Hong Kong Business (January - March 2020)

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Issue No. 57 Hong Kong’s Best Selling Business Magazine

INVESTMENT IDEAS FOR 2020 11 ideas from the world’s largest banks

MAINLAND INTERIM MEASURES BOOST HONG KONG ARBITRATION HERE’S WHY AGEISM IS STILL ALIVE IN HONG KONG WILL DIGITAL INSUERS OUTPACE THE BIG PLAYERS? INSIDE EY’S WAVESPACE CENTRE IN WONG CHUK HANG SURVEY

LARGEST LAW FIRMS & LARGEST INSURANCE FIRMS

C2

HONG KONG BUSINESS | JANUARY 2020

HONG KONG

BUSINESS

FROM THE EDITOR

Established 1982 Editorial Enquiries: Charlton Media Group Hong Kong Ltd 19/F, Yat Chau Building, 262 Des Voeux Road Central Hong Kong. +852 3972 7166

Hong Kong Business welcomes the new year with 11 fresh investment ideas picked from to guard and grow your finances in 2020. Check out the latest version of our annual list of investment ideas on page 16.

Cross-border dispute resolution is a fast growing area of law in Hong Kong. The total amount in dispute for the cases that have been administered is already at about $52.2b. Read about what the industry’s giants are doing to gain from this development on page 22.

Publisher & EDITOR-IN-CHIEF Tim Charlton associate publisher Louis Shek production TEAM Danielle Mae Isaac Nathanielle Punay Giullian Navarra Clarist Mae Zablan Alyssa Marie Divina Frances Jade Gagua graphic artist Tyrone De Los Santos ADVERTISING CONTACTS Louis Shek +852 6099 9768 louis@hongkongbusiness.hk Rochelle Romero rochelle@charltonmediamail.com

ADMINISTRATION ACCOUNTS DEPARTMENT accounts@charltonmediamail.com

We also delve into Hong Kong’s ageism problem, with one-third of older employees having suffered workplace discrimination in the past five years, and over 70% of employees believing that there laws addressing against age discrimination.

To know more about this, flip over to page 42.

In this issue, we also cover the two awards programmes that are now both in their second year: the Hong Kong Management Excellence Awards, held at the Island Shangri-La; and the Asian Export Awards, held at the Shangri-La Hotel in Singapore.

Enjoy the issue!

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HONG KONG BUSINESS | JANUARY 2020

1

CONTENTS

30

16

COVER STORY Where to invest your money in 2020

FIRST 06 2020 will be the same but different 07 Jobhoppers’ salary hikes trimmed 08 Mortgage cap hike buoys

40

HR BRIEFING hERE’S THE REAL DEAL ON AGE DISCRIMINATION IN HONG KONG

RANKINGs

REGULAR 10 Space Watch

EVENT COVERAGE MANAGEMENT EXCELLENCE AWARDS 2019

22 Mainland interim measures bolster

arbitration scene

26 Traditional insurers lead but digital

home sales

OPINION

STARTUPS 12 OneOneDay MOTIF Neufast

firms are rapidly rising

42 Marc Parrott: Aligning the interests

of fund managers and investors in Hong Kong

44 Brian Lo: Delivering the virtual

restaurant of tomorrow

46 Tim Hamlett: Being neutral when

doing business in Hong Kong is becoming difficult

48 Hemlock: The DAB has deep pockets Published Bi-monthly on the Second week of the Month by Charlton Media Group Pte Ltd, 19/F, Yat Chau Building, 2 HONG KONG BUSINESS | JANUARY 2019 2020 262 Des Voeux Road Central, Hong Kong

For the latest business news from Hong Kong visit the website

www.hongkongbusiness.hk

News from hongkongbusiness.hk Daily news from Hong Kong most read

Economy

Residential PROPERTY

Exports fell 9.2% to $348.5b in October

Inflation slows to 3.1% in October

Nearly 4 in 5 employees mull overseas work for career growth

The total value of exports from Hong Kong fell 9.2% YoY to $348.5b in October, according to data from the Census and Statistics Department (C&SD). Imports slipped 11.5% to $379.1b over the same period. Trade deficit is at 30.6b or 8.1% of imports.

Overall consumer prices rose 3.1% MoM and YoY in October, according to data from the Census and Statistics Department (C&SD).

It rose slower than the 3.2% YoY in September. This was due to smaller growth in housing rentals and prices.

Employees are becoming more open towards relocating overseas for better opportunities, according to a Randstad survey. About 78% would consider moving to another market for better career growth and worklife balance.

Financial services

F&B sector’s unemployment rises to six-year high in August-October The number of jobless in the F&B sector jumped to a six-year high at 6.1% amidst deteriorating labour market conditions given ongoing social incidents. Data from C&SD revealed that the city-wide unemployment rate rose to 3.1% during the three-month period ending in October after stabilising at 2.9% from July-September.

4

commercial property

HONG KONG BUSINESS | JANUARY 2019 2020

Residential PROPERTY

Real GDP forecast revised down to -1.3% for 2019 The full-year GDP growth was revised down to a 1.3% YoY contraction after GDP figures for Q3 revealed that it shrunk 0.6% 9M 2019, said government economist Andrew Au. Estimated figures of the GDP revealed that the economy contracted 2.9% YoY in Q3, an “abrupt deterioration” after the mid growth of 0.4% YoY in Q2.

Financial Services

Portion of Kai Tak runway sold for $15.95b The tender for a 50-year lease of a portion of the former runway of Hong Kong’s Kai Tak airport was sold at the lower end of its expected tender price range at $15.95b, according to data from the Lands Department. The consortium Ultra Keen Holdings clinched the site at a discount of up to 20% from the top price range.

FIRST HONG KONG tops ASIA’S MOST HARDWORKING CITIES Hours worked Per Week Kuala Lumpur

46

Singapore

44.6

Hong Kong

44

Tokyo

42.1

Sydney

39.8

Melbourne

39.8

Vacation Days Taken Annually Kuala Lumpur

12.3

Sydney

13.9

Melbourne

13.8

Hong Kong

14.2

Tokyo

14

Singapore

14

Avg. Work Arrival Time Tokyo

8:57

Kuala Lumpur

9:00

Sydney

9:04

Melbourne

9:30

Singapore

9:34

Hong Kong

10:30

COMMUTE TIME (ONE WAY) Tokyo

51 min

Singapore

44.5 min

Sydney

41.6 min

Hong Kong

37.6 min

Melbourne

38.1 min

Kuala Lumpur

38 min

% of Workers Putting in More than 48 Hours a Week Tokyo

51

Singapore

44.5

Sydney

41.6

Hong Kong

37.6

Melbourne

38.1

Kuala Lumpur

38

Source: Instant Offices

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HONG KONG BUSINESS | JANUARY 2020

Prices could fall another 10% over the next six months or so.

2020 will be the same but different

I

t may not look like it now, but 2020 should be a better year, reckoned Deutsche Bank chief economist Michael Spencer. Despite the fact that GDP was down 2.9% for 9M 2019, and has not declined sequentially in four of the past six quarters, this is still not as bad a recession as was experienced during the 2008/2009 global financial crisis when the economy went into a tailspin and declined 7.5% YoY in Q1 2009, he notes.

Naturally some sectors have been hit far more than others, and for the retail and hospitality sectors, the current situation is already worse than 2009. Retail sales in October were down 26.3% YoY to end Q3 with a 19.5% fall, whilst restaurant receipts were down 13.5% YoY in Q3 and the average hotel occupancy rate plunged from above 90% to below 60% in September and October.

All these figures are at least as bad as were reported in the depths of the 2009 crisis. For hotels and restaurants, the SARS outbreak in 2003 was worse—in May 2003 the average hotel occupancy rate was

Retail sales in October were down 26.3% YoY to end Q3 with a 19.5% fall, whilst restaurant receipts were down 13.5% YoY in Q3.

only 20% and restaurant receipts fell 18% YoY that quarter—whilst the GFC was a brief period of weakness.

Of course, the most important question for Hongkongers is what will happen to property prices.

During the Asian Financial Crisis, the property price index peaked in October 1997 and fell 45% over the following year. But then prices kept falling for another five years, ultimately dropping 66% before bottoming out after the SARS outbreak. After the GFC, prices fell only 17% in the second half of 2008 but regained all those losses over the following eight months. So far, prices have fallen only about 5% since the protests began. Deutsche Bank expects prices to fall another 10% over the next six months or so but then to revive somewhat in the second half of 2020. But housing affordability is much worse today than it was in 2008/09—it takes nearly twice as much income to service a ‘typical’ mortgage because prices have tripled since then 2008. The bank’s mediumterm outlook therefore assumes that prices will fall about 10%pa in 2021 and for a few years beyond. Falling property prices will eventually be reflected in low inflation.

A period of soft growth and very low inflation may lead to renewed calls in some quarters for a devaluation of the HKD. Unlike in past episodes of pressure on the peg, Spencer thinks there is no longer a strong consensus that a devaluation should be resisted at any cost. But economists are not unanimous that 2020 will be better. “Looking ahead, we expect the economy to contract further, as there is no end to the protests in sight.”

“Retail sales and tourist-related sectors are experiencing their worst performance in over a decade and will remain under huge strain until the political unrest eventually ends,” commented Tommy Wu, senior economist for Oxford Economics.

“The government has rolled out stimulus measures since August. But the scale of the packages has been small and, given how poor sentiment is, we do not expect the stimulus to have a meaningful impact until the political unrest comes to a halt.”

FIRST 50% of tech professionals are expecting a bonus of 1120% of yearly salary in 2020, and 49% are expecting a 7-15% increase in annual salary.

The labour market is getting more cutthroat.

Jobhoppers’ salary hikes trimmed

J

umping ship in Hong Kong’s cutthroat labour market could be less rewarding as the expected salary increment when changing jobs has dropped to 10-15% in 2020 compared with 10-20% in 2019, according to professional recruiter Robert Walters. This comes on the back of companies getting more conservative when hiring.

Ricky Mui, managing director of Robert Walters Hong Kong, said, “Hiring processes are foreseen to be lengthened and additional interview stages will be added as employers are

more insistent on candidates with specific skill sets. We also expect contracting engagements to continue to grow further.”

However, roles in project management, data science and business analysis will be highly sought after as there is still a high demand for talent in Greater China, especially when candidates with niche skill sets are in short supply.

Recruitment is highly active in financial services and in fintech.

“Despite a slowdown in hiring for trading and equity-related financial

services positions, recruitment remained active for roles in virtual banking, insurtech, private banking, wealth management, distressed debt and special situations funds,” Robert Walters said.

A surge in demand for virtual banking and fintech talent ranging from executives to operational staff is expected, and companies are also increasingly open to considering qualified overseas experts with the matching skill sets.

Roles in the financial services sector are not just the hot jobs in the market as there remains sustained demand for specialists in analytics, big data, DevOps and digital. Robert Walters found that 50% of tech professionals are expecting a bonus of 11-20% of yearly salary in 2020, and 49% are expecting a 7-15% increase in annual salary.

High-tech companies and startups are continuously looking for the placement of strategic positions for innovation research in Hong Kong, which drives demand for talent specialised in artificial intelligence, the Internet of Things and software development. “A major challenge for the sector is a shortage of local Hong Kong talent, so employers are continuously looking for overseas candidates with niche skill sets.

Singapore and Greater Bay Area are competitive markets for Hong Kong in recruiting overseas talent,” Mui concluded.

THE CHARTIST: RETAIL SECTOR LOSES OUT AMIDST HONG KONG RECESSION Whilst the rest of Hong Kong’s economy braces for the effects of the recession, for the retail and hospitality sectors, the current situation is already worse than 2009 and might not get better in 2020, according to Deutsche Bank.

Retail sales in October were down 26.3% YoY after having fallen 19.5% in Q3. Restaurant receipts were down 13.5% YoY in Q3 and the average hotel occupancy rate plunged from above 90% to below 60% in September and October.

The picture might be entirely different for Hong Kong’s exports as declines are usually short-lived. Whilst export growth may be a little lower in Q4, Deutsche Bank expects – assuming no further increases in US tariffs or dramatic depreciation of the USD – export volume growth (currently -8.2%) to be slightly positive by the end of 2020 and above 5% by the end of 2021.

Real retail and restaurant sales

Source: Deustche Bank, Asia Macro Insight

Domestic demand and exports

Source: Deustche Bank, Asia Macro Insight

HONG KONG BUSINESS | JANUARY 2020

7

FIRST Developers to ditch nano flats

Nano flats

Hong Kong developers are likely to shift their focus away from building nano flats following the boosted spending power of first-time buyers, thanks to the expanded loan-to-value (LTV) cap, according to a report by JLL. The new supply of nano flats is expected to decrease starting 2022.

