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Display to 30 September 2011


Debt pin THE us$100 bn question is Will Hong kongers backstop China’s locally listed banks? Richard branson: winning investors

CLP’s HK$ 9 billion retrofit pays

Green dividends

Game Changers:


Staff is on the agenda

Hong Kong is not so

independent after all





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With the prospect of QEIII now on the agenda, Hong Kong’s nightmare ride of a rapidly depreciating currency and a corresponding increase in asset prices looks set to continue. The mathematics of this terrible trade dictate that every time America prints banknotes, Hong Kong must do likewise, and it is this four-fold increase in the base of Hong Kong dollars at very low interest rates that has found its way into property, making the lives of average Hong Kong-ers harder by the day. The policy prescriptions for the American economy are not the same one as Hong Kong needs and the US dollar peg is causing real problems in the Hong Kong economy.

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This magazine has argued in the past that it is time to abandon the shibboleth of a US dollar peg and move towards a more flexible exchange rate that makes sense for Hong Kong and its economic situation. Rochelle Romero ADMINISTRATION

Jaclyn Ganila

A more flexible exchange rate system where the Hong Kong dollar is linked to a basket of currencies including the RMB surely makes more sense and gives more certainty than tying the value of the currency to the greenback. Advertising Editorial

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feature Dog fight at changi

FEATURE 18 Hong Kong’s US$11bn private equity problem

The money has been raised, but competing with larger Chinese domestic funds is challenging

26 Dog Fight at Changi Singapore Airlines is in a two-fronted fight as its market share dwindles

36 CLP’s HK$9bn retrofit at Castle Peaks pays green dividends

China Light and Power Director of Generation, Mr Rick Truscott, and Emission Control Project Manager, Mr Thomas Brown, tell TIM CHARLTON about successfully completing this mammoth project.

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

41 Still holding the aces despite regional pretenders

Macau wows the world with its new 3D Cinema at Galaxy Macau and continues to be the leading gambling market despite rising competition.

OPINION 20 Hong Kong is not so independent after all

23 Winning investors over 30 Forever remembered as ‘thy KING’ 32 Will the HK government finally

rationalise the status of the English Schools Foundation?


first brother, can you spare a fen?


hong kong is not so independent after all

REGULAR 28 Numbers 46 Motoring Report 48 Life and Style 50 Last Word

FIRST 12 Brother, can you spare a fen? 13 No room for bankers in Central 14 Chinese banks US$100bn Hong Kong problem

For the latest business news from Hong Kong visit the website


News from Daily news from Hong Kong Numbers sink or swim most read FINANCIAL SERVICES

Hong Kong launches iBond subscription Interest-linked retail bond can be availed by Hong Kong residents through any of the 20 placing banks, securities brokers or the Hong Kong Securities Clearing Company. Secretary for Financial Services & the Treasury Prof KC Chan on Tuesday announced the launch of the inflation-linked retail bond, or iBond, for subscription by Hong Kong residents beginning later this month. Economy

Price pressure: Core prices may continue to rise as Asian exports plunge in June Asia is gradually running out of excess capacity to meet rampant local demand. According to HSBC, if exports continue to sputter through Q3, policy-makers in the region will adopt a more defensive stance, thus making a need to raise rates further.

No signal to stop for South Korean telcos uncertainties characterize the availability and use of offshore Chinese currency for near-term refinancing of dimsum bonds,” says Ivan Chung, a Moody’s vice president in Hong Kong. economy

Is China headed for a hard landing? The country’s PMI slipping to 51.6 in May was a major concern among investors, says HSBC. However, this may not be the case as fixed asset investment by local governments rose 28% y-o-y in the first five months of the year.

telecom & internet

South Korean telcos not threatened by mobile virtual network operators Despite the attractive tariff plans, MVNOs will find it difficult to secure a line-up of attractive handsets due to their small subscriber base. In a release, Fitch Ratings says that the advent of mobile virtual network operators from July 2011 will have only a limited impact on the competitive landscape of the South Korean telecommunications industry, and consequently the ratings of South Korean mobile operators.

financial services

Hong Kong’s dimsum bonds subject to refinancing risks And lingering policy uncertainty for dim-sum bonds is to blame, says Moody’s. “Unlike for synthetic RMB bonds or straight U.S. dollar bonds from Chinese issuers, regulatory and policy

Fresh off Moody’s menu: HK dim-sum bonds


How much more can China take? ECONOMY

10.7TN China’s local

government debt reached RMB 10.7 trillion in 2010 About RMB 9 trillion, or 84% of the total was explicitly taken on or guaranteed by governments. Bank lending accounts for about RMB 8.5 trillion of total local government debt, while bond issuance and other forms of financing make up the rest, says Royal Bank of Scotland.


China meltdown: Will China’s GDP growth drop by more than 30% in 2011? It is a rare probability event to call, as there have been four such episodes since 1980. The combination of faltering external demand and rising inflation presents a serious policy dilemma for the authorities, says DBS. economy

Imports and exports in Hong Kong soar The value of total goods exports rose 17% while the value of goods imports increased 15.8% for the first five months this year. The values of Hong Kong’s total goods exports and imports both recorded year-on-year increases in May, at 10.1% and 13%, according to the Census & Statistics Department.

News from Daily news from Hong Kong Numbers sink or swim most read FINANCIAL SERVICES

HSBC to cut 25,000 jobs by 2013 And it will exit operations in 20 countries as it looks to save billions of dollars. According to a BBC report, the announcement came as the bank reported pre-tax profits for the first six months of the year of $11.5bn (£7bn), up 3% on the $11.1bn the bank made a year earlier. HSBC’s investment banking profits fell in the first half of 2011, according to the report. FINANCIAL SERVICES

China Everbright Bank refutes Goldman Sachs report The bank said it is not true that its loanto-deposit ratio has reached 81%. A report on Reuters said China Everbright Bank claimed its loanto-deposit ratio was 71.15, as opposed to the higher figure reported by Goldman Sachs’ Chinese unit Gao Hua.

HSBC to limit jobs by 2013 Kai Tak Development Area will provide land for housing starting from 2013 and the Government will continue to supply housing land in developments throughout Hong Kong. FINANCIAL SERVICES

Yuan deposits in Hong Kong up 0.9% However, this is the lowest increase since 2009. The 0.9% change is for June in comparison to May 2011, according to a report. Hong Kong Monetary Authority chief executive Norman Chan said it’s the lowest increase since the beginning of the RMB Trade Settlement Pilot Scheme.

markets & investing

Chinese venture capital investments ‘roar back’ from ecoder in technological innovation. The investments in China reached $5.4 billion in 2010, a 79% increase over 2009. China venture capital investments are growing fast based on the report from Lux Research’s new China Innovation Intelligence service. Moreover, 40% of China’s overall venture capital has backed emerging technologies 2010 affirming the country’s intent to be a rising global leader in technological innovation.


Government to increase housing land supply Hong Kong also eyes further development of the Tung Chung New Town and implementing new development areas in the northern New Territories. Permanent Secretary for Development Thomas Chow says the

HK government continues to supply housing lands


China’s economic downswing residential property

28% Hong Kong’s

luxury residential price growth shoots to 28% Prices grew strongly by 7.3% qoq in 2Q11. Hong Kong delivered the strongest price performance among monitored markets in Asia, according to Jones Lang LaSalle’s report.

financial services

Corporate shocker: Fitch warns investors on risks from Indian perpetual bonds Fitch warns to treat these bonds with caution despite its equity-like features. Issuances of perpetual debentures by select Indian corporate gave way to a class of instrument for corporate issuers and investors. COMMERCIAL PROPERTY

Moderate growth seen in Kowloon East’s Grade A office rentals Rental growth is expected to slow down in the second half as competition increases in the office supply market. Recent times has seen Kowloon East experiencing intense growth with the highest new Grade A office supply in Hong Kong, comprising a total of over 5 million sq ft new completion in the past 5 years.

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Nude is rude launch event DATE: 28th of June VENUE: Lan Kwai Fong, Central


Save up to 30% off on floor sample


Brother, can you spare a fen ? One country, two systems is certainly making its philosophy felt in Hong Kong’s banking system, where more people and companies are coming to borrow money they cannot get in China. The recent steps taken by the People’s Bank of China to tighten up bank lending and credit growth have forced China borrowers to tap Hong Kong banks for loans, a growing trend that bank regulators so far seem unperturbed by. But the last six months has seen over HK$100 billion lent by local banks for use outside of Hong Kong, a record amount. Moreover, almost a quarter of all

loans made by Hong Kong are now officially for use outside of Hong Kong. Hong Kong banks collectively now have a loan book outside of Hong Kong approaching HK$1tn. And remember this is against the backdrop of a rapid expansion of liquidity and increase in monetary supply caused by the Fed’s printing of money. Loans for use outside Hong Kong increased 45% y-o-y in March, according to figures compiled by RBS. This is due to more loans flowing into mainland China. RBS also noted that this trend has been driven by the relatively low lending

Breakdown between loans used inside vs outside Hong Kong

Sources: CEIC


the last six months has seen over HK$100 billion lent.

rates of Hong Kong banks. So how is the money funelled to the mainland? The two most popular ways are through the mainland branches of HK banks lending directly to domestic enterprises; and Hong Kong banks lending directly to the Hong Kong registered companies that have businesses in China’s domestic markets. Moody’s banking analyst, Sonny Hsu, told Hong Kong Business they had also observed the trend, and that “in our opinion, loan exposures to China are riskier than those in Hong Kong. Nevertheless, we remain of the view that Hong Kong banks have applied relatively conservative lending standards when evaluating credit decisions for China.” Hsu added that a sizable portion of the increase in mainland loans in 2010 and 2011 are trade finance loans, which have relatively short maturity, and are typically backed by genuine merchandise trade, and are sometimes in effect interbank exposures. Still, Hong Kong’s banking regulator must only hope that these loans to China are as solid as ones made domestically. Perhaps Hong Kong banks are feeling particularly secure right now. After all, non performing loans are just 0.77% of all loans, the lowest since March 1987. And the low unemployment rate has also contributed to exceptionally low credit card losses of just 1.55% for March, compared to a recent peak of 4.61% in June 2009. Still, it remains to be seen whether today’s loans made outside of Hong Kong will be repaid at the same rate as loans inside of Hong Kong.

Year-on-year growth of loans used outside Hong Kong

Sources: CEIC


No room for bankers in Central Hong Kong may command a 50 % premium to Singapore for Grade A Office rentals, but that doesn’t mean bargain hunting banks are headed to the Lion City any time soon. In fact, so long as the IPO market remains buoyant and banking related industries continue to hire, there will be ever more pressure on banks to move out of Central or, God forbid, over to the ICC in Kowloon, or worse. Prime rents have already risen by 9% during 1Q11, and Credit Suisse expects rents to go up another 19% by end of 2011, bringing them just over the 2008 peak. Measured in local currency terms, Hong Kong rent rises have surpassed those in the nearest financial centres, having risen 50% from the 2009 low mark, compared to Shanghai which has risen just 31% and Singapore a mere 29%. But the Hong Kong dollar depreciation against the RMB and Singapore dollar has dented the real impact of these rises.

Hysan Place - Causeway Bay, the new Central ?

