Chairman’s Speech at 2016 Annual Meeting of DDI

Jan,18 2016


Dear DDI family,

Good afternoon, I’m very happy to get together with everyone here for ringing out the Old Year and ringing in the New Year!

Just now, Mr. ZHAO made the sufficient summary of the work about real estate in 2015 on behalf of the real estate team, and gave the forecast and deployment to work plan of 2016. I think it is a very practical and aggressive work summary and work plan. Next, I’d like to talk about the future of DDI with you, exactly, the development road in the future 8-10 years of DDI which we have found with 3-5 years of efforts.

In recent years, with the unceasing change of social environment, the real estate industry has been away from the “golden age”. The sense of crisis brought by industry change is increasingly strong, such as the increase of project acquisition cost and difficulty year by year, declining profitability, difficult sales of stock house, impact of the Internet upon the traditional industry, change of target customers’ needs, etc. The competition in the real estate industry is increasingly fierce. Under the trend of the industry facing the thorough change, we shall be soberly aware that the winter of small and medium-sized real estate enterprises is coming, and change and transformation are imperative! Only overtaking in the curve can we occupy a leading position!

Therefore, we determine our transformation direction by reviewing our business model in early 2015.

Our slogan upgrades from the “dream building, build dream” to “dream living, live dreams”.

Our new mission is to be the pioneer, provider and leader of international lifestyle of the middle class!

Our new vision is to be the world’s leading provider of the middle-class life.

Our value upgrades to creativity, excellence, exquisiteness, service.

The transformation conforms to the development trend of the times.

Next, I’d like to talk about why we need to change from three aspects.

First, the large middle-class population is emerging in China. The significant change of social structure is that middle-class population proportion continuously increases, and there will be 600-800 million new middle-class population emerging in China in the future 8-10 years. During London visit, President Xi made clear that the existing middle class population of China has already reached 200 million. This large group will be the most important part of China’s olive-shaped society in the future and will be the backbone to promote the development of era.

Second, the State pays attention to the rising middle class, and their lifestyle needs change. The Guiding Opinions on Accelerating the Consumer Services and Promoting the Consumption Structure Upgrade issued by the General Office of the State Council at the end of November 2015 clearly put forward that “we shall advocate the life consumption idea of stressing quality and emphasizing cultural connotation, make innovation of policy support, and actively develop new form and new model of consumer services”. The document requires we should promote the change of life consumption way from survival type, traditional type and material type to development type, modern type and service type, and the change of consumption way of the middle class from conformity consumption to personalized consumption and from pursuit of quantity to pursuit of quality.

Third, it is the market demand. We just said there is 200 million of middle-class population in China. Shanghai has 20 million of permanent population, so it has at least 4 million of middle-class population according to the existing proportion 20%. Of course, many developers and manufacturing industries declare that we serve the middle class. DDI targets a market segment in the middle class. What is the market segment? It is the top 10% of the middle class. If Shanghai has 4 million of population, 10% represents 0.4million, so these people are the customers who we target in Shanghai in the future 8-10 years.

Of course, we also have a long-term plan from high-end customers to middle-end customers and then low-end customers of the middle class. But from the beginning, we plan to serve 10% of the middle class, and our STCC is tailored for this group.

STCC is Shanghai Town & Country Club. As the first community club taking family as the service object and even the flagship product of advanced household lifestyle all over China and even Asia, it has an international management team and aims to create a new happy life experience, provide what each member thinks and needs, become the shelter during the confusion, large sitting room meeting like-minded friends and “home away from home” accompanied by family members.

STCC also has another group of service object, i.e. 300,000 international families in Shanghai. I just mention our mission: we aim to become the service provider providing international lifestyle for Chinese middle class. We shall control the proportion of foreigners and Chinese in STCC. The current proportion is about 62% of foreigners and 38% of Chinese. Later, with the increasing population among the middle class of Shanghai yearning for international lifestyle and greater development of our STCC brand, this proportion will increase, and population of the middle class of Shanghai also may reach 50%.

With the above description, I believe that everyone has a deeper understanding of the core of DDI’s strategic transformation--“becoming the service provider of the middle class”. For example, DDI is the property developer wearing the work clothes in the past 25 years. Starting from 2014, we still wore the work clothes of property developer and developed three forms--residence, commercial real estate and club, but we started inching for being the service provider of the middle class. In the future, we will take off the work clothes and wear the swallow-tailed coat of the service provider of the middle class.