The government relaxed the cap for loan-to-value (LTV) ratios of up to 90%, with the maximum property value doubled to $8m from $4m previously. In addition, both firsttime homebuyers and upgrades will enjoy an increased cap to $10m for a maximum cover of 80% LTV, from only $6m previously.

“With the Government relaxing the cap on LTVs, this opens up more choice for first-time buyers and increases their purchasing power. As such, we believe developers will likely shift away from incorporating nano flats in their new developments. We will start to see the new supply of nano flats decrease from 2022,” said Henry Mok, senior director of capital markets at JLL. Higher purchasing power Instead of nano flats, first-time buyers can now afford to purchase small- to medium-sized units, said David Ji, director, head of research & consultancy, Greater China at Knight Frank. “Demand for these flats rebounded sharply as an immediate reaction to the policy,” he noted.

“First-time home buyers previously had very limited options to enter the housing market, making nano flats relatively attractive. However, the lower down payment now allows these same buyers to target larger sized stock in both the primary and secondary market. With the ability to target the secondary market, we believe that the typical premium paid for new stock will be reduced, meaning that developers will have to price their new projects competitively,” noted Cathie Chung, senior director of research at JLL in Hong Kong.

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HONG KONG BUSINESS | JANUARY 2020

Mortgage cap hike buoys home sales

T

he raising of the mortgage cap for first-time buyers to $8m from $4m helped reverse a decline home sales in the city. Developers are offering flexible payment plans and discounts for new projects and unsold stocks, which sped up purchases by homebuyers in the primary market, according to Knight Frank. In particular, units in The Grand Marine and Emerald Bay were sold out in the first round.

“Instead of nano flats, first-time buyers can now afford to purchase small- to medium-sized units. Evidently, demand for these flats rebounded sharply as an immediate reaction to the policy,” the report wrote.

Thomas Lam, executive director at Knight Frank, noted that the increase in purchasing power was especially seen in the secondary market within the $6-8m segment. “Under a 90% mortgage cap, a quarter of the 1.9 million taxpayers in Hong Kong would meet the minimum household income requirements in order to purchase properties worth HK$6m. For properties worth between $6-8m, buyers only need a down payment of 10%. These properties will become the main demand drivers in the market, and will drive up transaction

First-time buyers can now afford to buy small- to medium-sized units.

volume by as much as 20-30% in the next three to four months until the purchasing power has been exhausted.”

With an $8m budget, homebuyers can now afford a flat that is slightly larger than 500 sqft in the New Territories districts such as Tseung Kwan O, Tung Chung and Tuen Mun. Developers could also dispose of unsold stock at lower prices from the upcoming implementation of the vacancy tax, but interest rate cuts could bring some Developers support to transaction volume. are offering Home sales rose 16.1% MoM to flexible 4,001 units in October after two months payment of declines. However, land sales did plans and not fare as well, with bidding interest discounts for in the Wong Chuk Hang MTR in new projects particular garnering only six bids. The and unsold site was awarded to a consortium with stocks, which Kerry Properties, Sino Land and Swire sped up Properties at a value of $10,587 psf. purchases by “Although this is a reflection of the homebuyers prevailing cautious and risk-averse in the primary sentiment, the activities themselves are a market. sign of hopefulness,” the report added.

Hong Kong will remain as top global city destination One would have imagined that with all the social unrest in Hong Kong the city would be in a major tourist depression. However, a report released

by Euromonitor in November said Hong Kong was still on track to remain the world’s top global destination in 2019. Whether that remains the case going onto 2020 remains to be seen.

“For 2020, it will depend on if the social unrest persists or if a resolution is reached. As of today, it does not seem like the protests will end in the short term. We can therefore expect arrivals numbers to be lacklustre in the first half of 2020 compared to 2019,” noted Simon Haven, senior analyst at Euromonitor International.

The city continued to lead cities globally as the top destination in 2018, thanks to its proximity to China, vibrant shopping scene and strong cultural heritage. More than 50% of all visitors to Hong Kong came from mainland China, the report stated. Recent infrastructure developments such

Tourist arrivals are expected to remain weak in 2020.

as the completion of the Hong Kong-Zhuhai-Macau bridge, as well as the commissioning of the highspeed rail link connecting Hong Kong to Shenzhen and Guangzhou have led to consistent growth in arrivals from China over 2017–2018, noted Rabia Yasmeen, senior analyst at Euromonitor International.

Congestion at Hong Kong International Airport remains a challenge for the city, although regional airports of close proximity to Hong Kong, such as Shenzhen, may help alleviate the burden by establishing itself as a major travel hub, said Yasmeen.

L INE R EFINE F a c e t h e d ay f o r wr ink l e fre e disco v e r m o r e a t c on cor d-m e di c al. c o m

EXCLUSIVE: SPACE WATCH

Check out the blockchain labs in EY’s wavespace centre The space is equipped with Surface Hubs for easier co-development of business models.

“Through wavespace, we hope to contribute to the crosspollination of ideas and transfer of knowledge to drive the capability development of talents in digital, creative and experience design – skills that are becoming highly relevant in the thriving digital economy in Hong Kong and across Asia-Pacific,” Amate said.

EY has expressed plans to open more wavespace centres in China, after it opened its first flagship China centre in Shanghai World Financial Center in 2018.

E

Y’s wavespace centre in Wong Chuk Hang, located at the heart of the startup ecosystem, functions more like an innovation lab, where clients can explore blockchain solutions and service offerings, or co-develop business models and opportunities through the centre’s design studio, showcases, workshops, labs and incubators, and pop-up centres.

Each of their 20 wavespace centres across the globe focuses on one or more digital capabilities, like internet on things and artificial intelligence.

For that purpose, the Wong Chuk Hang wavespace is equipped with Microsoft Surface Hubs that allows clients to connect with EY talents across the globe to collaborate on projects.

“Instead of using PowerPoint or email, Microsoft Surface Hubs allows for more efficient teamwork, diminishing physical boundaries,” EY’s Asia-Pacific Head of Design Iñaki Amate told Hong Kong Business.

The space draws inspiration from the wavespace centre in Union Square, New York. The physical design is based on the lessons EY gained from designing similar environments.

EY incorporated a design team, who then got rid of traditional paper and printers and designed the space to be modular to accommodate work ranging from large workshops to breakdown sessions. For that purpose, all furniture came equipped with wheels.

“Keeping the wavespace brand, whilst keeping the EY identity and offering a space to go beyond was a great design challenge,” Amate said.

A Mexican chopper motorbike equipped with a Chinese engine can also be found in the space. The vehicle comes with a demo that tells whether the rider is getting tired and how old they look like.

Beyond aesthetic efforts designed to foster novel ideas, the wavespace has a keen focus on financial services and technology, media, and telecom (TMT) sectors, but it is welcome to businesses of any sector.

They have particularly worked with an undisclosed automotive firm on reinventing their business, a beverage company on leveraging blockchain technology, and a financial services organization with preparing and adapting with their vision and purpose.

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HONG KONG BUSINESS | JANUARY 2020

Iñaki Amate

Surfaces allow for easier collaboration

Surface Hubs

Office spaces can be converted for meetings

startups

(Not) in your face: OneOneDay makes ads less intrusive

Rick Tsing

A

dvertising is not just expensive, but can also be troublesome with around 30% of the global internet population blocking ads. Addressing these pain points, adtech startup OneOneDay gives viewers a choice to watch the kinds of ads they want to see.

“Advertisers are spending so much money but a lot of ads are not on target and it becomes wastage. The second problem is not viewers are actually the blocking, or they’re skipping,” said Rick Tsing, the founder and CEO of OneOneDay said. “I really think that what sets us apart is that we do need to start respecting viewers’ attention and stop respecting the fact that we should not be intruding anyone’s attention anymore without user’s permission.”

The startup’s app, dubbed as Oodies, allows viewers to register their preferences.

OneOneDay makes this possible using blockchain, AI and psychometrics analysis.

The platform then sends the user a customised playlist of ads on a daily basis.

Watching an ad allows users to earn cash rewards, whilst a part of that money goes to charity works. Viewers can then have a choice as well on which social causes they would like to support.

“So we’ve been thinking, what if we can create a fair trade market that bridges these two parties together by asking for viewers’ permission to watch the ads and share advertising revenue back to the users?

And if that person’s attention is being spent on watching an ad and it generates any income, that person should have human rights,” Tsing explained.

OneOneDay raised ($10.13m) US$1.3m in a pre-series A funding last May, attended by individual investors. One of them is Tiberius’ Holdings founding partner Rohan Malhotra, who also acts as one of their board directors.

So far, the firm has launched its app in India despite being a Hong Kong-based firm. Tsing noted that India is a huge market compared to Hong Kong and that it has a rising economy and a strong smartphone penetration.

MOTIF builds a learning platform for skills in the fast-paced apparel industry

MOTIF team

E-learning platform MOTIF aims to plug the widening skills gap in the fashion industry by providing a professional community and catalogue of online training material for professionals and companies.

“The apparel industry is undergoing some major disruptions caused by pressures for speed-to-market, sustainability and personalisation. These disruptions are making a growing skills gap more and more evident,” Catherine Cole, CEO of MOTIF, told Hong Kong Business Magazine.

Cole also stated that the last 12

HONG KONG BUSINESS | JANUARY 2020

generation that has production floor expertise will be retiring in five to ten years time and that there is a growing demand for skills that include data, 3D product design and development and digital marketing.

The startup offers eight programmes which include courses on 3D transformation, apparel costing, and how to run a fit session. Cole shared that they plan to double their courses by end-2020 that will cover technical skills such as commercial and soft skills for the apparel/ fashion industry. They also have courses aimed at corporate HR or business teams that need to make sure employees have sound fundamentals and cross-functional understanding.

In November, MOTIF bagged $15.66m (US$2m) in a seed funding by fashion innovation firm Alvanon and incubator The Mills Fabrica.

They are working on virtual realityenabled factory visits for professionals.

How Neufast takes the hiring blues away

Agnes Wu

Hiring staff in a city where the turnover rate is 12.7% is a difficult task, made all the more so by hiring managers who aren’t sure of the skills they really need and candidates struggling to match their abilities to the job. HR startup Neufast has created a platform that scans a candidate’s CV, matches their abilities to the job requirements, and benchmarks against the skills the candidate should have. It then puts the candidate through an array of online psychometric tests before finally moving to a 30-minute video interview with the hiring manager.

All these steps should increase the quality of staff hired and reduce turnover rates, argued Neufast’s CEO Agnes Wun, who secured a US$150,000 funding from SOSV China.

Neufast says it offers a quicker and more standardised way of choosing candidates. It uses a neural network to do their algorithm and establishes a benchmarking assessment based on the employee profile and extracts information from their CVs, such as skills and knowledge.

It also does a psychometric assessment based on the five-factor model of personality, which tests their workplace behaviour, and the final step is the 30-minute video interview.

Neufast then submits the overall performance score to the HR manager, which is said to predict their success in the workplace. The manager will then decide whether the candidate should be invited for a face-to-face interview.

“Very often, people ditch out, who don’t have like the holistic view of the market of the workplace. And when they go and fill up those roles, they spend lots of time and energy trying to understand what the hiring manager is trying to look for and a pain point for a manager is that the HR does not necessarily understand the requirement of these roles. So we come into assist the HR manager to do quicker, more accurate and scientific way of selection,” said Wun. The Neufast CEO said they are also currently doing a fundraising targeting $3.9m (US$500,000) to $7.8m (US$1m) to bolster their expansion in Mainland China and Southeast Asia.

“APAC’s economic growth will be around 5% to 6%.

So we do expect our growth to be above this. I see that a lot of overseas companies, like German companies, are very active in opening up new factories and new chemical plants to capture the China market. So they would hire very aggressively. And so that’s why we need to consider this as our growth engine,” Wun concluded.

Numbers DEVELOPERS TURN MORE CAUTIOUS IN BIDDING FOR LAND Value of posh properties down

Notable Transaction (Oct/Nov)

Upcoming Residential Projects (Primary Sales)

Occupation Permit Issued (Sep)

Source: JLL & Asia Macro Insights

14

HONG KONG BUSINESS | JANUARY 2020

Home prices down

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西九龍．君臨天下

cover story

Can equities and bonds provide growth?

