Hong Kong Business

Display to 31 January 2012

budget airlines why some are flying high, some flailing china 2012:

crash or crash through?

hk banks’ china lending has analysts worried

asian energy special report

telcos analysis who’s afraid of the

law competition law?

Richard branson Why Virgin needed a

$1million training simulator

Who said men

can’t accessorise?

FROM THE EDITOR

HONG KONG

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As Hong Kong prepares for the festive season and the Year of the Dragon, all looks relatively stable on the domestic front.

Tim Charlton

Art Director Media Assistant

A Christmas tale: The ghost of Von Havenstein appears over Hong Kong

Daniela Gujilde Alex Wong Ajay Shamdasani Louis Shek +852 60999768

With mainland tourists continuing to pump money through the economy, what could go wrong? Well, if ghosts from the past were to revisit one country and tell them a warning, we figure that it might just be the spectre of Von Havenstein coming to Hong Kong.

louis@hongkongbusiness.hk Laarni Salazar-Navida lanie@charltonmediamail.com Rochelle Romero rochelle@charltonmediamail.com

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Can we help?

Students of history will remember that as president of the Reichsbank, it was he who ordered that additional Reichmarks be printed in order to meet the government’s deficits. At the time many actually thought that printing cash would not end up being inflationary, but of course we all know how that ended.

Unfortunately for Hong Kong, it sits at the end of a Van Hevenstein bargain due to its currency peg to the US$. Already, Hong Kong’s M1 money circulation has almost quadrupled since the US began printing cash, or quantitative easing as they euphemistically like to term it. And the effects on Hong Kong property have been hardest felt by the poorest of our citizens.

But worse may be yet to come, because the more the US debts grow, the more they are likely to be paid for by further quantitative easing. So if QE3, 4 or whatever number you want to put on it haven’t come yet, they most certainly will come through in time. One of the smartest moves a new CE could make is to table the idea of exiting this haunted house of a peg and tieing Hong Kong’s economic future to an open world economy, not a profligate aging superpower.

Tim Charlton

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HONG KONG BUSINESS | DECEMBER 2011 3

CONTENTS

30

asian energy special report asia taking the lead in clean energy

SPECIAL REPORT 30 Asia taking the lead in clean energy

Asia is investing billions into clean energy, but with appetite for carbon emissions falling, funding new power projects is going to get harder.

ANALYSIS 18 HK banks’ China lending has analysts worried

Another banking storm might be brewing as HK banks continue heavy lending to troubled China.

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

38 Budget airlines headed for turbulence

No all Asian budget airlines are the same, and while some are doing well others have business models and routes that are still unproven.

OPINION 14 Hong Kong still looking good despite good EU turmoils

16 Why Virgin needed a $1million

10

first china - crash or crash through?

38

budget airlines headed for turbulance

34 Christmas: The festival of retailing?

48 Coming Soon: Hong to build supersonic passenger jets

REGULAR 22 Numbers 50 Life and Style

FIRST

training simulator

10 China - crash or crash through?

24 Why are women in Asia

10 HK economy - brace for impact

doing well in the C-suite?

For the latest business news from Hong Kong visit the website

REPORT www.hongkongbusiness.hk

8 HONG KONG BUSINESS | DECEMBER 2011

FIRST UBS expects new bank lending to rise from RMB 7.37.4 trillion this year to about 8 trillion in 2012.

China – crash or crash through?

further in 2012. “We expect only a modest drop in property prices and see limited impact on the household sector, but new starts could drop by 10-15%.”

To offset the fall in private housing, expectations are high that the government will funnel money into building public housing for the poorer people, much as Hong Kong did in the 1950’s and 60’s with its programs and Singapore continues to do so today.

“Even with officially declinin starts in social housing, we expect more real construction to occur in the coming 12-15 months. Ensuring sufficient funding, construction and delivering of social housing should be the top priority for the central government. Increased social housing construction can help prevent a hard landing in property construction and the economy, but not a significant slowdown in either,” noted UBS.

T

open bank lending, which has been progressively curtailed throughout 2011 by constant raising of the reserve ratio.

What is China’s future?

China is unlikely to crash anytime soon, with economists reckoning that growth may ease from 9.2% to 8% next year. The big picture is that while some Chinese exports may be decreasing to the insolvent EU countries, the central government is expected to make up for the shortfall by opening the spending taps again.

The UBS economics team reckons fiscal policy will likely take the lead, with 1% of GDP in extra spending between now the end 2012, focusing on social housing and livelihoodrelated areas. But China can also re-

Bank lending the rise Chinaon 2012 Outlook (Charts) UBS expects new bank lending to rise from RMB 7.3-7.4 trillion this year to about 8 trillion in 2012, with SocialChart housing construction to prevent helpaprevent a Chart 7: Domestic demand to partly offset the drag from net 8: Social housing construction to help hard the central bank possibly needing exports landing hard landing to cut banks’ RRR to fund the credit Social housing under construction (million sqm) increase.Contribution to real GDP grow th (ppt) 18 1,200 Net Exports But what about all those ghost Gross capital formation 16 Consumption towns and imminent collapse of the 14 1,000 Chinese12property market?

There Asia Economics - Outlook 2012 30 November 2011 10 800 have already been some signs of a 8 Hong Kong 2012 (Charts) falling property market, but analysts 600 attribute64that to the tightening of credit terms and availability, rather 2 400 than due0 to aChart lack11:of fromdisappointment already Twodemand quarters of growth Chart 12: Retail sales could slow to high single-digit in 2012 -2 200 purchasers.

UBS noted that with %YoY -4 15.0 15.0 the ongoing purchase and credit 25.0 12.0 12.0 0 -6 20.0 restrictions,2005 private commodity 9.0 9.0 15.0 2009 2010 2011E2012E2013E2014E2015E 2006 2007 2008 2009 2010 2011E 2012E 2008 6.0 6.0 10.0 housing sales and starts have 3.0 3.0 5.0 Source: CEIC, UBS estimates Source: CEIC, UBS estimates Source: estimates 0.0 CEIC, UBS0.0 weakened and 0.0 are expected to fall

hose American hedge fund managers talking up their book on CNBC and Bloomberg hoping for the mother of all Chinese hard landings in 2012 may be in for a rude disappointment.

Asia Economics - Outlook 2012 30 November 2011

HK economy – brace for impact It is rare an economist breaks from consensus forecasts, especially when the news is bad. Nevertheless, Duncan Woodbridge, the economist from UBS Investment Research, reckons 2012 will shape up as a very dismal one for Hong Kong with his forecast for just 1.6% growth.

This is way down on 2011 which should come in at 4.5% growth and will be well below the Asia ex-Japan average of 5.9% that his firm is forecasting for 2012. So why the bearishness? Well, the good news is it’s not due to the domestic economy,

-3.0 -6.0 -9.0 -12.0 Chart 9: Credit conditions to be relaxed -15.0

-3.0 -5.0 -6.0 -10.0 -9.0 -15.0 -20.0 to keep easing -12.0 10: Inflation Chart -15.0 -25.0

the 4% level, and housing inflation could which, buoyed by mainlanders spending until their cash, up.

2006should 2007 continue 2008 2009to hold 2010Index 2011 87 to 89 rise 91 93 and 95 97stay 99 above 01 03 05 5% 07 09 11 the Inflation continue rate (%85y/y) ate consumption Real retail sales QoQ SAAR %YoY 4506 1100 second halfPrivof 2011.

Rather, as we have%seen over the last 25 Nominal new loans (sa 3mma) 1000 Overall CPI months, equally dismal GDP growth 400 Source: with CEIC, estimates (RHS) Source: CEIC, UBS estimates New UBS loans/GDP "Core" inflation 20 –900the 3rd quarter registered no growth Food and fuel 350 800 at all – the cause is weakening exports.

300 15 700 Peaking property prices Chart 13: Importedreckons inflation to ease Chart 14: Peaking property prices Mr Woodbridge that on past 250 600 %YoY performance, the first three months of 10 Property Price Index 1999=100 500 200 12.0 280 2012 could be the worst for this cycle, but 260 400 150 5 240 8.0 warns that getting out of the quagmire is 220 300 200 100 4.0 no “The risk is that with Europe0 200 guarantee.

180 160 50 likely slipping into a recession in 1H12, and 0.0 100 140 120 -5 0 negative 0 the financial feedback from an -4.0 100 2004 2005 2004 2005 2006 2007 2008 2009 2010 2011 Composite 80 2006 2007 2008 2009 2010 2011 unresolved European debt crisis lingering, -8.0 Lux ury 60 Hong Kong’s stay08weaker Source: CEIC, UBS estimates 96 98economy 00 02 could 04 06 10 Source: 12 CEIC, UBS40estimates 93 95 97 99 01 03 05 07 09 11 Hongnoted.

Kong CPI inflation China CPI inflation for longer,” he TheSource: other bit of bad news is that CEIC, UBS estimates Source: CEIC UBS calculations Source: CEICand and UBS calculations inflation will likely persist in Hong Kong at RMB bn

UBS 7

10 HONG KONG BUSINESS | DECEMBER 2011

co-published Corporate profile

Are payment delays & defaults restricting Hong Kong’s economy?

After news of Hong Kong barely escaping a technical recession, fears spread across the country. But are these fears misplaced or simply exaggerated?

Domestic & Foreign B2B Overdue Invoices By Aging Bands

Matthew Cockerill Atradius Country Manager - Hong Kong

W

ith the latest economic figures showing that Hong Kong narrowly escaped a ‘technical recession’ in the third quarter, it’s not surprising that a number of commentators and forecasters are already expecting growth to weaken. As with all economic information, it’s important to look behind the headline statistics to get a true picture of what’s really happening and understand the various factors that are influencing the figures.

The latest Atradius Payment Practices Barometer is one way of ‘looking behind the headlines’ as it explores the payment practices used by 5,500 businesses in 27 countries, including Hong Kong, and helps build a clearer picture of how companies trade, what issues are present, and where improvements could be made.

HK has highest payment default in Asia Of all Asia Pacific markets, Hong Kong recorded the highest payment default rate of 5%. This is also 2% higher than the mean for all of the countries surveyed, indicating that on average, Hong Kong businesses have a 1 in 20 chance of experiencing payment default. In addition, 35% of all invoices are paid late and 12 HONG KONG BUSINESS | DECEMBER 2011

almost half of these (47%) are between 16 and 90 days overdue.

Other findings from the report compound these issues further, as Hong Kong’s DSO (days sales outstanding) increased by 14 days during the early part of 2011, suggesting that payment delays are not only a common feature, but are also on the increase.

The real effect of delayed payments It’s easy just to view these figures as purely statistical information, yet the impact on businesses as a direct result of payment delays and defaults can be significant. Key among these is the detrimental effect on cash flow. When payments are late or not made at all, the revenue stream is not only reduced but also becomes less predictable.

As a result, businesses need to work even harder to replace lost revenue and severe

“Atradius Payment Practices Barometer explores the payment practices used by 5,500 businesses in 27 countries, including Hong Kong...”

losses could even cause some companies to fail.

Like all Asia Pacific businesses, Hong Kong companies are keen to minimise these risks and offer discounts to customers for the early payment of invoices, even though the payment terms offered are already low at just 26 days.

More than half (58%) of Hong Kong companies use payment discounting even though it has the effect of reducing sales and profitability, which could be avoided or reduced, if credit insurance was used.

While credit insurance is used by 37% of Hong Kong businesses, this is still very low compared to other economies, where it is used to help improve cash flow and to protect businesses from the risk of payment delays and default as part of the credit management process.

To explore how credit insurance can help support your business, please get in touch.

In addition, if you are keen to find out more about our payment practices survey in Hong Kong and around the globe, please visit www.atradius.com.hk.

ATRADIUS CREDIT INSURANCE N.V Tel: +852 3657 0700 E-mail: hongkong.enquiries@atradius.com www.atradius.com.hk

ECONOMICs

Ian Perkin

Hong Kong still looking good despite EU turmoils

O

utgoing Hong Kong Chief Executive, Donald Tsang Yam-kuen, was extraordinarily cautious in his economic comments when delivering his final Policy Address to the Legislative Council on October 12.

Towards the end of his address, he did focus on the overall growth achieved in his one-and-a-half terms in office, but for the most part, he concentrated on immediate social and political issues.

He warned that the uncertainties in Europe and the US would inevitably hit Hong Kong.

“We are not optimistic about global economic prospects next year,” he said. A month on from his speech, it is obvious why his administration was wary of the outlook.

The Government’s third quarter economic update issued on November 11 showed growth moderating on a year-on-year basis with a strong domestic performance overshadowed by weaker external demand.

Gross Domestic Product (GDP) in the third quarter rose 4.3 per cent on a year earlier compared with 5.3 per cent in the second three months and 7.5 per cent in the opening quarter of the year. (see Table 1) As a result, the government economist, Helen Chan, downgraded the growth forecast for the 2011 calendar year to a flat 5 per cent, the bottom end of the previous forecast range of 5-to-6 per cent.

That suggests growth is expected to slow markedly in the final quarter of the year to around 3 per cent.

