Hong Kong Business (February-March 2016)

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20 startups 2016

+rankings law firms INSURANCE MICA(P) 244/07/2011 KDM No: PPS1645/3/2008

Where have all

the Chinese gone?

Will HK homes

be cheaper?

Hong Kong’s

promising exports Outbound Chinese M&A

to keep bankers busy

HONG KONG

FROM THE EDITOR

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

For the fifth consecutive year, we are bringing you a rundown of the 20 hottest startups that are worth watching out for this year. We have compiled a list of up-and-coming startups providing products and services ranging from an all-in-one destination guide to a medical breakthrough to cure osteoarthritis.

Publisher & EDITOR-IN-CHIEF Tim Charlton associate publisher Louis Shek production EDITOR Roxanne Primo Uy art director Bryan Barrameda editorial assistant Ephraim Bie

In this issue, you will find our annual Investment Banking review, where we found out that one of the big trends in 2016 will be the continued expansion of outbound Chinese M&A. Deal activity is expected to be robust this year with a healthy pipeline in the IPO market as well.

ADVERTISING CONTACTS Louis Shek +852 6099 9768 louis@hongkongbusiness.hk Rochelle Romero rochelle@charltonmediamail.com

ADMINISTRATION ADVERTISING EDITORIAL

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We also give you two sets of rankings - the 25 largest law firms and the 50 largest insurance firms. Find out which companies made it to this year’s list.

Lastly, we are letting you re-experience the 2015 Hong Kong Business High Flyers Awards held in January 19, 2016 at the Azure Restaurant Slash Bar at Hotel LKF in Hong Kong. Check out how the exciting awards night went as we share some photos with you.

Enjoy the issue!

Tim Charlton

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CNH: Will Qianhai jeopardize Hong Kong’s position? 6 Sep 2013

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CNH: Will Qianhai jeopardize Hong Kong’s position?

DBS Group Research

6 Sep 2013

In mid-2012, the China’s State Council approved the development of the Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone. Four industries were focussed upon: finance, logistics, information services and science & technology services. Particular emphasis was placed on finance, for which the government designated Qianhai to be built into an experimental zone for financial innovation and further opening-up to the outside world.

Back then, market watchers found it difficult to associate the mudflat with such bold plans. We, however, have been optimistic about the project. Specifically, we stated in earlier report that the zone’s development would be kicked off by the launch of a cross-border RMB lending scheme (see “CNH: RMB lending set to cross border in pilot plan”, 16 April 2012). In Jan13, only nine months after the approval has been granted, fifteen Hong Kong banks were authorized to offer a combined RMB2 bn of loans for Qianhai companies. More impressively, the first Qianhai land auction was held in July and construction is planned to start by October. It signals that the zone has already entered into an expansion period.

An analogy of Shenzhen SEZ in 1980s While many were previously skeptical about Qianhai’s future, they have now turned to the other extreme of worrying that its rise might jeopardize Hong Kong. Such fears are overblown. In our view, the Qianhai project is similar to the establishment of the Shenzhen Special Economic Zone (SEZ) in the 1980s, which has, in fact, bolstered Hong Kong’s competiveness.

Three decades ago, Hong Kong’s manufacturing industry was seriously hit by soaring costs

Three decades ago, Hong Kong’s manufacturing industry was hit by soaring costs. Factory rents and manufacturing labor wages ballooned 140% and 170% respectively during 1980-90. The city’s international competiveness was being challenged by several lower-cost developing countries in the region. For instance, the manufacturing labor costs in IndoneChart 1: Transformation of HK economic activities sia at the time was only during 1980-2000 one-fourth that of Hong Kong.

30% 90% Shenzhen became an expansion outlet for Hong Kong manufacturers and the timing could not have been better. The availability of abundant inexpensive land and labor in Shenzhen made it possible for Hong Kong manufacturers to move labor-intensive processes across the river. Meanwhile, more skill-inten-

Manufacturing 25%

Service (rhs)

85%

20% 80% 15% 75% 10% 70%

5% 0%

65% 1980

1984

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Nathan Chow • (852) 3668-5693 • nathanchow@dbs.com 1

*If you’re reading the small print you may be missing the big picture    

HONG KONG BUSINESS | MARCH 2016 1

CONTENTS

What is happening to the HKD? 22 analysis

CoVER STORY

Hong Kong’s 20 hottest startups 26 to watch out for in 2016

coverage 40 event High-Flyers awards 2015

FIRST 06 Will Hong Kong homes be cheaper in 2016?

07 Where have the Chinese gone?

08 Hong Kong is worth the high living costs

12 HK banks brace for tougher conditions

14 The 8 best new theme restaurants

30 Debt and equity markets

18 Financial Insight 20 Economic Insight 30 Legal Briefing 32 CMO Briefing

drive the city’s legal sector

34 HK establishes Independent Insurance Authority

OPINION

ANALYSIS

10 Hong Kong set to take off in the aviation leasing industry

RANKINGS

REGULAR

22 What is happening to the Hong Kong dollar?

38 Headwinds from higher rates 46 Chinese tourists to hit 200m by 2020

50 Mark Wadsley: Here’s how fitness will improve performance management

52 Ian Perkin: Asian stocks: Still feeling the pressure

54 Tim Hamlett: Rail wails 56 Hemlock: The ‘innovative dreams’ zone

Published Bi-monthly on the Second week of the Month by Charlton Media Group Pte Ltd, 19/F, Yat Chau Building, 2 HONG KONG BUSINESS | MARCH 2016 262 Des Voeux Road Central, Hong Kong

For the latest business news from Hong Kong visit the website

www.hongkongbusiness.hk

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

COMMERCIAL PROPERTY

Investment volume in Hong Kong bounced back in 4Q15 Following a muted first three quarters of 2015, the Hong Kong commercial property investment market (includes transactions over US$10 million and excludes pure land transfers) turned more active in Q4 2015.

According to a research note from CBRE, total investment surged 76.4% q-o-q to HK$32.7 billion.

Investment volume for the whole of 2015 stood at HK$95.5 billion.

COMMERCIAL PROPERTY

Central records highest office rental growth in 2015 Thanks to diminished Central rental premium and the implementation of the Hong Kong Shanghai Stock Connect, Central recorded the strongest office rental growth in 2015, as financial institutions continued to enter or expand.

COMMERCIAL PROPERTY

Hong Kong’s retail market failed to improve in 4Q15 Retail sentiment failed to register any improvement in Q4 2015, usually the most upbeat quarter of the year.

According to CBRE, total retail sales slid 5.5% y-o-y in October and November combined, bringing the total decline over the first 11 months of 2015 to 3.1% y-o-y. The USD-pegged HKD remained strong relative to foreign currencies such as the JPY, KRW, and euro.

MARKETS & INVESTING

Hong Kong leads globally in raising record amount of IPO funds in 2015 The amount of funds raised by IPOs in Hong Kong in 2015 meant that it reclaimed its top ranking worldwide for the first time since 2011, leaving New York and Shanghai a distant second and third, according to a release from PwC.

HR & EDUCATION

Wages in Hong Kong jumped by 3-5% in 2015 Global professional services recruiter Morgan McKinley has reported overall salary growth in the range of 3-5% in Hong Kong in 2015.

According to a release from Morgan McKinley, this finding is based on its latest Salary Guide, also with recruitment slowing in the wake of the China stock market fall in the second half of the year and the Chinese government’s anticorruption measures.

HR & EDUCATION

Policies laid out in 2016 address to boost talent demands Randstad anticipates soaring talent demands and salary rises across industries. It believes policies will drive talent demand in the Innovation and Technology; Construction, Property and Engineering industries.