IPO Pipeline full But so long as the IPOs keep flowing, banks will keep hiring and will be needing more office space. With an estimated 59 companies lined up for listing in Hong Kong in 2011 seeking to raise $70 billion, headcount should continue to grow among the financial and legal firms that service the still buoyant IPO market. By comparison, as of June Singapore

Yield trend of Hong Kong property

had just 5 companies in the listings pipeline. The real problem is that with bank hiring still on an upswing, there is literally nowhere to house the extra bankers in Central. The largest landlord to bankers is Hongkong Land, which relies on financial tenants for 75% of its rent roll. Its Central office space was 97.1% occupied as of April 2011. Filling up fast Other prime office buildings have showed a similar dramatic upswing in occupancy over the first half of the year. Citibank Plaza’s occupancy

Sources: Jones Lang LaSalle, Credit Suisse estimates

Jobs Booming Hong Kong and much of Asia are quietly going through an employment boom, the likes of which hasn’t been seen since the last great jobs boom from 2004 to 2007. Figures compiled Duncan Wood bridge, an economist at UBS, show that across much of Asia, jobs are growing by 2% a year and the unemployment rate is down to 3.7%, from a peak of 5% during the crisis. Employment growth is stronger in Hong Kong than many other North Asian markets, running at 3 % a year, but unemployment at 3.3% is still stubbornly higher than Singapore where government policies, and some wags may ay a lack of a minimum wage, have seen unemployment

rate has also spiked from 81% in December 2010 to 91% as of April 2011. Other key Central office buildings such as Pacific Place, IFC One and Two and Cheung Kong Center are also 98-100% occupied, noted Credit Suisse. About the only new capacity coming to Hong Kong Island is Hysan Place which is opening in Causeway Bay next year. That development is constrained for office space , with over half the 710,000 sq ft devoted to, you guessed it, more shopping space. Of the 32 floors, there are just 15 floors of office space and KPMG has already signed on to take 5 of those floors. So where are the bankers moving to? Credit Suisse, Deutsche Bank and Morgan Stanley are all moving or have moved to the International Commerce Centre at West Kowloon, and the trend of decentralizing will continue. Now if only the Star Ferry would actually run to the ICC the trip over would not be such a schlepp.

CBD office rents (US$/sq m/year)

Sources: Jones Lang LaSalle, Credit Suisse estimates

drop to just 1.8%. One positive side effect of all these jobs is that private consumption across Asia is on the climb, helping buoy economies, and the top two countries in the region are Indonesia and Hong Kong. Of course, much of the HK boost is due to tourists. According to Mr. Wood bridge, Asian private consumption remained resilient, growing at around 5%y/y (excluding China) in 1Q11. “Meanwhile, retail sales, one of the best monthly gauges on private consumption, are largely robust across the region. This is particularly true in Hong Kong, where sales continue to be supercharged by strong tourist spend, and Indonesia.” Laissez les bon temps rouler.


Sources: CEIC, UBS



Chinese banks US$100bn Hong Kong problem essentially wiping out all the current capital in the banks. America by comparison, which has an economy 4 times larger than China, has a TARP bailout worth only US$780 bn, or half what China may need to raise. It is a scary prospect if it eventuates. Almost every analyst that Hong Kong Business spoke with says there will be a banking problem in China. It’s just that we have no idea how bad it would be. Standard & Poor’s banking analyst, Liao Qiang, said that whilst it may be mathematically correct that NPLs could be that large, it’s unlikely that they would all hit at once. The proposition that Chinese banks could be forced to raise RMB12 tn over the next three years is not a “realistic one,” says Liao, under S&P’s base-case stress scenario. “Currently, we do not foresee a banking crisis in China over the next few years. This is despite all the concerns about potential credit risks stemming from local government financing vehicles, property developers and manufacturers that are vulnerable to overseas demand Current state of the banking system shocks,” he adds. Moody’s banking But let’s look at some facts. China’s analyst, Yvonne Zhang, meanwhile banking system currently has a expects NPLs to rise from current loan book of over RMB60 tn, whilst low levels, but believes that, systemic deposits stand at around RMB100 distress - leading to a banking crisis tn. So China is not in any danger of - is unlikely. “We expect banks to a liquidity crisis, but bad loans may refinance or restructure a fair amount lead it to suffer a banking crisis. of bank loans, and prolong the lossFitch, a ratings agency, told recognition timeline to enable them investors at a briefing in June that in to provision and charge off bad loans similar crises, the level of NPLs can over time. Whether or not the banks Liang Siewthe Huay be anywhere from high teens or can successfully absorb the losses (65) 6232 3851 even If one assumes a 20% level through earnings will depend on the of NPLs, that would mean that the sustainability of strong economic Thomas Lam Chinese banking would have China: growth,” sheBanking adds. System (65) 6533system 0389 to raise RMB12 tn in fresh capital – Instead, S&P projects NPLs to blow

In Brief

China’s Credit Growth, NPLRatio Ratio China’s Credit Growth, GDPGDP andand NPL % 35 30

NPL ratio (% of total loans) Loan growth (yoy)

Real GDP growth (yoy)


20 15 10 5

Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11


Source: OSK-DMG, CEIC, Bloomberg Source: OSK-DMG, NAO

Property-related Lending 14 HONG KONG BUSINESS | AUGUST 2011 Personal mortgage loans Land and property development loans

“The latest stress tests by China’s banking regulatory authority suggest that Chinese banks can withstand a 50% decline in property prices”

Liang Siew Huay (65) 6232 3851

out to 5% to 10% - which would still be RMB6 tn. And the burden of raising more capital would likely fall first on the shareholders of Chinese banks listed in Hong Kong. But if history is any teacher, Chinese banks do have a history of making bad loans. Back in the early 2000s, NPLs were at 20% and it was only through government clean ups and capital raising in Hong Kong that the figure now stands at just 1.5% - a figure that almost everyone agrees as not sustainable.

In Brief

What is the major apprehension? Of greatest concern is the amount of Thomas Lam money being funneled into propertySystem China: Banking (65) 6533 0389 projects. According to brokerage OSK DMG, official data showed  China’s banking that Chinese banks’ lending to thein recent years w China’s Credit Growth, GDP sector and NPL Ratio to 25%associated with property amounted (i.e. facilitate the coun RMB2.02 tn) of the total new loans rose from 97% of % NPL ratio (% of total loans) issued in 2010 and 19% in 1H11.  The excessive c 35 Loan growth (yoy) potential deterior These 30 Real GDP growth (yoy) do not include off-balanceperforming loans sheet items which some estimated 25 government finan may constitute about 25% of the 20  total As China seeks 15 reliance on inves banking assets in 2010. 10 The latest stress tests by China’sgrowth may mod hurting the ear 5 banking regulatory authority suggest Chinese banks. 0 that Chinese banks can withstand a  Weaknesses in 50% decline in property prices butdisclosure among mean any potent the banks’ balance sheets could look than reported. Source: OSK-DMG, CEIC, Bloomberg ugly as other sectors dependent on  Official data sho the property market would also beproperty af- sector a Property-related Lending total new loans i fected by factors apart from possibly not include off-b Personal mortgage loans mortgage default rate. higher may constitute ab 2, 2011 Land and propertyAugust development loans Still with so much unsettling news, While the NPL Real estate loan (% of total new loans)(rhs) RMB bn ECONOMIC 900 35% that some improved marked perhaps it’s not surprising 800 than 1.5% curre RESEARCH 30% institutional investors are getting cold 700 government clean 600 feet and dumping their25% Chinese bank  Although the late 20% 500 authority sugges shares. The most public15% among them 400 300 was Temasek Holdings’10% exit of its decline in propert could look ugly a 200 stake in both the Bank of 5% China and market would al 100 default China Construction bank But 0 0% in July. mortgage Risk? experience a sh 1q10 2q10 3q10 1q11be the 2q11 last. they4q10 may not potentially hurting

Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11

It is often said that if America sneezes, the world catches a cold. Well, America is down with a bad case of the flu but China and Hong Kong are chugging along nicely, thanks very much, but what would happen to Hong Kong if China’s banking system needed a bailout? This is the scenario that has caused investors to worry about Chinese bank shares listed in Hong Kong as the latter may be forced to raise capital if, as some suspect, China experienced a full-blown banking crisis. Just how big the crisis and how manageable it could be is still a matter of much debate. What is known is that Chinese banks and financial institutions have raised just over US$100 bn in Hong Kong IPOs and have injected more capitals over the last decade, according to figures compiled by Thomson Reuters. And with Non-Performing Loans (NPLs) expected to rise rapidly, it’s a question of when (not if) new money will have to be raised in Hong Kong to plug the balance sheet hole.

Source: has OSK-DMG, CEIC, PBOC China’s banking system experienced rapid credit growth in recent years with much of the expansion of bank lending Risk from Local Government Risk Local credit Government Debt? associated with from state-directed to fund projects thatDebt? facilitate the country’s economic growth. Bank loans, for e.g., rose from 97% of GDP in 2008 to around 120% in 2010. RMB bn Repayment of Chinese local The excessive credit expansion has led to concerns about 3,500 3,238 government debt potential deterioration in banks’ asset quality, particularly nonTotal = Rmb 10.7 trillion 3,000 2,625 performing loans (NPLs) related to real-estate and local 2,500 government financing vehicles (LGFVs). 1,840 As China seeks to 2,000 transform its economy away from overreliance on investment and exports, there is 1,219 also concern that 1,500 994 growth may moderate in the near- and medium-term, thus 801 1,000 hurting the earnings500sustainability and performances of Chinese banks. 0 Weaknesses in corporate governance and information2011 2012 2013 2014 2015 2016 disclosure among some Chinese companies and banks also and mean any potential banking sector risk may be much bigger beyond than reported. Source: OSK-DMG, NAO Source: OSK-DMG, NAO

Official data showed that Chinese banks’ lending to the property sector amounted to 25% (i.e. RMB2.02 tn) of the total new loans issued in 2010 and 19% in 1H11. These do not include off-balance-sheet items which some estimated may constitute about 25% of total banking assets in 2010.

According to the government debt (about 27% of G 46.4% or RMB4.9 While the NAO d bank lending, we biggest exposure perhaps 40% of t policy-lenders. T adversely affecte However, we do result in widespr system as the c support for any tr banks if need potentially be at government deb reportedly resum

OSK I DMG | See importa

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Sam Lau, Managing Director of Total Loyalty Company

Perks for SME staff is on the agenda Sam Lau of the Total Loyalty Company explains his new concept of outsourcing staff social clubs.

HKB: Why do companies need an outsourced staff program? Sam : Our business helps companies run their staff social clubs. We put together a complete program, organise their social events, source discounts and offers and put a staff communications program together for each client. A staff social club will help companies provide a practical work/life balance solution to their staff. HKB : Who do you offer these solutions to? Sam : We provide these solutions for companies who are looking for a better work/life balance solution for their employees. The program is ideally suited for companies with 50-2000 staff. In Hong Kong, companies such as Prudential, CB Richard Ellis, Flight Centre, K Wah are already using this service for their staff. HKB : What sets you apart from other companies in the industry? Sam : We do not have any direct competitors in Hong Kong for this business – no-one has tried this approach to run staff social clubs before. However there are event management companies, and there are many discount cards in Hong Kong. What sets us apart is what we put this solution together specially for employees. Rather than group buying sites or event companies who just look at providing one-off offer/ event, our solution is about providing an ongoing program that makes a difference for employees, and “raises the bar” for what a company can offer their employees . HKB : How important is work/ life balance and staff engagement for a company? Sam : Research shows that 40% of employees would probably 16 HONG KONG BUSINESS | AUGUST 2011

Social clubs reward employees with a break

leave their current job for a better work/life balance and that the cost of recruiting and retraining a new employee costs about 10-15 times the monthly salary of the one who just left. HKB : How did you get into this business ? Sam :I came up with the concept in Australia 16 years ago and started a company called Pegasus Group to provide staff club outsourcing service. Now we have an excess of 1million members in Australia, and this was merged with My Rewards International in 2009. I then decided to move back to Hong Kong last year to launch this concept. We have a proprietary software system developed that enables us to easily create a website for each client. We provide a fully branded program for each client – with membership cards, websites and a weekly email sent to all staff. Each solution is branded for each client, so it appears as if the solution is developed specially by each company’s HR. HKB : What are the difficulties that you have to deal with when providing these solutions? Sam : Being a new concept in Hong Kong, it is still difficult for companies to understand what we do, as no-one had paid an external company to run their staff social club before in HK. Social clubs have a stigma of being though of as something that is “nice to have” rather than it being a core part of delivering employee welfare for a lot of companies, so there has to be a step-change in the thinking of HR Directors and CEOs too. Similarly to get merchants to participate in the program, we have to make them understand this new concept, and this new marketing channel. HKB : How much do the plans cost, the minimum number of employees - the ranges and averages? Sam : A typical plan costs HK$20/month/staff member. As for minimum numbers, we don’t have any. The program is fully scalable – it works for a company with 20 staff as well as for a company with 20,000 staff. The price is the same, so it is really beneficial for the SME companies. This is best suited for SMEs as they want to provide more diverse benefits for staff, but do not have the time to do so. This helps them stand out as an Employer of Choice.


