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Hong Kong art scene’s new golden age
WHY PROPERTY OWNERSHIP IS A PIPE DREAM IT’S BOOM TIME FOR 2018 IPOs F&B SECTOR BATTERED BY EXITS George Condo, Smiling Girl with Ponytail, 2008, oil on canvas, 183 by 152.5 cm; 47
MICA(P) 244/07/2011 KDM No: PPS1645/3/2008
8 ACCELERATORS TO LAUNCH YOUR STARTUP
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FROM THE EDITOR
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Welcome to Hong Kong Business annual Art issue. Analysts believe that Hong Kong is entering a new golden age with things looking up in the art scene in the city. Looking at 2017 sales data from Christie’s, Sotheby’s, and Phillips, the three auction houses raised $11.21b in art sales globally with Hong Kong bringing in 15.6% of the sales. Christie’s reported ongoing growth in its Asian client base, which now represents 31% of global spend. Importantly, Asian client spending increased for artwork at a higher price point (over £1m), rising 63%, whilst Asian collectors’ interest continued to diversify with 52% of the Asian client base’s spending outside the Asian Art sales category. Meanwhile, Sotheby’s Hong Kong raised a total of $6.6b (US$840m), representing nearly 20% of Sotheby’s worldwide auction total. Meanwhile, Chinese firms’ real estate buying spree boosted this year’s mergers and acquisition scene in Hong Kong with overall announced M&A activity involving Hong Kong summing up to $211.0b in 2017, up 46.7% from a year ago. This is also the highest annual period since deal value reached a record high of $269.4b in 2015. Real estate emerged as the top sector in deals involving Hong Kong based on market share, followed by industrials and financials. We have also rounded up the most promising accelerators in the city. For companies seeking for room to grow, this list could be your ticket to your next big venture. Enjoy the issue!
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HONG KONG BUSINESS | MAY 2018
COVER STORY 24 Hong Kong art scene’s new golden age
iNDUSTRIAL iNSIGHT 8 Accelerators to watch out for in 2018
cASE sTUDY Why BOCHK is putting finger scanners on its ATMs
06 Why property ownership is a pipe
22 8 Accelerators to watch out
for in 2018
28 Embattled Hong Kong hotels
brighten up on tourism
07 Can banks defy a housing crash? 08 It’s boom time for 2018 IPOs 10 F&B sector battered by exits in 2017 12 Can Hong Kong banks meet IFRS 9
34 Privacy, security concerns hinder
46 The DSE and stress: is
48 Still room for at least 40 million
36 Robust commercial property
requirements on time?
REGULAR 20 Economy Watch
Published Bi-monthly on the Second week of the Month by Charlton Media Group Pte Ltd, 19/F, Yat Chau Building, 2 HONG KONG BUSINESS | MAY 2018 262 Des Voeux Road Central, Hong Kong
adoption of e-payments systems in Hong Kong
our exam really necessary?
markets seen to continue its strong rally in 2018
40 InsurTech firms thrive in
the Asian market
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HR & Education
Temp work booms as employers move to slash hiring costs
Hong Kong offers better jobs than Singapore, say expats
Prime office rents extend run after rising 5.2% in Q4
Temporary and contractual work is set to gain further momentum in Hong Kong’s job market this year as the percentage of recruiters opting for such flexible working options rose from 57% to 62% YoY in 2017, according to Hays Asia salary guide.
Hong Kong outperforms both Singapore and Shanghai in terms of perception by its foreign talent as almost a fourth (24%) of expats believe that Hong Kong offers ‘fantastic job opportunities’ according to an HSBC Survey.
Prime office rents in one of the world’s least affordable city to rent and own properties extended their steep climb after rising 5.2% YoY and 0.7% QoQ in Q4, according to Knight Frank’s Asia-Pacific Prime Office Rental Index.
Cathay Pacific hit by massive $6.45b fuel hedging loss in 2017 The airline deep dives into the red after posting its fourth straight year of deficits. Bloomberg reports that Cathay Pacific is struggling to take off as it reports its fourth consecutive year of deficits amidst massive fuel-hedging loses worth $6.45b in 2017 with analysts expecting a turnaround by 2019.
HR & Education
HONG KONG BUSINESS | MAY 2018
Happiest place on earth no more: housing woes may hit Disney Mickey and Minnie may soon be homeless, but at least, 40,000 Hong Kongers won’t be. Disney’s magic may soon wane as the administration led by Chief Executive Carrie Lam is studying various proposals – from golf courses, country parks and farmland - to unlock more land to solve its perennial housing woes.
Hong Kong drowning in cash as surplus hits 8.6% of GDP in Q3 PwC estimates fiscal surplus to hit $168b – ten times than the original government estimate. Hong Kong’s red-hot real estate and stock market coupled with a government philosophy of fiscal prudence has driven its fiscal surplus to the roof with PwC estimating as much as $168b left over from the 2017.
FIRST 1 in 3 employees will ditch their jobs
Almost half of the Hong Kong’s labour force is planning to change jobs in 2018, and employers must brace themselves for a beating. As early as now, one in three employees have already begun looking for other opportunities to meet their career goals. Workers used to hit the road on the back of paltry paychecks only, but the demands of today’s labour force are changing everyone else’s mindset about work. The 2018 Hays Asia Salary Guide reported that non-financial benefits such as career progression and work-life balance are slowly moving to the top of the priority list for employees. Last year, 64% of respondents cited salary and benefits as the topmost consideration for signing a contract, whilst this year 58% said that the paycheck could be their main reason for accepting a new role. The report revealed that a lack of career progression is the second most common reason at 46%. Retention factors “When asked about retention factors, ‘work-life balance’ (38%) came in as the second top reason why employees won’t leave their job this year, coming in behind ‘salary and benefits’ (49%). The third most nominated reason was ‘career progression’ (36%),” said Dean Stallard, managing director of Hays in Hong Kong & South China. But will Hong Kong’s hopefuls soon land a new role? The report said not so fast, as respondents might not be up to par to address employers’ concerns about skill shortages. Almost all employers responded that a lack in the required skills could potentially disrupt business operations in the coming year. Stallard said that in fact, 1 in 3 respondents devote no personal time to professional development. He added that in a fast-paced employment market, employees should not just sit around and wait for their dream job to come by. They have to remain relevant, or else they will run the risk of being phased out. 6
HONG KONG BUSINESS | MAY 2018
The OPod is tiny at 100 sq. ft. but it can pack in most of living essentials
Why property ownership is a pipe dream
hen James Law stumbled upon some leftover concrete water pipes lying around in a construction site, he noticed that the pipes were big enough to contain a living space. This fueled the idea of building a new type of low cost housing that is quick and cheap to build, would charge less per month, and therefore quite suited for young Hong Kongers grappling with the city’s skyrocketing rents. Law spent a month bringing his concept to life, overcoming challenges like figuring out how to ship concrete pipes to Hong Kong and finding a working area to do the prototype fitouts and modifications, but he eventually produced the first OPod Tube House in 2017. “We are at a very early stage of public consultation about OPod in Hong Kong. It is so different and innovative that there is no precedence. So far we have had very favourable response from the public. We have received enquiries to purchase or collaborate with OPod from around the world,” said Law. Constructed from readily available
Occupiers will pay as little as HK$3000 per month to live in the OPods.
The OPod Tube House
8-feet diameter concrete pipes, the OPod is tiny at 100 sq. ft. but it can pack in most of living essentials, including a couch, a bed,, a desk, some storage for clothes and other items, a kitchenette, and even a shower. A smart layout and use of space-saving furniture houses all of these inside the OPod, making it comfortable for possibly even up to two dwellers. The concrete material provides additional economic advantages through reduced cooling and heating needs, as well as ensures durability. One of the proposals is to stack the OPods to form a low-rise building, and eventually nurture a community within the connected OPods. In the next few years, Law plans to rent out OPods to young people who find it difficult to afford a place in Hong Kong and other cities through a renting-investing arrangement. He reckoned that occupiers will pay as little as HK$3000 per month to live in the OPods, of which HK$2000 be allotted each month for investment. When the renters leave the Opod, the invested money is returned to them “so that they have some savings to take the next stage of their life.” In January, Hong Kong was named the least affordable housing market for the eighth consecutive year, with the median price of a home in Hong Kong becoming 19.4 times the median annual pre-tax household income, up from 18.1 times in the previous year’s study, of urban planning policy consultancy Demographia. “Micro flats are the by-product of the immensely high costs of living in Hong Kong. The demand for them is really a result of people not able to afford more sizeable homes,” said Law.
FIRST Hong Kong banks’ average loan-to-value ratio on new mortgages remained below 50% as of January 2018.
Hong Kong banks are set for another year of brisk loan growth.
Can banks defy a housing crash?
&P expects Hong Kong banks to have the ability to hold firm against another housing crash, expecting most large banks in the city to maintain their credit profiles even if prices were to drop by 30%. The resilience of Hong Kong’s financial institutions is weaved into the system as HKMA tightened mortgage-underwriting standards in recent years to curb risks and runaway price growth, the rating agency said. S&P noted that Hong Kong banks’ average loan-to-value ratio on new
mortgages remained below 50% as of January 2018, up from 64% in 2009, whilst the debt servicing ratio was valued at 34% as of July 2017. Residential mortgage loans delinquency ratio also remained subdued even after the 1997 housing crash, a testament to Hong Kong’s capacity to withstand stressful market periods. Hong Kong banks are also required to perform a stress test which assumes an extreme scenario of 300 basis point rise in mortgage payments, which provides some level
of protection in debt serviceability amidst an expectation of interest rate hikes in 2018. “In our base case, we are not expecting a correction in property prices in 2018. Our base case assumes that residential prices will decelerate to 0%-5%, down from a heated 12% expansion in 2017,” said S&P. “Nonetheless, we do not rule out the risk of sharp price correction associated with a rising interest rate environment. Hong Kong’s economy would hardly escape unscathed in such an event.” Hong Kong banks are set for another year of brisk loan growth and rising profitability as they penetrate deeper into China’s financial markets, however, this growing exposure to mainland China is also becoming a key vulnerability, according to S&P Global Ratings. As of September 2017, total mainland China-related lending was at HK$4.1t.
Starting to cool
Source: BMI, HKMA
The Chartist: Shenzen dethrones hong kong as its economy accelerates Someone’s about to get dethroned in the Greater Bay Area as Shenzhen’s exponential economic growth overtook Hong Kong in the past year. Compared to the latter’s 3.4% average real GDP growth from 1997 to 2017, Shenzhen’s economy ballooned by 13.2% over the same period. According to a report by BMI Research, Hong Kong’s mature economy and high level of development have already hit the ceiling, whereas Shenzhen continues to take advantage of the vast growth opportunities in the information technology (IT) sector. In fact, the city’s information transmission, software, and information technology sector grew to 7.1% of GDP in 2016 from 5.5% in 2013. As a result of this trend, the gap between Hong Kong and Shenzhen is expected to widen further.
Hong Kong set to be overtaken by Shenzen
Source: BMI, Wind
Growth differential to widen
Source: BMI, Wind
HONG KONG BUSINESS | MAY 2018
FIRST Is Hong Kong losing its expats?
It’s boom time for 2018 IPOs
Top 10 largest Hong Kong IPOs
Increasing property and lifestyle costs have been taking a huge toll on Hong Kong’s reputation as a global expat hub. The city is down seven spots to 20th on the HSBC Expat Explorer Survey, lagging behind in terms of Economics, Experience, and Family— the top three components of the survey score. Despite having generally positive sentiments on Hong Kong’s career progression, presence of financial services, and improving economic conditions, Hong Kong’s expats seem to be interested in moving to other Asian destinations with more opportunities such as Singapore, Mumbai, and Taiwan. Hong Kong ranks a dismal 20th overall compared to Singapore (1st), United Arab Emirates (10th), Bahrain (13th), India (14th), and Taiwan (18th). India came as a surprise by rising 12 spots to 14th, on the back of a strong economy and political stability. Except in the area of social life, Singapore trumps Hong Kong in all subcategories of the survey score such as job security, work-life balance, and savings under Economics; healthcare, safety, and quality of life under Experience; and tolerance, integration, and childcare quality under Family. In terms of social life, Hong Kong was ranked highly at fourth around the world. Hong Kong’s weak showing may primarily be attributed to difficulties of expats in acquiring affordable housing as well as the growing importance of learning Cantonese as a business language. Furthermore, the survey reveals that almost eight in ten (78%) expats work full time in Hong Kong in contrast with the global average of only six in ten (61%) and the East Asia average of only 64%. Nonetheless, expats in Hong Kong can still enjoy their stint in the city by taking advantage of what it has to offer. More than half (53%) of the respondents think that Hong Kong is a good place to start a business, ranking it the seventh best environment globally. 8
HONG KONG BUSINESS | MAY 2018
hen one looks at what drove the Hong Kong Stock Exchange’s strong performance in the first quarter of 2018 — it grew 83% from a year-ago period in terms of total fundraising — the traditional sectors of infrastructure, real estate, and financial services will rightly take most of the credit. But KPMG expects listing regime changes in the second quarter will pave the way for so-called new economy companies to grab the spotlight. In fact, the auditing firm said Hong Kong will likely attract more biotechnology firms and record several mega-sized IPOs in telecommunications, media and technology, or TMT, in 2018, which will further solidify Hong Kong Stock Exchange as a top global exchange. “The introduction of a new listing regime for companies from emerging and innovative sectors is likely to attract significant interest from ‘new economy’ companies in mainland China as well as globally. It also strengthens the city’s intention to become the financing hub for ‘new economy’ companies,” said Paul Lau, partner, head of capital markets at KPMG China. “The conclusion of the consultation on a new listing regime for companies from emerging and innovative sectors is expected to be announced in April. As a
Source: HKEx and KPMG analysis
result, we expect to see listings of these companies as early as this summer,” said Maggie Lee, head of capital markets development group, Hong Kong at KPMG China.
Average deal size jumped to HK$760 million across 29 new listings.
2018 forecast Due to the positive catalyst of a more accommodative listing regime, KPMG lifted its 2018 IPO fundraising forecast for Hong Kong by 25% to $250b from $200b, up from $129b in the full year of 2017. The Hong Kong Stock Exchange is off to good start as it was the fourth best-performing in the first quarter of 2018 with IPO fundraising at HK$22.5b, behind Shanghai ($24.4b), Frankfurt ($42.0b) and New York ($82.3b). Average deal size jumped to $760m across 29 new listings during the period from $610m across 20 new listings in the year-ago quarter. KPMG said Hong Kong’s status as one of the most popular listing venues in the world will likely continue throughout 2018, especially with a new listing regime in the cards.
Mobile App Watch
MamaHelpers app connects helpers with households MamaHelpers is a new app that makes families’ search for reliable foreign domestic helpers easier, more transparent, and hassle-free. In just four months, MamaHelpers has become the largest and fastest-growing global network linking over 150,000 foreign domestic helpers with around 50 employment agencies and their future employers. Similar to a LinkedIn profile, the app allows foreign domestic helpers to gain more control of how they are employed. They can craft their profiles and verify information publicised through the platform. Only verified profiles get to search for available jobs overseas. MamaHelpers also has an extensive database of vacancies for aspiring foreign domestic helpers, leaving them with a wide array of employment options. Likewise, MamaHelpers gives employers the same access to its database, allowing families to search for the foreign domestic helper who fit their needs.