Where to invest your money in 2020

I

t is that time of the year again when everyone looks forward to receiving their annual bonuses and working out what to splurge on and what to invest in. Whilst we have no crystal ball and cannot predict the future (if we could we would give up our day jobs as business editors), we have talked with some of the world’s largest investment banks to come up with a list of some of their best ideas for 2020. Sometimes the banks are in agreement, and sometimes not. But whichever way you choose to invest your money, we wish you good luck and all the cunning you can muster in the year of the rat.

Idea 1: Buy China stocks, sell Southeast Asian stocks Credit Suisse says it prefers North Asian markets, particularly China, over South Asian ones to take exposure to potential cyclical recovery.

Within this market, China property is their preferred sector. They expect authorities to support real estate investment growth in 2020, with some local governments already loosening demand-curbing measures with the relaxation of its Hukou policy.

Its analysts expect revenue and earnings to grow by 21% and 18% in 2020, respectively. “Valuations are at attractive levels. If policies are relaxed, valuations could mean-revert to their historical average, offering a 20% upside. Property stocks also pay a high dividend yield of 6.3%,” they noted.

16

HONG KONG BUSINESS | JANUARY 2019

John Woods

Julian Wee

Idea 2: If you must buy ASEAN stocks, buy Singapore Amongst ASEAN markets, Singapore is Credit Suisse’s pick of the bunch. They expect Singapore equities to perform in line with regional markets in 2020 as the subdued growth environment continues to cap upside for the market despite their favourable valuation.

Further, the market is expected to deliver 3.5% earnings growth over the next 12 months; however, a high dividend yield of 4.0% should attract investors and continue to provide support to the market on the downside. If you are looking into particular sectors, you may want to avoid Singapore banks, because Asian Equities: On the Cusp of a Cyclical Recovery

Source: Datastream, Credit Suisse/IDC

cover story lower interest rates are likely to cap the upside for banks.

Even REITs aren’t an excellent bet. Credit Suisse arguse that after a 20% rally this year and with the 10-year Singapore government bond yield near historical lows, near-term capital upside in Singapore REITs could be more constrained. “Nonetheless, we see limited risk of a material correction as long as interest rates stay low globally. REITs with strong acquisition pipelines and with asset recycling and enhancement opportunities are likely to outperform,” they noted.

However, for HSBC’S Herald van der Linde, head of equity strategy for Asia Pacific, the Philippines offers the best potential for 2020 by growing 17.9%. Singapore stock prices, on the other hand, are projected to increase by just 9.6%.

Idea 3: Short-duration high-yield Asian corporate debt If you’re going to invest in a company’s debt, be wary of developed markets where low interest rates have made for tight credit spreads which are inadequate to compensate for the risk of rising defaults, argues Credit Suisse. Instead, investors should look at Asian investment grade bonds and notes which would be a resilient segment for investors looking for cash alternatives. The bank forecasts Asia investment grade debt could deliver a total return of 3% in the next 12 months. For yieldseeking investors, the short-duration Asia high-yield of 7% is interesting as the region’s credit outlook improves.

Governments, particularly in China, are loosening their reins to make it easier for companies to keep earning and repay their debt. For example, Chinese authorities have taken steps to prevent the real estate sector from overheating, and Credit Suisse believes that their actions are not aimed at depressing or constraining the sector, given the weakness in manufacturing. Leading property developers have also reported reasonable yearto-date sales growth and will likely to continue to do so.

A constrained near-term issuance schedule should work to ease default risk by forcing some deleveraging of developer balance sheets, and finally, the greaterthan-7% yield of Asian high-yield bonds remains attractive relative to developed markets and is not expensive compared to its 10-year average, the analysts note. They forecast Asia high-yield bonds to deliver 6% total return in the next 12 months.

“Sweet spot” in credit: Asian high yield bonds

Source: Bloomberg, Credit Suisse

OUTLOOK

Top debt picks: Bank of America Merrill Lynch

Investment Grade: With few fallen angles expected, we prefer BBB over A, specifically China BBB state-owned enterprises (SOEs), LGFVs, and property.

Top picks: CITLTD 4% 2028; HAOHUA 3.875% 2029; MINMET 4.75% 2025; VNKRLE 5.35% 2024; POLRYE 3.875% 2024; YUEXIU 5.375% 2023.

High-yield: We like Chinese developers, especially short-dated Bs and longdated BBs. We see Indonesian and India HY corporates as expensive given their weaker outlook. We are cautious on Chinese industrial HY given its higher default risk. Top picks: CENCHI 6.75% ‘21, EVERRE 6.25% ‘21, FTHDGR 8.375% ‘21, JINGRU 9.45% ‘21, KAISAG 7.875% ‘21, SUNAC 8.35% ‘23 and TPHL 6.6% ‘23.

Ray Farris

Suresh Tantia

Joyce Liang

Bank of America Merrill Lynch largely agrees and expects both Asian investment grade and high yield bonds to provide respectable returns. With 10-year treasury bonds already trading close to 2%, BofAML has stronger conviction on their Asian high-yield return forecast than on investment grade bonds. After a weak performance in 2018, year-todate 2019 Asian high-yield debt yields have dropped from 10.1% at the beginning of the year to 7.4% currently. But despite this drop, the valuation has remained quite attractive.

Another sector worth highlighting would be HK investment grade corporates, reckons the bank.

The adverse impact from the longer-than-expected social unrest and riots in the city is concerning, said BofAML. Whilst the bank believes a shortterm recession is inevitable, they see a manageable impact on credit fundamentals of Hong Kong developers. Falling property prices and rentals should hurt HK developers’ earnings and NAV, but their ability to cover interest payments should remain solid, given their substantial holdings of investment properties with solid recurring income and relatively low indebtedness levels.

But not all debt is equal and the bank cautions investors to merely seek out higher yielding bonds.

“We stress credit selection is key as we have seen increasing size of distressed debt and higher refinancing needs for HY credits next year.

Specifically, we prefer Chinese HY property on better fundamental outlook and improved technicals but remain cautious on Chinese HY industrials over its higher default risk. For yield enhancement, we recommend short-end high beta Bs and long-end higher quality issuers for better risk-reward combination,” they add.

Idea 4: Gold (and other precious metals) Gold has never really been out of fashion, and makes many an appearance in stories dating back to the biblical age. The past year saw a jump in gold prices, begging the question of whether investors have missed the boat or if prices will climb even further. There is probably more speculation about the price of gold than actually buying the glittering HONG KONG BUSINESS | JANUARY 2019

17

cover story metal, but Credit Suisse thinks gold prices and other precious metals are likely to remain supported as long as (real) yields remain low or even if negative and economic uncertainty persists. They note that whilst speculative long positions in gold are high, they see no clear catalysts to trigger a major unwind of these positions.

Union Bancaire Privée group CIO Michael Lok says another catalyst for gold is the negative deposit rates in Europe. In 2019, the European Central Bank (ECB) cut its deposit rate by 10bp to -0.5% whilst also resuming its bond-buying programme and amending its forward guidance policy. Sweden’s Riksbank and the Swiss National Bank have also maintained negative deposit rates of -0.25% and -0.75%, respectively. As retail banks begin to pass on the costs of negative deposit rates to their customers, physical gold will attract increasing attention from retail investors, providing strong support for gold prices over the course of 2020. “Because central banks want to avoid buying negative-yielding bonds, gold reserves should become increasingly attractive,” argues Lok. Macquarie Bank is more cautious, arguing that not all that glitters is gold.

2019’s been a good year for all precious metals and the complex is up 10-30%, according to Macquarie. Collapsing real rates in the US and Europe, combined with rising global trade/political tension, was a winning combination of price drivers for gold, silver, and platinum. However, these factors are now largely ‘priced in’, reckons the bank, such that trade resolution or a general growth recovery probably are the key short-term risks for the precious metal’s price outlook.

For non-gold precious metals, the bank said that the sticky Palladium to Platinum price differential of over USD$600/oz is still in play.

“We now accept that the market conditions that delivered it in late 2018 are probably unresolvable for now: platinum’s features a supply-chain surplus + diesel-hit demand; palladium lacks stocks + petrol-based demand’s rising. But as vehicle manufacturers are unwilling to make a risky Pd-Pt switch so close to an electric vehicle evolution the differential looks set to persist.”

Idea 5: The Chinese empty-nester Despite having urbanised and having gotten wealthier, China as a society struggles with ageing. This has given rise to more investment opportunities for companies that are set to grow by selling to wealthy, urbanised empty nesters.

In 2019, Global Demographics estimates that c44% of all adult consumers in urban China are aged between 40 and 64, the so-called “emptynester” cohort, and account for c53% of all urban consumer spending in China, reported HSBC. These empty-nesters tend to shift their consumption to experiences rather than things significant 18

HONG KONG BUSINESS | JANUARY 2019

Herald van der Linde

Marcus Garvey

Wilson Ng

implications for the growth or decline in demand for specific products and services.

In particular, a survey revealed that these nesters are more interested in travel, sports, and home improvement than in cars or TVs and that they also aim to upgrade by buying products which are of higher quality or a stronger brand. HSBC’s Van der Linde believes this is why companies like Ctrip can confidently argue that their international business, which currently accounts for one-third of revenue, will grow to c.50% in next four to five years, and why sportswear companies – benefitting from empty-nesters trying to stay fit – reported 15-30% revenue growth in 2019.

Idea 6: Asia’s smaller cities HSBC also noted that the big growth in ASEAN is not occurring in the capitals, but in smaller cities where factories are setting up, and this is driving changes in consumption.

The key, Van der Linde stressed, is to understand that urbanisation in ASEAN – with the exception of the Philippines – is accelerating. In addition, the region’s urbanisation is unique in that it is increasingly driven by people moving to medium-sized and smaller urban centres, not the metropolitan cities.

The list of small- and medium-sized cities that were expected to grow beyond 50% up to 2015 included places such as Gresik, Makassar, Denpasar and Batam in Indonesia; Cebu in the Philippines; and Samut Prakan in Thailand. A lot of this has to do with improved access (think roads and bridges) to these cities, allowing factories to establish themselves near these smaller cities, and driving employment as well as income growth.

Three examples of companies set to benefit from the rise of the smaller cities are Indonesia’s telecom operator XL Axiata, food producer Mayora Indah, and Thailand’s Home Product Centre. A list of HSBC’s top stock picks is below.

Idea 7: Investing for good What would Greta Thunberg say if she saw your stock

Key thematic picks into 2020

Source: Price as of 19 Nov 2019, J.P. Morgan Asia Equity Strategy, J.P. Morgan Equity Research

cover story economies and most apparent in global innovation value chains where there is a need to integrate many suppliers closely in just-in-time sequencing. Around 60% of goods trade (an increase from 56% in 2007) and 60% of services trade (from 46% in 2007) took place within Asia in 2017. In 2000, only three corridors within Asia had trade volume of more than US$50b; by 2017, there were 15, notes JP Morgan.

Taiwan and Korea came next as beneficiaries of highend supply chain moves and re-shoring.

These are HSBC’s best stock picks for 2020

portfolio chock-full of tobacco companies, coal miners, oil drillers and and dirty power corporates? She may say “how dare you”, but can you be a good investor and a good human being at the same time? JP Morgan thinks that not only can you do this, it also makes good sense to invest in companies that have favourable Environment, Sustainability and Governance (ESG) scores.

On the environmental front, there is global cooperation amongst companies and organisations on issues like climate change, with a focus on emissions and renewable energy, global carbon pricing, pollution control and recycling, water and forest conservation, carbon capture, plant-based protein, amongst others.

On the social front for corporates, issues like addressing discrimination, employee well-being, and contribution to communities are increasingly discussed.

Recently, the US Business Roundtable marked a remarkable turn in this direction when it updated its statement of purpose to suggest companies should strive towards benefiting all stakeholders, not just shareholders.

Similarly, for the first time in its 19 years of surveying CEO transitions in the world’s largest companies, a PwC study found that in 2018 more CEOs were dismissed for ethical lapses than for financial performance or board struggles.

Union Bancaire’s Lok says responsible investing can also be used to identify new investment opportunities at a time of accelerating global change. Electric vehicles, sustainable farming and financial services in developing countries are just a few examples of large industries that owe their success in part to businesses’ efforts to contribute more to sustainability, he adds.

Idea 8: Asian companies that will benefit from the trade war America’s trade war with China is seeing factories move to other Asian countries and with that are more opportunities. There is also an increase of intra-Asian trade and investment at the expense of global trade. After years of decline, the intraregional share of global goods trade is now rising, according to an analysis by McKinsey.