Hong Kong’s US$11bn Private Equity problem The money has been raised, but competing with larger Chinese domestic funds is challenging as Isabelle Ulanday reports


rivate Equity funds in Asia are overtaking those in the west in terms of growth, but challenges remain, especially in China where a string of accounting scandals has many foreigners wary of investing. Meanwhile, many Chinese banks and other locally funded groups are stepping into fund ventures where previously western firms would have dominated. This is creating a difficult and increasingly volatile market for investors who are caught between not being ripped off and missing out on the action. Making things harder are the high valuations many investee companies are seeking, making returns for private equity firms slimmer even as their fund sizes increase. Once again, too much money seems to chase too few deals. According to research by Asian Venture Capital 18 HONG KONG BUSINESS | AUGUST 2011

“Renminbi funds are small, poorly structured and managed.”

Journal, private equity fundraising passed $14 billion last year, up 116% from 2009, and accounted for nearly half of the total fundraising in Asia. Private equity investment in China came to $19.9 billion in 2010, up 41.3%. “It is difficult to talk about Hong Kong’s private equity industry without talking about China – the two are so interrelated. Most China-focused funds and fund managers investing from offshore are based in Hong Kong, ” said Tim Burroughs, Managing Editor of Asian Venture Capital Journal. Rising valuation concerns “With so much capital available in China – particularly for local, renminbi-denominated funds – there are concerns about rising valuations. These concerns are largely focused

on the growth capital or pre-IPO segment of the market. On one hand, there is intense competition for deals; on the other hand, entrepreneurs see the strong performances of Chinese companies listing domestically or in the US and therefore ask for more money from potential investors. Other parts of the market, for example early stage or restructuring deals, are less populated,” he added. According to Burroughs, there are certain parts of China that could offer better deals. “ It’s also worth noting that other parts of China – away from major coastal cities – might deliver better value deals, but the less mature the private equity market, the harder it is to do business. Another important point is that many domestic renminbi funds are small, poorly structured and managed, and only in the market for pre-IPO deals that are perceived to deliver high returns in a short space of time. The expectation is that, once the capital markets calm down and public market exit multiples on investments fall, many of these domestic funds will disappear. More established players with strong track records, settled investment teams and a longer-term perspective would remain.” Jon Parker, Partner at KPMG China, said activity in the Chinese market has been picking up in the past few months. He noted that there had been a significant pick-up in the China market over a number of months, as it looked like PE houses and sellers seemed to be getting closer on expected valuations. “We have seen this take place in financial services, consumer markets and infrastructure, including property, and we expect this to continue in the near future.” The $29bn question More deals will need to come, and soon, with private equity firms in Hong Kong and China sitting on $29.4 billion of uninvested funds. So just how big is the private equity market in Greater China? According to report by research firm Preqin, as of March, 2011 China had 127 private equity firms headquartered in the country, whilst there were 80 fund managers headquartered in Hong Kong and just 24 in Taiwan. In terms of funds raised over the last 10 years and dry powder available to fund managers, China is

FEATURE the most prominent country. In the past decade over USD 31.1 billion has been raised by fund managers based in China and they still have an estimated USD 18.5 billion in uninvested capital. By comparison Hong Kong-based private equity firms raised over USD 29.2 billion in the same time period and are sitting on an estimated USD 10.9 billion of dry powder. Private equity firms headquartered in Taiwan raised nearly USD 1.6 billion in the last 10 years and have an estimated USD 489 million in available capital. Hong Kong-based Baring Private Equity Asia is the most active fund manager based in the Greater China region in terms of capital raised in the last 10 years, having raised nearly USD 4.7 billion in this period. The firm recently held a final close on USD 2.46 billion for its Baring Asia Private Equity Fund V, which exceeded its target of USD 2 billion. China-based Hony Capital is the second most active fund manager based in the Greater China region in terms of capital raised in the last 10 years, having raised over USD 3.9 billion in this period. Europe falling While the size of Asian deals is rising as fund sizes increase, this stands in stark contrast to American and European firms which have found it difficult to grow, according to Amanda Janis, Senior Editor of Private Equity International, a trade publication. She noted that firms focused on emerging markets are commanding a larger slice of the private equity fundraising pie, with Asia-focused fund managers leading the charge. “The firms making this year’s PE Asia 30 list have collectively raised just under $81 billion in the past five years, representing an increase of nearly a half a billion dollars for the second year running. That’s an impressive feat given fundraising conditions have remained challenging at best since the onset of the global financial crisis. By comparison, the capital raised by the 50 largest firms globally, as tracked by Private Equity International PEI 300, has been decreasing each year since 2009 by about 5%,” she added. According to Janis, one visible trend is that General Partners from Hong Kong have been collecting

most of the capital, outperforming fund managers from the Middle East and North Africa. “One of the most striking trends evident from examining this year’s ranking was the changing of private equity capital centres. While fund managers focused on the Middle East and North Africa (MENA) continue to be responsible for the bulk of capital raised by PE Asia 30 firms, commitments to MENA managers have been decreasing over the past three years while capital collected by Hong Kong-headquartered GPs has been on the rise and seems set to eclipse MENA.” The capital raised by both Hong Kong- and mainland China-based fund managers – together accounting for nearly $33 billion of the PE Asia 30 cumulative fundraising total this year – making it clear that investors are clamouring for access to investments expected to capitalise on Asia’s, and in particular China’s and Southeast Asia’s, projected macroeconomic and demographic trends, noted Janis. Dodgy accounts If raising funds for investment in Asia is the easy part, investing it wisely against a backdrop of questionable accounts and shady profit figures is causing some concern in the industry. Simon Luk, a Partner from Winston & Strawn LLP, focused much on for-

Amanda Janis

Jon Parker

Simon Luk

“The firms making this year’s PE Asia 30 list have collectively raised just under $81 billion in the past five years.”

eign capital in Chinese private equities. He said,“Foreign capital, clearly, has a given requirement and perspective. When they make investments, they want transparency and western style management. They want to change the culture, so that’s really the challenge. When foreign capital comes in, there are certain requirements since it’s a different culture and the management is not the same, so that makes it difficult.” “If there’s one main problem, clearly it would be due diligence and it relates to the accuracy of accounting, revenue and profits. This is one of the main issues right now. In the past, it was the organization. We don’t know if it’s properly organized and available for foreign capital injection and that requires a lot of analysis about the current M&A rules,” he added. Luk notes that foreign investors prefer a foreign holding structure, but that has its own disadvantages. “With a foreign holding structure, there is transparency and everything else you can look for in a foreign company. But it may not be that easy. At the moment, what attracts a lot of attention are probably the ones involving IT. You can either make a lot of money from it or none at all. So that industry may attract quite a bit of attention; however, it would be difficult for other traditional businesses like manufacturing, because export is declining and the world economy is not doing well,” he said.


USD Million



Kuwait Investment Authority, Qatar Investment Authority and Temasek Holdings (Singapore) committed to be cornerstone investors, subscribing to a 2.87% stake in Agricultural Bank of China, a Chinese commercial bank, specialising in the agricultural sector, for approximately USD 3.8 billion.



The National Council for Social Security Fund (China) invested RMB 15.52 billion for a 3.7% stake in The Agricultural Bank of China. The bank has a dual-listing in Shanghai and Hong Kong.



Kumpulan Wang Persaraan (Malaysia) and Kuwait Investment Authority invested USD 1.2 billion for a 4.06% stake in the AIA Group, a Hong Kong-based insurance company carved out from AIG.

May-2010 1,100

Goldman Sachs Asia, GIC Special Investments (Beijing) and China Guardian Auction won the bid to acquire a 15.6% stake in Taikang Life, a Chinese life insurance company, from French insurance company AXA. Goldman Sachs Asia took a 12% stake in the investee.



Bank of China Group Direct Investment (Hong Kong) invested RMB 7.5 billion for a 14.45% stake in Jin Yu Ru Railway Tunnel Holdings, the management, operation and construction company for the Shanxi Mid-South Railway Tunnel Project, a Chinese railway which connects coal mines located in Shanxi, Henan and Shandong Province.

Sep-2010 1,000

GIC Special Investments (Singapore), KKR Investment Consultancy (Beijing), TPG Capital and Great Eastern Holdings (Singapore) acquired a 34.3% stake in China International Capital Corporation, one of the leading Chinese financial institution from Morgan Stanley. HONG KONG BUSINESS | AUGUST 2011 19


Ian Perkin

Hong Kong is not so independent after all


few months before the return of Hong Kong sovereignty to China in July 1997, a delegation of local political and business leaders travelled to Beijing to meet with their Mainland counterparts. At an official reception to welcome the delegation, one of their number made a short speech in which he re-assured Mainland leaders that Hong Kong could be relied upon to support the “motherland” in its economic development and opening programs. He implied that as long as Hong Kong continued to do well so too would the Mainland. In his own welcoming speech, the then Chinese Premier, Li Peng, begged to differ saying the Hong Kong delegation should not worry because as long as the Mainland economy did well, Hong Kong would also continue to prosper. The Premier’s rebuke to the Hong Kong delegation reflected the uncertainties, tensions and sensitivities of the time, but also the rapidly changing realities of China’s place in the world and Hong Kong’s changing relationship with the Mainland. There was a widespread and somewhat arrogant belief within the Hong Kong business and political elite at the time that Hong Kong had shown the way. That attitude soon crashed on the rocks of the Asian financial crisis a few months later when the strength of the Mainland economy (and its tightly controlled external economic links) helped to underpin and stabilize not just Hong Kong’s position but the rest of East Asia as well.In the decade and a half since, China has emerged not just as a local and regional engine of growth but a global growth engine as well. Hong Kong is now just one of the many wheels driven by the China engine. The lesson in all this for Hong Kong – and one that might be appreciated by former Premier Li than

IAN PERKIN Independant Economic Consultant

(and perhaps only marginally productive) credit Hong Kong looks growth, higher inflation, slower trade growth and on Mainland for growth an inability to energize domestic demand to replace external trade growth. Growth continues to power along, however, with GDP expansion of 9.5% in the second quarter. This was down slightly on the 9.7% growth in Q1 and resulted in average growth of 9.6% for the first half of the year. Industrial output also remained strong in June (up 15.1%), as did new loans (up 15%). These numbers were probably little higher than Mainland authorities would have liked given the effort they have put into moderating activity over recent months – Premier Wen Jiabao said current policies would continue - but it came as a relief to a global economy worried about events in the Euro Area and the US. For Hong Kong, with its worries about spillover effects across the border (especially inflation and overheating) things are more problematic. Hong Kong needs to be aware that it “Hong Kong is now just one of the many wheels is now far more reliant on the Mainland economy than it ever was on America, driven by the China engine.” when the US was its biggest trading partner. It still has the US dollar as its monetary anchor, but anyone else – is that it is more reliant on the fortunes this means less today when Hong Kong is tied so of the Mainland economy than any other economy. closely to the Mainland in every other way. More countries than ever before (resource producers, It means Hong Kong has to be more watchful of consumer nations, investment seekers) now look to economic events on the Mainland than ever before. It China as a key driver of their own growth. Fortunately for all, China has been able to maintain may not be able to do much about them but its needs fast growth and monetary (and political) stability over to be ready to adapt to them, both good and bad. As the Premier Li Peng said to that Hong Kong business a long period. Recently, however, cracks have begun delegation way back in 1997, as long as the Mainland to appear which have not only concerned Mainland economy prospers Hong Kong will continue to do well. authorities but international analysts as well – rapid 20 HONG KONG BUSINESS | AUGUST 2011

