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Introduction

Editor’s Note . . . . . . . . . . . 4 Who are we? . . . . . . . . . . . 5

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About ACS & Credits

New Opportuniti New Developme & New Challenges

Gearing Up: Startup Cultivation in India & China . OFCs in Hong Kong & Elephants in Paddling Pool Getting Rid of Brick-and-mortar in Banking in Chin Peer-to-peer lending inside the Great Wall . . . . . . . The Economics of the Fall in Oil Prices on the Maj Strength in Unity: ASEAN Economic Community

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Highlights from the Banking & Business Events Team . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Highlights from the Law Events Team . . . . . . . . . . 50 Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Getting Into The Industry: Interviews with Insiders

Fingind the R Do? . . . . . . . . . Industry Insig Manager from The Gatekee


ies,

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ents

........................8 ls . . . . . . . . . . . . . . . . . . . . . . 12 na: . . . . . . . . . . . . . . . . . . . . . . . . 16 jor Asian Economies . . 19 . . . . . . . . . . . . . . . . . . . . . . . 22

Asia’s Legal Scene

The Shifting Terrain of the Legal Market - Asia Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 The Dacheng-Dentons Merger: The Rise of Eastmeets-West Big-Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

4 Snapshots A Nation’s Climb to Market Liberation - Where Does China Stand Now? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 So We Beat On... Against Waves on Abenomics and Political Shocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Right Job: What Would Batman & Kenneth Cole . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 ghts: An In-depth Interview with a Senior m PwC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 eper: An Interview with a Recruitment Insider . . 45

london school of economics and political science students’ union asia careers society


editor’s note “E

VEN DRAGONS TIRE”, reads an Economist article. Dragons are symbolic of vitality, ferocity, majesty, and longevity – necessarily any description of exhaustion warrants incredulity. Throughout recent decades, Asian nations have unrelentingly flourished: not just economically, but also technologically, politically, and culturally. In one sense of the word, they have ‘arrived’. Coupled with their notoriously intransigent political systems, these countries have attracted about themselves an air of calculated action, of biding time, of letting one’s actions and result speak in place of grandstanding. The First world looks at its once deficient cousins with a mix of approval and understandable misgiving. The meteoric rise of emerging and frontier economies in Asia has thus far been remarkable, and previous editions of our publication have faithfully charted the Dragon’s relentless climb on the world stage. But at this juncture, the unprecedented growth that seemed too good to be true may turn out to be just that. As growth slows due not only to material factors as moderation of population growth, but also to political instability and the repercussions of the 2008 financial crisis, there is apprehension that this is where the Asian narrative takes a different turn. In this issue of the Journal we have taken the liberty to depart slightly from the exultations and bright-eyed fanfare in favour of the more sombre, pragmatic questions that lie before developing Asian countries. As economies grow, they become more sophisticated, and, with the ever-accelerating pace of technological advancement, the challenges become more diverse and complex. It is telling that many of the hurdles are endemic and internal, and do not always originate from competing economies or external sources. There is also the persistent opacity of many political systems in emerging and frontier markets. Although the lack of transparency and (sometimes) thinly veiled autocracy have been seen by some to be a virtue in preceding decades, tension seethes now as the international business community grow wary of infallible governments and opaque rules, and as local populations become increasingly well-educated. In many ways this is a natural process of development. So in our aim to explore both new opportunities and concomitant obstacles, we look to Japan, once a forerunner and now a rather worn-out serpent (some have taken the liberty to call it ‘moribund’); to China; to the doubts and unanswered questions that accompany the soon-to-be ASEAN Economic Community set to debut late2015; and to the burgeoning asset management industry, and what it means for emerging economies. We look to them for representative examples of what Asia must rise to meet in its bid for centre-stage in global affairs.


The tone and direction of the Journal are not the only things that I have taken the liberty to change this year. I have also culled many of the older sections of the Journal in favor of more streamlined content and presentation. This session of the Asia Careers Society was marked with a proactive effort to be in touch with our membership base, and initiatives like our flagship Buddy Programme headline our endeavours. We know exactly what our readers want to understand, and we aspire to present that to them so they may gain a holistic awareness of the Asian landscape. It is our hope that, with this information, they may walk more confidently and comfortably into interview rooms, networking events, or even dinner with peers and seniors, equipped with a deeper appreciation and knowledge of Asia. In pinpointing what we wish to publish we have also made our scope more specific, prioritizing thorough analyses over such easily accessible aspects as firm profiles. To stay in tune with the evolving career culture in Asia, we have also included articles on entrepreneurialism, which is budding not only in London but also throughout Asia, alongside interviews and advice relating to professional industries. To further embrace our mission to be the voice of the Asia Careers Society, we have also incorporated reflections on the achievements of the Law and Banking & Business Events Teams over the past year. The editorial team is immensely thankful for the support that it has received from the wider Society, especially the invaluable efforts of the marketing team, as well as ACS’ generous sponsors for making this issue possible. We hope this issue brings to light the challenges that beset, and will beset, Asia. The Dragon is a symbol of vitality and strength, and we believe that despite mounting challenges it can scale the Great Walls that stand before it. We are grateful for your taking the time to read this issue and thank you for your interest in this most exciting of times. Warmest regards,

Ryan Chiu Class of 2016 LLB Bachelor of Laws


who are we? The LSESU Asia Careers Society (‘ACS’) is the only society on campus which specializes in providing insight into different career opportunities around Asia. Our size, extensiveness and continued engagement with students and corporate firms have reinforced our reputation as a premier source of information and opportunities within the LSE. Our members are all either from Asia or show strong interests in building career paths in this fast-growing and increasingly influential region. Our Work. We act as a platform for members to explore career prospects within the following fields: Accounting, Banking, Law, Management and Consultancy and Alternative Careers. Throughout the school year, we organize a diverse range of events in hopes of spanning the bridge between firms and LSE students. In offering companies access to our growing membership database, we serve as the perfect channel for firms to recruit graduates of the highest calibre. Read more about our event highlights in this journal or online at lsesu-acs.com, including Asia Exposure, Legal Insight and our new initiative, the Buddy Programme. Our Aims. The ACS has always been dedicated towards preparing LSE students for their future careers, and the Journal serves as the voice of the society. We aim to increase their understanding of their chosen career sectors, deliver comprehensive guidance on developing key competency skills and maximize their chances to meet, network and learn from industry professionals. We review and develop our ideas to deliver the most relevant, practical and useful events that are enjoyable for both students and participating companies.


A legal career in Hong Kong We attract, train and develop the brightest legal minds. Join Linklaters and we will give you the opportunity to realise your ambition for a career in commercial law. Visit our website to find out more about the graduate opportunities in Hong Kong.

www.linklaters.com/careers Linklaters Asia


NEW OPPORTUNITIES, DEVELOPMENTS & CHALLENGES

Gearing up: Startup cultivation in China & India Ryan Chiu

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he John Pierpont Morgans, John D. Rockefellers, Vanderbilts and Charles Yerkes of old – once the great idols of industry and business acumen, have been largely set aside in favor the tech firms and the minds behind them in Silicon Valley. Everything we lay our eyes on seems to be the brainchild of some blandly dressed, 20-something-year-old tinkering with machines everyone uses but only few understand. Technology and the Internet has made the world smaller, and it has made the ‘rise to the top’ far easier. The brick and mortar and traditional investments on which Walmart and Royal Dutch Shell was founded upon have been replaced by lines of code, ‘big data’, ‘crowdfunding’ and ‘angel investing’, if not in terms of revenue then certainly in the minds of the

social psyche of millennials (those born after the 1980s). Although startups and venture capitalism apply to all types of businesses with high growth potential, it is now more often than not conflated, and used synonymously, with high tech entrepreneurship. Even those that are not explicitly technology-based, such as Uber, the driving service, or Warby Parker, often incorporate a distinctly digital element in its business structure to give it an ‘edge’. This great entrepreneurial spirit which ignited in the West Coast of the US and which has since percolated across the nation, has begun to take hold not only in other Western nations but also in China. With the government’s strategic ban of disruptive, hallmark startups such as Facebook,

MSN, Amazon, etc., China has managed to incubate its own entrepreneurial narrative, albeit a copied one: QQ, Weibo, Alibaba, Tencent, and Xiaomi are just but a few eye-catching examples. So it comes as no surprise as China pledged in January to set up a RMB 40 billion venture capital fund for start-ups in emerging industries, as part of a larger effort to channel the economy’s fixation on fixed asset investments in real estate and infrastructure, and to cultivate new opportunities and competitors in the private sector.1 It is helpful to note that given how entwined the notion of venture capitalism and high-tech industries 1  Mitchell, Tom. “China to launch 6.5 billion USD VC for Emerging Industry Startups”. Financial Times N.p., 15 Jan. 2015. Web

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are, it comes as no surprise that the government’s announcement also conveniently construed ‘fostering sunrise industries’ as promoting ‘technological innovation’. This conflation becomes significant later, where one may explore what challenges such a growing favor for disruptive businesses poses for the economy at large. In March 2015, the Chinese State Council published an online statement affirming its commitment in incubating its own 21st century entrepreneurial narrative. “[We need to] encourage the general public to start their own businesses”, it read. “Hundreds of thousands of people’s passion for innovation should be encouraged to build the new engine for economic development.” The Council further encouraged technology experts and university students to start their own businesses, and students would be open to apply for space and funds from government institutions to help get realize their ideas. It also pledged to attract venture capital funds – a necessary ingredient in any budding firm – and angel investors. By promoting financing for technology start-ups through government subsidies and private investors, improving the funding and investment exit strategies of venture capital funds and angel investors, and by making approval processes more efficient and reduce red tape, China hopes to ensure that its startup scene won’t begin and end with Alibaba. 2

in sophisticated investors has seen the number of hedge funds in the country grow in excess of 3,100 by recent estimates, and 665 VC funds have thus far been established with an impressive RMB 144 billion under management. But it is only in the marriage of plentiful access to capital, optimistic investors and brilliant ideas that startups can flourish. In austere office blocks in the capital, in the Stanford Ignite Program of Peking University, or Tsinghua’s ‘x-Laboratory’, a constant stream of talents and ideas fuel a young but certain startup culture. The x-Lab, launched 18 months ago, is a curious specimen: it resembles a universityfunded Y-Combinator, or Stanford University’s own ‘StartX’. In a communal basement, aspiring entrepreneurs meddle in anything from biotechnology, software development, to new forms of electric scooters in an environment where professional guidance, legal advice, venture capitalists and angel investors are all readily accessible and eager to give a hand. In the friendly environment, oftentimes startups using one space in the lab enlist the help of other ventures in the x-lab. If the electric Scooter succeeded and

they needed a platform to market it on, they may be glad to find a web developer just round the corner. To bring it back to ‘Asia Careers’, this means multiple things. This increasing trend obviously means a few things to the financial and legal sector. The rise of startups also marks the rise of venture capitalists, and venture capitalists are in it for the exits – and this is sure to promise a healthy round of IPO and M&A activity. Botique investment banks specializing in high-tech corporate work, such as Qatalyst, will find new and lucrative opportunities in China. Law firms will also benefit from increasing not only seizing on the obvious corporate work involved, but also identify the opportunities in the TMT (telecommunications, media and technology) as well as intellectual property practices, as high-tech startups often place great value in their patents and intangibles. But still wider economic repercussions exist. Having identified the opportunities, one must pay heed to the attendant, more sobering challenges. As the number of university graduates reaches a record high (~7.5

Regulators have also complemented this resolve to bolster the private technological sector by allowing insurance companies to invest in VC funds. This move is in line with the burgeoning private fund sector in China. The increase 2  Chen, George. “State Council calls for angel investors to help grow start-ups and jobs in China”. South China Morning Post N.p., 12 March. 2015. Web.

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million), the government is keen to promote e-commerce and the hightech sectors as a promising sunrise industry.3 Without the middlemen, costly marketing and prohibitive rent often associated with brick-andmortar companies, businesses that launch in cyberspace are cheaper, subject to lower barriers to entry and quicker to succeed. But startups are characterized by their ‘disruptive’ potential: in other words, their ability to shake-up existing markets and consumer demand preferences. This means their eminence comes at the expense of traditional companies. Owners of traditional shops have complained about being unable to compete with e-commerce and the rise of online store, forcing them to close prematurely.

to Snapchat, which was valued at USD 10 billion despite not having made a single dollar of profit – nor has it declared any plans to do so. Bill Gurley, an investor based in Silicon Valley who has track record in Uber and OpenTable, warn that the venture capital and startup community are taking on huge amounts of risk. The amounts of money startups spend, given their pay and high-tech nature, can be exorbitant. “In ‘01 or ‘09, you just wouldn’t go take a job at a company that’s burning $4m a month. Today everyone does it without thinking,” Gurley warns.5 As the startup scene heats up in China, it may end up looking quite similar. It is easy to see where the alarmist sentiments of a tech bubble stem

Besides the tradeoff within employment, there is also a fear of a growing tech bubble, most pronouncedly in Silicon Valley social media startups, but which might evolve into a problem for similar businesses and venture capitals worldwide. Whatsapp is valued at USD 19 billion: it therefore anticipates a price of USD 40 per user, but without advertising it in fact only earns a yearly revenue stream of USD 1 per user.4 Or turn

from. When tech companies of this decade – especially social media ones – attract record amounts of venture capital and angel investment funding which provide immense valuations for profitless or lowprofit operations, one either feels highly optimistic or highly anxious.

3  Chen, op. cit. 4  Heskett, James. “When Will The Next Dot.com Bubble Burst?” Forbes N.p., 3 May. 2014. Web.

He believes that the rising trend in entrepreneurship is matched only by VC firms eager to look for young entrepreneurs, and is inspired by the ability of an internet company to impact lives quickly, accessibly, and the encouraging stories of ordinary millennials making it big behind these enterprises.6 His startup offers free meals and company-funded holidays, much as Silicon Valley startups do, although whether or not this is warranted is questionable. In October 28, 2014, Liulishuo founders were at an Edtech conference dedicated to discover ways to monetize their application.

