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BUSINESSASIA

www.cornellbusinessasia.com | Issue SPRING 2014

China’s Growth Prospects By: Advai Pathak

Indonesian Ore Ban By: Sanjeev Dhara

Bangalore’s Moment By: Benjamin Zehr

ABENOMICS REVISITED By: Zhi-Yen Low

INTERVIEW

DOUGLAS M. WEILL by: Timothy LIN


contents BUSINESSASIA

EDITOR’S LETTER

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Crusade Against Corruption in India By: Nicole Schmit

6 8 ABENOMICS REVISITED 10 ASIAN REAL ESTATE INVESTMENT 12 WEAKENING YEN The singaporean paradigm 14 INdonesian ore ban 16 Interview with douglas weill 18 China’s journey west 22 China’s Growth prospects 24 Hong Kong’s Property Prices 26 and Economic Freedom 30 Financial data

BANGALORE’S BREAKOUT MOMENT By: Benjamin Zehr

By: Zhi-Yen Low

By: Yiwei Chen

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By: Madison Leonard

By: Benjamin Zehr

By: Sanjeev Dhara

By: Timothy Lin

ABENOMICS REVISITED

By: Brandon Greer

By: Advai Pathak

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By: Alastair Chang

Compiled by Advai Pathak

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EDITOR’S LETTER

Editor’s Letter Asia is changing. Events over the past six months have again reiterated the East’s growing centrality to world affairs and the global economy. Rising international tension fanned by nationalist leaders has led to aggressive posturing across the continent. A less proactive United States only adds to the climate of uncertainty and anxiety. Matching the political turmoil is the turbulence in financial markets. Emerging markets have rallied so far this year although warning signs are already abundant and investors are growing cautious as the year’s halfway point arrives. On an individual basis, Asia’s countries still face daunting challenges. India, the world’s largest democracy, will soon welcome a new Prime Minister. However, the nation is at a crossroads in its development and the incoming leader faces a severe test in identifying and eliminating corruption within the national government. Japan’s economic policies under Shinzo Abe have created ripples across Asia. South Korea, in particular must now manage its economic recovery with an additional export disadvantage vis-à-vis Japanese competitors. Even China, a juggernaut that seemed less affected by the financial crisis than most, faces deep structural changes if it is to continue its rapid growth. There remains significant opportunity and success too. Indonesia’s restrictive resources legislation presents the opportunity for the sleeping giant to begin to fulfill its potential. Its new government will certainly seek to capitalize on the groundwork laid by the outgoing Democrat party. Our writers also highlight the growing Asian investment presence in the United States and explore the implications of this foreign power in American real estate. Finally, this semester we were extremely fortunate to interview Douglas M. Weill, who elucidated the challenges facing the Asian real estate market as well as the opportunities in today’s unique environment. This issue marks a turning point for the Business Asia Journal. As a maturing organization, we have welcomed several new and talented young members and have significantly grown the scope of our group. None of this would have been possible without the direction and thoughtful advice of our departing President, Zhi-Yen, to whom I owe a great deal. The Business Asia Journal will continue to grow and develop. We look forward to providing you with many more opinions and arguments over the coming years in our print edition and both our newly revitalized website and impending Speaker Series. We value your opinion and welcome your thoughts. If you have comments, critiques, or suggestions, please contact us at BusinessAsia.Journal@gmailcom.

Special thanks to our sponsors!

BUSINESS ASIA • SPRING 2014

Sincerely, Advai S. Pathak Editor-In Chief

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INDIA

Crusade Against Corruption in India “The current Indian Prime Minister, Manmohan Singh, a member of the Indian National Congress, was accused by the BJP of “presiding over the most corrupt government in independent India.”

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ndia is notorious for the rampant corruption that permeates every sector of society, from the top echelons of government down to common policemen who receive small bribes in lieu of issuing an official traffic ticket. Beginning recently, India’s government has taken steps to address the pervasive culture of corruption in response to popular demand and to avoid losing appeal as a market for foreign direct investment (FDI). Although the effect of corruption on FDI levels remains somewhat controversial, the general consensus among top domestic and foreign businesses is that high levels of corruption deter FDI. Business International and Transparency International have both reported that high levels of corruption are correlated to lower levels of FDI. The Bank of Singa-

pore stated that an increased perception of corruption in India contributed to the severe drop in its stock market in 2008 and according to the Chief Economist at the Bank of Singapore, corruption remains a factor that contributes to the declining investment to GDP ratio. There is a historically pervasive culture of corruption on the subcontinent although the magnitude of recent scandals has provided greater impetus to tackle the issue. In 2011, a series of corrupt business deals represented 5.5% of India’s GDP for that year. The Mining Scandals of 2011 exposed the outrageous extent to which bribery dictated how contracts were awarded after a draft report from government auditors was leaked. The report estimated that the sale of coal mines without competitive bidding resulted in India losing $210

NICOLE SCHMIT

by

Writer

billion over a six year period. The trend continued into 2012—the three largest corruption scandals uncovered managed to cost India over $100 billion. It is argued that the Telecoms Licenses Scandal that occurred in 2012 is among India’s largest corruption scandals ever. In 2012, it was revealed that the minister in charge of negotiating telecom licenses failed to negotiate the contracts appropriately, compelling the Indian Supreme Court to revoke 122 telecommunications licenses that had been awarded to companies in 2008. India lost nearly $40 billion as a result of the contract cancellations. Just last year Transparency International’s data revealed that 71% of Indians felt corruption in India had increased over the past two years. Data regarding corruption levels in India is particularly relevant to investors looking to enter the Indian market. According to a survey released early this year by Ernst and Young, over half of 500 international investors surveyed are looking at expanding their presence in India within the next year. Mark Otty, Ernst & Young managing partner, com-


Modi’s success in Gujarat appears to tie in directly with his ability to attract FDI. During his terms as Chief Minister, Modi implemented several investor-friendly policies, including the establishment of several Special Economic Zones, which enticed auto makers such as Ford Motor Co. into entering the India market. As part of his platform for Prime Minister, Modi states that he will develop a strategy to guide tax reform in a direction that makes India more supportive of FDI, especially in defense and infrastructure. Modi’s pro-business platform is essentially a continuation of the policies he implemented effectively in Gujarat, and is formulated around addressing three central areas for improvement, “clarity in policies, transparency in decisionmaking, and steadfast implementation.” It is apparent that without taking steps to eliminate corruption, it is unrealistic to hope that any of Modi’s initiatives will be effectively executed. Although Modi has emphatically declared that he will fight to abolish corruption, he has not outlined any specific initiatives that will allow him to accomplish this ambitious goal, lending credence to the disbelievers who accuse him of blowing hot air.

Modi’s success in Gujarat appears to tie in directly with his ability to attract FDI. “

Given that Modi lacks a definitive plan, it is unlikely that there will be a mass overhaul of the status quo. However, smaller regulatory steps may be taken to begin the process of reducing corruption gradually. In conjunction with reduced regulations and lowered taxes on FDI, both of which act as strong deterrents for investment, Modi may be able to make India more attractive to foreign investors. Given the dearth of serious alternative candidates and his role in Gujarat’s economic success, Modi currently represents India’s brightest hope for economic growth and development. Although it is unlikely that there will be a significant reduction of corruption immediately following Modi’s ascension to Prime Minister, his pro-business stance and commitment to attract FDI will undoubtedly encourage foreign investors to enter the Indian market. If Modi is able to deliver on his promises and crackdown on corruption, it is even more likely that India will benefit from a surge of FDI. |BA Nicole is a freshman double majoring in Economics and China & AsiaPacific Studies In addition to writing for the Business Asia Journal, she is involved in the Cornell Consulting Club, Society for Women in Business, and Cornell Undergraduate Asia Business Society. This past summer, Nicole worked as a Sales and Marketing Intern at a start-up in California.

BUSINESS ASIA • SPRING 2014

mented that with a stable government, a “significant pickup in FDI” will likely occur. However, the extent of such investment would be contingent upon the outcome of India’s national election which will take place this spring, as many investors are waiting for the election results before committing funds to Indian markets. In their campaigns for the upcoming elections, each of the three main political parties are addressing corruption as a major component of their platforms. The Bharatiya Janata Party (BJP) has selected Narendra Modi to run due to his strong track record as Chief Minister of the state of Gujarat and reputation as a staunch critic of corruption and government inefficiency. Gujarat is an economic powerhouse and purportedly among the least corrupt Indian states —key facts that Modi has been working to publicize as part of his campaign platform. The current Indian Prime Minister, Manmohan Singh, a member of the Indian National Congress, was accused by the BJP of “presiding over the most corrupt government in independent India.” Widespread corruption during Singh’s term led to the formation of a new, up-and-coming political party, the Aam Aadmi Party (AAP) led by Delhi ChieWf Minister Arvind Kejriwal. The AAP is primarily focused on eliminating corruption and increasing transparency in government. In a surprise December victory, the AAP managed to unseat the incumbent Indian National Congress government in the Delhi Legislative Assembly—a major coup that garnered the AAP a huge amount of public support. The AAP enjoyed further success in December, 2013 with the passage of the Lokpal and Lokayuktas Bill, a piece of legislation that allows accusations of corruption at any level of government to be investigated by an independent body. Activist Anna Hazare capitalized on the momentum generated by the AAP’s recent victory in Delhi and the frenzy of support at the grassroots level against corruption to push the Lokpal Bill through Parliament. Activists have been working towards the passage of a Lokpal Bill since 1968, so its passage last year represented a major triumph in the ongoing battle against corruption. It remains to be seen whether the new regulation will be as effective in practice as it is in theory. Despite the AAP’s rapid gain in popularity, pollsters are predicting that the BJP will still enjoy a decisive victory with Modi as the most favored candidate for Prime Minister. Modi’s success in Gujarat is encouraging when predicting India’s economic landscape in future years. As Chief Minister of Gujarat, Modi was decidedly successful in his push for continuous economic growth; during Modi’s terms, Gujarat experienced an impressive growth rate of 10.3%, averaged over the past seven years. Gujarat’s rapid growth was especially notable given that India’s overall growth between 2006 and 2013 averaged just 7.6%.

