirements.VISIT US ON LINKEDINRELATED READINGChina Joint Venture:7 Considerations to Reach a Successful JV AgreementChina Briefing ArticleAugust 5,2021A China joint venture is becoming the market-entry strategy of choice for many foreign investors since the COVID outbreak.We list some best practices.AVAILABLE HERE24AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESForeign invested partnership(FIP)An often-overlooked option is the FIP,which was introduced in 2010.As the name suggests,this entity requires two or more investors to conduct business together.The option would therefore not work for foreign investors looking to set up an entity over which they have 100 percent control.In addition,foreign investors cannot engage in sectors subject to equity limitations as provided in the negative lists via an FIP.An FIP can be newly established by foreign investors contributing to the partnership,or by acquiring the equity interests in an existing domestic partnership.A partnership is not a separate legal entity,but a contractual arrangement between two or more parties to do business together under a common name,and is registered as such with the government.Instead of having to stay within the boundaries of the Company Law,a partnership affords investors broad freedoms to make internal arrangements as they see fit.For example,the profit shares and voting rights need not be aligned with the investors capital contribution.While the Partnership Enterprise Law says that,in principle,the unanimous approval of all other partners is needed when a partner sells their share in the partnership,investors are free to stipulate otherwise in the agreement.It can therefore be much easier to transfer ones participation in a venture this way.In practice,FIPs sometimes are used by foreign private equity funds to manage money in China through limited partnerships.Foreign invested commercial enterprise(FICE)A FICE,which can be set up either as a WFOE or a JV,is a type of company for retail,franchising,or distribution operations.A WFOE or JV can be established exclusively as a FICE,or can combine FICE activities with other business activities,such as manufacturing and services.Generally,a FICE is inexpensive to establish and can be of great assistance to foreign investors because it combines sourcing and quality control activities with purchasing and export facilities,thus providing more control and a quicker reaction time compared to sourcing exclusively via an overseas headquarters.FICEs are also the ideal choice for foreign companies that need to source in China in order to resell to its domestic consumer market.Without a Chinese trading company,the alternative would be to buy from overseas,and have the goods shipped out of China before then reselling them back to China(which would mean additional logistical costs,customs duties,and value-added tax).VIVIAN MAOPartnerShanghai Office“Choosing aninvestment structuredepends largely onyour goals in China.For companies lookingto target the Chineseconsumer,the foreign investedcommercialenterprise(FICE)hasbecome the gold standardinvestment model.”25AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESGlobal staffing solutions(GSS)GSS is a market entry strategy that alleviates the stress on businesses to establish a corporate entity and outsources the burden of keeping up with the day-to-day management of an employees payroll and the entitys tax compliance to a local firm.This frees up critical resources for the foreign firm to explore its options in a new or unfamiliar market.In simple terms,the way GSS works is that it enables businesses to place boots on the ground,without needing to physically set up a local establishment.The service works with the third-party service provider signing separate contracts with both the foreign company and the foreign employee.This means that while the normal day-to-day control and working employee relationship will exist between the overseas company and its outsourced hires,the local service provider in China will handle all the risk mitigation,compliance,payroll,and benefits on the ground.Under the GSS service,foreign companies can enjoy the benefits of having full-time staff working in overseas markets and remaining compliant with local laws,without the time and investment required to set up and operate an overseas establishment.It empowers foreign firms with the ability to look at alternatives within a specific sector and try out different strategies.Investors can use this in a new market to gain first-hand knowledge of the local business environment and culture to determine market suitability,plan against supply chain disruptions,and establish sustainable long-term strategy.Mergers and acquisitions(M&A)In addition to greenfield investment in which a company makes foreign direct investment by building operations from the ground up,investors can also expand their business presence in China by acquiring existing assets or buying a controlling stake in an existing company,i.e.,mergers and acquisitions(M&A).In general,acquiring an existing company can simplify a lot of the tedious details involved in entering a new market,such as the lengthy setup processes.Also,it can help a company acquire capabilities it cannot or does not want to develop internally.By becoming the controlling stakeholder of the acquired company,the acquirer can obtain difficult-to-acquire licenses,such as the permit for running medical institutions,and also utilize the established experience and framework of the acquired company to better prepare for the market conditions they are about to face.More importantly,if an existing company holds a significant market share in the sector that the investor plans to enter,the extended time to market and competition for a greenfield investment may not be worthwhile.RELATED READINGPlanning for Uncertainty:Global Staffing Solutions to Facilitate Your China Market EntryChina Briefing ArticleJuly 6,2020For many businesses,setting up their own company,is the only known or viable way to enter a new market.In this article,we introduce an alternative market entry mode,called Global Staffing Solutions.AVAILABLE HERE26AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESHowever,the effectiveness of such an arrangement is largely dependent on the makeup of both the acquiring company and the acquired company.Companies have different work cultures,management styles,and operational procedures.It can be a difficult task to combine the best of both sides to achieve the desired synergies.The acquiring company can only gain a quick and strong foothold in the target market when the two parties are compatible with each other.For this reason,it is imperative that thorough due diligence of both companies is done beforehand on the assets,contracts,credit and debt,employment relationships,and management of both firms,to expose sensitive areas,disputes,and weaknesses so that the transaction is made on the basis of fair,transparent,and reasonable evaluations.Another factor to be noted is that the definition of foreign investment under the FIL includes a foreign investor acquiring shares and assets of a Chinese enterprise.Consequently,all FDI rules and regulations must be observed,including restrictions on investment,qualifications of investors,and scope of business.In addition,M&As in China are subject to antitrust review as required by the Anti-Monopoly Law and a potential national security review if the transaction could raise national security concerns.Variable interest entity(VIE)VIE structures are adopted by many foreign investors to engage in sectors that are restricted or prohibited to foreign investment in China as provided in the negative lists,such as telecommunication and education.Under this model,foreign investors retain final control over the China domestic operating entities through a series of contractual arrangements rather than direct shareholding.Consequently,there are risks that the investors control over the structure might be threatened by the intentional breach of the contractual arrangements.In addition,the governments attitude towards VIE structure remains vague.There is no clarification in the FIL whether it is legitimate and whether it falls within the scope of foreign investment.However,in a legislative draft released in 2020 regarding pre-school education,which was still a draft at the time of writing this guide,VIE structure is explicitly prohibited in the sector.VIE structure could be regarded as illegal in such sectors that are not yet open to foreign investment.On the other hand,the China Securities Regulatory Commission(CSRC)the China security watchdog confirmed that qualified companies with VIE structures can still go public on foreign stock markets.Foreign investors interested in this structure are recommended to closely follow the regulatory trends.SIMON LAUBESenior AssociateInternational Business AdvisoryShanghai Office“With global economic headwinds continuously affecting the business world,SMEs are suggested to reconsider M&A as a strategy that can help them survive and thrive in the post-pandemic era.”27AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESComparison of Different Investment OptionsInvestment optionsCommon purpose(s)ProsConsRO Market research Liaise with overseas headquarters Easiest foreign investment structure to set up Paves way for future investment Cannot invoice locally in RMB Must recruit staff from local agency;no more than four representatives Heavily taxed if expenses are highWFOE Manufacturing Servicing Trading(if a FICE)Greater freedom in business activities than RO 100%ownership and management control Registered capital requirement(for select industries)Lengthy establishment processJV Entering industries that by law require a local partner Leveraging a partners existing facilities,workforce,sales/distribution channels See common purposes Split profits Less management control than a WFOE Technology transfer/IP risks Inheriting partner liabilitiesFIP Investment vehicle Servicing Allows for domestic and foreign ownership Easier setup Unlimited liability of the general partner Newness of structure(potential challenges with taxation or foreign currency exchange)GSS Market research Supply chain management Having full-time staff working in overseas markets and remaining compliant with local laws without the time and investment required to set up and operate an overseas establishment Limited capabilities Temporary arrangement rather than a long-term strategy M&A Expanding business presence in a new market without establishing operations from the ground up Simplify the tedious details involved in a greenfield investment Inherit the market share and established framework of the target company Help the investing company acquire capabilities it cannot or does not want to develop internally Subject to all FDI restrictions and rules Higher scrutiny from the authority Antitrust review and potential security review Post-merger integrations may require additional resourcesVIE Getting access to sectors that are restricted or prohibited to foreign investment See common purpose Breach risks of the contractual arrangement Vague attitude of the Chinese authority towards VIE structure28AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESThe impact of the Foreign Investment LawOn March 15,2019,China passed a new Foreign Investment Law(FIL),a landmark legislation whose stated aim is twofold:improve the business environment for foreign investors and ensure that foreign invested enterprises participate in market competition on an equal basis.The FIL came into effect on January 1,2020 and thus became a new guiding document governing foreign investment in China.For foreign investors who maintain operations in China,or plan to enter the market,figuring out the impact of the FIL on their plans is a business-critical task.Among the incentive,management,and protection measures introduced,Article 31 and Article 42 of the FIL clarify issues related to the organizational form,governing structure,and operating rules for foreign investments.According to Article 31 of the FIL,the organizational form,governing structure,and operating rules of FIEs shall be subject to the provisions of the Company Law,the Partnership Enterprise Law,and other applicable laws,in the same way as enterprises established by domestic investors are treated.According to Article 42 of the FIL,the Law on Wholly Foreign-owned Enterprises(WFOE Law),the Law on Sino-foreign Cooperative Joint Ventures(CJV Law),the Law on Sino-foreign Equity Joint Ventures(EJV Law)shall be repealed simultaneously when the FIL came into force on January 1,2020.However,FIEs established before the FIL took effect-and in accordance with the three laws on WFOE,CJV and EJV-may keep their original organizational forms for five years after January 1,2020.For foreign investors who are looking to establish new operations in China,the impact of the FIL is limited.Firstly,and most importantly,foreign investors planning to enter the market need to learn more about the investment structures that are available.As mentioned,previous investment structures,such as a CJV,will no longer exist since the FIL came into effect.Foreign investors need to set up their businesses in accordance with the provisions of the Company Law,the Partnership Enterprise Law,and other applicable laws,similar to domestic investors.On the one hand,the unified treatment of foreign domestic investments will make the investment path less complicated in the long run.However,on the other hand,it also means that anything foreign investors have learned about investment structures in China has become partly outdated.Foreign investors should pay close attention to relevant legislative updates and seek professional advice before making an investment following the implementation of the FIL.RELATED READINGThe New Foreign Investment Law in ChinaChina Briefing MagazineJuly 2019China passed a new Foreign Investment Law in March 2019.The law establishes a new framework to govern foreign investment in China and addresses a number of common concerns among overseas businesses.Critics,however,have questioned the extent to which the law addresses these issues in practice,pointing to the laws at times broad and vague language.This issue of China Briefing magazine offers a comprehensive analysis of Chinas new Foreign Investment Law.AVAILABLE HERE29AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESHow do I establish a business?When establishing a company in China,it is highly advisable to seek professional assistance to guide you through the complex setup procedure and outline the roles and responsibilities of key positions in the company.This can be a critical factor in ensuring the success of the venture and avoiding time-consuming changes to the company later on down the line.In this section,we discuss:Pre-establishment considerations;Corporate establishment;Key positions in a foreign invested entity;Office premises requirements;Opening a bank account;and Intellectual property.Pre-establishment considerations Business scope The business scope is an enumeration of the commercial activities in which a business is authorized to operate in.It is administered by two state bodies-the Ministry of Commerce(MOFCOM)and the State Administration for Market Regulation(SAMR)1 -and is printed on its business license along with other registered information such as its name,registered capital,and legal representative.For foreign businesses,its imperative that the company operations must be reflected accurately in the business scope.Under the current laws and regulations,foreign investors are still restricted or prohibited to engage in certain sectors,as stipulated in the National Negative List and the FTZ Negative List.In addition to the legal risk of disingenuously operating in an unregistered domain,not keeping the companys commercial operations within the range of activities set out in its registered business scope can also be detrimental to a companys ability to issue official invoices(fapiao)to its clients.While a company still can issue fapiao for occasional activities out of the business scope,regular discrepancies may trigger potential tax investigations.It is therefore critical that companies carefully plan their business scope prior to initial incorporation in China,or else risk having to undergo the onerous and time-consuming process of changing this later.Depending on the business scope,FIEs can be classified as being a manufacturing company,a service company,a trading company,regional headquarters,an R&D center,an investment company,or several others.Often,the capital requirements will differ depending on the type of company that is being incorporated.FANNY ZHANGSenior ManagerBusiness Advisory ServicesBeijing Office“Setting your business up right from the start can save a lot of hassle in the long run.”1 In 2018,China announced a sweeping restructuring of its government institutions,under which the the State Administration for Industry and Commerce(SAIC)was integrated into the State Administration for Market Regulation(SAMR).In practice,SAMR and its local branches might still be referred as AIC as the body in charge among business society.30AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESRegistered capitalRegistered capital is the fund all the shareholders contribute or promise to contribute to the company when they apply to the local Administration of Market Regulation(AMR)for incorporation of the company.The amount of the registered capital depends on a range of factors,which include the region,the sector,the companys business scope,the planned scale of operations,etc.It will show in the companys business license,this information is available to the public to show the fund strength or capacity of a company to some extent.The registered capital does not need to be paid completely up front.The previous system of paid-up capital has been replaced by a subscribed capital model,under which a schedule of contributions must be declared in the Article of Association and be registered with the local AMR in charge.The government will check whether the investors follow the capital injection plan.There is no minimum registered capital requirement for corporate establishment except few industries,such as banking,financing,insurance,etc.Despite this,in practice,the governing authorities will ensure that a companys registered capital is sufficient to support its business operations for at least one year,including its rent,labor costs,and office expenses.Moreover,the registered capital can affect the amount of offshore debt the FIE can borrow from other investors or foreign banks,if the FIE chooses to follow the ratio between registered capital and total investment1 as shown in the following chart.The upper limits of the offshore debt is the gap between the total investment and the registered capital.Registered capital contributions can be made cash or in kind,as a lump sum,or in installments.The companys payment schedule for contributions must be specified in its Articles of Association,and once paid,the amount cannot be freely wired out again.1 Offshore debt can also be decided by another method called“macroprudential management of foreign debt”method,the calculation of which is more complicated.Investment to Capital RatiosTotal investment(US$)Minimum registered capital3 million or less7/10 of total investment3 million -4.2 millionUS$2.1 million4.2 million-10 million1/2 of total investment10 million-12.5 millionUS$5 million12.5 million-30 million2/5 of total investment30 million-36 millionUS$12 million36 million or greater1/3 of total investment31AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESExpense and tax planningWhen setting up a company in China,one inevitably incurs costs prior to the company being formally incorporated.The question then arises what part of these costs may be deducted from the companys tax bill.This becomes especially relevant if the investment is a large project,such as setting up a factory and purchasing machinery,where the costs incurred prior to incorporation can be substantial.An FIE,being an independent legal entity registered in China,is taxed on its income,and may therefore deduct expenses from Chinese tax.As pre-incorporation expenses by definition have been incurred prior to the FIE formally existing,only some of these expenses can be taken on by the FIE.Of all the expenses made before formal incorporation,only the so-called pre-operation costs(开办费)may be allocated to the FIE and deducted.The key point in defining pre-operation costs is the time when they occurred.In practice,the starting point of this period is seen as either the establishment date on the business license,or the day on which the investor gets the company name confirmation from the AMR.This is usually one month before the establishment date on the business license.The ending point of the pre-operation cost period is when the company issues its first invoice,or generates its first revenue.Most of the costs incurred during this period,such as wages,training,printing,transport fees,registration fees,and purchases of items not considered fixed assets,may be deducted if relevant valid tax invoices can be provided.Up to 60 percent of advertising and business-related entertainment expenses(business dinners,gifts,baijiu,etc.)may be allocated to the FIE during this period.It is often hard to predict what the establishment date of the company will be.This largely depends on how the incorporation process is conducted.However,the better the investor manages the incorporation from its side,the more clarity one can hope to get.Before the company is incorporated,the foreign investor may open a temporary bank account in China.The investor may wire foreign currency into this account and spend these funds on pre-operation and other expenses.After the company has been established,it needs to open a capital account.The funds from the temporary account can then be wired to this account.In practice,the only cost incurred prior to the pre-operation cost period is office rent.Allocation to the FIE is accepted,as an office lease is a required step of the incorporation process.Enterprises,especially manufacturing companies,which often have a long pre-operation period,should take careful consideration of when their pre-operation period ends.These companies in particular need to make sure costs incurred can be carried forward as a loss over the next few years.32AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESLocationChoosing a location is one of the first decisions that companies must make when entering a new market.Location and a strategic site selection plan can have a major impact on the success of the business,affecting production,operation,and sales.Therefore,companies must take steps to ensure they have the right information before committing their time and money.Some locations offer more preferential policies to foreign investment based on the local economic priorities,such as the Guangdong-Hong Kong-Macao Greater Bay Area(GBA),the Hainan Free Trade Port(FTP),Western China,and the pilot free trade zones(FTZs).By far,China has established 21 FTZs,which constitutes part of Chinas efforts to transform into a more innovative,service,and consumption-driven economy and the creation of sustainable and high-end manufacturing capacity to attract international businesses.However,investors are not suggested to make decisions solely based on preferential policies.Rather,there are multiple considerations that companies must grapple with when choosing a location,including but not limited to real estate,infrastructure,supplier and customer market,cost,operating environment,legal and regulatory environment,and human resources.A Typical Location Search Service ProcessA Typical Location Search Service ProcessPHASE 1PHASE 2Screen for potential sitesbased on search metricsReport data metrics and analysis of property optionsIdentify location needsand set search metricsNegotiationsDeep dive analysis on shortlisted sitesDue diligence on siteVisit sitesShortlist top locations33AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESHolding companyMany companies choose to establish holding companies,or“special purpose vehicles”,in jurisdictions,such as Hong Kong or Singapore,to hold their Chinese entity.Holding companies allow for an additional layer of distance between the Chinese subsidiary and parent company,and can“ring-fence”the investment to an extent,protecting it from the potential risks and liabilities of the Chinese subsidiary.In the case that an investor wishes to sell their Chinese business,or introduce a third-party partner/shareholder into the structure,the administrative changes can also be done at the holding company level,rather than at the China level,where the regulatory environment is tougher and procedures are more time-consuming.Given the comparatively sophisticated banking systems of Hong Kong and Singapore,establishing a holding company in either jurisdiction is a popular option for foreign companies wishing to hold their China-earned profits offshore.In this way,the profits can be re-invested into China if the need arises,or used to further expand operations elsewhere in Asia.Subject to the parent countrys anti-avoidance tax rules,this method is often used as a tax deferral mechanism for foreign companies who do not want to remit their China profits immediately back to the home country.In addition,Hong Kong and Singapore holding companies present a number of tax advantages,including reduced withholding tax rates on the repatriation of profits and limiting tax exposure on capital gains.Note that the Foreign Account Tax Compliance Act(FATCA)has significantly disrupted theability of U.S.investors to open or maintain bank accounts through Hong Kong,threatening tocut off the cash flow to their mainland China subsidiaries.Although also a signatory to FATCA,Singapore appears to be less affected by these developments.Corporate establishmentEstablishing a foreign investment structure in China generally takes between three and six months and involves the following government authorities:Ministry of Commerce(MOFCOM)and its local branches;State Administration for Market Regulation(SAMR)and its local branches;State Administration of Foreign Exchange(SAFE)and its local branches;State Taxation Administration(STA)and its local branches;General Administration of Customs(GAC)and its local branches;and National Bureau of Statistics(NBS)and its local branches.The establishment process varies based on ones chosen investment structure and planned business scope.For example,manufacturing WFOEs require an environmental evaluation report be completed,while trading WFOEs need to comply with the customs/commodity inspection requirements.34AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESBelow we take WFOE as an example to demonstrate the setup procedure.WFOE Setup Procedure*BASIC INFORMATION COLLECTION FROM CLIENT(depends on client)INCORPORATION DOCUMENTS PREPARED BY CLIENTIncluding the proof on lawful use of the office premises(depends on client)ENVIRONMENT IMPACT ASSESSMENT*Including report assessment,on-site environmental impact assessment,and report approval from authorities in charge(3-6 months)AMR BUSINESS REGISTRATION*Including online incorporation information submission and pre-review,and on-site documentation submission to the authority in charge(7-10 working days)FOREIGN INVESTMENT INFORMATION REPORTING*(real time)COMPANY NOW LEGALLY EXISTSCARVE COMPANY CHOP,FINANCIAL CHOP,INVOICE(“FAPIAO”)CHOP,AND LEGAL REPRESENTATIVE CHOP(1-2 working days)Pre-licensing(2-3 months)Post-licensing(2-3 months)*For manufacturing WFOE only.*In an effort to simplify company establishment procedures,the government has decided to cancel the foreign trade dealer/operator filing nationwide starting from December 30,2022.The government also intends to integrate the customs registration with the AMR registration,but the reform hadnt been fully implemented in practice at the time of writing.*No separate reporting is needed in cities offering one-stop service such as Shanghai.The reporting can be conducted contemporaneously after the company name is filed for record.*For manufacturing and trading WFOE only.RMB BASIC ACCOUNT(2 weeks)TAX REGISTRATIONIncluding tax identification authentication of the legal representative or financial employee in charge,VAT taxpayer status set-up,invoice set-up,and on-site submission of documentations(3-5 working days)FOREIGN EXCHANGE REGISTRATION CERTIFICATE(around 2 weeks)FOREIGN CAPITAL ACCOUNT(5-7 working days)CUSTOMS REGISTRATION*(around 2 weeks)CAPITAL INJECTION(in accordance with Articles of Association)E-PORT REGISTRATION*(around 2 weeks)CAPITAL VERIFICATION ASSISTANCE(2 weeks)SAFE IMPORT-EXPORT ENTERPRISE NAME FILING*(2-3 working days)35AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESKey positions in a foreign invested entityThe key positions in a foreign invested entity vary by the investment structure and size,with some overlap.ROs should designate a chief representative to sign documents on behalf of the company.In addition to a chief representative,an RO can also nominate three more general representatives.For WFOEs and JVs,key positions include shareholders,an executive director(or board of directors),supervisor(s),general manager,chief finance officer(CFO),and legal representative.Shareholders and executive director(or board of directors)For WFOEs,the board of shareholders represents the highest authority of the company,whose decisions regarding company operations are executed by the executive director or board of directors.For JVs established before January 1,2020,i.e.the effective date of the FIL,the board of directors is the highest authority.But they will need to make relevant changes within the five-year transitional period.For JVs established after January 1,2020,the board of shareholders will be the highest authority of the entity.Supervisor(s)WFOEs must have at least one supervisor to oversee the execution of company duties by the director(s)and senior management personnel.For JVs,this used not to be a mandatory obligation before the FIL enacted.However,starting from January 1,2020,JVs are also required to have supervisors following the rules stipulated in the Company Law.To ensure there are no conflicts of interest,a companys director(s)and/or senior management personnel(general manger,deputy general manager,and chief financial officer)cannot concurrently serve as supervisors.Where a company has a relatively small number of shareholders and is small in scale,one or two supervisors will suffice.For larger companies,a board of supervisors composed of no less than three members is required.General managerBoth WFOEs and JVs need a general manager who is responsible for day-to-day company operations.This position may be concurrently filled by the executive director or a member of the board of directors.For JVs,several deputy general managers can also be appointed;this group is collectively referred to as the management office.INES LIUManager International Business AdvisoryBeijing Office“The legal representative is the person who really carries responsibility for a company in China.You will need to appoint someone who is not just technically competent,but China competent.”36AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESChief financial officerChief financial officer(CFO),or financial employee in charge,is a key personnel of a company that has primary responsibility for managing the companys finances,including financial planning,finance and accounting compliance,taxation,cash flow tracking,as well as financial reporting analysis.CFO is senior management by nature and typically reports to the general manager of the company.This position may be concurrently filled by a member of the board of directors.CFO is of special importance in China during the company setup stage,where the CFO needs to go through real name authentication and be the contact person with the authority in charge.Legal representativeEvery business established in China,foreign or domestic,is required to designate a legal representative,i.e.the person responsible for performing the duties and powers on behalf of a company.The legal representative is,by definition of their role,one of the most powerful people in a FIE.Yet this power comes with heavy responsibility,and if a single individual in a foreign invested entity is to be held accountable for company actions,that person is more likely than not the legal representative.For WFOEs and JVs established after January 1,2020,the executive director,the chairman of the board of directors,or the general manager are all eligible to be legal representatives.Before that,only chairman of the board of directors can take the legal representative role of the JVs.Powers and responsibilities of a legal representativeThe Company Law does not clearly define the powers of a legal representative.However,it is clear that a legal representative is authorized to perform all acts regarding the general administration of a company according to the companys aims and objectives.This may include:Acting(legally)to conserve the companys assets;Executing powers of attorney on the companys behalf;Authorizing legal representation of and litigation by the company;and Executing any legal transactions that are within the nature and scope of that companys business.37AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESThe FILs impact on key positions in FIEsConsidering that WFOEs are generally limited liability companies,which are basically in line with the Company Law,the FIL has a limited impact on key positions in WFOE.For existing FIEs in the form of a CJV or EJV,they need to change their governing structure within the five-year transitional period to the three-tier structure(the board of shareholders,the board of directors,and the general manager),in accordance with the Company Law.Below,we take EJV as an example.FILs Impact on Key Positions in EJVItemsUnder the EJV LawUnder the FILHighest authorityBoard of directorsBoard of shareholders or the general meeting of shareholdersBoard of shareholdersNo board of shareholdersThe following matters must be be reviewed and approved by shareholders holding two-thirds or more of the voting rights on the shareholders meeting:Amendment to the article of associations;Increase or reduction of registered capital;and Company merger,division,dissolution,or change of company structure.Board of directors The board of directors shall comprise no less than three members;Directors shall be appointed and removed by EJV parties;Where a Chinese national takes the position of chairman,the position of the deputy chairman shall be held by the foreign party,or vice versa;and The tenure of a director shall be four years.Company can choose to appoint an executive director instead of establishing a board of directors;The board of directors shall comprise three to 13 members for limited liability companies,or five to 19 members for joint-stock companies;Directors who are not employee representatives shall be elected and replaced by the board of shareholders/shareholder;and The tenure of a director shall not exceed three years.SupervisorBoard of supervisors/supervisor is not obligatorily required Board of supervisors should comprise no less than three members;Limited liability companies with fewer shareholders may appoint one to two supervisors instead of establishing a board of supervisors;The tenure of supervisor is three years;and Directors and senior management personnel shall not hold the post of supervisor concurrently.Legal representativeChairmanChairman,executive director,or general manager Senior management personnelWhere Chinese party takes the position of general manager,the position of the vice-general manager shall be held by the foreign party,and vice versaNo limitation38AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESOffice premises requirementsTo register a FIE in China,it is a prerequisite to own or lease office premises1(as the primary place of business)and register this with the local AMR in charge.Doing so requires that the FIE possess all legal documents pertaining to the premises as required by the Chinese authorities,such as the Real Estate Ownership Certificate.If the office premises is leased from another individual or organization,the lease term of the original lease agreement should be no shorter than one year.Generally,the AMR does not accept“residential”purpose real estates to be used for business registrations.The purpose of the premises as indicated in the Real Estate Ownership Certificate,(i.e.,residential purpose,commercial purpose,or industrial purpose)must match the nature of the businesses.For example,the premises for a FICE should be for commercial use,while the premises for a manufacturing company should be for industrial use.In most cases,only one business may be registered per office unit.Under limited conditions,one office unit can be used to register multiple businesses.Many new entrants to the China market find success using serviced offices offered by a number of providers in major cities across China.For recent start-ups or foreign companies wanting to test the waters first,having to lease office space can be a burdensome commitment.Serviced offices offer an option in which businesses can lease the required office space under flexible terms and at more accessible prices.Apart from simply being a cost-efficient way to meet the office space requirement,using a serviced office provider allows companies to use their on-demand services,such as IT packages,secretarial support and meeting rooms.While these often-tiny work places can offer a solution,it is important to realize that not all of them are in compliance with the AMR standards.Investors who consider this option are suggested to confirm with the serviced office as well as the authority in charge whether the serviced office address can be used as premises for business registration.1 In some cases,virtual offices might be accepted as registered address,such as in some industrial parks.VIKTOR ROJKOVAssistant ManagerInternational Business AdvisoryShanghai Office“If a FICE intends to include retail activities in its business scope,the company needs to be registered at an address suitable for the specific retail activities.The investor is advised to double-check the suitability of the premises before signing the lease agreement.”39AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESOpening a bank accountOnce obtaining a business license in China,the newly established FIE must choose a specific bank to open the bank account,without which the entity will not be able to carry out its daily operation.Account typesFIEs in China need to establish at minimum two bank accounts:an RMB basic account and a foreign currency capital contribution account.1.RMB basic accountAn FIE must have one(and only one)RMB basic account for daily business operations in China1.This account is the only account from which the company can withdraw RMB cash.The RMB basic account often acts as a designated account for making tax payments.2.Foreign currency capital contribution accountAn FIE must also have a foreign currency capital contribution account to receive capital injections from the foreign investor.Approval to open this account can be obtained from the SAFE.Additional general RMB accounts and other types of foreign currency accounts can be opened for different purposes.For foreign currency accounts,these may include a settlement account for the collection of current items in a foreign currency,foreign debt special accounts,and temporary capital accounts.International and Chinese banksForeign investors can establish the above accounts in China through international banks with a local presence,the major banks being Bank of East Asia,Citibank,DBS Bank,Hang Seng Bank,HSBC and Standard Chartered;or through a Chinese bank,the largest being Industrial and Commercial Bank of China,Bank of China,China Construction Bank,Agricultural Bank of China,and Bank of Communications.Foreign investors in China often prefer to establish an account with an international bank because of an existing business relationship.However,establishing accounts with a Chinese bank has a number of advantages,namely:The application process for opening a bank account with an international bank in China will be more document-intensive and take longer compared to opening such an account at a Chinese bank;FOLLOW US ON TWITTERDezanShira1 China is piloting to remove the RMB basic account requirement in Lingang arear,Shanghai FTZ.40AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIES There are substantially more Chinese commercial banks than foreign bank branches,which allows for more convenient and faster RMB remittance;Most Chinese companies have local bank accounts conducting transactions with them will be easier and faster if done from a Chinese bank instead of an international bank;and Bank account security.When opening a bank account in China,an FIE will need to specify what will act as the“signature”of the company.Usually the companys financial chop(seal)is required to do so,along with either the legal representatives chop(or chief representatives chop for an RO)and a handwritten signature.Banks generally prefer using the legal representatives chop instead of a handwritten signature,as the latter is easier to forge and harder to verify.Many bank transactions can now be done online in English,including the approval of transactions and viewing account balances from abroad.It is possible and sometimes necessary to make tax payments online in in many cities by signing a three-party agreement with an authorized Chinese bank.For an entitys RMB basic account,it is possible to apply for different levels of e-banking access and multiple security keys(in the form of a key-ring/USB dongle)one with access rights and another with approval rights.Another common security measure is a device that generates a new password for every check that is written.What are the latest requirements for opening a bank account in China?Foreign investors might get the feeling that it will not be a straightforward process to become the banks new clients.This is because banks in China are subject to high scrutiny from the Peoples Bank of China(PBOC),resulting in the emphasis now given to the KYC(know your client)policy.Under PBOC direction,Chinese banks have also become stricter about opening bank accounts since April 2020,especially for newly established companies no matter whether it is a domestic company or a foreign invested company.To validate the“real business”of the applicant,banks have now implemented an on-site visit procedure.This procedure includes a bank officer visiting the physical location(the office)of the applicants to verify that they have a physical location and staff.The photo of the location with the company nameplate and a business license will be taken for the banks internal compliance purposes.Based on this situation,the bank will require the individual who has submitted their passport as verification documentation on behalf of the company(the legal representative,that is)to be present at the time of the account opening,which is difficult to mange with the ongoing COVID-19 pandemic and the travel restriction policies implemented in China.Investors are suggested to contact the bank or consult with professional services for solutions.41AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESMONICA LIManagerBusiness Advisory ServicesBeijing Office“To protect their IPR,most FIEs adopt measures to proactively search the internet for violations,in addition to sending staff to corporate functions and trade fairs.”Intellectual property considerationsIntellectual property(IP)protection is a longstanding and critical concern for companies operating in China,which has also been a key point of contention in the US-China trade war.China has already made strides in recent years to improve IP protection as the government seeks to spur domestic Chinese innovation and improve the business environment for investment,such as revising its IP laws and establishing a new national IP appeals court.However,challenges remain,as counterfeiters and infringers are getting increasingly sophisticated.For example,infringers may take advantage of procedural loopholes and proactively seek to invalidate legitimate IP rights.Companies are thus suggested to develop a comprehensive strategy to identify and protect their IP in China.This includes enhancing internal controls and making the best use of external resources.In China,IP is defined as a proprietary right enjoyed by a holder with respect to their works,inventions,trademarks,geographical indications,trade secrets,layout design of integrated circuits,new varieties of plants,etc.Among others,copyrights on works,patent rights on inventions,utility models,and designs,and trademark rights,are the most common IP rights.China follows the principle of territoriality in IP protection,meaning IP rights acquired under the laws of a country can only be valid and protected within the territory of that country unless an international convention or bilateral or multilateral agreement is in place.What that means is that enjoying IP rights in a foreign country will not automatically secure the IP rights in China.A domestic IP registration/filing in China is necessary to effectively protect your IP in the country.Besides,China mainly applies a“first-to-file”rule for IP registration,which means that the first entity or individual who registers IP rights will hold those rights exclusively,irrelevant of the original user,with limited exceptions.Thus,the first and foremost strategy we can offer is to register/file your IP rights in China as early as possible.In addition to registration,businesses are also suggested to establish a thorough internal IP protection system,to adopt preventive measures to protect IP,and to confront IP infringements in business operations.This system can be set up with the help of external third-party professional services,especially for businesses that are new to China and have limited knowledge of Chinas trademark protection situation.For businesses engaging in import-export,they are suggested to file their patent,copyright,or trademark,with the customs authorities.This is necessary because:It is a prerequisite for the customs to take active IP protection measures.It helps customs to find infringing goods.It can have a deterrent effect on the infringer.42AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIESMaking changes to a Chinese entity after establishment such as to its range of commercial activities or registered address can be challenging and onerous.In some cases,closing the entity all together and starting from scratch may be easier,or even mandatory.For these reasons,it is always better to start out with a clear and informed business plan,rather than attempt to make on-the-fly adjustments later on.In this section,we discuss:Company name;Business scope;Registered capital;Shareholder structure;RO to WFOE conversion;and Relocation.Company nameThe procedure for changing the name of a company in China is quite complex.Because a companys name is displayed on several types of official documents(such as its business license and company chop),any changes to this information must be filed with each respective governing authority.Step 1:After preparing several new company name options that are in line with the company name requirements imposed by the laws and regulations,the company should conduct a company name self-declaration on the platform maintained by the AMR,which can spotlight duplications,similarities,and other prohibitive or restrictive situations at the same time.In some cities,the self-declaration might be integrated with the company name change registration.Under certain situations,the company may need to go through a company name pre-approval procedure instead,such as when the new company name contains“China”,“national”,“international”,etc.Step 2:The company should prepare the documentation required for the company name change registration,which includes a board resolution1(or shareholder resolution)on the matter and an amended Articles of Association signed by the legal representative,among others.Step 3:The company must file an application with the local AMR for company name change registration.Upon examination and approval,a new business license with updated information will be issued to the company.Step 4:FIEs are also required to submit a change report through the foreign investment reporting system,which might be integrated with the company name change registration in cities offering one-stop services.How do I make changes to my business?1 JVs that havnt adapt to the new governing structure based on the FIL need to pass a board resolution on the matter.RELATED READINGRestructuring Your China Business to Outperform in the New NormalChina Briefing MagazineNovember 2020In this issue of China Briefing magazine,we walk foreign investors through the different considerations when restructuring their China businesses.AVAILABLE HERE43AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIES Step 5:After the name change procedures has been successfully made with the AMR,the company must then go about updating other documents on which its name appears,including various types of chops(Financial Chop,Company Chop,Customs Declaration Chop,etc.),which must be newly carved and registered with the companys local public security bureau.Moreover,the company will have to make changes to all ongoing contracts with suppliers,clients and employees.Business scopeGenerally,when an enterprise intends to change its business scope,it must first come out with a board resolution(or shareholder resolution)and amend its Article of Association on this matter.After that,the company need to file the modified business scope with the local AMR within 30 days of the resolution being made,and submit a change report through the foreign investment reporting system(which might be integrated with the AMR registration in cities offering one-stop services).Upon registration with AMR being completed,the enterprise will get a new business license.Following this,other business certificates and bank information may need to be amended correspondingly.To be noted,if the new business scope diverges significantly from the original business of the company,the company name should be changed as well,since this must generally reflect the main business of the company.Registered capitalIf companies plan to adjust their registered capital bases on financial,strategic,or regulatory considerations,similar to other changes,it is a time-consuming process that involves working with multiple government authorities.Generally,increasing registered capital is easier than decreasing registered capital,the latter of which involves additional procedures.Step 1:The company should reach a board resolution(or shareholder resolution)on the matter and revise the Article of Association accordingly.Step 2:For decreasing registered capital,the company needs to inform the creditor within 10 days of the company resolution,or announcing the decrease on a designated newspaper for the 45 days within 30 days of the company resolution.Step 3:The company should apply to the AMR for business license update within 30 days of the company resolution.Step 4:The company should make relevant updates in the bank regarding capital increase/decrease.Step 5:The company should apply to the SAFE to make relevant foreign exchange registration.44AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIES Step 6:FIEs are also required to submit a change report through the foreign investment reporting system,which might be integrated with the company name change registration in cities offering one-stop services.The bank will facilitate the capital increase afterwards.And other business certificates may need to be amended correspondingly.Shareholder structureA company typically decides to make changes to its shareholder structure upon the entrance of a new shareholder who is to receive an equity transfer from one or more existing shareholders.Alternatively,it may be necessary to revise the shareholder structure as the result of equity transfers between shareholders or the exit of a shareholder from the company.Though information on company shareholders is not explicitly listed on a Chinese business license,in most cases,the company will still need to apply for a new business license,especially where the registered information listed on the business license needs to be changed as a consequence.Step 1:An equity transfer agreement should be signed between the transferor and the transferee.The transfer agreement must be a valid agreement that is reached through due procedure stipulated in relevant laws and regulations.For example,when equity is transfered to someone other than the original shareholders,there must be proper documents to show the transfer agreement is agreed by the current shareholders.In addition,there must be proper documentation to show the qualification of the new shareholder.Step 2:The equity transferor or transferee(the taxpayer)shall file with the competent tax authorities and obtain a tax payment certificate for relevant taxes incurred or a tax exemption certificate.Step 3:The company must apply to the original AMR of registration for a change of company shareholders within 30 days of the change being made.Step 4:The company should submit a change report through the foreign investment reporting system,which might be integrated with the AMR registration in cities offering one-stop services.Step 5:The company must apply for a new business license if relevant information listed on the business license gets changed.Following this,other business certificates and bank information may need to be amended correspondingly.45AN INTRODUCTION TO DOING BUSINESS IN CHINA 2023 FOR US COMPANIES“RO to WFOE conversion”Multinational companies operating in China through an RO occasionally encounter the need to convert their existing operations to a WFOE,as ROs are unable to engage in profit-making commercial activities.In fact,the act of“converting”an RO to a WFOE is a misnomer;rather,deregistering an RO and establishing a new WFOE are two separate procedures that must be done either in sequence or simultaneously.As an RO has no legal personality,the term“deregistration”is used instead of“liquidation”,though the two processes share many similarities.Step 1:Prior to actual deregistration,the RO must apply to the local tax bureau in charge of tax audit and tax deregistration.To do so,the RO may first undergo an audit by a local Chinese certified tax agent(CTA)firm for taxes owing from the past three years.Once the audit is completed,the enterprise should submit to the tax bureau a board resolution affixed with the signature and seal of the chairman of the board of directors,as well as a cancellation application signed by the chief representative of the RO.Should any unpaid taxes or other irregularities be found by the tax authorities at any point during this process,the RO may be required to submit additional documentation,pay penalties,or settle unpaid taxes with the authorities.Step 2:The RO should then deregister its foreign exchange registration in the local SAFE and custom registration in the local customs.In case it has not registered,the RO will still need to get corresponding official statements from the bureaus in charge as proof.Step 3:The enterprise can then proceed to deregister with its local AMR where its application will be processed within 10 workdays of of receipt by law.If successful,the enterprise will be issued a“Notice of Deregistration”and all the registration certificates will be cancelled,as well as the chief representatives work certificate.Announcement of the ROs deregistration must be listed in a media outlet designated by the AMR.The ROs business registration and office lease must be valid up until the official notification of deregistration has been issued by the AMR.Step 4:The enterprise should close its bank account.Unissued checks and deposit slips will need to be returned to the bank and any funds remaining in the account should be transferred out.If the RO intends to transfer the account to its parent company,it will be required to provide reasons for doing so and seek approval from the bank.In cases where the company is required to submit the company chops during AMR deregistration,the bank account is suggested to be closed before AMR deregistration,as company chops are needed in this process.Step 5:Notification of the ROs deregistration should then be filed with the public security
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波士顿咨询：2023年油气行业的价值创造-现金充裕企业的前进之路（英文版）（16页）.pdf
BOSTON CONSULTING GROUP 1Three years on from the outbreak of COVID-19,the oil and gas sector faces a very different environment from the one that existed prior to the pandemic.Russias invasion of Ukraine has exacerbated the negative effects of commodity price inflation and a post-COVID supply shortfall,sparking a full-blown energy crisis.In addition to highlighting vulnerabilities within the global energy system,the conflict has also refocused policy efforts.The European Union has adopted REPowerEU,a policy plan aimed at reducing dependence on Russian fossil fuels and further accelerating the energy transition.Meanwhile,in the US,Congress has passed the Infrastructure Invest-ment and Jobs Act and the Inflation Reduction Act,two pieces of legislation that together contain the largest pack-age of climate measures in the countrys history.This evolving landscape has had a big impact on the oil and gas sector.High energy prices have swelled profits,leaving companies flush with cash.As a result,oil and gas companies have vaulted from laggards to leaders in terms of total shareholder returns(TSR).According to BCGs annual Value Creators rankings,oil and gas led all other sectors in one-year TSR to the end of June 2022.(See Exhibit 1.)Value Creation in Oil and Gas 2023A Path Forward for Cash-Rich CompaniesRecent favorable conditions have catapulted oil and gas players from laggards to leaders in terms of total shareholder returns.But to keep delivering value,they must balance four key areas.By Matthew Abel,Santosh Appathurai,Rebecca Fitz,Clint Follette,Ben Vannier,and Dessy Vekilov 2 A PATH FORWARD FOR CASH-RICH COMPANIES:VALUE CREATION IN OIL AND GAS 2023Exhibit 1-The 2022 Commodity Price Boom Reversed the Oil and Gas Industrys Long-Held Position as TSR Laggard1-year TSR(June 2021 to June 2022),CAGR(%)5-year TSR(June 2017 to June 2022),CAGR(%)40 %0 %Travel&TourismAuto OEMsBanksMultibusinessForest Products&PackagingMachineryTransportation&LogisticsHealthcare ServicesFashion&LuxuryMedTechMid-cap PharmaFinancialInfrastructureBuildingMaterialsConstructionInsurancePower&Gas UtilitiesLarge-cap PharmaConsumer NondurablesServicesChemicalMiningGreen EnergyTechnologyRetailAerospace&DefenseOil&GasCommunication Services ProvidersMetalsReal EstateConsumer DurablesMedia&PublishingAsset Mgmt&BrokerageAuto Parts5%0%5 %Note:Median TSR per respective industry sample;n=2,339;Russian companies omitted from sample.Sources:S&P Capital IQ;Refinitiv;BCG Value Creators database 2022;BCG ValueScience Center.As they create plans to deliver value for shareholders,oil and gas companies must take several factors into account.Companies need to meet the goals of the energy trilemma,which involves achieving a secure,affordable,and sustain-able energy supply.They must also remain mindful of the risks of overspendingespecially as corporate and public climate targets will likely mean a substantial reduction in demand for their core oil and gas products.Consequently,they will require a strategy that maximizes returns from high energy prices in the short term,while investing in low-carbon businesses for the long term.Our analysis shows that four areas are paramount to future value creation:Allocating capital to optimize dividend payouts and earnings growth while maintaining capital discipline Incorporating lessons from green power producers with the aim of capturing a multiples rerating Delivering results from still relatively new low-carbon strategies Creating differentiation in legacy oil and gas divisions by targeting specific value creation levers and geographies Companies will need to achieve a balance across these areas to drive leading TSR performance in the volatile environment that lies ahead.Taking the Long ViewIn this report,we have analyzed the historical TSR perfor-mance(share price appreciation plus dividends)and key valuation drivers of oil and gas companies.Given that some oil and gas players are redefining their purpose and expanding into low-carbon areas,we have included green power producers(for the first time)for comparison.Be-cause their approach to working and rewarding investors differs from oil and gas players,and because they serve different markets,these companies offer a very different value proposition than oil and gas.(See“Companies in Our Sample.”)Shareholder demands and expectations from the oil and gas sector have varied considerably as price volatility has changed over time.Weve split the past two decades into four distinct eras to show how investor returns and indus-try dynamics have shifted.(See Exhibit 2.)BOSTON CONSULTING GROUP 3For this report,we included 97 companies spanning 10 peer groups(See the appendix for the full list).The primary focus was on the majors,international integrated players,and exploration and production(E&P)companies.Oilfield services companies,national oil companies,refining and marketing companies,and midstream ventures were also included,but were deprioritized in our deep dive analysis.Each oil and gas company in our sample was valued at more than$6 billion(as of August 26,2022)and had a free float of more than 15%.For comparison,we also analyzed the value creation drivers of green power producers with a market capitalization of at least$1 billion and a free float in excess of 15%.We split green power producers into small producers(companies with a market capitalization less than or equal to$25 billion)and large producers.The companies we studied had a combined market cap of approximately$4.1 trillion.Of this amount,the majors accounted for about 30%,E&P players accounted for about 20%,international integrated about 5%,and green power producers about 15%with other players accounting for the remaining 30%or so.Companies in Our Sample4 A PATH FORWARD FOR CASH-RICH COMPANIES:VALUE CREATION IN OIL AND GAS 2023Exhibit 2-Oil and Gas Industry Performance Over the Past Two Decades Can Be Split into Four Distinct Eras TSR Index:January 2004=100TSR(CAGR)S&P 500Green EnergyOil&Gas(excl.NOC)Brent4%5%1%7%8%5%8%Supply-Constrained WorldOverinvestment EraGreening Era 500 0 600 100 200 300 700Jan 2004 Dec 2010Jan 2011 Dec 2015Jan 2016 Dec 2019Jan 2020 Jun 2022Jan2004Jan2006Jan2008Jan2010Jan2012Jan2014Jan2016Jan2018Jan2020Jan2022 400Energy TrilemmaS&P 500Green EnergyOil&Gas(excl.NOC)BrentNote:Market data as of June 2022;USD based returns;NOC=national oil companyGraph:TSRs indexed monthly with rebalancing based upon market cap;Table:TSRs indexed to respective start of period market cap;O&G stream excludes NOCsSources:S&P Capital IQ;BCG ValueScience Center.A Supply-Constrained World 20042010Oil supply constraints kept the price of Brent crude high for much of the period from 2004 through 2010,enabling the companies we surveyed to deliver average annual TSR weighted by market capitalization of 11%,well above the S&P 500s 4%.From 2004 to 2008,oil and gas companies enjoyed ROCE(return on capital employed)each year of more than 20fore the measure fell sharply during the global financial crisis and remained low the following year.(See Exhibit 3.)Despite this,oil and gas companies continued to spend on capex,with investment in 2010 more than double that in 2004.The green power producers in our sample delivered TSR in line with oil and gas players during this time.Capex spend-ing among the group almost tripled over the period,with annual investment in wind and solar peaking in 2009,while ROCE declined from 10%to 8%.The Overinvestment Era 20112015High oil prices and a desire for growth encouraged compa-nies to spend ever greater amounts on capex and kickstart-ed the US shale boom.ROCE,however,declined from early 2012 onwards due to overinvestment,even though oil prices averaged more than$90 per barrel between 2011 and 2014.The spending spree came to an abrupt halt in 2015 as a global oversupply of oilimpacted by OPECs decision to raise output to prevent shale producers from gaining market shareled the price of crude to plummet.The industrys profligacy contributed to value destruction,with annual TSR over the period of 1%.Green power producers also delivered negative returns,with an average annual TSR of 5%,due to falling revenues and weak profit margins.These companies moderated spending on capex following the global financial crisis,as ROCE fell from 8%to 5%over the period.BOSTON CONSULTING GROUP 5Exhibit 3-Historically,Oil and Gas Companies Continued to Invest,Even as Returns Declined1ROCE determined upon calendar year market cap weighted ROCE for all 64 O&G names in study(excluding NOC).2Aggregate CapEx for all 64 O&G companies in study(excluding NOC);excludes capital spent on equity affiliates.3Brent prices inflation adjusted to 6/30/2022;prices reflect YTD totals through 10/13/2022 and forward curve as of 10/13/2022 close.Sources:Capital IQ;BCG analysis.200420122005200620212022E2011201420152016201320072010200820172018201920202009$113B$320B$135B$181B$168B$213B$280B$356B$281B$202B$348B$211B$244B$271B$205B$235B$233B$168B$227BSupply-Constrained WorldOverinvestment EraGreening EraEnergy TrilemmaO&G ROCE1(%)Brent($/bbl)010203040050100150200ROCEROCE Consensus1BrentBrent Strip3Returns&PriceOil field ServicesCAPEX2MidstreamNA R&MInternational R&MInternational integratedE&PMajorsThe Greening Era 20162019In the face of plunging oil prices,expectations of extended lower prices,and weak ROCE,companies cut spending sharply.The 2015 Paris climate agreement encouraged investors to begin prioritizing environmental criteria,con-tributing to a 25%drop in oil and gas players valuation multiples between the beginning of 2016 and the end of 2019.Oil and gas companies delivered annual TSR of 7%over the era,approximately half that of the S&P 500s 14%.Meanwhile,the falling costs of wind and solar power drove a rapid expansion in green energy.Over the course of the era,green power producers significantly outperformed oil and gas players,helped by a multiple rerating(premised on a bullish outlook for green energy growth)and im-proved cash flows to deliver annual TSR of 15%.The Energy Trilemma 2020The pandemic unleashed the largest oil and gas demand shock in history,sending the price of oil,company share prices,and earnings tumbling.But as the world economy recovered,Russias invasion of Ukraineand the resulting impact on global energy flowscaused energy prices to soar.These factors have led governments to reassess the impor-tance of energy security and affordability.High commodity prices are driving strong earnings growth in oil and gas,with annual TSR for the sector in line with the S&P 500 at 8%.By comparison,green power producers experienced a mild-er share price dip during the pandemic,but a smaller subsequent recovery.And they have underperformed oil and gas in TSR terms,delivering annual TSR of 5%.6 A PATH FORWARD FOR CASH-RICH COMPANIES:VALUE CREATION IN OIL AND GAS 2023This historical backdrop has shaped investor perceptions of the sector.In our third annual oil and gas investor sur-vey,we discovered a renewed enthusiasm for oil and gas.But we also uncovered specific investor concerns arising from past industry missteps.To win in the energy trilemma eraand create superior TSR over the medium to long termcompanies will need to craft strategies that address these concerns.(See“Key Findings:Oil and Gas Investor Survey 2022.”)Shifting FortunesWe used a one-year and a five-year lens to analyze recent TSR performance of oil and gas companies and green power producers.(See“Components of TSR”for details on our calculation method.)Over the five-year period ending in June 2022,green power producers mainly outperformed oil and gas companies,with small producers delivering average annual TSR of 15%and large producers delivering 10%.Green producers stronger TSR performance was driven by an expansion in their valuation multiples(measured as enterprise value divided by earnings before interest,taxes,depreciation,and amortization)as well as revenue growth and dividend payouts.Together,these factors negated the impact of weak profit margins.Oil and gas companies,by contrast,mainly used revenue and margin levers to drive earnings growth and turned to dividend payouts to negate the effect of shrinking multi-ples.Over the same period,exploration and production(E&P)companies delivered average annual TSR of 11%,while the majors delivered annual TSR of 7%.But over a one-year timeframe,the situation was reversed.Oil and gas companies delivered record TSR over the 12 months ending June 2022,due to the impact of the com-modity price rally on revenues.E&P players led the way,with one-year TSR of 54%,followed by international inte-grated companies(37%)and the majors(36%).Green power producers witnessed negative returns.Over the same 12 months,small green producers delivered TSR of 6%and large green producers delivered 12%.Supply chain disruptions,rising interest rates,and higher project costs impacted green producer earnings,while their valua-tion multiples dipped as investors rebalanced priorities across energy security and sustainability.Building Resilience Through Capital Allocation To create value in a volatile world,oil and gas companies need a capital allocation approach that enables them to build resilience during downturns and make the most of new opportunities.But because they have so much cash today,its vital that companies carefully weigh decisions about where to deploy their capital to avoid repeating past mistakes.In a highly cyclical industry,making the right choices wont be easy.Companies will need to make tradeoffs as they aim for the optimal balance of short-term and long-term levers.Here are some of the main factors they should bear in mind:Maintaining Capital Discipline While Optimizing PayoutsOur survey indicates that the vast majority of investors want oil and gas companies to maintain capital discipline.That generally means low levels of reinvestment,high returns of cash to shareholders,and high hurdle rates on future projects.At the same time,investors are willing to consider reinvestment as part of a disciplined capital allocation strategy.(See“Key Findings:Oil and Gas Inves-tor Survey 2022.”)But because of investor concerns about past profligacy,company bosses feel under pressure to keep a lid on spending.Companies should invest capital now to support their legacy business and build advantage in green energy and low-carbon solutions.Despite strong cashflows and projections that the sectors ROCE is heading back toward 20%over the near term,most equity analysts expect that companies will deploy less than 45%of their operating cash flow on business reinvestment from now until 2024.This is up from a rein-vestment rate of 38%in 2021,but down from 64%in 2019.In this environment,achieving the optimal balance be-tween reinvestment and cashflow drivers such as dividends or debt reductions represents a significant value creation challenge for companies.By not investing sufficient capital now when they are cash-rich,they risk losing out on the opportunity to support their legacy oil and gas businesses and to build a sustainability advantage in green energy and low-carbon solutions.BOSTON CONSULTING GROUP 7We surveyed 250 institutional investors with positions in oil and gas in September 2022.Here are some of our key findings:60%expected sector TSR to improve over the next two yearsindicating that investors still see value upside in oil and gas despite the commodity price rally.85lieved companies should prioritize capital dis-cipline as they navigate the energy transition,while 76%considered dividend growth an important element of players capital allocation strategies.Both findings suggest the sector still has a job to do to regain investor trust.76%thought reinvesting capital was important to create value over the long term.At a more granular level,80%of respondents considered reinvestment in low-carbon solutions important,while 73%thought reinvestment in upstream oil and gas was important.Over 50%considered oil and gas a more attractive investment than green power generation,reflecting a renewed emphasis on the energy trilemmaand partic-ularly the importance of security and availabilitysince Russias invasion of Ukraine.Investors also set high expectations for rates of return,suggesting theyd had enough of inadequate ROCE.Most investors indicated that the weighted average hurdle rate for new oil and gas developmentsthe min-imum return for a project to get the go-aheadshould be 14%to 18%,depending on the type of project.Re-turns have been below this level since 2011,though they are well on track to exceed it in 2022.Key Findings:Oil and Gas Investor Survey 20228 VALUE CREATION IN OIL AND GAS 2023Total shareholder return(TSR)is measured as the return from a stock investment,with the assumption that all dividends are reinvested in the stock.TSR is a product of multiple factors.(See exhibit.)Our approach deconstructs TSR into a number of underly-ing drivers.We use a combination of revenue growth and margin change to assess changes in fundamental value.We then factor in the change in a companys valuation multiple to determine the impact of investor expectations.Together,these two factors determine the change in a companys market capitalization and investors capital gain(or loss).Finally,we track distribution of free cash flow to investors and debt holders in the form of dividends,share repurchases,and repayments of debt to determine the contribution of free cash flow payouts to a companys TSR.Components of TSRSource:BCG analysis.TSR drivers Revenue growth EBITDA margin expansion Growth and profitability expectations Meeting of expectations Performance consistency Confidence in management Portfolio changes Targeting optimal investors Financial policies Risk factors(debt,volatility,M&A)Dividends Share repurchases or issues Net debt/leverageCapital gainsEarnings growthMultiple growthFree cashflow yield123TotalShareholderReturnTSR is theshareholders truebottom-line return(capital gains dividends)Management leversBenefits of using TSR Key measure for funds&institutions Required for proxy reporting Difficult to manipulate Not affected by company accounting Easily benchmarkedTSR Can Be Delivered Through Three Key Financial DriversBOSTON CONSULTING GROUP 9Exhibit 4-With Multiples Contraction Negating Earnings Growth,Five-Year Shareholder Value Was Largely Delivered Through Dividends1USD based TSR during June 2017 to June 2022 period.2Debt paydown across 5-year TSR window from start-to-end period;based upon disaggregated TSR framework.Sources:S&P Capital IQ;BCG ValueScience Center.Note:Numbers in charts may not sum due to rounding.8%7%8%0%1%6%Majors5-year TSR1(CAGR%)5-year TSR1(CAGR%)5-year TSR1(CAGR%)Fully negated85%of TSR6%5%1%1%5%International IntegratedFully negated85%of TSR4%4%3%1#%2/3rds negatedE&P35%of TSR Revenue Margin EV/EBITDADividend yieldShares buybacks Net debtOver the five years ending June 2022,debt reduction was an important driver of TSR among oil and gas companies.But after prioritizing deleveraging as a corporate action starting in 2016,most companies are close to historically low levels of debt.(Company debt jumped in 2020 due to the pandemic,but players used subsequent earnings to bring it under control.)This means they have more capital to deploy elsewhere,making the choice between dividends and reinvestment even more stark.It also means that debt reduction is unlikely to be such a positive TSR driver going forward.Dividends stood out as a crucial value creation tool for oil and gas players over the five-year period.The majors relied on dividend payouts to create positive TSR as shrinking valuation multiples offset the impact of robust earnings growth.This strategy resulted in the majors delivering average annual TSR of 7%,with dividends making up 85%of TSR.(See Exhibit 4.)The same picture emerged when we analyzed the performance of international integrated players.They faced an even larger multiple contraction and also turned to dividend payouts to create positive TSR of 6%(with dividends also making up 85%of TSR.)Investors continue to prioritize dividend payouts.But as companies consider where best to deploy their cash to maintain strong capital discipline,they need to be mindful of potential regulatory developments that could impact their decisions.In the US and Europe,policymakers are threatening to levy windfall taxes that could hit oil and gas earnings and dividends,while the Inflation Reduction Act in the US will introduce a new 1%excise tax on stock buybacks beginning in 2023.Earnings Growth a Key Value Creation Differentiator The majors have responded to the energy transition with different strategies.These have shaped the composition of assets through which they generate revenues and earnings,resulting in a growing divide between European and US players.10 A PATH FORWARD FOR CASH-RICH COMPANIES:VALUE CREATION IN OIL AND GAS 2023Exhibit 5-Majors Five-Year Performance Was Differentiated by Earnings,Reflecting Varying Upstream Production StrategiesNotes:TSR factors calculated in USD.Numbers in charts may not sum due to rounding.Sources:S&P Capital IQ;BCG ValueScience Center.Upstream Production 2021 vs.2017(%change)Average 5-year TSR CAGR%(June 2017 June 2022) =Earnings growthMultiple growthFree cashflow yieldAnnual TSR Revenue Margin EV/EBITDA(CAGR,%)Dividend yieldShare buybacks Net debt141078ChevronTotalEnergiesExxonMobilShellBP1287521110011121121110467771355562632-14-17-17-16-16The Europeans are pivoting their portfolios towards green energy investments more aggressively than US players,while disposing of upstream assets.In the process,they are becoming broad-based energy companies.Meanwhile,the US majors are investing in targeted low-carbon areas,such as biofuels,hydrogen,and carbon capture,utilization,and storage.They are also increasing production volumes and decarbonizing upstream operations through efficiency measures.Earnings growth was the main driver that determined which of the majors were TSR laggards and which were leaders during the five years ending June 2022.Despite the Europeans push to diversify away from oil and gas,earn-ings increases were driven largely by companies upstream strategiesdemonstrating the importance of legacy oil and gas operations to their financial value proposition during this period.The United States Chevron and Frances TotalEnergies produced the strongest earnings improvement by increas-ing upstream production,benefiting from rising commodi-ty prices,and delivered TSR at the top of the group.(See Exhibit 5.)ExxonMobil also grew earnings through higher revenues and margins,despite cutting volumes by 7tween June 2017 and June 2021,and delivered five-year TSR in the middle of the group.By contrast,revenue growth at Shell was weak and BP saw revenues decline after both companies reduced upstream productionalthough BP had the biggest margin expan-sion among the majors.As a result,BP and Shell delivered five-year TSR at the bottom of the group.Oil and Gas Companies Have Yet to See a Multiples Rerating A key value creation conundrum for the majors is how best to allocate capital to unlock a rerating in their multiples on the back of record earnings and green energy investments.While green power producers valuation multiples grew over the past five years,the multiples of oil and gas compa-nies have contractedmost likely reflecting investor cau-tion about their ability to maintain earnings over time.Investors awarded green power producers higher multiples even though they typically paid lower dividends and had higher leverage and weaker credit ratings than oil and gas players.The majors experienced the effect of shrinking valuation multiples on their five-year TSR performance to a similar extent across the group.However,the US majors benefited from higher multiples over the period than their European peers despite spending less on the energy transition.This is likely due to their higher per-share dividends over the past five years,as well as lower debt levels and better credit ratings due to their stronger upstream earnings.BOSTON CONSULTING GROUP 11For the European majors,our analysis suggests that less transparency about the contribution from their new green businesses may have been a factor in preventing these companies from achieving an improvement in their multi-ples.Investors may also have been deterred by the struc-turally lower returns provided by green businesses com-pared with oil and gas activitiesdriven by the lower risk profiles,reduced complexity,weaker barriers to entry,and higher levels of competition typical of these businesses.This is likely to drag on oil and gas companies multiples until theyve built a sizeable position in green energy.Looking to the future,the Europeans have set themselves more demanding targets than the US majors to reduce scope 3 emissions(emissions caused by using their prod-ucts).This will require the Europeans to continue investing in low-carbon businesses.At the same time,it could limit funds for dividend payouts and potentially hold back any improvement in their valuation multiples.Oil and gas companies face additional capital allocation challenges from other directions.As industry boundaries blur,many oil and gas players are competing with dedicat-ed power and utility companies that have very different shareholder valuation propositions.Most of these compa-nies have built a proven track record in renewable power generation.This potentially places them in a stronger position to secure investor capital than oil and gas players that are confronted with a broad range of management priorities and are still developing green capabilities.Mean-while,private equity players and other new entrants are investing more in oil and gas.To compete against these different groups,oil and gas companies will need robust capital allocation processes so that they can deploy capital effectively across varied business segments.Building a Sustainability Advantage in Green Energy and Low-Carbon SolutionsClimate action has become a global imperative,and oil and gas players will need to evolve their business models to ensure they remain part of the solution to meeting energy demand while mitigating climate risks.This evolu-tion can also have positive implications for value creation over the medium term:green energy and low-carbon solu-tions can help oil and gas companies to achieve a multiple uplift and build greater financial resilience.By investing in green businesses,companies can reduce their exposure to oil price volatility,access new markets,benefit from returns that while typically lower are more reliable,and reduce risks to future profitability from new taxes and declining fossil fuel demand.But,judging by the record of green power producers,achieving a meaningful TSR improvement from green energy is likely to take time and require both scale and a strong market position.Leading green power producers,such as the United States NextEra,have benefited from a rerating in their valuation multiples by investing consistently in low-carbon business-es for more than a decade.Denmarks rsted(formerly DONG Energy)pivoted its entire business towards green energy and exited oil and gas completely.For most green power producers,EBITDA from green operations is more than 50%of the total.Green producers also report the per-formance of their low-carbon businesses separately,en-abling them to secure an ESG premium in their multiple.Oil and gas players will need to evolve their business models to ensure they remain part of the climate action solution.Before they can achieve a similar multiple rerating,oil and gas companies will likely need to demonstrate an equiva-lent commitment by building scale and achieving consis-tent earnings from green energy and low-carbon solutions.In the current high oil price environment,oil and gas com-panies have an opportunity to refine their energy transition strategies and channel some of their bumper earnings into low-carbon investments.From our analysis,weve found that M&A,strategic partnerships,and joint ventures are companies preferred routes to gain entry to new green energy markets,while organic CAPEX is used to build scale subsequently.Driving Differentiated Performance in Legacy Oil and GasAcross oil and gas companies,individual players were able to achieve five-year TSR that was 20 percentage points,or more,higher than other companies by pressing the right value creation levers.TSR leaders(top quartile players when the majors,international integrated players,and pure-play E&P companies were ranked by TSR perfor-mance)typically achieved their pole position by paying down debt and growing earnings from oil and gas.In addi-tion,they were more restrained in how they reinvested earnings.12 A PATH FORWARD FOR CASH-RICH COMPANIES:VALUE CREATION IN OIL AND GAS 2023For example,Canadian Natural Resources reinvested less than 50%of its operating cash flow,based on the five-year average from 2017 to 2021.But it saw a TSR contribution from earnings growth of 27%,on top of a 5%TSR contribu-tion from improved leverage and a 7%contribution from payouts.After taking into account declining multiples,the company delivered total TSR of 19%,landing in the top quartile among its peers.The geographical presence of the majors,international integrated,and E&P companies also had a bearing on their TSR performance.Players whose international assets were mainly outside Europe and those with a majority of their assets in the US Permian shale basin delivered the strongest 5-year TSR.However,the higher multiples historically enjoyed by Permian and Marcellus producers contracted over the period,bringing them in line with producers in other basins.Among E&Ps,deal activity was high.E&P players that used M&A to consolidate their position in basins where they already had a strong presence delivered higher 5-year TSR than those that moved into new areas.For example,Australias Santos acquired Oil Search in 2021 and Quadrant Energy in 2018,in addition to acquiring other assets in and around Australia.It completed deals with a gross value of nearly$13 billion between June 2017 and June 2022(equivalent to 74%of the companys June 2017 market cap),consolidating opera-tions and enabling regional scale and synergies,and saw 5-year TSR of 19%(top quartile among its peer group).In a world where energy security is a priority,oil and gas companies need to ensure they have robust asset and port-folio strategies in place.The companies that were most successful at M&A over the past five years were able to act decisively to take advantage of favorable market conditions.To create future value,players will require clear strategies for their upstream assets linked to navigating the energy trilemma.But they will also need to improve the capital efficiency of their operations and make upstream invest-ments that prioritize basins with the lowest carbon emis-sions as well as the lowest costs.The confluence of energy crisis and energy transition imperatives poses fresh challenges and opportunities for oil and gas companies.Recent world events have generated renewed demand for their core products.However,as actors in a cyclical industry,oil and gas companies cant afford to become complacent about their current TSR leadership position.True,they must make the most of high commodity prices when these happen.But they also need to build discipline and resilience into their value creation strategies if they are to keep investors on board for their energy transi-tion journeys.BOSTON CONSULTING GROUP 13Appendix 1-The Oil and Gas Value Creators Report 2023:Companies SurveyedCompanySubsectorAES CorporationAker BPAmpolAPA CorporationARC Resources Ltd.Atlantica Sustainable InfrastructureBaker Hughes CompanyBharat Petroleum Corporation LimitedBoralex Inc.BP p.l.c.Brookfield RenewablesCanadian Natural Resources LimitedCenovus Energy Inc.CEZCheniere Energy,Inc.Chevron CorporationChina Oilfield Services LimitedChina Petroleum&Chemical(Sinopec)CNOOC LimitedConocoPhillipsContinental Resources,Inc.Coterra Energy Inc.DCP Midstream,LPDevon Energy CorporationDiamondback Energy,Inc.EDPElectricite de France(EDF)Enbridge Inc.EnBWEncavis AGEnel SpAENEOS Holdings,Inc.Energy Transfer LPEngieEni S.p.A.Enterprise Products Partners L.P.EOG Resources,Inc.EQT CorporationEquinor ASAERGExxon Mobil CorporationFortumGalp Energia,SGPS,S.A.Guanghui Energy Co.,Ltd.Halliburton CompanyHess CorporationHollyFrontier CorporationIberdrola S.A.Idemitsu Kosan Co.,Ltd.Imperial Oil LimitedSmall green energyE&PInternational R&ME&PE&PSmall green energyOil field servicesInternational R&MSmall green energyMajorsSmall green energyE&PInternational integratedSmall green energyMidstreamMajorsOil field servicesNOCNOCE&PE&PE&PMidstreamE&PE&PSmall green energyLarge green energyMidstreamSmall green energySmall green energyLarge green energyInternational R&MMidstreamLarge green energyInternational integratedMidstreamE&PE&PNOCSmall green energyMajorsSmall green energyInternational integratedInternational integratedOil field servicesE&PNA R&MLarge green energyInternational R&MInternational integratedIndian Oil Corporation LimitedInnergex Renewable Energy Inc.Inpex CorporationKinder Morgan,Inc.Magellan Midstream Partners,L.P.Marathon Oil CorporationMarathon Petroleum CorporationMPLX L.P.NeoenNeste OyjNextEra Energy Inc.Occidental Petroleum CorporationOil and Natural Gas Corporation LimitedOMV AktiengesellschaftONEOK,Inc.Orsted ASOvintiv,Inc.Pembina Pipeline CorporationPetrleo Brasileiro S.A.PetrobrasPhillips 66Pioneer Natural Resources CompanyPlains All American Pipeline,L.P.PolenergiaPolski Koncern Naftowy ORLENPolskie Grnictwo Naftowe.PTT Public Company LimitedRepsol,S.A.RWESantos LimitedScatec ASASchlumberger LimitedShell PLCSK Innovation Co.,Ltd.S-Oil CorporationSSE PLCSuncor Energy,Inc.Targa Resources Corp.TC Energy CorporationThe Williams Companies,Inc.TotalEnergies SETourmaline Oil Corp.TransAlta Renewables,Inc.Valero Energy CorporationVerbundWestern Midstream Partners,L.P.Woodside Petroleum,Ltd.Yantai Jereh Oilfield ServicesGroup Co.,Ltd.NOCSmall green energyNOCMidstreamMidstreamE&PNA R&MMidstreamSmall green energyInternational R&MLarge green energyE&PNOCInternational integratedMidstreamLarge green energyE&PMidstreamNOCNA R&ME&PMidstreamSmall green energyInternational R&MNOCNOCInternational integratedLarge green energyE&PSmall green energyOil field servicesMajorsInternational R&MInternational R&MSmall green energyInternational integratedMidstreamMidstreamMidstreamMajorsE&PSmall green energyNA R&MLarge green energyMidstreamE&POil field servicesCompanySubsectorSources:S&P capital IQ;BCG ValueScience Center;BCG analysis.14 A PATH FORWARD FOR CASH-RICH COMPANIES:VALUE CREATION IN OIL AND GAS 2023Appendix 2-The Oil and Gas Industrys Top TSR Performers Over One,Five,and Ten YearsOne Year,June 2021June 2022 Rank1234567891011121314151617181920Company nameGuanghuiEnergyDevonCenovusTourmalineOccidentalContinentalResourcesEquinorMarathon OilAPA CorpCoterraImperial OilEQTCheniereCanadian NaturalResourcesConocoPhillipsSuncorARC ResourcesInpexPioneer NaturalResourcesChevronTSR(%)2191021019889756967636159565554535352524844SubsectorInternationalIntegratedE&PInternationalIntegratedE&PE&PE&PNOCE&PE&PE&PInternationalIntegratedE&PMidstreamE&PE&PInternationalIntegratedE&PNOCE&PMajorsFive Years,June 2017June 20221234567891011121314151617181920RankNeste OyjGuanghuiEnergyAker BPTourmalineCenovusCheniereYantai JerehOilfield ServicesHessWilliamsEquinorSantosCanadian NaturalResourcesConocoPhillipsPetrobrasPTT E&PContinentalResourcesDevonMarathon OilValeroMarathonPetroleumCompany name3025252423222221212119191918171616151514TSR(%)International R&MInternationalIntegratedE&PE&PInternationalIntegratedMidstreamOil fieldservicesE&PMidstreamNOCE&PE&PE&PNOCNOCE&PE&PE&PNA R&MNA R&MSubsectorTen Years,June 2012June 2022Neste OyjCheniereValeroMarathonPetroleumWilliamsAker BPPhillips 66BharatPetroleumEOGCanadian NaturalResourcesHessPioneer NaturalResourcesONEOKMagellanMidstreamPembinaPipelineTourmalineTargaEquinorAmpolOMVCompany name1234567891011121314151617181920Rank322521171514131211111111109999998TSR(%)International R&MMidstreamNA R&MNA R&MMidstreamE&PNA R&MInternational R&ME&PE&PE&PE&PMidstreamMidstreamMidstreamE&PMidstreamNOCInternational R&MInternationalIntegratedSubsectorSources:S&P Capital IQ;BCG ValueScience Center;BCG analysis.Note:Companies in green type were in the top 20 across all three time periods.Oil and gas companies must build discipline and resilience into their value creation strategies as they navigate their energy transition.16 A PATH FORWARD FOR CASH-RICH COMPANIES:VALUE CREATION IN OIL AND GAS 2023About the AuthorsMatthew Abel is a managing director and partner at BCGs Houston office.You may contact him by email at .Santosh Appathurai is a managing director and partner at BCGs Houston office.You may contact him by email at .Rebecca Fitz is a partner and associate director of BCGs Center for Energy Impact in Washington,DC.You may contact her by email at .Clint Follette is a managing director and senior partner at BCGs Houston office.You may contact him by email at .Ben Vannier is a managing director and partner at BCGs Philadelphia office.You may contact him by email at .Dessy Vekilov is a project leader at BCGs Houston office.You may contact her by email at .For Further ContactIf you would like to discuss this report,please contact the authors.AcknowledgmentsThe authors thank BCGs Patrick Herhold,Sylvain Santam-arta,Ross LaFleur,Stefan Szlendak,Bumjoon Kim,Amy Liang,and Polly Ho for their contributions to this report.Boston Consulting Group partners with leaders in business and society to tackle their most important challenges and capture their greatest opportunities.BCG was the pioneer in business strategy when it was founded in 1963.Today,we work closely with clients to embrace a transformational approach aimed at benefiting all stakeholdersempowering organizations to grow,build sustainable competitive advantage,and drive positive societal impact.Our diverse,global teams bring deep industry and functional expertise and a range of perspectives that question the status quo and spark change.BCG delivers solutions through leading-edge management consulting,technology and de-sign,and corporate and digital ventures.We work in a uniquely collaborative model across the firm and throughout all levels of the client organization,fueled by the goal of helping our clients thrive and enabling them to make the world a better place.Boston Consulting Group 2023.All rights reserved.2/23For information or permission to reprint,please contact BCG at .To find the latest BCG content and register to receive e-alerts on this topic or others,please visit .Follow Boston Consulting Group on Facebook and Twitter.