The toast of the town

Your essential guide to the verY best in life, Hong Kong Tatler runs the gamut of high-end living, from smart parties to fine dining, from international fashion to luxury travel. Hong Kong Tatler shows you the world’s most glamorous people, exotic places and desirable objects via exclusive features that are insightful, entertaining and presented with style. Distinguished by wit and savoir faire, it has been the indispensable title for the city’s sophisticates for over 30 years.


richard branson Winning investors over

Y “You must be well prepared, with all the facts at your fingertips.”

ou have a terrific idea for a product or service that will change a sector or industry. You painstakingly assembled the data, determining how best to target potential customers and build on their interest. A few key players are ready to join your team. But before you can launch your business, you need to find an investor so you can buy equipment, rent office space, pay your staff and kick off a marketing campaign. What’s next? Many people in this situation come to me for advice, specifically asking how to interest Virgin in their business plan startup. The process isn’t at all mysterious. Many entrepreneurs contact us via our website, We receive hundreds of business ideas every month, which we record, log and classify. The best ones are reviewed and researched, and a small number make it through to our investment professionals, who take a more forensic approach to business than the detectives on “CSI: Crime Scene Investigation.” Turn ideas into business What if they like your idea? If you’ve seen the BBC television program “Dragons’ Den” or an equivalent reality show where entrepreneurs pitch ideas to investors, then you know what’s next at Virgin and many other private equity and venture capital groups: The idea is stripped down to its essentials by our top team who meets almost every week to review the latest ideas. So that our own vested interests don’t blind us to new opportunities, nobody on the committee runs a Virgin business on a daily basis, but all

the members work closely with the chief executives who run our businesses and sit on many of our boards. If an idea has potential, you may find yourself invited to pitch your plan to the team led by Virgin Group chief executive Stephen Murphy. You must be well prepared, with all the facts at your fingertips. That’s where the comparison with television ends – unlike some of our TV counterparts, people from our top team are not at all rude. They may ask some very tough questions and will rigorously examine your business plan to see if there is a profitable business in the making. If there is, it is more than likely you will be asked to attend further meetings so that deeper questions can be answered. Often the team meets several times before a final decision is given. They assess your business’ potential, whether it fits with the group’s ambitions, strategy, and of course, brand values, and what the possible returns and profits will be. They look at spending plans, income forecasts and the marketing budget, and they pinpoint when the company is likely to break even. They work out what sort of stake the Virgin Group should take, and look at exit strategies – will it be a sale, or a flotation on a stock market? Above all, they look at the key managers who will be running the business. This is the holy grail for us, because your employees will make a great business idea work. I do not attend the meetings – the team members don’t like my interruptions and interference. They call me Dr. Yes – a parody of the wonderful James

Bond movie “Dr. No.” You see, I have an ace up my sleeve. If I believe in your business idea, I can be quite persuasive in getting people to accept my point of view. If I like your idea but the team has concerns, I usually ask them to find solutions to the problems they’ve identified. I can be very persistent. Before we developed our mobile phone business, I asked the team every week: ‘Why aren’t we in this yet?’ My colleagues didn’t want to launch Virgin Blue, either, but in the end they came around. I never push an idea to the senior team lightly – but, as I’ve said, I usually go with my gut instinct, and will sometimes disregard volumes of painstaking research. I would love to be able to say that every ace I’ve played has turned out to be as successful as Virgin Blue. But I can’t – which is why this makes my senior colleagues at Virgin very, very nervous! Should we decide to go ahead with you, we will take a stake in the company and then look for a return on that investment over a period of about three to five years. In return, the new company gets the full range of Virgin’s expertise – and I’ll agree to help raise the profile, make key introductions and offer any suggestions that I can. And if you are turned down by Virgin or any other venture capital concern, remember that persistence is key. If your idea isn’t right for one investor, another may see its potential. So if you find yourself in this situation, dust yourself off and learn what lessons you can, then make your next call.

© 2011 Richard Branson/Distributed by The New York Times Syndicate. HONG KONG BUSINESS | AUGUST 2011 23

Legal briefing 1

Mediation - an alternative to IP litigation in Hong Kong Mediation is becoming a common process to resolve conflicts. But is it suitable for IP cases?


ediation is a voluntary, private dispute resolution process in which a neutral person - the mediator, helps the parties to explore possible solutions and reach their own negotiated agreement. Following the implementation of the Civil Justice Reform in April 2009, mediation has become a common dispute resolution process. A litigant who unreasonably refuses mediation may attract an adverse costs order. Is mediation suitable for IP cases? Keeping track of cost and time 1. COST - One strong reason for mediation is the fact that litigation cost can be quite disproportionate to the interest at stake, and mediation is generally more costeffective. In IP cases where inventions, technologies, trade secrets or surveys are involved, significant costs may be incurred in understanding, collecting, compiling and analysing the evidence. Although the court rules encourage the parties to appoint only a single expert witness whose duty is to the court (rather than to the parties) to assist the court, conceivably the parties would still engage their own experts to advise them on their case and on the opinion of the single expert witness and such costs may not be recoverable. 2. TIME - Interim injunctive relief may only be applied for and obtained when certain criteria are met. Yet, although the criteria are not met, the case may still be time sensitive and the longer it takes to resolve, the more damage the plaintiff may suffer and it is often difficult to quantify damages for lost commercial opportunities. As an example of the efficiency of mediation, earlier this year, Huayi Brothers Media Corporation successfully resolved a copyright dispute in Mainland China concerning unauthorized online showing of its film “Aftershocks” via mediation in a month’s time. Working with cultures and relationships 3. CROSS-BORDER - Many IP disputes involve crossborder elements. This may give rise to technical and complicated issues of forum, parallel proceedings in different jurisdictions, enforcement of foreign judgment etc. Also, due to different cultural background, demographics and language capabilities, different jurisdictions may render varying or even conflicting decisions. Mediation can be aimed to achieve a regional


Kenny Wong partner & head of Asia IP practice Mayer Brown JSM

Alan Chiu senior associate Mayer Brown JSM

or global resolution. 4. PRACTICALITY - IP disputes may involve elements which are subjective such as questions of similarity and substantial taking or which are technical such as novelty, inventiveness, non-obviousness and claims interpretation. During mediation, these will be put aside to encourage the parties to arrive at a pragmatic resolution. 5. RELATIONSHIP - Litigation is adversarial and ends up with a win-lose situation. The ideal of mediation is to achieve a win-win situation in hopes of preserving or fostering the parties’ relationship. Mediation is particularly suitable for IP ownership or licensing disputes where the parties had a prior relationship or wish to continue a working relationship.

“The ideal of mediation is to achieve a win-win situation in hopes of preserving or fostering the parties’ relationship.” Assurance, innovation and privacy 6. SECURITY FOR COSTS - It is common tactic for local defendants to seek security for costs against foreign IP plaintiff to discourage the plaintiff to continue with litigation. Mediation may be deployed at an early stage before having to deal with this issue. 7. CREATIVITY - Mediation focuses on the parties’ needs and concerns and the parties may arrive at creative and yet pragmatic solutions beyond the usual legal remedies. For example, the parties may enter into a licensing, technology sharing, co-existence or distributorship arrangement and explore future collaboration opportunities. 8. CONFIDENTIALITY - Mediation is strictly confidential and is particularly appropriate for trade secret, breach of confidentiality, and cases where the parties are reluctant to disclose sensitive information in an open court or otherwise wish to avoid publicity. Although mediation has many advantages, different situations call for different approaches. Where there are concerns about preservation of evidence, tipping-off infringers, urgency for injunctive relief, or hostility between the parties, mediation at an early stage may not be the best option.


Dog fight at Changi Singapore Airlines is in a two-fronted fight as its market share dwindles, reports Jason Oliver


fter seeing its home base market eroded by both local budget carriers and international ones, Singapore Airlines is finally fighting back with its plan, announced late May, to launch a long-haul budget carrier. As yet the name of the new carrier has not been decided, but it matters little. Singapore Airlines is fighting a two-front war against the low cost carriers on one side and Qantas on the other. The last three years have been kind to Singapore Airlines’ profits, but not to its market share. Just three years ago, SIA accounted for 50% of all seats flown out of Changi, but by May this year that had shrunk to around 35%, notes Brendan Sobie, the chief representative Southeast Asia for the Centre for Asia-Pacific Aviation. If aviation is about volume and size, Singapore Airlines is shrinking fast, and has seen its passenger traffic drop by 15% from 19.1 million in FY2007-08 to 16.6 million in FY2010-11. While this was a challenging period for the entire airline industry, Changi was still able to grow its passenger throughout by 15% over the same three fiscal years, from 37.3 million in FY2007-2008 to 26 HONG KONG BUSINESS | AUGUST 2011

42.9 million in FY2010-2011, notes Sobie. Alarm Bells “This has set alarm bells ringing,” he adds, noting that the flag carrier’s strategy over this period has clearly been to prioritise profitability over expansion. “But in the fast-growing Asian market this can be a risky long-term option, leaving the way for other competitors to expand and grow their network strength.” Paul Yong, VP of Equity Research at DBS Vickers says he thinks the decision is more of an attempt by SIA to grow its revenue
stream as it has been losing market share in the past couple of years to more
aggressively expanding carriers such as Emirates and also LCCs. “As the LCC
market is growing more quickly, the move to set-up a separately managed and
branded entity is an attempt to re-grow its market share without diluting
SIA’s premium positioning.” Of course, other Asian airlines are now looking at establishing budget offshoots, chief of which is Thai Airways. But details remain scant, and DBS Vicker’s Yong says the decision has more to do with Jetstar than Thai Airway’s

Singapore Airlines’ passenger traffic has dropped by 15% in FY20102011.