Our group’s senior management team and I often say, we are the property developer from the surface, but what we think in our brain is to provide international production mode for the middle class, and what we want in our heart is to provide international services for the middle class. Of course, we also have some plans. When our brand is output, and when our brand is powerful enough, the part divided may be the new organizational structure serving the club and the middle class.

Now, the second and third products of the club have conducted the layout in Qingpu project and Pudong project. With STCC, we believe the similar residence of these two projects will get the same favor with residential products, and the residence of our project will obtain the higher premium. Such business model will be the main business model of development of DDI in next 8-10 years.

Recently, the economist WU Xiaobo’s description of the future mode of real estate is that we only focused on the location over the past 30 years, but there will be different houses on both sides of the same road in the future 10 years or even 30 years, and the house on one side may be priced at 80,000 yuan and on the other side may be priced at 40,000 yuan. What do they compare? It is the thinking about C terminal.

Mr. ZHAO just mentioned a problem about the team construction in 2016 Plan Report. Most of our team members are born in the 1950s, 1960s and 1970s, and our future service objects are those buying house in the 1980s and 1990s. So the more important mission is to cultivate backbone of our DDI, and only people born in the 1980s and 1990s know what our C terminal think. So I believe our DDI has taken a step, and the sales of residential products with the price of qusi-residence will be demonstrated in 3A project in 2016. Or, we can sell the residence with higher premium than other residences depending on our STCC, commercial real estate and hotels. I want to apply this business model to our future projects. After establishing this business model, we can copy it in the first-tier cities, and after completing the layout in the first-tier cities, we can copy it in the second-tier cities we have occupied. So I want all the heads of the company in each area to know we have such a strategic transformation, and we shall contrast such project with 3A, Qingpu project and Pudong project to be acquired according to this business model.

Of course, transformation must be tough, and grope period must be full of challenges. Since trial operation of club for 8 months, we have overcome countless difficulties, but it’s gratifying that a growing number of members or active participants expressed their thanks and praise to STCC and recognized the constant progress of the club, changing the household lifestyle of the member, which gave us boundless confidence. Just like today, if someone mentions Wechat, people’s first reaction is “the founder of the new communication mode”. I hope in the near future that when people mention DDI STCC, they will think of “the pioneer of changing the middle-class lifestyle”.

Actually, I spent much time in the club this year, and I also met many new members of our club. One of them is a lawyer returning from abroad and is the partner of a famous law firm. After the visit, he told us that I not only found a living place on Saturday and Sunday for my family, but also was aware that what I did in the business was only a slice of small cake, and what I shall do was more. There will be dozens of new members joining our club every month, and we will hold a very grand ceremony for the joining of each batch of new members for welcoming them and letting new members make communication with old ones.

Of course, as the provider of international lifestyle, STCC will cover more contents later. What people see now is only some facilities, but I think the hardware is not too important, and the key is software. What is the software? We can see from the club's 2016 plan that there will be 20 activities every month, and our member and our invited guest will jointly enjoy a dreamlike moment once a month. We will hold an influential activity in Shanghai every quarter, we will hold some activities in which journalists from Beijing are willing to take part every half year, and we will hold an activity which is influential in the same industry of international club every year. In the first half of this year, upon Peter’s preliminary communication when taking part in the Asian Club Annual Meeting in Singapore, 2017 Asian Club Annual Meeting will be held in our STCC.

We plan to make further development on this basis. We are considering creating a holiday about the international middle-class life service provider like Singles’ Day of Alibaba.

To achieve this goal, I think there are four very important points:

Firstly: Be realistic. We shall keep our feet on the ground, ensure the steady cash flow, seek improvement in stability, and grasp the right rhythm and strength.

So, when making the club’s 2016 budget this year, we shall seek truth from facts and make the most conservative budget. We need to get the preliminary balance of the club. Because it is known to all that a club needs time to build brand, but after eight months of exploration, we have been able to find a way of grasping the balance and actual economic benefits. It is the closed cycle of the last link among three links in the 8-10 years, and we strive to complete the last closed cycle in 2016.

Secondly: Keep improving. Over the past 30 years, China’s GDP grew by about 10% on average. We always spend greatest efforts to achieve a goal in a hurry, first occupying the track and the commanding height. Our real estate industry also focuses on the extravagance. Of course, enterprises with a certain scale will have some advantages, but only the best dominates in the future 30 years.

