Hong Kong Business

Display to 31 July 2011

THE FIGHT FOR

ASIAN RETAIL HOW DO THE WESTERN RETAILERS STACK UP ?

hEDGIES VS machine IN BATTLE FOR INVESTMENT DOLLARS

The rise of the hanistocrats

Hemlock : Hypocracy and the art of the Rooftop renovation

Just how big is the

OFFSHORE RMB

Market anyway?

2011 Eminent

insurers

Mainlanders -

Easy come, easy go ?

FROM THE EDITOR

HONG KONG

BUSINESS Established 1982 Editorial Enquiries: Charlton Media Group 19/F, Yat Chau Building, 262 Des Voeux Road Central Hong Kong. +852 3972 7166 Publisher & EDITOR-IN-CHIEF Associate Publisher Assistant Editor Art Director

Tim Charlton Louis Shek Jason Oliver Niyasuthin

Editorial Artist

Regina Goloy

Editorial Assistant

Queenie Chan

Media Assistant Editorial Assistant contributing Editor ADVERTISING CONTACTS

Kristine Tongson Alex Wong Ajay Shamdasani

Here at Hong Kong Business global headquarters, I and our associate publisher Louis Shek have been busy working the cocktail circuits to get out of our plush and spacious Sheung Wan office and out onto the battle field of business. The results of those forays into Hong Kong’s business social scene can now be seen on our website at www.hongkongbusiness.hk where we post photos of the best parties and events of the week. This is also our way of telling you that er um, if you are holding a party, we do make for good and interesting guests, so drop us an email with an invitation and get yourself covered.

Louis Shek +852 60999768 louis@hongkongbusiness.hk Laarni Salazar-Navida lanie@charltonmediamail.com Alyz Katherine Tenorio alyz@charltonmediamail.com Rochelle Romero

So why are we, as a magazine publisher, doing this ? It is all part of our social network program, to extend beyond print and into the face-to-face, hand-toclammy hand business of making contacts and building bridges. Hopefully these bridges won’t be ones to nowhere like many being built in our great city. And we are now finalizing our own series of Hong Kong Business conferences.

rochelle@charltonmediamail.com ADMINISTRATION

Jaclyn Ganila jaclyn@charltonmediamail.com

Advertising Editorial

advertising@hongkongbusiness.hk editorial@hongkongbusiness.hk

SINGAPORE Charlton Media Group 15B Stanley Street Singapore 068734 +65 3152 0147 +65 6223 7660 www.charltonmedia.com

These will be relatively small but high-level events for leaders in business to meet and discuss the most interesting and urgent topics affecting their businesses. We will then amplify the dialogue from those events by writing articles which we will then print on the pages of this magazine and post on our website. We will even act like twits and get them tweeted. After all this is the social age we live in.

More information on the events can be found on the website and in future issues of this magazine, and we look forward to seeing you there, or if not, we will come to one of your parties. Social media is a good start for companies, but there is nothing like getting out of the office, away from the computer and meeting some real live people.

And as Louis would say, do you ‘Like’ ?

PriNting Gear Printing Limited 1/F Express Ind Building 43 Heung Yip Road Aberdeen, Hong Kong

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Subscriptions Email: subscriptions@charltonmedia.com Hong Kong Business is published by Charlton Media Group. All editorial is copyright and may not be reproduced without consent. Contributions are invited but copies of all work should be kept as Hong Kong Business can accept no responsibility for loss. We will however take the gains.

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4 HONG KONG BUSINESS | JUNE 2011

Tim Charlton tim@charltonmedia.com Hong Kong Business is available at the airport lounges or onboard the following airlines:

CONTENTS

24

RETAIL IN ASIA It has been more misses than hits for western food retailers in Asia

FEATURE

38 Professional team serves the needs of CIES applicants

24 It has been more misses than hits

Ageas Insurance Company (Asia) Ltd: Among the first CIES authorised Insurance product and service provider.

for western food retailers in Asia Western domination of Asian grocery is by no means guaranteed

26 HK Hotels benefit from Japan’s

42 Decade of Altruism Eminent broker Altruist celebrate 10 years

woes Hk hoteliers are finding it tough to stand out in a market flooded with new ‘unique’ hotels

SPECIAL FEATURE 34 Investing on Hong Kong’s bright side Sun Life Hong Kong’s CEO Roger Steel explains why this Canadian company has won numerous fund performance awards in HK

OPINION

12

Asian Hedge Funds swimming against the tide

30

How dare you have enough space to live in!

REGULAR 28 Numbers 48 Life and Style 50 Last Word

FIRST 12 Asian hedge funds swimming

16 Our galactic adventure 20 Hong Kong’s inflation woes not yet over

30 How dare you have enough space to live in!

against the tide

13 Mainland tourists - easy come, easy go?

14 Offshore RMB market takes off

in Hong Kong as Singapore poised in pursuit

33 Tricks of the ‘commercial jungle’

Published Bi-monthly on the Second week of the Month by Charlton Media Group Pte Ltd, 19/F, Yat Chau Building, 262 Des Voeux Road Central, Hong Kong

For the latest business news from Hong Kong visit the website

REPORT www.hongkongbusiness.hk

News from hongkongbusiness.hk Daily news from Hong Kong Hong Kong: Amazingly unique! most read COMMERCIAL PROPERTY

Hong Kong still the world’s costliest place in prime office rental Widening gap between the first and second highest office occupancy costs are being seen as prices continue to soar.

According to the Global Office Real Estate Review, year end 2010 (2H 2010), HK has yet again closed the year as the world’s most costly destination in terms of office occupancy costs at US$191.97 per square foot for Grade A space.

MARKETS & INVESTING

Preparation counts when natural disasters affect Hong Kong’s listed businesses Hong Kong and the countries around it are vulnerable to natural hazards of almost every kind – from earthquakes to droughts, from floods to tsunamis. Experts argue that the situation will get even worse with the impact of climate change.

HK office space: world’s highest office rents billion at the end of March.

FOOD & BEVERAGE

Japanese restaurant in Hong Kong forced to close due to radiation fears Yaekiku, a posh Japanese restaurant in HK, has closed its doors.

Wong Ka-wo, head of the Hong Kong Restaurant and Eating House Merchants General Association, said Japanese restaurant business has taken a sharp hit following news reports that traces of radiation have been detected in Japanese food imports.

RESIDENTIAL PROPERTY

Lands Department issues 3 pre-sale consents The department had 20 applications for pre-sale consent for uncompleted residential units and four for uncompleted commercial developments at the end of March.

The Lands Department issued three pre-sale consents in the first quarter this year, for two residential developments and one commercial. The former involves 1,193 units in Tuen Mun and Yuen Long due for completion in September.

ECONOMY

Hong Kong’s foreign currency reserve assets down

by US$.2bn The Monetary Authority of the world’s 10th largest holder of foreign currency reserves said there were no unsettled forward contracts at the end of March and February.

HK’s official foreign currency reserve assets amounted to US$272.5

Hong Kong people are still in spending mood ECONOMY

$6000

Legislators approve proposal to give $6000 to each adult Hong Kong permanent resident The proposal was passed by 34 votes, with 11 abstentions and none opposed.

ECONOMY

Consumers spending remains strong Retail sales value grew to 18.8% in the first two months, which was strong by any measures.

According to Hang Seng Bank, looking ahead, consumers are still in spending mood, underpinned by rising income and better job prospects. The unemployment rate dropped to 3.6% in February.

Wage growth also rebounded following improvement in labour market conditions.

HR & EDUCATION

Hong Kong statutory minimum wage pegged at $28 per hour

Radiation threatens Japanese Restaurants

8 HONG KONG BUSINESS | JUNE 2011

The Labour Department released the statutory minimum wage reference guidelines to aid employers and workers in understanding the Ordinance’s practical application.

HONG KONG BUSINESS | JUNE 2011 9

BUSINESS scene ALNO Showcase launch event DATE: 12th May 2011 VENUE: JIA Showroom

EQUIP ASIA party DATE: 12th May 2011 VENUE: The Pawn

10 HONG KONG BUSINESS | JUNE 2011

FIRST

Asian hedge funds swimming against the tide Hedge Funds may be useful, but when it comes to investing in Asian equities it is still the traditional mutual funds that hold sway with the investors’ money.

The much vaunted exchange traded funds, while popular in the public imagination as a quick and cheap way to invest in a market, remain a very small part of the Asian investment world.

Investment bank RBS could only find 36 dedicated regional ETFs with just $17bn invested in them.

Meanwhile from a sample of 82 Asian hedge funds tracked by the team, their total fund size was just US$12.7 bn, up a meager 15% from a year ago.

Sizing it up So is this a good performance ? It is hard to say, but one telling figure is that the MSCI, a measure of market performance, is up 22% for the year, which suggests that Asian hedge funds may actually be losing assets under management. Worse news for the hedgies is that only a few funds sampled actually met their objective – such as beating the index.

As RBS analyst Emil Wolter notes, 12 HONG KONG BUSINESS | JUNE 2011

“Among the hedge funds, it is likely that the relentless initial volatility led to exposure being whipsawed by trading rules designed to control risks but actually, in this instance, deriving losses. Equally, the relatively meagre returns since the low of the market may have been the reason for the spate of redemptions. Either way, it appears that, while the global hedge fund industry has strongly recovered from its low point and reached a new all-time high in assets under management.”

Poor performance Another interesting observation of the Asian hedge funds was that, in general terms, the larger the size of the fund, the poorer the long-term performance. A sample of hedge funds, which were of a size above the “poverty level” of $25 million, found that investors’ preference for larger funds certainly does not appear to have been driven by performance.

Whilst the top 10 hedge funds accounted for 88% of assets under management in the sample, “it seems that the 20 largest funds have persistently underperformed over all time frames from 1 month

Asian hedge funds find it hard to attract significant capital.

to 10 years. This presumably can be read as support for the ageold fund management truth that performance and funds under management tend to show inverse correlation,” notes Wolter.

The 20 largest funds have seen total assets, including performance rise by 29% over the past year, roughly twice that of the overall sample which is 15%. However, when it comes to performance, the 25% smallest funds, which represent just 1.5% of assets, have persistently outperformed the 25% largest funds, which account for 83.2% of all money managed within the sample.

Still, the hedgies do continue to beat the mutual funds and ETFs, especially in the long-term run.

“Beating both their long-only and ETF competitors over three and five years illustrates the beneficial consequences of going with managers who operate within flexible mandate structures and tend to have interests closely aligned to their investors. Considering the substantially heavier fee structures, these numbers are very good, in our view, and show that cost in isolation is rarely the best individual selection tool when it comes to funds,“ notes Wolter.