Founders Yan Leung Yat-yin and Amanda So Tsz-yan
F&B sector battered by exits in 2017
f there is anything that Hong Kongers are getting used to, it is the pain of seeing their newest favorite dining spot close up shop. From the vegetarian-and-vegan havens HOME – Eat to Live and Maya, to the rooftop pizzeria 3/3rds, to the NEO Cocktail Club, there has been a bevy of closures in the F&B sector, which accounted for 16.37% of total private sector vacancies in December 2017, the highest of any sector, government data showed. This meant the F&B sector racked up 12,120 vacancies out of 74,040 registered at year’s end. By comparison, the retail trade posted the second-highest rate of vacancy at 7,800, or 10.53% of the total, professional business services at 7,020 (9.48%), import and export trade at 5,980, and financing and insurance registered 5,670 vacancies respectively. Whilst the high F&B vacancies could be seen as a function of soaring city rents, Michelle Chiu, director of retail department at JLL, noted that intense competition is the real culprit and the weeding out of concepts is nothing new to Hong Kong where food trends are quicker to change. “As one of the foodie capitals in Asia, the Hong Kong F&B market is a sophisticated and dynamic one where dining trends are adopted very quickly,” she said, citing how back in 2013 to 2014, most clients were
looking for retail spaces were searching for at least 3,500 to 5,000 sq. ft. to open largescale restaurants. Now, many operators are seeking smaller opportunities to house unique concepts with 1,200 to 1,800 sq. ft. being a sufficiently-sized space. Chiu reckoned that there were only a few popular brands that exited the market in the last 12 months, with many new ones entering such as Tsukado Nojo from Japan, Xinrongji from and Shake Shack from the U.S. In addition, she expects many more international concepts to land in Hong Kong in the next six months. Tougher competition “As more and more international as well as local players enter into the market, the F&B industry is becoming more sophisticated which means competition is getting higher and higher,” said Chiu. “This forces operators to continue to improve the standard of their food, service, and presentation, and continue to be innovative in their cuisine. This benefits all consumers and raises the already high standard of the industry in Hong Kong.” But Chiu warned that the success of founding companies have attracted many brands into the market, and the often fatal mistake comes in poorly estimating consumer demand and crafting a product
The Kinnet closed in Hong Kong last year
that can truly stand out in Hong Kong. “This often results in failed businesses, not because of the concepts, but because of too much competition and not very unique products.” “We suggest that operators who are looking into establishing new concepts or bringing franchise brands into Hong Kong to do a more detailed study of the market before making their first move,” Chiu said. “In 2016 it was Japanese cheese tarts, last year we were hit by a wave of new ice cream and fluffy shuffle pancake concepts ranging from European to Korean, and this year we are seeing the Taiwanese bubble tea crave making a comeback.” Chiu reckoned brands should engage with a third party and professional group to help them zero in on a market opportunity, especially if they are unfamiliar with the local scene. For those that do their homework, she said the rewards can be worth the risk. “There are many more retail opportunities that are actually available for F&B operators to choose from, which is a very positive sign for those who are still looking to expand.”
Check out azalvo’s hip and modern hub in Kwun Tong Stepping into azalvo’s product showroom, one is greeted by a wall of products from the array of creative businesses that the company is nurturing into world-class brands. The ultra-modern design of azalvo’s 15,000 square feet headquarters in the heart of Kwun Tong reflects the kind of cool and innovative approach that is at the core of the fashion and lifestyle incubation platform and co-creation community. azalvo’s services include providing research and development to younger brands, to logistics and finance services for designers who prefer to fully focus on the creative side, to brand and retail strategy for labels that are ready to expand in other markets. “I want to provide access to resources, collaborate and guide the companies through the challenging process of transforming creative ideas into successful businesses,” said Joanne Chow, co-founder and director of azalvo, noting the major structural shift in Hong Kong’s textile and garment manufacturing. 10
HONG KONG BUSINESS | MAY 2018
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The area can be used for fashion shows
The space can also be used for product launches
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Expats in Hong Kong 423 foreign nationals surveyed in Hong Kong
HSBC adopted revised standards on the presentation of gains and losses last year.
Can Hong Kong banks meet IFRS 9 requirements on time?
Source: Survey conducted by YouGov between March and April 2017 on behalf of HSBC Expat
HONG KONG BUSINESS | MAY 2018
ong Kong banks are well-positioned to meet International Financial Reporting Standards 9 (IFRS 9) requirements, according to credit rating agency S&P, as banks like HSBC have already adopted revised standards on the presentation of gains and losses early last year. The HKFRS 9, the local equivalent of IFRS 9, raises provisioning through the introduction of an “expected credit loss” impairment model as opposed to the previous IAS 39 “incurred loss’ impairment model. Under the new reporting standard, banks are required to recognise a credit loss allowance that represents 12 months of ECL for all performing loans and for significantly underperforming and nonperforming loans, an allowance based on an estimate of lifetime ECL. “HKFRS 9 will likely lead to early recognition of credit losses and higher provisioning, which could lead to a slight decline in profitability. However, we expect the banks’ tightened underwriting standards and signs of stabilisation in asset quality since late 2016 to act as mitigating factors,” S&P forecasted. Banks business models including risk appetite and loan portfolio mix are not poised to undergo significant change due to the adoption of the new reporting standard. However, it
Banks are required to recognise a credit loss allowance that represents 12 months of ECL for all performing loans.
may have some long-term effects. “That said, in the long run, the adoption of IFRS 9 may prompt banks to try to mitigate the impact of the accounting rule change by adjusting the duration period for potentially high-risk loans (lifetime expected credit losses need to be provisioned for the duration of the loan) or increasing the pricing of such loans,” the credit rating agency noted. “Banks may also refrain from lending, particularly in a Hong Kong context, toward property related loans and potentially toward mainland exposures given asset quality problems in China.” In terms of capitalisation, the potential impact is poised to be largely manageable as the Hong Kong Monetary Authority requires banks to maintain a regulatory reserve in addition to collective impairment allowances under the previous standard to cover unidentified, expected future losses.
Resilient but coming off from 2017 peak
Source: BMI, HKMA, Censtatd
Goxip is the Google for fashion
ubbed as the “Fashion Google” and “Shoppable Instagram,” Hong Kong-based startup Goxip is banking on its founders’ fashion industry expertise to dominate the emerging social commerce trend. Goxip combines e-commerce and social media with innovative technology and chic visuals to attract fashionistas on mobile. What sets it apart from other e-commerce platforms is its “Shop the Looks” function which enables users not only to post content and engage with other members, but also allows them to buy their desired fashion items at the same time. The one-stop fashion
and beauty social platform enables users to share photos of their outfit and tag their clothing and accessories real-time from its large database, thereby allowing its followers to directly shop the outfit items from a single post. Goxip founder and chief executive officer, Juliette Gimenez says the idea for the fashion search platform came after she failed to find where she could buy a pair of boots Hollywood actress Jessica Alba was wearing on Instagram. “What I had to do after was go to different e-commerce websites and try to find something similar. I even tried using Google image search but all I got back was more photos of Jessica Alba from the event. If there was something that Google couldn’t do, I saw this as an opportunity.” Its use of image recognition technology to find the exact or a range of similar fashion items allows users to instantly purchase them. “The more content I see from different media platforms, the more I felt there was a big gap between where I perceive the content and where I can actually buy my desired fashion,” says Gimenez. Goxip has partnered with 36,000 luxury brands and over 500 foreign retailers.
sQoolink offers education advisory platform 4 million out of the 6 million students going abroad for further studies come from Asia, with the U.S., U.K., Canada, and Australia being their top destinations. “The emerging middle class families in Asia are willing to spend a fortune on their children’s education, especially for an education overseas. Nevertheless, information about studying abroad is When Asian students want to study limited in their home countries and they abroad, they usually have a battery of have no connections to current students questions that range from tuition costs or alumni,” said Choi. to campus life. Since online research To bridge the gap, sQoolink employs sometimes cannot provide all the answers a mentorship model where students to help make an informed decision on which country and school will be the best can ask questions about academics, fit. sQoolink aims to connect prospective admissions, costs, or the campus life in a school in the destination countries. Asian students and their parents to One of the more than 300 verified mentors who are current students, alumni, and school representatives in the mentors then answers the questions based on their personal experience U.S., U.K., Canada and Australia. of the institutions, and on their local Sqoolink co-founder and CEO Charlene Choi alongside co-founder and knowledge. Lee said the app has been designed for easy usage, with prospective CTO Keith Lee established the startup students able to sign up and submit after seeing the opportunity to disrupt questions through the app. the education market. Choi said that
HONG KONG BUSINESS | MAY 2018
Smart locker platform Pakpobox secures $1.2M fund
When smart locker platform Pakpobox secured its $1.2m in pre-series A funding led by Japan-based Infinity Venture Partners in December 2017, it set its sights on a twin mission of solidifying its presence on its home turf, Hong Kong, and expanding to overseas markets like Indonesia and Australia. Currently operating in eight markets, the startup next plans to open in Italy and Brazil. The vision is that when Hong Kongers want a package delivered, they will not only consider the home or the office, but also one of the smart lockers that are increasingly becoming a common sight across the island. In Hong Kong, Pakpobox’s goal is to build 2,000 smart lockers, where users can pick up parcel delivery and soon avail lifestyle services like laundry through the help of a mobile app. To-date the startup has raised $2m in funding and is the only one that both manufactures and operates smart lockers in Hong Kong — advantages it is keen on pressing as it expands domestically and overseas. E-commerce boom “The initial market response was not great, in terms of locations acquisition,” recalled Matthew Ng, cofounder and chief executive officer of Pakpobox, when the startup first launched. “People were not familiar with smart lockers in Hong Kong back in 2014 when Pakpobox was founded and were reluctant to be on board our smart locker network.” Ng said Pakpobox aims to simplify the delivery of goods by building a smart locker infrastructure for the global e-commerce market. The startup said it operates one of the largest smart locker networks in Hong Kong with around 3,500 compartment doors installed, handling over 20,000 parcels per month. It has forged partnerships with major logistic operators like Hong Kong Post, Morning Express, 4PX, Singapore Post, Yahoo Hong Kong, Buy&ship today, and Taobao. For Hong Kong Post, Ng said Pakpobox developed RFID-enabled smart lockers, also known as i-Postal Stations, which quickened the postal giant’s delivery speed in sending out the growing number of parcels from rising ecommerce activity in Asia. The startup also integrated military-grade technologies to meet government security standards. “Our aim is to consolidate our business-to-business and business-to-consumer smart locker network, as well as our pick up drop off points into a single global network,” said Ng, noting that Pakpobox also has presence in China, Malaysia, Macau, Maldives, and Myanmar.
FINANCIAL INSIGHT: MERGERS & ACQUISITIONS
Deal #1: Hong Kong’s biggest deal in 2017 was Orient Overseas (International) Ltd, which was acquired by Chinese shipping line, COSCO SHIPPING.
Deal #2: Hong Kong-based Wharf Real Estate Investment, valued at US$23.3b, was the biggest transaction for 2017.
Chinese firms’ real estate buying spree boosts M&A activity in Hong Kong Overall announced M&A activity in 2017 rose by nearly half from the year-ago period whilst Hong Kongtargeted M&A volume posted its second-highest level on record.
&A activity gained momentum in 2017, driven by acquisitions in Hong Kong property and insurance companies, said Elaine Tan, senior analyst, deals intelligence at Thomson Reuters. Overall announced M&A activity involving Hong Kong totaled $211.0b in 2017, up 46.7% from a year ago, and the highest annual period since deal value reached a record high of $269.4b in 2015. Real estate emerged as the top sector in deals involving Hong Kong based on market share, followed by industrials and financials. Tan noted that Hong Kong’s property tycoon Peter Woo has completed its plan to spin off six properties of Wharf Holdings into a new commercial entity, Wharf Real Estate Investment Company Limited, in a deal valued at $23.3b. “Like Li Ka-shing’s reorganisation in 2015, an increasing number of corporate divestitures were witnessed in the region this year to enable companies to focus on core businesses,” she said. Hong Kong-targeted M&A volume amounted to $68.3b in 2017, the second-highest full-year volume on record after $129.7b in 2015, said Chunsek Chan, head of M&A research at Dealogic. Real estate was the most promising sector, accounting for $32.5b via 32 deals, or roughly half of all Hong Kong-targeted deals last year, including four
HONG KONG BUSINESS | MAY 2018
Overall announced M&A activity involving Hong Kong totaled $211.0 billion in 2017, up 46.7% from a year ago.