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INDIA BENJAMIN ZEHR

by

Associate Editor

BANGALORE’S Breakout

Moment “The Indian market has massive potential, with hundreds of millions projected to continue to experience rising incomes and standards of living over the coming decades. This is potential that the country’s newfound creative and ambitious class recognizes and seeks to capitalize on.”

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acebook’s purchase of WhatsApp for the mindboggling sum of US$19 billion has turned many heads and raised more eyebrows, even in today’s world where high profile tech acquisitions have become fairly routine. Besides the fact that so much money is changing hands for a service that has no direct revenue model, this purchase highlights the growing prominence of the tech sector at the global level. Arguably at its creative peak today, Silicon Valley has been synonymous with innovation for decades, in both the software and hardware universes. There is no one magic bullet that epitomizes the distinct advantages that have made the Valley a mecca for engineers and entrepreneurs alike. A combination of access to high quality infrastructure, proximity to world class educational institutions, and a good degree of luck have all played an important role in creating such an enormous amount of wealth in such a short span of time. The Valley’s success is a feat many are seeking to replicate worldwide. In today’s ever expanding global technology space, a number of “hubs” are rising to prominence, aspiring to the title of the “next Silicon Valley”. Cities like Tel Aviv, London, and Sao Paolo are becoming centers of innovation in areas ranging from software to agricultural technology to solar power. In Asia specifically, the ever vibrant city of Bangalore is one of the most promising candidates, home to

a young entrepreneurial spirit and catering to one of the largest markets in the world. Whether scribbling the next big idea on napkins in its hip downtown bars, setting up shop in attics and bedrooms, or collaborating with like-minded international partners, the young entrepreneurs of Bangalore are reminiscent of a less clean shaven Silicon Valley in its early years. Located in the south Indian state of Karnataka, Bangalore enjoys good infrastructure, a well educated population, and an amicable climate. Moreover, the social environment in the city, particularly among its younger demographic is amenable to innovation in the tech sector. This reputation has created a virtuous cycle - attracting graduates with entrepreneurial ambitions from prestigious universities like the Indian Institute of Technology, further feeding a burgeoning community of ambitious startups, and creating an exciting atmosphere centering on using technology to solve the problems faced by contemporary India. A long established hub for outsourcing, Bangalore, like many Indian cities, attracted scores of young people from rural areas seeking better livelihoods than their agrarian backgrounds provided. Where the city differentiated itself was in its specialization. While cities like Mumbai and Kolkata have long been economic hubs of the country, with very diverse industries contributing to their GDP, Bangalore has grown


Benjamin Zehr is a Sophomore in CALS, double majoring in Applied Economics & Management, and International Agriculture & Rural Development. He grew up in India and spent a gap year between high school and university setting up a network of financially self-sustaining rural eye hospitals there.

BUSINESS ASIA • SPRING 2014

on the back of the IT industry and electronics manufacturing. Today, nearly 40% of the entire country’s IT specialists are employed within the city limits and it boasts a high level of investment from domestic and foreign firms, powerhouses Infosys, Wipro, and Google being among them. The startups rising to the top of the Bangalore scene range from professional tools like SlideShare - a presentation sharing platform recently bought by Linkedin for over $119 million - to M.A.D., a company based on the enhancement of artificial intelligence that makes software more responsive and fun for users to interact with . Given the country’s rapidly changing business environment, a broad spectrum of startups that provide innovative solutions to workflow and management problems have cropped up. CollaborateCloud and CloudMunch are two leading startups aiming to provide cloud based solutions to their corporate customer base by optimizing and centralizing their clients’ data. In this sector, streamlining processes is key. On the other side of spectrum, personalized services such as GoToPal - a virtual assistant that manages your calendar and phone, complete with a separate phone number and email address - are aimed at the consumer market that increasingly consists of busy white collar workers in need of a free way to manage their appointments. The Indian market has massive potential, with hundreds of

millions projected to continue to experience rising incomes and standards of living over the coming decades. This is potential that the country’s newfound creative and ambitious class recognizes and seeks to capitalize on. Amidst all the chaotic energy of the Indian startup scene, however, lies a daunting challenge for would be businesspeople. Infamous for its difficult business environment and nicknamed the “License Raj”, the Indian incorporation process, combined with the various regulations and licenses required to conduct business, make it tedious and expensive to operate in. This is particularly true for newcomers to the corporate world who may not be well versed on procedural aspects of business. Furthermore, the education system in India is focused on creating employees, not employers . Other than a few of the top managerial institutions, entrepreneurship is not widely discussed as a career path, contrary to the attitude in countries such as Israel. In order to facilitate India’s establishment as a center of innovation on the global stage, a more streamlined system is needed to ensure young professionals are given easier access to resources they need to establish themselves. As for Bangalore, it has been in the spotlight in recent years, thanks in part to the fact that it is home to the largest tech companies in India. Going forward, however, it must double down on the dynamism of its entrepreneurial inhabitants and capitalize on its access to the rest of the world. Perhaps the government will seize the opportunity to turn it into one of the world’s great technology hubs, another Silicon Valley, and create a policy environment more amenable to new, risky ventures. Whether or not the stars align, though, Bangalore is in a strong position going forward and has a shot at being one of the most important cities of the 21st century, bringing modernity to a rapidly changing part of the world. | BA

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EAST ASIA ZHI-YEN LOW

by

President

Abenomics Revisited

No Bull’s Eye So Far

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n Tokyo, pedestrians walk amid large signage of luxury stores announcing sales in the bustling Ginza shopping district. However, discounts don’t go very far in attracting willing spenders, and the situation is about to worsen. In a move to tackle the country’s debt, the Bank of Japan is implementing an increase in consumption tax (Japan’s equivalent of a value-added-tax) from 5 % to 8 %. The policy is set to begin in April, with another rise to 10 % in October. According to IMF estimates, the effect will be a fiscal tightening of approximately 2.5 % of GDP this year, plus an additional 1 % in 2015. Official forecasts estimate that this squeeze will cut Japan’s already sluggish economic growth from 2.5 % in 2013 to 1.4 %. Upon being elected Prime Minister, Shinzo Abe unfurled aggressive measures to revive the country’s economic malaise of stubbornly low inflation and stagnant growth. He introduced his radical plan in the form of “three arrows”: massive fiscal stimulus, more aggressive monetary easing from the Bank of Japan, and structural reforms to enhance the nation’s competitiveness. Abe’s audacious policies appeared to be a refreshing change from the complacency of previous governments. However, his fiscal arrow looks dangerously awry as the rise in consumption tax may spell impending economic deceleration.

The Japanese Consumer Shops Overseas This massive tax hike threatens to stifle Japan’s consumer-driven growth, especially at a time when consumer pessimism has reached a new high since Abe took office in January 2013, and its highest since 2011. The “rushbuying” that involves frontloading expenses ahead of tax rises has been limited, suggesting that consumers are still wary of creeping inflation and even slower-creeping wage increases. To counteract the tax increase, Abe has unveiled a stimulus package of 5.5 trillion yen in December. The Bank of Japan governor, Haruhiko Kuroda, has expressed his confidence in the program, emphasizing that the central bank will promptly execute additional monetary measures should the downturn be deeper than expected. The Bank of Japan buys 70 % of newly issued government bonds under the current easing program. Critics say that the

danger of such aggressive monetary easing is that it will be challenging for the central bank to withdraw from its easy policy without roiling the bond markets. Perhaps surprisingly, the Japanese consumer is spending, but not at home. There has been surging demand for imports, which grew almost 15 % in the last quarter of 2013, despite higher prices from a weakening yen. The ultra-loose monetary easing has led to a steep 23 % devaluation of the yen against the dollar since Abe’s entrance was announced. To make matters worse, exports have been sluggish at 1.7 % growth due to slowing demand from Asian countries (major export markets for Japanese goods), global turmoil in emerging markets, and stronger demand within the country. These conditions have widened the trade gap to a new record in February, increasing at a massive 71 % to 2.79 trillion yen. Boosting exports will be no easy feat either


Aiming the Third Arrow The Prime Minister’s ace up his sleeve is a planned decrease in corporate tax rates. At 38 %, Japan’s corporate tax rate is a sizable obstacle for firms in doing business in Japan. Experts say that reducing the rate could provide a significant boost in competitiveness for Japanese companies and improve the country’s attractiveness for foreign investment. However, Finance Ministry officials are concerned that cutting the corporate tax rate could significantly worsen Japan’s public debt, already one of the worst among advanced nations. Kuroda warns that unless a permanent source of revenue is found through the social security system and overall taxation system, the fiscal deficit would likely be permanent. Furthermore, experts argue that a decrease in corporate tax would defeat the purpose of the consumption tax hike, which primarily aims to expand the government’s longterm revenues. Another potential solution to sluggish exports is Japan’s involvement in talks regarding the U.S.-led free trade pact, the Trans-Pacific Partnership (TPP). According to analysts, the TPP would help to reduce some of the rapidly growing trade barriers in Asian

emerging markets, particularly in public construction projects that are currently limited to local companies. However, political obstacles continue to plague discussions as the 12 trade ministers attempt to reach a unanimous agreement on intellectual property protection, environmental and labor standards, privileges of state-owned enterprises, and market access. Unsurprisingly, it is between the two largest economies within these talks, Japan and the United States, where the challenges seem most insurmountable as they clash on automobile and agricultural trade policies. To appease the Americans, Japan needs to lower its agricultural tariffs and conduct domestic reform of the sector. The pressure is building on Abe to resolve these issues, as the TPP remains integral to the “third arrow” of structural reforms to the Japanese economy.

