AmCham biz.hk March 2015

March 2015

JIM THOMPSON

CHAIRMAN CROWN WORLDWIDE GROUP

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March 2015

Contents

Vol 47 No 3

Publisher

Richard R Vuylsteke

Editor-in-Chief Kenny Lau

Managing Editor

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COVER STORY

A resident of Hong Kong for 40 years who has embraced a roller coaster of shifts in the local economic, social and political environments, Chairman of Crown Worldwide Group Jim Thompson reflects on how thankful he is to have landed at the proverbial right place at the right time

Blessing Waung

Advertising Sales Manager Regina Leung

biz.hk is a monthly magazine of news and views for management executives and members of the American Chamber of Commerce in Hong Kong.

Its contents are independent and do not necessarily reflect the views of officers, governors or members of the Chamber.

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AMCHAM NEWS AND VIEWS 04 For an Open, Efficient and Globalized Market in China The draft Foreign Investment Law raises many issues regarding certainty and predictability in its current form, and it needs further modifications and clarifications in order to design a thorough and comprehensive modernization of China's foreign investment regime

07 New Business Contacts 23 executives joined AmCham’s business network last month

40 Mark Your Calendar

COVER STORY 08 A Golden Anniversary of Business Success A resident of Hong Kong for 40 years who has embraced a roller coaster of shifts in the local economic, social and political environments, Chairman of Crown Worldwide Group Jim Thompson reflects on how thankful he is to have landed at the proverbial right place at the right time amidst a celebration of founding a thriving company half a century ago

INSURANCE & HEALTHCARE

14 In Search of a Sustainable Scheme

The Voluntary Health Insurance Scheme (VHIS) proposes to require insurance schemes to comply with a set of minimum standards designed to improve the accessibility, quality and transparency of private health insurance. Dr Ko Wing Man, BBS, JP, Secretary for Food and Health, explains the rationale

Single copy price HK$50 Annual subscription HK$600/US$90

2

biz.hk 3 • 2015

14 INSURANCE & HEALTHCARE Dr Ko Wing Man, BBS, JP, Secretary for Food and Health, explains the rationale behind a proposal of minimum standards to improve the accessibility, quality and transparency of private health insurance

TRADE & INVESTMENT AmCham Hong Kong hosts a conference with government and business leaders from the US and Philippines for a discussion on trade and investment priorities in advance of the APEC Leaders’ Meeting in Manila

TRADE & INVESTMENT 19 APEC 2015: The Philippines Means Business In anticipation of a series of high-level economic dialogues, AmCham Hong Kong hosts a conference with government and business leaders from the US and Philippines for a discussion on trade and investment priorities in advance of the APEC Leaders’ Meeting in Manila

20 APEC Matters The APEC economic forum with a series of meetings for 2015 is now under way in the Philippines where state officials and business leaders will congregate to discuss initiatives aimed at driving economic growth and development

22 On the Agenda for ABAC 2015 Members of the APEC Business Advisory Council (ABAC), a high-level advisory body where senior private sector representatives advise on policy for APEC, discuss the opportunities for dialogue and collaboration

24 APFF: Inclusive Growth & Long-Term Investment One strategy of the Asia Pacific Financial Forum (APFF), a platform of APEC Business Advisory Council, is to diversify the financial markets so that SMEs can better get access to capital, according to Dr Julius Caesar Parreñas, APFF Coordinator

biz.hk 3 • 2015

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19

FINANCE & ECONOMICS Against a global backdrop of uncertainty and volatility as markets in the US and Europe continue to recover, Hong Kong may expect a year of modest growth, says veteran market analyst Peter Churchouse

TAXATION 25 Hong Kong Budget: Steps in the Right Direction, What’s Next?

Amid a large budget surplus, Financial Secretary John Tsang announces a series of one-off tax relief measures in an economic environment of declining crude oil prices, diverging growth rates, an appreciating US dollar and depreciating euro and yen

FINANCE & ECONOMICS 28 A Survey of Global Economic Trends The US economic recovery has been seemingly robust while Europe is facing a tougher time in overcoming its woes. Against a global backdrop of uncertainty and volatility, Hong Kong may expect a year of modest growth, says veteran market analyst Peter Churchouse

TRANSPORTATION & LOGISTICS 32 SF Express: A Case Study of an Expanding Logistics Company An AmCham delegation is reminded of the exponential growth in China and how Chinese companies are moving quickly to capture business opportunities domestically and internationally in a recent visit to one of China’s leading courier services companies

EDUCATION 36 A Center of Modern Managerial Knowledge President Dr Pedro Nueno of the China Europe International Business School (CEIBS) explains the purpose of advanced business education in driving entrepreneurship and innovation

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biz.hk Editorial

Board of Governors Chairman

Peter Levesque

Vice Chairman

Walter Dias

Treasurer

Tom Burns

Executive Committee Evan Auyang, Sara Yang Bosco, Steve Lackey, Ryan Mai, Alan Turley, Richard Weisman Governors David Adelman, Donald Austin, Anne-Marie Balfe, Owen Belman, Diana David, Sean Ferguson, Robert Grieves, John (Jack) E Lange, Seth Peterson, Catherine Simmons, Eric Szweda, Colin Tam, Jennifer Van Dale, Frank Wong, Patrick Wu Ex-Officio Governor President

James Sun Richard R Vuylsteke

Chamber Committees AmCham Ball Apparel & Footwear China Business Communications & Marketing Corporate Social Responsibility Education Energy Entrepreneurs/SME Environment Financial Services Food & Beverage Hospitality & Tourism Human Capital Information & Communications Technology Insurance & Healthcare Intellectual Property

Ryan Mai Mark Green Lili Zheng Charlie Pownall Oliver Rust Irene Chu CY Yeung Virginia Wilson Rick Truscott Laurie Goldberg Jim Taylor Derek Berlin Veronica Sze Mark Kemper Shanthi Flynn

Rex Engelking Hanif Kanji Jenny Wong Gabriela Kennedy Law Clara Ingen-Housz Pharmaceutical Joyce Wong Real Estate Robert Johnston Edward Farrelly Senior Financial Forum Philip Cheng Senior HR Forum Bianca Wong Sports & Entertainment Ian Stirling Taxation David Weisner Trade & Investment Barrett Bingley Transportation & Logistics Gavin Dow Women of Influence Anna-Marie C Slot Young Professionals Michael Harrington

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T

he Ministry of Commerce of China issued a draft Foreign Investment Law earlier in a significant move to reduce barriers to foreign investment through streamlining the current regulatory framework and replacing three existing laws, namely the Sino-Foreign Equity Joint Venture Law, the Wholly Foreignowned Enterprise Law and the Sino-Foreign Contractual Joint Venture Law. The principle of national treatment, the narrowed focus on investment actually controlled by non-Chinese persons, the emphasis on openness and transparency, the consolidation of rules relating to foreign investment, and the convergence of organizational and governance arrangements for foreign-invested and domestic enterprises are all positive developments.

When the new law comes into effect, foreign companies will be treated – more or less – in the same legal manner as other domestic companies in the country. However, there are a number of areas in the draft law needing further modifications and clarifications in order to design a thorough and comprehensive modernization of China’s foreign investment regime.

There are many provisions of the draft law that raise important concerns in relation to the rule of law, and there are fundamental uncertainties about the scope of “foreign investment” governed by the new rules, particularly flowing from the broad and vague concept of “control.”

In this regard, the vague and undefined concepts of “material influence” and “decisive influence,” for instance, are particularly troublesome. The definition of “decisive influence” should be clarified explicitly to exclude the kind of “negative controls” or minority investor approval rights, including those relating to financing and fundamental operational matters, that are typically negotiated to protect minority investors (as well as lenders and commercial counterparties) against controlling

biz.hk 3 • 2015

FOR AN OPEN, EFFICIENT AND GLOBALIZED MARKET IN CHINA investors using their power to change the agreed parameters of an investment project.

The provisions regarding national security review covering all foreign investment are also extremely broad and vague, and are based on the very expansive concept of “national security.”

There are no standards nor criteria, and no avenues for review, that satisfy the standards for rule of law in application of the national security review, particularly given the comprehensive scope of “national security” as conceived in the draft law.

In addition, it puts unfair requirements and potential liabilities on foreign investors with respect to application for and reporting related to national security review. Given the universal scope of factors that are defined as relevant to “national security,” it would be impossible for foreign investors in many circumstances to know whether application for national security review is required or not.

The draft law is a somewhat radical departure from previous regulation of foreign investment in the PRC, in that it would cause transactions occurring outside of China to trigger approval and reporting requirements in the PRC, with effects for China or international markets that may not have been fully taken into account.

The filing and reporting requirements based on nationality of ultimate owners of offshore enterprises may simply be unworkable for companies traded in fluid global markets where beneficial ownership reporting requirements do not provide the kind of information

biz.hk 3 • 2015

that would be necessary to ensure compliance with provisions of the draft law.

While it seems to reflect a policy to encourage greater competition, there are aspects of the draft law that are fundamentally anti-competitive because of the possibility of a broad and undefined range of limitations that can be placed on approved foreign investment operations, affording little room for protection against these being used to give competitive advantage to domestic enterprises.

Fair competition requires protection of proprietary information, including not just “trade secrets” and other intellectual property but also proprietary strategic, financial and other information concerning a business enterprise. The reporting requirements do not provide adequate assurances of the confidentiality of such information. More importantly, the national security review provisions can potentially be used without any accountability to protect the interests of competitors.

The draft law, in short, raises many issues regarding certainty and predictability in its current form – issues that can translate into pricing discounts, at best, and capital flight, at worst, in international capital markets. They harm both the ability of Chinese enterprises to raise capital and the ability of Chinese investors to realize the value of what they have created. China’s interests will be best served by giving full consideration to a wide range of experiences and perspectives in refining and improving the draft law.

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www.amcham.org.hk

AMCHAM Means Business

Members Directory

Over 500 pages in three major sections, including a complete guide to chamber services, corporate sponsors and AmCham Charitable Foundation. This directory lists about 1,700 members from over 700 companies and organizations.