Yi Wang, an alumnus of Stanford Ignite who launched an award-winning language-teaching mobile application (Liulishuo), claims that startups are the new thing.

Professor Feinberg, the faculty director of Stanford Ignite, has other reservations. He believes the biggest obstacle to any venture in China are the generally low barriers to entry. With a rapidly increasing middle-class and therefore burgeoning demand, there are a lot of ‘low-hanging fruits’ for aspiring ventures. Because of this, the question becomes whether these fledglings can create something big enough so others won’t enter the market and stifle it before it can grow. It will also do one well to remember that, even if they do not make it ‘big’, 3 out of every 4 startups will, statistically speaking, fail. It seems, with equal and perhaps more speculative fervor, that the startup scene in India is also heating up. Venture capital funds injected an excess of USD 4 billion into India’s startup scene in 2014 alone – double that of the amount injected in 2013 and fourteen-fold of the amount just ten years prior. Investors in India have seen the growth of such giants as Alibaba, and they see from the example of

5  “Leading tech investors warn of bubble risk ‘unprecedented since 1999’”. The Guardian N.p., 16 Sep. 2014. Web.

6  Bradshaw, Della. “The rise of China’s entrepreneurial spirit”. The Financial Times N.p., 7 Dec. 2014. Web.

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Softbank (the Japanese investor in Alibaba) the handsome rewards that attend to getting into the startup scene early. They are willing to take the risk of taking a stake in an industry that is fundamentally, structurally precarious, in hopes that it will mature in time for these startups to take flight. India is structurally premature because of how digitally disconnected its vast population is. While more than a fifth of China’s population is engages in online shopping, Morgan Stanley estimates only 2% of India’s population makes their purchases over the web. This is consistent of a greater insufficiency: only 17% of India are internet users, as compared to nearly 50% in neighboring China. With such a small consumer base, competition is unfavorably cutthroat, and it also makes one wonder if venture capitalists are pinning too much hope, with their plentiful funding, on a market whose demand does not at present seem to promise great returns. China’s annual e-commerce sales stand at USD 314 billion. In light of the 4 billion injected by venture capitalists, the 3 billion reaped from online purchases in India may make one suspect if the industry is really so promising at this stage. Certainly, India’s large population represents a largely untapped market. But whether or not these venture capital firms can realize the coveted ‘exit options’ in good time hinges on whether the government and private sectors can effectively mobilize the wider public towards the Internet.

Many attribute this to the factors about: poor telecommunications infrastructure, and wider infrastructural failures such as rough roads and inefficient postal system only aggravate the situation and make surmounting them ever more daunting. There are greater social issues yet – away from the bustling cities, India is rural and relies heavily on hard cash for transactions. It may be another matter to help the country shift gears and trust and use digitized money in transactions.

The highly competitive atmosphere has also led startups and their venture capital backers to take riskier, more radical policies. The founder of FabFurbish, an online furniture retail company, is considering a new round of funding in addition to the USD 20 million it has already received, although it has not turned a dime of profit and does not need the cash. The rationale, the founder offers, is that rather than seeking immediate profits, venture capitalists and tech incubators are instead opting to fund startups to undercut – cull – competition, in If history serves as any a fashion reminiscent of Amazon, indication, this may not be the before focusing on conventional case. There have been many ups concerns such as revenue streams. It and downs in India’s venture is this very admixture of optimism capital activity in the past decade. for the industry’s potential in

the near future, the great influx of investor money, and the small online consumer base over which startups are forced to aggressively compete, that we see FabFurbish’s model replicated in many other young firms. Discounting and price competition thus becomes the norm: PricewaterhouseCoopers recorded an estimate of USD 160 million in losses from online retail platforms as a result of this strategy.7 Buoyed by the possibilities of a structurally inadequate market, funds are not only placing huge investments in profitless companies, but are investing in them so that they may continue to make losses to curb competition. This hype has caused the more conservative to voice alarm: it comes as no surprise that more traditional financiers worry what would happen if the funding ¬– and optimism – comes to a premature end, given that current strategies mean startups require ever more funding to sustain losses. However, the government and homegrown Indian venture capitalists seem optimistic. The government is reducing restrictions against listing by fledgling companies, and there is much hope that structural growth in India – of bringing its population online – will occur at an increasing rate. Startups are undoubtedly the new big thing and the opportunity of today, but as with any investment, one must proceed with due caution. Optimism is definitely needed: both to empower entrepreneurs and to make capital accessible, but it must be tempered.

7  Anand, Shefali. “Venture Money Floods Into Indian Startups”. The Wall Street Journal N.p., 30 March. 2015. Web.

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OFCs in Hong Kong & elephants in paddling pools Ryan Chiu

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fter the historical 2008 Financial Crisis, many who aspire to work in the ‘buy-side’ of the industry might be glad to hear that asset managers have since then began to close the pay-gap, and in some unique cases, have also overtaken their traditionally and notoriously better compensated colleagues in investment banks. For many, asset management is the new ‘big thing’. It is no surprise then, that Hong Kong – a city famed for being a Southeast Asian oasis of common law with first-class infrastructure, human development and a high degree of business sophistication – has been keen to ride the tides. Last March, the legislative council of Hong Kong introduced a bill proposing to establish what is to be called an open-ended fund company (OFC). Although it is still under consultation and subject to adjustments, it is expected to pass

without much opposition. In Western countries, such investment vehicles have been around since as early as the 1990s. In the US, they are known as mutual funds; in Luxembourg, SICAVs; and in the UK, they are known as open-ended investment companies (OEIC), to which the Hong Kong OFCs will bear most resemblance. As of now, Hong Kong-domiciled open-ended funds exist exclusively as unit trusts, which are governed by trusts law. Various restrictions on capital reduction under the Companies Ordinance proscribe the replication of such funds in corporate form. In the same vein, investors in trusts therefore are beneficiaries, who are able to vary their stakes in the fund by purchasing or redeeming their units of interest, while an appointed custodian, usually a bank, act as

trustees. The day-to-day investments and strategies are handled by an investment manager. Although this structure has served the Hong Kong fund industry well so far, there is increasing pressure to introduce the OFCs. Arguments which have precipitated this development include the fact that, in lieu of the bid-offer spread found in unit trusts, OFCs will bear only a single price on its shares which directly reflect the value of the company’s underlying assets. When new demand arises, new shares are created and the fund’s portfolio increases; each time an investor redeems the shares, assets are liquidated to meet the request. In such a manner, no secondary market is created and any purchase and redemption requests are done directly with the fund. There is therefore the related 12


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suggestion that this simplifies the nature of the fund: instead of having any proprietary right in the assets, purchasing company shares allow investors obtain a package of personal rights against the company. PricewaterhouseCoopers LLP has also applauded the simplification from a tax perspective, since tax residency of unit trusts is not always clear as one has to account for such factors as whether the trustee is domiciled. For OFCs, the company will be considered a legal person: a Hong Kong-domiciled fund, as a company, will be subject to Hong Kong’s tax laws.

offered investment funds normally refer to alternative asset managers whose services are offered typically to select sophisticated investors. Furthermore, consultation papers suggest that OFCs available for retail distribution should qualify for the profit tax exemptions under the Security & Futures Ordinance, but private OFCs will qualify only if its central management and control is located outside of Hong Kong. However, some have countered that private OFCs should not be subject to this alternative qualification. The bill also suggests several other restrictions on OFC establishment: there is the requirement that the Although this move is investment manager should be expected to expand Hong Kong’s licensed and based in Hong Kong, already burgeoning tax industry that the custodian (as opposed to (between 2011-2013, the number manager) of the company’s assets of Hong Kong-domiciled funds should be incorporated in Hong have grown 61%1), there have been Kong, and, more prominently, calls for greater deregulation, in that the investment scope of any particular for privately offered OFC should be limited exclusively OFCs. Under current proposals, to securities, cash, and over-theit is recommended that privately counter derivatives (i.e., OFCs offered OFCs are required to cannot invest other asset classes register with the Securities & except for those aforesaid). These Futures Commission prior to have all been disputed by the private launch; lawyers and managers alike sector, most of such contrarian have clamored for relaxation of such arguments being grounded in the administrative hurdles. Privately belief that inflexibility will harm Hong Kong’s attractiveness as a fund center. But whether or not these will be heeded will depend on further consultations.

1  “Open-ended Fund Companies Consultation Paper.” Hong Kong Financial Services & Treasury Bureau, March 2014.

On the surface, the anticipated results of the passage of this bill notwithstanding the current proposed restrictions seem promising. Not only will the asset management industry flourish in Hong Kong and bolster its standing as a global fund hub, but ancillary industries such as commercial law firms, whose investment management and tax practices will certainly be engaged, can expect

new clients and a greater role to play in the unfolding of OFCs. But moving beyond immediate concerns, one is able see this greater attempt to regulate the asset management industry as not an isolated incident in Hong Kong. Many financial pundits have often wondered what the next great bubble will be: if not tech, then, perhaps asset management will be the culprit. Over the past decades, asset managers have begun to wield powers yet unseen in their field: if one needs convincing, perhaps the

fact that Blackrock’s assets-undermanagement is more than USD 2 trillion in excess of the United Kingdom’s 2013 GDP is enough.2 Others see the next big crunch as a confluence of two: a bubble bursts, and in the resulting downturn, the vastness of the asset management industry amplifies the fallout. It is, in one sense, the inadvertent abettor. Andrew Haldane, the chief economist of the Bank of England, warns of this problem. His attempts at intervention in this largely unregulated sector attests to growing regulatory pressure, both in the UK and in the US, to clampdown on the swelling asset management industry. Although the regulatory focus on banks after the 2008 crisis is laudable, Haldane suggests that the scope of ‘macroprudential’ policy needs to be widened to include their non2  Loomis, Carol. “BlackRock: The $4.3 Trillion Force.” Fortune. N.p., 07 July 2014. Web.

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indebted cousins: asset managers (with the exception of hedge funds, which operate with leverage, asset managers do not rely quite as much on borrowed money)3. In conjunction, the Bank of International Settlement (BIS) – the central bank for central banks – recently penned its 2014 report4, in which it cautioned economies, most pronouncedly emerging market economies (EMEs), against what it has termed ‘the elephant in a paddling pool’. The size of the assets under management of the industry has become a source of considerable worry not only for rich countries, but also particularly for emerging markets. The report notes that just a 5% reallocation of the estimated USD 70 trillion of assets managed by the larger companies from advanced economies to EMEs represents an inflow thereto of USD 3.5 trillion – or 13% of the total value of emerging markets bonds and equities. While such a movement will certainly be a boon in capital for EMEs, the corollary of this ‘huge size disparity’ between fund portfolios and their recipient markets is that a disinvestment from the very same markets could ‘amplify dislocations’. Putting it in less elegant terms, the BBC anticipates that a general ‘charge for the exit’ by asset managers could starve a smaller economy of crucial funds.5 In addition, the Report posits, the fact that portfolio managers are compensated on nearterm performance may mean there exists corporate incentives which will exaggerate pro-cyclical rises in 3  Fleming, Sam, and Stephen Foley. “Asset Management Poses Mounting Risk to Stability, BoE Warns.” Financial Times. N.p., 4 Apr. 2014. Web. 4  Bank for International Settlements, 84Th Annual Report. Basel: N.p., 2014. Print. 5  Peston, Robert. “The Next Financial Crisis?” BBC N.p., 2 July. 2014. Web.

asset prices, thereby fuelling market booms, but may conversely lead to abrupt withdrawals in times of stress, tying back into the argument that the amplificatory effect asset management plays is a double-edged sword. Further, with the retrenchment of banks after the 2008 crisis, there has been a shift away from bank loans in favor of securities. In other words, credit creation now rests heavily on bond purchases as opposed to bank lending, and large asset managers have become a major source of credit and means of financing businesses and economies, especially those in the developing world.6 As a growing source of credit in global markets, asset managers have taken on a systemic role: whether or not this role is a systemic risk, as some economists have suggested, is the question. On one hand, it provides financial stability by supplementing traditional bank-based loans with market-based credit. The shift away from traditional bank funding means that entities seeking out financing options have a greater diversity of choices: the BIS report believes that the advantage lies in how one channel of funding can compensate for the shortfall

6  “Assets or Liabilities?” The Economist. N.p., 2 Aug. 2014. Web.

of supply in the other, as bonds have in place of loans. Yet it is also by virtue of its size, coupled with its considerable position in bond markets, that has made regulators worried. While the asset management industry is certainly helpful to a successful financial sector, if allowed to grow too large and without the due regulations, they may grow to become liabilities. Hong Kong’s keenness to further cultivate its asset management industry and its deliberations over what regulatory oversight to implement is only one part of a much larger picture. In the UK and US regulators and economists alike have identified that the incredible size of their assets and their position in credit creation have made them at once a benefit and a disaster-in-hiding. The challenge now is to temper the optimism brought about by the bill, aimed at further nurturing the investment management sector in Hong Kong, with the right regulatory constraints – so that an asset to the economy will not evolve into a liability.

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OPPORTUNITIES ACROSS THE GLOBE Wherever you go in Herbert Smith Freehills, we’re confident you will be working with people who share the values we have worked together to define, people who share a commitment to excellence, a collaborative approach, a desire to lead, and a focus on creating strong connections with colleagues and clients.

Hong Kong

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If you are interested in starting your career in China, we offer first year workshops, summer vacation schemes and training contracts in our Hong Kong office.

If you are interested in starting your career in London, whether you are from a law or non-law background, we offer first year workshops, vacation schemes and training contracts in our London office.