Misfired Efforts Abe’s efforts to drive structural reform has received significant backlash from all sides. A Bank of Japan policy member, Takehiro Sato, describes progress as “not so eye-catching” thus far and a frustration for foreign investors. Sato stresses the importance of long-term investments from overseas, driven by strong improvements in the economy. In 2013, 51 % of all trading at Tokyo and Nagoya stock exchanges were transacted by foreign investors, highlighting their role in driving Japanese stocks. Another Bank of Japan board member, Ryuzo Mizao, also reminded the government that institutional and regulatory reforms are essential for strengthening growth

potential. Their comments, coupled with Kuroda’s, suggest the possibility of some tension between the government and the central bank in orchestrating the Abenomics program. In addition, another area requiring significant reform is the labor market. Wages in Japan have been steadily declining since the late 1990s. A key facet of Abenomics is for corporate Japan, also known collectively as Japan Inc., to boost wages in order to increase prices and consumer spending to drive economic activity. Growth in the private sector would then allow for increased capital spending. Toyota and Daiwa securities are among the large companies that have already made moves to raise workers’ base wages. Smaller firms will have little choice but to follow suit. Furthermore, in an unprecedented move, the government has threatened to name and shame companies that do not cooperate with their demands to raise wages. Not only is Japan Inc. facing pressure from the government, it must also confront Japan’s shrinking working-age population. This demographic continues to shrink at 1 % a year, in a labor market where the number of job openings has exceeded the number of applicants since last November. As the labor shortage widens, businesses will be forced to increase wages to attract talent. | BA Zhi-Yen Low is a senior in AEM from Malaysia. She will be pursuing a career in consulting at Ernst and Young Advisory upon graduation.

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– much of Japan’s manufacturing sector has been offshoring their production over the past few years. Japanese electronics – televisions, refrigerators, air conditioners, and computers – are mostly assembled in China. Automakers have increasingly been following suit, which leaves Abe with little time to stop the trend.

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EAST ASIA YIWEI CHEN

by

Writer

Asian Real Estate Investment

The attractiveness of real estate investment in the U.S. coupled with the fact that Asian countries, including China, are liberalizing regulations on investing in foreign countries, are pushing Asian investors into the property market in the U.S.

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he iconic buildings in various U.S. gateway cities may not be American after all. The U.S. Bank Tower in downtown Los Angeles, the tallest building in the West, was sold to Overseas Union Enterprise Ltd, a real estate company based in Singapore. The General Motors Building in Manhattan and the One Chase Manhattan Plaza in downtown Manhattan were purchased by Chinese real estate investors at lofty prices. On the residential side of the real estate markets, the Asian investors are snapping up expensive properties in the best neighborhoods in cities ranging from New York to San Francisco. The Asian investor craze is not ungrounded, but to what extent should the U.S. government welcome this influx of foreign investment in the real estate market? Over the years, Asian investors have become increasingly willing and able to invest in the U.S. real estate market. Since property investments in the U.S. offer the same return at a much lower risk as compared to similar investments

in the Asian real estate markets, Asian investors are pouring money into the U.S. The institutional Asian investors are looking for stability and diversification. Goodwin Gaw, the chairman of Gaw Capital Partners mentioned that “the large Asian institutional investors, including Chinese investors, are looking for safety, more stability and exposure to diversified currencies and returns.” And the market stability and the successful diversification of investments are only available in a mature and transparent real estate market such as the one in the U.S. According to the Wall Street Journal, “the U.S. is often the preferred destination of Asian investors because it offers a broad of mix of office buildings, hotels, retail and industrial properties. The market has better disclosure and title rights.” Indeed, the attractiveness of real estate investment in the U.S. coupled with the fact that Asian countries, including China, are liberalizing regulations on investing in foreign countries, are pushing Asian investors into the property market in the U.S.

Asian investors are benefitting from the extraordinary wealth creation in Asia in recent years. According to Knight Frank, the number of high net worth individuals (HNWI, defined as those with net assets of at least $30m) increased by 35.6 per cent between 2007 and 2012, and they have demonstrated a keen interest in property. If Asian investors want to collect trophy assets so that they could flaunt the beautiful pictures on their company brochures, they would do it. Interestingly, the hype over the real estate market does not seem to stop at the big gateway cities anymore. These same Asian investors are looking into real estate markets in cities such as Houston, Boston and Seattle that were less well-known and popular amongst Asian investors in the past. The primary reason is that the influx of foreign investments in big gateway cities has driven up property prices and so investment in these other cities presents a higher relative margin of return. Indeed, Beijing-based real-estate investment


Domestic real estate investment entities face great pressure as these Asian investors, loaded with capital and easy access to financing in their home countries, could easily outbid them for projects. According to Pamela Liebman, President and Chief Executive Officer of the Corcoran Group, ”sales transactions can often be completed quickly as many Chinese purchasers prefer all-cash deals”. This might threaten the competitiveness of the domestic real estate investment companies because the stricter lending rules imposed by the U.S. banks have made it harder and more expensive for them to get financing.

These same Asian investors are looking into real estate markets in cities such as Houston, Boston and Seattle that were less well-known and popular amongst Asian investors in the past. “

Without doubt, the easy capital employed by the Asian investors could be spun to work in favor of real estate developers, who have the expertise but are often short of the capital needed to undertake development projects. Asian investors want to venture into uncharted water; no longer do they only invest, they now want a share of the development game too. Thus, many of them are hoping to partner up with local real estate developers.

Should the government encourage these foreign investments or should it be concerned with the negative impacts associated with them? Up until now, the government has not been overly favorable towards foreign investors. The Foreign Investment in Real Property Tax Act is in place to put barriers to foreign investment in the real estate market. However, a proposal to reform the Act to make it more appealing to foreign investors is currently being discussed in the U.S. government. While it is understandable that the government hopes to do what it can to create jobs and further spur local economies, it is essential for the U.S. government to examine how many benefits are gained from foreign investment and whether these benefits outweigh the costs associated with higher cost of living and eroded competitiveness of U.S. real estate investment firms. While it is undoubtedly true that globalization is bound to bring down the barriers between different markets, I think it is worthwhile for the government to figure out how it can help the average American and the local firms cope with its potential threats, before they get lost in the rising tide of foreign investment. | BA Yiwei Chen is a sophomore in the School of Hotel Administration with a concentration in Finance, Accounting & Real Estate and a minor in Real Estate. On campus, Yiwei is a Teaching Assistant for several classes at the Hotel School and has been involved with the Real Estate sector at the Mutual Investment Club of Cornell.

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firm Grand China Fund has invested in a residential complex in Atlanta because this investment promises a higher yield than similar investments in California or New York. Moreover, the recovering local economies in these secondary markets together with the presence of strong demand drivers make properties in these markets increasingly attractive. To these investors, “these other cities— lesser known to some Chinese firms— now appear to offer fresh opportunities as energy or technology drives their economies and local Chinese communities expand.” What does this mean for the US? According to the Wall Street Journal, “Asian investors dove into the US real estate market in the past few years, helping fuel the recovery of property values and funding development projects in major markets”. While it is undoubtedly true that the influx of these investments, a majority of which is in cash, has injected liquidity into the U.S. market, it is worth examining if these benefits are displaying diminishing returns. In some cities like San Francisco, Asian investors have driven up residential prices to almost twice the median U.S. housing price. While this seems to bode well for real estate developers and investors, the rising prices make it harder to afford a house in these cities, increasing the cost of living for average Americans. To make it worse, it is not impossible to think that rising property prices might again create a housing bubble similar to the one which dragged us into the financial crisis a few years ago.

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EAST ASIA

Weakening Yen: Currency Wars Between South Korea and Japan Although investors are pulling money out of South Korea’s local stocks due to volatility, foreign investors have placed over 655 billion won into local debt.

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outh Korea’s domestic economy has experienced slow growth ever since the global recession. The slow pace of economic growth has underscored concern that a weaker Japanese yen will curb exports. Relatively weak imports already reflect the still-depressed domestic demand in the country. The reason for low domestic demand is that households are saving more money and paying back debt instead of spending on goods, like cars and homes. Now, President Park Geunhye faces new pressure beyond the domestic arena on its export and growth prospects due to the weakening of the Japanese Yen, which has put South Korea exporters at a major disadvantage in global markets. South Korea is the seventh largest

exporter in Asia and relies heavily on exports to sustain its economy. According to trade statistics, exports contributed to 32% of South Korea’s GDP in 2011. China, the country’s largest export market, purchases nearly a quarter of total overseas sales followed by the United States with roughly 10%. In a meeting with the Korea Employers Federation, Park stated, “as the global economy hasn’t recovered from recession yet our companies are having more trouble as the weak yen offensive [continues].” These remarks reflect how South Korea’s dependence on imports from countries such as China and the United States has allowed the weakening of the yen to stagnate South Korea’s attempts to recover its domestic economy. For the last month, the won traded at 11.69 against the yen,

MADISON LEONARD

by

Writer

an 18 % gain for the won. The yen has plunged 26% over the past 15 months, which has had a pronounced impact on Korean exporters. South Korean and Japanese firms compete in exporting cars, televisions and computer chips and the depreciating yen is allowing Japan to export goods at a cheaper rate than South Korea. Foreign investors have reacted by selling nearly $6 billion of shares in South Korean companies. In the past, South Korea has served as a proxy for global trade to investors. Over the years, the South Korean stock market has risen due to increased demand from global investors in South Korean companies. The country’s recent slow export growth has driven down the stock market by nearly 1.1%. Additionally, over half of South Korean companies missed their expected fourth-quarter earnings in 2013. Although investors are pulling money out of South Korea’s local stocks due to volatility, foreign investors have placed over 655 billion won into local debt. Korean bonds are viewed as a safe


their currency rates as well. South Korea must realize that weakening the won to boost exports will not be enough to revive the slowing economy. The country has tried to support domestic jobs over exports and defend itself against rising prices and household debt; however, domestic companies are still outsourcing the majority of their operations. According to the National IT Industry Promotion Agency, 80% of the mobile phones sold by South Korean manufacturers were made outside of Korea, including those by Samsung, Korea’s national champion. Additionally, Hyundai Motors made nearly 60% of its cars overseas. A trade ministry forecast reports that exports may grow by up to 4.2%in 2014; however, if the yen falls any further, currency volatility will make the export sector uneconomical and South Korean manufacturers could lose market share that they have steadily gained over the past couple of years in automobiles and electrical machinery. The weaker yen has been a burden to Korea. As the Asian supply chain becomes even more complex than ever before, the currency devaluation of the Japanese yen will most likely not deliver the same competitive gains that it has in the past. Nevertheless, South Korea has the ability to defend itself against volatility and foreign currency and should exercise this right to depreciate the won. Until South Korea builds a buffer against foreign currency, its exports will be continue to be at a disadvantage in global markets, the country’s unemployment will continue to rise and the economy will be stagnant. The future growth of its economy depends on the country stabilizing its currency, re-evaluating its position in the markets and reducing its dependence on exports. | BA Madison Leonard is a freshman in Applied Economics and Management specializing in Finance and Marketing from Westport, CT. On campus, she is an international sector analyst for Cornell Current. This summer, Madison plans on working as an accounting and product development intern at her family’s food and wine retail business.