That share has increased by 2.7 percentage points since 2013, and the trend is most marked in Asia and EU-28

Michael Lok

Stephen Suttmeier

Idea 9: Chinese e-commerce players BofA Merrill Lynch believes Alibaba and JD.com will continue to benefit from the robust growth in China’s e-commerce industry. China’s e-commerce market should continue posting healthy growth in 2020, driven by increasing adoption of online shopping in lower tier cities and steady rise in average customer spending. They forecast e-commerce in 2020 to grow 22% YoY to US$2.09t (vs 24% YoY in 2019E), the number of online shoppers to reach 709 million by 2020 (+8% YoY from 660 million in 2019E) and online retail penetration to rise to 31.6% in 2020 from 28% in 2019E. Alibaba and JD.com are expected to maintain their dominant market positions with an estimated 50% and 12% share of China’s e-commerce market in 2020, respectively.

Idea 10: Keep buying American stocks Donald Trump likes buying American, so perhaps you should too. American stocks are currently at record highs, up 24% by the end of November, so a contrarian investor may think now is not the best time to pile in and buy more. Indeed, nothing feels worse than buying in at the top of a market only to see it plunge in a crash. Yet many banks reckon the American market still has legs to run.

Amongst them is BofA Merrill Lynch, who notes that the S&P 500 broke out into a new secular bull market as of April 2013. The prior bull markets from September 1950 to February 1966 and July 1980 to

China’s eCommerce GMV to grow 22% YoY and online retail penetration to reach 31.6% in 2020

Source: BofA Merill Lynch Global Research

HONG KONG BUSINESS | JANUARY 2019

19

cover story If the US is to top out vs MSCI World ex-US (MXWOU), the US Dollar likely needs to decline

Source: BofA Merill Lynch Global Research, Bloomberg

March 2000 lasted 16 to 20 years, which suggests that the current secular bull market could last another decade. Rallies after cyclical corrections of 12% or more during secular bull markets tend to be strong.

These rallies have lasted 30.5 months on average (31.3 median) with an average return of 89.92% (64.77% median). This equates to the S&P 500 achieving 3,874 (median return) and 4,465 (average return) in July/ August 2021. If the three biggest rallies in excess of 100% and the smallest rally of 24.4% 24.4% are removed,, the average and median returns for the remaining rallies suggest SPX 3750-3765.

In case you were wondering whether it’s really a good idea to keep buying American stocks or switch to other markets, BofA Merrill Lynch has some advice. “Many investors are asking: When does the US equity market top out vs international equity markets?

The S&P 500 (US) has had a leadership trend vs MSCI ACWI ex-US (rest of the world or ROW) since bottoming in late 2007/mid 2008. As of late November 2019, there are no major signs of top and the US is setup for another new relative high within an 11-year+ leadership trend vs ROW. We would get more concerned about a loss of US leadership if the US vs ROW ratio broke below its rising 26 and 40week MAs.” The US Dollar likely holds the key for US vs ROW. If the US (S&P 500) is to top out relative to ROW (MSCI World ex-US, MXWOU), the US Dollar Index (DXY) likely needs to weaken. Whilst it is not a perfect fit, DXY weakness has generally coincided with weakness for the US vs ROW. Examples of this include the 1985 and 2001 peaks for the DXY, which preceded significant periods of weakness for the US vs ROW. If the DXY struggles in 2020, the risk is that the US equity market begins to struggle relative to the rest of the world.

Idea 11: Buy Singapore, sell Hong Kong Morgan Stanley thinks that there is more potential for medium-term outperformance of the banks and property sector in Singapore vs Hong Kong. This is a result of the lower relative growth of the underlying economies, with MS forecasting a 2018-20 average 20

HONG KONG BUSINESS | JANUARY 2019

Nick Lord

Anil Agarwal

Praveen Choudhary

GDP growth of 0.4% in HK versus 1.2% in Singapore.

Morgan Stanley’s Nick Lord and Selvie Jusman note that Singapore banks have experienced earnings downgrades throughout 2019 as the market has adjusted to the impact of lower rates on NIM and the impact of lower GDP growth on lending. However, undemanding valuation multiples at the beginning of the year, plus high capital ratios, which gave the market some comfort on dividend sustainability, meant that the banks have performed well despite this. Valuation multiples are still undemanding, even though they do not expect EPS to grow much, if at all in 2020. “Our preference is for UOB, which we see as having the most defensive business mix of the Singapore banks. OCBC (EW) is least preferred given the overhang of potential M&A on capital returns.”

Meanwhile, Morgan Stanley’s Wilson Ng and Derek Chang note that Singapore developers are trading at discounts to RNAV around 1 standard deviation wider than their historical (18-year) averages, despite steady growth in home prices where volatility is limited by potential regulation changes On the other hand, Singapore REIT valuations are less compelling, trading at dividend yields near 1 standard deviation more expensive than their historical averages.

Morgan Stanley’s Anil Agarwal and Irene Zhou also report that the HK economy is slowing quickly, and although bank stocks have corrected in 2019, they would continue to avoid the segment. Stocks are trading below long-term averages but the historical average is probably not an instructive comparable – as they observed in other markets (Korea/China) where ROEs structurally trended down. Such bank stocks have looked attractive versus their own history for a decade, but kept derating.

The large HK banks face a similar challenge over the next few years, and we may end up seeing a comparable derating.

Hong Kong property remains in a bad state because of the social unrest, with analyst Praveen Choudhary forecasting office rents to decline 5% HoH in H2 2019 with falls up to 10% in 2020. The outlook is worse for the battered luxury malls, with tourist arrivals down 26% YoY in Q3 2019.

Within the HK property space, Morgan Stanley prefer residential stocks with farmland exposure over office and retail landlords.

Singapore property supply growth by category - Limited supply supports rising rent

Source: CDL-HT, CBRE, JTC, STB, URA, Morgan Stanley Research

legal industry survey

The total headcount of the 25 largest law firms rose 2.86% to 2,514 legal professionals.

Mainland interim measures bolster arbitration scene All 11 applications for interim measures in HKIAC have so far come from law firms.

D

eacons has maintained its position as the biggest law firm in the city, ramping up its lawyer count by 19% YoY to 275 in Hong Kong Business’ 2019 legal firm rankings. Right behind it is Mayer Brown with 214, and in third place is King & Wood Mallesons with 202 legal professionals. Rounding out the top five is Linklaters with 197 lawyers and Baker McKenzie with 170, both posting slight increase in staff from last year. As a whole, the total headcount of Hong Kong’s 25 largest law firms rose 2.86% to 2,514 legal professionals.

Cross-border dispute resolution is a fast growing area of law in Hong Kong.

According to data from the Hong Kong Trade Development Council (HKTDC), 521 cases have been carried out in the Hong Kong International Arbitration Centre (HKIAC), including 265 arbitration cases and 21 mediation disputes in 2018. The total amount in dispute for the cases that have been administered has hit about $52.2b.

The most involved sectors in HKIAC seated arbitrations were from international trade, which took up 29.6% of the total. It is followed by the corporate sector with 18.6%, and maritime holding 15.1% of the total. Construction (13.7%)

22

HONG KONG BUSINESS | JANUARY 2020

Amongst these arbitration cases, majority or 190 are international in scope, with Mainland Chinese parties amongst the most frequent users of their service.

and banking and financial services (11.9%) round out the total.

Amongst these arbitration cases, majority or 190 are international in scope, with Mainland Chinese parties amongst the most frequent users of their service. A spokesperson from HKIAC told Hong Kong Business that 40% of its arbitration caseload consistently involved Mainland Chinese parties, with 7-15% of it coming from state-owned entities. Singapore, the British Virgin Islands, Cayman Islands, the US, South Korea, Vietnam, Macao and Malaysia were also noted as the most frequent source of users of its services.

“Hong Kong has a special role

HKIAC headquarters

as the connecting jurisdiction for dispute resolution between parties from mainland China and the rest of the world. It is the go-to jurisdiction for Sino-foreign disputes,” the spokesperson said.

It doesn’t seem like it would stop there.

In April, the Hong Kong government and the Supreme People’s Court of China signed an arrangement that took effect in October 2019, which would allow any party involved in arbitration proceedings in Hong Kong to apply for interim measures in Mainland Chinese courts — which includes preservation of assets, evidence and conduct — before or after the arbitral institution accepts a Notice of Arbitration, and vice-versa. According to a news release by the HKIAC, the interim measures available in Hong Kong include maintaining or restoring the status quo whilst waiting for the resolution of the dispute, preventing actions that may cause harm or prejudice to the arbitral process, preserving assets and relevant evidence to the dispute resolution.

According to HKIAC, the arrangement is bound to create a new source of work for law firms: as it compels more parties to pick Hong Kong as a seat of arbitrations involving parties in the Mainland, it will bring more work to law firms that participate in Hong Kong seated arbitrations.

“Given that the Arrangement has only been in force for approximately two months, a party that intends to apply for interim relief under the Arrangement is likely to seek legal advice from a law firm,” they said. HKIAC noted that all 11 of the applications related to the interim measures they have so far received as of 13 December came from law firms on behalf of parties.

HFW partner Ben Bury said that the move will also provide arbitration

legal industry survey Lees especially noted that the availability of the interim measures is particularly critical for financial institutions, which will make Hong Kong seated arbitrations more attractive for them.

More disputes get resolved in Hong Kong.

practitioners in the city opportunities to assist lawyers from the Mainland who are acting for clients involved in the interim measures in the Mainland courts in support of Hong Kong arbitrations.

Bury added that international law firms, in particular, stand to benefit from this development, considering how their Hong Kong lawyers provide legal services to clients across the globe, including those who have disputes with parties who hold assets in the Mainland. For HFW, over half of their lawyers practice in arbitration.

In general, the firm expects to see a rise in institutional arbitrations in Hong Kong brought by this arrangement.

“These measures are unique to Hong Kong and makes the city an even more attractive place for parties to resolve disputes against parties with assets in Mainland China,” he said.

Level the playing field Parties seeking dispute resolution will also gain from this arrangement. Bury said that although arbitrations in the city enjoy a special status before the Mainland courts, how frequently that parties that seek out to enforce awards in the Mainland are unable to recover — either because the debtor moved or disposed of its assets — is not known.

With that, the interim measures could improve their odds of recovering those funds from debtors with assets in the PRC. “Prior to the new arrangement coming into effect, clients who wanted to be able to obtain interim measures in the PRC were required to have the arbitration seated in the PRC and administered by a PRC arbitration institution with whom they were not always familiar,” Simmons & Simmons partner Amanda Lees said.

Ben Bury

Amanda Lees

Peter Murphy

Room for improvement Hong Kong is considered to be a leading centre of dispute resolution.

According to a survey by Queen Mary University’s School of International Arbitration in London and New Yorkbased law firm White & Case, the city emerged as the fourth most preferred seat of arbitration. The city’s Arbitration Ordinance is already viewed to be amongst the most advanced arbitration statutes globally. HKTDC stated that arbitration awards made in the city are enforceable on most trading economies, including on Mainland China since the arrangement on mutual recognition and enforcement of awards between them established in 2000.

“Hong Kong has long had a pro-arbitration legal framework implemented through its up to date and internationally recognised legislation, its specialist and international judiciary, and its experienced legal experts and institutions, such as HKIAC, who have contributed to the development of international best practice in Hong Kong,” HKIAC said.

If there is anything that city’s arbitration and mediation landscape can improve on, HFW partner Peter Murphy believes that its industry could do more to explain their unique advantage to both local and international markets. “[No]

jurisdiction can rest on its laurels, but Hong Kong is first among equals in Asian dispute resolution and our city should be proud of that,” he said.

HKIAC asserts that the city ought to continue doing its work, bringing stakeholders from the private sector, the government, and the judiciary together so it can keep its crown as a leading centre of dispute resolution. “The main activity required is to ensure users across the globe are aware of its strengths,” they said.

The city’s dispute resolution landscape has gone through changes over the past few years. In June 2017, Hong Kong amended its Arbitration Ordinance so it could legalise third-party funding of arbitration and resolution. HKTDC said that this will lighten the costs of bringing or defending a claim by claimants, as a result, spreading out their risks.

In 2018, the amendments related to intellectual property arbitration took effect, which attracted parties both locally and internationally to resolve their intellectual property rights (IPR) disputes by arbitration in the city. Online dispute resolutions have also garnered greater demand, with the city setting up an online dispute resolution platform called “eBRAM.hk” to be launched by end-2019.