FIRST at CLSA reckons developers will implement tactics that will accelerate price correction in 2016 to down 3% per month, or a total of 8% in the first quarter of 2016 (1Q16).

Wong believes that the year will end with a more modest 10% correction compared to Leung’s 15% forecast.

cheery outlook

Hong Kong’s workers are finding more ways to become optimistic despite the gloomy economic outlook as three out of five employees in the territory are brimming with positivity about their employers’ performance in 2016. In fact, this came even as Hong Kong’s slowing economy has dampened employees’ salary expectations, with over half (51%) not even expecting a bonus this year, according to a survey by Randstad. Additionally, four in 10 aren’t anticipating a pay rise as well. “This is well behind regional neighbours Singapore (69% and 62% respectively) and Malaysia (78% and 76%).

Michael Smith, managing director of Randstad Hong Kong, Malaysia, & Singapore, said Hong Kong’s employers are also taking a cautious approach in their pay strategies in 2016, citing economic uncertainties and business challenges as reasons. “The projected base pay adjustment for 2016 is 3.8 per cent on average,” Smith added.

Still hopeful However, this isn’t deterring the mentality of workers, half of which are still hopeful that next year will see an improvement in Hong Kong’s overall economic situation, due to fresh opportunities offered by the thriving information technology and e-commerce sectors.

“Revenue from the Hong Kong e-commerce market is expected to see annual growth of 10.86 per cent to 2020, with sectors such as retail stepping up their e-commerce efforts to capitalise on the trend and not lose out to foreign players,” Smith said. “This is leading to widening skills gaps as the market tries to keep pace with the introduction of new technology solutions and growing consumer expectations.”

6 HONG KONG BUSINESS | MARCH 2016

A multi-year correction cycle awaits HK

Will Hong Kong homes be cheaper in 2016?

R

esidential price corrections are on the cards in 2016, although there appears to be weak consensus on their severity and length. Hong Kong home buyers looking for a steal in 2016 have a tough decision to make: Pass up on purchases for up to three years with the expectation that more price corrections will hit the market, or start locking in deals under the assumption that prices will soon pick up.

Some analysts expect HK residential prices to plummet, not only in 2016 but also up to 2018, supporting the case for home buyers to sit a bit longer on the sidelines.

“We believe that the residential sector is only at the beginning of a multi-year correction cycle,” says Susanna Leung, research analyst at Credit Suisse.

Leung reckons residential prices will likely see a 25% price correction over the next three years: 15% in FY2016 and an additional 5% in each of the next two years.

One of the main factors that will drive down residential prices is the forecasted influx of more than 25,000 units ready for launch in 2016, more than the average take-up of 18,000 units, says Leung.

Meanwhile, Nicole Wong, analyst

Some analysts expect HK residential prices to plummet, not only in 2016 but also up to 2018, supporting the case for home buyers to sit a bit longer on the sidelines.

Likely to bottom out Conversely, optimistic analysts insist that homes will not stay cheaper in 2016. Residential prices will bottom out as early as the first quarter of 2016 (1Q16), and then will have grown by at least 5% by the end of 2016, says Praveen K Choudhary, analyst at Morgan Stanley, citing data from his company’s proprietary residential price leading indicator.

“Our property sales to gross domestic product ratio analysis suggests that the market is still healthy despite steep price increases since 2009,” says Choudhary.“This is much more bullish than consensus expectations of property price declines of 5% to 20%. Our positive view comes from continued supply and demand imbalance in the near term, favorable risk reward on the regulation side, and minimal impact from Fed rate increases as long as they are gradual.”

Further heightening the uncertainty surrounding Hong Kong residential price corrections are a couple of looming wildcards.

“Investors should watch out for two potential surprises in 2016,” says Wong.“First, the rate of price decline may trigger talk of policy easing, such as a reduction of Double Stamp Duty to release upgrading demand.

Second, resumption of quantitative easing in the US.”

Land supply to over 20k units

Source: Centaline, Midland, CEIC, Lands Department, Credit Suisse estimates

FIRST Mainland tourist’ spending on luxury goods and YoY growth

Source: CLSA

The Chinese can represent up to 56% of Hong Kong mall sales.

They are still spending, but not in Hong Kong

Where have the Chinese gone?

W

hen Louis Vuitton revealed that sales to Chinese consumers worldwide grew at low double digits in the first half of 2015 while total retail sales in Hong Kong declined 2% over the same period, Shroders analyst Anthea Arff-Pettersen knew that the Chinese are still travelling and shopping, just not in Hong Kong.

During Hong Kong’s ‘golden decade’ from 2003-2013, luxury retail sales’ CAGR was at 11%.

But since the first slowdown in 2014, Arff-Pettersen has not been seeing any signs of sales picking up

with 2015 Hong Kong retail sales plummeting to an extent last seen during the SARS crisis in 2002.

Chinese visitors to Hong Kong were down 15% year-on-year in November 2015. “This marked the sixth month of consecutive declines after a decade of 20% compound annual growth. Hong Kong mall sales to tourists range from 30% to 70% and the Chinese represent close to 80% of total Hong Kong tourists. This implies that the Chinese can represent up to 56% of Hong Kong mall sales,” she adds.

Pricing is definitely one of Hong Kong’s concerns in attracting

Chinese luxury spenders. Aaron Fischer, CLSA’s regional head of consumer & gaming research, notes that Hong Kong is now one of the more expensive places to purchase luxury products: for some products prices in Hong Kong are now 20% higher than Japan.

Should investors be worried?

Arff-Pettersen reckons all is not lost. “The majority of the listed European luxury goods companies have explicitly communicated that their store networks in Hong Kong remain highly profitable, as there is still a place for them to serve domestic demand.”

“There is also still hope for a pick-up in tourism. The Hong Kong tourist association has announced plans to launch a campaign to promote Hong Kong to tourists outside China and is looking to diversify its offer away from shopping,” she adds.

The Chartist: Hong Kong’s unsustainable property price-to-income ratio If you’re living in Hong Kong, and you’re finding it virtually impossible to find a home that fits your present income, then you’re not alone. According to BMI Research, while the city-state has witnessed one of the most impressive run-ups in the world dating back to the end of the global financial crisis, it’s finally showing some signs of tipping over. “In particular, we find the astronomical property price-to-income ratio in the citystate to be unsustainable.”

BMI Research says median house prices have hit an eye-watering 19 years of median household income in 2015, making Hong Kong one of the most expensive markets among those surveyed, with the next most expensive market, Australia, clocking in at a significantly lower 5.6x.

Hong Kong a trailblazer for unaffordability

High time for a correction

Source: BMI, NBS, Demographia

Source: BMI, Centaline, Censtatd

HONG KONG BUSINESS | MARCH 2016 7

FIRST

Hong Kong is worth the high living costs

Survey

No first job blues

W

hen expatriates come across job openings in Hong Kong, recent surveys show that most are attracted by the high remuneration in such posts, but many will not likely relocate without a hefty allowance to help them keep up with the territory’s skyrocketing cost of living.

The continuing appreciation of the Hong Kong dollar has made Hong Kong the ninth most expensive location for expatriates, based on ECA International’s latest Cost of Living survey, up 17 places from its previous 26th position globally. In the Asia Pacific region, Hong Kong is now the 3rd most expensive city for expats.

This trend means companies will likely have to increase the cost of living allowances for expat assignees to protect their purchasing power, says Lee Quane, regional director – Asia at ECA International.

Expats in Hong Kong also worry about the high cost of raising children, with 75% of parents feeling it is more expensive to do so in the territory than in their country of origin, according to the latest HSBC Expat Explorer survey.