Promise of growth For the time being, the reality remains that Asian hedge funds find it hard to attract significant capital, certainly relative to the overall global hedge fund industry, which was reported by Hedge Fund Research to have seen total assets exceed its previous peak of US$3trn at the end of March.

“Part of this momentum would likely be the result of the average global hedge fund supposedly having returned 1.6% year-to-date, in contrast to the 0.5% increase the average Asian fund appeared to have realized find it difficult to attract significant capital.”

By contrast ETF funds managed in Asia jumped 28% over the past year and the growth rates outstrip both hedge and long only funds.

And in RBS’ sample, a third of the ETF funds didn’t even exist a year ago, which means there is significant growth in the category. Perhaps the future really does belong to the machines that run the ETFs.

FIRST Asia Mainland tourist arrivals

Sources: CEIC and UBS calculations

China already a big spender on outbound tourism

Sources: CEIC and UBS calculations

Mainland tourists: easy come, easy go ?

Mainlanders are considered the bulwark of Hong Kong’s tourism and retail industry. Four of every ten mainlanders who travel abroad go to Hong Kong. Mainland tourists also account for 30% of retail sales, and 60% of tourist spending in the country.

However, the Chinese are becoming more adventurous as of late and are starting to travel beyond the familiar sights of Hong Kong to more remote and exotic locations.

This can lead to the wealthiest tourists looking towards more exciting destinations like Singapore where they can visit a casino or go on a shoppping spree.

The rise of the Chinese tourist market The outbound Chinese tourist market is the third biggest in the world at US$55bn in 2101.

It is expected to become the world’s largest at $150bn by 2015, according to a report from UBS. By comparison, the Germans currently spend $75bn on international travel,

Thailand all receive more than 1 million visitors from China annually, and these numbers may be set for a big boost.

However, it is Singapore that has made the biggest investment in tourism infrastructure, making a capital investment equivalent to 5.3% of GDP in 2010. By comparison, Hong Kong’s investment in tourism was just 2 % in 2010.

while the Americans spend $73bn.

It has been a short and rapid rise to the top for the Chinese, who, until 2002, were limited by quota to visiting Hong Kong and independent trips to other countries were almost unheard of. Today, most Asian countries are on the approved list for individual travel, and it is these countries that are trying to lure the Chinese tourist.

“The total number of departures rose to 57mn in 2010, an almost five-fold increase from 2001. Still, only roughly 4 overseas trips were made per 100 Chinese in 2010. As a reference, the respective numbers for Korea and Taiwan is 26 and 40,” said Silvia Liu from UBS. Boost in tourism Based on projections from the IMF, China’s per capita income is expected to increase from the current US$4,200 to US$7,200 in 2015.

In 2010, 23 million mainlanders visited Hong Kong, which is far more than the rest of Asia combined.

But Korea, Taiwan, Singapore and

Mainland tourists account for 60% of tourist spending in Hong Kong

Challenge for Taiwan Taiwan is on many mainlanders’ list but still struggles because of government limitations. Even though Taiwan finally opened its door for Chinese tourists in 2008, the barriers to travel remain high as tourists are still restricted to group tours and there is still a daily quota of 4,000 visitors.

Even though the Individual Visitor scheme for Chinese tourists is expected to start in late 2Q11, the reported daily quota of 500 is just way too small to have much impact, notes UBS’ Liu. Now that the high rollers and biggest spenders are increasingly spreading their wings further offshore, can Hong Kong continue to take its mainland tourists for granted?

HONG KONG BUSINESS | JUNE 2011 13

FIRST

Offshore RMB market takes off in Hong Kong as Singapore poised in pursuit

I

t has not even been a year since the Chinese government allowed its currency, the RMB to be traded and settled outside its borders.

But since the opening of that window in August last year, the amount of Yuan on deposit outside China has swelled to CNH450 billion, and should reach a CNH 1 trillion by the end of the year.

It has by all measure been a phenomenal success, but not one that is totally unsurprising. This of course is fuelling a massive market in trading the US dollar with the CNH, a spot market that now has a turnover of an excess of US$1 billion daily, according to estimates from HSBC. The futures market is also active with around US$800 million of contracts traded daily, making this a lucrative new market for traders and investors. The CNH market is set to overate the NDF market, which currently turns over around US$4 billion daily, sometime in 2012.

This is logical, as HSBC notes, as the functional uses of the CNH market such as funding, trade settlement, investment, and placing deposits far outweigh that of the NDF market which is primarily used as a directional currency play.

Accordingly analysts expect the number of market participants in the generalized CNH market will soon outnumber that of the far more specialized CNY NDF market, helping maintain the pace of growth.

So just how big will the market

grow ? CNH is still small compared to the daily turnover of other Asian currencies, which means rapid growth will continue for a while yet. One thing that may precipitate a move from the NDF to the CNH market is already happening. Many longer-term investors in Yuan are switching their holdings from the NDF market to the CNH market, not only because the asset-class has advantageous characteristics such as better yield and is a real rather than derivative asset), but because, as HSBC notes, as the CNH market develops and matures, it appears inevitable that it will sap the activity and liquidity of the NDF market.

Enter Singapore ?

At first glance Hong Kong would seem the natural centre for trading in CNH as much of China’s trade goes through there and people are natural holders of Chinese currency.

However Singapore is upping the anti and is trying to establish itself as a serious player in the CNH trading market. Several Singaporean-based banks including Standard Chartered and Maybank revealed plans to this publication to establish a CNH/RMB business.

And China announced itself that it would establish a third RMB clearing bank to be based in Singapore, the other two being Bank of China in Hong Kong and Bank of China Macau. Presumably the Bank of China will get the green light to do

China’s total bilateral trade is still larger with HK than Singapore

14 HONG KONG BUSINESS | JUNE 2011

“A deliverable RMB market in Singapore possible as early as 2012.”

the same in Singapore and they may even need a bigger office than their current older building on Battery Road.

As HSBC notes, a local RMB clearing bank would be an important foundational element for an eventual offshore RMB trading platform, as it would allow local banks to deposit RMB reserves locally, as well as more directly facilitate cross-border RMB trade settlement, both of which currently require use of the Hong Kong platform. So can Singapore challenge Hong Kong or indeed become a serious player ? Maybe not so fast, notes HSBC, which says that the establishment of a clearing bank is relatively straightforward compared to coming to an agreement on regulation and management of other aspects of a potential deliverable RMB market, something that was a relatively easier hurdle for Hong Kong, which is ultimately implicitly overseen by the mainland.

“However, with both sides likely to be highly motivated to push this forward, we will likely see significant development this year, with a deliverable RMB market in Singapore possible as early as 2012.”

This development would expand the CNH regime currently in place in Hong Kong, rather than create separate competing systems, as CNH is already freely transferable offshore.

The offshore RMB exchange rate, known unofficially as CNH, will be applicable in Singapore.

RMB deposit base has grown exponentially in Hong Kong

opinion

richard branson Our galactic adventure

I

“The secret to success in any new sector is watchfulness, usually over a period of many years.”

16 HONG KONG BUSINESS | JUNE 2011

was flown to Star City at Baikonur in Kazakhstan for a tour. At the time, few Westerners had been allowed into that secret world, the workshop where Soviet scientists had created the Sputnik satellite, the Vostok, Voskhod and Soyuz manned missions, the Salyut space station – and the ballistic missiles that had once threatened the West.

The Russians negotiated with entrepreneurial zeal, offering me the once-in-a-lifetime opportunity of becoming the first space tourist, through the Russian space program.

The price tag? Over $30 million.

The idea of spending that much money on myself felt immoral. It made me question the ridiculous economics of putting people in space, and it sparked my search for the business breakthrough that would make space travel possible for thousands of people, rather than a select handful.

Next came the unseen part of entrepreneurship, the part that nobody ever discusses because, to be fair, there’s not a lot to discuss. The secret to success in any new sector is watchfulness, usually over a period of many years. Our search for a way into space led us to a brave new world of exotic materials and untried designs, spin-offs and business opportunities, a thriving community of small companies and driven individuals supported by engaged and well-informed philanthropy.

The tipping point for commercial space travel came in May 2004 when space entrepreneur Peter Diamandis announced the Ansari X Prize.

It was backed by Anousheh and Amir Ansari, who donated the $10 million to be awarded. The X Prize set a simple challenge to contestants: carry three people 100 kilometers above the Earth’s surface, twice within two weeks.

There were three serious contenders for the prize. The most promising was Burt Rutan’s company, Scaled Composites, which had unveiled its space program the previous year.

Burt’s ship, SpaceShipOne was to be carried into the upper atmosphere by a mother ship – a lightweight plane called White Knight – and launched in flight. I wrote to Paul Allen, Scaled Composites’ financial backer, and proposed a 50-50 joint venture.

In September 2004, Burt and I announced the launch of Virgin Galactic. We signed a $21.5 million deal with Allen’s company for the use of the technology, and announced that we had developed a $100 million investment plan to develop a prototype commercial six-seater spaceship at Burt’s factory in Mojave, Calif. It was a terrific deal for us because the Virgin Galactic branding would now be on SpaceShipOne if it took the Ansari X Prize in October. This would deliver a message that we were a serious player.

About SpaceShipOne’s design, fabrication, execution and flight behavior that wasn’t new and unusual. As we anticipated, on 29 September 2004, SpaceShip One reached its apogee of 337,600 feet, or 103 kilometers.

This was space. On 4 October 2004, SS1, with test pilot Brian Binnie at the controls, reached 367,442 feet above the Earth

and took the Ansari X Prize.

July 27, 2005, in Oshkosh, Wisc., Burt and I announced the signing of our current agreement. The new company we were forming would own all the designs of SpaceShipTwo and the White Knight Two launch systems that were being developed at Scaled Composites. The new business, the Spaceship Company, would be jointly owned by Virgin and Scaled. Burt’s company would undertake all the research, development, testing and certification of the two craft.

At present we have many space tourists signed up for future flights; we are conducting test flights on our ships and building a spaceport in New Mexico. Another potential arm of our business is its shuttle capability.

The last NASA shuttle flew last month; the shuttles carried 51,000 pounds into orbit, at a cost of around $450 million.

We and others in the emerging space private sector are working toward the day when White Knight Two will be able to take 28,000 pounds to 50,000 feet and launch it for a much lower price.

And in the future, our ships may be able to take payloads farther out into space. While Virgin Galactic must concentrate on its original plan of space tourism, these are all options for our business to grow its revenues and technology base.

