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Property remains the top concern for Hong Kongers, both for would be investors and renters. In this issue we look at the political dimension and how public housing may change with the new Chief Executive from 2012. One of the front runners, C Y Leung has commented directly to Hong Kong Business on this crucial issue and you can read his thoughts as well as our analysis on page 12. A counter view is that property must fall regardless of public policy and is well worth the read on page 22.


April also marks the end of the bonus season, and whilst not pretty, there should be enough happy bankers out there with some cash to burn. The grapevine has it that most banks paid their staff in a ratio of 75 % cash and 25 % in equity spread over three years. There is also a rumour running around town that one of the Swiss banks that was bailed out came back with a bonus pool figure so low that the Hong Kong based bankers rejected it and refused to take bonus until the pool was topped up. A few anxious weeks later, HQ decided to release some more funds into the pool, and then bonuses were finally allocated. Regardless, one of the best ways to spend one’s hard earned cash is on art, and we have a great feature on all the action this art season on page 34. And finally, we love lists here at Hong Kong Business and will be unveiling our own in the next two issues. The first is ‘Asia’s top bankers’, so if you know some heavy hitters, drop their name to me and we will put them on the short list. The other is ”20 in their 20s”, which will identify 20 up and coming business people in, you guessed it, their 20s. Hope to hear from you and support our economy by spending that bonus.

Tim Charlton

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CONTENTS ‘Mask Series Painted in 1996’ by Zeng Fanzhi


cover story Art season in Hong Kong

COVER STORY 34 Art season in Hong Kong Experience art as the Hong Kong auction season attracts Chinese people and HK Collectors.

AVIATION REPORT 24 Asian corporate jet business takes off A two-day conference about the lifting of regulations in China to aid the industry’s expansion.

OPINION 18 The art of delegation and promotions 20 Prosperity vs. Bankruptcy

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

44 How to make $7.8 million without trying


aviation report asian aviation conference


Hong Kong health care Plugging the gap

REGULAR 28 Numbers

ANALYSIS 22 5 Reasons why home prices will drop

32 The Real Cost of Chinese Nonperforming loans (NPLS)

38 Plugging the gap in HK’s health care reforms with flexible benefits

47 Accurate forecasting: fact or fiction

48 Life and Style

FIRST 12 The politics of property in Hong Kong

14 Immigration and crime 16 Asset prices to push new records 16 HK’s walking ATMs shows no sign of running out of cash

For the latest business news from Hong Kong visit the website



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Mercedes-Benz unveils CLS 350 Getting Hong Kong to be more green, CLS 350 BlueEFFICIENCY is certified as an environment-friendly petrol private car. The new CLS has an athletic form sporting the exciting colour elements of LED technology and a 6-cylinder model with an output of 225kW. It brings convenience and comfort into driving with the new electromechanical power steering and active parking assist. 6 HONG KONG BUSINESS | APRIL 2011

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News from Daily news from Hong Kong Soaring Hong Kong most read FINANCIAL SERVICES

Each Hong Kong permanent resident to receive $6,000 According to Hong Kong Information Services Department, Financial Secretary John Tsang said, “Under the new proposal, people can choose to draw the full $6,000 through a platform depending on their needs, and there will be incentives to encourage them to save.”

Import prices are all growing up due to growing. the volume of goods reexports went up 18.1% while that of domestic exports grew 15.5%.

financial services

Inflation for 2011 forecast at 5% Absence of exchange rate adjustment flexibility and monetary policy dependence makes HK incapable of tackling inflation in a proactive manner. In fact, sharp surge of property prices in the past 18 months will begin to show up notably in the rental component of the CPI. In 2010, HK$ loan advanced 12.8%, up from 0.5% in 2009. ECONOMY

Hong Kong 2010 exports up 18% The prices of total goods exports rose 4.7% while the prices of goods imports went up 6.4%. The volume of HK’s total goods exports last year increased 18.1% over the previous year, while the volume of goods imports rose 18.6%. According to figures released by Census & Statistics Department,


IMAGI acquires Toon Express Group The company plans to raise HK$359mn through new share subscription aside from buying rights of “Pleasant Goat and Big Bad Wolf”. IMAGI International Holdings Limited has announced the acquisition of Toon Express Group, trademarks and character copyrights of popular Chinese animation “Pleasant Goat and Big Bad Wolf”.

HR & Education

Experienced candidates’ salary levels in FMCG industries are rising by up to 15% According to Matthew Bennet, Managing Director of Robert Walters Hong Kong, “As the financial services and commerce sectors in Hong Kong recovered from the effects of the global economic crisis amid more buoyant market conditions, there was a marked increase in hiring activities, most notably within the fields of retail, HR, professional services, finance, marketing and communications.”

HK$24 billion investment for HK retired people property

1.5% Asia-Pacific fourth quarter accelerated office rent up 1.5%

Consumers’ expectation of continued rental catch-up bolstered booming investment demand.


Mercer welcomes new budget measures but recognises opportunities missed On the news that HK$24 billion is to be reserved to provide a HK$6,000 stimulus to every MPF account holder, Alan Oates, Mercer’s Retirement Risk and Finance business leader in Hong Kong, commented: “We applaud the HK$24 billion investment into the retirement savings of the Hong Kong people.” HEALTHCARE

Hua Xia Healthcare posts third quarter profit of HK$43.6mn

Their core business is to develop animation brands


The group’s acquisition of Huihao Group has become its significant income stream driver which continues to deliver satisfactory results. The group also announced its third quarter results for the nine months ending.


News from Daily news from Hong Kong Soaring Hong Kong most read FINANCIAL SERVICES

New $500 banknotes to be launched The Monetary Authority will put new $500 banknotes into circulation on February 22. They will be available at HK’s three note-issuing banks. The $1,000 banknotes of the new series have been in circulation since 7 Dec 2010 and banknotes of the other 3 denominations of $100, $50 and $20 will be launched. economy

High 2010 economic growth pushed 2010-2011 surplus estimate to $140.5bn The surplus is over six times the government’s original estimate of 0.8%. According to HSBC, today was a surprisingly expansionary budget given that inflation’s clearly on the rise: Chinese and global food prices are inching higher, liquidity conditions extremely loose, wages are on the rise, domestic demand is vigorous, and residential property activity is robust. Despite clearly rising inflationary pressures, the government’s spending plans will see its consolidated fiscal budget drop sharply from a revised 4.1% in 2010-2011 to 0.2% in 2011-2012. Consolidated expenditures are set to

OOCL has introduced “Empty Pickup Appointment (EPA)” rise 22% this year, with consolidated revenue growth expected to hold steady. Two factors may help to explain this seemingly large fiscal surplus descent. First, last year’s exceptionally high budget surplus was not typical, nor was it expected. The government had originally penciled in a surplus of 0.8% for 20102011. But with growth shooting well over the government’s anticipated range of 4-5% last year and incomes rising in tandem, revenues from profits tax and salaries took off to push the new 2010-2011 estimate to a newly upgraded HK$140.5B.

Stephen Yiu of KPMG China


professional services

KPMG China appoints Stephen Yiu as Chairman Stephen Yiu succeeds Carlson Tong for a four year term on April 01, 2011. According to KPMG, Stephen joined KPMG in 1983 and previously served as Audit Partnerin-charge for KPMG China. He was most recently appointed Deputy Chairman of the firm, on October 01, 2010. Stephen has extensive experience of the securities market in mainland China and Hong Kong, having assisted clients in the initial public offering of shares on the China and HK stock exchanges.

Private housing rentals also increases economy

3.7% Hong Kong February inflation rate up 3.7%.

Economists see inflationary pressure to further increase in the coming months as global food and commodity prices remain elevated. Rapid increases in private housing rentals also continues. Overall consumer prices rose 3.7% year on year in February, up on the 3.6% January figure.


OOCL unveils Empty Pickup Appointment service The company enables customers to make appointments before empty container pickup by calling the company’s hotline number. To enhance customers’ convenience, OOCL has introduced “Empty Pickup Appointment (EPA)” service since October 2010 in Hong Kong. Customers can make appointments prior to empty container pickup by simply calling OOCL’s hotline number, amend or cancel their appointments and pickup time. The service ensures customers can pick up empty containers as per appointment at designated locations to avoid unnecessary transit between depots.


A political year The property market and the stock market have paid little attention to the upcoming political events, which may shape housing policy and the property price trend in the next five years. Appointments and elections of new leaders add uncertainties.

The politics of property in Hong Kong Politics and property have always been strange bedfellows in Hong Kong, but the prospects of a new Chief executive in 2012 presents some very real alternative scenarios for the local market. The two chief contenders are Henry Tang, currently the Chief Secretary for Administration, a post he has held since 2007, and CY Leung, who is currently the Chairman of DTZ, a real estate firm. Both have property and construction backgrounds, with Tang having chaired the HKSAR Construction Industry Council from 2001 to 2002. But it is Leung, who has also been a member of the Standing Committee of the China

People’s Political Consultative since 2003 and Convenor of the Executive Council of Hong Kong, who is most publicly on the record advocating for more public housing. Under the current administration, public housing has taken a back foot to private development, with the new public rental housing flat production forecasts for 2011-12 and 2012-13 will be some 11,200 flats and 16,700 flats, respectively. This Whoever wins the battle will likely put more emphasis on compares with a budget land sale list public housing of up to 40,000 apartments which will be available to developers this year, a massive increase on the 10,000 average new flats soldCYin each the Leung, with a of strong real background, has openly last 3 years, and also estate an increase on supported public housing the 20,000 new apartments that were

Declining residential units completion 100

Feb 2011 Centaline Index: 93.41


2011F CKON forecast User demand : 17k

2003 - 2006 Average completion: 21.6k

24 20 16

2007 - 2010 Average completion: 9.9k



Support rating 60 58

54 52




48 46


4 0

30 1999







Completions ('000, LHS)







Developers: up 90% Property price up 29%

Jan 10 Feb 10 Mar 10 Apr 10 May 10 Jun 10


Jul 10 Aug 10 Sep 10 Oct 10 Nov 10 Dec 10 Jan 11 Feb 11

Henry Tang

CY Leung

Source: The University of Hong Kong POP site

Source: Rating and valuation department, Centaline, HKET

Chart 4 : Stock price running ahead of physical property price

12 HONG KONG BUSINESS | APRIL 2011 Landlords: up 79%


Centaline Index (RHS)

Source: The University of Hong Kong POP site

Source: Rating and valuation department, Centaline, HKET


real estate background, has openly supported public housing. We believe home supply should experience a noticeable increase if he becomes the next leader. The other candidate, current Chief Secretary Henry Tang, may continue with existing policy.




this applies to both the private and public sector. “The affordability gap has been growing as housing have increased at 2007, a rate muchthe In contrast with the appointment ofprices the chief executive in 2002, 2005 and determining successor next March seems very uncertain. The soft marketing campaign for the election of the faster than salaries and wages. upcoming HKSAR chief executive (2012-17) has begun. Whoever wins the battle will likely put more emphasis on public housing. Government While there is close topolicies zero chanceshould for Donald not Tsang and his administration to resume construction of public housing (for sale) in the next 12 months, the next aim at bringing down prices to suit chief executive candidates are likely to spend a lot of time talking about combating inflation and affordability but should provide providing affordable housing. forasale subsidized prices,” We believe the next chief executivehomes will likely have closerat relationship with the central government and that his policy should be more in tune with that of Beijing. While HK cannot do said Leung, who believes the key much about imported food inflation, it can take a proactive role in controlling rental increases and factor behind in curbing excessive price appreciation. Between the two topcontinual contenders, CYincreases Leung, with a strong

landscape, competition will be intense for the November election, and the results are less predictable than they were four years ago. Due to several political party splits and the emergence of new contenders, the election will further thinly spread the political clout across many noncooperative pro-democratic parties, in our view.




the Affordability Gap government The first political event is election of District Council (every four years) in November. Currently, of In an exclusive interview with Hong the 534 councillors, 102 are appointed by the chief executive. For the upcoming election, one-third is unlikely to to one-half of these appointed seats may beBusiness, eliminated, weakening chief executive’s Kong Leungthesaid that hecontrol. achieve its set At the same time, the power conferred to these elected representatives will increase. For the chief believes home(increased ownership executive in March 2012, 117 district councillors from 42)is willsocially be part of the targetelection of 30k 800-member Election Committee. For the Legislative Council to election in October 2012, five new more preferable renting and that units. seats will be allocated to members of the District Council. Given the more divided political

Supporting rating of Henry Tang vs CY Leung

1999-2002 Average completion: 29.6k


foreshadowed in the 2010 Policy address.

Chart 6 : Supporting rating of Henry Tang vs CY Leung

Chart 3 : Declining residential units completion 36

Looking back at the past two appointments of new leaders in Hong Kong in 2002 and 2007, we see the property market was flat during the 12 months prior to the inauguration in March. In contrast to a lot of western countries, where favourable policies may be announced the year prior to election, most of the good news, such as electricity subsidy, waiving property rates and money injection into mandatory provident fund (MPF) accounts, were announced on this week. They will not make people more bullish about the HK economy or property market. After all, Donald Tsang is not seeking re-election. On the other hand, there could be a few bumps over the next 12 months that may add uncertainties to the market.