Hong Kong firms try to compensate

Hefty allowances attract expats

with a bevy of allowances, which combined with the territory’s reputation as a strong career builder, helps tip the scale favorably during expat negotiations.

“Hong Kong is a strong economic destination and particularly attractive to expats working in financial services,” says HSBC, with 39% of expats surveyed in Hong Kong work in this industry.

Around 61% of expats also report an increase in their earnings after moving there, with the average expat earning around US$70,000 per annum more than the global average.

survey

More Hong Kongers loving tapping and shopping Hong Kongers are beginning to love shopping through their phones, but they’re getting the jitters from security issues. According to a survey by TransUnion, more than one in four citizens (25.5%) shopped online via their mobile phones in the past six months, but a majority admitted that they are spooked by the looming concern for security and identity theft. Polling 500 Hong Kong adults, the survey revealed that 2 in 3 Hong Kongers have shopped online more than three times in the past six months, while 20.9 or over 1 in 5 have shopped more than 10 times.

Meanwhile, while the vast majority (76.8%) are still cozy making their online purchases from their PC or laptop, 42.6% are trying other devices on for size, including mobile phones and tablets (17.1%). “Most of them (65.3%) spent or would spend less than HK$1,000 on a single item,” the survey said.

8 HONG KONG BUSINESS | MARCH 2016

The continuing appreciation of the Hong Kong dollar has made Hong Kong the ninth most expensive location for expatriates.

The fresh batch of graduates in Hong Kong believe they’re off to a good start in their careers as over 3 out of 4 new graduates say they have found their jobs satisfactory. In fact, more than half of those surveyed are planning to stay in their first jobs between one to three years, according to a survey by jobsDB. And it’s not like Hong Kong’s graduates are having a hard time finding jobs, as 91% of fresh graduates interviewed were able to land their first job within three months after graduation, of which 60% are optimistic on their career prospects. The survey adds that the cheery outlook was supported by a positive outlook on the future development in their industry, as well as strong market demand.

How are the fresh grads?

Meanwhile, more than half of graduates got off to a swell start as they were able to achieve their ideal job type to start their career, but only 40% have successfully stepped into the industry they most preferred. For the graduates’ most picked industries, jobsDB says banking and finance job posts are all the rage, chosen by 14% of those surveyed.

However, the survey noted that the respondents for the category also expressed the most concern over keen competition in the industry.

For the other most desired job types, media and advertising came second (11%), followed by marketing and public relations (10%) and education (9%). The most ideal industries for fresh grads are media, publishing, & printing (10%); education; and accounting, auditing, and tax services (8%).

FIRST

Hong Kong set to take off in the aviation leasing industry

W

hen the Chief Executive CY Leung reiterated his commitment to turning Hong Kong into an aviation leasing hub in this year’s Policy Address, it was welcome news for the aircraft leasing industry. An Asian hub must be established as a result of the airline industry’s rapid growth in the region, which also offers attractive investment returns.

At the moment, Hong Kong’s tax code contains an anomaly which prevents most of these businesses from being based in the territory.

This is a result of rental income derived by a Hong Kong lessor from leasing aircraft to overseas airlines possibly being fully chargeable to tax in Hong Kong.

Meanwhile, the lessor would normally be unable to claim any tax depreciation allowances in respect of the cost they incurred on the acquisition of the aircraft.

Specifically located in section 39E of the IRO, drafted so broadly that they could impact many normal leasing businesses which have no tax avoidance motive, tax depreciation allowances may be denied.

Not a feasible endeavour Because of the extremely high cost of investing in aircraft, an aircraft leasing business based in Hong Kong would no

longer be a feasible endeavour, particularly in conjunction with the territory’s restrictive deduction guidelines for interest.

However, Financial Secretary John Tsang, in his discussion of his eighth budget to date, announced that he will “ride on the experience of other jurisdictions and explore possible measures that can promote aerospace financing business in Hong Kong.”

Welcome news “The recent announcement by the SAR Government that it is formulating measures to develop Hong Kong into a centre for aerospace financing is welcome news for the industry,” says Catherine Tsang, tax partner, PwC Hong Kong.

“It is projected that Asia Pacific will require more than 14,000 new aircraft over the next 20 years, worth about US$2,200bn.

Leasing has become an important financing tool for the airline industry. The Hong Kong Government should act fast and bring in the necessary changes to develop this industry as soon as possible.”

If the government creates improvements in the tax code to make it more competitive, it could give Hong Kong the potential to become a viable base for aircraft leasing, not only for China and other nearby countries but for the global market.

survey

Flexible working key to work-life balance

Flexible working is gaining popularity for both Hong Kong’s employees and employers, and the reason is no surprise— malleable working hours usually result to better work-life balance.

According to a survey by Regus, more than two out of three (67%) Hong Kong employees are favoring flexible work hours for better work life balance, higher than those in other Asian countries including China, Japan, Indonesia, South Korea, Thailand, and Vietnam.

Additionally, the survey also proves that the demand for a healthy work-life balance arises from the escalating work hurdles these employees undertake, as 14% of Hong Kong professionals put in an extra 15 hours of overtime work a week, according to Regus. Meanwhile, some 35% of Hong Kong respondents also say they wish to work closer to home.

10 HONG KONG BUSINESS | MARCH 2016

Source: Regus

Who doesn’t want a better work-life balance?

Aviation leasing offers x attractive returns

Hong Kong would be hard-pressed to become the Asian hub without the implementation of these changes, as it is widely accepted that tax is fundamental to the leasing industry.

Both lessors and airlines would need to understand the changes this will bring about to the industry, particularly with the increase in activity in aviation leasing within the last 12 months, and the right regime could bring about enormous economic growth for Hong Kong.

FIRST NUMBERS

lunar new year on facebook

Banks face double trouble

HK banks brace for tougher conditions

H

ong Kong banks may be in for a rough ride in 2016 due to the double trouble of higher interest rates and a sluggish domestic economy. But despite the expected worsening of operating conditions, banks in the territory should be able to withstand most of the beating, aided by their strong liquidity and capitalisation. “We see tougher operating conditions for the Hong Kong banks due to the risk of higher interest rates coinciding with slowing economic growth in Hong Kong,” says Sharnie Wong, analyst at Barclays.

“This could lead to slower loan growth and asset quality deterioration which would offset part of the net interest margin benefit from higher rates,” she adds.

trend that threatens to dampen demand for cross-border loans.

This will, in turn, weaken the repayment capabilities of Chinese corporates with large foreigncurrency liabilities, and cause HK banks some headaches.

But analysts feel confident that HK banks can cope with most of these operating challenges. Zhang reckons overall funding conditions of HK banks will remain resilient since they are largely deposit funded with limited reliance on the wholesale markets. This helps insulate HK banks from short periods of money market volatility.

Although the ratings agency warns that increasing linkages with the mainland banking system could increase the risk that volatilities in China’s interbank market will spill over into HK.

Lower profitability Moody’s Investors Service likewise expects asset quality among banks to deteriorate modestly as interest rates start to rise. Banks may also suffer from lower profitability if tighter renminbi (CNH) liquidity conditions persist this year and push up funding costs, says Sherry Zhang, analyst at Moody’s Investors Service.

In January, there were sharp jumps in CNH-HIBOR rates, a

CNH HIBOR and exchange rates

12 HONG KONG BUSINESS | MARCH 2016

Source: Bloomberg

Hong Kong banks may be in for a rough ride this year due to the double trouble of higher interest rates and a sluggish domestic economy.

Source: Facebook internal data, Jan-Mar 2015, accessed Nov 2015

FIRST wine barrels welcoming guests as they step into the restaurant.