Virgin will move into the space industry. We have the expertise and experience of moving people around the globe, safely and securely. Space tourism is an industry that’s going to be fun – for all of us!

corporate profile

Serenading quality and beautiful views

Duplex “Sky-house”, enjoying stunning view of Victoria Harbour and greenery

S

erenade, a twin-tower luxury development by Hong Kong Land on Tai Hang Road “is an oasis in the urban environment”, says Head of Residential Property Cherrie H.K. Lai. Noted for its domination of Central with its commercial properties serving the highest caliber multi-national clientele: The Landmark, Exchange Square, Alexandra House, Jardine House, Chater House, York House and the Prince’s Building, Hong Kong Land brings the same intensity and devotion to quality materials and design to Serenade as it has to the most prestigious office spaces, shops and eateries in downtown Hong Kong. The Sail at Victoria on Hong Kong Island is another fine example of the company’s vision and dedication to quality residential units.

Serenade offers nearly 300 residential units, most of which overlook stunning Victoria Harbour and nearby green mountains with 270-degree views from the top floors.

Ms Lai said, “Serenade has nearly privatised the harbour view. It is in a good environment and the location is very convenient for Causeway Bay, Central, Tsim Sha Tsui, or the south side of the island. Once our residents reach Serenade, they can relax and feel the serenity that envelops the buildings.

“The attention to detail displayed at Serenade demonstrates Hong Kong Land’s preoc-

Simplex of 4 bedroom (2 en-suites) enjoying greenery hillview

“It is a very different experience from most people’s workplace, so coming home to Serenade is like stepping into a different world in the heart of the city.” cupation with high quality, from the “curtain wall” exterior to the marble and wood floors, from the bathroom fittings to the appliances, such as a double-door refrigerator with builtin wine storage and a washer-dryer from De

Deitrich and a built-in microwave with over from Gaggennau, plus other appliances from the finest European manufacturers.

“It is a very different experience from most people’s workplace, so coming home to Serenade is like stepping into a different world in the heart of the city. The seaview flats will always maintain their value, and people know that their neighbours are likely be of very high quality as well”, she said.

Aiming for the senior executive and CEO level clients for the four-bedroom residences,

COrporate profile “...we are always thinking of the future needs of our residents” and the places on the higher floors offer duplexes and penthouse flats designed for opulent living that soar above the harbour. Its prestigious location at Mid-levels East means that Serenade is in the heart of Hong Kong but provides a restful, beautiful atmosphere above the traffic and noise of the city.

Hong Kong Land negotiated for over five years to clear the land to build Serenade and five more to build it to the exacting specifications of the property group.

The two-storey clubhouse facilities include a children’s gymnasium, an infinity swimming pool, a steam room and sauna, an oxygen spa suite, and a function room for aerobics and Yoga, an outdoor stretching area, indoor and outdoor children’s play areas as well as a table tennis room. Children are also well served by a kids’ library and a game room.

There is a juice bar for healthy, light snacks, and banqueting rooms for larger parties.

The Landmark Mandarin Oriental Hotel provides the catering services for its clubhouse. With the finest ingredients, The Landmark Mandarin Oriental Hotel crafts distinctive cuisines for the privileged residents of Serenade. Residents entertain their family and friends in the multi-function banquet hall. The kitchen, specified by The Landmark Mandarin Oriental Hotel, makes possible the cooking of cuisines from all around the world. Residents can invite their dearest friends and relatives to the deluxe, two-storey clubhouse, and enjoy a relaxing holiday by indulging themselves in the Mahjong Room and Karaoke Room, or in the outdoor

The fantastic Victoria Harbour is at the eyesight outside the master bedroom of duplex “sky-house” barbecue area that is connected to the multifunction banquet hall where residents can enjoy peaceful moments.

Ms. Lai stressed that Hong Kong Land was less interested in erecting over-decorated luxury estate and more attuned to providing quality materials and fittings throughout the development. The important of details, such as sound insulation layer under the floor finishes of all residential units, the prestigious Japanese brand YKK window system for the heat, sound and Pilkington self-cleansing glass walls and the clubhouse’s furniture comprises of the finest Pelle Frau leather from Poltorna Frau are good examples of this fantastic attention to details.

“We did not have to clad the pipes in aluminum louvers or put Toto tiles bended

Pre-penthouse with a private terrace is unique in the locality

with titanium oxide-mixed tiles in the facade, but we did it for the ease of cleaning and maintenance. Hongkong Land is offering a perfect combination of aesthetic luxury and practicality at the Serenade”, she said.

“In addition, we are always thinking of the future needs of our residents, so we have built in optic fibre outlets in living rooms for future broadband applications; we provided conduits for audio systems that reach the living room, master bedroom and master bathroom; we have allowed for enhanced mobile telephone signals in all car parking floors and the clubhouse floors; a mirror demister and a heat lamp in all the bathrooms, and fresh air intakes for split-type air conditioners.

Lai was also enthusiastic about the school network serving the children of residents in Serenade. Many of the finest private schools are close by and the network allows parents to be part of the balloting for all of them.

“Serenade is part of the top-level school network (#12) and local residents can apply for places for their children. The Serenade resident’s children can use the clubhouse for studying or playing as well”, she said.

“And since I had two children during the course of the construction of this development, I made sure that there are plenty of baby-changing stations in convenient locations. Serenade is a great place for families,” Lai said, smiling. “It is all part of the Hong Kong Land way of doing things. We tested our Pilkington self-cleansing glasses used on the exterior for more than a year to ensure they can withstand the HK humidity and pollution, and we paid extra attention to the comfort and satisfaction of our residents at Serenade.”

Hotline: (852) 2522 1963 Website: www.serenade.com.hk

ECONOMICs

Ian Perkin

Hong Kong’s inflation woes not yet over

F

iscal stimulus is not the usual response of governments to fears of inflation and “property (price) bubbles” in a fast growing economy. That’s what John Tsang ChunWah, Hong Kong financial secretary, did in his 201112 Budget presented to the Legislative Council.

Mr. Tsang hinted as much in the opening words of the concluding remarks to his Budget speech, “…the socio-economic situation facing us is so distinctive that it has little resemblance to what we have seen before”.

“Small government” also helps. When a government accounts 20% of the economy, or one in every five dollars of annual output, as HK does, a stimulus program can be instituted without too many worries of overheating and inflation. It adds significantly to the “feel good” factor in the economy and its people. Anywhere else, Mr. Tsang’s 2011-12 Budget would be viewed as an “election budget”. In Hong Kong it is aimed at bolstering the Administration’s standing in the community.

IAN PERKIN Independant Economic Consultant perkin888@hotmail.com

Hong Kong Budget: Five Years Out Year/Item

2010-11

2011-12

2012-13

2013-14

2013-16

301.4

301.6

335.3

348.2

359.0

-317.7

Operating spending

-240.7

-298.0

-270.5

-285.4

-301.1

77.6

Operating surplus

60.7

3.6

64.8

62.8

57.9

77.6

Capital Revenue

73.3

73.4

52.7

50.8

52.3

56.4

Capital Spending

-62.7

-73.1

-89.1

-91.1

-91.4

91.7

Bond repayments

-

-

-

-

-9.8

-

Capital surplus

10.6

0.3

(36.4)

(40.3)

(48.9)

(35.9)

Consolidated surplus

71.3

3.9

28.4

22.5

9.0

42.3

591.6

595.5

623.9

646.4

655.4

697.7

(deficit)

Fiscal reserves

(March 31)

Source: HK Budget documents 20011-12

billion in 2010-2011 as a result of the faster pace of economic growth.

Mr. Tsang said the economy grew by (inflationadjusted) 6.8% in 2010. Both exports and domestic Mr. Tsang’s main themes consumption grew rapidly and unemployment fell.

• Wariness of inflation, mainly from external Inflation was just 2.4%. A soft US dollar and rising sources, including fast-paced mainland growth and food and commodity prices around the world would the related increase in global commodity prices, the cause inflationary pressure to gradually build up in weak US dollar, which pushes up prices in Hong Hong Kong this year. For 2011, Mr. Tsang forecast Kong dollar terms.

GDP growth estimated at of 4-to-5% with inflation of • Substantial moves to head off any further sharp 4.5%. rises in residential (and some extent commercial) Over the medium term (the 5 years in the table), property prices by freeing up the supply of land, annual average growth is estimated at a real 4% with • Continuing substantial funding of large underlying inflation averaging 3.5%. infrastructure projects, and He announced record infrastructure spending • A whole range of populist measures aimed at and a series of initiatives to foster growth in key improving “people’s livelihood” (mainly education, economic areas. As a result, capital spending would health and social welfare). reach a record $58 billion in 2011-12 as 10 major All this came against a background of a rapidly infrastructure projects continue to be rolled out, improving economy and a solid budgetary outlook including the Hong Kong-Zhuhai-Macao “The continued rise in the Mainland’s food prices Bridge.

The soft US dollar and possible and local rentals are expected to have a more sustained increase in global food and commodity prices will put more noticeable effect on our inflation this year.” inflationary pressure in Hong Kong. “The continued rise in the mainland’s food prices and local with the budget back in surplus for the foreseeable rentals are expected to have a more noticeable effect future (see accompanying table) even if the forecast on our inflation this year.” surplus for 2011-12 is but a modest one.

He said that in the short term, the government It can be seen from the table below that the 2011would strive to ease domestically generated price 12 spending surge occurs in the capital account and pressure by forestalling property market exuberance, results in a small overall surplus ($3.9 billion) for one preventing excessive credit growth and pursuing a year before surpluses are forecast to expand again. prudent fiscal stance.

This follows a major unexpected surplus of $71.3 20 HONG KONG BUSINESS | JUNE 2011

2013-15

Operating revenue

Medium Range Forecast including Fiscal Reserves ($HK billion)

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report

Too many expats spoil the Chinese broth Growing a business in China takes more than a few expats and Harvard MBAs, discovers Chris Cottrell

M

acquarie Securities held an interesting forum on China for clients and one of the more interesting panel discussions was titled “Multinational Corporations in Greater China: Addressing A Changing Competitive Landscape.”

One of the panelists, Massimo Magni and partner with McKinsey & Company compared the Chinese consumer to a “teenager who has not been allowed into a candy store for all of his/her life lives. Then all of a sudden mom says, here are the keys, the store is yours.”

Of course, Magni was aiming at why the Chinese consumer is hard to peg down for brand loyalty—they are brand conscience, but not brand loyal and that loyalty is continuing to drop, Magni said.

“They go into the store and they try everything. But they go into the store with a subset of five or six brands, then based on the promotions and salespeople in the store, they make their choice,” said Magni.

He also spoke intelligently about the logic of new demographics as a challenge for tackling the China market, pointing to city clusters versus tier cities. A few years ago, there was a common marketing logic to target tier 1 cities it is Beijing, Shanghai, Guangzhou and Shenzhen. Now, it’s more common to see consumers of the same age and economic demographic spending along cluster spokes—Shanghai, Hangzhou, Nanjing, for example, can be viewed as the same market. The same applies in the Pearl River Delta and Chengdu-Chongqing areas, he said.

with expats, you can’t attract the best Chinese talents.”