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UNIFE：2020年度欧洲铁路供应行业报告（英文版）（160页）.pdf
European Rail Supply IndustryAnnual Report 2020Contents04Message from UNIFE Chairman06Message from UNIFE Director General04WRMS World Rail Market Study 10Communications08ERWA The UNIFE Railway Wheels Committee05Standards&Regulations11Staff12UNIFE Members03International Affairs09IRIS The International Railway industry standard06UNIFE R&I Activities01UNIFE in 202007Signalling&ERTMS02European Affairs221081224412658134621427814810I started my second mandate as Chair of the UNIFE Presiding Board in June this year.Between my first mandate in 2014 and 2020 our industry has undergone tremendous changes.We have started our transition from a rather traditional heavy industry to a fully digitalized one,innovative and with a key role to play in the decarbonization of our mobility systems.2020 as you all know has been for the European rail industry as for everyone a very challenging year.The year started on an optimis-tic note following the announce-ment by the new President of the European Commission Mrs von der Leyen of the Green Deal as her flagship initiative,when we had to deal with the worst pandemic faced by human-ity in recent times.Overnight,trains stopped running and our factories had to close.When I started my mandate,we were coming to terms with the san-itary impact of the crisis and its economic consequences on our customers.But this challenging time also showed the resilience of rail transport:Europes economies and societies managed to func-tion through the lockdown thanks to rail transport.The dedication of all our employees and of our customers is to be recognized.“2021,the European Year of Rail,provides an excellent opportunity to showcase our capacity to innovate,to provide Europe with the sustainable transport systems that it deserves and contribute to the economic recovery of our continent.Henri Poupart-Lafarge UNIFE Chairman and,Chairman and CEO of AlstomMessage from UNIFE Chairman“As the European rail supply industry,it is up to us to deliver the solutions that will underpin this revolution of our mobility system.”P A G EUNIFE-Annual Report 20204With vaccines available in the near future,Europe has con-firmed that the recovery of our economies should focus on the Green and Digital transitions.The EU leaders,in an unprece-dented step,have agreed for an extra 750 billions to be avail-able to support national resil-ience and recovery plans under-pinning this ambition.Regarding Mobility,the Europe-an Commission has released in early December its Smart and Sustainable Mobility Strategy,which sets our common path towards a 90%reduction in CO2 emissions by 2050 and rail has to play a key role.The trans-European transport net-work must be completed in time and enable a trebling of very high-speed rail passenger traffic,and a doubling of rail freight traffic by 2050.As the European rail supply in-dustry,it is up to us to deliver the solutions that will underpin this revolution of our mobility system.In particular,innova-tion in alternative fuels such as hydrogen now enables us to be the first transport mode with zero direct emissions.2021,the European Year of Rail,provides an excellent opportu-nity to showcase our capacity to innovate,to provide Europe with the sustainable transport systems that it deserves and contribute to the economic re-covery of our continent.Our landmark initiatives will include the successful continuation of our common innovation pro-gram Shift2Rail 2,with hope-fully a level of EU co-funding which will enable a high level of ambition,and our commu-nication campaign,Hop On For Our Planet,that highlights the potential that our sector offers for young graduates willing to work in a sector that makes a difference for our societies.As Chairman of UNIFE,I count on you to support our associa-tion in the coming year,as it is only by working together that we can achieve progress on our key priorities:Advocating at all governance levels for rail transport as a key contributor to Europes economic recovery and as an enabler to a clean mobility system.Achieving a level playing field for transport modes within Europe,thanks for the inter-nalization of external costs.Ensuring the accessibility of markets outside of the EU and fair conditions for competition in the EU and abroad.Sincerely,Henri Poupart-LafargeUNIFE Chairman and,Chairman and CEO of AlstomP A G EUNIFE-Annual Report 20205“As we enter this new decade,UNIFE will work to ensure the projects initiated in the last one continue to receive ample support and are empowered to move Europe towards both a green transition and a swift economic recovery following the pandemic.Philippe Citron UNIFE Director General2020 was an unprecedented year,defined by a pandemic unlike any other in living memory.The Euro-pean Rail Supply Industry con-tended with new public health measures and the disruptions generated by their necessity.Like other frontline workers who kept us safe and provided for during this crisis,rail has continued to run to ensure that essential per-sonnel can safely carry on their tasks,medicine and equipment swiftly arrives where needed and when necessary patients can be transported for care.UNIFE has also continued its work through this sanitary crisis,advocating on behalf of our sector and ad-vancing its vision in line with the EU Green Deal and in service of the post-COVID-19 recovery-through engagements with EU institutions,Member State repre-sentatives,rail sector stakehold-ers and others.As the European Commission,led by President Ursula von der Leyen,has elected to use its coronavirus economic recov-ery strategy in advancement of the green transition,this asso-ciation has continued to partic-ipate in Research&Innovation(R&I)initiatives and promotion of international procurement market fairness,skills training and streamlined rail regulations to ensure the creation and im-plementation of innovative rail solutions needed for such a transformation.Throughout 2020,UNIFE main-tained consistent and close col-laborative relations with the Cro-atia and Germany Presidencies of Message from UNIFE Director General“Thank you to our Members for their participation in our activities during a most unusual year and your continued com-mitment to building a stronger European Rail Supply Industry in service of our shared sustainable future.”P A G EUNIFE-Annual Report 20206the European Council,respec-tively,as the EU has confronted the pandemic.Contemporane-ously,UNIFE has worked with the European Commission as it attempted to marshal its re-sources to overcome COVID-19 while continue to define its Green Deal objectives.During the initial outbreak of COV-ID-19,UNIFE CEOs had fruitful meetings with EC Vice-Presi-dent Frans Timmermans and Commissioners Thierry Bre-ton and Adina Vlean.These conversations were valuable opportunities to discuss much needed rail investment under the framework of the recently agreed to and historic Multian-nual Financial Framework(MFF)and the upcoming Na-tional Recovery Plans.These financial instruments will fuel Europes movement towards carbon neutrality by 2050 and the shift of substan-tial passenger and freight traffic to rail,as outlined in the Green Deal.However,this will only be possible if the rail industry has a highly trained and appropriately staffed workforce.UNIFE has led on skills development initiatives in 2020,having launched with several industry leaders of UNIFE the ambitious Hop On For Our Planet communication cam-paign and the Erasmus -funded STAFFER Blueprint for Skills with our colleagues at CER to ensure that curricula and career paths adequately prepare job seekers and rail professionals seeking new capabilities are prepared to implement the rail solutions of tomorrow.The introduction of green,next generation rail solutions cannot happen across both Europe and the world.In 2020,UNIFE con-tinued to promote the Europe-an Rail Supply Industrys global leadership in international fora such as Business at the OECD and the European Standard-isation Organisations(ESO)-particularly,CEN and CENELEC-through the Sector Forum Rail(SFR).To this end,we also released a new Vision Paper that explains the importance of continued European guidance in international standardisation bodies.With societies around the world realising the mount-ing pressures of climate change,rail will only be able to become the backbone of a truly multi-modal,sustainable mobility par-adigm if it is able to operate in P A G EUNIFE-Annual Report 20207a truly level global playing field shaped by a equitable stand-ardisation environment.Preceding the Commissions June launch of a major review of the EUs trade policy to build a consensus around a fresh medium-term direction for EU trade policy and our participa-tion of the public consultation,UNIFE has remained commit-ted to the promotion of the International Procurement Instrument(IPI)in close co-operation with AEGIS and the adoption of the Most Econom-ically Advantageous Tender(MEAT)principle by Member States.As we enter this new decade,UNIFE will work to ensure the projects initiated in the last one continue to receive ample support and are empowered to move Europe towards both a green transition and a swift economic recovery following the pandemic.First,we have continued our vocal support of the EU Agency for Railways(ERA),led by Director Josef Doppelbauer,for the creation of a”One-Stop Shop”through our work on the full transpo-sition of the Technical Pillar of the Fourth Railway Package across all member states and opposition to proposed and unfortunate subsidy cuts to this important institution.Ad-ditionally,following the release of the Sustainable and Smart Mobility Strategy and an agree-ment on the historic 2021-2027 Multiannual Financial Frame-work with its substantial Struc-tural Funds,Connecting Europe Facility(CEF)and“Next Gener-ation EU”recovery supplement,we hope to see a continuous deployment of ERTMS,being carried out diligently by ERTMS Coordinator Matthias Ruete.The European Rail Supply Industry has been excited by President von der Leyen insistence that her mandates hallmark project,the“Europe-an Green Deal”,will serve as the bedrock for their European recovery strategy and hope to see rail prioritised in the tac-tics utilised under the recent Mobility Strategy as a mean-ingful shift from unsustainable modes of transport to clean-er,more efficient rail is key to our green recovery.During the coming years,UNIFE will advo-cate for extensive investments in infrastructure and rolling stock for passenger,freight,re-gional and urban rail,as well as expanded ERTMS deployment.Furthermore,new mobili-ty paradigms will require new rail solutions.We will continue to promote the extension of the Shift2Rail Joint Undertak-ing(S2R JU),led by Executive Director Carlo Borghini,as“Shift2Rail 2”,during the 2021-2027 period.Building even more reliable,safer,comfort-able and sustainable rail solu-tions will require innovative new digital applications that make use of cutting-edge tech-nologies such as Artificial Intel-P A G EUNIFE-Annual Report 20208ligence,the Internet of Things and telecommunications,like 5G.It will also necessitate im-proving Europes railways cy-bersecurity and the regulatory framework that allows our in-dustry to profit from emerging opportunities.UNIFE is confident that the or-ganisation has taken steps at its June General Assembly to best pursue these objectives.During the meeting Henri Pou-part-Lafarge,Chairman and CEO of Alstom,was elected to succeed Sabrina Soussan,CEO of Siemens Mobility,as UNI-FEs new Chair.Ms.Soussan was an impressive advocate for our industry,dedicating her 2017-2020 mandate to aiding UNIFEs important advocacy campaigns in favour of EU investment for rail,a global level-playing field and Shift2Rail 2.Mr.Pou-part-Lafarge has stated that he intends to use his chairship,ac-knowledging the challenges of the moment to promote rails contribution to both the Green Deal and the recovery,while stating that the 2021 EU Year of Rail is an unprecedented and welcomed venue to do so.The meeting also saw the signature of the Declaration of the Europe-an Rail Supply Industry,raising awareness among EU and na-tional decision-makers of our industrys crucial importance to the dual crises we face.This year,UNIFE,through its work with IRIS and the Inter-national Rail Quality Board(IRQB),has advanced quality in the rail sector through the launch on the“Silver”certifica-tion level and the commence-ment of testing for the even more prestigious“Gold”level.Thank you to our Members for their participation in our activi-ties during a most unusual year and your continued commit-ment to building a stronger Eu-ropean Rail Supply Industry in service of our shared sustain-able future.UNIFE is pleased five new Members have cho-sen to join us on this journey in 2021:ERICSSON,ErvoCom AG,GESTE Engineering S.A,GMT Gummi-Metall-Technik GmbH and ITT Italia Srl.We look forward to working with you all in the year to come.Sincerely,Philippe CitronUNIFE Director GeneralP A G EUNIFE-Annual Report 202090101Mission02Structure03Presiding Board04Committees and Working GroupsUNIFE in 202012141617UNIFE MissionPromoting Rail Market Growth for Sustainable Mobility01020304Promoting European policies and programmes favourable to railWorking towards an interoperable and efficient European railway systemEnsuring European Rail Supply Industry leadership through advanced research,innovation and qualityProviding UNIFE Members with strategic and operational knowledgeP A G EUNIFE-Annual Report 202012II.Public Affairs III.European Rail ResearchIV.IRIS CertificationI.EU Standardisation&Harmonisation European Rail Supply IndustryEuropean Union Collaborating with the European Union Agency for Railways on the definition of rail regulations(including the Technical Pillar of the Fourth Railway Package)and Technical Specifications for Interoperability(TSIs)Supplying expertise for European and International Standardisation Bodies(e.g.CEN/CENELEC,ISO)Contributing to the development of the Single European Rail Area Coordinating EU-funded research projects Playing an active role in ERRAC-the European Rail Research Advisory Council Cooperating with the Shift2Rail Joint Undertaking and contributing to the follow-up of its activities Shaping the future of rail research&innovation in Europe The globally recognised rail quality management system Enables efficient business processes and leads to substantial quality improvements and cost reduction throughout the supply-chain More than 2100 IRIS Certification certificates issued worldwide Advocating policies that increase the global competitiveness of the European Rail Supply Industry Supporting modal shift policies that give priority to rail Encouraging investment in rail projects Promoting rail transport as the best solution to meet social challenges of the futureHow UNIFE WorksP A G EUNIFE-Annual Report 20201301.UNIFE in 2020UNIFE StructureUNIFE General AssemblyUNIFE Presiding BoardStrategy CommiteeDirector GeneralFinance,Legal&HRCommunicationsOfce ManagerIRIS CertifcationIRISSteeringCommiteeIRISTopical WorkingGroupsTechnical PlatformUNIFE Working Groups&ProjectsUNIFE Management CommiteesUNIFE Staf&UnitsControl-Command&SignallingUESCERTMSMarketingGroupCSSPlatformUNISIGTechnical AfairsResearch ActivitiesERRAC(European RailResearch Advisory Council)Research ProjectsShift2Rail follow-upTechnical ActivitiesWorking GroupsTechnical Recommendations(TecRec)Standards&RegulationGroupDigitalisationPlatform(incl.Cyber-Security)InfrastructureCommitee(UNIRAILINFRA)ERWA Steering CommiteeFreight CommiteeUNITELResearch&Innovation CommiteeSustainableTransportCommiteeNationalAssociationsPublic Afairs Liaison Group Trade and International Afairs CommiteeSME CommiteeInvestment and ProjectFinancing ExpertGroupPublic AfairsP A G EUNIFE-Annual Report 202014P A G E1501.UNIFE in 2020Danny Di Perna*Member of the Presiding BoardAndrs ArizkorretaMember of the Presiding BoardLilian LerouxMember of the Presiding BoardRoger DirksmeierMember of the Presiding BoardJrgen WilderMember of the Presiding BoardAugusto MensiMember of the Presiding BoardMichael Peter*Member of the Presiding BoardJacob Zeeman*Member of the Presiding BoardMillar CrawfordMember of the Presiding BoardPresident,Bombardier TransportationChairman,CAF GroupCEO,Faiveley Transport Managing Director,FOGTEC(representing the UNIFE SME Committee)Member of the Executive Board and Responsi-ble for the Rail Vehicle Systems divisionKnorr-Bremse AGCEO,Lucchini RSCEO,Siemens Mobility CEO,Strukton RailExecutive Vice President,Ground Transportation Systems,Thales Group Henri Poupart-LafargeUNIFE ChairmanChairman and CEO,Alstom*Danny Di Perna/Until January 29th 2021 due to take over of Bombardier Transportation by Alstom*Michael Peter/Subject to approval of the UNIFE General Assembly,June 2021*Jacob Zeeman /Left Strukton Rail end of October 2021UNIFE Presiding BoardP A G EUNIFE-Annual Report 202016The Presiding Board is UNIFEs highest com-mittee.It is responsible for the management of the association.The Board takes any measure or action required to achieve the objectives and general policies of the association.This body reviews applications for membership before they are submitted to the General Assembly for ratification.The Presiding Board is composed of 10 members elected by the General Assembly,every three years.One seat on the Presiding Board is reserved for the Chairperson of the UNIFE SME Committee.The Strategy Committee steers UNIFE activities and advises the Presiding Board on all strategic and political issues.It is composed of high-level managers representing the associations most prominent members.The Technical Platform brings together all UNI-FE Members and equally covers all EU research,technical harmonisation and standardisation matters.The platform regularly reports on rel-evant developments and the Associations activ-ities at EU level standardisation bodies.It also shares news regarding the Associations R&D/I projects,including Shift2Rail.The Technical Plat-form communicates changes within the regula-tory framework in regards to the European Un-ion Agency for Railways(ERA)and the European Commission(i.e.DG MOVE,DG RTD,DG GROW,etc.).This body enables all members to have a better understanding of current EU issues,their background and their implications for the industry in Europe and beyond.The UNIFE Freight Committee gathers compa-nies active in the rail freight business and aims to strengthen the position of the industry within the European institutions policy priorities.This committee provides its members with informa-tion and support on EU R&I funding opportuni-ties,rail freight policy developments and partic-ipation in EU lobbying on pertinent rail freight developments,including discussions concern-ing ongoing and upcoming TSIs/Standards.UNIFE Committees and Working GroupsP A G E1701.UNIFE in 2020UNIRAILINFRA is a consensus-building platform focused on rail industry infrastructure at a pre-competitive stage.It promotes investment and innovation in the railway infrastructure sector.The committee also discusses and encourages rail infrastructure development.UNIRAILIN-FRA brings together companies specialising in the man-ufacturing and supply of fixed railway equipment linked to the infrastructure subsystem with companies that de-sign,construct and maintain those products.The Research and Innovation(R&I)Committee is re-sponsible for monitoring European rail research op-portunities and preparing recommendations.It is re-sponsible for the regular exchange of information on European rail research,including updates pertaining to Shift2Rail,discussions on and the preparation of future European rail R&D programmes like Horizon Europe and Shift2Rail-2 and the definition of railway suppliers R&I positions.The committee also drafts common posi-tions that will be defended at the EU level.Its purview also includes contributing to ongoing initiatives such as ERRAC,Shift2Rail,the Industrial Dialogue and European Commission consultations on R&I.Additionally,it pre-pares inputs for ERRAC.The Standards and Regulation Group(SRG)steers UNIFEs technical activities pertaining to the European regulatory framework(i.e.Railway Directives,TSIs,etc.)and standardisation,in Europe and abroad.The SRG is composed of technical directors from the UNIFEs main system integrators and subsystem suppliers.The European Railway Wheels Association(ERWA)aims at promoting usage benefits,lifecycle cost reduc-tion and standardisation of railway wheels and wheel-sets.Its mission includes developing standards and promoting innovation in safety and environmental friendliness.The group also encourages the adoption of best practices across the European market.The ERWA Steering Committee is composed of CEOs from Europe-an wheels and wheelsets manufacturers.It is supported by the Development Committee,which analyses polit-ical issues,market strategy and communications;and the Technical Committee,which deals with standardisa-tion,regulation and research.The Digitalisation Platform is open to all UNIFEs mem-bers and focuses on the development of digital tech-nologies in the rail sector from a political,technical and business perspective.The main objectives of the Plat-form are to bring the rail supply industrys view to the centre of the EU-level digital debate and reach a better P A G EUNIFE-Annual Report 202018understanding of the potential opportunities and chal-lenges of digitalising rail transport.The Platform coor-dinates these efforts with the Cybersecurity Working Group.Platforms activities are frequently presented and promoted at public conferences and workshops,as well as articles in specialised magazines.The Cyber-Security Working Group brings together the associations member companies that possess signifi-cant cyber-security expertise.This working groups main objective is to provide UNIFE members with a forum to discuss and identify opportunities for cybersecurity co-operation within the European rail sector,strengthening its position when compared to competitors and other stakeholders.The ETCS Steering Committee(UESC)coordinates UNI-FEs strategic and political ERTMS activities.UESC mem-bers regularly liaise with European Commission(DG Move)and European Railways Agency(ERA)represent-atives to address any political issues related to ERTMS and organise high-level meetings between European bodies representatives and Signalling companies CEOs and/or Directors.The ERTMS Marketing Group(UEMG)is tasked with coordinating any marketing activities related to ERTMS.This includes collecting and disseminating deployment statistics,planning events,generating common publica-tions such as factsheets,flyers,and brochures,as well as managing the ERTMS website.The Control Command and Signalling Platform(CCS-P)was recently reactivated to provide UNIFE with signalling expertise.Platform members are primarily collaborate with EULYNX Consortium members on reviewing EU-LYNX Specifications which aim to standardise interfaces and elements of signalling systems.The UNITEL Committee focuses on the development and implementation of the future interoperable rail-way communication system(FRMCS/Next Generation),the inherent successor of GSM-R,as part of the future ERTMS.UNITEL brings together the major railway tel-ecommunications products suppliers and companies that have significant experience in current GSM-R and future railway systems.The committee members aim to ensure that the railways communication system fulfils existing and future signalling,train control and traffic management requirements,as well as supports Euro-pean railway research initiatives.P A G E1901.UNIFE in 2020The National Associations Committee gathers the di-rectors of 12 national rail associations from 11 different EU Member States,collectively representing more than 1,000 large-and medium-sized European rail supply companies.As UNIFE Associate Members,these organi-sations promote our positions domestically while elevat-ing national concerns to the European level.The Public Affairs Liaison Group brings together rep-resentatives of full UNIFE Members responsible for EU and national advocacy.It discusses lobbying strategies concerning important EU political files.It also identifies synergies between the association and its membership for impactful lobbying activities and campaigns.The SME Committee is a platform for Small and Medi-um-sized Enterprises(SMEs)to share and learn informa-tion about EU policies and available funds.This group works to facilitate SMEs members access to support schemes and to prepare advocacy campaigns on issues of concern to organisations of this size,including indus-trial policy.The Trade&International Affairs Committee(TIAC)is in charge of monitoring EU negotiations with potential-ly significant implications for the European rail supply industry and coordinating UNIFEs responses.TIAC is also a platform for the exchange and dissemination of information on bilateral cooperation activities undertak-en by UNIFE in international markets such as the United States,Russia,throughout the Gulf and beyond.UNIFEs Sustainable Transport Committee(STC)brings together the rail supply industrys main experts on sus-tainability-related topics.More specifically,the STC de-fines the strategy and carries out UNIFEs activities on the field of sustainable mobility,climate change,energy efficiency,urban transportation and EU taxonomy(sus-tainable finance).The STC is notably in charge of the Green Deal-related policies.The STC coordinates the ac-tivities of two active Topical Groups(TGs):the Life-cycle Assessment(LCA)TG and the Chemical Risks(CR)TG.P A G EUNIFE-Annual Report 202020The Investment and Project Financing Expert Group brings together high-level executives responsible for long-term financing and corporate relationships with multilateral development banks,such as the European Investment Bank(EIB)and the European Bank for Re-construction and Development(EBRD).This committee explores funding avenues for infrastructure and in-dustrial projects,including Public Private Partnerships(PPPs).The Expert Group tracks and communicates on issues related to export financing.The International Railway Industry Standard(IRIS)steering committee was established in 2006 and is com-posed of high level representatives from the UNIFE sys-tem integrators and equipment manufacturer member-ship.Its steering committee is the UNIFE working group responsible for IRIS Certification and decisions regard-ing resources,contracts and financial budgeting.The UNIFE Communications Committee steers the UNI-FE Communication Strategy.It is composed of the Com-munications Directors of UNIFE members.Aerodynamics Brakes Cabin Chemical Risks Crash Safety Cyber Security Diesel Electromagnetic Compatibility(EMC)Energy Energy Efficiency Fire Safety(SRT)Infrastructure Life Cycle Assessment(LCA)Noise Persons with Reduced Mobility(PRM)Railway Dynamics Rolling Stock Safety Assurance Signalling Telematic Application for Passengers&Freight(TAP&TAF)Train Control Management System(TCMS)Vehicle Authorisation Wagon(WAG)UNIFE Technical Working GroupsP A G E2101.UNIFE in 20200201COVID-1902Industrial Policy03Skills policy05Green Deal06EU Investment Policy 08Public procurement in Europe09Rail Forum EuropeEuropean Affairs07Urban mobility04Digitalisation 243239404226282930a.Assessing and monitoring the pandemics impact on our industry b.Alerting the European Institutions To best assess the consequences COVID-19s first wave on its Members,UNIFE began its pandemic re-sponse by conducting a dedicated survey between March and April.Additionally,UNIFE Director-Gen-eral Philippe Citron entered bilateral exchanges with the CEOs of numerous member companies while the association organised special meetings on the coronavirus for many of its internal Committees and Working Groups.For example,the UNIFE SME Committee held 3 COVID-19 meetings to assess the potential impacts of the pandemic on Small and Me-dium-sized Enterprises.As a result,it is clear that our industrys suppliers have been severely affected by the disruption of cross-border and domestic supply chains,as well as the temporary closures of plants.While the suspen-sion,or easing,of lockdown and quarantine meas-ures after the first wave have helped restore factory production capacities,companies have expressed serious concern about the impact of COVID-19 on tomorrows business.The financial losses incurred by the urban and mainline rail operators amount to billions of euros and continue to deepen as ridership remains far below pre-crisis levels.This slowdown have inspired fears that planned investment might be postponed or,even worse,cancelled.The EU Council Presidency and the Member StatesThe Presidency of the Council of the European Union rotates among the Member States every six months.The Presidencys function is of importance as the responsible Member State determines the EUs po-litical agenda and sets the work programme for the semester during which they hold office.It is also essential in facilitating dialogues through European Council meetings and other EU institutions.For this reason,UNIFE strives to establish close contacts with each EU Presidency well in advance of the start of its mandate.Achieving this goal allows the rail supply industry to effectively convey our stances and influ-ence the Councils political agenda.In 2020,Croatia and Germany held the Presidency of the EU Council during the first and second halves of the year,respectively.Both of them had to cope with this massive and unexpected pandem-ic.As it always does,UNIFE published two special Presidency Briefings,providing EU institutions with a series of concrete policy recommendations that will support our industry in the challenging times of COVID-19.These topics range from Industry and Trade to Transport,Public Procurement,Research&Innovation(R&I)and Investment policy.1)COVID-19:alerting EU Institutions on challenges faced by UNIFE Members P A G EUNIFE-Annual Report 202024UNIFE also organised a series of bilateral vir-tual meetings with National Governments(including Luxembourg Vice Prime-Minister Franois Bausch on 29 July)and with the Per-manent Representations of Member States in Brussels to inform them about the situation,the concerns and challenges of the rail sup-ply industry.These notably include exchanges with the Portuguese and Slovenian Authorities as these two countries will hold the EU Council Presidency in 2021.The European CommissionBy 17 April,UNIFE addressed a first official letter to EU Industry Commissioner Thierry Breton to call his attention to COVID-19s det-rimental impact on our industrys production capacities.In response to this crisis,Commis-sioner Breton held a bilateral conference call with several UNIFE CEOs on 28 May.UNIFE kept him well aware of all developments in our industry with two subsequent official letters,sent to him on 8 June and 10 September.Similarly,UNIFE sent two official letters to the EU Commissioners for Transport and Cohe-sion Policy,Adina Vlean and Elisa Ferreira,to alert them of the need to swiftly boost EU in-vestment in the rail sector as a means of avoid-ing a significant market contraction that would severely impede the rail supply industry.Fol-lowing this correspondence,UNIFE organised on 7 July a conference call between EU Trans-port Commissioner Adina Vlean and rail sup-ply industry CEOs.Another official letter was sent to Commission Vlean on 10 September to call for massive rail investment under the framework of the upcoming National Recovery Plans,co-funded by the EU.The European ParliamentUNIFE forwarded the aforementioned official letters to Members of the European Parliament(MEPs),particularly those sitting in the parliamentary com-mittees for Industry(ITRE),Transport(TRAN),Trade(INTA),Cohesion Policy(REGI)and budgetary mat-ters(BUDG).UNIFE also organised several bilateral conference calls with MEPs to share the difficulties encountered by rail suppliers and call on their support.P A G E2502.European Affairsa.Competitiveness of the rail industrial ecosystemCC:European CommissionIn March,EU Commissioner Thierry Breton presented the New EU Indus-trial Strategy for Europe.In this im-portant document,the Commission explicitly mentions rail manufactur-ers as one of the“sustainable and smart mobility industries”that have the“responsibility and the potential to drive the twin green and digital transitions,support Europes industrial competitive-ness and improve connectivity”.In recognition of its key contribution to both economic recovery and the EU Green Deal,the Commission in-cluded the rail industry in the“Trans-port and Mobility ecosystem”,1 of the 14 priority“industrial ecosystems”announced by Commissioner Breton.Although the concrete modus oper-andi of these industrial ecosystems is still unknown,the European Commis-sion has already accepted-at UNIFEs request-an extension of the EC Expert Group on the Competitiveness of the European Rail Supply Industrys man-date beyond 2020.This step marks a recognition of this forum as an al-ready existing and much-needed gov-ernance tool for discussing the future of our industry ecosystem at the EU level.Indeed,by doing so,the different DGs of the European Commission and the Member States have man-aged to establish more than just a close dialogue with our industry.“sustainable and smart mobility industries”that have the“responsibility and the potential to drive the twin green and digital transitions,support Europes industrial competitiveness and improve connectivity”.2)Industrial PolicyP A G EUNIFE-Annual Report 202026The EC Expert Group has,in fact,al-ready helped foster collaboration and consensus on critical work.One very concrete outcome was the adoption in October 2019 of a final Report that listed 89 recommendations across 10 strategic policy areas.The continu-ation of this body will be instrumental to maintaining our constructive dialogue and working together on the continued implementation of all these policy recommendations.b.The Industry4Europe coalition UNIFE initiated Industry4Europe,a large and un-precedented coalition of 156 European industrial federations from all manufacturing sectors,almost 4 years ago.This alliance has continuously called on the EU to implement an ambitious industrial strategy for safeguarding European manufacturers world leadership and the industrial jobs they create in Europe.On 7 January,the Coalition was invited to present its new Joint Paper entitled A long-term strategy for Europes industrial future:from words to action to all of the Member States during a meeting of the Councils Industry Working Party.Two weeks later,the Coalition co-organised an event in Brussels with the Croatian EU Presidency on“The long-term strategy for Europes industrial future”.Croatian Economy Minister Darko Horvat was in attendance.Following this,the Coalition led an active,targeted social media campaign on Twitter to express key messages as the Commis-sion prepared its new EU Industrial Strategy.The strategy was eventually presented on 10 March.In its capacity as General Coordinator of the Co-alition,UNIFE has continued to organise several virtual meetings throughout the year to allow the coalitions member federations the opportunity to exchange with representatives of the European Commission,the European Economic and Social Committee and BusinessEurope.P A G E2702.European AffairsThe Commissions 2019 Study on the Competitiveness of the Rail Supply Industry listed the“promotion of the development of skills and safeguard of access to skilled labour”as a crucial action for maintaining a formative Eu-ropean rail sector.Therefore in 2019,at the request of UNIFE and following discussions held within the EC Expert Group on the Competitiveness of the EU Rail Supply Industry,the Commis-sion shortlisted the rail industry as 1 of 6 sectors eligible for the creation of an Erasmus Blueprint for Sectoral Cooperation on Skills.The Blueprint is a EU-funded framework for strategic cooperation between key business,trade union,education and training institution stakeholders and public authorities.The aim is to support an overall sectoral skills strategy and develop concrete actions to address short-and medium-term skills needs.After several months of prepara-tion,UNIFE and 31 other partners submitted their proposal for a Euro-pean project in February 2020.The Commission announced during the summer that the project Skill Train-ing Alliance For the Future European Rail system(STAFFER)had been ap-proved to be the future Blueprint for our sector.The project officially start-ed on 1 November and will last for 4 years.3)Skills policyFor more information on STAFFER,please visit www.railstaffer.eu or Twitter(Rail_Staffer)and LinkedIn(Rail Staffer)P A G EUNIFE-Annual Report 202028UNIFE aims to bring the European rail supply industrys views and ob-jectives to the centre of the digi-tal debate,decisively contributing to these discussions and effec-tively engaging in fruitful dialogue with decision-makers and other key stakeholders.To those ends,in June 2020,the UNIFE Digitalisation Platform released its second vision paper.The document,titled Rail fit for digital age,picks up where it predecessor left off by outlining the views,priorities and ambitions of the European rail supply industry pertaining to the digital technolo-gies that are shaping the sectors future.Big Data,Cybersecurity and Artificial Intelligence remain essen-tial focus areas for UNIFE,to which Gigabit Connectivity,Digital Twins and Blockchain were also added.This second vision paper also rep-resents the most effective advocacy instrument in view of all the digital initiatives announced by the Europe-an Commission for 2021.In March of 2020,Commission Vice-President Vestager and Commissioner Breton presented their digital masterplan Shaping Europes digital future.Cor-nerstones of the initiative are a new comprehensive Data Strategy and a new framework for Artificial Intelli-gence in the EU.Notably,the Data Strategy aims to create an EU single market for data and an EU single market for cyber-security,as well as establish a com-mon European data spaces across different sectors and industries in-cluding mobility.Unlocking all barri-ers to datasets sharing and promot-ing a robust cybersecurity strategy remain crucial priorities for UNIFE,which looks forward to engage with the EU institutions and fellow stake-holders on those topics.UNIFE believes it is vital for the whole sector to maintain its commitment to making digitalisation not merely an objective in and of itself,but rath-er a means to achieving more ambi-tious and overriding goals.The ac-tivities of the Digitalisation platform are directed towards this end and aim to bring the European rail sup-ply industrys views and objectives into the centre of the digital debate.UNIFEs Digitalisation Platform brings together around 30 association members from across the entire value chain of the European rail supply industry to discuss digital priorities and initiatives.This open,dynamic forum is essential to shaping the rail industrys vision for its future.Margrethe VestagerEuropean Commission Executive Vice-President(2019-2024)european commission4)Digitalisation P A G E2902.European AffairsThe transport sector accounts for approximately a quarter of the EUs greenhouse gas(GHG)emissions,making it the second-biggest sectoral emitter after energy.However,not only does rail rely very little on import-ed fossil fuels,it clearly stands out for its high energy efficiency,low emis-sions of CO2 and growing use of re-newable energy sources such as solar and wind.UNIFE has continued to be very vocal about rails essential role in meeting EU targets for decarbonising the transport sector.The decarbonisation of the transport sector is becoming ever more im-portant as civil society puts pressure on decision-makers to fight climate change.A sustainable,climate-neu-tral policy is at the heart of the Com-missions 2019-2024 initiatives.Com-mission President Ursula von der Leyen heralded the European Green Deal and its key objective of mak-ing Europe the first climate-neutral continent by mid-century as the hall-mark of her mandate.Executive Vice-President Frans Timmermans oversees the ambitious strategy.Mr.Timmermans presented the first European Climate Law in March 2020,enshrining into law the climate-neu-trality objectives of the Green Deal.A further amendment to the Climate Law was proposed in October to strengthen the 2030 mid-term EU climate targets:a 55%reduction of GHG,compared to 1990-levels.By June 2021,the European Commission will outline which existing EU legisla-tion must be amended or updated to comply with such more ambitious 2030 climate targets.UNIFE believes that the Green Deal can be a game changer and provide the framework needed for the EU to achieve net zero emissions by moving towards a low-carbon economy,while also reaching high efficiency stand-ards.The decarbonisation of the transport sector should mean,above all,more rail-based public transporta-tion solutions and further electrifica-tion of the system,as envisioned in the 2011 Transport White Paper.The most important transport initia-tive stemming from the Green Deal is the new strategy for sustainable and smart mobility,to be presented by Transport Commissioner Vlean by the end of the 2020.The strategy is expected to define the EU policy framework for transport for the years to come,just as the 2011 Transport White Paper did before.UNIFE has taken a proactive approach,looking forward to the launch of the strategy.Together with fellow rail associations CER and EIM,UNIFE prepared a Joint Statement aimed at influencing the strategy by advocating for rail being at the centre of the future mobility para-digm and defending the relevance of the modal shift principle.UNIFE also participated this year in the public consultation launched by the Europe-an Commission on this topic.In support of these efforts,we or-ganised a 27 October public webinar titled“Sustainable and Smart Mobili-ty:which role for rail in the future Frans TimmermansEuropean Commission Executive Vice-President(2019-2024)european commissionon track to a 5)Green Deal,transport decarbonisation and EU climate policiesP A G EUNIFE-Annual Report 202030The European Commission confirmed in October,UNIFEs European Clean Hydrogen Alliance membership.This body aims to ambitiously deploy hydrogen technologies by 2030,bringing together renewable and low-carbon hydrogen production,increasing demand in industry,mobility and other sectors,as well as expanding hydrogen transmission and distribution.With the alliance,the EU wants to build its global leadership in this domain,as a means of supporting the EUs commitment to reach carbon neutrality by 2050.As mobility will be addressed by the group,UNIFE will aid its mission by defining key messages,with the support of its Members,to influence the EU agenda for hydrogen applications across railways.This can be completed by,for instance,implementing new rail hydrogen projects in Europe and building stronger support from the European Union for research and innovation.Read further about the alliance,at this website and this one.For further information,please contact Nicolas Furio,Head of Technical Affairs at UNIFE,by email at nicolas.furiounife.orgEuropean strategy?.The discussion included the participation of the EU Transport Commissioners Deputy Head of Cabinet.Finally,through the work of the Sus-tainable Transport Committee(STC),UNIFE has undertaken several other sustainability-related activities in 2020.Major fields of work have involved sus-tainable finance,especially the EU tax-onomy initiative with a specific focus on the Delegated Acts enforcing the current Taxonomy Regulation and the revision of the Alternative Fuels Infrastructure Directive(AFID).Joint Statement CER/EIM/UNIFE on the future EC Strategy on Smart and Sustainable Mobility UNIFE Director General Philippe Citron during the Sustainable and Smart Mobility webinar(27 October,2020)a.UNIFE joins the European Clean Hydrogen AllianceP A G E3102.European Affairsa.Recovery Package:an unprecedented EU effort to tackle COVID-19 and rejuvenate the EU economyIn July 2020,after a historical Euro-pean Council meeting and in pursuit of an“extraordinary Recovery ef-fort”,the 27 Heads of State and Gov-ernment agreed on a plan to jointly borrow 750 billion.The EUs new Recovery fund,called“Next Genera-tion EU”,will be composed of 390 billion in grants and 360 billion in loans.While the initial Commissions proposal foresaw a larger proportion for grants(i.e.500 billion designat-ed as grants vs 250 billion in loans),several Member States vehemently battled for the grants proportion to be decreased.Within this massive Recovery effort,the biggest segment of the funds will be allocated through the“Recovery and Resilience Facility”(RFF),with a total of 672,5 billion of which grants represent 312,5 billion and loans 360 billion.70%of the grants provided by the RRF will be commit-ted in 2021 and 2022 while the re-maining 30%will be fully committed by the end of 2023.The RFF will be allocated to each Member State on the basis of“national recovery and resilience plans”that are now being prepared by national Governments to outline the reform and investment agenda of the Member State con-cerned for 2021 through 2026.This past year,UNIFE has been lead-ing an active advocacy campaign to urge all Member States to include significant rail investment within their National Recovery Plans.On 10 September,UNIFE Chair Henri Poupart-Lafarge and Director Gener-al Philippe Citron sent a joint letter to EU Transport and Industry Com-missioners Adina Vlean and Thi-erry Breton to call on the European Commission to use the opportunity of the bilateral discussions on future national Recovery and Resilience Plans to encourage all Member States to make the Green Deal a reality by dedicating significant EU-backed in-vestment for boosting rail projects all over Europe.In the letter,UNIFE notably advocates for fast-track in-vestments to:-swiftly boost the much-needed deployment of the European Rail Traffic Management System (ERTMS)on the European rail network-put in place an EU-backed mech-anism or scrapping scheme to encourage the replacement of older rail vehicles with new,modern and more efficient ones-swiftly boost the much-needed deployment of the European Rail Traffic Management System(ERTMS)on the European rail network-put in place an EU-backed mechanism or scrapping scheme to encourage the replacement of older rail vehicles with new,modern and more efficient ones6)EU Investment Policy P A G EUNIFE-Annual Report 202032Following UNIFEs letter,the Europe-an Commission published its strate-gic guidance for the implementation of the Recovery and Resilience Facility on 17 September.The guidance clas-sified Sustainable mobility among the 7 priority investment pillars and encourages Member States to use the Recovery and Resilience Facility to invest in public transport and in infrastructure that supports the shift towards more sustainable and smart mobility.UNIFE also met with the new Euro-pean Commission Task Force on Re-covery and Resilience to promote its suggestions for possible rail-related fast-track investments.Foreign Affairs Council-July 2020EUCouncilP A G E3302.European Affairsb.2021-2027 EU budget(MFF):securing ambitious budgets for Connecting Europe Facility and Cohesion PolicyDuring Julys historic European Coun-cil meeting,the 27 Heads of State and Government reached an agree-ment on the EU long-term budget for 2021-2027,the Multiannual Financial Framework(MFF).Instead of accept-ing the 1100 trillion total proposed by the Commission,EU leaders even-tually unanimously agreed on a new 1074,3 trillion seven-year budget for the Union.On 10 November,the German Presi-dency of the Council finally reached a political agreement with the Europe-an Parliaments MFF negotiators.This agreement was reached following intensive negotiations with the Parlia-ment that began at the end of August.The agreed upon political package notably includes a targeted 15 bil-lion reinforcement of EU Programmes through additional means(12.5 bil-lion)and reallocations(2.5 billion).Finally,on 10 December,the 27 Heads of State and Government overcame veto threats by Poland and Hungary and reached the agreement on the his-toric 1.8 trillion EU budget which in-cludes both the 2021-2027 MFF of 1.1 trillion and the temporary Recovery Package of 750 billion.A week later,on 16 December,the European Par-liament granted its final endorsement to the EUs seven year budget.This is extremely important as it allows the EU to begin funding programmes and instruments starting in January 2021.P A G EUNIFE-Annual Report 202034The Connecting Europe Facility(CEF)CEF supports the development of interconnected trans-European net-works in the fields of transport,en-ergy and digital services(including through investment in rail infrastruc-ture and ERTMS deployment).Rail has traditionally been the most benefited sector under this funding instrument.For the 2021-2027 period,Europe-an Heads of State and Government agreed on a Transport envelope for CEF amounting to 21,384 billion,including the confirmed 10 billion transfer from the Cohesion Fund.In the coming years,The CEF will support:o efficient,interconnected,interoperable and multimodal networkso safe and secure mobility by co-funding smart,interoperable,sustainable,multimodal,inclusive and accessible project solutionso dual use of the transport infrastructure in view of improving both civilian and military mobilityP A G E3502.European AffairsThe Cohesion PolicyThe EU Cohesion Policy will operate with a l budget of over 330 billion,to be distributed across the 27 Mem-ber States.Two EU Structural Funds will be of vital importance for the rail sector,namely:the European Re-gional Development Fund(ERDF)and the Cohesion Fund.Eligible invest-ments under these schemes will include:Rail TEN-T infrastructure(including stations supported de-velopment,reconstruction&up-grade,ERTMS deployment);freight transport on rail;development,reconstruction,upgrade of tram and metro lines;environmental-ly-friendly rolling stock for public transport;upgraded digitised ur-ban transport systems.UNIFE is carrying out regular meet-ings with the Member States Perma-nent Representation in Brussels in order to make the EU27 aware of our industrys priorities.UNIFE also sent an official letter to EU Commissioner for Cohesion Policy Elisa Ferreira on 22 April to ask the Commission to dedicate significant allocations from the EU Structural Funds towards rail projects all over Europe.Eligible investments under these schemes will include:Rail TEN-T infrastructure(including stations supported development,reconstruction&upgrade,ERTMS deployment);freight transport on rail;development,reconstruction,upgrade of tram and metro lines;environmentally-friendly rolling stock for public transport;upgraded digitised urban transport systems.P A G EUNIFE-Annual Report 202036The EIB identified“Smart and substantiable transport”as 1 of 11 key focus areas for future green investment and pledged that it“will continue to support the lowest emissions forms of transport including rail and metro”.c.Working with Development Banks and mobilising private investment for railUNIFE has continued to cooperate closely with the European Investment Bank(EIB)and welcomed the Board of Directors November 2020 approv-al of the“EIB Group Climate Bank Roadmap 2021-2025”.This is a very important document as it will serve as the roadmap that“will guide future EIB financing to support 1 trillion of climate action and environmental sustainability investments by 2030”.The EIB identified“Smart and sub-stantiable transport”as 1 of 11 key focus areas for future green investment and pledged that it“will continue to support the low-est emissions forms of transport including rail and metro”.Furthermore,UNIFE continued to cooperate with the European institu-tions and the EIB to ensure that EU initiatives aimed at mobilising pri-vate investment for strategic projects would also benefit the rail sector.Concurrently,UNIFE has continued to insist that,given the limited rail sector results of the European Fund for Strategic Investments(EFSI),the so-called blending of grants with the EFSI and with the proposed InvestEU programme-with an EU budgetary guarantee of 9.4 billion-for the coming 2021-2027 period can be in-teresting but should only be used as an additional approach-with public grants remaining the core of the support.Finally,UNIFE has become an official partner organisation of the European Parliaments new Intergroup on“Sus-tainable,Long-term Investments&Competitive European Industry”and participated in its virtual launch event on 26 October.CC:European Investment Bank GroupP A G E3702.European Affairsd.A special focus on EU investment in Western Balkans On 6 October,the European Com-mission adopted the Economic and Investment Plan for the Western Bal-kans,pledging 9 billion of pre-ac-cession grant funding to help with the“long-term economic recovery of the region”and to“support a green and digital transition,foster regional integration and convergence”with the EU.Following this,the Transport Community Secretariat an inter-national transport organisation that convenes the entire EU27 and six Western Balkan states presented on 26 October its Rail Action Plan for the region.The 2020-2023 Rail Action Plan aims at developing a regional rail strategy in the Western Balkans and is divided into six action:Rail market opening;Passenger rights;Border/Common crossing operations;Inter-operability;Governance and Mod-ernisation of rail infrastructure.The modernisation of rail infrastructure is key from an investment perspective as it relates to the upgrading,recon-struction and construction of railway sections in the region.This year,UNIFE organised two con-ference calls with the Transport Com-munity Secretariat to set up a fruitful cooperation for the benefit of Euro-pean rail suppliers.CC:Transport CommunityP A G EUNIFE-Annual Report 202038The global population has tripled over the last 100 years to over 7 bil-lion people today-and it will contin-ue to grow in the coming years.Ur-banisation,coupled with population growth,represents one of the most staggering global mega-trends that will define the next decades.Such drastic urbanisation will not be with-out medium-and long-term conse-quences.Cities host the majority of economic activities and output,yet they also consume more resources and energy.As mobility plays a de-cisive role in ensuring growth,eco-nomic dynamism and social cohesion in cities and their suburban areas,the objective becomes ensuring a funda-mental rite of urban living:getting around rapidly and safely.Todays cities face challenges such increased traffic,diminished air quality,population growth,lack of available space,lowered liveability,tenuous social inclusion,continued health concerns and the incessant need to create economic develop-ment.Against this backdrop,citizens require the creation of new mobili-ty paradigms capable of delivering high-quality,accessible-for-all urban and suburban services.Following its first vision paper on ur-ban mobility,Urban Rail for the fu-ture of cities and metropolitan areas(2019),UNIFE has continued its active involvement in ongoing debates on urban mobility and strengthened its partnerships with associations such as POLIS,EUROCITIES and UITP.In particular,UNIFE attended the Urban Mobility Days,held virtually by the European Commission in September.The following month,UNIFE attended a three-days seminar on MaaS(Mo-bility-as-a-Service)in metropolitan areas organised by the International Transport Forum(ITF).Poster of the Urban Mobility Days7)Urban mobilityCC:European CommissionP A G E3902.European AffairsThe modernisation of the EU pub-lic procurement framework in 2014 marked a positive step forward on a number of topics.For instance,it made the Most Economically Advan-tageous Tender(MEAT)principle the basis for the awarding of contracts.However,awarding contracts purely on price-based criteria is still a possi-bility,and there continue to be other legal shortcomings(e.g.on abnor-mally low-tenders of circumventions of EU public procurement rules).These gaps,UNIFE has long sought to close,have been acknowledged for the first time by the European Com-mission in the White Paper on level-ling the playing field as regards foreign subsidies,published in June 2020.In parallel to a future EU instrument to tackle distortions created by foreign subsidies,UNIFE stressed the impor-tance of strengthening the rules on abnormally low tenders,in particular from non-European State-owned en-terprises shielded from normal mar-ket competition.With the widespread outbreak of the pandemic and the resulting economic crisis,discussions have intensified to boost the role of public procurement for a more sustainable and resilient European economy.On 21 October,a European Conference on Public Pro-curement took place under the Ger-man Presidency of the Council of the EU.EU Commissioner for Industry&Internal Market Thierry Breton re-minded attendees of the importance of equipping the EU with better tools to ensure that all players play by the same rules.The Commissions Directorate-Gen-eral for Internal Market,Industry,En-trepreneurship and SMEs(DG GROW)also convened an online workshop on 22 October 2020,as part of the European Week of Cities and Regions,focused on the topic of sustainable infrastructure.It explored how sus-tainability objectives can be concrete-ly embedded in every step of public infrastructure projects,with special attention paid to the public procure-ment phase and the possibilities of using sustainable criteria in public tenders.While UNIFE welcomed these initiatives as further steps in the right direction,legislation changes are strongly needed to en-sure a level playing field within the EU procurement market.Finally,UNIFE welcomed the Coun-cil Conclusions adopted by Member States on 25 November pertaining to Streamlining public procurement within the EU for more efficient pub-lic spending.The Council stressed the importance of public procurement in fostering sustainable and innovative European economic growth and un-derlined the need for a level playing field to ensure fair competition.In terms of sectoral initiatives,UNIFE,CER and EIM finalised a Recommen-dation to apply the Most Economically Advantageous Tender(MEAT)and good practices in the domain of railway pro-curement in 2019.This strategic doc-ument focused in particular on three potential award criteria:technical or technological value;life-cycle costs and environmental and social impact.It also set out several recommenda-tions for rail contracting authorities.A seminar with European railway un-dertakings,infrastructure managers and suppliers was planned for May 2020 to promote this sustainable ap-proach to rail procurement.Unfortu-nately,the event was cancelled due to public health measures erected during the first lockdown to constrain the spread of COVID-19 but UNIFE While UNIFE welcomed these initiatives as further steps in the right direction,legislation changes are strongly needed to ensure a level playing field within the EU procurement market.8)Public procurement in EuropeCER_EIM_UNIFE_Recommendation for applying MEAT.pdfP A G EUNIFE-Annual Report 202040plans to convene these stakeholders to discuss the matter as soon as pos-sible in 2021.Lastly,UNIFE has continued to drive the AEGIS Europe alliances activities on public procurement.Through-out the year,the alliance pushed for reforms of the European public procurement framework during its exchanges with the European Com-mission,Member States and the Eu-ropean Parliament.P A G E4102.European AffairsUNIFE has continued to successfully manage the secretariat of Rail Forum Europe(RFE).The organisation was established in 2011 to facilitate dia-logue between MEPs,the EC,Mem-ber States and key stakeholders on policy issues relevant to Europes rail sector.The Forums role is very well-perceived by stakeholders and decision-makers.RFE events are widely recognised as providing a val-uable platform for fruitful exchanges on all things rail.In January 2020,the new Manag-ing Board of Rail Forum Europe was sworn in,including the new President,MEP Andrey Novak-ov,and two new Vice-Presidents:MEP Anna Deparnay-Grunenberg and MEP Istvan Ujhelyi.They were joined by two other members of the Managing Board:MEP Dominiq-ue Riquet and MEP Cesar Luena.A cocktail reception was held at the European Parliament in Brussels on 20 January 2020 to present the new Man-aging Board who will be in charge un-til the next EP elections in 2024 to the European rail community.The sanitary crisis development in March prevented the usual series of physical conferences,workshops and seminars from being organised throughout the year.However,webi-nars were held in July and December,focusing on key topics which directly impact the rail sector:the MFF budget negotiations and the upcoming European Year of Rail in 2021.At the RFE Managing Board,held on 2 December 2020,CERs Ilja Volpi was elected to serve as RFEs new Execu-tive Secretary,while Nicolas Erb will chair the RFE advisory board for of the coming three years,starting on 1 February 2021.The rail supply in-dustry retained the Presidency of the RFE Advisory Committee.In January 2020,the new Managing Board of Rail Forum Europe was sworn in,including the new President,MEP Andrey Novakov,and two new Vice-Presidents:MEP Anna Deparnay-Grunenberg and MEP Istvan Ujhelyi.They were joined by two other members of the Managing Board:MEP Dominique Riquet and MEP Cesar Luena.9)Rail Forum EuropeP A G EUNIFE-Annual Report 202042RFE Cocktail Reception 2020RFE new Managing Board(2020-2024):President A.Novakov;Vice-President A.Deparnay-Grunenberg;Vice-President I.Ujhelyi,RFE President A.Novakov with Transport Commissioner A.Vlean.UNIFE Director General Philippe Citron congratulates RailForum new Chair Andrey Novakov&Vice-Chair Anna Deparnay-Grunenberg and hightlights the major priorities for the sector:EUGreenDeal,MFF,HorizonEurope,Shift2Rail2,CEF,Structural Funds For Rail,ERTMS,4RPP A G E4302.European Affairs01UNIFE joins business at OECD(BIAC)05Trade relations between the EU and China02Trade policy review 202004Instrument on foreign subsidies08Carbon Border Adjustment Mechanism10Bilateral cooper-ation with third countries09OECD arrangement on officially supported export credits and the Rail infrastructure Sector Understanding(RSU)03The international procurement instrument(IPI)06EU-Japan eco-nomic partnership agreement07Brexit46525354555647484950The Organisation for Economic Co-operation and Development(OECD)is an important international body that works on establishing evidence-based international standards and gener-ating policy solutions to social,eco-nomic and environmental challenges which are increasingly relevant for our industry.As a consequence,UNIFE decided in May to join Business at OECD(formerly BIAC)which represents the leading business federations in OECD countries and over 7 million private businesses across all sectors and of all sizes.Our association is now engaged in a series of Business at OECD policy groups that have been mandated to closely collaborate with various other OECD Committees and policy bodies.In addition to committees on Education,Environment&Energy,Digital Economy Policy,Innovation&Technology,Finance and SMEs,UNIFE is also particularly active in several committees related to Trade and a global level playing field.UNIFE joins business at OECD(BIAC)P A G EUNIFE-Annual Report 202046In June,the European Commission launched a major review of the Euro-pean Unions trade policy.Launching a public consultation,the European Commission aims to build a consen-sus around a fresh medium-term direction for EU trade policy,re-sponding to a variety of emerging global challenges and implementing solutions deemed necessary due to lessons learned during the coronavi-rus crisis.The key objectives will be to support economic recovery,create quality jobs,protect European com-panies from unfair practices at home and abroad and ensure coherence with broader sustainability and digital economy priorities.UNIFE provided a detailed contri-bution to the review,highighting challenges the European Rail Supply Industry is facing and topics that the EC should prioritise over the coming years.Our input insisted on the need for both strengthening existing trade instruments such as Foreign Direct Investment(FDI)screening,as well as developing and adopt-ing new ones like the International Procurement Instrument(IPI),an Instrument on Foreign Subsidies and a new instrument on reciproci-ty regarding access to EU funds.Our input insisted on the need for both strengthening exist-ing trade instruments such as Foreign Di-rect Investment(FDI)screening,as well as developing and adopt-ing new ones like the International Pro-curement Instrument(IPI),an Instrument on Foreign Subsidies and a new instrument on reciprocity regarding access to EU funds.Trade policy review 2020european commissionP A G E4703.International AffairsWorld procurement markets are increasingly inaccessible.Worryingly,the current economic crisis linked to COVID-19 is expected to intensify that protectionist trend.As the 2020 World Rail Market Study recorded world-wide market accessibility to have fall-en to only 62%-compared to 63%in 2018-it is more urgent than ever for the European Rail Supply Industry to have a tool capable of opening these procurement markets.2020 was a more active year for dis-cussions on the IPI,especially un-der the Croatian Presidency of the Council and with a notably changing mindset across Europe.However,much remains to be done to reach an agreement within both the Council of the European Union and the Europe-an Parliament.UNIFE has again driven AEGIS Eu-ropes Working Group on public procurement.The organisation con-stitutes an alliance of 22 European upstream and downstream manu-facturing federations.Through new position papers,concrete suggestions to improve the revised 2016 draft Regulation have been made.Further-more,AEGIS Europe sent high-level letters requesting an agreement be swiftly reached,while insisting on the need for an ambitious and actionable instrument that will tackle the risk of circumvention.More than ever,the support of the entire rail supply industry-especial-ly at the national level-is crucial for reaching an EU-level agreement soon.The international procurement instrument(IPI)P A G EUNIFE-Annual Report 202048This summer,the European Commission published a White Paper on levelling the playing field as regards foreign subsidies.For the first time,the European Commission acknowledged that there is a growing number of instances on the EU market in which foreign subsidies have distorted market operations or bidding in public procurement,to the detriment of EU companies.The Commission proposed filling existing regulatory gaps in fields such as competition,public procurement,investment and others by putting forward several approaches called“Modules”-including one for public procurement.The White Paper was welcome by UNIFE and the like-minded AEGIS Europe coalition:o Several high-level letters were sent ahead of the publication and media engagement was co-ordinated to increase awareness and visibility of this topico Through a detailed position pa-per,UNIFE participated in the public consultation which was open until September.UNIFEs contribution highlighted the need for an efficient and deterrent Module on public procurement,with both an approach for cen-tral investigation and an ap-proach focusing on specific pro-curement procedures.Across the different Modules,UNIFE supported strong investigation powers for the European Com-mission,particularly in situations involving EU fundso UNIFE shaped AEGIS Europes and other business stakehold-ers response,as well as pre-sented this position on behalf of AEGIS Europe in several forums.The White Paper will lead to several much-anticipated legislative pro-posals in 2021,and UNIFE will sus-tain its engagement on this crucial topicInstrument on foreign subsidiesCC:European CommissionP A G E4903.International AffairsTrade relations between the EU and China Over the past few years,UNIFE mem-bers have encountered increasing re-sistance as they attempted to operate in China.According to the 2020 World Rail Market Study,Chinas rail market accessibility has reached a record low of 17%.Not only are some mar-ket segments now effectively closed to foreign suppliers,but addition-al constraints like non-transparent public procurement procedures and expanding localisation requirements are regularly imposed by contracting authorities in the few areas that re-main accessible.The introduction of an Autonomous Recommendation List of Equipment in the urban trans-port market is a worrying trend that could create further market barriers for foreign enterprises seeking to en-ter their urban transport market.In November 2013,the EU and China officially opened negotiations in pur-suit of a Comprehensive Agreement on Investment(CAI).After agreeing on the prospective deals scope three years later,both parties confirmed that the future agreement should improve market access opportunities for investors by establishing a genu-ine right to invest and guaranteeing that the same treatment afforded national companies is extended to foreign ones.As the negotiations near their terminus,the European Rail Supply Industry has increasing doubts about the possibility to ob-tain a meaningful and enforceable agreement on level-playing field pro-visions,particularly in the absence of those on public procurement.UNIFE has insisted that the EU should maintain certain safeguards and ensure that Chinese rail suppliers access to the European market for already a reality in practice is not further secured with clear and enforceable guarantees that Chi-nas rail market accessibility will improve for their European coun-terparts.As highlighted by European Commissions President intervention during the EU-China Summit on 14 September,“its not a question of meeting halfway,but its a question of rebalancing the asymmetry”.UNIFE has insisted that the EU should maintain certain safeguards and ensure that Chinese rail suppliers access to the European market for already a reality in practice is not further secured with clear and enforceable guarantees that Chinas rail market accessibility will improve for their European counterparts.P A G EUNIFE-Annual Report 202050UNIFE has also continued to mon-itor Chinas ongoing efforts to join the WTO Agreement on Govern-ment Procurement(GPA).Follow-ing Chinas revised and more ambi-tious offer that included coverage improvements,UNIFE and the AEGIS Europe coalition drafted a position paper stressing the need for certain conditionalities for China to be able to join the WTO GPA.Among these conditions were:Market access on a reciprocal basis;far-reaching re-form of Chinas government pro-curement law,in line with GPA principles;the absence of any spe-cial or differential treatment and guarantees on enforcement and coherence with the EUs toolbox.In light of recent de facto barriers in Chi-nas rail market,however,UNIFE has warned the European Commission of the risk of providing Chinese econom-ic operators with any legally secured market access to Europe.Simultaneously,Chinese state-owned enterprises have become increas-ingly powerful players in all product segments and on all continents,of-ten profiting from unfair competi-tion.Against this background,UNIFE has closely monitored the situation through several initiatives and illus-trated the shifting landscape in nu-merous dossiers throughout 2020.In particular,UNIFE continues to monitor developments related to the EU-China Connectivity Platform,which aims at enhancing synergies between Chinas“Belt and Road Initi-ative”(BRI)and the EUs connectivity initiatives,including the TEN-T policy.By joining Business at OECD,UNIFE is also participating in various work streams as a means of addressing trade distortions and imbalances.Market access on a reciprocal basis;far-reaching reform of Chinas government procurement law,in line with GPA principles;the absence of any special or differential treatment and guarantees on enforcement and coherence with the EUs toolbox.P A G E5103.International AffairsEU-Japan economic partnership agreementAfter years of negotiations,the EU and Japans Economic Partnership Agreement(EPA)entered into force on 1 February 2019.UNIFE welcomed this agreement as it provides Europe-an rail suppliers satisfactory guaran-tees on public procurement.However,the EPA only opened the procurement of goods and services covered by the Operational Safety Clause(OSC)in the WTO Agreement on Government Procurement to EU suppliers from 1 February 2020.The OSC was a major non-tariff barrier that allowed opacity and discrimina-tion in procurement from Japanese rail operators.Throughout 2020,UNIFE has repeat-edly insisted on the importance of monitoring the agreements imple-mentation to ensure tangible ben-efits and achievement of equitable market access especially now that the OSC has been removed.These meaningful rectifications have yet to materialise.In April,UNIFE an-swered a business survey as a means of providing feedback to the EU on how the EPA is affecting EU rail sup-pliers.In the autumn,UNIFE Director General Philippe Citron participated in an EPA Progress Seminar discuss-ing public procurement.During the event,a guide for EU suppliers was unveiled.UNIFE has repeatedly insisted on the importance of monitoring the agreements implementation to ensure tangible benefits and achievement of equitable market access especially now that the OSC has been removed.european commissionP A G EUNIFE-Annual Report 202052EU-Japan economic partnership agreementBrexitOn 31 January 2020,the United King-dom withdrew from the European Union,commencing a transition peri-od during which EU law has continued to apply to the United Kingdom until 31 December 2020.The negotiations on the future partnership between the EU and the UK started in March 2020 and were difficult on several topics,including level-playing field rules and public procurement.Througout the year,UNIFE continued to call on EU institutions and the UK government to swiftly reach an agree-ment that minimises any disruptions of trade flows while allowing for con-tinued EU-UK cooperation on techni-cal topics,skills and innovation.With-out such an outcome,Brexit could present major challenges for both seamless mobility and a more com-petitive European rail supply industry.In response,UNIFE developed a posi-tion paper on the future EU-UK future relationship and held various meet-ings,including one with the EU Task Force for Relations with the United Kingdom,to advocate for a smooth and amicable political uncoupling.P A G E5303.International AffairsUnder the Green Deal,the European Commission intends to create a Carbon Border Adjustment Mechanism(CBAM)to tackle carbon leakage and ensure the price of imports more accurately reflects their carbon content.The Commission published a public consultation in July 2020 to gather stake-holders views on the different policy options and their possible impacts,with a legislative proposal expected to materialise in 2021.In its answer to the consultation,UNIFE stressed that it fully supports the objective of establishing a level-playing field on carbon content and avoiding carbon leakage.However,it is crucial for CBAM not to focus on only a few products and sectors,but to consider entire supply chains to avoid shifting carbon leakage on downstream industries.UNIFE stressed that it fully supports the objective of establishing a level-playing field on carbon content and avoiding carbon leakage.However,it is crucial for CBAM not to focus on only a few products and sectors,but to consider entire supply chains to avoid shifting carbon leakage on downstream industries.Carbon Border Adjustment Mechanism(CBAM)Carbon Border AdjustmentP A G EUNIFE-Annual Report 202054UNIFE developed a dedicated position paper and submitted it to the OECD during preparatory consultations prior to the official Participants meeting that took place between 17 and 19 November.Additionally,UNIFE was present at and took the floor during the OECD consultation meeting on 21 and 22 October to note the importance of the extension of the RSU and the modification of some of its terms.Our intervention called for the extension of the repayment terms to 18 years and the inclusion of a larger share of local costs up to 50%.Concurrently,UNIFE has raised awareness about the RSUs extension to the European Commission and the Member States.OECD arrangement on officially supported export credits and the Rail infrastructure Sector Understanding(RSU)P A G E5503.International AffairsWith the Sector Understanding on Export Credits for Rail Infrastructures(RSU)the sunset clause expiring on 31 December 2020,UNIFE has been speaking throughout the year about its crucial importance for our industry and its global competitiveness.UNIFE has been urging the Partici-pants of the OECD Arrangement to extend the RSU beyond 31 December 2020 and to modify some of its terms to make it an even more efficient tool for the provision of competitive financing solutions.It should be ac-tively promoted towards internation-al trading partners to achieve a level playing field on both market access and export conditions.To support these efforts,UNIFE de-veloped a dedicated position pa-per and submitted it to the OECD during preparatory consultations prior to the official Participants meeting that took place between 17 and 19 November.Additionally,UNIFE was present at and took the floor during the OECD consulta-tion meeting on 21 and 22 October to note the importance of the ex-tension of the RSU and the modi-fication of some of its terms.Our intervention called for the exten-sion of the repayment terms to 18 years and the inclusion of a larger share of local costs up to 50%.Con-currently,UNIFE has raised aware-ness about the RSUs extension to the European Commission and the Member States.The feedback gathered so far is pos-itive.Both European Commission and Business at OECD(BIAC)openly support these efforts and have also strongly advocated for the RSU to be extended and modified.In this sense,as of December 2020 and pending official confirmation from the OECD,positive hints point towards the ex-tension of the RSU until 2023 and the increase of local costs up to 40-50%.1 Compound annual growth rate 2021-2023 vs.2015-2017;UNIFE 2020 World Rail Market Study.2 Compound annual growth rate 2021-2023 vs.2015-2017;UNIFE 2020 World Rail Market Study.Bilateral cooperation with third countriesThe Gulf region remains a priority market for the European rail supply industry as it is expected to grow by 1.7%1.Since 2014,UNIFE has worked to build a solid relationship with the Gulf Cooperation Council Secretariat General(GCC-SG),which oversees economic developments in the region.Our organisations codified our coop-erative intentions in December 2017 with the signing a Memorandum of Understanding(MoU).UNIFE Director General Philippe Citron once again participated in the annual Middle East Rail Conference,which took place on 25 and 26 February in Dubai,before the outbreak of the novel coronavirus.He presented the European Rail Supply Industrys vision on innovation and explained how the European experience can benefit the region.UNIFE also held bilateral meetings with the Federal Trans-port Authority(FTA)of the United Arab Emirates and with the local European Delegation.Cooperation with Gulf Countries (GCC-SG)Cooperation with Russia (NP UIRE)Throughout 2020,UNIFE has also maintained close contacts with its Russian counterpart,the Union of Industries of Railway Equipment(NP UIRE).While exchanges on the regulatory framework and processes for authorisation have continued,NP UIRE has also confirmed its interest in discussing signalling and automatic train operation(ATO).The Common-wealth of Independent States(CIS)region continues to be an important and attractive market for the European Rail Supply Industry,with an expected growth of 1.7%in the coming years2.Middle East Rail Conference,25-26 February,DubaiP A G EUNIFE-Annual Report 2020563 Compound annual growth rate 2021-2023 vs.2015-2017;UNIFE 2020 World Rail Market Study.Relations with American Public Transportation Association(APTA)Despite the pandemic,UNIFE has maintained consistently solid rela-tions with our counterparts in North America.Given the challenges both our regions have experienced due to the virus,UNIFE and the American Public Transportation Association(APTA)have decided to hold regular exchanges on COVID-19s impact on our respective markets and potential policy support measures.The North American rail market-composed of the US,Canada and Mexico-is forecasted to experience growth of 2.5%in the coming years3.Important projects such as the California High-Speed Rail,Mexicos Tren Maya and the expansion of the Toronto network are expected to define this period.UNIFE has also deepened its cooper-ation on trade and fair competition with the US Railway Supply Institute(RSI)and the Canadian Association of Railway Suppliers(CARS),in a bid to raise the Rail Supply Industrys inter-national visibility and of the challeng-es it faces due to subsidised,State-owned suppliers.As the world begins to plot its way out of its current predicament,it is essen-tial that communities explore how rail can contribute to increased stability,resiliency and equity after COVID-19.UNIFE Director General Philippe Citron joined Commuter Rail Coa-lition(CRC)Executive Director Kelly-Anne Gallagher on their new podcast to share lessons learned from both.Cooperation with US Railway Supply Institute(RSI)and the Canadian Association of Railway Suppliers(CARS)P A G E5703.International Affairs04WRMSWorld Rail Market Study 60The main findings of WRMS 2020 were that:o At the end of 2019,a record market volume of 177 bil-lion was reached,proving the appeal of rail transport in all of its forms,ranging from urban metro to commercial freight.The sector has grown by 3.6%annually since 2017.o The market is anticipated to develop positively in the me-dium-and long-term,with an average annual growth rate of 2.3%until 2025 despite an 8%COVID-induced decline in 2020.The total market volume is expected to reach 204 billion by 2025.This as-sumption is based on an an-ticipated rapid recovery of the market,which Roland Berger considers probable under a so-called V-case scenario.The eighth edition of the World Rail Market Study(WRMS),conducted by Roland Berger for UNIFE,was unveiled by UNIFE Chair Henri Pou-part-Lafarge and Director General Philippe Citron on 1 October at a virtual launch event attended by over 500 participants.Published biennially since 2006,the Study provides an overview of the market in its current form and a fore-cast of its future development in dif-ferent regions and market segments.It also assesses changes in rail mar-ket accessibility.Due to the current health and economic crisis,this edi-tion also explored the potential impli-cations of COVID-19.In the V-case all regions remain at high levels-Latin America and Eastern Europe are expected to show strongest growthTotal market growth rates per region CAGR1),%1)Compound annual growth rate 2021-2023 vs.2015-2017Source:WRMS 2020,Roland Berger2.3%World rail supply market4.1%Latin America2.0%Western Europe2.7sternEurope1.7rica/Middle East1.7%CIS2.6%Asia Pacifc2.5%NAFTAWorld Rail Market StudyP A G EUNIFE-Annual Report 202060infrastructure32.6 bn EURTOTAL MARKET20172019177.2 BN EURCURRENT AVERAGE ANNUAL TOTAL MARKET VOLUMErolling stock61.9 bn EURservices65.0 bn EURrail control16.8 bn EURturnkey management1.0 bn EUR#WRMS Different global developments are likely to continue to fuel rail market growth in the future.Megatrends such as urbanisation,global population growth and increasing environmental aware-ness illustrated by political pro-grammes such as the European Green Deal should lead to higher passenger numbers,while digitalisation and automation is expected to make the rail sector more attractive.However,public funding will need to be ensured and sustained to achieve that progress.Finally,the study looks at worldwide accessibility of the rail market,which is a key fac-tor affecting the business of the rail supply industry.The share of the world market for railroad technology that remains acces-sible to European companies has shrunk slightly from 63%to 62%,since the 2018 study.Decreasing accessibility in Asian markets has become a serious impediment to rail sector growth.Further political efforts are needed to level the playing field and fully reap the benefits of a growing market.To order a copy of the UNIFE World Rail Market Study,please visit the UNIFE website.P A G E6104.WRMS01Overview02UNIFE Technical Working Groups03Cybersecurity activities04 UNITEL05STANDARDS®ULATION64707676As the official representative body for the European rail supply industry,UNIFE continues to coordinate the contributions and position of its members towards the development of regulations,decisions,guidelines and other documents drafted by the European Union Agency for Railways(ERA)and the European Commission(EC).The UNIFE Standards and Regula-tion Group(SRG)and its supporting UNIFE technical working groups are platforms for members to influence technical regulations that relate to the interoperability and safety of the European railway system.UNIFE has actively participated in numerous working groups and workshops organised by European institutions to support the drafting of the aforementioned outputs.The SRG plays a pivotal role in coor-dinating UNIFEs technical stances on the implementation of the EUs 2016 Fourth Railway Package(4RP).The UNIFE SRG also interacts with CER,EIM,UIP,NB-Rail and other stakeholders in the European rail sector through participation in the Group of Representative Bodies(GRB)and the European Standardi-sation Organisations(ESO)-particu-larly,CEN and CENELEC-through the Sector Forum Rail(SFR).As an observer on both the ERA Management Board and ERA Exec-utive Board,UNIFE Director Gener-al Philippe Citron regularly attends these meetings and shares the as-sociations position on important topics such as ERAs annual work programme and ongoing activities supporting 4RPs implementation.2020 Key Highlights:The Technical Pillar,comprised of the recasted Interoperability and Safety Direc-tives and the ERA Regulation,entered into force on 15 June 2016 and provided Member States with a three-year transposition period,with a possible a one-year extension upon request.2020 was a key year for the implementation of 4RPs Technical Pillar with arrival of the final deadlines for the transposition of the directives and entry into operation of the new regime in all Member States.Due to the COVID-19 pandemic,Member States were able to extend the trans-position deadline to 31 October 2020 as part of the ECs COVID-19“rail relief package”.1.Implementation of the Fourth Railway Packages Technical Pillar1)OverviewP A G EUNIFE-Annual Report 202064This year saw the railway sector,together with the ERA and the National Safety Authorities(NSAs),build on the initial experience of the Fourth Railway Package regime following its entry into operation on 16 June 2019 in Bulgaria,Finland,France,Greece,Italy,Netherlands,Romania and Slovenia.It also witnessed the ERA operate as the European authorising entity for the first time.Since 16 June 2019,ERA has delivered over 1000 vehicle authorisation decisions.representing over 12,000 authorised rail vehicles.UNIFEs focus this past year has shifted from exchanging knowledge between our members and collecting feedback on the new processes in an attempt to ensure lessons learnt are shared,issues resolved and agreements reached where further enhancements can be made to streamline the new system.Fi-nally,UNIFE continues to raise awareness and greater understanding of chang-es within the rail supply industry currently being implemented under this new framework.UNIFE strongly supported the adoption of the Technical Pillar,which we see as being of paramount importance for the rail industrys com-petitiveness as it removes the remaining technical barriers to the creation of a Single European Rail Area(SERA).A harmonised European authorisation process ran by the newly fortified ERA should result in a convergence and greater certainty of requirements.It will also result in a more consistent,quicker and cheaper process with less dupli-cation of checks and testing.With the entry into operation of the Technical Pil-lar in all Member States at the end of 2020,close attention will be paid in the coming year to ensuring the full delivery of the Fourth Railway Packages expected benefits.European CommissionP A G E6505.STANDARDS®ULATIONEuropean Commission Expert Group on the Technical Pillar of the Fourth Railway Package.UNIFE High-Level Dialogue with DG MOVE and ERA on the Implementation of the Technical Pillar of the Fourth Railway PackageUNIFE is a permanent member of the ECs Expert Group on the Technical Pillar of the Fourth Railway Package,alongside Member States representatives and other official representative bodies.This group is intended to consult the sector on legalisation to be voted on,give recommendations on draft texts and help prepare discussions and votes to be held in the Railway Interoperability and Safety Committee(RISC).This Expert Group is intended to complement but not replace the RISC,which only allows Member State representatives to attend and vote on the final Implementing Acts.The Expert Group started 2020 with detailed consul-tations that resulted in(EU)2020/387 amending the Technical Specifications for Interoperability(TSIs)WAG,LOC&PAS and CCS by codifying an extension of the area of use and transition phases.These ex-changes also led to(EU)2020/424,which dealt with submitting information to the Commission regard-ing non-application of technical specifications for interoperability in accordance with Directive(EU)2016/797.Due to the extraordinary circumstances caused by the COVID19 outbreak,the Expert Group was UNIFE has established a high-level dialogue between the DG MOVE Directorate C,ERA management teams and UNIFE members at the CTO level on the implementation of the Technical Pillar of the Fourth Railway Package.The objective of these meetings has been to jointly,closely monitor the final imple-mentation activities of the Fourth Railway Package as it entered operation at ERA in June 2019 and to iden-tify common actions to ensure the smooth transition to the new regime.Discussions have covered areas such as the new vehicle authorisation processes and requirements,the related ERA IT tool development,the TSI amendments and the clean-up of notified national technical rules.These meetings continued in 2020 to exchange on first experiences with the new regime and provide feedback.They were also opportunities to share lessons learnt,identify areas for continued improve-ment,monitor the transposition status by Member States,and agree on practical measures to facilitate the authorisation applications and process.consulted shortly after the crisis began in May on the“rail relief package”.These discussions consisted of urgent amendments to the interoperability directive and subsequent implementing acts to introduce an additional optional extension for the transposition of the Fourth Railway Packages Technical Pillar.This concession intended to provide Members States who had not yet completed,or would be unable to complete,the legislative work required to usher in their national transpositions by 16 June 2020 the extra time needed to do so.These states were offered a final deadline of 31 October 2020.The package also included measures to provide a smooth transition for vehicle authorisations at the project level across the two remaining transposition dates.It also included provisions to help mitigate the impact of the COVID-19 crisis on the railway sector.The Expert Group also provided opportunities for regular status updates and consultations on the implementation of the 4RP by Member States and the clean-up of Notified National Technical Rules.UNIFE attended all Expert Group meetings to speak on behalf of the rail supply industry and with EC representatives on these important developments.P A G EUNIFE-Annual Report 202066Revision of the Technical Specifications for Interoperability(TSIs)for 2022Following the publication of the 2019 TSI amend-ments,work has begun on the next revision of the TSIs with a new full package scheduled for publica-tion in 2022.In January of this past year,the EC sent ERA the formal request to start the assessing this topic,which manifested in a list of objectives and 74 actions focused on Digital Rail and Green Freight intended to align with the European Commissions high-level policies.At the same time,ERA has introduced a new working structure and process for TSI drafting and working groups.No longer are there working parties for each TSI but rather a single coordinating working party across the TSIs supported by numerous dedicated Topical Working Groups(TWGs)for specific change requests addressing topics across multiple TSIs.The new structure aims at better coordination across TSIs for given changes,better transparency of work-ing and a more efficient use of resources.UNIFE has consequently adapted its internal consul-tation processes with its committees and technical working groups to best follow and contribute to the new revisions.This association is a member of the ERA Working Party on the revision of TSIs which acts as the steering group for all the TSI revision activities and has experts nominated to each of the activated TWGs.Within UNIFE,the Working Party on the revi-sion of TSIs is followed by our Standards and Regu-lation Group(SRG),which coordinates the associa-tions response,nominates experts within the TWGs and cooperates with the other UNIFE committees when appropriate.The activities of each TWG,where the detailed TSI revision proposals are developed,are consulted by a combination of the existing UNIFE technical working groups depending on the change request subject.The Working Party held four meetings on the TSI revision in 2020 to establish the new system and TWGs.More frequent meetings will be held in 2021 as the outputs and TSI text proposals are delivered by each of the TWGs to finalise the ERA recommen-dation to the EC by Q4 2021.For more information on the Fourth Railway Package and TSI revisions,please contact UNIFE Technical Affairs Manager Nicholas Shrimpton at nicholas.shrimptonunife.orgMore recently these meetings have begun to shift towards the development and application of TSIs on the European railway target system and,more specifically,the necessary TSI transitional provisions required to provide the rail supply industry stability for individual railway projects while the regulations,standards and innovations continue to evolve.This subject is considered a priority for the planning and competitiveness of long-term rail projects and deliv-ery of vehicle types.This topic will be addressed by amendments to the TSI transitional provisions in the 2022 TSI package.European Union Agency for Railways(ERA)P A G E6705.STANDARDS®ULATION2.Cooperation with the Group of Representative Bodies(GRB)3.UNIFE involvement in StandardisationAs the official association of Eu-ropes rail suppliers,UNIFE is a member of the Group of Repre-sentative Bodies(GRB).The GRB is a group of European railway asso-ciations tasked with supporting the sectors consultations with the ERA as it composes its work programme and its activities on rail safety and interoperability.The GRB has continued to be highly active throughout 2020,with par-ticular focus paid to the final im-plementation of the Fourth Railway Package,the rail sectors response to COVID-19,the revision of the TSIs and the ERA initiatives regarding railway safety culture and occur-rence reporting.A number of joint positions relating to regulation and standardisation have been adopt-ed by the GRB and submitted to the EC,ERA and Member State repre-sentatives.The GRB also continues to closely follow all ERA activities and the delivery of its work pro-gramme.Since January 2019,Mr.Christian Rausch,Chair of UNIFEs Standards and Regulation Group(SRG),has also served as the GRBs chair on a two-year mandate.At the end of 2020,the GRB supported the re-newal of his mandate until 2022.Strong leadership and cooperation among all stakeholders has been vital during the final stages of the Technical Pillars implementation and the preparation of the revised TSI package for 2022.Please contact UNIFE Technical Managers Nicholas Shrimpton and David Kupfer to learn more.They are reachable at nicholas.shrimptonunife.org or david.kupferunife.org,respectively.For further information on GRB,please visit www.grbrail.euStandardisation is extremely im-portant for our industry,lead-ing many UNIFE members to be involved in both European and global standardisation proceedings through their respective National Standardisation Bodies.UNIFE pro-vides a platform for its members to coordinate their standardisation advocacy and to build consensus on our industrys priorities in this area.UNIFE SRG is responsible for monitoring developments in both regulation and standardisation,the complete technical framework of which is represented in the figure below.The careful coordination of activities in both areas is required to ensure that the work carried out by European institutions and ESOs is complementary and improves the rail sectors functioning and competitiveness.P A G EUNIFE-Annual Report 202068To support the efforts of its mem-bers at the national level,UNIFE has established close links with relevant ESOs,namely CEN and CENELEC.The association works closely with the EC,who sets the policy framework for Eu-ropean level standardisation,and the CEN-CENELEC Management Centre,which coordinates the activities of both organisations.UNIFE also participates in Sector Fo-rum Rail(SFR),formerly known as the Joint Programming Committee Rail(JPC-R).The SFR facilitates discussions between the CEN-CENELEC Manage-ment Centre and representative bod-ies on the sectors standardisation priorities.At the global level,UNIFE holds A-Li-aison status for the ISO Rail Techni-cal Committee 269(ISO TC 269).This enables the association to take part in the regular meetings of this com-mittee.UNIFE is also a member of the Rail Standardisation Coordination Plat-form for Europe(RASCOP).Initiated by the EC in 2016,the platform brings together parties involved in the plan-ning and development of railway-re-lated legislation,standards and tech-nical documents in Europe.It also works to coordinate all activities re-lated to the development of Europe-an standards and other related tech-nical documents that are relevant to the railway sector.The platform is chaired by the EC Directorate-Gen-eral for Mobility and Transport(DG MOVE)and is supported by the ERA.In 2020,UNIFE dedicated increased efforts to international standardi-sation.This year saw the first UNIFE position on international standardi-sation,which was published in March to provide recommendations that underline the strategic importance of international standardisation for the European industry.The position paper was promoted in bilateral ex-changes with the European Commis-sion and plenary