ISBN 978-962-7422-31-0

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Tel: (852) 2530 6900 Fax: (852) 3753 1208 Email: hchung@amcham.org.hk

New

Business Contacts The following people are new AmCham members: Adidas Sourcing Limited Craig Morin Senior Director

AlixPartners Hong Kong Limited Brian Nemeth Director

American Club, The David Loan General Manager

Apsiz Services (Hong Kong) Ltd Madeleine Tewes Head of Business Development David McDonald Vicky Yip

Artlink Design Associates Ltd Rita Tsang Marketing Manager

Baker & McKenzie James Lau Associate

Charles Schwab HK Ltd

Wendy Wong Head of Marketing, Asia Pacific

Clifford Chance

Peter Charlton Regional Managing Partner, Asia Pacific

Common Purpose Charitable Foundation Louisa Li Course Director

Connect Communication Ltd Patrick Eng Executive Consultant

Freshfields Bruckhaus Deringer Jessica Bartlett Associate

GS1 Hong Kong Anna Lin Chief Executive

Hongkong and Shanghai Banking Corporation Ltd, The Jason Huck Senior Corporate Manager

Icicle Group

Marion Charreyre Studio Director Kay Leong Manager - Business Development Jeff Wong Partner - Sourcing

InterCall

Valen Ng Business Development Manager Enterprise Acquisition Timothy Devereux Business Development Manager Global Enterprise Development

K&L Gates David Tang Partner

Schneider Electric (Hong Kong) Ltd Rerina Or President - Hong Kong

Standard & Poor's Denis O'Sullivan Managing Director

View our other members at:

http://www.amcham.org.hk/component/amcham_users/?view=memberlist

biz.hk 3 • 2015

7

COVER STORY

Jim Thompson

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biz.hk 3 • 2015

A Golden Anniversary of Business Success A resident of Hong Kong for 40 years who has embraced a roller coaster of shifts in the local economic, social and political environments, Chairman of Crown Worldwide Group Jim Thompson reflects on how thankful he is to have landed at the proverbial “right place at the right time,” amidst a celebration of founding a thriving company half a century ago

By Blessing Waung

biz.hk 3 • 2015

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O

n the 50th anniversary of Crown Worldwide, founder and chairman Jim Thompson is pleasantly surprised. Over the course of many months, staff from around the world have collaborated for a video wishing the company “Happy Birthday, Crown!” in languages ranging from Austrian to Arabic to Turkish.

Thompson is living the American dream, albeit in Asia. He famously started his company with a thousand US dollars, and through seemingly infinite obstacles, grew it into an international business that now churns out sales close to US$900 million a year.

It’s a far cry from the cramped cubicle in Yokohama, Japan where Thompson’s dream of founding and running a company was once a fledgling idea. In his office located in Wan Chai’s Mass Mutual Tower, where Thompson today sits with an easy grin, he can be regarded naturally by those who have encountered him, without fail, as one of the most genuinely kind men one will ever encounter.

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Living in Hong Kong in the past four decades, Thompson has embraced a roller coaster of shifts in the local economic, social and political environments. Now, as the company celebrates its fiftieth anniversary this year, he reflects on how thankful he is to have landed at the proverbial right place at the right time. It’s also a big year for Thompson personally, as he celebrates his 75th birthday.

The early years The path to Asia was one of chance.

Thompson’s father was based in Japan as a US naval officer when the younger Thompson was in college at San Jose State University. In the summer of 1948 following his freshman year, he crossed the Pacific Ocean courtesy of the Navy’s student dependent program for a brief visit in which he climbed Mount Fuji, hung out around the military base, and by the end of summer started hatching plans for a return to Japan.

He and his Alpha Tau Omega fraternity brother came up with an idea to do a round-the-world trip, traveling to Europe and somehow ending up in Japan. The finances came from working for the American Can Company in San Jose, scrimping and eventually buying ship passages from Canada to Europe. The trip ended in Japan, and Thompson stayed for six weeks.

“In my last year of college, all I could think about was going back to Asia,” Thompson says. “I had the bug.”

A college graduate, Thompson bought a one-way ticket to Japan to work for a furniture moving company where his father was employed. A year and a half later, in December 1964, he was let go, and everything else took a spin.

“When I left the company, they assumed I was going back to the US and felt obligated to give me a ticket back to the States,” Thompson laughs.

“It was a redeemable ticket. I just took it and said ‘thank you.’”

Instead of flying home, Thompson took the ticket, cashed it, and famously

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cobbled the money together with his savings of a thousand dollars to start his business. “The first five years, well, I guess you can say were rapid because we did 99,000 dollars,” Thompson recalls. “A hundred thousand dollars of business in the first year, and 188,000 dollars in the second year. By the end of the fifth year, the end of 1969, we were very close to a million dollars of sales.”

With tremendous momentum, it was time to transition from working for the military to a focus on the corporate sector, at a time when Japan was stepping into becoming the second largest economy in the postwar years. In a stroke of serendipity, Thompson traveled to an industry meeting in England.

“Someone told me that there were a lot of different agents from the moving companies at this meeting and advised me to network with them,” he says. There, Thompson met a fellow American mover servicing Caterpillar, a large US corporation with a major factory in Japan and regionally headquartered in Hong Kong at the time.

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“Hong Kong was trying to cope with the shock of the Cultural Revolution because it certainly affected the city,” he says. “There were riots, and I have pictures of Red Guards here in Hong Kong. Many of the Western businessmen packed up and left because they felt Hong Kong might fall to communism, that’s how bad it was.

But, by late 1969, it had somewhat calmed down.”

“When we came to Hong Kong and looked around, we found there was little in the way of competition,” he adds. “Mostly, it was local companies, not up to the international standards of packing.”

Expanding to Hong Kong At the time, Thompson and a few of his peers considered Singapore as well. He recalls sitting at a hotel there, debating, and finally deciding upon Hong Kong.

“My original company’s name was Transport Service International. I

didn’t like the name. Plus, a guy offered to buy my business in Japan,” he says. “So, when we set up in Hong Kong, we wanted a name more memorable, went through a list, and settled on Crown. As we went to register it, we were told that it was already taken. We were so heartbroken [but eventually came up with Crown Pacific].”

Despite the idea of selling his Japan company to a gentleman in Los Angeles (which he never did) at one point, “within the next five years we expanded into Singapore, Malaysia, Indonesia, and the Philippines,” Thompson says.

“The Asian market was really undeveloped, and local companies didn’t know anybody overseas. We came in with a new international approach to the whole moving process.”

“We were fortunate because we were in the right place at the right time doing the right service,” he adds. “On the one hand, you take a lot of risks, but on the other hand, if it pays off, you are definitely in good shape.”

In 2004, Thompson hired a former South African diplomat Gregory

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De’eb and took a bold move by leasing munitions bunkers from Hong Kong to open what was to become the first world-class wine cellar in Asia.

Nowadays, Thompson spends much of his time speaking at forums and to students in particular as mentor. “The one thing I often mention is: if you want to succeed, you have to be ready to persevere because no ride is going to be smooth,” he emphasizes. “No matter at whatever level, you’ve got to get through those barriers that come in your way, and not let them distract you.”

Core values However, once successful, Thompson believes the onus is on entrepreneurs to take that reward and return it by giving back to the community in ways of supporting others.

“My parents weren’t rich, but they were always trying to do things for other people,” he says. “You know, when you are a kid, you take it for granted, but when you are grown up,

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you look back and say, ‘Wow. They were really kind people.’ They didn’t have much in terms of money but they were always ready to help people out.”

“When I got to Japan as a young guy, my dad had been supporting an orphanage there. I say supporting because it wasn’t like he funded it,” he says. “When local Japanese people asked, ‘Will you do this?’ and I said ‘sure.’ We would regularly look after these Japanese orphans, and we actually watched some of them grow up. It was a fun experience.”

It is a foundation of benevolence Thompson has carried through the next generation, with his daughter Jennifer Harvey now running the company’s worldwide corporate social responsibility agenda. “When I helped out in the orphanage in Japan, Jenny was a little girl, in a little outfit giving out Christmas presents,” Thompson recalls. “I think she has the exact same spirit.”

“Between his tenacity, the fact that

he’s smart and such a people person, and probably that at a few points in his life, he was lucky…the fact that he tells you about his good fortune says more about him than the fact that there was good fortune,” Harvey says. “He’s humble enough to admit that all successful people were lucky at some point. He doesn’t want all the attention to be on him.”

“It’s very funny that magazines like Forbes talk about his net worth or that kind of thing, which is not really reality because they are valuing, say, properties and things that are not necessarily liquid assets,” Harvey laughs. “It paints a picture of him to be the man with this number attached to him, but in fact, he is such a down-to-earth person.”

And he agrees. “As my life progressed, I would from time to time think ‘Why am I so lucky?” Thompson says. “There’s nothing so special about me. I have felt on occasions that whatever it was taking me down this path to increasing wealth somehow does not all belong to me.”

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A family of employees When Billy Wong, Managing Director of Crown Worldwide for Greater China, joined the group in 1979, there was a global staff of around 650 housed in 15 different offices. In three and a half decades, it has grown to include more than 5,000 employees worldwide in 265 different offices.

“Why did I stay for so long with Crown?” Wong asks. “It’s the company values: we share, we care, we’re determined, and we’re open-minded.”

Thompson himself glows when speaking of employees who have come on board at a young age and stayed with the company through years of exponential growth, saying that he makes an effort to celebrate their efforts and anniversaries.

“Jim is a visionary and an influential person, both under the work and life spectrums,” Wong describes. “He is the charismatic leader of the Crown Worldwide Group.”

Thompson’s vision in giving back to the community has given rise to a generation of employees determined to make a difference. “We came up with the idea of a relay among our offices in holding a fundraiser, and we all have a common charitable goal, which focuses on local children’s health and education,” Harvey says.

“We do local fundraisers in each place to support some elements in the development of children,” she explains.

“It goes from one country to another, and we do it more or less in the order in which the company expanded. The first office to lead off was Japan, and then they passed a baton to Hong Kong and so forth. We are calling it the ‘Golden Relay.’”

“Each country sets a fundraising target, and they get an award and a letter from Jim Thompson recognizing their achievement,” she says. “They hold up a sign that may say, for example, ‘Crown Hong Kong, you are next’ and take pictures in celebration. People get very excited.”

People-to-people “AmCham has always been a cohesive place where Americans or American-related businesses come together,” Thompson says. “So, it was really necessary. It is somewhat amazing that while there was an American Club, there wasn’t a chamber prior to 1969.”

“When it was formed, it became a magnet for those people who wanted to discuss issues related to American business,” he says. “It really was structured well and grew in strength.”

And, Thompson’s involvement with the American Chamber of Commerce was not confined to the city of Hong Kong, but since the beginning of his early career in Yokohama, Japan, Harvey recalls. “He was involved with the American Chamber of Commerce in Tokyo, and he would drive an hour from Yokohama, just to go and participate and be involved there.”