venturing into
the low-fare segment as the former competes
more with SIA. “Although Jetstar does not compete directly with SIA (low
fare vs premium), SIA’s new venture will allow the SIA Group to gain more
traction in the mid and long haul-low fare segment, which both Jetstar and
AirAsiaX are into.” Qantas threat Perhaps the biggest threat to SIA is not the budget carriers, but Qantas, which is mulling setting up a full service airline based out of Singapore which can then link into its Jetstar service for short haul. Sobie says SIA’s Aussie archrivals, including Jetstar and Jetstar Asia, have a 10% share at Changi, and this could rise dramatically if the carrier decides to open up another airline in Singapore. “Low-cost airline groups AirAsia and Tiger now each have 7% shares. The Qantas Group, AirAsia Group and Tiger market shares are all expected to continue increasing this year at the expense of SIA Group, as they are all adding capacity at double-digit rates compared to a planned 6% capacity increase at SIA Group,” says Sobie. It is the battle for passengers to

feature and from Australia that is critical for SIA with Down Under accounting for 17 % of its revenues. Jetstar and Jetstar Asia, for example, now operate from Singapore to Auckland and Melbourne with at least two more long-haul low fare routes expected to be launched in 2H2011 and they are ideally positioned to capture much of the expanding Asian markets, notes Scobie, who adds that SIA is also likely also to use the new airline to try to retain its share of the Australian market. “In the key Australia-Europe market, SIA is fighting growing competition from Emirates, the new V Australia/Etihad combination and Qatar Airways. Between them these carriers operate over 20,000 weekly non-stop seats to the Gulf, according to OAG, most of them competing directly in the Australia-Europe market. SIA, which dominated the sixth freedom Europe market a decade ago, still has over 30,000 weekly seats, but the equation is shifting fast. Qantas, even more exposed than better geographically placed SIA, is also being forced to step up its fight for this market, using Jetstar and potentially a new Singapore-based carrier to launch European routes,” say Scobie. 3 Airline brands, one giant hanger In the meantime, SIA will have an even bigger challenge of integrating what will be three separate airline brands. Already there are signs that the lines between Silk Air and SIA are getting blurred on short haul sectors. Traditionally, Silk Air did the short haul flights and SIA the long

haul, but with so much competition for regional flights, SIA is now flying both airlines on the same route. For a while, both have plied the KL to Singapore route, but in June, the airline announced both would also service Calcutta to offer seven flights a week. Expect more of this as the lines blur between routes serviced by SIA and little brother Silk Airlines. Throwing a third, albeit budget airline brand into the mix does raise the question of the long-term value of keeping Silk Air separate as opposed to streamlining operations and folding it into Singapore Airlines. Singapore Airlines is also doing more code share deals; it recently concluded one such deal with Virgin in Australia, but in reality, had little choice of carriers to work with down under as the other carrier is Qantas/ Jetstar. What does this mean for the future of SIA ? Not much, for now. DBS Vickers’ Yong says he doesn’t expect this new venture to significantly cannibalize demand for
SIA’s own routes directly, given the expected pricing differential, but
more capacity on any route would always put downward pressure on ticket
prices, which is positive for consumers. “Funding would not be an issue since SIA is in a strong net cash
position and immediate seeding of this venture is likely to come from SIA’s
own current fleet of B777s.” The Centre for Asia-Pacific Aviation’s Scobie sees the new direction clearly coming at the

Changi Airport capacity share (seats) by carrier

Source: Centre for Asia Pacific Aviation & Innovata

A low-cost subsidiary is necessary for SIA to grow again.

behest of the new executive team, led by CEO Goh Choon Phong, who is apparently not willing to watch the group stagnate and continue to lose market share. “Establishing a longhaul low-cost subsidiary is a bold move but necessary for SIA Group to again grow. The message is that the carrier, despite its very high quality product, cannot grow profitably by only focusing on the top end of the market,” he notes. Better late than never ? SIA is coming very late to the budget party, and perhaps the biggest strategic miss made by the group was to not see the threat posed by low-cost carriers to its business when the Singapore government opened up the space in 2004. They could have started a budget carrier then, but instead took a minority stake in Tiger. Says Scobie: “Given Tiger’s separate ownership, the LCC has been unable to play a complementary role to SIA - unlike Jetstar to Qantas. SIA has since steadily lost market share. Today to launch its own short-haul low fare subsidiary would be too complicated and risky. Tiger, AirAsia and Jetstar have this market well covered.” Still there is no turning back the clock, but long-haul budget carriers are not without their risks. Oasis, which was Hong Kong’s first budget long-haul carrier, was launched with much hubris in 2006 but was dead just 2 years later. No doubt that is something Singapore Airlines will be keeping at the back of their minds as they try to run three different airline brands under one hanger.

SIA passenger numbers vs Changi passenger numbers: FY2006 to FY2011

Source: Centre for Asia Pacific Aviation and company reports



To buy or not to buy? How to utilise spare cash after covering essential living expenses - Hong Kong

How to utilise spare cash after covering essential living expenses - Singapore

Source: Nielsen

Source: Nielsen

Digital media matters 70% more

Southeast Asia internet penetration 67%




31% 21%





Source: Nielsen’s inaugural Southeast Asia Digital Consumer Report.

Digital marketing budget up to 30% of total

Base: All marketers (N=321)

Indonesia The following are various types of media channels. How would you describe their role in your marketing communications plan for 2011?

Most effective medium in the next 3 years? Base: All marketers (N=321)


How much of your marketing budget do you expect to spend on digital media?

What is going to be the MOST effective medim in the next 3 years?

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



The fourth wave of shippers in HK

A lack of funding from Europe and US is creating opportunities for local ship owners, but what about profitability ? Martin Rowe Managing Director, Clarksons

As an industry global shipping faces significant challenge presently; freight rates for deep sea tankers, bulk carriers and containerships are all under significant pressure having already survived three years of marked volatility. On top of this, owners face worries over issues such as piracy and new environmental legislation leaving many scrambling to balance the books and drive their businesses forward. At the end of Q3 2010, Clarkson Research estimated that approximately USD 200bn of the new build order book was still unfinanced. In the past 9-10 months things have since moderated; many vessels have been delivered, cancelled and a significant quantity (in excess of 30pct of the order book) delayed. However, on top of financing the new building fleet repayment of existing debt is an additional headache. For example, at the beginning of 2011 Evercore Partners (a US restructuring consultancy) calculated that US public listed shipping companies are due to pay back around USD 15bn of their loans between 20112014. To put this into perspective, not far short of half of those companies will be obliged to pay make more than their existing market caps between now - 2014 and which will swallow up close to half of EBITDA for these companies just to service their existing loans. All the preceding waves of shipowners sought and found “safe harbour” here in one form or another, be it physical, political or regulatory. Now a fourth wave of ship30 HONG KONG BUSINESS | AUGUST 2011

SHIP broker

Ship Owner

Martin Rowe

Tim Huxley

Surinder Singh

owners is descending upon Hong Kong, one whose safe harbour of choice is financial. Many overseas shipowners who have sound business models today find themselves short of ready capital as traditional sources of ship finance such as European banks and Wall Street have lost much of their maritime appetite. Since the majority of shipping’s demand-growth today is in Asia it’s therefore logical that its supply-growth be funding in this area as well.

new ships are delivered, earnings continue to be put under pressure, but equally important, the shipyards become even more anxious to fill their declining order books and new building prices are on the slide. Not only is this having an impact on asset prices for existing ships, but at some point owners will get tempted to start ordering again because a new ship looks cheap. The vast expansion of shipbuilding capacity seen over the past few years, particularly in China, is going to be with us for many years to come so we will need to see some spectacular sustained trade growth just to absorb what is already on order, let alone what might come in the future. Shipping has usually used the scrapping of older ships to help the self-correction process, and this year, it is already seeing a healthy increase over last year’s scrapping levels. By the mid point of the year, 166 dry bulk carriers totaling 11.3 million tons deadweight had been scrapped, and expectations are that the full year total will reach 25 million tons deadweight. But with new ships totaling that amount being delivered each quarter, the dry bulk

fleet will grow by 13 per cent this year. Finding employment for that extra capacity is going to be very tough.

Tim Huxley CEO, Wah Kwong Maritime Transport Holdings The industry is facing earnings at below operating costs, a vast overhang of new ships still to enter the market, and the ever present threat of piracy in the Indian Ocean. The bulk shipping industry is certainly not heading off for the summer with a spring in its step. There is no problem with demand for both bulk carriers and tankers. Trade growth, once again driven by China, remains robust, but the legacy of the ordering binge in the boom times up to 2008 continues to haunt the market. As these

Ship manager

Surinder Singh General Manager, Far East Shipmanagement Ltd The Hong Kong Shipping industry is mainly concentrated on the dry bulk sector where it enjoys the benefit of being at corridor to China. Although there has been a large number of old tonnage scrapped, new tonnage released this year still continues to cause overcapacity with markets/ freights not lifting itself up to the expectation worldwide. This year, the new building orders have gone up, though surprisingly the market still continues to be so inconsistent. Eventually, there will be a growing demand, especially in commodities and minerals. Due to the financial markets slump of 2009-10, the new buildings were cancelled or postponed and deliveries of 2010 was carried forward to 2011 and hence, there was more new tonnage released this year but as above , situation stands much variable and with more tonnage available.


Tim hamlett Forever remembered as ‘thy KING’


e live in a rolling barrage of comments on the internal affairs of the News of the World, deceased, phone tapping as a reportorial technique, who showed what to whom, the ethics of reporters paying policemen for stories (when they pay everyone else) and the martial arts skills of Wendi Deng, the current Mrs Murdoch. It is perhaps a measure of the fear which the raucous Rupert still commands that nobody has dared to ask one obvious question: should a man in his 80s still be running a public company? This is a good question to ask in Hong Kong because it seems that our local mega firms share one characteristic with the old Soviet system of government: nobody retires. They may, as they get more old and tired, distribute the care of the details among their heirs and successors. They may devote more of their time to philanthropy and good works. But it seems that basically the Big Boss remains in control until the steering wheel is wrestled from the clutch of his dead hands. Occasionally, there are muffled sounds of suppressed discord when said Big Boss pursues some idea with more public spirit than profit in it. Even more rarely, we get a public performance of the kind staged by Stanley Ho’s family. Quite what was going on there still eludes most of us but it seems someone was trying to nudge Stanley off the throne and failed. We may note at this point that the idea of the boss having a job for life is not as revolutionary as it may seem in these days when most of us get a gold watch and an MPF cheque at some pre-determined point in our lives. The Pope has always worked on this basis. On the whole, if the occupant of Saint Peter’s throne was going gaga the church has generally managed to conceal it quite well. The job for life has always also been a characteristic of monarchy and the Queen, who must be about the same age as Mr Murdoch, shows no sign of retiring either. Monarchs have not always been as successful as Popes in escaping the ravages of time, at least publicly. History is full of examples of Kings, and occasional Queens, who stayed in office despite decrepitude, insanity, and indeed dementia. Still, nobody supposes that the boss of a Hong Kong company is God’s representative on Earth -- except possibly the boss himself. Why do they want to go on for ever? Partly, no doubt, there is the fear of King Lear. In the Shakespeare play the King retires, leaving his kingdom divided between two sons-in-law and stipulating some residual privileges for himself. The two married daughters turn on their now powerless father, and revoke his privileges. The faithful daughter whom he spurned comes to the rescue at the head of an invading army, and as tends to happen in Shakespearean tragedy, all the characters you met at the beginning of the play are killed. This is not an encouraging story for rich fathers, But we are not living in Renaissance Italy. The retiring leader does not have to fear ambitious assassinations. The retiring Rupert, or his local counterpart, could make arrangements which would ensure his continuing ease and prosperity, without relying entirely on the filial feelings of his off-spring.


I am to rule forever!