Applications open Applications for 2017 training contract are open all year round. 1 November 2014 - 31 January 2015 (Vacation Scheme) 1 - 28 February 2015 (first year workshop)

Applications open 1 - 31 January 2015 (first year workshop) 1 June - 31 July 2015 (2017 Training Contract) 1 December 2014 - 16 January 2015 (Vacation Scheme)

For more details visit herbertsmithfreehills.com/careers HERBERTSMITHFREEHILLS.COM/CAREERS


NEW OPPORTUNITIES, DEVELOPMENTS & CHALLENGES

Getting rid of brick-and-mortar in banking in China: peer-to-peer lending inside the Great Wall Nathan Gu

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n 1996, China broke new ground by establishing her first private bank – the Minsheng Bank of China.1 Almost twenty years later, in January 2015, the Chinese banking sector ushered in the first online-only (and private) bank – the Weizhong Bank. Unlike Minsheng and other traditional banks, Weizhong bank (also known as ‘Webank’) operates fully within the cyberworld, with no brick-andmortar branches. A glimpse of the then-embryonic Webank was revealed in 2012 when Tencent, a Chinese technology giant and a major shareholder of Webank, obtained an official approval to operate private banking businesses. The realisation of an online bank drives the race between traditional banks and their technologyoriginated counterparts into a new phase in which firms are tasked to survive more intense competition. Their tussle for lenders and

1  “About CMBC.” About CMBC. China Minsheng Banking Corporation, n.d. Web.

depositors may have far-reaching implications on individual lenders, the traditional banking sector, small merchants and small and medium enterprises (SMEs)2 and the longterm reform of Chinese banking industry in years to come. SMEs and individual merchants are perhaps the most visible beneficiaries that may ride on the tides of Webank, which operates a peer-to-peer (P2P) lending platform. P2P platforms work by matching individuals who wish to obtain a higher return on savings with companies, and charging such companies a higher interest rate than the state-fixed deposit rate. The advantage for small merchants to borrow directly from individuals instead of banks is made explicit when placed in the context of Chinese capital markets: companies 2  Weinland, Don. “China’s Traditional Lenders Meet Their Match in Internet Banking.” Scmp. South China Morning Post, 29 Dec. 2014. Web.

with weaker ties to the state usually have less access to funds offered by state-owned banks. Therefore, SMEs have increasingly relied on P2P for financing operations –in 2014 alone, the balance of P2P lending has increased by 140 percent from January to October.3 Moreover, P2P popularity among SMEs is highlighted by Webank’s heavy focus on SMEs: out of the five major divisions of the bank, two are focused on operations related to SMEs, namely ‘retail and loans to individual and SME businesses’ and ‘SME financial transactions’.4 Indeed, the debtor to which the first loan Webank made was a truck driver with a small sum of merely four figures (in RMB)5. With small sums of loans made accessible to individual businessmen, 3  Ibid. 4  “Tencent Opens China’s First Private Internet Bank.” TechNews. Tech News, 1 Jan. 2015. Web 5  Reisinger, Don. “Tencent Opens China’s First Private, Online Bank.” Cnet. N.p., 5 Jan. 2015. Web

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Webank can potentially spark an entrepreneurship culture among the youth in China. As a result, the inception of Webank marks a step towards an economy in which funds are made increasingly accessible for individual merchants and SMEs, whose problem of obtaining sufficient capital may considerably be eased.

larger companies when it comes to trimming financing costs. On the positive side, other technology firms such as Alibaba and China South City Holdings also expressed an interest in the emerging P2P market9. If more P2P operators are launched, the increased competition within the market may stir the hope that the P2P lending rate would cut its costs of lending: that is, to Not only individual gradually close the gap between its borrowers, but also individual lending rates and the market rate. lenders may benefit as a result of the opening of Webank. Previously, lenders who deposit their money on P2P platforms were exposed to a significant risk of fraud that arises from weak (or virtually nonexistent) legal supervision over P2P operators6. In the past, some P2P platforms simply vanished overnight, eroding the confidence of individuals who found it difficult, or impossible, to retrieve their deposits. With the P2P platforms now institutionalised by the establishment of Webank, which operates with a formal banking On the other hand, traditional license and is subject to legal banks (banks not run by a oversight, lenders can now have technology firm) may flounder in a better peace of mind when they the wake of these new waves. These entrust their money to Webank7. conservative structures may be at Greater confidence among lenders the losing end of the rising trend in would also mean greater stability P2Ps in the Chinese capital market. and reliability of P2P as a source Minsheng Bank itself is likely to lose of capital for SMEs. However, it depositors who wish to seek higher is perhaps too early to hail P2P as deposit rates through P2P lending. the saviour of lenders and small This is because Minsheng cannot merchants in China, because offer deposit rates higher than 20% individual borrowers typically of the benchmark set by the Chinese pay higher interest rates than the central bank, whereas through market rate when they borrow from Webank, technology firms, such as P2P8. This suggests that SMEs and Tencent, may offer higher deposit individuals may still be confronted rates to lenders and higher interest with an unequal playing field against rates to SMEs who are willing 6  R., S. “The Right Call.” Free Exchange. The Economist, 21 Nov. 2014. Web.

7  Weinland, Don. “China’s Traditional Lenders Meet Their Match in Internet Banking.” Scmp. South China Morning Post, 29 Dec. 2014. Web. 8  Ibid.

9  Weinland, Don, and Chim Sau Wai. “Wenzhou-based Private Commercial Bank Could Launch Soon – State Backed Paper.” Scmp. South China Morning Post, 26 Nov. 2014. Web.

to pay higher prices for capital.10 Therefore, it is likely that traditional banks would lose depositors, to the benefit of technology giants and SMEs. Nevertheless, it is unlikely that a large outflow of deposits would occur in the short-term since traditional banks still maintain, thanks to its history and the accessibility of a clear, consistent set of established laws, the confidence of the consumer base, who often still see media reports about P2P

scandals. Another complicating factor is that the government does not favour P2P platforms alone as a means of channelling funds to SMEs and individual merchants. For example, CITIC bank and the government struck a deal earlier in 2014 in which the bank obtained point-of-sale cash-flow information of SMEs, which means that CITIC can now identify qualified targets of small loans more quickly and hence become more competitive in issuing small loans. Also, traditional banks may simply compete by setting up their own P2P platforms, as Ping An Bank and Chinese Merchant Bank have done. Therefore, by cooperating with government or sparing resources to set up P2P banking, traditional banks may still find footing in the new arena to 10  R., S. “The Right Call.” Free Exchange. The Economist, 21 Nov. 2014. Web.

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capture a market share of small sized loans, in spite of their fixed deposit rates. Finally, for Chinese regulatory bodies, Webank represents an integral part of the gradual but ongoing process of reform in the financial sector. One can view the commencement of Webank as a further step towards interest rate liberalisation. Before Webank, maximum deposit rates for traditional banks was raised from 10% to 20% in November 201411; now with Webank, depositors may seek even higher deposit rates. As more and more capital flow into these banks from their attractive savings schemes, increasing amounts of money will be made easily accessible to SMEs. By such mechanism, the government may nudge depositors to assist her long-term task of evening out wealth distribution. In addition to the benefit which accrues to depositors, borrowers may also avail themselves of the emerging system. As more and more capital flow into these banks from their attractive savings schemes, increasing amounts of money will be made easily accessible to SMEs12. In the long-run, this is expected to level the playing field and even out wealth distribution by allowing smaller merchants and entrepreneurs to share the fruits and opportunities of China’s economic growth.

opposed to using them to speculate in the property market.13 The government may therefore draw on the market forces on the lender side to help reign in the highlyinflated property prices in certain coastal cities. With greater safety guaranteed by the banking licence of Tencent, P2P lending of Webank offers a less risky alternative to the more uncertain property market as a way of beating inflation. Therefore, the establishment of Webank may be a delicate move by the government to draw on the market forces exerted on both lenders and depositors, in aim of re-channelling excess money from the property market to the funds market for SMEs, subduing sky-rocketing housing prices and allocating greater portion of wealth to small sellers. The growing trend of P2P lending of China – a trend which the establishment of Webank will push to the fore of the financial sector – has created both harrowing challenges and grand opportunities for banks, technology firms, SMEs and individual borrowers and lenders. However, whether the rosy tune will still be sung as Webank continues to operate depends on whether interest rates remain in the affordable range for SMEs and

whether, favouritism and biased credit confidence towards big, traditional, established banks endure in the long-run. To realise both conditions, more initiatives are needed to introduce competition of P2P lending schemes among technology firms and to refine the legal framework which governs P2P lending. At any rate, the birth of Webank should not be viewed as an standalone event, but rather as a piece of puzzle trying to fit itself into China’s recent, but expansive and fast-paced narrative of economic liberalisation. It is now a slow train, one aboard which any aspiring entrepreneur has a chance to hop. But as it gains steam, and as it gains passengers, disagreements over the direction to which the train should head will proliferate and become increasingly urgent.

Moreover, higher rates offered by the P2P systems are expected to attract more investors to store their money in Webank, as 11  Ibid. 12  Weinland, Don, and Chim Sau Wai. “Wenzhou-based Private Commercial Bank Could Launch Soon – State Backed Paper.” Scmp. South China Morning Post, 26 Nov. 2014. Web.

13  Tajada, Carlos, and Tom Orlik. “Free to Lend: What China’s Interest Rate Move Means.” China Real Time Report RSS. Wall Street Journal, 20 July 2013. Web.

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The economics of the fall in oil prices on the major Asian economies Adrian Kwan

I

t is undeniable that one of the biggest events that occurred in the markets during the final months of 2014 revolves around the fall in oil prices. Oil itself is a commodity that isn’t just traded, but is also used in production and a source of revenue for firms that operate in the oil sector. The price of Brent crude was at $115 USD per barrel back in June 20141. Ever since then, the price of Brent crude has fallen by over 45 percent to approximately $60 USD as of 13th February 20152. A closer look reveals that the fall in oil prices was due to a multitude of factors, ranging from falling global demand from China and Europe to violence in the middle east, which could have potentially disrupted the supply chain but

never did3. During the period before the fall in oil prices, oil prices were at levels over $100 USD per barrel because of soaring levels of oil consumption from countries such as China. Demand for oil exceeded supply and so oil prices rose. Soaring prices induced companies in the US and Canada to start drilling for new oil supplies. However, demand for oil from countries such as China started declining, eventually leading to excess supply and thus a fall in oil prices4.

International Energy Agency shows the period at which supply started to exceed demand. In addition, it also shows how the excess supply was being stored away for use later, hence contributing to the fall in oil prices. There are both winners and losers from the fall in oil prices. It is evident that countries such as Russia, which has a GDP that is heavily reliant on oil exports, will suffer from the fall in oil prices while countries who are primarily oil importers will benefit from the lower cost. While the effect of falling oil prices is expected to benefit Asian countries as many are primarily oil importers, the effects are mixed.

Analysis on the Asian economies The chart above from the It is expected that the 40% drop in oil prices since June last year will 3  Arnsdorf, Isaac. “Why Oil Prices create opportunities for economic Went Down So Far So Fast.” Bloomberg.com. (International Energy Agency)

1  “Why the Oil Price Is Falling.” The Economist. The Economist Newspaper, 8 Dec. 2014. Web. 13 Feb. 2015. 2  Krishnan, Barani. “Oil Tops $60 for First Time in 2015; Oversupply Persists.” Reuters. Thomson Reuters, 13 Feb. 2015. Web. 13 Feb. 2015.

Bloomberg, 29 Oct. 2014. Web. 13 Feb. 2015. 4  Plumer, Brad. “Why Oil Prices Keep Falling - and Throwing the World into Turmoil.” Vox. 23 Jan. 2015. Web. 13 Feb. 2015.