2010 Landlords: up 35% Developers: down 1% Property price up 21%

Real Estate | Investment View | 23 February 2011 2011 YTD Landlords: down 9% Developers: down 4% Property price: up 6%



narrowing and public housing could be a key differentiator going into the election next year. HK cannot do From a public support rating of much about 54% in January 2010, Tang’s approval imported food rating dropped to 49% in 2011, inflation, it Macquarie Research whilst Leung’s rose from 49% to 51% can take a over the same time. The numbers are proactive role close, but they do show a trend. But in controlling against this backdrop is the largest rental increases of sites housing Fig and 2 List of market issue focus asaffordability. potential land supply in FY curbing excessive price

Crumbling Pillars U Can Hong Kong people earn enough Sites in the Application List for Government-initiated Land to pay for these expensive houses? Sale prices is that net supply of private Moreover, the November measures Residential In order to do so, incomes must residential properties has been falling aimed at cooling the property marketIL 8949 21, 23 and 25 keep Borrett Road,and Mid-Levels West R rising, the hope is that Customs & Excise Service Married Quarters, 7 R progressively in the past 8 years. proved to be somewhat successful KIL 11184 Ex-Ko Shan Road the six Hom, ‘new pillars’ Ko Shan Road, Hung Kowloonof the economy, “The long-term policy response to in lowering the monthly residential IL 8963 which includes education,creative Former Lingnan College Site, Stubbs Road R this must lie in increase in supply.” property transaction volume from IL 8920 Ex-Government Supplies Depot, Oil Street, North Point H industries, medical, technology, R 13,100 cases in November to 9,300 environment and certification will C Analysts’ View in December and 8,000 in January, IL 9027 make up forNorth the Point crumbling Eastern part ofsomehow ex-North Point Estate, R But some analysts believeResearch the yet prices remain stubbornly high Macquarie Kong property C ‘old pillars’ of tourism,Hong logistics, government will not be able to for now, noted Standard Chartered Source: The Lands Department HKSAR, Macquarie February 2011 financial services andResearch, professional achieve even half the number analyst Kelvin Lau. So whoever services. This seems unlikely, promised. Among them is wins the race to be the next Chief according Ng who argue that the Residential landto supply covers almost all Macquarie, whose property team Executive of Hong Kong could have a new pillars account for just 8 % of Fig 2 List of market focus sites as potential land supply in FY11/12 thinks the government can only material impact on the public/private According the to our analysis the “land application list, it re economy in of 2009. Expensive Area in Site Area Estimated Earliest ensure a total supply of 15.4k units, housing mix, which will have a big coversSite locations HK, Kowloon and the New Territories and scarce land supply remains Lot No. Location Usage (ha) (sqft) Site Availablethe Date far lower than the government’ s effect on housing prices. tiers. key constraint in cultivating new Sites in the Application List for Government-initiated Land target of 30k units. “Under the David K C Ng, an analyst with industries, and a lack of affordable Sale current application system, we think investment bank RBS noted that housing drives away talent.” Residential Residential unit breakdown by location Fig the government is unlikely while there is closeWest to zero chance for Fig 3Residential IL 8949 21,to23achieve and 25 Borrett Road, Mid-Levels 1.05 112,893 Apr-11 its set target of It reinforced ourRoad Customs KIL30k. 11184 Ex-Ko Shan & Excise Service Married Quarters, 7 Residential 0.19 20,473 Apr-11 Donald Tsang and his administration Residential unit breakdown by location Kostill Shan Road, Hung Hom, Kowloon view that HK residential is not to resume construction of public IL 8963 Former Lingnan College Site, Stubbs Road Residential 1.49 160,384 HK Apr-11 facing an influx of oversupply, let housing for sale in theNorth nextPoint 12 0.79 84,896 17%Jun-11 IL 8920 Ex-Government Supplies Depot, Oil Street, Hotel and alone that there has been ~38k units months, the next chief executive Residential / Commercial of under supply in the last sever years candidates are likely to spend a lot IL 9027 Eastern part of ex-North Point Estate, North Point Residential and 2.93 315,385 Mar-12 (2004-10), according to our estimate,” of time talking about combating Commercial noted the bank. Furthermore, of inflation and providing affordable Source: The Lands Department HKSAR, Macquarie Research, February 2011 NT the total government-initiated land housing. He reckons the next 50% sale/tender, there are seven out of Chief Executive will likely have a landrelationship supply with covers almost all segments nine sites that are either in Residential an urban closer the central locations or luxury districts, where government and that his policy According to our analysis of the land application list, it represents a wide diversified package that KLN 33% new land supply is scarce. covers locations should beKowloon more in tune withNew thatTerritories of in HK, and the and locations that are in various segment Macquarie expects developers Beijing. “While HK cannot do much tiers. to welcome the tender or auction about imported food inflation, it can Source: Lands Department HKSAR, Macquarie Research, February 2011 of these quality sites and think the take a proactive role in controlling Fig 3 Residential unit breakdown by location Fig Residential breakdown by segment Departmentunit HKSAR, Macquarie Research, February 2011 Sour potential strong response could boost rental increases and curbing excessiveSource:4 Lands buyers’ sentiment, particularly for price appreciation. Residentail unit breakdown segment the top luxury segment. In fact, a Between the two top contenders, We continue to think that the actual residential land supp Luxury HK a strong real estate 9% of the government and devel third of all new sites released will be CY Leung, with minimum price expectation 17% destined for mid-market or luxury background, has openly supported requested out for public land auction. We think the gove apartments, a move that is hardly public housing. We believe home likely to be released to the market and to amount to ~15. going to appease the mass market supply should experience a Upmarket struggling to buy an affordable home. noticeable increase if he becomes 24% Fig 5 Land supply the government controls the a NTknows So the government clearly the next leader. The other candidate, 50% it needs to do more to alleviate Source current Chief Secretary Henry Tang, the housing crunch, but will it be may continue with existing policy,” Government initiated land auction and tender programme enough? The new supply won’t come noted the bank. Of Mass market West Rail above-station development KLNthe two Tang 67% projects URA online until at least 4 years after remains the more33% popular candidate Lease modification (based on historical average) developers buy the land, and in the among the populous according meantime demand outstrips supply. to opinion polls, but the gap is Source: Lands Department HKSAR, Total units of Macquarie supply Research, February 2011 Lot No. Location appreciation.

C Y Leung

Source: Lands Department HKSAR, Macquarie Research, February 2011

Source: The Lands Department HKSAR, Macquarie Research, Feb HONG KONG BUSINESS | APRIL 2011 13 Source: Lands Department HKSAR, Macquarie Research, February 2011

FIRST Pan-Asian Hunting Stocks 95% of total prisoners were earning below the Malaysian average per capita income. Singapore and The situation in Indonesia is In 2009, total population of policeman in China was about 1.8 million whilst China’s total In China, 722 people Hong Kong not that different. Since population was over 1.3 billion. This leads to the calculation of approximately 722 2003, people the are covered by have a similar covered by single policeman which is a high number,number please see & 52. single policeman ofFig.47 crimes has increased by environment in 2009. 2005, At the same time, in 2009, the number of policemen 75% in Shanghai andEspecially Beijing wereafter around In Shanghai and 45,000 and 50,000 each, and the cities’ populations the wereincreasing both around rate 19 million. Thissharper means Beijing each became that each policeman covered 422 and 380 people in these cities. policeman covered possibly due to the natural disasters 422 and 380 people However, we need to note that one of the main problems crime in China its tragic suchregarding as earthquakes and isthe respectively inequality throughout the country. China may have paid attention to public security in big tsunami disaster. cities such as Shanghai and Beijing, but this would not be the case for other rural areas. Rising employment following A security guard is a recognized job in China. economic shocks also tends to spike In 2009, there were about 2,200 security companies,crime with about 1.03 million security rates. The latter was guards, particuapproved and managed by the public security bureau. Besides, there were about 3 million larly prominent in 1997 (the Asian security guards from local companies, communities, department stores, etc, also supervised crisis) and 2009 (the global slump by the government authority. post the September 2008 Lehman The security service industry still appears to have high potential for grow in China. bankruptcy). When Japan reached Crime trends in HK its peak in 2003, crime rates were Hong Kong, Singapore, and Taiwan are experiencing declining crime rates. also the highest for the past 20 years. It is also applicable to the case of Fig 62 Overall Crime, Theft, and Burglary in HK Fig 63 Violent and non-violent crime in HK Indonesia in 2005 and Taiwan in (No. of cases, 000s) (No. of cases, 000s) 2002. Especially in Korea, 1997 was 100 100 an unforgettable year due to the IMF 90 90 crisis. As GDP dropped sharply, the 80 80 unemployment rate went up, and the 70 70 60 60 crime rate rapidly increased. Then, in 50 50 1999 as the economy recovered, the 40 40 Singapore and Hong Kong both have same period last year. As you may crime rate decreased sharply. So the 30 30 20 well deserved reputations of being 20 expect from the trend both violent conclusion to be drawn is that keep10 10 among the safest cities in Asia. But is property and housebreaking cases ing an economy growing and getting 0 0 this a result of good policing or good 2003 maintained its downturn trend. 2004 2006 2007 2008 “If2009 2000 2001 2002 2004 2005 2007 2008 2009 are in 2003 the right sort2006 of immigrants Burglary Others demographics? we look at it moreTheft specifically, among someviolent of thenon-violent most effective tools to Macquarie Research Hunting Stocks According to research by Macportion of theft was the big-2011 fight Source: Hongall, Kongthe Police Force, Macquarie Research, March Source: Hong Kong Police Force,crime. Macquarie Research,Pan-Asian March 2011 quarie, demographics seems to be gest, and crime against persons came a larger factor in the low and falling next. Burglary comprised the smallFig 64 Policeman coverage in HK Fig 65 situation Crime situation is getting even betterin in HK HK Crime is getting even better crime rates; and in particular in est portion, and it has been declining Hong Kong is considered to be one of the safest cities in the world. In 2006, according to the (%)crime (Cases) (No.of people survey done by UNICVS, International Crime Victim Surveys organized by the UN, the Singapore, where it notes the marked even more. Here, we considered Policeman Coverage per policeman) 48 rate of 1350 Hong Kong was obviously lower than that of both western and other Asian countries. decline in crime, when (measured as200 violent property and house breaking The crime 1300situation in Hong Kong has become even better since then. 46 a percentage of the population) can 195 as burglary.” Things are also improvLooking1250 at Fig. 62-65: 44 be directly attributed to the country’190 s ing in Hong Kong. Since 2006, cases 1200  Cases of burglary and theft as well as that of overall crime have been gradually declining. 42 selective immigration policy. The 185 of burglary and theft as well as that 1150  Portion of violent crime is getting slightly smaller. idea is that highly educated migrants180 of overall crime have been gradu40 1100  Number of people covered by one policeman increased and reached a stable status. Still, 175 are less likely to commit crime. ally declining and the number of 38 1050 as of 2009, the number is 195 people per policeman which is very small. Singapore’s crime rate once reached 170 a people covered by one policeman has 1000  Detection rate is improving continuously while overall crime per 100,000 populations 36 is 165 peak around 2005, but it has declined increased and reached a stable status. 2003 2004 2006 2007 2008 2009 declining. 160 overall crime per 100,000 population detection rate (%) rapidly thereafter. “Even when its Still,2004 as of 2009, the number is 195 2009 Crime trends in Singapore 2003 2006 2007 2008 crime rate was high, the total crime people per policeman which is very Singapore is Source: is Hong Kong Policewhich Force, Macquarie Research, March 2011 Singapore another country has a reputation for its safety. This is supported by the Kong Police Force, Macquarie Research, March 2011 Source: Hong Kong Police Force, Macquarie Research, March 2011 ratio per 100,000 in population Source: was Hongsmall. another country official statistics. has a lower than that of Hong Kong. Unfortunately, many partswhich of Asia reputation for its crime 100,000 ininpopulation in SG Singapore and Hong Kong have a cannot report the same happy turnFigTotal 66 Total crime perper 100,000 in population Singapore safety. This is similar environment, but Singapore’s around in crime figures, supported and again by the 28 officialseems statistics to selective immigration policy has3 March 2011rising youth unemployment successfully brought highly educated be the cause. Malaysia and Indonepeople into the country. Especially sia in particular are experiencing from 2005 to 2010, there was a high a mini crime boom. According to percentage of net migration which the Journal of the Kuala Lumpur explains why Singapore’s crime rate Royal Malaysia Police College, No. is now lower than Hong Kong,” notes 4 (2005), in the article The Rise of Macquarie. According to Singapore Crime in Malaysia, they provide an Police Force, in the first half of 2010, interesting observation. From the the overall crime fell by 4.5% to statistics obtained from the Prisons Source: Police Intelligence Department ,Macquarie Research, March 2011 Source: Police Intelligence Department ,Macquarie Research, March 2011 16,073 cases from 16,837 cases in the Department, they found out that Macquarie Research

Immigration and crime

(No. of cases) 900 850 800 750 700 650

600 1999







Total crime per 100,000 population


Singapore’s crime rate once reached a peak around 2005, but it has declined rapidly thereafter. Even when its crime rate was high, the total crime ratio per 100,000 in population was lower than that of Hong Kong.