A giant photo by renowned photographers, Formento + Formento hangs on the white walls, while a red colored sofa awaits anyone who wants to comfortably sit.

Ganguya This new robatayaki restaurant from the Keyaki Group takes the theme of a toy shop. The façade showcase is filled with toys from the 70’s and 80’s, including such childhood figures as Dr Slump, Doraemon, Saint Seiya, Gold Lightan, Godsigma, Sailor Moon, Mazinger, Grendizer and many other nostalgic toys. Here, fresh ingredients are laid out in front of customers counter-side, who can then have their selections grilled by specialists. It is located at Ngan Mok St, Tin Hau. 5

The 8 best new theme restaurants

F

rom a New York-style jazz club that brings to mind great bars during the 1950s to a dining space showcasing nostalgic toys from the 70’s and 80’s, these theme restaurants which just opened in Hong Kong last year will keep everyone’s eyes satisfied and bellies full.

Hong Kong Business brings you a list of cool theme restaurants offering more than just good food but also a total dining experience to satisfy picky eaters.

Be sure to check their funky décor and designs that can completely captivate your imaginations.

One of them has a family-friendly theme to best treat your kids for a memorable meal. Inspired by the coveted Japanese character, Hello Kitty, this Chinese restaurant offers dumplings and dim sum that are too cute to eat.

Hige Izakaya This moustache-themed restaurant featuring Izakaya food is located on Castle Road Mid-levels. Its quirky name ‘hige’, means ‘beard’ or ‘moustache’ in Japanese.

It offers piping-hot barbecued dishes and a wide range of alcoholic drinks, some of which are very rare and hard to find in the market.

Sake here are sold from $250-$800, while Tedori Gawa Mange Kyo Daiginjo may cost around $1,200. You may also find some popular Japanese whiskies here.

1

2 Hello Kitty Chinese Cuisine The world’s first Hello Kitty Chinese restaurant arrived in Hong Kong in April 14 HONG KONG BUSINESS | MARCH 2016

last year. It offers about 40 choices ranging from HK$42 to HK$238, half of which are Hello Kitty-inspired dishes. Dumplings and other kinds of dim sum are shaped into cute Hello Kitty faces while walls are filled with Chinese paintings inspired by the coveted Japanese character.

She’s virtually everywhere - on chopsticks, chopsticks holders, plates, bowls, spoons, teapots, ceiling lanterns, wall decor, wine glasses, wine bottles, and chairs.

3 MyHouse Located at QRE Plaza, this quirky coffee hub by day transforms to a house partystyle venue by night, and gives you a ‘my house is your house’ feel. Conceived by natural wines expert Karim Hadjadj and creative natural living enthusiast Alison Christ, MyHouse features bi-monthly art exhibits from local and international artists.

Christ’s personal vinyl collection adorns the shelves while some individual tables offer records players for anyone who wants to bring headphones and listen to some vinyl during the daytime.

Lobster and Mussels by Paul’s Kitchen This lobster and mussels-themed restaurant located on Gough Street is a new concept from Paul’s Kitchen which has long been famous for its rustic, homemade Western cuisine. This twostorey boutique restaurant carrying a vintage European style, features two huge 4

6 The First Floor The First Floor by Lifestyle Federation is a premium dining club spanning 3000ft² of space which features unique ‘edutainment’ dining experiences. ‘Edutainment’ is a concept of mixing education and entertainment and The First Floor does so by hosting a series of experiential events, food demonstrations, workshops and tastings all as part of the dining mix.

Located on Duddell Street in the heart of Central, The First Floor is just 5-minute walk from the MTR station.

7 Studio This New York-style jazz club in the heart of Central spans 2,000 sq. ft. space is a brainchild of Xuan Mu of Maximal Concepts. The interior fuses lush leather banquette seating , matched with warm walnut textures and copper tones that bring to mind great jazz bars in New York during the 1950s.

The Studio also boasts a collection of premium whiskies, exclusive champagnes, and creative cocktails which are all best served while listening to melodic sets of live jazz.

8 Kasa Kasa is Hong Kong’s newest Cantonese restaurant with the interior drawing inspiration from the old school cha chaan tengs (tea restaurants). Its wall panels mimic the stalls of old Hong Kong and door frames are inspired by 19th century tong lau buildings.

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startups

Aouko taps virgin field of premium 3D-printing space

I

n researching the 3D-Printing market, tech entrepreneur Cyrus K. Hui came to appreciate that while the technology is making rapid advances in the industrial, medical and dental sector, there is a dire need for an efficient marketplace dedicated to 3D-printing designers.

He further noted that the ‘3D-printed’ consumer products remain at a nascent state. Most of the consumer products are more ‘hobbyist items’ while there is no lack of exquisite consumer goods such as jewelry, fashion accessories, home decor and art & craft.

“In terms of economics, 3D-printed consumer goods remain

uncompetitive in cost-pricing, slow in production with service bureaus concentrating in a handful of locations rendering logistics slow and costly,” he explained.

To address this, Cyrus, along with friends founded Aouku. It is the first-mover in securing support of established and emerging artistdesigners by providing them a platform for the co-development of 3D-printed products targeting the premium consumer-fashion market segment which is unaware of such already in existence.

Humble beginnings First introduced to 3D-printing 3 years ago, Cyrus spent 3 months in the US researching the industry and market, leading to his co-founding of 3dtupo, in strategic partnership with 3D Printing Industry, in late-2013.

Cyrus first approached Open Creative, a web design and multimedia consultancy firm in Hong Kong whose co-founders were Cyrus’ former colleagues at Asianet, one of the first ISPs in Hong Kong in 1994.

Aouku currently has HK$500,000 funding with OCL as one of its principal investors.

Youth entrepreneurship and philanthropy

Founded in 2010, 24 Hour Race movement has one goal: end slavery by engaging millions of young people.

The 24 Hour Race is a global youth movement that has a two-pronged approach to ending modern-day slavery. Founder Christopher Schrader explained that they are building an online platform to empower anybody in the world to join the youth movement to end slavery. They are also hosting events by empowering young people to 16 HONG KONG BUSINESS | MARCH 2016

lead change in their communities.

Furthermore, they are working closely with grassroots partner beneficiaries in the field to allocate raised funds to the most impactful projects related to the cause. “These approaches call on us to innovate the way we interact with our donors, our stakeholders and our beneficiaries through tech,” he said. Since 2010, Christopher shared that the charity startup has enjoyed 100% growth yoy in terms of funds raised, participation and engagement.

Amongst its major investors are The Executive Centre & Bain Capital Community Partnership.

Moreover, 50,000 young people were engaged in our movement across 3 cities in 2015, raising >HKD 2.3 million for charity. By the end of 2016 the movement plans to be in 6 cities engaging 250,000 young people, raising >HKD 4 million.

Addressing tech talent shortage

There’s good and bad news for Hong Kong startup scene growing more than 3.5 times during the past four years. The good news is as Hong Kong is amongst the five fastest growing startup ecosystem in the world with a total of 1,558 startups as at end 2015, there is influx of investment and capital.

The bad news is there’s simply a lack of technicallyskilled people to get everything done and build innovative products, especially for technology sector.

According to web development instructor Harry Chen, 50% of the startups are proactively looking to recruit talents of which 30% of the job openings relate to developers and engineers roles. Despite the attractive compensation packages these companies offer, many are still struggling with technical talent acquisition, he said. “In Hong Kong, the perceived ‘loneliness of programming jobs’ has put many talented young people off computer science. For the technology startup ecosystem to continue to grow, more technical talents are needed,” he explained.