of the ten largest deals, such as the $19.5b acquisition of Wharf Real Estate Investment, he said. “Domestic acquirers were spurred back into action following a dip in 2016” with US$47.6b via 321 deals, up 160% from the previous year, he noted. The total Hong Kong deal value was $69b in 2017, up 46% from 2016, whilst average M&A deal size jumped from $61m to $98m, said Harsha Basnayake, managing partner for the Asia Pacific transaction advisory services practice of EY. “The increase in deal value was driven by mainland firms buying into Hong Kong companies, as well as Hong Kong companies expanding overseas,” he said. “The most popular investment destinations for Hong Kong investors in 2017 were China, Australia, and Canada.” Cross-sector deals dominated 2017 was a year dominated by cross-sector deals, with 82% of Hong Kong investors looking cross-sector to transact, said Basnayake. He noted that aside from two deals by Li Ka-shing — a joint venture backed by the Hong Kong business magnate acquired Germany’s Ista International GmbH for US$6.5b in July 2017; he also acquired Reliance Home Comfort, which leases and services water heaters,
FINANCIAL INSIGHT: MERGERS & ACQUISITIONS furnaces, and air conditioning units in Canada — there was also Chow Tai Fook Capital’s investment of US$3b into Australia’s power and utilities sector. Deal values for business services, automotive and transportation, and insurance skyrocketed on previous years, according to Basnayake. The average value of Hong Kong inbound insurance deals rose 185% on 2016, for example, driven by mainland companies investing in Hong Kong players as part of their overseas expansion. The most notable deal in insurance was an outbound play by AIA HK, which acquired the Commonwealth Bank of Australia’s life insurance business for $3.05b. “Insurance products that are available in the mainland and those in Hong Kong are different, making the ability to own a Hong Kong operation very appealing to mainland investors,” said Basnayake. 2017 notable deals Basnayake said Hong Kong’s biggest deal in 2017 was Orient Overseas (International) Ltd, which was acquired by Chinese shipping line, COSCO SHIPPING Holdings Co Ltd, and the Shanghai International Port (Group) Co Ltd for $8.4b.“The deal will set COSCO to become the world’s third largest shipping operator. It reflects ongoing consolidation in the global shipping industry, which has been in turmoil since the 2008 global financial crisis,” he said. “However, now rates are recovering, it may be the industry’s last major M&A for a while.” Meanwhile, Tai said several notable M&A deals in Hong Kong stood out in 2017, including the one with the highest value: Wharf Holdings’ spinoff of the entire share capital of Wharf Real Estate Investment to $23.3b, private investors snapping up China Unicom (Hong Kong) for $11.26b, and the acquisition of the Centre tower in Hong Kong for $5.15b. On the insurance front, one notable deal was the $1.7b acquisition of insurer MassMutual International’s Hong Kong unit by a consortium led by Yunfeng Financial Group, an affiliate of Alibaba, according to Koo. There were also high-profile disposals such as that by LINK REIT of a portfolio of 17 real properties in Hong Kong to a consortium led by Gaw Capital and Goldman Sachs for $23b, whilst CK Asset Holdings unloaded certain units in The Center, a commercial building in Hong Kong, to a consortium of PRC and Hong Kong investors for $40b. Two aspects “The trend of M&A activity in Hong Kong can be characterised by two aspects, amongst others,” according to Psyche Tai, head of Hong Kong at Norton Rose Fulbright. “Activity was driven by Chinese firms buying into Hong Kong real estate and insurance companies, as well as internal restructuring of big companies; and policy changes by the Hong Kong Stock Exchange to boost M&A, particularly in the tech space.” Considering deals that either involved a Hong Kong buyer or seller, Tai said the dominant sectors were real estate and insurance, with notable activity in financial services and technology. “Hong Kong M&A activity was fairly strong in 2017, as debt financing was readily available and the Hong Kong
economy remained stable,” said Bryan Koo, consultant, at Clifford Chance in Hong Kong. Deal volume in 2017 focused on the real estate, insurance and telecom sectors, largely driven by the appetite of mainland Chinese companies for assets in these sectors in Hong Kong, although a strong performance in the Hong Kong stock market in the second half of 2017 kept stock prices high and tempered activity in the public M&A space for Hong Kong listed companies. Koo noted that whilst mainland China outbound investment into Hong Kong assets remains a key driver, M&A activity for Hong Kong targets are more focused on selected sectors rather than showing strength across the board. Private equity firms were also seen chasing after assets not only in Hong Kong but also across Asia Pacific. The quest for juicier targets The M&A landscape in Hong Kong continues to be stable because of rising optimism and the fact that Hong Kong dollar is tied to the U.S. dollar, which has attracted mainland Chinese companies that want to diversify their risk from a currency perspective through overseas asset acquisitions, said Patrick Yip, national M&A leader at Deloitte China. Yip said even if the U.S. promises juicier targets, mainland Chinese companies “feel a lot more comfortable” coming to Hong Kong. “And there wouldn’t be the kind of regulatory obstacles like in the U.S. about national security. So it would be a lot easier to do deals in Hong Kong.” Property remains a key sector in terms of M&A activities in Hong Kong, according to Yip, pointing to the acquisition of The Centre tower. Aside from high prices, the transaction was notable for its completion in spite of China issuing a circular on new rules governing outbound investments. “That kind of shows Hong Kong has a unique position as far as outbound M&A is concerned,” added Yip. Yip said mainland Chinese firms prefer bigger-sized targets because of the cash flow they provide given the goal of diversifying currency risk, but a key challenge is the relative scarcity of such opportunities in Hong Kong. “If you buy a small business or a startup in Hong Kong, that would not give you the kind of benefit,” he said, but Hong Kong targetted M&A
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FINANCIAL INSIGHT: MERGERS & ACQUISITIONS acknowledged that “it’s easier to find bigger deals in the U.S. but it’s quite hard to find deals in Hong Kong.” Despite a blowout year for M&A deals, regulation and competition remain key challenges for the Hong Kong market. “At a more micro-level, one of the key challenges are foreign currencies restrictions in Mainland China that effectively put quite a number of potential cross-border deals on hold,” said Tai. Challenges and outlook Tai reckoned Hong Kong’s traditional role as a gateway to international markets will continue to be threatened as Chinese companies grow more sophisticated and Singapore continues to upgrade its professional service offering and dispute resolution facilities, and develop new industries such as financial technology. “In order to sustain that role, Hong Kong must become more adept at developing new industries and technology that can attract fresh investment to drive deal flow,” she said. “This requires ample funding and institutional support from both the public and private sectors.” Koo, meanwhile, said the market is grappling with high valuation, especially in the real estate, financial services, and insurance sectors. Many sectors and industries in Hong Kong such as retail and consumer, trading and logistics, shipping and ports, and utilities have become mature with relatively limited growth prospects. “They are unlikely to attract M&A opportunities,” he said. But Basnayake said “it is hard to envisage any major challenges for the M&A landscape” given the level of liquidity in the market, the relatively low cost of debt and the freemarket environment in both Hong Kong. Basnayake expressed bullishness on Hong Kong and expect deal volumes to remain steady or higher than last year, citing the market’s health and attractiveness from both a macroeconomic and overall business environment perspective. Favourable policy change by the Hong Kong Stock Exchange will offer more flexible exit alternatives, which will boost M&A activities, according Tai. “Domestic deals will continue to rise and outbound Hong Kong deals will target Southeast Asian markets like Indonesia and Thailand,” she added, expecting technology assets to become one of the strategic drivers of global M&A deals. “A lot of that activity for Hong Kong will therefore be in the technology and fintech space. New tech has really infiltrated the global markets and for Hong Kong I believe this will very quickly spill or further penetrate into sectors like consumer, energy and mining, and biotech.” Koo, for his part, expects M&A activity to remain “fairly strong” in 2018, as long as debt financing remains available and interest rates remain low.” He said M&A activity may increase in the real estate; banking, insurance and financial services, and healthcare sectors. But M&A deal volume in the Hong Kong broadband sector, which in the past two to three years has soared, may slow down this year as most of the viable targets in the sector have already been acquired. Koo added that private equity funds in Asia Pacific continue to have record amounts of ‘dry powder’ and they will remain under pressure to deploy capital in the near future, despite high valuations. Should stock prices remain high, take privates and takeovers of HK listcos may be put on hold. 18
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Despite a blowout year for M&A deals, regulation and competition remain key challenges for the Hong Kong market.
M&A deals reach an all-time high It was a banner year for mergers and acquisitions (M&A) activity in Singapore last year, as estimated fees for completed M&A deals in 2017 totaled $236.8m, up 80.8% compared to a year ago, and the highest annual fee volume since records began in 2000, according to Thomson Reuters data. Notably, overall M&A activity involving Singapore reached an all-time high as deal value climbed to $95.3b in 2017, up 11.4% from a year ago, beating the 2014 record of $93.2b. “Singapore-based organisations were targeted for M&A last year like never before, with record-high volume and the highest activity since the global financial crisis,” said Chunsek Chan, head of M&A research at Dealogic, with such deals ring sharply to $50b across 481 deals, led by the Global Logistics Property (GLP) acquisition. The resulting volume saw a 36% increase over the previous record set in 2012 of $36.8b across 422 deals. Total Singaporean deal value in 2017 rose to $36b in 2017, up 7% from a year ago, whilst average M&A deal size went up to $54m from $48m, said Harsha Basnayake, managing partner for the Asia Pacific transaction advisory services practice of EY, noting that deal values were driven by sizable transactions by investment funds GIC and Temasek Holdings. Melissa Ng, partner at Clifford Chance, Singapore, noted that the market was dominated by several big ticket M&A transactions, with deal values far in excess of US$1b per transaction making 2017 a record for M&A transactions. Real estate sector roared Elaine Tan, senior analyst, deals intelligence at Thomson Reuters said that the real estate sector took the lead and accounted for 45.5% market share worth $43.4b in 2017, up 204.9% from 2016, the highest-ever annual period for the sector in terms of value, surpassing the 2014 record. Aside from the real estate sector, other major deals include Alibaba Group Holding Ltd of China raising its interest in Lazada South East Asia Pte Ltd, a Singapore-based online retailer for $1b. An investor group lead by Didi Chuxing Technology and SoftBank Group plans to acquire an undisclosed minority stake in Grab Taxi Holdings Pte Ltd, for an estimated $2.5b. Meanwhile, a much talked about deal in early 2018 is Grab’s has acquisition of Uber’s Southeast Asia operations. Uber will take a 27.5% stake in Grab and Uber CEO Dara Khosrowshahi will join Grab’s board. Moreover, Grab is now backed by DiDi Chuxing and Uber, in addition to leading global investor SoftBank.
Top five target market industry
Source: Thomson Reuters
economy watch 2018 from 1.5% in 2017,” she said. “We see upside risks from food price inflation as the agricultural products in mainland China face supply-side constraints. In addition, further tightening of labour market conditions will likely pose upward pressure on wage growth.”
Hong Kong’s relatively positive GDP figure in 2017 can be attributed to rising asset prices.
In 2018, Shenzen’s economic boom is Hong Kong’s bane Hong Kong’s economy grew an average of 3.7% in 2017 whilst Shenzhen’s economy grew an average 13.2% over the same period.
ooking at the overall picture, BMI Research suggest that slower economic growth for Hong Kong will weigh on consumer spending, with real GDP growth expected to slow to around 3% yearon-year in 2018, a 0.7% reduction from the growth figures sustained last year. Real economic activity also moderated to 3.6% year-on-year on Q317 from the high of 3.8% year-on-year seen in Q217. “We expect this downtrend to continue due to a softening housing market, a moderation in mainland China’s economic activity, and unfavourable base effects,” according to BMI Research. Hong Kong’s relatively positive GDP figure in 2017 can be attributed to rising asset prices, particularly house and equity prices and investment from mainland China, but BMI Research suggests that for the next 12 months, private final consumption is expected to moderate, growing by 3.5%, reflecting the slowdown in GDP growth. However, low unemployment and rising wages—long-term characteristics of the Hong Kong economy—will
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Real GDP expected to grow by around 3% year-onyear in 2018, a 0.7% reduction from the growth figures sustained last year.
remain positive driving forces for consumption for the rest of 2018. Subdued inflation In terms of inflation, Sylvia Sheng, China and Asia economist of Merrill Lynch in Hong Kong, said that headline consumer price inflation for Hong Kong remained unchanged at 1.7% year-on-year in January, although this figure would have definitely risen over the last month given the celebrations of the Lunar New Year—prices for food and travelrelated services during the holidays tend to increase. “Overall, we expect inflation to increase to 2.2% year-on-year in Convergence
Source: BMI, Wind
Shenzen’s boom Although BMI Research suggests that Hong Kong will likely be surpassed by Shenzhen in terms of economic size this year—Hong Kong’s economy grew an average 3.7% when it was handed over to the mainland in 1997 up until 2017, Shenzhen’s economy grew an average 13.2% over the same period—the territory will remain a leader in the financial sector. Alicia Garcia-Herrero, chief economist for Asia-Pacific at Natixis. said that the logistics sector in Hong Kong grew vibrantly in 2017 underpinned by the global trade upturn, with cargo handled by air, road, and port all seeing expansion from a year earlier when the sector had an extremely difficult time. “Going forward, we expected the good performance of global trade to be carried in 2018, albeit at slower rates.” But BMI Research suggests that even though Hong Kong is likely to be one of the main ports that will serve the Pearl River Delta region over the coming year, its trade fortunes are likely to be weaker than previous showings due to its increasing uncompetitiveness. “Business situation surveys show that business owners in major sectors like retail, financing and insurance, and professional and business services perceived improved business situations in recent quarters,” noted Garcia-Herrero.
Co-published corporate profile
VENTURE redefines safety and security with the Long-ranged Wireless Driveway Alert The technology provides an alert signal when the wireless outdoor motion sensor detects a person or a vehicle approaches your home or premises, thereby ensuring an added protection to every household.
hen it comes to safety and security, will the bare minimum be enough? For Adam Chow, chief executive officer of Venture Global Limited—the Hong Kong-based company who introduced a simple and useful alert monitoring system for the safety and security of homes, offices, and properties—everybody deserves to feel safe and secure in the places they live, work, and play in, not just from robbers and criminals but also from external threats like fires and faulty utility systems. This need to inspire security and confidence in people in the places they live and work in is what prompted Adam and his company to develop and introduce the Long Ranged Wireless Driveway Alert, which won the Hong Kong Business Designed Award for Safety and Security in the Hong Kong Awards 2018. The award-winning technology, which is basically a wireless alerting system according to Adam, can detect moving vehicles, people, or animals that shows up in a user’s monitoring area . The technology “[The technology] provides you an alert signal when the wireless outdoor motion sensor detects a person or [a] vehicle approaches your home or premises,” said Adam. “It’s a reliable security alert system for your property, garage, gate, driveways, back entrances, or business premises.” The Venture Global Limited chief executive added that their wireless alerting system also supports multiple receivers and sensors or transmitters, with all of the company’s receivers and transmitters also being compatible and interoperable. Some of these extra receivers or transmitters can be added for a more comprehensive coverage, including door or window alarms, water leakage notifiers, smoke or fire detection. Adam noted that this wide array of combinations offers significant flexibilities for consumers and provides comprehensive protection for each user. Venture’s alerting system utilises SUB-1G RF frequency with cutting-edge wireless outdoor motion sensor, which can be installed anywhere and can be mounted on walls, posts, fences, or trees with mounting
support. The system is also expandable for up to 16 sensors, whilst 32 different tones can be chosen for loud and clear alert sounds. The wireless outdoor motion sensor is also weather-proof, designed to withstand the elements including blazing heat, severe snow, hail storms, strong winds, and heavy rains. It features an adjustable sensitivity control with narrow aperture lens and a swivel mount to focus the detection distance and the angle of the sensor in order to prevent false alarms. The sensor can detect motion of up to 12 meters and transmit a wireless alert signal to the receiver when it detects a motion passing through. The commitment Adam noted that the constant and persistent implementation and application of these various cutting-edge technologies and innovations to their products are what sets Venture Global Limited apart from other companies, particularly in the cutthroat safety and security industry. Some of the efforts by Adam’s company include the continuous research and development for innovative safety and security products; using internet of things to build a total home
and personal monitoring and management platform; and continuous nurturing of talents within the company through training and human capital development. Some of the other unique features of Venture’s Long Ranged Wireless Driveway Alert include the far-reaching transmission distance of up to 1 kilometres; user friendliness from set up to usage; high-level of personalisation options; formidable build quality with the use of industrial-grade engineering plastic and weather-proof designed casing with sun shade; heightened sensitivity and smaller margin of error; wide customisation options with the extra receivers and transmitters. With the company’s hard work validated by the award won, Venture Global Limited remains committed to providing cuttingedge technology and innovation for the safety and security of its customers. Adam shared that his company will remain focused on the satisfaction of their customers and the communities they operate in by listening to their needs and developing products based on those needs and demands, whilst also pursuing corporate sustainability in every facet of the company’s operations and strategies.
“Venture’s Long Ranged Wireless Driveway Alert has farreaching transmission distance of up to 1 kilometres.”
Venture’s award-winning product
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INDUSTRY INSIGHT 1: ACCELERATORS IN HONG KONG
Startups can receive $30,000-$120,000 through these accelerator programmes.
8 Accelerators to watch out for in 2018 Hong Kong Business reached out to industry experts to round up the most promising accelerators in the city.
hen an entrepreneur has an idea for a new business, there are special programmes that offer mentorship and funding to jumpstart their venture. Accelerator programmes are offered for a certain period, with varying areas of focus, and •
Duration: 12 weeks Areas of focus: FinTech Investment/equity stake: None
Leveraging on Hong Kong’s traditional strength as Asia’s finance and technology gateway, SuperCharger’s accelerator programme aims to shape the future of finance in Hong Kong and beyond. The programme alumni have since raised a combined US$370m in funding. The startups are enriched by the support and mentorship of more than 150 individuals, including seasoned VCs, industry experts, government officials, and local entrepreneurs. Notable cohort participants include trade finance platform Fundpark which provides invoice and purchase order financing for SMEs and financial rewards platform Gini.