“One of the many things that makes him so extraordinary and what people around him try to replicate – he is the guy who will remember to care for an

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employee in some small town whose wife is sick, and he will remember some other person from a very distant location who has the same birthday as his own,” she says.

“But, he is not doing it to prove something or try to win people over.

He’s really about the people at the company,” she adds.

“I think it translates to his involvement in a place like the American Chamber of Commerce because so much of it is about people connecting with each other and trying to learn from each other,” Harvey says. “It’s also about business people coming together and trying to make the whole company work better. So, it really suited him in a way because he is so interested in others and what they have achieved.”

Lifetime achievement One of Thompson’s all-time most proud accomplishments was being awarded the Gold Bauhinia Star in 2003 from the Hong Kong Government – the second highest recognition equivalent to the Order of the British Empire awarded to individuals honoring their commitment and contribution to the community of Hong Kong.

Though Hong Kong may have faced countless crises and turmoil time after time, Thompson remains highly optimistic and maintains great faith in a city which he calls home, since arriving more than 40 years ago. “People here work so hard that it makes you want to work hard too,” he says. “I found that to be true when I first came to Hong Kong, and I could still feel that spirit.”

“Hong Kong really is a wonderful place: an international city with good work ethics and a sound tax and legal system,” he says. “All of those things are still in place.”

“In terms of my success, I’ll always say a lot of it simply had to do with fact that we were based here,” Thompson says in reflection. “I know companies make successful businesses all over the world, but I really feel that the basics of Hong Kong encourage business development and certainly the work ethics of people.”

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INSURANCE & HEALTHCARE

Dr Ko Wing Man

In Search of a Sustainable Scheme The Voluntary Health Insurance Scheme (VHIS) proposes to require all individual indemnity hospital insurance schemes in the market to comply with a set of minimum standards designed to address a number of issues, thereby improving the accessibility, quality and transparency of private health insurance. Dr Ko Wing Man, BBS, JP, Secretary for Food and Health, explains the rationale behind the effort to recalibrate Hong Kong’s healthcare sector in an event held by AmCham’s Pharmaceutical Committee

By Kenny Lau

C

omparable to those of other advanced economies, Hong Kong’s healthcare system is efficient and reliable, providing a well-regarded sanctuary of recovery for millions of people when they become ill. Courtesy of heavy government subsidies, it is affordable and accessible to all.

The private healthcare sector in Hong Kong, meanwhile, is complementary to the public system, forming as a part of a “dual-track” system and

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offering additional choices in professional healthcare services.

“A characteristic of Hong Kong’s healthcare system is the co-existence of the public and private healthcare sectors,” says Dr Ko Wing Man, BBS, JP, Secretary for Food and Health, speaking in a recent event held by AmCham’s Pharmaceutical Committee.

“The public sector is the pre-dominant provider of hospital services, bearing about 88 percent of the demand for in-patient services,” Dr Ko points out. “The private sector,

on the other hand, is the major provider of outpatient services, and it provides an alternative to those looking for more personalized services.”

“It is the government’s policy to ensure a balanced and sustainable development of the two sectors,” he says.

“The government will continue to uphold the dual-track healthcare system and strengthen its commitment to the sustainable development of public system as the safety net for all.”

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A Growing Challenge Similar to other developed countries, Hong Kong is now facing a number of challenges in the sustainable development of its healthcare system due to various factors, including an aging population and a growing demand for healthcare services. The proportion of elders in the city is currently one in seven, but it is estimated to reach one in three by 2041, hence creating significant pressure on the supply of medical services in the coming decade or two.

Moreover, lifestyle-related diseases such as diabetes and heart disease have become more common in Hong Kong as people shift into a more affluent but sometimes less healthy style of living in the form of poor habits. While advancing medical technology is essential to saving lives or simply improving the quality of life, it is nevertheless a significant contributing factor to the escalating medical costs in recent decades.

“Confronted by these challenges, it is necessary to identify suitable measures to maintain the long-term sustainability of our healthcare system,” Dr Ko stresses, noting the discussion on healthcare reform in Hong Kong has been ongoing for over two decades.

The discussions on healthcare reform and healthcare financing began in 1993, when the document entitled Towards Better Health, commonly known as the “Rainbow Document,” was published in a consultation to explore options for a different charging scheme in the public healthcare sector. In 1999, it was recommended that a system based upon social health insurance be set up in the so-called Harvard Report.

Later on in 2000, a consultation, dubbed Lifelong Investment in Health, was an effort to learn of the feasibility of a mandatory medical savings account. In 2008, the First Stage Public Consultation on healthcare reform was launched, introducing

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a wider scope of potential financing options for consideration, such as mandatory health insurance, voluntary health insurance, and personal healthcare reserve.

“As these rounds of consultations revealed, the public had reservations against any financing option of a mandatory nature,” Dr Ko notes. “As a result, the government proceeded to develop options along the voluntary principle. This culminated in the Second Stage Public Consultation in 2010, when the proposed Health Protection Scheme, which is now renamed Voluntary Health Insurance Scheme (VHIS) in our current proposal, was put forth.”

A Wholly Approach The Voluntary Health Insurance Scheme is meant to be a supplementary financing arrangement that complements the public healthcare system, Dr Ko points out. “It is not intended as a total solution to the problems of our healthcare system, but one of the turning knobs in readjusting the public-private balance.”

“By enhancing the accessibility, quality and transparency of private health insurance, VHIS provides a choice to those who are willing and able to use private healthcare services, thereby alleviating the pressure on the public healthcare system,” he explains.

“It will help promote synergy between the public and private sectors and more efficient use of public and private healthcare resources.”

In addition to VHIS, a number of initiatives to redress the public-private balance will be implemented, including partnership programs, he adds. “In the process, we will be reviewing the regulation of private healthcare facilities to ensure patient safety and price transparency, healthcare manpower planning to ensure a sufficient number of doctors and healthcare personnel to serve the public in the future, as well as enhancing primary care to ensure the public can receive appropriate medical care in a timely manner.”

About 2.79 million people in Hong Kong, or about 40 percent of the population, are covered by some form of private health insurance, and among them about 2 million are covered by indemnity hospital insurance.

However, well over half of those covered with private health insurance still pertained to the public sector in terms of hospital admissions, according to the Thematic Household Survey conducted in 2011.

One of the reasons is that of the inadequate protection of private health insurance, including insufficient benefit coverage or limits, or uncertainty over whether hospital expenses are claimable under the insurance policy, Dr Ko notes. “This phenomenon reflects that private health insurance has the potential of playing a greater role in financing healthcare.”

“In order to address the concerns of the public over existing private health insurance products, we propose to regulate all individual indemnity hospital insurance products in the market,” he says. “Under VHIS as proposed, the government will stipulate 12 minimum requirements with which these products have to comply.”

“Minimum Requirements” The minimum requirements in the proposed VHIS will be prescribed through a “standard plan,” which must be offered as an option to consumers.

However, products without indemnity hospital components, including outpatient products and non-indemnity products such as hospital cash plans and critical illness plans, would not be subject to the proposed requirements.

These requirements are designed predominately to enhance the accessibility and continuity of insurance protection, improve the quality of private health insurance, and provide greater transparency of private health insurance and private healthcare services.

“By these so-called minimum requirements, we do not intend to prescribe a ‘one-size-fit-all’ uniform

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Hong Kong’s Dual-track Healthcare System Health Expenditure

Inpatient Service (bed days)

Public 90%

Public

Private

49 %

51 %

Private 10%

Outpatient Service (attendance)

Public 30%

Private 70%

Source: Food and Health Bureau, Hong Kong Government

product to restrict variety, but to set out the minimum protection that any individual indemnity hospital insurance product must offer to consumers,” Dr Ko emphasizes.

“Instead, it will provide simplicity, clarity and certainty to consumers who do not possess professional knowledge about health insurance,” he says. “On top of the minimum requirements of a standard plan, insurers may offer ‘flexi’ or ‘top-up’ plans to provide consumers with choices of additional benefits, such as higher ward class, higher benefit limits, or out-patient coverage.”

The proposed requirements are in fact nothing novel, Dr Ko points out, adding that governments in many overseas countries with a significant private health insurance market have all prescribed a set of basic requirements similar to those proposed in the current form of VHIS for private health insurance products.

Government Support The successful implementation of the VHIS hinges on, among other things, government support both in

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terms of funding and policy measures, Dr Ko points out. One of the key government measures supporting the scheme, for instance, is the establishment of a “high risk pool,” which is said to enable high-risk individuals to gain access to private health insurance.

In other words, a group of individuals who would not otherwise quality for a private insurance scheme would be made eligible for a policy under a VHIS standard plan, which will be financed by the premiums collected from policyholders as well as government funding, he explains. “Without this mechanism, many high-risk individuals could only fall back on the heavily subsidized public hospital services for meeting their medical needs.”

To encourage people to sign up for health insurance, tax deduction is proposed for individuals taking up indemnity hospital insurance policies that are in compliance with the minimum requirements of VHIS, Dr Ko notes. Dependants of taxpayers will also benefit as claims can be made for tax deduction on policies covering their dependants.

Moreover, a public consultation on strengthening the regulation of private

healthcare facilities has also been rolled out, he adds. The aim is to enhance the safety, quality and transparency of private healthcare services and to address public concerns over occurrence of medical incidents or disputes over fees and charges of private hospitals.

The proposals will thereby strengthen the regulation over ambulatory facilities where high risk medical procedures are performed, and enhance the price transparency of private healthcare facilities, including disclosure of price information, written quotation of fees and charges, packaged pricing for common procedures, and disclosure of historical bill size statistics.

“Our policy is to facilitate private hospital development with a view to increasing the overall capacity of the healthcare system in Hong Kong,” Dr Ko says, noting the development of a new private hospital of 500 beds in Wong Chuk Hang and a plan for a new teaching hospital affiliated with the Chinese University of Hong Kong, in addition to ongoing redevelopment of some existing private hospitals for extra capacity.

“In parallel with taking forward the VHIS, the government will continue to strengthen its commitment to public healthcare,” he stresses.

“The government’s recurrent expenditure on medical and health services will reach almost HK$55 billion this year, accounting for about 17 percent of total government recurrent expenditure.”

“We will also invest substantially in public hospital development projects, including the development of an acute general hospital in the Kai Tak Development Area, Tin Shui Wai Hospital and Hong Kong Children’s Hospital, and the expansion of United Christian Hospital,” he adds, noting a cost of HK$81 billion and an additional capacity of about 2,800 hospital beds.