An education technology startup To help Hong Kong’s startup scene address shortage for technical talents, Harry with friends Xiao Yang and Victoria Li put up Hack Pacific. Hack Pacific is an education technology startup incorporated in Hong Kong with office/ classroom located in Tsim Sha Tsui. Its mission is to supply quality programming talents to Hong Kong technology startup community.

It is launching its inaugural 12-week full-time web development program on March 21 this year and from then on start a new class every 6-7 weeks.

The program is geared towards beginners, however, the admission process is rigorous and students need to pass online logical reasoning test and a programming test on the online foundation.

The program covers 6 major areas, computer science, programming proficiency, front end, back end, database, tools and industry practise.

“We focus on getting our students to understand the underpinnings of low-level theory and this enables them to learn any frameworks/ languages themselves in future,” he said.

Hack Pacific is currently self-funded with HK 300,000. All of the founders are programmers with a diverse international background. Harry, the lead instructor, has taught 3 full-time web development classes at General Assembly in Hong Kong.

co-published Corporate profile

Why timberland is a good investment

Hong Kong businessmen can now consider a long-term investment that will not just be profitable – but can preserve nature as well. to another asset class. This makes it a great portfolio diversifier. “Over the last 30 years, timber returns have beaten stocks and the S&P 500,” he says.

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coForests, a boutique forestry management company, specializes in tropical timber species such as teak, oak, mahogany and eucalyptus that are grown in several geographic locations in Central and South America.

With investors all over the world, the company is “vertically integrated”.

This means that it takes care of the seed selection, tree nursery, planting, management, harvesting and placing the timber to market.

“Keeping a vertical integration allows us to have direct control of every aspect of the project,” says Michael Ackerman, EcoForests’ CEO. “This results in the best possible returns to our investors. In addition, we are very innovative in our management practices, such as adding interesting research technologies like our recent implementation of drone mapping of the plantations.”

The solution to climate change Mr. Ackerman believes that forestry is indeed the answer to the climate change brought about by pollution and deforestation.“The moment an individual or institution invests in forestry, they are already contributing to the better of our planet,” he maintains. “We at EcoForests are cultivating timber for future demand.

This means that our timber production which is grown with the highest standards of sustainability - will replace the felling of aboriginal and natural tropical forests.

Growing sturdy Like a tree growing from a seed, Ecoforests begun with a small group of investors, and developed to offer various investment projects to high net worth individuals, family offices, pension funds and institutions. Ecoforests boasts of a complete tailored structure, with the investment consisting of a direct investment in tropical timber, tailored to the needs of the investor.

EcoForests also takes into time frame, cash flow requirements, timber species, geographical locations, and Since the beginning of the Industrial Revolution, we have been harvesting our land ownership for a sturdy investment precious natural forests with disregard to structure. Ecoforests prides itself in a the consequences. Therefore - in addition unique business model, combined with a personal touch with its clients. to the above average returns in forestry - every dollar invested in the timberland The challenge for 2016 industry improves our forest area and For 2016, Mr. Ackerman is optimistic that protects our aboriginal forests.” his company would succeed in educating Thus, EcoForests thrives on the its prospects on the benefits of timberland philosophy of good stewardship that investment. “In recent years, there has considers a strong environmental record been an important influx investment in as central to business success. forestry. Fifteen years ago, there was a mere 40 billion dollars that was invested Benefits and returns in timberland. Today, there is about 200 The CEO guarantees forestry investors billion. of many benefits, one of which is “If we look at the investable universe, the inflation hedge where forestry is 200 billion dollars is only a fraction. Yet, considered a commodity. He explains it is comforting to see that the interest is that if inflation goes up, commodities inevitably go up. 60%-70% of the returns growing. My company has noticed this generated in investing in timber are based trend, as family offices and institutions on the natural growth of the tree, which continue actively looking for timber opportunities.” The CEO adds that his is invariably positive. company would serve its clients with the As the trees continue to grow, so does personal touch and professional treatment the investment. But when the harvest they can expect. period for the investment is affected EcoForests has offices in Canada, by economic uncertainty (like the 2008 market collapse), the investor can hold his England, Northern Ireland, Gibraltar and Israel, along with representative agents in investment for an additional number of years, so it can continue to grow and gain over 30 countries worldwide. It will soon additional value. Still another benefit that establish a branch in Hong Kong.

For more information, visit Mr. Ackerman points out is the fact that http://www.ecoforests.ca. timberland investments are non-correlated

“Forestry is indeed the answer to the climate change brought about by pollution & deforestation.”

HONG KONG BUSINESS | MARCH 2016 17

FINANCIAL INSIGHT: investment banking

Deal activity remains high for investment banks

Outbound Chinese M&A to keep HK bankers busy M&A and ECM activity should pick up in 2016 despite continued uncertainty and operational downsizing across the sector.

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f investment banking (IB) activity in Hong Kong displayed some sluggishness last year, then 2016 will see the sector inject a shot of adrenaline and push through with more deals. Merger and acquisitions (M&A) and equity capital markets (ECM) will likely pick up the most momentum due to a predicted surge in Chinese fundraising and overseas acquisitions.

Most analysts view 2016 with optimism due to the opportunities and high deal activity expected to arise in the next 12 months despite the lingering uncertainty.

“We expect higher levels of activity in both equity capital markets and M&A than what we saw in 2015,” says Ashok Lalwani, head of international capital markets group at Baker & McKenzie.

18 HONG KONG BUSINESS | MARCH 2016

Most analysts view 2016 with optimism due to the opportunities and high deal activity expected to arise in the next 12 months.

“More Chinese companies, particularly those in the financial sector, are set to raise funds through initial public offerings (IPO). We are also expecting to see more Chinese companies, particularly those in the technology and industrial sectors, to search for deal opportunities overseas,” adds Lalwani.

One of the big trends in 2016 will be the continued expansion of outbound Chinese M&A, concurs Emma de Ronde, foreign legal consultant at Norton Rose Fulbright in Hong Kong. “I expect Chinese outbound M&A to continue to increase and a strong pipeline in the IPO market should mean deal activity remains high for the investment banks,” says de Ronde.

“From a market perspective in Hong Kong, there has been record

growth in outbound Chinese M&A and the expectation is that this will continue, particularly in the financial institutions and technology sectors. This will provide opportunities for banks to participate in increasing deal volumes, with Hong Kong being ideally placed to act as a hub for both outbound and inbound Chinese M&A,” says de Ronde.

Insurance M&A surged in 2015 2015 saw ECM bankers take a beating amidst China’s economic slowdown and increased volatility in the equities markets, but a boom of insurance M&A served as a haven for the sector. “We are living in the ‘once-in-a-generation’ era of insurance M&A,” says says Douglas Chan, director, corporate finance advisory at Deloitte China.

A Deloitte analysis shows the total announced deal value of Asian outbound cross-border insurance M&A transactions in 2015 stood at US$28 billion.

Japanese and Chinese buyers were the most acquisitive players in the arena, notes Chan, with seven deals involving Japanese insurers

FINANCIAL INSIGHT: investment banking announced and an aggregate deal value of approximately US$24 billion. Chinese players, meanwhile, were involved in four transactions with an aggregate deal value of around US$3 billion.

“As such, investment banks with strong insurance knowledge, plus willingness to support clients with acquisition financing would be the natural beneficiaries,” says Chan.

2015 witnessed “one of most ground breaking transactions in the life insurance world,” according to Chan, through JD Capital’s US$1.4 billion acquisition of Ageas, the Belgian insurer’s business in Hong Kong.