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

And yet they go on and on, still presiding personally over the wheeling and dealing, still shooting the occasional admiral to encourage the others, still pontificating annually to the minority shareholders. Mr Murdoch’s empire shares with many Hong Kong corporations a complex structure which ensures that outsiders take second place to the ruling dynasty. Clearly, there is a hunger here which does not decline with age. It may be too simple to say that Mr Murdoch still enjoys buying newspapers, or that his local counterparts still enjoys erecting ugly over-priced towers of tacky flats, but that is their game. Probably they would want to do it even if it didn’t pay. Indeed there have been suggestions that Mr Murdoch’s continuing appetite for newspapers owes more to romance and habit than to any lingering prospects of print profit. Aiming for more than power and success I suspect there is more to it than greed and habit, though. When a tycoon reaches a certain age, he does not wish only to be rich. He wishes to be respected, even loved. This is in many ways a harmless, even helpful, stage in his development. When I was a football reporter, it was noticeable that most of the directors of football clubs tend to come from rather disreputable backgrounds. The more famous and prestigious the club, the more likely its chairman was to have made his fortune in wholesale butchery or second-hand cars. Every university in Hong Kong has numerous buildings named after people you never heard of, or people you heard of in rather unlovable ways, who wished to leave their names on something more interesting than a tombstone and a succession of company reports. The great pioneer of this kind of personal sanitation was, I suppose, Alfred Nobel, who is now remembered not as a merchant of death but as a great Prize. His modern counterpart is perhaps Bill Gates, who we may suppose would rather be remembered for eradicating polio than for flooding the world with flawed software. Mr Murdoch, maybe, feels he still has some unfinished business to take care of. Business people of a certain brusque kind honour his role in knocking the print unions on the head. Rabid conservatives will thank him for Fox News. The rest, alas, tend to think of him as the man in whose newspapers no respectable fish would wish to be wrapped, as one columnist put it. But I am not hopeful that this can be fixed. A good reputation is like your first million: you have to really want it badly. Local tycoons seem to do better at salvaging their reputations with a burst of generosity and a building or two. Still, they would do well to consider the merits of retirement before they find the daughters hovering round with lawyers, scripts and TV crews. There is a time for every purpose under heaven, as the old song has it, and that includes a time to pack it in. Life after bosshood need not be empty. The recipients of your generosity will welcome visits. The government, if you behave yourself, will appoint you to advisory bodies. You can play with your grandchildren. And you will not have to wonder how many people sitting round the boardroom table are waiting hopefully to read your obituary.

Hong Kong Business Magzine Outstanding Interior Design Award 2006 ’ 2007 ’ 2008 ’ 2009 ’ 2010


Hemlock Will the HK government finally rationalize the status of the English Schools Foundation?


t is such a complex issue you can hardly blame them for not bothering. The ESF is a colonial-era anomaly in that it receives public funding but delivers an education that does not conform to the requirements of official education policy. Although its original intended beneficiaries – expatriate civil servants – have mostly gone, large numbers of real or alleged English-speaking, taxpaying families are desperate to get their kids into ESF establishments, either to get a better (subsidized) deal than that offered by pricy private international schools, or to avoid the brain-crushing, fully local school system. If our government (assuming it is all-wise and knows what is best for everyone) stuck to a straightforward coherent policy, it could solve this mismatch quite simply by telling all parents they have a choice: send your kids to public-sector Chinese schools, or pay up to send them to private establishments with their own language, curriculum and other policies. However, it can’t take a principled stance because its own behavior, and that of its own personnel, is inconsistent and hypocritical.

best for everyone. The government implicitly accepts this at least a bit by funding private schools with more varied curricula under the direct subsidy system. In theory, it would make sense to just to put the ESF schools under that umbrella and provide identical per-student funding to all the subsidized schools across the board. Go one step further, and you could Money matters in education give all Hong Kong residents who are parents the Looking at the way things currently are, we could say subsidy as a voucher to spend as they wish, and invite that it is government policy to force kids from nonall comers to set up whatever sort of schools they Chinese speaking homes to go to local schools and learn in the vernacular if they have brown skin (ie are want – like the Free Schools idea Britain is borrowing from Sweden. Thai, Vietnamese, Nepalese, Pakistani or Filipino), But that would mean anarchy. It would mean but to make a concession to the whites and let them we don’t need an Education Bureau full of officials have an English-language choice. Of course, no one who, when not phoning their offspring boarding in puts it this way; it comes down to whether you have England, are devising compulsory education policies enough money to afford an alternative and enough for the masses who are unfit to decide what their kids socio-economic clout to make a nuisance of yourself. need. It would mean endorsing the English-language As for the hypocrisy, just take a look at where schooling we have tried so hard to phase out for kids the middle-ranking and top government officials who, not being born to civil servants, professionals or send their own kids: boarding school in Britain, whites, are not up to it. It would mean letting “This raises the distinct possibility that the people choose. (And it would logically mean recurrent subsidies to cover private government is in fact not all-wise nor knows extending international schools; the unacceptability of this prospect is one of the main official hangwhat is best for everyone.” ups about the ESF.) So obviously that’s not going to happen. As for the or something else well out of reach of the official ESF, it presumably anticipated the subsidy proposal curriculum and language policies. Officials tell the some time ago and is now trying to channel the anger population that they must send their children to of its fractious parent body towards a government rote-learning Chinese-language places to which they that really, really needs yet another segment of the wouldn’t dream of sending their own little princes population hating it. One day, an administration and princesses, who after all are going to be doctors, may adopt a principled position that either officially lawyers or Big Five accountants. embraces or rejects a wider range of schools (or This raises the distinct possibility that the government is, in fact, not all-wise nor knows what is parents’ wishes), but it’s not going to be this one. 34 HONG KONG BUSINESS | AUGUST 2011

by hemlock Email:

What’s next for the English Schools Foundation?

Interview allocated, which is a massive sum in anyone’s language, and the largest part of the project was the flue gas desulphurisation (FGD) component. “The FGD is the single largest line item on the budget and accounts for approximately 30% of the total costs as it reduces particulate and SO2. This FGD is designed to remove SO2, but we use a process that actually pushes the particles through a tray that contains lime slurry, and as you increase contact time between gas and lime slurry it allows you to wash out SO2 and particulates. Then on top we have mist deliminater to stop water particles,” added Mr Brown. One of the more trickier parts of the project was to actually reduce the amount of Nitrogen Oxides (NOx) produced by the boilers, which means there is less to deal with after firing, explains Mr Brown. Rick Truscott, CLP director of generation (L) with Thomas Brown, CLP emission control project manager

CLP’s HK$9bn retrofit at Castle Peak pays green dividends China Light and Power Director of Generation, Mr Rick Truscott, and Emission Control Project Manager, Mr Thomas Brown, tell TIM CHARLTON about successfully completing this mammoth project.


itting high in the CLP offices in Central looking out over the now clear blue sky towards Kowloon that Hong Kong has been enjoying of late, it is tempting to reflect that part of the reason for the better environment is the massive efforts made by CLP to reduce their emissions over the past few years. The firm, which generates and supplies power to Kowloon and the New Territories, has just completed a four year process to modernise its 4GW coal-fired power plant complex at Castle Peak, turning it into one of the world’s cleanest retro-fitted coal fired power plants. Your correspondent sat down with CLP’s Director of Generation, Mr Rick Truscott, and Emissions Control Project Manager, Mr Thomas Brown, to talk about the project. It has been a long but worthwhile journey for the two, who described looking out over Hong Kong’s largest mountain of coal at the Castle Peak plant in 2006 and knowing that it would all have to be moved to make way for a slew of environmental add-ons all aimed at

reducing emissions from the plant. “The first thing we had to do was to clear the site, so we had to move tanks and coal yards to get some site available. As you can imagine there is not a lot of spare space,” said Mr Brown. Retrofitting the plant “I can remember going to a meeting with our senior management where I was the only one who thought it could be done. The project has had over 9,000 workers on it over the past four years and up to 3,000 people on site at any one time with four major languages spoken; Nepalese, Mandarin, Cantonese and some English. It was a massive and complex project” The before and after photographs show an amazing story of retrofitting one of the world’s largest coal fired power plants by utilizing every square inch of space. “If you look at the site layout – every inch was used for this; we even used the space underneath the conveyor belts,” said Mr Truscott. In all a budget of HK$9 billion was

“The FGD is the single largest line item on the budget and accounts for approximately 30% of the total costs as it reduces particulate and SO2.”

Controlling NOx emissions “The first thing we looked at is NOx control, and most people use Selective Catalytic Reduction technology (SCR), which is very difficult to retrofit and it uses a lot of catalyst and ammonia, which become waste products in themselves.” So faced with the problem, CLP opted to focus on cleaning up in the furnace at the start as the coal is burned using low NOxburners. CLP employed a process known as boosted over fire air (BOFA), a process which involves diverting a portion of the combustion air from the primary zone and channelling it through a number of ports above the top row of burners, creating two zones; an oxygen lean primary zone and a second oxidising burnout zone where the combustion is completed. This creates a primary combustion zone at lower temperature which produces less chemical NOx and a secondary zone where combustion is completed. The result, according to Mr Brown, was that the CLP power plants in Hong Kong now produce 56% less NOx than 1997, the base year that the government used for setting the emissions reduction requirement. The SCR to complete the NOx reduction process can thus be much small and use much less Ammonia than a conventional SCR. So just how much of a difference has the project made to the pollution part that worries Hong Kong residents the most, which is the dust produced?


Photo on the left: CLP Power Station before site work of Emission Control Project in 2007. Photo on the right: Completion of the FGD island by end 2010. About 85% air emissions reduced despite

About 85% air emissions reduced despite 80% increase 80% increase in electricity demand over in theelectricity past two demand decadesover the past two decades Total Electricity Demand (GW)















5.00 0.00



Source: CLP

20% smaller than before the project and last year CLP had a particularly difficult time when supplies of coal from Indonesia were held up. “When you reduce your stockpile

“CLP power plants in Hong Kong now “produce 56 % less NOx than 1997...” particulates. Castle Peak produces at peak around 25,000 tonnes of gypsum a month which is sold. The key point is not the money from the gypsum, but the fact that it means there is very little waste from the plant, noted Mr Truscott. One of the key concerns for the CLP now that the project is finished is that with substantially less storage space for coal, they have to be much more on top of logistics to ensure there is a constant supply. The stockpile is now



19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10

Total Emissions (kilotonnes)

According to Mr Brown, normal firing of a coal plant produces 10000 pieces of dust per cubic metre, which then comes out at 100 pieces per cubic metre after going through the precipitator. But for the Castle Peak plant, CLP went one step further, and the tower tray lime slurry process removes even more of the dust particles, so much so that at most just 15 parts per cubic metre eventually are released into the atmosphere. And often even less that that is released, according to Mr Brown. “Our FGD tray tower is very good at removing particulates, as gas has to fight its way through the slurry, and now at Castle Peak around 5 to 15 pieces of dust come out for every cubic metre of coal burned. This makes our particulates emissions among the best in the world,” said Mr Brown. What made the retrofit even more difficult is that a complex 3 kilometre long labyrinth of piping and ducting had to be laid out between the boiler and the FGD and back again. Mr Brown, only half jokingly, refers to this as the spaghetti, and the photograph of the plant layout certainly looks like a heap of spaghetti on the place where the coal dump once stood. Mr Truscott said the project even went further in terms of environmental protection and that even the water from the plant is now treated on-site and where possible reused. “We have a three stage wastewater treatment plant and we recycle the water in the power station with minimum discharge or close to zero.” The other byproduct of the plant is gypsum, which is made when the limestone slurry absorbs the ash

that much it becomes more difficult to bring coal in and out and during summertime trying to keep up with demand. Our strategic minimum is now the maximum of our stockpile,” said Mr Truscott. What made the Castle Peak project so complex was that it is the first time in the world that all elements of an environmental upgrade to state of the art equipment has been done on a power plant. “This is unique. Nobody has done a FGD, BOFA, SCR, wastewater, and material

“...Since the early 1990s just after Castle Peak began operations, CLP produces 80% more electricity and emitting 82%-85% less pollutants. “

           

   

   

     

 

handling retrofit at the same time. You are dealing with different emissions and each emission has a different solution,” added Mr Truscott. So what is the end result of the investment? According to Mr Truscott, the project finished 4 months ahead of schedule and met targets by enabling CLP’s power plants in Hong Kong to reduce SOx by 59%, NOx by 56% and particulates (to be exact – should be respirable suspended particulates) by 57% in 2010 compared with 1997 levels when the new equipments were only partly commissioned and in operation over 2009. In fact, since the early 1990s just after Castle Peak began operations, CLP produces 80% more electricity and emitting 82%-85% less pollutants. Now that is an environmental achievement for Hong Kongers to appreciate.