“We treasure public healthcare as the cornerstone of our healthcare system, and we will continue to uphold it as the safety net for all Hong Kong people,” Dr Ko says.

biz.hk 3 • 2015

TRADE & INVESTMENT

APEC 2015:

THE PHILIPPINES MEANS BUSINESS

The Asia-Pacific Economic Cooperation (APEC) is a coalition of 21 economies along the Pacific Rim in support of sustainable economic growth and prosperity in the region. Each year, ministerial-level officials gather in a forum to promote trade and investment, encourage economic cooperation and foster a favorable environment for economic growth and development.

Following China’s successful hosting last year, the Philippines has assumed the leadership of APEC for 2015 and established the theme of “Building Inclusive Economies, Building a Better World” to guide the organization’s work in four policy priorities, focusing on regional economic integration, SMEs’ participation in regional and global markets, human capital development, and building sustainable and resilient communities.

Building on the Philippines’ ambitious agenda, officials of the United States government and business leaders in the private sector will work closely with APEC to promote key trade and investment priorities in advance of the APEC Leaders’ Meeting in Manila this November. In anticipation of a series of high-level economic dialogues, AmCham Hong Kong has recently hosted a conference with government and business leaders from the US and Philippines.

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APEC MATTERS

By Nan-Hie In

20

L

ast year, with China as host nation of the annual Asia-Pacific Economic Cooperation (APEC) forum, the nation’s leader Xi Jinping and US President Barack Obama were among the heads of state speaking at the CEO Summit in Beijing.

During the summit, Chinese President Xi pushed for the Free Trade Area of the Asia Pacific (FTAAP), a regional free trade framework endorsed by all 21 APEC economies. It was widely touted as one of the most effective proposals presented at the forum.

A series of meetings for 2015 comprising the high-profile economic forum is now under way in the Philippines. Few forums are watched more closely than those of APEC near the end of each year for which state officials and business leaders congregate to discuss initiatives aimed at driving economic growth and development within the 21-nation bloc (which includes Hong Kong, China, Russia, the United States among other member economies).

As often is the case, initiatives of previous years for APEC forums will shape the official agenda of the following year. The Philippines as the 2015 host nation will continue to advance the plan on FTAAP presented by China. Laura del Rosario, Undersecretary for Foreign Affairs, Philippines, who is also 2015 Chair of the APEC Senior Officials, said at a recent AmCham conference.

What are the other top priorities on the agenda for APEC 2015? The four key themes are: regional economic integration (including physical and institutional connectivity as well as connectivity through services), human capital

development, small and medium enterprises, as well as building sustainable and resilient businesses and communities.

Interconnectivity & Services Trade APEC will introduce a process to advance integration of the economies to facilitate trade within the region with better connectivity, which falls under the regional economic integration agenda.

According to del Rosario, officials realize that the current Finance Ministers’ Process (FMP), an APEC platform for exchanging perspectives on macroeconomic and other financial policy items, is too broad and “unorganized” as any topics related to finance could be up for discussion.

The Cebu Action Plan, hence, was conceived to prioritize the ideas and priorities of FMP to cover the issues to be discussed among financial industry leaders. “It will have four pillars: financial integration, financial transparency, liberalization, and enhancing the [infrastructure for greater access and] receiving of finances,” del Rosario notes.

In addition, the services trade will be another topic at the upcoming meetings at APEC, including issues on policies to eliminate barriers in the sector. “The Philippines will go strong this year on services, which accounts for at least 54 percent of the nation’s GDP,” del Rosario says. It is noted that there will be a whole spectrum of the services covered in the so-called “Friends on Chair on Connectivity” events for an in-depth insight into the specific challenges and opportunities.

Other services-oriented events in the official program include the Public Private Dialogue on Services, to be held in May, which will focus on trade and manufacturing-related services. del

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Rosario also says that a regional conference on service industries will take place in Cebu later this year to further brainstorm on this topic with the involvement of the public and private sectors.

Shared Prosperity Doris Magsaysay Ho, President and CEO of Magsaysay Group of Companies and Chair of the 2015 APEC Business Advisory Council, calls for inclusive growth within the bloc of APEC economies. It’s also a key priority of the Working Group meetings at APEC. “For 22 years, the reduction of barriers of trade has led to unprecedented expansion of economic growth and trade in the region and the single biggest factor in the reduction of poverty,” Ho explains. “But, despite these benefits, there is a widening gap, and we see it all over the world.”

Ho says the discontent brewing from such income disparity could threaten policies that promote growth in the region, and it is an important issue to be addressed this year. One strategy is to make recommendations on how to empower small and medium enterprises to participate in the region’s growth.

“We want to make sure they have access to markets, to ideas, to money,” she says. “A lot of our emphasis will focus on how to get more smaller businesses in the picture and bring a new surge of our participants that includes women, people with disabilities and others who don’t feel included in what is going on.”

Ho vows to bolster communication efforts so these insights reach the “man on the street.” An online course is now available for people to learn to be part of e-commerce. A publication is also in the works to cover case studies of companies that have engaged with their suppliers in a meaningful, value-driven way instead of merely giving them contracts.

“We have to build trust between leaders, the people and businesses,” she says.

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From left: Bart Peterson, Monica Whaley, Laura del Rosario, Doris Magsaysay Ho and Guillermo Luz

CEO Roundtables & SMEs For 2015, one may expect more opportunities for the business community to connect with government officials. Guillermo Luz, Private Sector Co-chairman of the Philippines National Competitiveness Council and alternate ABAC member in the Philippines, is planning sideline events in the run-up to APEC’s CEO Summit (which will be on November 16-18 in Manila), in an effort to foster greater dialogue between top state officials and leaders in the private business sector.

In the current APEC system, there are several private sector meetings embedded within the Senior Officials Meeting (SOM), plus trade ministerial meetings, which are close-door sessions amongst government ministers. “This is one area where we see great potential for interaction with the business community,” says Luz. “We have targeted eight ministerial meetings where we want to put a parallel CEO roundtable in the same venue, on the same day.”

The parallel CEO dialogue and joint meetings will take place alongside the ministerial meetings on trade, energy, transport, food security, life sciences, science and technology, science technology

and innovation, plus disaster preparedness. The organizer says eight pairs of CEOs from various industries in the Philippines will participate in these events.

Also on the agenda at APEC Business Advisory Council are discussions on the “new worker” amid an evolutionary shift in the global labor force in recent times.

“We are going to undertake a study on this [issue] and hopefully it will shape policy on things like services, mobility of people and work,” Luz points out.

Another theme is on livable cities by exploring what makes a destination a great place to live and work, he adds. “It opens possibilities for a deeper look at secondary cities that are not normally considered in such studies.” A number of APEC cities will be selected for a study in which mayors of these cities will discuss what makes a great workable, livable, sustainable and resilient metropolitan area.

SMEs and e-commerce are also to be part of the program of APEC meetings in 2015, including the core theme of inclusiveness by giving support to young and small companies. “I don't think we can limit APEC to big business with big government. We have to look at how we bring SMEs into the global value chain and how to bring them into e-commerce and make it more inclusive,” Luz believes. “The inclusive business and growth is indeed at the heart of the APEC 2015.”

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ON THE AGENDA FOR ABAC 2015

By Nan-Hie In

T

he APEC Business Advisory Council (ABAC), established 20 years ago by APEC, is a high-level advisory body where senior private sector representatives from each economy produces studies and policy recommendations for state leaders and ministers in the 21-nation bloc. These studies and recommendations are essentially opportunities for public and private sector dialogue and collaboration, particularly through the Working Group meetings.

Trade, Growth & Climate Change From the US government, several concrete targets have been set for APEC this year. According to Robert Wang, a senior official of the US Department of State for APEC, highpriority themes for the forum in the Philippines, including initiatives that were started years ago, will continue to be advanced or effectively rolled out this year. The overall goal is to implement many of these projects by 2015.

They include the Environmental Goods Agreement (EGA). Under the theme of sustainable growth in the region, this initiative began in 2012 to reduce tariffs to five percent or less on 54 environmental products. “With the help of the private sector, we are working on capacity building to make sure that by 2015 all 21 economies with these 54 environmental products have its tariffs go down,” Wang says.

Another key priority is to improve the regional supply chain connectivity, he adds. Since 2010, the target has been a

22

10-percent performance improvement through a 10-percent reduction in cost.

“Given the fact that an estimated US$3 or 4 trillion worth of goods movement in the region [are generated] per year, that’s US$400 billion if we succeed in reducing costs in terms of time.”

When a cargo ship sits idle at a port for five days to a week, it incurs substantial costs, Wang cites in an example.

“Last year around US$2 million have been allocated to advance this project, including capacity building on eight choke points that block the flow of goods to the region, as identified from a previous study.” It is hopeful that these efforts will help reach the goal of a 10-percent cost reduction by 2015.

In line with the theme of inclusiveness for APEC 2015, economic empowerment of women continues to be a top priority. “Last year we were quite successful in getting together a dashboard [to measure] women’s economic participation in the economy,” Wang notes, adding that around 75 indicators have been identified.

By May, the study will be completed across all 21 economies in an examination of where they stand on the issue, he adds. “We will use that data to begin a focus [on this issue in the region] and recommend ways of improving women’s participation in these economies.”

Climate change is also a key issue, says Wang. One strategy is to strengthen efforts in the promotion of renewable fuels in the region, despite a higher cost than traditional fuels. “We are trying to continue the process of getting economies to begin to eliminate subsidies for fossil fuels” as many nations such as Malaysia and Indonesia still provide subsidies for this non-renewable energy source.

“The plan is to do so by getting more economies to conduct fossil fuel

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subsidies peer reviews,” he explains.

“The Philippines has agreed voluntarily to do fossil fuel subsidies peer reviews; Peru has already completed one, and New Zealand will conduct one this year, and now the US is striving to get Indonesia and Malaysia involved too.”

Wang foresees these efforts will result in policy recommendations on how economies can gradually reduce and remove inefficient and wasteful subsidies. He also notes the target for 2015 is to get more nations to do these reviews and to generate best practice studies for a change in regulations across APEC economies.

Private sector participation According to Jeff Hardee, Caterpillar’s Director of Government and Corporate Affairs (Asia Pacific) and Singapore Country Manager, who also serves as an alternate ABAC member, there are five “Working Groups” for ABAC this year from US members.

The Connectivity Working Group will focus on accelerating infrastructure, maximizing human capital potential and advancing the APEC Connectivity blueprint for improved trade within the bloc. Ed Rapp, Group President of Caterpillar and Co-chair of the group, will drive these discussions.