“The sale marks not only the first ever Chinese private equity fund taking over a Hong Kong insurer, but also the second European insurer to exit from the Hong Kong market in recent years,” says Chan.

Bright spot in Asia-Pacific Looking at the broader AsiaPacific market, 2015 was a relatively challenging year as regional fees declined 14% to US$11.9 billion on a total of 9,047 deals, says Jan Bellens, leader of Asia-Pacific banking & capital markets and global emerging markets at EY. But Hong Kong was one of the region’s bright spots, with deal values rising to US$106.6 billion in the first half of 2015 driven by a couple of mammoth deals with Hutchison Whampoa and Cheung Kong Property Holdings.

Bellens notes that one of the cornerstone transactions in 2015 was HSBC Holdings’ provision

of GBP6 billion (US$9 billion) in loans to fund tycoon Li Ka-shing’s Hong Kong-listed conglomerate, Hutchison’s US$15 billion acquisition of one of Britain’s biggest cellphone operators, O2 from Spain’s Telefonica SA. The deal was the largest purchase overseas by an Asian firm since Japan’s SoftBank Corp’s US$21.6 billion buyout of Sprint Nextel Corp in 2012.

“It marked the Hong Kong billionaire’s biggest overseas investment to-date and cemented his telecommunications and infrastructure company as one of Europe’s top wireless providers,” says Bellens.

Hong Kong also regained its crown in 2015 as the top listing venue for IPOs globally in terms of proceeds, according to Elaine Tan, analyst at Thomson Reuters.

“This was driven by Chinese brokerage firms and banks seeking to strengthen their capital position to meet the demand for margin financing,” says Tan. Nine Chinese mega IPOs (above US$1 billion) raised at least US$21.4 billion, accounting for more than half of the funds raised in Hong Kong’s IPO market in 2015 which totaled US$31 billion, up 24.3% over a year ago.

The pipeline of new listings in Hong Kong should remain strong in 2016, and one deal to watch out for is the upcoming jumbo IPO of state-owned Postal Savings Bank of China which Tan says could raise US$10 billion to US$15 billion at the end of the year, and likely to be one of the biggest IPOs globally.

Asia Pacific equity capital markets

Source: Thomson Reuters

singapore view

A possible spike in defaults a new danger in 2016 If the Singapore investment banking(IB) sector is wishing for a brighter 2016 after the past year’s turbulence, then they may be in for disappointment since more of the same struggles can be expected.

Analysts warn that volatility and lacklustre interest will likely persist, the global economy may not be able to shake off its sluggishness, and defaults and regulatory pressure may even rise – all of which should dampen the sector’s prospects.

Singapore is coming off a dismal year for IB activity as weak market sentiment, the global economy slowdown, and depressed commodity prices curtailed capital markets and M&A activity in 2015,according to Elaine Tan, senior analyst, deals intelligence at Thomson Reuters. “With the same factors that affected Singapore in 2015 expected to continue in 2016, the city-state’s equity capital markets could remain volatile and lacklustre with small initial public offerings (IPO) likely to dominate the market,” says Tan. Singapore saw only one Mainboard listing in Singapore Exchange in 2015: BHG Retail REIT raising US$278.5 million (S$394.6 million) in proceeds, and was the city-state’s largest IPO that year. Tan attributes this IPO scarcity and smaller deal sizes to to volatile market conditions, pushing companies instead to the Catalist board instead.

Tan says SGX struggled as it faced competition from other stock exchanges, lagging behind regional rival Hong Kong, and even neighboring Thailand in IPO activity. Follow-on offerings in Singapore totaled US$1.9 billion, down 58.1% from over a year ago.

Also, Singapore-listed equity offerings (combined IPOs and secondary offerings) sank 68.6% to US$2.20 billion in 2015, their lowest annual period since 2003 (US$2.16 billion), as the number of new issues fell 37% from 2014.

Danger of defaults A new danger in 2016 is a possible spike in defaults, which already reared its head with the first default of Singapore dollar bonds since 2009, due to investors taking on more risk amid a low-interest environment.

“There is a second one looming on the horizon,” says Vicky Münzer-Jones, partner at Norton Rose Fulbright in Singapore.

“Following a slow year of new issuances, but also in terms of defaults, the sense seems to be that pressure will build in the early part of this year resulting in a glut of liability management exercises and possibly even defaults.”

“The low interest rates of recent years have led to investors chasing higher yields offered by local corporates, which may not be rated. There are several highly leveraged industries which have been hit hard by depressed commodity prices so some borrowers in, or connected to, the southeast Asian oil and gas sector will have to consider debt restructurings, including extending maturity or re-negotiating covenants, or face default,” adds Münzer-Jones.

HONG KONG BUSINESS | MARCH 2016 19

economic INSIGHT: service exports equipment, aviation and shipping finance.

Second is the provision of exports of other business services, such as professional arbitration services, project consultation services and market research services.

Third is the provision of exports of trade-related and travel services by offering logistics services and hosting international conferences.

Still, it will take some time before these service exports could start expanding and contributing more to the Hong Kong economy, so the territory will likelyhave to roll with the punches in the short term. “Muted world trade demand, the US interest rate normalisation and moderating economic growth on the Mainland will weigh on overall external demand in Hong Kong in the near term,” says Shik.

What is the greatest contributor to growth?

Promising service exports

See why service exports might be the most promising contributor to Hong Kong’s economic growth.

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ith Hong Kong retail sales and exports declining and expected to remain tepid in 2016,the territory seems to be in a growth bind. But some analysts believe that service exports is starting to build momentum, and might become the knight in shining armor that saves Hong Kong from the economic sluggishness it will likely experience in the next few years.

“Since the end of the global financial crisis, Hong Kong’s key economic growth contributor has been domestic demand, with lacklustre world trade activity resulting in a negative contribution from external demand,” says Thomas Shik, acting chief economist at Hang Seng Bank.

“Drilling down, however, there has been a steadily growing service trade surplus in Hong Kong, driven mainly by increasing demand from mainland China,” says Shik.

He reckons China’s 13th Five-year Plan, in particular the Belt and Road initiative, will likely become a new 20 HONG KONG BUSINESS | MARCH 2016

China’s 13th Five-year Plan, in particular the Belt and Road initiative, will likely become a new growth driver of trade in services in Hong Kong.

growth driver of trade in services in Hong Kong, especially in the area of exports of financial and other business services over the medium and long term.

Shik points to three service exportrelated areas in Hong Kong which could flourish under the Belt and Road initiative. First is the provision of exports of financial services by issuing debt, such as Islamic bonds and renminbi-denominated infrastructure revenue bonds, as well as offering

Worse before better Small and medium enterprises (SME), for one, are expecting the economic situation to get worse before it gets better. SME sentiment is at an all-time low in the first quarter of 2016 (1Q16), according tothe latest Standard Chartered Hong Kong SME Leading Business Index (SME Index) results.

Released jointly by Standard Chartered Bank and the Hong Kong Productivity Council, the SME Index fell to 42.8 in 1Q16 from 44.4 in the fourth quarter of 2015.A score of 50 in the index being neutral.

On the whole, SMEs expect to sell less, profit less, and share a dire outlook on the global economy.

The SME Index reveals that “sales” and “profit margin” – the main subindices more indicative of near-term business performance – fell the most, by 7% and 11% quarter-on-quarter,

Hong Kong’s service exports and imports

Source: Census and Statistics Department

economic INSIGHT: service exports respectively, dipping further into negative territory. The index also displayed a very weak reading of 26.2 for “global economic outlook.”