Th e

F a cT o r

UndersTaTed InnovaTIon sInce 1999

jia international limited 20/f, 18 hysan avenue, causeway bay, hk 香港銅鑼灣希慎道18號20樓 tel: 852 2832 5000 fax: 852 2572 6500


Asset prices to push new records Asian Economic Monitor 8 March 2011

InflationInflation may have started slowing, after the market has fully digested The budget fiasco is a tellAsian Economic Monitor 8 March 2011 but no one seems to have told the the impact of the third round tale sign of the public’s growing property market toCPI roseProperty of for property coolingpolicies measures dissatisfaction with a number of pricesAdjusted What thewhich numberscontinues say: Headline 3.6%y/y in January. one-off government (i.e. Inflation, continued see home prices new records. waivers push on government rates and public housing rental), again. the underling in inflation continues2010, to trendand up, may rising November social and economic issues at home. are rising 3.2%y/y in Chart 5: Imported inflation on the riseto Sylvia Liu, Chart 6:In Rising import prices rising property price At first glance it January. may seem continue according particular, incongruent, but UBS. Hong continues to be a problem,”  What theyactually mean: Invery most economies investors watch inflation to assesan theeconomist risk of shifts at in monetary policy. Kong 12.0 75.0 10.0 However, Hong has no out domestic to the peggedtypically exchange rate, rather it when 8.0 said Liu. different dynamics areKong playing in monetary policy due to its commitment asset prices benefit 80.0 imports the US Fed’s monetary policy regardless of local inflation. But 8.0 inflation is still very important to track, 6.0 85.0 these markets. For overall inflation therates Federal Reserve eases monetary But analysts from Standard 4.0 because Hong Kong occasionally experiences persistent, negative real interest that over-stimulate the domestic 90.0 4.0 2.0 the stabilisation of food prices saw policy aggressively, because Hong95.0 Chartered warn that rates in the economy. 0.0 0.0 inflation come in at 3.7 %, which Kong’s linked exchange rate with100.0 the -2.0 US will be raised sometime next 12-month outlook: Inflation is intensifying as we have projected. HKD weakness; rising Chinese inflation; -4.0 105.0 -4.0 -6.0 year, which means Hong Kong will is still ahead of lastasset year’ s 2.3 % means that it imports continued reflation andbut domestic credit expansion should continueUSD to drive the acceleration in both the100%110.0 -8.0 imported and domestic cost pressures. 5.0%Fed’ fromslast year’s 2.3%.policy 115.0 below economist’ s predictions of 5% We expect 2011 inflation to at least-8.0double of thetoUS monetary -10.0 follow suit. “Near-term, we expect 85 87 89 91 93 95 97 99 01 03 05 07 09 11 85 87 89 91 93 95 97 99 01 03 05 07 09 11 (LHS) for 2011. withoutHeadline anyCPIsterilization. the Import USPrice economic recovery to remain Asian Economic Monitor 8 March 2011 Index Import price from China HKD effective exchange rate (import weighted, RHS) This will be some relief to sluggish, while avoiding a doubleSource: CEIC, UBS Source: CEIC, UBS Inflation households struggling to make ends dip. We expect US growth to pick up Chart 1: Inflation is trending up Chart 2: Drivers ofLiquidity the headline CPIconditions meet. They will also be comforted Liquidity conditions remain later in 2011 and in 2012, prompting ChartCPI 7: Wage growth is gradually trending up… Chart 8: …reflecting an improving labour market Contribution to headline (percentage points) 12.0the numbers say: Headline CPI rose 3.6%y/y in January. Adjusted for one-off government favourable. policies (i.e. 4.0% by the What fact that household income extremely The the first rate hike in Q2-2012 as the Percent, inverted scale %YoY waivers on government rates and public housing rental), the underling inflation continues to trend up, rising 14.0 16.0As 14.0 -1.0 increased 4% in the last three months resumption of QE2 should drive an Fed seeks to normalise markets. 8.0 3.0% 3.2%y/y in January. 12.0 12.0 12.0 of 2010 so4.0at least they are not going influx of capital inflows into Hong10.0 1.0 Hong Kong and Singapore interbank 10.0 2.0% What they mean: In most economies investors watch inflation to asses the risk 8.0 of shifts in monetary policy. 8.0 8.0US backwards. But it is the property offered rates are priced off their Kong. This, plus an extended period 6.0 6.0 However, Hong Kong has no domestic monetary policy due to its commitment to the pegged exchange rate, rather it 3.0 1.0% 0.0 4.0 4.0 US Fed’sthe monetary policy regardless of local inflation. But inflation is4.0 stillnegative very important to track, marketimports that the remains biggest counterparts, these rates will also of real interest rates, should 2.0 2.0 5.0 0.0% -4.0 Hong Kong occasionally experiences persistent, negative real interest rates that over-stimulate the domestic because 0.0 0.0for 0.0 concern and little has changed in stay low for a prolonged period, but continue to prove very supportive economy. -2.0 -2.0 -1.0% 7.0 -4.0 -8.0 Food -4.0 Housing Utilities Durable Goods Transport property. Other both interest rates and monetary will eventually move higher when asset prices, in particular -4.0 85 outlook: 87 89 91 Inflation 93 95 is 97 intensifying 99 01 03 as05 we07 have 09 projected. 11 12-month HKD weakness; -2.0% -6.0 rising Chinese inflation; expansion, this time thanks to But policy risks admittedly on-6.0 9.0 85 the US starts to move,” the bank-8.0 Headline CPI and domestic CPI QE2. adjusted for one-off measures should continue to 87 89 91 93 97are 99 01 03 05 07 09 11 Aug-10 Oct-10 Nov-10 Dec-10 Jan-11 87 89 91 93 95 97 99 01 03 05 07 09 11 continued asset reflation credit expansion drive Sep-10 the85 acceleration in 95both the Headline CPI 2.3%. Nominal wage growth imported and domestic cost pressures. last year’s Unemployment rate (LHS) Nominal wage growth (RHS) Property prices are rising again,We expect 2011 inflation to at least double to 5.0% thefrom rise. noted. 

Source: CEIC, UBS

Source: CEIC, UBS

Source: CEIC, UBS

Chart 3: The CPI basket

Inflation is trending Chart 1: Inflation is trending upup 12.0

ChartCPI 9: China CPI versus Hong Kong CPI Chart 2: Drivers of the headline Index Contribution to160.0 headline CPI (percentage points) 12.0 4.0% Food, 26.9 140.0

Others, 15.1

8.0 ervices, 16.2

3.0% 2.0%

4.0 0.0 -4.0

1.0% 0.0%


-8.0 87



Transport, 9.1


Headline CPI








09 29.2 11

CPI adjusted for one-off measures Utilities, 3.6






110.0 90.0

-4.0 Housing rental index (24mma, LHS)

96 98 00 02 04 Sep-10 Jan-11 Kong inflation 90 92 Oct-10 94 96 Nov-10 98 Hong 00Dec-10 02CPI 04 06 08



Chart 4: Rising rental should reflect on CPI next year

HK’s walking ATMs show no signs of running out of cash

Index 160.0


Food, 26.9

-10.0 -20.0 -30.0 85 87 89 91 93 95 97 99 01 03 05 07 09 11 Hong Kong CPI inflation Hong Kong loan growth (RHS)

UBS 10

UBS 11

Index 170.0

luxury brand Coach, mainlanders accounted for 40 % of sales in150.0 its Hong ervices, 16.2 account 120.0 Kong outlet in 2010 but now 130.0 100.0 for the majority. And the mainlanders 110.0 80.0 are moving beyond their traditional 90.0 rental index (24mma, LHS) feedingHousing grounds of Canton Road and Housing rental index (LHS) 60.0 70.0 CPI rent component (RHS) 29.2 Tsim Sha Tsui into the more upmarket 40.0 50.0 Transport, 9.1 Utilities, 3.6 90 Hong 92 94 Kongers 96 98 00 malls 02 04 such 06 08 as 10 Pacific Place and TheSource: growth CEIC, UBS of luxury brand stores in Source: CEIC, HKMA,the UBS Landmark. So why are the mainlanders still buying local? China may have been expected to put It comes down to tax apparently, a bit of a dent in Hong Kong boutique UBS 10 with cities like Shanghai adding a 17.5% sales. It hasn’t. VAT, a 10% import tax and a mid-teens Recent research from HSBC reveals percentage specific luxury goods tax, it that far from slipping away to buy that can be cheaper to buy the airline tickets Cartier watch in Chengdu, mainlanders, to Hong Kong and still have money left also known as ‘walking ATMs’ for over compared with buying locally. Plus their seeming endless supply of cash, the shopping experience in Hong Kong are a bigger part of Hong Kong based is deemed better with a wider variety of boutique sales than ever. At the mainland Others, 15.1


Source: CEIC, UBS Source: CEIC, UBS


Chart 3: The CPI basket




08 10 12 50.0 China CPI inflation

Source: UBSCEIC, UBS, Census & Statistics Dept Source: CEIC, UBS CEIC, HKMA, Source:

Source: CEIC, UBS Source: CEIC, UBS Source: CEIC, UBS






%YoY, 3mma 40.0 30.0





%YoY 12.0



Housing rental index (LHS) Utilities Durable Goods Transport -8.0 CPI rent component (RHS)

Higher credit growth; higher Chart 10: Higher credit growth; higher inflationinflation

Index 170.0


120.0 100.0

-1.0% 85

Source: CEIC, UBS

Chart 4:rental Rising rental should reflect reflect on CPI Rising should onnext CPIyear next year


Mainlanders, also known as ‘walking ATMs’ for their seeming endless supply of cash. brands and models on display, says HSBC. Or perhaps it is still the lure of Mickey Mouse. But whatever the reason, far from slowing down, mainlanders are only growing in numbers and importance.



richard branson The art of delegation and promotions


“The most successful entrepreneurs are those who find people who are at least as good as, or better than, they are at running their businesses.”


irgin’s ability to grow and diversify successfully was set in the company’s early days, with my learning how to delegate and let go. This will probably seem counter intuitive to anyone who is in the midst of launching a business. Right now, you are almost certainly motivating your staff by demonstrating your own drive and enthusiasm. Most days, the founder will be the first to arrive at the office and the last to leave. This is often the only way to survive those first tough years, when most businesses have to scrape by with the minimum number of employees. The trick The trick is to start promoting from within on day one. I’m not just referring to moving people to new positions, but giving all employees enough flexibility to take on new responsibilities within their current jobs, effectively giving themselves mini-promotions. Through their daily work, your employees are developing a deep knowledge of the company and industry. So when employees tell you about their good ideas for the business, don’t limit your response to asking questions, taking notes and following up: If you can, ask those people to lead their projects and take responsibility for them, as they will have the passion and drive to see their ideas through. From those experiences, they will then have built the confidence to take on more and you can take a further step back. A few years later, as the number of our employees

neared 100 at our record business, I began to fear we were becoming slow and cumbersome. So I split the company in half, which created a new company. We picked talented people from within Virgin Records to run it. The next time Virgin Records’ number of employees reached 100, I repeated this trick, and I have carried on doing it. This policy kept our businesses hungry and adaptable and, crucially, we uncovered great management talent – people who otherwise might not have gotten noticed, and would likely have pursued promotions at other companies. This kept our staff motivated. At Virgin, we often promote employees who have energy and determination, even if they don’t yet have a lot of experience – people who at other companies might be considered unproven and not ready for a promotion. We have found that these employees seldom let us down. They are so buoyed by their promotion and passionate about their work that they make a success of the new job. All we have to do is ensure they have the support they need to carry out their goals. Over the past 40 years, we have selected many of our most successful CEOs and senior managers from within our organization. Stephen Murphy, who became CEO of the Virgin Group five years ago, was hired 17 years ago as Virgin’s finance director. Others who have risen to the top jobs include Steve Ridgway, CEO of Virgin Atlantic; Jayne-Anne Gadhia, CEO of Virgin Money; and Matthew Bucknall, CEO of

Virgin Active. Looking back, my decision to work out of my houseboat in West London rather than at Virgin Records’ offices was a very important move. This happened about the same time I decided to split Virgin Records into two. I had been involved with the day-to-day decisions at Student magazine and our record stores for years, but as we moved into the recording business, I decided to take a step back to give my managers space to make decisions. That’s when I learned that the most successful entrepreneurs are those who find people who are at least as good as, or better than, they are at running their businesses. Stepping back frees the founder to focus on the bigger picture – to dive in when there are problems or to help close a deal. This is how I manage our diversified group: I am not involved in the daily business of any Virgin company, unless I need to be. When your team is in place and the launch phase is over, take the time to conduct a test to see how well the company performs without your help. This can be a very revealing exercise: It will show you where the problems are and, most important, how well you have done at learning to delegate. So make sure you hire great people, then find ways to keep them on your team for long term. Encourage them to pursue their ideas and give them the tools that they need to succeed. If you get this right, you will also have more time to look after body, mind, family, friends and children. Basically, you’ll have time to have a blast.