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investment/equity stake. Increasingly, this new trend is emerging in the business ecosystem. Straight from leading venture capital firms, here are eight of the most promising accelerators in the city. They are arranged in no particular order. •
FINTECH INNOVATION LAB
Duration: 12 weeks, 10 startups per batch Areas of focus: fintech, insurtech, wealth management (wealthtech), regulatory requirements (regtech), and cybersecurity, amongst others. Investment/equity stake: No equity is taken or investment made in the start-ups Powered by Accenture, Fintech Innovation Lab features seasoned industry participants including Bank of America Merrill Lynch, CBA, Credit Suisse, Societe Generale and Sun Life Financial. The lab brings together the fintech ecosystem, reshaping start-up businesses and strengthening the entrepreneurial environment in Asia-Pacific. Some notable alumni from the programme include e-wallet operator TNG FinTech Group which raised US$115m in September 2017 to snag the largest series A fundraising round in Hong Kong.
industry insight 1: ACCELERATORS IN HONG KONG •
Duration: 3 months for accelerator, 1 year for incubator programme Areas of focus: e-commerce, supply chain and logistics Investment/equity stake: 1.5% advisory equity for each startup Amplifi is a SaaS (software as a service) dedicated accelerator company headquartered in Mumbai, India partnering with Paperclip which brands itself as a startup campus in Hong Kong. The partnership offers startups who pass the screening with readily available co-working spaces for the duratio of the programme. The team has both acceleration and incubation programmes dedicated to bringing B2B SaaS ideas into fruition. Notable alumni include Gweek which uses speech intelligence analytics to glean effective communication patterns and trends in public speech. •
Duration: 3-6 months Areas of focus: C2C / B2C marketplaces, Fintech, platform tech, ICO startups. Investment/equity stake: HYPE takes on a single digit percentage stake for seed stage companies with different structures on a case by case basis. For growth stage companies in their Series A or B, the team operates a “build, operate and transfer” model to provide startups with a soft landing into new markets by acting as their lead operators. HYPE is a team of venture builders who help startups expand their business across Asia to fuel their global aspirations. The founders - Henek, Robert and Patrick were part of the leadership team that landed Airbnb to Asia in 2012. HYPE has aided Singaporean online marketplace Carousell land in Hong Kong successfully and led the South Korean expansion of edtech startup Snapask. •
Duration: 1. Connected Hardware (Hong Kong) 4-month program with 1 month in Hong Kong and the rest in your market 2. Drones & Robotics (Hong Kong & Barcelona) - 4-months Areas of focus: Connected Hardware; Drones & Robotics Investment/equity stake: Connected Hardware - Hong Kong $100,000 for 8-13%; Drones & Robotics - Hong Kong & Barcelona $70,000 for 8-13% The Brinc team has helped bring thousands hardware products to market including wearable metronome Soundbrenner which has achieved over 15x valuation growth and medication tracking system PillDrill which is now distributed in one of the largest pharmaceutical chains in the US. •
Duration: 4 months Areas of focus: Pre-series A startups Investment/equity stake: US$30,000 investment (average equity stake: 3-8%) Betatron is a network of seasoned investors, entrepreneurs, startups and mentors focused on empowering founders by providing extensive support from market validation, marketing support, business model refinement, product development and media exposure amongst others. Founded by Venture Capital firms like Mindworks and Cocoon Ignite Ventures and startup investors, Betatron’s founding partners have collectively invested over US$300M in over 100 startups. Notable Betatron alumni include smart locker operator Pakpobox, which raised US$1.2M, increased their revenue by 9x, and have expanded into 5 new countries since graduation from the programme.
Duration: open year-round Areas of focus: compliance monitoring, credit digitisation, customer engagement, and cybersecurity Investment/equity stake: Nest Ventures signs an option agreement to possibly invest in the company. DBS does not take a fixed equity percentage upfront, but will work with startups to come to an agreed upon valuation. Powered by Nest Ventures, DBS Accelerator calls on startups with new technologies around the world to help evolve financial services. From customer experience, to credit and loans, to risk and security, DBS Accelerator aims to push the financial services industry in Hong Kong forward and spark change. Startpups who pass the screening can get access to the programme’s co-working space in Wan Chai which was formerly a bank vault. • Zeroth.ai Duration: 3 months Areas of focus: AI tech particularly cybersecurity, voice and speech (natural language processing), agtech, medtech, logistics, robotics Investment/equity stake: US$120,000 Investment in exchange for 11-12% equity Zeroth’s name is derived from the initial element in zero-based numbering which perhaps best reflects its status as the first AI and machine learning dedicated accelerator programme in Asia. The team decided to focus on nurturing AI talent not only because of its disruptive capacity but also because it is potentially acquisitive. Their notable local alumni include Emotics which uses webcam data and machine learning to provide data-driven insights into employee engagement and Fano Labs which develops speech and NLP technologies to help enterprises improve their customer services. HONG KONG BUSINESS | MAY 2018
Crowd at Art Central Hong Kong in 2017. This year, the fair had its highest ever attendance, welcoming over 39,000 visitors.
Hong Kong art scene’s new golden age The Hong Kong art scene is consolidating its premier position as the commercial art hub of Asia.
reat ideas are often borne out of necessity and Hong Kong’s latest commercial art jewel, H Queen’s, is no exception having been conceived from architect William Lim’s frustration with the inconvenience of having to trek around the city to seek out various contemporary art galleries. “The galleries used to be on Hollywood Road and I would walk from one end to the other and visit around 10 galleries in one go. But around six years ago, some of these spaces started to be replaced by restaurants and other retailers, and galleries started to move into office buildings,” explained Lim, adding that having to pass through these buildings’ security checks could add to the frustration. “So after awhile, I just stopped going to these galleries, and only really visited the Pedder Building regularly—because it has a good concentration of art galleries—and a few galleries in the Soho area,” recalled Lim, who is also a well-known collector of Hong Kong contemporary art. Though Hong Kong’s art sector has been expanding, contemporary artworks generally need a large exhibition space with high ceilings, so with few suitable buildings and the high rents commanded in the city, galleries had been moving from the Central district to several older industrial areas like Wong Chuk Hang and Chai Wan. These locations tend to be harder to access, so when Lim, who is the founder of CL3 Architects, was approached by property developer Henderson Leasing Agency Company
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Looking at 2017 sales data from Christie’s, Sotheby’s, and Phillips, the three auction houses raised $11.21b in art sales globally with Hong Kong bringing in 15.6% of the sales.
Ltd. to develop an office building at the intersection of Pottinger Street and the bustling Queen’s Road in 2013, he suggested a purpose-built, art-centred building. At the time, Hong Kong was becoming more firmly established on the international art circuit: auction houses like Sotheby’s and Christie’s had consolidated their Asian sales there and were starting to open exhibition spaces, international galleries (Ben Brown Fine Arts, Sundaram Tagore Gallery, Gagosian Gallery, White Cube, Lehmann Maupin) had set up operations in Hong Kong to court a new generation of Chinese collectors who were flexing their financial power, and Art HK had been acquired by the parent of Art Basel, giving it an enhanced international dimension. The art hub of Asia Hong Kong has long been synonymous with the worlds of international finance and commerce, but in recent years, its art market has become big business too, ranked as the world’s third-largest art market for auction sales. According to a recent report by ArtTactic, looking at 2017 sales data from Christie’s, Sotheby’s, and Phillips, the three auction houses raised $11.21b in art sales globally with Hong Kong bringing in 15.6% of the sales (compared with 48.7% of transactions taking place in New York and 24.2% in London). Christie’s reported ongoing growth in its Asian client base, which now represents 31% of global spend. Importantly, Asian client spending increased for
ASIAN ART REPORT artwork at a higher price point (over £1m), rising 63%, whilst Asian collectors’ interest continued to diversify with 52% of the Asian client base’s spending outside the Asian Art sales category. Meanwhile, Sotheby’s Hong Kong raised a total of $6.6b (US$840m), representing nearly 20% of Sotheby’s worldwide auction total. “Hong Kong’s strategic location at the heart of Asia, together with mainland China’s phenomenal growth in recent years, has contributed to its position as the art hub of Asia. Hong Kong also ranks top in terms of its artistic freedom, logistics, as well as legal and taxation infrastructure,” said Kevin Ching, CEO of Sotheby’s Asia, adding that “Hong Kong boasts a number of unique strengths which allows it to remain as Asia’s art hub, and the international identity will continue to allow Hong Kong to stay ahead of its other rival cities.” Whilst Hong Kong’s position as a gateway to China and its low-tax environment have played a key role in appealing to international art players, the importance of the authority’s attitude towards freedom of speech should not be underestimated. Though this has come under greater pressure recently, freedom of expression particularly appealed to Uli Sigg, the former Swiss Ambassador to China and well-known collector of Chinese contemporary artworks and was reported to have been a key factor in 2012 when he made the decision to donate more than 1,500 works to the soon-to-be open M+, including photographs from the 1989 Tiananmen Square crackdown. Art in the sky/A new art mall Whilst there was clearly a demand for bespoke art spaces, the developers of H Queen’s were still taking a calculated risk in focussing on this sector. To understand and meet the needs of the target tenants at H Queen’s, Lim met with numerous art galleries and identified three main concerns: the ability to easily install large artworks, the need for a high floor loading, and good ceiling height. To address these requirements, the purpose-designed 24-storey building offers floors spaces ranging from 4,000 to 6,000 square feet (approx. 370-560 sq. m), has 3.5 to 4-metrehigh ceilings, and a floor loading rate more than three times higher than typical office buildings. A glass elevator connects each floor whilst a curtain wall system allows artworks to be moved into each floor directly from the
Wong Ping, ‘Who’s the Daddy’, installation view at Edouard Malingue Gallery, Hong Kong, 2017
Tang Contemporary Art was the first tenant to move in H Queen’s.
exterior whilst also allowing for natural ventilation that is environmentally responsive. Lim said the property developer’s bold decision is paying off. “We were always thinking in commercial terms and the worst fall-back would have been to let the building as an office building, which are already “over provided” in the area. As it stands, our product is so unique that it commands about 10% to 15% higher rental than a similar office building in the same area. My belief is, if you have a unique idea with few competitors then people will be knocking at your door,” he said. Long term potential Vivian Har, Executive Director of Tang Contemporary Art, which was the first gallery to sign in for the project, said the move to H Queen’s was an “investment” as the rent is double of previous location reflecting the much larger space it now has, but added that the gallery feels “very positive on the location and the art of market.” “This is an extremely convenient location. Collectors can visit 6-7 galleries in an hour, and just make the 5 minute walk to Pedder Building to visit another 4-5 galleries there. In one afternoon you can visit all the major galleries in Hong Kong,” she said. Whilst Henderson initially expected to break up each floor into three spaces, only one floor has been divided to be shared by two tenants, with most galleries taking either a full floor or even two floors. Tang Contemporary Art, moved in last December, followed in January by the first Asian outpost of New York gallerist David Zwirner (over two floors) with several other tenants ( Pearl Lam Galleries, Hauser & Wirth, Pace Gallery, and Whitestone Gallery) choosing to open around Art Basel Hong Kong in March to maximise the impact in front of the crowd of international art lovers in town for the big fair. “We have had an amazing opening and we continue to draw visitors at a steady pace,” said Jennifer Yum, the co-director of David Zwirner gallery in Hong Kong. “We believe with more galleries due to open in March, we will see an expansion in the flow of visitors. Because Hong Kong attracts people from all over the world, we have had collectors come from the U.S., Israel, and Europe as well as from the mainland.” “We particularly like the fact that we’re in a building with a number of our esteemed peers—it’s good to feel HONG KONG BUSINESS | MAY 2018
like we’re in an art hub,” adds gallerist David Zwirner. Laura Zhou, White Cube’s gallery director in Hong Kong, which was part of an earlier wave of international galleries that opened in Hong Kong around 2010 - 2012, said the arrival of more galleries on the local art scene is a “positive indication of the market’s robustness” and will raise more awareness leading to more visitors. A need for non-commercial validation Art market players said that beyond commercial galleries, museums and other not-for-profit art institutions have a key role to play to support the development of the local art scene. Zhou believes Hong Kong is “entering a new period in its cultural landscape” with the opening later this year of Tai Kwun, a new centre for heritage and arts three blocks away from H Queen’s that will house the Old Bailey Galleries, a new non-profit art centre dedicated to presenting contemporary art exhibitions and other public programmes. Added to this will be the long awaited opening next year of M+ in West Kowloon District, the $220m “museum of visual culture” that is pitched as being on the same scale as the Tate Modern in London, and the reopening of the Hong Kong Museum of Art after a $120m makeover. “M+ is the last major missing piece in the cultural ecology. It has the potential to be transformative,” said Magnus Renfrew, who co-founded Art HK in 2008, shepherding its successful transformation into Art Basel Hong Kong, and he is currently the managing director, and founder of art advisory firm ARTHQ / Group. “There is a huge need for a non-commercial structure of validation for art in Asia in general. This has the potential
LOVE Long: Robert Indiana & Asia (“LOVE Long”) Exhibition
HONG KONG BUSINESS | MAY 2018
The arrival of more galleries on the local art scene is a “positive indication of the market’s robustness” and will raise more awareness leading to more visitors.
to set the foundations for a more stable approach to market valuations and interest, and to underscore the importance of curatorial, critical, and institutional acclaim in building the careers of artists. It will also help to develop an audience for the art that commercial galleries display. Lastly and importantly, it will provide a year-round draw for the international art and collector community from around Asia and beyond,” Renfrew remarked. Ching of Sotheby’s also believes that as the market becomes more mature and competitive, there is a need to develop further high-calibre exhibition venues and to nurture art-industry professionals. “What is also important is to encourage awareness of art and how it can improve the quality of life amongst our population, especially the young people. With the development of the Hong Kong Palace Museum due for completion in 2020 in the West Kowloon project, it is hoped that we will be able to promote the appreciation of culture that is not limited to paintings, but also works of art or antiques,” Ching said. Sonia Kolesnikov-Jessop
Kwan Sheung Chi, ‘Blue is the New Black’, installation view at Edouard Malingue Gallery, Hong Kong 2017
Co-published corporate profile
Quality and Excellence never go out of style with MSENVY Their motto is “Make the world better by what you wear everday”.
ounded in 2004, MSENVY is an apparel design, development, sourcing, manufacturing, and export company serving fashion retailers brands around the world. The Company has an office and factory located in Hong Kong and Guangdong, China. MSENVY is one of Hong Kong’s leading silk luxury fashion design and manufacturing company. With a renowned reputation for product quality and workmanship, MSENVY designs and manufactures highly desirable silk fashion products. The strength of MSENVY is that over 90% of its products are designed and manufactured in-house. Aside from this, through the long years of cooperation with different superior textile printing design house, MSENVY constantly provides exclusive & spectacular print collections to different customers. A premium portfolio Over the years, MSENVY has amassed a premium portfolio of serving over hundreds private labels across different countries. Carrying a diligence that constantly seeks to push beyond client expectations, MSENVY has established a strong reputation in the Clothing industry based on its unique blend of silk technical excellence, commercial acumen and design sensibilities. MSENVY products are sold exclusively to different worldwide renowned fashion brands, the current client list including
Spain’s Roberto Verino, Jota Mas Ge, Japan’s Rose Bud, Abiste, Italy’s Purificacion Garcia, Blurgirl, Giorgia & John, Russia’s “Zarina”, Greece’s Lussile, Denmark’s Club Collection, Australia’s Picnic, Poland’s Molton, Saudi Arabia’s Femi9, Turkey’s Vakko, Cashmere & Silk. Since most MSENVY’s products are made by silk, the company is quoted as Eco Supplier for years through Hong Kong Trade Development Council (HKTDC). Based on the trusted ability and expertise to deliver high quality products, HKTDC has recommended MSENVY to different global media on several occasions. MSENVY is guided by their vision to ensure that they go the extra mile to help their clients reach their customers. At MSENVY, challenges are welcomed to foster creativity. The company stands by their motto, and that is to “Make the world better by what you wear everday”.