“This combination suggests that external headwinds – led by renminbi depreciation worries further weighing on China’s already weak growth outlook – pose a clear and present challenge to SMEs,” says Kelvin Lau, senior economist, HK at Standard Chartered Bank.

In contrast, the “hiring” and “investment” sub-components in the SME Index appear much more resilient, says Lau, which reflects a more neutral view towards the longer-term outlook.

Lau reckons SMEs in general are in no rush to cut back spending and scale back operations with only 2% of SME Index respondents indicating they would cut wages.

External drag A key insight from the SME Index is that the main drag on Hong Kong’s economy could be shifting gradually from domestic to external.

Of the three biggest industrial groups represented in the SME Index, the “retail” group overtook “manufacturing” and “import/export/wholesale,” a significant turnaround in sentiment after “retail” led the pessimism in three of four quarters in 2015.

“The improvement in retail sentiment appears broad-based, although seasonality could also be a factor, as business typically picks up around the Lunar New Year. Also comforting is that, on average, only one-third of respondents said they would be affected by higher interest rates. This is in line with our view that the impact of higher Hong Kong dollar (HKD) interest rates will be more psychologiNet exports of goods & services

Source: CEIC

cal than tangible,” says Lau. Retail will remain subdued While retail sentiment might be improving, retail sales should remain subdued in 2016 amid corruption crackdown and stronger HKD, says Selena Ling, analyst, treasury market research & strategy at OCBC. Total value of retail sales have fallen for the 9th straight month, and she reckons China’s anti-corruption campaign should continue to hit retail sectors and weigh on HK gross domestic product.

Retailers have been slashing prices on everything from clothing to tobacco in order to clear inventory, according to a separate OCBC report in late January. Sluggish inbound tourism and subdued tourist spending have made it more difficult to sell products, and local consumers that are expected to pick up the tourist slack are not opening their wallets due to fears of job cuts in the retail and trade sectors.

Plummeting private property prices HK also faces plummeting property prices, which some analysts believe to be its biggest hurdle in the coming years, even more than lackluster retail sales and exports.

Ling reckons private housing prices, which has decelerated for 6 consecutive months, is facing further downward risk given an increasing supply of private flats, weak investors’ sentiment and the startof the Fed rate hike cycle.

The OCBC report warns that the beginning of US interest rate hike cycle and the recent capital outflow from the Hong Kong market pushed the 3-month-HIBOR to the highest level since mid-2009, and could translate into more risk on Hong Kong’s

Retail to remain subdued

The main drag on Hong Kong’s economy could be shifting gradually from domestic to external.

private housing market.

OCBC further predicts that as private housing market succumbs to the downward pressure in the coming years, some residential property owners might begin preferring to lease rather than sell their homes during the correction period, and in turn weighing on private housing rental and depressing inflation pressure.

“Property is the main domestic risk, with prices having already perhaps begun a lengthy decline,” says Michael Spencer, analyst at Deutsche Bank.

“There have been two other periods of price declines since the Global Financial Crisis, but we expect this one will be more persistent and lead to larger cumulative declines than the previous two episodes. A 5% decline in two months is rather a faster pace of decline than we had been expecting, so the downside risks from property may prove to be more significant than expected,” he adds.

Spencer notes that property prices have posted their largest declines in October and November 2015 since the GFC, and that the property price index has fallen 4% over the two months, with rents falling 2%.

“While the delayed response of HKD interest rates to the Fed’s hikes may have come as a pleasant surprise, our expectation that rates will eventually rise about 200bps over the next two years will inevitably put pressure on a property market in which rental yields currently range from 2% to 3%, the lowest in at least 28 years,” says Spencer.

HONG KONG BUSINESS | MARCH 2016 21

Analysis: the hkd peg

The peg is here to stay

What is happening to the HKD?

The good news is the peg will stay, but the bad news is something else has to give.

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t has been a while since the last bout of outflows amidst the European debt crisis in 2011/12, the HKD touched the weak side of the HKD’s narrow trading range (7.75-7.85). This, plus the jump in domestic interbank rates, surprised the market and fuelled questions on the peg’s viability.

To be clear, we have few doubts that the peg will continue to endure in the interim. Recent moves in rates and the currency largely reflect 1) the bread-andbutter currency board mechanism at work and potentially 2) some shift in expectations for the HKD to depreciate.

1. Interest rate arbitrage at work Interest rate arbitrage is the essence of Hong Kong’s currency board system. With the HKD fixed to the USD in a narrow range, an increase in US rates (relative to HK rates) should drive outflow from HKD to USD. When

22 HONG KONG BUSINESS | MARCH 2016

When Hibor finally catches up with US rates in the process, interest rate arbitrage and thus outflows from HKD should then taper off.

outflows occur, HKD weakens and HKD Hibor rises.

When Hibor finally catches up with US rates in the process, interest rate arbitrage and thus outflows from HKD should then taper off. This is the market mechanism working to bring HK rates in line the US rates under the peg system.

2. Expectations on HKD likely shifting Interest rate arbitrage aside, expectations for the HKD may have also shifted from appreciation to depreciation, in our view.

Expectations for a de-peg, even if it does not eventually materialize, mean that HK rates will need to be above US rates to compensate for the perceived risks in holding the HKD. What has fundamentally changed that could have caused the expectation shift on HKD? Continued depreciation in nonUSD currencies, in particular the RMB since end-2015, is making

strong HKD a more acute problem for Hong Kong. …but something else has to give The good news is that the HKD peg will stay, in our view. Despite the volatilities and heightened market interests, the peg is still far from being seriously challenged. There have been outflows from HKD, manifested in weaker HKD and higher HKD Hibor we have seen lately, but the outflows are yet to be massive enough to trigger the weak-side convertibility undertaking.

But as the peg stays, something else has to give—domestic prices and real activities will have to continue to shoulder the bulk of downward adjustment. The peg, by keeping the HKD weak and driving nominal rates to zero, had amplified the upturn during 2009-2014. The opposite has nevertheless been true since late 2014. By Silvia Liu, analyst, UBS

co-published Corporate profile

It’s more than money, it’s investment!

While forex trading may seem tricky and boring to the common person, it’s actually easier than it sounds like, and Instaforex can guide you along the way.

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veryone knows that money should be in operation. However, hardly everyone has skills to become a good investor. Indeed, a speculator should have a nose for a gainful deal. Moreover, the bulk of investment tools is complicated to work with, for example securities or stock indices. Few people can afford to deal with such assets as works of art or foreign real estate.

On the other hand, every day all people use the simplest and most convenient asset for investments and earning money. Yes, it is any money: dollars, euros, Japanese yens, Chinese yuans, British pounds, and kronas.

All of us have got used to exchanging money for goods and services without realizing and revealing its opportunities. When we exchange money for material values, it means that we spend it.

However, exchanging currency X for currency Y we can earn decent money. You understand right, we are speaking about trading currencies in the international forex market where millions of people have been earning from $50 to $50,000 per month for several decades.

Easier than it looks At first glance, forex trading seems to be so tricky and boring that only a trader with vast knowledge and mathematical mind can cope well with it. Not at all! Forex trading is worthy of attention as it suits both humanities-minded people who understand the financial world through news and events and analytically minded people who handle figures for market analysis and forecasts.

Fundamental and technical types of analysis are available to people with different ways of thinking.

Importantly, those people who tend to make trading decisions in light of economic and political events are living in the golden age. Indeed, major and local currencies are very sensitive to almost all events, thus offering the great opportunity to make money. Crude is tumbling, the US dollar is strengthening, the euro is hovering, hostilities break out in different spots on the Earth.

All these events somehow make an impact on the currency market. You can and should take advantage of its fluctuations and earn money. Before you start trading, you need the two essentials, basic knowledge and access to the market. Any person can gain knowledge on one’s own from numerous forex books.