The Government indicated the growth moderation in the third quarter was mainly caused by a sharp falloff in exports towards the quarter end as the global economic environment weakened.

Domestic consumption and investment remained strong providing a cushion to the external

IAN PERKIN Independent Economic Consultant perkin888@hotmail.com

Hong Kong’s Economic Update (per cent growth) GDP Component

Q4 2010

Q1 2011

Q2 2011

Q3 2011

GDP (Real)

6.4

7.5

5.3

4.3

GDP Nominal

7.6

8.7

10.5

8.8

Private Consumption

8.1

8.1

8.1

8.1

Investment

8.6

8.6

8.6

10.2

Exports Goods

8.2

16.8

0.3

-2.2

Imports Goods

7.5

12.6

2.6

1.4

Exports Services

9.3

9.3

7.7

6.6

Imports Services

7.7

5.8

3.2

2.1

GDP deflator

1.1

1.2

5.0

4.3

CPI inflation

2.7

3.8

5.2

6.4

weak.

Given recent events in the Euro-zone and the US malaise, it is difficult to argue with that, but they might also have mentioned that the Mainland also has its own uncertainties that will impact on Hong Kong.

The government economist admitted the external environment has deteriorated substantially since the government’s last forecast review in mid-August.

She noted that the negative impacts on the global economy caused by the Euro-zone sovereign debt crisis and the ensuing global financial turbulence had intensified towards the end of the third quarter, and are likely to remain pronounced in the period ahead.

While the Euro-zone debt problem is expected to remain a key threat to the global economic outlook, the weakness in the US economy was also of concern.

However, in Asia, the region as a whole had stayed relatively resilient, although growth also moderated as a result of weakening external demand. As a result, the government believes that Hong Kong’s export outlook in the fourth quarter is “...downgraded the growth forecast for the 2011 bleak. calendar year to a flat 5 per cent, the bottom end Domestic demand, as well as inbound tourism, are however expected to hold up. of the previous forecast range of 5-to-6 per cent.”

Higher infrastructure investment is also expected to be positive for growth. weakness. As a result, both headline (6.4 per cent) Inflation, another concern of the Chief Executive and underlying (6.1 per cent) inflation were also in his October Policy Address, is expected to remain relatively high. Both consumption and inflation were difficult. An easing in global food and commodity underpinned by good jobs and wage growth. prices will help reduce imported inflation. But the The government, like most private sector analysts, lagged effects from an earlier surge in market rentals believes that the immediate outlook will remain still feeding through inflation is likely to edge up uncertain as long as the European debt crisis remains slightly further in the near term before peaking out. unresolved and the US economy continues to be 14 HONG KONG BUSINESS | DECEMBER 2011

Table 1: GDP Component Report form the HK Government

HONG KONG BUSINESS | DECEMBER 2011 15

opinion

richard branson

Why Virgin needed a $1million training simulator

H “...our experience shows that the best solution is to provide people with the skills and confidence they need to deal with problems on their own, without sticking to a script or following a flow-chart.”

16 HONG KONG BUSINESS | DECEMBER 2011

ow a new company treats its customers is often the deciding factor in whether it will be successful. Great businesses – the ones who have gotten it right – are good at turning customers into advocates for their companies.

Many of the world’s most successful businesses provide terrific customer service. The adulation some of Apple’s established customers have for the brand and its products is not only a result of the company’s ground-breaking innovations; those products were backed by top-notch customer service. The retention of customers is important to any company. After all, it makes more sense to keep the good customers you have than to continually chase new ones.

I was recently reminded of how important customer service is for all businesses, both new and established, when I visited Virgin America to open their training simulator in Burlingame, California, just outside San Francisco. At Virgin, where our brand is built on the promise of providing terrific service, our flight crews are our most important asset – without them we would be just another airline. The new $1 million simulator is crucial to our expansion plans.

Not every business needs to build a training facility. Indeed, many do not need high-tech solutions. But after reconnecting with the team at Virgin America and seeing how they go about training their new employees, I came away with three key lessons that can be applied at any company, whether it is a Virgin operation

or the start-up you’re planning to launch.

An investment in your employees is an investment in your company All airlines must ensure that everyone on staff, from pilots to ground workers, have rigorous operational, safety, security and even medical training, but at Virgin America, that’s just the beginning. Our staff must also complete a broader immersion in brand values through a twoday annual “brand bath,” which the company calls Refresh. At those retreats, they focus on improving customer experience across the airline.

As an entrepreneur, how can you bring your team together to solve problems and build their trust in each other? At a small business or start-up, this might be accomplished with a low-tech solution, like starting a tradition of eating lunch together and talking about how work is progressing.

Lead from the front At Refresh, David Cush, the CEO of Virgin America, often holds question-and-answer sessions with employees to ensure that he personally addresses their concerns. This is the first step in building bonds between front-line staff and senior managers, which helps to create easy and open communications.

At other companies, executives and managers who want to learn how to improve their operations must step away from their desks and get to know their staff. If your company is too big for regular meetings, spending a few hours handling customer complaints yourself or working on the factory floor

will help you to understand what’s really going on and also to break down the silos that can emerge in some businesses.

Make sure employees have the tools they need to succeed The training at Refresh teaches Virgin America employees to learn how to solve problems on their own – a key to great customer service. This is an unusual approach. Most businesses impose restrictions on their staff in terms of the types of problems employees can solve and the authority they have to do so. But our experience shows that the best solution is to provide people with the skills and confidence they need to deal with problems on their own, without sticking to a script or following a flow-chart.

Most often, what’s missing is information. If, in your meetings with your staff or during your time on the factory floor, you notice that employees are groping for answers, it is time to take action. Remove limits on access to databases; invest in new information technology; do whatever it takes to make sure that they can take initiative on their own.

Celebrate successes in internal communications, to encourage others.

In tough times, when your competitors are cutting costs, it might be tempting to follow their lead and cut back on customer service. But remember that slashing prices is not the only solution. Every customer is valuable; in the long term, a thriving company is built on relationships, not just the bottom line. © 2011 Richard Branson/Distributed

by The New York Times Syndicate.

Corporate profile

Giving sound clarity away With the launch of the new Bose Bluetooth headset, a new choice in your giftlist is added meant for people who are always engaged in conversations and on the go.

It's easy to take calls with Bose's new Bluetooth headset

Proprietary Bose audio technologies, also featured in the company’s IE2, MIE2, and MIE2i headsets, ensure clear, rich audio reproduction from podcasts, apps, or other mobile content.

The Bose Bluetooth headset Series 2 is able to adapt to any environment, regardless of noise

T

he Bose Bluetooth headset Series 2 integrates Bose full-range audio and A2DP, and comes in right- and left-ear version. It includes a proprietary dual microphone system to improve speech intelligibility, rejecting background noise and reducing the audible effects of wind. Bose proprietary signal processing further counteracts the unwanted sounds of a wide variety of places -- gusty walkways, commuter rail platforms or airports. Regardless of the environment, the Bose Bluetooth headset Series ensures the user’s voice is better heard during calls, while background distractions are heard less.

To keep incoming voices clear, Bose TriPort acoustic structure and Bose Adaptive Audio Adjustment technology react automatically as noise levels change; there’s no need to adjust volume settings or strain to hear a conversation. Whether an owner is in a quiet office or on a train -- or moving from a hushed lobby to a busy street -- the headset adapts seamlessly, making it effortless to hear the person on the other end.

The new internal antenna in the Bose Bluetooth headset Series 2 is custom-designed to provide category-leading range performance. Acoustic artifacts -- the “pops,“clicks”

and “buzzes” familiar to Bluetooth headset owners are substantially reduced, and reception difficulty, even between a headset and a phone being carried in a pocket, is minimized.

Easy controls Bose engineers have developed separate leftand right-side versions of the Bose Bluetooth headset Series 2, allowing consumers to choose the version they prefer. Taking calls requires just one simple top-to-bottom pinching motion on the buttons, and clearly labeled LED indicators make it easy to check battery life and confirm the Bluetooth connection.

The Bose Bluetooth headset Series 2 features Bose StayHear tips designed for longwear comfort and stability, making it ideal for driving, commuting, working or multitasking at home. Made of soft, flexible silicone, the StayHear tips gently conform to the ear, eliminating irritation or the need to reposition.

“Reception difficulty is minimized with Bose Bluetooth headset"

Compatibility The Bose Bluetooth headset Series 2 is compatible with devices using the Bluetooth 2.1 specifications that support the Bluetooth hands-free or A2DP profiles. For consumers who want to maintain an active connection between their headset and two Bluetooth enabled devices, it includes multi-point functionality.

Lifestyle 135 Bose has also introduced its first soundbar system: the Lifestyle 135 home entertainment system.

Using proprietary Bose technologies, each system provides a new level of audio performance and placement flexibility for soundbar solutions, delivering home theater sound from one speaker array, and a new wireless Acoustimass module.

Lifesytle135 system includes a media console for up to six HD sources, an AM/ FM tuner, and a dock for iPod or iPhone.

And it features a programmable remote that controls the system and nearly any connected source, from a Blu-ray Discô player to a cable box.

HONG KONG BUSINESS | DECEMBER 2011 17

analysis: Hong kong banks direct lending, and indirectly via their Hong Kong customer base,” noted Fitch in a report.

There is also grave concern that Hong Kong banks will face pressure from their Chinese bank parents, with Fitch seeing signs of the increasing influence of Chinese bank parents on Hong Kong subsidiaries, which could negatively influence efficiency or even reverse progress in key areas, including risk management.”Hong Kong’s banks will cede some of their historical strengths (capital, liquidity, low risk appetite, supervision) should they lower their underwriting standards and prioritise rapid growth in the Mainland.”

HK Banks’ China lending has analysts worried Another banking storm might be brewing as HK banks continue heavy lending to troubled China, reports Krisana Gallezo.

H

ong Kong Banks have long backed the Hong Kong economy, but is there a danger now that they are financing a growing part of China? Yes, is the answer, at least according to some analysts including Fitch Ratings, who has issued a stark warning that Hong Kong’s local banks could face a credit downgrade if they don’t rein in their lending to mainland Chinese entities. Such warnings should not be taken lightly, as it was just a few months ago that ratings agency Standard & Poor's did the unthinkable and downgraded the US government.

So what is wrong with Hong Kong banks extending their loan books to China? After all, much of the loans to China are short term, trade related and collaterized, which will keep them safe from near-term liquidity pressures, 18 HONG KONG BUSINESS | DECEMBER 2011

“Hong Kong banks’ gross Mainland Credit Exposures (MCEs) may rise to about 35% of Hong Kong’s banking system assets next year”

reckons Fitch. But what cannot be ruled out is the sudden liquidity squeeze which was the hallmark of the financial crisis of 2008 and which could yet happen in China, leaving Hong Kong’s banks deeply exposed. It is this threat of a sudden liquidity crunch, rather than a rising number of bad loans, that has analysts most worried. Fitch estimates that Hong Kong banks’ gross Mainland Credit Exposures (MCEs) may rise to about 35% of Hong Kong’s banking system assets next year, up from just 24% at endJune 2011 and 10% in 2008 mainly due to aggression. “Fitch has so far observed a general tendency for the Hong Kong banks to accumulate China exposures through various sources as and when opportunities arise. This includes holding minority equity stakes in Chinese financial institutions, subsidiaries’

What about the smaller banks?

Even tougher warnings were issued on the outlook for smaller Hong Kong Banks. Despite some opportunities related to continuing to serve their respective niches at a time when competitors’ focus shifts to a new untested market, Fitch anticipates that their limited size disadvantages them in acquiring new clients. “Should they prioritise growth, they may be resigned to a “follower position” – participating in larger transactions via syndications or taking credit risk via securities holdings. They will also face greater funding and margin pressure than their larger rivals, especially if credit growth needs to be financed by deposits,” noted Fitch.

In particular, Fitch believes that the evolving operating environment will pose greater challenges for the smaller, indigenous Hong Kong banking groups such as Chong Hing Bank with MCEs of 21%, Wing Hang Bank at 27%, and Dah Sing Bank at about 13%. Other bank analysts are also concerned. Barclays Capital analyst Tom Quarmby warns of an impending liquidity squeeze driven by several factors, not least of which was the huge demand for credit coming from the Mainland as a result of both tightening

by Mainland regulators and the relatively inexpensive cost of Hong Kong and US dollar loans available from the Hong Kong banks. The story seems to have unravelled largely as Barclays had expected, with rising cost of funds placing

analysis: Hong kong banks pressure on lending rates in Hong Kong and forcing many banks to cut loan growth expectations for the second half of 2011, and likely in 2012.

Operational Risks In addition to the issues raised by Fitch, and Barclays’ own concerns over tightening liquidity in Hong Kong, Mr Quarmby says that along with increased credit risk exposure to the Mainland economy and corporates, Hong Kong banks are effectively importing operational risk through off-balance sheet exposures linked to so-called ‘arbitrage lending’, where borrowers are arbitraging appreciation of their RMB deposits against Hong Kong or US dollar loans. However he also notes that in recent months, the HKMA has moved to curtail this activity.