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growth in many Asian countries5. China China is currently the world’s second largest oil consumer and largest oil importer and it stands as one of the main countries that could potentially benefit from the drop in oil prices. The government and refineries have taken advantage of the fall in oil prices by increasing their purchases of crude oil for both commercial and strategic reasons. In 2014, the country raised crude oil imports by nearly 10%, an additional 530,000 barrels per day (bpd), largely to boost government and commercial reserves6. The stateowned China National Petroleum Corporation (CNPC) forecasts the country’s oil demand rising to 10.68million bpd this year; approximately 310,000 bpd higher than last year. The forecast also puts China’s net crude imports up 5.4 percent to 6.49million bpd for 20157. Increasing demand for crude oil is expected to increase the country’s competitiveness as it will reduce the costs of production. The government is also importing more oil in order to boost its storage capacity as this will allow China to address one of its primary structural weaknesses: its reliance on imported energy8. In addition to importing more crude oil, the Chinese government has also increased consumption tax on oil products. Effective from January 13th 5  Tully, Andy. “Oilprice.com.” One Region That Could Benefit Most From Low Oil Prices. 8 Jan. 2015. Web. 13 Feb. 2015 6  Green, Joe. “China’s Oil Demand to Grow 3% in 2015.” Energy Global. 28 Jan. 2015. Web. 13 Feb. 2015. 7  Chen, Aizhu. “CNPC Research: China’s Oil Demand To Grow 3% In 2015.” RIGZONE -. 28 Jan. 2015. Web. 13 Feb. 2015. 8  Sender, Henry. “China Finds Opportunities in Oil Price Drop - FT.com.” Financial Times. 3 Feb. 2015. Web. 13 Feb. 2015.

onwards, tax on oil products such as gasoline and lubricating oil will be increased to 1.52 yuan (about 16 pence) per liter from 1.4 yuan9. Part of the tax revenue will be used to deal with China’s growing environmental concerns through counter-pollution initiatives, for example. If oil prices stay at its current level, China will be able to save approximately $100 billion on its oil import bill in the first six months of 201510. As China is a net oil

importer, lower oil prices should stimulate consumer spending. It can also be argued that lower oil prices can help re-stimulate the Chinese economy and bring growth rates back to levels over 10 percent per annum and thus demand for oil. However there are some economists who are critical of the extent to which the fall in oil prices can affect the Chinese economy. Due to the consumption tax the government has placed on oil products, gasoline prices have not dropped as much in China as they have in other less regulated countries11 thereby offsetting the potential windfall from lower prices. In addition, one can expect falling gasoline prices to translate into an increase in demand for automobiles. However, what we 9  “China Raises Consumption Tax on Oil Products - Xinhua | English.news.cn.” China Raises Consumption Tax on Oil Products - Xinhua | English.news.cn. 12 Jan. 2015. Web. 13 Feb. 2015. 10  Kottasova, Ivana. “Oil Price Collapse Saves China $100 Billion in Six Months.” CNNMoney. Cable News Network, 23 Jan. 2015. Web. 13 Feb. 2015. 11  Chidley, Joe. “Why Falling Oil Prices May Not Pump China up.” Financial Post Why Falling Oil Prices May Not Pump China up Comments. 28 Jan. 2015. Web. 13 Feb. 2015.

have observed is that automobile sales slowed through 2014 due to the decline in growth. Sales rose by 6.9 percent in 2014 compared to 13.9 percent in 201312. There are also structural issues in place which restrain China from fully benefitting from the fall in oil prices such as overcapacity13. Lower oil prices also add pressure on China’s central bank to tackle low levels of inflation. Japan Japan, like China, is a major oil importer in the Asia Pacific. However, unlike China, it has been suffering from a two decadelong deflation; also known as the Lost Two Decades. Prime Minister Shinzō Abe has unleashed many economic policies, known as Abenomics, aimed at dealing with the problem of deflation in Japan. At first the fall in oil prices may seem like a blessing to Japan, given the fact that it has imported approximately $160billion on imported petroleum in the 12 months to August 2014 14 , but this is likely pose a challenge to Abenomics. The Bank of Japan has announced that it is unlikely to make the economy hit its 2 percent inflation target over the course of 2015 and has reduced its inflation forecasts from 1.7 percent to 1 percent for the year beginning in April 2015 due to the fall in oil prices15. One of Abe’s strategies has been to depreciate the yen in order to make exports more expensive. A 12  “China’s Car Sales Growth Halves in 2014.” BBC News. BBC, 12 Jan. 2015. Web. 13 Feb. 2015. 13  Spegele, Brian. “Why Oil-Hungry China Isn’t Reaping Benefits From Low Prices.” China Real Time Report. Wall Street Journal, 5 Feb. 2015. Web. 13 Feb. 2015. 14  Lucas, Louise, and Ben McLannahan. “Oil Price Fall Offers Mixed Blessings for Japan - FT.com.” Financial Times. 16 Oct. 2014. Web. 13 Feb. 2015. 15  Spence, Peter. “Japan’s ‘Abenomics’ to Miss Inflation Target as Oil Prices Dive.” The Telegraph. Telegraph Media Group, 21 Jan. 2015. Web. 13 Feb. 2015.

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weaker yen, though, pushes up the price of oil and gas imports. It is likely that these two opposing forces will cancel each other out. Nonetheless Japan can still benefit from the fall in oil prices. The reduction will lower the cost of thermal power generation which Japan has been heavily reliant on since the nuclear power plants shut down in 2011 after the Fukushima nuclear disaster, thereby putting a stop to rising electricity prices16. Moreover, falling fuel prices is likely to reduce financial pressures on the manufacturing industry. All of these factors should push down prices and possibly contribute to an increase in consumer spending.

South Korea Like China and Japan, South Korea also stands to benefit from the fall in oil prices. It currently imports approximately 97 percent of its energy needs and is one of the largest importers of energy in Asia17. It is expected that the halving of the Dubai crude, the source of most of South Korean oil imports, from approximately USD$100 to USD$50 will have a much larger impact on the South Korean economy than elsewhere. Fuel costs account to up to 20 percent of South Korean household consumption, so a persistent fall in oil prices is expected to stimulate 16  “Making the Most of Cheaper Oil | The Japan Times.” Japan Times RSS. 26 Jan. 2015. Web. 13 Feb. 2015. 17  Walker, Andrew. “Cheap Oil: Asia’s Winners and Losers.” BBC News. BBC, 26 Feb. 2015. Web. 26 Feb. 2015.

consumer spending. Further to this, gross export revenue is expected to increase as lower energy costs are reflected in lower prices for South Korea’s manufactured goods18. However, some sectors have been affected in a negative manner. The fall in oil prices has negatively impacted South Korean shipbuilders as it eats into their profits due to a decrease in new orders among other factors. International oil companies have reduced orders for drill ships and offshore production facilities. On the other hand, though, there has been surging demand for LNG and LPG carriers thanks to the US Shale Boom and Russia’s Yamal LNG project19. Thailand Not all countries have benefitted. Thailand, for example, hasn’t been able to reap the potential gains from falling oil prices. Due to falling energy prices, Thailand entered deflation in January 2015 for the first time in five years. The country’s consumer price index fell by 0.41 percent in January from the same period a year ago. With consumer prices falling, some analysts expect the Bank of Thailand to cut its policy rate when it holds its next policy meeting on March 11, 201520. Despite this, the commerce ministry maintains its inflation target of 1.8 percent to 2.5 percent and a gross domestic product growth of 3.5 percent to 4.5 percent based on the assumption of global oil prices 18  Manthorpe, Jonathan. “South Korea Stands to Gain More than Most from Oil-price Plunge.” Business In Vancouver. 16 Feb. 2015. Web. 26 Feb. 2015. 19  Jung-a, Song. “Low Oil Price Forces South Korean Shipbuilders to Cut Costs FT.com.” Financial Times. 24 Feb. 2015. Web. 26 Feb. 2015. 20  Ahmed, Nasir. “Falling Consumer Prices Raise Expectations of Thai Rate Cut.” Business Recorder. 2 Feb. 2015. Web. 13 Feb. 2015.

between USD$90 - USD$100 per barrel21. With lower oil prices, energy policies are now of even greater importance in Thailand as the country tries to take advantage of this. Activists including Abhisit Vejjajiva, the former Prime Minister of Thailand, says Thailand should adopt an energy policy that is similar to Malaysia’s. They argue that the Thai government could get up to 80 percent of the profit gained from petroleum development, a much larger figure when compared to the 67 percent it currently receives. However many government officials disagree with this proposal due to the fact that Thailand has smaller deposits of oil and natural gas than Malaysia22. Conclusion This analysis shows that the overall impact of falling oil prices on the Asian region is mixed - but with a stronger windfall effect than a negative impact. It is evident that while the fall in oil prices has benefitted many major economies including China and Japan, it has negatively affected other Asian countries such as Thailand. These effects expand to other countries in Asia in similar scale and are expected to have windfall effects on countries which are primarily importers of oil.

21  Chaichalearmmongkol, Nopparat. “Thailand Enters Deflation on Falling Energy Prices.” MarketWatch. 2 Feb. 2015. Web. 13 Feb. 2015. 22  Wongcha-um, Panu. “Bidding for Oil and Gas Concessions in Thailand Put on Hold.” Channel NewsAsia. 26 Feb. 2015. Web. 26 Feb. 2015.

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Strength in unity: ASEAN Economic Community 2015 Ryan Chiu

A

t this stressful point in time for the European Union – what with the uncertainty of the results of Mario Draghi’s quantitative easing policies and Greece’s threats of exiting the euro – perhaps one casts doubts on such economic, and therefore to some extent necessarily political, unions between states. But in 2015, Southeast Asia is forging ahead with ever-greater integration between its countries. Comprising 10 countries (the original founders in 1967 comprised of Singapore, Thailand, Philippines, Malaysia, Indonesia, and Brunei, Vietnam, Laos, Myanmar and Cambodia), the ASEAN is planning on instituting an economic community before the end of this year. If this succeeds, the single market which results will possess an impressive combined GDP of USD 2.5 trillion, placing it comfortably within the top 10 largest economies in the world by

GDP (nominal). Moreover, with a population of over 600 million and a high proportion of young people, ASEAN’s potential market and labour force is larger than that in the EU or North America.1

human development’2, and to comprehensively increase Southeast Asia’s economic capability in the world. The Asian Development Bank surmises that the move could generate up to 14 million additional jobs by 2025, but cautions businesses The ASEAN Economic from expecting a sudden ramp in Community (AEC) will be based activity or complete overhaul by the off of the 2007 AEC Blueprint. end of this year.3 Rather than a complete instatement, the AEC will be established The AEC is a work in through successive agreements progress, and has been for a between members, whose progress while. Under the ASEAN Free in achieving integration will be Trade Agreement, the common charted by the AEC Scorecard. By preferential tariff scheme established undertaking to prospectively reduce has effectively reduced tariff rates of tariffs to zero and permit the free over 70% of intra-ASEAN trade to movement of capital, labour, goods virtually zero. 4 members have yet to and services, the single market hopes make this step, but are expected to to promote greater competition 2  “Declaration on the ASEAN Ecoand cross-border trade, efficiency, nomic Community Blueprint.” Declaration on the ASEAN Economic Community Blueprint. a united stride towards ‘equitable N.p., n.d. Web. 1  “ASEAN Economic Community: 12 Things to Know.” Asian Development Bank. N.p., 17 Aug. 2014. Web.

3  Schonhardt, Sara. “Asean Economic Community Could Widen Inequalities.” Wall Street Journal. N.p., 23 Aug. 2014. Web.

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do so by December 2015. Coupled with ASEAN’s willingness to take initiative in signing Free Trade Agreements, the AEC’s goal of attaining regional integration as well as integration into the global economy remains a promising and realistic aspiration.

developed economies.4 Without trade protection, the more efficient and professional banks of other ASEAN nations will easily erode their market share. However, an alternative opinion suggests that such minor markets will waste precious time failing to attract capital and foreign investment However, many challenges due to a lack of size, liquidity, and lie in wait: not only in respect of recognised regulatory framework.5 the obstacles to proper integration, Liberalisation, it goes, will solve these but also in terms of unwanted repercussions that may resonate in certain member states after successful integration into a single market. Firstly, non-tariff barriers to trade still feature prominently in member states. These come in various forms, most notably in the form of quotas, licenses, or other technical red-tape measures, such as customs surcharges or labelling and packaging requirements. Under the Blueprint, these need to be progressively reduced with the aim of total removal. The liberalisation of trade in the services industry has also been slow. Although many champion the benefits of complete capital account and financial services integration, many ASEAN leaders are still keen to protect and slowly develop their domestic financial services and capital markets sectors, believing that such nascent industries at home will be unable to compete with their counterparts in the ASEAN’s more developed economies, such as Singapore or Malaysia. The Philippines and Indonesia have been vocal about their concerns, and they are not mistaken. Standard & Poor published a report opining that banks in the Philippines, while profitable and stable under the current system, will be unable to compete against those in more

ASEAN goes ahead and declares its establishment, it is at most a milestone date, of more symbolic significance than one that marks a substantive change. It will be worthy to note that this was not the first time the establishment of the AEC had to be postponed. Individual countries have also voiced concerns regarding a prospective single market. Most

of these fears about the future tie back into the unwillingness by some member states to commit to proper integration today. Beyond the financial services industry, some other examples abound: Indonesia refrained from ratifying the liberalisation of air-freight services to protect its own aviation industry, while Thailand keeps tariffs on ‘sensitive’ agricultural produce such For the reasons above, many as coffee beans and potatoes. The less speculate that the December 2015 developed economies are eager to deadline will not be met; or, if the protect ‘strategic’ sectors from being overwhelmed by more efficient and 4  Standard & Poor’s. Asean Financial Integration: The Long Road To Bank Consolistructurally more accomplished dation. Rep. N.p., 09 Nov. 2014. Web. neighbours. 5  Fernquest, Jon. “Asean Economic problems. But it seems that right now, the former opinion, backed up by national lobbying groups, holds sway. The World Bank’s Services Trade Restrictions Database reports that Indonesia, Malaysia, the Philippines, and Thailand have virtually or completely closed policy regimes in trade for professional services.

Community 2015: Ready or Not, Here It Comes.” Bangkok Post 6 Jan. 2015: n. pag. Print.

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Furthermore, the overseer of this ambition – the ASEAN Secretariat – is understaffed and underfunded, perhaps a reflection of the member states’ unwillingness to go ‘all the way’. The poor remuneration package causes many to suspect that the Secretariat is also unable to attract the best brains for the job. Without the power to enforce compliance through sanctions, it falls on the shoulders of individual states to make this aspiration a reality.6 If member states continue to refuse, then the AEC as a single market is at best nominal. As domestic issues continue to abound especially in less developed member states, the impetus of their leaders to press forward with the AEC is liable to diminish. Political and military power play within such nations as Thailand and Myanmar means most leaders will be more preoccupied with consolidating influence at home rather than abroad. Falling oil prices have also kept Malaysia, a net oil exporter, and Myanmar, a net gas exporter, busy with woes within their borders. 7

awareness are the education and deputy governor of a member state’s training levels afforded to citizens in central bank, perhaps it is after all less developed ASEAN economies. reasonable to wait and not rush. To be competitive under a freeflow of labour, especially in terms of high-skilled occupations, countries such as Indonesia and Thailand must make greater investment in such professions, among others, as doctors, engineers, architects, and accountants. One can envisage many benefits for ASEAN and the wider global community when the AEC is completed, be it by this December or later. Western multinationals can avail themselves with better investment opportunities and lower production costs. A unified regulatory and legal framework which will follow integration will particularly benefit less developed regions, especially in respect of greater recognition by foreign investors. In the same regions there will also be massive infrastructural improvement, as there will be a need for better power and transport in order to promote connectivity between the member states.