CONTACT Company name: MsEnvy Corporation Limited Address: Unit 1809, Eastern Harbour Center, 28 Hoi Chak Street, Quarry Bay, Hong Kong. Phone number: (852) 2180 7063 Fax number: (852) 2180 7064 Website: www.msenvy.com
“MSENVY has amassed a premium portfolio of serving over hundreds private labels across different countries. ” HONG KONG BUSINESS | MAY 2018
Hospitality industry survey
Henderson Land’s Newton Place Hotel was almost pushed out of Hong Kong in 2017
Embattled Hong Kong hotels brighten up on tourism Declining tourist arrivals almost pushed Henderson Land to exit the Hong Kong hotel scene. However, analysts are now positive that a recovery is on the way.
ong Kong Business’ annual hotel industry survey revealed very minimal movements in the largest hotel rankings this year. L’hotel Nina et Convention Centre retained its top spot with 1,608 rooms, followed by Regal Airport Hotel with 1,171 rooms. Regal Riverside Hotel, Harbour Plaza Resort City and Panda Hotel rounded out the top five with 1138, 1,102 and 911 rooms, respectively. There was also literally no room for movements in the rankings as room count dropped by a measly 0.04% from 36,324 to 36,342. This year, declining tourist arrivals from mainland China almost pushed Henderson Land to exit the Hong Kong hotel scene. However, analysts are now positive that a recovery has thankfully sprouted providing a breather to the battered sector — one that could even grow into a sustained boom. The middle of 2017 saw a nascent recovery in inbound tourists to Hong Kong, benefiting three- to four-star operators like Far East Consortium, and there is optimism 28
HONG KONG BUSINESS | MAY 2018
Room count dropped by a measly 0.04% from 36,324 to 36,342.
that the nearing completion of key projects such as the landmark bridge connecting Hong Kong to mainland China and Macau will further drive up arrivals. An increase in overnight visitors led by those from Mainland China stimulated demand for hotel accomodation in the middle of 2017, enabling a recovery in hotel occupancy, particularly for three-star hotels, said Jeff Yau, analyst at DBS, in a research note. He had projected a 2.4% growth in visitor arrivals in 2017 to 58 million, driven primarily by overnight visitors, and that the number of visitors from the Mainland and outside China to grow 2.5% and 2%, respectively, in 2017. The return of overnight visitors has been stimulating the recovery of the hotel market, said Yau, with medium-tariff hotels, or equivalent to a three-star rating, showing noticeable improvement. Meanwhile, occupancies of high-tariff A, equivalent to a five-star rating, and high-tariff B hotels, equivalent to a four-star rating, have also improved. “Medium-tariff hotels fare much
better. With rising occupancy on one hand and a low comparison base on the other, medium-tariff hotels have regained pricing power,” said Yau, citing room rate growth and occupancy gains that led to a boost in revenue per available room, or RevPAR. By comparison, five-star hotels have continued to see pressure in their room rates. One other positive trend for the hotel sector in 2017 was the renewed buoyancy in hotel investment market. Yau said a wide array of buyers, from local investors to China-based developers, have shown stronger interest. But property yield could take more time to pick up as it has remained relatively low amid the hotel market’s early-stage recovery. Hong Kong connectivity The enhancement of Hong Kong’s connectivity through ambitious transportation infrastructure projects was also a key trend in 2017 as it lent support to the idea that the recovery is the beginning of a sustained boom rather than a blip. Industry analysts hold a sanguine outlook on the positive impact a new bridge, airport runway, and rail link, amongst others, will have on inbound visitor traffic growth in the coming years. The Hong Kong-ZhuhaiMacau bridge, or HZMB, which is expected to open to traffic some time in 2018 or later, will give added value to Hong Kong as a destination hub as it will put the three cities of Hong Kong, Zhuhai in mainland China, and the special administration region of Macau within an hour’s commute of each other, said John A. Girard, vice president of development, area general manager (Hong Kong) of Regal Hotels International, and general manager of Regal Airport Hotel. HZMB will cut traveling time between Zhuhai and Hong Kong from more than 3 hours to around 40 minutes, which could encourage more residents in the western part of Pearl River Delta to travel to Hong Kong, said Yau. The landmark bridge project could also
Hospitality industry survey encourage more incoming tourists to visit Macau after Hong Kong, potentially increasing their length of stay in the latter. Hong Kong also has other transportation projects in the pipeline, namely the Express Rail Link, or XRL, and the third runway at the Hong Kong International Airport, or HKIA, which are expected to be completed later this year and in 2023, respectively. Yau said the XRL will connect Hong Kong to mainland China’s high speed railway network via Guangzhou and Shenzhen. Construction for the 26-kilometer rail link commenced in 2010 with Hong Kong footing an estimated $85.3b of the cost. Expected to come into service in the third quarter of 2018, the XRL “should enhance transportation links between Hong Kong and southern China, which should be positive for the city’s long-term inbound tourism growth,” said Yau. Meanwhile, the development of the third runway at the HKIA in March 2015, which is expected to be completed in five years with an estimated total development cost at $141.5b, would allow the airport to handle 30 million additional passengers by 2030. This should be crucial for inbound tourism growth over the long term,” said Yau of the planned three-runway system, citing projections that HKIA will handle 102 million passengers by 2030. Disruptive technology In 2017, technology-based startups continued to disrupt multiple sectors, and hotels are no exception. Hong Kong hotels are particularly focused on assessing the potential competitive impact of short-term accommodation rental platforms like Airbnb. Many are also keen on leveraging technology trends from digitisation to artificial intelligence to attract more guests and improve their service satisfaction. “Given the constraints, Airbnb is unable to cater for the needs of group travellers and sophisticated business travellers. It may hold appeal to those seeking affordable short-term accommodation,” Yau said. “We believe that Airbnb targets mainly guests who book extended stays of
more than one week. All considered, the impact of Airbnb on the Hong Kong hotel industry should not be overplayed,” he added. A bigger concern, said Yau, is the rise of technology that could reduce the need for business travel involving face-to-face meetings. “Businessmen are now able to interact with each other using virtual alternatives such as video conferencing, which may have profound implications on the business model of five-star hotels in the long term as business travellers are their bread-and-butter clientele,” he said. But Girard noted that technology is not only a harbinger of competitive threats. It also presents opportunities, such as enabling hotels to deliver a better guest experience, which he said leads to higher loyalty and satisfaction. Regal Hotels enhanced their online room booking platform Regal Web with new features that led to a better customer booking experience. The hotel also introduced a Guest Indulgence programme that provides privileges, a welcome gift and a personalised greeting upon arrival. The program targets corporate travellers that are on their first-time stay to ensure they are delighted enough to make a repeat booking, which is encouraged with an e-gift for the guest’s next visit. Regal Hotels also installed an e-housekeeping system to improve the delivery of guest personal
A bigger concern, said Yau, is the rise of technology that could reduce the need for business travel involving face-to-face meetings.
services, as well as a high-definition LED wall that allows for enhanced visuals during events or meetings. 2018 outlook Girard expects 2018 will remain a challenging year, but holds a “positive” outlook amidst a concerted push by the Hong Kong Tourism Board and its travel partners to keep the territory a preferred tourist destination. He foresees hotel supply growth to accelerate at a five-year CAGR of 4.3% between 2016 and 2021, higher than the 3.6% growth in the 2011 to 2016 period, but also said concerns should not be overplayed. The hotel is counting on the strong performance of the MICE meeting business segment and support from the trade fair business. He anticipates buoyant commercial property valuations, which could convince owners to redevelop welllocated three- to four-star hotels into office or commercial buildings. “If The Excelsior, J Plus, and Crowne Plaza Hong Kong Causeway Bay are redeveloped into commercial properties, hotel inventory in the area would be cut by 1,200 rooms or 12%.” Factoring in growth projections in supply and in overnight visitors, he expects hotel occupancy to stand at 90% in 2017, and then hover around 89% to 91% in 2018 to 2021. “With consistently high occupancy expected, hotel room rates and therefore RevPAR should see upward pressure,” said Yau.
Regal Hotels rolled out a Guest Indulgence programme that includes a welcome gift and a personalised greeting upon arrival.
HONG KONG BUSINESS | MAY 2018
Hospitality industry survey 2016
General Manager/ Head of Hotel Operations
Regal Riverside Hotel
Harbour Plaza Resort City
The Excelsior, Hong Kong
Renaissance Harbour View Hotel Hong Kong
The Park Lane Hong Kong, a Pullman Hotel
Harbour Grand Hong Kong
Rambler Oasis Hotel
Harbour Plaza Metropolis
Andres Teofilo Castillejos
Rambler Garden Hotel
Mexan Harbour Hotel
Sheraton Hong Kong Hotel & Towers
The Kowloon Hotel
Harbour Plaza North Point
Harbour Plaza 8 Degrees
Royal Plaza Hotel
pentahotel Hong Kong Kowloon
Royal View Hotel
Kowloon Shangri-La, Hong Kong
The Royal Pacific Hotel & Towers
Marco Polo Hong Kong Hotel
Cordis, Hong Kong
L'hotel Nina et Convention Centre
Regal Airport Hotel
Hong Kong Skycity Marriott Hotel
Holiday Inn Golden Mile Hong Kong
City Garden Hotel Hong Kong
JW Marriott Hotel Hong Kong
Mark Conklin Christo Diamandopoulos
Regal Kowloon Hotel
Disney's Hollywood Hotel
InterContinental Grand Stanford Hong Kong
Alexander O. Wassermann
Island Shangri-La, Hong Kong
Hyatt Regency Hong Kong, Sha Tin
Harbour Grand Kowloon
Peter Pottinga Simone Hansen
ibis Hong Kong Central & Sheung Wan Hotel
Dorsett Tsuen Wan, Hong Kong
The Kimberley Hotel
Grand Hyatt Hong Kong
B P International
Courtyard by Marriott Hong Kong Sha Tin
Conrad Hong Kong
Novotel Century Hong Kong
InterContinental Hong Kong
Mandarin Oriental, Hong Kong
Hong Kong Harbour Hotel
The Langham, Hong Kong
Regal Oriental Hotel
The Mira Hong Kong
Metropark Hotel Kowloon
The Salisbury YMCA Hong Kong
Number of Rooms 2017
HONG KONG BUSINESS | MAY 2018
Co-published corporate profile
WE POSSESS THE PRODUCT KNOW-HOW AND EXPERTISE FOR PRODUCT DEVELOPMENT SONNE INTERNATIONAL COMPANY LIMITED OUR SUCCESSFUL STORY
everaging on our years of experience in sales of medical devices, our product know-how and our relationship with reputable suppliers of medical devices, we believe we are well-positioned to assimilate technological advances, strengthen our product development efforts and expand our product portfolio with functionality that addresses our customersâ€™ requirements.
Hybrid Security System & Utilising farinfrared technology To further tap into the elderly care home market, we have, through our R&D efforts, developed a hybrid security system under our brand, by utilising a combination of technologies, such as EAS and RFID, for hospitals and elderly care homes to prevent missing of patients and medical equipment or elderly residents. In September 2015, our design for the housing of a security tag was registered with the Designs Registry of the Intellectual Property Department in relation to the security system designed for hospitals and elderly care homes. We were granted two patents by the Patents Registry of the Intellectual Property Department and a patent by the United States Patent and Trademark Office in relation to the
security system designed for hospitals and elderly care homes in December 2016 and January 2018, respectively. In March 2016, we obtained CE certification for our EAS disposablemodel tag. Nevertheless, in January 2016, we collaborated with a department of the Governmentâ€™s health sector division to conduct an on-site demonstration, testing and commissioning of our security system for use in a public hospital. After giving birth to a baby, breastfeeding
is an ideal way for infants to provide the nutrients needed for healthy growth and development. As the perfect newborn food recommended by WHO, yellowish, viscous milk is produced at the end of pregnancy and breastfeeding should begin during the first hour of delivery. In Asia, above 40% of women cannot provide sufficient breastmilk. Far Infrared Radiation promotes water molecules inside the blood vessel to vibrate and increase their hydration capacity. Combined with the heat-expanded blood vessels, the result is thinned body fluids, increasing circulation & accelerating toxin removal. The Far Infrared Radiation emissivity is above 90% under normal condition that guarantee the proven benefits. In January 2018, we were granted a utility model patent by the State Intellectual Property Office of the PRC for our nursing bra. Future plan strategy To support our product development, we will continue to expand our in-house R&D team and co-operate with universities and other research partners. In order to strengthen our product R&D capability, we plan to expand our portfolio of products and services and enter into new areas with steady growth potential.
HONG KONG BUSINESS | MAY 2018
Case Study: Bank of China (Hong Kong) Limited
Around 160 BOCHK ATMs use finger vein authentication
Why BOCHK is putting finger scanners on its ATMs Bank of China (Hong Kong) Limited’s finger vein authentication offers an answer to the rising security threats looming over Asian retail banking.
hen Bank of China (Hong Kong) Limited (BOCHK) first introduced finger vein authentication to some of the front desks of its branches in late 2016 and, eventually, to two automated teller machines (ATM) in July 2017, the goal was to provide its growing customers more secure ways to access their accounts and perform their banking transactions. The innovative offering—where customers use their unique finger vein patterns via an infrared scanner to authenticate their credentials and transactions—was gradually extended to all BOCHK’s branches and around 160 of its ATMs in December 2017, making the city’s second largest commercial bank in terms of assets and customer deposits the first financial institution to use the technology in Hong Kong. “Finger vein authentication service is a fintech application which benefits both staff and customers,” said Michael Wang, deputy general manager of E-Finance Centre at BOCHK. “It is definitely an innovative banking service, increasing staff satisfaction and reducing their workload as it 32
HONG KONG BUSINESS | MAY 2018
The new innovation is introduced to provide BOCHK’s customers an added security option for convenience and peace of mind.