According to data from HKTDC, 924 local solicitor firms and 87 foreign law firms had set up in Hong Kong, including over half of the Global 100 law firms with a presence in the city, as of end-June 2019. Thirty-nine foreign registered law firms, including Mainland law firms, have formed associations with local firms over the same period. The city’s exports of legal services jumped 16.0% YoY to $2.9b (US$374m) in 2017. By Clarist Zablan

Breakdown of dispute cases

Source: Hong Kong International Arbitration Centre

HONG KONG BUSINESS | JANUARY 2020

23

Legal industry survey 2019 Rankings

Company name

2018 Rankings

Foreign/Local

2019 Legal Professionals

2018 Legal Professionals

Managing Partner

1

Deacons

1

Local

275

231

LILIAN CHIANG (Senior Partner)

2

Mayer Brown

3

Foreign

214

186

terence tung

3

King & Wood Mallesons

4

Foreign

202

181

HAYDEN FLINN HELENA HUANG

4

Linklaters

2

Foreign

197

191*

NATHALIE HOBBS

5

Baker McKenzie

6

Foreign

170

166

STEVEN SIEKER

6

Clifford Chance

5

Foreign

164

169

GERAINT HUGHES

7

DLA Piper Hong Kong

8

Foreign

127

114

SUSHEELA RIVERS

8

Herbert Smith Freehills

7

Foreign

124

124

MAY TAI

9

Stephenson Harwood

9

Foreign

97

98

VOON KEAT LAI

10

Eversheds Sutherland

14.5

Foreign

87

83

STEPHEN KITTS

11

Latham & Watkins

14.5

Foreign

86

83

JOSEF ATHANAS

12

Woo Kwan Lee & Lo

12

Local

82

90

WILLIAM KWAN

13

Norton Rose Fulbright

11

Foreign

79

93

PSYCHE TAI

14

Li & Partners

13

Local

75

87

ROBIN LI

15

Reed Smith Richards Butler

10

Foreign

70

95

DENISE JONG

16

HFW

21

Foreign

61

45

PATRICK YEUNG

17

Skadden, Arps, Slate, Meagher & Flom

18

Foreign

56

49

JONATHAN STONE

18

Simmons & Simmons

17

Foreign

54

57

PAUL LI (Asia) FIONA LOUGHREY (head of HK office)

19

Wilkinson & Grist

20

Local

51

47

RAYMOND CHAN

20

Clyde & Co

19

Foreign

47

48

SIMON McCONNELL

21

Robertsons

16

Local

45

74

CHRIS LAMBERT

22

Tanner De Witt

22.5

Local

43

38

IAN DE WITT MARK SIDE

23

Gallant

23

Local

40

33

BRENDA LEE

24

Jones Day

22.5

Foreign

38*

38

JOELLE LAU

25

Cleary Gottlieb Steen & Hamilton (Hong Kong)

25

Foreign

30

25

MICHAEL GERSTENZANG (Global)

Total

2,514

2,445

*Data retained from 2018

24

HONG KONG BUSINESS | JANUARY 2019

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INSURANCE INDUSTRY SURVEY company is an edge over traditional insurers, Wong stated, since they have established themselves from the ground up and can offer a more affordable and personalised service to clients.

“We will continue to focus on enhancing our virtual insurance experience and engaging our customers through our value-added services such as an application, which is set to be launched next year.”

New entries, such as Avo Insurance, may soon snap up a larger share of the insurance sector.

Traditional insurers lead but digital firms are rapidly rising Virtual insurers are getting out fresh products for underserved segments in the insurance market, but traditional firms still dominate in terms of size.

H

ong Kong Business’ annual review of the insurance sector revealed that the total assets of the city’s 50 largest insurers rose 3.54% to $643b in 2018 from $621b in 2017.

AIA International remains the top Hong Kong insurer with $139b in total assets, up from $125b in 2017. Prudential Hong Kong Life retained second place at $107b from 2017’s $99b. HSBC Life went up two places to third with $63.9b, Manulife International placed fourth at $58b, and China Life fell to fifth place with $51.7b in total assets this year.

Even with the presence of these large firms, digital insurers are rising to gain a presence in Hong Kong, which still has one of the lower penetration rates amongst developed countries.

So far, two virtual insurance licenses have been issued to Bowtie in 2018 and Avo in 2019. One restriction for virtual insurers is that they are not allowed to accept any business from any channels other than their own proprietary system.

But digital insurers are undaunted.

“We are able to create new insurance products that have greater levels of customisation and can be more

26

HONG KONG BUSINESS | JANUARY 2020

Winnie Wong

Fred Ngan

relevant to consumers, as well as introduce existing insurance products to new channels and underserved segments,” said Avo Insurance’s CEO Winnie Wong.

Since obtaining their virtual licence, Avo has been busy developing protection for uninsured risks and diversifying their coverage. The firm offers e-wallet, cancer, and travel protections which can customised based on a client’s preferences, needs and ability to pay. Protections start from $79 per person annually for e-wallets, $125 to $159 for cancer coverage, and $39 to $69 for travel protection. Further, Avo is building their own virtual system that will provide a quick underwriting process with simple risk assessment questions. The system will be supported by automation, and will speed up the insurance process for the customer-side. It will also lower internal operational costs. The firm utilises social media to connect with customers, particularly on Facebook and LinkedIn, and a core group of partners to help them craft easy-tounderstand insurance plans that fit their clients’ needs. Being a digital

Potential in pure protection Another licenced digital insurer, Bowtie, has offerings geared towards life and health protection.

“Penetration for digital channels is below 1% for the life and health business. Only 2% of premiums amongst the market provide pure protection. Thus, we see a very large market for pure protection products in Hong Kong,” said co-founder and co-CEO Fred Ngan.

“As a visual insurer, we eliminate commissions and sales intermediaries by going direct.

Going direct allows us to keep our prices low without commissions, maximising the insurance value for customers and enables us to reinvest in the platform,” he expounded.

Bowtie introduced the first fully online medical underwriting engine in Hong Kong, which instantly provides health evaluations for its users and gives fairer and more transparent insurance pricing. They have also offered a full end-to-end digital Voluntary Health Insurance Scheme (VHIS) which can be done through smartphones, streamlining operations and eliminating the need for paperwork. “With the automatic claim process, medical examinations or paper forms are no longer required, and application process is shortened from at least three days to as fast as ten minutes.”

Just like Avo, Bowtie is reaching out to the younger generation looking for a hassle-free experience. “It reflected that most of our customers received smooth self-served experience, which 85% of applications and more than 70% claims submitted online didn’t involve assistance from our dedicated support team,” Ngan said.

By Alyssa Divina

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INsurance industry survey 2018 Ranking

Insurance Company

2018 TOTAL ASSETS

2017 Ranking

2017 TOTAL ASSETS $125b

1

AIA International

Life or Long Term Business

$140b

1

2

Prudential (HK) Life

Life or Long Term Business

$107b

2

$99b

3

HSBC Life

Life or Long Term Business

$64b

4

$67b

4

Manulife (Int'l)

Life or Long Term Business

$58b

5

$51b

5

China Life

Life or Long Term Business

$52b

3

$74b

6

BOC LIFE

Life or Long Term Business

$31b

6

$32b

7

AXA China (Bermuda)

Life or Long Term Business

$27b

7

$25b

8

Hang Seng Insurance

Life or Long Term Business

$24b

9

$20b

9

FWD Life

Life or Long Term Business

$22b

8

$21b

10

Sun Life Hong Kong

Life or Long Term Business

$13b

10

$10b

11

TPLHK

Life or Long Term Business

$10b

14

$6b

12

FTLife (formerly Ageas)

Life or Long Term Business

$10b

13

$8b

13

YF Life (formerly MassMutual Asia)

Life or Long Term Business

$10b

11

$10b

14

Transamerica Life (Bermuda)

Life or Long Term Business

$5b

12

$8b

15

BEA Life

Life or Long Term Business

$5b

17

$5b

16

MetLife

Life or Long Term Business

$5b

15

$5b

17

AXA China (HK)

Life or Long Term Business

$4b

16

$5b

18

Chubb Life (formerly Ace Life)

Life or Long Term Business

$4b

20

$4b

19

AXA General

General - Direct and Reinsurance Inward Business

$4b

19

$4b

20

Bupa

General - Direct and Reinsurance Inward Business

$4b

21

$3b

21

General - Direct and Reinsurance Inward Business

$3b

22

$3b

Life or Long Term Business

$2b

24

$2b

23

CTPI(HK) "Generali Worldwide/ Generali Life (HK)" Zurich Insurance

General - Direct and Reinsurance Inward Business

$2b

23

$2b

24

Fubon Life Hong Kong

Life or Long Term Business

$2b

32

$1b

25

Hong Kong Life

Life or Long Term Business

$2b

18

$4b

26

BOC Group Insurance

General - Direct and Reinsurance Inward Business

$2b

25

$2b

27

Zurich International

Life or Long Term Business

$2b

26

$2b

28

Friends Provident Int'l

Life or Long Term Business

$2b

29

$2b

29

AIG Insurance HK

General - Direct and Reinsurance Inward Business

$2b

27

$2b

30

Generali

General - Direct and Reinsurance Inward Business

$2b

30

$2m

31

Chubb Insurance

General - Direct and Reinsurance Inward Business

$1b

31

$1b

32

QBE HKSI

General - Direct and Reinsurance Inward Business

$1b

28

$2b

33

Asia Insurance

General - Direct and Reinsurance Inward Business

$1b

34

$1b

22

34

AIA International

General - Direct and Reinsurance Inward Business

$1b

36

$1b

35

Blue Cross

General - Direct and Reinsurance Inward Business

$1b

35

$1b

36

Old Mutual International

Life or Long Term Business

$1b

37

$1b

37

AIA (HK)

Life or Long Term Business

$1b

33

$1b

38

AXA China (HK)

General - Direct and Reinsurance Inward Business

$1b

40

$1b

39

MSIG Insurance

General - Direct and Reinsurance Inward Business

$1b

38

$1b

40

Prudential (HK) General

General - Direct and Reinsurance Inward Business

$1b

43

$896m

41

Allied World

General - Direct and Reinsurance Inward Business

$1b

42

$918m

42

Aviva

Life or Long Term Business

$1b

39

$1b

43

CIGNA Worldwide Life

Life or Long Term Business

$1b

44

$888m

44

Liberty Int'l

General - Direct and Reinsurance Inward Business

$970m

46

$856m

45

AGCS SE

General - Direct and Reinsurance Inward Business

$926m

45

$869m

46

Standard Life Asia

Life or Long Term Business

$795m

41

$923m

47

Principal

Life or Long Term Business

$776m

47

$845m

48

AXA Wealth Mgt (HK)

Life or Long Term Business

$620m

48

$656m

49

Dah Sing Insurance

General - Direct and Reinsurance Inward Business

$429m

50

$282m

50

Generali

Life or Long Term Business

$210m

49

$387m

TOTAL

$641b

Data obtained from the Hong Kong Insurance Authority 28

Classification

HONG KONG BUSINESS | JANUARY 2020

$622b

event coverage: Management excellence awards

Hong Kong’s top execs and teams hailed at the HKB Management Excellence Awards 2019

MEA Trophies

H

ong Kong Business successfully recognised outstanding business leaders and firms at the HKB Management Excellence Awards 2019 held at Island Shangri-La, Hong Kong on 21 November.

The awards event lauds the world city’s most outstanding business leaders, including noteworthy individuals and teams whose initiatives have brought tangible business gains for their company.

Winners were judged by an elite panel that includes Charbon Lo, Director at Crowe (HK) CPA Limited; Roy Lo, Managing Partner at SHINEWING (HK) CPA Limited; Anthony Tam, Executive Director, Tax Advisory Services at Mazars; Andrew Ross, Consultant at Baker Tilly Hong Kong; and Eugene Liu, Managing Partner at RSM Hong Kong.

HKR International Limited

Hong Kong Business congratulates the following winners: Executive of the Year Architecture - Stephen Chow, Benoy Limited Business Services - Lennard Yong, Tricor Group Computer Software - Charles Wong, Prive Technologies Diversified Services - Henry Chong, Fusang Group Financial Services - Nick Cheung, Morningstar Asia Limited Financial Technology - Joseph Chan, AsiaPay Investment Banking - Adrian Valenzuela, MCM Partners Manufacturing - Rishi Pardal, Avery Dennison Corporation Personal Insurance - Martin Garcia, Now Health International Real Estate - Cha Mou Zing Victor, HKR International Limited Transportation - Cyril Aubin, Hong Kong Tramways, Limited Innovator of the Year Architecture - Ian Hau, XLMS Limited Financial Services - Kenny Woo, Yedpay The Payment Cards Group LTD. Health Products & Services - Priscilla Chan, Smith & Nephew Limited Transportation - Nixon Cheung, Hong Kong Tramways, Limited

Hong Kong Tramways, Limited

Team of the Year Computer Software - Prive Technologies Financial Services - Workflow Technology Support Team, VirtuITG Food & Beverage - Beam Suntory China Furniture and Fixture - Herman Miller Asia Pacific Pharmaceuticals - Hong Kong Acute Therapies Team, Baxter Healthcare Ltd Transportation - Commercial and Brand Team, Hong Kong Tramways, Limited Employee Engagement of the Year Manufacturing - Avery Dennison Corporation Pharmaceuticals - Baxter Healthcare Ltd 30

HONG KONG BUSINESS | JANUARY 2020

AsiaPay

Baxter Healthcare Ltd

Herman Miller Asia Pacific

Avery Dennison Corporation

Tricor Group

HONG KONG BUSINESS | JANUARY 2020

31

event coverage: ASIAN EXPORT awards

The finest exporters of the region celebrate at The Asian Export Awards

H

ong Kong Business successfully ended The Asian Exports Awards, co-presented by Singapore Business Review, with a packed venue at Shangri-La Hotel Singapore on 28 November, gathering over 100 guests.