Sure, perhaps a cynic might say that is self-serving comment for a professor of business at HKUST who might want to place his students in senior management.

But it resonated with one foreign attendee who kept nodding as McEachern said, “Most don’t do well and are not effective long-term in China…The good news is that there is a growing cadre of highly-talented Chinese graduates…China now is the largest English-speaking market in the world. It is not the most functional, but it is growing in capability. There are issues with loyalty but there is a world of opportunity to find senior management. However, they’re from a quite small pool of leadership. Add double digit wage inflation and there will be more challenges.”

Indeed, retaining is the lynchpin regardless if you have strong China branding practices and products that are cost effective and ready to go to market.

Later, McEachern told Hong Kong Business that , “There are so many young and talented Chinese. All you need to do is harness them properly.”

One strategy that he saw worked well was to offer them overseas training for a year—which is a problem for US-based companies because of the nation’s draconian immigration laws—then have them return for an agreedupon time of tenure.

“They must feel they can grow and have leadership within their companies,” said McEachern.

The only challenge is how to prevent them from becoming their own entrepreneurs and striking out on their own.

“If you have a corporation that is top heavy with expats, you can’t attract the best Chinese talents.”

Magni also noted, “There will probably be by 2025 over a billion people living in urban areas. As the Chinese consumers migrate in these clusters of cities, they are becoming more homogenous. They have big dreams, but smaller wallets. They dream of luxury, and China is the biggest luxury market in the world…They are very pragmatic.”

How to access that pragmatism was not quite fleshed out, but retaining staff to address the needs of company management seemed to be a key part of success.

Former Pepsico Asia President and now HKUST professor Ron McEachern’s comments on this seemed to strike home as several expats in the room were deadpan when he said, “If you have a corporation that is top heavy HONG KONG BUSINESS | JUNE 2011 23

It has been more misses than hits for western food retailers in Asia Western domination of Asian grocery is by no means guaranteed, reports Krisana Gallezo

W

estern food retailers are starting to match local players in size and products, but will their approach win out over the long run or will Asian retailers fight back with local service and products ?

The Asian food venture Asia may be the world’s largest consumer of food, but it remains an insignificant backwater for the western global brands like Tesco, Wal-Mart and Carrefour who have made only tentative steps into some Asian markets and abandoned others altogether. So what will the future of Asian food retailing look like and who will win out ?

One thing that is clear is that many of the global players are abandoning their efforts in smaller Asian coun24 HONG KONG BUSINESS | JUNE 2011

“Many of the global players are abandoning their efforts in smaller Asian countries.”

tries where the scale and market opportunities do not justify their time and effort. Back in the 1990s it seemed every major international player wanted a piece of the Asian food business. Carrefour opened its first store in South Korea in 1996 after the government lifted some of its restrictions on foreign retailers and Wal-Mart also opened in the country.

Abandoning Asia But by the end of the 2000’s both firms had left the country with their tails between their legs.

Carrefour also sold its Thailand operation and analysts reckon Tesco may have to abandon its Japanese ambitions. But all may not be lost and some of these western firms are trying different strategies - and succeed-

ing in different parts of the region.

Whilst Carrefour and Walmart were failing in South Korea, Tesco, the UK giant, was quietly succeeding with a different strategy.

Having joined the international race later than its main international competitors, Tesco had some catching up to do; but instead of embarking on a series of large acquisitions that could have led to integration clashes, Tesco decided to develop JVs with a local partner, and to gradually assume full control of the company, notes HSBC analyst Jérôme Samuel.

“Carrefour took the opposite approach, mainly expanding via by organic growth, and replicating its standard hypermarket format in most of the countries it entered.

It did not achieve the same success, prompting the group to exit some

retail in asia countries, especially in Asia (South Korea, Japan and, more recently, Thailand),” he added.

For Tesco, Asia is now not a ‘nice to have’ market, but a large part of its business, accounting for 16.7% of its 2010 sales, compared to Carrefour on 8.6% of its sales in Asia, Casino at 6.9% and Metro less than 4%. Perhaps surpsisingly, giant Walmart only had 3.9% of its global sales in Asia despite having over 800 stores in China.

HSBC estimates that Walmart’s sales in Asia will be twice the size of Tesco’s in 10 years. Walmart’s 2010 sales of around US$16.2bn in Asia were roughly the same as Tesco’s (GBP10.3bn in 2010).

Strangely, Carrefour already runs 190 stores in China and by 2013 will have more stores in China than in France yet HSBC expects Carrefour to continue to derive about 37% of sales from France but only 7.3% from China.

China Syndrome But while some international players are willing to concede smaller markets there is one market none can afford to admit failure in, and that market is China. And the battle in China is for the hypermarket, which still has lots of room left to grow.

Retail analyst firm Planet Retail projects that with the rapid development of modern channels, there will be .3,800 super and hyper outlets in China by 2014, compared with 2,600 in 2010 and 1,000 in 2005, whilst the main store format, supermarkets, which accounted for 77% of industry value in 2008, is already saturated.

According to HSBC, by end-2009, hypermarkets and convenience

stores accounted for 21% of total fast-moving consumer goods retail space. Euromonitor estimates that its share will exceed 24% by end-2014.

Walmart estimates that there are more than 700 cities in China where it could open stores, up from the 121 cities where it is currently present.

Stopping expansions in China But it hasn’t been smooth sailing in China with regulators making life difficult for some of the players. In 2002, Carrefour’s expansion was put on hold after the government claimed its first stores openings had been made without the necessary regulatory approval and stipulated that foreign retailers must have a maximum 65% stake in a company.

“This is the primary reason why the main international players entered the country in the 1990s and have pursued aggressive expansion plans there (Carrefour in 1995, Walmart in 1996 and RT mart in 1997).

The foreign players’ strategy has been to build their own supply chain while local chains have mainly focused on expanding a store network locally without building a supply chain and sourcing directly from suppliers.

HSBC believes this model may affect their future expansion and may require them to make substantial investments in order to catch up with foreign players.

Time will tell who has the better model and who will win the war for the hearts and stomachs of Asia’s hungry consumers.

But the dream of easy pickings in Asia’s growing food markets is turning out to be harder than thought.

Asian contribution to sales growth 2004-13e

Source: Company information for historical data and HSBC estimates

Korea Briefing from HSBC We expect the Korean food retail market to grow 4.7% in 2011. After the exit of Carrefour and Walmart, consolidation is lagging and Tesco could become market leader by 2013. The top three players in the Korean food retailing market are Shinsegae (123 E-Mart hypers), Tesco (118 Homeplus) and Lotte Shopping (86 Lotte Mart) with a cumulative 25.7% market share.

Although the market still offers room for growth, it seems to us that a good share of the consolidation has already happened. Carrefour and Walmart exited the market in 2006, Carrefour by selling its 32 hypermarkets to E-Land and Walmart by selling its 16 hypers to Shinsegae. In 2008, Tesco bought 32 stores from E-Land and became the number 2 food retailer in Korea.

Carrefour and Walmart exited the market as their sales per sqm were at least 50% lower than Tesco’s, mainly owing to low traffic and poor brand perception. Tesco’s success in Korea has been to build a brand from scratch with a local partner, Samsung, and to progressively take full control of the JV while retaining its local flavour.

Thailand Briefing from HSBC Modern retailing growing slowly but surely, with a 43% penetration rate. At its investor presentation in December 2009, Casino estimated the worth of the Thai food retail sector at US$17bn.

Since Carrefour sold its Thai assets to Big C in Q4 2010 there are now three major players in Thailand’s largestore formats (hypermarkets, CC): Tesco, Big C (63.2% owned by Casino) and Makro, the cash and carry oper On 15 November 2010 Carrefour announced the disposal of its 34 hypermarkets and 37 shopping malls to Casino for THB35.5bn (EUR868m) – a very high price, implying EV/sales of 120% and EV/EBITDA of 13x. We see strong reasons why Big C was willing to pay such a high price: The acquisition was very strategic for Big C, allowing the No. 2 market player to narrow the gap between itself and Tesco – the market leader.

Along with its 34 hypers, Carrefour owned 37 shopping malls (unlike in France), which are a perfect fit for Big C’s 57 hypers and shopping malls; these contributed about 50% of the Carrefour’s trading profits in Thailand.

Chinese sales density (EUR per sqm, 2010)

Source: Company data, HSBC estimates

HONG KONG BUSINESS | JUNE 2011 25

industry insight

HK Hotels benefit from Japan’s woes HK hoteliers are finding it tough to stand out in a market flooded with new ‘unique’ hotels, finds Krisana Gallezo

A

ccording to Traders Hotel assistant communications manager Stephanie Fong, “There have been some room cancellations from Japan guests, but the drop is counter balanced to a certain extent by some travels from wholesale, cruise and MICE business originally planned for Japan but diverted to Hong Kong. The sentiment was echoed by Intercontinental communications manager Carole Klein who said that they have received unexpected last minute pick-up from small meeting groups and some corporate travelers that have originally booked in Japan. Harbour Grand Marketing communications manager Wings Mok meanwhile revealed that several companies have evacuated their staff from Japan to Hong Kong with some international banks even planning to relocate their Japan base to HK. In general, industry players expressed little concern about the Japan tragedy in the short run. Hong Kong Hotels Association executive director James Lu said that with visitor arrivals expected to rise by 4 million to 40 million this year, times remain good for the industry.

“We have had good room occupancies in the first 5 months of this year averaging in the mid to high eighties and we expect this trend to continue to close the year with 86-88% in average room occupancy rate,” he said.

More HK hotels for the growing demand To meet the ever growing demand, more hotels are being developed in Hong Kong with recent ones including the Ritz Carlton Hong Kong at ICC and Hotel ICON, which is owned and operated by HK Polytechnic University and the upcoming Best Western Hotel in Causeway Bay. According to hoteliers, this is forcing them to stand out and offer different experiences to attract business rather than rely on availability and rate.

In March, the 306-room Ritz-Carlton launched in Kowloon and billed itself as the“world’s tallest hotel”.

At the other end of the spectrum, the 55-room “The Mercer” also opened in Sheung Wan calling itself Western’s boutique hotel.

Hong Kong already has 177 hotels with 60,730 rooms as of the first quarter and is expected to grow by 16.8% in five years time as with 54 new hotels confirmed by 2016 adding 10,223 rooms. 2011 alone will see 15 new hotels with a total of 2,674 rooms launched. 2012 is an even bigger year with 24 new hotels and 4,695 rooms due. This has left existing hotel operators scrambling to come up with a positioning to stay relevant in a market where people are looking for a new and unique experience.

26 HONG KONG BUSINESS | JUNE 2011

One such hotel is the Cosmopolitan, which was just another box hotel in Causeway Bay until it hit upon the idea of creating themed rooms with a bias towards young families. It now has an “Ocean Park” experience suite and a Sony suite, complete with playstation and games, which are a major drawcards to families with children.