The Sustainable Development Working Group will explore the productivity of the workforce, food security, sustainable energy, and green development among other themes. Bart Peterson, Senior Vice President of Corporate Affairs and Communications at Eli Lilly, will champion these issues.

The SMME (small, medium and micro-enterprises) and Entrepreneurship Working Group will focus on promoting resilient SMEs, innovation, women’s economic participation and more.

The Regional Economic Integration Working Group – a mainstay topic at the forum – will garner support for the

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From left: Charles Lawrence Greenwood, Robert Wang, Jeff Hardee and Steven Xavier Chan

WTO, anti-protectionism, free trade in the Asia Pacific region, trade and investment liberalization, and more. Peggy Johnson, Executive Vice President of Microsoft, will lead these discussions.

The Finance and Economics Working Group will focus on macroeconomic growth and development in the financial system, including capital market development and integration as well as other financial infrastructure.

There are also other initiatives that, for instance, Caterpillar has forwarded through ABAC for improvement, such as bringing integrity back to mining, Hardee points out. “We decided to do a study on mining to look at the contributions of mining to economies in APEC and to look at best practices for encouraging investment in mining because there are policies in some countries that makes it difficult to do business.”

He also highlights some policies, particularly in Southeast Asia, have made it arduous to develop mines. “There are a lot of bad practices involved, and, for example, permits that you need are often disregarded. So, mining has developed a bad reputation.”

After securing funding for the study and approval from ABAC, the study went ahead and was completed last year, and it identified what constitutes best practices in the mining industry, Hardee points out. “It is an area where we as a member came up with an initiative and pushed it

through a working group. Now we have a mining study to use as a platform for discussion with stakeholders in the industry.”

Other economic priorities There are currently two major items on the agenda in relations to the financial services sector for ABAC, according to Steven Xavier Chan, Vice President & Gead of Regulatory, Industry and Governmental Affairs for Asia Pacific at State Street Asia.

The first is to expand access to finance for SMEs, Chan says. “We are looking at how to create a credit information sharing system, strengthening the legal architecture, creating and training and supply chain finance.”

Another key initiative is to develop a stronger capital market within the region, plus measures to strengthen long-term investment in the bloc, he adds. “We are looking into areas such as the repo-market and creating a ‘funds passporting’ for the region so investors in the region can access each other’s capital markets in a streamlined process.”

Chan also praises APEC as a rare forum in the region where such ideas germinate and then translate to implementation throughout the 21 nations.

“APEC is a true forum for the region where a lot of the ideas are incubated and where many policymakers can come together to engage in dialogue,” he says.

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APFF:

INCLUSIVE GROWTH & LONG-TERM INVESTMENT

By Nan-Hie In

T

he Asia Pacific Financial Forum (APFF), managed by the APEC Business Advisory Council, has been a regional platform for collaboration between public and private sectors since 2013. Its purpose is to knit closer economic ties within the region and to develop financial markets and services in the Asia Pacific pursuant of APEC’s overall goals of inclusive, sustained regional growth.

Improving access to finance for SMEs remains a fundamental issue at top forums such as G20 and ASEAN, and the APFF is no exception. The region’s growth is still predominantly dependent on export-driven models that are reliant on consumers in Europe and the US. To cultivate domestic demand in the region for its own products, one strategy is to diversify the financial markets so that SMEs can better get access to capital, says Dr Julius Caesar Parreñas, APFF Coordinator and a senior advisor at Nomura Securities.

“We need more inclusive financial systems, which means financial systems that would provide more funding for SMEs, a very important objective to the finance ministers this year with the theme of APEC being inclusive growth,”

24

Dr Julius Caesar Parreñas

he says. However, existing finance systems have posed challenges for smaller businesses to acquire funding.

For banks to lend to SMEs, much information about the borrower – and collateral – is required. “A lot of SMEs do not have collateral; they do not have real estate or inventories, yet they want to do business, so how can banks lend to these people?” Parreñas notes, adding that transaction or other credit records of small companies can serve as collateral for funding purposes in advanced economies.

However, legal and regulatory changes are needed to enable such information to be used as collateral by SMEs, he adds. “We need to establish the institutions like collateral registries for example, and to establish laws that address the concerns of lenders.” These recommendations were featured in the previous APFF Interim Report, which was endorsed by finance ministers last year.

To further this cause is a pathfinder initiative to develop credit sharing information systems to establish legal institutional frameworks for credit bureaus to work. “Several governments have said they want to work with APFF to introduce the institutional legal framework,” Parreñas points out, adding that the Philippines and Mexico have volunteered to lead this pathfinder initiative, which will be under the finance ministers process.

Another focus is the development of capital markets to encourage long-term investment to the region. A pathfinder initiative to develop classic repo markets will include workshops to develop strategies to improve legal documentation infrastructure for the derivatives markets, reveals Parreñas.

Much attention is also paid to enhance the regional securities investment ecosystem to encourage insurance companies and pension plans to invest, particularly on infrastructure. Parreñas cites inhibitory policies in nations such as Indonesia, where banks can only lend up to 7 years. “For investors in infrastructure where you look at 20- to 30-year time frames, where you need to hedge your local currency risks, then [such policy] becomes a problem,” he says.

Another goal is to expand the Asia Region Funds Passport (ARFP), a centerpiece project at this forum. The 6-year-old scheme facilitating the flow of capital funds from one jurisdiction to another has six nations signed on – a number viewed as insufficient. “For the ARFP to be successful, it needs to include major markets in the region,” Parreñas says. “If we get Japan, China, Taiwan or Hong Kong into ARFP, then it will become very interesting,” he says.

The organization is pushing this message particularly to regulators to get more nations onboard ARFP.

biz.hk 3 • 2015

TAXATION

Hong Kong Budget: Steps in the Right Direction, What’s Next?

Declining crude oil prices, diverging growth rates, an appreciating US dollar and depreciating euro and yen, as well as widening interest rate and risk spreads continue to affect the global economy.

Despite Hong Kong’s 2014 economic growth falling below the average of 4.5 percent spanning over the past 10 years, investors remain cautiously confident in the economic outlook of the city in the year ahead.

Amid a large budget surplus, Financial Secretary John Tsang announces a series of one-off tax relief measures in the form of tax incentives

By Charles Kinsley and Wade Wagatsuma Partners, KPMG China

T

he Financial Secretary, John Tsang Chun-wah, forecast a revised surplus of HKD63.8 billion for 2014-15 and fiscal reserves of HKD819.5 billion ending March 31st, 2015. With substantial reserves on hand, the government has the means to enhance Hong Kong’s competitiveness in order to maintain investor confidence and generate sustainable economic growth for the long term.

This year’s Budget contains many

biz.hk 3 • 2015

commendable proposals, which are rightfully targeted to address many key social and economic issues in the city.

However, while the general public mostly welcomes many of the proposed initiatives, a number of them continue to be one-off items or on a short-term basis, hence lacking in firepower to provide a long-term strategic framework in the long run. For those initiatives proposed which are more far-reaching or longer term-focused, there are little in the way of specific details.

For individuals and businesses This year’s “sweeteners” for individuals include a Salaries Tax rebate of up to HK$20,000 and an increase in child allowances by 43 percent to HK$100,000, as well as a rates waiver for two quarters up to HK$2,500 per quarter.

These are substantially consistent with measures deployed in the past few years, albeit more generous. These one-off tax reliefs are expected to benefit more the

25

middle- and high-income households in Hong Kong.

The Budget also includes a number of initiatives for the business community in Hong Kong, with interesting proposals such as an expansion of tax deductions for IP-related purchases, tax incentive for companies looking to set up treasury centers in Hong Kong, an extension of the offshore funds exemption to private equity (PE) funds and measures to promote aerospace financing in the city.

For businesses generally, there is also a one-off Profits Tax reduction of up to 75 percent, capped at HK$20,000.

Industry-specific incentives In delivering his address, Tsang expressed confidence in Hong Kong becoming a premier intellectual property (IP) trading hub and providing high value-added IP services in the region. Apart from setting aside funding of some HK$23 million for IP consultation, manpower training and other services to SMEs, he proposed to extend the available tax deductions to cover more types of IP rights purchases. Given an increasing variety of IPs as a result of fast-evolving technological discoveries, it provides a much-needed boost to encourage high-tech industries to consider setting up a base in Hong Kong.

To further enhance the financial services industry and in line with previously highlighted proposals, Tsang announced that he would amend the interest deduction requirements for corporate treasury centers. He also proposed to reduce the Profits Tax rate for specified treasury center activities by 50 percent to a rate of 8.25 percent.

This will put Hong Kong in direct competition with Singapore where qualifying treasury centers enjoy a 10 percent concessionary tax rate. There has been a keen interest in attracting more treasury centers to set up within the city, as their business is complementary to that of the broader financial services sector, leading to an increase in demand for financial products and services from banks in Hong Kong. A

26

relevant bill will be introduced in the 2015-16 legislative session.

Financial services Regarding private equity (PE) funds, the Financial Secretary proposed to exempt offshore PE funds from tax in Hong Kong with respect to underlying investments made outside of Hong Kong. The changes are also expected to promote the use of Hong Kong companies as a platform of investment holding. Special purpose vehicles (SPVs) established in Hong Kong to hold offshore investments should be exempt from tax in Hong Kong on the investment returns made by a PE fund – a change which the industry has been seeking for some time.

The proposed changes are likely to be wider reaching than an equivalent exemption (which applies in Singapore). The key benefit of the expected change is that it will provide investment professionals based in Hong Kong with greater flexibility as to how they undertake their daily tasks without the concern that they may create a tax exposure in Hong Kong for the represented PE fund. This is something that will no doubt be welcomed by many professionals engaged in deal making across town.

Other initiatives When Tsang talked about the development of aerospace financing,

he proposed largely to “ride on the experience of other jurisdictions and explore possible measures that can promote aerospace financing in Hong Kong.” With an increasing amount of aircraft order by Chinese airlines, if the initiative is competitive, Hong Kong’s proximity to China could lead to Hong Kong becoming a significant player in this area.

Interestingly enough, the Singapore government seems to be doing the opposite when it was announced that the 10 percent concessionary tax rate on income derived by leasing companies in respect of offshore leasing of plant and machinery will be withdrawn from January 1st, 2016.

Other developments directly related to the financial services industry are also highlighted in the budget.

These include the recent ShanghaiHong Kong Stock Connect, Hong Kong’s role as the world’s largest offshore RMB banking center and a number of developments in the bond market, in addition to a change in legislation to implement the waiver of Stamp Duty on the transfer of Exchange Traded Funds (ETFs).