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UNIFE：2022年度欧洲铁路供应行业报告（英文版）（144页）.pdf
Message from UNIFE Chairman2Message from UNIFE Director General401.UNIFE in 2022702.European Affairs1703.International Affairs41Table of Contents05.Standards and Regulation5506.R&I Activities7107.Signalling and ERTMS8908.ERWA:The UNIFE Railway Wheels Committee10309.IRIS:International Railway Industry Standard10710.Communications11311.UNIFE Staff12412.UNIFE Members in 202212904.World Rail Market Study51Message from Henri Poupart-Lafarge,UNIFE ChairmanAt the end of last year I was looking forward to 2022,expecting that,as the world emerged from the Covid pandemic and the induced economic shock,we would be able to focus on tackling the most pressing challenge faced by our society climate change.This was not to be,as the return of war to the European continent due to Russias invasion of Ukraine has radically altered the picture.Beyond the devastation and the suffering brought by the conflict,it has exacerbated the instability in global supply chains for all sectors including ours,extended disruptions to the energy sector and sustained inflation levels that we had not seen for decades.Yet,Europe has done its best to maintain the momentum of the Green Deal,and the pressing need to reduce our dependency on imported fossil fuels is leading us to accelerate the green and digital transitions.This can be done in part thanks to the implementation of the national recovery&resilience plans,funded by joint EU debt,with 55 billion of investment for rail at stake!The upcoming COP 27 will determine whether the same momentum remains at the global level,but the energy that we could see in our sector at InnoTrans and the results of the latest World Rail Market Study give us some ground for optimism.We are therefore challenged to bridge the gap between the immense short-term pressure faced by our industry and economies with the long-term outlook shaped by decarbonisation and renewed European industrial competitiveness.This will require continued action from our political institutions,at all levels:European,national,regional and local.As a sector,we must continue to be their reliable and trusted counterpart on mobility policy issues,but also make our case in many other policy areas.The latter include industrial and trade policies,but also the digital domain and the debate around skills and competencies,where our sector is less well known.At the European level,UNIFE will continue to be the voice of our industry,with a lot to do in 2023 on these various subjects.Indeed,this will be the last full year of this European institutional cycle,before the next European elections in 2024:by the end of next year,we will know if Europe has set the appropriate regulatory framework to deliver a 55%reduction in Europes greenhouse gas emissions by 2030.We will of course be able to build on the achievements of 2022,which included:Significant progress in Trade policy on the level-playing field between European and third country suppliers,with the adoption of the International Procurement Instrument as well as the Foreign Subsidies Instrument Progress on the“Fit for 55”package,with trilogues already on the way regarding the Alternative Fuels Infrastructure Regulation and the Carbon Border Adjustment Mechanism.The updated TEN-T regulation should reach that stage at the beginning of 2023 The release of the draft Mobility Ecosystems Transition Pathway,which we hope will be fully complementary to the Expert Group on the competitiveness of the rail supply industry Last but not least,the first call for projects of the Europes Rail Joint Undertaking:by the time you read this report,6 projects mobilizing 568 million will be up and running to sustain our sector innovative capabilities and the European industrys leadership In parallel,discussions are ongoing regarding updated Technical Specifications for Interoperability,where we call for transition rules that ensure the absence of negative impact on ongoing projects.In conclusion,I would like to thank the UNIFE team for their dedication,but also all our members for their continued support.2022 has proven to be an eventful year,more than we expected.I am convinced that the European agenda is set in the right direction for our sector and our societies:it is up to us now to support its finalisation and implementation.Henri Poupart-LafargeUNIFE Chairman and,Chairman and CEO of AlstomMessage from Philippe Citron,UNIFE Director GeneralWhen I last addressed the European Rail Supply Industry via the UNIFE Annual Report,our association looked to rapid vaccination roll-outs and ambitious recovery packages rooted in sustainability as a source for optimism and added purpose for our mode of transportation.Russias invasion early in 2022 and subsequent war of aggression against Ukraine has added resolve to our mission to contribute to a European multimodality rooted in rail.Throughout the year,UNIFE has communicated to a variety of stakeholders about how continuing Europes commitment to research and innovation,investing in next generation technologies that will drive a shift to rail,ensuring greater access to foreign markets while limiting unfair influence in ours and providing career pathways for new rail professionals will lead to the completion of EU Green Deal objectives,generate post-pandemic economic recovery and make Europe more resilient.2022 saw Europe exit the more restrictive periods of the COVID-19 pandemic.This past year,with the return of the UNIFE General Assembly in Paris and InnoTrans in Berlin,allowed UNIFE to meet all of you and our partners for in-depth and in-person exchanges on how our rail can best contribute to the next generation of the European Union after an approximately 3-year hiatus.Given continued turbulence caused by pandemic and the aggression against Ukraine,the European industry has been forced to endure supply chain disruptions and contend with rapidly increasing inflation.However,our association is optimistic that our sector will see continued growth as presented in our 9th edition of the World Rail Market Study,that predicts a 3%per annum growth until 2025-2027.Additionally our industry sees with great enthusiasm all the opportunities to boost rail investments coming from EU instruments such as the National Recovery Plans,Connecting Europe Facility,and the Structural Funds.During 2022,EU institutions reached a final agreement and entry into force of important EU autonomous tools:the long-awaited International Procurement Instrument and the Foreign Subsidies Regulation.These are major achievements and a sign that Europe is serious about beefing up its strategy to achieve a level-playing field on third country markets and in Europe.UNIFE has always been,and will continue to be,active and vocal to promote fair competition.To further enhance European rails development and deployment,UNIFE spent the 2022 European Year of Youth working with stakeholders from across the EU.Our association,having been a vocal champion of Europes Rail Joint Undertaking was glad to see its launch during the French Presidency of the Council of the EU in Paris in January.This institutionalised partnership managed by Executive Director Carlo Borghini has instituted a novel System and Innovation Pillars structure to best organise innovation initiatives focused on next generation rail solutions and emerging technology needed to advance our railways to a true Single European Railway Area and inspire a modal shift to rail.The launch of the System Pillar is expected to support the development of an efficient technical regulation and standardisation framework in line with the envisaged long-term roadmap.We are certain that the award of the first Flagship Projects will also help increase the flexibility,attractiveness,market share and competitiveness of the EU Rail Supply Industry.One of the promising technologies which UNIFE has been pursuing this year has been the Digital Automatic Coupler(DAC)via a dedicated platform passionate about transforming future freight.UNIFE has advanced technical regulation progress throughout 2022 through our work on the implementation of the Fourth Railway Package with the European Union Agency for Railways(ERA),headed by Executive Director Josef Doppelbauer.We have been highly involved with the on-going revision of this years Technical Specifications for Interoperability(TSI)Package and we hope that it will establish a new regulation framework to ensure a stable evolution of TSI and standards as it has been mentioned by UNIFE Chair Henri Poupart-Lafarge in different fora.We need to ensure predictability,and minimise the frequency of project changes.Our association also knows that Europes rail suppliers success is directly linked to its workforce 21st century transport solutions require professionals knowledgeable in their systems to design,manufacture and deploy them.For that reason,UNIFE is heavily involved in the STAFFER Blueprint for Skills consortium.This unique Erasmus programme brings together suppliers,operators and academics to assess and improve upon existing rail education and vocational training programmes to help welcome new practitioners into our ranks.We also welcome the launch by the European Commission of the Europe Skills initiative for 2023.This consortium has been a welcomed space for UNIFE to extend its efforts around women in rail as we have followed the letter of our UNIFE 2022 Gender Equity Policy by centring issues of inclusion in both employment and education during discussions.I would like to take this opportunity to welcome the European Commissions initiative to declare 2023 as the European Year of Skills,and we look forward to collaborating with the relevant stakeholders throughout the year and beyond.Finally,UNIFE would be remiss not to thank its members their constant support and participation has been rewarded in significant empowerment of rail and its position in the modern mobility paradigm.Your engagement in our advocacy initiatives has raised awareness of both the European Rail Supply Industrys pivotal role in confronting our current crises and building the sustainable multimodality rooted in our unique transportation mode.To help us achieve these goals,our membership officially expanded by 11 new companies,who will be key in reaching our stated goal of sustainable multimodality rooted in rail:Express Service(BG),Dual Inventive Holding(NL),Scheidt&Bachmann Signalling Systems(DE),Expandium SAS(FR),Cylus Cybersecurity(IL),Softil(IL),DAKO-CZ(CZ),RailNovation(CH),RazorSecure(UK),Gillet Group(FR),and 1 Associate Member Rastia(BG).Thank you for your commitment to the rail supply industry and belief that it holds a meaningful potential role in the future of Europe.We look forward to continuing to build the future of sustainable,accessible and reliable transportation that provides us all with greater resiliency together.Philippe CitronUNIFE Director GeneralUNIFE in 202201.UNIFE Mission.8How UNIFE Works.9UNIFE Structure.10UNIFE Presiding Board.11UNIFE Committees and Working Groups.12UNIFE Mission1423“Promoting Rail Market Growthfor Sustainable Mobility”Promoting European policies and programmes favourable to railProviding UNIFE Members with strategic and operational knowledgeWorking towards an interoperable and efficient European railway systemEnsuring European Rail Supply Industry leadership through advanced research,innovation and quality8UNIFE Annual Report 2022How UNIFE WorksII.Public AffairsIII.European Rail ResearchIV.IRIS CertificationI.EU Standardisation&HarmonisatioEuropean Rail Supply IndustryEuropean Union Collaborating with the European Union Agency for Railways on the definition of rail regulations(including the Technical Pillar of the Fourth Railway Package)and Technical Specifications for Interoperability(TSIs)Supplying expertise for European and International Standardisation Bodies(e.g.CEN/CENELEC,ISO)Contributing to the development of the Single European Rail Area Coordinating EU-funded research projects Playing an active role in ERRAC-the European Rail Research Advisory Council Cooperating with the Europes Rail Joint Undertaking and contributing to the follow-up of its activities Shaping the future of rail research&innovation in Europe The globally recognised rail quality management system Enables efficient business processes and leads to substantial quality improvements and cost reduction throughout the supply-chain More than 2320 IRIS Certification certificates issued worldwide Advocating policies that increase the global competitiveness of the European Rail Supply Industry Supporting modal shift policies that give priority to rail Encouraging investment in rail projects Promoting rail transport as the best solution to meet social challenges of the future01.UNIFE in 20229 UNIFE StructurePublic AffairsStrategy CommitteeOffice ManagerPublic Affairs Liaison GroupNational AssociationsSME CommitteeTrade and International Affairs CommitteeDigitalisation CommitteeInvestment and ProjectFinancing Expert GroupCommunications Communications CommitteeGender Equity Advisory Group MembershipIRIS CertificationIRIS Steering Committee IRIS Topical Working GroupsUNIFE General AssemblyFinance,Legal&HRUNIFE Presiding BoardDirector GeneralTechnical AffairsTechnical PlatformFreight CommitteeSystem PillarCommitteeInfrastructureCommittee(UNIRAILINFRA)Cyber-Security Working GroupResearch&Innovation CommitteeERWA Steering CommitteeUNITELStandards&Regulation GroupControl-Command&SignallingUESCCCS PlatformUNISIGSustainable Transport CommitteeUNIFE Staff&UnitsUNIFE Management CommitteesUNIFE Working Groups&Projects10UNIFE Annual Report 2022UNIFE Presiding BoardAugusto MensiCEO,Lucchini RSMichael PeterCEO,Siemens Mobility Roger DirksmeierManaging Director,FOGTEC(representing the UNIFE SME Committee)Jrgen WilderMember of the Executive Board and Responsible for the Rail Vehicle Systems division,Knorr-Bremse AGJavier Martnez OjinagaCEO,CAF GroupLilian LerouxCEO,Faiveley TransportMillar Crawford Executive Vice President,Ground Transportation Systems,Thales Group Franz Kainersdorfer Member of the Management Board,Voestalpine AGMembers of the Presiding Board Henri Poupart-LafargeChairman and CEO,Alstom2020-2023UNIFE Chairman01.UNIFE in 202211 The Presiding Board is UNIFEs highest committee.It is responsible for the management of the association.The Board takes any measure or action required to achieve the objectives and general policies of the association.This body reviews applications for membership before they are submitted to the General Assembly for ratification.The Presiding Board is composed of 9 members elected by the General Assembly,every three years.One seat on the Presiding Board is reserved for the Chairperson of the UNIFE SME Committee.The Strategy Committee steers UNIFE activities and advises the Presiding Board on all strategic and political issues.It is composed of high-level managers representing the associations most prominent members.The Technical Platform brings together all UNIFE Members and equally covers all EU research,technical harmonisation and standardisation matters.The platform regularly reports on relevant developments and the Associations activities at EU level standardisation bodies.It also shares news regarding the Associations R&I projects,including Europes Rail Joint Undertaking.The Technical Platform communicates changes within the regulatory framework in regards to the European Union Agency for Railways(ERA)and the European Commission(i.e.DG MOVE,DG RTD,DG GROW,etc.,).This body enables all members to have a better understanding of current EU rail technical issues,their background and their implications for the industry in Europe and beyond.UNIFE Committees and Working Groups12UNIFE Annual Report 2022The UNIFE Freight Committee gathers companies active in the rail freight business and aims to strengthen the position of the industry within the European institutions policy priorities.This committee provides its members with information and support on EU R&I funding opportunities,rail freight policy developments and participation in EU lobbying on pertinent rail freight developments,including discussions concerning ongoing and upcoming TSIs/Standards,as well as following the Digital Automatic Coupling activities at European level including the work of the Task 4 of Europes Rail System Pillar.UNIRAILINFRA is a consensus-building platform focused on rail industry infrastructure at a pre-competitive stage.It promotes investment and innovation in the railway infrastructure and energy areas.UNIRAILINFRA brings together companies specialising in the manufacturing and supply of fixed railway equipment linked to the infrastructure and energy subsystems with companies that design,construct and maintain those products.The Research and Innovation(R&I)Committee is responsible for monitoring European rail research opportunities and preparing recommendations.It is responsible for the regular exchange of information on European rail research,including updates pertaining to Europes Rail Joint Undertaking,discussions on Horizon Europe R&I work-programmes and the definition of railway suppliers R&I positions.The committee also drafts common positions that will be defended at the EU level.Its purview also includes contributing to ongoing initiatives such as ERRAC,Europes Rail,the Industrial Dialogue and European Commission consultations on R&I.The UNIFE System Pillar Committee is responsible for the definition of the overall strategy and strategic guidance of UNIFE regarding Europes Rail System Pillar activities.This committee is following Europes Rail System Pillar activities and aims at defining UNIFEs position on the strategic topics discussed in the System Pillar.This committee is composed notably of UNIFE Europes Rail Founding Members and members of the UNIFE Strategy Committee.This committee is working in close contact with UNITEL,UNISIG,SRG and the UNIFE Freight Committee.The UNIFE System Pillar Technical Group is responsible for the follow-up of the Task 1 of Europes Rail Joint Undertaking dealing notably with the definition of the high-level architecture of the European railway system.It defines UNIFEs position on strategic topics linked to the evolution of the European railway system.The Committee brings together representatives from UNITEL,UNISIG and SRG and reports to the UNIFE System Pillar Committee.The Standards and Regulation Group(SRG)steers UNIFEs technical activities pertaining to the European regulatory framework(i.e.Railway Directives,TSIs,etc.)and standardisation,in Europe and abroad.The SRG is composed of technical directors from the UNIFEs main system integrators and subsystem suppliers.The European Railway Wheels Association(ERWA)aims at promoting usage benefits,lifecycle cost reduction and standardisation of railway wheels and wheelsets.Its mission includes developing standards and promoting innovation in safety and environmental friendliness.The group also encourages the adoption of best practices across the European market.The ERWA Steering Committee is composed of CEOs from European wheels and wheelsets manufacturers.It is supported by the Development Committee,which analyses political issues,market strategy and communications;and the Technical Committee,which deals with standardisation,regulation and research.The Digitalisation Platform is open to all UNIFEs members and focuses on the development of digital technologies in the rail sector from a political,technical and business perspective.The main objectives of the Platform are to bring the rail supply industrys view to the centre of the EU-level digital debate and reach a better understanding of the potential opportunities and challenges of digitalising rail transport.The Platform coordinates these efforts with the Cybersecurity Working Group.The platforms activities are frequently presented and promoted at public conferences and workshops,as well as articles in specialised magazines.01.UNIFE in 202213 The Cyber-Security Working Group brings together the associations member companies that possess significant cyber-security expertise.This working groups main objective is to provide UNIFE members with a forum to discuss and identify opportunities for cybersecurity cooperation within the European rail sector,strengthening its position when compared to competitors and other stakeholders.The UNIFE Extended CCS Steering Committee(UESC)coordinates UNIFEs strategic and political ERTMS activities.UESC members regularly liaise with European Commission(DG Move)and European Railways Agency(ERA)representatives to address any political issues related to ERTMS and organise high-level meetings between European bodies representatives and Signalling companies CEOs and/or Directors.The UNISIG Committee is composed of UNIFE members that supply ETCS products and systems.The committee was established in 1998 to develop the ETCS technical specifications to guarantee interoperability.The role of UNISIG in the context of the CCS TSI is to develop,maintain and update the ETCS specifications in close cooperation with Railways under the leadership of the European Agency for Rail(ERA),which has been made the“system authority”for ERTMS.As of this year,UNISIG is contributing to the technical activities in the System Pillar of Europes Rail Joint UndertakingThe ERTMS Marketing Group(UEMG)is tasked with coordinating any marketing activities related to the European Rail Traffic Management System(ERTMS).This includes collecting and disseminating deployment statistics,planning events,generating common publications such as factsheets,flyers,and brochures,as well as managing the ERTMS website.The Control Command and Signalling Platform(CCS-P)is a platform aiming at exchanging on control command and signalling topics.The platform is an information and sharing platform focusing on the progress of Europes Rail System Pillar activities especially regarding Task 2 of the System Pillar dealing with Control Command and Signalling.The UNITEL Committee focuses on the development and implementation of the future interoperable railway communication system(FRMCS/Next Generation),the inherent successor of GSM-R,as part of the future ERTMS.UNITEL bring together the major railway telecommunications products suppliers and companies that have significant experience in current GSM-R and future railway systems.The committee members aim to ensure that the railways communication system fulfils existing and future signalling,train control and traffic management requirements,as well as supports European railway research initiatives.The National Associations Committee gathers the directors of 12 national rail associations from 11 different EU Member States,collectively representing more than 1,000 large-and medium-sized European rail supply companies.As UNIFE Associate Members,these organisations promote our positions domestically while elevating national concerns to the European level.The Public Affairs Liaison Group brings together representatives of full UNIFE Members responsible for EU and national advocacy.It discusses lobbying strategies concerning important EU political files.It also identifies synergies between the association and its membership for impactful lobbying activities and campaigns.The SME Committee is a platform for Small and Medium-sized Enterprises(SMEs)to share and learn information about EU policies and available funds.This group works to facilitate SMEs members access to support schemes and to prepare advocacy campaigns on issues of concern to organisations of this size.The Trade&International Affairs Committee(TIAC)oversees the monitoring of EU trade negotiations and instruments with potentially significant implications for the European rail supply industry and coordinating UNIFEs responses.The Committee also focuses on public procurement,be it at international or EU level.TIAC is also a platform for the exchange and dissemination of information on bilateral cooperation activities undertaken by UNIFE in international markets.14UNIFE Annual Report 2022The Sustainable Transport Committee(STC)brings together the rail supply industrys main experts on sustainability-related topics.More specifically,the STC defines the strategy and carries out UNIFEs activities on the field of sustainable mobility,climate change,energy efficiency,urban transportation and EU taxonomy(sustainable finance).The STC is notably in charge of the Green Deal-related policies.The STC coordinates the activities of two active Topical Groups(TGs):the Life-cycle Assessment(LCA)TG and the Chemical Risks(CR)TG.The Investment and Project Financing Expert Group brings together high-level executives responsible for long-term financing and corporate relationships with multilateral development banks,such as the European Investment Bank(EIB)and the European Bank for Reconstruction and Development(EBRD).This committee explores funding avenues for infrastructure and industrial projects,including Public Private Partnerships(PPPs).The Expert Group also tracks and communicates on issues related to export financing(e.g.,Export Credits).The International Railway Industry Standard(IRIS)Steering Committee was established in 2006 and is composed of high-level representatives from the UNIFE system integrators and equipment manufacturer membership.This steering committee is the UNIFE working group responsible for IRIS Certification operational management and decisions regarding resources,contracts and financial budgeting.The UNIFE Gender Equity Advisory Group will work to assess the current situation of female employees throughout the industry,to understand barriers of entry for those wishing to have a fulfilling mobility career and to craft association position papers,statements and recommendations in order to ensure the optimal mobilisation of the rail community going forward.The UNIFE Communications Committee steers the UNIFE Communication Strategy.It is composed of the Communications Directors of UNIFE members.Aerodynamics Brakes Cabin Chemical Risks Crash Safety Diesel Electromagnetic Compatibility(EMC)Energy Energy Efficiency Entity in charge of maintenance(ECM)Fire Safety(SRT)Infrastructure Life Cycle Assessment(LCA)Noise Persons with Reduced Mobility(PRM)Railway Dynamics Rolling Stock Safety Assurance Signalling Telematic Application for Passengers&Freight(TAP&TAF)Train Control Management System(TCMS)Vehicle Authorisation Wagon(WAG)UNIFE Technical Working Groups01.UNIFE in 202215 European Affairs02.1.Industrial Policy.182.Skills Policy.203.Green Deal and Transport Decarbonisation.224.Digitalisation.275.Investment Policy.306.Public Procurement in Europe.377.Urban mobility.391.Industrial Policya.Impact of inflation and disruptions in the rail supply industry Despite positive growth forecast for the world rail market,concerns have been mounting throughout 2022 due to the widespread inflation and supply chain disruptions from delays to tremendous price increases for energy,raw materials and logistics.UNIFE maintained continuous and regular bilateral exchanges with numerous member companies to allow for concomitant reflection on the long-lasting impacts of this situation.Through a statement finalised in October,UNIFE alerted EU institutions on the need to mitigate inflation and disruptions within the supply chain.This topic is extremely important not only for European rail suppliers but for the sector as a whole,since we need to collectively achieve the objective of decarbonising the transport sector in the framework of the Climate Law,“Fit for 55”and the Sustainable and Smart Mobility Strategy.UNIFE suggested specific actions,in particular from the side of the European Commission(DG GROW),in order to guide Member States and contracting authorities in the specific context of public procurement.The statement also listed measures taken at national level while emphasizing the need to extend these measures beyond construction contracts.MEETING MINUTES www.unife.org 0 Inflation and disruptions in the European Rail Supply Industry October 2022 UNIFE publication on the impact of inflation and disruptions in the rail supply industry18UNIFE Annual Report 2022b.Mobility ecosystem and transition pathwayIn May 2021,European Commission Executive Vice-President for A Europe Fit for the Digital Age Margrethe Vestager,Executive Vice-President for An Economy that Works for People Valdis Dombrovskis,and EU Commissioner for Industry and Internal Market Thierry Breton jointly presented an update of the 2020 Industrial Strategy.The communication confirmed the rail supplys inclusion in the“Mobility,Transport and Automotive ecosystem”one of the 14 priority sectoral groupings established by Commissioner Breton and the development of so-called“transition pathways”.At the end of January 2022,the European Commissions DG GROW published a Staff Working Document entitled“For a resilient,innovative,sustainable and digital mobility ecosystem Scenarios for a transition pathway”.The Commission opened a public consultation on this document until the end of March and UNIFE played a key role in coordinating the views of the European rail suppliers to ensure that the specific needs of our sector are duly taken into consideration.In particular,UNIFE insisted on the need to take into account the specific needs of the European Rail Supply Industry when it comes to decarbonisation,digitalisation and resilience of the rail sector,while emphasizing certain commonalities with other parts of the ecosystem(e.g.skills).Furthermore,an event on the mobility ecosystem was organised on 8 February,during the EU Industry Days,with representatives of the three industrial sectors.A co-creation roundtable event was also organised on 28 November to discuss in particular the specific challenges related to the acceleration of the twin(i.e.smart,sustainable)transition.MEETING MINUTES www.unife.org 0 UNIFE Position Paper on the mobility ecosystem transition pathway March 2022 UNIFE publication on the impact of inflation and disruptions in the rail supply industry02.European Affairs19 c.Competitiveness of the Rail Supply IndustryIn January 2022,a meeting of the EC Expert Group on the Competitiveness of the Rail Supply Industry was held in order to take stock of the implementation of the final report from October 2019(88 recommendations across 10 strategic policy areas).This discussion was based on a thorough stocktaking exercise of the implementation of these recommendations carried out by UNIFE,in parallel with a scoping paper from the European Commission.There was also an agreement on the way forward,to focus in particular on certain areas(e.g.internal market,and EU public procurement).In December,a second meeting of the Expert Group was held to delve into a number of priority topics,including inflation and disruptions in the supply chain,digitalisation files or regulations and standards.At the end of 2022,the European Commission accepted at UNIFEs request an extension of the EC Expert Group mandate until 2025.This important step represented the recognition of this forum as an already existing and much-needed governance tool for discussing the future of our industry at the EU level,in complementarity with the mobility ecosystem and transition pathway.The EC Expert Group has already yielded concrete results and helped foster collaboration on critical work(e.g.MEAT).The continuation of the Expert Group will be instrumental to maintaining our constructive dialogue and collaboration with the different Directorate Generals of the European Commission,the Member States and the railway operating community.2.Skills PolicyThe European Rail Skills Alliance(STAFFER),which started in November 2020,brings together more than 30 partners across Europe to support an overall sectoral skills strategy and develop concrete actions to address short-and medium-term training needs.The project will last for 4 years,ending in 2024.2022 was an intense year in terms of activities,as we are now finishing the second STAFFER-implementation year,creating the timely moment to communicate and disseminate about the projects achievements so far.Among other initiatives,UNIFE presented the STAFFER project during the Connecting Europe Days in Lyon in June,as well as during the Rail Skills Forum in July.In September UNIFE organised the STAFFER Roundtable“Skills for the Rail Sector:Adapting Training Curricula and Attracting Talent”during InnoTrans.The discussions revolved around the main challenges that the rail sector is facing and how the sector is inventing itself to attract new talent and re-and up-skill their workforce.The STAFFER mid-term conference took place in Brussels in October and attracted several participants,both from the projects partners but also speakers from the European institutions and other stakeholders.UNIFEs 20UNIFE Annual Report 2022Member CAF Rolling Stock Technical Program Manager Marta Elorriaga took the opportunity to bring the rail supply industry perspective to the debate on how to make the railway sector attractive for young people.In November,UNIFE had the opportunity to take part of the panel“Skills&Diversity making a career in rail more attractive to all”during the Rail Live event that took place in Mlaga,Spain.The panel aimed at answering some key questions regarding recruitment challenges and what are the steps can rail suppliers take to make a career in rail a more desirable profession.It was also a good occasion to further present the objectives and deliverables of the STAFFER project.On top of the various events organised throughout 2022,efforts have also been made on other channels of communication,amongst which the UNIFE podcast on Skills&Diversity,and the Staffer video animation.We would like to take this opportunity to welcome the European Commissions initiative to declare 2023 as the European Year of Skills,and we look forward to collaborating with the relevant stakeholders throughout the year and beyond.For more information,please visit STAFFERs dedicated website,LinkedIn and Twitter channels.Kristian Schmidt(Director Land Transport,DG MOVE,European Commission),Angela Di Febbraro(STAFFER Coordinator/Professor of Transportation Engineering at University of Genoa(UniGe),Josef Doppelbauer(Executive Director,European Union Agency for Railways(ERA),Marta Elorriaga(Rolling Stock Technical Program Manager,CAF),Sabine Schneider(Head of Talent Management,Siemens Mobility)02.European Affairs21 3.Green Deal and Transport Decarbonisationa.Fit-for-55 AFIR Increasing the efforts to confront climate change remains one of the top priorities of the European Commission,especially considering the current geopolitical context of energy crisis.Commissions President Ursula von der Leyen acknowledged,in her 2022 State of the Union speech,that hydrogen can be a game changer for Europe right now,meantime this is already a reality in some countries such as Germany,where some local trains now run on green hydrogen.1)https:/ec.europa.eu/info/sites/default/files/revision_of_the_directive_on_deployment_of_the_alternative_fuels_infrastructure_with_annex_0.pdfAmong the various initiatives of the Fit-for-55 package of legislative proposals in July 2021,aiming to lower greenhouse gas emissions by at least 55%by 2030,the EC proposal for a new Regulation on Alternative Fuels Infrastructure(AFIR)1 marked an unprecedented opportunity for UNIFE to help establish a European legal framework to support the deployment of alternative fuels infrastructures for rail for those lines that are not mandated to be electrified under the TEN-T or those that do not belong to the network.Indeed,this file became one of the most sensitive priorities for UNIFE and as such an intense outreach campaign was carried out.State of the Union Address by European Commission President Ursula von der Leyen(European Parliament,September 2022)22UNIFE Annual Report 2022If the general approach reached by the Council in June 2022 did not increase the level of ambitious for rail-related provisions,the European Parliament(EP)made considerable progress to fully include rail.AFIR Rapporteur Ismail Ertug(S&D),and other MEPs like Shadow Rapporteur Anna Deparnay Grunenberg(Greens),have succeeded in significantly improving the text so as to enable the European rail sector to proceed on a path towards full decarbonization and lead the mobility green transition in the coming years.The EPs position,voted during the October Plenary,fully asserts the key role alternative fuels will play in shifting away from the remaining fossil fuel-powered trains that are still in service and ensuring an appropriate amount of alternative fuels infrastructure will be deployed.Trialogues between Parliament,Commission and Council started in October 2022 and will continue under the Swedish Presidency of the European Union in the first semester 2023.To fully support the rail supply industry priorities on AFIR,in March 2022,UNIFE organized a dedicated Rail Forum Europe(RFE)digital event titled“Decarbonising rolling stock:The potential of alternative propulsion systems in the rail sector.The event featured prominent speakers like MEP Andrey Novakov(EPP),MEP Jakop Dalunde(Greens),Giuseppe Izzo,Transport Attach at the Italian Permanent Representation,as well as representatives from Roland Berger,and from the rail supply industry(Alstom,Siemens).The event was a great opportunity for speakers to explain the main benefits of the available alternative fuels technologies such as hydrogen and battery powered trains.UNIFE members recalled once again that electrification and green propulsion systems assume tremendous significance for our industrys efforts to decarbonize lines that still run on diesel.During InnoTrans,UNIFE also organized an event on alternative fuels titled“Going the extra mile:a growing market demand for zero-emissions trains in Europe”.Speakers from Deutsche Bahn and Alstom presented the key benefits these alternative solutions can offer also in the rail sector,especially for those segments of the network that will not be electrified.They also showcased the impressive growing market demand for zero-emissions trains in Europe,both from the industrial and operators perspective,explaining why their companies are at the forefront of this increasingly emerging market.Tweet by MEP Anna Deparnay-Grunenberg,shadow rapporteur for Greens for AFIRRail Forum Europe digital event organized by UNIFE on Alternative fuels in the rail sector02.European Affairs23 b.European TaxonomyThe topic of sustainable finance remained a key topic for UNIFE in 2022.We continued to support Commissions ambition to use the EU Taxonomy Regulation to define a common classification scheme including criteria for identifying sustainable economic activities,with the aim of guiding investors and financial institutions through a truly green transition.In 2022,the Climate Delegated Act2,as well as the so-called“Disclosure Delegated Act”3,entered formally into force and this officially triggered the reporting phase for companies being covered by these delegated acts.After having thoroughly analysed both delegated acts,UNIFE has published a position paper to propose a number of improvement areas to ensure a successful Taxonomy implementation in the rail sector which is expected to play a leading role in the transition towards a more sustainable mobility ecosystem.Following the publication of the position paper,UNIFE has presented the key areas of concerns to representatives from the Commission involved in the Taxonomy discussion,such as Cabinets of Executive Vice-Presidents Frans Timmermans(EU Green Deal)and Valdis Dombrovskis(Trade),Commissioners Mairead McGuinness(Financial services)and Adina Vlean(Transport),as well as representatives from DG MOVE and DG FISMA.In the same spirit,members of the Platform for electromobility,which brings together more than 40 members from across all transport modes,including UNIFE,relayed a number of observations commonly shared by its members focused on the best“usability”of the published Taxonomy delegated acts.This clearly shows that UNIFEs concerns are generally shared also by the other actors of the electromobility value chain.2)establishing the conditions under which an economic activity substantially contributes to the climate change mitigation or climate change adaptation and causes no significant harm to any of the other environmental objectives.3)specifying the content,methodology and presentation of information to be disclosed by companies concerning the proportion of environmentally sustainable economic activities related to their turnover,capital(CapEx)and operational expenditure(OpEx),entered into force as well.MEETING MINUTES www.unife.org 0 Key aspects for a successful Taxonomy implementation in the rail sector June 2022 UNIFE publication on Taxonomy implementation24UNIFE Annual Report 2022c.Ecodesign Sustainable Product Regulation and other initiativesAs part of the 1st Package of Circular Economy the Commission has published a legislative proposal for Ecodesign Sustainable Product Regulation(ESPR).The main objective is to extend the scope of the Ecodesign directive(2009)to a broader range of products and introduce the EU digital product passport to provide the value chain with more information on the products environmental sustainability.The main concerns for the rail sector identified by the members of the UNIFE Sustainable Transport Committee(STC)are primarily,the inclusion of rail-related products in the scope of the regulation and the possible misalignment with existing rail environmental declaration methodologies being already in place(Environmental Product Declaration and Product Category Rules).Following exchanges with DG GROW,it was clarified that the actual setting of ecodesign requirements for rail-related products will depend on their inclusion in the upcoming working plan aiming to identify the products for which these requirements are needed.Meanwhile UNIFE and its members continue to closely monitor the preparation of this working plan.Other important upcoming legislative initiatives being followed by UNIFEs Sustainable Transport Committee are the Air Quality Directive review(October 2022)as well as the Initiative on substantiating green claims(November 2022).c.Ecodesign Sustainable Product Regulation and other initiativesAs part of the 1st Package of Circular Economy the Commission has published a legislative proposal for Ecodesign Sustainable Product Regulation(ESPR).The main objective is to extend the scope of the Ecodesign directive(2009)to a broader range of products and introduce the EU digital product passport to provide the value chain with more information on the products environmental sustainability.The main concerns for the rail sector identified by the members of the UNIFE Sustainable Transport Committee(STC)are primarily,the inclusion of rail-related products in the scope of the regulation and the possible misalignment with existing rail environmental declaration methodologies being already in place(Environmental Product Declaration and Product Category Rules).Following exchanges with DG GROW,it was clarified that the actual setting of ecodesign requirements for rail-related products will depend on their inclusion in the upcoming working plan aiming to identify the products for which these requirements are needed.Meanwhile UNIFE and its members continue to closely monitor the preparation of this working plan.Other important upcoming legislative initiatives being followed by UNIFEs Sustainable Transport Committee are the Air Quality Directive review(October 2022)as well as the Initiative on substantiating green claims(November 2022).For a cleaner and more competitive Europe#EUGreenDealCircular Economy Action PlanEuropean Commissions Circular Economy Action Plan02.European Affairs25 d.Action Plan on long distance rail passenger servicesIn December 2021,the European Commission presented an ambitious set of proposals under the Efficient and Green Mobility Package to modernize the European transport network and help the transport sector cut its emissions by 90%by 2050.UNIFE welcomed in particular the publication of an Action Plan on long-distance and cross-border rail including measures to ease the development of new passenger trains services,including among others,financing for rolling stock,ticketing,and strategies for night trains.This plan demonstrated the Commissions strong intention to position rail transport at the heart of their efforts to green the Unions mobility system.Consequently UNIFE greeted the adoption of this far-reaching Action Plan and to mark the publication of such an important document,we published a brochure to further build on the most relevant issues identified by the European Commission in the Plan and present some concrete proposals to make the Action plan even more effective in the coming years.In February 2022,UNIFE was invited to speak at the thematic event on the renewal of night trains in Europe organized by the French Presidency of the Council of the EU in Paris.UNIFE Director General Philippe Citron presented the conclusions of the publication on long distance rail passenger services by recalling the key challenges that have to be tackled before the renaissance of night trains can begin:Need for ad-hoc financial support for suitable infrastructure and rolling stock Interoperability and regulatory stability to support the full ERTMS roll-out New digitalisation solutions to be developed and deployed in order to ease multimodal door-to-door journeys and make travel more passenger friendly Promotion of a real level-playing field between transport modes Develop a European rail skills strategy to face the twin transitionGOING THE DISTANCEHow the European Rail Supply Industry contributes to boosting long-distance,cross-border&night service passenger rail in EuropeMARCH 2022UNIFE Publication on Cross-border and long distance rail services26UNIFE Annual Report 2022Commission Executive Vice-President Margrethe Vestager and Commissioner for Internal Market,Thierry Breton launching the EU Data Strategy in 20204.DigitalisationDigitalisation is one of the main priorities of the Von der Leyen Commission,and it is crucial in the ongoing transformation of the mobility ecosystem.Throughout 2022,UNIFE closely monitored all the relevant initiatives linked to the European Data Strategy launched in 2020 with the objective to create a single market for data and cybersecurity across the EU as well as to establish“common European data spaces”across different sectors including rail.Among the regulatory initiatives announced by the European Commission in the EU Data Strategy,UNIFE has been mainly focused on the establishment of a Common European Data Space for mobility,the so-called Data Act regulation proposal incentivising horizontal data sharing across sectors,and the Cybersecurity Resilience Act.As described in the UNIFE Vision Papers,Digital trends in the rail sector and Rail fit for the digital age,data is at the core of the on-going digital transformation of the rail sector and digitalization remains one of the key levers of the European rail supply industry to continue driving innovation in our sector and ensure our competitiveness at the global level.The newly established UNIFE Digitalisation Committee,taking over from the previous Digitalisation Platform,continued to successfully bring the European rail supply industrys views and objectives to the centre of the ongoing digital debate,decisively contributing to these discussions and effectively engaging in a fruitful dialogue with decision-makers and other key stakeholders.02.European Affairs27 a.European Common Mobility Data SpaceIn December 2021,UNIFE attended a workshop co-organized by DG MOVE and DG CNECT to present the concept of a common European mobility data space(EMDS).The Commission explained that the EMDS will aim to facilitate access,pooling and sharing of data from existing and future transport and mobility databases,while providing better control to companies and individuals who generate the data.This will help achieve the ambitious goals set in the Sustainable and Smart Mobility Strategy by strengthening the performance of the European transport sector and improving the use of data in all modes of transport.As per the European Commission 2023 work programme,recently presented by President Von der Leyen,a non-legislative initiative on common European mobility data space is expected in 2023.UNIFE will monitor this initiative to ensure the significant work being conducted at Europes Rail Joint Undertaking for the definition of the architecture of the future federated rail dataspace will be properly considered in the broader architecture of the European Mobility Data Space.b.Data ActThe Commission proposal on Data Act was published in February 2022 as part of the EU Data Strategy(2020),with the objective to set-up harmonised rules on fair access to and use of data,in both B2B and B2G(Business to Government)contexts.The proposal of the Commission seems however to be unfit for B2B industries such as rail supply,where data-sharing is predominantly stipulated in bilateral contracts/agreements.Hence,UNIFE members do not believe that cross-sectoral horizontal rules will achieve the European Commissions objective to enhance and foster data sharing.By contrast,a one-size-fits-all approach could bring about negative impacts which outweigh the potential benefits of the EU Data Act,especially in the field of critical infrastructure,including rail infrastructure.For this reason,UNIFE has published a position paper in July 2022 to better explain what are the main areas of concerns for the Rail Supply Industry.While UNIFE is not against the creation of a data sharing market,it is necessary to better clarify the access,usage and control over data,by taking into account actual market conditions and requirements in such a way to benefit all the market participants.To this end,UNIFE has been clearly calling for new definitions of data holder versus data user,and raw data versus derivate data,so as to better reflect the business reality in the rail sector.The general obligations for the data holder to make the data available to a third party free of charge might eventually jeopardizes the on-going investments of digital products/services suppliers.Competitiveness of EU suppliers must be preserved at global level.The main priorities and solutions proposed by UNIFE members have been shared and presented over the past months to the key EU stakeholders involved in the negotiations.This work will continue in 2023,as both the Council and the European Parliament will finalise their respective positions and enter the critical trilogue phase.UNIFE publication on Data Act Regulation proposal28UNIFE Annual Report 2022c.Cyber Resilience ActIn September 2022,the European Commission made a proposal for a regulation on cybersecurity requirements for products with digital elements the Cyber Resilience Act aiming to bolster cybersecurity rules to ensure more secure hardware and software products.UNIFE has flagged early in the process that this proposal would see difficult and burdensome applicability in the rail sector.The main concerns are related to technical difficulties on implementation(e.g.applicable at product level,not considering the rail sector is a system of sub-systems),maintenance of exploited vulnerabilities(interfering with rail safety regulation,homologation process,vehicle authorisation process),and supply chain disruption and lower competitiveness in the internal market.Throughout 2023,UNIFE will continue to actively convey its messages regarding the Cyber Resilience Act.MEETING MINUTES www.unife.org 0 UNIFE Position Paper on Cyber Resilience in Railways 15 December 2022 UNIFE Position Paper on Cyber Resilience in Railways02.European Affairs29 5.Investment Policya.EU funding for rail under Next Generation EU and the EU Multiannual Financial FrameworkRail investments within the EU-272022 was marked by the transition from programming to implementation of key EU funding programmes which will be used to boost rail related investments over the coming years.UNIFE has been proactively engaging with a wide range of EU and Member States stakeholders to make sure that these programmes effectively feature rail so it receives sufficient financial allocations which will allow society as a whole to advance on the decarbonisation agenda.The unprecedented Next Generation EU funds,with the EU Recovery and Resilience Facility(RRF)worth approximately 800 billion(in current prices)at its centre,and which includes 55 billion for rail-related investments,has reached cruise speed during 2022.26 Member States have their National Recovery Plans fully approved and the achievement of milestones and targets regarding the programmed reforms and investments is allowing Member States to unlock such funds.A relevant example is the ambitious Italian project to deploy ERTMS across its territory,for which the country had allocated 3 billion which are already being contracted.It is important to highlight that Member States still have at their disposal approximately 225 billion regarding the loan component of the RRF.These funds can be requested until August 2023 and the Commission has already indicated a set of eligible investments including further railways electrification and zero emission rolling stock that can be supported in the context of the newly announced REPower EU Strategy,aimed at cutting of dependencies of fossil fuels.The Connecting Europe Facility(CEF)is one of the most successful EU programmes designed to support rail related infrastructure investments on the EU Trans-European Transport Network(TEN-T).Out of the 25.8 billion earmarked for transport,rail is set to receive at least 70%of such amount.This is confirmed looking at the results of the 2021 call for proposals which saw over 4 billion out of the 5.8 billion available allocated“UNIFE is continuously advocating for the efficient absorption and implementation of this exceptional amount of EU funding that can be used to support rail investments across EU Member States and beyond to make rail the backbone of sustainable mobility”30UNIFE Annual Report 2022to rail projects,including 350 million for ERTMS.Future CEF calls for proposals will continue the same trend of benefiting rail projects over the coming years.Eligible activities that can be supported and which rail suppliers can benefit from either directly or indirectly are those relating to completion of missing links(including cross-border ones),modernisation of infrastructure,ERTMS deployment both onboard and trackside,alternative fuels infrastructure on the rail network and infrastructure adaption for military mobility.2022 was also marked by the revision of the TEN-T Regulation.UNIFE is actively involved to support an ambition revision which should establish the enabling conditions to complete the TEN-T rail network by 2050,with intermediate deadlines in 2030 and 2040 thus stimulating rail market growth in the years to come.To ensure the rail supply industry messages are well heard,UNIFE has developed a position paper which was widely disseminated to EU and national decision-makers over the last months.At this time,inter-institutional negotiations between Commission,Parliament and Council are yet to start.Among the key topics at stake,it will be vital to come up with a strong commitment for the effective and speedy deployment of ERTMS across the entire EU TEN-T Network.European TEN-T Network02.European Affairs31 UNIFE participated in the Connecting Europe Days,previously known as the TEN-T Days,which the European Commission organised in Lyon in June under the French Presidency of the Council of the EU.The event brought together politicians,industry representatives and the European Commission to discuss transport and mobility.Among others,participants had the opportunity to see state-of-the art innovations and an exhibition of EU-funded projects.The UNIFE stand was one of the most popular spots of the exhibition due to the presence of the SIEMENS ETCS simulator which was tested,amongst others by European Commissioner for Transport Adina Valean and European ERTMS Coordinator Matthias Ruete.The European Structural and Investment Funds(ESIF)continues to be a key tool within the EU Cohesion Policy that supports various rail related investments at the level of the Member States.At the release date of our annual report,the vast majority of Member States have seen their Partnership Agreements adopted by the Commission,paving the way for the approval of the Operational Programmes which will contain the proposed budgets and projects to be supported using these funds.UNIFE is actively monitoring the approval of these programmes providing its Members with early market intelligence to support business pipelines generation.As a reference,during the period 2014-2020,about 20 billion have been allocated to rail projects under ESIF.Consequently,given that Member States have a global amount of nearly 300 billion ESIF at their disposal for the 2021-2027,we should expect at least the same level of commitment as in the previous programming period.In this sense,UNIFE held a high level meeting in April with the Cabinet of EU Commissioner Elisa Ferreira,in charge of this portfolio together with EU Commissions Directorate General for Regional Policy(DG REGIO),to emphasise the significant necessities of our industry so that appropriate funding can be allocated to rail.Elisa Ferreira,European Commissioner for Cohesion and ReformsMEETING MINUTES www.unife.org 0 UNIFE Position Paper on the Revision of the TEN-T Regulation February 2022 UNIFE publication on the Revision of the TEN-T Regulation32UNIFE Annual Report 2022Rail investments beyond EUs bordersThe European Commission is also engaged in providing financial support to neighbouring countries of the Western Balkans to advance on reforms and investments.The EU Economic and Investment Plan for the Western Balkans sets out a substantial investment package aimed at mobilising up to 9 billion of funding for the region including the support for sustainable connectivity.In May UNIFE brought together,in an exclusive webinar organised for its members,some of the main stakeholders of this Plan to discuss the state of play of rail investments and reforms in the region.The event featured a panel composed of high-level representatives from the European Commission:Maja Bakran(Deputy Director General,DG MOVE),Michael Voegele(Deputy Head of Unit of Western Balkans Regional Programmes,Economic Investment Plan,DG NEAR),regional stakeholders:Matej Zakonjek(Director,Transport Community Secretariat of the Western Balkans),and UNIFE Members.The discussion examined upcoming flagship rail projects in the Western Balkans,explained suitable investment support mechanisms currently available and took stock of the ongoing extension of the Trans-European Transport Network(TEN-T)into the region.These are key elements for the swift,full integration of the Western Balkans into the EU rail market and efforts to untap the potential that sustainable rail investments and reforms can offer to both regions.On the sidelines of the EU-Africa Summit,held in Brussels on 17 and 18 February,the European Commission unveiled 11 Strategic Transport Corridors in Africa where it aims to concentrate significant investments in the coming years.These will be supported by the flagship EU Global Gateway strategy,which aims to mobilise 300 billion in investments globally until 2027 through the Team-Europe approach.For Africa alone,Commission President Ursula Von der Leyen announced that 150 billion in investments will be dedicated to the continent and that sustainable and quality infrastructure,including along the Transport Corridors,is one of the main priorities.Additionally,an EU-Africa Business Forum was held during the same period.Several large,high profile events were organised to discuss topics central to the creation of an enabling framework(i.e.,financing,sustainable energy,infrastructure and connectivity),and building stronger and sustainable value chains.It is important to highlight that UNIFE was represented at a High Level Panel on Connectivity and Infrastructure,along with Jutta Urpilainen,the EU Commissioner for International Partnerships,and Amani Abou-Zeid,African Union Commissioner for Infrastructure and Energy.This event was a welcomed opportunity to present the European Rail Supply Industrys ability and willingness to deliver quality infrastructure and rail solutions in Africa.EU-Africa Business Forum02.European Affairs33 b.EU State Aid rules“A relaxation of EU State Aid Rules to advance the modal shift”As announced in the European Commissions Action Plan to boost cross border and long-distance passenger rail published in December 2021,the Commissions is aiming at“clarifying by 2023 the State aid rules on public funding of interoperable rolling stock for cross-border services in the revised Railway Guidelines”.The Railway Guidelines set out the conditions under which aid to railway companies may be considered compatible with the internal market and State aid rules.According to the Commission“the long-standing lack of interoperability,alongside the strong need for further digitalisation,is holding back the development of seamless,cross-border rail services.State aid can help address these market failures and improve the competitiveness of rail,thus facilitating modal shift,cutting transport emissions and reducing road congestion”.UNIFE agrees with this assessment and welcomes the Commissions efforts to accelerate the modal shift to rail.In fact,rail transport is a cornerstone for the fulfilment of EUs climate objectives and to decarbonise the transport sector.These messages were gathered in the respective position paper published on March 2022.MEETING MINUTES www.unife.org 0 UNIFE feedback on the public consultation on the Revision of the State aid Railway Guidelines March 2022 UNIFE publication on the Revision of the State aid Railway Guidelines34UNIFE Annual Report 2022c.Capital Requirements under Basel III“UNIFE alerts on the potential harm of Basel III transposition for the real economy and the rail sector”The Capital Requirements Regulation(CRR3)update,which was proposed by the European Commission in October 2021 in the context of the banking package regarding Basel III,can have severe implications for the provision of cost-effective trade finance to the real economy.During 2022,UNIFE,as part of a broader coalition that includes the International Chamber of Commerce(ICC),the banking sector and strategic European industries,has been actively advocating for maintaining the Credit Conversion Factor(CCF)for Technical Guarantees at 20%and seeking clarity on the application of the effective maturity recognition for trade finance products and the provisions relating to risks weights on project and object finance.These messages were gathered in a position paper published by UNIFE in April.Other aspects regarding the credit risk weights for specialized lending regarding project and object finance which can affect PPPs for railways and rolling stock have also been raised by UNIFE in its advocacy campaign vis-a-vis EU co-legislators.MEETING MINUTES www.unife.org 0 UNIFE position on the Alignment of EU rules on capital requirements to international standards April 2022 UNIFE publication on the Alignment of the EU rules on capital requirements to international standards02.European Affairs35 d.Engagement with banks to mobilize financing for railAs the EU Climate Bank,the European Investment Bank(EIB)successfully reviewed its Transport Lending Policy(TLP)in 2022.UNIFE has participated in the discussions leading up to the revision to communicate the need for continuous support of this institution into our sector.In concrete terms,urban mobility,rail infrastructure,clean rolling stock,rail freight and rail digitalisation and automation are now listed as top priorities for the EIB.Furthermore,our industry positively observes that the provisions on procurement and the risk of distortions caused by anti-competitive practices(including,State aid,direct subsidisation,etc.),previously only incorporated under the shipping provisions are now applying to all sectors.To continue this constructive dialogue,UNIFE held an exchange with EIB Vice-President Kris Peeters on 21 November to communicate important priorities on topics such as the prospects of the new EIB TLP and support for rail alternative fuels technologies taking into account Commissions President Von der Leyen announcement on the State of the Union about the creation of an“European Hydrogen Bank”to mobilise up to 3 billion for Hydrogen projects in Europe,impact of Taxonomy on rail investments,EIB support for railways in Africa and the presentation of the 2022 UNIFE World Rail Market Study.UNIFE has also constructively engaged over the past months with European Bank for Reconstruction and Development(EBRD).The European Commission assigned the EBRD to conduct a study on the sustainable transport corridors connecting Europe with Central Asia,as one of the actions taken in support of the Global Gateway initiative.UNIFE has had several working meetings with the EBRD to communicate the priorities for our industry.The finalization of the report is due in May 2023.Philippe Citron and Kris Peeters Vice-President of the European Investment Bank36UNIFE Annual Report 20226.Public Procurement in EuropeWith the National Recovery Plans(NRPs)and other sources of EU funding for rail,there is an unprecedented opportunity and challenge to ensure that funding dedicated to rail will be spent in the best possible way,one that ensures the timely and fair implementation of projects.Although the 2014 modernisation of the European Unions public procurement framework marked a positive step forward on a number of topics,there remain shortcomings to ensuring fair competition between suppliers and establishing an approach in rail procurement that focuses on best value,rather than price alone.UNIFE has long sought to close these gaps,and progress has been made in this respect.In May 2021,the European Commission proposed an instrument to tackle distortions created by foreign subsidies.The negotiations progressed rapidly,and a final agreement in trilogues was found on 30 June 2022 under the auspices of the French Presidency of the Council of the EU.The final vote in the plenary session of the European Parliament was held in November,and the Regulation entered into force in December.UNIFE and its trade alliance AEGIS Europe have been extremely active from an advocacy perspective to ensure that the instrument,which will set up new disciplines in the framework of public procurement procedures and concentrations,is also applicable to rail supply.02.European Affairs37 This instrument is all the more important as,in 2022,UNIFE updated its contribution to the interactive map on the activity of third country state-owned enterprises in the European procurement market.This map,created with the European Construction Industry Federation(FIEC),European International Contractors(EIC),and the European Dredging Association(EuDA),displays all projects in which third country SOEs have tendered since 2009 in the construction,dredging and rail supply sectors.The update confirms that the interest of third country SOEs in the European public procurement market has kept growing significantly in recent years.In parallel to a future EU instrument,UNIFE has continued to stress the importance of strengthening the rules on abnormally low tenders and the more profuse acceptance of the Most Economically Advantageous Tender(MEAT)principle.These are of particular importance given increasing budget constraints linked to the ongoing economic and energy crisis on the one hand,and the greater activity from non-European,state-owned enterprises(SOEs)that are shielded from normal market competition on the other hand.Discussions have therefore continued within UNIFE membership,throughout 2022,to define the next steps and actions.In the context of the Russian aggression against Ukraine,UNIFE monitored during 2022 the various packages of sanctions imposed by the EU against Russia.One of the actions taken was the implementation of a full prohibition of the participation of Russian nationals and entities in procurement contracts in the EU.This means that EU contracting authorities entities are obliged not to consider Russian bids and/or covering EU(or third countries)companies with Russian ownership.Lastly,in 2022,UNIFE has continued to drive the AEGIS Europe alliances activities on public procurement.Throughout the year,the alliance pushed for reforms of the European public procurement framework during its exchanges with the European Commission,the European Parliament and individual Member States.UNIFE and partners map on SOE tenders in the EU38UNIFE Annual Report 20227.Urban mobility“Rail-bound urban transport is the most environmentally-friendly,safest,and most reliable rapid transport mode,providing the best solution to urban mobility challenges”As part of its winter mobility package of 2021,the European Commission presented its New Urban Mobility Framework last December with the main objectives of contributing to EU Green House Gas reduction targets as set in the Climate Law(including-55%by 2030)and improving transport and mobility to,in and around cities.One of the key features is a more ambitious approach to sustainable urban mobility planning linking with new requirements put forward in the revised TEN-T Regulation for the largest 424 EU cities.This will require making urban transport resilient,environmentally-friendly and energy-efficient and identifying zero-emission solutions for urban logistics as well as adequate and efficient funding and financing.In this sense,UNIFE together with UITP in the framework of Rail Forum Europe,organized an event on 6 December at the European Parliament on financing for urban mobility.Welcoming remarks from Andrey Novakov(Member of the European Parliament and Rail Forum Europe President)during the UNIFE-UITP Rail Forum Europe event:Unlocking urban rail investments-the key to climate-proof public transport02.European Affairs39 International Affairs03.1.The International Procurement Instrument .422.The regulation on foreign subsidies distorting the internal market.433.Carbon Border Adjustment Mechanism .444.Monitoring of existing trade agreements.455.Organisation for Economic Co-operation and Development(OECD).466.Bilateral cooperation with third countries.471.The International Procurement Instrument After intense negotiations over the past ten years,2022 was finally the year when the International Procurement Instrument(IPI)was finalised and adopted.The text was approved by the European Parliament in June,followed by its official adoption by the European Council and its signature and publication during the same month.The IPI regulation entered into force on 29 August.This is a tremendous victory and a fundamental milestone for UNIFE,as well as for AEGIS Europe,which have been extremely active on the file.According to the Member of the European Parliament Daniel Caspary(EP Rapporteur of the IPI Regulation),“together we have ensured that IPI becomes an effective and efficient instrument that improves the reciprocity within our markets.IPI is a significant door opener for our European companies in third countries as it removes unfair barriers and promotes fair competition”.The instrument is particularly important looking at the market restrictions of third countries that continue to limit growth and business opportunities for European suppliers.As the 2022 World Rail Market Study reported,worldwide rail market accessibility has fallen to only 61%-compared to 62%in 2020 and to 63%in 2018.This means that a substantial percentage of the global rail market is not open to international rail suppliers,limiting the full utilisation of innovative products that can decarbonise transport and provide millions with sustainable,reliable mobility.This situation stands in drastic contrast with the European market that is open and freely accessible to non-European rail suppliers.Later in the year,UNIFE and its members entered in a fundamental step of the entire process:the implementation phase of the IPI Regulation.In the second half of 2022,UNIFE started a series of meetings with the European Commission,Member States and other relevant stakeholders,in order to exchange views on the matter.42UNIFE Annual Report 20222.The regulation on foreign subsidies distorting the internal marketThe year 2022 was also marked by the fast legislative progress and conclusion of negotiations on the regulation on foreign subsidies distorting the internal market instrument on foreign subsidies.This was initially proposed by the European Commission in May 2021.At the beginning of May 2022,both Member States and the European Parliament have agreed on a common position on the file.Thanks to the tremendous efforts made by the French Presidency of the Council of the EU,the text got its green light at the end of June 2022.The Regulation was approved by the European Parliament at its plenary session in November 2022,adopted by the European Parliament and Council in the same month and published in the Official Journal of the EU on 23 December 2022 entering into force on 12 January 2023.With this important initiative,the Commission acknowledged for the first time that there is a growing number of instances within the EU in which foreign subsidies have distorted market operations,or bidding in public procurement,to the detriment of EU companies.The Regulation would grant the Commission the power to investigate financial contributions granted by non-EU governments to companies active in the EU.If it finds that such financial contributions constitute distortive subsidies,it could impose redressive measures.By doing so,it responded to the call of many industrial sectors,in particular the European Rail Supply Industry.UNIFE and its trade alliance AEGIS Europe have been extremely active in the negotiations throughout 2022,especially to make sure that there is no legal barrier to apply the instrument on goods in the specific context of public procurement.03.International Affairs43 3.Carbon Border Adjustment Mechanism The Carbon Border Adjustment Mechanism(CBAM)is part of the“Fit for 55”package released by the European Commission in July 2021.It aims to address carbon leakage and to contribute to the Green Deal objectives.Throughout 2022,UNIFE organised a number of meetings with Members of the European Parliament,and Member States to express our its priorities,and submitted amendments to the different reports of the European Parliaments Committees.While UNIFE emphasised its support of the stated objective to establish a level-playing field on carbon content and to avoid carbon leakage,it also highlighted the significant risks for the competitiveness of downstream industries such as rail supply.UNIFE stressed that the CBAM should be applied to the emissions of the complete product value chain before such product is imported into the EU.Finished products,such rail rolling stock and equipment,should have the possibility of being included in the CBAM as soon as possible in order not to create distortions.The trilogues phase between the European Commission,Council and European Parliament reached its end in December 2022.The full adoption of the law is expected by April 2023 and shall apply from October 2023 with a transitional period until 2026.As a result of the negotiations,it should be noted that the scope of the instrument was extended to new products including,hydrogen,certain precursors and some downstream products also introduced explicit references for the inclusion indirect emissions(CO2 emissions linked to the consumption of fossil electricity),as UNIFE had been advocating.European Commission proposal on Carbon Border Adjustment Mechanism44UNIFE Annual Report 2022Meeting between UNIFE and Denis Redonnet,CTEO and Deputy Director General of DG TRADE,European CommissionEU-Japan Economic Partnership Agreement UNIFE was particularly vocal on the EU-Japan Economic Partnership Agreement(EPA)during 2022,as it is a very important market for the European Rail Supply Industry,and even with the agreement in place the European rail suppliers still face many difficulties accessing the market.Against this background,UNIFE welcomed the EU-Japan Summit joint statement which referred to the need to“cooperate further on the effective implementation of the government procurement provisions in the EPA”.Among other initiatives,UNIFE responded to a survey launched by the European Commission in April to gather inputs from stakeholders on the main problems encountered on the Japanese market,through which UNIFE had the opportunity to once again list the various rail supply problems and challenges.In addition,UNIFE,together with the Japan Tax and Public Procurement Helpdesk and DG TRADE,organised the webinar“EU-Japan Partnership Agreement:Whats in it for EU railway suppliers?”in June.4.Monitoring of existing trade agreementsThe European Rail Supply Industry is a strategic and leading economic industry for Europe,and its world leadership strongly depends on the ability of companies to access new markets.Free Trade Agreements matters because they encompass a number of innovative provisions and offer opportunities to reduce tariffs and address barriers and discriminatory requirements.As such,they can be beneficial for the entire supply chain(e.g.local content requirements)that are normally treated under specific chapters focusing on public procurement.However,European rail suppliers still face a number of trade barriers in third countries markets,especially difficulties related to public procurement procedures.Therefore,UNIFE has been taking a number of actions during 2022,in particular by organising two important meetings with Denis Redonnet,Chief Trade Enforcement Officer(CTEO)and Deputy Director General of the European Commissions DG TRADE,in order to keep the debate at the highest level.03.International Affairs45 EU-South Korea Free Trade Agreement Despite the existence of a Free Trade Agreement between South Korea and Europe since 2011,there are currently many obstacles related to public procurement,technical aspects and government support that impede access to the South Korean rail market for European suppliers.This shortcoming is also due to the fact that this deal was less ambitious than the more recent generation of trade agreements.UNIFE continues to actively collaborate with DG TRADE to ensure a level-playing field and degree of reciprocity in procurement relations.UNIFE also continues to monitor negotiations and entry into force of other free trade agreements,such as with Chile,Mexico and Australia,and to inform our members accordingly.5.Organisation for Economic Co-operation and Development(OECD)Arrangement on officially supported export credits and the Rail infrastructure Sector Understanding(RSU),and EU Export Credit FacilityExport credits remain a very important tool for rail suppliers when doing business abroad.While discussions on a potential modernisation of the OECD Arrangement on Officially Supported Export Credits are ongoing,the focus of attention seems to be turning now on the establishment of an EU Export Credit Facility.In this respect,UNIFE has been closely interacting with Commission DG TRADEs officials to communicate how important this Facility can be for our sector and how and which coordination role it could play among the existing European Export Credit Agencies(ECAs).46UNIFE Annual Report 2022Fifth Gulf Cooperation Council European Commission Joint Workshop for Railways Cooperation with Gulf Countries(GCC-SG)The cooperation between UNIFE and the Gulf Cooperation Council Secretariat General(GCC-SG),which oversees economic developments in the region,has been established in 2014 and since then both organizations have been consolidating their relationship.In March,UNIFE participated in the Fifth Gulf Cooperation Council European Commission Joint Workshop for Railways.UNIFE was also pleased to once again participate in the annual Middle East Rail Conference,held this year in Abu Dhabi on 17-18 May,where we participated in two panel discussions:“Exploring a digital journey towards the railway of the future”and“Funding futuristic networks:the road to financing for the railroad of the future”.The conference proved to be an important and fruitful opportunity to make deeper connections with a wide range of government stakeholders from the region,learn more about ongoing and upcoming rail projects,exchange best practices and present our industrys priorities.6.Bilateral cooperation with third countriesBilateral cooperation with third countries remains one of UNIFEs priorities.Throughout 2022,UNIFE had the opportunity to meet with several partners across the globe.03.International Affairs47 Cooperation with North AmericaDuring InnoTrans,which took place in Berlin in September 2022,UNIFE had the opportunity to meet with North American partners and further strengthen its cooperation with them.Among other initiatives,a Memorandum of Understanding was signed by Sylvia Newell President Canadian Association of Railway Suppliers(CARS),Patricia Davitt Long President US Railway Supply Institute(RSI),and Philippe Citron,Director General UNIFE.This agreement is intended to enhance our ability to support the health and future growth of our industry while identifying opportunities for our organizations to work together in the advancement of those objectives.During 2022,UNIFE has also maintained close and solid relations with our counterparts from the American Public Transportation Association(APTA).In February,UNIFE Director General Philippe Citron and APTA President Paul Skoutelas chaired an online meeting to discuss a number of policy priorities for both sides of the Atlantic,including the EU National Recovery Plans and President Bidens Bipartisan Infrastructure Law.During InnoTrans,UNIFE and APTA also organised a bilateral exchange and a joint discussion on UNIFE and APTA cooperation,focusing on growth drivers for both rail markets and on the main areas of cooperation between the two organisations.CARS,RSI and UNIFE Sign Memorandum of Understanding to advance the Railway Supply IndustryCooperation with ASEAN countriesUNIFE participated in the EU-ASEAN ERTMS Workshop in May to discuss ERTMS developments and deployment across both regions.ERTMS is the backbone of digital rail and a main driver of global railway modernisation.EU-ASEAN ERTMS Workshop 48UNIFE Annual Report 2022UNIFE and ABIFER delegation,led by President Vicente Abate,during InnoTransUNIFE delegation and Australasian Railway Association CEO Caroline WilkieUNIFE and APTA Cooperation event at InnoTrans:Jeff Nelson(Chair,APTA),Ana Manuelito(Public Affairs Manager,UNIFE),Paul Skoutelas(President,APTA),Philippe Citron(Director General,UNIFE)Cooperation with Brazil(ABIFER)and Australia(ARA)UNIFE also had the great pleasure to meet its counterparts from the Brazilian Association of the Railroad Suppliers(ABIFER)and the Australasian Railway Association(ARA)during InnoTrans.The organisations had the opportunity to exchange on common topics of interest,such as investments,skills shortages and trade challenges.According to the UNIFEs World Rail Market Study,Brazil is forecasted to remain the largest market for rolling stock in Latin America.With a market value of 500 million per year in 2019-2021,Brazilian demand is predicted to rise strongly at 6.3%per year until 2025-2027.Moreover,on the Australian side,the study shows that the Australian rolling stock segment should continue to grow after a strong increase in the current market.Growing at a rate of 0,9%per year until 2025-2027,the market is expected to reach an annual total volume of 1 billion.03.International Affairs49 04.World Rail Market StudyThe ninth edition of the World Rail Market Study(WRMS),conducted by Roland Berger for UNIFE,was unveiled by UNIFE Chair Henri Poupart-Lafarge and Director General Philippe Citron on 20 September 2022 during InnoTrans.Published biennially since 2006,the Study provides an overview of the market in its current form and a forecast of its future development in different regions and market segments.It also assesses changes in rail market accessibility.The study projects a stable growth rate1 of 3.0GR2 to achieve a market volume of 211 billion per year for the 2025-2027 period.Global commitments to achieve net zero linked to flagship environmental and stimulus programmes such as the EU Green Deal and Recovery and Resilience Facility,and the US Infrastructure Investment and Jobs Act,are supporting further significant investments in rail projects.Thus,demonstrating once more that rail has the best potential to become the backbone of sustainable mobility worldwide and achieve ambitious decarbonisation targets.1)Real growth rate excluding inflation based on 2021 prices2)Compound Annual Growth RateAndreas Schwilling(Senior Advisor,Roland Berger)Philippe Citron(Director General,UNIFE)Henri Poupart-Lafarge(Chair,UNIFE/CEO and Chairman Alstom)launching the Study at InnoTransTotal market CAGRAccessible market CAGRTumkey managementTumkey managementRail contol Rail contol InfrastructureInfrastructureServicesServicesRolling stockRolling stock 2.9% 3.1% 3.1% 3.4% 3.7% 3.8% 3.8% 2.8% 1.9% 2.5% 2.8% 3.0 19-2021176,483210,5592025-202718,16033,65565,94222,21442,10777,90867,18757,772106,861126,5102019-20212025-202712,20222,80233,47737,42744,11637,53228,57415,1459539531,1421,14252UNIFE Annual Report 2022The total worldwide rail supply market added up to an average of 177 billion per year in the 2019-2021 period.Rolling stock was the second largest segment,amounting for 57.8 billion per year in total,followed by the services segment market.Both segments combined made up 70%of the total market,underlining their importance for the rail supply industry.While almost all regional markets,except for Commonwealth of Independent States(CIS),are expected to grow in the future,the highest growth rates are forecasted in the relatively small markets of Africa/Middle East and Eastern Europe,with 7.1%and 6.1%increases,respectively.However,more mature markets like Western Europe,Asia Pacific and North American Free Trade Agreement(NAFTA)will also grow significantly and therefore account for the largest share of absolute growth.Overall,worldwide rail market accessibility has declined during the last decade due to higher content requirements and revamped market access barriers resulting in the exclusion of European suppliers from key markets.Indeed,average total market accessibility decreased from around 70%in 2008 to 61%today.The missed business opportunity between total and accessible market increased during the last decade from 47.9 billion per year to 69.6 billion per year.To order a copy of the UNIFE World Rail Market Study,please visit the WRMS section of the UNIFE website04.World Rail Market Study53 Standards and Regulation05.1.Overview.562.2022s key developments in rail standards and regulations.563.UNIFE Technical Working Groups.644.Cybersecurity activities.685.UNITEL.69a)Revision of the 2022 Technical Specifications for Interoperability On 24 January 2020,the EC sent a request to the ERA for the preparation of the 2022 Digital rail and Green freight TSI Revision package.This package is intended to align the TSIs contents with the ECs high-level policy goals.In 2022,the ERA Working Parties and Topical Working Groups(TWGs)have been focused on the preparation and delivery of the ERA TSI Recommendation for 2022 TSI Revision Package to the European Commission and scheduled for vote and publication early 2023.UNIFE has adapted its internal consultation processes with its committees and technical working groups to best follow and contribute to the new revisions.We are a member of the ERA Working Party on the revision of TSIs which As the official representative body for the European rail supply industry,UNIFE coordinates the contributions and position of its members towards the development of regulations,decisions,guidelines and other documents drafted by the European Union Agency for Railways(ERA)and the European Commission(EC).The UNIFE Standards and Regulation Group(SRG)and its supporting UNIFE technical working groups are platforms for members to influence technical regulations that relate to the interoperability and safety of the European railway system.UNIFE has actively participated in numerous working parties and groups organised by the European institutions to support the drafting of the aforementioned outputs.The SRG plays a pivotal role in coordinating UNIFEs technical stances on the implementation of the EUs 2016 Fourth Railway Package(4RP)and 2022 Revision of the Technical Specifications for Interoperability(TSIs).SRG also interacts with other rail associations,such as CER,EIM,UIP and NB-Rail,as well as other stakeholders in Europes rail sector through participation in the Group of Representative Bodies(GRB)and the European Standardisation Organisations(ESO)-particularly,CEN and CENELEC-through the Sector Forum Rail(SFR).As an observer on both the ERA Management Board and ERA Executive Board,UNIFE Director General Philippe Citron regularly attends these meetings to express the rail supply industrys position on important topics such as ERAs annual work programme and ongoing activities supporting the 4RPs implementation.1.Overview2.2022s key developments in rail standards and regulations56UNIFE Annual Report 2022acts as the steering group for all such activities and has experts nominated to each of the activated TWGs.Within our association,the Working Party on the revision of TSIs is followed by the SRG,which coordinates the rail supply industrys response,nominates experts within the TWGs and cooperates with the other UNIFE committees when appropriate.The activities of each TWG,where the detailed TSI revision proposals are developed,have been consulted by a combination of the existing UNIFE technical working groups depending on the change request subject.UNIFEs goal is to ensure that the necessary evolution of the technical regulation and standards framework is carried out in a way that will improve the competitiveness of the European Rail Supply Industry,support the harmonisation and transparency of technical rules in Europe while facilitating the development and authorisation of rail products.The ERA TSI Working Party held eight meetings on the TSI revision in 2022 to monitor the activities of the TWGs,review and endorse the resulting change request proposals,in addition to those formulated by the Working Party itself.The TSI Working Party was successful in delivering the ERA TSI Recommendation by 30 June 2022 and held several meetings in the second half of the year to finetune several change requests and review the subsequent updates to the TSI Application Guides in 2023 based on the changes contained in the 2022 TSI Revision Package.ERA Technical Working Groups structure 05.Standards and Regulation57 b)Implementation of the Fourth Railway Packages Technical PillarThe 4RPs Technical Pillar is comprised of the reworked Interoperability and Safety Directives and the ERA Regulation,which entered into force on 15 June 2016.Member States were provided with a three-year transposition period,a possible one-year extension upon request and later a further actionable extension until 31 October 2020 due to inconveniences caused by the COVID-19 disruption.As a result,the Technical Pillar and its new vehicle authorisation regime entering into operation starting 16 June 2019 and since 31 October 2020 in all Member States.Our association strongly supported the Technical Pillars adoption,which we see as of paramount importance for the rail industrys competitiveness as it removes the remaining technical barriers to the creation of a Single European Rail Area(SERA).A harmonised European authorisation process ran by the newly fortified ERA should result in a convergence and greater certainty of requirements,leading to a more consistent,quicker and cheaper vehicle authorisation process with less duplication of checks and testing.Since 16 June 2019,ERA has acted as a European authorising entity and delivered over 4100 vehicle authorisation decisions-representing over 46.000 authorised rail vehicles.UNIFEs focus this past year has been the continued collection of feedback and experience of our members on the new processes in an attempt to ensure lessons learnt are shared,issues resolved and agreements reached where further enhancements can be made to optimise the new system.With now over three years of experience at ERA,together with all stakeholders from the railway sector and the National Safety Authorities(NSAs),activities have been launched to review the newly implemented system and define recommendations from all involved stakeholders on how to optimise the new processes and achieve the targeted cost and time saving goals.This review is led by 4RP Steering Group,of which UNIFE is member and has provided the detailed feedback from the European rail supply industry.Previous feedback has also resulted in the launch the ERA Vehicle Authorisation Advisory Group which kicked-off in October 2022,followed closely by the UNIFE Vehicle Authorisation Mirror Group.In 2022,UNIFE also coordinated the industrys response to the European Commissions public consultation on the evaluation of the European Union Agency for Railways and their role under the Fourth Railway Package.Vehicle authorisation harmonisation under Fourth Railway Package58UNIFE Annual Report 2022c)European Commission Expert Group on the Technical Pillar of the Fourth Railway Package UNIFE is a permanent member of the ECs Expert Group on the Technical Pillar of the Fourth Railway Package,alongside Member State and other official sectoral representative bodies.This group is intended to consult the sector on legalisation to be voted on,give recommendations on draft texts and help prepare discussions and votes to be held in the Railway Interoperability and Safety Committee(RISC).This Expert Group is intended to complement-but not replace-the RISC,which only allows Member State representatives to vote on the final Implementing Acts.Four meetings of the EC Expert Group on the Fourth Railway Package were held in 2022 focused on the European Commissions consultation on the 2022 TSI Revision Package texts following the submission of the European Union Agency for Railways TSI Recommendation to the EC and prior to the scheduled vote by the RISC in early 2023.UNIFE took the opportunity to raise our positions on the priority change proposals within the package,namely those associated with the TSI Transitions,key CCS TSI proposals and overall TSI impact assessment.Throughout the consultations,UNIFE has called on the European Commission,ERA and Member States to ensure the 2022 TSI Revision Package supports the competitiveness of the European railway sector and its supply industry.d)UNIFE High-Level Dialogue with DG MOVE and ERA on the Implementation of the Technical Pillar of the Fourth Railway PackageUNIFE has established a high-level dialogue between DG MOVEs Directorate C,ERA management teams and UNIFE members at the CTO level on the implementation of the Technical Pillar of the Fourth Railway Package.These meetings have sought to jointly and closely monitor the final implementation activities of the Fourth Railway Package as it entered operation at ERA in June 2019 and to identify common actions to ensure the smooth transition to the new regime.Discussions have covered areas such as the new vehicle authorisation processes and requirements,the development of the related ERA IT tool,the TSI amendments and the clean-up of notified national technical rules.This high-level forum continued in 2022 where participants exchanged on the return of experience of the new vehicle authorisation regime after three years of operation to identify common areas for continued improvement and agree on practical measures to facilitate the authorisation applications and process.Discussions in these meetings also covered the key developments of the 2022 TSI Revision Package and the priority items for UNIFE in the final stages of its drafting.Finally,the participants began to exchange of the future evolution of the technical framework after the 2022 TSI Revision Package completion,where UNIFE introduced our Vision Paper on the Evolution of Regulation,Standardisation and Innovation for a Competitive European Rail Supply Industry and explain our vision for how to ensure its balanced,streamlined and stable evolution going forward.05.Standards and Regulation59 MEETING MINUTES UNIFE Vision Paper on the Evolution of Regulation,Standardisation and Innovation for a Competitive European Rail Supply Industry 18 October 2022 e)UNIFE Vision Paper on the Evolution of Regulation,Standardisation and Innovation for a Competitive European Rail Supply IndustryIn October 2022,UNIFE published its Vision Paper on the Evolution of Regulation,Standardisation and Innovation for a Competitive European Rail Supply Industry.This paper was drafted throughout 2022 led by the UNIFE Standards and Regulation Group and consulting all UNIFE members.The UNIFE Vision Paper provides a state of play in the areas of regulation,standardisation and research&innovation as seen from the European rail supply industry and outlines UNIFEs high-level objectives and vision to achieving an efficient technical framework going forward.The UNIFE Vision Paper comes at a key moment for the European railway stakeholders in shaping the European railway target system and defining how to achieve the Single European Railway Area,following the TSI Revision Package 2022 and establishment of the Europes Rail Joint Undertaking.This UNIFE Vision Paper will therefore provide a baseline for our technical lobby activities and overall objectives in the coming years for the Technical Specifications for Interoperability and their link to the standardisation and research&innovation domains.The goal is to ensure the future technical framework evolutions support the European rail supply industry to thrive both at home and internationally while increasing the competitiveness and market share of rail transport in support of the European Green Deal objectives.f)Cooperation with the Group of Representative Bodies(GRB)As the official association of Europes rail suppliers,UNIFE is a member of the Group of Representative Bodies(GRB).The GRB is a group of European railway associations tasked with supporting the sectors consultations with the European Union Agency for Railways(ERA)as it composes its work programme and its activities on rail safety and interoperability.The GRB has continued to be highly active throughout 2022,with particular focus paid to the Fourth Railway Package Vehicle Authorisation process and guidance,the revision of the TSIs for 2022 and the budget and functioning of ERA.A number of joint positions relating to regulation and standardisation have been adopted by the GRB and submitted to the EC,ERA and Member State representatives.The GRB also continues to closely follow all ERA activities and the delivery of its work programme.Since January 2019,Christian Rausch,member of UNIFEs Standards and Regulation Group(SRG),has also served as the GRBs Chair for a two-year mandate including this year acting unde