transfers the identity verification work from staff to system to avoid fraud. It can also reduce transaction time for each customer and eliminate the reset password service for forgetful customers so that staff can focus more time on providing high quality service.” Demand for better, more modern, and more sophisticated security measures and protocols for the banking industry have been increasing the past few years given the rising incidents and occurrence of fraud, money laundering, and illicit financing in the Asia-Pacific region. This heightened concern for better banking security is what makes BOCHK’s innovative technology all the more significant and timely, not only for its customers but also for its overall strategy and operations moving forward. BOCHK’s efforts to introduce innovative technologies like the finger vein authentication system come after the Hong Kong Monetary Authority (HKMA) expressed support and commitment to promote point-of-sales fingerprint identification and other financial technology in the city’s banking
industry in October 2017. The finger vein authentication system adds to BOCHK’s growing lineup and portfolio of innovative technologies and services for its patrons and increasing customers, under its Smart Branch program. Some of the new e-services and facilities BOCHK offers, apart from finger vein authentication, include “RoBoc” or the Smart Robot which interacts with clients in Cantonese, Mandarin, and English to guide them and answer queries; counter appointment service, where customers can get an e-ticket instantly via the bank’s mobile application; BOCHK iService, which offers a round-the-clock video banking service that enables customers to conduct real-time banking transactions; and e-zone, which informs customers of the latest service offerings of BOCHK. How it works Whilst Wang pointed out that the finger authentication method is being rolled out in all BOCHK’s branches and ATM networks, the move is not to replace the more traditional forms of banking security measures including using a six-digit pin. The new innovation is introduced to provide their customers an added security option for convenience and peace of mind. But how does finger vein authentication work and how can the bank’s customers avail the service? Wang said the process is as easy as going to any BOCHK branch for a one-off “finger vein authentication” registration, where the customer’s finger vein data is recorded which will then be encrypted before saving into the bank’s central database for maximum protection of personal information. After the process is complete, a customer can then proceed to around 160 ATMs of the bank or any BOCHK branch and finish their banking transactions using just the tip of their fingers. “With ATM transactions, for example, when customers put their finger on the finger vein reader, the infrared LED will emit dispersed light through the finger to extract vein pattern to the CMOS sensor,”
Case Study: Bank of China (Hong Kong) Limited
Michael Wang, deputy general manager of E-Finance Centre, Bank of China (Hong Kong) Limited
Wang explained. “The system will match customers’ vein pattern with database record to verify their identity. Once the verification process is completed, customers can then conduct designated transactions.” The technology serves as a secure identity verification method as each individual has a unique and non-repetitive vein pattern that does not change after adulthood. It also incorporates near-infrared LED, making banking transactions for customers more convenient than signature verification. Finger vein advantages Wang noted that apart from saving precious transaction time for customers, especially for those who easily forget their passwords, pins, and signatures, the finger vein authentication system also offers higher security and convenience to customers particularly the elderly whose signatures tend to change over time. It avoids forgery as well. “The system is much harder to cheat because it can only authenticate the finger of a living person, eliminating the risk that fraudsters will use substitutes or copies to break into a bank account,” he noted. “In addition, finger vein can eliminate the possibility of
counterfeit signature to preventing fraud and financial crime.” Incorporating innovative technology is nothing new in the banking and financial industry, especially in Hong Kong and the rest of the Asia-Pacific region. Financial institutions both in the territory and elsewhere have also been employing technology, including the common fingerprint scanning systems, iris scans, voice activated banking, and even artificial intelligence. But for Wang, at least for now, finger vein scanning reigns supreme in the tested and proven securityrelated technologies in the banking industry. He emphasised that finger veins cannot be duplicated, pushing the success rate much higher. It is also tough to forge, as the vein patterns are not easily altered by sweat, stains, or peeling of skin on fingers—something that may affect the traditional fingerprint method. Currently, the bank is planning to extend the feature to all of its over 400 ATMs in Hong Kong to serve all of its customers. Given the bank’s commitment to technological innovation for customer service and the government’s strong support, particularly the HKMA, for these institutions, the banking industry in the city looks set for a more modern and convenient future. “BOCHK works keenly with innovative institutions and the HKMA to explore new fintech which can be applied to the banking
Apart from saving precious transaction time for customers, the system also solidifies BOCHK’s commitment to increased security across its operations.
industry,” Wang said. “We always aim to develop new services and products to enhance customer experience and improve staff satisfaction. Exploring the use of biometric authentication in different channels meets our objectives in the aspect of fintech application.” “BOCHK places great attention on innovations of technologies. The bank invested heavily in the procurement of finger vein authentication equipment, ensuring that security measures of our services are maximised to the highest level in the industry,” Wang concluded, adding that BOCHK will continue to apply new biometrics technology, including voice recognition technology in their call centre services. “In the future, the bank will keep fostering the growth of fintech development in mobile banking, applying digitalisation on both online and offline channels.” Currently, applicable transactions for finger vein authentication systems at BOCHK branches include cash withdrawal, transfer, currency exchange, bills payment, and password resets. Meanwhile, at the bank’s ATM outlets, the technology allows customers to do all transactions that they can do at branches plus account balance inquiry; bank statement or cheque book application, overseas ATM daily withdrawal limit and activation period setting; MPF balance inquiry; and BOC Express Cash loan top up.
Each individual has a unique vein pattern that does not change after adulthood
HONG KONG BUSINESS | MAY 2018
When will Hong Kong fully embrace e-payments?
Privacy, security concerns hinder adoption of e-payments systems in Hong Kong Hong Kongers still prefer contactless payments, cash, and credit card despite e-payment availability.
he Hong Kong telecoms market has one of the highest mobile penetration rates in the world, estimated at 238.7% in 2017, although this number is forecast to decline slightly to 235.6% by 2022. Incumbent PCCW controls 37% of the market through its HKT, 1O1O, Sun Mobile, and CSL brands, whilst the remaining market share is split between Hutchison Three, SmarTone, and China Mobile Hong Kong. A majority of connections are also on new generation technologies, with 2G services set to be phased out beginning 2020. The telecoms market also benefits from a positive regulatory regime. The Office of the Communications Authority (OFCA) ranks amongst the most independent regulators, and despite being consultative in nature when drafting policy, it does not intervene unless necessary to promote competition. The Hong 34
HONG KONG BUSINESS | MAY 2018
Kong mobile market has flourished as a result, data penetration is high, and average revenue per user (ARPU) levels are amongst the most stable in the region. Data services are relatively affordable and have seen significant uptake amongst consumers, which is fundamental to the proliferation of mobile financial services (MFS). Supportive regulatory framework Hong Kong was one of the first countries in Asia to establish a fintech sandbox and the Hong Kong Monetary Authority (HKMA) has continued to improve the effectiveness of the sandbox in response to feedback. The Fintech Supervisory Sandbox (FSS) was launched in September 2016 and allows banks and their partnering technology firms to conduct pilot trials of their fintech initiatives involving a limited number of participating customers without
The government announced that it would allocate HK$500m (US$63m) to the development of financial services, including fintech, over the next five years.
the need to achieve full compliance with the HKMA’s supervisory requirements. Following the success of the sandbox, HKMA upgraded the FSS to FSS2.0, including a chatroom which enables firms to obtain information more easily. In particular, we highlight that the HKMA has demonstrated its willingness to accommodate the requirements of the various fintech firms. The authorities have stated that they ‘stand ready to discuss with individual firms individually on the appropriate supervisory flexibility that can be made available to them within the FSS’ and that ‘the HKMA has not stipulated an exhaustive list of the supervisory requirements that may potentially be relaxed.’ Furthermore, the HKMA has established a Fintech Facilitation Office (FFO) to facilitate the development of the sector. This has been echoed by the
Analysis: E-payments 34 million Octopus stored-value products in circulation and they are widely accepted by small and medium businesses. Beating the credit card In addition, there appears to be a marked preference for credit cards, with Hong Kong having one of the highest credit card penetration rates in Asia. Whilst Octopus has been gradually seeking to shift towards mobile payments, takeup has been slow and efforts to encourage adoption have faced difficulties. Reportedly, Octopus is adopting a hybrid strategy where it offers both QR code payment as well as the traditional tap and go. The hybrid strategy is aimed at encouraging small merchants and taxi drivers to move away from the tap and go system towards the QR code one. However, takeup amongst the taxi drivers (one of the key target groups) has been slow. Security and privacy concerns also hinder the adoption of e-payment systems, with Hong Kongers demonstrating a preference for cash. According to a study by an affiliated branch of the Junior Chamber International Hong Kong, eight out of 10 Hong Kongers think the county trails its reg ional peers, with Hong Kong having a score of 6.4 on the prevalence of e-payments on a scale of one to 10. As such, we believe that the gradual shifting of perceptions will be positive for the wider take-up of mobile payments systems, but high-light that the process will be gradual. From BMI Research, Analysis: Dominance Of Octopus Stifles MFS Prospects
Hong Kongers have a storng preference for credit cards
government, which announced that it would allocate HK$500m (US$63m) to the development of financial services, including fintech, over the next five years in its 2018 budget. Lastly, the authorities have also made efforts to ease the adoption of e-payments, having confirmed that the Faster Payment System (FPS) would be introduced in September 2018. The FPS would enable real-time transfer of money between banks, as well as to and between electronic payment accounts such as Alipay and WeChat Pay. Proximity to China an added bonus Hong Kong’s close proximity to China’s Pearl River Delta technology hub has also seen positive spillover from the Chinese fintech industry. WeChat Pay has grown in popularity in Hong Kong since its launch and remains a key market for the Tencent-owned service to expand internationally. In January 2018, the company started allowing Hong Kongers to register on WeChat Pay without requiring Chinese bank accounts. The large Chinese visitor base has also motivated the adoption of AliPay and WeChat Pay in many brick-andmortar shops, and has contributed to partnerships between transport operators, such as between WeChat Pay and MTR Corporation to enable purchas-ing of tickets via the mobile payment platform. We believe that increasing Chinese arrivals will continue to motivate the widespread adoption of mobile payment services. The strong regulatory environment has also been matched by a strong
private sector interest in developing e-payment systems, which we believe will bode well for the gradual development of mo-bile payment systems in the SAR. According to news reports, Jetco has brought together eight banks to deploy a QR code-based mobile payments app consumers can use to make purchases in-store (by scanning the QR code) and online. Strong interest in the private sector Other operators such as Octopus, Union Pay, and HSBC have also entered the mobile payments market in Hong Kong. Octopus has entered into a partnership with Samsung to launch Smart Octopus. Tap & Go, which is developed by HKT, is one of several homegrown services which has seen widespread adoption since its launch in 2015. The app was initially intended as a host-card emulation (HCE) service, similar to that of Google Pay, but has since expanded to include peer-topeer payment services and online payments.But breaking Octopus’ grasp will be difficult Whilst the positive regulatory environment and active private sector should lead to a thriving local e-payments system, we highlight that Hong Kong’s preference for contactless card payments and concerns over privacy and security are likely to limit the push towards mobile payments. Hong Kong’s e-payments system remains dominated by the Octopus card, which was one of the world’s first contactless payment cards. Reports indicate that there are over
Hong Kong is Asia’s, world’s most open market
HONG KONG BUSINESS | MAY 2018
ANALYSIS: COMMERCIAL PROPERTY
Hong Kong also saw a surge in activity as domestic investors bought heavily into office and retail markets.
Robust commercial property markets seen to continue its strong rally in 2018 Hong Kongâ€™s tight supply, strong demand, and high liquidity justify high price of exposure to the market.
robust global economy with synchronised regional growth is supporting the dynamics of the worldâ€™s commercial property markets. And investors, both private and institutional, continue to see real estate as an attractive part of their overall investment portfolios. The benefits include a stable income return, the potential for capital value growth, diversification and, in particular, its status as a relatively high-yielding asset class in a world that is on the hunt for returns. A key pillar supporting investor sentiment is the healthy state of occupier markets. This drives demand for floor space, supporting rents, and ensuring the security of income return. Average number of rst and second homes owned by UHNWIs
Source: The Wealth Report Attitudes Survey 2018, Knight Frank
HONG KONG BUSINESS | MAY 2018
Demand for flagship retail units on prime pitches is also strong as retailers look to provide a unique experience to promote their brands.
Structural shifts, often driven by technological change, are behind trends such as the rapid expansion of logistics operators into distribution space to satisfy the shift to online retail. Demand for flagship retail units on prime pitches is also strong as retailers look to provide a unique experience to promote their brands, whilst serviced office providers benefit from companies increasingly embracing new, flexible, space-as-service offerings. Rise of the specialist real estate sectors Moreover, evolving demographics underpin the ongoing institutionalisation of specialist real estate sectors, such as student housing, elderly accommodation, and healthcare. Technology firms in particular are growing rapidly and are supporting leasing markets across property sectors. Amazon, for example, added nearly a quarter of a million employees during 2017, primarily by creating new jobs in its fulfilment centres driving logistics demand, call centres, and in software development and engineering driving office demand. As part of this rapid growth, the business is currently finalising plans for a second headquarters location. It has received bids from 238 cities and regions across North America, eager to compete for the 50,000 or so jobs and significant investment the move will bring.
ANALYSIS: COMMERCIAL PROPERTY business ownership or real estate investments, there is an increasing propensity to look to other core geographies for asset diversification. The top targets are primarily those locations that can provide deep, liquid, and transparent real estate markets, so it is unsurprising that the top ten global cities attract nearly 30% of total annual investment transactions each year. These super-cities, such as London and New York, are a compelling prospect for investors looking to invest outside their domestic markets for the first time. Transparency and liquidity, as well as language, law, best-in-class advisers, and currency stability, all provide reassurance for those on a new journey. Hong Kong’s The Centre
Global performer Commercial real estate remained a favoured asset class for global investors during 2017, with transaction volumes robust at $840b and above-average returns recorded across many sectors and markets. Transaction volumes were supported by a strong year for outbound capital flows. London was a focus for a large proportion of this overseas capital, and the city’s office market saw a record number of large deals transacted, driven by a huge wave of private money chasing big single-asset transactions. London’s leading position as a global metropolis, its landlord-friendly lease structure, the ability for buyers to secure large lot sizes, and the recent weakness of sterling have all outweighed any apprehensions investors may have had over potential fallout from the UK’s decision to leave the EU. From strength to strength Hong Kong also saw a surge in activity as domestic investors bought heavily into office and retail markets. Whilst some investors are baulking at the pricing of Hong Kong assets and are looking to other global super-cities, many see Hong Kong’s tight supply, strong demand, and high liquidity as justification for the high price of securing exposure to the market. Conversely, New York saw a fall in the volume of deals, with concerns about interest rate rises, and changes to fiscal and regulatory policy causing both domestic and international investors to pause their buying strategies. With the underlying real estate and economic drivers in the US remaining positive, we expect this to be a shortterm trend and for activity to pick up again in 2018. Investment in the main European cities has also risen over the course of the past few quarters as clear signs of an economic recovery combine with improving occupier markets. Europe will continue to move up many global private investors’ target lists as fundamentals go from strength to strength. One clear trend over the past few years has been the increasing globalisation of many real estate investment portfolios. As private investors become progressively more exposed to their domestic market, through either
Commercial real estate remained a favoured asset class with transaction volumes robust at $840b and above-average returns recorded across many sectors and markets.