Mr Quarmby told Hong Kong Business Magazine that Hong Kong banks have been reasonably prudent in the past, focussing on loans to their existing customers in Hong Kong for use on the Mainland. However, there is an ongoing convergence between the economies and therefore the monetary and banking systems of China and Hong Kong, which means the HKMA will need to be increasingly vigilant with regard to risk management. “We would expect, given a sound track record, the regulator will err on the side of caution going forward."

But not all analysts think the Hong Kong banks are overextended in China. Mizuho Securities Asia analyst James Antos reckons as much as half of the China exposure

carried by Hong Kong banks is actually held by foreign owned banks with no retail banking presence in HongKong.

“Mainlandowned banks have exposures above 20% of assets”

So just how much concentration risk is there for domestic banks in Hong Kong?

“BEA and tiny Mevas Bank have more than 30% of assets in nonbank China risk, which is a serious concentration risk. Mainlandowned banks have exposures above 20% of assets, which is high, but it seems logical that a Mainland bank will have more Mainland exposure.

The other major banks have a manageable level of exposure,” said Mr Antos.

He also ruled out a major loss on the assets of Hong Kong banks over the next year or two as the NPL ratio for the Hong Kong banking sector is only 0.61% as of June 2011, which is the lowest in Asia. “The NPL ratio for the banks’ China exposures is similarly very low. It is difficult to imagine that the NPL ratio could increase to 2% or 3% unless there is a major recession in China and globally.

This is a disaster scenario which seems unlikely to occur. Since Hong Kong’s banks are quite well capitalized, even a credit setback of this magnitude would be easily managed by most or all banks,” he said.

Fig 1 Non-bank China exposure of major Hong Kong banks National

Non-bank

HKD bn

affiliation

China exp.

Assets

%

BEA

HK

204.2

598.9

34.1%

71.6

219.8

32.6%

0.2

0.7

30.6%

Nanyang Comml Bk

China

Mevas Bk

HK

China exp.

ICBC Asia

China

68.5

248.5

27.6%

Citic Bank Intl.

China

42.6

154.6

27.5%

Wing Lung Bank

China

28.5

137.1

20.8%

Chiyu Bk

China

8.9

44.3

20.2% 15.2%

BOCHK

China

278.0

1,833.8

WHB

HK

25.6

176.7

14.5%

Dah Sing Financial

HK

18.5

153.2

12.1%

Chong Hing Bk

HK

6.2

73.6

8.5%

Fubon Bk - HK

Taiwan

5.1

61.2

8.3%

Standard Chartered Bk - HK

UK

55.7

808.6

6.9%

Public Bk HK

Malaysia

2.0

38.1

5.2%

Shanghai Comml Bk

China

6.0

122.1

4.9%

HSB

HK

80.8

973.2

8.3%

DBS - HK

Singapore

4.3

258.7

1.7%

865.4

5,903.

14.7%

2,034.0

13,505.7

15.1%

Total Banking sector (HKD bn)

Comment

At Dec-2010 At Dec-2010

Source: Mizuho Securities Asia

Barclays Capital | Hong Barclays Kong Banks Capital | Hong Kong Banks

HongFigure Kong6:system loan to deposit ratio China, HK and HKuse loans for y/y use offshore y/y gth Hong Kong Figure system 6: Hong loan to Kong deposit system ratioloan to deposit ratio Figure 7: China, HKFigure and HK7:loans China, forHK and offshore HK loans forgth use offshore y/y gth

Source: CEIC, Barclays Capital Source: CEIC, Barclays Capital

Source: CEIC, Barclays Capital

27.0 16.4

Aug-11

27.0 16.4

Aug-10

45.6

Aug-09

45.6

Aug-08 Aug-11

Aug-07 Aug-10

67

%

Aug-06 Aug-09

75

70 60 50 40 30 20 10 0 -10 -20

Aug-05 Aug-08

System LDR System LDR HK$ LDR HK$ LDR System (ex RMB deposits only) System (ex RMB deposits only)

85

Aug-04 Aug-07

40

67

%

Aug-06

40

75

70 60 50 40 30 20 10 0 -10 -20

Aug-11 Aug-05

50

85

Feb-11

50

%

Aug-09 Aug-08 Nov-09 Nov-08 Feb-10 Feb-09 May-10 May-09 Aug-10 Aug-09 Nov-10 Nov-09 Feb-11 Feb-10 May-11 May-10 Aug-11 Aug-10

60

Feb-09

60

May-09

70

Nov-08

70

Aug-08

80

Aug-04 May-11

90

%

80

Nov-10

90

China China HK total HK total HK loans for use outside HK HK loans for use outside HK

Source: CEIC, Barclays Capital Source: CEIC, Barclays Capital Source: CEIC, Barclays Capital

If we exclude the two If we largest exclude banks, the HSBC two largest and Standard banks, HSBC Chartered, and Standard which are Chartered, in a much which are in a much better liquidity position better (inliquidity terms ofposition LDR), we (in estimate terms of that LDR), system we estimate LDR is that already system closeLDR to is BUSINESS already close to HONG KONG | DECEMBER 2011 19 75%, the operational 75%, maximum, the operational since banks maximum, are required since to banks maintain are required a minimum to maintain liquiditya minimum liquidity ratio of 25%. ratio of 25%.

vox pop : hiring outlook

Hired or fired?

With unemployment on the rise again for the first time since February, hitting 3.3% on October, what does 2012 hold in store for Hong Kong’s employees?

Brien Keegan Director Randstad Hong Kong The war for talent in Hong Kong is still strong, with unemployment at the lowest rate in 14 years at 3.2%. The top human capital challenge for employers in the year ahead is attracting talent for the next phase of growth. Yet just over half of those surveyed by Randstad rate their organisation’s ability to meet this challenge as average or poor. This is a worrying statistics.

Companies must move quickly to adopt comprehensive attraction, engagement and retention strategies to overcome this challenge. The banking sector is being affected by the global uncertainty and there is a connectedness that affects Hong Kong. Some organisations are using the end of year, a traditional slowdown in the market, to put hiring intentions on hold until 2012. The survey also reveals 93% of employers surveyed are looking to increase or retain current staff numbers within the next 12 months.

There is a higher degree of positivity especially within the consumer sector, with retail and luxury brands being fueled by a record number of tourists that have visited the region in 2011.

Whilst hiring intentions are likely to slow further as the year draws to an end, savvy business leaders look to retain and attract the best talent moving forward to set the scene for a prosperous 2012.

Anthony Thompson Managing Director Michael Page International Our most recent trading statement stated that our revenues have increased by 42% in Asia 20 HONG KONG BUSINESS | DECEMBER 2011

director

managing director

managing partner

Brien Keegan

Anthony Thompsom

Tim Hird

when compared to 2010.

Throughout 2011, we have worked on more recruitment assignments than ever before, which is an important point given we have operated in Hong Kong for 18 years. There is certainly some caution and nervousness across certain industries, particularly financial services, but overall market conditions are reasonably good.

The impact of the significant growth in China remains very positive.

Our most recent Employment Index for the 4th quarter in Hong Kong showed that 35% of employers are going to increase staff numbers, which is very positive and along the same lines as the Q3 report (36%).

In all of our offices in Asia we have experienced substantial expansion in 2011 in terms of office space and headcount and this is in response to continued high demand for quality staff across a broad range of industries.

In general Hong Kong continues to be a market where talented candidates can be optimistic about career opportunities and employers have the chance to hire outstanding individuals.

Tim Hird Managing Director, Asia Robert Half International

the Western markets that are looking for opportunities in Hong Kong. With all of the uncertainty that’s happening in Europe, a lot of the white collar professionals in their banking sector are looking to move out to Asia. In fact, the number of CV application increased 5 times this year. The second trend is that there is a significant increase in hiring of contract professionals because if companies are struggling to find permanent talents, they’re looking to bring in interim staff to fill in the gaps and they’re still managing their permanent headcount costs this year. There has been roughly a 15–20% growth in applications for senior-level contract positions based on the number of applications we have received year on year.

The third thing is that we’re seeing a number of global projects being ran out of Asia now than out of London or New York.

We’re very confident about the market opportunity in Hong Kong next year. The continued growth rates in China are fuelling that. We have a wide number of European and US multinational companies that are looking to further invest in Asia.

Clearly there’s a lot of uncertainty on a macro global level but we feel most optimistic about the growth opportunities in Asia, most specifically in Hong Kong.

Traditionally, during the fourth quarter of every year, there is always a hiring slowdown within the financial services sector. But it’s not because companies are not hiring, it’s mainly because they’re going through exercises where they are retrenching their lower quality staff. They’re using the opportunity to review the quality of their staff and then up skill when they get their hiring approvals for January of the following year.

At Robert Half, we made roughly 3 times as many placements this year as we did last year but we have seen a bit of a slowdown in the last 8 weeks.

There are three key trends that we’re seeing in employment in Hong Kong. The first is that there is still a very healthy demand and jobs for people in Hong Kong. We’ve seen a very large influx of candidates that are currently working in

numbers

When it comes to gadgets, the i’s have it But the spending goes on no matter what

Trends showing forfor hothot items Trends showingstrong strongpickup pickup items

But the spending goes on no matter what Laptop/Notebook

Mobile phone

Private car

Alcohol

%

70

Laptop/N otebook D igital video camera LCD TV/Plasma TV

% 60

100

Smartphone SLR digital still camera H D TV

50

80

40 60

30 40

20 20

10

Q2'11

Q1'11

Q4'10

Q3'10

Q2'10

Q1'10

Q4'09

Q3'09

Q2'09

Q1'09

Q4'08

Q3'08

Q2'08

Q1'08

Q4'07

Q3'07

Q2'07

Q1'07

Q4'06

Annual Release Up To ...

Sources: PAX 1997; 7 markets; PAX Q3 2010 to Q2 2011; 10 markets excluding Tokyo.

Sources: PAX 1997; Affluent Sample; 7 markets; PAX Q3 2010 to Q2 2011; All Affluent; 10 markets excluding Tokyo.

Q3'06

Q2'06

Q1'06

0 Q4'05

Q3 '02 Q2 '03 Q2 '04 Q2 '05 Q2 '06 Q2 '07 Q2 '08 Q2 '09 Q2 '10 Q2 '11

Q3'05

'01

Q2'05

'00

Q1'05

'99

Q4'04

'98

Q3'04

'97

Q2'04

0

Source: 10 markets excluding Tokyo.

Source: 10 markets excluding Tokyo.

Some devices have become near necessities

Ownership of tablets and e-readers

Chart 1: Time spent online (hours per week)

20

25

22

Sources: PAX 141997; Affluent Sample; 7 markets; PAX Q3 2010 to Q2 2011; All Affluent; 10 markets excluding Tokyo.

Indonesia

Malaysia

Philippines

Singapore

17

16 Source: PAX ECI Q4 2010 to Q2 2011

Thailand

Digital consumers with an active profile Chart 2: Digital consumers with an active profile

Vietnam

Social media activities to support consumer decision making Reading other people's comments about brands, products or services

52%

Watching an online video about a product or service you were thinking about buying

31%

Discussing / posting your own reviews about brands, products or services

Chart 3: Social media activities to support consumer decision making

Source: Nielsen Global Online Omnibus

22%

4%

4%

2%

Done in past 12 months

44%

65%

76%

Done - but not in past 12 months

Never done

Source: Nielsen Global Online Omnibus

For more information contact: Synovate, Fion Cheung (Fion.Cheung@synovate.com); Nielsen, Margaret Lim (margaret.lim@nielsen.com)

22 HONG KONG BUSINESS | DECEMBER 2011

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

Tel: (852) 3582 3388

www.kadriden.com Basement & G/F, 63 Wong Nai Chung Road, Happy Valley, Hong Kong

opinion

Wander Meijer

Why are women in Asia doing so well in the C-suite?

O

n the 31st of October 2011, the 7th billion world citizen was born.

Chances are high that this baby will open its eyes in Asia, as Asia contains 60% of the world’s population, and 95% of all children are currently born in developing countries.

It took the world 12 years to add a billion to its population and another billion is expected in the next 12 years. The current pace of growth adds 78 million more people every year. The rate of increase is slowing but the large number of people is now in their reproductive years and 3.7 billion, implies that the world population will keep growing for several more decades.

Meanwhile, many rich and middle-income countries are concerned about low fertility, declining populations and ageing.

Japan, China and Hong Kong have fertility rates of around 1.5 children or less per woman and several other developing countries, such as Iran, Vietnam and Indonesia, are already below replacement level.

Very timely, as on 31st October, AdAsia opens its Advertising congress in New Delhi, with Indra Nooyi, PepsiCo’s India born CEO as star speaker. Ms. Nooyi is already one of the world’s most powerful business women and was recently joined by Meg Whitman and Virginia Rometty, the new CEO’s of Hewlett Packard and IBM respectively. This can only happen in America, where immigrants and women have as hard a life as elsewhere, but get opportunities too. And it is no coincidence that the USA has the highest percentage of affluent women.

East Asia has achieved the same economic level as the Western countries, as smaller families have given their countries a

Wander Meijer Global Head International Research for TNS

Percent male / female affluent investors

spurt that followed government investment in health and education, especially for women.