The general lack of development in several ASEAN nations also poses a problem: the businesses within may not be well informed enough to seize on the opportunities that may arise. A survey conducted by the ASEAN Secretariat revealed that every 3 out of 4 ASEAN citizens lacked a fundamental comprehension of the ASEAN.8 Related to public One looks forward to the day a genuine ASEAN 6  Brennan, Hugo, and Verisk Maplecsingle market becomes reality. roft. “Rocky Road Ahead for Asean Economic But when statements like ‘the Community.” Financial Times. N.p., 13 Mar. 2015. Web. total capitalisation of the entire 7  “ASEAN in 2015: Will Lower Oil Philippines banking system is only Prices Interfere with Rapid Growth?” Knowlabout the size of one Singaporean edge (At) Wharton. The Wharton School of The University of Pennsylvania, 15 Jan. 2015. bank’9 continue to come from the Web. 8  Ji, Xianbai. “Why the ASEAN Economic Community Will Struggle.” The Diplomat. N.p., 24 Sept. 2014. Web.

9  “ASEAN Economic Integration in 2015 Draws Conflicting Views in Philippines.” Philstar. N.p., 24 Apr. 2014. Web.

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Hogan Lovells is a leading global commercial law firm with more than 45 offices in UK, Europe, North America, the Middle East and Asia. We are actively recruiting penultimate year law students for our summer vacation programmes in Hong Kong in June and July 2015. Excellent academics and English language skills are essential and Chinese language skills highly advantageous. For details and application form, please visit our recruitment site http://careers.hoganlovells.com/local/China Closing date for applications in 28 February 2015 Offers are made on a rolling basis so early applications are favoured.

Hogan Lovells is an international legal practice that includes Hogan Lovells International LLP, Hogan Lovells US LLP and their affiliated businesses. www.hoganlovells.com Š Hogan Lovells 2015. All rights reserved.

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ASIA’S LEGAL SCENE

The shifting terrain of the legal market - Asia analysis Georgiana Kwok

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his article is a digest of, and a response to, Professor Richard Susskind’s vision of the future of the legal profession articulated in his book Tomorrow’s Lawyers: An Introduction to Your Future, but will examine the various aspects of Susskind’s argument with a particular emphasis on their relevance in the Asian legal industry. Main drivers of change in the world legal market First, it is important to understand the current atmosphere of the legal industry. Susskind identifies three main drivers of change in the world legal market: (1) the drive for costeffectiveness, (2) advancement in technology and (3) the gradual opening-up of the traditionally exclusive industry.

legal help. In addition, despite their increasing workload, many in-house legal departments of major corporations and financial institutions also face pressure to reduce the number of lawyers in their teams, as well as to reduce the amount of money spent on legal The cost-effective approach advice sought from external law Demand for legal services is firms. The problem of diminishing restricted by high legal costs, as legal resources is highlighted by clients of lawyers are finding it significant cuts to overall legal increasingly difficult to afford legal budgets. The current circumstances services. Cuts in public legal aid are such that the legal industry will decrease the accessibility of legal be governed by an approach which services for individuals, limiting places particular importance on legal access to only the two extreme cost-effectiveness. ends on the hierarchy of incomeearners. Small and medium-sized Liberalisation of the legal market businesses are equally affected, Historically, in most countries, the especially as they lack their own provision of legal services to clients specialist in-house lawyers and must had always only been for qualified resort to external law firms when in lawyers to undertake, with laws need of legal advice and assistance. and regulations stipulating the Given the general economic climate, requirements for being a lawyer these businesses are unable to afford and for running a legal business.

However, with the increasing inaccessibility of legal services due to rising costs, there is an increased demand for greater consumer choice, heralding a relaxation in laws and regulations which restrict legal services on offer. Liberalisation accommodates the client’s growing need for cost-effectiveness, and these measures may eventually cause traditional law firms to find themselves at a competitive disadvantage. Technological development We are living in an era of constant technological progress, and the effects of information technology on the legal industry are pervasive. Whether these technological innovations will disrupt, or transform, the way in which the legal industry operates depends on the ability of lawyers to adapt to the changes. More importantly, lawyers must learn to take advantage of the economic efficiencies that technological development brings. In conjunction with the relaxed measures for the legal market, technological innovation is congruent with the general costeffective approach of clients and firms alike. The case in Asia The case in the Asian region is generally consistent with the general trend of the legal market which Susskind outlines in his book. However, the dynamics of the legal 26


ASIA’S LEGAL SCENE

industry in Asia differ from that observed from the global trend, and the Asian legal market has a pulse of its own. Playing a dominant role in the corporate legal activity in the region, China serves as a good case study of, and perhaps in other areas as a useful counterpoint to, the overall performance of the Asian region.

According to a recent report1 published by the International Monetary Fund (IMF), the vast majority of economies in the Asian region are experiencing substantial growth, and it is predicted that this upward-sloping trend will continue for the foreseeable future. Alas, amidst mergers and the rise of domestic Chinese firms, international firms are being forced out of the region’s legal market. It was recently announced that the New York-based law firm Fried Frank will be closing its two Asia offices in Hong Kong and Shanghai, leaving the Asia market altogether. The five offices that the firm retains are all based in the West – New York, Washington DC, London, Paris and Frankfurt. Fried Frank’s

Cost-consciousness ‘Cost-consciousness’ would be more apt in encapsulating the approach towards costs in the Asian legal market as a whole, across multinational and local firms. There is less of a ‘more-for-less’ challenge, Susskind calls it, among international law firms in the Asian region, as cost-effectiveness is less of an issue when costs of labour and production are relatively low, and when there is effective demand for legal services. For example, demand for foreign legal services in China is generated by the growth in China-outbound M&A’s, not to mention the lack of legal expertise in the country itself in areas such as international investment and withdrawal of its Asia presence sheds light on the intense competition intellectual property law. faced by international firms within While the cost-effective the Chinese local legal market. approach is nonetheless desirable as International firms are canvassed on a common business strategy, it is not an expanding competitive landscape, a priority and does not quite take on with an increase in specialist the grim undertone of the mass of legal service providers, such as legal services in the West. Although Alternative Business Structure it is hoped that expansion will (ABS) legal services providers generate economies of scale, Asian and NewLaw law firms. However, firms are merging with international the main source of competitive firms primarily for trans-Atlantic pressure for international law firms influence. The multinational law comes from the large, domestic firm Dentons announced only at the elite. In addition to the likes of start of this year their merger with the mammoths Dacheng Dentons Dacheng Law Offices of China, and King & Wood Mallesons, displacing Baker & McKenzie as the Jun He and Fangda are amongst largest law firm in the world. the top domestic Chinese firms with the competitive advantage of 1  Regional economic outlook: Asia and Pacific, April 2014

broader coverage of practice areas in mainland China. Time differentials Susskind predicts radical change in the landscape of legal services as a result of liberalisation and technological development, fuelled by an underlying quest to minimise costs. As considered in the previous section, minimising costs is generally not a primary issue on the agenda of Asian firms. Technological advancement is inevitable and only a matter of course, rather than a means to an end. Liberalisation of the legal industry could equally be said to be another natural occurrence, flowing from the increasingly globalised nature of transactions and of society as a whole. A large number of countries in the Asia Pacific have liberalised their legal industry in order to maintain competitiveness in an expanding international legal marketplace. Singapore is a prime example of a country having made major strides in opening up their domestic legal market to foreign legal service providers. Like Singapore, Mainland China is seeking to open up its financial sector and maximise its economic capacity through the liberalisation of its legal services sector. The Shanghai Free Trade Zone will be piloting the nation’s legal market liberalisation policies. However, given the almost embryonic stage of the PRC legal market, liberalisation of the Chinese legal market needs to be, and is going to be, gradual. Change will doubtlessly come but it will take a considerable amount of time for its effects to manifest themselves in the Asian legal market. In addition to the difference in rate of change, there will be a difference in the degree of change. 27


ASIA’S LEGAL SCENE

The Dacheng-Dentons merger: The rise of East-meets-West BigLaw Andrea Kan

O

n January 27th 2015, Dentons and Dacheng Law Offices formalized their highly anticipated – and equally highly shocking – merger. The former is a multinational law firm founded by the recent merger of British firm SNR Dentons, Canadian firm Fraser Milner Casgrain and French firm Salans. The latter is the China’s biggest legal practice. The newly created powerhouse has more than 6,500 lawyers in 50 countries, overtaking Baker & McKenzie as the world’s largest law firm by a comfortable margin. It will operate in a Swiss Verein structure, meaning that both firms, though under the same brand name, will operate virtually autonomously of each other. Nevertheless, the merger is rightly described by Dacheng’s Founding Partner Peng Xuefeng as “the most extensive and innovative

partnership in both the East and West”.1 However, to what extent can this newcomer succeed in a legal market long dominated by Magic Circle and White Shoe veterans? Perhaps more importantly, can it overcome the inevitable cultural integration issues that will arise?

2014.2 The consequence of this for the legal industry: a vast array of opportunities for law firms to advise clients on acquisitions and other projects.

With a sizeable economy that recently surpassed that of the United States and an exponentially swelling consumerist-minded population, China is a global power to be reckoned with. According to the Chinese Ministry of Commerce, foreign direct investment into the country was $87.36 billion, and outbound investment $74.96, in

Foreign law firms have had a presence in China since the early 1990’s, when the Chinese government began allowing foreign companies to open outposts in the country. However, foreign law firms are still prohibited from practicing Chinese law and appearing in Chinese courts. Even with regards to commercial transactions, something foreign lawyers are able to advise on, China’s 19,000 plus local law firms take up most of the work.3 A

1  Shangjing Li, “To merger or not to merge”, 29 January 2015, Asian Legal Business, 10 February 2015 <http://www.legalbusinessonline.com/news-analysis/merge-or-notmerge/68032>

2  Sara Randazzo, “Foreign Law Firms Face Pressure in China”, N.D., The Wall Street Journal, 10 February 2015 <http://www.wsj. com/articles/pressures-grow-on-foreign-lawfirms-in-china-1422311243> 3  Ibid.

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research paper from U.C. Berkeley has shown that most foreign law offices in China are fairly small and account for less than 5% of the firm’s global revenue.4 The American Fried, Frank, Harris, Shriver & Jacobson’s recent departure from China underscores the fierceness of competition and difficulty of making a profit in China. Given these challenges, forging ties with a local law firm is highly advantageous. Dacheng’s selling point is its focus on the domestic market. Instead of competing for Western clients, the firm has concentrated on boosting its local ties. Through merging with local firms, it has established offices in all 41 of China’s provinces. As Joseph Andrew, Denton’s Chairman notes, less prestige-heavy Chinese firms “have the most value […] because they have the relationships with the CEOs of Chinese clients”.5 Looking at the merger from the opposite perspective, joining forces with a multinational law firm with presence in the Americas, Europe, the Middle East and Africa presents Dacheng with massive advantages. Many Chinese corporations seeking to expand abroad will naturally hope to seek advice from a firm it has worked with before, one which now has the added edge of being able to advise on both Chinese law and foreign law. As Peng Xuefeng notes, “All of [Dacheng’s] clients are starting to globalize, and we as lawyers can only be successful by following our clients and also being globalized. […] Our combination obviously provides a very effective 4

Ibid.

5  “Chinese Legal Mergers: Rules and Laws”, 31 January 2015, The Economist, 10 February 2015 <http://www. economist.com/news/business/21641291can-law-firms-merge-when-their-legalsystems-differ-test-case-china-rules-andlaws>

bridge for Chinese companies who want to go abroad.”6 The merger represents an opportunity for not just Dacheng, but also the budding Chinese legal industry as a whole, to gain exposure to and learn from its long-established and well-respected Western counterpart. Even if rationale for the merger is sound, executing it will be tough. One of the greatest challenges will be overcoming the intrinsic differences between the Chinese and Western legal systems. The Chinese legal system is a socialist system of law that is largely based on civil law. On a superficial level, this is in contrast to the common law legal system in the UK and other Commonwealth jurisdictions. A more fundamental substantive difference, however, is the lack of solemnity and propriety attached to the law as compared to that in any Western jurisdiction, whether it derives from common law or civil law traditions. Last October, the Chinese Communist Party proclaimed grand plans to establish the rule of law by 2020. 6  Nathan Vanderklippe, “East meets West: Dentons-Dacheng raises host of questions”, 27 January 2015, 10 February 2015 <http://www.theglobeandmail.com/report-on-business/industry-news/the-law-page/ east-meets-west-dentons-dacheng-merger-raises-host-of-questions/article22647980/>

The announcement, essentially a tacit admission that the country has so far done without, has increased fears of working in a world in which connections hold greater importance than legislation. The Chinese legal system has been flooded with allegations of corruption, lack of transparency and weak enforcement. Working with Chinese lawyers may well expose Western firms to Foreign Corrupt Practices Act violations or industrial espionage. Even if procedures are in place (which they are – Dentons has hired a cyber-security firm to tackle such concerns),8 these fears stem from the very nature of the Chinese legal system and are difficult to assuage using temporary top-down measures.