Tim hamlett Prosperity vs. Bankruptcy


his may not be the best possible time to discuss the reasons for American prosperity, which is looking a bit wilted at the moment. But the Land of the Free is still being held up as a shining example of vibrant and prosperous capitalism, so it is worth considering carefully any conclusions drawn about the causes of this happy state of affairs. The one which caught my eye the other day was bankruptcy. Apparently, or so we were told, Americans feel no shame at going bankrupt at all. It is simply regarded as part of the hidden process of trial and error which produces winners. The bankrupt person is neither pitied nor shunned; he is admired. So people are not afraid to fail, so they try more daring things, so innovations are attempted which defy common sense and conventional wisdom, so a few of them succeed wildly, QED. At least that is how the argument goes. One does also hear complaints. Apparently ailing companies are allowed to trip into bankruptcy court and transform into a sort of semi-alive condition in which they are protected (an interesting choice of word) from their creditors and can try to reform themselves in the hope of becoming going concerns again. In the meantime they continue in business, competing with companies which are still paying their debts. Which in a way seems rather unfair. Ethical Aspects Indeed discussion of these matters usually seems to overlook the ethical aspects of the matter. There is a scene in the book of “Casino Royale” which I think did not get into any of the James Bond movies in which a lady at a casino card table makes a very expensive bet, loses it and does not have the money to cover her owings. There is an embarrassing scene, and muttering of “le coup de deshonneur” before Bond rescues the lady with some of his copious winnings. The French phrase loses a lot in literal translation - the blow of dishonour - but you get the gist. Honourable gentlemen - and ladies - do not wager money they have not got, do not incur debts they cannot repay and do not make promises they cannot keep. It is all very well to say there should be no stigma in bankruptcy. Of course nowadays we are forgiving about these things and we would not shun a friend just because his business had failed - or so I hope. On the other hand there should be some stigma. The bankrupt has made off with quantities of other people’s money and not repaid it. We may hail the reappearance of Chrysler and General Motors as debt-free if somewhat slimmer car-making operations. But this was done by sticking two fingers up at people who had supplied money and goods in good faith, expecting to be paid or repaid as the case may be, and reneging on agreements freely negotiated by the companies with their employees. Is this the sort of thing we would like to see more of? I have at various times been a spectator for a good deal of the process. In my youth I sometimes accompanied my father, who was in business as a wholesaler at the time, on 20 HONG KONG BUSINESS | APRIL 2011

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

dubiously legal attempts to retrieve goods supplied to companies or individuals who were obviously insolvent or on the brink. These trips were sometimes followed by creditors’ meetings, which fell into two categories. In some a clearly embarrassed and penitent debtor did his best to spread as much consolation as possible. Others featured shameless and cheerful crooks whose obvious familiarity with the procedure was presumably the reward for going through it several times. Later as a court reporter I covered bankruptcy proceedings, which though gloomy were a relief because the alternative was usually an inquest. At the bankruptcy hearing the proprietor of the extinct business (butchery and hairdressing seemed particularly popular with the financially challenged) would be examined in painful detail about what had gone wrong. I noticed he had always managed to rescue a suit and a tie from the wreckage. In Hong Kong this is all very subterranean. There is a flourishing bankruptcy system - more like the British one than the American one, for obvious reasons - but it seems a lot of people do not use it and its doings are not reported. If Hong Kong people need capital to finance some new venture they usually rely on relatives, which means failure to repay brings problems of a kind which a court will not be able to solve, or on loan sharks, who have their own solutions for situations of this kind. Large companies never seem to fail, presumably because however badly the business is run they can always cash in their chips and sell the factory, shop or whatever. They can then become real estate companies cosseted by a congenial government. Well we must not begrudge others their good fortune. But it seems to me that capitalism has distinct ethical problems if the lavish rewards for success are not balanced by a decent level of chastisement for failure. Whenever you complain about the big gap between the rich and the poor in Hong Kong the spokesmen for the rich defend their position as a reward for, among other things, risk-taking. This implies that there is some serious downside to their activities. But apart from those actually caught in criminal activities it seems the downside for big business in Hong Kong is very limited. Most markets are rigged, the government is friendly, and even the insolvent never seem to become very poor. One does not find former millionaires sleeping under fly overs. Indeed even the ones who are caught in criminal activities seem to do quite well afterwards. Complex company structures allow proprietors to keep their winnings and pass the losses elsewhere. A man who has made his extended family rich will never be short of a sofa to sleep on. There have been signs lately that even the very prosperous are beginning to recognise that we cannot go on for ever with the arrangement immortalized in an old hymn: “The rich man in his castle; the poor man at his gate ...” It is not only people and companies which can become bankrupt. Land of the debt free?

Hong Kong Property: 5 Reasons Why Home Prices Will Drop Property transactions are starting to fall, and demand from foreign buyers is decreasing.


gainst the overall bullishness in the property market, I have been slightly cautious since the start of the year. Although I suggested in my own forecast that a 10-15% rise of overall home prices in 2011 is possible under bull case scenario, I have already outlined some of the key risks factors that would trigger a correction, which include an earlier-than-expected interest rates hike from the United States, and more-aggressive-than-expected monetary tightening in China, along with other reasons such as Eurozone debt crisis. The key to call for the end of bull market in Hong Kong real estate is to identify something that trigger funds outflow. Since I wrote my forecast early this year, new developments around the world have made Hong Kong property market more risky


“The key is that fundamentals are not as strong as people think: Hong Kong is no longer a fast-growing economy, and population growth is very slow.”

to me than it was. Follow-up my “Beginning of the End” call, here are some reasons why I turn from slightly cautious to downright bearish:

is very slow. Worse still, like many other parts of the world, the population is ageing, and that is going to be negative for real estate market.

1. Hong Kong Property Prices Are Really Expensive Whether you agree the methodology or not, there is very little doubt that Hong Kong home prices are among the most expensive on earth. This is the prerequisite to call anything a “bubble”, and the property market in Hong Kong certainly meets this criteria. Even though properties look very affordable, they are so only because of ultra-low interest rate. Of course, being expensive by itself does not mean that prices are going to drop. The key is that fundamentals are not as strong as people think: Hong Kong is no longer a fast-growing economy, and population growth

2. Illusion of Supply Shortage The most frequently cited reason for high home prices is the supply shortfall, though my previous analysis showed that if we take the total housing stock in the private residential sector into account, the Hong Kong private residential market may have as many as 210,000 excess flats relative to “true” demand based on the total number of households living in the private residential sector in Hong Kong. I believe that the excess in the market should be able to buffer any annual supply “shortfall” for 2-3 years. In fact, should the property market corrects, we might find ourselves facing

analysis an excess supply in the total housing stock as well as the new supply coming on stream after government increased land supply over the past year or so. 3. Demographic trend is working against the market Demographics have an important relationship with asset prices. Előd Takát of the Bank of International Settlement (BIS) wrote a paper in August 2010 titled “Ageing and asset price” (Note 1), in which he examined the demographic forces behind home prices. He found that in the previous few decades, the baby boomers generation has driven asset prices up, including real estate prices. However, the overall ageing of population in the coming decades will create an 80 basis points headwind per annum in real estate prices in the United States, and even stronger headwind in other places like Europe and Japan. The implication for such a finding is that, as almost all countries will face an ageing population in the years to come, real estate markets all over the world are likely to face demographic headwinds. For instance, the ratio of workingage population to total population in both Hong Kong and China peaked in 2010, and population ageing will proceed at a fast rate. By 2050, the population aged between 15 and 59 in Hong Kong will account for less than half of total population, down from about 70% in 2010 according to United Nations Population Division’s forecast. Although the property market will continue to experience ups and downs, the structural problem of

population in Hong Kong means that the long-term trend for the real estate market will be tilting downward. 4. Economic Uncertainties Increase Now, many people think that the Japan’s earthquake is only going to be a blip. Even the significance of Japan in the global economic landscape has diminished over the past 2 decades; Japan is still the third largest economy in the world with all sorts of intricate links within the global economic system. Japan, for instance, is a major trading partner of China and many others, and is a major part of the global supply chain in technological products. There have been reports that Japanese brokerage houses Nomura and Daiwa Capital Markets were among the brokers who sold off most stocks in Hong Kong since the start of this week. While it is unclear whether that was related to Japanese institutional clients selling off stocks in Hong Kong to repatriate funds back to Japan, the country will have a huge need for funds in months or even years ahead, so it should not be surprised that funds are flowing back to Japan. Situations in the Middle East and North Africa are also far from clear. The breaking news is that UN Security Council has just approved the use of a no-fly zone in Libya, and military intervention might be on the way. That creates even more uncertainties. Our neighbor, China, is fighting with inflation and tightening policy. Tightening will inevitably slow down the economy, and that will be negative for Hong Kong real estate. In the time of crises and uncer-

“In the time of crises and uncertainties, money flights to safety.”

tainties, money flights to safety (e.g. US Treasury). As Hong Kong property market is extremely sensitive to money flow, the increasingly clouded global economic outlook does not bode well with Hong Kong property market. 5. Interest Rates on the Rise I have written previously that interest rates in Hong Kong do not always move with that of the United States. As long as funds are flowing away from Hong Kong, market interest rates will probably rise even the Federal Reserve was keeping interest rates low. The increasingly clouded economic outlook may trigger some funds flowing away from Hong Kong, which will decrease money supply and put upward pressure on interest rates. Banks in Hong Kong have raised mortgage interest rates marginally, not because of any interest rates hikes in the United States, but to increase net interest margin. Although not consequential by itself, this gives a signal that interest rates cannot be at record low forever. Interest rates cannot remain low forever, but understanding this and watching this happening appears to be two different things. Bubbles are not sustainable, but they often last longer than people believe is possible, and when they end they end very quickly. A big bubble waiting to burst. But when? Only history can tell, but it might be unwise to go into the market now. By Zarathustra W. Also Sprach Analyst

Transaction Volume of Private Residential Market

M1 growth vs. Home Prices Changes




Asian corporate jet business takes off A two-day Asian Business Aviation conference talked enthusiastically about the lifting of regulations in China that will aid the industry’s expansion.


orporate jet travel has been gaining momentum in the Asian region since 2006 as huge enterprises and individuals began recognizing business aircraft as a business and productivity tool rather than a mere status symbol. Greater security, privacy, convenience, comfort and the ability to travel based on businessmen’s own schedule instead of depending on commercial airplanes have added extra lure to the trend. The boom, which started in the United States in 2005, spread to Asia with very consistent, rapid growth of the industry in the past six years. The 2008 financial crisis has not been a deterrent. In fact, Asian business jet buyers benefitted from the crisis


“China will become the ‘big story’ of this decade in the aviation industry.”

as aircraft cancellations from clients overseas pushed forward plane deliveries to Asian customers. Against this background, outgoing Cathay Pacific Airways CEO Tony Tyler, who left the airline last March 31 to take up the position of Director-General and Chief Executive Officer of the International Air Transport Association (IATA), says: “China will become the ‘big story’ of this decade in the aviation industry, given the rapid expansion of its airline market and growth in airports over the next 10 years.” Asian Aerospace Congress “China is already the world’s secondbiggest economy and the country’s emergence as an economic power-

house will undoubtedly be reflected by its importance in aviation terms,” Mr Tyler added in his keynote address at the three-day Asian Aerospace Congress which took place on March 8, 2011 at the Asia World-Expo in Hong Kong. As part of this prestigious event organized by Reed Exhibitions, some 5,300 delegates, including several Chinese billionaires, visited the dedicated static line of 22 business aircraft, hospitality chalets and stands at Asian Business Aviation. Business aircraft participants included Airbus, AsiaJet, Boeing, Bombardier, Cessna, Embraer, Gulfstream, Hawker Beechcraft, Metrojet and TAG Asia. All reported a high quality of visitor traffic at their air-

aviation report craft, hospitality chalets and stands. Among the business aviation debutantes out on the static display were aircrafts such as the Beechcraft King Air 350, Boeing BBJ, Cessna Citation XLS Plus and Sovereign, Hawker 900XP and Pilatus PC-12. At the two-day Asian Business Aviation conference delegates talked enthusiastically about the lifting of regulations in China that will aid the industry’s expansion, new airports being built, new infrastructure and maintenance, repair and overhaul (MRO) facilities, the need for more pilots and training and the requirement to educate on the benefits of private charter. Speakers including Hong Kongbased Metrojet’s CEO Bjorn Naf highlighted the importance of choosing a reputable management company as the majority of business jets in China are owned by private

Delegates also heard that there are just 116 business jets in China, and that figure will increase 30% by yearend. Asian business aviation market has increased by 15% in 2009, with about 600 executive jets operating in Asia, while US has over 11,000 in operation. This market is tipped to increase further. Boeing forecasts that Asia-Pacific will account for 44% of world travel in 20 years’ time, from 34% today. And its rival, Airbus, is predicting that the region will receive 40% of new airplane deliveries worldwide over the period. At the show, China announced completion of the preliminary design of its C919 medium-range commercial airliner that is meant to be a direct competitor with Boeing’s very popular 737 and Airbus 320 aircraft models. The C919 is slated to undertake the first flight in 2014, with

“Asia has become the fastest- growing region in the number of billionaires in line with its rapid economic transformation.” individuals as well as the importance of winning trust from those owners, families and clients that purchased jets which were flown 24/7 and 365 days a year. Demand to increase

Joe Lambardo, President, Gulfstream

certification and delivery to its first customers by 2016. On the opening day of the show, Hainan Airline Group announced an order for five Gulfstream G450/ G550 aircraft and five Dassault Falcon 7Xs for business jet subsidiary

“In Asia, airlines are buying business jets; a new industry trend that has emerged with increasing numbers of super-rich in Asia.”