On its second year, the awards event honoured products and services that have significantly enhanced businesses in the regional export scene. The event was supported by the Asia Business Trade Association and Asian Trade Centre, the International Chamber of Commerce of Hong Kong, the Hong Kong Exporters’ Association, the Singapore Chamber of Commerce (Hong Kong), and the Thai Chamber of Commerce.

This year’s winners were judged by an elite panel that includes Chong Cheng Yuan, Partner & Industry Lead, Industrial Manufacturing at RSM; James Elsom, Executive Director, Corporate Finance Advisory at Deloitte Asia Pacific; and Cheng Soon Keong, Director, Corporate Advisory Services at BDO LLP. The event coincides with the third year of the SBR Made in Singapore Awards and Designed in Singapore Awards which respectively hails products manufactured and conceptualised in Singapore.

Winners were judged by Richard Loi, Partner for SEA Consumer & Industrial Products Industry Audit & Assurance Leader at Deloitte & Touche LLP; Toh Kim Teck, Assurance Partner at Foo Kon Tan LLP; Henry Tan, Managing Director at Nexia TS; and Joshua Ong, Managing Partner at Baker Tilly.

“We had such a wide range of interest for tonight’s awards, so thank you all very much. I’d also like to thank all of our judges who patiently went through all the nominations,” said Tim Charlton, publisher of the Hong Kong Business.

Hong Kong Business congratulates the following winners:

Asian Export Awards trophies

Networking dinner

Networking dinner

The Asian Export Awards - Large Corporate Heinz ASEAN Pte. Ltd. - Condiments Freedom Foods Group - Milk Vietnam Dairy Products Joint Stock Company - Processed Food Tru Blu Beverages Pty Ltd - Soda The Asian Export Awards - Local Champion YanYan International (Phils.), Inc. - Chips Munchys Food Industries Sdn Bhd - Biscuit Kobe Electronics Material (Thailand) Co., Ltd. - Materials and Construction

32

HONG KONG BUSINESS | JANUARY 2020

Freedom Foods Group

Vietnam Dairy Products Joint Stock Company

YanYan International (Phils.), Inc

Heinz ASEAN Pte. Ltd.

Munchys Food Industries Sdn Bhd

Tru Blu Beverages Pty Ltd

Kobe Electronics Material (Thailand) Co., Ltd. HONG KONG BUSINESS | JANUARY 2020

33

Furniture and Fixture

Herman Miller Asia Pacific bags Team of the Year Award for Furniture and Fixture

The renowned furniture manufacturer showcased its volunteer efforts and saw an increase in revenue.

Herman Miller Showroom

H

erman Miller Global Customer Solutions (Hong Kong) Limited, a subsidiary of Herman Miller, Inc., bagged the Team of the Year Award for furniture and fixture at the Hong Kong Business Management Excellence Awards 2019.

Now on its second year, Hong Kong Business Review merits the city’s most outstanding business leaders, including exceptional teams and individuals whose initiatives have resulted in substantial business gains for their company’s operations.

Herman Miller Asia Pacific sets the bar high for furnishing design. Through their operation hubs in Dongguan, China and Bangalore, India, the company offers convenient one-stop solutions to customers in the rapidly growing regions of the Asia Pacific. Their consolidation of operations in their Dongguan factory increased their production capability by 27%, allowing the company to manufacture and deliver more products in the area.

By producing high-quality furniture with inventive designs and innovative technologies and offering award-winning services, Herman Miller works towards a better world, improving the human experience in homes, workplaces, and schools, among others.

The manufacturer has also managed

34

HONG KONG BUSINESS | JANUARY 2020

to reach both corporate and retail customers thanks to their OMNI channel, e-commerce, retail stores and distribution partners. Their revenue grew by 28.6% compared to the previous financial year, making them the fastest growing region across international markets.

only the most exceptional products and services to its clients across the globe.

The project produced stunning results with both an increase in revenue and productivity.

At present, the team aids in the expansion of office landscape for global brands such as the Bank of America, Citibank, and Metlife in the financial sector; Amazon, Salesforce, Facebook, Huawei, DELL in the tech sector; and Daimler, Chanel, Estee Lauder, L’Oreal in the consumer goods sector.

The company is also expanding its market share by establishing brick-andmortar stores as well as online stores in Japan, China, India and Hong Kong.

Herman Miller has been operating in the market for more than a hundred years, focusing on design, the environment, community service as well as the health and well-being of their customers and employees.

Good design isn’t just good business, it’s a moral obligation.

The furniture brand also gives back to the community by creating corporate social responsibility platforms that promote care for children and the elderly and protect the environment. In the last two years, over 500 members of the winning team participated in volunteer programmes, contributing more than 2,000 hours of community service.

Herman Miller’s corporate vision, “Inspiring Design Help People Do Great Things,” was directed towards representing the company’s corporate value and delivering the best outcome to both international and local customers.

“Good design isn’t just good business, it’s a moral obligation,” said Herman Miller founder D.J. De Press.

With an agile, diverse, multicultural, and responsive team, Herman Miller was able to deliver this moral obligation, bringing

Kartik Shethia, VP Asia Pacific, Herman Miller

CONTACT Company name: Herman Miller Global Customer Solutions (Hong Kong) Limited Address: Room 4707-13, 47/F, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong Phone number: +852 2169 9260 Email: LivingOffice_APAC@hermanmiller.com Website: hermanmiller.com

© 2019 Herman Miller, Inc.

Anywhere Everywhere

Meet Cosm – our latest office chair that provides instant comfort, everywhere. hermanmiller.com/cosm HONG KONG BUSINESS | JANUARY 2020

35

REAL ESTATE

Dare to be different is the key to success HKR International Limited (HKRI) isn’t exactly your typical Hong Kong company. So, for its Deputy Chairman and Managing Director, Victor Cha Mou-zing, there’s really no such thing as a typical day.

Victor Cha Mou-zing, Deputy Chairman and Managing Director of HKR International Limited

H

KR International Limited (HKRI) isn’t exactly your typical Hong Kong company. So, for its Deputy Chairman and Managing Director, Victor Cha Mou-zing, there’s really no such thing as a typical day.

“I can tell you one thing – I don’t like to waste time. So, my days always start early, go long and are usually pretty packed. Heavy schedules can wear you down. To avoid getting tunnel vision, I try to carve out some time every day to do a little dreaming,” he says.

Those dreams have certainly borne fruit.

HKRI may be best known for creating Hong Kong’s biggest private residential complex, Discovery Bay. But, it has also expanded into a diversified business conglomerate that is active across the city, in Mainland China and around the Pacific region, in a mix of sectors that range from property development and investment to hospitality and healthcare.

Decades of experience With over 35 years of experience and a reputation as a pioneer in creating inventive living spaces, Mr. Cha is proud to be recognised as “Executive of the Year for Real Estate” by Hong Kong Business. Particularly because, since being promoted to managing director of HKRI in 2001, he has devoted so much of his time to extending and enhancing the company’s flagship, 650-hectare Discovery Bay development.

What started out 40 years ago as a barren piece of unused land located in

36

HONG KONG BUSINESS | JANUARY 2020

northeast Lantau, is today a beacon of sustainable development and Asia’s first eco-friendly, resort-style residential town.

Major innovations under Mr. Cha’s tenure include constructing Hong Kong’s first privately owned tunnel, which connects the development to external transportation, opening the Auberge resort hotel, as well as building the city’s first white chapel by the sea.

“The truth is that we have never viewed ourselves as property developers.

We are tastemakers that curate a quality lifestyle for connoisseurs.”

Discovery Bay has grown, but never lost its serenity and charm as a popular residential area. True to HKRI’s motto of “We create a lifestyle,” the unique project is now home to 20,000 people from different cultures and ethnicities.

“The truth is that we have never viewed ourselves as property developers. We are tastemakers that curate a quality lifestyle for connoisseurs,” he explains.

Embracing a new “art form” Mr. Cha also led the company’s expansion into the hospitality sector during the early 1990s.

HKRI’s signature hospitality brand, Sukhothai, has enjoyed a stellar reputation for almost

30 years in Bangkok. The Sukhothai Shanghai made its debut in Mainland China in 2018, providing consistent high-quality service and amiable aesthetics.

“A hotel shouldn’t only be a place to spend the night. Or even somewhere that provides dining and spa services. That’s accommodation, not hospitality. True Hospitality is much more than that. It’s an art form,” he says.

HKRI has also developed high-end club houses for targeted groups, including the 27hole DB Golf Club, as well as the world-class Lantau Yacht Club, which will be launched in 2020.

“The hospitality industry doesn’t guarantee a quick return, so our decision to step in wasn’t a spur-of-the-moment idea. It was strategic, and part-and-parcel of creating that all important lifestyle,” he adds.

Keep on dreaming The dreams haven’t stopped. In 2002 he spearheaded the acquisition of the development rights of Dazhongli – an old residential area located in the centre of Shanghai. After overcoming a slew of challenges and forming a joint venture with Swire Properties, the location is now home to HKRI Taikoo Hui – a RMB17 billion mixeduse commercial complex that now houses multiple hotels, office towers and a shopping mall.

Since its official opening in November 2017, it has attracted hundreds of multinational and domestic tenants. And, with its positioning of “Dare for More,” HKRI Taikoo Hui is now considered one of Shanghai’s newest and most vibrant lifestyle destinations.

Putting “spare time” to good use There isn’t much “spare time.” But, what Mr. Cha does have, he likes to spend on projects outside HKRI. “Believe it or not, I also do other things. For example, I’m the Chairman of both the Hong Kong Arts Festival and the Hong Kong Trade Development Council’s Hong Kong-Japan Business Co-operation Committee,” he says.

“I’m a firm believer in the proverb that variety is the spice of life. And that applies as much to business as personal life,” he concludes.

HONG KONG BUSINESS | JANUARY 2020

37

Manufacturing

Avery Dennison’s culture and workforce for good Headquartered in Glendale, CA, the company reported sales of $7.2b in 2018.

Avery Dennison’s social responsibility agenda serves as a force for good.

A

very Dennison Corporation (NYSE: AVY) is a global materials science and manufacturing company specialising in the design and manufacture of a wide variety of labeling and functional materials.

With operations in more than 50 countries and approximately 30,000 employees worldwide, Avery Dennison serves customers with insights and innovative products, making a global impact across virtually every industry.

In Hong Kong, we took a dramatic step to help employees build connections by enhancing our office layout with the specific goal of transforming the employee experience at work.

Headquartered in Glendale, California, Avery Dennison’s reported sales in 2018 were $7.2 billion.

The company’s products include pressure-sensitive materials for labels and graphic applications; tapes and other bonding solutions for industrial, medical and retail applications; tags, labels and embellishments for apparel; and radio frequency identification (RFID) solutions serving retail apparel and other markets.

Avery Dennison entered Hong Kong in the 38

HONG KONG BUSINESS | JANUARY 2020

1980s and has experienced strong annual sales growth. Today, the company employs more than 850 employees in Hong Kong across its core businesses – Retail Branding and Information Solutions (RBIS), Label and Graphic Materials (LGM) and Industrial and Healthcare Materials (IHM) – all of which have a strong presence in Hong Kong and the Asia region.

The company has a network of strategically located sales and distribution centre, including facilities in Hong Kong, Mainland China, Taiwan, Japan, Korea, Indonesia, Thailand, Vietnam, Sri Lanka, Cambodia, Bangladesh and India.

A culture to succeed Mitch Butier, CEO of Avery Dennison, said that the company’s policies and practices support a diverse, engaged and ethical workforce in a high performing and interdependent organisation.

The company has created a culture of innovation, diversity, and teamwork that provides opportunities for employees to grow and develop their careers.