Women Empowerment While Asia does not have the same female CEO power yet as the USA, China and Hong Kong have seen women getting a lot more opportunities in the past decades – and it has paid off. The list of top 500 billionaires in the world counts only 14 women, but half of them are from Hong Kong/China, with Wu Yajun, owner of Hong Kong listed real estate developer Longfor on top. America counts only three, with Oprah Winfrey occupying the highest female spot at number five.

This picture of growing female wealth in East Asia is confirmed by TNS’ Affluent study, published last month, which found that almost half of all affluent decision makers are female in Hong Kong and China, far ahead of European countries.

“The list of top 500 billionaires in the world counts most Seven billion people mean several billion possibilities and in East only 14 women, but half of them are from Hong Asia more than anywhere else, this Kong/China.” offers many growth opportunities for businesses investing in women. Female investment decision makers ‘demographic dividend,’ which is a spurt in are an important part of the overall market, productivity, wealth and economic growth that so addressing female investors with specific occurs when populations have a large number communications is key. of working-age people with relatively fewer This is not a politically correct column – dependents. About one third of East Asia’s major simply sound business advice: invest in women economic growth between 1965 and 1990 was due to a demographic dividend, the productivity as they offer great growth opportunities.

24 HONG KONG BUSINESS | DECEMBER 2011

Women are increasingly taking decision on investments

abacus

Time for an independent Chairman?

Test your luck at The Venetian casino in Macau

Spinning the wheel of fortune If you’re thinking of spending the night trying your luck in casinos, you might just find yourself at The Venetian, the strongest casino brand in Macau.

A

fter doing a proprietary survey to almost 2,200 visitors in Macau, Macquarie Equities Research noted that Venetian attracts players with better demographics relative to its peers, namely a younger “white collar” crowd with a higher gaming and non-gaming budget. Not your typical 24-hour mainlander on a weekend jaunt then.

Macquarie noted that the recent challenges that Sands China has had is retaining its market share, particularly at The Venetian.

“We think that this was driven by the pull-back in reinvestment rates on mass market, which meant that while Venetian was attracting players, it was not able to retain them perhaps to the benefit of its neighbours,” it added.

Then again, Macquarie remains confident in Sands China’s marketing function and also in the company’s ability to execute on Sites 5 & 6. The opening of Site 5 is expected to be in late 4Q12 but after Macquarie’s recent visit to Macau, the company’s scheduled opening in mid 1H12 looks feasible. “The new amenities will go some way towards enabling Sands China to recapture mass market and VIP market share,” it added.

Impartial and well governed companies in Hong Kong?

Not really, say many analysts pointing to a worrying statistics that 30% of Hong Kong’s largest firms put their CEOs in the chairman role. Of course this is not specific only to Hong Kong companies.

Rupert Murdoch remains both Chairman and CEO of News Corporation, but then again he is the single biggest shareholder. Should this call into question board governance and impartiality?

According to new research by CTPartners, Hong Kong’s largest firms join vast majority of Asian peers which choose to place their CEOs on boards, ranging from 100% in Singapore to 67% in China.

Nonetheless, while this may call into question board governance 26 HONG KONG BUSINESS | DECEMBER 2011

and impartiality over CEO executive pay, the research firm noted that it is balanced by the fact that Asia’s largest companies also exhibit high levels of board independence.

A few large corporations in Asia stand out for having boards that are exceptionally independent. They are Reliance Communications in India, the Hong Kong Exchanges & Clearing in Hong Kong, as well as SembCorp Industries, Singapore Airlines, United Overseas Bank and CapitaLand in Singapore.

The executive research firm looked at some of Asia’s corporate crème de la crème in terms of the largest companies from four countries that made it to this year’s 2011 Global 2000 rankings by Forbes. Together, the 164 companies from China, Hong Kong, India and Singapore control over 13 trillion dollars worth of assets.

Sorry Hong Kong, you are no New York As expensive as retail rents appear to be in Hong Kong, our greedy landlords can only lament that they are still falling behind their peers in New York who reign as kings of retail with Fifth Avenue ranking as the world’s most expensive shopping destination.

According to CBRE, with rents remaining constant at US$1,900 per square foot per annum, Fifth Avenue in New York is still the most expensive shopping destination. The CBRE survey of the world’s most expensive global retail cities saw little change in Q3 2011 compared to the previous quarter. Hong Kong

Not quite 5th ave.

(US$1,695 sq ft per annum) remained in second position with annual rents in 2011 rising by 52.8%, as the number of high-profile leasing deals completed at key locations on Pedder Street continued apace.

But though Hong Kong lags behind THE New York City, it still is the most accessible tourist shopping destination for Asians. Mainland tourists, for instance, have been flocking to the country to satisfy their shopping needs.

HSBC noted that one major reason tourists love coming to Hong Kong is for its tax-free prices. For instance, Hengdeli partly offsets the tax impact by retailing watches 30% higher in mainland China than in Hong Kong. “Although there has been speculation of a cut in the import tax later this year, we think an immediate cut is unlikely and even if it does occur, we do not see Hong Kong’s position as a destination for luxury goods diminishing,” it added.

Another reason mainland tourists come to HK is for the assurance they are buying genuine products of high quality, noted HSBC. After the recent food scandals and the market of counterfeit goods in China, Hong Kong definitely comes in a better light.

We don’t know about luxury service in New York, but shoppers seem to be pretty satisfied with Hong Kong’s service. “Retailers may then choose to offer more exclusive products in their Hong Kong stores, which consumers are not able to purchase in China,” added HSBC.

Corporate profile

Leading the Market with Services RICOH shares their achievements and expansion plans in the future as they move towards more innovative I.T. services.

R

icoh Hong Kong’s Managing Director Aaron Yim gets very excited when talking about the future of his business. Although the company is world-renowned for its sturdy copiers and office printers, he sees a growing need for Managed Document Services (MDS), which Ricoh sees as more than managing machines.

“Ricoh is expanding in two core areas. First, we are preparing to serve every industry by consultation and design of tailor-made document and IT services for each company,” he said.

“Ricoh’s consultants do much more for our clients than simply sell them machines. Our services have been refined to offer top-to-toe analysis of a company’s business needs and processes to determine the work flow, the need for managed print services and

RICOH gives a top-to-toe analysis of their services to ensure clientcontentment.

28 HONG KONG BUSINESS | DECEMBER 2011

consumables, such as paper and ink, and document management and archiving, and sharing of information.”

Towards professional project management The company is swiftly moving into professional project management as well as service management. Instead of just replacing hardware, the Ricoh team of experts participates in the pre-sales stage by consulting on the project design, and then monitors the progress when the new systems are implemented. These experts can bring companies’ objectives to life, such as being environmentally friendly or achieving cost savings and improving efficiency.

“The monitoring and reporting to top management is to achieve continuous improvement by getting the client to

apply the recommended solution in a proper way,” Yim said. “This demand for MDS will account for 50 percent of the market by 2013,” Yim predicted, “since it is more than just a purchase process.

Managed document services apply to larger and more complex organizations, usually over 300 employees, who require a bit more added value. We propose new solutions to current problems for all types of industries.”

Yim said that the integrity and security of the information and data is a top priority. Software makes document hosting, proper filing techniques and accessibility available everywhere in any form by mobile technology. However, underscoring the importance of the consultancy, Yim said, “One of the major success factors for changing corporate culture is the buy-in of top management.

We can monitor the new processes and send back reports on the progress, but if the senior executives are not leading the changes and insisting on compliance, the MDS services will not be as effective in the long run.”

Industries are undergoing changes, especially in the I.T. development and professional services. To stay competitive, many companies, such as financial institutions, insurance companies, logistics, health care and transportation are just some of the areas moving toward managed document services and migration to the Internet “cloud” for storage and availability of documents.

“Ricoh is expanding in two core areas. First, we are preparing to serve every industry by consultation and design of tailor-made document and IT services for each company.”

Corporate profile

RICOH’s Managing Director Aaron Yim

Other new forms of I.T. and communication devices – iPads, mobile phone Internet services, and portable computers – make accessing and retrieving information possible on the go.

Innovative plans for the future Sensing an opportunity, Ricoh is setting up its I.T. Services team and introducing another innovation, video-conferencing via the “cloud,” making multi-point meetings affordable and efficient. Peer-to-peer videoconferencing is expensive and people have to be in two fixed places to have the conference. “Cloud” conferencing serves the needs of mobile workforces by allowing several participants located in various countries or territories and assists in team-building through better, faster and cheaper communications.

The second area that Ricoh is focused on is production printing, which allows for personalisation and customized communications. “Companies are trying to customize their communication with variable data printing,” Yim said. “The banking industry, insurance and other organisations are looking for more short print runs and to personalise the content to speak to the customer more directly.”

Acquire and expand Ricoh’s strategy is to expand through

Another area for expansion is production printing

acquisition. The company has bought IBM’s high-volume global printing business called InfoPrint Solutions, which is now fully integrated into Ricoh’s capacity. IBM’s core business is high-end computing, so selling that division to Ricoh was a good fit. With IBM’s advanced technology in the mainframe computer and software, Ricoh printing systems can integrate seamlessly with IBM systems like the AS400. Many Hong Kong major banks are using the InfoPrint continuous form printing systems that can print 1000 pages per minute.

Ricoh is addressing a new market by writing software for cut-sheet printing that usually requires more customisation and smaller print runs. Because the costs are declining, the newer technologies allow smaller financial institutions to take advantage of personalised cut-sheet printing. “Ricoh ensures the integrity of the data and control of the printing

“RICOH has bought IBM’s high-volume global printing business called InfoPrint Solutions, which is now fully integrated into RICOH’s capacity.”

especially for customer information,” Yim said.

New technologies also allow the transmission of images. “Ricoh’s historical focus on paper is changing to promote the use of ‘images everywhere,’” Yim said.

One example is in the health care sector, where medical images and scan samples can be sent to specialists anywhere in the world for consultation and treatment advice.

Yim emphasised, “Ricoh is among the best in the imaging field. We can see our advantage to provide one-stop solution to customers to help sharing of information in the most effective way.”

About Ricoh - Ricoh has 311 companies and 30,000 professionals around the world reaching 95% of Global Fortune 500.

- Voted as Global 100 Most Sustainable Corporations in the World for seven years consecutively - Gartner Inc. named Ricoh as a leader in the “Magic Quadrant : Managed Print Services Worldwide” in Oct 2011 HONG KONG BUSINESS | DECEMBER 2011 29

ASIAN ENERGY special report

Dr. Nobuo Tanaka, ex-IAEA Geoff Cutmore of CNBC

Asia taking the lead in clean energy

Asia is investing billions into clean energy, but with appetite for carbon emissions falling, funding new power projects is going to get harder.

A

lmost half the world’s investment into clean energy is surprisingly going into Asia, but analysts warn of serious growth constraints ahead. In many ways, 2010 was probably the peak year for clean energy investment worldwide, with $243 billion spent on new solar, wind and biomass plants, up 30% over 2009. But the dramatic growth picture is slowing rapidly, according to Bloomberg New Energy Finance editor Michael Liebrich, who reckons that 2011 will see around $260-270 billion invested in clean energy. And for 2012 “the best estimate would be probably flat in dollar terms.” In Asia the picture is slightly better, with the region having already taken over leadership in clean energy investments from Europe.

Speaking at the Clean Energy Expo, Gil-Hong Kim, director for sustainable infrastructure division at Asian Development Bank, said that clean energy investments in Asia are now higher than ever before. “In the second quarter of this year Bloomberg reported $41.7 billion in clean energy investment. A good portion

30 HONG KONG BUSINESS | DECEMBER 2011

“In the second quarter of this year Bloomberg reported $41.7 billion in clean energy investment.”

of this investment is going to Asia, with China leading the way. Experts predict that our region will become the top destination for clean energy investment in no time. These are very encouraging investment numbers and they are expected to increase,” he said.

ADB forecasts that in 2050, the region’s share of the global GDP will be at 51%, or almost double that of 2010’s 27%.

But of course, rapid growth would also mean higher energy consumption. In Asia’s case, the region’s share of global energy consumption is projected to reach 40% by 2050.

Who’s taking the lead in clean energy investments in the region?

According to ADB, the adoption of renewable technologies is currently spearheaded by China, India and the Republic of Korea, where the transition to the state-of-the-art wind systems happened within less than 10 years. Solar technology is also expected to take off, albeit at a much slower pace, and ADB sees India as a significant player in the development of this technology.

Southeast Asian countries,

particularly Thailand, Malaysia and India, are at the forefront of the biomass energy industry. According to AUM Business Creations spokesperson Per Dahlen, global revenues derived from biorenewables can grow to as much as EUR 450 billion by 2020 and much will come from Southeast Asia.“South East Asia is producing 450m tons of agricultural waste and this is a great potential for the biomass energy industry,” he said.

He also noted that 50% of the increase of ethanol in the next five years will be coming from Asia.

“Mega plants produce ethanol at US$1,300/ton. Shipping ethylene will cost US$1900/ton; while on site biorefineries produce it at US$1400/ ton. It will be difficult to compete with mega plants; however, it is possible to do so with imports.” Mr. Dahlen also believes that there is much potential for the oil palm industry in the region. ”Oil palm biomass could become a US$30-35b industry, and more than 20% of the world’s ethylene market can come from biomass.”