BUSINESS ASIA • SPRING 2014

haven because the market offers an attractive real yield and is backed by AA-credit-worthiness. A global research analyst at French credit bank Agricole commented that, “capital inflows into Korean bond and equity markets will be a key factor driving a stronger won over coming months”. South Korea probably will not see the major influxes of money into the bond market that it experienced in early 2013 but the country’s manageable government deficit and large foreign currency reserves have shielded the economy and made local debt more attractive to investors. The country has responded to the depreciating yen by holding interest rates stable. The chief economist, Park Sang Hyun, of HI Investment & Securities, Park Sang Hyun, explained, “if Japan opts for more aggressive monetary stimulus and the yen falls much further, it would chill growth, forcing the Bank of Korea into further easing.” In the past, South Korea has bought dollars to keep the won moving in sync with the yen. This has put the country’s exports at a higher advantage in global markets by buying dollars in currency markets. South Korea should curb its currency appreciation to defend its currency against fluctuations in other countries currencies. Although this requires a large intervention by the Bank of Korea, dollar buying can smooth the currency market of excessive volatility. The won will weaken in relation to the yen and help companies such as Samsung compete with big Japanese competitors such as Sony and Panasonic. A weaker won could boost exports and the overall Korean economy. Korea has options when it comes to boosting its economy. Yet weakening its own currency may result in further political tensions between Japan and South Korea as their firms compete in the global market. Many economists consider Korea’s current level of reserves to be adequate and recommend that the country steer clear of further accumulation whereas others see a benefit in Korea building a buffer against the weakening yen. It is important to note that a currency war may occur as other countries reduce

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SOUTH-EAST ASIA BENJAMIN ZEHR

by

Associate Editor

The Singaporean Paradigm

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uch has been said about Singapore’s prodigious rise; starting off as a somewhat seedy port-town and outpost of the British East India Company, the island’s independence and subsequent export-oriented economic policies put in place under Lee Kwan Yew in the following decades propelled it to its current status as one of the “Asian Tigers”. Boasting one of the highest millionaire-per-capita ratios in the world, the city-state occupies a key geopolitical and economic position in South East Asia and has a standard of living unmatched by any country in the region. Moreover, the nation’s economic growth does not appear to be at odds with its local environment. Singapore is known as the Garden City, characterized by low automobile use, excellent public transit, and vast green space on a space-constrained island. Being home to a lot of wealth and very little space, however, has dire implications for social cohesion, as demonstrated the world over by stratification and exclusion of either minorities or lower income groups. Although the government has been proactive about preventing stratification on the basis of race, it faces an indirect challenge via its real estate market. Here, property speculation has run rampant and many lower income workers have been forced to commute from neighboring Malaysia rather than live in the city itself. Thus, social and economic consequences loom as the city rapidly becomes one of the most expensive places to live in the world. Singapore has been lauded world-

wide for its model urban planning – far reaching commitments to green space and environmental sustainability can be felt in the large swaths of its scarce real estate dedicated to public parks and recreational space. Furthermore, its ongoing efforts to reduce private vehicle traffic through innovative solutions, such as on-road tolls, and 100%+ registration fees on automobiles have contributed to a population that most often prefers to commute either on foot or using some iteration of Singapore’s extensive public transit system. These measures – combined with low taxes and the government’s commitments to making all in-city operations as “green” as possible – make it a very attractive destination for residents and businesses alike. Moreover, strict penalties for even the smallest offenses have made the city one of the safest in the world. Yet when discussing the merits of a Singaporean lifestyle, proponents often ignore the elephant in the room – the high cost of living. Skyrocketing housing prices in particular have made

it extremely difficult for the low and middle income demographics to afford the Singaporean lifestyle. The price-tag on the few plots of land across the island of Singapore have increased approximately 30% each year since 2011, which is three times faster than apartment costs themselves, according to government auction data. This rate is not only incredibly rapid for people in search of a home, but even the real estate companies that were once able to sit on 20% profit margins are feeling significant pressure. In an effort to stem these trends, the government has implemented so called “cooling measures” that it hopes will prevent the potential housing bubble from popping violently – prices slid for the first time in four years in the fourth quarter of 2013, and analysts from DBS Bank are projecting a 10-15% drop over the next year. These cooling measures include tight controls on loans and duties for both sellers and non-citizen buyers. The most recent property issue has only served to highlight Singapore’s


former British colonies and owe their dramatic economic performance to similar export-oriented growth policies. Based on a study published in The China Quarterly, social cohesion in Hong Kong is perceived to be quite good, although government intervention is kept to a minimum. Singapore on the other hand has used its legislative and executive power to sculpt the city to the specifications of its leadership. That said, Hong Kong is fairly homogenous, with an over 90% ethnic Chinese population versus 75% of Singaporeans. The result of Singapore’s style is a wellorganized and efficient, but somewhat sterile urban environment that attempts to mask it’s imperfections with an impeccable image. In 2013, tensions resurfaced in the form of the first riot in 40 years. Over 300 migrant Tamil and Bangladeshi laborers participated in the riot in Little India, causing damage to public property and injuring dozens. Though it hardly compares to more violent riots elsewhere in the Southeast Asia, it has symbolic importance. Singapore is beginning to feel the effects of the global trend of rising income inequality, a trend that inevitably alienates certain disadvantaged groups.

The sign of a mature democracy is the ability of the majority to ensure that the minority is not exploited.”

As it stands today, Singapore has the potential to be a trailblazer, a

glimpse at the city of the future – safe, clean, green, efficient, and wealthy. That said, however, it must first provide the foundation for a sustainable and equitable social fabric. Certainly easier said than done, it will be interesting to see how the government and, indeed, the people of Singapore address this issue going forward. It must make a concerted effort to democratize its decisionmaking; although its style of governance worked in its favor in the past, it must adapt to changing times. When building a nation from the ground up, direct control over details is critical. In order to provide a diverse population with equal opportunities, however, the citizenry must have a stronger say in the decisions made by the government. The sign of a mature democracy is the ability of the majority to ensure that the minority is not exploited; if Singapore is to remain a socially stable nation, it must reassess how it balances the needs of its many constituents. If it fails, Singapore will become another nail in the coffin of 20th century capitalism, defeated by the inequality it espoused. If successful, though, this tiny city-state could prove to be the single largest beacon of hope for a world faced with burgeoning social stratification and environmental crisis. | BA Benjamin Zehr is a Sophomore in CALS, double majoring in Applied Economics & Management, and International Agriculture & Rural Development. He grew up in India and spent a gap year between high school and university setting up a network of financially self-sustaining rural eye hospitals there, to provide high quality care at very low cost. BUSINESS ASIA • SPRING 2014

most pressing long term issue, however. That issue remains one of ensuring social cohesion and establishing a stable culture that will withstand the fluctuations of the nation’s population makeup. Historically speaking, some of the most prominent cultural traditions, from jazz in the Americas to India’s many festivals, have developed as a result of a heterogeneous society. Although Singapore can boast a wide diversity of ethnicities and cultures, it has not had time to develop a distinct culture of its own, aside from the fast paced business atmosphere and rules based lifestyle that exists there. Contrary to the government’s usual approach of directly intervening, in the case of culture it may have no choice but to allow it to develop organically. In order to create the right conditions for a flourishing culture to develop, the government must create a city that is equitable and ensures that the different strata of society interact with one another. The ultimate beauty of humanity’s greatest invention, the city, is proximity. Edward Glaeser, author of The Triumph of the City, claims that this interaction and sharing of ideas, facilitated by the urban environment, has contributed almost entirely to the development of the complex entity that is human civilization. Cities have always been places of contrast and coexistence. Although Singapore has the opportunity to become an exclusive place, it will lose out on the innovation that heterogeneous immigrants bring with them. Hong Kong has offered an interesting juxtaposition to Singapore. Both are

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SOUTH-EAST ASIA SANJEEV DHARA

by

Writer

Indonesian Ore Ban An Opportunity Waiting To Be Unlocked

“Much like the early United States, the Indonesian government now faces the choice of feeding someone else’s industrialization or embarking upon its own.”