“Our North Asia team, which includes Hong Kong, enjoys an 82% employee engagement score, considered best in class. This score reflects the focus we place on our employee engagement strategy: Ensuring employees feel connected to each other (and to our local and global communities), and supported as individuals. Our engagement activities are designed to help employees build and strengthen connections and expand their personal and professional

networks. We believe that when employees enjoy strong and positive relationships with their colleagues, they are more connected to their work, our company and our success,” said Butier.

The Hong Kong employee engagement team, called One AD Plus, arranges a variety of activities, including festival celebrations, wellness initiatives, and charitable contributions and outreach, that contribute to a winning workplace.

Butier added that one of the most important areas for employee engagement is Diversity and Inclusion. Diversity is a company value at Avery Dennison, as employees are encouraged to gain strength from diverse ideas and teams; require different viewpoints and debate; and create an inclusive and respectful environment for people of all backgrounds and orientations.

“In Hong Kong, we took a dramatic step to help employees build connections by enhancing our office layout with the specific goal of transforming the employee experience at work,” the CEO added.

Avery Dennison built new coworking and leisure spaces that enable employees to work together in a less formal but consistently productive way, as well as relax together throughout the day to simply talk and share ideas. The easy quality of these spaces help employees share diverse ideas and collaborate, with employees saying that these new spaces have improved their teamwork.

A force for good As a responsible company, Avery Dennison is committed to sustainable growth and strives to minimise the impact on the environment.

“We have evaluated our products, processes and purposes, with an eye towards increasing sustainability and offering more sustainable solutions. Guided by our environmental and social guiding principles, our sustainability efforts are all about sustaining a thriving business that is a force for good — one that generates value in every respect for all involved,” Butier explained “We believe that by serving as a force for good, we can help advance education, sustainability and women’s empowerment initiatives in many communities where our employees live, learn and work.”

HONG KONG BUSINESS | JANUARY 2020

39

HR Briefing

Three-fourths of employees think there should be laws against age discrimination.

Here’s the real deal on age discrimination in Hong Kong Age does matter, but older workers are not always at a disadvantage when it comes to finding jobs.

W

hen it comes to hiring new employees, Chen, an employer in the logistics industry, is adamant about preferring younger workers. “To be really honest, we need to employ younger people because they are far more adept with the new business environment,” he shared. “Also, they are more intelligent with computers.

And we are facing financial difficulties and older workers are more costly when it comes to salary and insurance,” he added.

Chen may be prejudiced against older workers, but not all employers are biased against more mature employees.

Some, in fact, prefer older employees, believing that younger workers are disloyal. “I don’t really like hiring younger workers. We are a small company and it’s hard when young people leave after only a short time of working with us,” said Ng, an employer in the retail industry. “They’re just beginning to get familiar with our clients then they leave, and their colleagues have to take over. It’s bad for business,” she shared.

Ageism is alive and well in Hong Kong, which currently has no laws in place to prohibit age discrimination. A landmark report by the Equal Opportunities Commission shows that over one-third of older employees have suffered workplace discrimination in the past five years, and over 70% of employees believe that there is a need to introduce legislation against age discrimination.

Engaging older workers There is now a higher proportion of employees aged over 60 in Hong Kong’s workforce than ever before, posing challenges for both organisations and employees

40

HONG KONG BUSINESS | JANUARY 2020

Elaine Lam

Brian Sy

Howard Chan

“The challenge facing employers is keeping their most experienced staff members motivated and engaged as they near their retirement age, particularly, as they represent a larger proportion of the labour force than ever before,” said Elaine Lam, associate director at Robert Half Hong Kong. Lam noted that employers need to prepare for a loss of skills as experienced employees retire, which means making adjustments to working arrangements, recruitment policies, and training programs to allow for the evolving needs of a more senior workforce.

Providing opportunities for upskilling and bridging the gap between older and younger employees is crucial in coping with an ageing workforce. “With white collar professionals, establishing a strong work culture, providing a conducive work environment, exploring more flexible schedules and focusing on more diversity and inclusion initiatives are just a few of the ways companies are working to achieve a more inclusive environment,” said Howard Chan, regional director at Michael Page Hong Kong.

“Many older staff are very resistant to taking instructions from managers junior and less experienced than themselves, this is a problem that companies need to get ahead of,” Chan added.

Amongst the upskilling initiatives now available for older workers are information technology classes at the Active Ageing Centre. The Centre offers collaborative and subsidised computer courses for the elderly, tailor-made for students of various levels. Other initiatives include vocational English lessons and dedicated job fairs for older workers.

No youngsters, please Whilst being adept at new technology is crucial for older workers, learning new tech is not the only way to stay competitive. “Although there are so many reskilling and upskilling opportunities, older employees should focus more on developing soft skills such as being able to apply a multi-generational lens, demonstrate empathy and listening skills, enable life experience to provide mentorships,” noted Brian Sy, head of career products and total rewards at Mercer Hong Kong. “These skills are often more valuable and effective than learning a new hard skill or adopting new technology. However, it’s always beneficial to be curious about how technology is evolving and to understand its impact on future business,” he said.

Ageism doesn’t only affect older workers; it also impacts younger employees, particularly graduates straight out of university. Employers in certain industries such as banking, hospitality and insurance prefer hiring older workers, revealed a report by the Employment Research Institute of Edinburgh Napier University. “Banks have been hiring retired workers on a part-time basis to work in branches, because they are more stable and caring,” an employer in the finance industry shared.

“Loss of experienced employees means loss of company knowledge, so companies need to prepare by assessing what skills will be lost/impacted and make the necessary preparations. Implementing internal knowledge-sharing initiatives across generations is an important measure to creating a smooth workforce transition,” Lam added.

PHARMACEUTICALS

Baxter Healthcare Ltd clinches two awards at HKB Management Excellence Awards 2019

The company develops their employees to the fullest potential in order to carry out their mission to save and sustain lives.

Baxter Healthcare Ltd during the company’s 35th year anniversary

B

axter Healthcare Ltd bagged the Employee Engagement of the Year Award and the Team of the Year Award for pharmaceuticals at the Hong Kong Business Management Excellence Awards 2019.

Now on its second year, Hong Kong Business Review merits the city’s most outstanding business leaders, including exceptional teams and individuals whose initiatives have resulted in substantial gains for their company’s operations.

Baxter Healthcare Ltd, founded in 1931, is dedicated to transforming global healthcare by improving patient outcomes and rising up to the evolving challenges and opportunities in the global medical field.

The company has been operating in Hong Kong for 36 years, manufacturing products for critical, hospital, nutritional, renal, and surgical care. Their products empower clinicians to be more efficient and effective healthcare practitioners by providing a more personalized care to people from all walks of life. To fulfill this, Baxter Healthcare Ltd focused their efforts on three areas through pushing an organization where employees pursue fulfilling careers, promote an environment of trust and take pride in embodying the company’s mission.

With a goal to invest in manpower and develop talent to its fullest potential, the company offers need-based opportunities

and puts more attention towards the team’s managerial roles. To take advantage of flexibility and drive collaboration, Baxter Healthcare Ltd is committed to providing a friendly and pleasant working environment that supports employees and helps them achieve optimum work-life balance.

For instance, their Mission in Baxter launched a series of new initiatives like sharing patient stories and visiting patients’ homes. Apart from this, the company’s benefits program incorporates a familyfriendly element through a comprehensive medical plan that covers dependents. The plan also permits employees to apply for extended sick leaves should the need arise.

Endorsing good well-being and diversity, they launched their health awareness campaign, Biggest Mover, to promote at least 30 minutes of regular exercise into employees’ daily lives.

Working hours in the business have been flexible since 2014, and 85% of their employees are onboard this scheme.

Baxter Healthcare also has multiple sports teams, healthy cooking and eating programmes, stress release activities and continuous learning opportunities. Their BeWell initiative fortifies the bond and collaboration of the company’s employees, and their programs yield 100 % employee participation.

Meanwhile, the company’s Your Dream

Proposal competition encourages patients to write about their dreams and wishes. Patients submit a proposal to the company so that they can turn these dreams into a reality.

In 2018, the Baxter Healthcare staff contributed 300 voluntary hours for 15 local community services, including 96 hours for patient groups.

The results of these programs are reflected in the 100% top talent retention as well as the company’s maintenance of its low turnover rate.

Because of these initiatives, the medical manufacturer earned awards such as Distinguished Family-Friendly Employer in 2014, 2016, and 2018. They also earned the Best Employer of Hong Kong from Aon Hewitt in 2016, becoming the first healthcare company in HK to be merited with the award.

In 2018 and 2019, it was heralded one of the Best Companies To Work For by HR Asia.

The Hong Kong Acute Therapies Team also contributed greatly to the company’s business growth.

Upon their decision to relaunch blood purification treatment, oXiris, the awardwinning team contributed 28% of 2018 total acute business growth, 13% more compared to the previous year’s advancement.

They have also positioned oXiris as healthcare professionals’ most preferred evidence-based practice option for septic acute kidney injury patients. They implemented five strategies in order to drive the clinical acceptance, refine the guideline and measurement that supports the use of oXiris and justify the price difference against conventional product.

Their efforts have yielded a significant increase for Baxter’s acute business growth as well as the company’s status as a market leader in the continuous renal replacement therapy market.

As of writing, Baxter’s market share amounts to 80 percent while its machine IB share sums to 82 percent. Meanwhile, the company’s annual growth rate for the past years has been recorded at 2 to 3 percent. Above all, more and more patients in critical needs can be benefited from these advanced treatments to manage the disease effectively.

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41

OPINION

MARC PARROTt

Aligning the interests of fund managers and investors in Hong Kong

marc parrott Partner Harneys

A

ctively managed investment funds are important. Amongst other benefits, the capital pooled and invested through such actively managed investment funds provides financing for innovative new industries and technologies, which in turn drives broader economic development and growth. Hong Kong has for a long time realised this and successfully supported the growth of such active asset management industry here, providing one of the limbs that makes Hong Kong a truly great global financial centre.

However, as anyone with even a passing interest in the hedge fund, private equity or venture capital industries (so-called “alternative investments”) would be well aware, notwithstanding that the managers of such funds are located in global financial centres such as Hong Kong, the funds themselves, being the vehicle in which investors actually purchase interests and have their money pooled, are overwhelmingly located in the Cayman Islands.

Asia really is an innovative region with respect to the structuring of such funds. However, in an era where we are seeing more and more money globally flow into low-fee fund products practising various forms of indexing, factor investing and other passive or automated methodologies, I believe the alternative asset management industry in Hong Kong (and elsewhere) needs to do more in terms of ensuring an alignment of interests with their investors.

This is good business sense if the industry wishes to continue to attract greater amounts of investor capital.

Further evolution away from the old 2-and-20, which is an anachronism unhelpful to the continued growth of the alternative asset management industry, is required.

Positively, we are seeing more examples in Asia of performance fees only being charged on gains above a “hurdle rate”, based on the idea that inflation or markets generally are rising at some particular rate and so performance fees should only be charged on outperformance above such a level. This appears a very simple idea, and it is not new. For example, letters sent to investors in the investment partnership that Warren Buffett ran, during the period from the late 1950’s until his takeover of Berkshire Hathaway, indicate that his performance fee was charged only above a 6% fixed hurdle. I find it surprising that this model is not more widespread, but I expect it will become more so (using either a fixed hurdle, or sometimes a relevant benchmark index).

Another example of fee evolution is so-called “first loss” arrangements. Under this type of arrangement, the fund manager will agree to absorb some amount of the first losses incurred by the fund but in return, will generally charge a higher management fee on gains. This provides some alignment of interests in the sense that the manager is potentially subject to losses rather than only to gains (with all losses accruing to investors).

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Businesses need to move away from the old 2-and-20.

Other more complex concepts relating to performance fee calculations, such as selecting between “deal-by-deal” performance fees or a “whole fund” approach, properly accounting for writeoffs, losses or valuation write-offs on other investments by a fund when calculating fees, or requiring more robust clawback and/or fee escrow arrangements, are all receiving more attention.

In addition to performance fees, more consideration is being given by managers to whether a flat rate management fee is aligning their interests with those of investors. As assets in a fund grow, the management fees may scale up to a point that they significantly exceed normal operating costs for the management firm (which should really be the point of the management fees) and instead become a material source of profit. Where material management profits are earned without investor profits, this is a decoupling of management and investor interests. As a result, the concept of the percentage of management fees reducing as fund size increases (or other approaches to limiting these fees) is becoming more common in funds managed from Asia.