Cosmopolitan’s public relations manager Stewart Chan believes that the idea of collaborating with third party in creating an ideal theme room is definitely welcomed by international guests. “Let’s say, guests could enjoy a relaxation massage in the middle of the night after long day meeting in a Massage Suite, or visit Ocean Park with complimentary admission and transportation through Ocean Park Suite benefit....in the hotel industry nowadays, service, personalize, and flexibility is definitely a key to attract repeated guests,” he added.

Similarly, Harbour Grand have what it calls the ‘Grand City Escape Package’ and the ‘Grand Romance

“...in the hotel industry nowadays, service, personalize, and flexibility is definitely a key to attract repeated guests.”

Package’. The former targets more local travelers and offers selected premium spa treatments for two and food and beverage credits whilst the latter one fits the overseas visitors, with selected premium spa treatments, dinner for two at the signature restaurant Le 188˚ plus airport transfers. The key for new hotels then is to find a unique identity and market it rather than just rely on room bookings from websites.

Larger hotels are investing in mobile and iPad applications as a way to stay relevant to finickety customers. Last year the Intercontinental launched an application designed specifically for the iPad which allowed guests to tap into collective knowledge and experiences of its “concierge” around the world.

The Mandarin Oriental Hotel Hong Kong iPhone App allows clients to make or modify “real-time” reservations, review detailed hotel information, and explore destination guides.

Similarly, Langham Place introduced the “Langham Touch”with basically the same features but claims to be the first program of its kind in the international hospitality industry to offer a voice-based travel dialogue component, putting its guests at ease in nonEnglish speaking countries. Many hotels are also finding they have to offer complimentary Wi-Fi to visitors as well. Traders and Kowloon Shangri-La already offer it to guests.

CO-PUBLISHED CORPORATE PROFILE

Payment delays are a growing concern for HK businesses

Businesses will no longer tread on risky lines

W

hile there is now significant market growth, particularly in Hong Kong and other Asian markets, it is clear that the after effects of the global financial crisis are still shaping the way businesses operate.

There’s no denying that businesses in Asia have fared better than most during the recent global crisis and they have also been the first to show real signs of strong growth. However, results from a new independent study, commissioned by Atradius and carried out by CFO Innovation Asia, suggests that the problem of late payment is a growing issue for Hong Kong businesses.

The research, which was completed at the end of April, gives a clear indication that companies in Hong Kong are becoming increasingly concerned about the growing trend towards delayed payments, with 54% saying that they are now more anxious about late payments than before the global crisis.

It appears that these concerns are justified, as there are also signs that payment delays, in general, are increasing with almost half (48%) of the Hong Kong businesses surveyed reporting that payments are now delayed by more than 15 days and requests for extended payment terms are growing.

Late payments can penalise your businesses further, by costing you money to explore and secure other finance streams, such as potentially expensive bank finance, loans and other options, which enable your cash flow to be maintained. Clearly, businesses are adopting

strategies to address the late payment issue, but some of the approaches identified in the research also raise some cause for concern.

Restricting customer credit could put Asian business at risk We found that just under half (48%) of Hong Kong companies are reducing exposure to customers that are judged to be less creditworthy, compared to the Asian average of 80%.

While, arguably, you may regard this as this as a sound approach, it’s only when you look at the information on which many of these decisions are made that questions on its accuracy and quality become apparent. This can undermine the validity of the original decision.

However, when you combine this result with another finding, which suggests that businesses are insisting on advance payment, then there is a clear risk that by adopting these strategies, companies could limit growth, lose market share and become uncompetitive.

The fact that the Hong Kong figure is so significantly lower than the overall average, could perhaps be linked to the fact that the country also has the highest familiarity with trade credit insurance of all those surveyed, which at 60%, is 11% higher than the average.

Outside of Hong Kong, this lack of familiarity with trade credit insurance could indicate a key reason why some Asian businesses are considering potentially restrictive strategies of up-front payments and imposing tighter credit conditions on customers.

Credit insurance can remove the worry of non-payment Naturally, payment practices are of specific interest to Atradius as we provide credit insurance to protect businesses against the risk of payment default when trading on credit terms in domestic and international markets. Although credit insurance policies typically cover up to 90% of the value of the outstanding receivables, it is clearly in everyone’s interests to secure payments on time and in full.

To give an indication of just how widely credit insurance is used on a global basis and the scale of our involvement, Atradius has been providing credit insurance for over 85 years and has annual revenues of more than EUR 1.5 billion (USD 2.2 billion). In Asia alone, we have over 50 years of experience in providing credit insurance expertise and Hong Kong has been our regional headquarters for Asia since January 2007.

Credit insurance is designed to enable you to trade on credit with your customers where an agreed insurance credit limit is in place.

This means that credit terms can be offered to maintain competitive appeal and avoid the ‘up-front’ payment obstacle. Also, we have access to financial information on 60 million companies worldwide, which means we can help steer you away from risk and ensure your credit decisions are made for the right reasons and based on strong, robust data.

Benoit Ganzmann, Atradius senior underwriter

CONTACT ATRADIUS CREDIT INSURANCE N.V. Suite 4306, Central Plaza 18 Harbour Road Wanchai Tel: +852 3657 0700 E-mail: hongkong.enquiries@atradius.com www.atradius.com.hk HONG KONG BUSINESS | JUNE 2011 27

numbers

HK most socially networked in Asia Smartphone Ownership Southeast Asia

Activities done through mobile phone Singapore Beginning of 2010

46%

End of 2010

95%

SMS

30% 51%

27% 20%

25%

23%

24%

Mobile Internet

25% 21%

17%

15%

21% 43%

Email

31% SG

MY

TH

ID

PH

Instant Messaging

VN 31%

Source: Nielsen Global Online Omnibus

Play Games

Source: Nielsen Global Online Omnibus

Will your business be better or worse off in 12 months?

Are you planning to invest in your business in the next 12 months?

Synovate Business Consulting online surveyed Note: Data are from 146 business executives across all industries

Synovate Business Consulting online surveyed Note: Data are from 146 business executives across all industries

Social Networking Sites are highly popular in Hong Kong and Singapore

Hong Kong and Singapore teens are heavy social media users 17%

Several times a day APAC

52%

50% 11%

About once a day

HK

93%

A few times a week

About once a week SNG

85%

About once a month

Never

Source: APAC: 13,500; HK:600; SG:600

18% 19%

11% 11% 15%

APAC

11%

HK

5% 8% 2%

SNG

8% 5%

6% 4%

31%

Source: APAC: 13,500; HK:600; SG:600

For more information contact: Nielsen, Margaret Lim (margaret.lim@nielsen.com); Synovate contact Tim Hill (Tim.hill@synovate.com); TNS Global contact Khaw Mei-Ling (meiling.khaw@tnsglobal.com)

28 HONG KONG BUSINESS | JUNE 2011

58%

OPINION

Hemlock

How dare you have enough space to live in!

F

irst there was a fuss about indigenous villagers adding illegal extensions, such as an extra floor, to their houses in the New Territories. In essence, it was another backlash against the privileges Chief Executive Donald Tsang lavishes upon his client states-withinthe-state, such as the aborigines’ Heung Yee Kuk mafia, the property developers’ cartel and his own grotesquely overpaid, overmanned and overweening civil service.

Then it got personal. Several legislators belonging to the Democratic Alliance for the Blah Blah of Hong Kong, our local public Communist Party front, were found to have illegal structures on their homes both north and south of the Mason-Dixon Line that is Boundary Street. Then, no doubt mindful of the ‘equal time’ guidelines, the press unearthed the illicit add-on at pan-democrat Leung Yiu-chung home.

Then Undersecretary for the Environment Kitty Poon was found to have (a rather nice) one on her luxury villa.

Now, most embarrassing of all, Education Secretary Michael Suen has owned up to having a couple of unauthorized extensions jutting out of the side of his first-floor apartment in Happy Valley. Embarrassing because it was under his watch as Secretary for Housing, Planning and Lands that the Buildings Department sent him an order to remove the structures five years ago.

make many apartments maybe a third smaller, and thus uninhabitable for the families that had lived in them for decades. They sold and moved out, opening the way for new owners (often Westerners) to buy, convert to studios and lease out to Yuppie types at inflated rents. In practice, it was a clearance of the poor to make way for the rich.

A minority of residents got a different letter, like the one Suen got, giving them a month to fix the problem or face the insertion of a note into the property’s official record – thus alerting a future buyer to the existence of a forbidden structure. This was because the verandas annexed into living space did Pimp my rooftop not overlook the street and threaten passers-by. These With such a high-ranking figure caught in the act, people were lucky and are still there. However, they some government detractors are calling for the live in fear of the day – maybe tomorrow, maybe in hapless Suen to be publicly beheaded. But even now, 10 years – when the bureaucrats finally and suddenly the righteous outrage is curiously muted. And the reason for that is simple: nearly anyone who is anyone order the unlawful walls and roof demolished; it will has, or has had, some sort of illegal modification built be their eviction.

In theory, the background to all this is public safety; into their home. In many cases, people are barely illegal structures have occasionally collapsed “Illegal structures have occasionally collapsed and killed people below or caused death by blocking fire escapes. The government didn’t and killed people below or caused death by collect a premium on the land for the extra amount of roofed-in space; the owner didn’t blocking fire escapes.” go through the correct procedures to change a building; the dweller has the nerve to acquire a decent aware of the alterations, which were done decades area when it is government policy to keep housing before by previous owners. artificially scarce, expensive and tiny.

Suen was not alone in ignoring the Buildings Suen, now 67 and on dialysis, was crassly Department blitz on the phenomenon five years back.

In my neighbourhood of Soho, the official letters were hypocritical to oversee a policy of clamping down on illegal structures – forcing, in my street, families in nearly every low-rise mailbox. The majority of residents were given a month to remove the offending with live-in grandparents to up sticks and leave at a few weeks’ notice – while enjoying his own illegal structure, typically a veranda absorbed into a living washing-machine space. room, or face a fine and/or prison. The effect was to 30 HONG KONG BUSINESS | JUNE 2011

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opinion

Tim hamlett Tricks of the ‘commercial jungle’

A

government official seeking to help that fashionable cause, Small and Medium Enterprises, is like Dr. Jonson’s woman preaching/dog walking on its hind legs.

One is surprised to see it done at all; one does not expect to see it done well. Because the obstinate fact is that most of Hong Kong’s top people have no idea what it is like to run a small and precarious business.

This description is chosen with some care. All small businesses are precarious. My parents were supported for many years by a small enterprise which eventually grew into a medium one. My father was a cheerful soul who rarely shared his worries. But his approach to business was dominated by wariness. His fragile boat could be swamped by the smallest wave, so he was constantly scanning the horizon.