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EVC：2022电动汽车供电装置(EVSE)法规最佳实践指南（英文版）（51页）.pdf
OCTOBER 2022A BEST PRACTICE GUIDE FOREVSE RegulationsTammy Klein Founder&CEO Transport Energy S2022 Fuels Institute Disclaimer:The opinions and views expressed herein do not necessarily state or reflect those of the individuals on the Fuels Institute Board of Directors and the Fuels Institute Board of Advisors or any contributing organization to the Fuels Institute.The Fuels Institute makes no warranty,express or implied,nor does it assume any legal liability or responsibility for the use of the report or any product or process described in these materials.3FUELS INSTITUTE|EVC|REGULATORY BEST PRACTICES As the electric vehicle(EV)market continues to grow in the U.S.,so does infrastructure.According to the U.S.Department of Energy,there are(as of December 2021)45,846 total charging station locations with 112,048 ports(90,813 level 2(L2)and 21,235 direct current fast charging(DCFC).1 EV drivers currently do about 80%of their vehicle charging at home,but this is expected to change as the market continues to grow.2 There is growing interest in the potential to develop public EV-charging stations(EVCS)at workplaces,fuel stations,retailers,and other sites.Utilities,states,and localities are providing funding for infrastructure expansion at these kinds of sites,and$7.5 billion in federal funding is planned specifically to help achieve the Biden administrations 500,000 nationwide charger goal under the Infrastructure Investment and Jobs Act(IIJA).3 1“Electric Vehicle Charging Station Locations,”Alternative Fuels Data Center,U.S.Department of Energy,accessed Dec.9,2021,https:/afdc.energy.gov/fuels/electricity_locations.html#/find/nearest?fuel=ELEC&ev_levels=dc_fast&ev_levels=3.2“Charging at Home,”Office of Energy Efficiency and Renewable Energy,U.S.Department of Energy,accessed May 4,2021,https:/afdc.energy.gov/fuels/electricity_charging_home.html.3 Infrastructure Investment and Jobs Act,H.R.3684(became Public Law No:117-58 on November 15,2021),available at https:/www.congress.gov/bill/117th-congress/house-bill/3684/text.4 Fuels Institute,EV Market Regulatory Report,March 2021,https:/www.fuelsinstitute.org/Research/Reports/EV-Market-Regulatory-Report.5 Infrastructure Investment and Jobs Act,H.R.3684.As shown in the EV Market Regulatory Report produced by the Fuels Institute in March 2021,a patchwork of requirements has been developed across the country among states,their public utility commissions,localities(county and cities),and now the federal government with IIJA funding.Several states,such as California,have been on the forefront of developing and implementing policies to encourage the uptake of the EV market and the spread of public EV charging.4 Many localities around the country are beginning to follow.However,the research for that report also revealed that most states and localities that were surveyed had little to no policies at all respecting public EV charging.This is expected to change quickly in the next several years as states and localities recognize the need to prepare for the rise in electrification and receive funding from different sources.One of those sources has been the Volkswagen Dieselgate settlement to the states,which many states are using to expand infrastructure.5 Many state and local officials for the first time will have to consider developing and implementing policies to expand infrastructure.EXECUTIVE SUMMARYRegulatory Best Practices 4FUELS INSTITUTE|EVC|REGULATORY BEST PRACTICES This guide has been prepared to help these officials and other readers understand in brief form the policy landscape in the U.S.at both the state and local levels,noting the types of policies that have been set and providing several examples of how different authorities having jurisdiction(AHJ)have implemented them.Policy topics addressed in this guide include the following:states defining public utility and allowing kWh charging installation-related policies operation-related policies EV-charging incentive programs utility-related policies localities expedited permitting requirements parking requirements EV-ready building code requirements signage requirements technical requirementsThe guide concludes with best practice recommendations from regulated entities themselves,that is,stakeholders that have accumulated years of experience installing and operating EV-charging infrastructure around the U.S.Stakeholders from the EV-charging industry,fuel retailing,utility,and metropolitan planning organizations(MPOs)shared their expertise and actionable and practical recommendations as AHJs begin to develop and implement EV-charging policies.These recommendations include the following:Do not wait for federal funding to begin planning for the future expansion of charging,even if EV uptake in an AHJ is limited right now.Localities,particularly within a metropolitan area,but ideally at the state(and even federal)level,should consider harmonizing policies,particularly respecting permitting and other aspects affecting the installation and operation of charging infrastructure.5FUELS INSTITUTE|EVC|REGULATORY BEST PRACTICES Localities and states should take the lead in coordinating among themselves and with stakeholders now to begin discussing,developing,and implementing charging policies.Utilities should be engaged as an important stakeholder and partner as part of this effort.Localities may need to review their comprehensive plan,zoning,and land-use code to eliminate unintended barriers to charging.State public utility commissions(PUCs)should address issues surrounding cost recovery,time of use(TOU),and demand charges.States,following California and New Jerseys lead,should consider implementing expedited and streamlined permitting policies.In the absence of a state action,localities should consider developing and implementing such a policy to help facilitate the installation of EVCS.Similarly,localities can adopt EV-ready/EV-capable building codes to help facilitate the expansion of charging and better enforce parking regulations that impact consumers ability to charge.Policies should take into account the issue of equity,and localities should remember rural areas.Localities may want to review resource materials from the Justice40 Initiative,led by the U.S.Department of Transportation.6 States and/or localities can consider developing a reliability standard to ensure that EVCS downtime is kept to a minimum.Incentives to help site hosts new to public EV charging reduce risk is key.6“Justice40 Initiative,”U.S.Department of Transportation,last updated November 18,2021,https:/www.transportation.gov/equity-Justice40.See also Argonne National Laboratory,“Electric Vehicle Charging Equity Considerations,”at https:/www.anl.gov/es/electric-vehicle-charging-equity-considerations.These recommendations are discussed in greater depth and with additional insight in the final section of this guide.This report was written before the National Electric Vehicle Infrastructure(NEVI)formula program requirements were released in February 2022.However,a number of topics addressed in NEVI are directly addressed in this report,such as EVCS installation and operation.This report is meant as a complement to these federal efforts and provides,in addition,real-world experience and guidance from government and industry with years of experience in the charging space.6FUELS INSTITUTE|EVC|REGULATORY BEST PRACTICES EXECUTIVE SUMMARY .03INTRODUCTION .07EXAMPLES OF STATE POLICIES .08 Public-Utility Definition and Allowing Kilowatt-Hour Charging .08 Installation-Related Policies .09 Operation-Related Policies .12 EV Charging Incentive Programs .13 Utility-Related Policies .14EXAMPLES OF POLICIES SET BY SOME LOCALITIES .18 Permitting Requirements .20 Parking Requirements .22 EV-Ready Building Code Requirements .23 Signage Requirements .25 Technical Requirements .26 Site Design Requirements .27TYPES OF POLICIES THAT CAN BEST FACILITATE THE QUICK,EFFICIENT EXPANSION OF PUBLIC EV CHARGING INFRASTRUCTURE:VIEWS FROM INDUSTRY STAKEHOLDERS .28 North Central Texas Council of Governments:Its Important for Localities to Prepare Now for EV Growth .31 7-Eleven:We Need Better Solutions for Demand Charges and Expedited/Streamlined Permitting .32 FLO:Localities Have a Critical Role to Play in Expanding Charging .33 Southern Company:Engage Utilities Now .35 Kum&Go:Metropolitan Areas Should Consider Harmonizing EV Charging Policies .35 FreeWire:Ensure Policies Account for New,Emerging Technologies .36 Electrify America:Addressing Demand Charges,Charging Station Permitting,and EV-Ready Building Codes Is Crucial to Expanding Ultra-Fast Charging .37 Capital District Transportation Committee:Check Your Comprehensive Plan,Zoning,and Land Use Codes,and Update Them as Needed to Help Facilitate EV Charging .39 Duke Energy:Plan Early,Plan Often,Plan Now .40 GetGo and Giant Eagle:Incentives,Ensuring Fair Competition,and Better Consumer Education Is Key .41 EVgo:Connect the Watts to Accelerate Charger Deployment .42GLOSSARY AND WORKS CITED.45CONTENTS7INTRODUCTIONThe EV Market Regulatory Report included an analysis to identify commonalties and differences in states as well as more than 100 cities and counties.That analysis found that 35 states have addressed issues related to the pricing of charging(allowing kilowatt-hour(kWh)pricing)and that 29 states have made it clear in policy that charging site hosts are not public utilities subject to that industrys regulatory regime.Beyond finding that EV charging is not a public utility as defined in some state policies and allowing kWh pricing,10 states address other installation-related issues;five states,operation.Installation-related policies tend to address issues such as licensing of installers,site design,signage,and parking.Several states address operation-related questions such as requiring multiple payment options and/or prohibiting subscriptions plans.Many states do not address installation or operation issues related to public charging and have no policies in place related to electric vehicle supply equipment(EVSE).California,by far,has the most developed regulatory regime.Localities have tended to address issues such as siting/zoning,station design,parking,and signage.Out of 100 localities surveyed for the 2021 report,49 cities and counties have set ordinances or other regulations governing EVSE installation,23 of which are in California.One city out of the group surveyed included operation-related EVSE requirements.Within metropolitan statistical areas,the lens used to evaluate these cities and counties,there was a lack of alignment on issues generally related to EVSE installation,including permitting.Even in California,not all cities have yet adopted requirements set by the state respecting expedited and streamlined permitting.Correcting this inconsistency is one stated intent behind the enactment of the policy.Policy topics addressed below include the following:states defining public utility and allowing kWh charging installation-related policies operation-related policies EV-charging incentive programs utility-related policies localities expedited permitting requirements parking requirements EV-ready building code requirements signage requirements technical requirementsFUELS INSTITUTE|EVC|REGULATORY BEST PRACTICES FUELS INSTITUTE|EVC|REGULATORY BEST PRACTICES 8The sections below provide an overview and examples of policies that states have set respecting the definition of public utility and allowing kWh charging,installation-and operation-related policies,incentive programs,and utility-related policies.PUBLIC-UTILITY DEFINITION AND ALLOWING KILOWATT-HOUR CHARGINGMore than 30 states have addressed two common issues(Figure 1).The first is clarifying that an EVSE site host is not a public utility and thus not subject to the regulatory regime that governs utilities.The regulatory regime is not applicable and it would prove burdensome to those entities looking to develop EV-charging sites.The second is allowing site hosts to charge by the kWh,which may be more transparent for EV drivers.It is important to note that even if a state has not yet clarified that EVSE or site hosts are not defined as public utilities and not subject to that regulatory regime,no state to date has regulated third-party EVSE as public utilities or prohibited third-party deployments for that reason.EXAMPLES OF STATE POLICIESAddresses bothFIGURE 1:STATES ADDRESSING KILOWATT-HOUR CHARGING AND PUBLIC-UTILITY DEFINITION ISSUESAllows kWh charging onlyAddresses public utility definitionDoes not addressFUELS INSTITUTE|EVC|REGULATORY BEST PRACTICES 9INSTALLATION-RELATED POLICIESInstallation-related policies cover issues such as siting;permitting;parking;site design(including compliance with Americans with Disability Act(ADA)requirements);property flow;curb cuts;and proximity of charging equipment to other equipment on-site,such as petroleum dispensers.Additional policies include require-ments and processes for construction and installation of EVSE,as well as engagement with the local utility.According to the Fuels Institute Electric Vehicle Councils EV Market Regulatory Report(2020),10 states have adopted such policies.7 Some states,such as Massachusetts,have installation requirements tied to EV-infrastructure incentive programs.Still other states have taken a direct approach with detailed policies.Several examples of state approaches follow in Table 1.7 Fuels Institute,EV Market Regulatory Report,3.TABLE 1:EXAMPLES OF STATE APPROACHES ON POLICIES GOVERNING EVSE INSTALLATIONSTATESUMMARY OF POLICYCaliforniaThe state has adopted an expedited permitting policy under state legislation(AB 1236)that localities in the state must adopt.Cities and counties must adopt an ordinance that creates an expedited and streamlined permitting process for EVSE.Each city or county must consult with the local fire department or district and the utility director to develop the ordinance,which must include a checklist of all requirements for EVSE to be eligible for expedited review.AB-1236 requires the following:Localities must enact ordinances creating an expedited,streamlined permitting process for EVCS including L2 and DCFC.A checklist of all requirements needed for expedited review must be posted on each localitys website.EVCS projects that meet the expedited checklist are administratively approved through a building or similar nondiscretionary permit.EVCS projects are reviewed with a focus on health and safety.Localities are required to allow for electronic submission of application packets for plug-in electric vehicle(PEV)charging stations through email,internet,and/or fax and allow for electronic signatures on all forms.The locality accepts electronic signatures on permit applications.The locality commits to issuing one complete written correction notice detailing all deficiencies in an incomplete application and any additional information needed to be eligible for expedited permit issuance.Any project that meets all the requirements in the checklist,as determined by the locality,shall qualify for expedited review.In the majority of cases,this means that no discretionary-use permit will be required,which can be the most time-consuming aspect of permit approvals.A discretionary permit can only be required if the building official makes a finding,based on substantial evidence,that the EVCS could have a specific,adverse impact upon public health or safety.The health and safety review a locality conducts under AB 1236 uses objective measures and allows building officials to assess if a“specific,adverse impact”may result due to the installation of EVCS or EVSE equipment.For example,health and safety concerns can lead to the need for project revisions when the building official believes that added EV-charging loads may affect existing electrical infrastructure or when the project might create a visual hazard.It should be noted that a visual hazard is different from a visual impairment.California continued on the next pageTable 1 continued on the next pageFUELS INSTITUTE|EVC|REGULATORY BEST PRACTICES 10Table 1 continued from the previous pageTable 1 continued on the next page 8 California AB-1236 Local Ordinances:EVCS,Chapter 598(approved October 8,2015),available at https:/leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201520160AB-1236;California Governors Office of Business and Economic Development,Electric Vehicle Charging Station Permitting Guidebook,July 2019,https:/businessportal.ca.gov/wp-content/uploads/2019/07/GoBIZ-EVCharging-Guidebook.pdf.9 California AB 970(approved October 8,2021)at https:/leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202120220AB970.10 83 Illinois Administrative Code 469.120(2020).11 Massachusetts Department of Environmental Protection,MassEVIP Public Access Charging(PAC)Program Requirements,December 4,2020,accessed Aug.31,2021,https:/www.mass.gov/doc/massevip-public-access-charging-requirements/download.12 Minnesota Statutes 325F.185,326B.35(2020).STATESUMMARY OF POLICYCalifornia continued from the previous pageIn California,EVCS permit applications are supposed to be approved through a truncated permitting process.EVCS permit applications will usually be reviewed for compliance with building,electrical,accessibility,and fire safety regulations.The permit applications may also receive public safety,structural,and engineering reviews based on the processes and organizational structure of the locality.If possible,these reviews are done concurrently.8 Other recent legislation(AB 970)assigns specific timelines for permitting review and deems an application approved if timelines are not met.9IllinoisPrior to installation of an EVCS,the retail customer shall provide notice in writing to the servicing electric utility of plans to install an EVCS that includes the following:the name,address,and electric utility account number of the retail customer who owns,uses,operates,or maintains the EVCS the location of the EVCS when an EVCS is to be installed by an installer,maintainer or repairer(IMR):the business name,address,and phone number of the IMR that is the certificate holder the Commission docket number in which the IMR obtained a certificate from the Commission the load and technical specifications of the charging stations whether the charging station is for personal or commercial use10 MassachusettsMassachusetts is an example of a state that has attached installation requirements as a condition of receiving grant funds to develop EVSE.Its Massachusetts Electric Vehicle Incentive Program(MassEVIP)provides funding for both fleet EVs and the development of EVSE.Among other requirements,applicants must:allow the general public to have practical access to,and use of,the parking space and the EVCS for a minimum of 12 hours per day at the location identified in the application and describe such access in the application ensure the EVCS location is designed to protect the equipment from physical damage,which includes curbs,wheel stops,setbacks,bumper guards,and bollards ensure the charging station parking space and area around the charging station is maintained,including snow removal and general cleaning install directional signage to the EVCS location,starting at the entrance of the parking area ensure the station can charge EVs produced by multiple manufacturers comply with ADA requirements and ensure that at least 5%of the sites EV-charging spaces,but not less than one such space,be accessible to persons with disabilities11MinnesotaEVSE installed in Minnesota must:1)be able to be used by any make,model,or type of PEV;2)comply with state safety standards and standards set by the Society of Automotive Engineers;and3)be capable of bi-directional charging once electrical utilities achieve a cost-effective ability to draw electricity from PEVs connected to the utility grid.These requirements may not apply if the installations require significant upgrades.12 FUELS INSTITUTE|EVC|REGULATORY BEST PRACTICES 11Table 1 continued from the previous pageSTATESUMMARY OF POLICYOregonThe legislature enacted legislation requiring the development of a statewide EVSE permit and inspection protocol regulations.The EVSE permit covers the installation of all electrical components dedicated to the operation of an EV-charging system,and no other state building code permit is required.Building officials and inspectors shall permit and allow installation of an EV-charging system that has a Building Codes Division special deputy certification label without further testing or certification.However,EVSE installers must obtain a permit from the inspecting jurisdiction for the EVSE.Inspection of an EVSE installation is limited to determining compliance with certain Oregon Electrical Specialty Code provisions.1313 Revised Code of Washington 19.27.540(2021).Source:Compiled by Transport Energy Strategies,August 2021FUELS INSTITUTE|EVC|REGULATORY BEST PRACTICES 12OPERATION-RELATED POLICIESOperation-related policies govern issues such as how electricity is sold,the marketing of charging services,disclosures required to be provided to customers,the unit of measurement required in selling electricity,and type of receipt required.According to the Fuels Institute Electric Vehicle Councils EV Market Regulatory Report(2020),five states have adopted such policies.14 Several states address operation-related questions that include requiring multiple payment options and/or prohibiting subscriptions plans (Table 2).14 Fuels Institute,EV Market Regulatory Report,3.15 California Health and Safety Code 44268,44268.2(2020);California Air Resource Board,EVSE Standards Regulation,Final Order,June 2020,available at https:/ww2.arb.ca.gov/our-work/programs/electric-vehicle-supply-equipment-evse-standards;4 California Code of Regulations 4001,4002.11(2020).16 Connecticut General Statutes 16-19ggg(2016).17 New Hampshire Revised Statutes 236:131(2020).STATESUMMARY OF POLICYCaliforniaEVSE service providers may not charge a subscription fee or require membership for use of their public charging stations.In addition,providers must disclose the actual charges for using public EVSE at the point of sale;allow at least two options for payment;and disclose the EVSE geographic location,schedule of fees,accepted methods of payment,and network roaming charges to the National Renewable Energy Laboratory.Exceptions apply.Also,the California Air Resources Board has adopted interoperability billing standards for network roaming payment methods for EVSE.Providers would be required to meet these standards within one year of adoption.For new AC chargers after January 2021 and DC chargers after 2023,the state requires EVSE to be type certified and field verified to ensure that a kWh dispensed equals a kWh received.15 ConnecticutOwners and operators of public EVSE that require payment must allow multiple payment options to allow public access.In addition,payment should not require users to pay a subscription fee or obtain a membership of any kind;however,payment required may be based on price schedules for such memberships.Owners and operators can impose restrictions on the amount of time a vehicle can use the EVSE.16 New HampshireIf the owner or operator requires payment for use of the EVSE,they must accept multiple payment options.Also,they must not require users to pay a subscription fee or obtain a membership at any organization to use the equipment.17 Source:Compiled by Transport Energy Strategies,August 2021TABLE 2:EXAMPLES OF STATE APPROACHES ON POLICIES GOVERNING EVSE OPERATIONFUELS INSTITUTE|EVC|REGULATORY BEST PRACTICES 13EV-CHARGING INCENTIVE PROGRAMSTwenty-four states offer incentives for expanding EV charging that may be applicable to public charging.These incentives are in addition to what is offered by utilities and through the Volkswagen Clean Air Act Civil Settlement.Table 3 provides examples of the types of incentives some states have offered to support EVSE scale up.18 Administrative Code of Arkansas 15-10-903(2020).19 Oklahoma Statutes 68-2357.22(2014).20 Texas Statutes Health and Safety Code 386(2019)and Texas Administrative Code 14.660-114.662(2021).21 Revised Code of Washington 47.04.350(2019).STATESUMMARY OF POLICYArkansasThe Arkansas Department of Energy&Environment Division of Environmental Quality may offer a rebate for each approved private EVCS,public EVCS,compressed natural gas refueling station,liquefied natural gas refueling station,and liquefied petroleum gas refueling station that is not more than 75%of the qualifying costs of the station,not to exceed$400,000;not more than 50%of the eligible equipment purchase and installation cost of the private EVCS,not to exceed$900;or not more than 50%of the eligible equipment purchase and installation cost of the public EVCS,not to exceed$5,000.18OklahomaFor tax years beginning before December 31,2027,a tax credit is available for up to 45%of the cost of installing commercial alternative-fueling infrastructure.Eligible alternative fuels include natural gas,propane,and electricity.The infrastructure must be new and must not have been previously installed or used to alternative-fuel vehicles.19TexasThe Texas Commission on Environmental Quality(TCEQ)administers the Alternative Fueling Facilities Program(AFFP)as part of the Texas Emissions Reduction Plan(TERP).AFFP provides grants for 50%of eligible costs,up to$600,000,to construct,reconstruct,or acquire a facility to store,compress,or dispense alternative fuels in the Clean Transportation Zone,including electricity for EV charging.20WashingtonThe Washington State Department of Transportation offers competitive grants to strengthen and expand the West Coast Electric Highway network by deploying EVSE with L2 and DCFCs and hydrogen fueling infrastructure along highway corridors in Washington.Eligible project costs include siting,equipment purchases,electrical upgrades,installation,operations,and maintenance.21Source:Compiled by Transport Energy Strategies,August 2021TABLE 3:EXAMPLES OF STATE APPROACHES ON INCENTIVE POLICIES TO SUPPORT EVSE SCALE UPFUELS INSTITUTE|EVC|REGULATORY BEST PRACTICES 14UTILITY-RELATED POLICIESStates have also set policies respecting the utilitys role in EV charging,also known as utility engagement.This does not include PUC or public service commission(PSC)decisions,which will be covered in more detail below.The most common public charging issues state legislatures are addressing related to utilities pertain to setting rates,requiring utilities to submit transportation electrification plans(TEPs)that detail how they will help the state achieve its electrification goals,and addressing the role of utilities in charging.This includes PUC/PSC and/or legislative discussions on the use of existing ratepayer dollars directed toward expanding EV-charging infrastructure and whether that may impact the competitive marketplace for charging as a service.With respect to the latter,several states have and continue to consider whether utilities can own and operate charging stations as well as expanding customer access to EV charging through the direct deployment of charging infrastructure.States already have considered and approved several models that include allowing utilities to(1)deploy make-ready installations that enable infrastructure up to the point of installing a charger,(2)owning and operating installations outright,or(3)providing financial incentives to host sites.These three approaches are summarized in Figure 2.BUSINESS AS USUALUtility/contribution in aid of constructionHost site investmentUTILITY INCENTIVEUtility/contribution in aid of constructionHost site investmentMAKE-READYUtility investmentHost Site investmentOWNER-OPERATORUtility investment1)Business as UsualElectric CompanyCustomer2)Make ReadyElectric CompanyCustomer3)Charger OnlyElectric CompanyElectric CompanyCustomer4)Full OwnershipElectric CompanyUtility incentive paymentsUTILITY DISTRIBUTION NETWORKService connectionSupply infrastructureCharger equipmentMETERCONDUCTOR(BORING/TRENCHING)EV CHARGERELECTRIC VEHICLEPANELTRANSFORMERSERVICE CONNECTIONSUPPLY INFRASTRUCTURECHARGER EQUIPMENTSERVICEMETERPANELCONDUIT WIRINGCHARGING STATIONUTILITY PAD-MOUNTED TRANSFORMERFIGURE 2:EV-CHARGING INFRASTRUCTURE UTILITY MODELSSource:Smart Electric Power Alliance(SEPA),citing M.J.Bradley&Associates,2019FUELS INSTITUTE|EVC|REGULATORY BEST PRACTICES 15Make-ready installations appear to be a more favored approach than ownership at this time,allowing the utility to construct electrical infrastructure,such as trenching and conduits,which enables charging readiness for site hosts.22 Such a solution may address upfront cost barriers and make charging infrastructure cost competitive for public charging market participants.23 With respect to rates,states are preparing for new,dispersed load growth and expanded peak demand that may strain the electric grid as the EV market continues to grow.24 Some states also are considering how to design utility rates to support charging behaviors that enhance,not threaten,grid reliability and costs,namely inducing chargers(particularly homeowners)not to charge during peak demand periods.25 Utilities are also considering special rate structures for DCFC that reduce or eliminate demand charges,which can often be a barrier to the development of these chargers.On the other hand,states are also recognizing that EVs may benefit the grid as flexible loads,charging during lower demand periods and potentially providing energy back to the grid during peak demand periods through the use of vehicle-to-grid technology.26 22 Matthew Rogotzke,Garrett Eucalitto,and Sue Gander,Transportation Electrification:States Rev Up(Washington,D.C.:National Governors Association Center for Best Practices:2019),https:/www.nga.org/wp-content/uploads/2019/09/2019-09-15-NGA-White-Paper-Transportation-Electrification-States-Rev-Up.pdf.23 Rogotzke et al.,14.24 Rogotzke et al.,14.25 Rogotzke et al.,14.26 Rogotzke et al.,14.FUELS INSTITUTE|EVC|REGULATORY BEST PRACTICES 16STATESUMMARY OF POLICYColoradoPublic electric utilities may provide electricity to charge PEVs as unregulated or regulated services and may recover the costs of distribution system and infrastructure investments to accommodate PEV charging.The Colorado Public Utilities Commission(Commission)should consider revenues from charging PEVs in the utilities service territory in evaluating the retail rate impact from the development of EVSE,which cannot exceed 0.005%of the total annual revenue requirements of the utility.Public electric utilities were required to file an application with the commission for widespread transportation electrification programs within their respective service territories by May 15,2020,and every three years thereafter.Programs may include:investments or incentives to facilitate the deployment of customer-or utility-owned EVSE and associated electrical equipment facilitating electrification of public transit and other vehicle fleets rate designs or programs that encourage PEV charging customer education,outreach,and incentive programs that increase awareness of transportation electrification27 ConnecticutUtility companies must evaluate if it is appropriate to implement PEV time-of-day rates for residential and commercial customers.A time-of-day rate for PEVs is designed to reflect the cost of electricity to the consumer at different times of the day.Utilities that have already made this determination prior to July 1,2017,are not required to do so again.28New MexicoBy January 1,2021,and upon request by the New Mexico Public Regulation Commission thereafter,public utilities must file an application to the commission to expand transportation electrification.Applications may include,but are not limited to,incentives to facilitate the installation of PEV charging infrastructure,electrification of public fleet vehicles,PEV charging rates,and customer outreach and education programs.The commission may approve applications based on whether the proposed projects can be reasonably expected to improve the electrical system efficiency of the public utility;to increase access to electricity as a transportation fuel,including in low-income and underserved communities;to reduce air pollution and greenhouse gas emissions;and to encourage consumer adoption of PEVs.29 UtahThe Utah PSC is authorized to establish a large-scale EVSE program with a maximum cost of$50 million.The program may include utility-owned EVSE,a new EVSE rate structure,and a public education plan.Utilities implementing EVSE programs must submit annual progress reports by June 1 for the previous calendar year.30Source:Compiled by Transport Energy Strategies,August 2021TABLE 4:EXAMPLES OF STATE APPROACHES ON UTILITY ENGAGEMENT POLICIESSeveral states via legislation have directed utilities to develop,or PUCs to oversee,the development of TEPs.Several of these states have defined criteria that utilities must consider in creating their respective TEPs,such as system efficiency,equity(particularly for underserved communities),innovation,competition,and interoperability.They have also provided a degree of guidance about what could be included in TEPs,such as rebate and other incentive programs,public education and outreach,and new rate structures.Table 4 shows examples of types of state policies related to utility engagement.27 Senate Bill 19,077(2019)and Colorado Revised Statutes 41-1-103.3,41-3-116,and 40-5-107(2021).28 Connecticut General Statutes 16-19f(2021).29 New Mexico House Bill 521,2019,and New Mexico Statutes 62-3(2021).30 Utah House Bill 396(2020)and Utah Code 54-4-41(2018).FUELS INSTITUTE|EVC|REGULATORY BEST PRACTICES 17Much of the action and engagement with respect to charging generally is happening at the regulatory level in respective states PUCs,which have considered hundreds of filings in the last few years from utilities on a range of EV-related issues,including charging,different types of incentives,rates,and others.Table 5 summarizes select examples of utility rate designs that have been approved by PUCs in several states.31 Arizona Corporation Commission,docket number E-01933A-17-0250,Tucson Electric Power Company,filed August 1,2017,https:/edocket.azcc.gov/search/docket-search/item-detail/20126.32 Hawaii Public Utilities Commission,docket number 2018-0422,Maui Electric Company,Limited,filed December 21,2018,https:/dms.puc.hawaii.gov/dms/dockets?action=details&docketNumber=2018-0422.33 Maine Public Utilities Commission,case number 2019-00217,Commission Initiated Request for Proposals for Pilot Programs to Support Beneficial Electrification of the Transportation Sector(P.L.2019 CH.365,Section 5),case start August 20,2019,https:/mpuc-cms.maine.gov/CQM.Public.WebUI/Common/CaseMaster.aspx?CaseNumber=2019-00217.34 State of New York Public Service Commission,Case 18-E-0138,Order Establishing Electric Vehicle Infrastructure Make-Ready Program and Other Programs,issued and effective July 16,2020,https:/documents.dps.ny.gov/public/Common/ViewDoc.aspx?DocRefId=6238DD07-3974-4C4E-9201-3E339E311916.STATESUMMARY OF POLICYArizonaTucson Electric Power was approved on February 20,2019,to invest in certain elements of their Energy Efficiency Implementation Plan.The PSC-approved programs including the distributed energy resource,smart home EV pilot,residential EV rate,REV West,and smart city EV build-out plan.These programs include elements seeking to enhance vehicle-to-grid efforts,including smart charging and incentives for charging infrastructure.31 HawaiiOn January 15,2020,Hawaiian Electric was approved to establish a fast-charging service and EV rate in Maui through the subsidiary Maui Electric Company.The utility will own and operate four DCFC stations that will add to the existing EVohana network on the island.New rates will offer low-cost charging during off-peak daytime hours when solar energy generation is abundant.The utility will replace the existing infrastructure at these sites to allow more types of EVs to access them.The commission reduced the initial budget of the program and required modifications to the EV rate where a rate structure was eventually approved following the companys adoption of the shared savings mechanism requested by the commission.32 MaineOn February 25,2020,the Maine PUC approved portions of several proposed EV pilots by Central Maine Power.The commission denied any funding for DCFC make-ready and incentives,which was the bulk of the$3.5 million initially proposed by Central Maine Power.In addition to$240,000 for make-ready investment in 60 L2 charging stations,the commission also approved a new rate structure for DCFC stations that seeks to lower the operating costs for station hosts.33 New YorkIn July 2020,the state PSC approved a$701 million EV make-ready program that will run through 2025 and be funded by investor-owned utilities(IOUs).The funding is expected to support the development of 50,000 L2 and 1,500 DCFC charging stations in the state.The EV make-ready program will be funded by IOUs in New York state and creates a cost-sharing program that incentivizes utilities and charging station developers to site EV-charging infrastructure in places that will provide a maximal benefit to consumers.The PSC order caps the total budget at$701 million and will run through 2025.34 Source:Compiled by Transport Energy Strategies citing data from Atlas Public Policys EV Hub,Electric Utility Filings Dashboard,June 2020TABLE 5:EXAMPLES OF STATE PUC APPROACHES ON UTILITY RATE DESIGNS FOR EV-CHARGING18FUELS INSTITUTE|EVC|REGULATORY BEST PRACTICES EXAMPLES OF POLICIES SET BY SOME LOCALITIESIn the EV Market Regulatory Report,more than 100 of the most populated cities and counties in the U.S.were selected to survey what types of policies,if any,were being implemented.The research revealed that 49 cities and counties policies have ordinances or other regulations in effect concerning public EV charging.Nearly half(23)of those cities and counties are in California,and nearly all policies focus on aspects of EVSE installation.Most public EV-charging regulation appears to take place in cities,though there are a few counties that also regulate public charging.Policies tend to fall into the following categories:permitting requirements specific to non-residential EVSE sites parking requirements specific to EVs signage requirements other specific design or installation requirements that may address issues such as technical requirements(voltage,raceway,power supply),landscaping,fire and safety code compliance,and trip hazards,among other issues EV-ready building code requirementsFUELS INSTITUTE|EVC|REGULATORY BEST PRACTICES 19Table 6 provides a short example from the city of Atlanta of a general approach to setting these kinds of policies cities and counties and includes the foregoing categories.35 This a brief summary of some of the requirements;see the ordinance for further detail:Atlanta Code of Ordinances Sec.16-28.017(2021).STATESUMMARY OF POLICYAtlanta,GeorgiaEVSE infrastructure shall be installed per the requirements of the current edition of the National Electrical Code(NFPA 70)as adopted and amended by the State of Georgia for enforcement by the City of Atlanta.a.The off-road parking provided for certain specified building occupancies must have EVSE infrastructure installed at the parking spaces dedicated for the use of the building.b.The ratio of EV parking spaces to non-EV parking spaces shall be 1:5 and only applies to the total new parking spaces.c.Designated dual-port EVSE may be dual-usage for ADA-accessible EV-charging spaces and non-ADA-accessible EV-charging spaces with ADA-compliant hardware.The use of the space for accessible parking takes precedence over the need to use this space for EV charging.Other criteria for signage,parking,landscaping is included in the policy such as:1.Installation of EVSE must meet NFPA 625 as it may be from time to time amended.2.EVSE must be mounted on the wall or on a structure at the end of the space provided and must be placed at least 4.5 feet above the parking surface of the space.No charging devices may be placed within the dimensions of a space on the sides or entrance to a space.3.EVSE mounted on structures such as pedestals,lighting posts,bollards,or other devices must be located as to not impede pedestrian travel or create trip hazards.4.Wayfinding signs,if installed,must be placed to effectively guide the motorists to the EV parking space and/or charging station.Private regulatory signage must be placed in a manner that must not interfere with any parking space,drive lane,or exit.5.Each EVCS and parking space for which any parking incentive was granted must be reserved for use as an EVCS or as EV-reserved parking.If time limits or usage requirements are to be enforced by vehicle immobilization or non-consensual towing,the posting of signage that complies with the requirements of the city code applicable to vehicle immobilization or non-consensual towing must be observed.Vehicle immobilization or non-consensual towing may be enforced for the EVCS and parking spaces by the owner or operator of the parking spaces even when no parking incentive was granted.6.Any EVCS and parking spaces for which any parking incentive was granted must be operational at all times.When an EV parking station is not operational for 14 consecutive days,it must be considered to have been removed from service.The failure to maintain the number of EVCSs and parking spaces shall be cause to require the installation of the number of parking spaces required by the district regulations.7.A phone number or other contact information must be provided when the station is not functioning in a manner that allows EVs to be charged.35 Source:Compiled by Transport Energy Strategies,August 2021TABLE 6:EXAMPLE OF LOCAL GENERAL APPROACHES TO SETTING POLICIES FOR PUBLIC EV CHARGING:ATLANTA19FUELS INSTITUTE|EVC|REGULATORY BEST PRACTICES 20PERMITTING REQUIREMENTSSome cities that were included in the survey require a permit before an EV charger can be installed.Some localities have implemented expedited review processes and requirements for EVSE permitting,particularly in California,which requires localities to implement such processes(noted above).Some localities have developed guidelines,checklists,websites,and other information to assist prospective site hosts.36 Others allow application packages to be submitted online,such as in Houston.37 Common information a locality requires in the permitting process includes:site plans a single-line electrical diagram load calculations and whether a panel upgrade will be required a separate mechanical permit application if ventilation will be required for the station charger installation instructions from the manufacturer how the site host will address accessibility,with clear diagrams and text showing how the project will meet ADA requirements38 easement requests,if necessary36 The city of Tustin,California,has a checklist that exemplifies what an AHJ may require and what a checklist looks like:City of Tustin,Eligibility Checklist for Expedited Electric Vehicle Charging Station Permit:Non-Residential Buildings and Facilities,August 2017,https:/www.tustinca.org/DocumentCenter/View/647/EVCharger-Eligibility-Checklist-Non-Residential-PDF.37 Houston Permitting Center,Electrical Vehicle Charging Outlets Permit,https:/www.houstonpermittingcenter.org/hpwcode1056.38 California Governors Office of Business and Economic Development,Electric Vehicle Charging Station Permitting Guidebook,2829.Localities may require a site plan and may need to address the following elements:utility interconnection requirements and an electrical plan grading and drainage that may be required at the site landscaping plan,particularly if any trees will need to be removed,which may trigger a tree removal permit lighting parking,with the number of required and existing parking spaces shown in the plan some AHJs have ordinances requiring a certain percentage of parking spaces be dedicated to EV charging accessibility and compliance with ADA requirements equipment anchorage EVSE protection,such as with the placement of bollards and curbs ensuring right-of-way for pedestrians and that cords will not present trip hazards types of station and wayfinding signage used to direct drivers into EV-charging spaces adherence to all applicable codes,such as the National Electric Code(NEC),National Fire Protection Code(NFPA)and the International Building Code(IBC),among others.Table 7 provides two examples of approaches to regulating permitting for EV charging.FUELS INSTITUTE|EVC|REGULATORY BEST PRACTICES 2139 Berkeley Municipal Code,Section 19.15(2021).40 City of Boston,How to Guide:Electric Vehicle Charger Installation,December 2019,https:/www.boston.gov/sites/default/files/file/2019/12/How To Install an EVSE.pdf.STATESUMMARY OF POLICYBerkeley,California Prior to submitting an application for processing,an applicant must verify that the EVCS meets applicable health and safety standards and requirements imposed by the state and the city.An EVCS must meet all applicable safety and performance standards established by the California Building,Electrical and Green Building Standards Codes,the Society of Automotive Engineers,the National Electrical Manufacturers Association,and accredited testing laboratories such as Underwriters Laboratories and,where applicable,rules of the Public Utilities Commission regarding safety and reliability.A permit application that satisfies the requirements in the citys checklist must be deemed complete and be promptly processed.Upon confirmation by the building official that the permit application and supporting documents meet the requirements of the citys checklist and are consistent with all applicable laws and health and safety standards,the building official will approve the application and prepare the permit for issuance.If the building official determines that the permit application is incomplete,the building official must issue a written correction notice to the applicant,detailing all deficiencies in the application and any additional information required to be submitted to facilitate expedited permit issuance.Review of an application must be limited to the building officials review of whether the application meets the checklist and any applicable California Building Standards Code requirements.However,if the building official makes a finding,based on substantial evidence,that the EVCS could have a specific,adverse impact upon the public health and safety,the applicant may be required to apply for a use permit.In the case that a use permit to install an EVCS is required,its application may not be denied unless written findings are made based upon substantial evidence in the record that the proposed installation would have a specific,adverse impact upon the public health or safety,and there is no feasible method to satisfactorily mitigate or avoid the specific,adverse impact.The findings must include the basis for the rejection of potential feasible alternatives of preventing the adverse impact.39 Boston,MassachusettsThe City of Boston has separate permitting processes for new and existing developments.An electrical permit is required to install EVSE for existing developments.However,installation of a charging station associated with the development of a new residential or non-residential property can be processed in association with the underlying permit(s).Electrical permit applications are on the citys online portal,where the user creates an account to electronically apply for permits.Relevant project information includes any team members,number of floors being worked on,existing service,new service information,and attaching all necessary attachments.After obtaining the required permit and satisfying the relevant requirements,site hosts can proceed with installation.40 Source:Compiled by Transport Energy Strategies,August 2021TABLE 7:APPROACHES TO REGULATING PERMITTING FOR EV CHARGINGFUELS INSTITUTE|EVC|REGULATORY BEST PRACTICES 22PARKING REQUIREMENTSSeveral cities have parking-related requirements for EVs(Table 8).41 Clayton County Georgia Code of Ordinances,Section 4.87(L)(2021).42 The Dallas City Code,Section SEC.51A-4.217(2021).43 Mesa Arizona Code of Ordinances,Section 11-32-4(2021).44 Montgomery County Maryland Code,Section 6.2.5.F(2021).45 Riverside County California Code of Ordinances,Section 17.188.045(2021).STATESUMMARY OF POLICYClayton County,GeorgiaA minimum of one EVCS shall be provided for all new developments that have 100 parking spaces or more.41 Dallas,TexasUp to 10%of parking counted as required parking for a main use on the property may be EV-charging spaces.42Mesa,ArizonaIf spaces for EVs are provided,allowed compact parking spaces can be increased by 1%for every two EVCSs;up to a maximum of 25%of the total minimum required.43(11-32-4).Montgomery County,MarylandAn EVCS-ready parking space must be:1.located in a preferential,highly visible area within the parking facility2.a minimum width of 9 feet3.designed so that the space and pathways for the future installation of at least a 120-volt charging station and associated infrastructure are provided4.constructed such that all conduits leading to the electrical room,including electrical service conduit,service size,and the electrical room,are appropriately sized to accommodate future electrical equipment necessary for the number of EVCS-ready parking spaces required.44Riverside County,CaliforniaAll development projects that require 25 to 49 parking spaces shall designate two parking spaces for EVs.All development projects that require 50 or more parking spaces shall designate three spaces for EVs and designate one additional space for EVs for each additional 50 parking spaces.All EV parking spaces shall be serviced by an EVCS.If capable,a charging station may service more than one EV parking space.All EV parking spaces shall be shown on parking site plans.Charging stations and associated equipment or materials shall not encroach into the minimum required areas for driveways,parking spaces,garages,or vehicle maneuvering.45Source:Compiled by Transport Energy Strategies,August 2021TABLE 8:APPROACHES TO REGULATING PARKING FOR EV CHARGINGFUELS INSTITUTE|EVC|REGULATORY BEST PRACTICES 23EV-READY BUILDING CODE REQUIREMENTSCalifornia,Massachusetts,Oregon,and Washington and more than 23 localities have implemented EV-ready building codes that require a certain percentage of parking spaces in residential,multi-unit dwellings,and commercial buildings to be EV-ready and/or EV-capable.46 These terms are defined as follows:EV-ready spaces:Full circuit installations include 208/240 V,40-amp panel capacity,raceway,wiring,receptacle,and overprotection devices similar to a dryer circuit.EV-capable spaces:Panel capacity and the conduit(raceway)are installed to accommodate the future build-out of EV charging with 208/240 V,40-amp circuits.EV-installed spaces:EV charging must be installed in new buildings that are constructed.46 The Southwest Energy Efficiency Project is tracking these developments on an ongoing basis:“EV Infrastructure Building Codes:Adoption Toolkit,”Southwest Energy Efficiency Project,https:/www.swenergy.org/transportation/electric-vehicles/building-codes#requirements.47 The International Code Council,“Electric Vehicles and Building Codes:A Strategy for Greenhouse Gas Reductions”,September 2021 at https:/www.iccsafe.org/wp-content/uploads/21-20604_COMM_EV_Strategy_RPT_v5.pdf(hereinafter“International Code Council).The International Code Council in September 2021 published an educational resource on EV-readiness provisions for residential,multi-unit dwellings,and commercial buildings.47 Table 9 summarizes model code language pertaining to commercial buildings.Notes:(a)Where EVSE-Installed Spaces installed exceed the required values in Table C401.4.1 the additional spaces shall be deducted from the EV-Ready Spaces requirement.(b)Where EV-Ready Spaces installed exceed the required values in Table C401.4.1 the additional spaces shall be deducted from the EV-Capable Spaces requirement.Source:International Code Council,September 2021TABLE 9:EVSE-INSTALLED,EV-READY SPACE AND EV-CAPABLE SPACE REQUIREMENTS FOR NEW COMMERCIAL BUILDINGSTOTAL NUMBER OF PARKING SPACESMINIMUM NUMBER OR%OF EVSE-INSTALLED SPACES(A)MINIMUM NUMBER OR%OF EV-READY SPACES(B)MINIMUM NUMBER OR%OF EV-CAPABLE SPACES1 2 10 11 15 16 19 21-25 26 _#or _%of total parking spaces_#or _%of total parking spaces_#or_%of total parking spacesFUELS INSTITUTE|EVC|REGULATORY BEST PRACTICES 24The model code recommends that:Construction documents shall indicate the raceway termination point and proposed location of future EV spaces and EVSEs.Construction documents shall also provide information on amperage of future EVSE,raceway methods,wiring schematics and electrical load calculations to verify that the electrical panel service capacity and electrical system,including any on-site distribution transformers,comply with the requirements of this code.Vehicle spaces equipped with EVSE shall be identified by signage.A permanent and visible“EV-Capable”or“EV-Ready”label shall be posted in a conspicuous place at the service panel to identify each panel space reserved to support EV-Capable or EV-Ready Spaces,respectively and at the termination point of the raceway or circuit termination point.48 Table 10 provides examples of EV-ready building codes that cities have instituted.48 International Code Council at 10.49 Chicago City Ordinance SO2019-8025(April 24,2020).50 ity of Denver Community Planning and Development,Code Amendment Proposal(2019).51 San Jose California Municipal Code,Section 24.10.300(2021).52 Sedona Arizona City Code,Section 15.45(2021).53 Seattle Municipal Code,Section 23.54.030(L)(2021).LOCALITYSUMMARY OF POLICYChicago,Illinois20%EV-ready(30 spaces)49Denver,Colorado5%EV-installed,10%EV-ready,10%EV-capable 50 San Jose,California10%EV-installed,40%EV-capable 51 Sedona,Arizona5%EV-capable 52 Seattle,Washington10%EV-ready 53Source:Compiled by Transport Energy Strategies,August 2021TABLE 10:APPROACHES TO REGULATING EV-READY BUILDING CODES FOR EV CHARGING IN NON-RESIDENTIAL SPACES24FUELS INSTITUTE|EVC|REGULATORY BEST PRACTICES 25SIGNAGE REQUIREMENTSSeveral cities have signage requirements for EV charging;see Table 11 for examples.54 Jersey City Code of Ordinances,Section 332-28.1(2021).55 Kansas City Missouri Zoning and Development Code,Section 88-305-10-E(2021)56 Miami-Dade Florida County Code of Ordinances,Section 33-122.5(2021).STATESUMMARY OF POLICYJersey City,New JerseyAt the direction of the municipal engineer,there must be appropriate signs and markings to be placed in and around the EVCS that prominently indicate the parking regulations.The signs must identify the voltage and amperage levels;define time limits,fees,and hours of operation,as applicable;and state that the charging station space is reserved for charging purposes only,which is to be defined as occurring when a vehicle is connected to the EVSE for electric charging purposes.54Kansas City,MissouriEV-charging equipment must be designed and located so as to not impede pedestrian,bicycle,or wheelchair movement or create safety hazards on sidewalks.1.Information must be posted identifying voltage and amperage levels and any type of use,fees,or safety information related to the EVCS.2.A public EVCS must be posted with signage indicating that the space is reserved for EV-charging purposes only.55 Miami-Dade County,FloridaAll EV parking spaces shall be prominently designated with a permanent above-ground sign that conforms to the figure below entitled“Electric Vehicle Charging Station Sign.”The bottom of the sign must be at least 5 feet above grade when attached to a building,or 7 feet above grade for a detached sign.The number of required EVSE spaces or EVSE-ready spaces shall be determined based on the total number of off-street parking spaces,as shown in the table in the statute.The property owner or operator may establish the hours during which vehicles may be charged and the length of charging time permitted per vehicle,provided such information is depicted on the sign in the manner shown in the figure included in the ordinance.56 Source:Compiled by Transport Energy Strategies,August 2021TABLE 11:APPROACHES TO REGULATING SIGNAGE FOR EV CHARGINGEVELECTRICVEHICLEPARKINGAND CHARGINGSTATIONHOUR#CHARGINGAMPMTO76FUELS INSTITUTE|EVC|REGULATORY BEST PRACTICES 26TECHNICAL REQUIREMENTS Several cities have technical requirements for EVs;see Table 12 for examples.There may be other technical requirements,codes and standards that will be applicable as well and need to be considered,including the International Fire Code(IFC),National Electric Code(NEC)and National Fire Protection Association(NFPA)Code.57 Gwinnett County Code,Section 115.1(2022).58 City of Santa Clara Code,Section 15.38(2022).59 City of Warren Zoning Code,Article IV-E(2022).STATESUMMARY OF POLICYGwinnett County,GeorgiaCommercial buildings,multifamily residential buildings and single-family residential units shall have electrical panels installed with space reserved for the installation of a 2-pole single-phase circuit that can be used for an electric vehicle charging system.57Santa Clara,CaliforniaSanta Clara implements the California Green Building Code,which includes a technical provision related to construction plans and specifications.These must demonstrate that all raceways shall be a minimum of 1”and sufficient for installation at all required EVCS.Electrical calculations shall substantiate the design of the electrical system to include the rating of equipment and any on-site distribution transformers and have sufficient capacity to simultaneously charge EVs at all required EVCE including EV Capable spaces;and service panel or subpanel(s)shall have sufficient capacity to accommodate the required number of dedicated branch circuit(s)for the future installation of the EVSE.58Warren,MichiganElectric vehicle charging stations shall be maintained in all respects,including the functioning of the equipment.A phone number or other contact information shall be provided on the equipment for reporting non-functioning equipment,malfunctioning equipment,or other issues regarding the equipment.59Source:Compiled by Transport Energy Strategies,August 2021Note:These provisions are part of an overall EV-ready policy for these two areas.Policies cross over and may cover a range of topics.TABLE 12:APPROACHES TO TECHNICAL REQUIREMENTS FOR EV CHARGING26FUELS INSTITUTE|EVC|REGULATORY BEST PRACTICES 27SITE DESIGN REQUIREMENTSSeveral cities have other site design requirements for EVs;see Table 13 for examples.60 Mesa Arizona Code of Ordinances,Section 11-32-4(2021).61 Montgomery Maryland County Code,Section 6.2.5.F(2021)62 Town of North Hempstead,New York,Municipal Code,Section 70-203X(2021).STATESUMMARY OF POLICYContra Costa County,California Each EV-charging space must include a posted sign and painted curb,or ground markings,indicating that the space is exclusively for EV-charging purposes.EV-charging equipment must be located so that pedestrians are not required to cross between the EV-charging space and the EV-charging equipment.The EV-charging equipment may not obstruct any ADA-compliant sidewalk,entrance,curb-cut,or ramp,while in use or otherwise.EV-charging equipment must be illuminated by lighting to enable the equipment to be used at night.Concrete-filled steel bollards or other similar barriers must be installed between EV-charging equipment and an EV-charging space under certain conditions outlined in the code provision.Mesa,ArizonaEVCS may be placed in parking lot landscape islands.If necessary,shrubs and ground cover may be eliminated to accommodate the charging equipment.60Montgomery County,MarylandAn EVCS-ready parking space must be1.located in a preferential,highly visible area within the parking facility;2.a minimum width of 9 feet;3.designed so that the space and pathways for the future installation of at least a 120 V charging station and associated infrastructure are provided;and4.constructed such that all conduits leading to the electrical room,including electrical service conduit,service size,and the electrical room,are appropriately sized to accommodate future electrical equipment necessary for the number of parking spaces required to be ready for EVCS.61North Hempstead,New YorkAn EVCS shall be permitted in all commercial districts,subject to the following:1.Each EVCS shall include vehicle-impact protection(bollards)or a similar structure.2.A maximum of two parking spaces that are designated for the exclusive use of electric charging and the sale of electricity may be counted toward the off-street parking requirements specified in 70-103.3.Components for an EVCS may encroach up to 36 inches into a required setback or buffer.62Source:Compiled by Transport Energy Strategies,August 2021TABLE 13:APPROACHES TO REGULATING SITE DESIGN FOR EV CHARGING28FUELS INSTITUTE|EVC|REGULATORY BEST PRACTICES In discussions with stakeholders involved in the EV-charging space,and as shown in the experiences and recommendations below,common issues related to expanding public charging include:creating necessary incentives to help reduce investment risk and address demand charges expediting permitting updating and addressing permitting,inspection,and zoning codes may inadvertently serve to constrain charging expansion instituting EV-ready/capable building codesTypes of Policies that Can Best Facilitate the Quick,Efficient Expansion of Public EV-Charging Infrastructure:VIEWS FROM INDUSTRY STAKEHOLDERSFUELS INSTITUTE|EVC|REGULATORY BEST PRACTICES 29Stakeholder also raised the issue of reliability of charging stations and incorporating equity,which localities should consider.They highlighted the need to begin planning now for the future expansion of charging;for localities to consider harmonizing policies,especially in metropolitan areas as well as at the state and even national levels;for policymakers to better understand the EV-charging space;and for better coordination at all levels of government.Turning to demand charges,PUCs should address issues surrounding cost recovery,TOU,and demand charges.One of the primary operating costs for DCFC stations is the cost of electricity.In the absence of an EV-charging rate,DCFC customers take service under rates that include both energy and demand components.A study by Rocky Mountain Institute found that when utilization of DCFC stations is low,which is common given the nascency of the technology and EV industry,demand charges can account for up to 90%of a stations monthly electricity bill,resulting in prohibitively high operating costs.To meet current and future EV needs,and maximize ratepayer savings,some third-party charging companies have said that utilities might consider designing and implementing purely volumetric energy-based EV-charging rates that mitigate the impact of demand charges.Some state PUCs have instituted new demand charge“holiday”rates or reductions.Examples include:Southern California Edison:Created an approved demand-charge-free rate for all non-residential DCFC load for a five-year period,followed by the phase-in of a modest demand charge over the following five years.The long-term demand charge is lower than the demand charge on the default rate.The TOU volumetric energy charges have been increased to recover costs previously recovered in the demand charge.Eversource(Connecticut):Approved a demand-charge-free rate for all DCFC charging load with increase in volumetric energy charge to recover costs previously recovered in the demand charge.No limit on term of rate offering.NV Energy(North and South territories)(Nevada):Approved a DCFC rate with a ten-year transitional demand charge(20192028).ConEd(New York):Approved an economic development rate for DCFC that includes a bill discount for seven years.Pacific Power(Oregon):Approved a rate beginning with a demand-charge discount of 90%,phasing in at 10%per year until the demand charge is restored at 100%.TOU volumetric energy charges are adjusted to recover costs previously recovered in demand charges.Florida Power and Light:With approval by the Florida PSC,the company has created the utility-owned public charging for EVs tariff of$0.30 kWh for electricity sold to users of DCFC stations.The rate is based on a comparison of a cost-per-mile basis of recent gas prices.Two other tariffs,1)EV-charging infrastructure riders for general service demand and 2)general service large demand,will reduce the impact of demand changes brought about by charging stations with low utilization.With respect to permitting,states can implement policies that have been proven effective,such as Californias streamlined permitting and make-ready laws as well as New Jerseys accessory use bill(S3223)noted in the sections above.FUELS INSTITUTE|EVC|REGULATORY BEST PRACTICES 30Localities can adopt EV-ready/EV-capable building codes to help facilitate the expansion of charging.Buildings constructed today will last for 50 years or more and retrofitting parking structures is at least four to eight times more expensive than outfitting garages at initial construction,with residents often bearing these costs.When installed during initial construction,EV-charging infrastructure costs are generally less than 1%of the total building construction cost.Elements that could be included in EV-ready/capable building codes specifically for multi-unit dwellings and non-residential/commercial properties include:Size the primary electrical panel capacity to provide 20%of parking stalls with at least 40-amp 208/240 V service for each parking space.Distribute subpanels throughout parking facility,with no parking space more than 100 feet from an interconnection point(deeded spaces).“Future proof”the building by providing the option to utilize automatic load-management systems to provide L2 EV charging to 100%of parking spaces,as described in section 625.41 of the National Electrical Code(2014).Require that 20%of spaces be EV-ready and up to 100%of spaces be EV-capable.Finally,several stakeholders highlighted that an extended zoning review,with multiple rounds of commenting,and the application of parking count minimums are the most common causes of project delays.Below are recommended policies and best practices local governments can adopt to improve EV-charging installation timelines:Establish and enforce permitting turnaround times.For example,a California law(AB 970)deems a permit automatically complete within 5-10 days and deems a permit automatically approved within 20-40 days.Establish an expedited EV permit review process that encourages permit reviewers to administratively approve permits(a.k.a.“approved as noted”).An example is Californias expedited permitting law,noted above.).Amend zoning codes to clarify that public EVCS(L2 or DCFC)does not require further zoning board approval and to clearly identify any exceptions.Appoint an EV-infrastructure permitting point-person to help applicants through the entire permitting process.Align planning codes so that EVCS application reviews are limited to health and safety.Publish an ordinance or bulletin clarifying that EV-charging spaces count as one or more parking spaces for zoning purposes.Count EVCS spaces as regular parking stalls in the parking count study to include supporting equipment(transformer,switchboards,power cabinets).California legislation(AB 1100 and AB 970)can serve as a model or guide for states and localities.Classify EVCS is as an accessory use to a site,not as a traditional fueling station.Allow EVCS as an approved use as a primary use of a site with streamlined permit and zoning review.Require only an electrical permit,as opposed to an additional EVCS permit.Adopt an online permitting process.Clear permitting and inspection processes,requirements,and forms should made available on a public-facing website for single-family home,multi-family home,and workplace,public,and commercial medium-and heavy-duty charging.Establish an online submittal and payment process,ideally through a portal.FUELS INSTITUTE|EVC|REGULATORY BEST PRACTICES 31 Route permit applications through one department,not multiple.In cases where multiple departments need to review,the reviews should be concurrent rather than sequential.Limit the number of review comments and consolidate when possible.Incorporate and prioritize planning for zero-emission vehicles and supporting infrastructure within documents,such as the general plan,capital improvement plan,climate action plan,and design guidelines.Offer pre-application meetings with knowledgeable staff.Finally,several stakeholders raised the issue of utility service connection timelines and site constraints and easements,with the following regulatory best practices recommended:Require utilities to disclose average timelines for service connection for EV-charging accounts.Provide special easement considerations for EV charging,including the ability to include utility easement language in site leases and contracts between an EV-charging developer and landowner or a long-term ground lessee.Allow for utility make-ready for EV charging(which could be modeled after legislation enacted in California,AB 841).Allow visibility into where power is available on the grid,such as with hosting capacity maps or a way to check with the utility if power is available at a specific site.Improve the feasibility study phase for new projects without having to go through the full design process.Maintain an inventory of utility equipment commonly used in EV-infrastructure installations,specifically transformers that otherwise can be“made to order”and require long lead times.Provide dedicated design and construction staff for EV-infrastructure projects.Streamline utility design approvals.Below are specific recommendations and perspectives from various stakeholders involved in expanding public charging.NORTH CENTRAL TEXAS COUNCIL OF GOVERNMENTS:Its Important for Localities to Prepare Now for EV GrowthThough EVs only represent 2%of vehicle sales in the U.S.as of 2021,that will change in the coming years,and localities need to be prepared.EV readiness is an important priority for the North Central Texas Council of Governments,as a fast-growing region with EV uptake growing faster than the national average.With all the economic growth in the region and new construction,supporting the development of EV-charging infrastructure(both public and private)with EV-ready/EV-capable building codes is becoming a priority,and it makes economic sense to put the infrastructure in so that when the time comes to install EVSE,the costs will be lower and more manageable.Another important policy consideration for localities are incentives for putting infrastructure into place,such as local government incentives that would waive or expedite permits if charging infrastructure is installed in new building construction.FUELS INSTITUTE|EVC|REGULATORY BEST PRACTICES 327-ELEVEN:We Need Better Solutions for Demand Charges and Expedited/Streamlined PermittingThere are many barriers to the successful implementation and operation of the EV-charging business,according to Becky Knox,senior energy policy analyst at 7-Eleven Inc.Removing barriers to market,such as high demand charges and slow,antiquated siting and construction processes,are key to ensuring the rapid expansion of nationwide fast convenient EV charging for all customers.7-Eleven believes that state policymakers,utilities,and stakeholders need to work together on solutions that create more favorable rate structures for EV fast charging.Companies are less likely to invest in areas with high demand rates because they can add significant cost to operations,making a successful long-term business unobtainable.At this early stage in the EV market,when charger utilization is still relatively low,it will be difficult,and costly,to successfully operate a nationwide fast-charging network if the demand-charge issue is not addressed.Additionally,the process of installing EV infrastructure for DCFC needs to be updated and expedited.This includes working with AHJs to streamline the permitting and inspection process so that projects can move forward faster.It also includes working with utilities to expedite siting of locations with available capacity as well as speeding up interconnection and easement processes.Some states have already started addressing these issues and could provide a good foundation for identifying best practices and lessons learned.Working in partnership with state policymakers,AHJs,utilities,and other stakeholders to create favorable utility rate structures and streamlined implementation processes are key factors in advancing the EV fast-charging market.These types of changes will help ensure that consumers have access to more convenient,reliable,and fast EV-charging solutions.FUELS INSTITUTE|EVC|REGULATORY BEST PRACTICES 33FLO:Localities Have a Critical Role to Play in Expanding ChargingFLO is a leading North American EV-charging network operator and a major provider of smart charging software and equipment.FLOs headquarters and network operations center are based in Canada,with an office in Montreal and regional teams located in Ontario,British Columbia,California,New York,and Texas.There are measures that already exist in other jurisdictions that localities should consider adopting to better facilitate the expansion of public charging infrastructure.For example,the company is supportive of expedited and streamlined permitting policies,such as those that exist in California.Second,enforcing measures that already exist are important.One example is enforcing parking policies that restrict EV-charging spaces to only EVs.Adopting EV-ready/EV-capable building codes is important,such as the Green Building Code legislation adopted in California and implemented by localities.However,Californias building code currently only addresses L2 charging;FLO recommends a pathway encouraging DCFC make-ready infrastructure build-out so that the option is available to site hosts that want it.This is an issue that is currently under discussion and being addressed in California.Policies should be flexible and focus on the“state of the art.”For example,California has minimum requirements with respect to payment standards,which requires an EMV-chip credit-card reader.However,FLO notes that while this is beginning to phase out,regulators will likely be to slow to adapt the regulation as the market evolves quickly.This will result in unnecessary added costs and create potential reliability issues with the station.Localities should beware of lowest-cost charging solutions.Rather,to ensure people keep adopting EVs,governments need to focus on both increasing the quantity of charging stations and ensuring the quality of those stations.Cory Bullis,senior public affairs specialist for the U.S.for FLO,says,“FLO is trying to prevent a race to the bottom with charging equipment because there are tons of stories about broken chargers in the wild.Consumers are frustrated,consumers hate it,and then they feel like EVs are not a good fit for them.”One way to address this,he says,is by developing and implementing a reliability standard.“In any of your procurements,you should mandate a percentage of uptime,in a given year,”Bullis notes.FLO recommends at 97%uptime target.Since localities are using public dollars and need to show good stewardship of these funds,they should require uptime to guarantee reliability and reduce downtime.In addition,localities have a central role in developing curbside charging because they can help with site selection,permitting,and reserving spots for charging.Bullis notes that“cities need to take an active role in guiding and shaping that process to make it a reality.And cities should want curbside charging to be a tool in their toolbox because its going to be an important service for a lot of their citizens that cant access charging at home,especially those at apartment complexes.”FUELS INSTITUTE|EVC|REGULATORY BEST PRACTICES 34Finally,equity is also an important consideration in expanding public EV charging.FLO suggests the following principles that localities should consider in ensuring equity,particularly in low-income,disadvantaged,and rural communities.1)Ensure funding provides assured and measurable benefits:Given that low-income and disadvantaged communities have typically been left behind in initial efforts to electrify transportation,50%of ongoing public and ratepayer funding for transportation electrification programs should go to projects located in these communities.Half of these funds should also go to projects that benefit households with lower incomes residing in these communities.Projects must be allowed to fulfill both of these requirements if they meet specified criteria.2)Distribute charging stations equitably:To ensure all communities can access and benefit from EVs,governments and utilities need to ensure the chargers they fund are distributed evenly by population density,geographical area,and population income levelincluding low-,middle-,and high-income levelsacross the state and their respective service territories,with considerations given to redundancy in deployment to provide adequate support to drivers.3)Ensure equitable reliability of charging stations:Public-or ratepayer-funded charging stations must be reliable and maintained equitably across communities,regions,geographies,and charging networks.No communitywith a particular focus on low-income and disadvantaged communitiesshould struggle with a lower level of reliability from publicly funded stations deployed in their area.State agencies and utilities should analyze the reliability of public-or ratepayer-funded charging stations to determine whether there are inequities with regards to their reliability.4)Deploy stations in rural areas:As part of statewide efforts to deploy charging stations evenly,the unique challenges to deploying infrastructure in rural communities,where electrical capacity is often limited,must be addressed.Identifying best practices and lessons learned has the potential to help standardize and expedite solutions in these areas;in other words,our solutions must be data driven.Deploying more robust infrastructure in rural areas also enables potential microgrid developments and vehicle-grid integration solutions,which provides resiliency benefits in the event of public-safety power shut-offs.5)Fund community-based organizations to deliver incentives to households with lower incomes:Governments and utilities offer a number of consumer-facing incentives for EVs and charging stations,among other things.Public access to these incentives is often obscured or overly complex,which only exacerbates trust issues typically expressed by marginalized groups toward government bodiesand limits the uptake of EV incentive programs.Partnerships with community-based organizations,then,are crucial given that these organizations best understand the unique needs of their respective communities and can more effectively deliver these incentives to households with lower incomes to make sure families can access the benefits of these technologies.6)Electrify shared-mobility applications:Shared-mobility applications provide critical access to transportation,and driver and rider demographics are typically primarily represented by lower-income and underserved groups.To support these services transition to EVs and help underserved groups access zero-emission shared-mobility services(which can include car-sharing,ride-hailing,and vanpooling services),government,utilities,and infrastructure providers must have a dedicated FUELS INSTITUTE|EVC|REGULATORY BEST PRACTICES 35focus in deploying infrastructure solutions at“urban mobility hubs,”where shared-mobility vehicles are most concentrated,defined as downtown cores,airports,and nearby multi-dwelling units.7)Upgrade panels to support home charging for households with lower incomes:Many older homes,typically built decades ago,are occupied by people with lower incomes and lack the appropriate electrical infrastructure to support EV charging.The cost to upgrade electrical panels is one of many barriers that prohibit families living below certain income thresholds from switching to an EV.Given the substantial wage gaps between families at the lower and higher ends of income ranges,dedicated funding is needed to target these households and remove this cost-related barrier to electrification.Doing so will have a multiplier effect by also enabling building electrification and supporting renewables integration.SOUTHERN COMPANY:Engage Utilities NowLincoln Wood,electrification policy manager at Southern Company,says its important for states and localities to engage utilities,especially as they prepare to devote more funding to installing EV-charging infrastructure.He says,“With$7.5 billion in federal EV infrastructure funding made possible by the bipartisan infrastructure bill,it has never been more important to engage utilities early in the process.We want to partner with state and local governments,transportation agencies and industry stakeholders to share our energy expertise and knowledge of state requirements to put these funds to work quickly and efficiently.”Wood says it is critical that the lines of communication remain open among site hosts,charging companies,state and local officials,and utilities to expand EV-charging infrastructure.He notes its important to understand more how utilities work and their constraints.“Utilities have regulatory responsibilities there are processes and reasons for why things are done the way they are.We are in the business of providing safe,reliable,affordable,and clean electricity to the customers we serve and remain focused on proactive grid preparation and management to meet EV charging demands as the market matures.”Wood says harmonizing various regulatory processes at the state and local levels,as well as funding and timelines,is an all-hands-on-deck task to ensure that as EVs begin to scale up,the infrastructure will be there.He points to,as an example,the regulatory lag that can occur in PSCs between the time that utility programs are approved and that they can actually be implemented.He notes that federal funding will help speed up the expansion of charging infrastructure but aligning processes is important as well.Wood says that grant funding will be available down the road for ports and airports for conversion from diesel to EVs and will involve a multi-stakeholder process to apply for those grants.Its important for states and localities to begin looking at potential opportunities and preparing for them now.“To me,that means laying the groundwork now,”he says,“so that when the time comes,the right players are in the room at the right time to put the proposal together.”KUM&GO:Metropolitan Areas Should Consider Harmonizing EV-Charging PoliciesIn addition to addressing the issue of demand charges(a critical barrier in expanding charging),in Kum&Gos view there are three other areas that localities should consider as they develop and implement EV-charging policies:improving the permitting process by adopting expedited,streamlined permitting policies;clarifying ADA requirements related to charging;and harmonizing policies among localities in metropolitan areas,if not state-or nationwide.FUELS INSTITUTE|EVC|REGULATORY BEST PRACTICES 36Brad Petersen,director of retail fuels at Kum&Go,says that permitting varies widely among the jurisdictions where the company operates and,surprisingly,some of the most progressive and supportive charging policies also have the most complicated permitting regimes.“We are able to complete our permitting stage and start construction in a timely manner in some areas,and in other areas the permitting process is very slow,”he says.This will need to change to expand charging,or fuel retailers may conclude it is just too complicated to develop charging stations in some jurisdictions.Another issue Petersen highlights is that localities should consider clarifying for site hosts the ADA accessibility requirements for charging sites.These issues are currently being considered in states like California,but Petersen says it will ultimately save time and costs for charging station developers to have clarity on what those requirements are as charging continues to grow.He also highlighted potential ADA issues with existing stations that may affect site hosts.