For Wacheng project of Yuelai City, our senior management team went to Japan for making investigation on many projects. In Japan, generations of people will make a vessel, and such craftsman’s spirit of doing one thing all their life deserves our respect. Certainly, many things they do also need to be criticized or discussed. But undoubtedly, our nation and our DDI colleagues shall learn their craftsman’s spirit.

We first serve the customer from the project and from C terminal. Firstly, as the member of our club, how to win customers with fine services. For example, how to dig this well deeper in STCC?

We have such a plan: we plan to establish a “club within club” in STCC temporarily called “Centenarian Club”. We have preliminary cooperation with UCLM Affiliated Hospital and Huadong Hospital. UCLM has been ranking top three to five for hundreds of years in the United States, and Huadong Hospital is the best in the middle-aged and old care and health industry. We plan to select one hundred top entrepreneurs from our members, asking them to manage the enterprises and their life quality and cycle well. Therefore, we not only provide facilities in the material or meet their requirements for happiness through some activities, but also offer the comprehensive services in the spirit from the health and nutrition.

It is known to all that many state leaders born in Shanghai accept the health care in Huadong Hospital. One person aged 106 is a nutritionist born in Qing Dynasty, and now is also a photographer. We also invite him to be our consultant later. We will conduct the whole-process tracking of the 24-hour health status of these 100 members through the “Centenarian Club”. Such service will benefit both our members and our employees, popularizing such knowledge about healthcare among the company’s colleagues and the public of the society. We also hope that we will use the funds from fining the entrepreneurs (if they fail, they will be fined 10000 yuan each time) to establish the public fund of “Centenarian Club” for popularizing the experience accumulated from this activity. I think it is from our consideration in keeping improving.

Thirdly: Be stronger. With the steady pace and perfect details, product growth and market recognition will be beyond all doubts, and consolidation and being stronger are the necessary conditions for success.

As a leader and an icebreaker in an industry, if you have obtained such a piece of blue sea but failed to be stronger rapidly, what you can do is to serve others. We are summing up the experience of DDI over the past 20 years. We were the leader and advocator of youth residence. But later, Vanke and Sunshine also begin to focus on youth residence. As a small and medium-sized real estate enterprise, we have lost much of speaking right. Only be stronger can we have our own style in international lifestyle provider of the middle class in the future and become the leader in China forever!

Fourthly: Being fast. Once the products have the value which customers can’t ignore, the next is to copy and occupy the market fast for forming the monopoly advantage.

As I said just now, the population of the middle class will reach 600-800 million in the next 8-10 years. Among these 600-800 million middle class, we serve 10% of them, equaling 60-80 million. STCC has been Asia's largest family center club, but we only accommodate more than 10000 people. 600-800 million of population equals nearly 20 million families, so how many clubs shall we provide for meeting the demand? After the cash flow becomes health and many business models reach a consensus, we have a tactics of “two driven by one”, namely, how are the latter two guaranteed after establishing the former one project. We will think about these problems from the system and talents.

For real estate, the recent “Central Economic Working Conference” issued the good news about the real estate, requiring “reducing house stocks, stabilizing real estate market, encouraging investment and eliminating outdated restrictions”. I hope all the colleagues can make good use of the good policy in the old projects; and make the preparation for the new project before the positioning and development. Promise must be kept and action must be resolute, which is what Mr. ZHAO said: do what one says. This is the company culture of our DDI. Make sure each task reaches the standard; Make sure each performance index is achieved successfully.

For overseas business, we sold the last building in Detroit the day before yesterday. The sales amount of this building is all the cash flow of overseas investment, because we also need to make technology investment in this aspect. The United States has a tax avoidance policy. If you make the same type of new investment in this aspect, 45% of tax can be avoided. Now our North American team will go to the west coast in the United States. In October, our North American team's leader has had been to Los Angeles once, and he went there recently. We shall make new investment in the west coast.

I heard some words from a Christmas song a few days ago: Light will defeat darkness forever during their contest. With the national economic growth slowing down, and the real estate industry becoming saturated or changing from the gold age to silver age, DDI suffered some pains during the grope in the dark, but we find the light from being the international lifestyle provider of the middle class. I believe that our future is bright, and the future belongs to us and also belongs to all of DDI family!

Finally, on behalf of the group, I’d like to extend my thanks to all DDI people for their hard work over the past year. With the goal set, I hope all of us can keep persistent! Regardless of difficulties and obstacles on the way, please keep in mind: our DDI value “creativity, exquisiteness, excellence, service.” Let's work together and remember our original intention for building a world belonging to our DDI people!