Deer Jet, together with an order for two VIP configured Boeing 787s for its Hong Kong Airlines subsidiary. In Asia, airlines are buying business jets; a new industry trend that has emerged with increasing numbers of super-rich in Asia. Super Rich According to Forbes’ rich list, announced recently – potential corporate jet customers, there are 115 Chinese billionaires from the mainland among the 1,210 billionaires from around the world, almost double of last year’s 64. Their businesses cover manufacturing, information technology, food, and other sectors, where China has grown spectacularly since Deng Xiaoping launched his reforms. Hong Kong and Taiwan have 36 and 25 billionaires respectively on the list, as Asia has become the fastest-growing region in the number of billionaires in line with its rapid economic transformation. Indian billionaires have also moved up the list of the world’s super rich, reflecting the dynamism of the so-called BRIC countries and the wider emerging market economies. Prominent among the Indian billionaires are members of the Mittal family, who are now at the top of the global steel industry, alongside other top Indian players in the information communication technology sector.

Daniel Kunz, Director, Sales and Marketing, Pilatus Aircraft HONG KONG BUSINESS | APRIL 2011 25

aviation report Many of them attended the airshow and inspected the aircraft on display, but their identities were kept low key as part of security measures. Show’s feedback Joe Lombardo, President, USAbased Gulfstream Aerospace Corporation, a wholly owned subsidiary of General Dynamics, which designs, develops, manufactures, markets, services and supports the world’s most technologically advanced business-jet aircraft, says: “The visit here (to Hong Kong) has been invaluable. We had good talks with potential customers, you just can’t do this on the phone.” Gulfstream is making a major commitment in resources to the region and intends to maintain its lead-

lai, Product Marketing Director, Airbus Corporate Jets, which displayed its A318 ELITE aircraft. The aircraft is designed to serve markets with frequent services on low-density routes, and it accommodates 107 passengers in a typical two-class cabin configuration. It is the best-selling A320 Family product line. Airbus’ Chinese partner In parallel with the show, European aircraft manufacturer Airbus announced that Taikoo (Xiamen) Aircraft Engineering Company Limited (TAECO) is the new Airbus-approved cabin-outfitter in China where the plane producer has a strong and growing presence. TAECO, which is a member of the HAECO group, is one of the world’s

“Asian Aerospace met our expectations in all aspects and we’ve had some interesting quality discussions. We participated first time on the static and it was well worth the effort.” ership position. In 2009, the company doubled spare parts at bases in Beijing, Hong Kong and Singapore. “Asian Aerospace was a good showcase for the comfortable and spacious Airbus A318 cabin which billionaires came to see and experience first hand,” said David Velupil-

leading MRO companies. It is located in the Gaoqi international Airport in Xiamen. “Airbus is new top-end of the corporate jet market,” Francois Chazelle, Airbus vice president executive and private aviation, said. Ted Farid, Senior Vice President

Francois Chazelle VP Airbus Executive & Private Aviation jets 26 HONG KONG BUSINESS | APRIL 2011

“The visit to Hong Kong has been invaluable. We had good talks with potential customers, you just can’t do this on the phone.”

International Sales, of USA-based Hawker Beechcraft, said: “Great location for a show, very similar to EBACE (annual meeting place for the European business aviation community). We met with key people and (saw) markedly greater activity over the 2009 event. It is worthwhile bringing three aircraft here.” Daniel Kunz, Director Sales and Marketing, Pilatus Aircraft, said: “Asian Aerospace met our expectations in all aspects and we’ve had some interesting quality discussions. (We participated) first time on the static and (it was) well worth the effort.” “Best conference I’ve been to in 20 years. (It dealt with) real issues (and) great substance,” Jim Edgar, Regional Director, Marketing Commercial Airplanes, Boeing Commercial Aircraft, said. A number of jet manufacturers have already set up sales offices on the mainland as the business aviation market matures. Airspace and air-traffic control regulations have become more liberal in the recent years, with the opening of airspace below 4,000 metres making it easier to travel by business jet and helping to expand the market. By Wong Joon San Tel: +852 2106 1898 Freelance writer; Editor of and GCTL Insights Magazine.

Asian aviation is growing and improving



Will you ‘friend’ your grandfather ? What will/did you do when you retire?

What will/did you do when you retire?


Hong Kong

Join a new company/start a new career


Join a new company/start a new career


Be a volunteer

Be a volunteer


Adult education Garden



Join a club and attend activities


Move to a senior centre for better social life




Take care of grandkids


Join a club and attend activities


Move to a senior centre for better social life

10 73








Adult education


Take care of grandkids





Generational differences in online activities

What will/did you do when you retire?

Features used on the internet %


12-19 (Post 90s)

20-29 (Post 80s)

Using email Using search enginges General browsing Instant Messenger Downlaoding Playing online game Online banking/investment Listening to live music Listening to live radio Online purchase Online auction Online booking of travel services

61 61 51 38 30 28 26 23 18 15 15 13

61 64 45 65 45 45 3 36 14 10 17 2

75 73 61 60 44 35 29 32 24 27 25 20


Internet usage continues to grow 2006






56 58



72 73 70


46 47

45 45 43

42 43 40

18 18



Daily Newspaper^

Source: Synovate Media Atlas Hong Kong Target: People 15-64


Hong Kongers are active in either creating, participating or reading social content

90 90 88 90 88 76 75

25% -50%

50-64 (Silverhair) 43 43 40 12 13 15 28 16 14 8 5 12

Source: Synovate Media Atlas Hong Kong Jan-Dec 2010 Target: People 12-64 years old who have used the internet in the past month

Source: Synovate Media Atlas Hong Kong Jan-Dec 2010 Target: People 12-64 years old who have used the internet in the past month

Media Usage

30-49 (Post 60s/70’s) 60 59 52 25 23 22 33 17 17 13 12 14

Weekly Magazine^

Yesterday: TV, daily newspaper, internet & radia Pastweek: Weekly magazine Past month: Monthly magazine ^Exclude readign online

41 41

15 16 14

Monthly Magazine^

Created blog or personal page, uploaded self-produced video/audio to public site


Commented blog, contributed to forum/discussion groups, contributed/edited articles in wiki


Connect in social network








44% 43%


59% 55%



Read blog without commenting, listened to podcasts, read forums/discussion groups


Source: Synovate Media Atlas Hong Kong Target: People 12-64 years old who accessed the internet in the past month




86% 88%

67% 71%

past 30 days activites

For more information contact: Nielsen, Margaret Lim (; Synovate contact Tim Hill (


Launched in Germany, anchored in honG KonG marine inspired and German made, aLno’s marecucina is ready to taKe you on a cuLinary voyaGe.

The German Design Council presented ALNO’s Marecucina with the Interior Innovation Award 2011 at imm cologne.

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ceo interview

Standard Chartered ‘Here for Good’ Basker Rangachari, Chief Marketing Officer, Consumer Banking, Standard Chartered Hong Kong took time to speak to Simon Hyatt.

Basker Rangachari, Chief Marketing Officer, Consumer Banking, Hong Kong

How do you intend to stay ahead from your competitors? Okay. Sun Tzu, in the art of war, the famous general said that the army that wins the war is not the one with the biggest fire power, and it’s the one with the best people and best innovative people. Second, how would Ferrari as a car keep its market dominance in sports cars even when others come? Two things make a difference in that work. First is the silo mentality on invest; you got to break the silence. That’s not easy because in some banks you know each silo is very powerful. And they would go ‘why should I participate in what is for common good, right?’ It’s a bit tough. Second is platform -- technology. When you want to do customer centric loyalty you’ll have to have a customer centric view. Capability. People. If you put the right people, enable them in the right space and give them the right technology, that’s when they’ll be successful. So I think we are already ahead in that game. That would already give us a head start. The Ferrari example. Ferrari is perfectionist in their design. They try to design every element perfected. We of course have started this and you know couple of years ago in Hong Kong, in Singapore, and now five markets. We are in a continuous journey of trying to fine tune that other little piece that we may need to fine tune to make the experience better. We are continuously trying to innovate to the next level. What do you think are the primary factors that led Standard Chartered from winning the Excellence in Customer Centricity award? It’s nice to know we were able to beat a number of competitors in winning the award. That’s very good news. But if I kind of analyze why we won, I would say there are a few factors that made the difference -- the whole, the way, the concept that was put together. It was not put together because someone in the bank thought. Hey it’s a cool idea, let’s go do it and run a marketing campaign. We actually took over a year to build out a loyalty strategy. Which relationships matter? Which ones’ do customers want to be rewarded for? So there’s a whole range of work underneath that was done to prepare ourselves for what would total relationship reward program look like and how it should look. We started within Singapore, with a campaign that talks about ‘Shouldn’t

a bank reward you doing nothing’ and that is a very interesting way of getting attention. Grabbing attention. In Hong Kong we launched with a whole range of advertising which is about ‘Why shouldn’t you get rewarded for basically just having the relationship with the bank and letting the bank make money of you’. It’s a very unique way because if you look at traditional loyalty programs in a bank, it’s always around your credit card spent. Credit card spent when you’re young and starting life you spend a lot and getting rewards feels nice. But actually as you mature through your relationship with the bank it’s actually a lot more on your assets side – your deposits, your wealth, your investments so to get absolutely nothing on that and just get on the smaller portion of your balance sheet doesn’t make any sense. So that led us to firstly getting it. I actually think in Hong Kong it was executed extremely well. What internal cultural aspect or even unique external marketing aspects do you think led Standard Chartered fronting the field in terms of customer satisfaction? See the loyalty program is one component of becoming customer centric. It’s not the panadol answer to all your pains. It cannot just solve all the problems. So getting the loyalty program was one piece. You have to move authority lines, goal posts have to change. So there’s a fair bit of culture that needs to be handled and that should be handled

through transformation, workshops, teaching people what it means to be customer centric, etc. The external marketing aspect is we actually tagged that a lot with our new brand slogan which is “Here for good.” There’s a level of genuineness that needs to be built in to it. So it’s not about the highest point that gives you or the biggest air miles. We didn’t try to play just one element of the loyalty game. But it was more about, we reward you on your full relationship on everything you do with us even when you’re not transacting. Now, that kind of a promise came across more genuine and it resonated with our customers. It’s the internal culture and the external marketing message needs to come across as very solid. Why do you think it’s taken the banking sector so long to recognize the power of the customer’s relationship? I think what happen is that banks are no longer run by just bankers, or career bankers, more industry people are coming into banking and I think that created a culture change. So when you come into banking for the first time you go ‘Why wouldn’t we reward the customer? Why wouldn’t we do this?’ So that kind of gentle pressure I think helps banking evolved. Now, banks also look at what other banks do. So you needed someone to start the dance, or get on the dance floor first. So banks are very good in replicating what other banks and that’s what happened -- to the benefit of the customers.