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tarting on January 12th, 2014 Indonesia strictly restricted the forms of unprocessed ore that can leave the country for export. The new law hopes to develop Indonesia’s domestic refining and processing capacities. It is remarkable that a country which is one of the largest exporters of nickel, tin, rubber, and coal would be willing to risk the lifeblood of its economy. President Susilo Bambang Yudhoyono and the Indonesian government hope that domestic jobs in the smelting and refining industry will be developed. This growth in manufacturing know-how and engineering abilities will presumably make the Indonesian economy far more dynamic in the future. The example of Nigeria epitomizes the results of not properly managing a resource boom. To prevent a similar free-for-all on Indonesia’s natural resources, the government is now essentially mandating that a domestic refining and processing industry be developed. Despite the protectionist inclinations within the bill—it remains beneficial to Indonesia in the long run. Most of the value of products such as crude oil is derived from refining and processing over and above the raw material drawn during extraction. For example, while crude oil is a relatively valuable

commodity, transforming it into things such as jet fuel and plastics is economically incentivized, as these products are far more expensive. Furthermore, the process of successfully refining crude oil involves the work of chemical, mechanical, and electrical engineers. By encouraging the development of refining and smelting industries, Indonesia is creating the opportunity to develop its technical capabilities. Countries such as Japan and South Korea have built tremendously successful economies in the past century with a dearth of natural resources but with armies of engineers and scientists. There are numerous historical parallels to Indonesia’s ore ban. When the United States first achieved independence, one of its key decisions was to erect trade barriers to protect its relatively weak textile industry. In the long run the development of industrial techniques and skills was invaluable in transforming the United States from the resource depot of Great Britain to the world’s mightiest industrial power. Much like the early United States, the Indonesian government now faces the choice of feeding someone else’s industrialization or embarking upon its own. In choosing the latter, it is following the path that transformed countries such as Japan and South Korea into powerful and dynamic economies.

Key to the success of those nations has been their large and well-educated workforces. Japanese and South Korean companies such as Sony and Samsung have sustained enormous R&D budgets in order to develop some of the world’s leading technologies. Blessed with copious natural resources and with a population of 250 million, Indonesia has the potential to develop into an economic powerhouse. Should the ore ban be utilized properly, it could add a well-educated group of scientists and engineers to one of the world’s largest workforces. The challenge the Indonesian government faces is to effectively channel the effects of this law to encourage investment in its human capital. According to statistics from the Union of Indonesian engineers, the country is almost 30,000 engineers short of where it ought to be each year. Whereas South Korea has 25,000 engineers per one million people and India has 3,380 engineers per one million people, Indonesia only has 2,671 engineers per one million people. Although the government has already acted to regulate the actions of foreign engineering firms within the country— it would be well advised to implement laws along the lines of China to spur domestic knowledge transfer. In China, many foreign firms are


ties to provide industry experience for students. Several countries, the United States included, seek to develop their technical professionals not by discouraging foreign workers but by ensuring that opportunities are provided for technical training. The legislative process that ensures that human capital development is tied to economic regulations is complicated. Like many countries in Southeast Asia, politically popular positions often involve catering to the needs of rural populations. Thus tying the ore ban to the challenge of developing technical talent will not necessarily be politically lucrative. However, not trying would be a shame. Despite deep infrastructural and governance issues—Indonesia can become one of the major success stories of the 21st Century. Developing a dynamic

and skilled workforce to compliment Indonesia’s natural resources will set the country on its way. Despite the short term damage that the ore ban will do to the Indonesian economy, if properly utilized, the law can be used to develop a talented workforce of professionals ready to work in industries beyond smelting and materials processing. This development will transform Indonesia from a resource rich economy to a far more dynamic and multifaceted economy. | BA Sanjeev is a rising Junior majoring in Chemical Engineering from Rockville, Maryland. He is also involved with AKPsi, MICC, and Society for India. Last summer he worked at a Wealth Management firm and he will spend the coming fall semester in Houston with General Electric Oil and Gas.

BUSINESS ASIA • SPRING 2014

forced to partner with domestic companies when bidding for work in the country. As highlighted by The Economist, these types of laws have effectively developed China’s dexterity in industries such as architecture. Chinese companies are already attempting to move into Indonesia and build processing plants so that China can maintain access to important metals such as tin and nickel. Two of the top Indonesian mining companies, Freeport Indonesia and Newmont Nusa Tenggara, are both tied to American companies. Ensuring that skilled Indonesians are employed and developed by these foreign companies is crucial to ensuring that the ban on ore exports has long-term benefits. Foreign firms must be incentivized to hire Indonesian engineers where possible and encouraged to collaborate with local universi-

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INTERVIEW

Interview

with

Douglas M. Weill Institutional Real Estate: Asia & Beyond

Interview with Douglas M. Weill, Managing Partner, Hodes Weill & Associates

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ouglas M. Weill is a Managing Partner of Hodes Weill & Associates, a real estate advisory boutique with a focus on the investment and funds management industry. The firm is headquartered in New York and has additional offices in Hong Kong and London. Founded in 2009, Hodes Weill provides institutional capital raising for funds, transactions, co-investments and separate accounts; M&A, strategic and restructuring advisory services; and fairness and valuation analyses. Clients include investment and fund managers, institutional investors, lenders, property owners and other participants in the institutional real estate market. Prior to Hodes Weill, Mr. Weill was a Managing Director at Credit Suisse, based in New York. Mr. Weill joined Credit Suisse First Boston in November 2000 when the firm merged with Donaldson, Lufkin & Jenrette (DLJ) and co-founded Credit Suisse’s Real Estate Private Fund Group (REPFG). From 2000 through February 2009, Mr. Weill co-led the business, with the responsibility for the strategic oversight and management of REPFG. REPFG has received numerous recognitions for

its market-leading business, including Global Fund Raising Agent of the Year by Private Equity Real Estate in 2007 and 2008. In early 2008, Mr. Weill assumed the additional responsibility of co-managing Credit Suisse’s Real Estate Investments Group (REIG), which includes the firm’s real estate investment businesses within the Alternative Investment Group. As of March 2009, REIG had over 250 professionals and approximately $37 billion of assets under management. Mr. Weill worked previously with Paine Webber Incorporated, Kidder, Peabody & Co., Kenneth Leventhal & Co. and Hospitality Valuation Services. Mr. Weill has a BS from Cornell University.

Institutional allocations to real estate are increasing, indicating that the pace of annual investments will likely continue to accelerate well beyond 2014.”

TIMOTHY LIN

by

Writer

1. Hodes Weill & Associates, in partnership with Cornell University’s Baker Program in Real Estate, recently published the results of the inaugural 2013 Institutional Real Estate Allocations Monitor (the “Allocations Monitor”). What were the key findings of the Allocations Monitor and where does Asia stand? The Allocations Monitor was created to provide the institutional real estate industry with a comprehensive annual assessment of institutions’ allocations to, and objectives in, real estate investments by analyzing trends in institutional portfolios and allocations by domicile, type and size of institution. We surveyed 198 institutional investors from 26 countries, representing total assets under management of over US$7 trillion (including over $400 billion invested in real estate). Among other results, we found that: ll Institutions are significantly underinvested in real estate, which is


2. How has institutional interest in real estate evolved over the years, around the world and in Asia? Institutional interest in real estate has been growing for over 20 years, moving from a mainly entrepreneurial endeavor to becoming a long term asset class in the portfolios of institutional investors. After the Global Financial Crisis, we saw a pronounced shift in institutional investors’ attitudes towards real estate, consolidating its place as a core asset class in institutional portfolios. Besides its high current yield, risk diversification and inflation hedge properties, institutional investors also found that real estate matched their liability profile (in particular, of pension funds), and achieved their target returns while limiting volatility. In Asia, real estate in institutional portfolios has evolved from having more of a domestic focus to having more of a regional and/or global focus. In recent years, Asian institutions have acquired several high-profile assets in developed countries. As local markets continue to become more

“institutionalized”, we have seen growth in the interest of institutions to invest in the Americas and Europe, and to invest in the growth opportunity in Asia. Ultimately, the pace of growth will depend on the availability of professional investment managers and trusted local partners, as well as the professionalism of the industry as a whole.

In Asia, real estate in institutional portfolios has evolved from having more of a domestic focus to having more of a regional and/or global focus.”

3. In terms of Asia as a real estate capital source, what are some of the key themes you are seeing today? Certainly, there is a lot of cross border capital coming out of Asia today. Real estate capital from Asia has typically been deployed mostly in major gateway markets such as New York, London and San Francisco. The capital is invested across a range of real estate asset types, from core properties to development projects – through fund managers, as well as in direct deals with joint venture partners.

4. What opportunities and challenges do you see for Asia as an investment destination for global real estate funds? Urbanization remains the predominant growth story of Asia. The great rural-urban migration taking place in China and India has created demand for all types of real estate – residential, retail, office, industrial. Even with sky high prices and potential overbuilding occurring in certain Chinese cities, demand remains robust. In fact, there appears to be an undersupply of certain real estate

BUSINESS ASIA • SPRING 2014

resulting in greater capital flows into the sector. On average, institutional portfolios are 8.8% invested in real estate, which is approximately 100 bps below the average target real estate allocation of 9.8%. ll Institutional allocations to real estate are increasing, indicating that the pace of annual investments will likely continue to accelerate well beyond 2014. Institutions expect to increase their target real estate allocation by an average of 52 bps in 2014. This is particularly pronounced in Asia Pacific, where institutions expect to increase their target allocation by an average of 146 bps. ll Investment objectives are increasingly global, driving crossborder capital flows and investment activity. Institutional interest in international investments is on the rise. Asia Pacific based institutions indicate the highest interest in investing outside their home region, followed by institutions in Europe, Middle East, and Africa (“EMEA”) and the Americas.

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INTERVIEW

product types – such as in warehousing and retail. The main challenge for global funds investing in Asia is access to quality transaction flow. With the real estate and capital markets still maturing, and relative opacity in real estate information flow, unique offerings are often snapped up by local players with privileged knowledge of the market and investment opportunity. Compared to developed markets such as the U.S., Asia’s investment management business is at a relatively early stage, and the challenge for global investors is finding a trusted local partner that can identify and execute investment opportunities, and to ensure that there is an alignment of interests.