“Localities really need to be considering this now as they develop charging policies,”Petersen says.Finally,Petersen says regulatory consistency,at least among localities in metropolitan areas,is critical.To really help expand charging infrastructure,regulatory regimes should ideally be consistent at the state or even national levels.The difficulty for fuel retailers and convenience store operators is that they typically have consistent,replicable store designs to control both development costs and provide a seamless customer experience.A patchwork of regulatory requirements may impact both.“When we build stores,we try to be consistent,”Petersen says.“The inconsistencies create complications and slows down the process,and it creates additional work to ensure compliance.”Harmonized regimes,especially for permitting,could address this issue.FREEWIRE:Ensure Policies Account for New,Emerging TechnologiesPeter Olmsted,director of regulatory affairs for FreeWire Technologies,explained that with the substantial public and private investments being committed to deploy EV-charging infrastructure,it is critical to ensure that these investments result in the biggest bang-for-the-buck.DCFC will be a critical piece of the EV-charging ecosystem as long as deployment is timely and cost effective.FreeWire observes that the time and cost associated with building or upgrading traditional electrical and grid infrastructure can present barriers to the deployment of fast-charging equipment,which presents a risk to meeting EV adoption targets.FreeWire offers battery-integrated ultrafast charging solutions that overcome these barriers and deliver energy whenever and wherever its needed by connecting to the grid at low voltage power that is converted to high power output delivered to vehicles.With this innovative technology,Olmsted says FreeWires Boost Charger can avoid the complexity of upgrading traditional grid infrastructure,as well as help to manage energy costs associated with fast charging.“We are encouraging utilities,regulators,and policymakers to think outside of the box and design EV-charging programs that leverage and reward technology innovations such as pairing DCFC and energy storage technologies,”says Olmsted.“By creating space in EV-charging programs for innovative solutions to compete on equal terms,FreeWire believes that site hosts will be able to select from the broadest range of technology options available in the market.We believe that the best EV-charging programs are those that are designed to encourage the most optimal outcome,including speed of deployment and reduced grid impact.While we understand the purpose of utility make-ready and demand-charge relief programs,we are concerned that these will slow deployment and increase the total cost of fast-charging solutions.”FUELS INSTITUTE|EVC|REGULATORY BEST PRACTICES 37For example,Olmsted notes that FreeWire has proposed a per-kWh incentive for battery storage in some states to support the deployment of EV charging paired with battery storage.In other words,in situations where battery-integrated EV charging offers the ability to reduce costs associated with make-ready infrastructure,FreeWire has suggested that it would be appropriate to incentivize these technology configurations.This would put different technology solutionsmake-ready infrastructure and technologies like FreeWireson equal footing in terms of the customer value proposition.“Funding can be invested in traditional make-ready infrastructure or on capital equipment and energy storage,”Olmsted says.“We are trying to educate policymakers and regulators that there is opportunity to push the industry to innovate and deliver solutions that will benefit EV drivers,site hosts,the grid,and ratepayers at large.”Olmsted also points out that with the new federal funding for EV-charging infrastructure,it will be critical for states and localities to build on prior programs,such as those established as part of the Volkswagen Settlement.Olmsted says,“Its important to get those dollars to work as quickly as possible to expand charging across the country.States and localities should look at lessons learned from these programs in order to stimulate near-term market activity.”ELECTRIFY AMERICA:Addressing Demand Charges,Charging Station Permitting,and EV-Ready Building Codes Is Crucial to Expanding Ultra-Fast ChargingAccording to Electrify America,addressing utility-demand charges at the state level,and permitting processes as well as EV-ready building codes at the local level,are critical for expanding public EV charging,including ultra-fast charging.In the companys view,utility-demand charges present the largest long-term barrier to expand the development of public EV charging in the U.S.because of the impact utility-demand charges have on EVCS and especially on high-power charging.Many in the industry have recognized this,but it has become a more critical issue as charging stations have moved toward much higher rates of power.“It used to be that when you did a DC fast charging installation,you installed maybe one or two 50 kilowatt chargers,”says Andrew Dick,state government affairs and public policy manager at Electrify America.“Your entire site level demand was a maximum of 50 or 100 kilowatts.But the minimum we install at our standard highway corridor site is two 350 kilowatt and two 150 kilowatt chargers,or 1000 kilowatts of potential demand.”That is 10 to 20 times more powerful than a conventional installationand this has evolved in just a few years.The increase in power increases the exposure to demand charges,which are based on maximum site-wide power demand during a billing period.“It used to be the conventional wisdom in this industry FUELS INSTITUTE|EVC|REGULATORY BEST PRACTICES 38and with some policymakers that demand charges are a utilization problem,”Dick says.The idea is that charging would hit a tipping point in utilization where a charging company would generate enough in revenues because there are frequent enough charging sessions that would offset demand charges.”However,he continues,“when you get to 350 kilowatts,that really is no longer the case.”He says that finding a long-term solution to demand charges that will allow charging stations to operate economically into the future is a pressing issue that will not be resolved when a certain level of utilization is achieved.He referenced research by the Great Plains Institute showing that,even at higher levels of utilization,most 350 kW chargers will not reach a financial break-even point without substantially reducing or eliminating demand charges.Some states are beginning to address this issue.Dick says,“There are a number of different approaches you can take,and its not a one-size-fits-all.For different states,the policy might be different.Weve seen utilities that just simply say,Were going to create a new EV rate that doesnt have a demand charge,or sometimes its for a certain period of time,or sometimes the demand-charge phases back in.That can be an effective approach,as long as its not phasing back into the same starting point,which was too high even for a mature utilization station.”Some utilities have offered demand-charge credits that are based on the nameplate capacity rather than just being a percentage reduction in the demand charge over a given month.Other utilities have put limiters in place so that demand charges are never more than a certain percentage of a utility bill in any given month.Dick notes that this strategy can be effective since demand charges can account for 80%or more of utility bills for DCFC stations.“There are a lot of different ways to approach the problem,but the demand charges,particularly for ultra-fast-charging infrastructure,thats by far the biggest issue on the utility side of things,”Dick says.At the local level,Electrify America notes that permitting processes can be challenges.Dick highlights that under Californias expedited and streamlined permitting legislation,which localities are required to implement,permitting application reviews for an EVCS are to be limited to the question whether or not the station meets health and safety requirements.That is the case in many California localities that have implemented the state legislation.However,permitting processes can create barriers to station installation in other jurisdictions,where planning officials may reject EV-charging projects due to parking count minimums or station aesthetics.Zoning officials may conclude a property is not zoned for hosting a charging station or that a zoning classification for a charging station doesnt even exist.Dick says,“Some jurisdictions will determine that the closest thing in their code is an automobile service station,obviously something very different from EV charging,a full-on gas station with a garage and underground tanks.Sometimes weve had to do code updates to address these kinds of zoning and planning issues,which can be time consuming.Streamlining zoning and planning codes is something that can be helpful in expanding public EV charging.”EV-ready and EV-capable building codes can be especially helpful in ultimately controlling installation costs since the physical construction of tearing up an existing parking lot to put in conduit,known as trenching,can be a major cost.“The one thing that we would say in that instance is that a lot of EV readiness codes historically have been written only to contemplate Level 2 charging equipment,”Dick says.“And as the vehicles get faster and faster,and as the battery capacities get bigger,Level 2 is maybe still part of the solution,but its not the only solution.So having an alternative written into those codes where you can use DC fast chargers to meet requirements we think is pretty important.”FUELS INSTITUTE|EVC|REGULATORY BEST PRACTICES 39CAPITAL DISTRICT TRANSPORTATION COMMITTEE:Check Your Comprehensive Plan,Zoning,and Land Use Codes,and Update Them as Needed to Help Facilitate EV ChargingJacob Beeman,Senior Transportation Planner at the Capital District Transportation Committee,the designated MPO for the Albany-Schenectady-Troy and Saratoga Springs metropolitan area,says its especially important for municipalities to look at their existing land-use and zoning regulations to plan for EV and infrastructure scale up.“A lot of municipalities havent updated land-use and zoning regulations in a long time,”he says.Municipalities can update these codes to facilitate EVs adoption and expansion of charging infrastructure,and they can proactively do so even when there may be a financial limit in actually funding infrastructure.Beeman says that through a technical assistance program provided by the MPO and local regional planning commission municipalities can receive assistance in assessing and developing EV-friendly zoning regulations:“We took that on,and we did a review of the municipalitys existing comprehensive plan and zoning regulations.”One thing that Beeman says he realized is that a municipalitys comprehensive plan may have to be updated first before zoning and land-use codes are updated,and municipalities should be looking at this now.Beeman says the MPO worked with five different municipalities in New York state who have already implemented EV-friendly land-use and zoning codes to develop a list of best practices for others.“I talked to them about what the process was,what the benefits could be for them,and how they can incentivize implementation.Then we created a document of potential zoning changes that went from least prescriptive to most prescriptive.We had to start at the beginning with describing what an EV is,what infrastructure is,and then progress from there,”Beeman says.A best practices paper was prepared in March 2021 for the Town of Colonie,New York,a member of the MPO.The paper investigated the feasibility of incorporating EVCS requirements into the towns zoning and development codes and provided example language from model municipalities.In the audit of the comprehensive plan,the papers authors noted that including language that supports EVs in local comprehensive plans makes it easier to establish specific EV policies,ordinances,and regulations in other areas of local code and helps lay the foundation for EV adoption in a municipality.The review team,among other recommendations,included:Review the comprehensive plan:EVs can be supported in the comprehensive plan directly or more generally through the identification of the municipalitys broader environmental and sustainability goals.Adopt zoning language that defines terms associated with EVs:Adopt zoning language that specifically defines the terms associated with EV charging and does not unnecessarily restrict the installation of EVSE.Establish EV-ready building codes:These EVSE-ready building regulations should require the installation of EVSE in new developments and/or require the installation of EV provisions to reduce the cost and ease the installation of future EVSE.Review permitting processes:Establish a standardized,low-cost permitting process for residential and commercial EVSE installations.Standardize parking signage:Establish consistent standardized EV parking signage to be used throughout the town.FUELS INSTITUTE|EVC|REGULATORY BEST PRACTICES 40DUKE ENERGY:PLAN EARLY,PLAN OFTEN,PLAN NOWJim Poch,electric transportation manager at Duke Energy,says utilities have a critical role to play supporting the deployment of EVs,including by creating a foundational network and readying the grid for EV demand and charging management.CREATING A FOUNDATIONAL NETWORKUtilities can help seed the market and ensure that consumers have access to EV charging as the transportation sector begins to transition to electric fuel.By leveraging a long-term perspective on capital investments,utilities can sustain operations through early growth years during which charging infrastructure cannot provide sufficient return on investment for others.This role may be especially important in areas where adoption may occur more slowly,such as low-and moderate-income neighborhoods.Convenient and equitable access to charging is critical for consumer adoption,which includes ensuring that charging stations operate properly and are maintained so that the user experience is smooth.“If we dont have that focus,the transition to electrification will come with unnecessary hiccups,”Poch says.READYING THE GRID AND ENABLING CHARGING MANAGEMENTWill the grid be able to handle large-scale penetration of EVs?Poch says yeswith some caveats that are important for policymakers to keep in mind:“We feel very good about the grids capacity because we think with smart charging and distributed generation or energy storage that we can shift a lot of this load to off-peak hours,where our nation has a tremendous amount of unused capacity.Theres a very big opportunity there.”To make that opportunity a reality,utilities need the ability to participate with and enable charging management solutions.Advanced planning is still critical,especially for areas where EV loads are likely to be
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UNIFE：2021年度欧洲铁路供应行业报告（英文版）（160页）.pdf
European Rail Supply IndustryAnnual Report 2021Contents04Message from UNIFE Chairman06Message from UNIFE Director General04Standards&Regulation10UNIFE Staff08IRIS The International Railway Industry Standard05UNIFE R&IACTIVITIES11UNIFE MEMBERS IN 202103International Affairs09Communications06Signalling and ERTMS01UNIFE in 202107ERWA The UNIFE Railway Wheels Committee02European Affairs2211812240130541427414810210P A G EUNIFE-Annual Report 202104After the crisis that impacted the world in 2020,a gradual global economic recovery has taken place in most areas throughout 2021.Considering the ability of rail to meet environmental and social challenges,the outlook for our sector in particular is promising.Indeed,the recovery plans of EU member states call for slightly more than 50 billion of investment in rail infrastruc-ture,signalling and rolling stock-makes concrete the commitment of public authority to invest in sustainable mobility systems.COP 26 has also reinforced the global willingness to tackle climate change.The Glasgow Climate Pact,calling on 196 countries around the world to strengthen their climate goals by the end of 2022 to align with the Paris agreement,is a step in the right direction.It is an opportunity but also a chal-lenge for our sector:our custom-ers expect more efficient,more sustainable,more flexible and resilient systems.As the Europe-an stakeholders of this industry,we must meet these expectations both through a continued dedica-tion to innovation and excellence in project execution.Incidentally,2021 was also the European Year of Rail.Despite the circumstances,railway stake-holders took the opportunity of this once in a lifetime event to showcase our sector and its con-“2021 was also the European Year of Rail.Despite the circumstances,railway stakeholders took the opportunity of this once-in-a-lifetime event to showcase our sector and its contribution to both our society and the economy.Henri Poupart-Lafarge UNIFE Chairman and,Chairman and CEO of AlstomMessage from UNIFE Chairman“It is an opportunity but also a challenge for our sector:our customers expect more efficient,more sustainable,more flexible and resilient systems.”P A G EUNIFE-Annual Report 202105tribution to both our society and economy.As the“Connect-ing Europe Express”travelled between most EU capitals,our customers and the European Commission have demonstrat-ed both the capabilities of our rail system and the limits it fac-es today,due to the operational and technical discrepancies be-tween national systems.I would like to take this oppor-tunity to thank the UNIFE staff,for maintaining the collabo-rative momentum among the industry with monthly digital events on key topics,and all of the UNIFE members that have similarly engaged with the Year of Rail,providing visibility to our sector.At the policy level,2021 saw the release of the“Fit for 55”package in July by the Commis-sion.This important framework comprises no less than 14 new legislative proposals,enabling Europe to meet its objective of a 55%reduction in green-house gas emissions by 2050.Some of these texts concern rail suppliers directly,like the Alternative Fuels Infrastruc-ture Regulation,or our supply chain,with the Carbon Border Adjustment Mechanism.Other elements can contribute to a level playing field between transport modes,such as the review of the Energy Taxation Directive.We should applaud the EUs initiatives and support their adoption,as quickly as possible,in line with the de-ployment of a consistent Tax-onomy framework to support sustainable investments.We also encourage progress on the implementation of the EUs Industrial Strategy,where we belong to its“mobility ecosys-tem”,and of its trade policy:Europe needs to ensure that its companies can compete on a level playing field in Europe and in the world.On top of this,2022 will be an important year for our industry:The Europes Rail Joint Undertaking will take over from Shift2Rail and carry out the largest collaborative rail-way Research&Innovation programme yet,with more than 1 billion of investment.Updated Technical Specifica-tions for Interoperability will be proposed,with transition rules that should ensure the absence of negative impact on existing projects.The revision of the Trans European Network Transport(TEN-T)guide-lines will confirm the Europe-an vision for the completion of its rail network.After a tumultuous two years,we look forward to meeting again in person and promot-ing rail as an enabler of a more prosperous European future!Sincerely,Henri Poupart-LafargeUNIFE Chairman and,Chairman and CEO of AlstomP A G EUNIFE-Annual Report 202106“Rail is central to modern European life,enables greater interconnectivity that gives citizens greater social,educational and economic opportunities and presents a viable strategy for transport decarbonisation.Philippe Citron UNIFE Director GeneralThere is an old saying that“every crisis is an opportunity”.For the European Rail Supply Industry,this saying was proven true once again,several times,over the course of this past year.The im-petus created by the dual climate and public healthy emergencies have led to the completion of sev-eral key and pertinent envelopes.Recognising mobilitys ability to define our communities and ena-ble economic growth,the Europe-an Union designated 2021 as“the European Union Year of Rail”.This year-long communications campaign took part in and across every Member State to highlight how rail is central to modern European life,enables greater interconnectivity that gives citi-zens greater social,educational and economic opportunities and presents a viable strategy for transport decarbonisation.This initiative has informed UNIFEs engagement with EU institutions,Member State representatives,rail sector stakeholders and oth-ers as we advocated for rail to serve as the backbone of tomor-rows sustainable,safe,reliable and accessible mass transit para-digm of tomorrow.In 2021,the European institu-tions continued to build upon its vision for the Union one that leads global climate action efforts,is prepared for the on-going digital revolution and con-tinues to build on the prosperity citizens have enjoyed due to our novel degree of interconnec-tivity.This past year,UNIFE has continued to advocate on behalf of its members as the European Commission,led by President Message from UNIFE Director General“Thank you for your commitment and we are excited to continue building the future of sustainable,accessible and reliable transportation together.”P A G EUNIFE-Annual Report 202107Ursula von der Leyen,pursued an ambitious slate of propos-als.These included the success-ful completion of EU Climate Law which codified the earlier Green Deal into law,the Fit for 55 roadmap,a revision to the Trans European Network Transport(TEN-T)Regulation and the action plan to boost long distance passenger rail.Similar successes were seen in European Parliament,helmed by the late President Sassoli who regrettably passed in early 2022 and is succeeded by Ms.Roberta Metsola,and the Council,which had Portugal and Slovenia hold the presi-dency,where the long awaited International Procurement Instrument that will ensure equitable market access glob-ally and bolster deployment of high quality,green rail products saw ratification ahead of tri-logues and approval of almost all of the Recovery and Resil-ience Facilitys(RRF)National Recovery Plans(NRPs).As the Member States spent the past year drawing up their plans for their allotment of the 723.8 billion,our associations collective efforts have been essential to positioning rail as the backbone of Europes future mobility system.By UNIFEs es-timates,the 27 European states have elected to invest approx-imately 55 billion from this fund to our sector alone,directing funds to initiatives that will modernise and further de-velop rail infrastructure and,to a lesser extent,further advance transport decarbonisation efforts by investing in urban rail systems and rolling stock.These funds are much needed for achieving training the Green Deals intended goals of dou-bling rail passenger and freight traffic by 2030 and 2050,re-spectively.In our meetings with both EC Executive Vice-Presi-dent for the Green Deal Frans Timmermans,Commissioner for the Internal Market Thierry Breton and high level repre-sentatives from the Directo-rate-General for Mobility and Transport(DG MOVE),the con-sensus was that these invest-ments will only be successful if they bolster rails sustainability,reliability and safety creden-tials in a manner that makes it more competitive and inspires it to capture more of the mar-ket.Such a widespread shift in P A G EUNIFE-Annual Report 202108end user preference will require new tools and qualified profes-sional to deploy them.These funds,and those in the associ-ated 2021-2027 Multiannual Financial Framework(MFF),must be used to jumpstart Re-search and Innovation(R&I)projects and training initiatives that will build upon these sys-tems and personnel capabilities needed to optimally operate these developments.To enhance European rails uptake of emerging technolo-gies and address current and mounting workplace discrep-ancies,UNIFE has used the Year of Rail to engage with stakeholders from across the EU.To this end,our associa-tion has been a vocal champi-on of continuing the Shift2Rail Joint Undertaking as Europes Rail,created by Commissions DG Research and Innovation(DG RTD)and Commissioner Mariya Gabriels Horizon Eu-rope with its work to be car-ried out by DG MOVE.This institutionalised partnership,which was officially sanctioned with the late 2021 passage of the Single Basic Act,will build upon the successful pursuit of next generation rolling stock solutions,artificial intelligence,automatic train operation,big data and communication tools needed to advance our railways to a true Single European Railway Area and inspire a modal shift to rail.However,this level of interconnectivity and interoperability will not be built by itself.UNIFE has been a leading partner in the STAFFER Blueprint for Skills consorti-um,working to assess and im-prove existing rail education and vocational training pro-grammes to provide students and professionals the skills needed to build tomorrows railway system.Another milestone passed in 2021 was the first full year of entry into force the Technical Pillar of the 4th Railway Pack-age(4RP).While we were discouraged by Commission budgetary cuts to the European Union Agency for Railways(ERA),we are confident in the organisations ability to act as the one-stop shop that Europe needs to lower author-isation costs and speed up market uptake of sustainable,interoperable equipment.Led by Executive Director Josef Doppelbauer,the agency has already issued thousands of authorisations.In our coop-eration with ERA,our industry seeks stability and predictability for individual railway projects benefiting from todays TSI maturity,while managing the continued evolution of the tech-nical regulations,standards and innovations in parallel.P A G EUNIFE-Annual Report 202109Our association has continued our committed advocacy on this topic as it has been des-ignated an essential point by UNIFE Chair Henri Poupart-Lafarge.This development of a centralised approval body and its attempts to make European rail transportation more seam-less will be furthered by con-tinued execution of European Rail Traffic Management System(ERTMS)Coordinator Matthias Ruetes action plan.2021 has seen our association continued to promote the Eu-ropean Rail Supply Industrys global leadership in interna-tional fora such as Business at the OECD and the European Standardisation Organisations (ESO)-particularly,CEN and CENELEC-through the Sector Forum Rail(SFR).Despite the continued public health crisis,UNIFE,through its work with IRIS and the International Rail Quality Board(IRQB),has been able to promote a culture of quality in the rail sector.Lastly,but certainly not least,UNIFE would like to thank its Members without whom,there would be no European Union Year of Rail to discuss.Your engagement throughout the campaign and our broader advocacy initiatives has raised awareness of both the Euro-pean Rail Supply Industrys pivotal role in confronting our current crises and building the sustainable multimodality rooted in our unique trans-portation mode that will help us take on those to come.In the coming year,13 new Mem-bers have elected to join us in this mission:ABB Power Grids Scheron SA,CS Group France,Dellner Couplers,ENYSE S.A.U.,Ingeniera y Control Ferroviario S.A.U.,LCI Italy s.r.l.,MER MEC Ste,NetModule AG,Promeco Group Oy,TESMEC Rail,Te.Si.Fer s.r.l.,TTC Marconi s.r.o.and Walbo Railway s.r.o.Thank you for your commitment and we are excited to continue build-ing the future of sustainable,accessible and reliable trans-portation together.Sincerely,Philippe CitronUNIFE Director General0101Mission02Structure03Presiding Board04Committees and Working GroupsUNIFE in 202112141617P A G EUNIFE-Annual Report 202112UNIFE MissionPromoting Rail Market Growth for Sustainable Mobility01020304Promoting European policies and programmes favourable to railWorking towards an interoperable and efficient European railway systemEnsuring European Rail Supply Industry leadership through advanced research,innovation and qualityProviding UNIFE Members with strategic and operational knowledgeP A G EUNIFE-Annual Report 20211301.UNIFE in 2021II.Public Affairs III.European Rail ResearchIV.IRIS CertificationI.EU Standardisation&Harmonisation European Rail Supply IndustryEuropean Union Collaborating with the European Union Agency for Railways on the definition of rail regulations(including the Technical Pillar of the Fourth Railway Package)and Technical Specifications for Interoperability(TSIs)Supplying expertise for European and International Standardisation Bodies(e.g.CEN/CENELEC,ISO)Contributing to the development of the Single European Rail Area Coordinating EU-funded research projects Playing an active role in ERRAC-the European Rail Research Advisory Council Cooperating with the Shift2Rail Joint Undertaking and contributing to the follow-up of its activities Shaping the future of rail research&innovation in Europe The globally recognised rail quality management system Enables efficient business processes and leads to substantial quality improvements and cost reduction throughout the supply-chain More than 2200 IRIS Certification certificates issued worldwide Advocating policies that increase the global competitiveness of the European Rail Supply Industry Supporting modal shift policies that give priority to rail Encouraging investment in rail projects Promoting rail transport as the best solution to meet social challenges of the futureHow UNIFE WorksP A G EUNIFE-Annual Report 202114UNIFE StructureUNIFE General AssemblyUNIFE Presiding BoardStrategy CommiteeDirector GeneralFinance,Legal&HRCommunicationsOfce ManagerIRIS CertifcationIRISSteeringCommiteeIRISTopical WorkingGroupsTechnical PlatformUNIFE Working Groups&ProjectsUNIFE Management CommiteesUNIFE Staf&UnitsControl-Command&SignallingUESCERTMSMarketingGroupCSSPlatformUNISIGTechnical Afairs*Research ActivitiesERRAC(European RailResearch Advisory Council)Research ProjectsShift2Rail follow-upTechnical ActivitiesWorking GroupsTechnical Recommendations(TecRec)Standards&RegulationGroupDigitalisationPlatform(incl.Cyber-Security)InfrastructureCommitee(UNIRAILINFRA)ERWA Steering CommiteeFreight CommiteeUNITELResearch&Innovation CommiteeSustainableTransportCommiteeNationalAssociationsPublic Afairs Liaison Group Trade and International Afairs CommiteeSME CommiteeInvestment and ProjectFinancing ExpertGroupPublic Afairs*A System Pillar Commitee and a System Pillar Technical Group will be created in the frst trimester of 2022P A G E1501.UNIFE in 2021P A G EUNIFE-Annual Report 202116Javier Martnez Ojinaga*Member of the Presiding BoardLilian LerouxMember of the Presiding BoardRoger DirksmeierMember of the Presiding BoardMichael PeterMember of the Presiding BoardCEO,CAF GroupCEO,Faiveley Transport Managing Director,FOGTEC(representing the UNIFE SME Committee)CEO,Siemens Mobility Jrgen WilderMember of the Presiding BoardMember of the Executive Board and Responsible for the Rail Vehicle Systems divisionKnorr-Bremse AGAugusto MensiMember of the Presiding BoardCEO,Lucchini RSHenri Poupart-LafargeUNIFE ChairmanChairman and CEO,AlstomFranz KainersdorferMember of the Presiding BoardMember of the Management Board,Voestalpine AGMillar CrawfordMember of the Presiding BoardExecutive Vice President,Ground Transportation Systems,Thales Group UNIFE Presiding Board*Javier Martnez Ojinaga/Subject to approval of the UNIFE Presiding Board,June 2022P A G E1701.UNIFE in 2021The Presiding Board is UNIFEs highest com-mittee.It is responsible for the management of the association.The Board takes any measure or action required to achieve the objectives and general policies of the association.This body reviews applications for membership before they are submitted to the General Assembly for ratification.The Presiding Board is composed of 9 members elected by the General Assembly,every three years.One seat on the Presiding Board is reserved for the Chairperson of the UNIFE SME Committee.The Strategy Committee steers UNIFE activities and advises the Presiding Board on all strategic and political issues.It is composed of high-level managers representing the associations most prominent members.The Technical Platform brings together all UNIFE Members and equally covers all EU research,technical harmonisation and standardisation matters.The platform regularly reports on rele-vant developments and the Associations activ-ities at EU level standardisation bodies.It also shares news regarding the Associations R&D/I projects,including the Shift2Rail Joint Under-taking and its potential successor in Horizon Europe.The Technical Platform communicates changes within the regulatory framework in regards to the European Union Agency for Railways(ERA)and the European Commission(i.e.DG MOVE,DG RTD,DG GROW,etc.,).This body enables all members to have a better un-derstanding of current EU rail technical issues,their background and their implications for the industry in Europe and beyond.The UNIFE Freight Committee gathers compa-nies active in the rail freight business and aims to strengthen the position of the industry within the European institutions policy priorities.This committee provides its members with informa-tion and support on EU R&I funding opportuni-ties,rail freight policy developments and partic-ipation in EU lobbying on pertinent rail freight developments,including discussions concern-ing ongoing and upcoming TSIs/Standards.UNIFE Committees and Working GroupsP A G EUNIFE-Annual Report 202118UNIRAILINFRA is a consensus-building platform focused on rail industry infrastructure at a pre-competitive stage.It promotes investment and innovation in the railway infrastructure sector.The committee also discusses and encourages rail infrastructure development.UNIRAILINFRA brings together companies specialis-ing in the manufacturing and supply of fixed railway equipment linked to the infrastructure subsystem with companies that design,construct and maintain those products.The Research and Innovation(R&I)Committee is responsible for monitoring European rail research opportunities and preparing recommendations.It is responsible for the regular exchange of information on European rail research,including updates pertaining to Shift2Rail,discussions on and the preparation of future European rail R&D programmes like Horizon Europe and the potential successor of Shift2Rail and the defini-tion of railway suppliers R&I positions.The committee also drafts common positions that will be defended at the EU level.Its purview also includes contributing to ongoing initiatives such as ERRAC,Shift2Rail,the Indus-trial Dialogue and European Commission consultations on R&I.Additionally,it prepares inputs for ERRAC.The Standards and Regulation Group(SRG)steers UNIFEs technical activities pertaining to the European regulatory framework(i.e.Railway Directives,TSIs,etc.)and standardisation,in Europe and abroad.The SRG is composed of technical directors from the UNIFEs main system integrators and subsystem suppliers.The European Railway Wheels Association(ERWA)aims at promoting usage benefits,lifecycle cost reduction and standardisation of railway wheels and wheelsets.Its mission includes developing standards and promot-ing innovation in safety and environmental friendliness.The group also encourages the adoption of best prac-tices across the European market.The ERWA Steering Committee is composed of CEOs from European wheels and wheelsets manufacturers.It is supported by the De-velopment Committee,which analyses political issues,market strategy and communications;and the Technical Committee,which deals with standardisation,regula-tion and research.The Digitalisation Platform is open to all UNIFEs mem-bers and focuses on the development of digital tech-nologies in the rail sector from a political,technical and business perspective.The main objectives of the Plat-form are to bring the rail supply industrys view to the centre of the EU-level digital debate and reach a better understanding of the potential opportunities and chal-lenges of digitalising rail transport.The Platform coor-dinates these efforts with the Cybersecurity Working P A G E1901.UNIFE in 2021Group.The platforms activities are frequently present-ed and promoted at public conferences and workshops,as well as articles in specialised magazines.The Cyber-Security Working Group brings together the associations member companies that possess sig-nificant cyber-security expertise.This working groups main objective is to provide UNIFE members with a forum to discuss and identify opportunities for cyber-security cooperation within the European rail sector,strengthening its position when compared to compet-itors and other stakeholders.The role of UNISIG is to develop,maintain and update the ERTMS/ETCS technical specifications in close coop-eration with the European Union Agency for Railways(ERA).The detailed technical work of UNISIG is carried out in Work Packages responsible for specific technical specifications or in Mirror Groups corresponding to ERA Working Groups where UNISIG is represented by appointed nominees.The ETCS Steering Committee(UESC)coordinates UNIFEs strategic and political ERTMS activities.UESC members regularly liaise with European Commission(DG Move)and European Railways Agency(ERA)rep-resentatives to address any political issues related to ERTMS and organise high-level meetings between European bodies representatives and Signalling companies CEOs and/or Directors.The ERTMS Marketing Group(UEMG)is tasked with coordinating any marketing activities related to the Eu-ropean Rail Traffic Management System(ERTMS).This includes collecting and disseminating deployment sta-tistics,planning events,generating common publica-tions such as factsheets,flyers,and brochures,as well as managing the ERTMS website.The Control Command and Signalling Platform(CCS-P)was recently reactivated to provide UNIFE with signal-ling expertise.Platform members are primarily collabo-rating with EULYNX Consortium members on reviewing EULYNX Specifications which aim to standardise inter-faces and elements of signalling systems.The UNITEL Committee focuses on the development and implementation of the future interoperable rail-way communication system(FRMCS/Next Generation),the inherent successor of GSM-R,as part of the future ERTMS.UNITEL bring together the major railway tele-communications products suppliers and companies that have significant experience in current GSM-R and future railway systems.The committee members aim to en-sure that the railways communication system fulfils ex-isting and future signalling,train control and traffic man-P A G EUNIFE-Annual Report 202120agement requirements,as well as supports European railway research initiatives.The National Associations Committee gathers the directors of 12 national rail associations from 11 different EU Member States,collectively representing more than 1,000 large-and medium-sized European rail supply companies.As UNIFE Associate Members,these organisations promote our positions domestically while elevating national concerns to the European level.The Public Affairs Liaison Group brings together rep-resentatives of full UNIFE Members responsible for EU and national advocacy.It discusses lobbying strategies concerning important EU political files.It also identifies synergies between the association and its membership for impactful lobbying activities and campaigns.The SME Committee is a platform for Small and Medi-um-sized Enterprises(SMEs)to share and learn informa-tion about EU policies and available funds.This group works to facilitate SMEs members access to support schemes and to prepare advocacy campaigns on issues of concern to organisations of this size.The Trade&International Affairs Committee(TIAC)is in charge of monitoring EU trade negotiations and instruments with potentially significant implications for the European rail supply industry and coordinating UNIFEs responses.The Committee also focuses on public procurement,be it at international or EU level.TIAC is also a platform for the exchange and dissemi-nation of information on bilateral cooperation activities undertaken by UNIFE in international markets.The Sustainable Transport Committee(STC)brings together the rail supply industrys main experts on sustainability-related topics.More specifically,the STC defines the strategy and carries out UNIFEs activities on the field of sustainable mobility,climate change,energy efficiency,urban transportation and EU taxonomy (sustainable finance).The STC is notably in charge of the Green Deal-related policies.The STC coordinates the activities of two active Topical Groups(TGs):the Life-cycle Assessment(LCA)TG and the Chemical Risks(CR)TG.The Investment and Project Financing Expert Group brings together high-level executives responsible for long-term financing and corporate relationships with P A G E2101.UNIFE in 2021multilateral development banks,such as the European Investment Bank(EIB)and the European Bank for Re-construction and Development(EBRD).This committee explores funding avenues for infrastructure and industri-al projects,including Public Private Partnerships(PPPs).The Expert Group also tracks and communicates on issues related to export financing(e.g.,Export Credits).The International Railway Industry Standard(IRIS)steering committee was established in 2006 and is composed of high level representatives from the UNIFE system integrators and equipment manufacturer mem-bership.This steering committee is the UNIFE working group responsible for IRIS Certification operational management and decisions regarding resources,contracts and financial budgeting.The UNIFE Communications Committee steers the UNIFE Communication Strategy.It is composed of the Communications Directors of UNIFE members.Aerodynamics Brakes Cabin Chemical Risks Crash Safety Diesel Electromagnetic Compatibility(EMC)Energy Energy Efficiency Entity in charge of maintenance(ECM)Fire Safety(SRT)Infrastructure Life Cycle Assessment(LCA)Noise Persons with Reduced Mobility(PRM)Railway Dynamics Rolling Stock Safety Assurance Signalling Telematic Application for Passengers&Freight(TAP&TAF)Train Control Management System(TCMS)Vehicle Authorisation Wagon(WAG)UNIFE Technical Working Groups0201Industrial policy02Investment policy03Public procurement in Europe05Digitalisation07Skills policyEuropean Affairs06Urban mobility04Green Deal and transport decarbonisation 24373839273235 AlstomP A G EUNIFE-Annual Report 2021241)Industrial policya.Monitoring the impact of COVID-19 and other disruptions on our industry To best assess COVID-19s conse-quences on its Members,UNIFE maintained continuous and regular bilateral exchanges with numerous member companies to allow for contemporaneous reflection on the long-lasting impacts of the pandemic.Beyond the immediate effects of the pandemic in 2020,such as the sudden and pervasive disruption of cross-border and domestic supply chains and the temporary closures of plants,members expressed seri-ous concern about the longer term repercussions of the current crisis(e.g.,increases in prices or supply availability).Despite massive spend-ing intentions established by Next Generation EUs National Recov-ery Plans(NRPs),the substantial financial losses incurred by urban and mainline rail operators continue to inspire concerns that planned invest-ment might be postponed or even cancelled.This will be closely eval-uated in the upcoming 2022 UNIFE World Rail Market Study,which will be unveiled during Innotrans.In parallel,UNIFE has continued to alert European institutions of devel-opments resulting from these issues.Our Association has had many discus-sions with the rotating Presidencies of the Council of the European Union,which were held by Portugal and Slo-venia in 2021.UNIFE published two special Presidency Briefings to help prepare them for their tenure.These documents provide EU institutions with a series of concrete policy rec-ommendations that will support our industry in the challenging times of COVID-19.These topics range from industry and trade to transport,public procurement,research&inno-vation and investment policy.“Beyond the immediate effects of the pandemic in 2020,such as the sudden and pervasive disruption of cross-border and domestic supply chains and the temporary closures of plants,members expressed serious concern about the longer term repercussions of the current crisis”.35 Asks of the Portuguese Presidency33 Asks of the Slovenian PresidencyP A G E2502.European Affairsb.Update of the 2020 New Industrial Strategy and mobility ecosystemIn May 2021,European Commission Executive Vice-President for A Europe Fit for the Digital Age Margrethe Vestager,Executive Vice-President for An Economy that Works for People Valdis Dombrovskis and EU Commissioner for Industry and Internal Market Thierry Breton ointly presented an update of the 2020 Industrial Strategy.This update sought to capture the full extent of the pandemics first year on Europes economy and industry.The communication is divided into 3 pil-lars and defines the concept of“open strategic autonomy”,highlighting the need for the EU to be more resilient and to analyse a number of strategic dependencies.The updated strategy also confirms the rail supplys inclu-sion in the“Mobility,Transport and Automotive ecosystem”-one of the 14 priority sectoral groupings estab-lished by Commissioner Breton-and the development of so-called“transi-tion pathways”.The mobility ecosystem transition pathway will support EU industrys green and digital transitions,with the COVID-19 drastically affecting the speed and scale of said trans-formation.At the end of the year,a draft document was published by the Commission and opened to public consultation.UNIFE is playing a key role in coordinating the views of Eu-ropean rail suppliers to ensure that the specific needs of our sector are duly taken into account during any future actions.14 Industrial Ecosystems of the new strategy Executive Vice-President for Trade Dombrovskis,Executive Vice-President for A Europe Fit for the Digital Age Vestager and Commissioner for the Internal Market BretonP A G EUNIFE-Annual Report 202126c.Competitiveness of the Rail Supply IndustryIn 2020,the European Commission accepted-at UNIFEs request-an extension of the EC Expert Group on the Competitiveness of the Rail Supply Industrys mandate.This important step represented the recognition of this forum as an already existing and much-needed governance tool for discussing the future of our industry at the EU level,in complementarity with the mobility ecosystem and tran-sition pathway.Through the Expert Group,the different Directorate Gen-erals of the European Commission and the Member States have man-aged to establish more than just a close dialogue with our industry.The EC Expert Group has,in fact,already helped foster collaboration and con-sensus on critical work.This past September,another meet-ing of the Expert Group was held the first one since the beginning of the year.Participants were able to delve into several topics,including industrial policy,trade and interna-tional standardisation.The meeting allowed attendees to discuss next steps regarding the implementation of the October 2019 Final Reports 88 recommendations across 10 stra-tegic policy areas.UNIFE has under-taken a stocktaking exercise of the implementation of these recom-mendations with its members and held meetings with the European Commission to share its assessment.While this exercise is expected to be completed in early 2022,the contin-uation of the Expert Group will be instrumental to maintaining our con-structive dialogue and work together on the ongoing implementation of the policy recommendations.Last,but not least,on 26 October,UNIFE organised a roundtable on the world leadership and com-petitiveness of the European Rail Supply Industry in the framework of the SIFER trade fair.Representa-tives from the European institutions(i.e.,DG GROW and the European Parliaments ITRE Committee)and the French Directorate General for Enterprise joined rail supply industry stakeholders for an exchange on cur-rent challenges regarding industrial support,trade and market access,public procurement or research and innovation.P A G E2702.European Affairsa.Ambitious and unprecedented EU funding to make rail the backbone of sustainable mobility2021 saw the finalisation of differ-ent EU programmes and funding instruments which will be key to support rail investments between 2021 to 2027.UNIFE has been actively working to ensure that they set the appropriate framework for rail investments and advocate much needed rail-related investments to advance the decarbonisation of Europes transport sector.One of the most important land-marks has been the endorsement of the majority of the so called National Recovery Plans(NRP)a key element of the Next Genera-tion EU COVID-19 recovery supple-ment to the Multiannual Financial Framework(MFF)called“Recovery and Resilience Facility”(RRF).Rail investments feature prominently throughout the latter.Another significant development was the finalisation of the new Connecting Europe Facility(CEF2)Programme and the launch of its first calls for proposals for 2021.In terms of the NRPs,at the time of writing this report,all Member States-except the Netherlands-have sub-mitted their plans.The majority have already been approved by the Euro-pean Commission and the Council1,and for many countries,so called“UNIFE has been actively working to ensure that they set the appropriate framework for rail investments and advocate much needed rail-related investments to advance the decarbonisation of Europes transport sector.2)Investment policyEuropean Commission President Ursula von der LeyenP A G EUNIFE-Annual Report 202128pre-financing disbursements have already hit the ground.The good news for Europe is that,as announced by President Von der Leyen at the June European Parliaments Plenary,“at least EUR 85 billion(from the Recovery Plans)will be used to boost sustainable transport digital railway infrastructure,charging stations for electric cars,or seamless urban mo-bility”2.According to UNIFEs calcula-tions,based on the assessed plans,rail investments will amount to approximately 55 billion,the vast majority of funding being allocated to sustainable transport.In other words,11%of the total funding requested by Member States under the Recovery and Resilience Facility goes for rail.Over 50%of these rail investments will be directed to rail infrastruc-ture,including its modernisation and electrification but also the deployment of the European Rail Traffic Management System(ERTMS).The rest will be used for the acquisition of rolling stock,in-cluding those intended for urban transport,the development of trams and metro systems and other measures related to digitalisation,freight and alternative fuels refue-ling infrastructure.UNIFE is glad to see that Member States are seizing this historic opportunity to invest and improve rail transport systems across Europe.In the framework of European Year of Rail,UNIFE organised a webinar on“How to boost rail investments with the support of the MFF and the Recovery&Resilience Facility?”in January.Regarding the new Connecting Europe Facility(CEF),UNIFE has been actively and successfully lobbying to reverse the initial exclusion of the eligibility of hydrogen refueling infrastructure for the rail network.It is important to highlight that,as in the previous CEF programme,the European Commission has indicated that approximately 70%of the 25,8 billion CEF 2 funds set aside for transport should be allocated to rail projects.Furthermore,the first call for proposals under the new CEF programme was launched on 16 September.The 2021 budget for transport topics is set at 7 billion and will support among other ini-tiatives creating an even more effi-cient and interconnected multimodal transport system for both passengers and freight.This must include an affordable,high-speed rail network,abundant recharging and refueling infrastructure including for the rail network and increased automation for greater efficiency and safety.Finally,the EU Cohesion Policy will operate with a budget of over 330 billion for the period 2021-2027,to be distributed across the 27 Member States.Two EU Structural Funds will be of vital importance for the rail sector,namely:the European Regional Development Fund(ERDF)and the Cohesion Fund.Eligible investments under these schemes will include:Rail TEN-T infrastructure(including stations supported devel-opment,reconstruction&upgrade,ERTMS deployment);freight trans-port on rail;development,recon-struction,upgrade of tram and metro lines;environmentally-friendly rolling stock for public transport;upgraded digitised urban transport systems.1 With the exception of Hungary and Poland,due to the so-called“rule of law”issues in both countries2 https:/ec.europa.eu/commission/presscorner/detail/en/speech_21_2887P A G E28P A G E2902.European AffairsAt the time of writing this report,only Greece has seen its Partner-ship Agreement approved.This important document sets the stra-tegic direction of the Operational Programmes and the different in-vestments priorities.The remaining ones are expected to be approved in the course by the end of 2022.UNIFE has carried out regular meet-ings with the Member States Per-manent Representation in Brussels in order to make the EU27 aware of our industrys priorities.Additionally,earlier in 2021,UNIFE also met with the Cabinet of EU Commissioner for Cohesion Policy and Reforms Elisa Ferreira to insist on the importance of dedicating significant amounts to rail in order to advance on the de-carbonisation agenda and enhance sustainable mobility in Europe.European Commissioner for Cohesion and Reforms Elisa FerreiraUNIFE Director General Philippe Citron and EIB Vice-President Kris Peetersb.Working with banks and mobilising private investment for railUNIFE has continued to cooper-ate closely with the European Investment Bank(EIB)by host-ing rail experts from the organ-isation at different committee meetings with the objective of presenting latest developments and future financing strategies.This is particularly relevant be-cause after adopting its“EIB Group Climate Bank Roadmap 2021-2025”in 2021,the Bank has embarked on the revision of its Transport Lending Policy in or-der to make it fit with the new EU climate objectives and also the ambitious targets set up in the EU Sustainable and Smart Mobil-ity Strategy.In this sense,UNIFE has responded to the public consultation organ-ised for this purpose by highlight-ing the importance of prioritising rail including urban rail transport in the Bank operations due to the important need for significant rail investments to complete the TEN-T network and achieve the decarbonization targets.Addi-tionally,on 18 October,UNIFE held a bilateral meeting with the EIB in charge of the transport sector Vice-President Kris Peeters to exchange on our industrys priorities and expectations of this public consultation.Finally,on 9 November,UNIFE participated in an internal ses-sion organised by the EIB with the participation of DG MOVE and DG COMP to present market trends,outlooks for all categories of roll-ing stock and,in particular,the development and roll out of zero tail pipe emission technologies(i.e,batteries,H2).This was an excellent opportunity to provide relevant market intelligence to the EIB,which eventually will support the uptake of more zero emission rolling stock lending operations.P A G E29P A G EUNIFE-Annual Report 202130As part of the new initiatives an-nounced on 14 December by the European Commission on green and efficient mobility,the EIB also pre-sented its Green Rail Investment Platform.This was conceived as a ve-hicle for the deployment of the banks technical and financial capacity,as well as the EU financial instruments meant to explore viable business models and boost opportunities to finance rail transport.On one hand,for eligible projects with robust loan structure,EIB can finance up to 50%of the project costs by offering loan tenors that match the life of the as-sets at attractive interest rates.On the other,eligible projects with high credit risk profile may benefit from an Union guarantee under InvestEU.Thus,the Commission and the EIB will work to actively seek eligible pilot projects to acquire rolling stock.Again,EIB Vice-President Kris Peeters demonstrated the Banks commitment to our sector by stating that“Rail transport will be the back-bone of Europes future climate-neu-tral transport system.That is why investing in rail is a top priority for the EIB.The new Green Rail Invest-ment Platform will help the rail sector to access EU investment financing and advisory support more easily”.Regarding the European Bank for Reconstruction and Development(EBRD),UNIFE also hosted its repre-sentatives for several sessions where the Bank presented its experience in promoting transport solutions and financing efficient and sustainable transport networks with a focus on rail supported projects in EU neigh-bouring countries,such as the West-ern Balkans and Eastern Europe.c.Rail investments outside the EU borders UNIFE has continued mobilizing re-sources to bring to the attention of the most important stakeholders and decision makers the need to ded-icate significant EU funding for EU third partner countries to be able to invest in sustainable transport pro-jects such as rail,while at the same time,ensuring fair competition in EU funded projects.UNIFE Director Gen-eral Philippe Citron has addressed letters to Commissioners Olivr Vrhelyi and Juta Urpilainen,who are responsible for Neighbourhood and Enlargement(DG NEAR)and International Partnerships(DG INTPA),respectively,allowing UNIFE greater engagement with the Western Balkans and Africa.In March,UNIFE organised an exclusive webinar for its Members with the par-ticipation of over 100 participants and high-level keynote speakers from the Transport Community Secretariat,the European Commissions Direc-torate General for Enlargement and Accession(DG NEAR)and the EIB.The speakers engaged with our industry to explain the potential for rail invest-ments in the region,some key ongoing projects and operations,as well as the EU Western Balkans connectivity agen-da with its associated 9 billion Eco-nomic and Investment Plan.Regarding Africa,UNIFE and some of its Members also participated in July in an event hosted by DG INTPA which count-ed with the participation of African rail operators to exchange on the on the future EU funding support for the rail sector in Africa.UNIFE will continue en-gaging and monitoring developments on these fronts with the ultimate ob-jective of increasing public and private funding for rail in these regions.UNIFE Director General Philippe Citron,DG NEAR Deputy Head of Unit Michael Voegele and Transport Community Director Matej ZakonjekP A G E3102.European Affairsd.Green BondsIn July,the Commission presented a proposal for a Regulation for creating a European Green Bonds Standard,as part of the roll-out of the Unions sustainable finance strategy.To gather stakeholders views,the Commission opened a public consultation for which UNIFE submitted a position paper.The paper stresses that bonds can be beneficial for the rail sector as it will unlock additional sources of financing needed to transition to a carbon neutral economy and the huge potential for rail to play here.The strong expected issuance flow of environmentally sustainable bonds is also revealed by the European Commissions intentions of issuing 30%of NextGenerationEU as “NextGenerationEU green bonds”.Totaling 250 billion,it will be the largest Green Bond Scheme in the world.Clean transportation-where rail features prominently-and R&I activities supporting the green tran-sition are included within the eligible expenditure categories.P A G EUNIFE-Annual Report 202132With the widespread outbreak of the pandemic and subsequent creation of the National Recovery Plans(NRPs),there is an unprecedented opportunity and challenge to en-sure that funding dedicated to rail will be spent in the best possible way,one that ensures the timely and fair implementation of projects.Although the 2014 modernisation of the European Unions public procure-ment framework marked a positive step forward on a number of topics,there remain shortcomings to ensur-ing fair competition between suppli-ers and establishing an approach in rail procurement that focuses on best value,rather than price alone.UNIFE has long sought to close these gaps,some of which the European Commission acknowledged in May 2021 in its proposal for an instru-ment to tackle distortions created by foreign subsidies.In parallel to a future EU instrument,UNIFE has con-tinued to stress the importance of strengthening the rules on abnormal-ly low tenders and the more profuse acceptance of the Most Economi-cally Advantageous Tender(MEAT)principle.These are of particular im-portance given greater activity from non-European,state-owned enter-prises(SOEs)that are shielded from normal market competition.“There is an unprecedented opportunity and challenge to ensure that funding dedicated to rail will be spent in the best possible way,one that ensures the timely and fair implementation of projects.3)Public procurement in Europe Interactive map displaying SOE activity,jointly designed by FIEC,EIC,EuDA and UNIFEP A G E3302.European AffairsIn May,UNIFE joined forces with the European Construction Industry Federation(FIEC),European Interna-tional Contractors(EIC)and the Eu-ropean Dredging Association(EuDA)to launch an interactive map on the activity of third country state-owned enterprises in the European procurement market.This tool dis-plays all projects in which third country SOEs have tendered since 2009 in the construction,dredging and rail supply sectors.The main conclusion from the map is that the interest of third country SOEs in the European public procurement market has grown signif-icantly in recent years.In parallel,UNIFE published a note ti-tled“Making use of the existing EU pub-lic procurement framework to ensure a level-playing field and create European value”,which lists a set of good prac-tices recently put in place in various European countries.The objective of this important document was to raise awareness amongst decision-makers and contracting authorities of the possibilities already provided by the EU public procurement framework for creating a level playing field.Jointly working on a sectoral initiative,UNIFE,the Community of Europe-an Railways and Infrastructure Managers(CER)and the European Rail Infrastructure Managers(EIM)published a joint publication called“Recommendation to apply the Most Economically Advantageous Tender(MEAT)and good practices in the domain of railway procurement”in 2019.This strategic document focused on three potential award criteria:technical or technological value;life-cycle costs and environmental and social impact.It also set out several recommendations for rail contracting authorities as they conduct their evaluation processes.After the postponement of an event in May 2020 due to the pandemic,a dig-ital one was organised in November 2021 with practitioners representing European railway undertakings,in-frastructure managers and suppliers to promote this sustainable approach to rail procurement.Lastly,in 2021,UNIFE has continued to drive the AEGIS Europe alliances activities on public procurement.Throughout the year,the alliance pushed for reforms of the European public procurement framework dur-ing its exchanges with the European Commission,the European Parlia-ment and individual Member States.UNIFE,EIM and CER joint recommendation supporting the MEAT PrincipleP A G E33P A G EUNIFE-Annual Report 202134 UNIFE Head of Public Affairs Jonathan Nguyen explains the benefits and challenges of the MEAT principleP A G E3502.European Affairs4)The Green Deal and transport decarbonisationThe transport sector accounts for approximately a quarter of the EUs greenhouse gas(GHG)emissions,emitting more pollutants than any other sector except for energy pro-duction.However,rail relies very little on imported fossil fuels and clearly stands out for its high energy efficiency,low emissions of CO2 and growing use of renewable energy.UNIFE has continued to be very vocal in promoting the essential role of this unique transport mode in meeting EU targets for decarbonising trans-portation.Mobility decarbonisation is becom-ing more pressing as civil society puts pressure on decision-makers to fight climate change.A sustainable,climate-neutral masterplan is at the heart of the Commissions mandate for the 2019-2024 term.Through the European Green Deal,Commission President Ursula von der Leyen aims to make Europe the first cli-mate-neutral continent by mid-cen-tury.Executive Vice-President Frans Timmermans oversees the ambi-tious strategy.UNIFE believes that the Green Deal can be a game chang-er,providing the EU with a framework for achieving net zero emissions by moving towards a low-carbon econo-my while also reaching high efficiency standards.The most important transport initia-tive stemming from Green Deal is the new“Sustainable and smart mobili-ty Strategy”,presented by Transport Commissioner Adina-Ioana Vlean in December 2020.The strategy is organised into three main pillars:“Sustainable Mobility;Smart Mobility and Resilient Mobility.Similar to the 2011-Transport White Paper,it is ex-pected to define the EU policy frame-work for transport over the coming yearsMr.Timmermans presented the first European Climate Law in March 2020,enshrining into legislation the climate neutrality objectives of the Green Deal.The law sets a step-ap-proach for the fulfilment of this goal by strengthening intermediate 2030 targets,notably for GHG emissions reduction,share of renewable energy sources and increase of energy effi-ciency.These ambitious targets will be enforced through the“regulatory roadmap”presented by the Commis-sion in June 2021 under the name of“Fit for 55”.The package includes re-visions and updates of existing legis-lation-as well as new proposals-for a total of 14 initiatives.European Commissioner for Transport Adina VleanUNIFE Presiding Board members meet Executive Vice-President Frans TimmermansP A G EUNIFE-Annual Report 202136Through the work of this associations Sustainable Transport Committee(STC),UNIFE has undertaken several other sustainability-related activities in 2021.We have directed special focus to the regulatory package,Fit for 55.In particular,UNIFE has iden-tified as a priority the new Regulation on Alternative Fuels Infrastructure(AFIR),as it holds the potential to fos-ter the deployment of green propul-sions systems in rail.Additionally,we have tracked the recast of the Energy Taxation Directive(ETD),which may eventually end the fossil fuels sub-sidies benefitting aviation.Another major portfolio has been sustainable finance,a field that saw significant shifts in the EU taxonomy initiative.2021 saw the introduction of the first Delegated Act enforcing the current Taxonomy Regulation,the revision of the Urban Mobility Package and a proposal for a Directive on the sub-stantiation of environmental claims.As part of the European Year of Rail,UNIFEs Public Affairs team convened high level EU officials and industry stakeholders in February for a panel titled“Getting on Track:Rail&Ener-gy Efficient Solutions for the EU Green Deal”.This digital event was a prime opportunity to interface on the Eu-ropean rail supply industry contribu-tion to a decarbonised rail transport system and potential down the tracks as the EU ramps up its sustainability efforts.Swedish MEP Jakop DalundeP A G E3702.European Affairs5)DigitalisationUNIFE remains committed to bringing the European rail supply industrys views and objectives to the centre of the ongoing digital debate,decisively contributing to these discussions and effective-ly engaging in a fruitful dialogue with decision-makers and other key stakeholders.UNIFE has re-leased two Vision Papers,“Digital trends in the rail sector”and“Rail fit for the digital age”,to outline the views,priorities and ambitions of the European rail supply indus-try in this quickly evolving space that is constantly reshaping our sectors future.In particular,Big Data,Cybersecurity,Artificial Intelligence(AI),Multimodal dig-ital services,Gigabit connectivity and Digital Twins remain essential focus areas for UNIFE.UNIFEs Vision Papers for this field also represent the most effective advocacy instrument in view of the digital initiatives that the European Commission has initiated this year.Concurrently,the Commission is shaping both a green and digital transition needed to avert the cli-mate crisis and remain competitive as the world increasingly goes on-line.In March 2021,Executive Vice President of the European Com-mission for A Europe Fit for the Digital Age Margrethe Vestager and European Commissioner for Internal Market Thierry Breton presented their digital masterplan“Europe fit for a digital age”.Cor-nerstones of the initiative are a new comprehensive Data Strategy and a new regulatory framework for Arti-ficial Intelligence in the EU.Notably,the Data Strategy aims at creating a single market for data across the EU and a single market for cybersecurity.It also seeks to establish“common European data spaces”across different sectors and industries including mobility.Unlocking all barriers to datasets sharing and promoting a robust cybersecurity strategy remain cru-cial priorities for UNIFE.Our asso-ciation looks forward to engaging with the EU institutions and fellow stakeholders on these topics.UNI-FE has proactively worked on the proposal for a Regulation on“Data Governance Act”and the cybersecu-rity-related revision of the“Network and Information Security Directive”(NIS2).Furthermore,UNIFE will keep fol-lowing the new“Regulation for Ar-tificial Intelligence”as it progresses through the decision-making pro-cess and we anticipate contributing on the broad field of“multimodal digital services”.In this area,the most important initiative is the re-vision of the Intelligent Transport Systems(ITS)Directive,released in December 2021.UNIFE believes it is vital for the whole sector to maintain its com-mitment to making digitalisation not merely an objective in and of itself,but rather a means to achiev-ing more ambitious and overriding goals.The activities of the Digi-talisation platform are directed towards this end goal and aim to bring the European rail supply in-dustrys views and objectives into the centre of the digital debate.As part of the European Year of Rail,UNIFE organised a special event in April,titled“Boosting rail-way digitalisation thanks to EU Re-search and Innovation”,to discuss the contribution of research and in-novation to the technological tran-sition towards a digitalised railway sector.Throughout 2021,the UNIFE Digitalisation Platform continued to grow.It now brings together 35 UNIFE members,representing the European rail supply industrys entire value chain.The platform serves as an open,dynamic forum for members seeking to successfully drive forward their digital priorities and initiatives.These efforts are critical to shaping the rail industrys vision for the future of mobility.P A G EUNIFE-Annual Report 2021386)Urban mobility“Citizens require the creation of new mobility paradigms capable of delivering high-quality,accessible-for-all urban and suburban services.UNIFE and partner associations release joint statement on Urban Mobility frameworkThe global population has tripled over the last 100 years,with over 7 billion people living around the globe today and all forecasts indicating that this number will continue to grow in the decades to come.Urbanisation,coupled with population growth,rep-resents one of the most staggering mega-trends humanity will grapple with in the foreseeable future.Such drastic urbanisation will not be with-out medium-and long-term conse-quences.Cities produce the majority of economic activities and output,but they also consume most of the availa-ble resources and energy supplies.As mobility plays a decisive role in ensur-ing growth,economic dynamism and social cohesion within cities and their suburban areas,the objective clearly must be ensuring a fundamental rite of urban living:getting around rapidly and safely.Todays cities face challenges like increased traffic,diminished air quality,population growth,lack of available space,lowered liveability,tenuous social inclusion,continued health concerns and the incessant need to create economic develop-ment.Against this backdrop,citizens require the creation of new mobility paradigms capable of delivering high-quality,accessible-for-all urban and suburban services.Following its first Vision Paper on the topic,“Urban Rail for the future of cities and metropolitan areas”(2019),UNIFE has continued its active involvement in ongoing debates on urban mobility and strengthened its partnerships with associations such as POLIS,EUROCITIES and UITP.UNIFE has welcomed the European Commissions initiative to kick-off the revision of the 2013 Urban Mobility Package.European rail manufacturers look forward to proceeding with this initiative throughout 2022 and towards establishing urban rail at the very heart of urban mobility policies across the EU.To this end,in September,UNIFE participated in the EC public consultation to gather views from stakeholders,and co-signed with other associations a joint statement that called on the Commission to place active mobility and public transport at the heart of the Urban Mobility Framework.P A G E38P A G E3902.European Affairs7)Skills policyIn November 2020,UNIFE and 32 other partners from across the rail sector and academia officially kicked-off the Skill Training Alliance For the Fu-ture European Rail system(STAFFER)Blueprint for Skills.This consortium aims to support an overall sectoral skills strategy and develop concrete actions to address short-and medium-term training needs.The project will last for 4 years,ending in 2024.During its first year,UNIFE has led the both the policy rec-ommendations work package con-cerning suppliers needs and the communications work package,the latter in conjunction with CER.Our efforts have significantly contributed to increased visibility of both this pro-ject and our sectors needs at the EU level through targeted dissemination activities.At the beginning of 2021,UNIFE and CER developed a communication strategy and established a dissemi-nation regime to facilitate widespread information and knowledge transfer amongst and beyond the members of the consortium.These were outlined,as well as internal processes to ensure optimal cooperation amongst part-ners,in the“STAFFER Communications,Dissemination and Exploitation Plan”(CDEP).Special attention was paid to establishing processes that would ensure that awareness of the project and its recommendations persist be-yond the consortiums life span.On 24 March,UNIFE held a digital event on skills,titled“Adapting training and attracting talent for the Europe-an Rail Supply Industry”,as part of its year-long 2021 European Year of Rail series.It was a welcomed opportunity to discuss the current skills shortage with high-level industry leaders,rep-resentatives from the EU institutions and researchers.The occasion was an important juncture to explore the best means of ensuring the accessibility,efficacy and attractiveness of existing skills trainings,as well as their ability to meet evolving transport needs.Participants agreed that meeting these needs was crucial to Europes ability to develop and deploy the next generation of rail needed to deliver the dual green and digital transitions that has been a cornerstone for this Commission.The discussion was an important opportunity to showcase our associations important skills and training initiatives,chiefly STAFFER but also the earlier Hop On campaign and continued advocacy for increased need for skilled professionals in an evolving work force.Principally,UNIFE shared our efforts to raise awareness of exciting careers in rail and reform-ing curricula across the Union.For more information,please visit STAFFERs dedicated website.Launched at the end of April 2021,the site hosts the Blueprints deliverables,provides activity updates,resources for those wishing to engage with training programmes and more.Visit the STAFFER website at railstaffer.euP A G E3901Global leadership and the level playing field02The International Procurement Instrument(IPI)04Monitoring of existing trade agreements07Bilateral cooperation with third countries 05Carbon Border Adjustment Mechanism(CBAM)03Instrument on foreign subsidies06Organisation for Economic Co-operation and Development(OECD)42484951444547 CAFP A G EUNIFE-Annual Report 202142In the midst of the pandemic-induced economic crisise and increasing pro-tectionist trends,UNIFE has contin-ued to advocate for a level playing field and fair competition among rail supplier,both in Europe and world-wide,through various activities.Our association also communicated the industrys assets to show how its work makes a significant difference today.In February,following a public consul-tation in which UNIFE participated,the European Commission published its Communication on the review of the EU Trade Policy,titled“Trade Policy Review-An Open,Sustainable and As-sertive Trade Policy”.As the COVID-19 pandemic raged,the world saw the continued rise in unilateralism,in-creased uncertainty and intensifying competition from China.With this in mind,the communication addresses the medium-term looking to 2030-objectives of the EUs trade policy and defines the concept of“open strate-gic autonomy”.The Commission also mentioned new legal and autono-mous instruments to be proposed in the next months.In April,UNIFE organised a virtual meeting between Michael Hager,Head of Cabinet of Executive Vice-President in charge of An Econ-omy that Works for People and Trade Commissioner Valdis Dombrovskis,and Henri Poupart-Lafarge,Chair-man and CEO of Alstom and UNIFE Chair.The objective of the call was to present Mr.Hager the current trade challenges faced by the European Rail Supply Industry,both domesti-cally and internationally,and convey UNIFEs stances concerning the main trade dossiers.In the framework of the European Year of Rail,UNIFE published a fact-sheet on world markets to provide policy makers,industry leaders and the wider public with information on the world rail market and our indus-trys export data.Specific focus was paid to success stories,such as the European Rail Traffic Management System(ERTMS)which became a tru-ly global standard.1)Global leadership and the level playing field:continuing to advance the interests of the European Rail Supply IndustryUNIFE European Year of Rail Factsheet on establishing a level playing fieldP A G E4303.International AffairsTo the same end,UNIFE organised an online event called“Levelling the play-ing field to maintain the global leader-ship of the European rail industry”.The virtual discussion examined Europes global rail leadership and how it can ensure fair competition for suppli-ers operating in the European and international rail markets.The event featured prominent speakers from the European Commission,Europe-an Parliament and the Portuguese Presidency of the Council,as well as academics and industry speakers.UNIFEs European Year of Rail digital event on a global level playing fieldP A G EUNIFE-Annual Report 202144As the 2020 World Rail Market Study reported,world-wide market accessibility to has fallen to only 62%-compared to 63%in 2018.This is trend is even more worrying as the current economic crisis linked to COVID-19 is expected to intensify that protectionist trend.Therefore,it is more urgent than ever for the European Rail Supply Industry to have a robust tool as it attempts to open world procurement markets.2021 was a crucial year for discussions on the IPI,bringing us closer to the end of the legislative process:In June,an agreement was finally reached among Member States after 9 years,thanks to the tremen-dous efforts of the Portuguese Presidency of the Council.The European Parliament has actively resumed its work on the file under the leadership of the Interna-tional Trade Committee(INTA),with important com-petences of the Internal Market Committee(IMCO)aiding their progress.The Parliament voted on its position at the end of the year,opening the way to trialogues and the files finalisation in 2022 during the french presidency.UNIFE has continued to engage on public procurement through the AEGIS Europe trade coalition,and chaired its Working Group on Public Procurement.Throughout the year,our efforts redoubled to ensure an ambitious and actionable agreement both in the European Council and Parliament.More than ever,the support of the entire rail supply industry-especially at the national level-is crucial to finalising negotiations on this much-needed instrument as soon as possible.2)The International Procurement Instrument(IPI)European Commissioner for Trade DombrovskisP A G E4503.International AffairsLast spring,the Commission adopted a proposal for a Regulation on foreign subsidies distorting the internal market.The legislative proposal follows the publication of the“White Paper on levelling the playing-field as regards foreign subsidies”,published in June 2020.With this initiative,the Commission acknowledged for the first time that there is a growing number of instances within the EU in which for-eign subsidies have distorted mar-ket operations,or bidding in public procurement,to the detriment of EU companies.Subsequently,the Commission made a proposal to fill in existing regulatory gaps regarding competition,public procurement,in-vestment and others.The Regulation would grant the Commission the power to investi-gate financial contributions granted by non-EU governments to compa-nies active in the EU.If it finds that such financial contributions consti-tute distortive subsidies,it could impose redressive measures.UNIFE has been extremely active on this file,especially through the like-minded AEGIS Europe,the alliance representing 23 key indus-tries aiming to promote manufac-turing investment,innovation,jobs and growth in Europe.3)Instrument on foreign subsidiesUNIFE position paper on the effects of foreign subsidies distorting the internal marketAEGIS Europe comments on the Commissions proposed regulation of distortive foreign subsidiesP A G EUNIFE-Annual Report 202146In recent years,UNIFE members have encountered increasing barriers as they attempted to operate in China.According to the 2020 World Rail Market Study,Chinas rail market accessibility has reached a record low of 17%.Not only are some market segments now effectively closed to foreign suppli-ers,but additional constraints like non-transparent public procurement procedures and expanding localisation requirements are regularly imposed by contracting authorities in the few areas that remain accessible.The introduction of an Auton-omous Recommendation List of Equipment in the urban transport market could create further market barriers for foreign enterprises seeking to enter their urban transport market on an unequal footing.The EU-China Comprehensive Agreement on Investment(CAI)was concluded in principle on 30 December 2020.The text,schedules of commit-ments and annexes were published in the follow-ing months.Our association has also continued to monitor Chi-nas ongoing efforts to join the WTO Agreement on Government Procurement(GPA).UNIFE and the AEGIS Europe coalition continue to defend cer-tain necessary pre-conditions for Chinas success-ful entry to the WTO GPA.Simultaneously,Chinese state-owned enterprises have become increasingly powerful players in all product segments and on all continents,often profiting from unfair competition.Against this background,UNIFE has closely monitored the situation through several initiatives confirming important shifts in numerous dossiers throughout 2021.In particular,UNIFE continues to monitor developments related to the EU-China Connec-tivity Platform,which aims to enhance synergies between Chinas“Belt and Road Initiative”(BRI)and the EUs connectivity initiatives,including the newly proposed EU Global Gateway strategy fa-vouring a Teams Europe approach.By joining Business at OECD,UNIFE is also party to various work streams tasked with addressing trade distortions and imbalances.On 31 January 2020,the United Kingdom withdrew from the European Union,commencing a transi-tion period during which EU law continued to ap-ply to the United Kingdom until 31 December 2020.The EU-UK Trade and Cooperation Agreement(TCA)entered into force in January 2021.The agreement was reached on 24 December 2020,af-ter several months of difficult negotiations on the future relationship.Throughout the negotiations,UNIFE has been ac-tive as it seeked to ensure as few disruptions as possible in the current trade flows between the EU and the UK.We also called for an elevation of the UK with respect to public procurement.While the overall results for the European Rail Supply Indus-try seem satisfactory,the TCA will need to stand the test of time,in particular on practical issues that companies can face when exporting on re-spective markets.Trade relations between the EU and ChinaTrade relations with the United KingdomP A G E4703.International AffairsAfter years of negotiations,the EU and Japans Economic Partnership Agreement(EPA)entered into force on 1 February 2019.However,the EPA only opened the procurement of goods and ser-vices covered by the Operational Safety Clause(OSC)in the WTO Agreement on Government Procurement to EU suppliers from 1 February 2020.The OSC was a major non-tariff barrier that allowed opacity and discrimination in procurement from Japanese rail operators.UNIFE welcomed this agreement as it provides European rail suppliers with satisfactory guaran-tees on public procurement.But in practice,the Japanese rail market continues to lack trans-parency and openness towards European sup-pliers.It is crucial that the Commission maintains pressure on its Japanese counterparts,as well as support activities as outlined in the 2020 Guide for EU Suppliers on Government Procurement in Japan,to ensure that a level playing field in this impor-tant rail market.Despite the existence of a Free Trade Agreement between South Korea and Europe since 2011,there are currently many obstacles related to public pro-curement,technical aspects and government sup-port that impede access to the South Korean rail market for European suppliers.This shortcoming is also due to the fact that this deal was less am-bitious than the more recent generation of trade agreements.UNIFE continues to actively collaborate with DG TRADE to ensure a level playing field and degree of reciprocity in procurement relations.UNIFE up-dated its position on this topic in April to reflect the current realities faced by our members in this area.EU-Japan economic partnership agreementEU-South Korea Free Trade Agreement4)Monitoring of existing trade agreementsThroughout the year,UNIFE team has continued to monitor existing trade agreements of importance to the European Rail Supply Industry.In this respect,an impor-tant meeting was held in January with Denis Redonnet,Chief Trade Enforcement Officer(CTEO)and Deputy Di-rector General of DG TRADE.P A G EUNIFE-Annual Report 202148UNIFE stressed its support of the stated objective to establish a level playing field on carbon content and avoid carbon leakage,it also highlighted the significant risks for the competitiveness of downstream industries like rail supply.5)Carbon Border Adjustment Mechanism(CBAM)UNIFE position paper on the Carbon Border Adjustment Mechanism(CBAM)This past July,the European Com-mission proposed a“Regulation on a Carbon Border Adjustment Mechanism”(CBAM)to tackle the risk of carbon leakage and ensure that the price of imports more accurately reflects their carbon content.This initiative is part of the European Green Deal and was presented as one piece of the“Fit for 55”package,announced in 2021.It followed a public consultation from July 2020,in which UNIFE participated.In November,UNIFE reacted to the proposed Regulation with a position paper which was also submitted as part of a public consultation.While UNIFE stressed its support of the stat-ed objective to establish a level play-ing field on carbon content and avoid carbon leakage,it also highlighted the significant risks for the compet-itiveness of downstream industries like rail supply.UNIFE stressed that the CBAM should be applied to the emissions of the complete product value chain before such product is imported into the EU.Finished prod-ucts,such rail rolling stock and equip-ment,should have the possibility of being included in the CBAM as soon as possible.P A G E4903.International Affairs6)Organisation for Economic Co-operation and Development(OECD)The OECD is an important international body that works on establishing evidence-based international standards and generating policy solutions to social,economic and environmental challenges which are increasingly rel-evant for our industry.In 2020,UNIFE joined Business at OECD formerly,BIAC-which represents the leading business federations in OECD coun-tries and over 7 million private businesses across all sectors.a)Measuring distortions in international marketsb)Arrangement on officially supported export credits and the Rail infrastructure Sector Understanding(RSU)UNIFE has been particularly active in advocating action at OECD in the work stream focussed on levelling the playing field.As a result of its efforts,rail rolling stock will be the focus of the next sectoral The revision and extension of the Rail infrastructure Sector Understanding(RSU)was on the table at last years meeting of Participants to the OECD Arrangement.The messages advocated by UNIFE were successfully taken on board.More specifically,the RSUs sunset clause was extended until 31 December 2023,while the share of local costs of export contract value has been increased by 50%.This enables the rail industry to benefit from a more efficient tool for the provision of competitive financing solutions.Nevertheless,UNIFE continues to insist on the modernisation of the whole Arrangement and the necessity to actively promote it towards international trading partners to achieve a level playing field for both market access and export conditions.report on measuring distortions in international markets.This report,expected to be released in 2022,will be a major source of information regarding confronting unfair foreign subsidies.In October 2021,UNIFE submitted a new position paper to the Business at OECD(BIAC)Export Credit Committee and the Organisations Export Credit Working Group in view of their annual meetings on how to best incentivise climate-friendly and sustainable projects.With the green transition well under way,OECD members are discussing how to engage Export Credit Agencies(ECAs)to P A G EUNIFE-Annual Report 202150provide stronger support for green transactions and projects.To this end,UNIFE considers making use of a common comprehensive classification method to define and,thus,identify climate-friendly industry sectors and projects will be a fundamental practice.The aforementioned position paper includes a set of proposals ranging from the development of comprehensive standard methodology and rules for ECAs aligned with the Paris Agreement to preventing distortions of a potential level playing field,capturing ECAs climate risk exposure,providing more flexibility with repayment terms and local costs for green projects,and lowering risks premiums.In parallel,the European Commission,in its March communication titled“Trade Policy Review-An Open,Sustainable and Assertive Trade Policy”,announced that“in order to ensure a better level playing field for EU businesses on third country markets,in which they increasingly have to compete with the financial support foreign competitors receive from their Governments,the Commission will explore options for an EU strategy for export credits.This will include an EU export credit facility and enhanced coordination of EU financial tools”.UNIFE has many expectations from this initiative because,according to the Commission,“it will also incentivise climate friendly technology projects and propose to immediately end support for the coal-fired power sector,and to discourage all further investments into fossil fuel-based energy infrastructure projects in third countries”.P A G E5103.International Affairs1 Compound annual growth rate 2021-2023 vs.2015-2017;UNIFE 2020 World Rail Market Study.2 Compound annual growth rate 2021-2023 vs.2015-2017;UNIFE 2020 World Rail Market Study.7)Bilateral cooperation with third countries The Gulf region remains a priority market for the European rail supply industry as it is expected to grow by 1.7%,as outlined in the 2020 World Rail Market Study1.Since 2014,UNI-FE has worked to build a solid rela-tionship with the Gulf Coopera-tion Council Secretariat General(GCC-SG),which oversees economic developments in the region.Our or-ganisations codified our cooperative intentions in December 2017 with the signing a Memorandum of Under-standing(MoU).UNIFE Director General Philippe Citron and Head of Public Affairs Jonathan Nguyen once again partic-ipated in the annual Middle East Rail Conference,which took place on 12-13 October in Dubai.They presented the European Green Deal and related initiatives,as well as the European Rail Supply Industrys vision on best value procurement also known as the Most Economically Advan-tageous Tender principle(MEAT).UNIFE also used this opportunity to hold bilateral meetings with the Gulf Cooperation Council Secretariat Gen-eral and its member companies.Cooperation with Gulf Countries (GCC-SG)Cooperation with Russia (NP UIRE)Throughout 2020,UNIFE has also maintained close contacts with its Russian counterpart,the Union of Industries of Railway Equipment(NP UIRE).While exchanges on the regulatory framework and processes for authorisation have continued,a joint event on automatic train opera-tion(ATO)was organised in February.The Commonwealth of Independent States(CIS)region continues to be an important and attractive market for the European Rail Supply Industry,with an expected growth of 1.7%in the coming years2.UNIFE Director General Philippe CitronP A G EUNIFE-Annual Report 2021523 Compound annual growth rate 2021-2023 vs.2015-2017;UNIFE 2020 World