The Real Cost of Chinese Nonperforming loans (NPLS) China can simply grow its way effortlessly out of its loan problem is widespread but wrong.


nce again I am starting to hear investors tell me that they have been advised by bank analysts not to worry too much about the impact of a banking crisis in China. According to this argument, China has developed a very efficient and low-cost way to address banking crises, and the proof is that Chinaâ&#x20AC;&#x2122;s last banking crisis, which occurred only a decade ago, was quickly and easily resolved. I am afraid this argument makes absolutely no sense and is based on an inability to understand how the crisis was actually resolved. Throughout modern history, and in nearly every economic system whether we are talking about China, the US, France, Brazil or any other country, there has really only been one meaningful way to resolve banking crises. Whenever non-perform32 HONG KONG BUSINESS | APRIL 2011

â&#x20AC;&#x153;The household sector always pays to clean up the banks.â&#x20AC;?

ing loans or contingent liabilities surge to the point where the solvency of the banking system is threatened, the regulators ensure that wealth is transferred in sufficient amounts from the household sector to borrowers or banks to replenish bank capital and bring them back to solvency. The household sector, in other words, always pays to clean up the banks. Ways to pay There are many ways to make them pay. In some cases, and certainly in the US before the 1930s, banks simply defaulted and their depositors absorbed the full loss. In that case it was the actual bank depositors, mainly households, who directly bore the full cost of the losses, in the form of reduced, or sometimes no, repayment of their deposits. Largely because this kind of system

creates incentives for bank runs, regulators developed alternative systems, by which governments guaranteed deposits and otherwise bailed out the banks, and paid for the bailout by raising taxes. In that case the household sector still paid for the losses, but they did so largely in the form of taxes, and the losses were spread out throughout the population. Of course this way of bailing out the banks is politically unpopular and always leads to uncomfortable calls to punish the banks for their behavior. If the regulators are given a longer amount of time during which to clean up the banks, they can use other, less obvious and so less politically unpopular, ways to do the same thing, for example by managing interest rates. In the US and Europe it is fairly standard for the central bank to engineer a steep yield curve by forcing down

analysis short-term rates. Since banks borrow short from their depositors and lend long to their customers, the banks are effectively guaranteed a spread, at the expense of course of depositors. Over many years, the depositors end up recapitalizing the banks often without realizing it. There are two additional ways used in countries, like China, with highly controlled financial systems. One is to mandate a wide spread between the lending and deposit rates. In China that spread has been an extremely high 3.0-3.5 percentage points. The other, and more effective, way is to force down the lending and deposit rates sharply in order to minimize the loan burden and to spur investment. This is exactly what China did in the past decade. These low interest rates help resolve non-performing loans by granting continual debt forgiveness to borrowers. How so? Because if interest rates are set at a level lower than the natural rate, every year the borrower is effectively granted debt forgiveness equal to the difference between the two. By most standards, even ignoring the borrower’s credit risk, the lending rate in China during the past decade is likely to have been anywhere from 4 to 6 percentage points too low. Over five or ten years, or more, this is an awful lot of debt forgiveness. These all sound like radically different ways of addressing insolvent banking systems, but make no mistake, they are all simply different ways of spreading the cost of bank insolvency among households. With all the concern generated by China’s recent minimum reserve hikes and the controversy over 2011 lending quotas, it is important to remember this. There is a widely-held but wildly incorrect belief that China was able to grow out of its last banking crisis at a relatively low cost to the economy. After all ten years ago, the share of non-performing loans in the Chinese banking system was estimated to range from 20% to 40% of total loans. Within the decade, however, this once-staggering share of bad loans had shrunk dramatically to a manageable level, wihout anything resembling a Western-style banking crisis. Many analysts believe that it was combination of explicit steps to recapitalize the banks — directly

by injecting capital and indirectly by purchasing bad loans at very high prices — and very rapid GDP growth, matched by even more rapid loan growth, that resolved China’s banking crisis. In that case, these analysts say, why worry? If there were another sharp rise in non-performing loans – as many, including Beijing’s banking regulators, expect – China would easily grow out of it again using the same combination of factors and the cost to the economy would be minimal. But they would be wrong. In fact the cost of cleaning up the last banking crisis was very high, much higher than simply calculating the explicit cost of recapitalizing the banks by direct and indirect equity infusions, and so will the cost of the next one be. The combination of implicit debt forgiveness and the wide spread between the lending and deposit rate has been a very large transfer of wealth from household depositors to banks and borrowers. This transfer is, effectively, a large hidden tax on household income, and it is this transfer that cleaned up the last banking mess. It is not at all surprising, then, that over the past decade growth in China’s gross domestic product, powered by very cheap lending rates, has substantially exceeded the growth in household income, which was held back by this large hidden tax. It is also not at all surprising that household consumption has declined over the decade as a share of gross national

“There is a widely-held but wildly incorrect belief that China was able to grow out of its last banking crisis at a relatively low cost to the economy.

product from a very low 45 percent at the beginning of the decade to an astonishingly low 36 percent last year. This is how China’s last banking crisis was resolved. It did not result in a collapse in the banking system, but it nonetheless came with a heavy cost. The banking crisis in China resulted in a collapse (and there is no other word for it) in household consumption as a share of the economy. This is why the People’s Bank of China is so worried about another surge in non-performing loans. The idea that China can simply grow its way effortlessly out of its loan problem is widespread but wrong. If the household sector is forced once again to clean up a banking mess, this will make China even more reliant for growth on the trade surplus and on investment. Remember that there is no such thing as a painless banking crisis and anyone who suggests otherwise should not be taken very seriously. There is always a significant cost, and the cost is almost always borne one way or the other by the household sector. In China, with its already toolow household consumption, it will be very risky to force households to clean up yet another surge in nonperforming loans. It would only make it more difficult than ever for China to achieve the rebalancing its economy so urgently needs. By Michael Pettis


ending the peg

‘Eclipse’ by Jitish Kallat

Art Season in Hong Kong

Experience art as the Hong Kong auction season attracts Chinese people and Hong Kong Collectors.


he Hong Kong auction season is here, with the Sotheby’s Spring Sale in early April and Christie’s mammoth auction in late May, coinciding with ARTHK11 and a huge Zeng Fanzhi retrospective sponsored by the Pinault Foundation and curated by Christie’s and the Shanghai Rockbund Museum, all taking place at the Hong Kong Convention and Exhibition Centre. Art as investment seminars are springing up like the proverbial flowers, fine art galleries are opening almost every month in Central and even investment banks are taking notice of the vibrant art market flourishing in Hong Kong. Although wealthy individuals, financial institutions and corporations have traditionally invested in established European masters, French Impressionists, American Abstract Expressionists, Pop Art, Chinese antiques, jewellery, stamps and wine as hedges against inflation, younger Hong Kong and Chinese investors


“It is becoming an increasingly popular and profitable alternative investment”

are mainly interested in the contemporary and modern (20th century) art scene. It is becoming an increasingly popular and profitable alternative investment. Although the art market cooled a bit during the economic downturn of 2008-09, Chinese artist Zeng Fanzhi’s ‘Mask Series No.6’ (1996) sold at Christie’s Spring Sale in May 2008 for US$9.6 million (actual figure, US$9,662,114), stands as the world’s record for a contemporary Chinese work of art to date. The final price was more than triple the presale estimate of US$1.9 -- 3.2 million. In November of 2010, Christie’s Asian Contemporary Art & Chinese 20th Century Art Evening Sale in Hong Kong realised US$36,225,644, with 84% sold by lot and 78% sold by value. Seven artists’ records were set, including Potted Chrysanthemum in a Blue and White Jardiniére by Sanyu, which was also the top lot fetching US$6,865,040. International Director of Asian

Contemporary Art & Chinese 20th Century Art Eric Chang said, “The other six artists that set records are Yee Bon, Wang Guangyi, Zhan Wang, and Mao Xuhui, and Japanese artists such as Aya Takano and Tatsuo Miyajima. As we can see from the intense competition that resulted in top prices for works by blue-chip artists such as Wu Guangzhong and Zeng Fanzhi, the market for Chinese 20th Century and Contemporary art continues to be steady and healthy.” The story was the same at Sotheby’s 2010 autumn sales as the sale of Fine Chinese Paintings achieved triumphant results. The sale commanded US$52.2 million establishing Sotheby’s highest-ever total for a various owners sale of fine Chinese paintings. All but three of the 270 works offered found buyers. The top lot of the sale was Fu Baoshi’s Court Ladies which sold for US$4.2million, while works by other Chinese masters such as Zhang Daqian and Qi Baishi also achieved strong prices. Kevin Ching, Chief Executive Officer for Sotheby’s Asia, said: “Indeed, this auction’s sales saw a notable increase in participants from mainland China across a range of categories, which resulted in totals well beyond the pre-sale estimates, particularly in the paintings areas.” Twentieth century Chinese artists, such as Sanyu and Qi Baishi are starting to peak in price and desirability

ending the peg cover story now. The big auction houses define “20th Century Chinese Art” period as one between 1880 and 1950, when artists in China were liberated from the weight of Chinese millennia of art ink and brush history and traditions by travelling overseas. They came into contact with Western ideas of media, perspective and subject matter. Yet they retained their mastery of Chinese calligraphic ink and brush painting techniques, while they studied new ideas and images from the West. The new Hong Kong art showcase, de Sarthe Gallery located on Ice House Street in the Club Lusitano Building, which opened in early March, made a stunning impression on the art glitterati by exhibiting masterworks by Zao Wou-ki

to Hong Kong for six months where he met his second wife Chan MayKan. He painted 10 paintings during this trip but unfortunately very few remains. One was on display in Hong Kong until the end of April 2011. “This will be the first gallery exhibition of Zao Wou-Ki paintings of exceptional quality and breadth to be held in the past 10 years with half of them not being exhibited for half a century. We are extremely honored to bring such a prestigious collection to mark our debut in Hong Kong and Asia,” said Pascal de Sarthe. Those artists lucky enough to leave China before the CCP took over in 1949 went to Paris, London, New York and Tokyo and other places as artists-in-residents or as students. They all had their horizons widened

“We are extremely honored to bring such a prestigious collection to mark our debut in Hong Kong and Asia.” (Zhao Wuji), who at 90 years old is still painting in France. He went to Paris and never went back to China, becoming the darling of not only the Chinese expatriate community but also a favourite of knowledgeable collectors in Europe and the United States for his wonderful abstract oils that evoke Chinese calligraphy in bursts of colour. Born in Beijing on February 1, 1920, Zao Wou-Ki is the most celebrated living Chinese artist. Among the exhibition is a very rare painting done in 1958 when the artist travelled

‘Bleah’ by Liu Ye

by coming into contact with Western Modern art by seeing the actual art works, not just in photographs. Contemporary, modernist Chinese artists were more stimulated by the Abstract Expressionists from Germany and America after World War II. Chinese contemporary artists (post-1949) were more taken with Marcel Duchamp and the Dada and Pop movements, but what they all had in common was the idea of discarding the old ways of doing things. Being able to express emotional states and existential ideas instead of copies

“Buy the best your budget will allow”

of reality or idealised expressions of technique, Chinese artists came into their own. Pan-Asian artists benefit Artists from all around Asia are also benefitting from the art boom, with artists from Indonesia, Japan, and Korea especially in demand. Art from Thailand, Cambodia, Myanmar (Burma) and Vietnam is also finding willing buyers. Interest is growing in Indian and Pakistani art, and with the advent of Art Dubai, the Middle East is beginning to show up in the art markets as well. Vinci Chang, vice president and head of sales on the 20th century Chinese Art and Asian contemporary art at Christie’s said, “When people are thinking about art as an investment, it requires a different sort of knowledge than when buying real estate or equities. The investor has to figure out what type of art he likes and in what categories first, and then get consultants, gallery owners, auction house staff, and the artists’ themselves, to help narrow the search. But the most important criterion is to love the art and be willing to live with it for a while. Emerging artists can sell work for HK$200,000 and two years later, that piece can be worth $8 million, but then again, they may not appreciate that fast”. Young investors are seeking help and advice. The auction houses may be too intimidating for a novice, so they turn to gallery owners, art consultants and artists themselves for

Untitled, 1958 by Zao Wou-Ki courtesy of Archives Zao Wou-Ki, Paris HONG KONG BUSINESS | APRIL 2011 35

cover story advice and guidance. Many gallery owners, such as Henry Au Yeung from Grotto and Stephen McGuinness from Plum Blossoms, advise clients to “buy the best your budget will allow”. All experts tell prospective buyers they must buy what they love and be able to live with the art rather than thinking about it solely as an investment. Hong Kong is rich is established galleries, to mention just a few: Hanart TZ, which just opened a huge new space in Kwai Chung, plus the Ben Brown, Gagosian, Plum Blossoms, Tagore and Schoeni galleries in Central, while 10 Chancery Lane and Osage have branched out to Chai Wan and Kwun Tong respectively for more space to display fine art. Dozens of new galleries have

Exchange Square and displayed art from Afghanistan, Kazakhstan and Iraq for the first time, as well as the art from countries usually considered Asian. The Sovereign Group not only sponsors the art competition and exhibitions, it donates all the money earned from auctioning off the art works to art-related charities in Cambodia and India, among others. Societe Generale just concluded a massive on-line art competition for young Chinese artists from Hong Kong, China, Taiwan and Macau, exhibiting the winners at Artistree in Taikoo Shing. This first competition attracted 364 self-selected artists to participate, winning not only cash prizes but the opportunity to be shown at international exhibitions

“The most important criterion is to love the art and be willing to live with it for a while.” opened in the past 10 years, each specialising in some form of Asian art, so good advice is readily available to new collectors in Hong Kong and the Mainland. Corporations are getting into the act as well, giving new collectors other opportunities to see emerging artists’ work. The annual Sovereign Asian Art Awards solicits entries from dozens of countries all over Asia, nominated by galleries, curators and art consultants. The nominees of the 10th anniversary show was just exhibited in the Rotunda at

‘Potted Chrysanthemum in a Blue and White Jardiniere’ by Sanyu 36 HONG KONG BUSINESS | APRIL 2011

in Beijing, Shanghai, Taiwan, Hong Kong, Singapore and Paris. This allows young, emerging artists to network and make valuable contacts, but it also allows young collectors to see judged works and become familiar with the artists’ names and type of media they use. There are many art consultants who have worked for the auction houses and cooperate with collectors to build a certain kind of collection. “Ascertaining the taste and budget is the first step”, according to Anna Ning, who also runs the Anna Ning

Untitled, 1959 by Zao Wou-Ki

“The methodology of Art Futures Group is the same for any investment.”