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5. In 2013, Hodes Weill acted as exclusive global placement agent for Singapore-based Mapletree Investment’s Mapletree China Opportunity Fund II, which raised US$1.4 billion and remains the largest China-focused private equity real estate fund raised to date. Tell us more about Hodes Weill’s involvement in the process – what were the milestones and challenges?

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Besides being the largest China-focused fund raised to date, the Mapletree China Opportunity Fund II was 40% over the original target of US$1 billion. Even so, the fund was about 10-20% oversubscribed and we had to turn away interested investors. There was also global interest in the fund, with investors coming from North America, Europe, the Middle East and Asia, and contributions ranged from $20+ million to over $100 million. The entire offering process took just 10 months, about half the time typically taken for raising a private fund. Contributing factors to the success of the capital raise include, first and foremost, the quality of the investment

manager as well as the offering, and demand from institutions around the globe. Nonetheless, the slowing rate of growth in China was a concern among some investors and we had to convince them that this was not indicative of the general development trends taking place in the country.

6. What do you see are the macro trends impacting global real estate investment going forward? What effects will the pullback in monetary stimulus have on the real estate space? The low interest rate environment which we have seen in the years following the financial crisis has led to greater liquidity, higher transaction volumes and asset values rebounding in certain markets to pre-crisis levels. Certainly, more capital has been allocated to the real estate asset class over the past few years and the appetite of institutional investors for real estate continues to grow. There is a general sense of cautious optimism as real estate as an asset class is performing well, with stable demand and high occupancy, and rental growth exceeding inflation. Assuming economic fundamentals remain positive and barring any major economic shock, an inevitable pullback in monetary stimulus and consequent rise in interest rates may be buffered by healthy GDP and demand growth.

Assuming economic fundamentals remain positive and barring any major economic shock, an inevitable pullback in monetary stimulus and consequent rise in interest rates may be buffered by healthy GDP and demand growth. “

7. What are the factors that may impact the private placement and advisory business over the coming years? As the real estate business becomes increasingly global, and cross-border allocations increase, the demand for capital raising and advisory intermediaries is expected to become greater. We observe this from the increasingly customized, tailored strategies that institutional investors are seeking, which may be best achieved by having an independent third party intermediary with intimate knowledge of local markets and the ability to connect them with the right partners. On the flipside, the evolving regulatory requirements in certain jurisdictions are creating some uncertainty and challenges for the business.

8. Hodes Weill opened its Asian office in Hong Kong in end 2011. What have been some of the key accomplishments in the period since and what are the firm’s future plans in Asia? The opening of our Asian office and recruitment of a high quality team was our central mission in the initial years. Today, the team in Hong Kong, led by our partner Alfredo Lobo, services key markets in Asia – including Korea, China, Hong Kong, Singapore, Japan and Australia. Besides the Mapletree project which helped significantly raise our profile in the region, the team is also involved in raising capital for a number of U.S. and Europe-focused funds and transactions. We hope to add to the team, as well as to our geographical and product coverage, in the coming years.


9. In 2006, you were named, along with Mr. David Hodes, in the list of 30 most influential people in private equity real estate by Private Equity Real Estate (PERE). Can you share what you think are some of the key factors for your success and any lessons learned in the process? On an organizational level, the strength of the team and the ability to nurture a collaborative work culture are critical factors that influence the quality and integrity of the work we produce. As trusted advisors, we endeavour to give good advice to our clients, even if it may

not earn us a fee in the near term. The key to building strong relationships is to focus on the long-term. On a personal level, it is important to constantly challenge yourself to learn and to keep abreast of industry developments. It is also important to build and maintain a network of relationships, which start from the colleagues you meet and work with early in your career. These colleagues will rise along with you over time to become decision-makers in the industry. Finally, creating visibility for yourself by getting out of your office to meet people is really important. Don’t just rely on emailing and social media for communicating and networking. Always work for people you respect and who have a vested interest in your success, and avoid

going for the most expedient opportunity by sacrificing the quality of the people you work with. | BA Timothy Lin is a final year Master’s candidate in the Baker Program in Real Estate. He is Co-President of the Cornell Asia Real Estate Society and has worked in real estate private equity in Asia.

Always work for people you respect and who have a vested interest in your success, and avoid going for the most expedient opportunity by sacrificing the quality of the people you work with”

BUSINESS ASIA • SPRING 2014

00 Picture: Members of the Cornell Asia Real Estate Society having a discussion with Hodes Weill cofounders Mr. David Hodes and Mr. Douglas Weill during a company visit (March 2014)

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CHINA

China’s Journey West

BRANDON GREER

by

Writer

A PR Nightmare China’s challenge is to convince the world that its mission of a peaceful rise—one that is open to trade and free from hegemonic dominance—is a credible one.

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hina: you have a serious public relations problem.

For most of the world, economic relations with China is much like navigating a bushy labyrinth full of confusing twists and turns. The country undoubtedly has much to offer planet earth but seems to be battling a dire communication hurdle. For this reason, few can genuinely understand China’s self-proclaimed “peaceful rise”—or worse they consider it empty rhetoric—and this creates a fundamental problem for the export giant’s future. Western sentiment

toward China is largely one of angst: many fear that China’s economic growth will threaten their own livelihoods and that the country’s upward climb is destabilizing the current hierarchy of the global economy. Although former Federal Reserve Chairman Ben Bernanke strove to address global imbalances—“The United States must increase its national saving rate [...while at the same time] surplus countries, including most Asian economies, must act [...] to raise domestic demand”—Westerners pay attention when headlines read “Bernanke says foreign investors

fuelled crisis”, or when Niall Ferguson declares “The Asian savings glut was thus the underlying cause of the surge in bank lending, bond issuance, [...] new derivative contracts [...], and the hedge-fund population explosion.” From the insider’s view of China, one might be met with a sense of confused disbelief. After all, China has grown 9% on average each year since 1979; has lifted over 600 million of its citizens out of abject poverty—more than the rest of the world in toto—and has shifted the world’s economic center of gravity


Yet, by changing “national” to “global” and “a region” to “China”, the perspective shifts completely. Evidently something does not add up. Even the claim that this imbalance is due to China artificially under-valuing its currency proves invalid when a 2011 IMF study finds that a 20% appreciation of the RMB would result in a 2-3% decline in China’s GDP in the short term and roughly 9% in the medium term, with only about a 0.1% improvement in US or Euro area GDP throughout. China’s continued economic rise depends not only on the nation addressing worldwide imbalance, but also on a clear and honest message about the superpower’s economic mission in the world. If this message does not come through, the United States, in particular, would use its reach to promote a highly protectionist aftermath. China is therefore tasked with convincing other nations that it is a committed stakeholder in the global economy—not an innocent shareholder. China’s leadership knows that the country suffers from many infrastructure challenges because the east-west, ruralurban income disparities are so widely felt. Infrastructure investments, like money toward improved transportation, would undoubtedly empower the poorest parts of the nation to become more actively present in the Chinese and global economies by equalizing the political strengths of both coasts and supporting the exporting interests of the nation at-large. This type of investment would also alleviate the overcrowding

that now plagues the eastern region of China, where both wages and pollution are on the steady climb toward an unsustainable future. China’s leadership knows that nearly 200 million of its citizens remain in absolute poverty, with over 340 million pensioners exhausting inconstant resources. Lastly, China’s leadership knows that the nation, for its own sake and that of the world, must pioneer ahead and solidify its renewable energy agenda for the future. However, while the nation remains sensitive to its domestic challenges and cognizant of its perpetual growth, it has seemingly neglected a much larger calling: global leadership. China’s challenge is to convince the world that its mission of a peaceful rise—one that is open to trade and free from hegemonic dominance—is a credible one. Once this is done, a future of continued economic prosperity for the world looks brighter. | BA Brandon is a sophomore majoring in Applied Economics and Management from Upper Marlboro, Maryland. On campus, Brandon is the piano accompanist for one of Cornell’s choirs. Brandon has worked over five years on Capitol Hill for the United States House Financial Services Committee. Most recently, he authored two publications at the London School of Economics and Political Science. This coming summer, Brandon will work as a Summer Sales & Trading Analyst at J.P. Morgan in New York City. He is a member of Alpha Kappa Psi Professional Business Fraternity.

BUSINESS ASIA • SPRING 2014

5,000km away from the Mid-Atlantic region toward East Asia. These victories would reasonably lead those closest to the action to be puzzled by the nation’s inability to convince other countries of a peaceful, growing world economy. Any economist would know how difficult it is to expand and grow small or even medium-sized economies, which renders China a complete outlier. As Kishore Mahbubani put it, “[China’s economic victory] is much like the fattest kid in school winning the 110m hurdles and the marathon.” Since day one of this three-decade ascent, naysayers have foreseen a looming slowdown in China’s growth. They may be right in their predictions one day, but for now, active blames of the nation threatening world economic stability and security are the primary concern. The German Marshall Foundation’s Survey on Transatlantic Trends found that, while 76% of Americans between the ages of 18-24 say Asia is the most important region for their national interest, 63% of Americans say that China represents an economic threat—nearly double the number who deem China more of an economic opportunity. This seems peculiar: if any nation had within it a region that was single-handedly reducing national poverty, by itself stabilizing the nation against economic recession, and in effect accounting for half the nation’s growth, that region would be admired for its economic leadership, not accused of disfiguring and unbalancing a national economy.

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CHINA ADVAI PATHAK

by

EDITOR IN CHIEF

China’s Growth Prospect China is embarking on a difficult transition towards becoming an advanced industrial nation with greater GDP per capita. This is complicated by China’s unique political characteristics and economic foundations.

