Glimpses of economy over next 5 years

Stephen Shang, president and CEO, Honeywell China

A1 Innovation is not just about technology. It aims at producing meaningful outcomes that are for the benefit of the people. Innovation also requires comprehensive thinking throughout R&D, financing, marketing, manufacturing and supply chain. Eventually, innovation should bring business growth.

For businesses, they always need to look at the real needs of the specific market or country they operate in. China is in the midst of massive change, driven by rapid urbanization and industrialization, and the rise of world's largest middle class. We believe environmental protection and energy efficiency are the most fundamental challenges and needs in this country.

China's "new normal" actually provides technology-driven companies like Honeywell with a huge, strategic opportunity to drive a smarter and more sustainable growth through innovation.

A2 Through East-for-East strategy, Honeywell identifies those China-specific needs around safety and security, environment and energy efficiency, productivity, and other dire concerns of the population like air and water, and meets them with locally developed innovations.

From January to September in 2015, Honeywell's Shanghai-based R&D center generated more than 700 inventions and 120 patents. This already surpassed the numbers of last year. Currently, one-third of our revenues in China come from such East-for-East innovations and products.

A3 From our perspective, we believe in China and its ability to continue to grow and evolve. That's the reason why we have confidence in China over the long term. China is now Honeywell's biggest country for sales outside of the US.

Those environmental and sustainability challenges China faces today are not unique for this country. What Honeywell does here and the problems we solve in China are often the solutions people need around the world. Moving forward, we expect more and more "innovated in China" products will support China's Belt and Road strategy and accelerated efforts to "go out"－transferring China-developed innovations to the rest of the world.

A4 Going forward, we believe China will need to compete on skill and not on cost, and it is perfectly doable. For example, some of the most productive factories within Honeywell are located in China. Because of skilled labor and quality management practices, we are able to achieve very high yield. We are able to leverage the dynamic supply base to achieve cost efficiency. And we are able to integrate these into our engineering process to create local innovation.

This is an ecosystem play where China can uniquely combine the strengths of high quality manufacturing, skilled labor, and engineering talent.

A5 Over the past two-three years, Honeywell has been expanding its capacity in China in areas like turbocharger, performance materials, catalysts and adsorbents, and aerospace. These will enable us to deliver the most cost-effective solutions to our local customers in the most efficient manner. We develop our products locally and now have about 3,000 R&D engineers in China.

We will continue to invest in China but we also think China needs to open up the market and support more private businesses.