Gallery. “I have been showing the 20th century Chinese artists quite often as they are a known quantity, especially if the artist is deceased. The prices keep going up as the mainland Chinese begin to reclaim their heritage”. Newcomer to the scene, Jon Reade is the sales director of Art Futures Group, a company dedicated to financial consulting for collectors, investors and institutions. Reade said he had been in Hong Kong for a few months and had visited China for about three months, looking at contemporary art. “The methodology of Art Futures Group is the same for any investment. Do your homework, research artists’ track records of solo exhibitions, gallery shows, group shows, museum acquisitions, and the latest prices sold. Check with the reputable auction houses for their latest prices for an artist’s work. We only list top selling artists and we can make informed recommendations to create a balanced portfolio for an individual or a company,” Reade said. The company is confidently predicting that now is the time to invest in Chinese contemporary art. Although Reade’s credentials don’t compare with people such as Johnson Chang, founder of Hanart TZ Gallery and the initiator of the contemporary Chinese art market in Hong Kong almost 30 years ago, everyone is finding a place in the thriving Hong Kong art market.

‘Mask Series Painted in 2000’ by Zeng Fanzhi

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Plugging the gap in HK’s health care reforms with flexible benefits One of the world’s healthiest place is diligently working on Health Care reforms. Hong Kong’s health care gets a cash injection he health care landscape in Hong Kong is changing fast. This change will have a significant impact on the general public, along with employers, employees and the health care industry. Wide-reaching health care reforms are in the pipeline to tackle a raft of problems such as an aging population, spiraling medical costs and the increase in chronic illnesses in younger people. The government has pledged HK$50 billion for health care reform. In addition, the budget for health care has been increasing from HK$30.5 billion in 2007-2008 to HK$36.9 billion in 2010-2011.1


The dangers of hemorrhaging The HK$50 billion reserve the government has set aside for health care 38 HONG KONG BUSINESS | APRIL 2011

“Communication is the key.”

reforms comes from tax revenues. If this reserve is not properly used, Hong Kong workers will face an even greater burden as the working population ages and shrinks. There will be question marks over how the HK$50 billion reserve will be used and how future health care costs will be funded. The bad news continues – there are many factors that will erode the value of the HK$50 billion. Firstly, it will lose purchasing power as health care inflation rises – according to insurers in the Hong Kong market, it is expected to rise between 6% and 18% this year. These are substantial price rises which will mean every HK$ spent on health care will buy you less each year. Secondly, there will be many costs involved for the distribution and supervision of this HK$50 billion which will bleed the fund. A scheme will need to be

established for the implementation, operation and monitoring of the cash injection to make sure it meets its objectives. Health care reform’s winners While the HK$50 billion is a step in the right direction the shortfall it leaves has major implications across the board. But where there are losers there are also winners. The clear beneficiaries of the HK$50 billion will be: • High risk individuals – those who may not have been able to get insurance otherwise. They are guaranteed coverage and a portion of the HK$50 billion will be subsidizing the high risk insurance pool. • New subscribers – to attract new savers, particularly the young, premium discounts will be offered with the possibility of a 30% no-claim discount.

analysis • Savers for the future – for those who pay more now to cover higher premiums in later years with matching savings incentives from the government. What do you do about your health care coverage? For Hong Kong’s citizens there are many questions that now need to be answered. Health care costs are rising, taxes may need to increase and more savings will need to be put aside as we live longer. Your first port of call is to see what benefits your employer currently offers. Most companies offer some form of health insurance to their employees that will differ in its value and coverage. Will this be adequate to pay for rising health care costs? If your organization is forwardthinking it will already be considering the implications of the government’s plans to introduce voluntary benefits into health care planning. Now is a good time to familiarize yourself with your current benefits package and ask your HR department if it is designing new health care plans. Employees will have strong concerns about how they will pay for health care in the future and will be reassured by a comprehensive and flexible benefits plan that can accommodate the changes. One of the best tools to achieve this is via flexible benefits plans. These plans, which offer employees a choice of benefits tailored for a diverse demographic (age, family and lifestyle), have proven popular with employers determined to get more value from their benefits spend. Up until now, however, Hong Kong’s employers have largely ignored flex. Mercer’s 2009 Health and Benefits survey of 613 Hong Kong employers revealed that only 13% of them offered any form of flexibility in benefits. Even rarer were comprehensive flex plans offering a wide selection of benefits. But it looks like this is changing. The same survey revealed that a massive 60% of respondent organizations are in favor of introducing flex, up from 25% in 2008.

Over many years Mercer has researched employee attitudes towards benefits, and time and time again, we have found that: • Employees attribute a higher value to a benefit they have chosen regardless of its actual cost. • Benefits that are not valued by employees (because they do not meet their needs) are perceived to be of no value whatsoever by those employees. In Hong Kong, with an increasing number of mergers and acquisitions, cross-border recruits, aging employees and high female participation rate, the workforce is more diverse than ever before. As a result, traditional benefit programs can’t meet the myriad needs and expectations of our workforce. Employers are beginning to realize that flex makes it easier to meet these diverse needs. In fact, Mercer’s 2009 Global Survey on Employee Choice in Benefits© found that most respondent organizations cited this as their chief reason for implementing flex. Mercer’s research has also found that there is a strong correlation between employee understanding of benefits and employee appreciation of benefits. Communication is the key Flex plans sink or swim on the basis of employee communication. If a plan is not well understood by employees, it is almost guaranteed to fail due to low rates of take-up. Flex plans are almost universally a good news story and should be celebrated as

“The government has made education a key element in its working plan. ”

such. Developing a communication strategy that takes into consideration your workforce, the medium that will work with your structure and employees and folds in your brand will ensure success. Mercer’s Point of View Mercer welcomes the government’s efforts to create a sustainable health care system and ensure the provision of health care services for the population of Hong Kong. However, the voluntary nature of the proposal raises some concerns: it is noted that those who will benefit most from the coverage are the least likely to purchase insurance. The government has made education a key element in its working plan. Mercer believes that the proposed solution has many advantages if key requirements such as guaranteed insurability, affordable premiums, guaranteed renewability and coverage of pre-existing conditions are met. Implementation will be two to three years. Employers need to determine how their employee benefits offering will alter to accommodate the changes brought on by health care reform as it will impact the needs of their workforce. And there is finally you, the individual – how you receive your health care and how much you pay for it will change. Rose Kwan, HK business leader for Health & Benefits consulting, Mercer Margie Wong, Health & Benefits consulting Director, Mercer

Value for money Flex isn’t about spending more money – it’s about spending money more wisely. HONG KONG BUSINESS | APRIL 2011 39

legal briefing

How will changes in China’s Representative Law affect businesses? China has changed a lot of laws around foreign representative offices, but just what does this mean to you and your business ? What is the new law? According to Thomas So, a partner with law firm Mayer Brown JSM, the Regulation on the Administration of Registration of Resident Representative Office of Foreign Enterprises came into effect on 1 March 2011 and applies not only to representative offices set up by foreign enterprises but also to those set up by Hong Kong, Macao and Taiwan enterprises. The imminent effect is that all the existing Rep. Offices need to attend to the change of their Registration Certificates and those of which were established before 1 January 2011 also need to submit annual reports to the registration authority before the end of June. What is the background of foreign representative offices? The regulations on Rep. Offices were first introduced in 1980, says So, and have been amended several times to adapt to the ever changing economic environment. Rep. Office is widely used by foreign investors as one of the vehicles, in addition to EJV, CJV and WFOE, for over 30 years. Whilst some Rep. Offices serve merely as a presence, most of them play a significant role for foreign businesses in China. “This time, the Regulation is intended to strengthen the regulatory control over Rep. Offices, which arguably reflects an unfavourable change in the government’s foreign investment policy towards the business mode of Rep. Office,” said So. According to Frankie Cheung with law firm Deacons, unlike a foreign invested enterprise, a Rep. Office is not accorded a legal person status, and may only serve as the liaison office of the foreign enterprise under which the RO is registered, to support the Parent’s business primarily through liaison work and other non-revenue generating activities. “Compared to the formalities and costs entailed in the approval and establishment of an FIE, an RO is relatively easy and inexpensive to establish and maintain. It is thus not surprising that an RO set-up has thus far remained a popular option for foreign investors wanting to establish a presence in the Chinese market prior to making a long term or substantial capital commitment in the PRC,” noted Cheung. What has changed? In previous regulations, the business scope of a Rep. Office was limited to “such indirect business activities as business liaison, product promotion, market research, technological exchange etc.” The Regulation now makes 40 HONG KONG BUSINESS | APRIL 2011

“This time, the Regulation is intended to strengthen the regulatory control over Rep. Offices”

it clear that Rep. Offices are non-profit making and nonlegal persons. In other words, Rep. Offices are not allowed to conduct profit-making activities. Those that fall foul of such prohibition would be subject to severer punishment than before, including confiscation of income and assets used in the illegal activities, a fine from RMB 50,000 up to RMB 500,000 and in serious cases, revoking of the Registration Certificate, according to So. Deacon’s Cheung noted that: “It is now clearly provided under the RO Regulations that an RO may engage in activities relevant to the Parent’s business, including market research, product exhibition and business promotion, as well as liaison activities for product sales, provision of services, product sourcing and investments in the PRC.”

“The new regulation is indicative of the authorities’ efforts to regularize and tighten the supervision of Rep. Offices in the PRC” What are the new requirements? Companies are now required to have a minimum history of two years before it can set up a Rep. Office and limits the number of representatives, including a Chief Representative, for one Rep. Office under four. Previously there was no limitation in number of representatives before the Regulation. New requirements of annual reporting and annual renewal of Registration Certificates also add more administrative burdens on the Rep. Offices. Although the impact of the Regulation on foreign business in China should not be exaggerated, foreign investors may wish to review their business structure in China following the changes brought by the Regulation. Deacon’s Cheung commented that the new regulations is indicative of the authorities’ efforts to regularize and tighten the supervision of Rep. Offices in the PRC. “Foreign enterprises intending to set up RO, and operators of existing RO, are well advised to note the requirements under the RO Regulations to ensure compliance with the law going forward,” he noted.

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Last word

productivity, employee satisfaction and hence, lower turnover. “Besides a fair and competitive compensation and benefits package, we ensure that employees who excel will experience a sense of progression and fulfilment in terms of their professional as well as personal development. We also emphasise the importance of having people managers who know how to bring out the best potential in every individual. We work closely with our talents, helping them on a self discovery process on their own strengths and gaps. It is a win-win strategy for the individual and organisation if the former succeeds and decides to have a long-term plan with the company,” says Chan Hoi San, Head of human resources, StarHub Singapore.

EMMa shErrard MatthEw

The future is bespoke for luxury

Career development can help employees to do their jobs more efficiently

STAR WARS: don’t use the force

In a talent-short market, where hawk-eyed poachers are always ready to steal the best boys, how do you equip your human resource function with strategies that keep them from walking out of the door for a few dollars more?


ttrition matters. If you are losing some of your critical employees to the employer across the street, you can safely bet that this phenomenon is not restricted to top performers alone. Exit interviews with departing staff will reveal that something is amiss in your own organisation, thus driving key performers away. Like all other tangible business objectives, the health of an organisation needs constant monitoring and timely intervention. Most importantly, you should be able to assess the pulse of the employees and distinguish the factors that motivate them to stay, from the ones that do not. However, be cautious, one size does not fit all. For instance, whilst some talent seek career growth in a systematic and methodical upward graph, many others prefer change and are motivated to take on tasks that will facilitate their advancement. In addition to providing hygiene factors such as a fair and competitive compensation and benefits package, a key retention strategy would be to identify the diverse needs and goals of the individual talent and create a work environment that is conducive to high-


what is in it for me?

Career Development Needless to say, top performers expect a clear visibility in their career development. They are interested to know what kind of learning and development opportunities and options are available. Therefore, it is important for organisations to chart out a clear development plan. “Let top performers know exactly what they need to do to progress and move to the next level. Managers must be transparent about the plans and be able to manage their expectations,” Gina Kuek, Senior HR Manager, Asia Pacific, Frost & Sullivan, highlights. Moreover, consistent learning helps retain staff, agrees Sarah Dempsey, Operational Development Manager, Pret-A-Manger, Hong Kong. “When people are learning and moving up the career ladder, it helps retain staff. Seventy per cent of our store managers are internally promoted.” However, apart from formal learning and management training programs, organisations can also democratise learning and teaching and customise it to the need and interest of the employee. Google, for instance, has a Googlers teaching Googlers (G2G) program where employees can sign up to teach a class on anything from how to code in Python to how to write a good stand-up comedy act. The organisation also takes care to develop the whole person, and not one that is just focused on ‘traditional’ leadership training, through its School of Personal Growth, part of an internal learning and development initiative called Google University, whose classes focus on mindfulness, knowing oneself, and emotional intelligence, a Google spokesperson from Singapore shares. These innovative strategies definitely go a long way in making Google an employer of choice. Furthermore, an effective reward and recognition system with a flexible remuneration to match with the dynamic market could be a motivator strong enough to prevent or reduce attrition, industry experts say. “Non-monetary rewarding or benefits system for top performers are also important to retain good performers. The company could look after the well being of individual’s needs when needed,” says Eunice Ng, Director, Pacific, Avanza Consulting, Hong Kong.