Super-cities Given the continued growth in global wealth and allocations to real estate highlighted in this report, it is perhaps unsurprising that private investors continue to be a significant buying force in commercial real estate. Indeed, during 2017, private investors accounted for a third of all purchases, the highest proportion for over ten years. Appetite for real estate continues to increase globally, as investors grapple with the global low-yield, low-return environment and show signs of shifting allocations away from some fund types such as hedge funds. In addition, there are worries around perceptions of stretched valuations across many publicly traded bonds, whilst record-breaking equity markets are making some nervous. As a result, money is moving towards alternative investments, with real estate a prime target for a large proportion of this capital because of its relatively high yield. Underlying all these drivers are commercial real estate’s fundamentally attractive attributes: a relatively stable return profile with opportunities for improvement, potential for capital value growth, and the opportunity to diversify from existing assets or geographies. In particular, real estate provides the ability to fine-tune and control an investment strategy – buyers can tailor purchases in terms of geography, sector and tenant type, as well as lot size, ownership structure, business plan, and risk profile. We expect that strong global demand from private
US$1bn+ transactions by investor type (2017)
Source: Rca, Knight Frank
HONG KONG BUSINESS | MAY 2018
ANALYSIS: COMMERCIAL PROPERTY investors will continue to build. For those with the means, the allure of investment at this scale is clear. Typically, buildings that can command such a high price are landmarks, defined by world-class architecture or instantly recognisable silhouettes, and famous in their own right. Purchasers of such buildings gain instant global recognition as “serious” investors, and can potentially use this to enjoy preferential access to further deals. There are also practical reasons for considering very large lot sizes. Commercial real estate transactions take time and energy, potentially making a single large purchase more efficient than a number of smaller ones. A larger scale also provides interesting asset management opportunities. And, whilst many trophy buildings are bought as part of a long-term holding strategy, their status is such that when the time comes to sell there is likely to be a waiting list of eager bidders. Liquid assets Few purchases come with a billion-dollar price tag, even in the world of real estate. As recently as the previous decade, just a handful of buildings breached this threshold each year, the majority of them offices in Manhattan, bought by institutional investors and property companies. The market for these mega-deals is changing rapidly, however. The past five years have seen the total value of $1b-plus transactions jump from $5b in 2012 to over $20b in 2017. Asia has emerged as the predominant source of demand, accounting for just under two-thirds of purchases by volume. The type of investor has been evolving, too. Whilst just a few years ago no private capital was involved in any $1b-plus purchase, private investors were behind three such deals in 2017. In fact, thanks to the $5.1 purchase of The Center office building in Hong Kong by a consortium of domestic investors, private capital backed over 40% of megadeals by value in 2017. For those with the means, the allure of investment at this scale is clear. Typically, buildings that can command such a high price are landmarks, defined by world-class architecture or instantly recognisable silhouettes, and famous in their own right. Purchasers of such buildings gain instant global recognition as “serious” investors, and can potentially use this to enjoy preferential access to Size of all family ofces exposed to real estate
Source: FINTRX, 2016
HONG KONG BUSINESS | MAY 2018
US$500m+ deals by asset type (2017)
Source: Rca, Knight Frank
further deals. Simply put, a billion dollars will buy a lot more in some markets than it does in others, and we use the Knight Frank Skyscraper Index to monitor the extent of this gulf. The analysis reveals one reason why even investors with some of the largest budgets, including those from Hong Kong or Singapore, may be looking to invest beyond their domestic markets in comparably less expensive locations such as London. Broadening the criteria to include deals worth $500m-plus, a somewhat different picture starts to emerge. The same overall trend of rising investment is evident, with purchases growing from $21-b in 2012 to $53-b in 2017, but the mix of assets is broader, featuring shopping centres, hotels, and industrial facilities. Regardless of pricing, single-asset transactions are not the only way for private investors to gain large-scale exposure to commercial real estate. Platform deals – in which purchasers buy the operational business as well as the underlying real estate – are proving increasingly popular with a wide range of investor types seeking to deploy capital quickly. Such deals represent an alternative way to make acquisitions of scale. They also come with the advantage of a management team in place to look after day-to-day operations, which can be especially helpful when entering unfamiliar markets. Although traditionally the preserve of sovereign wealth funds, private equity, and institutional investors, some private investors also appear to be following this path. For example, in 2017 it emerged that Hong Kong investor Samuel Tak Lee, whose portfolio includes the 14-acre Langham Estate in Central London, had increased his share of Shaftesbury, a real estate business listed on the London Stock Exchange, prompting speculation regarding a possible takeover bid. For those private investors willing to take a more hands-on approach, there is no reason to be constrained by the availability of existing platforms. Creating new portfolios of prime assets is one route that has proved attractive to family offices globally. The rise of Pontegadea Real Estate, a multi-billion-dollar portfolio assembled by Inditex owner Amancio Ortega, shows that this can be done with speed and at scale. From Knight Frank’s 2018 Wealth Report
Co-published corporate profile
The perfect baby monitor to watch over your precious one The new Halo+ from Motorola has been specifically developed to give new parents peace of mind and flexibility in watching over their kids.
eing a new parent is both exciting and scary. Every hiccup seems like a serious illness, a crack in the pavement is a precipice and a friendly house cat becomes a sabre-tooth-tiger. Parents need to watch over their new-borns 24/7. The new Halo+ from Motorola has been specifically developed to give parents peace of mind and flexibility when it comes to keeping an eye on their new edition. The award winning design attaches over the cot showing the parent a superb overhead view of the child. The camera can be detached from the mount and moved anywhere in the house, ideal for when your child falls asleep outside the nursery, allowing you a few precious moments of ‘me-time’ whilst still keeping an eye on junior. A wide range of capabilities The unit’s audio-capabilities have a wide range of uses which include playing lullabies and bedtime stories. Colour changing mood lighting helps sooth the child with seven colour settings available on three brightness levels. The unit can also project dreamy images onto the ceiling of the nursery which includes astral pictures of stars and rockets. A companion parent unit with 4.3” screen allows you to watch over and talk to your baby day and night, with IR night vision and two-way audio. The new Halo+ also connects via the Hubble app to give remote access over a paired smartphone, allowing both
parents to be connected, even when they may be away from the house at work. About Hubble Connected: Hubble makes it easy to stay connected with your favorite people, places and pets with live video streaming and up-todate smart notifications wherever you are. Hubble is also the first Platformas-a-Service for the connected home. Offering complete SDK, API integration documentation and reference design. Hubble enables leading brands and hardware manufacturers to rapidly integrate and connect new products to the cloud. About Binatone: Binatone, a sister company of Hubble Connected, is a leading global manufacturer of innovative IoT, smart home and consumer electronic devices for the baby, pet, home, personal audio and lifestyle camera categories. As well as selling products under its own name, Binatone is a licensee of Motorola and AEG. Binatone products are now sold in over 50 countries. Binatone is one of the world’s leading consumer electronics companies with over 50 years of experience in creating
Halo over the crib
outstanding consumer products. Over the years Binatone has received countless awards for innovation and design. Based on expertise in research, production and marketing Binatone develops products that are user friendly and deliver the best in functionality at affordable prices. iDECT products combine advanced communication technologies with outstanding design for discerning consumers. For special consumer groups such as seniors and children Binatone offers specifically developed product ranges. Aside from its own brands Binatone, iDECT and Voxtel, the company has been very successful in reviving and managing product groups for other brands.
CONTACT Company name: Binatone Electronics International Ltd Address: Floor 23A, 9 Des Voeux Road West, Sheung Wan, Hong Kong Phone number: +852 2802 7388 Fax number: +852 2802 8138 Website: http://www.binatoneglobal.com/
“The award winning design attaches over the cot showing the parent a superb overhead view of the child.” HONG KONG BUSINESS | MAY 2018
One of the most nWotable entrant in Asia’s iinsurtech market is Singapore Life.
InsurTech firms thrive in the Asian market Whilst the Asian InsurTech ecosystem remains relatively small, Alibaba and Tencent are expanding in China.
ccording to Willis Towers Watson internal research, globally there are approximately 1,500 InsurTech start-ups. In Asia, there are just over 100 recognised InsurTech start-ups, meaning that Asian InsurTechs comprise around 7% of the global total. As technology transforms insurance and impacts various functions in the value chain, there has been speculation by industry practitioners on how business models
Asian InsurTechs comprise around 7% of the global total.
Estimated insured losses of major natural catastrophes events in 2017
Source: Willis Towers Watson Asia Insurance Market Report 2018
HONG KONG BUSINESS | MAY 2018
may evolve from integrated carriers to distribution and product experts, and from balance sheet businesses to capital light structures, supported by third-party investors, and capital markets. Disrupting insurance markets InsurTech not only has the potential to disrupt insurance markets but to also rebalance the global power between reinsurers in developed markets and those in emerging economies. Companies in emerging markets are often able to create new innovative solutions faster and can also attract intellectual and financial capital from partnerships unseen in developed, heavily regulated countries with high penetration of insurance products. Life, health, and microinsurance have seen the most impact from digital propositions and InsurTech – within these business lines, digital distribution, and aggregator technology have been particularly successful in bridging the gap
between supply and demand. Increase in demand for more responsive and tailored insurance products, together with lack of incumbents in these markets, is a real opportunity for new entrants. There has also been adoption of new data analytics tools across insurers’ business value chain. Data analytics capability provides insights and improves operations across underwriting, pricing, claims management, and customer acquisitions. Machine learning predictive tools are used to automate underwriting processes. Telematics uses data collected from sensors to calculate premium according to risk profile of the insured. Claims and social data assist in detecting claims fraud and assessing loses. Customer segmentation enhances client acquisition and retention rate. The Asian InsurTech ecosystem remains relatively small. Activity is predominantly centered in Singapore, Hong Kong, and China,
Analysis: INSURTECH The largest single InsurTech in the market today is digital insurer Zhong An, which was launched and financed by Ping An, Tencent, and Alibaba in 2013.
Cyber breaches by industry
Source: Willis Towers Watson Asia Insurance Market Report 2018
but Malaysia, Indonesia, Thailand, and Vietnam have also recently made regulatory provisions to allow for the development and growth of local InsurTechs. The existing infrastructure does not constrain the explosive growth of insurance in China. The Chinese insurance revolution has led to new mainstream products as pure protection and product return. Rise of the tech giants In addition, tech giants are more forcefully expanding into insurance in China. The likes of Alibaba and Tencent have all been actively acquiring shares of existing insurance companies and co-funding new InsurTech companies. Their experience highlights the benefits of digital distribution versus the challenges of building traditional distribution in a large and relatively underdeveloped country. The largest single InsurTech in the market today is digital insurer Zhong An, which was launched and financed by Ping An, Tencent, and Alibaba in 2013. Zhong An was the first and is now one of only four companies nationwide in China, to receive a license from the China Insurance Regulatory Commission (CIRC) to sell insurance products online. Zhong An boasts more than 240 niche products, all of which are distributed digitally, mostly through online platforms of the company’s many ecosystem partners. Zhong An has raised over $2.4b of capital to date, including its recent $1.5b-IPO on the Hong Kong Stock Exchange (at a valuation in excess of $10b) in September 2017. Another notable entrant is
Singapore Life, a insurer specialising in life products, for high net worth individuals. Singapore Life is the first Singaporean insurance company to be domestically licensed since 1970. The Monetary Authority of Singapore (MAS) has taken steps to create a regulatory sandbox for InsurTechs, allowing new companies the opportunity to test their value propositions in the sanctuary of a low regulation environment. Following this move by the MAS, Malaysia has established a similar mechanism. These provisions are expected to drive a wave of transition to meet the needs of the large and growing, increasingly sophisticated online consumer base in Asia. Mobile Network Operators (MNOs) are having a meaningful impact within the microinsurance sector, particularly in emerging markets where traditional financial services penetration is low but mobile phone penetration, particularly prepaid, is high. The latest study carried out by microinsurance Network and Munich Re Foundation estimates that MNOs provide microinsurance to over 40 million people. Protection gap of those who are not targeted by traditional distribution channels could be narrowed by the low-cost and simple products. As one of the largest underdeveloped reinsurance markets globally, Asia may have the most to gain from an InsurTech revolution. It also may have the fewest barriers to the successful implementation of emerging technologies in the insurance industry, due to the relatively limited suite of current products in the market and the
region’s high rate of e-commerce penetration. As markets become more globalised, individual capabilities or functions in the value chain are becoming increasingly transferable between markets. Successful InsurTechs have the potential to be replicated across markets if they are built upon solution-driven businesses with sound product offering, geographical relevance and financial sense. Whilst Asia may be in its infancy of financial development, the region may effectively serve as an incubator for InsurTechs that ultimately end up transforming more developed markets currently controlled by traditional incumbents. Impact of typhoons in Hong Kong The soft market cycle continued into 2017, with clients generally able to achieve significant reductions in their premium spend across most classes of insurance. However, Employees Compensation and Construction insurance rates did show signs of flattening out or increasing towards the end of 2017. 2017 saw some of the most destructive typhoons in the past 50 years make landfall in the Pearl River Delta economic zone (PRD), and the insurance market in 2018 may well see increasing rates and/or a reduction in capacity for the most impacted classes as a result. Specifically, Typhoon’s Hato and Pakhar struck within days of one another. Typhoon Hato was the first “super typhoon” in five years in Hong Kong and the strongest to hit Macau in 53 years, causing over $2b of economic losses across the two territories, and insured losses estimated at over $300m. The final number will not be known until some of the more complex Business Interruption claims have been settled. It also highlighted the issue of inadequate sub-limits and the importance of risk and claims management, with sub-limits covering everything from outdoor planting to debris removal being challenged. FromWillis Towers Watson Asia Insurance Market Report 2018 HONG KONG BUSINESS | MAY 2018
Mobile marketing boom in Hong Kong A recent Reuters Institute study shows that Hong Kong is top in terms of mobile news consumption.
hilst television, radio, and print news remain more popular in Hong Kong, obtaining news from mobile alerts has become very popular in the city. And the numbers are all the more impressive given that many Hong Kong digital news outlets are not being recognised by the government and by the traditional news organisations as legitimate. With smartphone penetration expected to rise, consumption of digital news on mobile may just be where many mobile marketers can expect to gain huge revenues in the coming years. Soumita Roy Choudhury, Mobilewalla Asia Pacific Head, said good internet infrastructure has enabled advertisers to push out more data heavy content to users without interrupting their experience. “Smartphone adoption rates remain high, and with so many opportunities to reach out to consumers, the mobile marketing system here is now also increasingly competitive,” said Choudhury. For Firefly Photography Marketing Manager Benny Chow, mobile marketing will thrive with the rise of smartphone usage. “Mobile optimised marketing is now mandatory, by adopting modern marketing methods and channels, allowing your business to adopt voice, AI chatbox and even VR gives you an edge as a modernly advanced business that stands out above the rest. The challenge is for marketers to think of a system to adopt that,” said Chow. He also emphasises the effectiveness of mobile-optimised video content. “Ninety seconds or less video, marketers called it consumable content for the modern attention span. Video optimised for mobile viewing, text that is strategically placed in the video that has good readability,” said Chow. Mobile marketing insights in 2018 are expected to move from being retrospective to being able to produce real-time data. Marcus Loh, vice president marketing & Corporate Communication of PSB Academy, explained personalisation will be the key to a successful mobile marketing campaign. This includes the adoption of more predictive attribution platforms. “Today, with mobile devices dominating the total minutes spent online
HONG KONG BUSINESS | MAY 2018
spreading across a diverse pool of users, mobile marketing is no longer a mere tool, but an overall targeted experience. This experience is constructed based on the brand’s understanding of their consumers’ habits and needs,” said Loh. Marketing strategy and forecasting firm Magna Global predicts advertisers will continue to spend more on digital ads than television, with mobile marketing getting a lion’s share of the revenues. In 2017, US$209b was spent on digital ads, outpacing TV ad spending for the first time. Mobile ad spending is expected to overtake TV ad spending by 2020, with the growing population of the Asia Pacific region on the forefront of the digital market.
Soumita Roy Choudhury
Smartphone adoption rates also remain high, and with so many opportunities to reach out to consumers, the mobile marketing system here is now also increasingly competitive. But with growth in mobile marketing comes its own set of challenges including the prevalence of ad fraud. Examples of ad fraud include fake users and bots, fake locations, problematic source media, and IP addresses. To combat fraudulent data, mobile marketers are expected to adopt artificial intelligence and machine learning to maximise revenue. Content is king Another problem mobile marketers have to contend with is the saturation of the mobile ecosystem with all kinds of ads. Recent changes on Facebook’s Newsfeed algorithm will also have a big effect on mobile marketing, with the right content rising on top. Because of these challenges, mobile markets are most likely to increase their spending in 2018. “In the year ahead, media costs will continue to increase and a larger percentage of spending will be required to acquire new consumers and sustain existing ones. What this means is that mobile marketers will need to become savvier in optimising resources, and start creating smart, targeted content for an increasingly selective market,” said Loh. “The key to this is recognising that the end goal is not about building a large audience, but a loyal one.” But Loh said not all digital trends will put a company on top. Instead, he advises brands to stay ahead of the pack by harnessing what speaks best to their audience. He cites Snapchat’s “ephemeral content” not only as an example of excellent use of technology but also of a brand’s understanding of young consumers. “The survival of mobile marketing in this day and age is not contingent on keeping up with the pace of digital transformation, but on its ability to remain native,” added Loh.