Regional sales manager for Caterpillar Asia, John Lee, shared the same view, adding that in terms of power generated from biomass, South East Asia produces roughly 100MW per annum. “On the biogas front, the growth is going to be a bit less, maybe 10-15% growth in the market in the next 5 years. For biomass gasification, I think the growth in that market is going to be quite big. It’s going to be

ASIAN ENERGY special report double or three times that of biogas. It’s a newer market and there are newer players in there and it’s going to jump,” he said.

According to Dr. Lee, Thailand has been one of the most active countries in the industry, and Malaysia has the potential to become a force to be reckoned with. “I mean, the Renewable Energy Act is stirring up a lot of interest for Malaysia. Indonesia may be next, but I think these will be the three key countries, Thailand, Malaysia and Indonesia. Other countries will surely follow. I think Vietnam will take a little bit longer because of the government.”

But while bio-mass remains a hot sector for investment, an ill-wind is blowing through Asia’s wind power industry.

China and India have seen barely flat growth in terms of annual installed capacity. Alexander Tancock, general manager of Hong Kong based consultancy firm Wind Prospect, said that the market for wind energy is “quite disappointing” with Vietnam only poised to report significant growth only because it comes from a very low base. “If you look at Asia, basically China being the dominant market in the region, they’ll probably have less installed capacity this year than in 2010. So although the wind turbine market in China is very huge, it’s actually going shrink in terms of new installations. Last year, they had 19GW, this year most people think that it’s going drop between 15-17GW.” The outlook for India, which is the second largest wind market in the region, is also dim, with Mr. Tancock expecting it to remain having installed capacity of around 2-3GW every year. And guess what he says to other countries in the region.

“If you look at other countries in Asia, basically not much is happening. India is still there, doing around 2-3GW every year and other markets are disappointing. Thailand, they promised a lot of things but nothing has happened. Malaysia is not doing wind. Philippines has announced feedin-tariffs, but no one exactly knows what’s going to happen. I suspect not much will happen,” he said.

“I think Asia is really very disappointing and it is basically just about China and India, but those markets are really flat. They’re not going to grow in terms of annual installation, not even in the long run,” he added.

For investors who still want to tap

Focus on Asia

Source: Nuclear Energy Asia

the Asian Market despite the gloomy outlook, Mr. Tancock said that they might want to consider Vietnam. “If I have to pick a country, Vietnam seems to have promise because Vietnam actually has quite a good wind speed.

Vietnam is actually the most promising country in Asia, but that is because it comes from a low base of less than 1GW. It could be an interesting market of probably a couple of 100 megawatts a year and like that, but again, it’s not huge compared to China and India,” he said.

The Fukushima question While Germany has announced it will cease all nuclear operations and Japan shows no signs of restarting plants it closed for inspection, so far much of Asia remains committed to continuing with nuclear development. But whether this stands the political tests of time over the next few years remains the big unknown. China has already done an initial survey of plants and has decided to not give approval for the construction of new power plants. According to AREVA’s Regional Director in South-East Asia and Oceania, Selena Ng, except in Japan, the construction of nuclear power plants hasn’t been stopped after the Fukushima tragedy.

Vietnam is one country that has affirmed its plans of moving ahead with its new power program, noted Ms Ng. Indonesia, on the other hand, continues to work on feasibility studies. It

“... the construction of nuclear power plants hasn’t been stopped after the Fukushima tragedy”

also seems like Singapore’s interest in nuclear power has not waned. Ms Ng said that Singapore has reaffirmed that it will continue its feasibility studies.

She adds that this is an opportunity for the country to become a major player in the nuclear power industry in the future.

Wong Meng Meng, Chairman of the Energy Market Company, also mentioned of Singapore’s continued interest in the nuclear power industry.

He cited Prime Minister Lee saying that ‘nuclear energy is a diversification option that Singapore could not afford to dismiss’. “By and large, before the March 11 tsunami in Japan, nuclear energy was seen as a carbon-free solution to the world’s energy needs, which, according to the International Energy Agency, is estimated to grow 36% by 2035,” he said.

ASIAN ENERGY special report the question on who will buy CDM projects in Asia considering that a lot of CDM projects are generated in the region mainly because it is supported by the European bias as they have been the bedrock of demand.

A key restriction is that projects registered post 2012 are only eligible for European Union financing if they are in a least developed country.

Most of the CDM projects in Asia, however, are located in China, India and other middle-income economies.

Gil-Hong Kim, Asian Development Bank

Michael Liebrich, Bloomberg New Energy Finance

Many environmentalists had hoped that carbon trading would also help reduce carbon outputs, but that market too shows signs of dying out as Kyoto expires and a beleagured, debt-ridden world has little time for carbon-footprinting.

Carbon Markets The International Emissions Trading Authority says that as of October this year, Asia accounts for a total of 2,815 projects or more than 75% of total clean development mechanism (CDM) projects registered globally, something that makes the carbon market ideally a viable source of funding and capital inflow for the region.

The outlook for the global carbon market however is bleak which stems from doubts on whether a

Selena Ng, AREVA

new government of a comparable scale with Kyoto Protocol will be carved out during the upcoming 17th Conference of Parties (COP) at Durban. Speaking at the Carbon Forum Asia during the SIEW, Ambassador Burhan Gafoor, chief negotiator for climate change in Singapore has said: “The outlook for the global carbon market is very grim. We must acknowledge that the idea of a universal carbon market covering all the major players is still some time away. We are far from concluding a legally-binding global agreement on climate change.”

The reality is that we still have a fragmented carbon market that will grow and expand in a bottom-up manner. Added to the challenge as well are European restrictions placed beyond 2012, which pose

“Asia accounts for a total of 2,815 projects or more than 75% of total clean development mechanism (CDM) projects registered globally”

No Buyers So the biggest question with regard to Asia’s carbon market trading would be: Who will buy Asia’s CDM projects post 2012? Barclays Capital director for carbon markets and environmental products, Trevor Sikorski, said: “It will be harder to finance CDM projects placed in Asia beyond 2012 which does raise question on whether there will be additional demand for sale.

You could still see the CDM projects in Asia, but the question is: who will buy them if the European Union is not buying them? I think this is the biggest question for CDM in Asia, as well as an important factor for Asia to rethink how it is pro-acting with regional carbon trading market.”

However, he is optimistic that this financing difficulty would evolve into a new dynamic where CDM projects in the region would be largely financed by Asian countries themselves. “Part of what will happen in the coming years is, I think less and less will be financed by the European Union and Asian countries will be financing their investments in key clean investments, particularly in mobilizing their own,” he added.

Michael Dreyer, vice-president of Koelnmess Asia Pacific, shares the same view, noting that a number of national activities have either been started or revived in the past months which aim to regulate carbon trading on national levels. “From Australia to South Korea and Taiwan, over to India, national trading schemes are said to be implemented in the forseeable future or at least being in the legislative pipeline.”

Also, China announced to set up a national trading scheme by the end of the current 5-year plan, in 2015.

opinion

Tim hamlett Christmas: The festival of retailing?

T

he first Noel, as the old song has it, was to certain poor shepherds. The point is not covered in the ditty but this is generally supposed to have been on the first Christmas Eve. Historians now believe that this was in about 4 AD, which suggests some confusion somewhere. But there is general agreement that this event, if it happened at all, happened on December 24, or whatever they called it then.

Christmas in the air!

Over the years, the church tended to extend the preparatory period in the direction of November. When I was a kid, some serious significance was still attached to Advent, which is the name for the period enclosed by the four Sundays before Christmas. Depending on which day of the week Christmas Day fell on, Advent (because it had to include four Sundays) might actually start in the last week of November. Outside the church, Christmas did not really come into view until the middle of December, although mothers’ preparations commonly started in September with the preparation of the pudding. A Christmas pudding was supposed to benefit from three months meditation in a cool dark place.

There is now, it seems, a sort of retailers’ advent, which starts earlier every year. This year, some shopping malls started decorating about November 7, and by the middle of the month large amounts of Christmas ornamentation were clearly visible.

Festival Walk seemed to have finished everything except its giant Christmas tree, which was up but still shrouded in red sheets. New Town Plaza had everything up, though a few parts of the display were still behind screens.

Early tunes of Christmas?

What really shook me was hearing the first “Silent Night” of the year, on November 13 in the Mongkok East MTR station. What were they thinking of? I mean there is some excuse for making an early start on the decorations. As these get more elaborate, the construction period, I suppose, gets longer and the price more expensive. Better to get more value. But the background music just requires the changing of a tape, disc or whatever. There is no reason to start on the seasonal ditties in the middle of November -- especially for the MTR, which is not selling anything anyway.

Suggested new rule for stations: don’t start the carols before Thanksgiving.

The habit of hanging things in shopping malls seems to be gradually engulfing a lot of the year. Many malls now like to do something for Halloween. This is followed in short order

by Christmas. As soon as the Christmas things are down, it is time to start putting up the Chinese New Year ones, if the New Year is reasonably early. And we hope it is, because otherwise it may clash with Valentine’s Day, for which we would like to do something different involving hearts and flowers.

After that, there is a temptation to deck

34 HONG KONG BUSINESS | DECEMBER 2011

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

the mall for Easter, generally with eggs or bunnies rather than crucified Jews. And this brings us quite close to the summer. The summer is, alas, rather a quiet season for the people who make things to hang from shop ceilings. Perhaps they should work on something new: Diwali, Buddha’s birthday, Ramadan, Dragon boats? After all, none of the existing Mall-decking festivals was originally a shopping event. Nor for that matter was Mother’s Day. These things cannot be made up from scratch, but they can be transformed gradually from religious festivals to retailing opportunities.

The gift for every occasion Mind you, I do wonder how effective these things are. Most of us reluctantly accept the obligation to buy some people presents at Christmas. Chinese New Year involves mainly the distribution of red packets (which is fine by me - much easier than presents) which you can get free from your bank. Valentine’s day is rather restricted to courting couples and no amount of store bunnies is going to get me to start buying Easter presents.

I confess to recalling with some pleasure that I was, when very small, regularly taken to see Father Christmas in Selfridges. In those days, he would take you on his knee. I suspect this is now regarded as dangerously erotic but we were innocent about such things. Anyway, Christmas is a great time for kids. Whether the rest of us are cheered or irritated by finding our usual shopping venue decked in plastic fir trees, reindeer, snow or whatever is another matter.

I do not think we can criticise places catering mainly for children -- toys, fast food -- if they make the most of any opportunity for a little topical decoration. Schools tend to do the same thing. Come to that, so do Classical radio stations. On Radio Four, it is always some composer’s birth day, death day, or whatever. But shopping malls cater mainly for adults. Customers would like to be treated like adults.

That means we don’t want to spend half the year with stuffed animals hanging from the ceiling, however cute.

In fact it is not for us. Foreigners in Hong Kong, raised on the complete Western Christmas with Rudolph, Santa, turkey, too much booze and the whole seasonal schemozzle are no doubt ready to wave a credit card at the first jingle of the bells. But there are not enough of us. Our combined buying power would scarcely finance one four-story fir tree. Most of the locals are non-Christian, and free to regard the whole thing with the sort of tolerant amusement that the English direct at Hogmanay. Or they are serious Christians, likely to be offended by the commercialisation of the proceedings, Pagan associations of mistletoe, etc.

So I suppose the whole thing is really staged for Hong Kong’s most important retail sector: Mainlanders with money. It’s our way of reminding them that they are here, where the milk is drinkable and the over-priced goodies are still over-priced but at least genuine.

All I want for Christmas is...???

legal briefing

Who’s afraid of the Competition Law? Hong Kong businesses, apparently, so now the proposed Competition Law is back for a more business friendly redraft.

What changes are businesses demanding to the Competition Law? For starters, businesses want a more watered down version with warnings so that on their first offence they are not hauled off to court. A key change is to distinguish between “hardcore” and “non-hardcore” violations of the so-called ‘First Conduct Rule’, and effectively provide for business operators to receive a warning and an opportunity to adjust their conduct before they face any more rigorous enforcement action for the non-hardcore violations.

The second key to watering down to remove the right of persons who have suffered loss or damage as a result of a contravention of a Conduct Rule to bring stand-alone private actions in relation to such contraventions.

What’s the difference between “hardcore” and “nonhardcore”?

“Hardcore” activities are things like price-fixing, bid rigging, market allocation, and output control. Non hardcore activities include traditional Hong Kong business practices, such as making a collective decision not to trade with prospective trading partners or developing standardisation agreements in relation to the products or services they sell.

Clara Ingen-Housz, Special Counsel at Baker & McKenzie in Hong Kong noted that the “hardcore” violations will automatically trigger liability. “On the other hand, all other offences, the ‘non-hardcore violations’, will only give rise to a warning notice by the Competition Commission, giving concerned firms an opportunity to cease the conduct during a certain period without further sanctions. This approach is meant to provide businesses with an opportunity to educate themselves about the new law,” she added.