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Hemlock How to make $7.8 million without trying


ost people would describe a [US] dollar millionaire as rich, yet many millionaires would disagree, says a special report in the Economist. They would, not least because a million bucks isn’t what it used to be. The average American house in 2009 cost US$230,000; when Cole Porter wrote the song Who Wants to Be a Millionaire? in 1956, it was US$11,700. A million meant something back then. In an old Lonely Planet guide, the authors wrote something like: When we were living in Hong Kong we could never work out whether we were rich or poor. It has stuck in my mind all these years. Some people count their net worth in hundreds of millions or more, while others count the days until April when the minimum wage kicks in and they see their pay rising to HK$28 an hour. How many Hongkongers have a realistic hope of accumulating HK$7.8 million in liquid assets from scratch? I would guess maybe 20% could do it, even among those who are non-entrepreneurs. Yet a far smaller number will actually get there. As of a year ago, just 7.3% of adult Hongkongers ranked even as HKD millionaires, net of the price tag on their little concrete living box. Barely 1% make the USD league. It’s their choice, or at least their happily embraced fate. They ignored a number of rules that, if followed, could easily have left them with the magic six zeros on their bank statement. In practice, some of us followed the rules accidentally. Note the past tense there. These rules come with a sell-by date, and it has probably passed. Still, for what it’s worth, I am pleased to reveal How to Be (or at least Have Become) a Millionaire Without Being an Entrepreneur and Without Really Trying 1. Don’t get married; don’t have kids. Bang goes millionaire status for most people. Some say marriage improves a woman’s ability to accumulate wealth, but it has wiped out many men I know: exwife got the house, and by then it was too late to build another nest egg from nothing. Even a successful marriage usually comes with those horrendous money-sinks known as kids; in the UK, each one eliminates GBP200,000 of investable funds, and you can’t even hire them out at age six to clean chimneys. Why else can’t that Orthodontist save five years’ salary any faster? 2. Make sure you bought somewhere to live in ages ago before prices became stupid, and you paid it all off soon after, even if it left you with zero at the time. That means somewhere pretty cheap. Why waste money you can invest? You want a sea view and room for a Jacuzzi? Fine, but don’t complain when you’re not a millionaire. 3. Make sure you have a fairly well-paying job. It doesn’t have to be a stratospheric, investment banker income, though it needs to be comfortably into middle-class territory. Just as important: your monthly salary


by hemlock E-mail:

should be at least double, preferably more, than your monthly outgoing. Which means… 4. DON’T WASTE MONEY. Make sure your monthly outgoing are no more than 50% (better still, 40% or 30%) of your monthly income. OK, now we’re halfway there, hopefully by age 35 or so: no encumbrances to feed, no landlord/mortgage sucking your blood, and significantly more cash flow coming in than going out. This brings us to the interesting bit where miracles happen. 5. Invest. According to a story, someone once asked Albert Einstein what was the most powerful force in the universe, and he replied “compound interest.” Compounding is why the orthodontist mentioned above would have had no problem saving US$1 million in a decade if he hadn’t blown so much on family and mortgage interest. It is why you need to have your home fully paid off fairly early in your working life: your mortgage payments are compounding someone else’s stash. 5. a) Invest in equities. Quick and cheap to trade, flexible, diversifiable, income-producing, low-maintenance investments that mostly grow. It takes some study and thought, but no more than following football or movie stars. If you need to be told to reinvest dividends, you aren’t getting it. 5. b) Invest at a time and in a place that in retrospect enjoyed major one-off boosts from historic shifts in global economic patterns. The 1990-2010 period in Hong Kong was pretty hard to beat, with globalization, new technology and the rise of China. 5. c) Follow the usual rules. Invest in a blend of boring and mildly adventurous equities. (On average, if you put $10,000 into each of five reasonably considered stocks, maybe one will be a dud, three will perform OK and one will boom. The dud can’t fall more than $10,000; the one that booms can go to $50,000, $70,000 or more. Maybe 70% of returns come from 30% of the portfolio.) Prefer good managements. Prefer companies in industries with high entry barriers. Most of all, let time do the work. And so on. 5. d) Understand timing and psychology. Example 1: Make the most of mayhem. Events like 9/11, SARS and the 2008 crash were singular buying opportunities when the herd was rushing to sell. Buy heavily at such times, and everything else just falls into place. A strong stomach and cold blood help. And there you have it. Your housing is paid for, there’s no screaming family to grab-grab-grab, the Hong Kong government is happy with its annual 15%, you earn decently, you save and you invest. Oh, and it’s the 1990s and 2000s. It could be $100,000, $1 million or $10 million, depending on your circumstances: the point is, if you haven’t accumulated at least 10 years’ salary from zero in (say) a decade and a half, you haven’t tried. Looking back, it was almost impossible to fail. But how to do it from 2011 onwards, I have no idea. Show me the money!



Accurate forecasting: fact or fiction Are forecasts a waste of time because nobody uses them ? KPMG explores the answers.


rt or science, forecasting is no easy task. Events outside the corporate headquarters or the factory floor can easily throw a forecast out the window. In a booming market, a takeover opportunity may come knocking, while in a downturn, a major revenue currency may take a hard fall. The two years since the global financial crisis has not made forecasting easier, and looking out into the next year, visibility remains shrouded in uncertainty. While trade and deal flows within Asia are picking up, business with developed markets continues to languish, and with it, the global economic recovery. Factors within corporate walls can also undermine accurate forecasting. It may be the mind set of senior management on what forecasting is truly for, or the numbers business leaders choose to plug into their equations. No universal template for accurate forecasting exists, but some leading practices have been widely accepted and have gone to the mainstream of finance awareness. Fact or Fiction #1: “Forecasts are a waste of time because no one uses them.” Investors and analysts seek assurance on how a company sees its ability to increase revenues, maintain profitability, and manage cash. Banks and bondholders count on forecasts not only to analyse a borrower’s ability to pay in the future, but also to reassure themselves that loan covenants can be met. While forecasts support internal decision making and resource allocation, they are also critical for the board to establish trust with the sources of capital. But providing forecasts is only half the story. Forecasts affect stock price volatility, according to studies. The numbers must be credible to gain investors’ confidence, and delivered regularly and accurately to sustain it. Fact or Fiction #2: “Forecasting is a finance—not a business— imperative.” Internally, forecasting facilitates business decisionmaking based on a realistic outlook of the most important drivers. These drivers are both financial and non-financial. They include information best gathered by people at the frontline, such as the pipeline of new products by a major customer, or the potential increase in a competitor’s capacity in light of a recent acquisition. As such, businesses hold more than just a stake in the forecast numbers; they own them. To some extent, a forecast is a beacon. Just as it guides business decisions toward a certain goal, it should also enable management to adjust these decisions to get a wayward business back

on track. If revenue growth, for example, is not as robust as anticipated, management may need to introduce initiatives that would prevent the business from going further off course. Should it be investing in one product more than the other, cut costs in certain areas, or change pricing strategy? Fact or Fiction #3: “I don’t have the knowledge to predict the future.” Thoughtful forecasting requires understanding the factors that drive the business and knowing which financial and non-financial information is needed to make decisions. Tracking the accuracy of forecasts against actual is a crucial step to understanding that the forecasting process is working. Random missed forecasts may be due to external factors, but a trend of inaccuracy may reflect a more problematic situation, such as bias or the quality of the data being put into the system. Fact or Fiction #4: “Rolling forecasts will replace the budgeting process.” Perhaps no other forecasting method better promotes frequency and accuracy than the rolling forecast. In this method, the forecast is a continuum that extends beyond the year-end. Its contrast with the traditional forecasting

“Perhaps no other forecasting method better promotes frequency and accuracy than the rolling forecast.” of the current financial year is night-and-day. Rolling forecasts, therefore, allow the latest actual financial results and the impact of recent business decisions to be easily factored into future plans. What rolling forecasts can do is assist and improve the budgeting process. For a first-time adopter of rolling forecasts, starting off on a monthly basis allows for a smoother integration of the process into the system. Fact or Fiction #5: “Advanced budgeting and forecasting software is not the answer.” A new shiny tool would not solve all problems associated with forecasting, but it would be able to support the right process. Advanced forecasting software is widely available, with improved accuracy, efficiency, consistency and increased functionality as the selling points. It also offers versatility by providing for the easy addition of user-defined data points. This begs the question: If the forecasting output is not reliable or accurate, how much are you willing to pay to make decisions based on accurate information? Put another way, what is the cost to the business of spending three months of the year completing a budget in an inefficient manner, with tools that are sub-optimal? Investing in forecasting software is not mandatory, although 42% of organisations do believe automation through IT systems to be most beneficial in improving confidence in the numbers. Investing in IT must be justified by real business demand. HONG KONG BUSINESS | APRIL 2011 47


The kindest cut

An essential part of any grooming routine is a good haircut and a smooth shave. Concierge experts Quintessentially recommend three salons in HK for the ultimate gentleman’s pampering experience. The Barber Shop

1/F, 15B Wellington Street, Central This is a true, old-fashioned barbershop. Warm, inviting and decorated with dark woods, when we visited at 4pm on a recent weekday, almost every seat was full with office gents in the middle of being groomed. Even the smell itself is authentic – a dash of Brylcreem and a splash of shampoo. The building is rather ratty and hidden down a small alley off Wellington Street (opposite Yung Kee restaurant) but the barbershop itself is definitely a diamond in the rough. Visage One

LG/F, Po Lung Building, 93 Hollywood Road, Central Benky is the owner, hair stylist and proprietor of this one-seat hair salon, jazz and artist’s studio. Specialising in cutting and colouring hair, Benky adopts a naturalistic approach that takes into account his customer’s personality. If you’re looking for something more stylish than a generic “short back and sides”, then Benky is your man.

The Mandarin Oriental Barber

Mandarin Oriental Hotel, 5 Connaught Road, Central This is the quintessential Hong Kong barber. The Art Deco-styled salon is the perfect place to enjoy perhaps the most luxurious wet shave in Asia: using traditional badger hair brushes to create a rich lather and hot towels to gently steam the face, these guys are the masters of a close shave. This is also the place to come for a Shanghainese pedicure, which will leave you walking on cloud 9, or a pampering facial and massage.

The Mandarin Oriental Barber 48 HONG KONG BUSINESS | APRIL 2011

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Last word David Cox & Lucas Niedolistek

Are the Chinese antitrust agencies likely to step up their enforcement? Increasing level of enforcement against anti-competitive conduct in China. Overview of the new implementing rules In early January, the National Development and Reform Commission (NDRC) and the State Administration for Industry and Commerce (SAIC) in charge of the enforcement of China’s Anti-monopoly Law (AML) adopted several implementing rules which not only clarify a number of key provisions but send a message that the agencies plan to adopt a more rigorous and aggressive approach in investigating and enforcing the AML. With respect to anti-competitive agreements, the rules confirm that concerted behaviour which cannot be justified on the basis of rational economic decisions can amount to a monopoly agreement and therefore violate the AML. The rules enumerate a certain number of practices which are likely to constitute their enforcement priorities such as fixing the prices of goods or services, fixing the level of fees or discounts offered in relation to the sale of goods or services, limiting the production out-put or sharing markets or consumers. There is no particular surprise there as these practices are all “hard core” infringements and have been subject to vigorous enforcement in more mature jurisdictions in Asia, the EU or the US. Price fixing with retailers banned As far as distribution agreements are concerned, the rules explicitly prohibit the supplier from

“Recently, Wal-Mart and Carrefour have been fined for various deceptive price practices by the NDRC which could suggest that the agencies are particularly interested in the retail sector. ” fixing the retail price of its distributor or setting a minimum resale price. Trade associations are also explicitly prohibited from setting rules or engaging in conduct that interferes with competition. In particular, trade associations cannot encourage or organise member companies to enter into anti-competitive agreements such as the ones referred above. 50 HONG KONG BUSINESS | APRIL 2011

The new rules enumerate a number of practices that would amount to an abuse if implemented by a dominant firm such as selling below cost, charging unfairly high or discriminatory prices, refusal to deal, entering into certain types of tying or exclusive arrangements. Companies that self-report competition law violations could benefit from full immunity or a reduction in fines depending on when the evidence was submitted to the authority. NDRC and SAIC rules differ on some aspects, for example the SAIC rules do not seem to allow the cartel leader to seek any kind of reduction in fines whereas under the NDRC rules this seems to be possible; in addition contrary to the NDRC rules, the SAIC rules do not specify the amount of fine reduction that can be granted to the “second-in”. What should the companies conducting business in China expect? The adoption of these rules is a sign that the Chinese agencies are getting prepared to increase their enforcement action. The adoption of the rules was followed by an NDRC decision fining a paper manufacturer trade association in Fuyang City for allegedly fixing prices and coordinating output amongst its members. Recently, WalMart and Carrefour have been fined for various deceptive price practices by the NDRC which could suggest that the agencies are particularly interested in the retail sector. Another signs, are the cooperation agreements entered into by the NDRC and SAIC with the UK Office of Fair Trading in January 2011 and November 2010. These agreements follow training exercises and staff secondments with other competition agencies around the world including the EU and the US. In the light of this evolving environment, companies in China, including Hong Kong, should take steps to make their commercial practices compatible with the AML. Failing to do so will expose them to fines which could go up to 10% of their turnover, third party liabilities and reputation damage. David Cox and Lucas Niedolistek are lawyers from DLA Piper, one of the world’s largest service provider in the legal sector. This article is condensed please visit for the full report.

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