Big business people would have you believe that their world is just as exciting and dangerous. It isn’t. Of course changes in circumstances can still be an inconvenience, even a threat. But large organisations have a momentum which keeps them going.

Also they are valued clients for people like bankers, accountants and lawyers who will eagerly help you to deal with a new problem.

When your company gets big enough, you can, with the assistance of said bankers etc., pass much of the risk in your business on to strangers who are gulled into buying its shares. When you get even bigger your continued existence may become a matter of importance and concern to the government, which will dip into its bottomless moneypit to rescue you from the consequences of your own folly.

If you are just running a corner shop, on the other hand, few other people are interested. The fall of a commercial sparrow may not go unnoticed by God, and may be lamented by a few faithful customers. All you will get from the upper reaches of the administration, though, is a small lecture on the essential merits of “creative destruction”.

It follows from this that efforts to help SMEs by offering cheap loans or technical innovations are not really getting to the heart of the matter. New technology may be helpful. Shortage of capital is a common problem. But I believe most small business people would forgo such kind offers in favour of a credible assurance that the government would think carefully before meddling with things which may mean life or death to them.

What is the government doing?

Governments must, of course, change things from time to time. Legislators must legislate. What we do not have to live with is ill-planned changes whose finer points have not been thought out in advance.

Recently the relevant department released a report on the great Plastic Bag Ban. This was supposed to discourage us from accepting plastic bags with our shopping by requiring supermarkets to charge for them. Great things were promised: plastic bags would become less numerous,

32 HONG KONG BUSINESS | JUNE 2011

I will survive!

tim hamlett Former Editor of Sunday Standard and Associate Professor of Journalism

government landfills would fill less quickly, and the planet would be healthier. It now transpires that none of these things took place. The reduction in plastic bag numbers was much smaller than predicted.

As far as the planet and the landfills were concerned it was off-set by the appearance of reusable plastic bags which are necessarily much heavier and less biodegradable than the old disposable model. The scheme, in short, has not done what it was supposed to do at all.

The rational thing to do at this point would be to cancel it and start again.

But that is not going to happen. Discussions are now in progress on how it can be spread from supermarkets to the rest of the retail scene. The unrepentant originator of the idea wants a bare minimum of exemptions. This is going on despite the clear demonstration provided already that officials grossly overestimate their ability to predict what the consequences of this kind of regulation may be. I don’t suppose anyone will go bankrupt as a result of any plastic bag regulations. But it is disconcerting to see such unambiguous evidence that the people fiddling with the economic controls have no idea what they are doing.

Then there is the minimum wage legislation. Many people in business are warmly in favour of this, as am I. In fiercely competitive trades it is better if the fierce competition does not turn into a contest to see who can pay the lowest wages. On the other hand, it is difficult to defend the hapless way in which the scheme was introduced. The points which have to be settled in the introduction of such a scheme are widely known and can easily be found out by those who have missed them. The government spends untold sums sending officials and politicos on “fact-finding trips” every year.

Bearing down on us is the proposed law on uncompetitive behaviour. This is another desirable innovation which is in danger of getting a bad name because someone has been skimping his homework. It should not be beyond the wit of man to produce a scheme for Hong Kong with tried and tested features which can be shown to work elsewhere.

No doubt some of the queries raised have been bogus - attempts to muddy the waters by people who do not like the whole idea. The notion that the competition law might in some way impact small businesses seemed a stretch to me, and moreover seemed to be popular with people whose own enterprises were neither small nor medium, but large.

Actually this particular innovation will probably not affect small enterprises at all. But you can understand the apprehension. As we noted at the beginning - for a small animal in the commercial jungle, wariness is a condition of survival. Still, there are enough hazards there to make it quite unnecessary for the government to add further ones by launching half-baked schemes whose unintended consequences will surprise their own authors. Small business people do not want help: the role appeals to the self-reliant. They do want to be left alone.

HONG KONG BUSINESS | JUNE 2011 33

Special Feature: 2011 Eminent Insurer

Sun Life Hong Kong: Providing lifetime financial security

LIFE INSURANCE

34 HONG KONG BUSINESS | JUNE 2011

S

un Life Hong Kong is a wholly-owned subsidiary of Sun Life Assurance Company of Canada which was chartered in 1865 and is a leading international financial services organization providing a diverse range of protection and wealth accumulation products and services to individuals and corporate customers.

Special Feature: 2011 Eminent Insurer

Investing on Hong Kong’s bright side

Sun Life Hong Kong’s CEO Roger Steel explains why this Canadian company has won numerous fund performance awards in HK.

R

oger Steel smiles as he explains why consumers take confidence in Sun Life Financial, a leading provider of protection and wealth accumulation products and services.

As the Chief Executive Officer of Sun Life Hong Kong, he has overseen Sun Life’s growth in recent years.

Sun Life Hong Kong was established in 1892 and currently serves over 400,000 customers, with 1,800 staff and distributors.

The company’s fiscal health stems partly from the fact that they are a Canadian company. Steel says that this makes Sun Life stands out from other insurers, giving them a unique advantage in the Hong Kong marketplace.

Steel explains, “We’re very proud to be a Canadian company. In general, the Canadian financial industry came through the global financial crisis very well, and so did Sun Life Financial in particular. We’ve always prided ourselves on being prudently managed and financially strong. In our 150 years of history, Sun Life Financial has not required or had any government bailout.”

Indeed, this impeccable record is one of the reasons why Sun Life Financial was named in 2010 and 2011 as one of the ‘Global 100 Most Sustainable Corporations in the World’ at the World Economic Forum in Davos, Switzerland. Sun Life Financial is the only North American insurance company and one of only six Canadian companies named to this prestigious annual ranking.

Regarding their success in Hong Kong, Steel explains, “We also have a fabulous presence in the Mandatory Provident Fund (MPF) market. There

Sun Life Insurance have taken the word “volunteerism” to heart and alleviated the lives of many.

“We strive to expand our insight into customers’ needs, markets and future trends through our SOLAR research -- Study Of Lifestyles, Attitudes and Relationships.”

are a number of ways to measure our success. We have the fastest growing MPF scheme in Hong Kong. We received extensive coverage in December 2010, which was the 10th anniversary of the MPF Scheme in Hong Kong. The South China Morning Post had a full-page spread on MPF and it said the top performing fund over 10 years was the ‘Sun Life First State Hong Kong Equity Fund’.”

“This premier ranking is due firstly to our disciplined and prudent approach in fund selection. This approach is not just applied to our MPF products, but to all our Sun Life unit-linked investment products. The resulting strong investment performance is the second aspect that is helping to drive our strong growth in MPF, which helps build our presence

in the broker market and receives a lot of attention from our agency force.

Sun Life’s underlying culture magnetizes customers to the brand, and they have a special Financial Café to help make the company one of the most user-friendly insurers in town.

Steel explains, “Sun Life’s global brand positioning is ‘Action Powered by Insight’. At Sun Life, insights are the heart of everything we do. We strive to expand our insight into our customers’ needs, markets and future trends through our SOLAR research (Study Of Lifestyles, Attitudes and Relationships). We apply these findings/ insights to develop new innovative products and services that empower our customers to act with confidence for a brighter future. We have a mission to help our customers achieve HONG KONG BUSINESS | JUNE 2011 35

Special Feature: 2011 Eminent Insurer

Sun Life Team

lifetime financial security. Through a study that Sun Life conducted a few years ago, customers told us that they treasured Sun Life’s long established history, strong financial strength, professional agency teams and our brand.

They would like to experience our brand in person, therefore we came up with the concept of the Sun Life Financial Café, which is a comfortable, private environment where customers can enjoy a cup of coffee and discuss with our consultants their financial needs and goals. They can also pay theirs premiums or check their account status at the café.”

Regarding Sun Life Hong Kong’s high-quality consultant training and their Executive Financial Planning (EFP) Diploma Course, Steel continues, “Sun Life Hong Kong has a very professional agency force. We always encourage our Sun Life consultants to strive for continued improvement.

Being a financial planning consultant is a professional career choice that requires the right qualifications and positive mindset. University graduates with a commerce or economics degree are well-suited to the job. There are also ample opportunities for bank staff to make the switch to become more entrepreneurial consultants.

Sun Life has a dedicated Learning & Development Centre with a team of 10 full time professional trainers to guide consultants through the regulatory requirements. We also teamed up with the Chinese University of Hong Kong to offer an EFP diploma course.

All Sun Life consultants are eligible to take the EFP, in which they will study 36 HONG KONG BUSINESS | JUNE 2011

subjects like finance and economics with real-life case studies from Sun Life. After graduating from the EFP, consultants can further their studies and apply for an IMBA course.”

As to what makes Sun Life Hong Kong special, Steel says, “Sun Life Financial utilizes a balanced business model and a multi-channel approach.

In Hong Kong, we are leveraging on the group’s strong financial strength, brand and expertise, and our agency standards are generally relatively high.

We also have a pension business and also provide third party administration services for other MPF providers.”

“Our pension business has won the company many recent awards,” Steel says, “We won the Benchmark Fund of the Year Awards; Lipper Fund Awards and Morning Stars Award. Based on 2010 performance, Sun Life’s 22 underlying funds won 37 awards; and 4 MPF funds won 6 awards.”

Referring to Customer Services, Sun Life has implemented strong regulatory and supervisory measures to protect its customers. He says, “We have a strong focus around risk management. Sun Life works constantly on the skill and ability of our consultants to conduct objective financial needs analysis with customers and to make the most suitable product recommendation according to customers’ needs.”

He also says they are developing an array of new innovative and profitable products for the market, “Customers have different financial needs at different life stages. Recently we have

“The insurance industry is starting to feel advantages vis a vis RMB products and investment opportunities.”

launched an RMB product for which we exceeded the sales quota ahead of the deadline. There is a huge appetite for RMB investment opportunities and we intend to develop more RMB products in the near future.”

Sun Life is also a pioneer in utilizing new technologies. He says, “We have just launched the e-Services for the life and MPF business. We also encourage our consultants to use iPads, and ran an “iWin” sales campaign for which consultants were awarded with iPads and iPhones. In this year’s Sun Life Stanley International Dragon Boat Championships, our signature campaign since 2008, we are also applying new technology. Our Dragon Boat championship is a carnival blending a traditional cultural event with multinational participation. Every year we have over 230 teams enrolled with approximately 30,000 spectators coming for the event. This year the organizer has replaced all traditional wooden dragon boats with fiber glass dragon boats. We have also developed an App on the iPhone for paddlers to get the most updated event information.”