Rail Market Study.Relations with American Public Transportation Association(APTA)Despite the pandemic,UNIFE has maintained consistently solid rela-tions with our counterparts in North America.Given the challenges both our regions have experienced due to the virus,UNIFE and the American Public Transportation Association(APTA)have decided to hold regular ex-changes on COVID-19s impact on our respective markets and potential poli-cy support measures.This has allowed UNIFE to participate in raise its pres-ence in North America and directly con-verse with representatives from major transport authorities such as New Yorks Metropolitan Transportation Authority and Bostons Massachu-setts Bay Transportation Authority at APTAs 6 June Rail Conference.Our close ties with APTA were also particu-larly helpful in engaging directly with the United States Federal Railroad Administration(FRA)on 2 July on the importance of expanding rail service in a sustainable manner that recognises the need for a level playing field,craft-ed in part by bilateral leadership in international standardisation bodies.UNIFE was fortunate enough to repre-sent the European Rail Supply Industry at the 2021 APTA TRANSform Confer-ence and Expo in Orlando this past November.This opportunity provid-ed us the opportunity to share about Europes path towards decarbonised transport,the importance of instilling a culture of quality in rail through IRIS and more.The North American rail market-com-posed of the US,Canada and Mexico -is forecasted to experience 2.5%growth in the coming years3.Important projects such as the California High-Speed Rail,Mexicos Tren Maya and the expansion of the Toronto network are expected to define this period.Throughout 2021,UNIFE also worked to deepen its cooperation on trade and fair competition with the US Railway Supply Institute(RSI)and the Canadian Association of Railway Sup-pliers(CARS),in a bid to raise the Rail Supply Industrys international visibil-ity and awareness of the challenges it faces due to subsidised,state-owned competitors.Cooperation with US Railway Supply Institute(RSI)and the Canadian Association of Railway Suppliers(CARS)IRIS General Manager Bernard Kaufmann at UNIFEs APTA TRANSform Expo boothP A G E5303.International Affairs01Overview0206European Clean Hydrogen Alliance(ECHA)UNIFE involvement in Standardisation03UNIFE Technical Working Groups05UNITEL04Cybersecurity activities04STANDARDS®ULATION566264697072P A G EUNIFE-Annual Report 202156As the official representative body for the European rail supply industry,UNIFE coordinates the contributions and position of its members towards the development of regulations,decisions,guidelines and other documents drafted by the European Union Agency for Railways(ERA)and the European Commission(EC).the Technical Specifications for Interoperability(TSIs).The UNIFE Standards and Reg-ulation Group(SRG)and its sup-porting UNIFE technical working groups are platforms for members to influence technical regulations that relate to the interoperability and safety of the European railway system.UNIFE has actively partici-pated in numerous working par-ties and groups organised by the European institutions to support the drafting of the aforementioned outputs.The SRG plays a pivotal role in coordinating UNIFEs techni-cal stances on the implementation of the EUs 2016 Fourth Railway Package(4RP)and 2022 Revision of the Technical Specifications for Interoperability(TSIs).SRG also interacts with other rail associations,such as CER,EIM,UIP and NB-Rail,as well as other stakeholders in Europes rail sector through participation in the Group of Representative Bodies(GRB)and the European Standardisa-tion Organisations(ESO)-particu-larly,CEN and CENELEC-through the Sector Forum Rail(SFR).As an observer on both the ERA Management Board and ERA Executive Board,UNIFE Director General Philippe Citron regularly attends these meetings to express the associations commonly held positions on important topics such as ERAs annual work programme and ongoing activities supporting 4RPs implementation.The 4RPs Technical Pillar is comprised of the reworked Interoperability and Safety Directives and the ERA Regulation,which entered into force on 15 June 2016 and provided Member States with a three-year trans-position period,a possible one-year extension upon request and later a further actionable extension until 31 October 2020 due to inconveniences caused by the COVID-19 disruption.Since 31 October 2020,the Technical Pillar has been in operation in all Member States.As such,2021 was its first full year in effect,allowing all stakeholders from the railway sector,including the ERA and all the National Safety Authorities(NSAs),to experience of the Fourth Railway Package regime.Starting from 16 June 2019,ERA has acted as a European authorising entity and delivered over 2300 vehicle authorisation decisions-representing over 26.000 authorised rail vehicles.1.Implementation of the Fourth Railway Packages Technical Pillar1)Overviewa)2021s key developments in rail standards and regulationsP A G E5705.STANDARDS®ULATIONUNIFEs focus this past year has been collecting feedback on the new processes in an attempt to ensure lessons learnt are shared,issues resolved and agree-ments reached where further enhancements can be made to streamline the new system.A harmonised European authorisation process ran by the newly fortified ERA should result in a convergence and greater certainty of require-ments,leading to a more consistent,quicker and cheaper vehicle authorisation process with less duplication of checks and testing.With the entry into oper-ation of the Technical Pillar in all Member States at the end of 2020 and now over two years of experience at ERA,the activities to review the implemented processes and define recommendations to enhance the them to achieve the expected cost and time saving goals has begun.This review is led by 4RP Steering Group,of which UNIFE is member and has provided the detailed feedback from the European rail supply industry.Impor-tant aspects remain to be solved,including the finalised clean-up of Notified National Technical Rules,development of the ERA IT tools and improvement to the“conformity-to-type authorisation”concept.Close attention will be paid in the coming year to ensuring the full delivery of the Fourth Railway Packages expected benefits.Finally,UNIFE continues to raise awareness and greater understanding of the changes within the European rail supply industry currently being implemented under this new framework.Our association strongly supported the Tech-nical Pillars adoption,which we see as of paramount importance for the rail industrys competitiveness as it removes the remaining technical barriers to the creation of a Single European Rail Area(SERA).Vehicle authorisation harmonisation under 4RP Image source European CommissionP A G EUNIFE-Annual Report 202158On 24 January 2020,the EC sent a request to the ERA for the preparation of the 2022 Digital rail and Green freight TSI Revision package.This package is intended to align the TSIs contents with the ECs high-level policy goals.In 2021,the ERA Working Parties and Topical Working Groups(TWGs)have been focused on the preparation of the next revision of TSIs,with the new full package scheduled for vote and publication at the end of 2022 or early 2023.UNIFE has adapted its internal consultation pro-cesses with its committees and technical working groups to best follow and contribute to the new revi-sions.We are a member of the ERA Working Party on the revision of TSIs which acts as the steering group for all such activities and has experts nom-inated to each of the activated TWGs.Within our association,the Working Party on the revision of TSIs is followed by the SRG,which coordinates the rail supply industrys response,nominates experts within the TWGs and cooperates with the other UNIFE committees when appropriate.The activ-ities of each TWG,where the detailed TSI revision proposals are developed,are consulted by a com-bination of the existing UNIFE technical working groups depending on the change request subject.UNIFEs goal is to ensure that the necessary evo-lution of the technical regulation and standards framework is carried out in a way that will improve the competitiveness of the European Rail Supply Industry,support the harmonisation and trans-parency of technical rules in Europe while facili-tating the development and authorisation of rail products.The Working Party held eight meetings on the TSI revision in 2021 to monitor the activities of the TWGs and review change request proposals.Meetings will continue to be held frequently in 2022 as the final outputs and TSI text proposals are delivered by each of the TWGs to finalise ERAs recommendation to the EC by June.2.Revision of the 2022 Technical Specifications for Interoperability ERA Technical Working Groups structure Image source:European Union Agency for Railways(ERA)P A G E5905.STANDARDS®ULATIONConcerning the TSI 2022 revision package,one of UNIFEs priorities is the review and expected amendments to the transitional provisions re-quired to provide the European rail supply industry with stability for individual railway projects while regulations,standards and innovations con-tinue to evolve.This process,led by the ERA TWG on Migrations and Transitions,has been closely followed by the UNIFE SRG and Vehicle Authori-sation Mirror Group.In 2021,UNIFE published a position paper,titled“TSI Transitions for a Competitive European Railway Sector”,outlining the European rail supply industrys stances on the transitional provisions needed to support the planning and competitiveness of long-term rail projects and delivery of vehicle types.Increased stability and predictability of the European technical framework and TSI transitions is a priority for our industry.The sector must benefit from todays TSI maturity especially regarding interoperability,safety and market-driven prod-uct innovations.This past year,UNIFE launched several actions at the European and Members State levels to promote this position paper and alert relevant stakeholders of the importance of regulatory stability for the competitiveness of the European rail supply industry.3.Revisions of TSI Transitions within the TSI 2022 PackageTSI Transitions for a Competitive European Railway Sector position paperP A G EUNIFE-Annual Report 202160UNIFE has established a high-level dialogue between DG MOVEs Directorate C,ERA management teams and UNIFE members at the CTO level on the implementation of the Technical Pillar of the Fourth Railway Package.These meetings have sought to jointly and closely monitor the final implementation activities of the Fourth Railway Pack-age as it entered operation at ERA in June 2019 and to identify common actions to ensure the smooth transi-tion to the new regime.Discussions have covered areas such as the new vehicle authorisation processes and requirements,the development of the related ERA IT tool,the TSI amendments and the clean-up of notified national technical rules.These meetings resumed in 2021 to continue exchanges on the re-turn of experience with the new vehicle authorisation regime and provide feedback between partici-pants.They provided an opportuni-ty to share lessons learnt,identify areas for continued improvement and agree on practical measures to facilitate the authorisation ap-plications and process.Discus-sions in these meetings also cover the development and application of TSIs for both the 2022 revision,and beyond,towards the European railway target system.Regarding the 2022 TSIs,UNIFE highlights the necessity for transitional provisions that provide the rail supply indus-try with stability for individual rail-way projects while the regulations,standards and innovations continue to evolve.Beyond 2022,UNIFE calls for an optimisation of the current TSIs and complex technical framework to provide a leaner and more competitive system for the European railway sector.For more information on the Fourth Railway Package and TSI revisions,please contact UNIFE Technical Affairs Manager Nicholas Shrimpton at nicholas.shrimptonunife.org.5.UNIFE High-Level Dialogue with DG MOVE and ERA on the Implementation of the Technical Pillar of the Fourth Railway PackageUNIFE is a permanent member of the ECs Expert Group on the Technical Pillar of the Fourth Railway Package,alongside Member State and other official sectoral representative bodies.This group is intended to consult the sector on legalisation to be voted on,give recommendations on draft texts and help prepare discussions and votes to be held in the Railway Inter-operability and Safety Committee(RISC).This Expert Group is intended to complement-but not replace-the RISC,which only allows Member State representa-tives to vote on the final Implementing Acts.One meeting of the EC Expert Group on the Fourth Railway Package was held in 2021.Its agenda included a discussion on proposed updates to the Fourth Rail-way Package Fees&Charges and TSI revision planning.UNIFE took the opportunity to also instigate talks with the Member States on the priorities identified by the industry,namely about the risks associated with the TSI Transitions revision and ETCS Baseline 2 updates within authorisation projects.Throughout the year,our association has called on the European institutions and Member States to make available the necessary support,funding and resources for ERA from 2022 onwards.This work was a conse-quence of the EUs decision to reduce its contribution to the agencys 2021 budget.This resulted in significant constraints on its activities during the once-in-a-gener-ation European Union Year of Rail campaign.UNIFE considers an increased ERA budget a necessity to match the its expectations and ambitions,allowing the organi-sation to perform its key role in the development of the Single European Railway Area and achievement of the EU Green Deal objectives.A further consequence of the resource and budget constraints that ERA experienced this year has been the 2021 amendment to Implementing Regulation(EU)2018/764 on the Fourth Railway Package fees and charges payable to the agency.Within the EC Expert Group and EC public consultation on this topic,UNIFE highlighted the need to provide sufficient resources to ERA and optimise the new vehicle authorisation pro-cess if the original 4RP objectives are to be achieved.Our association also called for steps to be taken to reduce the time and efforts needed per application.4.European Commission Expert Group on the Technical Pillar of the Fourth Railway Package P A G E6105.STANDARDS®ULATIONAs the official association of Europes rail suppliers,UNIFE is a member of the Group of Representative Bodies(GRB).The GRB is a group of European railway associations tasked with supporting the sectors consul-tations with the European Union Agency for Railways(ERA)as it composes its work programme and its activi-ties on rail safety and interoperability.The GRB has continued to be highly active throughout 2021,with particular focus paid to the return of experi-ence concerning the Fourth Railway Package,the revi-sion of the TSIs for 2022 and the budget and functioning of ERA.A number of joint positions relating to regulation and standardisation have been adopted by the GRB and submitted to the EC,ERA and Member State represent-atives.The GRB also continues to closely follow all ERA activities and the delivery of its work programme.Since January 2019,Mr Christian Rausch,member of UNIFEs Standards and Regulation Group(SRG),has also served as the GRBs chair for a two-year mandate.At the end of 2020,the GRB supported the renewal of his mandate until 2022.Strong leadership and cooper-ation among all stakeholders have been vital during the final stages of the Technical Pillars implementation and the preparation of the revised TSI package for 2022.Please contact UNIFE Technical Manager Nicholas Shrimpton and David Kupfer to learn more.They are reachable at nicholas.shrimptonunife.org or david.kupferunife.org.For further information on GRB,please visit grbrail.eu6.Cooperation with the Group of Representative Bodies(GRB)P A G EUNIFE-Annual Report 202162Standardisation is extremely important for our industry,leading many UNIFE members to be involved in both European and global standardisation proceedings through their respective national bodies.UNIFE provides a platform for its members to coordinate their standardisation advocacy and build consensus on our industrys priorities in this area.UNIFEs Standards and Regulation Group(SRG)is responsible for monitoring developments in both regulation and standardisation,the complete technical framework of which is represented in the figure below.The careful coordination of activities in both areas is required to ensure that the work carried out by European institutions and ESOs is complementary and improves the rail sectors functioning and competitiveness.2)UNIFE involvement in StandardisationLevel of DETAIL of the descriptionof the essential requirementsMandatoryVoluntaryTSIsStandards directly quoted in TSIsHarmonised EN StandardsOther Standards,codes of practice,.Interoperability Directive Essential Requirements1.Safety2.Reliability and availability3.Health4.Environmental protection5.Technical compatibility6.AccessibilityStandardisation technical framework P A G E6305.STANDARDS®ULATIONTo support the efforts of its members at the national level,UNIFE has estab-lished close links with relevant Euro-pean Standardisation Organisations(ESOs),namely CEN and CENELEC.Our association works closely with the Com-mission,who sets the policy framework for European level standardisation,and the CEN-CENELEC Management Cen-tre,which coordinates the activities of both organisations.UNIFE also participates in Sector Forum Rail(SFR),formerly known as the Joint Programming Committee Rail(JPC-R).The SFR facilitates dis-cussions between the CEN-CENELEC Management Centre and representa-tive bodies on the sectors standardi-sation priorities.At the global level,UNIFE holds A-Liaison status for the International Standardisation Organisations(ISO)Rail Technical Committee 269(ISO TC 269).This enables us to take part in the committees regular meetings.UNIFE is also a member of the Rail Standardisation Coordination Plat-form for Europe(RASCOP).Initiated by the European Commission in 2016,the platform brings together parties involved in the planning and development of railway-related legis-lation,standards and technical doc-uments in Europe.It also works to coordinate all activities related to the development of European standards and other related technical docu-ments that are relevant to the railway sector.The platform is chaired by the Commissions Directorate-Gen-eral for Mobility and Transport(DG MOVE)and is supported by ERA.In 2021,UNIFE initiated the develop-ment of a rail sector vision on inter-national standardisation that brings together the views of different rail sector organisations on international standardisation.Based on the UNIFE position paper on international stand-ardisation,published in March 2020,a dedicated group at GRB was able to establish a common position sup-ported by the associations NB-Rail,European Rail Infrastructure Manag-ers(EIM),Union internationale pour le transport combin Rail-Route(UIRR),International Union of Wagon Keepers(UIP),and UNIFE.This position will be the basis of further discussions with the Commission and with CEN and CENELEC on the strategic importance of international standardisation for the European industry.Furthermore,UNIFE has relaunched our cooperation with urban trans-port operators on standardisation through the Urban Rail Platform,a forum driven by UNIFE and the International Association of Public Transport(UITP).The platform aims to support standardisation in urb
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Warehouse Management Solutions:On-Premises vs.Cloud-Based,Which Is Right for Your Brand?IntroductionFor many brands,selecting a warehouse management system(WMS)is one of the most important decisions you will make.Choosing the right WMS is essential to running a warehouse and increasing productivity,profitability,accuracy,and growth.Once you find the right WMS for your brand,your next step will be to choose between one that is on-premises(the WMS will be installed and housed at your warehouse)or one that is cloud-based(a WMS that can be accessed via the Internet).So,what exactly should brands know before they choose one of these options?In this eBook,well walk you through the process and cover the following topics:Understanding the difference between on-premises and cloud-based WMSThe pros and cons of each optionAdvice on how to choose a WMS for your brandHow to grow your business at an exponential rate2On-Premises vs.Cloud-Based WMSDefining WMS Software ChoicesWhat IsOn-Premises Software?What IsCloud-Based Software?Having a deep understanding of both on-premises and cloud-based software can help you make the best decision for your business.Here are the basics:On-premises software(also called“on-prem”)is installed at the site of the warehouse.Hosted and maintained on local servers or in the data center of the company who owns the software,it uses the companys own internal resources,hardware,and servers to both house and manage the software.Cloud-based software,also known as Software-as-a-Service(SaaS),is stored in the“cloud,”which refers to servers that are accessed over the Internet.Instead of only being able to access your data on-site,you can access it from any device(e.g.,mobile phone,tablet)as long as you have an Internet connection.3On-Premises vs.Cloud-Based WMSTrends inOn-Premises vs.Cloud-Based WMS SoftwareEarly warehouse management systems were typically on-premises,which at the time was incredibly innovative.However,next generation systems have focused mostly on cloud-based WMS because they provide much better scalability and accessibility,including the ability to share real-time data between multiple locations.Market and Markets Warehouse Management System Market Global Forecast to 2025found that:On-premises WMS is expected to grow atCloud-based WMS is expected to grow atthrough 2025through 202513.1(.7%So,why is cloud-based WMS growing at more than double the rate of on-prem WMS software?4On-Premises vs.Cloud-Based WMSAdvantages andShortcomings of anOn-Premises WMSOne of the most significant benefits of on-premises WMSis that it allows businesses to have full control over their operations.With an on-premises WMS,you can set up and customize your system based on your unique requirements,which gives you more flexibility in terms of workflow management and data access.Another key advantage of an on-premises solution is that it provides greater security.Since all your data and systems are stored locally within your organizations network,there is less risk of confidential information or intellectual property being accessed by unauthorized users.This can be particularly important for businesses in regulated industries,such as healthcare and finance,where security is atop priority.Additionally,with an on-premises model,you dont need to worry about subscription fees or ongoing service costssince the software is installed locally,most of the time,the upfront cost is merely the purchase price.But there can be exceptions to this:depending on your resources and your current systems,you might require in-house IT support and additional servers to manage your data.Additionally,each time you need to upgrade the software,you could face additional costs related to the upgrade itself,as well as the cost of implementing the upgrade.Overall,if you are looking for full control over your WMS operations and the ability to customize your system to meet your specific needs and requirements,then an on-premises solution may be the right choice for you.Just remember to factor in the potential associated costs and complexities of implementation before making a final decision.For most businesses though,a cloud-based system is the way to go.5On-Premises vs.Cloud-Based WMSWhy Is Cloud-Based WMSBetter than On-Premises?Warehouses are increasingly using cloud-based management system for the following reasons:Increase Access from AnywhereHigher Accuracy and TransparencyLower and More Predictable Costs With cloud-based WMS,users can access their WMS data anywhere,anytime,as long as they have valid user credentials and access to the Internet.Get real-time information about orders and enjoy increased accuracy and inventory visibility.A cloud-based WMS is often more cost effective than on-premises since businesses will only have to pay for a quarterly or monthly subscription;its also an attractive option for companies that dont have full-time in-house IT resources.6On-Premises vs.Cloud-Based WMSLess IT MaintenanceRapid Installation and ImplementationIncreased InnovationFaster Updatesin Real-TimeWith on-premises WMS,IT staff will have to schedule updates,fix any system issues,and handle security.With a cloud-based solution,youll spend less time worrying about upkeep and more time doing what you do bestrunning and scaling your brand.On-premises WMS solutions can take months(or even more than a year)to install and implement.Cloud-based WMS is implemented quickly and remotely,so you can get things running without burdening staff.With on-premises WMS,youre limited to the functionality that is available prior to your date of purchase,so implementing new functions will take downtime.Cloud-based WMS generally offers more innovative functionality and will cut downtime since it can be easily added.With cloud-based WMS,maintenance is included and future updates appear in real time.If you need more functionalities and features,you can simply press a button instead of dealing with a costly and lengthy installation process.7On-Premises vs.Cloud-Based WMSCloud-Based WMS Helps Your Brand GrowMore Visibility Increased Savings and EfficiencyIncreased Speed with Real-Time UpdatesHigher ReliabilityA cloud-based WMS can help your brand grow by providing more visibility,control,and agility.Plus,you can do it all from a single platform,which makes it easy to stay organized and efficient.A cloud-based WMS can help you reduce operational costs(e.g,installation,maintenance,labor),better manage time,keep better track of your resources,and free up your staff for higher level tasks.It can also increase your savings and maximize your efficiency by tracking inventory accurately,generating packing lists,sending notifications,and helping with labor management.With cloud-based WMS,maintenance is included and future updates appear in real time.If you need more functionality and features,you can often add them online rather than going through a lengthy installation process.With on-premises WMS,IT staff must schedule updates,fix any system issues,and handle security.Additionally,youre limited to the functionality that is available prior to your date of purchase.The cloud is a more reliable storage option than traditional storage methods.With the cloud,your data is backed up multiple times and never lost.8On-Premises vs.Cloud-Based WMSNew Levels of ScalabilityScalability tops the reasons why many companies select a cloud-based WMS.You can enjoy flexibility and grow as volume increases,without the need for staff to constantly update and maintain the system.This frees up your workload for more important tasks like growing your brand.Thats the promise of next generation cloud-based WMS solutions.These systems are designed for extreme scalability,with features like horizontal scaling,load balancing,and clustering.This allows businesses to keep up with ever-growing volumes of inventory and order processing with ease.In addition to scalability,cloud-based WMS solutions offer a host of other features that can help take your business to the next level:Real-time dashboards and reports that give you instant insights into your business performanceMobile barcode scanning drastically reduces the time and effort needed to track inventory accurately,eliminating errors and increasing productivitySeamless integrations with your existing ERP and accounting systems,so you can get a complete view of your business performanceA comprehensive set of features that covers all aspects of warehouse operations,from receiving and suggested putaway to shipping and tracking9On-Premises vs.Cloud-Based WMSBut What if You Could Take Scalability to Even Greater Heights?See the Differenceof Cloud WMSUsing a cloud-based WMS helps brands manage and fulfill more orders at a faster pace so you can enjoy:All while being more cost effective and efficient than on-premises WMS solutions.More integrationsIncreased productivity and efficiencyHigher accuracy and transparencyReal-time information and dataMore growth and scalability10On-Premises vs.Cloud-Based WMSCloud-BasedWMS FeaturesExtensiv Warehouse Manager is a cloud-based WMS system that is simple to implement and easy to use.The web-based software provides real-time inventory visibility and control for brands of all sizes.The software is fully customizable,so it can be tailored to fit the specific needs of your warehouse operation.A cloud-based WMS offers a wide range of features to streamline your warehouse operations,including:Extensiv Warehouse Manager,a cloud-based WMS,is the perfect solution for businesses of all sizes.The software is packed with features to streamline your operation and is simple to implement and easy to use.Inventory Management:Keep track of your inventory levels in real time,so you never oversell or run out of stock.User Permissions:Control which users have access to which features,so you can limit access to sensitive data.Reporting:Generate detailed reports on your operations so you can identify areas for improvement.Order Management:Automatically generate pick tickets and packing slips and print labels directly from the software.Shipping Integration:Connect to popular shipping carriers(UPS,FedEx,DHL,etc.)to print labels and track Mobile Barcode Scanning:Extensivs Warehouse Manager comes with built-in technology so you can use your smartphone or tablet to scan barcodes and track inventory to ensure you never oversell or run out of stock.Shipping Tracking:Automatically update shipping applications and provide proof of delivery directly from your mobile phone or tablettracking information and delivery dates will be at your fingertips.11On-Premises vs.Cloud-Based WMSConclusionIts important to consider what your needs are now and how they might change as you grow your brand.Cloud-based WMS can help you scale your business and store your data in a more accessible way.And if youre looking to expand SKUs and/or add more warehouses,connecting with a 3PL through our Fulfillment Marketplace will be effortless.Regardless of your goals,its likely a cloud-based WMS can help you reach them.Whether you desire more scalability or just increased efficiency and visibility,a cloud-based WMS is the best way to go.Extensiv Warehouse Manager is the perfect cloud-based WMS system for your business.With features like inventory management,order management,shipping integration,and reporting,youll be able to streamline your warehouse operation and improve efficiency.Contact us to learn more about Extensiv Warehouse Manager and how it can help your business.Extensiv is a visionary technology leader focused on creating the future of omnichannel fulfillment.Through our unrivaled network of more than 2,000 connected 3PL warehouses and a suite of integrated,cloud-native warehouse,order,and inventory management platformswe allow modern merchants and brands to fulfill demand anywhere with superior flexibility and scale without painful platform migrations.Book a demo with one of our experts to get a product tour of Extensiv Warehouse Manager!For more information,please call us at 833.983.6748.2022 Extensiv I All rights reserved.REQUEST A DEMOFollow Us
0人已浏览 2023-03-02 12页 5星级
Edison：2022年播客品牌安全和适用性报告（英文版）（67页）.pdf
Safe and soundBrand Safety and Suitability in PodcastingSafe and sound Podcastings first look at brand safety and suitability issues from the listeners perspective 1,093 total online interviews Adults age 18 and older All respondents reported listening to a podcast in the last month Data weighted to match the sex,age,and ethnicity of monthly podcast listeners from The Infinite Dial 2022Sample demographics genderMen,52%Women,48%Sample demographics age18-34425-5437U 21%252526303334363647BusinessTechnologyEducationFood/CookingHistorySportsTrue CrimeMusicPoliticsComedyPodcast categories listened toPercent indicating they“ever”listen to categoryPercent ranking each genre within top threePercent indicating genre is in top 31213131416162122223034Fiction&DramaHealthyTechnologyBusinessHistoryFood/CookingPoliticsSportsTrue CrimeMusicComedy31525572Call Her DaddyThe Rachel Maddow ShowThe Ben Shapiro ShowThe Joe Rogan ExperienceHave you ever Heard of the following podcasts?%saying yes17253047Call Her DaddyThe Rachel Maddow ShowThe Ben Shapiro ShowThe Joe Rogan ExperienceHave you ever listened to the following podcasts?%saying yesobservationsobservationsWhen brands sponsor content that listeners find offensive,podcasting is no different to other media:some listeners will associate the brand with that content.How would you feel about the brand(s)that advertised on/sponsored a podcast where the host/guest talked about something that offended you or made you feel uncomfortable?1931301010TotalMuch lower opinion of brandSomewhat lower opinionNo effectSomewhat higher opinionMuch higher opinion383839You would associate that brand with the offensive content you heardThe brand was not careful in deciding which podcasts to advertise onYou would think that the brand supports the offensive content youheardWould your opinion of a brand that advertised on/sponsored a podcast with offensive content be lower because?Percent saying yesPercent who would“no longer consider a brand if it advertised on a podcast with offensive content”Do not agree,62%Agree,38%giving a“4”or“5”Have you ever boycotted a brand because they supported a podcast that offended you or made you feel uncomfortable?No,77%Yes,23%observationsHowever,what actually offends most podcast listeners falls within a narrow range.1213151619232626263132374445Racist languageSexist languagePromotions of guns or firearmsPromotion of alcohol or illegal drugsJokes about any religionCritical discussion about any religionExplicit descriptions of violenceExplicit discussions of sexAnti-gun or firearm discussionsFrank discussions of racial politicsDiscussion of sexual preference/gender identityDiscussion about vaccinesPolitical views different from yoursSwear words“Do you ever listen to podcasts that involve?”Percent saying yes1213141519202023242626303044Discussions about vaccinesPolitical views different from yoursAnti-gun/firearm discussionsSwear wordsFrank discussions of racial politicsDiscussions of sexual preference/gender identityCiritical discussion of any religionPromotion of alcohol/illegal drugsExplicit descriptions of sexPromotions of guns or firearmsExplicit descriptions of violenceJokes about any religionSexist LanguageRacist LanguagePercent saying“very offended/uncomfortable”to hearing a podcast with%saying“very offended/uncomfortable”233334666688934Discussions about vaccinesPolitical views different from yoursAnti-gun/firearm discussionsSwear wordsCritical discussion of any religionFrank discussions of racial politicsDiscussions of sexual preference/gender identityPromotion of alcohol/illegal drugsPromotions of guns or firearmsExplicit descriptions of violenceExplicit descriptions of sexJokes about any religionSexist LanguageRacist LanguageWhich one of the following would make you feel the most offended or uncomfortable If you heard it on a podcast?%choosing answerobservationsDont be racist.observationsWith the exception of racist material(and to a lesser degree,sexism or ridiculing religion),podcast listeners 18-54 are relatively tolerant of many categories of potentially unsettling content indeed,many seek it out.62231174142272525313337454537283139364454Explicit discussions of sexAnti-gun or firearm discussionsFrank discussions of racial politicsDiscussion of sexual preference/gender identityDiscussion about vaccinesPolitical views different from yoursSwear words18-3435-5455 “Do you ever listen to podcasts that involve?”Percent saying yes467581691114161419242717171823242535Racist languageSexist languagePromotions of guns or firearmsPromotion of alcohol or illegal drugsJokes about any religionCritical discussion about any religionExplicit descriptions of violence18-3435-5455 “Do you ever listen to podcasts that involve?”Percent saying yes4456899101329549756954312211551074438Swear wordsPolitical views different from yoursSexist languageDiscussions of sexual preference/gender identityPromotion of alcohol or illegal drugsExplicit or factual discussions of sexJokes about any religionExplicit or factual descriptions of violencePromotions of guns or firearmsRacist language18-3435-5455 Which one of the following would make you feel the most offended or uncomfortable If you heard it on a podcast?%choosing answerobservationsListeners 55 are far more sensitive to potentially offensive content,but are also more likely to sculpt their listening to completely avoid it.How often would you say you listened to a podcast that discussed topics that offended you or made you feel uncomfortable?31916141831383155 35-5418-34TotalFrequentlySometimesHave you ever heard a podcast host say somethingthat offended you or made you feel uncomfortable?2240433855 35-5418-34Total%saying yesHow would you feel about the brand(s)that advertised on/sponsored a podcast where the host/guest talked about something that offended you or made you feel uncomfortable?1917153031323227302431391014831013141Total18-3435-5455 Much lower opinion of brandSomewhat lower opinionNo effectSomewhat higher opinionMuch higher opinionobservationsRegular listeners to otherwise non-offensive shows will highly likely return to the podcast after a single episode featuring uncharacteristically offensive content.Which of the following best describes what you would do if a podcast you regularly listen to featured an episode that offended you or made you feel uncomfortable?314219494257201624TotalMenWomenWould continue listening to episodeStop listening to specific episode;continue listening to other episodesStop listening to episode and all other episodesWhich of the following best describes what you would do if a podcast you regularly listen to featured an episode that offended you or made you feel uncomfortable?36341847485417182818-3435-5455 Would continue listening to episodeStop listening to specific episode;continue listening to other episodesStop listening to episode and all other episodesobservationsPeople who are passionate about content that might be offensive or unsettling to others are extremely positive about brands that support that content.Percent ranking each genre within top three:menPercent indicating genre is in top 31111121318181821313335ScienceArtsFiction&DramaHealthyHistoryBusinessTechnologyPoliticsMusicComedySports1213131416162122223034Fiction&DramaHealthyTechnologyBusinessHistoryFood/CookingPoliticsSportsTrue CrimeMusicComedyTotalTotalMenMenReasons for listening to comedypodcasts:%saying reason appliesBase:Listen to comedy podcasts3033546370Your family and friends also listen to comedy podcastsYou feel personally connected to the host(s)They provide an escape from realityThey help pass the timeThey improve your moodPercent agreeing with the following statements about comedypodcasts:Base:Listen to comedy podcasts7072You think comedy podcasts are an appropriate place forbrands to advertiseYou are comfortable with the subject matter discussed in thecomedy podcasts you listen toPercent who agree that they“like it when a brand supports their favorite comedypodcast”3927285 1Comedy ListenersStrongly AgreeAgreeNeither agree/disagreeDisagreeStrongly disagreePercent who agree that they are“more likely to remember a brand if it advertises on their favorite comedy podcast”35282764Comedy ListenersStrongly AgreeAgreeNeither agree/disagreeDisagreeStrongly disagreePercent ranking each genre within top three:womenPercent indicating genre is in top 3911131414152123293638Kids&FamilyFiction&DramaReligion&SpiritualityHealthySociety&CultureHistoryPoliticsFood/CookingMusicComedyTrue Crime1213131416162122223034Fiction&DramaHealthyTechnologyBusinessHistoryFood/CookingPoliticsSportsTrue CrimeMusicComedyTotalTotalWomenWomenReasons for listening to true crime podcasts:%saying reason appliesBase:Listen to true crime podcasts2528344043505457You feel personally connected to the host(s)You hope to help an investigationYour family and friends also listen to true crime podcastsYou feel emotionally connected to the victims of the storyThey provide an escape from realityThey help pass the timeYou like learning about the methods used to solve crimesYou like solving mysteriesPercent agreeing with the following statements about true crime podcasts:Base:Listen to true crime podcasts5874You think true crime podcasts are an appropriate place forbrands to advertiseYou are comfortable with the subject matter discussed in thetrue crime podcasts you listen toPercent who agree that they“like it when a brand supports their favorite True Crimepodcast”32233763True Crime ListenersStrongly AgreeAgreeNeither agree/disagreeDisagreeStrongly disagreePercent who agree that they are“more likely to remember a brand if it advertises on their favorite true crime podcast”282432124True Crime ListenersStrongly AgreeAgreeNeither agree/disagreeDisagreeStrongly disagreePercent finding the joe roganexperience“very offensive”152710TotalHeard of,never listenedEver listenedPercent saying“yes”Base:Ever heard of The Joe Rogan ExperienceWould knowing a brand supports The Joe Rogan Experience make you feel5251929614Heard of,never listenedEver ListenedTotalMuch less favorable toward the brandMuch more favorable toward the brandPercent finding call her daddy“very offensive”181221TotalHeard of,never listenedEver listenedPercent saying“yes”Base:Ever heard of Call Her DaddyWould knowing a brand supports call her daddy make you feel163427878Heard of,never listenedEver ListenedTotalMuch less favorable toward the brandMuch more favorable toward the brandobservationsThe reputation of the host plays larger than the podcast;host safety and suitability is more important than the details of a single episode.Have you ever stopped listening to a podcast show because3834The show mentioned something that offended you or made youfeel uncomfortableYou learned things about the podcast host that you did not likePercent saying“yes”Percent agreeing that“Podcast hosts have control over which brands advertise on their shows”Do not agree,52%Agree,48%giving a“4”or“5”observationsPolitical ads are potentially dangerous for publishers and advertisers-regardless of the politics of the show and its audience.Sample demographics party idDemocrat43%Republican26%Independent25%Other/NA6%Sample demographics 2020 voteVoted in 202081%Did not vote in 202017%Prefer not to answer2f2791011112924324544987935Political views different from yoursSwear wordsFrank discussions of racial politicsExplicit or factual descriptions of violencePromotion of alcohol or illegal drugsDiscussions of sexual preference/gender identityPromotions of guns or firearmsJokes about any religionExplicit or factual discussions of sexSexist languageRacist languageDemocratRepublicanWhich one of the following would make you feel the most offended or uncomfortable If you heard it on a podcast?%choosing answerWhich of the following best describes what you would do if a podcast you regularly listen to featured an episode that offended you or made you feel uncomfortable?313035494651202414TotalDemocratRepublicanWould continue listening to episodeStop listening to specific episode;continue listening to other episodesStop listening to episode and all other episodesHow would you feel about the brand(s)that advertised on/sponsored a podcast where the host/guest talked about something that offended you or made you feel uncomfortable?1924163129333019331012910169TotalDemocratRepublicanMuch lower opinion of brandSomewhat lower opinionNo effectSomewhat higher opinionMuch higher opinionHave you ever boycotted a brand because they supported a podcast that offended you or made you feel uncomfortable?232923RepublicanDemocratTotal%saying yesHow likely would you be to stop listening to a podcast if you heard a political ad from a candidate who shares your views?Very likely20%Somewhat likely18%Not at all likely62%How likely would you be to stop listening to a podcast if you heard a political ad from a candidate who does not share your views?Very likely23%Somewhat likely33%Not at all likely44%How likely would you be to stop listening to a podcast if you heard a political ad from a candidate who shares your views?202622181716625762TotalDemocratRepublicanVery likelyNot at all likelyHow likely would you be to stop listening to a podcast if you heard a political ad from a candidate who does not share your views?233122333330443648TotalDemocratRepublicanVery likelyNot at all likelyPercent finding the ben Shapiro show“very offensive”14209TotalHeard of,never listenedEver listenedPercent saying“yes”Base:Ever heard of The Ben Shapiro ShowWould knowing a brand supports The ben Shapiro show make you feel8312124412Heard of,never listenedEver ListenedTotalMuch less favorable toward the brandMuch more favorable toward the brandPercent finding the Rachel maddowshow“very offensive”151514TotalHeard of,never listenedEver listenedPercent saying“yes”Base:Ever heard of The Rachel Maddow ShowWould knowing a brand supports The Rachel maddowshow make you feel8291916912Heard of,never listenedEver ListenedTotalMuch less favorable toward the brandMuch more favorable toward the brandFinal thoughtsPodcasts are an opt-in medium:people listen to content because they choose to,and generally avoid what is potentially offensive to them.Final thoughtsThe greatest risk for brands advertising in podcasts is association with a problematic host,or with a show that is generally offensive,and not with advertising in an otherwise uncontroversial show that includes offensive content.Final thoughtsUltimately,no medium can protect itself from the off-camera or off-mic actions of its talent.But podcasting has tools,and the advantage of not being live,working in its favor.Theres no reason we cant be leaders in brand safety and suitability.Safe and soundBrand Safety and Suitability in Podcasting
2人已浏览 2023-03-02 67页 5星级
Kapronasia：2023年亚太地区金融科技十大趋势（英文版）（29页）.pdf
2023 Top 10 Asia Pacific FinTech TrendsA report from KapronasiaThe key trends and issues that will shape the discussion in 2023February,2023ContentsIntroduction 3Open Banking and the Growing Importance of Ecosystems 4The Rise of Atomic Settlement For Cross-Border Payments 6The Repercussions of the FTX Implosion for Crypto in Asia 8More Partnerships on the Horizon for Digital Banks in Asia 11Redesigning Capital Markets with Digital Asset Tokenization 14ESG Do We Believe The Hype?17Where to For Artificial Intelligence in Financial Services 20Embedded Finance:Emerging Functions and Business Models 23Finding a Path to Profitability 25CBDCs in Asia 26MethodologyThe 2023 Top 10 Asia Pacific FinTech Trends report was based on a combination of secondary and primary research.Secondary research consisted of existing and new datasets from Kapronasias databases as well as various reports,news articles,and commentaries in the media.Primary research included discussions with various market participants including banks and payment providers.2023 Top 10 Asia Pacific FinTech Trends3IntroductionAs we embark on our 13th annual Top 10 Fintech Trends in Asia report,it is worthwhile reflecting on the journey that has brought us here.When we first started producing these reports,writing an introduction was a straightforward task.China was growing,Southeast Asias significance was on the rise,and Australia,well,you could be sure there was an inquiry or a commission on something around banking and payments happening there.But 2020 changed everything.The pandemic literally rewrote the script on that narrative.For two years,the future of the financial industry was anything but clear.In 2021,mid-way through the pandemic,we approached our annual trends report with cautious optimism.We believed that somehow,the industry would find its way.And largely,it has.Although valuations are down and layoffs have been significant,employment remains higher than pre-pandemic levels,and valuations are close to what they were three years ago.According to some economists,we may indeed make it through the next few years without a major global recession.One silver lining of the current market conditions is the return of sanity and rationality.One of my favorite quotes from 2022 was in our FinTech in Growth Markets report that we published in late 2022:In a low interest rate environment,all manner of sins were committed.We take a balanced approach to our work,always striving to be honest and upfront about the industry.While some may have questioned our stance on crypto,digital banks,or BNPL business models in the past,we have stuck to our guns and called it as we see it.This approach is certainly nothing that is taught in sales books.In 2018-2021,questioning crypto,digital banks,or BNPL business models,was not a very popular position with many clients.Yet,here we are.Australias digital bank experiment is pretty much over.Crypto may be regulated to the side-lines,espcially as government digital money grows.Rewards programs have been devalued to the point of irrelevance.Are there good ideas out there?Of course.There are some amazing companies in Singapore and indeed across the region that will,without hyperbole,change the world.If anything,the normal normal we are now in will allow the industry to re-focus on what matters and the business models to get us there.So it is with renewed optimism that we bring you our 13th annual Top-10 Asia Pacific Fintech industry trends report looking at ten key developments that we feel will impact the industry going forward.As always,we wish you a safe and healthy year and hope you enjoy reading the trends as much as we enjoyed researching them.Zennon Kapron Director,Kapronasia2023 Top 10 Asia Pacific FinTech Trends4Open Banking and the Growing Importance of Ecosystems1 Google,Temasek,Bain&Company,“Fulfilling Its Promise:The future of Southeast Asias digital financial services,”October 2019,https:/ Banking has great potential both for banks and the region,however in order to maximize the benefits the former are going to have to overcome both their technological legacy and their business model legacy,and appreciate that it is possible to be just a component part in other parties value chains.Open Banking in APACOpen Banking is the use of application programming interfaces(APIs)to streamline the sharing of customer bank data with third parties which are typically tech start-ups or online financial service vendors.While that is the premise of all Open Banking,there are different“flavors”of it that can be observed across Asia-Pacific(APAC).At a high-level,these can be roughly parceled into those that are market-led and those that are regulator-led.Southeast Asia,which was one of the last regions to jump on the Open Banking bandwagon,is,for example,market-led.Here,the core driver has been demand from customers.Subsequently,that has led to more and more banks within APAC to become API-ready.Regulators in the region have been rushing to catch up.They have,however,by and large,taken a light touch approach and not mandated banks to implement Open Banking.By contrast,regulator-led jurisdictions such as Australias are those where there is a legal obligation for banks to link to third-party providers.The Open Banking and Ecosystem PromiseIn an era where time to market is paramount and in-house development costs are high,banks now have the option of integrating white-labeled innovative fintech products and services directly into their own core offerings.Such a“plug-and-play”model does away with the traditional integrated banking model,based on operational scale and a broad deployment of one-size-fits-all products developed in-house and provides agility and personalization,enabling banks to respond quickly to changing expectations and evolve offerings to make them relevant.Another issue facing traditional banks are their high costs both to acquire and then to serve their customers.Conducting KYC checks and maintaining a network of brick-and-mortar branches as a distribution channel for products and services is expensive.With upward pressure on operational costs only increasing,traditional banks margins are being squeezed.Open Bankings architecture can help here too.By adopting a Banking-as-a-Service(BaaS)model,banks can lease their infrastructure over the internet,on-demand to fintechs,challenger banks,and other third parties.These connect with the banks systems directly via APIs and build banking offerings on top of the incumbents regulated infrastructure.Such a model provides banks with diversification into new business verticals and products;access to a larger customer base via partners;reduced cost of distribution of their core products and services;and access to new revenue pools and monetization opportunities.Alternative distribution channels do not just have to come from non-bank financial service providers either.A banks financial products can be intertwined with non-financial products and services as well.An arrangement known as embedded finance.Distribution costs are slashed and given the scale of some of these platforms user bases,embedded finance can turn profitable quickly.Greater Financial InclusionBeing able to cut costs via these alternative distribution channels also lowers the threshold of who banks can serve.That is important in a region where more than 70%of Southeast Asias adult population is either“underbanked”or“unbanked,”with limited access to financial services.1 In addition,millions of Southeast Asias small and midsize enterprises face large funding gaps.Banks relying on traditional distribution models have simply found it too expensive to serve poor and remote communities across the region.The cost of processing a financial product,and the cost of customer acquisition,is just too high.2023 Top 10 Asia Pacific FinTech Trends5As Open Banking only involves banking data,the unbanked are left out.However,banks only represent a small part of the financial ecosystem.A vast amount of financial data lies outside of the banking system.Enter Open Finance,the extension of Open Banking that allows the exchange of a much broader range of consumer financial data,creating a more holistic and accurate assessment of an individuals digital financial footprint.With Open Finance,this financial data is accessible,enabling financial institutions to form a picture of an individuals financial identity.Open Finance allows banks to,for example,partner with third-party providers such as online marketplaces to gain access to alternative data,such as ecommerce transaction data,to assess the credit risk of previously underserved customers.It also allows banks to partner with third parties for eKYC,lowering the cost of customer acquisition and onboarding,thus expanding access.The Future of Open Banking in APACIn market-led regions such as APACs,Open Banking innovations will continue to be consumer driven and the winners will be those who craft a product offering according to consumers needs and proactively look to be part of third-party ecosystems or build one themselves that will enable them to serve their customers cost-effectively with the right product,in the right place,at the right time.In addition,the extent of proliferation of Open Banking will be determined by the local context,especially in APAC,where the proportion of banked and unbanked populations can vary considerably across countries.On one end of the spectrum,the banked population in Australia for example,equates to around 99%while in the Philippines it is close to 50%.2 This variation will affect how consumers currently interact with financial institutions and non-bank solution providers.2 World Bank FindexHowever,whichever the case,what is clear is that banks will be challenged in some shape or form.The question then becomes by how much,how fast,and in which market segments.Digital banks are well positioned,given their more agile technology infrastructure.That being said,they are facing increasing competition in a crowded market and facing a tumultuous macroeconomic environment.For digital banks in 2023,collaboration will be the key while also refocusing on core services as well as services that banks want to unbundle.This could be serving the underserved/underbanked market,including those in hard-to-reach areas such as rural communities.Incumbent banks are open to such collaboration and are adopting partnership-led approaches to reach customers in new ways and take advantage of the relative strengths of different participants.The Australian bank Westpac,for instance,is set to enable pay-later provider Afterpay to offer its customers transaction and savings account services via Westpac.However,too many banks in APAC are still too focused on branch banking.That is,a full stack banking business model versus a platform banking model where they are providing the core compliance layer and infrastructure while allowing third parties to build on top of that banking structure that they are so good at.The winners,therefore,will be those banks that are not only able to overcome their technological legacy with new,API-based architecture but those who can overcome their business model legacy,which will require a mindset change.There is a realization among some that banks no longer need to have a central role in the value chain.It is possible to be just a component part in other parties value chains.2023 Top 10 Asia Pacific FinTech Trends6The Rise of Atomic Settlement For Cross-Border Payments3 Arf,“What Is Prefunding and How Does It Work?”Sept 2021,https:/arf.one/insights/what-is-prefunding-and-how-does-it-work/The current cross-border payment system is inefficient,costly,and opaque.It is ripe for an overhaul.Atomic settlement enabling faster and cheaper transactions could hold the key.There are however a number of obstacles still to be overcome before the hype matches reality.Current Cross-border Payment Arrangements Are Inefficient The development of real-time payment systems such as Paynow,Duitnow,Promptpay,and UPI in Singapore,Malaysia,Thailand,and India respectively has made real-time domestic payments between individuals a near seamless process.However,while there are a number of ongoing bilateral arrangements to link domestic retail real-time payment systems for cross-border payments,starting with the Singapore PayNow and Thailand PromptPay linkage launched in April 2021,cross-border payments are still mired in inefficiency.That is because cross-border payments are still based on a system developed in 15th century Europe which is clearly not fit for todays digital age.That system involves a complicated network of correspondent banks in different jurisdictions operating on mutual trust.That means that while cross-border retail payments executed in real-time appear to happen instantaneously,the actual movement of funds between banks(settlement)is not performed in real-time.Instead,the movement of such funds relies upon a so-called sequential model whereby the flow of funds passes through various intermediaries before a settlement is treated as final.The problem with this method is that it is slow,taking up to three days,costly,as each intermediary takes their cut of the transaction,requires manual intervention to supervise,and gives rise to what is known as settlement risk,whereby one party does not fulfill its obligation to its counterparty.There have been various attempts over the years to tackle the settlement risk issue.This includes the introduction of so-called nostro/vostro accounts,whereby the correspondent bank holds deposits on behalf of their partner bank that is transferring the funds.The correspondent bank will pay out of the deposits that they are holding on behalf of their partner bank(prefunding)before the actual settlement takes place.While this arrangement helps to reduce settlement risk,it does introduce trade-offs including tied capital,opportunity cost,operational inefficiency,and credit risks.3The Promise of Atomic SettlementsInnovation in wholesale cross-border payments has therefore left much to be desired when compared to that in domestic payments.What is needed are faster transaction speeds,reduced costs,and increased transparency and security.That has given rise to the notion of atomic settlement,which refers to exchanging assets between two parties in a single transaction,typically instantaneously and often without intermediaries.This can be particularly useful in cross-border payments,as it allows for faster and cheaper transactions.2023 Top 10 Asia Pacific FinTech Trends7There are currently a number of projects underway worldwide that are experimenting with atomic settlement as a means to improve settlement efficiency and address the current pain points around cross-border payments.In Asia specifically,the Monetary Authority of Singapore,MAS,launched Ubin in November 2022 on the back of the success of Project Ubin which ran from 2016 to 2020 and explored the use of atomic settlement through tokenized assets that can be exchanged simultaneously on a distributed ledger or blockchain.Ubin will look into how atomic settlement based on digital currencies can improve efficiencies and reduce settlement risks compared to existing payment and settlement rails.4Ubin builds on the foundation started with Project Ubin and learnings from MAS participation in Project Dunbar.The latter,a collaboration between the Bank for International Settlements(BIS)Innovation Hub,the Reserve Bank of Australia,Bank Negara Malaysia,the Monetary Authority of Singapore,and the South African Reserve Bank,proved that financial institutions could use central bank digital currencies(CBDCs)issued by participating central banks to transact directly with each other on a shared platform.5Singapore-based Partior is another initiative that is also worth highlighting.A joint venture between DBS Bank,JP Morgan,and Temasek,Partior is focused on developing atomic settlement solutions for cross-border payments.One of the companys main offerings is Atom,designed to facilitate the atomic settlement of transactions between banks and other financial institutions.Atom uses blockchain technology and smart contracts to enable the rapid exchange of assets between parties without the need for intermediaries.6Outside of Singapore,other central banks in Asia are also conducting their own projects with the atomic settlement agenda in mind.Project Inthanon in Thailand is a collaborative 4 Fintechnews Singapore,“MAS Launches Project Ubin ,”Nov 2022,https:/fintechnews.sg/66175/blockchain/mas-launches-project-ubin/5 Fintechnews Singapore,“BIS Develops Multi-CBDC Platform for International Settlements With Central Banks,”March 2022,https:/fintechnews.sg/59962/blockchain/bis-develops-multi-cbdc-platform-for-international-settlements-with-central-banks/6 Zennon Kapron,Forbes,“The Future Of Cross-Border Payments In Asia Is Atomic,”Dec 2022,https:/ https:/www.adb.org/sites/default/files/publication/535851/adbi-wp1030.pdf8 Eileen Yu,ZDNET,“Singapore to pursue cross-border digital currency potential,”Nov 2022,https:/ initiated by the Bank of Thailand(BOT),together with eight commercial banks focusing on developing and testing a distributed ledger technology(DLT)-based,real-time gross settlement system(RTGS)by issuing wholesale CBDCs.7The FutureOver the past few years,due to intense competition,cross-border payments have become better,faster,and cheaper for both retail and business.However,there is more to be done.At the Singapore FinTech Festival 2022,MAS managing director Ravi Menon said,“for most people,it cross-border payments remains slow,costly,opaque,and inefficient,relying on an archaic network of correspondent banks.He also noted that the global average cost of sending remittances was a hefty 6%of the transfer value.8Clearly then there is a lot of room for improvement and atomic settlement could hold the key.While still in its early stages of adoption in Asia,there has been significant progress in recent years.Many companies and financial institutions in the region are exploring the use of atomic settlement for various payment systems and platforms,with a focus on improving the speed,security,and efficiency of financial transactions.Despite the progress being made,there are still several challenges to widespread adoption of atomic settlement in Asia,such as regulatory hurdles,the need for greater interoperability between different payment platforms,and the need for better infrastructure to support large-scale deployment.However,as the technology continues to mature and more use cases emerge,it is expected that atomic settlement will play a growing role in the payments landscape in Asia.Atomic settlement will therefore be a crucial part of the story in 2023,and continued private,and public focus on this space will undoubtedly be high.Yet,the question if reality will match the hype remains to be seen.2023 Top 10 Asia Pacific FinTech Trends8The Repercussions of the FTX Implosion for Crypto in Asia9 Kelly Ng,The Business Times,“Singapores crypto hub ambitions do not involve trading,speculating in cryptos:Ravi Menon,”Nov 2022,https:/.sg/companies-markets/banking-finance/singapore-fintech-festival-2022/singapores-crypto-hub-ambitionsThe swift and damaging collapse of FTX,a cryptocurrency exchange,in late 2022 will have far-reaching knock-on effects in the Asia-Pacific region,home to some of the worlds most avid crypto investors both institutional and retail.At the peak of the era of loose monetary policy and quantitative easing,when the market was pumped with liquidity,the possibilities for cryptocurrencies(crypto)and the underlying blockchain technology seemed endless.They were going to change the world.The end of centralized control and financial intermediaries charging exorbitant fees was near.Crypto was touted as a solution to a raft of issues.It was suggested as a replacement for fiat in many impoverished countries where the government-issued currency was prone to large scale inflation and erosion of value.In a similar vein,proponents argued that crypto was the digital equivalent of gold,which is often seen as a safe haven asset and store of value during periods of high inflation or economic turmoil.It was also meant to be a tool for financial inclusion.Those who were unable or disincentivized to open a bank account would be able to use crypto to circumvent centralized gatekeepers such as banks.Yet there were also detractors.The volatile nature of crypto as well as its association with anonymity and nefarious activity had some investors and especially regulators taking an arms-length and wait and see approach towards these digital assets.In Asia,the stance adopted by regulators has been mixed.Singapore and Hong Kong,for example,have positioned themselves as crypto hubs,although the former has increasingly tried to separate crypto from the underlying blockchain technology,with Ravi Menon,managing director of the Monetary Authority of Singapore(MAS)saying that Singapore wants to be a crypto assets hub,but not one that centers on the trading and speculating of cryptocurrencies.9Chinese and Indian regulators on the other hand are among the most skeptical in the region.India,for example,has imposed a 30%tax on income from digital assets,while China has banned all cryptocurrency transactions.Euphoria or Value?A blockchain is a distributed database or ledger which contains information about transactions or events which is shared among the nodes of a computer network.The development of blockchain technology has led to innovations such as the tokenization of assets and smart contracts which have use cases beyond financial markets.2023 Top 10 Asia Pacific FinTech Trends9With the promise of the underlying technology,it was no surprise that cryptocurrencies,the native asset of a specific blockchain protocol,were thought to possess tremendous value,leading to an increase in their price.Most notably,the grandfather of all crypto,Bitcoin,rose from as low as US$0.40 in 2010 to its highest level of US$68,789 in November 2021.10 As interest from institutions and governments grew(El Salvador adopted Bitcoin as legal tender)many other so called altcoins arose,along with crypto hedge funds such as Three Arrows Capital(3AC),crypto exchanges like Binance,C,and FTX,and crypto borrowing and lending platforms like Celsius.Euphoria was high and at its peak owners of cryptocurrencies chose to deposit coins with entities such as the now defunct Celsius to obtain up to 15-20 percent return on their digital asset deposits.11 Yet,crypto prices have plunged in the last year,slashing the overall market capitalization from US$2.2 trillion to around US$830 billion.In contrast,gold has dipped by only 3%to around US$1,765 per ounce.The decline in value correlated with the collapse of the stablecoin Terra and sister token Luna,which sparked massive contagion and selloff across the crypto industry.A crypto run ensued as panicked investors sought to pull their coins from exchanges,crypto hedge funds(3AC),and high interest-bearing platforms such as Celsius.Just when the situation was seemingly stabilizing,there was a massive selloff of FTT(a token issued by FTX)following a report by CoinDesk highlighting potential leverage and solvency concerns involving FTX-affiliated trading firm Alameda Research.Only a few days later,the exchange collapsed.The Immediate Implications of FTXs ImplosionThe sudden collapse of what was once the worlds second-largest crypto exchange by trading volume will have far-reaching knock-on effects in Asia-Pacific,home to some of the worlds most avid crypto investors both institutional and retail.Research by crypto payments gateway firm Triple A,finds that of the 420 million owners of crypto globally,170 million are in Asia.1210 Robert Farrington,The College Investor,“Celsius Review,”Dec 2022,https:/ ibid12 https:/triple-a.io/crypto-ownership-data/13 Rachel Butt and Olga Kharif,Bloomberg,“Crypto Firm Genesis Is Preparing to File for Bankruptcy,”Jan 2023,https:/ big name investors such as Sequoia Capital and Temasek,it will call for a rethinking of their internal processes and procedures when it comes to investing in this space.Sure,the potential for tremendous upside is present,but such institutions should be careful about empowering anyone(including anonymous founders)making obscure claims about“innovation”and utopian visions of a future while funding them with cheap cash.Investors need to fall back on first principles.Most definitely for now,they will be looking to assess the extent of contagion from FTX on their portfolios.Additionally,there will be a bid to restore their reputation as behemoths and stalwarts of investing and avoid being compared in a similar vein to the likes of Softbank.Where Crypto Goes From HereCertainly,there will be a re-think and closer examination of cryptos role in the financial industry.For regulators that have imposed strict regulations such as India and China,such a scenario serves as further vindication of their stance on the industry.The FTX fallout will almost certainly give aggressive regulators the fuel they need to enact more crypto unfriendly regulations.This will also further substantiate the use and proliferation of CBDCs that are backed by central banks.Additionally,those either on the fence or pro crypto will certainly face pressure to regulate the industry more and put in place more safeguards.Singapore especially will be placed in the spotlight as the question remains whether one can truly separate crypto from DLT/blockchain.Overall,we can expect more regulatory oversight and the sector to be put on a tighter leash.The FTX implosion is still a developing story.Most recently,FTXs founder,Sam Bankman-Fried(SBF),was arrested and is now placed under house arrest after a record US$250 million bail.The extent of collateral damage and contagion FTXs implosion will have on the wider crypto space remains to be seen.However,already,BlockFi,a US-based digital asset lender,has filed for Chapter 11 bankruptcy protection and cryptocurrency lending firm Genesis Global Capital,a subsidiary of crypto conglomerate Digital Currency Group,looks to follow suit.132023 Top 10 Asia Pacific FinTech Trends10Meanwhile,the price of Solana,a cryptocurrency token that had been lauded by SBF,is down 92%since its peak in November last year.Solana,or SOL,is the token behind the upstart Solana blockchain,which supports smart contracts,including non-fungible tokens,and has emerged as a rival to the Ethereum blockchain.Always Winter,Never ChristmasThe FTX fallout has left institutional investors remaining cautious throughout Asia and the world,regulators are on guard and many retail investors,no doubt burnt by the fall of cryptocurrency prices,have lost trust and confidence in the sector.In the current climate,it is difficult to see cryptocurrency and its related applications achieving the level of mass market adoption that was once envisioned for it.Interestingly,the fallout from FTX only serves to re-enforce the need for more regulations and controls which inevitably means more centralization a complete 180 from the original vision of presumed developer of Bitcoin,Satoshi Nakamoto with its main value proposition.On a philosophical level,It brings to question whether society can really function in a self-governing,decentralized manner.Perhaps the crypto industry characterized thus far by massive fraud and deception is a real-life depiction of the proverbial phrase“power tends to corrupt;absolute power corrupts absolutely.”Evangelists,would,however,counter that FTX was fallible because it was a centralized,human-mediated entity that operated on top of the blockchain.Truly decentralized autonomous organizations(DAOs),they would argue,would not be susceptible to such corruption as they are governed by self-executing smart contracts that are guaranteed to function as written.In other words,we need more decentralization,not less of it,to avoid another FTX type scandal.Ultimately,FTXs implosion and other recent scandals have set the sector back many years.The world still,however,needs faster,cheaper and more efficient financial intermediation.Whether blockchain can provide that remains to be seen.The hope must be that it is cryptos underlying technologys turn to shine.2023 Top 10 Asia Pacific FinTech Trends11More Partnerships on the Horizon for Digital Banks in Asia14 https:/ https:/ https:/ much fanfare announcing their arrival,most digital banks have failed to perform.2023 may be the year where digital banks are forced to partner with strong banking incumbents as well as consolidate their business lines in order to weather the storm.With many consumers willing to embrace digital banking or banking in a digital manner,a set of digital propositions is emerging.Indeed,digital banking in Asia Pacific(APAC)is taking off.Several such banking propositions have emerged across the region.Of some 250 digital banks worldwide,20%are in APAC.14 Yet only a handful remain profitable and,in some cases,have already ceased operations in the region.The reality paints a stark contrast to expectations for digital banks in years prior.Further as macroeconomic woes deepen,with International Monetary Fund(IMF)head Kristalina Georgieva warning that one-third of the global economy will be in recession this year,2023 may be a year where digital banks are forced to partner with strong banking incumbents as well as consolidate their business lines in order to weather the storm.Drivers Behind the Emergence of Digital BanksConsumers across Asia have embraced digital technologies,making steady and growing use of the internet,social media,and e-commerce platforms.Smartphonesthe device of choice alone generate around 65%of all internet traffic.Further,Asia accounts for more than half of all internet users in the world.15 Smartphone penetration across Asia has reached 68%and is projected to increase to 83%by 2025.16 With smartphones in hand,customers across Asia are changing how they bank,growing more open to exploring and using digital channels for their financial needs.The increased accessibility and openness to digital channels has created a willingness to bank with non-traditional players such as fintechs,non-banking payments players,or digital banks which promise to provide more personalized products and fluid interactions through consumer facing product applications that are more intuitive.Most notably,even platform companies have begun to enter the digital banking arena under the premise of a super-app where all daily activities can be performed on one single application.They seek to serve customers with diversified and personalized offerings,and they share key features aligned with customer expectations and demands such as a comprehensive digital infrastructure which allows the capability for 100%digital delivery to customers including client servicing.2023 Top 10 Asia Pacific FinTech Trends12Another and perhaps stronger proposition for why digital banks are on the rise is their value add to the financial inclusion imperative.Traditional banks often require extensive identification documents to set up accounts and are typically not able to extend loans to startups or micro,small and medium enterprises(MSMEs)because ticket sizes are too small and credit checks,where there is a lack of credit history,are too expensive to make it a profitable endeavor for the bank.With a digital infrastructure that is agile,unlike legacy systems of traditional banks,digital banks have the ability to,for example,quickly build or integrate third-party identity verification and eKYC tools for individuals without the need for physical identification documents.In terms of lending,they can utilize alternative data through use of APIs to form a risk profile of a customer without any credit history in order to extend loans at a fraction of the cost traditionally incurred at incumbent banks.Where 51%of MSMEs in South-east Asia face a financing gap of some US$300 billion,digital banks have more than enough room to participate and potentially grow.17Not Quite An Unstoppable ForceAgainst this backdrop it would seem that digital banks are a force to be reckoned with.However,reality paints a slightly less rosy picture.Of the 250 digital banks worldwide,about 13,or 5%of the total,are profitable.18 Asian digital banks are relatively successful compared to their counterparts elsewhere,with 10 out of the 13 profitable digital banks worldwide being based in APAC.Still,none of these leaders have captured more than 2%of market share in terms of total value of deposits and loans within their target segments(typically retail and SME).19What the profitable players have in common is backing from established companies with significant business experience and hyper connected ecosystems.This support yields several major advantages including strong brand recognition,established customer bases,and rich data to drive customer insights and customization.These have been used to lower the cost of customer acquisition and operations.17 https:/.sg/insights/adopting-alternative-sme-credit-scores-to-improve-speed-and-accuracy-of-credit-underwriting-for-the-underbanked18 https:/fintechnews.sg/52217/virtual-banking/only-5-of-the-world-challenger-banks-are-profitable-and-most-of-them-are-from-asia/19 https:/ https:/ notably in South Korea,Kakaobank leveraged a 40-million strong Kakaotalk user base to acquire one million customers within the first five days.The digital bank also raised up to US$3.6 billion in deposits and issued over US$3.0 billion of loans in the first 100 days.20 Kakaobank reached profitability in 2019 and to date,the bank has 18 million customers.Kakaos success,is however,the exception and not the rule.The reality is that most other digital banks,that have not established strong lending propositions,or entered banking from digital payments,or have strong backing from established parent companies,or have substantial ecosystems,will fail.In Australia for example,Judo bank remains the only neo-bank of the countrys original four neo-banks that is still operational and is riding on the success of its SME lending activity.Volt and Xinja have ceased operations,while 86 400 was acquired by National Australia Bank(NAB).In Singapore,the entities granted digital banking licenses in 2020 have yet to make considerable inroads in a largely banked population.Traditional Banks are No PushoversWhile the majority of digital banks are struggling,traditional banks have been dedicating their time and budgets to digital transformation and have slowly caught up on competitive advantages that separated digital from traditional branch banking.Additionally,other than the financial inclusion perspective,as yet,digital banks provide little value over what traditional banks already provide.Customers may feel occasionally disgruntled with their existing bank,but that does not mean they are going to switch over to a digital competitor just because the latter has a shiny app or is utilizing supposed ground-breaking technology.The misery does not end there for digital banks.As forecasts of slowing global economic growth and the potential of a recession in 2023 looms amid contractionary monetary policy adoption by world governments,costs of doing business are rising and the frivolous cash burn by many digital banks implies they are running a 2023 Top 10 Asia Pacific FinTech Trends13marathon with one arm tied behind their backs.They will face twice the amount of pressure from their competition,especially the traditional banks,which typically do well in a high interest rate environment.Further,banking behemoths have better access to capital,to tide them through the coming storm.Ultimately,running a bank is more complicated and complex than observers like to give financial institutions credit for.At the very core is trust,which has been built up over decades and sometimes centuries.While we do not expect the same timeframe required for digital banks,it would certainly require more than advertisements with celebrities to obtain the same level of trust that traditional banks have established.Digital banks will need to withstand the test of time itself and show the ability to hold their own in times of turbulence as did the banks of old.What Then for Digital Banks?Expectations of digital banks as replacements for traditional banking behemoths are misguided,not least for those founded on shaky value propositions.In 2023,digital banks will need to refocus on what customers want.In that,they need to separate“good to haves”from the“must haves.”Must haves typically stem from real customer problems that do not yet have a solution or the existing solution is not good enough.Additionally,digital banks need to concentrate resources on high margin products/verticals such as lending and also focusing on communities which incumbents have found hard to reach,i.e.,rural communities.This implies digital banks in Asian countries with high unbanked populations such as Indonesia and the Philippines will be less affected with their stronger value propositions than digital banks offering me-too products in countries such as Singapore and Australia with close to 100nked populations.If digital banks,at least in mature APAC economies,want to survive the coming storm they will need to adopt less of a challenger mindset and instead find ways to partner with banking behemoths that are unbundling unprofitable services.Such partnerships will provide digital banks with established client bases,the stamp of trust,investment budgets,and banking know-how.Incumbents,meanwhile,will get access to new,innovative products and services that deliver a more seamless customer experience.With that in mind,2023 will be a defining moment for digital banks.Many of them will not be able to get the level of investment that they were receiving in years prior as investors demand returns above and beyond the risk-free rate.We will see cutbacks on advertising and a renewed focus on high margin products.Ultimately,those that remain will be those that have managed to obtain deep customer trust through an offering that solves an innate problem,not just surface level“good to haves,”and the ability to leverage partnerships,forming ecosystems to reduce their customer acquisition costs.2023 Top 10 Asia Pacific FinTech Trends14Redesigning Capital Markets with Digital Asset TokenizationDigital asset tokenization promises to address inefficiencies in todays capital markets.Whilst the underlying technology has clear benefits,the future state of digital asset tokenization in Asia is open to a wide spectrum of possibilities.Regardless of the exact landscape,market participants would do well to take these dynamic developments seriously as digital asset tokenization is likely to be an increasingly important element of financial markets.Financial markets are largely efficient in allocating capital by bringing investors together with those who require funding.However,the traditional processes of raising capital and managing assets,namely,the origination/issuance,execution/settlement,and maintenance processes,have room for improvement.Origination/issuance involves multiple stakeholders and is expensive,limiting who can participate in the raising of capital.Execution/settlement carries the risk of trade failure throughout the convoluted trade execution process and trades have long settlement periods due to the complex number of steps;finally,on the maintenance side,corporate actions such as dividend/loan payments,stock splits and voting are mainly conducted manually via cumbersome processes.In recent years,digital ledger technology(DLT)and blockchain(a type of DLT)have become buzzwords in financial markets.Proponents suggest that DLT can enhance many of the inefficiencies in todays capital markets by streamlining processes,creating operational efficiencies,and helping new entrants gain access to finance thereby democratizing financial markets.2023 Top 10 Asia Pacific FinTech Trends15The Promise of TokenizationOne of the more promising use cases of DLT in capital markets is digital asset tokenization,which effectively fractionalizes a physical or virtual asset into multiple so-called tokens,each typically conveying ownership rights to the underlying asset.The tokens can later be traded either privately,or on one of many secondary markets that have developed.Digital asset tokenization is occurring across a wide range of asset classes including securities(e.g.,stocks and bonds),commodities(e.g.,gold)and non-financial assets(e.g.,real estate).Digital asset tokenization aims to remove some of the inefficiencies in the traditional financial markets operating model,with key improvements to asset origination,trade execution and the ongoing maintenance of financial securities.Starting with origination,digital asset tokenization can simplify the process by which assets are brought to market and make origination more efficient.That benefits both issuers and buyers.For issuers,greater efficiency results in reduced costs making markets easier to access,allowing smaller and more niche projects to raise funding that otherwise would not have been able to.On the buyer side,tokenization can increase market access for smaller investors as it reduces the minimum investment size.The ability to purchase smaller lot sizes also benefits investors as it gives them more flexibility in the assets they can purchase and enables them to better optimize their portfolios.On trade execution,settlement can be a lengthy,time-consuming process.Under a tokenized framework,settlement can be near instantaneous,or atomic in the lingua franca of the market.Such atomic settlement reduces counterparty risk dramatically.The settlement process can be further strengthened by codifying various regulatory compliance requirements directly into smart contracts.For example,tokens can be programmed only to be transferable to certain wallets which can then ensure that tokens are only transferred to counterparties in jurisdictions that are permitted to hold the asset.Finally,on the maintenance side,the ongoing day-to-day maintenance of assets often requires manual human intervention.Digital asset tokenization aims to substantially automate much of this process,reducing both risk and complexity.Features such as dividend or interest payments can be programmed into smart contracts on an asset thereby automating these processes.Asset Digitalization in Asia TodayThere is a raft of digital asset tokenization activity across Asia as many entities are developing and launching new tokenization platforms.These players range from traditional institutions such as banks and exchanges through to ambitious startup Fintechs looking to disrupt the existing modus operandi.SGX in Singapore,for example,is participating in several ventures,and while it remains to be seen how successful each of these ventures will be,a number are already live.Some of these include a nascent market utility built by Marketnode and electronic bond trading platform by TrumidXT.2023 Top 10 Asia Pacific FinTech Trends16Large banks across the region are also taking seriously the evolving digital asset tokenization landscape,with many building infrastructure to cater to client demand.For example,in 2020,global giant,HSBC tokenized a S$400 million,5.5-year public bond issue and a follow-on S$100 million tap of the same issue by food and agribusiness supplier Olam International.Meanwhile,in May 2021,DBS issued a tokenized bond on its digital platform.Among other benefits,this bond was traded in lots of$10,000,substantially lower than the$250,000 lots typical for such an offering.The Future of Digital Assets in AsiaWhilst this technology has clear benefits,the future state of digital asset tokenization in Asia is open to a wide spectrum of possibilities.At one end,we could simply see todays incumbents deploy new technology to handle digital assets in their existing markets and maintain market share.At the other end is,potentially,a decentralized network of Fintechs serving clients with a range of niche digital asset products and services.A third alternative is a model somewhere in the middle,where many of these entities operate in a federation of some sort.There are several factors which will have a bearing on whether tokenization achieves widescale adoption.Top of the list is,quite simply,ensuring adequate supply of and demand for these assets as,currently,the demand for digital assets is a bit unclear and there are only a few firms that have cracked the nut on creating them.Demand can be aided by building trust in underlying assets and platforms,which will be helped by strong and sensible regulation.Ultimately,if a substantially improved client experience is realized,a positively reinforcing cycle may develop as markets deepen and tokenization becomes more mainstream.Regardless of the exact landscape,market participants would do well to take these dynamic developments seriously as digital asset tokenization is likely to be an increasingly important element of financial markets.As more platforms are deployed,investors and issuers will take business to those places offering the most efficient means of conducting their activities.Accordingly,there is opportunity for those able to capitalize on this technological development.To read more about Digital Asset Tokenization in Asia and Kapronasias view on how the market will evolve,download our report on“Digital Asset Tokenization in Asia Pacific.”2023 Top 10 Asia Pacific FinTech Trends17ESG Do We Believe The Hype?Monitoring and reporting on ESG progress is blighted by challenges.That makes it ripe for green fintech solutions in 2023 to enter the fray.However,despite much lip service being paid to the matter,the reality on the ground suggests that organizations,while keen to tout their ESG credentials,are not serious about investing in ESG initiatives that are not mandated by the regulator.Today,a myriad of issues are taking center stage making the Environmental,Social,and Governance(ESG)agenda as important as ever.Climate is at the forefront as temperatures hit record highs across the globe,threatening humanity and the environment.Additionally,social media and the platform economy have proliferated social issues such as equality,diversity,and inclusion.Regulators and policy makers believe that the corporate sector,being at the heart of capitalism,can help to solve these issues,from environmental pollution to workplace diversity.Taking climate change as an example,regulatory pressure is increasing through a combination of global policy adjustments and international cooperation which can be seen through global climate meetings such as the Conference of the Parties(COP).These developments should be viewed against the global backdrop of the push towards carbon neutrality,with countries working towards halving carbon emissions by 2030 and reaching net zero by 2050.Changing social demographics and consumer demand are also putting pressure on companies to be more considerate about their impact on the environment and to be more inclusive.Again,taking climate change as an example,a survey showed that more than half of U.S.consumers say they are willing to pay some form of premium of around 30 to 40 percent for sustainably produced goods.In addition,Consumer Reports data show that 71%of Americans have some interest in buying an electric vehicle even though less than 50%of them are aware of the availability of government tax incentives for these.The Growing Importance of ESG-based Capital Allocation Criteria Such changes are also starting to influence how capital is allocated in capital markets.There has been a tremendous growth in ESG investment activity with global ESG assets estimated to potentially surpass US$41 trillion by 2022 and US$50 trillion by 2025.The explosion of ESG-based capital allocation criteria has led to a myriad of initiatives to try and help ensure that such capital