What about the SMEs? It is even better news for small businesses, who will be completely exempted from both conduct rules, depending on their size. Agreements between undertakings having an aggregate turnover of HKD100 million in the preceding financial year will not give rise to any violation unless their violation is “hardcore,” noted Ms Ingen-Housz.

Moreover, SMEs with a turnover of less than HKD11 million in the preceding year will be excluded from the second conduct rules which target abuse of market power. So this really is a bill which targets big 36 HONG KONG BUSINESS | DECEMBER 2011

businesses.

Clara Ingen-Housz

Martin Dajani

John Hickin

So how severe are the proposed penalties?

Martin Dajani, Head of Competition Asia at DLA Piper Hong Kong noted that the penalty for violations will be reduced from 10% of global turnover during the period of the contravention to 10% of local turnover for up to three years. “This really should not have an impact on compliance, as 10% of local turnover for three years is still a very substantial amount of money,” noted Mr Dajani. Another key change proposed is to allow for the Commission and companies to resolve less serious infringements by simply ceasing or correcting the conduct rather than paying a fine.

“SMEs with a turnover of less than HKD11 million in the preceding year will be excluded from the second conduct rules which target abuse of market power.”

So is everyone happy now?

Nope, not by a long shot. John Hickin, a consultant with Mayer Brown JSM, noted that at least three of the four major chambers of commerce in Hong Kong are not satisfied with the changes. Among other things, there is still unease that the Government has “refused to carve out ‘vertical agreements’ such as distribution agreements that are considered to unduly restrict competition from potential challenge under the First Conduct Rule,” added Mr Hickin.

Businesses are also worried that the penalties could be much more severe than the crime as the maximum penalty applicable to contraventions of the Conduct Rules is based on the company’s total turnover in Hong Kong rather than the specific product line or business that was deemed anti-competitive.

Ms. Ingen-Hausz thinks these amendments are overall a good development as they provide a framework within which businesses will be given some time to get acquainted with the concepts and their application in real life, and the sanctions will be less drastic than originally planned. “The only constituencies that could express some disappointment would be Hong Kong consumers, who will only enjoy a watered-down version of the Bill originally presented,” she added.

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analysis: Low cost carriers

The only successful long haul budget carrier in Asia -- for now

Budget airlines headed for turbulence

Not all Asian budget airlines are the same, and while some are doing well, others have business models and routes that are still unproven.

A

t first glance, running a budget airline, or Low Cost Carrier (LCC) as industry folks like to call themselves, would seem a no-brainer. The concept works well in the US and Europe, and Asia has even more people who are escaping the poverty barrier and taking to the skies. But the recent insolvency questions raised by airlines such as Kingfisher and Jet Airways of India, not to mention losses by Singapore Airlines related carrier Tiger Airways, show that in Asia, things really are different.

One key difference, of course, is geography. Distances in Asia are longer, and getting around the region typically involves flights of several hours in duration. This means that the major trunk routes are well serviced by traditional carriers running big planes fully packed. There is little scope for start-ups to compete.

HSBC analyst Mark Webb argues that 38 HONG KONG BUSINESS | DECEMBER 2011

“LCCs now account for a 30-35% market share by capacity. They operated from secondary airports and were able to achieve 50-60% lower unit costs”

as flight distances rise, some of the cost advantages are eroded. “Second, compared with the US and EU, wealth disparities in Asia tend to be wider and a large section of air travellers tend to be based in big cities.

Therefore, traffic streams tend to be more focused on trunk routes, which we argue are neither underserved nor overpriced.

Third, unlike the US and EU which have single regional aviation markets, Asian markets are still largely regulated. These regulations often restrict the markets that LCCs can gain access to, placing limitations on network expansion. Finally, there are also fewer viable secondary airports in Asia.

This means slower turnaround times, higher airport charges and fewer avenues of cost savings for the LCCs,” noted Mr Webb.

One could be forgiven living in Asia in thinking that budget carriers are everywhere, but they are nowhere

near as dominant as they are in Europe and the US where they account for 30-35% market share, compared to just 20% in Asia. Macquarie Equities analyst Russell Shaw noted that over the past ten years, LCCs’ penetration of the Asian market has increased from just 1.1% to 17.6%.

“This is unsurprising given that the domestic LCC shares of capacity in countries such as Philippines, Malaysia and Thailand are 40-60%,” he added.

The average distance flown by a budget carrier in the US is 1,884 km compared to just 522 in the EU. No comparable figures exist for Asia, but for comparison sake, a flight from Tokyo to Singapore is 5,782 km. In North Asia, the two hot spots for LCC’s with most potential are China and Japan. HSBC’s Webb noted that Japan will see the launch of three low cost carriers in 2012 and likely see LCC penetration levels rise from

analysis: Low cost carriers the current 9% to ~25%flights by 2016. gapore–Bangkok, Hong more“competitive importantfares rolefares inand thisand equation,” “LCCs’ penproposition waswas that that “competitive transcontinental to the coastcoast of oftwelve fromvalue value proposition transcontinental flights to west the west China currently has a solitary LCC, Kong-Bangkok, eleven from Singasaid Mr. Ogilvie. etration of the quality travel need not be mutually exclusive”.

America and longer-distance to Florida.

As fly quality air travel America and longer-distance flights to and Florida.

AsManila Spring Airlines, which flies between flights pore–Jakarta, eight to airAsian marketneed not be mutually exclusive”. a few It hasstage juststage Singapore.

Kim Eng Research analyst has increased Some failures, too a secondary result, itscities. aircraft length waswas much longer a result, its aircraft length much longer those that failed were mostly hybrid got permission to fly the ShanghaiRohan Suppiah said LCCs in Finally, AsiaFinally, There are also regional from justthat 1.1% those failed were mostly hybridstart-ups that thanroute, Southwest’s.

JetBlue alsoalso flew to toreturns so far. “Some have to 17.6%” than Southwest’s.

JetBlue Beijing and clearly there is a lot haveflew mixed have fared badly, with issues such as players or low costcost subsidiaries of full service players or low subsidiaries ofsafety full service of potential in the Mainland market if been wildly successful, such as Air operations, and unsustainable international destinations in the Caribbean and international destinations in the Caribbean and airlines.

These were generally very good at offering more LCCs were allowed to establish Asia, some moderately successful.”airlines. These were generally pricing affecting their ” he very good atfortunes, offering offered more frillsfrills thanthan its fellow LCCs – free offered more its fellow LCCs – free operations. added.

According to Credit Suisse low low faresfares but decidedly poor at keeping costs low. but decidedly analyst poor atAnnuar keeping costs low.reSo there mayassigned be aassigned potential in the32- 32Customer Service Aziz, AirAsia LiveTV, seating, to 34-inch seatseat LiveTV, seating, to 34-inch Mainland market for Asian LCCs, Customer service has also been a ported 22% passenger traffic growth and snacks. these services, JetBlue pitch and snacks.

With these services, JetBlue andpitch the one positive sign With is that air sticking point with some LCCs but in FY08, and 21% in FY09. Passenger travel in targeted the Asian region is growtraffic also benefited from a combinatargeted business customers. business customers.it doesn’t have to be that way, argues ing much faster than the rest of the Charles Ogilvie, Panasonic Avionics’ tion of new routes and an increase world. In 2010, air travel in the region Executive Director of China, who in capacity.

“In 2008-09, AirAsia LCCs nownow account for roughly one one third of the In Europe, Ryanair followed Southwest’s model LCCs account for roughly third of the KLIn Europe, Ryanair followed Southwest’s grew 12.9%, almost double the 6.2% said the customermodel proposition offered launched new routes including totaltotal seatseat capacity within North America and and in in Over andrecorded easyJet’s focus on operations fromfrom andclosely 6.7%closely growth in North by budget carrier does not always Dhaka, Singapore-Indonesia. capacity within North America and easyJet’s focus onaoperations America and Europe, respectively. need to equate to a lousy inflight this period, AirAsia added the intra European markets (charts 6 and 7). 7). capacity primary airports to capture business traffic had airlines, a a budget the intra European markets (charts primary airports toaircapture business Boeing estimates Asia-Pacific experience.traffic “Many had on routes such6asand KL-Singapore and travel market growth at as Ryanair well Ryanair as full-service, in the region KL-Bangkok,” he added. semblance of the JetBlue model. tended semblance of6.7% the per JetBlue model. tended Further, given the higher loadEven factors achieved Further, given the higher load factors achieved by year over 2011-30. But that does not are spending more time focusing on distribution andby ticketing to concentrate on secondary andtheir tertiary airports to mean concentrate on secondary and tertiary airports necessarily Asia is right for the passengers’ experience and the costs can be higher in Asia, often LCCs, we argue theirtheir passenger market share LCCs, we argue passenger market share picking more LCCs. twoturnaround most efficient ways to do that due to the locals having insufficient thatfor could provide the 25-minute that could provide the 25-minute turnaround would be slightly higher than theirtheir seatseat capacity would be slightly higher than capacity In fact, HSBC analysed 34 twin efficiently are through technology internet access or credit cards. HSBC to the and and special deals onopportunity essential to schedules the schedules deals on city essential routes in Asia and concluded andspecial service.

The for a notes that in Asia, the proportion of market share. market share. thatlanding onlylanding eightfees, of them suf- lowsuccessful budget online booking is relatively lower and hadlacked relatively frequency but carrier a a in China is fees, had relatively low frequency but ficient competition currently to be to mold the right equation of flight varies widely depending upon the Approaching maturity? high number offor destinations fromprice, each Approaching maturity? high number of destinations served from each good potential routes new LCCs. served schedule, and passenger experidevelopment of the home base. SingaConsider the competition on some ence with reliability performance. pore’ s Tiger Airways hasinalmost 97% base.base. easyJet waswas more willing to operate at more easyJet more willing to operate at and more After reaching the mid 20s, LCC market share After reaching the mid of 20s, LCC market share in major routes: Eight airlines fly SinTechnology will play an increasingly bookings made online whereas for

…… butbut market shares have market shares have grown rapidly …… grown rapidly

primary airports – accepting a higher operational primary airports – accepting a higher operational North America has has beenbeen growing at a at slower pace.

North America growing a slower pace. costcost in the of higher achievable yields in anticipation the anticipation of higher achievable yields Indeed, chartchart 6 shows thatthat the LCC share has has Indeed, 6 shows the LCC share – while operating at relatively higher frequencies – while operating at relatively higher frequencies stagnated overover the last threethree years.

However, this this stagnated the last years.

However, on individual routes to attract business traffic. on individual routes to attract business traffic. could probably be the of structural changes could probably be result the result of structural changes in the as well as some notable exitsexits in industry the industry as well as some notable A common thread that that ran ran across all these A common thread across all these (Skybus and and ATA).

TheThe biggest change has has beenbeen (Skybus ATA). biggest change successful carriers waswas theirtheir focus on costs, successful carriers focus on costs, of America West, following its merger the exit of America West, following its merger efficiency and and service quality.

They attempted to to the exit efficiency service quality.

They attempted and and integration withwith US Airways, thusthus suggesting integration US Airways, suggesting be the producers in their respective be lowest-cost the lowest-cost producers in their respective that that the surviving LCCs would havehave increased the surviving LCCs would increased segments, withwith highly efficiently run run businesses, segments, highly efficiently businesses, theirtheir individual market shares.

Philippines’ number 1 LCC LCCs taking off individual market shares. and and offered a high-quality service.

TheThe basic offered a high-quality service. basic 6. Market shareof ofLCCs LCCs in America America stagnating?

Market in stagnating?

6.share Market share of LCCs in America stagnating?

7. Growing market shareshare of LCCs inLCCs Europe Growing market share in Europe 7. Growing market ofof LCCs in Europe

Source:Source: OAG, CAPA, HSBC HSBC OAG, CAPA,

2010

2009 2010

2008 2009

2007 2008

2006 2007

2005 2006

WithinWithin Europe Europe

WithinWithin NorthNorth America America Source: Source: OAG, CAPA, HSBC

2004 2005

2010

2009 2010

2008 2009

2007 2008

2006 2007

2005 2006

2004 2005

2003 2004

2002 2003

2001 2002

2003 2004

0% 0% 2002 2003

5% 5% 0% 0% 2001

35% 31% 32% 32% 35% 29% 29% 31% 30% 30% 24% 24% 21% 18% 18% 21% 20% 20% 14% 14% 8% 8% 5% 5% 10% 10%

2001 2002

40% 40%

26% 27% 29% 28% 29% 24% 25% 25% 26% 27% 29% 28% 29% 22% 22% 24% 25% 25% 20% 20% 18% 20% 20% 18% 15% 15% 10% 10%

2001

30% 30%

Source: OAG, CAPA, HSBC

Source:Source: OAG, CAPA, HSBC HSBC OAG, CAPA,

HONG KONG BUSINESS | DECEMBER 2011 39

potentially huge in Asia, development of LCCs in

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

market Further, ost Asian chart 19).

the still low air travel penetration in most Asian Within Asia Pacific markets suggests a promising outlook (chart 19).