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If something cannot go on forever, it will stop.” Herbert Stein delivered this quip as economic advisor to Richard Nixon over four decades ago and his intuition remains sound today. Is China’s growth unstoppable? With the US economy slowly regaining momentum, global attention is shifting to China’s economic prospects and the data underlying the recent slowdown in its GDP growth rate. Warning signs are plentiful. GDP growth has slipped from the lofty heights of 10-12% per annum over the past decade to 7.6% in 2013 - still relatively high but certainly indicative of underlying issues that are constraining China’s significant potential. Enormous over-capacity and the increasing use of debt to finance investment are fuelling international concerns over China’s financial system. Additionally, potential calamities in its real estate market and the banking system, predicted by several economists, also bode ill for the Asian juggernaut. China is embarking on a difficult transition towards becoming an advanced industrial nation with greater GDP per capita. This is complicated by China’s unique political characteristics and economic foundations. Opening China’s economy further to international markets is a necessary prerequisite to its development which has been promoted globally. Market-driven ex-

change rates and interest rates would further integrate the country into the global system, lowering costs for all and further aligning China’s interests with the rest of the world’s fortunes. However, Xi Jinping’s government must first complete several domestic reforms over the next decade to create a more sound domestic economy. Steering China’s vast economy in a new direction will undoubtedly prove a monumental task. Yet, given the scope and nature of its weaknesses, reform is surely desirable sooner rather than later when these issues will grow increasingly damaging. China’s industrial over-capacity and the rampant speculation in its real estate market stem from a dangerous growth in credit since the 2007 financial crisis. Between 2007-11, China’s total exports fell from 8.6% of GDP to 2.6%. Yet this precipitous fall was matched by an increase in investment from 42% of GDP to 48%. Additionally, there was an enormous and correlated growth in credit over this period – 20% per annum over the last five years or more than double the GDP growth. This total debt has increased from 125% of GDP in 2008 to over 215% in 2012. More worryingly than the stark figures, much of this debt has been generated outside of traditional financial channels that are subject to government oversight. Interest rates capped by government mandates– around 3%

for one-year household deposits and as low as 0.35% on demand deposits –have created an environment in which China’s ‘shadow banking’ sector has flourished. Loan institutions, trust funds, private usurious money lenders, and other alternative financial firms have occupied the space between these low official interest rates and those that firms and entrepreneurs are willing to pay for funds – up to 20% in some instances. By the end of last year, shadow banking accounted for almost 30% of China’s total credit. Fuelled by this easy money, China’s investment addiction has created serious over-capacity in its industrial sphere as well as a potentially destructive real estate bubble. A major feature of China’s economy over the past decade has been the uniquely high proportion of its GDP attributed to investment. Yet, the gains from this limitless investment are diminishing. In 2012, its steel industry was operating at only 72% of capacity with a profitability of just 0.04%. These figures, previously relevant only for traditional industries (steel, iron, chemicals), are now applicable to emerging sectors as well, like carbon fiber and solar panels. Further industrial investment results in increasingly lower returns and if the expansion of credit continues, the propensity for ‘bad debt’ increases as well. In considering the benefits of China’s actions, the nature and quality


CHINA

defaults and the destruction would far surpass that of the 2007 American subprime crisis, bringing the country to its knees. China must attack these problems before they proliferate into other areas of the economy. Crucially, China must manage its investment better and improve the allocation of its resources. Balance is crucial and several areas have been overstimulated, while others remain relatively neglected. China would be prudent to direct further resources towards those areas that are currently under-funded and to increase the number and scope of its infrastructure projects. Social infrastructure like schools, medical facilities, and environmental facilities (specifically waste reduction or management) are in short supply or could be vastly improved. As China continues to urbanize and its social demographics shift, it is imperative that it has systems in place to cope with these changes effectively. Equally, a greater focus on energy, transport, and communications infrastructure would also provide cross-sector benefits. As Chinese continue to urbanize, the demands placed on China’s infrastructure will increase exponentially. China is beginning to reach the upper limits of its resource capacity, most notably with water. Exploiting foreign nations and continuing to plunder Africa for resources will only provide short-term relief. Central to all these resolutions will be China’s management of its credit and Xi Jinping’s government is essentially faced with a dichotomy. To continue funding the nation’s growth through credit and investment until inevitable implosion, or to begin deleveraging and risk widespread defaults now. Unifying the official and shadow interest rates is paramount. However, China must balance this goal with the need for adequate credit in the economy, lest its overall economic growth suffer from a lack of funding. Ultimately, then, China’s leaders must balance solvency with liquidity. Artificially low rates will obscure

credit risks and make the shadow system more appealing, while excessive rates could lead to a liquidity crisis. The introduction of market forces will lead to a more central role of risk in credit allocation in the future. This transition to a more market-oriented system will require active government engagement to control debt levels while maintaining sufficient liquidity in the economy. Imposing this sort of financial discipline will undoubtedly be painful in the short run. China’s government has targeted growth of 7.5% for 2014 but this target will become increasingly difficult to achieve if its leaders hope to reform its financial sector. To follow through with this financial restructuring, China’s leaders should unequivocally be considering the abandonment of such lofty growth. Focusing on financial reform will be trying and will result in widespread defaults. However, the end goal – a better balanced economy and more open financial system – will prove invaluable as China continues to develop. Recent pledges from the Chinese government testify to its willingness to address these issues. Five new, privatelyrun banks are being established to provide private capital and more discerning lenders to the financial system. Additionally, more clearly-legislated provisions for bankruptcy and dismantlement are being put into practice. A Schumpeterian gale is brewing and China’s leaders must allow it to blow a creative destruction through its economy. | BA Advai is a Junior in the ILR school with a double minor in Economics and International Relations. He is currently living in Los Angeles, California. On campus he serves as Editor-in-Chief of the Business Asia Journal and is a member of Alpha Kappa Psi. Last year, he interned with Standard Chartered’s Leveraged Finance team in Singapore and he will be working for Barclays in New York City this summer.

BUSINESS ASIA • SPRING 2014

of investment must be assessed. Peter Sands, CEO of Standard Chartered Bank, recently echoed popular opinion when he highlighted China’s use of debt to fund investment rather than consumption as reason to differentiate its circumstances from conditions in other economies’ ‘pre-crisis’ periods. Generally, this would be true. Investment increases an economy’s capacity to produce in the future so using debt to generate future returns is a reasonably sound choice. Not so for China. China’s investment has largely focused on three areas - manufacturing industry, infrastructure, and real estate. Unfortunately, much of this investment has been wasted on excess manufacturing capacity, useless or inefficient infrastructure, and speculative real estate. Industrial capacity is already more than large enough to cope with domestic and international demand and will continue to be for the foreseeable future. Such has been the scope of investment, that several factories and plants across sectors have been closed permanently over the past twelve months. With regards to its real estate market, China should reduce investment and reform the sector sooner rather than later. Real estate investment accounts for between 10-13% of total GDP, an overindulgence for a capital-intensive sector with no gains in industrial capacity. In comparison to a factory or university, a house is simply an expensive durable consumer good. Driven by this over-eager investment, property prices have increased by between 300-500% in several Chinese cities over the past decade. Should this bubble pop, beginning in one of several third-tier Chinese cities with gross excess real estate, it would have dire implications for the Chinese financial system as a whole. In China, lenders require ‘hard assets’ since bank accounts are fairly simple to fabricate. Therefore, property acts as the underlying collateral for almost all loans. Were the Chinese real estate market to implode, there would be waves of

25


CHINA 00 Picture: Chief Executive of Hong Kong, Leung Chun-Ying

Hong Kong’s Property Prices and Economic Freedom

Alastair Chang

by

Writer

Ever since the British handover to China in 1997, Hong Kong’s Chief Executives have consistently failed to properly address the continuously soaring property prices.

BUSINESS ASIA • SPRING 2014

A

26

t the start of the 2014 calendar year, Hong Kong claimed the top spot on The Wall Street Journal’s 2014 Index of Economic Freedom. This award came as no surprise to many as this was the 20th consecutive year that the metropolitan city was awarded this prestigious position. However this year was slightly different as the gap between the top nations of Hong Kong and Singapore became much narrower. This trend can be attributed largely to one aspect of the island’s economy- soaring property prices. Even though the property market is not the sole indicator of a nation’s Index of Economic Freedom, it plays a heavy role as there are many industries tied to this sector. Factors in the Index that have decreased in comparison to last year include monetary freedom and freedom

from corruption which are heavily linked to property. The decline in monetary freedom is worrying as it shows signs of the recent federal movement towards more control over prices in Hong Kong. Current trends suggest administrative regulation is on the rise with policies that restrict economic freedom. A prime example is the recent Hong Kong Monetary Authority’s imposition of disclosure requirements on banks selling investment-linked insurance products. This regulatory measure has restricted growths within this field and discouraged partnerships between banks and insurance agencies. These restrictive policies affect the real estate market as corporate insurance companies such as AIA Group and PMI Mortgage Insurance Company have less incentive to provide favorable coverage to property construc-

tion firms. If the Hong Kong government wants to lower their property rates, they must first stop intervening with other industries within the economy. Ever since the British handover to China in 1997, Hong Kong’s Chief Executives have consistently failed to properly address the continuously soaring property prices. In 2001, Tung Chee Hwa’s promise to provide 85,000 people with affordable housing did more harm than good. Negotiations between the administration’s housing legislative and land development firms proved fruitless as both failed to compromise on costs of these projected housing facilities. This unsuccessful policy forced a bailout in 2002 through land restrictions that tripled housing prices. The raised expenses have led to more people living in urban slums which has gradually become a growing problem in Hong


property business interactions of nonpermanent residents of Hong Kong. This measure has already detracted mainland activity in the market. Having said that, this policy has merely quelled one short-term problem of foreign investors on a grand, larger scheme of issueslike placing a bandaid over a broken bone. If the government does not act quickly these high housing prices may lure potential clients away to other lucrative cities in South East Asia. An obvious substitute for Hong Kong is the rising nation of Singapore only 1603 miles away. According to DBS Bank’s CEO Piyush Gupta, Singapore’s new mortgage cuts and government cooling measures may bring down home prices by 10 to 15 per cent. This trend may not be positive for local land developers but will boost the spending activities of middle class citizens and foreign investors. A specific program passed over the last year that was instrumental in the halting of increasing housing costs in Hong Kong was the Total Debt Serving Ratio. According to Nicholas Mak, executive director for SLP International Property Consultants, this policy constrains the amount of property investment a person can make tied to his. This is a long term step towards curtailing speculation and only allowing a healthy investment in the property market. However a comparative advantage the Singaporean government has over their counterparts in Hong Kong is their administrative control over major industries within the economy. The major telecommunications provider, SingTel, the public facilities and energy provider, ST Engineering, and the largest media outlet, MediaCorp, are all heavily influenced by actors within the public sphere. Also the federal censorship practice confines information from spreading to the public that can influence the market. These factors al-

low the government to pass legislative laws with ease and give citizens little say over federal action.