Beyond fees, promoting other practices to ensure an alignment of interest with investors should be seen as positive to the future of the active fund management industry. For example, ensuring that fund managers are required by fund documents to maintain a meaningful equity interest in their fund, and ensuring that conflict of interest waivers in offering documents are not drafted in an overly broad manner.

By continually focusing on these and other alignment of interest concepts, the active asset management industry here in Hong Kong will continue to grow, and with the rise of wealth in the region has every reason to be optimistic about the future.

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OPINION

brian lo

Delivering the virtual restaurant of tomorrow

W

hen the clock strikes noon and stomachs are rumbling, many office workers in Hong Kong start discussing where to go for lunch—but today, many more are choosing to order their meals online. The food delivery industry is now worth US$53b in Asia, representing more than 50% of global demand. Here in Hong Kong, where consumers are renowned for demanding speed and convenience in everything from shopping to entertainment to dining, it’s no surprise that the online food delivery segment is on its way to reaching US$615m for 2019, up 9.9% from last year.

The boom in food delivery has led to exciting new opportunities for restaurants, including the rise of low-cost virtual restaurants, known as ‘super kitchens’. These delivery-only establishments don’t have traditional restaurant premises. Diners can’t walk in and sit at a table to enjoy their meal; instead, they order the super kitchen’s menu online or through an app on their phone and enjoy a fresh meal delivered straight to their door.

Hong Kong’s food and beverage sector is notoriously cutthroat, so it’s no surprise that restaurateurs and entrepreneur chefs are looking to super kitchens to generate their next wave of growth.

The cost of doing business of running a restaurant The process of opening a restaurant is time-consuming and costly; and once it’s up and running, there’s no guarantee of success. In fact, the majority of restaurants close in their first year of operations, according to Perry Group International. What’s more, around 70% of restaurants which do make it through their first year are forced to close in the next three to five years.

It’s similar in Hong Kong, where a fiercely competitive F&B industry continues to face a number of challenges. In August 2019, the Eating Establishment Employees General Union of Hong Kong surveyed 500 restaurant employees and found that 47% saw falling revenue over the past two months with 51% planning to downsize.

What’s making restaurant owners lose sleep at night? Key factors include rising labour costs, a manpower crunch, skyrocketing rents and increased cost of food. On top of this, the competition just keeps growing. In the past four years, restaurant numbers have grown by 10%, making the prospect of setting up a new restaurant daunting.

A new opportunity: Super kitchens to the rescue Super kitchens are an exciting new opportunity for restaurants.

The concept lowers overheads, reduces the need for manpower and increases output. How? Through a combination of advanced food preparation, underused real estate and algorithm-driven optimisation.

Our Editions is one example of a super kitchen where different restaurant brands come together at the same site, which is specially designed for chefs to prepare certain cuisines for delivery. The super 44

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BRIAN LO General Manager Deliveroo

kitchen model helps avoid the incredible expense and risk of opening a new restaurant. The Editions space comes fully equipped so that restaurants can move in quickly and get to work serving customers, without the high investment of a brick-and-mortar establishment.

Many restaurants are also looking to super kitchens to supply local knowledge and data about unfamiliar areas and potentially unforeseen gaps in the market. Restaurants can leverage millions of data points from food delivery platform to determine where any given cuisine or time-specific offerings will have the best chance of success. And because the super kitchen model is tailored to offer its full support on taking orders and delivery, restaurant brands are freed up to devote their focus on food preparation.

Delivered a food delivery revolution It’s now impossible to imagine the world of restaurants without food delivery, as consumer demand for meals on-demand has skyrocketed in the past few years. A 2017 Euromonitor report predicts that Hong Kong’s food delivery services market will expand by 43% by 2021, and local operators report consistent growth including double-digit percentage rises in orders month-on-month.

Delivery also has much to offer to people in Hong Kong who work long hours—some of the longest in the world, in fact—and are increasingly seeking more options to dodge the restaurant queue and enjoy a tasty, relaxing meal at home.

Consumers want food delivery, but with fierce competition and costs, restaurants are understandably cautious about making any new investments. At the same time, adding delivery capabilities can have a major impact on restaurants’ bottom line. We estimate that delivery can generate up to 30% of a restaurant’s revenue.

Virtual restaurant brands Without a traditional storefront, restaurants operating via super kitchens can roll out new menus quickly and experiment with innovative offerings, lending their business more versatility. A restaurant operating from a super kitchen might introduce a new menu item for delivery consumers, at a fraction of what it would cost to do this in a traditional restaurant—and if the concept works well, they might bring it to in-restaurant diners as well.

In Hong Kong, for example, PizzaExpress recently launched The Pasta Project—a new virtual brand focused on pasta and salad. Responding to a gap in the market for lunchtime options in certain neighbourhoods, The Pasta Project has already supported PizzaExpress to triple its lunch turnover without having to invest in additional staffing, overhead cost and kitchen space.

Super kitchens mean more cost-effective innovation for restaurants and more exciting and delicious options for eaters. Whilst the sector for super kitchens is still in its infancy, the future looks bright, as the next phase of food delivery continues to change how people eat in Hong Kong.

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45

OPINION

tim hamlett

Being neutral when doing business in Hong Kong is becoming difficult

T

hese are hard times for billionaires, or so I must suppose because the latest edition of The Economist contained two articles in their defence. Apparently, in both the United States and the United Kingdom, politicians of a progressive disposition have been rude about billionaires.

Bernie Sanders said they “should not be allowed to happen.”

Jeremy Corbyn says that “every billionaire is a policy failure.” A tax increase for plutocrats is in the wind in both countries. Clearly billionaires have a problem, not least the uninspiring example set by the one in the White House.

The Economist, which clearly knows which side its bread is buttered on, says billionaires are okay, but admits to some misgivings about “rent-seeking.” This is the Economist’s term for people who get rich by exploiting markets which are hard to enter or via their connections with the government.

If competition is allowed then profits will in the long run be driven down by it, and anyone who clocks a billion has done so on his own merits. With a bit of luck, perhaps.

This does not seem to me to dispose of the matter, unless you subscribe to the rather depressing, and now discredited, Chicago School of Economics, which says that the only function of a company is to obey the law and maximise profits.

After all the first quality required to become a billionaire is greed.

People who are not blessed with this foible will find other things to do long before they get to their ninth zero.

As Taleb puts it, the advantage of capitalism is that we all benefit from some people’s greed. That does not mean we have to admire them for having this characteristic.

Before wealth became easily confused with virtue it used to be said that behind every great fortune is a great crime. This may be putting it a bit strongly, but we can all think of ways of getting your first billion which do not involve rent-seeking, are not illegal, and of which we profoundly disapprove.

We could start with getting your raw materials from the “South American towns where the miners work almost for nothing,” as the old Dylan song puts it, and come up to date with the merits of having your gadgets put together by child slaves in China.

Bearing in mind that this implies a broader definition of unacceptable behaviour than the economists’ (or The Economist’s) and that the latter magazine admits that a quarter of the world’s great fortunes were acquired unfairly, this suggests that some suspicion of great wealth might be useful and justified.

This is an interesting observation from a Hong Kong point of view. In the opinion of some people, at least, all our local great fortunes come from rent-seeking, because they derive from real estate—an industry which is shamelessly rigged by the government.

No doubt the 12 or so families who are the major beneficiaries of this system are lying low and quietly thanking their lucky stars that the agenda of the Resistance does not, or does not yet, include an attack on “developer hegemony.”

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

Hong Kong protests

With one resounding exception. Ms Annie Wu aroused the ire of protesters by making a special trip to Geneva to enlighten the United Nations Human Rights Committee about Hong Kong matters.

Ms Wu came by her wealth honestly. She inherited it from her father. As it includes a large chain of eateries the company concerned has been desperately, and in vain, pointing out that she does not actually run the enterprise. This has not protected it from vandalism and boycotts.

Remarkably, one local commentator thought that Ms Wu’s visit to Geneva showed “courage.” Well, no doubt standards of courage are pretty low if you are contributing a controversial column from the safety of Vancouver. Shouldn’t it be called “My Take-off”?

Anyway, I do not buy this. Ms Wu flies to Geneva, first class. She puts up in a five-star hotel, rides in a suitably luxurious limo to the Human Rights Committee meeting and there reads a script which several people—the Liaison Office, the Xinhua News Agency, the SAR Government’s Information Services Department—would be very happy to supply. And then she returns the same way to her Hong Kong home, or palace, to await the arrival of a suitably grateful medal in the mail.

I have more sympathy for the view that boycotting enterprises owned by political pariahs is unkind to their staff. No doubt the innocent youngster who signed up as a trainee barista with Starbucks did not realise that he was entering a political minefield. On the other hand, the people complaining about this were not so vocal when businesses were blacklisted or otherwise persecuted by the Chinese government or its more excitable people. This has been going on for years. The most conspicuous victim is Apple Daily. Companies which wish to remain in good odour on mainland China do not advertise in this newspaper. Conversely, mainland companies are nudged in the direction of friendly forces, which has resulted in some professionals of modest abilities acquiring much wealth and fame.

When Cathay Pacific was forced into a political purge of its staff by shameless abuse of “safety,” we were told that “if you want to do business in China you have to play by the rules.”

It seems that now there are some rules attached to doing business in Hong Kong. It is becoming difficult to be neutral.

United Kingdom China

H Hong Kong

India Thailand

Japan (soon)

Taiwan Philippines

Vietnam

Malaysia Singapore

Indonesia

Australia

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47

OPINION

Hemlock

The DAB has deep pockets

by hemlock www.biglychee.com Email: hemlock@hellokitty.com

F

ollowing the election massacre, the pro-Beijing DAB will reportedly keep its ejected District Council members on their previous (taxpayerfunded) stipends. The money is no problem—the party gets big contributions from pro-Beijing businesses, if not the Liaison Office directly.

This looks like the United Front is going to set up parallel District Council-type operations to continue serving their neighbourhood constituents (such as helping senior citizens and new Mainland immigrants with officialdom).

The aim may be to ‘maintain the grassroots support base’, but it would also be to marginalise the prodemocrats who will now occupy most DC seats. If they are serious about it, the Liaison Office would pressure government departments to prioritise contacts with the unofficial DAB community workers and neglect approaches from the newly elected opposition representatives. Childish—but classic United Front.

And it would not be unprecedented: pan-dem Legislative Council members have complained for years about unequal treatment from bureaucrats.

Might Beijing officials even order senior government figures to ‘boycott’ pan-dem DC members and simply refuse to have contact with them? It would be perfectly in character, and they must be tempted. It would of course send a clear message to Hong Kong’s silent or non-silent pro-dem majority that no, peaceful means don’t work.

For an insight into the inexplicable police tactics, an ex-cop says it’s because their procedures manuals give them no choice. The manuals say (roughly): if tear-gas and beatings don’t work, try them again (and again, repeatedly, for ever and ever). Only the senior management can change the manuals, and for some reason (stupidity? pressure from Beijing?) they don’t/ haven’t/won’t. So, you see, counterproductive measures must continue because they have to.

At the very least, this raises the question of why, if they just implement set procedures without question, the police are paid at levels appropriate for employees who use discretion and brains. (This goes for most of the civil service.)

History repeats, maybe...

One big difference between Macau and Hong Kong (along with size and economy) is what happened in the mid-late 1960s upheavals in the two cities arising from social discontent and aggravated by the Cultural Revolution over the border. In Macau, the colonial authorities permanently lost much of their control 48

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District Council Election polling station

and influence to pro-Beijing labour and business forces. There has since been large-scale immigration of Fujianese Mainlanders. When Leftists tried something similar in Hong Kong, the population largely resisted them and the colonial power kept control. This contributed to the development of a stronger and distinct Hong Kong identity. (Yes, this is all oversimplified.)

Macau has been docile for half a century. Only now is Beijing starting to think how to tame Hong Kong.

One of the many ways Beijing will try is through pressure on companies to punish employees for their dissenting views. Cathay Pacific have fired staff for participating in the protest movement, and there’s a report (somewhere) that the Jockey Club has just sacked someone for pro-movement comments on social media. Mainland financial institutions are reportedly steering clear of Hong Kong staff.

Other banks will no doubt feel a need to discipline staff for ideological incorrectness (several big ones already Panda-grovel by maintaining ‘Belt and Road’ departments and publishing economic analysis taking China’s official data literally).

This provides us with another echo from the 1967 riots. Many Leftists in Hong Kong were arrested and jailed. They and known supporters were also blacklisted, so the only employers that would hire them for decades after were ‘patriotic’ pro-Beijing companies and schools. Who will there be to hire all the blacklisted pan-dems in the future?

“This looks like the United Front is going to set up parallel District Council-type operations to continue serving their neighbourhood constituents.”