is indeed going to the right companies that have the right business practices.At the core of such initiatives are ESG reporting and ESG ratings.We can think of ESG reporting and ratings as akin to annual reports and credit and bond ratings,respectively.Companies publish their annual reports in line with public standards and third-party entities like Moodys or Fitch provide a credit score or bond rating.In similar fashion,ESG reporting and ESG ratings help mitigate risk by screening investments based on ESG criteria which has implications for business.For example,a company that does not meet the ESG standards for labor welfare would likely by excluded from an ESG focused fund or investor.A by-product of this is that it then directs investment to the best ESG performers.Aside from adhering to regulations,corporates that perform poorly on the ESG front are then incentivized to adopt measures to improve on their ESG initiatives.At the same time,ESG laggards that fail to adopt ESG practices will find it increasingly difficult to obtain capital investment from public markets and may eventually lose their competitive edge to the extent of possibly being weeded out.2023 Top 10 Asia Pacific FinTech Trends18Challenges of ESG ReportingHowever,unlike accounting standards where there are only two main standards to follow(USGAAP and IFRS),to date,there have been a plethora of ESG frameworks released by various international bodies.The most notable ones thus far are the Global Reporting Initiative(GRI),the Sustainability Accounting Standards Board(SASB),the Task Force on Climate-related Financial Disclosures(TCFD),and the Carbon Disclosure Project(CDP)just to name a few.The problem arises when companies use a combination of frameworks to formulate their reports which leads to a lack of comparability across companies.This affects participants ability to effectively conduct due diligence,manage risks,measure outcomes,and align investments with sustainable,long-term value.The lack of verifiable and standardized ESG data also exacerbates the problem of greenwashing where companies make unsubstantiated claims to mislead consumers into believing that a companys products are environmentally friendly.Adding to the problem for multinational organizations is the fragmented nature of ESG regulation,especially across the Asia Pacific region,with no clear and consistent taxonomy and a lack of universal adoption of global ESG standards/frameworks.To this end,efforts are ongoing to harmonize competing frameworks.However,this implies that standards will once again change,and companies once again have their work cut out for them in terms of data management and converting that data into meaningful disclosures.Fintech Solutions Help ESG ReportingSuch challenges make it ripe in 2023 for solutions to enter the fray.Developments in green fintech which aim to promote ESG data quality and consistency will be a key focus among institutions,potentially reducing the cost of compliance and allowing for better tracking and analysis of sustainability commitments,impact measurement,and management of ESG products.With the aid of such technology,institutions will be better able to meet the increasingly standardized and evolving ESG disclosure rules,thereby alleviating new regulatory burdens and regulatory enforcement risk.In Hong Kong for example,Allinfra is a green fintech solution that provides auditable and verifiable data for ESG reporting utilizing the blockchain.GreenArc,meanwhile,is a Singapore headquartered impact investment and analytics fintech offering impact measurement and reporting for private debt investments.2023 Top 10 Asia Pacific FinTech Trends19Carbon emissions and how to measure those emissions are also an area where green fintech can potentially provide solutions.In Singapore,CO2 Connect(CO2X)is a platform that helps corporates automate their carbon footprint computation and reduce their carbon emissions and costs.Companies like CO2X are showing how collaboration between institutions and fintechs can further the ESG prerogative.United Overseas Bank(UOB)has partnered with CO2X and OCBC to develop a platform that will provide local SMEs with accessible carbon tracking solutions and green financial services.ESG is Here to Stay However,at least as far as APAC is concerned,despite much lip service being paid to the matter,the reality on the ground suggests that organizations,while keen to tout their ESG credentials,are not serious about investing in ESG initiatives that are not mandated by the regulator.Regulators themselves are also taking a rather immature approach towards ESG,especially on the environmental side of things.While there has been much fanfare about various initiatives,again there are plenty of anecdotal examples where the reality does not match the rhetoric and decidedly un-environmental practices still prevail.However,that is not to say that progress is not happening.Globally,flows into exchange-traded funds(ETFs)with ESG mandates have gone from less than US$10 billion in 2015 to over US$40 billion in 2020.Total global assets under management with an ESG mandate have now reached close to US$40 trillion up from about US$20 trillion in 2016.Growth is expected to continue,reaching a projected US$50 trillion by 2025,representing over a third of total global AUM.In Asia,a number of countries such as Japan and South Korea have committed to net zero greenhouse gas emissions by 2050.In China,an agrochemicals company completed one of Asias largest sustainability-linked loans amounting to US$4.5 billion.Additionally,global regulations will continue to evolve and take shape with new requirements such as the Corporate Sustainability Reporting Directive(CSRD),part of the European Green Deal to make the European Union(EU)climate neutral in 2050.The new directive modernizes and strengthens the rules about the social and environmental information that companies have to report.Companies subject to the CSRD will have to report according to European Sustainability Reporting Standards(ESRS).Such standards are global,and regulators in Asia will no doubt have to follow suit.A combination of pressure coming from regulators and consumers will push forward ESG development and adoption.Organizations that are able to transform their business models over the next few years will put themselves in a good position to flourish.This includes utilizing available technology and solutions to generate the data they need for ESG related matters.Prizes for transformation include greater brand loyalty,the ability to secure capital,and increased profits.Those who fail to adapt,or greenwash will face a reduction in market share,black-listing,and possible penalties.2023 Top 10 Asia Pacific FinTech Trends20Where to For Artificial Intelligence in Financial ServicesMany financial institutions across APAC have already begun to incorporate AI into their operations,and the trend is expected to continue as the technology matures and becomes more widely available.At the same time,both the financial industry and regulators are also aware that there are challenges and risks associated with AI that need to be addressed.The financial institutions that win will be the ones who successfully balance business benefits against regulatory complexity and the need to maintain customers trust.The proliferation of the usage of smartphones together with the digital transformation of the financial industry is contributing to the exponential progress in the use of artificial intelligence(AI).Indeed,AI is now at an inflexion point where it is primed to take a leap forward.The financial institutions that have the digital infrastructure,culture,and mindset that are able to make full use of the technology will start to break away from the competition.The State of AI in Asian Financial ServicesMany financial institutions across APAC have already begun to incorporate AI into their operations,and the trend is expected to continue as the technology matures and becomes more widely available.Specific areas where AI is being utilized by the financial industry include:Customer service:AI has led to the introduction of chatbots and virtual assistants.These chatbots have the capability to automatically answer basic questions such as checking account balances or booking branch appointments.The idea is to reduce as much friction as possible to create a seamless and personalized customer journey(while at the same time reducing costs for banks).Most banks across Asia already have a version of their own chatbot,either white-labelled or built in-house.Malaysian bank CIMB,for example,introduced the first conversational style and real-time chatbot for commercial banking which was the first in-market chatbot at the time of release.Automated investment advice:AI-powered robo-advisors are being used to provide personalized investment advice to retail investors.Many traditional financial institutions have launched robo-advisory platforms,and there has also been a proliferation of fintech robo-advisors across Asia.The latter include startups such as Endowus,Syfe,Stashaway,and Robowealth.This trend is likely to continue as more investors seek low-cost,digital options.Credit scoring and lending:AI-based systems are being used to analyze vast amounts of data to assess creditworthiness and make lending decisions.This can help to make the lending process more efficient,while also reducing the risk of loan defaults.AI is,for example,being utilized to capture insights from alternative sources of data which then makes it possible to extend loans to individuals who do not have any credit history.This is especially pertinent in a region like Southeast Asia,where 60%of surveyed MSMEs were unable to get a loan when they needed financing.UnionBank in the Philippines,for example,has utilized AI-powered credit scoring models to generate credit scores for the unbanked through the use of such alternative data.Fraud detection and anti-money laundering(AML):AI-powered systems are being used to detect patterns of fraudulent activity and money laundering that would be difficult for humans to spot.This is especially important as financial crime continues to evolve and become more sophisticated.DBS,a Southeast-Asian bank,for example,has deployed AI/ML to reduce the number of false positives as well as prioritize alerts such that analysts can dedicate more time to higher risk activities.The bank also utilizes AI programs to gather massive amounts of bank data needed to make decisions on alerts.2023 Top 10 Asia Pacific FinTech Trends21Risk management:AI-powered systems are being used to analyze large amounts of data to identify patterns and trends that may indicate potential risks.This can help financial institutions to manage and mitigate risks more effectively.In addition,AI is being used in several other areas such as regulatory compliance,trading,and portfolio management.Challenges Hindering AIs UptakeIn Asia Pacific,where a slew of digital banks(challengers)have entered the banking landscape looking to challenge incumbent banks,AI is increasingly seen as a way to obtain competitive advantage.However,both types of entities face their own challenges in their implementation of AI.On the one hand,challengers have the digital infrastructure to quickly integrate with a third-party AI provider through the use of APIs.Challengers are also better able to grab data across various units to generate more cohesive insights unlike banks which are often plagued by layers of legacy technology and siloed data.On the other hand,banks have large customer bases and massive operations which means that they are sitting on a treasure trove of data.Where the effectiveness of AI/ML tools is predicated around the amount and quality of data that is fed into such systems,banks will have the edge if they are able to successfully overcome their digital infrastructure challenges.A number of other challenges are also preventing AIs wider adoption.These include areas such cybersecurity,where AI systems may be vulnerable to cyberattacks,which can be a concern for financial institutions.In addition,many financial institutions may lack in-house expertise to develop and implement AI systems.It can also be difficult to integrate AI systems with existing systems and processes.Expectations for the Future of AITo an extent,expectations for AI have been spoiled by mainstream movies and pop culture.Where the expectation was for conversational AI to reduce reliance on call centers,chatbots are still not able to carry out full conversations and in some cases are still scenario based,only able to return a pre-determined set of replies to a limited set of scenarios.If queries from customers are outside of the set,customers will be directed to a call/chat center.2023 Top 10 Asia Pacific FinTech Trends22In addition,financial services are heavily regulated.These must comply with a wide range of regulations,which can make it difficult to implement new technologies like AI.All AI-based decisions need to be properly understood and be able to be explained by financial institutions when the regulators come knocking on the door.The need to understand algorithms powering AI/ML tools,especially when it concerns the use of customer data and money will become more important as AI tools continue to proliferate and power products and operations within financial services.There are concerns about the potential ethical implications of using AI in financial decision-making,such as bias and discrimination.Singapore has,as a result of such concerns,launched the worlds first AI Governance Testing Framework and Toolkit.A.I.Verify aims to promote transparency and ethical use of AI between companies and their stakeholders through a combination of technical tests and process checks.We can expect more countries in Asia to follow Singapores lead.Financial institutions must be able to demonstrate the trustworthiness and transparency of AI systems to both regulators and customers.Instead of just simply deploying the AI,banks will increasingly need to spend more resources in not only making sure they are compliant with regulations,but also having the correct people in place with a good handle on data and data architecture.That being said,AI usage in financial services is becoming the rule,not the exception.Institutions that are far ahead in the AI agenda will stand to win.If there is any indication of a first mover advantage,the use of AI will be a case in point.Further,the ones that win will be the ones who successfully balance business benefits against regulatory complexity and the need to maintain customers trust.The future of AI in financial services is likely to be characterized by increased use of AI across a wide range of applications,from fraud detection and risk management to personal finance and financial advice.Overall,it can be said that AI is already making a significant impact in the financial services industry,and this trend is expected to continue as the technology matures and becomes more widely available.The incorporation of AI in financial services will bring a lot of benefits such as cost reduction,improved efficiency,better customer services and more accurate decision-making.At the same time,the financial industry is also aware that there are challenges and risks associated with AI,such as data privacy,security,job displacement,and ethical concerns,that need to be addressed.2023 Top 10 Asia Pacific FinTech Trends23Embedded Finance:Emerging Functions and Business ModelsAcross the region,market participants are looking for ways to innovate and attract new customers.The digitization of commerce and business management has expanded opportunities to embed finance in non-financial customer experiences.For those willing to put in the effort to build new products,there is an opportunity to cash in on these technological developments.Embedded finance is the placing of a financial product in a non-financial customer experience,journey,or platform without the need to use a banking platform or physically visit a bank branch.That in and of itself,is nothing new.For decades,non-banks have offered financial services via private-label credit cards at retail chains,supermarkets,and airlines.Other common forms of embedded finance include sales financing at appliance retailers and auto loans at dealerships.Arrangements like these operate as a channel for the banks behind them to reach end customers.What makes the next generation of embedded finance interesting is the integration of financial products into digital interfaces that users interact with daily.Possibilities are varied:customer loyalty apps,digital wallets,accounting software,and shopping-cart platforms,among others.Drivers of Embedded FinanceThe evolution of embedded finance has been enabled by fundamental changes in commerce,merchant and consumer behavior,and technology.The digitization of commerce and business management has massively expanded opportunities to embed finance in non-financial customer experiences.The combination of changes in behavior and improvements in technology via open banking has created an avenue for both financial and non-financial companies to provide more value to consumers while at the same time leaving them to figure out how to capture that value and translate it into revenue and profit.Across the region,market participants are looking for ways to innovate and attract new customers.Embedded Finance Solutions in Asia TodayApproaches to embedded finance can be bucketed broadly into three buckets.Capturing Value of Existing Services:A myriad of non-financial platforms across Asia are building solutions into their platforms aiming to capture value from the existing financial services value chain.These are usually,elementary financial services like payments or foreign exchange(FX).Taking payments as an example,ride hailing apps such as Grab and Gojek now routinely process payments at the click of a phone button.Traditionally,these payments would have been the domain of banks and other large financial institutions as well as payment service providers(PSPs).Today,more platforms are bringing payments in-house,effectively becoming their own PSP either through their own payments license or a partners.Provision of Complementary Products:Another area where embedded finance is being utilized is in the provision of financial products which are complementary to an existing non-financial offering.For example,the ability for a customer to borrow,or obtain insurance at the point of sale when purchasing a non-financial good or service.This allows the platform to provide a more seamless service to its customers while also capturing a portion of the financial product revenue.Taking the lending example,Tokopedia,an Indonesian ecommerce platform,has embedded merchant lending products into its platform,seamlessly providing access to capital for merchants on their platform,many of which do not have access to traditional financial services.Launching Full-Service Banking:Finally,embedded finance is also being leveraged to sell completely new financial products and services.In this case,clients are channeled to new services which may be different from the business current offering,thus creating a brand-new revenue stream.2023 Top 10 Asia Pacific FinTech Trends24An example of this is Standard Chartereds partnership with Bukalapak,an Indonesian e-commerce platform,where a white labeled bank account is opened on Bukalapak using technology provided by Standard Chartereds nexus.The partnership allows a user on Bukalapak to open,via a sister app,a full-service bank account which is equivalent to that offered by a traditional bank without the need for the usual physical banking infrastructure.The Future of Embedded Finance in Asia While it is currently the simpler products such as payments/FX,and retail lending that predominate embedded finance across Asia today,the potential for product development is unlimited.An obvious next step in the evolution of embedded finance would be for companies to further embed the more mainstream financial services such as savings accounts and investment products into their non-financial applications.BNPL offerings could also be developed further as customers want financing and flexible options on a wider array of products.There is also a dearth of products serving the SME market.Financial services could be further integrated into Enterprise Resource Planning(ERP)systems.That could involve,for example,integrating payments into accounting platforms to enable SMEs to make payments to suppliers directly from these.Precisely how embedded finance plays out across Asia remains to be seen,however what is clear is that embedded finance is here to stay in some form.For those willing to put in the effort to build new products,there is an opportunity to cash in on these technological developments.The corollary is that there is also risk to existing business models for those remaining wedded to business models of the past.To read more about Embedded Finance in Asia and Kapronasias view on how the market will evolve,download our report on“An Embedded Finance Future in Asia.”2023 Top 10 Asia Pacific FinTech Trends25Finding a Path to ProfitabilityThe days of easy money are over.Following the bursting of the tech bubble,investors are now going to be a lot more focused on the fundamentals.Startups they invest in will have to showcase the path to profitability.An unparalleled era of easy money came to an end in 2022,as central banks shifted gears to fight inflation.That era was characterized by loose monetary policy and Quantitative Easing(QE)enacted by central banks across the globe as they grappled first with the global financial crisis and then with the pandemic.The resulting low-interest rate environment fueled a tech boom,helping to create a parade of“unicorns”companies whose valuations exceed US$1 billion that were anything but rare.Investors,desperate for returns,piled into a wide range of tech startups on the premise that they could have more money than they could possibly need,just as long as they grew as fast as they could and took as much market share as possible.Profitability was something that could be worried about later.The amount of money pumped into startups skyrocketed in 2021.Globally,annual venture capital(VC)investment hit US$620.8 billion,more than double the US$293.7 billion invested in 2020 and the US$258.5 billion invested in 2019 at pre-covid levels.In Asia-Pacific,private funding received by fintechs also more than doubled to US$15.69 billion in 2021 from US$5.87 billion in 2020.While large rounds of at least US$100 million accounted for nearly 54%of total transaction value in 2021,a spike in transaction volume also contributed to the surge.Fear of missing out led to a race to invest at almost any price.At the peak,startups were receiving valuations that were up to 100 times their annual revenue despite failing to return a profit.That in turn made it easy for these companies to finance aggressive expansion initiatives or to offer heavily subsidized perks to potential customers to boost market share.In Asia,startup darlings such as Grab and Sea Limited,for example,expanded operations across the region with the latter even expanding their commerce business to Latin America.The party,though,could not go on forever.Rising inflation led to higher interest rates as central banks across the world went into reverse.The era of cheap money was over.Suddenly those valuations did not look so attractive anymore.The appeal of companies which aim for rapid growth in the present with reliable profits only arriving sometime in the future was hugely diminished.In the US,as investors headed for the exit,the tech-heavy Nasdaq slid 33%for the whole of 2022,its steepest decline since 2008 and the third-worst year on record.In Asia,Sea Limited,Southeast Asias largest listed tech firm,had a market capitalization of US$29.42 billion at the end of January 2023,down from over US$200 billion in late 2021.Grab has also seen its share price tumble.Growth Plus ProfitabilityFollowing the bursting of the tech bubble,investors are now going to be focused on fundamentals.Startups they invest in will have to showcase the path to profitability.Unfortunately,that does not mean investors are giving up on growth companies are going to have to show growth plus profitability in 2023,albeit more measured growth,rather than growth at any cost.The focus on growth plus profitability means that startups are going to have to ensure that they are built on sustainable foundations.Simply just focusing on scaling up will no longer be sufficient.Startups need to be looking at building companies with strong,differentiated products geared towards solving clear pain-points in the market.They will also need to reevaluate their growth plans and what growth at a reasonable cost would look like.That probably means tapping the break on new acquisitions and cutting back on discretionary areas of spending tied to growth.Startups will also need to reduce their operational expenses,which includes reducing their customer acquisition costs.This means a greater focus on unit economics,concentrating on revenue generating customers and retaining them while dropping the deadweight.The pressure to reduce costs and showcase the path to profitability may also bring about more partnerships.For some,that means dropping the challenger mindset and looking for ways they can bring value to incumbents and their 2023 Top 10 Asia Pacific FinTech Trends26end customers.A player like GXS(Grab-Singtel digital bank)may consider partnering with a local incumbent,for example.That being said,partnerships are not limited to established startups and incumbents.Smaller startups can look to partner with each other or look to partner with an incumbent startup such as a Shopee or Grab.ConclusionThe macro-economic environment is set to erase much of the low hanging value propositions that have been extended to consumers.That includes lower prices or discount vouchers.With the pressure to breakeven together with the cost of doing business rising,companies will have to raise prices and those without a clear value proposition will see customers drop.Fundamentally,businesses will need to reexamine their existing value propositions and reposition business models to solve real problems or gaps in the market.Those that are unable to do so will unfortunately not survive.As Warren Buffet says,“Only when the tide goes out do you discover whos been swimming naked.”CBDCs in AsiaInterest in CBDCs within the Asia Pacific region has grown significantly in recent years.CBDCs could enable central banks to address a wide range of objectives,including the promotion of financial inclusion and reducing fraud and money laundering.However,CBDCs also come with risks that central banks will need to consider.It is because of these risks that regulators in Asia Pacific are likely to take a cautious approach to CBDCs while continuing to explore their potential.Central bank digital currencies(CBDCs)may be assumed to be new,but the concept of a digital currency can be traced back three decades.In 1993,the Bank of Finland launched the Avant smart card,an electronic form of cash.Although the system was eventually dropped in the early 2000s,it can be considered the worlds first CBDC.Much progress has been made since then,with China launching the e-CNY early in 2022 which was quickly followed by projects to explore the feasibility of adopting CBDCs in countries within the region spearheaded by the central banks of each country.At the global level,approximately 90%of the worlds central banks have already started or are in the middle of a CBDC project.With strong regulator support behind CBDCs coupled with the unceremonious fall of many non-government backed cryptocurrencies,2023 is shaping up to be a big year for CBDCs in Asia.What is a CBDCA CBDC is a digital version of a fiat currency which can be deployed in wholesale and retail models.Wholesale CBDCs(wCBDCs)are a digital version of reserve deposits held at central banks by financial institutions.They are intended for the settlement of interbank transfers and related wholesale transactions.At the wholesale level,CBDCs can offer new capabilities and enable transactions between financial intermediaries that go beyond the traditional medium of central bank reserves.Wholesale CBDCs transact on a distributed ledger and as such offer capabilities such as programmability and atomic settlement,so that transactions are executed automatically when set conditions are met.They allow several different functions to be combined and executed together,thus facilitating composability of transactions.These new capabilities permit the expansion of the types of transactions and enable transactions between a much wider range of financial intermediaries,not just commercial banks.Wholesale CBDCs also work together across borders,through multi-CBDC arrangements involving multiple central banks and currencies.Wholesale CBDCs also unlock the possibility for tokenized deposits by creating a digital representation of deposits on the DLT platform and settling them in a decentralized manner.This could facilitate new forms of exchange,2023 Top 10 Asia Pacific FinTech Trends27including fractional ownership of securities and real assets,allowing for innovative financial services that extend well beyond payments.In contrast to wholesale CBDCs,retail CBDCs are primarily to be utilized by individuals that will use them essentially as digital cash,with the comfort of knowing that the currency is issued and backed by the countrys central bank.There are a number of potential benefits of retail CBDCs.They could facilitate faster and more efficient cross-border payments that are cheaper,more transparent,and resilient.CBDCs could also improve the channels through which monetary policy is conducted.Finally,CBDCs could promote financial inclusion.People with no access to regular bank accounts will be able to access CBDCs to use in both domestic and cross-border transactions.The Fall of Crypto as a Springboard for CBDCsRecent events surrounding cryptocurrencies and stablecoins have revealed a divergence between the crypto vision and its reality.The crypto universe lacks a nominal anchor,which it tries to import through stablecoins.Credibility for these coins is imported from sovereign fiat currencies,but they benefit neither from the regulatory requirements and protections of bank deposits,nor from the central bank.In addition,they tie up liquidity and can fragment the monetary system,thus undermining the singleness of what is needed in a currency.In short,stablecoins lack the qualities necessary as a building block of the future monetary system.It is becoming clear that crypto and the decentralized finance world as it is now,have deeper structural limitations that prevent them from achieving the levels of efficiency,stability or integrity required for an adequate monetary system.The implosion of TerraUSD and the collapse of its twin coin Luna in just a few days would seem to be proof of such instability.The State of CBDCs in Asia TodayCurrently,the focus on wholesale or retail CBDCs is mixed across the region with some jurisdictions opting to focus on one or the other or both.Although there may be outliers,generally speaking,wholesale efforts are more prevalent in advanced economies that have more developed interbank systems and capital markets.In contrast,retail CBDC projects are more common in emerging economies with financial inclusion expected as an outcome.On the cross-border front,CBDCs need to be able to support cross-border payments,underpinned by robust payment and settlement rails that can support economic integration and public interest objectives.As such there have been a number of cross-border projects in the region to explore the feasibility of cross-border interoperability.Two recent project examples,that have both been overseen by the Bank of International Settlements(BIS),are mBridge and Project Dunbar.Project mBridgeProject mBridge is a multiple central bank digital currency(multi-CBDC)initiative for cross border payments involving the BIS Innovation Hub Hong Kong Centre,the Hong Kong Monetary Authority,the Bank of Thailand,the Digital Currency Institute of the Peoples Bank of China and the Central Bank of the United Arab Emirates.Over a six-week period from August to September 2022,the system was used by 20 banks across the four markets to process more than 160 payments and foreign exchange transactions with a total value of around$22 million.In a report issued in October 2022,the participants said the pilot had“confirmed that a common multi-CBDC platform can improve cross-border payment speed and efficiency,reduce settlement risks and support the use of local currencies in international payments”.Project DunbarIn March 2022,the BIS Innovation Hub,the Reserve Bank of Australia,Bank Negara Malaysia,the Monetary Authority of Singapore,and the South African Reserve Bank announced the completion of prototypes for a common platform enabling international settlements using multi-CBDCs.Led by the Innovation Hubs Singapore Centre,Project Dunbar proved that financial institutions could use CBDCs issued by participating central banks to transact directly with each other on a shared platform.This has the potential to reduce reliance on intermediaries and,correspondingly,the costs and time taken to process cross-border transactions.2023 Top 10 Asia Pacific FinTech Trends28The Future of CBDCs in Asia Pacific Interest in CBDCs within the Asia Pacific region has grown significantly in recent years.That interest is not just limited to the more advanced economies with developed financial markets either.While China has been at the global forefront of experimenting with CBDCs,emerging markets,such as India and Thailand have made rapid progress.CBDCs could enable central banks to address a wide range of objectives,including the promotion of financial inclusion,reducing fraud and money laundering,stimulating local payments innovation,and creating a new vehicle for monetary policy,to name a few.However,CBDCs also come with risks that central banks will need to consider.These include cyberattacks,and risks around data privacy and financial integrity.CBDCs would be able to accumulate sensitive payment and user data at an unprecedented scale.In the wrong hands,this data could be used to spy on citizens private transactions,obtain security-sensitive details about individuals and organizations,and even steal money.It is because of these risks that regulators in Asia Pacific are likely to take a cautious approach to CBDCs.Indeed,according to a recent IMF survey,while most Asian countries are engaged in research and development,with some at advanced stages of testing and pilots,very few countries are likely to issue CBDCs in the near-to-medium term,reflecting the still considerable uncertainties.Kapronasia is a leading strategic consultancy covering FinTech,banking,payments,and capital markets.From our offices and representation in Shanghai,Hong Kong,Taipei,Seoul,and Singapore,we provide clients across the region the insight they need to understand and take advantage of their highest-value opportunities in Asia and help them to achieve and sustain a competitive advantage in the market.Please visit https:/ 2023 Kapronasia Singapore Pte.Ltd.All rights
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2023 and BeyondDisruptors Emerge in the Face of ChangeThe Slowdown Speeds UpState of Consumer Internet 20232Startups Shift Focus as Exit Plans Are Put on HoldStepping into 2023,a tougher market environment persists:Elevated inflation,continued interest rate hikes,rising geopolitical risk,and falling consumer sentiment dot the map.Once-pandemic-related tailwinds have now become headwinds,causing economic growth to slow,public markets to fall,capital to become scarce and consumers to scale back on spending.Yet while the current landscape remains challenging,this is precisely when disruptors are born.Today,founders have time to slow down,focus on product market fit and develop long-lasting innovations.Furthermore,recent tech industry layoffs will provide a greater availability of talent to found new companies given falling opportunity costs,fueling the next wave of innovation.The key for consumer startups will be twofold.First,companies will need to be agile and nimble;the ability to quickly cut burn and extend cash runway will be paramount.Companies will need to become grittier and stretch every dollar.This will ultimately force them to be more efficient,better equipped for long-term growth and better prepared to meet the demands of exit markets.Second,startups will need to capitalize on shifting consumer trends.For example,consumers increasingly want a more personalized experience,yet they expect more privacy(look no further than the demise of cookies and cross-app tracking).The ongoing proliferation of gaming has led to greater demand for multiplatform and on-demand games.Core values are continuing to shift amongst consumers,especially as the demographic of the modern-day consumer changes as younger generations make up a greater piece of the pie.Factors such as sustainability and environmental impact have notched up the priority list.These are just some of the challenges and opportunities staring down consumer startups.Only companies with the best technology,ideas and go-to-market strategy will clear the hurdles.Luckily,there is no shortage of innovative ideas.Throughout this report,we highlight a few examples of niches disrupting the consumer space,from reverse logistics companies specializing in branded recommerce to emerging subsectors within commerce enablement.With careful navigation,consumer startups can take advantage of leaner times and shifting consumer preferences to build better businesses.This is the moment when startups can capitalize on the opportunity presented and turn themselves from market players to a market leaders.We believe in these companies,and we believe in the innovation economy.Senior Market Manager,Consumer InternetState of Consumer Internet 20233State of Consumer Internet 20234Brick and Mortar RevivalConsumers are back out in the physical world,but the commercial spaces of old need reinventing,given reduced downtown office footprints and pandemic closures.This,coupled with the need to cut through increasingly noisy online channels,poses an opportunity for companies looking to reach consumers the analog way.Offering customers an experience increases loyalty.Notable Companies Formed during the GFC(2007-10)Entrepreneur EnablementThe reshuffling of the workforce coupled with inflationary pressures places greater importance on the side hustle,and on tools that can help individual entrepreneurs and creators efficiently monetize their output and products both in physical and digital worlds.A Prescription for SubscriptionsMore companies are leaning into paid subscriptions as a predictable source of revenue.Following Amazons Prime membership model,Walmart,Best Buy and Barnes&Noble now offer paid annual memberships.We expect others to follow suit.The model resonates with investors and companies who favor the reliability of subscription revenue and the benefits it can have on retention.CAC on TrackWith profitability in the crosshairs,consumer tech companies are prioritizing acquiring fewer,higher-quality customers.Customer acquisition costs(CAC)are under scrutiny as investors want the biggest bang for their buck.This has led to a drawback in spending with around 60%of consumer tech companies decreasing their marketing spend YoY as of Q4 2022.1Vertical Communities As social media migrates toward content for entertainment,users are seeking new channels for connection based on shared interests.Its a natural extension that these more curated spaces would invite commerce opportunities.We expect brands and creators to monetize these emerging social spaces.After all,more engaged users are more engaged customers.M&A ManiaValuations are beginning to reset after reaching high marks in 2021.As the backlog of late-stage companies builds amid a closed IPO market,pressure may grow for founders to achieve an exit.With some public,and more scaled private companies flush with cash from the recent bull market,we expect strategic acquisitions to spike in 2023.The question is at what valuation?It may not be pretty.AI for E-commerceArtificial Intelligence(AI)took a leap forward in the last six months.E-commerce presents an ideal space for these new technologies to take root.Writing tasks such as ad copy,product descriptions,and marketing emails can be sped up.The tech could also improve customer support and enable more personalized marketing and shopping.Even reports about,say,Consumer Internet,could be written with AI.Was this one?Well never tell.2Streaming Gets In The GameGaming with streaming and subscription services will likely continue to grow more robust thanks to an increase in games that are available cross-platform and improved internet speeds.There may always be a segment of gamers that prefer the performance of PC and consoles,but the accessibility streaming offers continues to add value for gamers.Recommerce RisingMore brands will likely reclaim their secondhand supply chain.Third-party logistics providers are enabling any brand to establish and or white-label a resale program.This offers brands a new source of revenue and brand protection.Consumers can both save money and shop more sustainably.Notes:1)See page 9.2)It wasnt.4.1%6.7%6.6.2.1%-4.8%-8%-10%0 0 04200620082010201220142016201820202022YoY changeNotes:1)Debt payments averaged 9.7%of disposable income in Q3 2022 down from 13.2%in Q4 2007.2)Personal savings averaged 14.3%of disposable income in 2020-21,up from 3.5%in 2006-07.3)Average monthly returns indexed to the settlement price on Jan 3,2022.4)Rates and year-over-year(YoY)change based on the December(or latest)reading for each year.Federal Funds Rate is the default lending rate to banks.5)Spending and inflation data expressed as average annual percentage change.Inflation is the YoY change in the Consumer Price Index(CPI).Source:St.Louis Fed,Morning Consult,Bureau of Economic Analysis,S&P Capital IQ and SVB analysis.Average US Interest Rates by Type4State of Consumer Internet 20236S&P 500NASDAQ-90%-80%-70%-60%-50%-40%-30%-20%-10%0%Jan 22Mar 22 May 22Jul 22Sep 22Nov 22Jan 23GFCPandemic21%8%5%1%0%-1%-9%-10%-10%-12%-14%-19%-22%During the GFC,spending on durable goods plunged as consumers postponed big-ticket purchases.Stimulus spending COVID-19 lockdownYoY change in Nov 2022For all its intensity,the current economic slowdown has failed to deliver widespread damage(yet).Yes,economic growth has slowed and public markets have been pummeled,especially tech stocks.However,unlike the GFC,which was marred by sweeping job losses,foreclosures and bankruptcies,the current downturn has largely been absorbed by shareholders.Profits from the pandemic-fueled bull run have largely shielded the broader economy,as fundamentals like employment and wage growth remain positive.Yet the prevailing outlook is getting more negative.A January poll by The Wall Street Journal found that 61%of economists expect the US to enter a recession in the next 12 months,up from 18%a year ago.Consumer tech has not been immune to the impacts of the downturn.A reversal of pandemic trends like online shopping and remote work caught companies flat-footed last year.In June,Shopify laid off 1,000 employees,roughly 10%of its workforce.CEO Tobias Ltke said the company overestimated the permanence of online shopping shifts in growing too rapidly.“Its now clear that bet didnt pay off,”Mr.Ltke said.Other big consumer tech companies including Meta,Alphabet,Twitter and Snap followed with layoffs in H2 2022,in some cases unwinding hiring sprees from 2021.The pullback comes as high inflation and rising interest rates are dampening consumer spending.Home and auto sales near decade lows in 2022.Household savings rates fell to 3.4%,down from 7.5%a year ago,and consumer confidence is hovering near the record low reached in June 2022.While inflation is finally abating,a stronger than expected January jobs report may convince the Federal Reserve to keep raising rates.However,its not all doom and gloom.Consumers are better prepared to weather a recession today than prior to past downturns.Households offloaded debt1and saved2during the pandemic,and employment remains high factors that could buoy a recovery.Select Consumer Tech Stock Returns3Q4 2020Q4 2021Q4 2022Basis Point Increase 2021 to 2022Inflation and US Personal Expenditures by Product Type5Durable GoodsNon-Durable GoodsServicesInflationRecessionDurable GoodsNon-Durable GoodsServicesFederal FundsRateMortgage(30 yr.)Auto(60 mo.)Personal(24 mo.)Credit CardEducationHealthcareGroceriesHousingHotelsGas/fuelHome FurnishingsRestaurantsApparelAlcoholAuto PaymentsPersonal Care ServicesAirfare402361188214456-8%-7%-6%-4%-3%Womens ClothingStationeryMens ClothingShoesCosmeticsFurnitureJewelryNew VehiclesRVsBicyclesUsed VehiclesSmall AppliancesHome DcorComputersMajor AppliancesTVsFlooringBoatsDishwareMotorcyclesToolsOutdoor EquipmentAircraftCoffee and TeaWomens ClothingMens ClothingFood at RestaurantsShoesSodasCosmeticsAlcohol at RestarauntsFresh ProduceBeerPrescription drugsStationeryWineCleaning ProductsGames and HobbiesPersonal Care ProductsSpiritsMovie TicketsHealth InsurancePackage DeliveryRetail BankingStudent HousingLive ShowsDoctor VisitsHotelsMuseums and LibrariesInternetChildcareTV ServiceMoving and StorageDrycleaningTailoring and AlterationsComputer SoftwareHospitalsHousehold RepairsHigher EdState of Consumer Internet 20237Yacht dealers may be in for a rough year.When times are tough,luxuries are the first to go.During the GFC,Americans bought fewer RVs,motorcycles,TVs,furniture,and even new carpet.If it could wait,it did.New vehicles,used vehicles,jewelry,clothing,vacations households slashed big-ticket purchases across the board.For tech founders,this shift in consumer behavior presented an opportunity.While large incumbents struggle to adapt quickly to change,startups can create strong footholds in the margins of a downturn.In 2008,Brian Chesky and his roommates recognized that travelers were looking for an affordable alternative to hotel rooms.They started by renting an air mattress in their San Francisco apartment.Today,Airbnb is one of many successful tech startups to emerge from the GFC.Downturns can not only be a great foundation from which new companies are spawned,but they can also serve as accelerators for existing startups.Shopify,for example,was a two-year-old company struggling to scale in 2008.The surge in small businesses that arose from side hustles during the recession gave Shopify a critical boost.Consumer companies can also lean into growth trends during downturns as not every spending category declines.Consumers may wait on big-ticket items,but splurge on smaller pleasures like coffee,restaurants and movies.Uber rode this wave by offering affordable transportation at a time when auto sales were down.Groupon did the same with discounts on restaurants and entertainment.Essential services like healthcare and education are resilient when the economy is stressed.Higher education is boosted when unemployed workers go back to school or seek upskilling programs.If the US does enter a recession in the near future,its probable that a new round of disruptive consumer tech companies will be seeded.That said,not all market downturns are the same.Savings from the pandemic have infused households with more cash than 2008.Its reasonable to expect that spending cuts may not be as pronounced this time around.Index of Select US Personal Expenditures During the Global Financial Crisis1Durable GoodsNon-Durable GoodsServicesNotes:1)Select expenditures plotted as a normalized distribution of the percent change in spending from 2007 to 2009 on the x-axis and the total expenditure in 2009 on the y-axis.2)Notable companies are those that were either founded or received their first financing between 2007-2009.Source:Bureau of Economic Analysis,PitchBook and SVB analysis.DecreaseIncreaseSmallerLargerPhone ServiceMarket Size in 2009Change in Consumer Spending 2007 to 2009Finance and Payments-41%-25%-25%-21%-14%RVsBoatsNew CarsFurnitureTVs-17%-17%-10%-9%-5%Household RepairsMoving and StorageRetail BankingTailoring and AlterationsHotelsNotable Consumer Tech Companies Formed:2007-092TransportationHome ImprovementRetail and eCommerceHotels and TravelHealthcare and FitnessEdTechRecession-Proof Mass-Market Goods and Services Recession-Vulnerable Mass-Market Goods and ServicesOpportunity for DisruptionOpportunity for GrowthExpected Two-Year Change in Marketing Budget Due to Shift Against Cookies1Notes:1)Based on a 2022 survey of more than 175 Fortune 500 marketing leaders.2)Share of consumer tech companies,as defined by SVB proprietary taxonomy,utilizing select ad platforms.3)CPM=Cost Per Thousand Impressions.4)Companies with at least$100 of marketing spend per quarter.Revenue buckets are based on 2022 annualized revenue.Source:Loyalty Research/Rep Data,Vayner Media,Vogue Business,Sensor Tower,Financial Times,SVB proprietary data and SVB analysis.Share of US Consumer Tech Companies with Decreasing Marketing Spend YoY4State of Consumer Internet 20239Share of Consumer Tech Companies Utilizing Select Ad Platforms2Third-party cookies have crumbled.What started with an iOS privacy update in May 2021 has fundamentally changed how consumer companies market their products online.Third-party advertisers are now limited in what they can see about iPhone users activity.Alphabet plans to implement similar restrictions to Android users next year.The new restrictions impact the advertisers ability to target ads as well as measure performance and attribution.Subsequently,paid social and search have taken a hit,with many brands citing increased costs for less effective targeting as a result.But these two strategies arent out of the ring just yet.In a 2022 survey of Fortune 500 marketing leaders,53%and 47%expect to slightly increase social media and paid search,respectively,despite the shift against cookies.1As costs comes under more scrutiny,companies are prioritizing acquiring fewer,higher-quality customers.This shift has accompanied a general pullback in marketing spend.Among consumer tech companies,nearly 60%are decreasing their marketing spend YoY as of Q4 2022 up from an average 39%in Q1 2022.Looking ahead,tensions between brands wanting to acquire customers and consumers wanting privacy can be partly mediated by offering value in exchange for data.Brands can offer discounts for friend referrals or rewards through a loyalty program.These techniques help brands capture zero-party data data a customer intentionally shares.When it comes to reaching consumers,all eyes are on TikTok,literally.The service became the most downloaded app in the world in 2022.TikTok users spend twice as much time per day on the app as they do on Facebook and Instagram,according to Sensor Tower.Since launching their ad platform in 2020,more companies have turned to TikTok despite a number of institutions seeking to ban it.Based on SVB proprietary data,in 2022,the number of consumer tech companies spending on TikTok advertising increased 57%YoY,while Twitter,Alphabet and Facebook saw slight declines.2%8%4 A50$(#2ADCC2GS$%9%2%4%1%1%0%PodcastsOffline Ads/Direct MailProgrammatic Ad NetworksOver-the-Top-AdvertisingPartnership MarketingInfluencer MarketingEventsEmail MarketingOrganic SearchPaid SearchSocial MediaSignificant IncreaseSlight IncreaseDecreaseQ1 2022Q2 2022Q3 2022Q4 2022Revenue Band40B1XHQEXTRXYaaV%$0-$1M$1M-$15M$15M-$50M$50M 0 0Pp0%Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4202020212022Between 2021 and 2022,the number of companies spending on TikTok increased 57%.1.4xCPM as a proportion of TikTok31.1x1.8x2.6xSearch engine for e-commerce websitesSales JourneyAI-powered visual searchAI-enabled conversational sales for existing customers Customer loyalty platform PurchaseRetentionAdvocacyFulfillmentAwarenessConsiderationCommerce Enablement Hype Curve Customer JourneyCommerce Enablement Select ExamplesMulticarrier shipping platform for e-commerceSubscription management Turns Shopify stores into a mobile appWhen supply chains were at a standstill and demand for goods surged during the pandemic,commerce enablement companies seemed to have the Midas touch.From mobile commerce to fulfillment and delivery,enablement companies helping retailers connect to customers on any point along the customer journey were in high demand.Fast-forward to now and the landscape has changed.Commerce enablement companies are feeling the strain of weakening consumer spending.While these companies are mainly business to business(B2B)and are therefore shielded from some volatility,they are feeling the crunch from cost-cutting as clients scrutinize every line item,down to individual software contracts.Given these headwinds,and the broader market slowdown,VC deals for select commerce enablement subsectors declined in 2022,with reverse logistics as one of the few bright spots.Areas such as livestreaming,headless commerce and fulfillment and delivery saw steep declines amid the drawback in consumer spending.However,promising technology is creating optimism for the future.ChatGPT1took the internet by storm in Q4 2022.OpenAIspublic chatbot released a floodgate of enthusiasm and speculation for how generative AI could disrupt commerce enablement.This includes everything from writing descriptions and SEO titles,to customer support,to ad copy.Emphasis was also placed in areas such as inventory management,as many retailers misjudged consumer demand in Q3 2022.This was evident by the adjusted apparel sales-to-inventory spread,which flipped from positive 16%in Q3 2021 to negative 16%in Q3 2022,indicating sales are less than inventory levels.2To help its customers better manage inventory complexity,Shopify sought to bolster its inventory management tools through the$2.1B acquisition of Deliverr.The deal boosts Shopifys logistics capabilities adding predictive features and combining multiple sales channels together.State of Consumer Internet 202310Point in Customer JourneyAwarenessConsiderationPurchaseFulfillmentRetentionMultistageBack EndCustomer FacingAdvocacyOn Shopify App StoreChange in Venture Capital Deal Counts for Select Commerce Enablement SubcategoriesBranded RecommerceReaching the plateauThis is when mainstream adoption of the technology starts.Associated risks are reduced and benefit from the technology is broadly accepted.Market share grows.ExpectationsBNPLHeadless CommerceChatGPTInnovation TriggerPeak ExpectationsDisillusionmentSlope of EnlightenmentPlateau of ProductivityShoppable MediaLoyalty and IncentivesLivestream and Social CommerceImmersive CommercePersonalizationMobile CommerceAnalytics and CDPs3PaymentInfluencer MarketingDigital TwinAffiliate MarketingSubscriptionsReverse LogisticsInventory ManagementEnablement Along the Customer JourneyE-commerce companies rely on an ecosystem of enablement tools that add value and streamline operations along the customer journey.-41%-35%-33%-33%-31%-26%-26%-15%-14%-12W 21 2022Reverse LogisticsAnalytics and CDPsMobile CommerceOverall VCLoyalty and IncentivesBNPLFulfillment and DeliveryHeadless CommercePersonalizationPaymentLivestream and Social CommerceNotes:1)GPT=Generative Pre-trained Transformer,a language model that uses deep learning to produce human-like text.2)Bloomberg article.3)CDP=Customer Data Profile.Source:PitchBook,Alphabet Trends,Shopify,Bloomberg and SVB analysis.Fulfillment and Delivery$16B$17B$19B$21B$18B$21B$23B$26B$28B$30B$31B$2B$3B$5B$7B$9B$14B$20B$28B$37B$46B$51B6%7%8%9%9! 162017201820192020202120222023202420252026Startups Practicing Circular Strategies7Notes:1)Rent the Runway via Wall Street Journal.2)According to a 2015 UK Barnardos survey.3)The New York Times.4)thredUP.5)Statista.6)Publicly available information on brands selling their own pre-owned products online to US shoppers.7)Konietzko et al.2020.Source:The Circularity Gap Report,Global Data,thredUp Recommerce 100,Statista,The Wall Street Journal,Barnardos,and SVB analysis.Reverse Logistics Power RecommerceBrands Adopting Recommerce6State of Consumer Internet 202311US Secondhand Apparel Market Revenue4Return to StockLiquidateForecastWave 1:P2P marketplaces filled the gap before branded recommerceWave 2:Branded Recommerce42009-1820192020202120225935121Select ExamplesIn-store or Digital Trade-In for CreditAI-Assisted InspectionSent to Recommerce ProviderResaleRepairRecycleDonateSelect Examples:The US apparel industry has become a hotspot for circular transformation.On average,US shoppers purchase 68 garments1per year and discard an item after wearing it only seven times.2 As a result of this consumption pattern,and the increasing public concern over the environmental impact of apparel waste,the demand for secondhand clothing has surged in the last decade.Secondhand clothing sales grew from 6%of total apparel sales in 2016 to 11%in 2021 and is expected to reach 22%by 2026.Corporations are moving to capitalize on this shift in consumer preferences by utilizing secondhand markets of their own to capture resale revenue as well as control the narrative surrounding their brand.There have been two distinct waves of tech-enabled secondhand apparel.The first wave centered around peer-to-peer marketplaces(P2P).After the GFC,consumers wanted to monetize their closets,and save money while having a seamless e-commerce experience.3Two notable resale marketplaces,Poshmark and thredUP,raised a combined$400M in venture funding.Both ended up going public at valuations over$1B.The second wave is centered around branded recommerce.By controlling their own secondhand markets,brands get double benefit of brand protection and new streams of revenue with minimal additional costs.Consumers are looking to be more sustainable,but also,in an inflationary environment,remain cost-conscious.This is possible thanks to third-party reverse logistics providers specialized in recommerce.AI can be used to identify a garment and assign it attributes,set a price using those garments attributes and available resale data,and relist an item for sales with minimal labor.Queue another use case for generative AI.Thrift and DonationRecommerceSecondhand as a Percent of Total US Apparel Market5Brands selling their own pre-owned products online to US shoppers202020172021201720222022Year Launched201720222022201120092011200920132013Year Founded200920152011IdentifyPriceClose:RecyclingMaterialsTextile Recycling$60MSlow:Product Longevity and Life ExtensionRecommerce Enablement$130MRegenerate:Renewables Improving Natural EnvironmentMushroom Leather$256MNarrow:Minimize Resources per Product3D Scanned-to-Fit Denim$11MStrategySelect Example,Total Raised and Select Investors2%vs.17%Average revenue growth of US apparel market YoY vs.the secondhand apparel market 2016-2026 actual and forecasted.$0B$50B$100B$150B$200B$250B20122013201420152016201720182019202020212022E$10.2B$4.4B$31.4B$6.3B$4.6B$3.2B$9.4B$34.9B$27.3B$68.7B116 117151135160 1641843402432014201520162017201820192020202120222023*The gaming industry has evolved from one-time purchases of cartridges and consoles to Games-as-a-Service(GaaS),an evolving product supported by subscriptions and in-game purchases.Revenue growth and access to an increasing userbase attracted big tech companies,whove acquired studios for their intellectual property and built streaming platforms Amazon Luna,Nvidia GeForce NOW,Netflix Games,and Xbox Cloud(Microsoft).Microsofts decision to pursue Activision Blizzard the largest gaming company by market capitalization is predicated on expanding their library of titles and building a stronger mobile games footprint.Despite the optimism,some ambitious bets have struggled.Alphabet shut down its cloud gaming service Stadia in January,and Meta lost$13.7B on its Reality Labs division in 2022.Mobile games revenue has been larger than PC and console combined since 2017.Last year,about half of revenue for mobile games came from ads,with the rest coming from in-app purchases(IAP).1Fortnite entered the mobile space in 2018 but was kicked off Apples app store in 2020 for circumventing Apples 30%cut on IAPs.This has fueled debate over the power third-party app stores have over developers.In February 2023,the Department of Commerce issued a call for policy change.Gaming is viewed as a use case for Web3 and crypto as gamers were already familiar with buying and selling digital goods.In-game economies have long existed Eve Online,Second Life,Fortnite,Roblox without notable crypto or Web3 connections.When crypto exploded in popularity in 2020,there was a rise in play-to-earn games where players could win crypto or non-fungible tokens(NFTs).As the those lost value,payers logged out.Web3s role in gaming is still being defined new blockchain based games studios are still popping up but immersive in-game economies are here to stay.Notes:1)Percentage of daily players who returned each month,Unity Gaming Report 2022.2)YoY numbers aggregated from NewZoo.3)Global Theatrical and Home/Mobile Entertainment Market.4)IFPI Global Music Report.5)Unity Gaming Report 2022.6)Based on publicly disclosed completed acquisitions for companies within the PitchBook vertical“Gaming.”Source:NewZoo,The Motion Picture Association,PitchBook,Konvoy VC,IFPI,Unity and SVB analysis.Global Gaming M&AMultiplatform5Games Released by Year per PlatformState of Consumer Internet 202312Global Gaming Revenue per Device and Timeline2Total deal sum M&A$B USDM&A deal countEstimate for Microsofts acquisition of Activision Blizzard announced in 2022 not yet complete.ConsolePCMobileAcquirerAcquisitions627112010101019161012Notable Gaming Acquirers 2014-2022Pokmon Go reaches 500M downloads in one year.Nintendo releases Switch.$92B$40B$51BMicrosoft,announces intent to acquire Activision Blizzard for$68.7B.Xbox launches Game Pass.Microsoft,Nvidia,Google and Amazon launch cloud gaming.Meta acquires Oculus for$2B.PlayStation Now launches beta.Nvidia launches beta of their cloud gaming service.Dota 2 introduces a season pass model for the first time.Candy Crush Saga for mobile popularizes in-app monetization.Fortnite,a PC and console game,is ported to mobile.It generates$2.4B revenue that year a record yet to be broken.Apple launches Apple Arcade.Netflix launches gaming division.$185BGlobal film industry3Global music industry4$100B$26BGlobal games revenue20204060801002014 2015 2016 2017 2018 2019 2020 2021Growth113%Multiplatform StrategiesPersistent AccountsPCPlayStation 4Xbox OneMobileXbox Series X/SPlayStation 5Nintendo SwitchThe decline in public markets,rising interest rates,and reversal of pandemic-fueled consumer trends made 2022 a difficult fundraising year for many consumer tech founders.Capital invested fell from 2021 highs across most subsectors,with commerce enablement and gaming and esports being the only exceptions to the rule.Even these sectors hit a wall in the back half of the year,as the prolonged slowdown caused investors to pump the brakes and shift to earlier,less capital-intensive deals.The more difficult funding environment caused valuations to rebase.Later-stage deals,which are more susceptible to public market valuation movements,were more impacted by the valuation adjustments.Valuations for these later-stage deals peaked at 2.5x their pre-COVID-19 levels and have fallen back to their 2020 levels.Further up the funding funnel,seed-stage deals plateaued but remain elevated.Investors understand earlier-stage companies have years ahead before a potential exit,and VCs have shifted preference to these earlier-stage deals as an alternative to risk at the later-stage.This thesis is confirmed when analyzing valuation step-ups between rounds.In 2022,Series A companies increased their valuations by a median of 4.3x their seed round valuations,a slight dip from the 2021 step-up but still well ahead of the 2020 level,an indication demand still exists for VC deals that are least exposed to public market fluctuations.Series B to Series C step-ups,on the other hand,saw a deceleration in the step-up amount,falling back to 2020 levels.For example,a Series B company valued at$100M would have been priced for a Series C deal at$360M according to 2021s median step-up.The same company doing the same deal would have a$250M valuation in 2022.US VC Investment in Consumer Tech1Notes:1)Data as of 2/8/2023.VC defined as all series,stages and rounds for US-headquartered consumer companies.Consumer tech companies defined using SVB proprietary taxonomy.2)Data as of 2/2/2023.Consumer tech subsectors based on SVB proprietary taxonomy.3)Valuation step-ups are the median change in valuation for companies going up a round.Does not include add-on or extension rounds.Source:PitchBook,SVB proprietary data and SVB analysis.14State of Consumer Internet 20230100200300Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4202020212022Indexed to 100Later-stage valuations have fallen to pre-COVID-19 levels while seed stage valuations have held strong.Seed RoundEarly-Stage VCLate-Stage VCIndex of 180-Day Trailing Median Valuation for Consumer Tech Companies Median Valuation Step-Ups for Consumer Tech Companies by Round3Total VC 2022$21.3B$20.5B$19.2B$45.9B$30.2B1,5481,8021,6712,4062,01620182019202020212022VC Investment YoY ChangeVC in H2 202254%2%-7%-26%-40%-41%-44%-45%-54%-57%$2.7B$4.7B$2.8B$7.9B$3.6B$1.1B$0.8B$1.8B$2.6B$2.1BCommerce EnablementGaming and EsportsE-commerceManaged MarketplacesDigital Native Vertical BrandAd TechPeer-to-PeerSocial Networks and MessagingMedia and EntertainmentEd TechUS VC Investment by Subsector2$10.8B$11.0B$4.9B$3.5B662551423380Q1Q2Q3Q42022Capital InvestedDeal CountMiddle 50%Median2.8x4.7x4.3x3.1x3.7x3.9x2.5x3.6x2.5x202020212022202020212022202020212022Seed to Series ASeries A to Series BSeries B to Series CThe simplest way to win market share in a downturn is to survive the downturn.As the economic slowdown persists,consumer tech founders are doing what they can to conserve funds and extend cash runway.This includes pivoting both sides of the financial equation by cutting costs and maximizing revenue.However,falling consumer sentiment and decreased consumer spending is creating headwinds.Revenue is down across most consumer subsectors,with 61%of VC-backed consumer companies posting quarter-over-quarter(QoQ)revenue gains in Q4 2022,down from 75%last year.Consumer companies are scrambling to add new income streams.Netflix,for example,has added ad-supported plans for the first time and is cracking down on password-sharing.The changes helped reverse a trend of declining subscribers.Subscription models are becoming more common as companies offer premium services to entice paid users.Twitter,under Elon Musk,has leaned into this strategy with a paid Twitter Blue model offering special features to subscribers.To compensate for the softer revenue,companies are cutting spend to the greatest degree since the COVID-19 pandemic began.The bulk of cuts are coming from areas like talent.Look no further than Twitter.Since buying the company in October,Musk has aggressively cut costs,including downsizing more than half the staff.While cuts help startups maintain liquidity,overall runway is shortening.Another factor eating away at runway is elevated inflation an element founders cant control.As time between rounds continues to lengthen,founders may consider an add-on round with previous investors,explore alternative financing tools such as venture debt or take a down round.Percent of Consumer Tech Companies1with Increasing Revenue2by SubsectorNotes:1)Consumer tech companies defined using SVB proprietary taxonomy.2)Based on current 12-month revenue run-rate.3)Based on net cash burn and 12-month revenue run-rate.4)Analysis does not include any add-on or extension rounds.Source:PitchBook,SVB proprietary data and SVB analysis.Median Months of Cash Runway3for US VC-backed Consumer Tech Companies15State of Consumer Internet 2023Median Revenue Growth Rate YoY for US VC-backed Companies by Sector10.415.215.915.715.014.214.414.112.911.812.911.405101520253035Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4202020212022Median Months Between Equity Rounds for Consumer Tech Companies4Middle 50191915162117161514151805101520253035202020212022202020212022202020212022202020212022Seed toSeries ASeries A toSeries BSeries B toSeries CSeries C toSeries DMedianMiddle 50%Median42.21.6.9.8%0 00%Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q42019202020212022ConsumerFintechFrontier TechEnterprise SoftwareQ4 2021Q4 202264yqiIPTYu%MarketplacesAd TechCommerceDigital ContentEd TechIndexed Median Consumer Tech Burn Rate1and Mentions of Cost-Cutting2The growth-at-all-costs mentality of 2021 has been replaced by the need to conserve cash and grow efficiently.Consumer tech companies are focusing on unit economics to get the biggest bang for their buck.Metrics like Lifetime Value(LTV)and Customer Acquisition Cost(CAC)are under greater scrutiny by investors who want to know that the their investment will be put efficiently to work.This priority shift shows up in burn multiples,which are trending down as companies attempt to pivot toward profitability.Burn multiple measures the amount of net spend it takes to bring in net new recurring revenue.For example,a 3x burn multiple means a company is burning$3 to earn$1 of net new revenue.When capital is plentiful,burn multiples tend to expand as companies spend more to chase higher growth multiples a metric that was rewarded during the boom times of 2021.The trend reverses during a downturn as investors hone in on margins.The result of this more careful spending is improving operating margins.Operating margins improved across consumer tech subsectors and revenue scales in 2022.In Q1 2022,at the height of the growth-first mentality,only 22%of consumer companies experienced improving their earnings before interest,taxes,depreciation,and amortization(EBITDA)QoQ.By Q4 2022,47%of consumer tech companies had better margins.The 25 percentage point(pp)jump seen in 2022 in the share consumer tech companies with improving margins mirrors a similar jump seen during the pandemic.The share consumer tech companies with improving margins jumped nearly 28 percentage points from Q1 2020 at the onset of the pandemic to Q3 2020.Notes:1)Burn rate and call mentions are indexed to 100 at the peak.Burn rate defined as net burn divided by net new revenue.2)Call mentions of cost cutting based on aggregate data from proprietary call logs.Call logs are in the form of written notes,not recorded conversations.3)Burn multiple defined as net burn over net new revenue.4)Revenue calculated using 12-month revenue run rate.5)Change in quarter-over-quarter EBITDA margin.Source:PitchBook,SVB proprietary data and SVB analysis.Median EBITDA Margin for VC-backed Consumer Tech Companies by Revenue4Percentage of US VC-Backed Tech Companies with Improving EBITDA Margin516State of Consumer Internet 202363G%0 0Pp%Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q42019202020212022ConsumerAll Other SectorsMedian Burn Multiples3for VC-Backed Consumer Tech Companies by Revenue4Companies cut costs amid COVID-19 lockdowns.Growth is deprioritized.Costs fall.02040608010020182019202020212022Burn RateCall Mentions of Cost-CuttingCompanies conserve cash amid COVID-19 lockdowns.Burn increases during 2020-21 funding frenzy.Growth at all costs.Growth is deprioritized.Burn falls.Q1Q120212022Q3Q3Q1Q120212022Q3Q3Q1Q120212022Q3Q3$0-$10M Revenue$10M-$50M Revenue$50M Revenue-225%-200%-175%-150%-125%-100%-75%-50%-25%0ITDA margins are improving compared to the peak of growth.34 ppimprovement6 ppimprovement9 ppimprovement$0-$10M Revenue$10M-$50M Revenue$50M Revenue0.0 x0.5x1.0 x1.5x2.0 x2.5x3.0 x3.5xQ1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q42019202020212022Burn peaked in Q1 2022 and has declined as companies focus on profitability.3.1x1.5xthredUPAllbirdsWarby ParkerRent the RunwayBigCommerceUdemyCourseraDuolingoRobloxDoorDashNerdWalletPinterest1x1x3x1x3x2x2x8x9x3x1x6x18x11x13x11x6x15x10 x7x17x8x3x9x1,8002,3002,8003,3003,8004,3004,800Revenue Multiples2for Recent IPO US Consumer Tech CompaniesIt was the best of times.The IPO window of 2020-2021 was like nothing consumer tech has seen since the Dot-Com era.Over thirty US VC-backed consumer tech companies went public via IPO in a span of 18 months achieving record revenue multiples and valuations in the process.In December 2020,DoorDashs IPO raised$3.4B.Two months later,Bumble raised$2.2B.The immersive world-building game Roblox raised$13.8B direct listing in March 2021.In September,eyewear brand Warby Parker took in$3.1B.In all,consumer tech IPOs raised$30B in the year-and-a-half period ending in January 2022,3.5x more than the previous four years combined.With public markets in decline,the window on public tech exits has remained firmly shut for over a year.Reddit scrubbed plans to list at a$15B valuation in December 2021.Now theyre one of many companies waiting for an exit.Instacart also announced plans to go public at the earliest opportunity.As the slowdown drags on and valuations drop,late-stage companies are feeling the pressure to repay investors.The backlog means that a single large IPO might clear a path for others to follow.Some companies arent waiting.While M&A activity was down in 2022,a number of large deals did bubble up.In January,The New York Times acquired sports news site The Athletic for$550M.In July,Shopify acquired the commerce fulfillment company Deliverr for$2.1B.Elon Musks take-private of Twitter may be the exception to the rule.Leveraged buyouts are less likely to occur with interest rates climbing.Instead,companies may use cash reserves,stockpiled during the recent bull run,to make strategic acquisitions.M&A deals could ramp up as runway dwindles,forcing companies to sell under unfavorable conditions.Notes:1)Consumer tech companies defined using SVB proprietary taxonomy.2)Revenue multiple is the annualized revenue divided by post-valuation at the time of the IPO with current revenue defined as the annualized revenue divided by the enterprise value.Source:PitchBook,S&P Capital IQ,SVB proprietary data and SVB analysis.US M&A Deals for VC-backed Consumer Tech CompaniesUS VC-Backed Consumer1Tech IPOs and Take-Privates17State of Consumer Internet 2023$4.9B$5.9B$4.9B$9.3B$12.1B$5.3B100116151132207146201720182019202020212022-56%$2.1B$550M$525M$400MDeal SizeDeal CountNotable M&A deals in 2022$0B$10B$20B$30B$40B$50B$60B$70B20162017201820192020202120222023in 18 monthsin 31 monthsJan 2023At IPOS&P 500 IndexIPO CompletedIPO DelayedTake-Private Completed(Buyouts)ValuationS&P 500 Index LevelState of Consumer Internet 202318Alicia FullerSenior Market ManagerConsumer IDennis RapoportManaging DirectorConsumer ILiz CahillSenior ResearcherMarket IJoe WernerManaging DirectorConsumer IJosh PherigoSenior ResearcherMarket INicole HawkeyDirector Consumer IMelina BergkampDirectorInvestor C1.The views expressed in this report are solely those of the authors and do not reflect the views of SVB Financial Group,or Silicon Valley Bank,orany of its affiliates.The material contained in this document,including without limitation the statistical information herein,is provided forinformational purposes only.The material is based in part upon information from third-party sources that we believe to be reliable,but which hasnot been independently verified by us and,as such,we do not represent that the information is accurate or complete.This information should not be viewed as tax,investment,legal,or other advice,nor is it to be relied on in making an investment or other decision.You should obtain relevant and specific professional advice before making any investment decision.Nothing relating to the material should be construed as a solicitation,offer,or recommendation to acquire or dispose of any investment or to engage in any other transaction.2.All non-SVB named companies listed throughout this document,as represented with the various statistical,thoughts,analysis and insights shared in this document,are independent third parties and are not affiliated with SVB Financial Group.3.The information and materials contained in this communication are not intended for distribution to,or use by,any person or entity in any jurisdiction or country where such distribution would be contrary to law or regulation or which would subject Silicon Valley Bank or its subsidiaries or affiliates to any registration requirement within such jurisdiction or country.4.This document is not a disclosure by SVB Financial Group and does not convey any information about SVB Financial Group or its performance.Accordingly,it should not be considered in any way with respect to investment decisions regarding securities of SVB Financial Group.For information on SVB Financial Group refer to our website at .5.Silicon Valley Bank is an authorized foreign bank branch under the Bank Act(Canada).6.SPD,SHANGHAI PUDONG DEVELOPMENT BANK,and 浦发银行有限公司are trademarks,separately and in combination,of Shanghai Pudong Development Bank,Ltd.in China,and are used under license.SPD Silicon Valley Bank is a Sino-U.S.joint-venture bank of Silicon Valley Bank,the California bank subsidiary and commercial banking operation of SVB Financial Group,and Shanghai Pudong Development Bank.7.Silicon Valley Bank is not licensed to undertake banking business in Denmark or to undertake any other regulated activity in Denmark.8.Silicon Valley Bank UK Limited is not licensed to undertake banking business in Sweden or to undertake any other regulated activity in Sweden.9.Silicon Valley Bank,Silicon Valley Bank UK Ltd and SVB Financial Group UK Limited are not licensed in Ireland to undertake banking business in Ireland or to undertake any other regulated activity in Ireland.SVB Financial Group UK Ltd is registered in England and Wales at Alphabeta,14-18 FinsburySquare,London EC2A 1BR,UK under No.5572575.10.Silicon Valley Bank UK Limited is registered in England and Wales at Alphabeta,14-18 FinsburySquare,London EC2A 1BR,UK(Company Number 12546585).Silicon Valley Bank UK Limited is authorisedby the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority(Firm Reference Number 543146).11.Silicon Valley Bank Germany Branch is a branch of Silicon Valley Bank.Silicon Valley Bank,a public corporation with limited liability(Aktiengesellschaft)under the laws of the U.S.federal state of California,with registered office in Santa Clara,California,U.S.A.is registered with the California Secretary of State under No.C1175907,Chief Executive Officer(Vorstand):Gregory W Becker,Chairman of the Board of Directors(Aufsichtsratsvorsitzender):Beverley Kay Matthews.Silicon Valley Bank Germany Branch with registered office in Frankfurt am Main is registered with the local court of Frankfurt am Main under No.HRB 112038,Branch Directors(Geschftsleiter):Phillip Lovett,Dayanara Heisig.12.SVB Israel Advisors Ltd.is a subsidiary of SVB Financial Group.Neither SVB Israel Advisors nor SVB Financial Group is licensed to conduct banking business or provide other financial services in Israel and neither engages in unlicensed banking activities.Banking services are provided by Silicon Valley Bank,a member of FDIC.Silicon Valley Bank is not supervised by the Supervisor of Banks in the Bank of Israel but by the US Federal Reserve Bank and the California Department of Financial Protection and Innovation(DFPI).13.If you no longer wish to receive marketing communications from SVB Financial Group or Silicon Valley Bank,you may unsubscribe.Read about our Privacy Policy.If you have any questions or concerns about our privacy policies,please contact us by email .State of Consumer Internet 202319SVB ConfidentialSee complete disclaimers on previous pages.2023 SVB Financial Group.All rights reserved.SVB Financial Group(SVB)is the holding company for all business units and groups.Silicon Valley Bank is a member of the FDIC and the Federal Reserve System.Silicon Valley Bank is the California bank subsidiary of SVB Financial Group(Nasdaq:SIVB).SVB,SVB FINANCIAL GROUP,SILICON VALLEY BANK,and the chevron device are trademarks of SVB Financial Group,used under license.Silicon Valley Bank,the bank of the worlds most innovative companies and investors,provides commercial banking services,expertise and insights to the technology,life science and healthcare,private equity,venture capital and premium wine industries.Silicon Valley Bank operates in centers of innovation around the world and is one of SVBs core businesses with SVB Capital,SVB Private and SVB Securities.With global commercial banking services,Silicon Valley Bank helps address the unique needs of its dynamic,fast-growing,innovative clients.Learn more at .SVBFinancialGroupSilicon Valley BankSVB_FState of Consumer Internet 202320
2人已浏览 2023-03-02 20页 5星级
Dynata：全球消费趋势：远离经济衰退（英文版）（26页）.pdf
STAYING AHEAD OF THE DOWNTURNGLOBAL CONSUMER TRENDSOVERVIEWGLOBAL CONSUMER TRENDS:STAYING AHEAD OF THE DOWNTURNThe tsunami of troubling news surrounding the state of the global economy refmects the struggles of many consumers,who face myriad waves of fjnancial obstacles not the least of which is an uncertain future.People are pessimistic about economic conditions around the world and perception matters.Almost half“strongly”or“very much”believe were entering a recession(regardless of offjcial determinations or economists assessments),and a majority say their national leaders arent doing enough to fjght rising costs.Consumers around the world are feeling the burden of soaring prices on essential items:almost one in three are currently fjghting to make ends meet,and more than half are struggling to afford basic needs with energy at the forefront followed by food,basic clothing and housing payments.To cope with climbing costs and the threat of a downturn or recession,more than half of consumers are reevaluating their lifestyles.People are resorting to different ways to reducing their overall spending especially on non-essential purchases as well as exploring the secondhand market.However,consumers and especially younger generations remain willing to spend extra on products and services that refmect their values or that are perceived as healthier and/or environmentally friendly.A large majority expects to continue purchasing these products and services,even if they cost more.Dynatas latest research,“Global Consumer Trends:Staying Ahead of the Downturn,”draws on responses from 11,000 consumers across 11 countries the United States,Canada,United Kingdom,France,Spain,Germany,Italy,Netherlands,China,Japan and Australia to better understand how the evolving economic landscape affects consumers behavior and impacts brands.KEY FINDINGSCONSUMER PERCEPTION MATTERSPEOPLE ARE CUTTING CONSUMPTION AND CHANGING BEHAVIORMANY STRUGGLE TO MAKE ENDS MEETWHEN ITS WORTH PAYING MOREPeople are pessimistic about the global economic situation and dont believe their national leaders are doing enough to fjght rising costsConsumers are trying to ease the impact of infmation by reducing their overall spending especially on non-essential purchases and exploring the secondhand marketFeeling both the burden of soaring prices and the threat of a recession,consumers are struggling to afford basic needs,trying to save more,and fjnding higher-paying or second jobsConsumers especially younger generations remain willing to spend extra on products and services that refmect their values and they expect to continue doing soof consumers globally strongly or very much believe we are entering a recession73%are struggling at least slightly to afford non-essential expenses1 in 5“almost always”or“often”pay more for a brand,product or service that represents their values;higher among Gen Z and Millennialshave taken action to reduce spending this year8 in 10 say they are likely to continue even if it costs moreare buying secondhand productsglobally are struggling at least slightly to afford basic needs especially energy&utilities,followed by food,basic clothing and housingsay their countrys leaders are not doing enough to combat infmationare trying to save more than a year ago49IVSg%CONSUMER PERCEPTION MATTERSPeople are pessimistic about the global economic situation and dont believe their national leaders are doing enough to fjght rising costsCONSUMER PERCEPTIONS HAVE THE POWER TO INFLUENCE THE ECONOMY%“STRONGLY”OR“VERY MUCH”BELIEVE THAT WE ARE IN A RECESSION RIGHT NOWGLOBAL49%CONSUMER PERCEPTION MATTERSHALF OF CONSUMERS AROUND THE WORLD BELIEVE“STRONGLY”OR“VERY MUCH”THAT WE ARE ENTERING A RECESSION NOWglobally believe“strongly”or“very much”that we are in a recession nowThis sentiment is the strongest in the U.K.,Spain,Canada and the U.S.49aWVIHD$GFE%A MAJORITY OF PEOPLE ALSO BELIEVE THEIR COUNTRYS LEADERS SHOULD BE DOING MORE TO KEEP INFLATION IN CHECK%WHO SAY THEIR COUNTRYS LEADERS ARE NOT DOING ENOUGH TO COMBAT INFLATIONGLOBAL56ggeaaQ)%CONSUMER PERCEPTION MATTERSGlobally,56%of consumers say their countrys leaders are not doing enough to combat infmation.People in Italy,the U.K.and Spain are most likely to think their leaders should be taking greater action54TTROUT 1 IN 4 CONSUMERS GLOBALLY THINK THEIR PERSONAL FINANCES WILL WORSEN THIS YEAR26%globally expect their fjnancial situation will be worse at the end of 2022 than it is nowCONSUMER PERCEPTION MATTERSThe expectation that ones personal fjnances will worsen by the end of the year is especially high in the U.K.,Germany and Spain:475(%MANY STRUGGLE TO MAKE ENDS MEETFeeling both the burden of soaring prices on essential items and the threat of a recession,consumers around the world are struggling to afford basic needs,trying to save more,and fjnding higher-paying or second jobsMANY STRUGGLE TO MAKE ENDS MEETALMOST 3 IN 10 CONSUMERS GLOBALLY ARE STRUGGLING TO MAKE ENDS MEET%WHO ARE STRUGGLING TO MAKE ENDS MEET FINANCIALLYGLOBAL2843110)(%Globally,28%of consumers say they are struggling to make ends meet fjnancially28&%SOME CONSUMERS FEEL BURDENED BY DEBT ESPECIALLY IN THE U.S.,CANADA AND AUSTRALIA%HAVE TOO MUCH DEBT29&%of consumers globally say they have too much debtGLOBAL19%MANY STRUGGLE TO MAKE ENDS MEET28%OVER HALF OF PEOPLE GLOBALLY ARE FINDING IT HARD TO PAY FOR BASIC NEEDS,WITH ENERGY AT THE FOREFRONT53%globally are struggling at least slightly to afford basic needsIncluding 9%who are struggling“completely”or“a lot”BASIC NEEDS THAT PEOPLE ARE STRUGGLING TO AFFORDAmong those struggling to afford basic needs at least slightlyEnergy&utilities(inc.gas/petrol)48%Food38sic clothing/shoes35%Housing payments29%Health/medical care26%Credit cards/loans/repayments24U464953CCCVSSeXX%Top 3MANY STRUGGLE TO MAKE ENDS MEET%STRUGGLING TO AFFORD ENERGY/UTILITIES NOW65XXRPIDCA%GLOBAL48%Consumers in the U.K.are having the most diffjculty paying for energy right now,followed by Australia and GermanyMANY STRUGGLE TO MAKE ENDS MEETHALF OF CONSUMERS ARE STRUGGLING TO PAY FOR ENERGY,WITH SOME COUNTRIES HAVING MORE DIFFICULTYChina is struggling the least with energy pricesmore likely toSOME PEOPLE ARE TAKING HIGHER-PAYING OR SECOND JOBS TO OFFSET THEIR FINANCIAL STRUGGLESMANY STRUGGLE TO MAKE ENDS MEETCompared to Gen X and Baby Boomers(41-76 years old),people from the younger generations(Gen Z and Millennials)are:3Xhave taken a second jobhave taken a new job with higher pay to offset rising costsHALF OF CONSUMERS ARE MAKING A MORE CONCERTED EFFORT TO SAVE THAN A YEAR AGO%TRYING TO SAVE MORE THAN A YEAR AGO66YTRPPI%GLOBAL49%Globally,49%are trying to save more than a year ago.The urge to save more is strongest in Italy and SpainMANY STRUGGLE TO MAKE ENDS MEET46F%CONSUMERS ARE CUTTING CONSUMPTION AND CHANGING BEHAVIORTo cope with climbing costs,consumers hope to ease the impact of infmation by reducing their overall spending especially on non-essential purchases and exploring the secondhand marketCONSUMERS ARE CUTTING CONSUMPTION AND CHANGING BEHAVIORCONSUMERS STRUGGLING TO AFFORD“NON-ESSENTIALS”ARE SPENDING LESS ON TRAVEL,ENTERTAINMENT,FASHION AND DINING73%globally are struggling at least slightly to afford non-essential purchases(things that they might want but not necessarily need)Including 18%who are struggling“completely”or“a lot”COMPARED WITH THE BEGINNING OF 2022,%SPENDING LESS ON THESE“NON-ESSENTIALS”Among all struggling,at least slightly,to afford the non-essentials they used to buyIn-person entertainment(movies,concerts,sports,etc.)Leisure travelRestaurants(dining in,take-out or delivery)Fashion/clothing beyond a basic wardrobeGrooming/beauty Home improvementsSubscriptions/memberships(TV streaming services,fjtness classes,meal services,etc.)61aYYIBW%COMPARED WITH THE BEGINNING OF 2022,%SPENDING LESS ON THESE“NON-ESSENTIALS”(BY GENERATION)Among all struggling,at least slightly,to afford the non-essentials they used to buyCONSUMERS ARE CUTTING CONSUMPTION AND CHANGING BEHAVIORBABY BOOMERS ARE MUCH MORE LIKELY THAN GEN Z TO HAVE CUT SPENDING THIS YEAR ON ENTERTAINMENT,FASHION,RESTAURANTS AND TRAVEL7 IN 10 Baby Boomers are spending less now on dining,entertainment,clothing and travel than at the beginning of the yearGen ZBaby Boomers Leisure travel Gen XMillennialsIn-person entertainment(movies,concerts,sports,etc.)Fashion/clothing beyond a basic wardrobeRestaurants72eTFrcQBpeRBpeTITIONS THAT CONSUMERS SAY HAVE BEEN MOST EFFECTIVE FOR REDUCING THEIR SPENDING IN 2022Among those who have taken action to reduce spendingCONSUMERS ARE CUTTING CONSUMPTION AND CHANGING BEHAVIORTHOSE TRYING TO SPEND LESS HAVE FOUND BARGAIN-HUNTING,USING LESS ENERGY,AND COOKING TO BE MOST EFFECTIVE67%of people globally have taken action to reduce their spending since the beginning of the year34%say they wont buy anything thats not discounted55GDvusrqigfcVDA%Seek out deals65%Reduce energy consumption58%Cook more/prepare meals at home56%Buy imperfect/secondhand items37%Avoid temptation by browsing less in stores/online40%Drive less or take public transport48EEQE%CONSUMERS ARE CUTTING CONSUMPTION AND CHANGING BEHAVIORINFLATION IS MOTIVATING SOME CONSUMERS TO BUY SECONDHANDof consumers globally have been buying more secondhand items as a result of rising prices.This is especially the case for Gen Z and Millennials2752&%Gen ZBaby BoomersGen XMillennialsCONSUMERS ARE CUTTING CONSUMPTION AND CHANGING BEHAVIORTHOSE WHO ARE FINANCIALLY COMFORTABLE ARE FINDING WAYS TO MAKE THEIR MONEY GO FURTHERAMONG THOSE AT LEAST SOMEWHAT FINANCIALLY COMFORTABLE RIGHT NOW,%INVESTING IN/DOING ANY OF THESE THINGSInvesting in stocks,mutual funds,bonds,etc.JP(43%)CN(43%)CA(36%)Planning a vacation/holiday in a country where your currency goes furtherU.K.(26%)DE(25%)CA(25%)Buying an electric or hybrid vehicleCN(33%)IT(17%)JP(15%)Investing in real estate/property in your own countryCN(21%)AU(13%)IT(13%)Investing in real estate/property in a country where your currency goes furtherCN(12%)U.S.(9%)IT(9%)29%8%Some who feel fjnancially comfortable are investing in the stock market,buying more energy-effjcient cars,and buying real estateWHEN ITS WORTH PAYING MOREConsumers especially younger generations remain willing to spend extra on products and services that refmect their values and they expect to continue doing so1 IN 5 CONSUMERS GLOBALLY ARE“VALUES-DRIVEN,”OPTING TO PAY MORE FOR THINGS THAT REPRESENT THEIR VALUESVALUES-DRIVEN CONSUMERS“Almost always”or“often”pay more for a brand,product or service because it represents their values30$! %7 %WHEN ITS WORTH PAYING MOREGLOBALGen Z and Millennials,as well as consumers in China,are most likely to say they“almost always”or“often”pay more for something that represents their values320%Gen ZBaby BoomersGen XMillennials“VALUES-DRIVEN”CONSUMERS ARE MOST LIKELY TO SPEND EXTRA FOR ITEMS THEY CONSIDER HIGHER-QUALITY AND HEALTHIER%“VALUES-DRIVEN”CONSUMERS WHO“ALMOST ALWAYS”OR“OFTEN”BUY BRANDS,PRODUCTS,OR SERVICES WITH THESE FEATURESWHEN ITS WORTH PAYING MOREMore than half of“values-driven”consumers also report frequently spending on things that are local,sustainable and have a brand they perceive as authenticWell-made and will last longerSafer or healthier(less exposure to dangerous chemicals,etc.)Locally-made and supports the local economyEnvironmentally friendly/sustainable practicesBrand is authentic(words&actions in alignment)Supports a social justice cause64bUTUB%8 IN 10 “values-driven”consumers who“almost always”or“often”buy products with these features say they are likely to continue even if it costs more%“VALUES-DRIVEN”CONSUMERS WHO“ALMOST ALWAYS”OR“OFTEN”BUY BRANDS,PRODUCTS,OR SERVICES WITH THESE FEATURES(BY GENERATION)Items with environmentally friendly or sustainable practices have similar appeal across generationsSOCIAL JUSTICE CAUSES HAVE ESPECIALLY STRONG APPEAL AMONG GEN Z AND MILLENNIAL“VALUES-DRIVEN”CONSUMERSGen ZBaby BoomersSupports a social justice causeGen XMillennialsWell-made and will last longerSafer or healther(less exposure to dangerous chemicals,etc.)Locally-made and supports the local economy75gYafeXXXUP29DP%WHEN ITS WORTH PAYING MOREThe generational differences are most apparent for products that support social justice causes younger consumers who are “values-driven”are much more likely to purchase them“Values-driven”consumers who are Baby Boomers and Gen X are more likely than Gen Z and Millennials to favor products or brands that are perceived as higher-quality,safer(such as having less exposure to dangerous chemicals)or locally madeMETHODOLOGY Dynatas newest research,“Global Consumer Trends:Staying Ahead of the Downturn,”draws on responses from 11,000 consumers across 11 countries the United States,Canada,United Kingdom,France,Germany,Italy,Spain,the Netherlands,China,Japan and Australia to better understand how the evolving economic landscape affects consumers behavior and impacts brands.Fieldwork took place between Aug.1-8,2022.Participants were selected across all Dynatas online research panel assets,and the samples quota-controlled to refmect the population on age,gender and region.Generations were broken out as follows:Gen Z,age 16-25;Millennial,26-40;Gen X,41-57;Baby Boomer,58-76;and Silent,77 .Total sample size is 11,103:U.S.(1,000),Canada(1,010),U.K.(1,005),France(1,008),Germany(1,006),Italy(1,012),Spain(1,012),the Netherlands(1,014),China(1,012),Japan(1,015)and Australia(1,007).The margin of error(at the 95%confjdence level)is /-3%at the country level, /-1%at the total 2022 Dynata,LLC.All rights reserved.For more information,please visit or contact .