Within a few years, Singapore could potentially be on the top of the Wall Street Journal’s Index of Economic Freedom if the Hong Kong government does not act quickly. A failure to institute policies that can ease the ever increasing property market could force large corporations to eventually take their business elsewhere. For Hong Kong to maintain its dominance, there are many problems that need to be addressed in the real estate market. As a short-term measure, I would lower interest rates on loans to stimulate more activity in the property market. This will extend mortgages and loans to average families and provide a cash injection to encourage more individuals to spend on houses. Though it must be noted that there are dangerous risks of this policy as a high reliance on these loans can cause a long-term debt issue. Therefore these loan rates must be monitored closely and implemented in a controlled fashion. A somewhat radical notion I believe would work is to aim towards a deal that would guarantee mortgage payments. If lenders can lend on their terms that people can afford, more will be inclined to do so. This would require collaboration between the government, development corporations and mortgage lenders to fund an insurance scheme that allows for a favorable deal. I understand this solution may take a lot of negotiating and

BUSINESS ASIA • SPRING 2014

Kong. In 2005, Donald Tsang did not establish any land reserves and market demand soared higher than land supply. Housing prices have continued to climb under the current Chief Executive Leung Chun Ying. This increase in costs is largely due to low activity in the real estate market. Since prices are already so high, people refuse to list their houses on the market and if they do, they inflate their prices far beyond the market value in order to incur minimal losses. This causes an unrelenting cycle in which the prices continue to soar with no sign of stopping. According to government figures, housing prices have soared by 120 per cent since 2008 and 34 per cent since their last peak in 1997. Due to the housing shortage, the government has relied extensively on demand management and is holding firm on mortgage policies. In early 2013, the government introduced a Buyer’s Stamp Duty heavily focused on curbing aggressive corporate domination of the real estate market. This imposed an extra 15% charge on top of existing stamp duties for large residential properties. These measures aimed to halt speculation and investment in luxury housing. Instead these laws have pushed large property firms and land developers such as Sun Hung Kai and Henderson Land to turn their attention to small and medium units of housing, in addition to commercial buildings. As a result, average property prices have increased tremendously and discouraged middle class citizens and smaller land corporations from entering the market. Another concern for the government is the influx of wealthy speculators from China. which has added further pressure to the property industry. This added competition from the mainland has continued to burden the already thin resources of property in Hong Kong. However Chief Executive Leung Chun Ying has addressed this issue by levying a new tax on the

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BUSINESS ASIA • SPRING 2014

the government will have to contribute a significant portion of its administrative budget. However this is a risk I think it should be willing to take as I truly feel that a guaranteed mortgage scheme will vitalize a resurgence of activity in market of the lower and middle class. Another problem I would address is the easy access of foreign investors to the local Hong Kong market. These overseas speculators have the ability to drive prices up and I would pass protective legislature that limits the reach of these corporations and keep economic activity in the hands of local firms. Continuing on the theme of foreign interests, I would aim to limit the recent population surge due to migrants. In recent years there has been a growing number of individuals migrating to Hong Kong, especially mainland Chinese. Hong Kong is already one of the world’s most populous cities and increased migration places pressure on

28

the property market. Although these new citizens provide tax revenues, placing restrictive migration laws would lessen the growing pressure on locals who are already financially gridlocked by the high costs of living and this is of far greater importance. Even though Hong Kong is a densely populated space, there are still regions within this tiny nation that can be developed. I believe a long-term goal should be to work on the issue of insufficient supply. I would focus development on regions in Kowloon and New Territories that are situated on the mainland of China but are under the jurisdiction of the Hong Kong government. Even though these are not premiere locations, the administration can aim to establish public housing as well as lower cost homes within these areas. Not only will this provide affordable housing for the lower class but it will also bring down demand for land from

property firms. According to Buggle Lau, chief analyst at property firm Midland Holdings, “it’s simple economics - lower demand and higher supply will bring prices down.” The issue of Hong Kong’s domestic property prices remains a complex issue. However, efforts by the government over the past decade have largely failed to address the multitude of issues. With diligence and a few well-aimed policies, Hong Kong’s real estate market can be controlled and it can maintain its position as a global economic leader. | BA Alastair Chang is a Freshmen in the AAP school. He grew up in Hong Kong, Singapore and the United States. In the past summer, he completed an internship with a property development firm in Hong Kong.


Financial Data Currencies Period Average Period High Period Low

USD / INR USD / JPY USD / CNY USD / KRW USD / AUD 61.3887 62.9483 59.7822

102.79 105.26 101.3

6.1275 6.1763 6.0881

USD/INR

USD/KRW 1,090.00 1,080.00 1,070.00 1,060.00 1,050.00 1,040.00 1,030.00 1,020.00 1,010.00

1-Feb-14

1-Mar-14

1-Apr-14

1,000.00 1-Jan-14

1-Feb-14

IND/CNY 1.16

6.18

1.14

6.16

1.12

6.14

1.1

6.12

1.08

6.1

1.06

6.08

1.04

6.06

1.02 1-Feb-14

1-Mar-14

1-Mar-14

1-Apr-14

USD/AUD

6.2

6.04 1-Jan-14

1.1083 1.1518 1.0622

1-Apr-14

1 1-Jan-14

1-Feb-14

1-Mar-14

1-Apr-14

USD/JPY 106 105 104 103 102 101 100 99 1-Jan-14

1-Feb-14

1-Mar-14

1-Apr-14

BUSINESS ASIA • SPRING 2014

63.5 63 62.5 62 61.5 61 60.5 60 59.5 59 58.5 58 1-Jan-14

1,065.23 1,084.42 1,032.02

29


Financial Data Markets CNX Nifty

NKY Nikkei 225 (Japan)

National Stock Exchange

16,500.00

7,000.00

16,000.00

6,800.00

15,500.00

6,600.00

15,000.00

6,400.00

14,500.00

6,200.00

14,000.00 13,500.00

6,000.00

13,000.00

5,800.00

12,500.00 6-Jan

13-Jan 20-Jan 27-Jan 3-Feb 10-Feb 17-Feb 24-Feb 3-Mar 10-Mar 17-Mar 24-Mar 31-Mar 7-Apr

00 The Nikkei-225 Stock Average is a price-weighted average of 225 toprated Japanese companies listed on the Tokyo Stock Exchange. It is the most widely-quoted average of Japanese equities. The Nikkei Stock Average was first published on May 16, 1949.

5,600.00 17-Jan 24-Jan 31-Jan

7-Feb 14-Feb 21-Feb 28-Feb 7-Mar 14-Mar 21-Mar 28-Mar 4-Apr 11-Apr

00 The CNX Nifty, a free-float market capitalization index, is the leading index for large companies on the National Stock Exchange of India. It consists of 50 companies representing 24 sectors of the economy. The base level was defined as 1000 on November 3, 1995.

HSI

SHCOMP Shanghai Stock Exchange Composite Index

Hong Kong Hang Seng Index 23,500.00

2,200.00

23,000.00

2,150.00

22,500.00

2,100.00 22,000.00

2,050.00

21,500.00

2,000.00

21,000.00

1,950.00

20,500.00 20,000.00 17-Jan 24-Jan 31-Jan

7-Feb 14-Feb 21-Feb 28-Feb 7-Mar 14-Mar 21-Mar 28-Mar 4-Apr 11-Apr

00 The Hang Seng Index is a free-float capitalization-weighted index of selected companies from the Stock Exchange of Hong Kong. The index was developed with a base level of 100 as of July 31, 1964

1,900.00 17-Jan 24-Jan 31-Jan

7-Feb 14-Feb 21-Feb 28-Feb 7-Mar 14-Mar 21-Mar 28-Mar 4-Apr 11-Apr 18-Apr

00 The Shanghai Stock Exchange Composite Index is a capitalization-weighted index. The index tracks the daily price performance of all A-shares and Bshares listed on the Shanghai Stock Exchange. The index was developed on December 19, 1990 with a base value of 100. TOPIX

Tokyo Stock Exchange 1,350.00 1,300.00 1,250.00 1,200.00 1,150.00 1,100.00 1,050.00 1,000.00 6-Jan 13-Jan 20-Jan 27-Jan 3-Feb 10-Feb 17-Feb 24-Feb 3-Mar 10-Mar17-Mar24-Mar31-Mar 7-Apr 14-Apr

00 TOPIX – the Tokyo Stock Price Index – is a capitalization-weighted index of all companies listed on the First Section of the Tokyo Stock Exchange. The index calculation excludes temporary issues and preferred stocks, and had a base value of 100 as of January 4, 1968.


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EDITORIAL Yiwei Chen Timothy Lin Jiting Wang Ben Zehr Priyanka Panigrahi Emma McGrath Sanjeev Dhara Nicole Schmit Madison Leonard Brandon Greer Alastair Chang

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