7

Another challenge involves overcoming differences in the values and practices shared by members of a firm. This difficulty should not be underestimated: Chinese law firm King & Wood merged with Swiss law firm SG Fafalen in 2008 but terminated their alliance less than 12 months later “after unsuccessfully attempting to combine [their] culture and operations”.9 Of course, 7  cf “Chinese Legal Mergers: Rules and Laws” (n 4) 8  cf “Chinese Legal Mergers: Rules and Laws” (n 4) 9  cf Shangjing Li (n 1)

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King & Wood successfully merged with Australian Mallesons Stephen Jaques in 2012 and British SJ Berwin in 2013, but this does not hide the fact of King & Wood’s first short-lived merger, nor does it rule out the future possibility of breakup. What substantive firm cultural differences are there? One is compensation. As Peter Zeughauser, a consultant to law firms, notes, many Chinese lawyers are paid a fixed percentage of their individual gross billings and maintain their own secretaries and support staff. 10 The implication of this practice is that there lacks a culture of sharing and support, which is something many Western law firms and lawyers value. The new firm, especially given its geographically expansive network of offices, will need to find a way to divvy up profits in a way that encourages its lawyers to work together. A broader difference is with regards to perceptions of the legal profession and service. In China, lawyers are seen as a burdensome peripheral to business transactions and their advice is rarely sought or welcome. Chinese clients often opt for the lowest bidder and renegotiations in favor of the client are common. On a purely monetary level, there appears to be a huge mismatch – the Dentons average revenue per lawyer per year (in the US) is $550,000 while the Dacheng equivalent is $88,000.11 This mismatch can also be seen on a macroeconomic level: the 10  cf Nathan Vanderklippe (n 5) 11  Bruce MacEwen, “Guest post: Dentons/Dacheng – A theory and rationale”, 3 February 2015, 10 February 2015 < http:// www.legalbusiness.co.uk/index.php/lb-blogview/3562-guest-post-dentons-dacheng-atheory>

underdeveloped Chinese legal sector accounts for only about 0.078% GDP, whereas the American legal sector accounts for 1.53% GDP.12

worldwide coverage. Mergers between “Western” law firms are increasingly common and have generally proved to be successful. However, mergers between

Firm cultural differences are even more difficult to overcome given the size of both merging parties. When Shearman & Sterling, then the world’s largest law firm, hired its 312th lawyer in 1979, it was widely believed that once a firm had more than 300 lawyers, conflict issues would become insoluble. The DachengDentons has brought together 6,000 people, from not two firms but five. Dacheng is a largely decentralized enterprise. In its early days, lawyers in different offices worked independently and kept the bulk of their earnings. Although this practice has become much less conspicuous, doubts about consistency between offices are still prevalent. Dentons itself is the product of a recent merger and is still integrating its own offices. Globalization is increasingly driving law firm strategy. Many firms are merging with their counterparts across borders in hopes of gaining

“Western” law firms and Chinese law firms are few and far between. Developing markets, and those in Asia in particular, present not only new business opportunities, but also help firms weather the recent economic downturn. But how these hypothetical advantages can offset the very real challenges faced by any merging party is uncertain. Ultimately, it is too soon to tell whether Dacheng-Dentons can beat the odds for success. At this point, the best strategy is to simply make the best of the circumstances, no matter how dire the challenges. As President Lyndon B. Johnson said during the heat of the Vietnam War, “I’m the only President you’ve got”.

12

Ibid.

30


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SNAPSHOTS

A nation’s climb to market liberation - Where does China stand now? Katie Chin

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ast year China officially took over the US economy in terms of Purchasing Power Parity (PPP), constituting a staggering number of almost 17% of the world’s GDP. Close on the heels of these developments, the story of the country’s success has been wrought with infamous incidents. Such examples range from the Foxcom scandal, alarming arrests of dissidents and quirkier tales of first-time tourists travelling abroad. Such anecdotes reflect the persistent deeply concerning issues of human rights and workplace conditions intertwined with the tales of a population transitioning into a lifestyle of new wealth. Together they shed light on the many troubles that permeate the tricky transition China faces- its evolution from an export-led growth economy to a consumption-based economy; all whilst under increasing scrutiny from the rest of the world.

Much of the media discourse remains focused on the nation’s gradual shift towards an open market. Notions of promising reforms are nonetheless underlined and perhaps even undermined by the government’s character. Expressed as a Communist state, the PRC uncomfortably straddles between authoritarian control of State Owned Enterprises (SOE) and the capitalistic nature of its economy. China’s own brand of communism purports to have a desire to free up its market and yet it seems to remain gripped by the fear of acceding and letting go of too much.

to light some of the key on-going developments concerning China’s growth from this year. The feasibility of achieving their ambitions and wider implications will be deliberated and ultimately I will leave the question of where China now stands up to your readership.

Shanghai Free Trade Zone The establishment of the Shanghai Free Trade Zone has dominated media attention ever since it was officially launched in 2013. It presents substantial reforms and easier regulatory access for foreign firms looking to invest in China as well as domestic firms that are Thus we arrive to the crux looking to invest outwards and of the issue: with the different it also represents an ambitious measures that are being rolled out to movement that encourages the ‘open up’ the market, to what extent creation of start-ups. Moreover, it are these reforms merely procedural? also allows for goods and services Are these innovations really going to be exchanged more easily. For to bring substantive change? In this example, foreign law firms are would article, I aim to introduce and bring be able to set up joint operations in 32


SNAPSHOTS

the area with domestic law firms. If the free trade zone winds up as a successful venture, the government may replicate similar reforms in other areas of the country. As for the time being, the government and the country is waiting to see how successful these reforms will be.

Reserve Currency). Much to the frustration of the government of the country that holds more than 1.2 trillion (approximately 7 per cent) of US debt, it has no control over the currency. As such, these holdings have resulted in severe implications. When the US increased the supply of US dollars as part of its There have been significant Quantitative Easing programme, drawbacks noted in media each US dollar printed resulted a discourse, such as the perceived reduction in real value for China’s lack of direction in the reforms and holding of US dollars. Politically the general slowdown of China’s and economically speaking, ending economic growth. The backdrop of China’s dependence on a currency Xi Jinping, the Chinese President of which it had no control over was cracking down on corruption itself an attractive idea to the government. has also caused a general sense of unease amongst policy officials. Examples of individuals who have been targeted by Li Keqiang’s anti-corruption policies include the leader of the FTZ project, Dai Haibo, who was stripped of his position due to the suspicious circumstances surrounding him. Given these various factors and the fact that the policies have thus far been quite modest, there is a prevailing feeling of uncertainty regarding the progress of the Free Trade Zone. Furthermore, given that firms have to be in the Pudong area as opposed to Shanghai’s actual During these past few central business district, calls for years, the Chinese government question the likelihood of firms has reached out to various central to relocate their existing Shanghai banks in countries such as the UK offices entirely to take advantage of and Canada for currency-swap the purported FTZ benefits in this agreements. This firstly helps to current state. boost trade between those countries and China and also enables foreign Internationalising the RMB Central Banks to hold greater Another aspect of the Shanghai amounts of RMB reserves alongside FTZ is the proposal of making the other major foreign currencies. RMB a freely convertible currency. George Osborne himself had This follows from a general effort of declared a desire for London to be at the Chinese government to make the centre of the fast-growing RMB the RMB a global currency. The trade, as evidenced by the Bank of reason for this stems from China’s England’s bond offerings last year, dependency on the US dollar as which were denominated in RMB. its principal global currency (or It facilitates the ease with which

businesses can settle their trades in RMB and for companies that want to invest directly into China. Nevertheless, there are two main conditions required for a currency to be a global currency like the US Dollar: ease of convertibility and confidence in the currency. It is undeniable that the RMB is becoming an increasingly important currency in the world economy. Nevertheless, excessive government intervention in the currency can greatly weaken confidence in the currency. If China wants to establish the RMB in part because of its

inability to control the US dollar, another country would be rightly wary of the RMB as well for this same reasoning. China’s desire to retain control over the RMB creates tension and a potential obstacle to the RMB being a truly global alternative currency to the US dollar. To internationalise RMB effectively, China will need to reconcile with the notion that they will need to allow the currency flow predominantly by international market forces rather than their domestic state directives. The Ministry of Commerce just released a draft of the Foreign Investment Law that has a significant 33


SNAPSHOTS

impact on the regulations enforcing foreign investments in China. Foreign investment in most industries will be liberalised and will no longer require government authorisation. Instead, a ‘Negative List’ regime was introduced (first initiated by the Shanghai FTZ). This list will articulate sectors for which investors will need to seek government approval. This will help facilitate access for foreign investors who are looking to establish a presence in China. It is an optimistic sign of the government’s commitment to opening up its markets and providing consistent treatment to both national and foreign investors. In combination with its recent reforms and efforts to bridge a stronger financial relationship with Hong Kong (such as the Shanghai-Hong Kong Stock Connect), the promise of substantial financial liberalisation appears to be strong in China.

to what extent can these steps towards ‘market’ liberalisation follow a rigid delineation between the market, the political and the society? Every movement has been carefully contained by the notion of the economic sphere, however it is accompanied by greater exposure to Western ideas of civil liberties and democracy. Within this angle, the major challenge the state faces with confronting the Umbrella Revolution in Hong Kong itself is worthy of another article. It remains to be seen whether the Government will remain steadfast in its commitment to financial reforms when its current straddle between liberal market policies and Communist politics becomes increasingly impractical.

Nevertheless, as this article has highlighted, just as these individual policies have been lauded with hopeful fanfare they have also been marked by their own respective issues. On a wider overview of these reforms, pertinent questions remain:

liberalisation as some articles have passionately announced and it is also too early to determine how these reforms and their impact will affect the state’s calculations for the future. Time has shown again and again that the market is always laced with the future of

the society and its culture, and the state’s continued emphasis on ‘market liberalisation’ is arguably fallacious itself. The real question, as I propose to your readership, is not merely whether these reforms can effect and substantiate the economic results it purports to bring but what wider implications it may unfold in the social and political spheres when it catalyses the population’s exposure to the West. The traditional dichotomy that China has espoused between its Communist political practice and its increasingly marketoriented growth is sure to face greater challenges in nation’s quest to find its own identity and form of the ‘open market’ notion.

Ultimately, such questions are traced with the issue of time; it is too early to say that China has reached the final frontier of

34


SNAPCHOTS

So we beat on... against waves of Abenomics and political shocks Nathan Gu

I

t is not often for Japanese prime minsters in the past to have their economics policies be coined after their own their names. Similarly, it is not often for the country to encounter a politician as determined as Shinzo Abe: one willing to launch a massive war on an unprecedented scale against the entrenched deflation that has haunted Japan for the past decade. With the ‘three arrows’ in hand – radically expanding the monetary base, restructuring government fiscal policy and carrying out structural reform on the labour market – Abe intends to achieve a 2% inflation in “the medium term”. Now, 2 years after Mr. Abe has assumed office, what ‘Abenomics’ constitutes and aspires to achieve is clear, and most have accepted the policies and have instead turned their eyes to its emerging results.

quarter with remarkable growth, Japan then slipped into technical recession in the second and third quarters. The contrast is stark: The first quarter yielded a growth rate of 1.6%, which is higher than any quarterly growth rates in 2013, whilst the second and third quarter recorded negative growth of -1.9% and -0.5% respectively. However, more dramatic development has yet to come in the fourth quarter, when the Bank of Japan stunned the market by further enlarging the scale of quantitative easing in October, swiftly followed by Mr. Abe dissolving parliament and being re-elected in December.

his plan to raise consumption tax from 5% to 8% in April, it is natural for consumers to purchase a greater amount of stock before the slated tax hike, and naturally growth in the first quarter would therefore be pushed up. As such it is natural for the growth rate to decline and stabilize in the second quarter, after consumers have benefited from lastminute purchases.

What should be more worrying, instead, is the spillover effect of this tax policy. Statistics reveal that the country’s growth rate did not climb back up into the positive territory in the third quarter. This means that consumers For the economy, the might be still holding back their gyrational fall from moderate consumption in the third quarter growth to recession within one due to the tax rise. Such “hoarding” year warrants careful attention, but of consumption may dampen GDP should not cause excessive alarm, growth and adversely impact Abe’s as it is the expected effect of the fight against deflation. As such, in 2014 has been a rollercoaster government’s attempt to service October last year, re-invigorating year for prime minister Shinzo Abe Japan’s sizable debt by the way of consumer spending once again and his country. Following a first taxation. As Abe has long declared became a major policy aim when 35


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the chairman of the board of Japan Kuroda decided to further ramp up BOJ’s bond-buying programme to the tune of 80 trillion yen each year. The amount of bond-buying promised has stunned the market, and once again reaffirmed the BOJ and the government’s determination to defeat deflation. A positive side of this action is that the US Federal Reserve has just begun exiting its own bond buying program, which means Japan will not face a head-on devaluation war with the US. The Japanese yen therefore declined against the US dollar, and this is expected to make exports more attractive for American households. However, the decision to print more money to buy more bonds did not gain full support from all nine board members, but in fact just five. This is a rare outcome from the BOJ, whose board members are known to vote unanimously. Another disturbing factor is the fact that the tax increase was designed to gather more revenue for the government to service and repay its colossal national debt – currently standing at a whopping 227% of the nation’s GDP. BOJ’s bond-buying programme amounts to saddling the government with more debt, in order to solve a problem created by a tax that is originally intended to help government pay off debts. As it stands, Japan has hiked taxes with a view to reduce its debt obligations, while at the same time resolving to fight deflation through its debtfunded bond-buying programme. The net effect is that both policies are, at least to a certain extent, mutually harmful, and “borrowing money to pay off debts”, is obviously not a healthy cycle. Perhaps the answer to breaking such a cycle lies in the

third arrow – reforming the labour market. There is around 5 million permanent employees, protected by the law, who are not necessarily required by their employers. This may be hard to understand in a competitive business environment, but where difficult decisions need to be made, the company’s interests usually take precedent. Japan’s seemingly overprotective labour culture may be baffling, since it is