Stressing the importance of maintaining the integrity of the city as an international financial center, Tsang has also noted that Hong Kong will step up its efforts in combating crossborder tax evasion. This will include facilitating the automatic exchange of information with other jurisdictions by the end of 2018.

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A broader scope of focus Besides the focus on financial services, there is continued support for the development of small and medium enterprises (SMEs), once again described as the mainstay of Hong Kong’s economy, as well as initiatives designated to develop what are referred as the cultural and creative industries, namely in the sectors of fashion, film, art and culture.

Measures have also been announced to deal with “manpower” and “land supply” – two key issues having a direct impact on the cost of doing business in Hong Kong. It ultimately comes down as an issue of competitiveness in a region where significant cities are fiercely compared. The Singapore Budget for the year, delivered within the same week, has been widely viewed a “Robin Hood-style” election budget – but also a budget that is considered more forward-looking, with a larger emphasis on investing for the future instead of a “refund” of tax revenue.

Despite a large surplus, Financial Secretary Tsang remains cautious about Hong Kong’s relatively narrow tax base, emphasizing the need to stabilize and broaden such a narrow stream of tax revenue. In his delivery of the budget this year, he specifically highlighted some intriguing statistics: among the working population, only 40 percent pay taxes on their income earnings, and 60 percent of revenue from Salaries Tax comes from the top five percent of taxpayers in this particular category.

Furthermore, only 10 percent of registered corporations in Hong Kong pay Profits Tax, with more than 80 percent of the revenue coming from the top five percent of corporations. As a result, Tsang has indicated that Hong Kong may need to explore again the feasibility of widening the current tax base in due course, with the aim of stabilizing the stream of government revenue and creating room for direct tax concessions in the future.

biz.hk 3 • 2015

Charles Kinsley, Partner, KPMG China

Wade Wagatsuma, Partner, KPMG China

Charles is a financial services tax principal in the KPMG tax practice in Hong Kong. He has over 20 years experience, providing taxation services to multinationals operating in Hong Kong and the region. His advisory assignments include domestic and cross-border engagements, operational and investment structures and multidisciplinary engagements including M&A transactions. Charles also advised a number of financial institutions with regard to the impact of FATCA on their operations in Asia.

Wade is the Partner-In-Charge of the US Corporate Tax practice for KPMG in Hong Kong. He specializes in the area of US federal income taxation with emphasis on transactional tax planning, both domestic and cross-border. He also has extensive experience advising clients on the structuring and implementation of acquisitions of foreign and domestic assets by foreign funds with US investors, the structuring of inbound investments by foreign companies and funds having or acquiring US assets, including the application of US income tax treaties.

About KPMG:

KPMG is a global network of professional firms providing audit, tax and advisory services. It operates in 155 countries and has more than 162,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.

KPMG China has 16 offices in Beijing, Chengdu, Chongqing, Foshan, Fuzhou, Guangzhou, Hangzhou, Nanjing, Qingdao, Shanghai, Shenyang, Shenzhen, Tianjin, Xiamen, Hong Kong SAR and Macau SAR, with around 9,000 people. KPMG China refers to the member firms of KPMG International in Mainland China, Hong Kong SAR and Macau SAR.

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FINANCE & ECONOMICS

A Survey of Global Economic Trends The economic recovery in the United States has been seemingly robust after years of stimulus measures, while Europe is facing a tougher time in overcoming its woes. Meanwhile, China is managing the expectations for its GDP growth to a more realistic level. Against a global backdrop of uncertainty and volatility, Hong Kong may expect a year of modest growth, says veteran market analyst Peter Churchouse

By Wilson Lau

T

he rate of inflation – or deflation – is a key area of economic trends indicating if an economy is overheating or cooling and serves as a benchmark for Federal Reserve officials in their decisions of interest rate adjustment to either stimulate economic activities through a rate reduction or compensate for, among other reasons, too much activity through hikes. It is a fine balance that is sometimes controversial for policymakers because it has a large, direct impact on the prospect of an economy.

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The US has arguably the most robust economic recovery among all the developed economies, attributable to US policymakers’ timely and unconventional monetary policies deployed shortly after the financial crisis in 2008.

But, rather than inflation, deflation has remained a concern for the country.

“As a result, there is a reasonable chance that the US may not raise its interest rate until later than expected and raise it by less, simply because there’s no inflation happening as of yet,” Peter Churchouse, Chairman of Portwood Capital and Owner of

Churchouse Publishing, an authoritative voice in global economic analysis, points out.

US market bouncing back The US Federal Reserve, currently under the leadership of Chairman Janet Yellen, has repeatedly indicated that it will not increase the interest rate until the US economy picks up. One sign to which economists are looking is the acceleration of wage increase, which has yet to materialize.

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Although the US unemployment rate is in decline and creation of new US jobs is at its highest since 2007, nominal wages have shown no sign of increasing while real wages have remained low compared with pre-crisis levels. “If we see wages going up, there will be increasing signals for raising the interest rate,” Churchouse notes.

Despite a range of opinions on the current US equity market, there is no sufficient evidence to support it is in a bubble, Churchouse points out. “It’s just marginally more expensive than the long-term averages,” he says. “If we’re right about the recovering economy and growing earnings, the market will be reasonably robust and maybe the figures are justified.”

“As a safe haven for capital, the US looks more attractive than many other markets right now,” he adds. “When you’re investing in the US equity market, you’re also investing in the US dollar, which is strong when compared with the Euro, Japanese Yen and even the British Pound. Therefore, you’re buying into a recovering economy with potentially recovering earnings.” “Additionally, you’re buying a currency which is likely to remain well-bid,” he further says. “The US equity market will stay strong … yes, there’ll be 7 or 8 percent corrections at some point, but I don’t see a big collapse in the offing.”

Europe’s long road to recovery By comparison, Europe’s economic recovery is on a rocky road. It’s also difficult to reach a consensus in policymaking among the 19 countries in the economic zone. “The Euro currency experiment is in a dangerous situation,” Churchouse says. “I’ve always been skeptical because it seems impossible to sustain a common currency and interest rate in an environment with substantially different fiscal systems and different regimes of tax, labor, pension and welfare.”

The 10-year government bond yields in many European countries varied significantly before the Euro was introduced, he highlights. Greece’s

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interest rate, for instance, was around 13 percent while those of Germany or France stood at 5 or 6 percent. “As we got closer to [the introduction of the Euro, interest rates [of the countries] converged,” he points out. “After the Euro came in place, all these countries shared exactly the same interest rate.”

“So, Greece could effectively borrow money at the same rate as Germany,” he explains. “When it blew up after the crisis, we saw the interest rate spread widening again…interest rates in such countries as Italy, Spain, Greece and Portugal went up, while

those in France and Germany continued to stay low.”

Interest rates across the Euro zone have started converging again in the midst of quantitative easing. “The risk involved is simply not reflected when Spain and Italy, with low credit ratings

by Standard & Poor and Moody’s, can borrow money [at a cheaper rate] than the US,” Churchouse notes. “The European Central Bank is engaged in buying government bonds [as part of QE], but the pricing of government bonds does not reflect the risks of those countries.”

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If Greece defaults or walks away from the Euro zone, there are risks with other countries such as Portugal and Spain, he says. “If this happens, the [interest rate] spread will widen again and the risk increases. But if Greece stays and some kind of deal is reached for Greece’s refinancing, then I expect bond yields in Europe to stay low for some time.”

This situation will give rise to a positive environment for three asset classes: bonds, equities, and real estate, similar to what happened in the US. “Just as we’ve seen in the rest of the world with QE, there were record equity markets in the US, Japan and Canada, as well as record bond prices and recovering real estate markets,” Churchouse says. “Financial assets will do well in Europe under this regime. I doubt if the economy will recover quickly, just as it took the US five years to show any signs of recovery.”

European equities are expected to be a boon for investors, particularly because of remaining concerns over currency risks. “As we all tend to be US dollar investors, we’ll look to hedge up the risk of the Euro,” he explains. “For a German

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pension fund, for instance, it does not matter as the liability will be in Europe anyway. International investors don’t want to see the Euro go down and will hedge up some risks.”

Apart from European equities, longterm investment in European real estate, particularly properties in key cities and financial hubs, is equally attractive, he adds. “Interest rate is low and many offer 25-year mortgage fixed rate. I’ve started to see recovery in the residential and commercial real estate markets in some cities in Spain and Portugal.”

Overall, Europe’s recovery will be long and painful, Churchouse expects.

“Europe’s economy is just about the same size as that of the US, and the plan to inject 1.5 trillion Euro for the next 18 months through quantitative easing is only a start.”

China facing headwinds China’s ballooning debt level is a major cause for concern. The country embarked on its version of quantitative easing in 2009 following the financial crisis and boosted lending from US$700

billion to US$1.3 trillion in one year. It then carried on and did not stop. The debt to gross domestic product ratio, as a result, has increased drastically.

“The marginal return on every dollar is getting less and less,” Churchouse notes. “Non-performing loans in the banking system are going to rise. But, I don’t foresee the collapse of the big four banks. The interesting thing about China is that the Central Government still has a lot of firepower which it can bring out to bear.”

“These banks have high reserve ratio requirements, some of the highest in the world,” he points out. “The big five banks might be required to raise up to RMB350 billion. It is possible, and I don’t think it will blow up the economy, but there’ll be waves of unsettling bankruptcies affecting the bond and equity markets.”

Another round of stimulus packages is likely, but it will be of a smaller scale and not as encompassing as the previous one, Churchouse predicts. “It will be targeted and specific. It will not go to coal mines, steel mills or aluminum smelters. It’ll go to environmental green technologies, water, agriculture, and food security.”

“We’ll also gradually see capital controls easing over time, which will make it easier for Chinese people and organizations to invest offshore and for foreigners to invest in China,” he says.

Beijing has been trying hard to downplay expectation of growth both domestically and internationally. “In reality, China’s GDP growth was closer to 6 percent than 7.5 percent,” Churchouse remarks.

“Power consumption is a big indicator [of growth] and it has been flat. How can there be 7.5 percent growth? The talking down of expectation will continue. 6.5 percent growth is more sustainable from a debt perspective.”

So far, unemployment appears to be a non-issue. In southern China such as Shenzhen, factory owners cannot get sufficient labor, even after the Guangdong government forced factories to raise wages by up to 20 percent.