Legal briefing 2

The rise of Asian arbitration institutions Hong Kong takes the lead to “one system” for arbitration as Singapore continues to operate a dual system


rbitral institutions such as the Hong Kong International Arbitration Centre (“HKIAC”) and the Singapore International Arbitration Centre (“SIAC”) are now highly regarded as leading centres for international commercial arbitrations in Asia. They are even preferred by international businessmen over European and North American arbitration institutions. These developments have been systematically encouraged by progressive measures put in place by countries like Hong Kong and Singapore, and there are new rules that have come into force in Hong Kong that warrant attention. The New Ordinance On 1 June 2011 a new arbitration Ordinance (Cap. 609) (“the new Ordinance”) based on the UNICITRAL Model Law of International Commercial Arbitration was passed by the Hong Kong Legislative Council. The most significant change introduced by this new Ordinance was the abolition of the dual system for international and domestic arbitration. It created a unitary system which now applies to all arbitrations, whether domestic or international, which have the seat of arbitration in Hong Kong. Parties to international arbitrations have discretion to choose some of the provisions (opt-in provisions) which under the old Ordinance were only applicable to domestic arbitrations. Examples are the provisions regarding a default number of arbitrators, and provisions regarding the determination of “Under the new Ordinance there will preliminary questions of law. be minimal court interference.” Under the new Ordinance, there will be minimal court interference. Tribunals will have additional powers to grant interim injunctions and to make both preliminary and interlocutory orders. Significantly, under the new Ordinance, the Hong Kong Courts also have powers to grant interim injunctions even where the seat of arbitration is not Hong Kong, so long as the arbitration proceedings relate to an arbitration whose arbitral award is likely to be enforced in Hong Kong. Further, parties are prohibited from disclosing any information in relation to the arbitration proceedings to any third party. This is the standard of confidentiality that parties want in international arbitration. For this same purpose, the new arbitration Ordinance provides that any court proceedings commenced under an arbitration agreement are to be conducted in closed court. There is also another important provision in the new Ordinance which, while 38 HONG KONG BUSINESS | AUGUST 2011

saurabh BHAGOTRA Lawyer, Zaiwalla & Co.

being of a somewhat unusual nature, will appear to be common sense to the contesting parties. The appointed arbitrator can act as a mediator during the course of the arbitration proceedings, and if the matter does not settle by mediation, no objections may be raised if the same person continues to act as an arbitrator. Arbitration in Singapore Commercial arbitration in Singapore is divided into domestic and international regimes. The international regime is governed by the International Arbitration Act, while domestic arbitration is governed by the Arbitration Act 1953. Singapore International Arbitration Centre (“SIAC”) commenced operation in 1991, and its rules are based on UNICITRAL Model law and the rules of the London Court of International Arbitration (LCIA). On 1 July 2010, SIAC published its 4th Edition Rules, making some significant changes to the previous rules. The new expedited procedure requires the Tribunal to make an award within six months of the date of its constitution (if parties so agree) for any reference the value of which is below SGD 5,000,000 (US$4,049,445). SIAC can appoint an emergency arbitrator to assist any party which requires any emergency/interim relief. Conclusion Today, both HKIAC and SIAC are regarded as highly professional and reputable arbitration institutions. In terms of cost, HKIAC is the first choice for many commercial business houses. HKIAC offers an unmanaged option (where the role of the institute is limited) which is cheaper than the managed option. HKIAC aims to keep interference of the institution to the minimum. HKIAC does not charge a separate fee relating to counterclaims and under its unmanaged option, parties are free to negotiate the fees of an arbitrator. This is not possible under SIAC, which only offers a managed option. The changes introduced by the new Ordinance in Hong Kong are not intended to revolutionise arbitrations but rather to reinforce the concepts on which arbitration is based i.e. to make it a more user friendly and adaptive process, and to allow maximum liberty to the parties to mould practices and procedures to suit them, within the given framework of the institution. Especially now that a unified code has been introduced in Hong Kong, doing away with the dual system, it will become easier and more practical for foreign lawyers and arbitrators to understand and apply the rules. Saurabh Bhagotra is a Lawyer at leading arbitration law firm Zaiwalla & Co, London.


Galaxy Macau, one of the luxurious resort in Macau

Still holding the aces despite regional pretenders Macau wows the world with its new 3D Cinema at Galaxy Macau and continues to be the leading gambling market despite rising competition.


acau casino goers and leisure visitors could well be drawn to the 3D cinema experience that is taking shape at Galaxy Macau, which recently signed a deal with UA Cinemas, to entertain the millions who pour in to the gambling town. The cinema complex offers a grand theatre that includes private boxes and rooms for families with children. There will be nine 3D screens. But for the 13.2 million, including 7.5 million mainlanders, who poured out of ferries, came by air and land crossings, in the first six months of the year, the only show in town is in the vast gambling halls of the many mega casinos. 40 HONG KONG BUSINESS | AUGUST 2011

Double Earnings They have put on a good show so far. The most recent gambling company to report earnings, Hong Kong-listed Sands China, reported that profits doubled to US$267.4 million in the second quarter ended June this year, compared with the same period of last year. Net revenues came in at US$1.21 billion, up 16.3%. In the meantime, Sands China is under investigation by the Securities and Futures Commission of Hong Kong with regard to alleged breaches of the provisions of the Securities and Futures Commission Ordinance, and the United States SEC and the Department of Justice are investigating issues related to compliance with the For-

eign Corrupt Practices Act. Wynn Macau, which is also listed in Hong Kong, reported US$120.33 million second quarter profit, though net income dipped 9.2% from US$132.52 million from a year earlier. This reflected a US$107 million charge represented the present value of the donation of The Hong Kong firm, which is 72.3% owned by Nasdaqlisted Wynn Resorts, said yesterday its second-quarter net profit was affected by a one-off charge of US$107 million that represented a donation Wynn Macau made to the University of Macau. The company announced a US$135 million donation to the Development Foundation of the University of Macau. Every year,

macau feature US$10 million will be handed over to the university in the 11 years to 2022. The company has also indicted that it is continuing with its new casino project on Cotai. Sweet Gambling Revenues For the administration of Fernando Chui Sai-on, much of this is music to the ears. In the first half, more than 85% the government’s revenue came from gambling taxes, which is not in itself a revelation. Gambling is the bread, butter of the tiny city and the jam has always been the tax revenue. According to the Financial Services Bureau data, gaming taxes from January to June amounted to 43.83 billion patacas, up 45.3% year-on-year. Total government revenue in the first six months amounted to 51.45 billion patacas, an increase of 44.9% year-on-year. Standard & Poor’s projects gambling revenue to grow more than 25% this year, though not at the level of growth seen in 2010, when the industry was humming at a growth rate above 57%. In its report in May, the credit ratings agency noted that another year of strong growth will solidify Macau’s position as the world’s largest gambling market by revenue. Meanwhile, Singapore is expected to emerge as the region’s largest gambling market. But S&P cautions that much will depend on China’s economic health, which leading economists such as Dr Sun Mingchun, the Greater China Chief Economist and Managing Director at Daiwa Capital, say could be headed for a hard landing. He says there is a “25% chance’’ of a hard landing for the mainland economy. Until he sees signs of policy loosening, Dr Sun says he is cautious on the economic outlook for the mainland. A Solid Gambling Market While mindful of the economic risks related to China, S&P says: “We believe Macau’s position as the world’s largest gaming market will be difficult for other countries to challenge. This is due to that market’s proximity to China and its business

Clockwise: Mr Francis Lui , Vice Chairman of Galaxy Entertainment Group with his Casino in Galaxy Macau; Jinmen is one of the VIP Club by StarWorld for VIP gamers; City of Dream; StarWorld Hotel & Casino. model, in which it shares profits with junket operators [companies that bring gamblers to the casinos]. While a heavy chunk of Macau operators’ investments in recent years target leisure travellers, we believe it may take many years for their reliance on the VIP gaming customer to reduce. Macquarie Research says that amid the growth in Macau’s gambling market, “the share prices of Macau’s listed gaming operators will continue to hold up’’. Analysts suggest that investors focus on Cotai-based operators such as Melco-Crown, Galaxy En-

tertainment and Sands China. No Positive News for SG As for Singapore, Macquarie says there is room for disappointment. “Given that the market showed no growth in the first quarter, and that our channel checks suggest that second quarter growth may be 5-10% quarter on quarter, we believe that the bullish growth expectations may face downward revisions.’’ Macau, then may not be easily overcome on the gambling turf by regional pretenders such as Singapore, which many Chinese tend to refer to as Singa-Bore. HONG KONG BUSINESS | AUGUST 2011 41

coRporate profile

Macau: Ideal destination for your next event

Macau Business Tourist Centre launched the Strategic MICE Market Stimulation Program to support MICE activities

Macau— a good combination of the historical past and modern times


nother heavyweight’s entry into the casino and leisure turf of Macau is certain to further raise the profile of the Special Administrative Region as a premier choice for event planners in the neighbouring region and elsewhere. In recent years, encouraged by supportive Government initiatives, event planners have been voting with their feet recognising Macau as a top choice venue for meetings, incentives, conventions and exhibitions (MICE). Galaxy Macau, the integrated resort opened by Galaxy Entertainment Group in May, has its own meetings and events spaces, some of which are spread over in the hotels in the complex – Banyan Tree Macau and Hotel Okura. The Strategic MICE Market Stimulation Programme was launched in 2009 to elevate the sector. The programme provides support to bid for events, free travel kits, promotional videos, assistance in overseas marketing, financial support for accommodation costs, support for food and beverage costs, and support for keynote speakers. Eligible events organisers can avail them-

The World’s largest Water-themed show in Macau - The House of Dancing Water selves of financial subsidies for business events confirmed before the end of the year. For meetings and conventions, specific, tailor-made support include rebates for accommodation, speaker sponsorship, transport allowance of 3,000 Macau pataca for keynote speakers and heads of delegation, and allowances of 400 Macau pataca per delegate for food and beverage. Qualified potential meetings may also be eligible for site inspections and assistance in preparing bids, including support amounting to 40,000 Macau Pataca round-trip air fare

and ferry per person. Eligible exhibition organisers could get between 100,000 Macau pataca and 300,00 Macau pataca for expenditure on audio-visual equipment, to set up booths, and for banners on streets. The same level of financial support is available for opening ceremony expenses such as the use of an emcee, stage set ups, backdrops, ribbon cutting, or similar public relations functions. For incentives such as awards presentations and team building activities, involving a minimum 50 overseas participants who will stay two consecutive nights stay in Macau hotel, $300 Macau pataca is granted for each overseas participant. All this is in addition to valuable publicity given through Macau Government Tourist Office channels, a vast network across the world. Such comprehensive support is made available under a scheme that has already given an assuring hand to numerous meetings, conventions, exhibitions and incentive programmes. For eligible incentives, assistance is also provided to promote the activities as well as free admission to Wine Museum, and Grand Prix Museum. Help is available for preparing bids and presentations. From May 18, 2009 to May 6, 2011, the programme has supported 246 events, including 95 meetings and conventions, 47 exhibitions and 104 incentive travel events involving a cumulative 1.1 million participants. The financial support under the programme amounted to $49.6 million Macau pataca.