‘hard’, both culturally and legally, to lay off excess workers. Meanwhile, almost 40% of the labour force, mostly women and young people, are stuck in low-paid and irregular jobs. Such a misallocation of labour resources is detrimental because that means the money spent by the government may not reach the relatively poor, who theoretically exhibit a higher propensity to spend and hence who are more likely to help the government give the GDP and inflation their needed boost. In Japan, it is a common, if tacit, company policy that firms do not usually fire employees once they are employed as university graduates. This culturally ingrained life-long relationship between an employee and his or her company, a tradition that is said to be effective in boosting

employees’ loyalty and work ethic, is however becoming less and less desirable because of Japan’s aging population. Luckily, the current scenario in which politicians have to tackle both stubborn deflation and unsettling aging problem simultaneously, has led senior officials to gradually overcome cultural barriers and to contemplate

about relaxing immigration and encouraging female occupation as two possible solutions. The openingup of the population base of the workforce by reforming immigration may also allow companies to replace retired employees with more a more vigorous labour force, and hence alleviate the impact of companies being bound to their current employees for life. The government has also shown initiative to make ‘hiring and firing’ more flexible, but there is still much progress left to be made. The unfortunate slip into recession has led not only to a need for increasingly radical monetary stimulus, but also a political ‘shake-up’. Abe has dissolved the parliament and called for election 36


SNAPSHOTS

shortly after BOJ’s announcement of the stimulus plan. Subsequently, he was re-elected in December and gained another 5 years in office. Abe himself viewed the electoral result as a mandate from the people to allow him to continue his reforms and considered it a stabilisng factor to the economy. However, many voters had dismissed the election, calling it ‘unnecessary’ because almost no one could benefit from further destabalising the country by electing another prime minister, who may disrupt Abe’s reform. To most voters, committing to Abenomices, which have already been set in motion, is the country’s best bet. It isn’t clear to what extent the mandate should be viewed as a mass approval to Abe’s plan, but it is clear that Abe now enjoys a longer term in office and political disturbances are unlikely to arise to derail his reforms. Although in democratic terms this may be viewed as choosing the best card after being dealt a poor hand, this is otherwise a wise move which may benefit Japan’s economy down the road. In comparison, another clearly controversial political decision made by Abe this year is to increase the Japanese military budget. This increase followed eleven successive years in which the defence budget was gradually trimmed, and may serve to arouse suspicions from China and Korea. Despite the potential benefits an increased defence budget may bring to GDP, employment and perhaps to rallying support for Abe’s war against deflation by invoking the vision of a revived Japan, any attempt that may seem provocative to Korea and China is perhaps not very justified in a time when increasing military spending means burdening the heavily-debted nation

with just more debts. History has prioritized over, and not contradict, taught us how economic woes and political, cultural, and military tensions have led to two world wars, issues. so we have to be cautious against permitting economic problems segue into warfare. Overall, to understand what challenges and opportunities Japan may have in combating deflation, a saying attributed to Mōri Motonari, a daimyo in the 16th century Japan, can be insightful. Mōri famously taught his three sons an important metaphor – snapping one single arrow may be easy, but snapping three bound arrows at once is hard. Such is the spirit of solidarity among the Japanese community, which is still apparent nowadays when the looting of supermarkets and supply stores was not even a concern in the aftermath of the 2011 tsunami disaster. But this cultural virtue may well be a double-edged sword: it may become the very same cultural obstacle that traps officials in a certain mindset when dealing with labour market reforms and immigration issues. This spirit of solidarity, of loyalty, and of gratitude for which Japan is famous for is therefore a sword which Abe must wield with great care at a time when economic issues should surely be 37


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38

GETTING INTO THE INDUSTRY: INTERVIEWS WITH INSIDERS

Finding the right job: What would Batman & Kenneth Cole do? Jason Choi, External Contributor from The Wharton School, University of Pennsylvania

From the Editor: Yuppie culture has dominated the stereotypes of LSE for quite a while. In seeing the rising trend of entrepreneurship not only in Silicon Valley and New York City, but also from London to Asia, I have invited a student from the Wharton School of the University of Pennsylvania to share some of his thoughts on finding a job that’s right for you – instead of the one that pays well, looks respectable, bears little risk and which everyone else does. Jason is currently in his sophomore year, and is interested in marketing and social entrepreneurship. In a world dominated with studentapplicants who on paper may well be clones of each other, he explains with reference to very successful men the importance of personal branding –

on how who you are and seem to be carries a unique currency – in this day and age. He has already made a mark for himself: his initiative, termed Pennorb, aims to reduce pollution with the innovative use of a simple glowing orb and an inventive line of code. Although his original target demographic were students in Pennsylvania, the initiative has crossed the Atlantic into the LSE, where it is fashioned as the ‘Eco Orb’. To read more of Jason’s work, visit his site at www.choijason.com. ___________________________

down for what?” It is therefore understandable that my friend seemed overwhelmed by what she perceived to be caustic sarcasm when I provided “I want to be happy” as an answer. After all, the usual expected answer tends to be a lot narrower in scope: when a person asks, “what do you want to be?” they probably mean, “what do you want to do as your day job?”

Ancient philosophers and job hunting American designer Kenneth Cole, hat do you want to be when known as much for his fashion line you grow up?” is quite as he is for his social activism1, possibly among the most ambiguous 1  See http://www.wikiwand.com/en/ questions ever asked, second only Kenneth_Cole_Productions#/Charity_and_ to “who let the dogs out?” and “turn social_causes

“W

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8

GETTING INTO THE INDUSTRY: INTERVIEWS WITH INSIDERS

is quick to notice the difference between the two. In a visit to the University of Pennsylvania to talk about the roots of his company, Kenneth Cole Productions, Inc., he pointed out that “what you do is not who you are”. To the uninitiated, Cole’s take on self-identity may seem counterintuitive: after all, intellectuals dating back to ancient Greece have supported the idea of a defining purpose in life that is achievable through productive toil. Doing is defining.

his MBA students use to identify a specific career that creates the most meaning in their lives. The exercise involves writing down a complete list of everything you like (even if it’s impersonating Gollum from Lord of the Rings), categorizing those things under their similarities, until finally revealing one or two value statements (generalities such as “I like to create” or “ I like to deliver social impact in the developing world”). You are then to find a career in an industry that best caters to these central tenets in your life. Roman Krznaric, cultural thinker and author of How to Find Fulfilling Work While it is a helpful inductive exercise to find out what you care about in your life and the purpose that defines you – it may lead to the erroneous conflation of who you are and what you do for work. In a culture that defines a person based on his/ her job, it seems only reasonable to find a job that defines you and reflects your beliefs. Krznaric disagrees. He notes that “the biggest mistake people make in career change is to follow the traditional ‘plan then implement’ model…but it typically doesn’t work. You might get a new job, but despite your expectations, it is unlikely to be fulfilling”. In fact, job seekers across the world are starting to adopt a new method called the “radical sabbatical”3: rapid job-hopping over a year or two to determine what one is truly interested in.

As noted by cultural thinker Roman Krznaric in his book How to Find Fulfilling Work, Aristotle is among the first to point out that every person has “some object for the good life to aim at…with reference to which he will then do all his acts”. Theologian John Calvin supported the idea of a “calling”, stating that whatever vocation God has chosen for a man must be executed to the best of his abilities. A farmer must grow crops diligently to fulfill God’s bidding, and a fisherman better fish some damn fine trout. Even German philosopher Friedrich Nietzsche, perhaps the grumpier of them all, believed that “he who has a why to While this method may be live can bear almost any how to live”. deemed too unconventional and risky for many, one understanding Finding a job and yourself Bringing it closer to our time, has emerged. Job hopper Laura Van Wharton Business School professor Bouchout – who changed her job Charles Dwyer2 has an exercise that over 30 times in a year – compares job search to dating: 2  Check out this famous lecture by him: https://www.youtube.com/ watch?v=UCBH7aaw5hs

3  See http://careers.theguardian.com/ careers-blog/radical-sabbatical-career-change

“When I was single I had a mental list of qualities I thought my boyfriend should have. But some guys who met all the criteria on my list did nothing for me. And at one point you find someone who doesn’t meet half your checklist but blows you away. I think that’s what you have to look for in a job.” Batman v. Kenneth Cole

All my vocational idols are defined by what they have done – serial entrepreneur Elon Musk by his founding of PayPal, Tesla, SpaceX etc.; Batman by his vigilante work (okay, maybe not such a good example). In fact, being the enterprise that probably takes up the majority of one’s time, it is no doubt that a person’s day job is more defining than his ideas, his hobbies or what he does during weekends. Obama is probably more known for being the President of the United States than he is for being a basketball enthusiast. I tweeted my thoughts out onto a live projection of Kenneth Cole’s twitter feed during his talk: “What you do is not who you are.” – Kenneth Cole “It’s what you do that defines you.” – Batman Whom to believe? The audience had a good laugh, and I got a minor correction about an hour after the talk from Mr. Cole: 40


GETTING INTO THE INDUSTRY: INTERVIEWS WITH INSIDERS

“What you do (as your day job) is not who you are.” – Kenneth Cole “It’s what you do (besides your day job) that defines you.” – Batman

are other ways to define yourself is the first step to transcending those assumptions and answering the question well. So, what do you want to be when you grow up?

After overcoming the initial surprise of getting a response from Cole himself, I mulled over his words and came upon an understanding. The question of defining oneself should not be a question of finding the most fulfilling job that caters to one’s interests and ambitions. The job is only a part of the person; it is what we do to transcend the labels that are used to define us that seem to complete us. In other words, while being vocationally successful is desirable, being curious, socially involved, cordial and tolerant are equally important. A piece of career advice from Rich Ross4, current President of Discovery Channel:

“being well liked is more important than being an impressive resume.” As British comedian, broadcaster, writer and actor Stephen Fry says, “We are not nouns, we are verbs. I am not a thing – an actor, a writer – I am a person who does things – I write, I act – and I never know what I’m going to do next. I think you can be imprisoned if you think of yourself as a noun.” It seems that the misleading assumptions underlying the mundane “what do you want to be when you grow up?” is that firstly, one’s identity is entirely based on one’s career; and secondly, one becomes “grown up” when one acquires a job. Knowing that there 4  Read the full article at http://www. thedp.com/article/2014/02/rich-ross-pennshine-america

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GETTING INTO THE INDUSTRY: INTERVIEWS WITH INSIDERS

Industry Insights: An in-depth interview with a Senior Manager from PwC Adrian Kwan

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ilda Tam is currently a Senior Manager at PricewaterhouseCooper’s (PwC) Financial Services Assurance Practice in Hong Kong with 10 years of experience in insurance audits and banking advisory. Ms. Tam was raised in Hong Kong and pursued her undergraduate degree at Boston University where she majored in Accounting. She initially started her career at PwC’s New York office and then transferred to the Hong Kong office after 6 years. ___________________________ How did you choose your career? I originally selected accounting as my degree in university due to its versatility within the Financial Services industry. I didn’t specifically choose accounting as a career, it just evolved that way. In fact, I wanted to start off in an accounting firm to gain as much experience as I can before going out into the industry. But the longer I worked in a public accounting firm, the more I realised how broad the exposure, flexibility and choices I had within the firm was; and this was much more than I believe I could get if I were to work at one specific company. The benefit of working in a public accounting firm is that you have access to so many different clients within the same industry, across multiple industries as well as across the world on both

that comes my way. A further 30% of my time is spent on internal firm development work such as preparing for events such as the assurance strategy day, designing and executing training and development workshops for my colleagues within my industry sector and participating in committees focused on driving specific business development areas such as identifying target clients for which we could help on industry hot topics, especially on developments in regulatory compliance. The final 10% is spent on building my team by engaging in talent development through activities such as career an assurance as well as an advisory coaching sessions; holding formal/ standpoint. This extensive exposure informal discussions on the personal keeps me challenged and learning development of my own engagement something new every day. team members; creating and executing work-life balance plans Why did you choose PwC? to maintain high team morale: for Easy. It’s the top accounting firm example, in one of my engagement with the best client base, particularly teams this year, we will have happy in Hong Kong and China. To be Friday’s whereby the managers take honest, I just had a really good turns to take the team out for drinks; impression of PwC’s reputation and assisting with recruitment efforts; wanted to be part of it. and building a network of potential talent outside of PwC. What do you do on a day-to-day basis? What are the best and worst aspects of As a Senior Manager, I spend about the job? 30% of my time doing actual audit One of my favorite aspects of work. Another 30% of my time is working at PwC is the team spent building proposals or working environment. I work best in a on specific projects such as other collaborative atmosphere. I believe assurance work, advisory or anything that it doesn’t matter how senior or 42


GETTING INTO THE INDUSTRY: INTERVIEWS WITH INSIDERS

experienced you are, you can always learn from others. It really is a good feeling to know, when it is down to crunch time and you are stressed, that you are not alone and that your team mates are there to support and care for you whenever you need it. It is true that hours are long during the peak season, but if you are working with people you like, the long hours aren’t so bad. The worst aspect of the job, unfortunately, is the high turnover. It isn’t a secret that all the Big 4 firms have a retention problem, to the extent that it becomes business as usual for you to have to constantly re-train new team members the same thing over and over again. This can be annoying, but I came to realise is that I actually learn better when I coach someone than when I am being coached. Teaching different people the same thing also helps develop the skill of communicating the same point in different ways to ensure it resonates best depending on who you are talking to.

developed the most whilst working at PwC is not technical, but the softer skill of knowing how to effectively work with different people and personalities. As you know at PwC you work with many different clients across all levels and departments, colleagues from your different clients, colleagues within the global firm, and colleages and partners from different service lines. It really does hone your skill in being flexible on how you communicate and present yourself to different people in order to get your point across most effectively. It can be difficult at times, but it is definitely a skill that is extremely useful in all careers and in life! It also gives you a great networking opportunity!