“There has been a long-standing belief that the economy in China needs

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to grow at 7 or 7.5 percent to sustain the increase in the number of individuals from the countryside coming to the cities for jobs,” Churchouse says.

“That’s not quite true. But, China’s population is aging and will peak in the next five years.”

Modest growth in Hong Kong Churchouse expects Hong Kong’s unemployment rate to edge up in the coming years, given slower economic growth in the city and across China as forecast. Average wages in the city went up by 5 to 6 percent, the highest increase in the world. Together with high asset prices, Hong Kong’s competitiveness has declined. Nevertheless, “2015 will have positive growth but only in the range of around 2.5 percent.”

As far as Hong Kong as a tourist destination is concerned, the number of arrivals from China will remain but spending has gone down because of China’s anti-corruption measures.

“We’ll see some growth [in retailing] but growth in the high-teens is not sustainable, maybe 4 or 5 percent,” he says. “That’ll keep the lid on the rents of retail properties and even push them down slightly.”

A mixed, modest year is in predicted for the local finance sector in anticipation of a wave of IPOs of Mainland Chinese companies in the pipeline.

“The Chinese government has indicated that it’ll allow these IPOs to come to the market,” Churchouse says.

“This is good news for Hong Kong’s professional services providers.”

“The bond market, however, will be a little suppressed as people are worried about the risks in China,” he also points out. “Bond issuance will be a little soft but equity issuance will be good. Private wealth management will be a growth industry in Hong Kong because there’s a massive number of Mainland Chinese waiting to take their money offshore.

That’ll be a big growth industry if we have the ability to tap it.”

The commercial office market, particularly in Central, will have a vague recovery in coming years, and the 4 to 5

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percent office vacancy in Central Business District will be filled up gradually, Churchouse foresees. The retail rental market, on the other hand, is likely to soften, given a drop in spending by Mainland Chinese. “Purchases of daily necessities are not a problem in terms of demand, but consumption of upper end, consumer durables will be soft,” he notes.

Because the residential market was surprisingly strong in 2014, it’s unlikely that the Hong Kong government will back away from its real estate tightening measures, he adds. “The risk is that it will impose more.”

While inventory is low, the number of new units is increasing year after year. “Hong Kong’s yearly average of long-term private housing production had been 24,000 units but has dropped significantly to less than 10,000 units annually in recent years,” Churchouse points out. “It is expected to slowly pick up to the level of some 16,000 to 17,000 units, which collectively are still below the long-term average.”

“My sense is that we’ll see more supply coming on stream, which may temper the rate of price increase. But, I don’t see anything that will trigger a substantial fall,” he says.

Churchouse also believes the peg between the US and Hong Kong dollars will remain. In fact, Hong Kong remained committed to the peg through six years of deflation and a 60-percent drop in asset prices. “It held its ground because Hong Kong did not have a lot of debt,” he explains. “Even with deflation and unemployment at 7 percent, people and companies were not highly indebted. It did not end up in waves of bank defaults. The situation is still true today.”

It’s also unlikely that the Hong Kong dollar will be linked to a basket of currencies as a way to increase competitiveness, he adds. “Hong Kong companies and people have learned to live with the volatility of asset prices created by the peg. They don’t extend themselves too much as you don’t see massive amount of credit card debt, school loans or hire purchase debt, all of which are common in the US and UK.”

Biography:

Peter Churchouse is a widely respected market commentator, analyst and investor in Asia and global markets for more than three decades.

He worked for 15 years at Morgan Stanley in Hong Kong and was Head of Asian Real Estate Research, Regional Strategist, and Head of Research for Asia. Churchouse later set up Asia’s first real estate fund, investing in both physical real estate and listed securities. In 2006, his fund was voted “Asia’s Best Real Estate Fund.”

After winding down the fund, he began writing what has now become The Churchouse Letter, one of the few investment newsletters originating from Asia. Members of AmCham Hong Kong can get a 25 percent discount off the annual subscription fee for The Churchouse Letter by accessing the page link at http://churchousepublishing.com/amcham.

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TRANSPORTATION & LOGISTICS

SF Express: A Case Study of an Expanding Logistics Company in China Since its establishment in 1993, Shenzhen-based SF Express has become one of China’s leading courier services companies, with some 340,000 employees, 16,000 vehicles, 18 aircraft and 12,000 service centers across the local and overseas markets. In a recent visit, AmCham delegates are reminded of the exponential growth of commerce in China and how Chinese companies are moving quickly to capture business opportunities domestically and internationally

By Blessing Waung

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n the Chinese language, the phrase “shunfeng” is meant as bon voyage, used for sending off travelers safely and wishing them a smooth journey, with a tail wind behind them.

SF Express, a Shenzhen-based delivery services company, has capitalized upon that saying, using it as their guiding mantra in establishing one of the leading courier services within the world’s largest market.

Since the company’s establishment in 1993, SF Express has grown astronomically, now generating more than

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US$4 billion in revenue per year and employing nearly 340,000 people. In January, an AmCham delegation comprising business executives coming from various service industries paid a visit and sat down for a candid Q&A session with SF Express leaders to talk about the company’s success story.

“As for the express delivery industry here in China, I think the core competitiveness of our company is timeliness, safety and our quality services,” says Wang Rong, Deputy General Manager of SF Express’ operations in Shenzhen.

Market penetration “Compared with other international express courier companies operating in the local market of Mainland China, and even across Greater China, SF Express’ advantage and strength lies in our network density,” Wang notes. “Currently, we have over 5,000 hubs located in the domestic market.”

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Altogether, the company has nearly 10,000 service centers providing support to its customers, with tens of thousands of sleek, black trucks shuttling forth wares for B2B and B2C customers. SF Express famously owns its own aircraft fleet as well.

“The second advantage of Shunfeng is our transportation capacity,” Wang says. “As you know we have a very strong capacity in terms of our main line and the use of distribution. We

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have our own airline, meaning we take a high proportion of the air transportation in China.”

“Moreover, we have a very dense network for our truck centers, so we have more efficient distribution at different locations inside the city with our fleet of trucks,” he adds. “This is another advantage compared with foreign companies like FedEx or DHL.” In Shenzhen alone, SF Express has a market share of over 10 percent of the total air cargo transportation sector, Wang further points out. Currently, the company owns a dozen of its own cargo aircraft under the subsidiary SF Airlines, and it looks to expand rapidly by buying more aircraft.

“We mainly deliver B2C goods,” he says. “To expand our fleet, we will definitely buy more planes and we will also expand cooperation with other air transportation resources.”

“The third part of our secret is our staff,” Wang says. “And we employ a lot of local staff for our operation. While other delivery companies also employ local staff in Mainland China, interactions and relations between our staff and our customers are much closer as far as I can tell.”

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Going global The company is not just looking at the domestic market but is also aiming high to become a well-known brand across the globe, according to Simon Yang, Deputy Strategic Management Director in the corporate development office for SF Express. In order to do so, they will further develop on their human capital and stay true to their core values – which have been a beacon guiding the company through years of tremendous expansion and success.

“Currently, we are looking for several types of professionals,” Yang reveals. “The first are professionals knowledgeable in operations, including planners and engineers for our entire network and operation systems – those with a background of industrial or systems engineering.”

E-commerce is a large part of the logistics industry and is poised to remain a critical pillar across China, Yang notes. “In the past, e-commerce mainly focused on B2B business. With the emergence of Taobao and other platforms, there came a structural change in the local market for the entire logistics industry. The transformation from B2B to B2C caught our attention.”

Having captured blue-chip clients such as Alibaba for its Taobao e-commerce platform, Shunfeng has achieved tremendous success within the domestic market of China, and is now looking to expand into the international market going forward.

Already, with booming operations in Hong Kong, Macau, and most major markets in Southeast Asia, Yang believes it is only a matter of time before the company can call itself a truly global enterprise.

“In terms of the international markets, we are now running businesses in Southeast Asia and in East Asia including Japan and South Korea,” he says. “We have also launched our services in the US and Australia. As for expansion to the European market, we are still in the planning stages.”

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“For the strategy in our international business, I think the most important thing we need to keep in mind is the differences across markets,” Yang says. “We can compete with other international couriers in the local market partly because we are a domestic brand and people are more familiar or more willing to use our service.”

“The business environment could be very different in a foreign country,” he adds. “According to our plan, we still want to set up, start small, and then grow our business in other areas around the world.”

Diversification SF Express is also looking beyond its delivery business to diversify into

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other sectors as well, catering to the growing demand of consumers in Mainland China and reaching a broader spectrum of population.

Warehousing is a new section of business started several years ago, Yang notes. “Only at Shunfeng do we design our warehouses based on the requirements of our customers. They include Huawei and Foxconn – electronics manufacturers who need to store their products under specific conditions. Others include those in the fresh food business for whom we also design warehouses according to their requirements.”

In the meantime, Shunfeng is developing multiple e-commerce platforms of its own, Yang points out. “As you might notice we have introduced one for fresh goods. In China, we have been

listed the number one e-commerce platform for such goods, and now we are also developing another one which is an overseas purchasing platform for our customers to find goods from oversea countries.”

“So we hope there could be more foreign suppliers from the garment industry or other kinds of industries to sell their goods on our e-commerce platform,” he says, highlighting an opportunity for collaboration with overseas suppliers and sources.

During the trip to SF Express’ headquarters in Shenzhen, delegates were on site to see firsthand the chain of operational elements within a courier company, including a visit to one of its call centers based in Bantian Hi-tech Industrial Park, where hundreds of employees provide support to customers on a daily basis and are recognized for their outstanding service with branded teddy bears.

The trip culminated in a site inspection of the SF Express sorting center in Shenzhen’s Baoan District, where a large fleet of the instantly recognizable trucks painted in black were loading and unloading documents, mail items, packages and wrapped products of countless types. It is a stark reminder of the exponential growth of commerce in China and how Chinese companies are moving quickly to capture a business and becoming a force to be reckoned with globally.

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EDUCATION

A Center of Modern Managerial Knowledge The China Europe International Business School (CEIBS), founded in 1994 and a collaboration between the European Foundation for Management Development and Jiaotong University in Shanghai, seeks to set itself apart in a country undergoing tremendous economic development.

President and Chair Professor Dr Pedro Nueno explains the purpose of advanced business education in driving entrepreneurship and innovation

Pedro Nueno

By Blessing Waung

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t would seem that everyone doing business in Asia is getting an MBA these days, with all major US business schools clamoring to get a foothold in the world’s fastest growing education market. Satellite campuses and joint ventures are popping up in cities throughout Asia, but the China Europe International Business School seeks to set itself apart from the pack with the motto “China Depth, Global Breadth.”