Steel says, “Hong Kong is a fantastic place to be. The market is growing and very dynamic. It is fast-paced and very challenging. The net money inflows last year to Sun Life’s MPF scheme was triple that of the previous year. Overall, Sun Life is doing very well here, and we ended last year with our life market ranking up by a couple of places so we’re on a growth track.

It is no doubt a competitive market.

All of the global players are here. Now even the mainland Chinese companies, who for many years have been passive, are also becoming more aggressive.”

With an eye on the future over the next five years, Steel comments, “The insurance industry is starting to enjoy some advantages vis-a-vis RMB products and investment opportunities.

China continues to use Hong Kong as a gateway to the outside world, creating lots of opportunity for Hong Kong insurers including Sun Life. At the same time, Hong Kong is progressing in line with the global trend to more rigorous financial regulations and consumer protection. These developments will have a significant impact on the market and on sales practices, which Sun Life welcomes as we have always been a well-disciplined company.”

At Sun Life, we’re dedicated to providing innovative, thoughtful insurance products and a genuine caring service approach. With the back up and support of our global, stable financial strength, life is truly brighter under the sun. 永明金融一向致力以真摰、關懷的態度，為客戶提供嶄新及切合所需之保障及理財 產品。以環球實力雄厚的永明金融集團作為後盾，我們定能繼續照亮客戶，令他們 擁有閃耀人生。

Sun Life Hong Kong Limited 10/F, Sun Life Tower, The Gateway, 15 Canton Road, Kolwoon, Hong Kong 香港永明金融有限公司 香港九龍廣東道15號港威大廈永明金融大樓10樓 www.sunlife.com.hk

Special Feature: 2011 Eminent Insurer

Capital Investment Entrant Scheme

38 HONG KONG BUSINESS | JUNE 2011

W

e are Ageas, a new name in the insurance world but with a long international track record since 1824. With cutting-edge products and financial solutions, we protect what is dearest to you and help you prepare for whatever the future may hold. And, even though life can be unpredictable, our ultimate goal is to make you love the future as much as we do.

Special Feature: 2011 Eminent Insurer

Professional team serves the needs of CIES applicants

Ageas Insurance Company (Asia) Limited: Among the first authorised CIES product providers

A

n amendment to the Capital Investment Entrant Scheme (CIES) by the Immigration Department on 14 October 2010 added investmentlinked life insurance policies provided by insurance companies to its permissible investment asset classes. Under the scheme, any applicant with net assets of not less than HK$10 million invested in permissible investment asset classes can apply for right of abode in Hong Kong.

Paving the way to Hong Kong for capital investors The launch of the brand-new CIES product – only the second product of its kind – displays Ageas Hong Kong visionary and forward-looking mindset, and it offers more choices to potential CIES applicants from Mainland China and overseas. The company has also assembled a team of professional consultants to provide these individuals with relevant information and financial planning services.

Huge resources to develop a new market Mr. Stuart Fraser, CEO of Ageas Hong Kong, is pleased about recent developments concerning the CIES. “According to Immigration Department statistics, around 3,000 investors successfully applied under the scheme in 2010, and the total amount of investment involved was about HK$21.2 billion. Financial products accounted for HK$12 billion of this sum. Last year, property was removed from the list of eligible CIES investment categories, and

Stuart Fraser, CEO of Ageas Hong Kong, sees tremendous potential in the CIES market. He believes the new product will contribute to the company’s top-line growth this year “Putting the interests of customers first”

insurance products were added.

“This has created a huge opportunity for the insurance industry to assist CIES applicants.

Ageas Hong Kong’s has been actively preparing to capitalise on it,” he says.

Professional team delivers exceptional customer service “Putting the interests of customers first” is the company’s motto.

Therefore, a comprehensive CIES training programme has set in motion for its financial consultants.

In addition to product knowledge, this familiarises them with details of application procedures of the scheme. As a result, they are fully equipped to provide professional services on product offering and information that meet the individual

requirements of CIES candidates.

To make its services even better, the company has inaugurated a dedicated Putonghua hotline where customer service representatives respond to inquiries. Besides its two other customer service centres, the Financial Planning Centre is located in Langham Place, Mongkok – one of Hong Kong’s hottest tourist spots – for the convenience of visitors who wish to discuss CIES arrangements with their financial consultants.

Ageas Hong Kong has a team of more than 2,300 professionally trained and highly-skilled consultants, all of whom are ready to provide all-round insurance and financial-planning services. In fact, 6% of its consultants are members of the Million Dollar Round Table, the HONG KONG BUSINESS | JUNE 2011 39

Special Feature: 2011 Eminent Insurer

The professional team is ready to provide all-round insurance and financial-planning services

Ageas is committed to providing best-in-class customer service

premier international association for financial professionals.

Express Underwriting According to Stuart Fraser, the company’s express underwriting team for CIES-related products can complete the procedures within two days of receiving all the relevant paperwork. “We are thoroughly upgrading every aspect of our offerings to tap into the huge potential created by the scheme – from product design and sales support through to competitiveness and service delivery,” he adds.

Investment of choice that offers diversification of risk A CIES-approved investment-linked insurance plan requires applicants to invest a single premium in HK dollar.

As an insurance company, Ageas Hong Kong makes it possible to offer a greater choice of funds which in turn allows applicants to diversify risk 40 HONG KONG BUSINESS | JUNE 2011

Giant Ageas neon sign lights up Victoria Harbour’s spectacular night-time vista

while taking advantage of upward trends in fund prices. Thus, they gain the best of both worlds.

Another objective has been to design the CIES product in a way that enables policy holders to earn greater potential returns. It incorporates free fund switching plus a welcome bonus, and there are no initial charges or bidoffer spreads.

Proven fund-performance track record Ageas Hong Kong’s business development team does constant research to make the best funds available for clients to choose from.

“We are currently in partners with two highly respected fund houses. We would evaluate a fund’s asset value and its investment risk and returns, based on its past performance.

Different fund houses have their own unique strengths, and we are extremely prudent in picking those we include in our investment-linked

“We are thoroughly upgrading every aspect of our offerings to tap into the huge potential created by the Scheme – from product design and sales support through to competitiveness and service delivery.”

products,” explains Stuart Fraser.

Fast facts Ageas is among Europe’s top 20 insurers and it is listed on the Euronext stock exchange in Brussels and Amsterdam. As of 2010, it had 13,000 employees worldwide. Its gross inflow amounted to HK$186.3 billion, while its net profit from insurance was HK$4.07 billion.

Ageas Hong Kong is a wholly owned subsidiary of Ageas, which has over 180 years of experience in insurance and excellent partnerships in Asia and Europe.

Ageas Hong Kong is one of the leading insurance companies in the market. Its financial status is confirmed by a number of global rating agencies, i.e. A- (Excellent)

by A. M. Best, A- by Fitch Ratings, and Baa1 by Moody’s.

Corporate Feature

Wealth, Health, Wisdom, Altruist, the Pioneer

EMINENT BROKER

42 HONG KONG BUSINESS | JUNE 2011

A

ltruist Financial Group provides one-stop professional financial planning services to customers with the highest level of integrity and altruistic spirit. “Independence “ is their competitive edge. They carry an absolute objective role to provide tailor-made impartial financial solution to meet the unique financial needs of each individual.

Corporate Feature

Decade of Altruism

Eminent broker Altruist celebrates 10 years

63 colleagues (staff and consultants) of Altruist were awarded The 10 Years Long Service Award

F

or its 10th anniversary, the eminent broker company Altruist is toasting its important milestones and the continued commitment to better serve its clients.

Indeed, it has served over 50,000 individuals and families—leading many to comprehensive life protection, content retirement paths, medical plans, and educational success.

It has been one of the only financial planning companies to have won the Hong Kong Business High Flyers award since 2005.

The secrets of their success is owed to one simple formula – always put clients’ interest in mind. For one, while it’s a common practice for product-driven sales approaches in the market place, Altruist always emphasizes that it only sells to genuine needs—not arbitrary needs. In other words, it is trustworthy to their clients.

This ‘needs selling approach’ is underlined with three key concepts.

The first concerns Altruist’s com-

“Altruist always emphasizes that they only sell to genuine needs—not arbitrary needs. ”

prehensive fact-finding process, even before the official requirement from the regulatory bodies. The second concerns Altruist’s care about longterm, close relationships between its clients and financial consultants. Its make sure they are trained to understand the genuine needs of clients. Additionally, Altruist financial consultants conduct regular reviews with clients to keep their financial planning updated to meet the changing needs of life—this ranges from marriage, to having children to retirement, to sudden pitfalls like unemployment.

Altruist also views life insurance as the foundation of financial planning.

While most other consultancy firms sell investment related products to fit the short-sightedness of investors to make quick money, Altruist insists in educating clients with the correct financial planning concept right at the beginning – which is to use life insurance as the foundation of a solid and long-term financial

planning.

In addition to life insurance, Altruist also promulgates long-term saving, as a supplement to MPF saving and to sustain a decent retirement life. The wide array of products also extends to cover MPF, employee benefits, consumer banking services, general insurance as well as health solutions.

It does this in order to fulfill their mission to enhance Wealth, Health, and Wisdom.

With this mission in mind and to continuously provide clients with unique benefits, Altruist has jointly launched a new co-branded credit card with Dah Sing Bank in March 2011. Among the various unique card features, Altruist clients can now enjoy a double cash rebate for payment of insurance premium purchased through Altruist.

The company also prides itself in its absolute integrity.

Its service commitment is to carry out financial planning with the HONG KONG BUSINESS | JUNE 2011 43

Corporate Feature

Public recognition of Altruist - being awarded as High Flyers since 2005

Inauguration of Dah Sing Altruist Credit Card by Altruist President Mr. Albert Lam (right) & Dah Sing Bank Executive Director Mr. John Lam (left)

2011 Walks for Millions

highest level of ethics and integrity.

They do this by putting themselves in their clients’ shoes – always put clients’ interests prior to their own interests. For this, they practice a successful three-tier formula that combines professional knowledge, professional ethics and professional service in order to meet the ever changing environment.

To ensure that their financial consultants executes this professional standard, they’ve formulated their own “Company Philosophy”, which represents the highest service standard in Altruist. Moreover, it underscores their commitment to continually upgrade their financial consultant’s education level and professionalism. One of the clauses in this Company Philosophy states that “All our associates must conduct their business on a moral, ethical and legal basis”.

In the aspect of caring commit44 HONG KONG BUSINESS | JUNE 2011

Public Education Workshop organized by Altruist

ment, Altruist has established the “Altruist Club (A Club)”. This club was established to help it better serve the community by coordinating the efforts of its staff members, families and clients. Through actively organizing and participating all kinds of charitable and social welfare functions, Altruist extends its care to the community and makes life better for all.

This club also encourages social gatherings and health-related courses for the well-being of its clients, staff and financial consultants. These fun activities include spring dinner, annual parties, outings, health talks, yoga classes and Taichi courses.