3人已浏览 2023-03-02 26页 5星级
罗科仕（LGCL）美股IPO上市招股说明书（241页）.pdf
/F-1 1 d411169df1.htm FORM F-1Table of ContentsAs filed with the Securities and Exchange Commission on February 28,2023.Registration Statement No.333-UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON,D.C.20549 FORM F-1REGISTRATION STATEMENTUNDERTHE SECURITIES ACT OF 1933 Lucas GC Limited(Exact name of Registrant as specified in its charter)Not Applicable(Translation of Registrants name into English)Cayman Islands 7370 Not Applicable(State or other jurisdiction ofincorporation or organization)(Primary Standard IndustrialClassification Code Number)(I.R.S.EmployerIdentification Number)Room 5A01,4th Floor,Air China Building,Xiaoyun Road,Sanyuanqiao,Chaoyang District,Beijing 100027,China(86)18500976532(Address,including zip code,and telephone number,including area code,of Registrants principal executive offices)Cogency Global Inc.122 East 42nd Street,18th FloorNew York,NY 10168(800)221-0102(Name,address,including zip code,and telephone number,including area code,of agent for service)Copies to:Yang Ge,Esq.DLA Piper UK LLP20th Floor,South Tower,Kerry CenterNo.1 Guanghua Road,Chaoyang DistrictBeijing,China 100020Tel:86-10-8520-0616 Ralph V.De Martino,Esq.Cavas S.Pavri,Esq.ArentFox Schiff LLP1717 K Street,N.W.Washington,DC 20006Tel:1-202-724-6848 Approximate date of commencement of proposed sale to the public:as soon as practicable after the effective date of this registration statement.If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933,checkthe following box.If this Form is filed to register additional securities for an offering pursuant to Rule 462(b)under the Securities Act,check the following box and list the SecuritiesAct registration statement number of the earlier effective registration statement for the same offering.If this Form is a post-effective amendment filed pursuant to Rule 462(c)under the Securities Act,check the following box and list the Securities Act registrationstatement number of the earlier effective registration statement for the same offering.If this Form is a post-effective amendment filed pursuant to Rule 462(d)under the Securities Act,check the following box and list the Securities Act registrationstatement number of the earlier effective registration statement for the same offering.Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933.Emerging growth company If an emerging growth company that prepares its financial statements in accordance with U.S.GAAP,indicate by check mark if the registrant has elected not to usethe extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B)of the Securities Act./The term“new or revised financial accounting standard”refers to any update issued by the Financial Accounting Standards Board to its Accounting StandardsCodification after April 5,2012.The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shallfile a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a)of theSecurities Act of 1933,as amended,or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission,actingpursuant to such Section 8(a),may determine./Table of ContentsThe information in this preliminary prospectus is not complete and may be changed.These securities may not be sold until theregistration statement filed with the Securities and Exchange Commission is effective.This preliminary prospectus is not anoffer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted PRELIMINARY PROSPECTUS(Subject to Completion)Dated ,2023 Lucas GC Limited Ordinary Shares This is an initial public offering of ordinary shares of Lucas GC Limited,par value US$0.00001 per share,by Lucas GC Limited.We currently anticipatethe initial public offering price of our ordinary shares will be between US$and US$per ordinary share.Prior to this offering,there is no public market for our ordinary shares.We will apply to list the ordinary shares on the Nasdaq Global Market under the symbol“LGCL.”At this time,Nasdaq has not yet approved our application to list our ordinary shares.There is no assurance that such application will be approved,and if ourapplication is not approved by Nasdaq,this offering would not be completed.Additionally,upon the completion of this offering,we will be a“controlled company”as defined under corporate governance rules of Nasdaq Stock Market,because HTL Lucky Holding Limited,which is wholly owned by our founder,Chairman of the Board and CEO,Mr.Howard Lee,will beneficially own approximately%of our then-issued and outstanding ordinary shares and will be able to exercise approximately%of the total voting power of our issued and outstandingordinary shares immediately after the consummation of this offering,assuming the underwriters do not exercise its option to purchase additional ordinary shares.Forfurther information,see“Principal Shareholders.”We are an“emerging growth company”and a“foreign private issuer”under applicable U.S.federal securities laws,and,as such are eligible for certain reducedpublic company reporting requirements for this prospectus and future filings.See the section titled“Prospectus SummaryImplications of Being an Emerging GrowthCompany”and“Prospectus SummaryImplications of Being a Foreign Private Issuer”for additional information.We are not a Chinese operating company but a Cayman Islands holding company with operations conducted by our subsidiaries based in China.Investors in oursecurities are purchasing equity interest in Lucas GC Limited,a holding company incorporated in the Cayman Islands with business operations in China and therefore,investors may never hold equity interests in our Chinese operating entities.The“Company”or“our Company”refers to Lucas GC Limited,a Cayman Islands exemptedcompany,and“we,”“us,”and“our”refer to Lucas GC Limited and its subsidiaries.We currently conduct our business through our WFOE,Qingdao LuogaoshiConsulting Co.,Ltd.,an indirect wholly owned subsidiary of Lucas GC Limited,and eleven first-and second-level operating subsidiaries owned by the WFOE.All ofthese twelve operating subsidiaries are established under the laws of the PRC or Hong Kong.This operating structure may involve unique risks to investors.Underrelevant PRC laws and regulations,foreign investors are permitted to own 100%of the equity interests in a PRC-incorporated company engaged in the business ofproviding services for professionals.However,the PRC government may implement changes to the existing laws and regulations in the future,which may result in theprohibition or restriction of foreign investors from owning equity interests in our PRC operating subsidiaries.There are significant legal and operational risks associatedwith being based in or having the substantial majority of operations in China,including those changes in the legal,political and economic policies of the Chinesegovernment,the relations between China and the United States,or Chinese or U.S.regulations,all of which may materially and adversely affect our business,financialcondition and results of operations.Any such changes could significantly limit or completely hinder our ability to offer or continue to offer our securities to investors,and could cause the value of our securities to significantly decline or become worthless.The PRC government has significant authority to exert influence on the ability ofa company with operations in China to conduct business.Recently,the PRC government initiated a series of regulatory actions and made a number of public statementson the regulation of business operations in China with little advance notice,including cracking down on illegal activities in the securities market,enhancing supervisionover China-based companies listed overseas,adopting new measures to extend the scope of cybersecurity reviews,and expanding efforts in anti-monopoly enforcementand data privacy protection.As of the date of this prospectus,we do not believe that we are subject to(a)the cybersecurity review with the Cyberspace Administration ofChina,or CAC,as we do not qualify as a critical information infrastructure operator or possess a large amount of personal information in our business operations,andour business does not involve data possessing that affects or may affect national security,implicates cybersecurity,or involves any type of restricted industry;or(b)merger control review by Chinas anti-monopoly enforcement agency due to the fact that we do not engage in monopolistic behaviors that are subject to thesestatements or regulatory actions.However,since these statements and regulatory actions are new,it is highly uncertain how soon legislative or administrative regulationmaking bodies will respond and what existing or new laws or regulations or detailed implementations and interpretations will be modified or promulgated,and,if any,the potential impact such modified or new laws and regulations will have on our daily business operation,ability to accept foreign investments and listing of oursecurities on a U.S.or other foreign exchange.On February 17,2023,the China Securities Regulatory Commission,or CSRC,issued the Trial Administrative Measuresof Overseas Securities Offering and Listing by Domestic Companies,or the Trial Measures,which will become effective on March 31,2023.On February 24,2023,theCSRC,Ministry of Finance of the PRC,National Administration of State Secrets Protection and National Archives Administration of China jointly revised the Provisionson Strengthening Confidentiality and Archives Administration for Overseas Securities Offering and Listing.As of the date of this prospectus,we have not received anyinquiry,notice,warning or sanctions regarding our planned overseas listing from the CSRC or any other PRC governmental authorities.As the Trial Measures werenewly published and there is uncertainty with respect to the filing requirements and the implementation,if we are required to submit to the CSRC and complete the filingprocedures of our overseas public offering and listing,we cannot be sure that we will be able to complete such filing in a timely manner.Any failure or perceived failureby us to comply with such filing requirements under the Trial Measures may result in forced rectification,warnings and fines against us and could materially hinder ourability to offer or continue to offer our securities.For a detailed description of risks related to doing business in China,please see“Risk FactorsRisks Relating to DoingBusiness in China”.The PRC government has significant oversight and discretion over the conduct of our business and may intervene with or influence our operations as thegovernment deems appropriate to further regulatory,political and societal goals.The PRC government has recently published new policies that significantly affectedcertain industries such as the education and internet industries,and we cannot rule out the possibility that it will in the future release regulations or policies regarding ourindustry that could adversely affect our business,financial condition and results of operations.Furthermore,the PRC government has recently indicated an intent to exertmore oversight and control over overseas securities offerings and other capital markets activities and foreign investment in China-based companies like us.Any suchaction,once taken by the PRC government,could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause thevalue of such securities to significantly decline or in extreme cases,become worthless.For additional information,see“Risk FactorsRisks Related to Doing Business/in ChinaUncertainties with respect to the PRC legal system,including uncertainties regarding the interpretation and enforcement of laws,and sudden or unexpectedchanges of PRC laws and regulations with little advance notice could adversely affect us and limit the legal protections available to you and us,and the Chinesegovernment may exert more oversight and control over offerings that are conducted overseas,which changes could materially hinder our ability to offer or continue tooffer our securities,and cause the value of our securities to significantly decline or become worthless.As of the date of this prospectus,we have two subsidiaries in Hong Kong,including(i)Lucas Star Global Limited,a wholly owned subsidiary of Lucas StarHolding Limited,which is a wholly owned subsidiary of Lucas GC Limited;and(ii)Lucas GC Limited(Hong Kong),a wholly owned subsidiary of Lucas Group ChinaLimited.Hong Kong is currently a separate jurisdiction from mainland China.The Basic Law of the Hong Kong Special Administrative Region,or the Basic Law,is anational law of the PRC and the constitutional document for Hong Kong,national laws and regulations of the PRC shall not apply to Hong Kong except for those listedin Annex III of the Basic Law,which is limited to laws relating to defense and foreign affairs,as well as other matters outside the autonomy of Hong Kong.As such,thelegal and operational risks associated with our operations in the PRC apply to its operations in Hong Kong only to the extent applicable.However,there remainsregulatory uncertainty with respect to the implementation and interpretation of laws in China and the PRC government has significant authority to intervene or influenceour Hong Kong operations at any time.We are subject to the risks of uncertainty about any future actions the Chinese government or authorities in Hong Kong may takein this regard,which could result in a material adverse change to our business,prospects,financial condition,results of operations,and the value of our securities./Table of ContentsFurthermore,our ordinary shares may be prohibited to trade on a national exchange or in the over-the-counter trading market in the United States under the HoldingForeign Companies Accountable Act,or HFCA Act,if the Public Company Accounting Oversight Board(United States),or the PCAOB,determines that it cannotinspect or fully investigate our auditors for three consecutive years beginning in 2021.On May 20,2020,the U.S.Senate passed the HFCA Act,requiring a foreigncompany to certify it is not owned or controlled by a foreign government if the PCAOB is unable to audit specified reports because the company uses a foreign auditornot subject to PCAOB inspection.On March 28,2021,the SEC issued interim measures implementing the HFCA Act which became effective on May 5,2021.On June22,2021,the U.S.Senate passed the Accelerating Holding Foreign Companies Accountable Act,or Accelerating HFCA Act,which,if passed by the U.S.House ofRepresentatives and signed into law,would decrease the number of non-inspection years for foreign companies to comply with PCAOB audits from three to two,thusreducing the time period before their securities may be prohibited from trading or delisted.On December 2,2021,the SEC adopted final amendments implementing thesubmission and disclosure requirements outlined in the HFCA Act,which went into effect on January 10,2022.On December 16,2021,the PCAOB issued a report onits determinations that it is unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in mainland China and in Hong Kongbecause of positions taken by PRC authorities in those jurisdictions.Although the PCAOB signed a Statement of Protocol with the China Securities RegulatoryCommission and the PRC Ministry of Finance on August 26,2022,it is only the first step toward opening access for the PCAOB to inspect and investigate registeredpublic accounting firms headquartered in mainland China and Hong Kong completely and the PCAOB will reassess its determinations by the end of 2022 and determinewhether it is able to inspect and investigate completely audit firms based in mainland China and Hong Kong by then.On December 29,2022,the Accelerating HFCAAct was signed into law,which amended the HFCA Act by requiring the SEC to prohibit an issuers securities from trading on any U.S.stock exchanges if its auditor isnot subject to PCAOB inspections for two consecutive years instead of three.Our auditor,Marcum Asia CPAs LLP,which is based in New York,is currently subject toinspection by the PCAOB at least every three years.Therefore,it is not subject to the determinations announced by the PCAOB on December 16,2021 as it is not on thelist published by the PCAOB.However,our auditors China affiliate is located in,and organized under the laws of the PRC.We cannot assure you that we will not beidentified by the SEC under the HFCA Act as an issuer that has retained an auditor that has a branch or office located in a foreign jurisdiction that the PCAOBdetermines it is unable to inspect or investigate completely because of a position taken by an authority in that foreign jurisdiction.In addition,there can be no assurancethat,if we have a“non-inspection”year,we will be able to take any remedial measures.If any such event were to occur,trading in our securities could in the future beprohibited under the HFCA Act and,as a result,we cannot assure you that we will be able to maintain the listing of the ordinary shares on the Nasdaq Global Market orthat you will be allowed to trade the ordinary shares in the United States on the“over-the-counter”markets or otherwise.Should the ordinary shares become not listed ortradeable in the United States,the value of the ordinary shares could be materially affected.See“Risk FactorsRisks Relating to Doing Business in China”for adetailed discussion.Lucas GC Limited holds almost all of the equity interests in its PRC subsidiaries through the subsidiaries incorporated in BVI and Hong Kong.As we have a directequity ownership structure,we do not have any agreement or contract between our Company and any of its subsidiaries that is typically seen in a variable interest entitystructure.Within our direct equity ownership structure,funds from foreign investors can be directly transferred to our PRC subsidiaries by way of capital injection or inthe form of a shareholder loan from Lucas GC Limited following this offering.If we plan to distribute dividends to our shareholders,our PRC operating subsidiaries willtransfer the funds to our subsidiary incorporated in Hong Kong,which will be subject to the PRC laws and regulations,and Lucas GC Limited will then distributedividends to all shareholders in proportion to the shares they hold,regardless of the citizenship or domicile of the shareholders.Transfers of funds among our PRCsubsidiaries are free of restrictions.Remittances of funds from our PRC subsidiaries to Lucas GC Limited are subject to review and conversion of Renminbi Yuan(“RMB”)to U.S.Dollar(“$”)through PRC subsidiaries bank in China,which is authorized by the State Administration of Foreign Exchange(“SAFE”)to monitorforeign exchange activities.Under the existing PRC foreign exchange regulations,payments of current account items,such as profit distributions and trade and service-related foreign exchange transactions,can be made in foreign currencies without prior approval from SAFE by complying with certain procedural requirements with thebanks.As of the date of this prospectus,(1)no cash transfers have occurred between our holding company and its subsidiaries,(2)none of our subsidiaries have madeany dividend payment or distribution to the holding company and;(3)neither the Company nor any of its subsidiaries has made any dividends or distributions to U.S.investors.See the consolidated financial statements included in this prospectus for additional details.PRICE US$PER SHARE Per ordinary share Total Public offering price US$US$Underwriting discounts and commissions(1)(2)US$US$Proceeds,before expenses,to us US$US$(1)For a description of compensation payable to the underwriters,see“Underwriting.”(2)Represents underwriting discounts up to (%)(or$per ordinary share),of gross proceeds of this offering.Does not include a non-accountableexpense allowance.See“Underwriting”for all compensation to be paid to the underwriters.The underwriters have a 30-day option to purchase up to an additional ordinary shares from us at the initial public offering price less the underwritingdiscounts and commissions.The Securities and Exchange Commission and state securities regulators have not approved or disapproved of these securities,or determined if this prospectusis truthful or complete.Any representation to the contrary is a criminal offense.The underwriters expect to deliver the ordinary shares against payment in U.S.dollars in New York,NY on ,2023.The Benchmark Company Valuable Capital Limited The date of this prospectus is ,2023/Table of ContentsTABLE OF CONTENTS PROSPECTUS SUMMARY 1 THE OFFERING 17 RISK FACTORS 19 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA 63 USE OF PROCEEDS 64 DIVIDEND POLICY 65 CAPITALIZATION 66 DILUTION 68 ENFORCEMENT OF CIVIL LIABILITIES 70 CORPORATE HISTORY AND STRUCTURE 72 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 73 INDUSTRY OVERVIEW 100 BUSINESS 110 REGULATIONS 132 MANAGEMENT 143 PRINCIPAL SHAREHOLDERS 149 RELATED PARTY TRANSACTIONS 151 DESCRIPTION OF SHARE CAPITAL 152 SHARES ELIGIBLE FOR FUTURE SALE 162 TAXATION 164 UNDERWRITING 170 EXPENSES RELATED TO THIS OFFERING 177 LEGAL MATTERS 178 EXPERTS 179 WHERE YOU CAN FIND ADDITIONAL INFORMATION 180 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS F-1 INDEX TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS F-1 No dealer,salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus orin any free writing prospectus we may authorize to be delivered or made available to you.You must not rely on any unauthorized informationor representations.This prospectus is an offer to sell only the ordinary shares offered hereby,but only under circumstances and in jurisdictionswhere it is lawful to do so.The information contained in this prospectus is current only as of the date of this prospectus,regardless of the timeof delivery of this prospectus or of any sale of the ordinary shares.Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus or anyfiled free writing prospectus in any jurisdiction where action for that purpose is required,other than in the United States.Persons outside the UnitedStates who come into possession of this prospectus or any filed free writing prospectus must inform themselves about,and observe any restrictionsrelating to,the offering of the ordinary shares and the distribution of this prospectus or any filed free writing prospectus outside of the United States.Until ,2023(the 25th day after the date of this prospectus),all dealers that buy,sell or trade ordinary shares,whether or not participating inthis offering,may be required to deliver a prospectus.This is in addition to the obligation of dealers to deliver a prospectus when acting as underwritersand with respect to their unsold allotments or subscriptions.i/Table of ContentsPROSPECTUS SUMMARYThe following summary is qualified in its entirety by,and should be read in conjunction with,the more detailed information and financialstatements appearing elsewhere in this prospectus.In addition to this summary,we urge you to read the entire prospectus carefully,especially therisks of investing in our ordinary shares discussed under“Risk Factors”and information contained in“Managements Discussion and Analysis ofFinancial Condition and Results of Operations”before deciding whether to buy our ordinary shares.In addition,this prospectus containsinformation from a report prepared by Frost&Sullivan(Beijing)Inc.,or Frost&Sullivan,a third-party market research firm.Frost&Sullivanwas commissioned by us to provide information on the services for professionals industry.OUR MISSIONOur mission is to empower professionals by allowing them to provide career growth opportunities to peers through a trusted network.OVERVIEWWe are the largest technology-driven online agent-centric human capital management service provider targeting professionals based onPlatform-as-a-Service,or PaaS,in China in terms of the number of active users in the human resources industry as of June 30,2022 and total netrevenues for the year ended December 31,2021.As a company empowered by artificial intelligence,or AI,data analytics,and blockchaintechnologies,we are committed to digitalizing and intellectualizing the entire human capital management process.We provide a platform tosupport trusted private social networks of professionals,through which we provide services consisting of recruitment services,outsourcingservices,and other services such as information technology services and training services.Our users are primarily professionals who work inhuman resources related functions.Our corporate customers are corporations with recruitment,training,sales leads generation and outsourcingdemands.As of June 30,2022,we had approximately 382,650 active registered users on our proprietary platforms,Star Career and Columbus,through which the users of our platforms will receive customized job recommendations and work as talent scouts to source suitable candidates forour corporate customers through their own trusted private social network,as well as receive trainings and other value-added services.Our proprietary human capital management PaaS is developed based on patented,novel,and advanced AI and machine-learning algorithmswhich are based on unparalleled access to big data assets that can derive actionable insights and knowledge for recruitment and other services suchas training.In order to upgrade themselves with knowledge in human resources and basic labor law and financial skills,users on our platform areable to receive trainings and obtain the Certified Career Resources Planner Certificate,or CCRP Certificate,which will certify the users possessionof fundamental knowledge in human resources,labor law and finance.We have achieved rapid growth since the launch of our platforms.For the years ended December 31,2020 and 2021,our total net revenuesincreased by 183.3%from RMB230.2 million to RMB652.2 million(US$97.2 million).For the six months ended June 30,2022,our total netrevenues were RMB302.8 million(US$45.1 million).For the years ended December 31,2020 and 2021,our net income increased by 759.7%fromRMB4.6 million to RMB39.8 million(US$6.0 million).For the six months ended June 30,2022,our net income was RMB18.5 million(US$2.8million).For the years ended December 31,2020 and 2021,our net cash provided by operating activities increased significantly from RMB2.4million to RMB60.6 million(US$9.0 million).OUR SERVICESWe provide services consisting of recruitment services,outsourcing services,and other services such as information technology services andtraining services.During the six months ended June 30,2022,1/Table of Contentsapproximately 43.6%,48.9%,and 7.5%of our net revenues were generated from our recruitment services,outsourcing services,and other services,respectively.For the year ended December 31,2021,approximately 76.3%,17.4%,and 6.3%of our net revenues were generated from ourrecruitment services,outsourcing services,and other services,respectively.For the year ended December 31,2020,approximately 78.9%,21.1%,and nil of our net revenues were generated from our recruitment services,outsourcing services and other services,respectively.RecruitmentServicesOur recruitment services primarily comprise permanent employment recruitment services and flexible employment recruitment services.During the six months ended June 30,2021 and 2022,net revenues from our recruitment services amounted to RMB248.8 million and RMB132.0million(US$19.7 million),respectively.For the years ended December 31,2020 and 2021,net revenues from our recruitment services amounted toRMB181.7 million and RMB497.5 million(US$74.1 million),respectively,representing a year-on-year increase of 173.8%.Permanent Employment Recruitment ServicesOur permanent employment recruitment services are provided primarily through the users registered on our platforms who will perform theobligations of talent scouts utilizing our intelligent job recommendation model.Our data-driven tailored matching algorithm ensures that our usersare recommended with job opportunities that they are likely to be interested by their acquaintances in their private social networks.Flexible Employment Recruitment ServicesOur flexible employment function is a synergetic supplement to our permanent employment recruitment business.The recruitment processfor flexible employment is in large similar to the process for permanent employment recruitment.For flexible employment recruitment services,inadditional to receiving a service fee,we also receive the whole salary package on behalf of the candidate and serve as the delegating company topay the candidate who has performed the work for our corporate customers.As such,we bear the obligations of paying salaries and deducting thetaxes in due course for the candidate who is most likely a freelancer.Our corporate customers thus have more flexibility in terms of fulfilling theirtemporary business needs which may not be stable.OutsourcingServicesWe provide outsourcing services,mostly in technology-related projects,to our corporate customers who need a“turnkey solution”and relyon us to design,develop and deliver the projects within budget and on time with acceptable quality.We were designated as a“TechnologicallyAdvanced Small and Medium-sized Enterprises”by the Ministry of Industry and Information Technology,or MIIT,of China.We leverage ourqualifications,vast industry knowledge,and expert networks to offer cost-effective solutions to our corporate customers who rely on us to deliverthe expected solutions on time,within budget and of acceptable quality.During the six months ended June 30,2021 and 2022,net revenues fromour outsourcing services amounted to RMB4.2 million and RMB148.1 million(US$22.1 million),respectively,representing a significant growth.For the years ended December 31,2020 and 2021,net revenues from our outsourcing services amounted to RMB48.5 million and RMB113.8million(US$17.0 million),respectively,representing a year-on-year growth of 134.7%.Other ServicesOther services include information technology services and training services.During the six months ended June 30,2021 and 2022,netrevenues from our other services amounted to nil and RMB22.6 million(US$3.4 2/Table of Contentsmillion),respectively.For the years ended December 31,2020 and 2021,net revenues from our other services amounted to nil and RMB41.0million(US$6.1 million),respectively.Information Technology ServicesOur information technology services are aimed at generating sales leads for our corporate customers who offer products and services that ourusers and their acquaintances may find interesting.In information technology services,we leverage our patented technologies in AI and dataanalytics by pushing our clients products or services information accurately to suitable prospects by analyzing their behaviors and profiles usingour proprietary algorithm.The information collected from the prospects will be sent directly to our corporate customers and we charge ourcorporate customers service fees for providing such services while we do not directly act as a selling agent.Currently,the majority of our clientsare selling insurance products and healthcare related services on our platforms.Training ServicesWe empower our users to help their acquaintances develop professional skills by allowing our users to recommend training courses andcertification programs to their acquaintances.In addition to offering our own career-related certification programs,we partner with leading industryexperts,organizations,institutes,and professional training academies to provide training courses and certification programs that can helpprofessionals realize developments in their careers.We have developed industry-focused training programs,some of which are developed in-houseand others are developed by third-party developers.We charge those who enroll in training classes enrollment fees that are determined by us basedupon our training material development costs or the costs of training courses sourced from the third-party providers.OUR PAAS PLATFORMSWe operate AI-empowered PaaS platforms,Star Career and Columbus,that enable digital services to be bought and sold in the open andversatile platforms similar to how physical goods on an e-commerce platform transact.Professionals who have recruitment,training or healthcareproducts or services needs can join our PaaS platforms while vendors who can provide such products or services can join as well in a highlyscalable and versatile manner.We connect them accurately by leveraging our technologies to analyze the interests,behaviors,profiles and historicaltransaction records of our users and their acquaintances.Our Star Career platform has the features of a mobile platform,an AI PaaS platform,acommission settlement platform and a services platform.OUR TECHNOLOGIESOur platforms are empowered by our AI,machine learning,data analytics and blockchain technologies.Leveraging our extensive access tobig data assets with our proprietary AI tools,we are able to continuously optimize our products and services recommendation capabilities,personalize and enhance our user experience,refine our matching algorithm and monitor our service quality.Our patented technologies furtherenable us to optimize the matching accuracy of services among providers and requestors,and to increase the transactions closing rates.As of thedate of this prospectus,we hold nine patents registered in the U.S.and five patents registered in China,67 registered trademarks,47 registeredcopyrights,and 8 registered domain names along with 11 additional patent applications that are pending in the U.S.and China,all in the areas ofartificial intelligence,data analytics and blockchain technologies.OUR SOCIAL RESPONSIBILITYWe are highly committed to sustainable corporate social responsibilities.One of our corporate missions is to help women,particularly thosefrom a disadvantaged background,obtain an equal level playing field in their 3/Table of Contentscareers.We leverage AI,data analytics and blockchain technologies to reduce discrimination and gender bias in hiring and organizationalprocesses.We are able to find the suitable candidates based on specific criteria by applying our patented AI algorithm to the screening processwhile keeping most of the gender-related information neutral.By partnership with City of Jilin Research Institute of Jilin University,we arededicated to tackling inequality and facilitate the career developments of women in the technology,media,and telecom industry by providingcomprehensive solutions.OUR STRENGTHSWe believe the following strengths have contributed to our success and differentiate us from others:Leading technology-enabled human capital management service provider;Scalable PaaS marketplace with trusted private networks of professionals;Proprietary technology infrastructure boosting operational efficiency;Unparalleled access to big data assets that fuel accurate recommendations;Unique brand awareness with strong social responsibility;and Visionary and experienced management team with strong commitment and track record.OUR STRATEGIESWe aim to execute the following business strategies:Attract more users through marketing efforts;Diversify products and services;Provide more training programs;Continuously innovate in technology and services;and Expand geographical footprint.RECENT REGULATORY DEVELOPMENTSCybersecurity ReviewOn December 28,2021,the Cyberspace Administration of China,or the CAC,and 12 other relevant PRC government authorities publishedthe amended Cybersecurity Review Measures,which came into effect on February 15,2022.The final Cybersecurity Review Measures providethat(i)critical information infrastructure operators that purchase network products and services and internet platform operators that conduct dataprocessing activities shall be subject to cybersecurity review in accordance with the 2022 Cybersecurity Review Measures if such activities affector may affect national security;and(ii)internet platform operators holding personal information of more than one million users and seeking to havetheir securities list on a stock exchange in a foreign country shall file for cybersecurity review with the Cybersecurity Review Office.Further,therelevant PRC governmental authorities may initiate a cybersecurity review against any company if they determine certain network products,services,or data processing activities of such company affect or may affect national security.As of the date of this prospectus,neither we nor anyof our PRC Subsidiaries has been informed by any PRC governmental authority that we or any of our PRC Subsidiaries is a“critical informationinfrastructure operator.”Based on the opinion of our PRC legal adviser,Beijing Dentons Law Offices,LLP,according to its interpretation of thecurrently in-effect PRC laws and regulations,we believe that neither we nor any of our PRC Subsidiaries qualify as a critical informationinfrastructure operator.As of the date of this prospectus,as an internet platform operator,we have not conducted any data processing activities thataffected or may affect national security,nor do we hold personal information of more than one million users.However,if we do not receive or maintain permissions or approvals from the CAC or any other governmental agency that is required toapprove our subsidiaries operations,we inadvertently conclude that 4/Table of Contentssuch permissions or approvals are not required,or applicable laws,regulations,or interpretations change and we are required to obtain suchpermissions or approvals in the future,we may fail to obtain such permissions or approvals in a timely manner,or at all.Any failure or delay in thecompletion of the cybersecurity review procedures or any other non-compliance with the related laws and regulations may result in fines or otherpenalties,including suspension of business and website closure as well as reputational damage or legal proceedings or actions against us,whichmay have material adverse effect on our business,financial condition or results of operations.Potential CSRC Filing RequirementsOn December 24,2021,the CSRC published the Provisions of the State Council on the Administration of Overseas Securities Offering andListing by Domestic Companies(Draft for Comments),and Administrative Measures for the Filing of Overseas Securities Offering and Listing byDomestic Companies(Draft for Comments),or,collectively,the Draft Overseas Listing Regulations.Such Draft Overseas Listing Regulations setout new filing procedures for China-based companies seeking direct or indirect listings and offerings in overseas markets.The Draft OverseasListing Regulations require that China-based companies seeking to offer and list securities in overseas markets complete certain post-application/post-listing filing procedures with the CSRC,and that an initial filing with the CSRC be submitted within three working days after the applicationfor an initial public offering is submitted to the overseas regulators,and that a supplemental filing with respect to the result of the overseas listingor offering be submitted after the overseas listing or offering is completed.The Draft Overseas Listing Regulations do not require a China-basedcompany including the Company to obtain the CSRCs pre-approval before it applies for or completes a listing or offering of securities in overseasmarkets.Under the Draft Overseas Listing Regulations,an overseas offering or listing is prohibited if(i)it is prohibited by PRC laws,(ii)it constitutesa threat to or endanger national security as reviewed and determined by competent PRC authorities,(iii)it has material ownership disputes overequity,major assets,and core technology,(iv)in recent three years,the Chinese operating entities and their controlling shareholders and actualcontrollers have committed certain criminal offenses or are currently under investigations for suspicion of criminal offenses or major violations,(v)in recent three years,the directors,supervisors,or senior executives have been subject to administrative punishment for severe violations,or arecurrently under investigations for suspicion of criminal offenses or major violations,or(vi)it is subject to other circumstances as prescribed by theState Council.On February 17,2023,the CSRC issued the Trial Administrative Measures of Overseas Securities Offering and Listing by DomesticCompanies,or the Trial Measures,which will become effective on March 31,2023.On the same date of the issuance of the Trial Measures,theCSRC circulated No.1 to No.5 Supporting Guidance Rules,the Notes on the Trial Measures,the Notice on Administration Arrangements for theFiling of Overseas Listings by Domestic Companies and the relevant CSRC Answers to Reporter Questions on the official website of the CSRC,orcollectively,the Guidance Rules and Notice.The Trial Measures,together with the Guidance Rules and Notice,reiterate the basic supervisionprinciples as reflected in the Draft Overseas Listing Regulations by providing substantially the same requirements for filings of overseas offeringand listing by domestic companies,yet made the following updates compared to the Draft Overseas Listing Regulations,including but not limitedto:(a)further clarification of the circumstances prohibiting overseas issuance and listing;(b)further clarification of the standard of indirectoverseas listing under the principle of substance over form,and(c)adding more details of filing procedures and requirements by setting differentfiling requirements for different types of overseas offering and listing.Under the Trial Measures and the Guidance Rules and Notice,initial publicofferings or listings in overseas markets by domestic companies,either in direct or indirect form,shall be filed with the CSRC pursuant to therequirements of the Trial Measures within three working days after the relevant application is submitted overseas.The companies that have alreadybeen listed on overseas stock exchanges prior to March 31,2023 or the companies that have obtained the approval from overseas supervisionadministrations or stock exchanges for its offering and listing prior to March 31,2023 and will complete their overseas offering and listing prior toSeptember 30,2023 are not required to make immediate filings for its listing yet need to make 5/Table of Contentsfilings for subsequent offerings in accordance with the Trial Measures.The companies that have already submitted an application for an initialpublic offering to overseas supervision administrations but have not yet obtained the approval from overseas supervision administrations or stockexchanges for the offering and listing prior to March 31,2023 may arrange for the filing within a reasonable time period and should complete thefiling procedure before such companies overseas issuance and listing.As of the date of this prospectus,we have not received any formal inquiry,notice,warning,sanction,or any regulatory objection from theCSRC with respect to this offering.As the Trial Measures were newly published and there is uncertainty with respect to the filing requirements andthe implementation,if we are required to submit to the CSRC and complete the filing procedures of our overseas public offering and listing,wecannot be sure that we will be able to complete such filing in a timely manner.Any failure or perceived failure by us to comply with such filingrequirements under the Trial Measures may result in forced rectification,warnings and fines against us and could materially hinder our ability tooffer or continue to offer our securities.On February 24,2023,the CSRC,Ministry of Finance of the PRC,National Administration of State Secrets Protection and NationalArchives Administration of China jointly revised the Provisions on Strengthening Confidentiality and Archives Administration for OverseasSecurities Offering and Listing which was issued by the CSRC,National Administration of State Secrets Protection and National ArchivesAdministration of China in 2009,or the Provisions.The revised Provisions is issued under the title the Provisions on Strengthening Confidentialityand Archives Administration of Overseas Securities Offering and Listing by Domestic Companies,and will come into effect on March 31,2023with the Trial Measures.One of the major revisions to the revised Provisions is expanding its application to cover indirect overseas offering andlisting,as is consistent with the Trial Measures.The revised Provisions require that,including but not limited to(a)a domestic company that plansto,either directly or through its overseas listed entity,publicly disclose or provide to relevant individuals or entities including securities companies,securities service providers and overseas regulators,any documents and materials that contain state secrets or working secrets of governmentagencies,shall first obtain approval from competent authorities according to law,and file with the secrecy administrative department at the samelevel;and(b)domestic company that plans to,either directly or through its overseas listed entity,publicly disclose or provide to relevantindividuals and entities including securities companies,securities service providers and overseas regulators,any other documents and materialsthat,if leaked,will be detrimental to national security or public interest,shall strictly fulfill relevant procedures stipulated by applicable nationalregulations.As of the date hereof,the revised Provisions have not come into effect.On or after March 31,2023,any failure or perceived failure by theCompany or PRC Subsidiaries to comply with the above confidentiality and archives administration requirements under the revised Provisions andother PRC laws and regulations may result in that the relevant entities would be held legally liable by competent authorities,and referred to thejudicial organ to be investigated for criminal liability if suspected of committing a crime.CORPORATE HISTORY AND STRUCTUREOur Corporate History and StructureOn May 17,2011,we established Lucas Group China Limited,formerly known as Luokeshi Management Consulting Co.,Ltd.in Beijing,and commenced our business operations.In April 2016 and May 2016,the Hohhot branch and the Guangzhou branch of Lucas Group ChinaLimited were established,respectively,to expand our business,and research and development.On August 15,2022,we incorporated Lucas StarGroup Limited under the laws of the Cayman Islands as our offshore holding company to facilitate offshore financing,and later renamed it asLucas GC Limited on October 14,2022.On August 4,2022,we established Lucas Star Holding Limited,our wholly owned BVI subsidiary and onOctober 21,2022,we established Lucas Star Global Limited,the wholly owned Hong Kong subsidiary of Lucas Star Holding Limited.FromAugust to November 2022,we underwent a series of corporate reorganizations in anticipation of our initial public offering.6/Table of ContentsThe following diagram illustrates our corporate structure as of the date of this prospectus:(1)Our founder,Chairman of the Board,and CEO,Mr.Howard Lee,owns approximately 63.1%equity interest in our Company through his wholly ownedcompany,HTL Lucky Holding Limited,as of the date of this prospectus.51job,Inc.owns approximately 18.6%equity interest in our Company and MLTHolding Limited owns approximately 8.2%equity interest in our Company as of the date of this prospectus.(2)The English names of our PRC business entities are directly translated from Chinese and may be different from their names shown on their respectiverecords filed with relevant PRC authorities.Holding Company StructureLucas GC Limited,a Cayman Island exempted company,is our holding company and has no material operations of its own.We conduct asubstantial majority of our operations through our operating subsidiaries in China.As a result,our ability to pay dividends depends largely upondividends paid by our subsidiaries including our PRC subsidiaries.If our existing PRC subsidiaries or any newly formed subsidiaries incur debt ontheir own behalf in the future,the instruments governing their debt may restrict their ability to pay dividends to us.In addition,our subsidiaries inChina are permitted to pay dividends to us only out of their retained earnings,if any,as determined in accordance with PRC accounting standardsand regulations.Under PRC law,each of our subsidiaries in China are required to set aside 10%of its after-tax profits each year,if any,to fundcertain statutory reserves funds until such reserve funds reach 50%of its registered capital.In addition,our subsidiaries in China may allocate aportion of its after-tax profits based on PRC accounting standards to a discretionary common reserve at their discretion.The statutory reservesfunds and the discretionary funds are not distributable as cash dividends.Remittance of dividends by a wholly foreign-owned company out ofChina is subject to examination by the banks designated by Chinas State Administration of Foreign Exchange(“SAFE”).Our PRC subsidiarieshave not paid dividends and will not be able to pay dividends until they generate accumulated profits and meet the requirements for statutoryreserves funds.None of our subsidiaries has made any dividend payment or distribution to the holding company as of the date this prospectus,andthey have no plans to make any distribution or dividend payment to the holding company in the near future.In utilizing the proceeds of this offering,we,as an offshore holding company,are permitted under PRC laws and regulations to providefunding to our PRC subsidiaries,which are treated as“foreign-invested enterprises”under PRC laws,through loans or capital contributions.However,loans by us to our PRC subsidiaries to finance their activities cannot exceed statutory limits and must be registered with the localcounterpart of SAFE and 7/Table of Contentscapital contributions to our PRC subsidiaries are subject to the requirement of making necessary registration with competent governmentalauthorities in the PRC.We may be unable to use these proceeds to grow our business until our PRC subsidiaries receive such proceeds in the PRC.Any transfer offunds by us to our PRC subsidiaries,either as a shareholder loan or as an increase in registered capital,are subject to approval by or registration orfiling with relevant governmental authorities in China.Any foreign loans procured by our PRC subsidiaries is required to be registered with SAFEor its local branches or satisfy relevant requirements,and our PRC subsidiaries may not procure loans which exceed the difference between theirrespective total investment amount and registered capital(for a foreign-invested company)or 2.5 times(which may be varied year by year due tothe change of PRCs national macro-control policy)of the net assets of our PRC subsidiary.According to the relevant PRC regulations on foreign-invested enterprises in China,capital contributions to our PRC subsidiaries are subject to the registration with State Administration for MarketRegulation in its local branches,and registration with a local bank authorized by SAFE.To remit the proceeds of the offering,we must take the steps legally required under the PRC laws,for example,we will open a special foreignexchange account for capital account transactions,remit the offering proceeds into such special foreign exchange account and apply for settlementof the foreign exchange.The timing of the process is difficult to estimate because the efficiencies of different SAFE branches can vary materially.In light of the various requirements imposed by PRC regulations on loans to,and direct investment in,PRC entities by offshore holdingcompanies,we cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary governmentapprovals on a timely basis,if at all,with respect to future loans by us to our PRC subsidiary or with respect to future capital contributions by us toour PRC subsidiary.If we fail to complete such registrations or obtain such approvals,our ability to use the proceeds from this offering and tocapitalize or otherwise fund our PRC operations may be negatively affected,which could materially and adversely affect our liquidity,our ability tofund and expand our business and our ordinary shares.Transfers of funds among our PRC subsidiaries are free of restrictions.Remittances of funds from our PRC subsidiaries to Lucas GC Limitedare subject to review and conversion of RMB to U.S.Dollar through PRC subsidiaries bank in China,which is authorized by SAFE to monitorforeign exchange activities.Under the existing PRC foreign exchange regulations,payments of current account items,such as profit distributionsand trade and service-related foreign exchange transactions,can be made in foreign currencies without prior approval from SAFE by complyingwith certain procedural requirements with the banks.As of the date of this prospectus,(1)no cash transfers have occurred between our holdingcompany and its subsidiaries,(2)none of our subsidiaries have made any dividend payment or distribution to the holding company and;(3)neitherthe Company nor any of its subsidiaries has made any dividends or distributions to U.S.investors.See the consolidated financial statementsincluded in this prospectus for additional details.We estimate that the net proceeds to us from this offering will be approximately US$million(after deducting underwriting discountsand commissions and estimated offering expenses payable by us),of which approximately US$million will be transferred to our PRCsubsidiaries for daily operations.See“Use of Proceeds”for more details.CORPORATE INFORMATIONWe were incorporated in the Cayman Islands as an exempted company with liability limited by shares,structured as a holding company.Ourregistered office is located at ICS Corporate Services(Cayman)Limited,3-212 Governors Square,23 Lime Tree Bay Avenue,P.O.Box 30746,Seven Mile Beach,Grand Cayman KY1-1203,Cayman Islands.8/Table of ContentsOur principal executive offices of our operating subsidiaries are located at Room 5A01,4th Floor,Air China Building,Xiaoyun Road,Sanyuanqiao,Chaoyang District,Beijing 100027,China.Our telephone number at this address is(86)18500976532.Our agent for service of process in the United States is Cogency Global Inc.located at 122 East 42nd Street,18th Floor,New York,NY10168.Investors should contact us for any inquiries through the address and telephone number of our principal executive office.Our principalwebsite is https:/ information contained on our website is not a part of this prospectus.IMPLICATIONS OF BEING AN EMERGING GROWTH COMPANYAs a company with less than US$1.235 billion in revenue for our last fiscal year,we qualify as an“emerging growth company”pursuant tothe Jumpstart Our Business Startups Act of 2012,as amended,or the JOBS Act.An emerging growth company may take advantage of specifiedreduced reporting and other requirements compared to those that are otherwise applicable generally to public companies.These provisions includeexemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002,or Section 404,in the assessment of theemerging growth companys internal control over financial reporting.The JOBS Act also provides that an emerging growth company does not needto comply with any new or revised financial accounting standards until such date that a private company is otherwise required to comply with suchnew or revised accounting standards.We have elected to take advantage of such exemptions.As a result,our operating results and financialstatements may not be comparable to the operating results and financial statements of other companies who have adopted the new or revisedaccounting standards.We will remain an emerging growth company until the earliest of(i)the last day of the fiscal year during which we have total annual grossrevenue of at least US$1.235 billion;(ii)the last day of our fiscal year following the fifth anniversary of the completion of this offering;(iii)thedate on which we have,during the preceding three-year period,issued more than US$1.0 billion in non-convertible debt;or(iv)the date on whichwe are deemed to be a“large accelerated filer”under the Securities Exchange Act of 1934,as amended,or the Exchange Act,which would occur ifthe market value of the ordinary shares that are held by non-affiliates exceeds US$700 million as of the last business day of our most recentlycompleted second fiscal quarter.Once we cease to be an emerging growth company,we will not be entitled to the exemptions provided in the JOBSAct discussed above.IMPLICATIONS OF BEING A FOREIGN PRIVATE ISSUERWe are also considered a“foreign private issuer.”Accordingly,upon consummation of this offering,we will report under the Exchange Act asa non-U.S.company with foreign private issuer status.This means that,even after we no longer qualify as an emerging growth company,as long aswe qualify as a foreign private issuer under the Exchange Act,we will be exempt from certain provisions of the Exchange Act that are applicable toU.S.domestic public companies,including:the rules under the Exchange Act regulating the solicitation of proxies,consents or authorizations in respect of a security registeredunder the Exchange Act;the rules under the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and liabilityfor insiders who profit from trades made in a short period of time;and the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financialand other specified information,or current reports on Form 8-K,upon the occurrence of specified significant events.9/Table of ContentsWe may take advantage of these exemptions until such time as we are no longer a foreign private issuer.We would cease to be a foreignprivate issuer at such time as more than 50%of our outstanding voting securities are held by U.S.residents and any of the following threecircumstances applies:(i)the majority of our executive officers or directors are U.S.citizens or residents,(ii)more than 50%of our assets arelocated in the United States or(iii)our business is administered principally in the United States.In this prospectus,we have taken advantage of certain of the reduced reporting requirements as a result of being an emerging growthcompany and a foreign private issuer.Accordingly,the information contained herein may be different than the information you receive from otherpublic companies in which you hold equity securities.IMPLICATION OF BEING A CONTROLLED COMPANYUpon the completion of this offering,HTL Lucky Holding Limited,which is wholly owned by our founder,Chairman of the Board and CEO,Mr.Howard Lee,will beneficially own%of our total issued and outstanding ordinary shares,representing%of our total votingpower,assuming that the underwriters do not exercise their option to purchase additional ordinary shares,or%of our total issued andoutstanding ordinary shares,representing%of our total voting power,assuming that the option to purchase additional ordinary shares isexercised by the underwriters in full.As a result,we will be a“controlled company”as defined under the Nasdaq Stock Market Rules because HTLLucky Holding Limited will hold more than 50%of the voting power for the election of directors.As a“controlled company,”we are permitted toelect not to comply with certain corporate governance requirements.If we rely on these exemptions,you will not have the same protection affordedto shareholders of companies that are subject to these corporate governance requirements.CONVENTIONS THAT APPLY TO THIS PROSPECTUSExcept otherwise indicated or the context otherwise requires:“BVI”refers to the British Virgin Islands;“CAGR”refers to compound average growth rate;“China”or the“PRC”,in each case,refers to the Peoples Republic of China.The term“Chinese”has a correlative meaning for thepurpose of this prospectus.When used in the case of laws and regulations of“China”or“the PRC”,it refers to only such laws andregulations of mainland China;“EIT”refers to enterprise income tax;“Hong Kong”refers to Hong Kong Special Administrative Region in the PRC;“ordinary shares”or“shares”prior to the completion of this offering refer to our ordinary shares of par value US$0.00001 per share,and upon and after the completion of this offering are to our ordinary shares;“the Company”or“our Company”refers to Lucas GC Limited,a Cayman Islands exempted company;“R&D”refers to research and development;“RMB”and“Renminbi”refer to the legal currency of mainland China;“SEC”refers to the Securities and Exchange Commission;“US$”and“U.S.dollars”refer to the legal currency of the United States;“U.S.GAAP”refers to generally accepted accounting principles in the United States;and 10/Table of Contents “we,”“us,”and“our”refer to Lucas GC Limited,a Cayman Islands exempted company and its subsidiaries.Unless otherwise indicated,(a)information in this prospectus assumes that the underwriters do not exercise their over-allotment option topurchase additional ordinary shares,and(b)references in this prospectus to this offering are to our offering of ordinary shares pursuant to thisprospectus.Our reporting currency is RMB.This prospectus contains translations from RMB to U.S.dollars solely for the convenience of the reader.Unless otherwise stated,the translations from RMB to U.S.dollars and from U.S.dollars to RMB in this prospectus were made at a rate ofRMB6.7114 to US$1.00,the exchange rates set forth in the H.10 statistical release of the Federal Reserve Board on June 30,2022.We make norepresentation that the RMB or U.S.dollar amounts referred to in this prospectus could have been or could be converted into U.S.dollars or RMB,as the case may be,at any particular rate or at all.The English names of our PRC business entities are directly translated from Chinese and may be different from their names shown on theirrespective records filed with relevant PRC authorities.Internet site addresses in this prospectus are included for reference only and the information contained in any website,including our website,is not incorporated by reference into,and does not form part of,this prospectus.MARKET AND INDUSTRY DATAThis prospectus contains estimates and information concerning our industry,including our market position and the size and growth rates ofthe markets in which we participate,that are based on industry publications and the reports.This prospectus contains statistical data and estimatespublished by Frost&Sullivan,an independent research firm,for which we paid a fee.This information involves a number of assumptions andlimitations,and you are cautioned not to place undue reliance on these estimates.We have not independently verified the accuracy or completenessof the data contained in these industry reports.The industry in which we operate is subject to a high degree of uncertainty and risk due to a varietyof factors,including those described in the“Risk Factors”section.These and other factors could cause results to differ materially from thoseexpressed in these publications and reports.Industry publications,research,surveys,studies and forecasts generally state that the information they contain has been obtained fromsources believed to be reliable but that the accuracy and completeness of such information is not guaranteed.Forecasts and other forward-lookinginformation obtained from these sources are subject to the same qualifications and uncertainties as the other forward-looking statements in thisprospectus.These forecasts and forward-looking information are subject to uncertainty and risk due to a variety of factors,including thosedescribed under“Risk Factors.”These and other factors could cause results to differ materially from those expressed in the forecasts or estimatesfrom independent third parties and us.RISK FACTORS SUMMARYInvesting in our ordinary shares involves a high degree of risk.Investors in the ordinary shares are not purchasing equity securities of oursubsidiaries that have substantive business operations in China but instead are purchasing equity securities of a Cayman Islands holding company.Lucas GC Limited is a Cayman Islands holding company that conducts substantial business operation in China through its PRC subsidiaries,inparticular,Lucas Group China Limited and its subsidiaries.Such structure involves unique risks to investors in the ordinary shares.11/Table of ContentsIn particular,as we are a China-based company incorporated in the Cayman Islands,we face various legal and operational risks anduncertainties related to being based in and having substantive business operations in China.The PRC government has significant authority to exertinfluence on the ability of a China-based company,such as us,to conduct its business,accept foreign investments or list on an U.S.or other foreignexchanges.Such risks could result in a material change in our operations and/or the value of our ordinary shares or could significantly limit orcompletely hinder our ability to offer or continue to offer the ordinary shares to investors and cause the value of such securities to significantlydecline or be worthless.The PRC government also has significant oversight and discretion over the conduct of our business and our operations may be affected byevolving regulatory policies as a result.The PRC government has recently published new policies that significantly affected certain industries,andwe cannot rule out the possibility that it will in the future release regulations or policies regarding our industry that could adversely affect ourbusiness,financial condition and results of operations.Furthermore,the PRC government has recently indicated an intent to exert more oversightand control over overseas securities offerings and other capital markets activities and foreign investment in China-based companies like us.Theserisks could result in a material change in our operations and the value of our ordinary shares or could significantly limit or completely hinder ourability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or become worthless.Youshould pay special attention to the subsection headed“Risks Related to Doing Business in China”below.Hong Kong is currently a separate jurisdiction from mainland China.Pursuant to the Basic Law,national laws and regulations of the PRCshall not apply to Hong Kong except for those listed in Annex III of the Basic Law,which is limited to laws relating to defense and foreign affairs,as well as other matters outside the autonomy of Hong Kong.As such,the legal and operational risks associated with our operations in the PRCapply to its operations in Hong Kong only to the extent applicable.However,such list of national laws and regulations that are applicable in HongKong can be expanded by amendment to the Basic Law.There is no assurance that(1)the Basic Law will not be further amended to apply morePRC laws and regulations in Hong Kong,or(2)the PRC and/or Hong Kong government will not take other actions to promote the integration ofHong Kong legal system into the PRC legal system.Our Hong Kong subsidiaries could be subject to more influence and/or control of the PRCgovernment or even direct oversight or intervention thereof if the Hong Kong legal system becomes more integrated into the PRC legal system.Assuch,there remains regulatory uncertainty with respect to the implementation and interpretation of laws in China and the PRC government hassignificant authority to intervene or influence our Hong Kong operations at any time.We are subject to the risks of uncertainty about any futureactions the Chinese government or authorities in Hong Kong may take in this regard,which could result in a material adverse change to ourbusiness,prospects,financial condition,and results of operations,and the value of our securities.You should carefully consider the risks and uncertainties summarized below,the risks described under the“Risk Factors”section beginningon page 18.The risks described in“Risk Factors”in this prospectus may cause us to not realize the full benefits of our strengths or may cause us tobe unable to successfully execute all or part of our growth strategy.Some of the more significant risks include the following:Risks Related to Our Business and Industry We have a limited operating history under our current platforms and business model,which makes it difficult to evaluate our businessand prospects,and any future changes to our business model could materially and adversely affect our business,financial conditionsand results of operations.(page 18)Our growth depends on our ability to attract and retain a large number of users,and the loss of our users,or failure to attract newusers,could materially and adversely affect our business.(page 18)12/Table of Contents Because a substantial portion of the services we offer are recruitment services,if we fail to attract more corporate customers to ourplatforms,or if corporate customers decide to purchase less of our recruitment services for any reason,our revenues may stagnate ordecline,and our business and prospects may be materially and adversely affected.(page 19)Because a significant portion of the services we offer are outsourcing services,a decline in the demand or the market for outsourcingservices could materially and adversely affect our business,prospects,financial condition and results of operations.(page 19)Volatility in the financial and economic environment in the markets where we have operations could harm our business.(page 20)If the market for freelancers and the services they offer is not sustained or develops more slowly than we expect,our growth may slowor stall.(page 20)We face significant competition,which may cause us to suffer from a weakened market position that could materially and adverselyaffect our results of operations.(page 20)Our historical revenue growth should not be considered indicative of our future performance.(page 21)We have incurred negative cash flow in operating activities in the past and may incur operating losses in the future and may notmaintain profitability.(page 21)We depend on a limited number of customers for a significant portion of our revenues and the loss of one or more of these customerscould adversely affect our business,financial condition,and results of operations.(page 22)We may fail to successfully enter necessary or desirable strategic alliances or make acquisitions or investments,and we may not beable to achieve the anticipated benefits from these alliances,acquisitions or investments we make.(page 22)We may need additional capital to pursue business objectives and respond to business opportunities,challenges or unforeseencircumstances,and financing may not be available on terms acceptable to us,or at all.(page 22)If we fail to maintain and improve the quality of our PaaS platforms,we may not be able to attract and retain users and corporatecustomers.(page 23)If our technology capabilities in AI,data analytics and blockchain fail to yield satisfactory results or fail to improve,our platformsmay not be able to effectively match our users with suitable positions from corporate customers or to optimally recommend positionsfor our users,and our user growth,retention,results of operations and business prospects may suffer consequently.(page 24)Errors,defects or disruptions in our platforms could diminish our brand,subject us to liability,and materially and adversely affect ourbusiness,prospects,financial condition and results of operations.(page 24)Our users may engage in intentional or negligent misconduct or other improper activities on our platforms or otherwise misuse ourplatforms,which may damage our brand image and reputation,our business and our results of operations.(page 24)If we fail to maintain and enhance our brand,our business,results of operations and prospects may be materially and adverselyaffected.(page 25)Our platforms contain open-source software components,and failure to comply with the terms of the underlying licenses could restrictour ability to market or operate our platforms.(page 25)If we are unable to protect our users personal information,we could be exposed to data loss,litigation,and liability,and ourreputation could be significantly harmed.(page 26)13/Table of Contents We are subject to a variety of laws and regulations regarding cybersecurity and data protection,and any failure to comply withapplicable laws and regulations,including improper use or appropriation of personal information provided directly or indirectly by ourcustomers or end users,could have a material adverse effect on our business,financial condition and results of operations.(page 26)We are subject to risks relating to our leased properties.(page 30)Any lack of requisite approvals,licenses or permits applicable to our business operation may have a material and adverse impact onour business,financial condition and results of operations.(page 30)There could be adverse legal,tax,and other consequences if users on our platforms were to be classified as our employees ordispatched employees instead of independent contractors.(page 31)Any failure to maintain the satisfactory performance of our technology systems and resulting interruptions in the availability of ourwebsites,applications,or services could adversely affect our business,results of operations and prospects.(page 31)If we fail to keep up with the technological developments and implementation of advanced technologies,our business,results ofoperations and prospects may be materially and adversely affected.(page 32)Changes in laws and regulations related to the internet and fixed telecommunications or changes in the internet infrastructure andfixed telecommunications networks itself may diminish the demand for our services,and could have a negative impact on ourbusiness.(page 32)We may not be able to prevent others from unauthorized use of our intellectual property,which could harm our business andcompetitive position.(page 33)We may be subject to intellectual property infringement claims,which may be expensive to defend and may disrupt our business andoperations.(page 34)Our business depends on the continued efforts of our senior management,particularly our founder,Chairman of the Board and CEO,Mr.Howard Lee.If Mr.Lee,or one or more other of our key executives and employees,were unable or unwilling to continue in theirpresent positions,our business may be severely disrupted.(page 34)Risks Relating to Doing Business in China Change in Chinas economic,political or social conditions,laws,regulations or governmental policies could have a material adverseeffect on our business,financial conditions and results of operations.(page 39)Uncertainties with respect to the PRC legal system,including uncertainties regarding the interpretation and enforcement of laws,andsudden or unexpected changes of PRC laws and regulations with little advance notice could adversely affect us and limit the legalprotections available to you and us,and the Chinese government may exert more oversight and control over offerings that areconducted overseas,which changes could materially hinder our ability to offer or continue to offer our securities,and cause the valueof our securities to significantly decline or become worthless.(page 40)The Chinese government has substantial oversight and influence over the manner in which we must conduct our business and mayintervene or influence our operations at any time,which actions could impact our operations materially and adversely,andsignificantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of oursecurities to significantly decline or be worthless.(page 41)The recent joint statement by the SEC and PCAOB,proposed rule changes submitted by Nasdaq,and the HFCA Act all call foradditional and more stringent criteria to be applied to emerging market 14/Table of Contents companies,including companies based in China,upon assessing the qualification of their auditors,especially the non-U.S.auditorswho are not inspected by the PCAOB.(page 42)The approval of and the filing with the CSRC or other PRC government authorities may be required in connection with our futureoffshore offerings under PRC law,and,if required,we cannot predict whether or for how long we will be able to obtain such approvalor complete such filing.(page 43)You may experience difficulties in effecting service of legal process,enforcing foreign judgments or bringing actions in China againstus or our management named in the prospectus based on foreign laws.(page 45)You may incur additional costs and procedural obstacles in effecting service of legal process,enforcing foreign judgments or bringingactions in Hong Kong against us or our management named in this prospectus based on Hong Kong laws.(page 45)It may be difficult for overseas regulators to conduct investigations or collect evidence within China.(page 46)It may be difficult for overseas shareholders and/or regulators to conduct investigations or collect evidence within Hong Kong.(page46)If we are classified as a PRC resident enterprise for PRC income tax purposes,such classification could result in unfavorable taxconsequences to us and our non-PRC shareholders.(page 46)We face uncertainties with respect to indirect transfer of equity interests in PRC resident enterprises by their non-PRC residentcompanies.(page 47)If our preferential tax treatments are revoked or become unavailable or if the calculation of our tax liability is successfully challengedby the PRC tax authorities,we may be required to pay tax,interest and penalties in excess of our tax provisions.(page 48)Failure to make adequate contributions to various employee benefit plans as required by PRC regulations or comply with laws andregulations on other employment practices may subject us to penalties.(page 48)The enforcement of the PRC Labor Contract Law and other labor-related regulations in the PRC may subject us to penalties orliabilities.(page 49)The M&A Rules and certain other PRC regulations may make it more difficult for us to pursue growth through acquisitions.(page 49)PRC regulations relating to offshore investment activities by PRC residents may limit our PRC subsidiaries ability to change theirregistered capital or distribute profits to us or otherwise expose us or our PRC resident beneficial owners to liability and penaltiesunder PRC laws.In addition,any failure to comply with PRC regulations with respect to registration requirements for offshorefinancing may subject us to legal or administrative sanctions.(page 50)Risks Relating to This Offering Our offering may not be completed if our listing application is not approved by Nasdaq.Further,an active trading market for ourordinary shares may not develop and the trading price for our ordinary shares may fluctuate significantly.(page 55)The trading price of our ordinary shares is likely to be volatile,which could result in substantial losses to investors.(page 55)If securities or industry analysts do not publish research or reports about our business,or if they adversely change theirrecommendations regarding our ordinary shares,the market price for our ordinary shares and trading volume could decline.(page 56)15/Table of Contents The sale or availability for sale of substantial amounts of our ordinary shares could adversely affect their market price.(page 56)Because we do not expect to pay dividends in the foreseeable future after this offering,you must rely on price appreciation of ourordinary shares for return on your investment.(page 57)Because the initial public offering price is substantially higher than the pro forma net tangible book value per share,you willexperience immediate and substantial dilution.(page 57)We have not determined a specific use for a portion of the net proceeds from this offering,and we may use these proceeds in wayswith which you may not agree.(page 57)There can be no assurance that we will not be a passive foreign investment company,or PFIC,for U.S.federal income tax purposesfor any taxable year,which could subject U.S.investors in our ordinary shares to significant adverse U.S.federal income taxconsequences.(page 57)You may face difficulties in protecting your interests,and your ability to protect your rights through U.S.courts may be limited,because we are incorporated under Cayman Islands law.(page 58)Certain judgments obtained against us by our shareholders may not be enforceable.(page 59)We will incur increased costs as a result of being a public company.(page 59)16/Table of ContentsTHE OFFERING Offering price per ordinary shareUS$per ordinary share Ordinary shares offered by us ordinary shares(or ordinary shares if the underwriters exercise in fulltheir option to purchase additional ordinary shares).Ordinary shares issued and outstanding immediatelyafter this offering ordinary shares(or ordinary shares if the underwriters exercise the optionto purchase additional ordinary shares in full).Option to Purchase Additional Ordinary SharesWe have granted to the underwriters an option,exercisable for 30 days from the date of thisprospectus,to purchase up to an aggregate of additional ordinary shares at theinitial public offering price,less underwriting discounts and commissions,solely for thepurpose of covering over-allotments.The ordinary sharesWe do not expect to pay dividends in the foreseeable future.Transfer agent ListingWe will apply to have our ordinary shares listed on the Nasdaq Global Market under thesymbol“LGCL.”Our ordinary shares will not be listed on any other stock exchange orquoted for trading on any over-the-counter trading system.At this time,Nasdaq has not yetapproved our application to list our ordinary shares.There is no assurance that suchapplication will be approved,and if our application is not approved by Nasdaq,thisoffering would not be completed.Payment and settlementThe underwriters expect to deliver the ordinary shares on ,2023.Use of ProceedsWe estimate that we will receive net proceeds of approximately US$million fromthis offering,assuming an initial public offering price of US$per ordinary share,the mid-point of the estimated range of the initial public offering price,after deductingestimated underwriter discounts,commissions and estimated offering expenses payable byus.We intend to use our net proceeds from this offering for the daily operations of onshoreand offshore subsidiaries.See“Use of Proceeds”for additional information.Risk FactorsSee“Risk Factors”and other information included in this prospectus for a discussion of therisks you should carefully consider before deciding to invest in our ordinary shares.Lock-upOur directors and officers and holders of more than 5%of our outstanding shares as of theeffective date of this registration 17/Table of Contents statement will enter into customary“lock-up”agreements in favor of the underwriters for aperiod of nine(9)months from the date of this offering.We have agreed with theunderwriters that,for a period of nine(9)months from the closing of this closing,we willnot(a)offer,sell,or otherwise transfer or dispose of,directly or indirectly,any capitalshares or any securities convertible into or exercisable or exchangeable for capital shares;or(b)file or caused to be filed any registration statement with the SEC relating to theoffering of any capital shares or any securities convertible into or exercisable orexchangeable for capital shares.See“Underwriting”for more information.18/Table of ContentsRISK FACTORSInvesting in the ordinary shares involves a high degree of risk.You should carefully consider the following risks,as well as other informationcontained in this prospectus,before making an investment in our company.The risks discussed below could materially and adversely affect our business,prospects,financial condition,results of operations,cash flows,ability to pay dividends and the trading price of our ordinary shares.We may faceadditional risks and uncertainties aside from the ones mentioned below.There may be risks and uncertainties that we are unaware of,or that wecurrently do not consider material,that may become important factors that adversely affect our business in the future.Any of the following risks anduncertainties could have a material adverse effect on our business,financial condition,results of operations and ability to pay dividends.In such case,the market prices of the ordinary shares could decline and you may lose part or all of your investment.Risks Relating to Our Business and IndustryWe have a limited operating history under our current platforms and business model,which makes it difficult to evaluate our business andprospects,and any future changes to our business model could materially and adversely affect our business,financial condition and results ofoperations.Although we initiated our business in 2011 as a recruitment company assisting conglomerates and Fortune 500 companies to recruit mid-to high-level executives,we upgraded our business model in 2016 to incorporate cutting-edge technologies including AI and data analytics,and launched one ofthe first AI recruitment platforms in China.In 2019 and 2022,we launched our platforms,Columbus and Star Career,respectively,on which our userscan recommend job opportunities,health-related products and training services to their acquaintances via their own private mobile social networks.As aresult,we have only limited experience with our current business model,which makes it difficult to evaluate our business and future prospects andfuture growth.We have encountered,and will continue to encounter,risks and difficulties frequently experienced by growing companies in rapidlychanging industries,including difficulties in our ability to achieve market acceptance of our platforms and attract and retain users,as well as increasingcompetition and increasing expenses as we continue to grow our business.As a result,we may from time to time decide to make further changes to ourbusiness model due to a variety of factors,including changes in the market for our platforms and competitors introducing new services.We may not besuccessful in addressing these and other challenges we may face in the future and changes to our business model may,among other things,result in userdissatisfaction and could lead to a loss of users on our platforms.Our growth depends on our ability to attract and retain a large number of users,and the loss of our users,or failure to attract new users,couldmaterially and adversely affect our business.Our business includes recruitment services,outsourcing services and other services,while the recruitment services constitute our major source ofrevenue.Our recruitment serves are provided via our users of our PaaS platforms,who will recommend the job opportunities posted by our corporatecustomers to their acquaintances via their own private mobile social networks.Therefore,the size of our users,including both talent scouts andcorporate customers,is critical to our success.As of June 30,2022,we had approximately 382,650 active registered users on our proprietary platforms,Star Career and Columbus.We have experienced strong growth in the number of users on our platforms.The number of active registered users on bothof our platforms grew by 278%from June 2020 to June 2022.However,we cannot guarantee that we will be able to achieve similar user growth in thefuture.For example,in our recruitment services,our corporate customers and users have many different ways to market their services and securecandidates,including meeting and contacting prospective candidates through other platforms and advertising to prospective candidates online or offlinethrough other methods.Job seekers have similarly diverse options to find talent scouts,such as interacting with them directly through our platforms andfinding talent scouts through other online or offline platforms.Any decrease in the attractiveness of our platforms relative to these other optionsavailable to talent scouts and job seekers could lead to decreased engagement on our platforms,which could result in a decrease in revenue on ourplatforms.If we 19/Table of Contentsfail to attract new professionals or our existing professionals decrease their use of or cease using our platforms,or the quality or types of servicesprovided by our platforms are not satisfactory to the professionals,they may decrease their use of,or cease using,our platforms.Key factors in attracting and retaining professionals include our ability to grow our brand awareness,attract and retain high-quality professionalsand increase the quantity and quality of products and services offered on our platforms.Thus,achieving growth in our community of users may requireus to increasingly engage in sophisticated and costly sales and marketing efforts that may not result in additional users.We may also need to modify ourrevenue model to attract and retain such users.Users can generally decide to cease using our platforms at any time.Users may stop using our platforms and related services if the quality of theuser experience on our platforms,including our support capabilities in the event of a problem,does not meet their expectations or keep pace with thequality of the user experience generally offered by competitive products and services.Users may also choose to cease using our platforms if theyperceive that our business model is not in line with the value they derive from our platforms or for other reasons.In addition,expenditures byprofessionals may be cyclical and be affected by adverse changes in overall economic conditions or budgeting patterns.If we fail to attract new users orfail to maintain existing users,our revenue may grow more slowly than expected and our business and financial performance could be materially andadversely affected.Because a substantial portion of the services we offer are recruitment services,if we fail to attract more corporate customers to our platforms,or ifcorporate customers decide to purchase less of our recruitment services for any reason,our revenues may stagnate or decline,and our business andprospects may be materially and adversely affected.In 2020,2021 and the six months ended June 30,2022,approximately 78.9%,76.3%and 43.6%of our net revenues were generated fromrecruitment services for corporate customers.Corporate customers are by far the most important source of revenue for us,and attracting more corporatecustomers to our platforms is therefore of critical importance to us.Due to their contribution to our revenues and ability to spend,large businesses withsufficient funds would benefit us most as a revenue source,and we need to invest in developing and promoting products and services that meet theirneeds.Additionally,small-and mid-sized businesses may also be a source of corporate customers growth for us,as they have historically beenunderserved and usually lack direct access to a scaled user base and effective means to promulgate their businesses.We,however,cannot assure you thatour efforts to reach to more corporate customers will convince more enterprise users to use our online recruitment platform.There is also no guaranteethat our existing enterprise customers will continue to pay for our online recruitment services at the same frequency or price going forward,ascompetition or alternative means of job hunting may put pressure on the demand and pricing for our recruitment services.If we are not successful inexpanding our corporate customer base or improving our monetization of corporate customers,our revenues may stagnate or decline and our businessand prospects may be materially and adversely affected.Because a significant portion of the services we offer are outsourcing services,a decline in the demand or the market for outsourcing services couldmaterially and adversely affect our business,prospects,financial condition and results of operations.In 2020,2021 and the six months ended June 30,2022,approximately 21.1%,17.4%and 48.9%of the services we offer relate to outsourcingservices.The market for our outsourcing services is at a relatively early stage of development in China.Many corporations are unfamiliar with theseservices and may not accept the value proposition of these service offerings.Processing,tracking,collecting and remitting funds to the applicable thirdparties are complex operations,and many companies may not trust us with their data.As such,companies may not be willing to use our services assignificant functions and may instead choose to continue to perform such operations in-house.If,for any reason,the market for outsourcing servicesdeclines,including as a result of global economic conditions,automation,increased use of artificial intelligence,or otherwise,or if demand for 20/Table of Contentsthese services slows or businesses satisfy their needs for these services through alternative means,the growth in the number of projects we receive mayslow or decline and as a result our business,prospects,financial condition and results of operations could be materially and adversely affected.Inaddition,we rely on third-party sales agents and service providers,including technology service providers and industry experts,to source deals anddeliver part of the outsourcing services.Failure by these providers,for any reason,to source deals or deliver their services in a timely and accuratemanner could result in significant disruptions to our outsourcing operations,impact our customer relationships,harm our brand names and reputation,and result in significant penalties or liabilities to us.Volatility in the financial and economic environment in the markets where we have operations could harm our business.Demand for our PaaS services is sensitive to changes in the level of overall economic activity in the markets in which we operate.During periodsof weak economic conditions,employment levels tend to decrease,and business failures tend to increase and interest rates may become more volatile.Current or potential corporate customers may also react to weak economic conditions or forecasted weak economic conditions by reducing theiremployee headcount or by lowering their salary or compensation levels,any of which would affect our total net revenues.These conditions may affectthe willingness of our corporate customers and potential customers to pay third-parties for recruitment services and other services like ours,and mayimpact their ability to meet their obligations to us on time,or at all.In addition,if businesses have difficulty obtaining funding,business growth and newbusiness formation may be impaired,which could also harm our business.If the market for freelancers and the services they offer is not sustained or develops more slowly than we expect,our growth may slow or stall.Our PaaS primarily engages freelancers as our sales agents and talent scouts for recruitment,outsourcing and other services they may provide.Themarket for freelancers and the services they offer is relatively new,rapidly evolving and unproven.Our future success will depend in large part on thecontinued growth and expansion of this market and the willingness of businesses to engage freelancers to provide services.It is difficult to predict thesize or rate of expansion of this market,or the extent to which technological or other developments will impact the overall demand for freelancers.Further,many businesses may be unwilling to engage freelancers for a variety of reasons,including perceived negative connotations with outsourcingwork or security concerns.If the market for freelancers and the services they offer does not achieve widespread adoption,or there is a reduction indemand for freelancer services,particularly demand for information technology services,our business,prospects,financial condition and results ofoperations could be materially and adversely affected.We face significant competition,which may cause us to suffer from a weakened market position that could materially and adversely affect ourresults of operations.Successful execution of our strategy depends on our ability to attract and retain users,expand the market for our platforms,maintain atechnological edge and provide value to our users.We face competition from a number of online and offline platforms and competitors that offerrecruitment and outsourcing services as part of their broader services portfolio.According to the Frost&Sullivan report,in the industry of services forprofessionals,our main competitors fall into the following categories:online agent-centric service providers;online HR service providers;traditional staffing companies;and traditional workforce solutions providers.Well-established internet companies,social networking providers and career-related internet portals have entered or may decide to target themarket for professional services,a