Founded in 1994, CEIBS is a joint venture between the European Union and the Shanghai Municipal Government, and a collaboration between the European Foundation for Management Development and Jiaotong University. As of last year, the school has graduated more than 15,000 students altogether spread across its three programs, and additionally provided management training for 100,000 business executives.

Dr Pedro Nueno, President and Chengwei Ventures Chair Professor of Entrepreneurship at CEIBS, has been a part of the school since before its genesis.

“I launched an MBA called CEMI in Beijing in 1984 as an alliance of several European business schools like INSEAD, London Business School and IESE,” says Nueno. “This worked well but moved slowly.

“Towards the end of the 1980s, the Ambassador of the European Union in China facilitated my contacts with the Shanghai Municipal Government and in 1994, we moved the leadership of the project to Shanghai, launching CEIBS,” he points out.

The school opened its first campus in the Pudong district of Shanghai, with a glass pyramid surrounding its indoor lake that is reminiscent of I.M. Pei’s famous structure at the Louvre Museum in Paris (the designer is of Pei Cobb Freed & Partners).

An award-winning program Since its inception, the school itself has racked up many coveted rankings, such as landing in the top 25 schools in

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the Financial Times’ prestigious annual business school survey. The Executive MBA program was touted by the FT as #10 in the world. In 2014, Bloomberg Businessweek listed the full-time MBA program as #17 in their global rankings, making it the highest ranked school in Asia on the list.

“CEIBS is a very international school, with top level faculty who are excellent both in the classroom and in publishing academic work,” Nueno says. “We have global reach and impact with more than 15,000 alumni across the globe, with campuses in Shanghai and Beijing, as well as major facilities in Shenzhen and Accra (Ghana).”

Nueno received his doctorate in business administration from the world-famous Harvard Business School. Both his research and teaching interests include entrepreneurship and “intrapreneurship,” meaning working with the mindset of an entrepreneur within a large organization.

For his work in furthering business education in China, he has been awarded the “China Friendship Award” by the PRC State Council and “Golden Magnolia Award” by the Shanghai Municipal Government.

The curriculum for a full-time MBA program is 18 months long, and includes a practicum project as well as an international exchange program in various European nations as well as more than a dozen institutions in the US. “We focus on educating responsible business leaders who have a solid understanding of China, its role within the wider world, and how it is shaped by events outside its borders,” Nueno notes. “This is why our graduates are sought after by local Chinese firms as well as multinational companies.”

“Innovation and entrepreneurship have been topics of great interest for CEIBS since the early days,” he says.

“CEIBS itself is an entrepreneurial venture and we rely on innovation to remain relevant to those that look to us for business management education.”

“So we have research centers on these topics, we’ve published numerous cases, stimulated the creation of many companies and even facilitate

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startups through venture capital funds specifically available for our students and graduates,” he adds.

Entrepreneurship China is an entrepreneurial country, Nueno believes. “All across the country there are formal and informal initiatives, at the government and non-governmental levels, which foster innovation,” he says. “You can see this paying off in Beijing, in areas frequented by the technology crowd, where those hungry to have their ideas become viable ventures sit at tables with signs outlining their business plans.”

“Other people browse the tables, shopping around for the best ventures and this is where business is being done,” he notes. “Today’s generation of Chinese is more open to striking out on their own, to creating something that’s theirs. We just provide the tools they need to do that.”

“Over the years, we’ve seen Chinese companies innovating in ways that are suitable for their

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market,” Nueno says. “So while there are many that argue that there’s been no real radical innovation, no great breakthrough by Chinese firms, we should not discount the incremental innovations made. That’s where they take an existing product or service and change it just enough to create something new, something that meets a need.”

Members of CEIBS’ advisory board include Robin Li, Founder of Baidu, and Xu Lejiang, Chairman of Baosteel Group. Throughout Mainland China, CEIBS’ networking is near-legendary in terms of the caliber of students it attracts, with powerful guanxi that serve alumni in their future business endeavors.

In fact, its alumni list reads like somewhat of a “who’s who” list in China, including the CEO of Alibaba Group, the CFO of Haier, the co-founder of BYD Company, and even the daughter of former President Hu Jintao.

“Chinese companies must go global,” Nueno says. “They know that, and we have seen excellent examples of

this being done: Huawei, Haier, Geely-Volvo, Lenovo, ZTE, J.D. com, Mindray and many more. And, we are going to see a huge international deployment of Chinese companies throughout the world in the coming years. The global footprint of Chinese companies in 2020 will be impressive.”

“At the same time, many multinational companies have been very successful at innovating in China,” he also points out. “One factor that drives this innovation is the large number of R&D centers MNCs set up in the country. The innovations that flow from these facilities are often applied not just in the China market, but in these MNCs’ global operations.”

These include CEIBS home-grown research centers. For example, the CEIBS-Jing’an International Fashion Industry Research Centre conducts research specific to the district and holds conventions to facilitate communication for fashion brands, while the CEIBS-World Bank China Centre for Inclusive Finance provides financial services to underserved sectors of Chinese society.

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Human capital And where else does CEIBS fit into the picture?

“Currently there is a need to do things very well, and there is a big demand for well-prepared, competent executives (MBAs) who are able to handle management responsibilities,” Nueno notes. “But at the same time, many graduates decide to start their own companies and – in general – the rate of success is very good.”

The CEIBS Centre for Entrepreneurship and Investment (CCEI) has been particularly important in this process, he points out. “It supports (via training as well as in terms of identifying and acquiring resources) our MBA, EMBA and EDP program participants who wish to launch their own business or take an existing project to the next level. It also supports our faculty in entrepreneurship-related research.”

Alumni are already making such contributions, such as EMBA graduate Zhao Huizhou, who was noted for his design of dresses for APEC leaders’ wives during the event gala at the end of last year. The Chinese designer behind EACHWAY, based in Shenzhen, was selected from more than 400 entrants who vied for the enviable attention on the world stage.

“We have always selected our best applicants; we’re quite rigorous in the application and selection process,” Nueno says. “This is because we take very seriously our responsibility to provide the world-class education needed to ensure that our graduates can make a meaningful contribution to the Chinese and global economy.”

“In our MBA program, about 35 percent of the students are foreigners.

We have a Global Executive MBA with about 34 percent of foreign participants,” he notes. “We also offer a number of programs in alliance with leading business schools such as Harvard, Wharton, IESE and others.”

“Through these alliances and our wide range of programs, we have played a significant role in educating

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‘high-caliber human capital’ with about 1,500 graduates now being added each year.”

Global collaboration Beginning in January, Harvard Business School launched its Executive Education portfolio in China, offering six courses such as “Marketing Strategies for Profitable Growth” and “Global CEO Program,” all tailor-made to advance and help executives seeking expansion for their business in Asia. CEIBS is one of the partnership institutions.

Additionally, the school announced a dual-degree MBA and Master of Management in Hospitality (MMH) with Cornell University’s esteemed School of Hotel Administration, commencing this fall.

“We are China Europe International Business School,” Nueno says.

“We want to be excellent in China, in Europe, at the international level, in business knowledge, and as a school that can deliver the best possible training within an ethical and value oriented environment.”

And, “Shanghai is the economic center of China, the fastest growing economy in the world,” he adds. “It’s just one of the most exciting places to be right now. It all happens here. The city has an undeniable energy that makes it almost impossible not to be creative and innovative. Our students thrive in this atmosphere.”

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MARK YOUR CALENDAR Mar Intellectual Property Protection Mechanism and

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Effort of the Alibaba Group

* David Ho, Legal Counsel, Alibaba Group AmCham Intellectual Property Committee is pleased to host David Ho, Legal Counsel of Alibaba Group who will share insights on areas including:

David Ho is a legal counsel of Alibaba Group who leads on all international litigation. His main responsibilities include managing international litigation and contentious issues of the Alibaba Group. He also advises the Group on internet service provider liabilities, contentious intellectual property, employment, public relations, and data privacy protection issues.

Mar How to Drive Innovation in Hong Kong? *Richard Lancaster, Chief Executive Officer, CLP Holdings *Egidio Zarrella, Clients and Innovation Partner, KPMG *Darrell Mann, CEO and Technical Director, Systematic Innovation *Charles Mok, Legislative Councillor (IT) Moderator: Sarah Clarke, TV Presenter, Reporter and Producer, ABC Join us with AustCham and BritCham for an eminent group of speakers including the most experienced and respected industry executives in town, along with global innovation & technology leaders, for the first in a planned series of 2015 Inter-Cham forums on Innovation & Technology.

This first forum is proudly supported by CLP Holdings and sets the framework by opening up the dialogue on the following topics:

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1. Where should HK focus its innovation efforts to deliver the greatest return?

2. How to encourage HK businesses to adopt innovation within the enterprise?

An engaging panel session, following by Q&A, will discuss and encourage debate amongst the Hong Kong international chamber community in regard to the next steps that Hong Kong should take, in order to step up its efforts to drive local innovation.

Mar Reputation Risk and Crisis Management

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* Melissa Fung, Partner, Deloitte Touche Tohmatsu * Niall Archibald, Associate Director, Deloitte Touche Tohmatsu In 2014, Deloitte in partnership with Forbes Insights conducted a survey to examine attitudes to reputation risk and crisis management. They found that reputation risk is a top strategic business risk with 88% of respondents explicitly focusing on it as a key business challenge. The reputation risk is driven by other business risks that are related to ethics and integrity such as fraud, bribery, and corruption.

This seminar will explore the relationship between reputation risk and crisis management. Deloitte's experts in crisis management, scenario planning, crisis simulations, and threat monitoring will discuss the application of these methods to manage reputation risk.

Melissa Fung, who has over 14 years of experience in the risk management and internal audit fields, specializes in providing crisis management, enterprise risk management, and corporate governance advisory to her clients, as well as internal controls review, business process re-engineering and organization costing services.

Niall Archibald has extensive consultancy experience in enterprise risk management, business intelligence, political and security risk, crisis management and resiliency.

For information, see website: www.amcham.org.hk

Tel: (852) 2530 6900

Fax: (852) 2810 1289

2015 Mar 01

Time: 12:00 - 01:45pm (Sandwiches & beverages included)

1. Introduction of the intellectual property protection mechanisms on the Alibaba platforms; 2. Share important updates; 3. Provide insight and discuss problems.

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Venue: The American Chamber of Commerce in HK 1904 Bank of America Tower 12 Harcourt Road Central, Hong Kong

Email: byau@amcham.org.hk

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