Altruist also cares about the community. Through different charity activities, such as charity walk, flag selling day, blood donation day, scholarship etc., it strive to help the people in need. For fulfilling the corporate social responsibilities, Altruist

“Altruist has proven to be Hong Kong’s eminent broker with regards to their altruistic spirit, professionalism and adherence to the highest level of integrity.”

has been awarded the Caring Company Logo as honoured by the Hong Kong Council of Social Service since 2003.

To enhance the general public’s knowledge about proper financial planning, Altruist has been organizing regular workshops and courses (once every 2 weeks) since 2009.

Through the simple yet in-depth explanation of the technical knowledge, the participants grasp more solid understanding about the policies or products they have on hand. Now, they can learn more about their genuine needs.

In sum, after 10 years, Altruist has proven to be Hong Kong’s eminent broker with regard to its altruistic spirit, professionalism and adherence to the highest level of integrity. This goes exactly as its pioneering founder and president Mr. Albert Lam hoped – to work for client’s welfare and happiness.

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legal briefing

Are Representative Offices still an option in China?

Foreign companies were able to set up Representative Offices (ROs) in China since 1980 when the Interim Regulations for Control of Representative Offices were adopted.

T

Eric Mayer Thomas, Mayer & Associés

Li Ma Thomas, Mayer & Associés

hey were followed by the Measures on Procedures for the Registration & Administration of Representative Offices of Foreign Enterprises in China (“1983 Measures”).

In additionally to such nation wide regulations, specific local regulations which differ markedly from one city or one province to another have been applied to ROs. For example in Shanghai, ROs opened by Hong Kong investors are assessed by the “Inspection Office of National Security of Foreign –related Constructions of Shanghai” in accordance with the Issues on Administration of Instructed Address for Representative office Set-up by Taiwan, Hong Kong, Macao, and Foreign Enterprises; and in Guangzhou, the registered address of a RO must be located within the central area of the city otherwise the RO cannot be set up.

reform concerning ROs having an impact on both the structure itself and the tax rules applicable to ROs: 1. The Notice of the State Administration for Taxation on Issuing the Interim Measures for the Administration of Tax Collection against the Representative offices of Foreign Enterprises (“Tax Measures”) dated February 20, 2010 2. The Notice of the State Administration for Industry and Commerce and the Ministry of Public Security on Further Strengthening the Administration of Registration of Permanent Representative offices of Foreign Enterprises (“Notice on Further strengthening”) dated January 4, 2010 3. The Regulations of Registration and Administration of Permanent Representative office in Chine of Foreign Enterprises (“New Regulations”) which came into force on 1st March 2011;

An unmatched popularity for many years ROs have long been the most popular business model for foreign companies seeking to establish themselves in China for the following reasons : • such entities do not need a registered capital; • they are submitted to relatively low taxes; • no approval is required for their establishment.

For many years the only possible alternative for foreign investors was to set up joint venture companies in Mainland China with local partners, as the option of setting up a foreign investment enterprises wholly controlled by foreigners was not available or easy as it is has progressively become today. In theory, ROs are prohibited from engaging in profit-making activities, and they exist only for liaising, market promotion, preparation and assistance in Mainland China in assisting the parent companies overseas. However, the historical popularity of ROs has lead to a situation where a great number of ROs have de-facto engaged in business activities, and Chinese authorities have in practice tolerated this situation, as long as the ROs engaging in business activities would not issue any invoices.

Over the years ROs have thus taken advantage of a flexible administrative and legal environment in both the easiness and the wide range of operations for which they can be used.

“ROs have long been the most popular business model for foreign companies seeking to establish themselves in China.”

A reversal of fortune in favor of Wholly Foreign Investment Enterprises However, recent legislation has come as a warning that past tolerance will cease and that competent authorities will reign and apply newer strict regulations uniformly to all cities and provinces.

The Chinese government has indeed undertaken a

The New Regulations have already taken effect in March 2011, and according to our experience, additional requirements imposed under these regulations have greatly increased both costs and the time needed to set up ROs. In conclusion, it is strongly advisable to consider setting up a wholly foreign owned enterprise (‘WFOE”) as an alternative to an RO in the event the foreign investor will engage in profit-making activities, all the more as a WFOE can be set up relatively quickly and with a low level of capital that may be contributed over a period of two years. Besides, it is worth noting that a WFOEs will create more value to a business carried on legally.

Main key changes under the new regulations Key changes 1.annual inspection document

The annual report which must include the details on the lawful existence of the Parent Company, the details of the activities conducted by the representative office, the financial balance as audited by the appointed accounting firm as well as other relevant information.

2.registration required

The certificate of the Parent Company’s legal existence and operation for over two years

3.permitted scope of activities

Define clearly the non-profit activities of the RO

4.duration

Shall not exceed the duration of the Parent Company

5.legal liability

Directly liable personnel in charge or other staff may be fined not less than RMB 1,000 but not more than RMB 10,000 for (A) submitting false materials in relation to the ROs record or conceal any facts by any fraudulent means (B) forging, amending, lending, borrowing or transferring the Certificate or Representative Certificate

LIFE & STYLELAST

WORD

HK’s Best Cigar Lounges EMMA SHERRARD MATTHEW

Though indoor smoking has been banned in Hong Kong, there are still places where you can purchase fine cigars, store your collection, relax in a lounge area and sample your favourites in a tasting room.

The future is bespoke for luxury The P&L Club

21/F, Hing Wai Building, 36 Queen’s Road, Central This members-only club sells a wide range of Cuban, Nicaraguan and Honduran cigars as well as a selection of smoking accessories. Become a member (HKD 7,000 per year) and you can store your cigars in special humidors and enjoy them in the on-site tasting room. Membership also confers benefits such as advanced booking of the VIP room and spacious rooftop terrace for private events – perfect for a corporate gathering.

The club is also noteworthy for its period Art Deco design and bar area, where members can store their own bottles and enjoy them at their leisure.

Pacific Cigar Divan

24/F, Euro Trade Centre, 21-23 Des Voeux Road, Central A real hidden gem in the heart of Hong Kong, Pacific Cigar Divan is the perfect place to indulge, purchase and enjoy a range of cigars. This petite and cosy space boasts a retail area and tasting room equipped with a powerful ventilation system which allows customers to enjoy their cigars in a pleasant environment. There’s also a small outdoor patio area if you fancy going alfresco – a good move in the balmy summer months. The divan is home to a number of private lockers where true aficionados can store their favourites in a temperature and humidity-controlled environment and enjoy them at their leisure.

Cohiba Cigar Divan

Shop G6, East Lobby, Mandarin Oriental Hotel, 5 Connaught Road, Central This luxurious boutique is a cigar connoisseur’s dream. Located in the quintessentially Hong Kong landmark, the Mandarin Oriental, it’s an ode to great taste and classic design. There’s a tasting room and fantastic selection of vintage, special, regional and limited edition cigars. This is definitely one to remember if you’re in Central for business.

The P&L Club in Hong Kong 48 HONG KONG BUSINESS | JUNE APRIL2011 2011

Recommended by QUINTESSENTIALLY, the world’s leading luxury lifestyle group with a 24-hour global concierge service.

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Last word EMMA sherrard matthew

What you need to know about the ‘Hanistocracts‘ and the rule of fours Twenty-five years ago, the Gang of Four, led by Mao Zedong’s wife Jiang Qing, was at the centre of China’s political and economic life. The Gang’s downfall, in October 1976, led to dancing in the streets of Beijing.

In 2011, it’s the “rule of four” that preoccupies many of China’s ruling economic and political elite, and its elements could not be further from Qing’s puritan values, although its application has profound implications for the luxury goods companies who are currently fighting for a share of China’s consumer boom.

The rule of four was originally defined by Sinclair Lu, president of the Shanghai-based Hurun Report and author of ‘The Rich List’, which identifies the ranks of China’s super wealthy. “The super-wealthy have four cars, four watches and four houses,” he says. “The interesting question is why they buy in groups of four.”

The four houses picture is a good place to find an explanation. Shanghai’s super-wealthy require an apartment in the city, a home in the countryside near Beijing, a villa in Sanya and a flat in Hong Kong, “which is where they buy all their watches,” says Lu. The villa in Sanya is vital, say experts on China’s new aristocracy: entrepreneurs in their mid-40s who have a net worth of at least CNY 100 million.

“It would mean a terrible loss of

“The rule of four is becoming a fundamental aspect of super rich behaviour in China.” face for a member of the super rich to stay in Shanghai or Beijing during August. They must get out of the city or hide,” says Sam Wong of Javelinwoods, a company that creates restaurants for wealthy diners. “For the same reason, we train waiters to read out the total amount of the bill in a loud voice so other diners will know their host has been generous enough to keep face.”

The purchase of four cars follows a similar 50 HONG KONG BUSINESS | JUNE 2011

current of upward social mobility. A member of the new aristocracy must have a Rolls Royce or a Bentley, but to drive it all the time suggests the owner had to scrimp to buy it and would result in loss of face. Thus the ‘hanistocrat’, as the super rich of China’s dominant Han ethnic group have been dubbed, must also have a Mercedes S-Class or similar for the chauffeur to drive, a large SUV such as a BMW X5 for his wife and at least an entry level Porsche or Ferrari.

“The rule of four is becoming a fundamental aspect of super rich behaviour in China,” says Daniel Jeffreys, Editor-in-Chief of Quintessentially Asia magazine, who coined the term hanistocrat during a recent study of spending habits in Shanghai. “The principle of “face” plays a vital role in hanistocratic spending patterns and luxury brands are beginning to sense this and changing their marketing plans in response.”

One key supplier to the hanistocrats is Ivan Tong, the Hong Kong-born entrepreneur who launched Sparkle Roll, the company that sells more Rolls Royces and Bentleys than any other in the world – all in China – and is now beginning to build shopping centres to use as laboratories for its “cluster” theory of spending by the super rich.

“Tong believes that if you can sell a hanistocrat a Rolls Royce, you can sell him a Parmigiani watch or a Cartier necklace for his wife,” says Jeffreys. “So instead of marketing individual brands, Tong’s company identifies the emerging wealthy and sells them everything it can on a pre-determined check list that includes watches and cars.”

The gang of four’s influence lasted only a few months after the death of Mao but the rule of four is likely to last for much longer. As more Chinese entrepreneurs become or aspire to join the new aristocrats, the category of luxury goods that must be bought in groups of four is bound to grow.

Owning just one of anything suddenly feels so last year.

Emma Sherrard Matthew is the CEO of Quintessentially, the world’s leading luxury lifestyle group with a global concierge service. For more information visit www. quintessentially.com, call +852 2540 8595 or hongkongbusiness@quintessentially.com.