Co-published corporate profile
Enjoy guilt-free treats with Morris Salad Cookies Morris Cookies was founded on the principle that delicious food should not be polluted with unnecessary ingredients that are potentially harmful to the body.
orris Cookies is one of the World’s leading purveyors of chemicalfree, healthy treats designed to delight the senses without any of the toxic or chemical additives added to so many baked goods today. Known for artisan, chemical-free baked goods that are loved for both their taste and their quality, Morris Cookies was founded on the principle that delicious food should not be polluted with unnecessary ingredients that are potentially harmful to the body. The Company’s history is deeply rooted in developing natural, healthy products through scientific method and personal experiences. During a family member’s battle with breast cancer, Morris sought to create freshly baked products that were both chemicalfree and non-GMO. After discovering so many harmful chemicals were being added to food, Morris committed to developing mouthwatering and healthful alternatives that could be enjoyed by one and all, launching the company in 2012.. Taste and quality Known for artisan, chemical-free baked goods that are loved for both their taste and their quality, Morris Cookies was founded on the principle that delicious food should not be polluted with unnecessary ingredients that are potentially harmful to body. The company’s commitment to just more than organic, sustainable and socially responsible practices has made this food purveyor amongst the best in the industry. Morris products are subjected to rigorous testing of high-risk ingredients at critical control points—allowing for certified chemical-free raw materials that are traceable and segregated from genetically modified or chemically-altered products. The result is not only healthy—it’s absolutely yummy! And Morris has no intention of stopping there! For the first time ever, you can design your very own unique cookies with totally personalised flavor profiles! Even better? They’re completely chemical-free, totally organic and utterly delicious! Introducing Morris SALAD COOKIES: the revolutionary new treat that lets you create delectable, healthy treats for yourself and your loved ones! It’s easy and fun to do! Just
choose from a variety of fresh ingredients: fruits, vegetables, herbs and more to create yummy flavors and combinations! Morris Cookies uses a proprietary and completely chemical-free baking method to create your desserts Salad in a cookie, a world’s first Our Salad Cookies are SGS certified, meaning they contain no preservatives or unnatural food colorings. Our raw materials are rigorously tested against 457 types of pesticides in Taiwan (maximum test in Hong Kong is 237 and 311 in Malaysia) and contain no Acrylamide. In fact, Salad Cookies are the first and only Acrylamide-free cookies available worldwide! Morris uses an innovative low-temperature baking method that prevents Arcylamide from rising with 100% healthy and delicious results! This low-temperature baking method was a challenging task that resulted in thousands of hours of R&D and innovative experimentation, and Morris eventually sold his properties to finance his dream, but five years later, the result is tasty, curative, guiltfree treats! Each day, employees take meticulous care to maintain Morris’s commitment to taste and wholesome quality even as the brand grows market share in one of the world’s biggest markets. Morris Cookies is constantly developing heavenly, goodfor-you products customers can feel pride in, knowing they’re making the right choice for their bodies. Morris Cookies makes sweet treats, specialty cakes, desserts and Acrylamide-free cookies that can be enjoyed by the whole family! Cookie with a purpose Morris is also dedicated to serving local communities as well! The company has allocated 15% of their sales to “the HUB” and the “Hong Chi Association” in Hong Kong with plans to create similar charitable partnerships in each country where their products are manufactured and sold! Perfect for birthday parties, Christmas gifts and for anyone who adores guilt-free
sweet treats, Salad Cookies are the perfect present for every occasion and available online, making them both fun and easy to purchase! Salad Cookies will be officially launched in 3 countries 6 locations: Hong Kong, China, Macau, Taiwan, Malaysia & Singapore and also available online, Fun and easy to create, come create your very own designer cookies from all-natural ingredients just in time for the holidays!
CONTACT Company name: Morris Cookies (Asia) Limited Address: G/F, No.33 Luen Cheong Street, Luen Wo Market, Fanling N.T. Hong Kong Phone number: +852 53242411 Fax number: 26750551 Website: https://morriscookies.asia
“Morris Salad Cookies are the first and only Acrylamidefree cookies available worldwide! ” HONG KONG BUSINESS | MAY 2018
Transfer pricing legislation in Hong Kong Lawyers advise firms to start improving their filing systems and pricing analysis in order to avoid penalties.
hen the Hong Kong government put forward the Inland Revenue Amendment Bill No. 6, which serves to codify transfer pricing and introduce country-by-country reporting, it had the effect of jolting businesses into action to start improving their filing systems and pricing analysis in order to avoid penalties. Hong Kong is looking to bolster its concessionary tax regime to ensure it meets international standards, and legal experts advise firms to prep early and thoroughly in what is expected to be a notably heavier administration burden for enterprises. What are the key features of the bill? The amendment bill is the first comprehensive transfer pricing legislation in Hong Kong, codifying the key definitions and fundamental transfer pricing rules into Hong Kong’s domestic legislation, said Windson Li, partner and head of tax group for DLA Piper in Beijing. He said the transfer pricing rules will apply to all associated persons and enterprises, as well as foreign head offices and their permanent establishments, or PEs, in Hong Kong, covering inter-company buy-sale, services, financing, and asset transfer. He added that no safe harbor is provided in the amendment bill for Hong Kong domestic inter-company transactions. Li said the bill allows a taxpayer to apply for double tax relief if a tax adjustment has been made abroad based on the arm’s length principle resulting in double taxation of the Hong Kong taxpayer’s income. It also includes an advanced pricing arrangement, or APA, but he said the commissioner continues to have discretion in accepting or rejecting an application.
Transfer pricing rules will apply to all associated persons and enterprises, as well as foreign head offices and PEs, in Hong Kong covering inter-company buysale, services, financing, and asset transfer. The bill stipulates that a transaction or a series of transactions made between two associated persons must be made on arm’s length basis, applying to both domestic and cross-border transactions, said Michael Nixon, director of economics (transfer pricing) at Baker & Baker McKenzie Wong & Leow in Singapore. He noted that a Hong Kong entity entering into transactions with associated persons is required to prepare and keep on record a local file and a master file, if they meet specified enterprise conditions and transaction thresholds. The bill also states that multinational corporations, or MNCs, that meet the threshold requirement as a reportable group revenue of at least $6.8b, will be required to file a detailed country-by-country 44
HONG KONG BUSINESS | MAY 2018
report. Nixon added that the bill also includes the introduction of an anti-avoidance provision and applicable penalties in relation to a number of offences, primarily fines for non-compliance but also include potential imprisonment in cases of fraud. In relation to country-by-country reporting, directors or other officers or reporting entities and their third-party service providers will also face similar penalties. How will the bill likely impact firms? Whilst introducing comprehensive legislation to bring Hong Kong’s tax system in line with international norms is understandable, “companies that are seeking to expand their operations in Hong Kong – particularly those that are dependent on R&D and intellectual property – will want reassurance that they will be able to operate in a flexible environment,” said PwC Hong Kong Transfer Pricing Services partner Cecilia Lee. The bill legally mandates taxpayers to prepare the stipulated documentation and to make specific filings in a timely manner with the tax authorities, said Nixon, and “failure to do so can result in penalties and an inability to defend a tax a position.” How should firms prepare for the bill? Nixon advised taxpayers to conduct a thorough and defensible transfer pricing analysis to substantiate the arm’s length nature of their transactions, and to prepare and retain appropriate documentation - and the earlier the better. The enhanced transfer pricing documentation requirements also means that supporting information such as contracts, invoices and supporting memoranda detailing key business and commercial activities should be reviewed for accuracy and completeness, he added. “It is also very important to look further into the substantive functions of existing businesses and align transfer pricing arrangements inside and outside Hong Kong to make sure the foundation of transfer pricing compliance is robust under the bill,” said Li.
RECOGNISING MOST OUTSTANDING LISTED, INTERNATIONAL and LOCAL the
COMPANIES inHONG KONG For more informaï¿½on, contact:
MARIANNE AVILLA firstname.lastname@example.org +6531581386 EXT 219
The DSE and stress: is our exam really necessary?
pparently since the Diploma of Secondary Education came into full flowering in 2012 about 71 students in the relevant age group have eluded the examiners by killing themselves. The writer, who still had fresh memories of passing the ordeal herself, thought this was shocking, and so do I. The writer noted that the DSE, compared with other similar exercises, lacks continuous assessment. That is to say your final score depends entirely on the two weeks of frantic writing at the end of the course. There is no credit for school work done earlier. She also noted that in Hong Kong the DSE was practically the only input used by universities in admissions decision-making. That, I can confirm, is certainly the case. When four-year degrees arrived the committee of university heads decided (this was not a necessary feature of the new system) to abandon the old arrangement by which a course selected its own students. In future admission would be by faculty or school. This means that anyone working on admissions is faced with a crowd of thousands from whom they have to pick a hundred or two. No detailed consideration is possible. The exam score is effectively all there is. The only other indicator of any interest is the student’s choice. I remember several attempts to float scoring systems for extra-curricular activities, with bonus points ranging from – say – one for doing a Red Cross flag day up to ten for an Olympic medal. None of these came out as very convincing and I don’t think anyone is using one now. The value of a university degree There is also the familiar point that a university degree means less now than it did in the days when it was a rarity. The unfortunate consequence of this is that employers who really do not need people with a university degree still use it as a way of reducing their pool of applicants to a manageable size. If you haven’t got one your application is rejected out of hand. This leads to the suspicion that – as one of Michael Moore’s interviewees puts it in “Bowling for Columbine” – if you don’t graduate you will die poor and lonely. Your future – not to mention your parents’ happiness – is at stake in the DSE and failure to meet expectations is a major personal catastrophe. I do not, I must say, remember similar angst over the corresponding examinations through which I plodded many years ago. The writing was all done in two or three weeks – continuous assessment had not been invented – and we had to do the whole thing twice (it was called O and A Levels). It may be that as a sort of supergeek for whom examinations came easily I missed symptoms of tension in my classmates. But there is not much privacy in a boarding school.
HONG KONG BUSINESS | MAY 2018
tim hamlett Former Editor of Sunday Standard and Associate Professor of Journalism
in Hong Kong the DSE was practically the only input used by universities in admissions decision-making
Then maybe we were let of the hook by the 11 plus. This was an exam (which was supposed to be a mere “IQ test”) taken at the end of primary education. It may have caused some stress, but most of us were too young to take it that seriously, and at least the stress did not coincide with teenage turmoil. And this gets us back to where we started. Yes, the DSE is a stressful experience which some victims do not survive. But what would help? I suppose there is no practical objection to spreading the exams over, say, four weeks instead of two. It seems also that whilst the student whose continuous assessment is successful can comfort himself with the thought that he enters the exam room with some money in the bank, as it were, the student who is less successful in term time may find the exam an even more onerous and frightening ordeal than if he was allowed to start from scratch. The unlikely reform which I think would help is giving more thought to the idea that the entire student population should take the same exam. The consequence of this is a large group of candidates entering the examination room knowing that their chances of passing are minimal or non-existent. A further large group in the same boat may not realise this until they see the actual questions. When I took the French Oral exam (a one-to-one chat with visiting examiner) we were admitted in alphabetical order. The first person out was besieged by an eager crowd asking what the examiner had wanted to talk about. Unfortunately this boy was not a strong candidate. “I don’t know,” he said, “she was talking in a foreign language.” Seriously, though, the business of preparing people for an arbitrary and unnecessary encounter with failure is gratuitously cruel. There may be something in the idea that those who aspire to life’s glittering prizes should be willing to suck it up and tough it out on occasion.
Is a university degree still relevant?
RECOGNISING THE LEADING EXPORTERS IN ASIA Deadline for nominations is on 27 July 2018 For more details, contact: Eleonor Angeles +65 3158 1386 ext 209 email@example.com
Still room for at least 40 million more
ong Kong’s officials forecast tourist numbers will rise to over 60 million this year. Yet they whine that visitors are staying for ever-shorter periods. And publicly-subsidised Disneyland makes a loss yet again (HK$345 million – peanuts compared with the billions in land value and opportunity costs the white-elephant Mouse has swallowed). It seems the more tourists we cram into Hong Kong, the more trouble the industry is in. And that makes perfect sense: tourism is undermining itself. The obsession with tourist numbers arose from an obsession with Mainlanders-as-buyers-of-luxury-crap hoovering up Euro-trash brands and enriching the city’s landlords. As Mainlanders move on to more sophisticated vacationing, visitors are on average staying for less time and spending less – but all the tourism sector can think up is increasing throughput or adding increasingly desperate ‘attractions’. Meanwhile, Hongkongers with sense, taste and a few days to spare head off to Taiwan or Japan. They are mostly not going for phony, culturally alien theme parks or tourist magnets (though some exist). They are not going to buy overpriced junk. Many are not even drawn specifically by scenic countryside or historic sites (though both countries have them). They go because they are nice places. A fake old town experience The transport is great. The food is great. The environment is clean, quiet, safe and pleasant – genuine communities with relaxed people enjoying a high quality of life in accordance with their own standards and customs. They are nice to live in, and as a result they are nice to visit. All Hong Kong’s greedy, parasitical tourism industry and frenzied bureaucrats know is pushing up landlords’ rents and developers’ profits. And that means eradicating street markets and street food, and local stores, and replacing them with malls, malls and more sterile malls. Having swamped Central and Sheung Wan with Koreans promised a fake ‘Old Town’ experience, officials are now set on wrecking poor Shamshuipo. After replacing the old hardware stores and groceries with international ice-cream, cake, perfumed-candle and other chains, the slash-and-burn tourism industry will move on to pulverize and ethnically cleanse another neighbourhood into a concept-theme-zonehub. Obviously, the ‘tourism’ lobby couldn’t care less that they are wrecking Hong Kong as a place for the
HONG KONG BUSINESS | MAY 2018
city’s own (irrelevant) people to live in. But they’re so dumb, they’re wrecking it as a place worth visiting, and ultimately being a landlord in. The only silver lining: the selfie-snapping guidebook-obeying North Asian zombies will probably finally go away. Hong Kong’s land shortage The Hong Kong government is caught in an embarrassing situation. On the one hand, it must maintain the fiction that there is a ‘shortage of land’ to justify current high housing prices and long-term multi-billion mega-projects to reclaim artificial islands. On the other hand, there is spare and underused space all around in the form of land zoned as agricultural or industrial, supposedly military sites, Disney/cruise tourist facilities, luxury developments for Mainland money-launderers, and much else. If the ‘shortage of land’ is real, it follows that the city cannot devote a huge area to a golf course at Fanling. But the government’s buddies value their exclusive recreational club above the needs of the overall population or economy. So officials will falsify the site’s potential for affordable housing. Will the pro-dems be able to get their act together and make a suitably awkward issue out of it? On the subject of officials pushing BS, here’s a response to the Hong Kong’s government’s ever-childlike thrill at receiving the World’s Freest Economy prize every year. And to mark the freezing weather hitting the city, here’s an analysis (for those following this sort of thing) of how China presents its Arctic ambitions. Not least – a Chinese Communist theoretician’s view of the Western Concept of Journalism, as opposed to that derived from Victorian-era London based German, Karl M.
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Tourist numbers will rise to over 60 million this year.
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