20% 15%

12%

5%

14%

16%

18%

9%

10% 2% 1% 2%

6%

5%

2010

2009

2008

2007

2006

2005

2004

2002

2003

0%

Within Asia Pacific Source: CAPA, OAG, HSBC

Tiger not burning bright

Source: CAPA, Source: CAPA, OAG, HSBCOAG, HSBC

Low air in most countries 19.travel Low airpenetration travel penetration in mostAsian Asian countries 9.0 8.0 7.0 6.0 Singapore 5.0 Hong Kong SAR 4.0 Australia Indonesia 3.0 Philippines Brunei Darussalam 2.0 United KingdomMalay sia Spain 1.0 Thailand Greece United States France 0.0 Italy Germany Japan India China 0 10000 Trips per capita

ntries

0

the region lags behind that of the US and EU.

analysis: Low cost carriers 18. Growing market share of LCCs in Asia-Pacific

Asia-Pacific one of the fastest-growing While demandisfor low-cost air transportationair is travel potentially in Asia,Indevelopment of LCCs in markets inhuge the world.

2010, air travel in the the region lags12.9%, behind almost that of the US and region grew double the EU. 6.2% and ng air travel Growing market share of LCCs in Asia-Pacific 6.7% growth recorded in North America and 18. Growing market share of LCCs in Asia-Pacific l in the Europe, respectively. Interestingly, Asia-Pacific 6.2% and 20% 18% 16%air traffic also remains relatively resilient. In 2009, a and 14% 12% 15% in the region declined just 0.2% versus declines of a-Pacific 9% 3.9% 10% registered in both North America and Europe 9, air traffic 6% (source: ICAO). In5% its Current Market Outlook, declines of 5% 2% 2% Boeing1%estimates Asia-Pacific air travel market and Europe 0% growth at 6.7% per year over 2011-30. Further, Outlook,

2001

vely

untapped market

30000

40000

50000

60000

Singapore Hong Kong SAR Australia Brunei Darussalam United Kingdom Spain Greece United States France Italy Germany Japan

Sw itzerland

20000

30000

40000

50000

Sw itzerland

60000

70000

700002008 GDP per capita (USD)

Source: CEIC, Eurostat, IMF, HSBC

2008 GDP per Source: capitaCEIC, (USD) Eurostat, IMF, HSBC

Malaysia’s AirAsia this is under 80% and for the Philippines-based Cebu Pacific under 50%.

In Asia, traffic commission ranges between 5-8% of an airline’s total costs. Of course it will be difficult for more LCCs to take to the skies in Asia until the ASEAN countries finally liberalise their skies, which is expected by 2015. Webb noted that a few short-haul sub-regional routes have been deregulated, like MalaysiaSingapore but there still remain a large section of potentially lucrative routes that are protected by strict regulations.

“However, as we progress towards 2015 which is the timeline set for the completion of execution of the ASEAN liberalisation framework, more such routes and markets should become accessible to the LCCs.” Macquarie’s Shaw noted that the Asian market is clearly one of the fastest-growing markets but currently remains relatively regulated.

And though Open Skies is a target that has been set for 2015 for ASEAN 40 HONG KONG BUSINESS | DECEMBER 2011

“AirAsia and Cebu Pacific Air enjoy large domestic markets, dominate their key trunk routes, have a well branded product and are the lowest cost providers in their respective networks”

countries, Shaw warned that since LCC penetration rates across parts of Asia-Pacific are already fairly high, the rate of growth off a higher base is 15 unlikely to be as explosive.

In for the long haul Even as would be aeroplane barons wait for further liberalisation, others are embarking on a potentially even riskier venture, that of long haul budget carriers.

Asia has not had a good experience with long haul budget, with the failed Oasis out of Hong Kong which folded in 2008 a prime example.

Viva Macau also folded in 2010 after its flying license was revoked for non-settlement of fuel bills. Yet Air Asia has successfully operated a long haul to the UK called Air Asia X and Singapore Airlines is planning its own long distance LCC called Scoot which should take off in July 2012. So what are the prospects for long haul LCCs? Air Asia X is perhaps the best example of how to do a long distance LCC right. Launched in 2007, it flies

non-stop to 15 medium- to long-haul destinations from its base in Kuala Lumpur.

With a unit cost of US cents 2.7 per available seat kilometre, 11% lower than AirAsia, it achieved its first year of profitability in 2009 and has remained profitable since then. In 2010, it made a net income margin of 9% and generated a return on equity of 18%.

But the real reason for its success is that it is not a stand-alone long distance LCC, but rather relies on its traffic from its existing operations to fill the long distance routes. “The combined short-haul and long-haul networks feed into each other, with passengers using the Kuala Lumpur hub to connect to a wide range of routes,” noted Webb.

Doubtless, the launch of Singapore Airlines backed Scoot, which will feed into the SIA network, will either make or break the case for long-haul LCC’s in Asia. If they succeed, expect a whole new wave of long haul budget airlines emanating out of Asia.

% qoq seas. adj.

% y oy

1m

regional economy: indonesia

Source: UBS, Haver, CEIC

Source: UBS

Chart 21: CPI inflation and credit growth

Chart 22:

CPI inflation and credit growth 20.0

% y oy

15.0

30.0

5.0

10.0

0.0

Bank credit

The world may be going to hell in a handbasket, but Indonesia will remain unaffected Will the world slowdown affect Indonesia?

Not at all. Indonesia is almost immune from the economic goings on in the rest of the world, as its economy is almost entirely domestic. 2012 should see Indonesia continue to chug along and notch up an impressive 5.5% economic growth before stepping up a gear to 6.1% in 2013, according to estimates from UBS. Good news for the people is that inflation is already on the wane. UBS noted that “weaker local and global growth should prevent too much of a bounce in inflation but we forecast an average inflation rate of 5% in 2012 after 5.4% in 2011, with the gradual acceleration through the year supported by easy monetary policy settings and less favourable weather effects.”

Gundy Cahyadi, an economist from OCBC, remains bullish on the medium-term fundamentals of Indonesia’s economy.

“The 6.5% YoY expansion chalked in Q3 has clearly alleviated our concern in September that real GDP growth might not meet the 6.5% target for 2011. The Q3 GDP data released earlier this week indicated that the strong domestic demand story remains in place, and the 7% YoY investment (GFCF) growth is definitely an encouraging note.

This was hardly surprising given that we continue to see robust import growth data, particularly in the capital goods component, which suggest that the longer-term investment projects in Indonesia were largely isolated from the turmoil in the financial markets during the period.”

2012 saw interest rates cut. Can this continue?

Not wanting to take any chances with the economy, the Indonesian central bank has been steadily cutting interest rates over the past year. The overnight bank rate in November had dropped to just 4.6%, which is now below the inflation rate of 5.5%. This will make it difficult for the Bank of Indonesia to drop rates any lower. The central bank’s 42 HONG KONG BUSINESS | DECEMBER 2011

Jan-10

Jan-08

Jan-06

Jan-04

Jan-02

-5.0 Jan-00

0.0

A stronger currency could pose problems

100

10.0

20.0

How much is the price of fish in Medan?

120

80 60

Jan-05

40.0

CPI inflation (rhs)

Source: UBS, Haver, CEIC

Sources: UBS, Haver, CEIC

recent drop in interest rates still came as a shock considering that the last cut was made as a reactive move following the global financial crisis in 2008. Cahyadi said that while recent rhetoric from BI officials had been very dovish, the 50bps rate cut in November still came as a surprise, especially considering that the last time BI delivered a 50bps rate cut was seen in reaction to the 2008 global financial crisis. “Additionally, the central bank also indicated that growth is likely to underperform the 6.5-6.7% official target for 2012, even if GDP growth is set to come in at 6.5% this year,” he said.

What’s the outlook for the Rupiah?

In a word, stronger. UBS notes that capital flows pose a risk to Indonesia’s shallow financial markets, but assuming BI continues to successfully manage the currency in line with peer economies, the IDR should perform much better than in 2008 and may make some gains as capital market pressures abate in 2012. “Longer term, we expect accelerating inflation and the absence of a current account surplus in 2013 to cap nominal exchange rate appreciation,” it added.

But there are still risks ahead. Swings in global trade, capital flows and commodity prices can impact Indonesia’s financial markets even if the real economy is relatively insulated.

What about inflation?

Food inflation is expected to rise again in H1-2012, said Standard Chartered. “Headline inflation has been more modest than expected in 2010 and 2011. Given headline inflation of just 2.9% y/y in January-October 2011, we expect year-end inflation of 4%.”

It expects inflation to pick up again in 2012, as electricity tariffs are expected to rise and the government’s plan to limit consumption of subsidized fuel will raise transportation costs. Furthermore, the recent floods in Thailand may raise international rice prices, pushing up domestic food inflation.

Standard Charted noted that while inflation may continue to fall towards 3.5% y/y in Q1-2012, it is likely to rise again to 4.8% in Q2 and 5% by year-end. “Accelerating credit growth – driven by BI efforts to encourage bank lending – is also likely to be a source of inflation in 2012,” it added.

Source: UBS

analysis: asian telcos the key revenue driver over the next 3 years,” said Tan. Athaporn Arayasantiparb, Head of Research for Regional Telecoms at UOB Kay Hian, noted two recent developments in the Asian telecom market: first is the emergence of new winners such as Apple and Samsung and decline of previous incumbents like Nokia and Blackberry; and second is the rapid increase in data usage even in countries such as Thailand where the framework is less than ideal.

“Within the six countries under our coverage, Singapore and Hong Kong are the early adopters. In Hong Kong, almost all new smartphones sold are 3G, rather than 2G. In fact, the biggest concern for Hong Kong operators now seem to be building the networks quickly enough to facilitate the increasing data usage.

The iPhone 4S launch in Singapore and Hong Kong were both received with almost cult like devotion, as seen from the lines of people lining outside the mall to be the first to possess these phones,” he said.

Siri, sign me up to Hong Kong Business magazine

Data adoption to spearhead telcos growth in Asia

Analysts say smartphones will spur the next wave of growth in the Asian telcos market.

M

obile telecom operators in a catch-22 as data use grows faster than revenue and tipping point in decline of voice to kick in by 2015.

Smartphones now represent more than half of handset sales in Asian markets, driving a large increase in data traffic, and over the next two years, the greater availability of more affordable smartphones at the US$100-150 price level should be a positive for all markets, said Tucker Grinnan, regional head of Asia Telco & Media Research at HSBC. There will be a structural shift from voice to data with acceleration in smartphone take-up including other data devices, said Jeffrey Tan, a telecommunication analyst at DMG. He adds that given the rising FCFs of telcos in the mature markets, there is an inclination towards more active management of capital.

“In South East Asia, Singapore 44 HONG KONG BUSINESS | DECEMBER 2011

“The iPhone 4S launch in Singapore and Hong Kong were both received with almost cult like devotion, as seen from the lines of people lining outside the mall to be the first to possess these phones”

spearheads in terms of the adoption of data as more than 60% of handsets sold in the market are smartphones, with non-voice revenue making up some 40% of industry mobile revenues. Thai telcos still lag in terms of data adoption due to the delay in the award of the 3G spectrum.

Malaysia is playing catch up in terms of data adoption with smartphone penetration at c. 20%; while Indonesia has one of the lowest proportions of smartphone adoption at less than 5%.”

He added that it would change the cost dynamics for an operator which subsidies the handsets, but the greater accessibility and lower barrier to ownership would accelerate the takeup of smartphones and data.

Tan identified non voice revenue as the key driver of growth. “Non voice revenue will be the driver of growth with double digit CAGR. Expectations are for data to overtake voice as

Smartphones to spur growth Arayasantiparb said that the increasing supply of low-cost smartphones will help to facilitate growth in data usage in Asia. “It is a misconception that only the wealthy class of Asia can afford data usage. Handset margins will continue to decline due to pressure at the lower end. However, it is not true that customers will always choose the cheapest phones. In Thailand, it is clear that the cheaper house brands are accounting for less market share of total smartphone sales and it is also interesting to observe that the phones that are always out of stock are from the expensive iPhone series.

Nevertheless, low cost smartphones are important to industry growth, if only to prime the upwardly mobile income groups of society towards increasing data usage. Today’s teenager buying handsets from his/her parent’s budget can become tomorrow’s executives with corporate budgets and the ability to authorize those of their subordinates,” he noted.

He added that data growth is probably the only area left for potential growth in Asia. For most countries, voice usage has already peaked, and subscriber growth will be more limited than in the last 5 years. At least 60% of the population in even the

analysis: asian telcos least penetrated markets like Indonesia and China already have mobile phones. Having said that, impressive data growth is seen across Asia.

Singapore has tripled data usage to total revenues of 12% to 35% over the last five years, and while the industry should not expect miracles like that to replicate themselves elsewhere, the trend is common for all of Asia.

However, in countries such as Thailand and Malaysia, broadband Internet penetration is still low, and operators such as Digi, Axiata, True, and Jasmine are making strong efforts to increase data usage in those areas.

One important catalyst for the sector is the launch of the iPhone 4S, said Arayasantiparb. It will spur another round of data growth, but smartphone shortages are also expected to happen more quickly than in previous launches of the iPhone series, because of the flood-induced plant shutdown at Thailand’s Western Digital plant.