What do you think are the top three main skills graduates should develop to succeed in the field of assurance? I wouldn’t call them skills, I would call them characteristics instead. The standard skill requirement such as accounting technical, project management, conceptual and analytical thinking, etc... can What skills did you manage to develop be developed in school and on the whilst working at PwC? job. This is expected of all graduate To my surprise, the skill that I recruits at PwC and is a requirement.

not something that makes you do well. To succeed, I think the three characteristics that I believe are most important are: communication, agility and a positive attitude. Communication is extremely important as we spend about 80 percent of our time in front of the clients and the remaining 20 percent on leading a team or managing the partner. With tight deadlines and many personalities, it is very useful if you are able to effectively communicate the point you want to get across as efficiently and effectively as possible. At PwC you wear many hats. Not only are we wearing the auditor hat for the multiple clients that you are assigned on, but you are also expected to work on special non-audit related projects and/or proposals where you will take on an advisory type of role. On top of client facing activities, staff members also have the opportunity to help drive the firm’s internal operations such as recruitment, talent development, training, business development, etc... Sometimes these responsibilities will overlap and you will have to wear many different hats at the same time. This is why agility is important. Finally, as in many careers, enthusiasm and maintaining a positive attitude is the key ingredient to maintaining drive and ambition in any career. It is a long and challenging road up the corporate ladder at PwC, but the structure allows for a relatively well travelled and transparent path to get there. As such, maintaining a positive mindset will keep you excited and motivated throughout the journey.

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GETTING INTO THE INDUSTRY: INTERVIEWS WITH INSIDERS

What has surprised you most about your working life? The ability to manage your own career and maintain a positive worklife balance. You are assigned various jobs the second you walk into the firm and are expected to manage your hours based on a fix set of procedures you are assigned to perform. In my experience, I have always been free to manage my own time and, if I am able to be focused and efficient, I am also able to make time for all my personal commitments. Unlike

What has been your career highlight? Moving from PwC New York to PwC Hong Kong and observing the differences in working environment, culture and people. People in Hong Kong are very interested to hear different perspectives from people with overseas experience and I was happy to share best practices from my experience abroad, and adding in a local twist, to my Hong Kong team.

many other jobs, it is rare that we will get last minute surprise projects that will require you to cancel your personal commitments. In audit, the reporting deadline is the same every year. So as long as you are able to effectively project manage and complete your work within the allocated timeframe, things will always go as planned. One very important thing I have learned is that it is very important to develop the ability to, tactfully, say, “No� and communicate to your superior the good reasons why you are overloaded or cannot take on additional tasks assigned. Without this, you will not only burn yourself out, but develop a low quality deliverable due to being crunched for time.

How do you see your career progressing in the coming few years? It is difficult to tell because it is such a dynamic and changing environment. Together with the world, PwC is constantly evolving and you never know where it will take you. I could be working in another country, I could be seconded to a client, I could even be working in a non-assurance advisory role. This is what keeps my job interesting. But whatever it may be, what I do know for sure is that I will always be learning something new and developing new skills.

an associate in terms of your time spent on different aspects of what is described above. However, in terms of skill sets, developments and learning opportunities it is the same.

Having said all the above, this is spoken in the perspective as a Senior Manager. The mix of responsibilities will be different as 44


GETTING INTO THE INDUSTRY: INTERVIEWS WITH INSIDERS

The gatekeeper: An interview with a recruitment insider Andrea Kan

A

fter Stella(anonym)1 graduated from university, she began a career in commercial banking. Stella specialised in Global Markets business in the Investment Banking division, particularly in Fixed Income areas. She retired from banking 2 years ago – after having worked in the industry for over 25 years – to set up an executive search company specializing in Global Markets and Capital Markets. ___________________________

Hiring the right talent is probably one of the most important factors in running a successful business. Hence, it is in the interest of the client company to approach all possible candidates rather than passively relying on candidates to submit their applications. During this process, we also advise candidates on various considerations, such as whether the job is fit for their career aspirations, so that he/she is able to make an informed decision.

What is the role of an executive search firm in the recruitment process? I focus on recruiting for mid and senior level positions. When a company has an opening and is looking to hire, we help them research strong candidates who are available in the market and have an interest in making a career move.

How has the Global Financial Crisis affected the job market? Regulatory and compliance control standards were tightened and financial requirements on capital and liquidity for banks increased after the GFC. All of this has significantly affected the business operation of global banks. The attractiveness of being global – that is, the ability to provide a wide range

1  The interviewee wishes to remain anonymous

of services to everyone in the world – no longer holds. Global banks are shrinking dramatically in noncore business areas and non-core countries. As such, they are hiring fewer people and at a slower pace. What sector trends do you predict for the future? Regional banks and securities companies are expanding rapidly in Hong Kong. Chinese institutions looking to expand internationally are using Hong Kong as their first offshore window. They bring their domestic Chinese corporate clients to Hong Kong to raise equity and debt capital. Their presence in Hong Kong would also allow them to list in the H-share market and issue public debt. Regional banks, such as those from Singapore and Japan, have a strong capital base to expand upon but face limited growth potential in their domestic markets. 45


GETTING INTO THE INDUSTRY: INTERVIEWS WITH INSIDERS

As such, they often seek to expand their China-related businesses, and Hong Kong serves as their natural business hub. The relative market share of Chinese and other regional players in the Global Markets and Capital Markets business will grow and eventually overtake smaller and marginal global banks. The demand for talent by these Chinese and regional institutions will continue to increase. What qualities do employers look for in candidates? Every company wants talent and it is often “soft” skills that differentiate a strong candidate from other applicants. Technical skills – having good grades, a high honours degree and a professional title etc. – are important, but they are taken for granted. Coveted “soft” skills include (1) having energy and drive (2) good communication skills (3) being a team player and (4) fitting into the culture. What can candidates do to stand out? Preparation is key. This entails more than simply preparing the CV and being prepared for the interview. Crucial “soft” skills are accumulated throughout the life experience of a

person. Everything you have done in secondary school and university effectively builds your CV and shapes your personality. The CV is the first point of contact between the candidate and the employer. It is of utmost importance that the content is properly written and the format properly presented. The interview is definitely the most important opportunity for a candidate to convince the employer that he/she is the right hire. Interview skills can be learnt; the more practice you have the better.

thing, no matter how significant, can guarantee success. As aforementioned, good preparation is key. This includes having a thorough understanding of the company, the position and the interviewer.

What are some common mistakes you see candidates make? In the CV: including a lot of nonessential information, failing to highlight achievements and overusing of general buzzwords; in the interview: having a lack of confidence and speaking too softly. What are some of the best things you’ve seen successful candidates do during the application process? One small thing can ruin the entire process but only many good things can lead to success. Hence, no detail, no matter how trivial, can be disregarded. Equally, no single

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Start at the top A Career in Law Hong Kong Apply for a 2016 Allen & Overy Summer Placement to secure a 2018 trainee solicitor contract and experience it for yourself! Allen & Overy would like to invite you to apply for a four-week summer vacation placement for June or July 2016. The Hong Kong Allen & Overy graduate recruitment team will be in London during the week of 15-19 February 2016 to conduct case study interviews for our Summer Placement Scheme. We are keen to receive applications from 2nd year (penultimate year)/ 3rd year (final year) LLB students and final year non-law students who are interested in joining our Summer Placement Scheme in Hong Kong in 2016, with a view to applying for a trainee solicitor position in Hong Kong in September 2018. The interview takes the form of a preparation-free case study. We will assess your ability to work as part of a team, your leadership and presentation skills and entrepreneurial spirit and energy. Excellent academic results are essential and Chinese language skills are highly advantageous. Our placements include experience in two seats in different departments, a full training programme, a series of challenging assessments, individual coaching from your trainer and a calendar packed with social and pro bono activities. We will also pay PCLL course fees and subsidise living expenses if you accept a training contract with us.

Š Allen & Overy LLP 2015

www.allenovery.com


ABOUT ACS

banking & business events team Asia Careers Society: Vision for the future The LSESU Asia Careers Society has served as a crucial platform for our members to explore career prospects across the Asia-Pacific region, with particular emphasis on the careers of banking, law, accounting and consultancy. In the Michaelmas Term of 2014, the LSESU Asia Careers Society achieved great success in organising several events such as the Spring and Summer Internship Panel Discussions, and collaborating with the Chinese Students and Scholars Association (CSSA) to host a virtual trading competition with ForexMaster. In addition, our annual flagship event, “Asia Exposure”, which was held in Hong Kong in September 2014, was a resounding success. Moving forward, the LSESU Asia Careers Society has set its goals towards venturing into other parts of Asia Pacific, with the intention of building a wider network of partnership organisations. The LSESU Asia Careers Society has strong and stable relationships with numerous bulge-bracket investment banks in Hong Kong. For the year ahead, we are taking small but vital steps forward in our mission to expand our relationships with Business & Banking Firms in Singapore and China. With a vision to provide greater opportunities for our members, we are proactively reaching out to firms in target regions in Asia Pacific. Understanding the hardship of breaking into the regional markets and catering to an expanding class of students, we are moving forward together as a team with a clear goal. Every success, regardless of its scale, is a great achievement and will be eagerly celebrated by our Business & Banking crew as we go from strength to strength. Alyse Su 1st Year BSc Economics ACS Banking & Business Sub-Committee

Reflections of Being a Part of ACS For the past year, I have had the privilege of being a member of the LSESU Asia Careers Society. Being a part of ACS has opened up many opportunities for me in which I have been able to improve my knowledge of what to expect in the future, regarding both my studies and my career. I have also been given a much greater exposure to the various career paths I can explore once after graduation. As a first year student, I feel that being a part of ACS gives me the opportunity to build new relationships with other students who have similar interests and aspirations, and this encourages us to integrate in a healthy, constructive and comfortable way. During my first year here at LSE, I would consider my involvement with the ACS’s Banking and Business Events sub-committee as one of my proudest achievements. As a team we have had the responsibility of organising several different events, including internship panels and competitions, in which we collaborated with other societies such as the

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Chinese Students and Scholars Association. The highlight of my experience as a member of ACS has been being able to be a part of the sub-committee, wherein I not only developed as a person but also had the privilege of working with a group of dedicated and motivated people who are keen to see ACS succeed. Next year, I have committed as a committee member to help introduce new ideas and incentives for LSESU Asia Careers Society. I hope to contribute further towards our goal of providing students with a clear insight into what opportunities await them across Asia and work on the expansion and growth of the society both within and outside of the LSE. Jennifer Sham 1st Year Bsc Maths & Economics

Banking & Business Sub-Commitee

Asia Exposure 2014 10 investment banks, 23 passionate university students from 3 top-tier universities: the 5-day Asia Exposure Trek 2014 took place in Hong Kong, a city renowned for its worldwide financial leadership and extraordinary achievements. As one of the flagship event of ACS, Asia Exposure has proved to be highly successful in the past few years and after which many participants managed to secure internship offers from prestigious institutions. In its 8th year this year, Asia Exposure has for the first time extended beyond LSE campus to include students from Cambridge University and Imperial College, further adding to the diversity of participants. Throughout the five days, participants take part in a wide range of activities, including firm visits, firm presentations as well as networking sessions with firm representatives. Through interacting with the bank representatives, participants gain an in-depth and genuine insight about their work nature and responsibilities, advice that would doubtlessly be very helpful in our internship applications. The highlight of the trip was the closing dinner, where the organizing committee invited four LSE alumni currently working in the financial industry in Hong Kong to join in a fantastic Chinese restaurant. It is a great pleasure networking in such an informal setting, and we all had a very enjoyable night. As the director the Asia Exposure this year, I sincerely hope that this flagship of ACS will build on its past successes, and I hope that this will continue to be an event through which students gain invaluable insights into working in financial industry in Hong Kong. In the future, Asia Exposure is looking to widen its scope by covering not only investment banks but also other financial institutions like accounting and management consultancy firms. The organizing committee are also exploring the possibility of hosting a similar careeroriented trip in other regions of Asia, namely Singapore and Mainland China. Jason Chen 2nd Year Bsc Economics Banking Events Officer

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ABOUT ACS

law events team

Legal Insight Trip to Hong Kong 2014 During Legal Insight, we visited the Hong Kong offices of various top international law firms. The visits consisted of presentations by the respective firms, followed by networking sessions with Graduate Recruitment Officers, Practicing Lawyers and current Trainees. The presentations were informative and the networking sessions immensely useful. Each firm also arranged additional events that provided us with further insight into their firm culture. For example, Hogan Lovells organized a miniature case study, giving us a taste of the work of a Hogan Lovells corporate lawyer. Allen & Overy gave us a tour of their office, allowing us to understand what working inside Allen & Overy Hong Kong is like.

Hong Kong Law Fair 2014

The 2014 Law Fair was the Law Events Team’s flagship event of the year. The Fair offered students a chance to learn more about participating law firms by meeting and speaking with Graduate Recruitment Officers, Practicing Lawyers and current Trainees. Topics of discussion ranged from vacation scheme experiences to trainee secondment opportunities. The event was also a chance for non-law students considering a career in law to learn more about the legal career path. Firms came with large banners, brochures (and even goodies for attending students!). Overall, the Fair was a huge success. For myself, the event was an invaluable experience. It allowed me to gain insight into each firm’s culture and learn more about the steps I need to take to become a lawyer.

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credits

ACS Committee

editorial team

acs committee

Editor-in-chief

| Ryan Chiu

President

Deputy Editors

| Andrea Kan | Adrian Kwan

| Jessica Ng

Contributors

| Georgiana Kwok | Katie Chin | Nathan Gu

Vice President Secretary Treasurer

| Eugene Law

Banking Events Officer

| Jason Chen

Business Events Officer

| Derek Lee

Law Events Officer

| Michelle Tsang

External Contributor | Jason Choi Design

| Francine Choi

Cover Design Assistance

| Amelia Lim | Zoe Liu

Marketing Officer

| Max Hui

| Ivy Qi

| Francine Choi



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