Lack of skilled sales people holding back Asian corporates


sia-Pacific companies have to step up their sales game, but a lack of sales skills is holding them back. Understanding a situation is the first step towards improving it, and understanding is precisely what companies need right now in order to respond to the new economic currents sweeping the region, and in order to plan for what is ahead. After weathering the shock waves of the financial crisis in the United States, companies in the Asia-Pacific region find themselves in a real period of recovery for the first time in years. Businesses keen to take advantage of this upswing need to first understand what barriers and limitations are holding them back, before they can address any weaknesses in order to move forward. In order to gain a deeper understanding of sales in the region, Huthwaite conducted a comprehensive survey. This survey extended across sales professionals in the Asia-Pacific, with questions about first and second quarter sales targets and forecasts, challenges, both internal and external, and the activities and roles played by sales managers. The survey turned up some significant insights, as well as differences between Asia and Australia. Of the nearly 1,400 respondents, the majority reported hitting their first quarter sales targets, a significant number of respondents (about 30%) reported that they had not. When asked the greatest external challenge to reaching targets in the last quarter, Australian sales professionals named the poor economic climate as the number one challenge, while Asian sales professionals found that their number one challenge was facing increased competition. This is largely due to the increased economic activity in Asia, particularly as multinationals step up their operations

factors. Looking forward, Asian respondents to the survey did, however, have a great deal of confidence, as a clear majority (80.2%) reported that they would reach or exceed forecast sales targets in the second quarter of 2011. This was stronger than respondents in Australia, where 74.9% predicted that they would do the same, and only 49.1% thought that they would hit targets. When asked what they spent the majority of their time on, the majority of respondents reported that they spent most of their time maintaining long term relationships with key customers and contacts (54%), which they viewed as having a great impact on their business (64%). Sales professionals in Australia reported spending a great deal of time helping the team close late-stage deals, while they recognise that coaching specific skill sets with sales executives in the field would have a great impact on their business. Interestingly, Asian spend the most time with under “Asian respondents spend the most time with respondents achievers when coaching the team (52.9%) while Australian respondents focus more on under achievers (52.9%) while Australian solid performers (51.4%) respondents focus more on solid performers The survey results paint an interesting picture, where sales managers are devoting (51.4%)” too much time in last-stage deal closing in the region. activity (sales meetings and firefighting) instead of Asians have more choices than ever before, making engaging in the coaching activity that their teams selling to them a more competitive operation. need, or in exploring early-stage opportunities, which Respondents in both Asia and Australia, however, is the best use of their time and experience. identified the selling skills of their sales teams as the The survey showed that only 26% of sales biggest internal challenge to meeting first quarter managers’ time is dedicated to these early stage targets, with head count and lack of mentoring, opportunities, in favour of late-stage meetings to close coaching and sales leadership skills as the other deals (18%) and ‘firefighting’ to save deals (10.2%). 44 HONG KONG BUSINESS | AUGUST 2011

Greg Moore Managing Partner Huthwaite Asia-Pacific

Copy, paste and send that sales proposal

- 798 unit & co. -





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hroughout its production history, the SLK has been wowing the market with radical innovations. For example, in its first generation in 1996, the SLK stunned the public with its vario-roof. In a few seconds, the car could be changed from a roadster to a hard-top coupe. In its second generation, the SLK began to comfort customers with its AIRSCARF, a system that wrapped warm air around the head and shoulders of occupants. This extended the “top down season” greatly: you could drive comfortably with the top down in December. Now, in its third generation, the SLK makes its debut with another stunning and hi-tech innovation -- the panoramic varioroof can be switched to light or dark at the touch of a button. At the spectacular launch of the SLK at the Convention and Exhibition Centre, Dr. Claus Weidner, Chief Operating Officer of Mercedes-Benz Hong Kong Limited, said: “The new SLK embodies the role of the trend-setter like no other car. I am convinced that, with its passionate design, its high-quality interior and its modesty at the filling station, it will continue to provide an enormous amount of fun on the road.” SLK: The Unending Innovation SLK continues to give ‘road-lovers’ more and better options to love the outdoors. The continuous innovation of SLK offers satisfaction at its finest. New lines of the SLK make it even more roadster-like. You have a higher front grille, allowing a longer bonnet. The cockpit is set slightly farther back and the rear end is shorter and more sporty. The interior is surprising. You naturally expect a roadster to have a small cockpit, but you find it easily accommodates two full-size adults. Tremendous care has been taken to match refinement with function in the interior. As always, the meticulous craftsmanship is eye-catching. Next most notable feature is the multi-functional sports steering wheel. It has a flattened lower section and a thick leather rim, for better grip and handling. Note: the leather is sun-reflecting. That means the sections covered by leather do not heat up so quickly. The cabin again features ambient lighting, but this time it includes a red colour tone. And, here is where the MAGIC SKY CONTROL comes in. You have three alternatives for your roof. First is the familiar vario-roof, which opens or closes in seconds. Next is the panoramic vario-roof with tinted glass. Third is the first-ever panoramic vario-roof with MAGIC SKY CONTROL. This means you can make the roof totally transparent, in effect creating a top-down experience, even with the top up and all windows up. Or, you may switch the roof to dark mode, for shade if you are parked, or cruising slowly in bright summer sunshine. Power With all this talk of comfort and refinement, let us not forget that the new SLK is also a rampant rocket when it comes to performance. The top-of-the-range SLK BlueEFFICIENCY V-6 engine generates 306 horsepower out of 3,498 cc., which can take you 46 HONG KONG BUSINESS | AUGUST 2011

Super roadster Mercedes-Benz outdo themselves with the third generation of their modern classic SLK, writes Roger Boschman

from zero to 100 km/h in 5.6 seconds. The manufacturer mentions the top speed as 250km/h. Actually the top speed is much higher, but is electronically governed to 250km/h. If you drive on the autobahn at over 250, a rev-limiter cuts your power. I understand this is an understanding with the German government, in return for there being no speed limits on major highways in Germany. Meanwhile, as you drive along, enjoying the summer breeze with the SLK top down, rest assured you are also saving the planet. The BlueEFFICIENCY engines are using up to 25% less fuel than previous models. For more information about the new SLK, visit our website at


First-ever panoramic vario-roof with magic sky control; multi-functional sports steering wheel; sun-reflecting leather; top speed: 250 km/h; BlueEFFICIENCY V6 engine that generates 360 horsepower out of 3,498 cc HONG KONG BUSINESS | AUGUST 2011 47


Cool Watch Boutiques in HK Make a sartorial statement with Quintessentially’s guide to cool watches and where to find them in Hong Kong. Void Watches

15 Square Street, Sheung Wan This home-grown independent watch brand is the brainchild of Swedish designer David Ericsson, whose goal is to create unique watches using simple and harmonious geometries, traditional materials and premium leathers. David designed the V01 (digital) and V02 (analogue) watches himself: waterproof down to 30m, the sleek stainless steel design is an ode to edgy minimalism, with cool brushed, polished, black or gold faces and contrasting coloured straps making a modern style statement. Homeless

7 stores around Hong Kong, including 29 Gough Street, SoHo; 8/F, The One, Tsim Sha Tsui and 116 HomeSquare, Shatin One of Hong Kong’s most popular lifestyle emporiums, you might be more familiar with Homeless’ lighting, furniture and home décor items than personal accessories. But in keeping with their love of on-trend alternative designs, Homeless also stocks watches by Roger Tallon (one of France’s most noted industrial designers and the man who kitted-out the TGV) and Simon Carter, a British avantgarde menswear designer. If you haven’t seen Roger’s collection, which he designed for Lip in the 1970s, it’s well worth seeking out now as the retro designs work perfectly with a casual daytime look. For a more formal occasion, pair your suit with one of Simon Carter’s sleek and highspec black, white and silver watches. Kapok

3 Sun Street & 5 St. Francis Yard, Wanchai With a focus on quality and creativity, Kapok is a one-of-akind lifestyle concept store that stocks lifestyle, fashion and accessories with a café and gallery complementing the eclectic range of goods. The collection changes frequently, but watches which have caught our eye recently include the classic Uniform Wares 200 series calendar watch in rose gold, composed of aircraft-grade stainless steel, Italian calf leather and a 7 jewel calendar movement. Chronometer Vintage Timepieces The Gurus

Shop A2-A3, 67 Sing Woo Road, Happy Valley An eclectic boutique for the modern gentleman, The Gurus stocks design-savvy and man-friendly items, gadgets and gizmos. It’s a store dedicated to all things covetable and cool. From Dyson’s bladeless fan to customised iPads, foldable bikes, Sea-Doo sea scooters and the occasional rare item such as the Bamford x Dr. Romanelli Rolex (one of a limited edition of 13), The Gurus has an eclectic and ever-changing mix of items that will keep you coming back for more 48 HONG KONG BUSINESS | AUGUST APRIL 2011 2011

B112, Holiday Inn Golden Mile, 50 Nathan Road, Tsim Sha Tsui In an unassuming location on Nathan Road, Chronometer Vintage Timepieces is packed with lots of cool vintage watches that are hard to get hold of – big names such as Rolex, Omega and Panerai. It’s best to come here knowing what you want to make the most of the experience.

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

Last word EMMA sherrard matthew

Royal Revelations China’s new millionaires donning a taste for royal styles In China, the emperors are suddenly popular again. In the last five years, there has been a sharp increase in imperial scholarship in the Middle Kingdom, with academics at leading universities writing a record number of books on the emperors and their achievements. This might seem strange in a country where the emperors, who ruled for over 2,000 years, were reviled until quite recently. Mao Zedong himself wrote an extensive number of critiques of the emperors. This imperial revival started because it has become acceptable in China to criticize Mao, but only at the obscure edges of his thought. The “critique of Mao’s critique” of the emperors has allowed academics to focus on the cultural achievements of the imperial system, leaving aside some of its more barbarous features. There is an interesting link between this “imperial revival” and the boom that the luxury goods industry has enjoyed in China. “China is developing a new aristocracy who believe that their wealth is, in part, a gift of fate,” says Daniel Jeffreys, the editor in chief of Quintessentially Asia magazine. “The emperors ruled by mandate of heaven and had an extremely luxurious lifestyle because of this blessing. China’s new millionaires see their wealth as a similar kind of blessing and are actively looking at ways that will keep them on the good side of fate.”

“China is developing a new aristocracy who believe that their wealth is, in part a gift of fate.” In the early days of China’s new economic ascendancy, the millionaire class largely talked about their wealth as the result of hard graft. They dressed humbly, even after they had banked their first billion, and they did not buy many luxury goods. The new wealth class is more interested in the role of fate and making a display of their achievements, although in a more subtle way than new millionaires in other developing countries. 50 HONG KONG BUSINESS | AUGUST 2011

“Unlike the Russian oligarchs, China’s new aristocracy tend to steer clear of vulgar displays of opulence,” says Nic Rosen of Vivum Intelligent Media, who is making a documentary about China’s super rich for the BBC. “In a sense they are making their new money into old money - buying art, travelling widely, buying property and sending their children to private schools and universities in Britain or America.” China’s new generation of millionaires know that the “best emperors” were also those who were closest to Confucian values, especially those that stressed humane behaviour and righteousness. China’s new aristocrats are beginning to explore philanthropic ventures. In this quest to be “good millionaires” it’s unsurprising that many wealthy Chinese entrepreneurs are finding inspiration in Britain’s royal family. The British royals have survived great turmoil by exercising a pragmatic approach to government that is remarkably Confucian in nature. The Confucian principles say that royal rulers must have elements of perfection, mystery, continuity and generosity and the British royal family has all four. For new millionaires in China who crave continuity of wealth, it must be tempting to see the survival of Britain’s royals as a sign that, in the eyes of heaven at least, they are doing something right. And thus they look to emulate aspects of the royal lifestyle – for example take the explosion of polo (the sport of kings) in China. There is nothing surprising about this – Chinese people have deeply embedded in their consciousness the notion that bad kings will be fated to lose everything – and that “bad millionaires” will suffer in the same way. With no emperors of their own to use as role models, it’s natural for the new aristocrats to turn elsewhere and where better to look at. Don’t be surprised if, in matters of luxury, China’s new aristocracy increasingly embraces products that have a royal connection. Emma Sherrard Matthew is the CEO of Quintessentially, the world’s leading luxury lifestyle group with a global concierge service. For more information visit www., call +852 2540 8595 or email

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