The memory devices in smartphones and tablet PCs are actually miniature hard disk drives. The Western Digital plant is the world’s largest of its kind, and Thailand is the second largest HDD production base after China.

Country-specific catalysts include Type 3 license issuance in Thailand, although this isn’t expected to happen until 2013. The Type 3 license issuance will significantly reduce concession fees in Thailand, the last country in Asia to adopt 3G, and spur a new round of investments. Elsewhere, one can expect further profit improvements amongst Asian operators as the cost of network equipment falls in the near-term along with the euro. With the emergence of leading Chinese manufacturers such as Huawei and ZTE, it’s easy to forget that European

players, such as NSN and AlcatelLucent, still account for an important part of the market too.

For Nicole McCormick, a Senior Telecom analyst at Ovum, mobile operators are in a catch-22 situation.

“Firstly, high margin traditional voice and SMS revenue remain under pressure particularly from the rise of social networking services. On the other hand, data traffic on the network continues to outstrip growth in total revenue. This data growth, in turn, means more investment is required in spectrum and it is usually the incumbent operator in a market that has the most resources, highest market share and most expansive network rollout. The challenge for other players in the market is how to differentiate their service from that of the incumbent which usually has access to greater cash flows,” she said.

New opportunities for operators McCormick sees low cost smartphones as a huge opportunity for operators. Operators in Asia are heavily subsidizing higher-end smartphones, which can be burdensome for some operators in some markets. Once higher-end smartphone sales have reached a ceiling, the next growth wave is cheaper smartphones which, in general, require less subsidies.

Also, higher smartphone penetration leads to increased data ARPU for operators, which in turn, can stop blended ARPUs from falling.

“Data revenue in Asia Pacific, driven by increased smartphone penetration, will continue to increase over the next five years, however, growth is slowing. This is one of the industry’s biggest challenges,” she noted.

“...the fastest growing markets are the ones where penetration is still below 70%, like India, Bangladesh and Indonesia"

McCormick added that in emerging markets, there is still room for consolidation among operators.

Indonesia and Vietnam are begging for consolidation – the smaller operators in these markets will not be able to match the larger players in terms of cash investment required over the long term.

One of the key trends in the market, said Jayesh Easwaramony, Frost & Sullivan’s Vice President of ICT Practice in Asia Pacific, is the decline in revenue growth. The Asian telecoms market is in the midst of a mature growth phase with even developing markets like Indonesia, India and Philippines experiencing slowdown in revenue growth.

He also noted its impact on the telco business model. “The biggest change is that the consumers’ communication behaviour is changing rapidly due to increased smartphone and social media penetration. Today, communication does not mean voice and SMS anymore. It could be a status update, tweet and so on. At the same time, the same consumers are using apps provided by device players and hence impacting the value added services of the telcos. This shift to platforms, be it social networking sites or app stores, is bigger.”

According to Easwaramony, the fastest growing markets are the ones where penetration is still below 70%, like India, Bangladesh and Indonesia.

“The increasing supply of lowcost smartphones in the market will be a game changer, and is expected to bridge the digital divide. As the smartphone becomes the next upgrade for the next billion; it will drive mobile internet growth across the region,” he said.

HONG KONG BUSINESS | DECEMBER 2011 45

LIFE & STYLE

Great races heat up the 58th Grand Macau Prix

Despite the earlier rain, the races ran smoothly, successfully and safely. Reports from Louis Shek and Krisana Gallezo

T

he 58th Macau Grand Prix went over with a bang with a new record for ticket revenues of around MOP10 million, thanks to more than 65,000 attendees over the four days from November 17-20. Organizers reported that there were around 9,000 spectators who attended the two days of practice.

The number eventually ballooned to over 21,000 and 24,000 on the third and last days, respectively.

The winners Daniel Juncadella triumphed at the thrilling battle for victory in the “SJM” Formula 3 Macau Grand Prix after making the most of a safety car restart to grab a lead that he never relinquished. The Spaniard was running fourth early on in the race but, after jumping two places following a safety car restart on lap five, he grabbed the opportunity to overhaul early front runner Marco Wittmann after a slipstreaming battle following another safety car restart on lap 10.

From there, Juncadella extended his advantage – despite some wild moments in the city section of the track – over second placed Felipe Nasr until a third and final safety car period on the penultimate lap guaranteed him the victory as the race could not be restarted.

The trophy was presented to Juncadella by no other than Federation Internationale de L’Automobile Deputy President Mr. Graham Stoker who visited the Macau Grand Prix for the first time this year.

Michael Rutter made Macau Motorcycle Grand Prix history by taking a seventh victory on the famous Guia street circuit, bettering the existing record he had shared with fellow legend Ron Haslam since 2005. Second was Rutter’s team mate Martin Jessopp, with Ian Hutchinson on the Swan Yamaha 1000 making a remarkable return to competition by taking third for an allBritish podium. American Jeremy Toye was fourth with the IGT Kawasaki Racing Team.

Rob Huff won the final round of the FIA World Touring Car Championship in Macau, but all eyes were on his Chevrolet team mate Yvan Muller who captured the drivers’ crown with a third place finish. Huff knew he needed to win the race to have a proper chance of the title and, after starting third, he soon set about moving to the head of the field after slotting in behind fast starter Tom Coronel and Michel Nykjaer on the run down to Lisboa. Halfway through the lap, Huff dived past Nykjaer to take second place and then he set about closing in on Coronel. On lap three, Huff made his move and raced around the outside of his Dutch rival on the run down to Lisboa.

Behind them, Muller was making progress too from his eighth place on the grid and, after holding fifth on the opening lap, he moved up to fourth on lap three after taking Mehdi Bennani on lap three.

The safety car was then called out after Gary Kwok crashed heavily at Mandarin and, after the restart on lap seven, Huff 46 HONG KONG BUSINESS | DECEMBER 2011

Guia Race of Macau

was able to extend his lead steadily over the remainder of the race to finish 4.6 seconds ahead of Coronel. Muller eventually finished third after overtaking Nykjaer at Lisboa on lap nine to secure his third FIA WTCC title.

Edoardo Mortara proved as masterful in a GT as he was in a Formula 3 car around Macau’s Guia Circuit by taking victory in Star River • Windsor Arch Macau GT Cup. The Italian crossed the line in his Audi R8 LMS in the shortened 10-lap race almost six and a half seconds ahead of closest challenger and two-time race winner Keita Sawa of Japan.

Third across the line was Danny Watts in the McLaren MP4. Watts had tried to challenge for second, but Sawa held firm in the Lamborghini LP-560. Macau driver Rodolfo Avila finished fourth in the Team Jebsen Porsche 911 GT3 R ahead of Japan’s Tomonobu Fuji in an Aston Martin DBRS9.

Briton Rob Huff with his Chevrolet team wins First FIA World Touring Car Championship Race

Photos from top: Dr Chui Sai On ,Chief Executive of the Macau SAR met with F3 drivers before the race started; Marco Wittmann battles the Formula 3 Macau Grand Prix; Macau Grand Prix attracts 65,000 Spectators; One of the famous attractions in Macau Grand Prix

HONG KONG BUSINESS | DECEMBER 2011 47

OPINION

Hemlock Coming soon: Hong Kong to build supersonic passenger jets

I

had a strange dream recently. I was listening to the radio, and the newsreader reported that Hong Kong had devised a new sort of aircraft seat. Thanks to materials 30-40% lighter than those used by manufacturers elsewhere, a new high-value aircraft components industry was to be born right here in the Big Lychee. Then a man came on to explain. The radio station guy started by asking for more details about the new type of seat, but the man insisted on delivering a prepared statement on the growth prospects of the airline industry. Then I woke up, had a shower and got on with real life, never giving the bizarre and illogical reverie a moment’s thought.

Except I now find I didn’t dream it. The Standard quotes Hong Kong Productivity Council chairman Clement Chen as saying: “We started with the development of an aircraft cabin seat to help our industry take off.”

The HKPC was founded in the 1960s to encourage the city’s garment and plastics sweatshops to upgrade.

The factories are history now, but the bureaucratic empire – like its cousin the HK Trade Development Council – carries on, seeking new roles to justify its existence. Like launching a local aircraft parts industry (though with the manufacturing to be based over the border).

The costs of developing this new space-age aircraft seat were borne by us – the humble Hong Kong taxpayer, via the government’s (late 1990s) Innovation and Technology Fund, which supports all manner of scientific wondrousness and ingenuity. The know-how, the HKPC says, will be transferred to a consortium called Universal Aviation Industrial Ltd, which includes six local companies and apparently has a factory in Dongguan. I would like to think the taxpayer gets his money back in some way, but the press release neglects to say. Still, it’s a snip at HK$253,000. (Would this be the same Dongguan

sector organization to spot it. Either these German and Japanese engineers are more stupid than we think, or a Hong Kong bureaucrat is deluding himself and the miraculous new aircraft seat won’t fly. (I can’t say I’m encouraged by the HKPC’s proud declaration that it is “Hong Kong’s first passenger aircraft cabin seat in full compliance with international aviation safety standards.” We made earlier ones that weren’t?)

Whose effort is it?

Government-funded technological R&D is an avowed policy of various politicians in Hong Kong, including lawmaker Regina Ip, despite the disappointing track records of Singaporean, French and other dirigiste leaderships who think they can use the public’s money more productively than private investors will use their own. Thinking a state-owned Disneyland is normal doesn’t help. I look forward to hearing on the radio one day that Hong Kong has become the world’s leading aircraft seat hub – and wondering whether I dreamt it.

On the subject of private investors putting their own money to good use… At “And every single time,when we crunch the a lunch a few months ago, I met someone numbers, we could get much better returns in who runs his own family’s investment fund – a big set-up with offices and full-time real estate.” staff. He was complaining that he wanted to invest in long-term, sound business that generated that is going the way of Hong Kong’s old industrial base thanks to the rising Yuan and labour costs? Why, good returns by providing useful and honest goods or services. They were going over countless proposals in yes, it would be.)

What I find amazing is that dozens of profit-driven, fields like healthcare, services for retirees, educational toys, niche retailing and heaven knows what else. technologically advanced aircraft components “And every single time,” he said, “when we crunch the companies around the world had this carbon numbers, we could get much better returns in real composite-plus-Dongguan formula staring them in estate.” the face, yet it took a redundant Hong Kong public48 HONG KONG BUSINESS | DECEMBER 2011

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

Supah’ jets on the air!

LIFE & STYLE

Who said men can’t accessorise?

For the perfect finishing touch or an expressive accent, the cufflink is indispensible to any gentleman’s wardrobe.

Quintessentially shows you the best spots to shop in your quest for sartorial splendour.

Boodles

Lane Crawford ifc mall, 8 Finance Street, Hong Kong - 2118 338 Established in 1798, this London based brand is noted for their high-end women’s jewellery, but their iconic Raindance line also has a striking pair of cufflinks. This deceptively simple platinum bar is studded with top grade diamonds, lending a subtly expensive shine to any suit. This set will set you back HKD 61,500 at Lane Crawford IFC, their only outlet outside the UK. Alfred Dunhill

G5, M18-19, 115-116, G/F, M/F & 1/F, Prince’s Building, Central, Hong Kong - 2524 3663 Since the heady early days of British motoring, Alfred Dunhill has exemplified the glamour and adventurous spirit of the sport. Still driven by luxury design, Dunhill is today known for its association with discerning gents from Jude Law to James Bond. Motor sports fans will love the cufflinks in Motorities™ Wood Steering Wheel (HKD 2,150), while anglophiles are sure to be bowled over by the quintessentially British Bulldog cufflinks (HKD 2,600).

Shanghai Tang

Shanghai Tang Mongolian Village, Rooftop, Pier 4, Central, Hong Kong - 2525 7337 The arbiters of modern Chinoiserie may have lost their Pedder Street flagship, but their distinctive style and creative spirit is going strong with their Mongolian Village pop-up store and exciting new designs. Welcome in the year of the dragon with a pair of silver Chinese dragons (priced at HKD 1,680), or capture Hong Kong flavour with a pair of silver plated miniature dim sum baskets (HKD 780).

One Bond Street

http://www.onebondstreet.com Roland Abrams

Mezzanine, Mandarin Oriental, 5 Connaught Rd., Central, Hong Kong – 2810 7677 This Hong Kong jeweller has long been a staple at the Mandarin Oriental and is known for their impressive stones, unusual cuts and antique collections. However, gentlemen can find plenty to admire in their large collection of luxury cufflinks. The most popular of these are their crystal cufflinks, hand painted and carved by European specialists, with the witty designs including vintage cars, pipes, playing cards, and cheeky old time pinup girls.

Prices start at USD 5,500.

DECEMBER 50 2011 2011 50 HONG HONG KONG KONG BUSINESS BUSINESS || APRIL DECEMBER 2011

One Bond Street takes a fun look at classic UK design, from quirky Union Jacks to vintage colours celebrating the victories of WWII dogfights and 1960s race tracks. Favourites include the R.A.F. Roundel (HKD 1,240) and the Silverstone set, celebrating a 1967 British Grand Prix win with racing green and fly yellow livery (HKD 1,178).

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