A brokerage company will provide you with access to the market. It is a long way.

Making the right move Nowadays, it is quite possible to shorten the way between the decision to launch into a forex career and first earnings. The thing of prime importance is to pick a proper brokerage company. The right broker equips clients with vital knowledge and skills in a short time. Besides, it facilitates your access to the market under the most comfortable conditions.

It ensures your security and protection of your investments, no matter if you invested $5 or $5,000. Among hundreds of brokers, at least a dozen is worthy of trust.

Among this dozen, InstaForex is a broker that mostly suits the needs of novice traders.

Its remarkable business reputation has been acknowledged by over 2,000,000 clients and more than 30 international awards from renowned periodicals, in particular CNBC Business (the US), World Finance (the UK), and IAIR (Italy).

At present, apart from access to the market, InstaForex offers any client an individual instructive program. Thanks to it, you will get an insight into the market and will be able to foresee its developments, using news as a key to trading in a way you use insider information.

Being an InstaForex client, every trader gains instant access to daily analytical reviews on popular currencies, online news from global markets and news agencies as well as training programs, including video tutorials, training courses, webinars etc. With InstaForex, you can make your first steps in the market investing small money and realize in practice how to execute trades and how to read trading charts. So, you can absorb the ins and outs of the market and sharpen your trading skills.

In case you do not imagine yourself as a trading practitioner, you could act as investor in the currency market. Please try the PAMM system as investor who puts their money in accounts of successful traders. You should choose the most efficient trader from the open monitoring list and invest in his/her trades, receiving a part of profits.

Earning through investments If you want to feel the drive of active trading, the ForexCopy system is at your disposal.

Another popular service with InstaForex enables you to copy deals of skilled traders.

Being a beginner in Forex, you can subscribe to deals of a successful trader and copy his/her orders, making winning trades.

If you are adventurous and believe in good luck, you can make use of another InstaForex service and trade binary options. All you need to do is choose a currency pair and predict an increase or decrease of its closing price.

Originally, you will have a fifty/fifty chance of the right forecast. However, the chance will be much higher than 50% if you make your forecasts on the grounds of online news and analytical reviews provided by InstaForex.

The forex market is no longer a moneymaking machine for banks, institutional investors, and big market players.

“InstaForex is a broker that mostly suits the needs of novice traders. Its remarkable business reputation has been acknowledged by over 2,000,000 clients.”

HONG KONG BUSINESS | MARCH 2016 23

CO-PUBLISHED CORPORATE PROFILE

Schindler emphasises constant innovation as it shares its vision for future cities

Building a sustainable urban environment to meet the needs of the next decades means looking far beyond, and not just duplicating the same old designs.

Schindler’s The Dome

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he Asian Development Bank estimates that Asia is currently adding a staggering 44 million urban dwellers every year, and the ongoing phenomenon is far from reaching its conclusion. As a result of this exceptional growth, the scale of individual cities has expanded tremendously. According to UN-Habitat, 16 of the world’s 20 densest cities are in Asia, with urban densities commonly between 10,000 to 20,000 inhabitants per square kilometer.

Famed for its stunning skyline, Hong Kong squeezes a population in excess of 7 million people to the highest density of skyscrapers in the world (1,300 buildings are over 100 meters high). Skyscrapers in Hong Kong have reached approximately 10 floors every decade, and it’s not uncommon to see residential buildings soaring at 60 floors high.

Rise of the modern city Singapore ranks sixth in Asia by the number of completed buildings over 150 meters high, which include the famous Marina Bay Financial Centre, Asia Square and the currently tallest United Overseas Bank Plaza One. Schindler, a global provider of elevators and escalators, has played an instrumental role in the rise of

24 HONG KONG BUSINESS | MARCH 2016

the modern city for over a century. While urbanization has presented the region with solid growth prospects, finding sustainable solutions to urban planning and construction has become critical to the future of Asian cities. Over the years, Schindler has remained true to its commitment to environmental thinking and sustainability, as evidenced by the successful deployment of numerous award-winning innovations on projects that have achieved record levels of performance and efficiency.

Jujudhan Jena, Chief Executive of Jardine Schindler Group, said, “The culture of innovation is deeply rooted in the history of Schindler, and the company holds a clear differentiation to continuously improve the environmental footprint of our products and processes.

From the energy-efficient planetary gearbox, introduced back in the mid1990s; regenerated drive system which feeds energy generated by elevators back into the power grid; the revolutionary PORT destination control system; and

Schindler takes a longterm view and makes solid commitments to the markets they operate in.

most recently Schindler’s iOS app FieldLink in partnership with Apple – we believe that innovation leads to value creation. By offering tangible possibilities to the architects and designers, we help build our future cities.”

State-of-the-art technologies The International Commerce Centre (ICC) in Hong Kong is an example of how Schindler implemented its state-ofthe-art technologies to maximize traffic performance and efficiency. Soaring at 490 meters, the 118-story ICC in Kowloon is the tallest building in Hong Kong and a city in itself where over 20,000 tenants and visitors pass through its doors every day.

To cater to such a massive flow of passengers, Schindler needed to come up with a unique solution. A multilevel lobby connecting the various transportation modes filters occupants, directing them to an ingenious system of local elevators in the ICC’s five different office zones and high-speed shuttles to sky lobbies – which leads to the upper office floors, the Sky100 observation gallery and hotel.

Boasting several world firsts, the ICC contains 85 elevators and 39 escalators and is equipped with no less than 40

CO-PUBLISHED CORPORATE PROFILE double deck elevators, 18 of them travelling at speeds of 9 meters per second, an outstanding feat given the significant weight of the elevator car. PORT Technology, which makes it possible for Schindler double-deck elevators to double handling capacity, powers the complex elevator system and ensures the level of performance required for the prestigious office building.

Running on a powerful algorithm, PORT effectively groups passengers going to the same destination floors on both decks and calculates the shortest possible trip for each passenger with minimum intermediate stops. This saves energy and eliminates the problem of repeated stops that would cause long waits for passengers on both decks.

Beyond its astute ability to optimize traffic flows, the technology permeates into other areas of relevance to modern urban life and boasts a host of powerful communication, customization and access features. These capabilities, combined with the aesthetic, sleek appeal of its user interface, make PORT not only applicable to high performance office buildings, but effectively in the luxury residential and hospitality segments.

In Singapore, Schindler has recently been selected as the mobility partner to a number of significant development projects, including the Terminal 4 and Jewel Changi Airport. Rated by travelers as the World’s Best Airport for three years in a row since 2013, Changi Airport is set to further strengthen their position as a world-class lifestyle destination for travelers. Schindler has been commissioned to supply 58 elevators, escalators and moving walks to Terminal 4 and 50 elevators, 69 escalators and 62 moving walks to Jewel.

Innovation that drives new thinking of Future Cities For a traditional business that has thrived over the past 140 years - from a small manufacturer into a leading global provider of elevators and escalators, Schindler takes a long-term view and makes solid commitments to the markets that they operate in. Looking to the future, the company believes the needs of the urban environment in the next 30 years cannot be met by simply continuing to duplicate the same designs applied over the last century. While

elevator companies have not typically been associated with urban planning, Schindler has in recent years invested in visions of the future cities and engaged with the architectural community to share its expertise.

Visionary architecture Together with the ETH Zurich, Schindler’s Advanced Development Group has been studying new forms of architecture typology that are nothing short of visionary. Spiral Town is one such new form, a theoretical experiment. Contrary to the traditional, concrete filled city centre with suburbs and green space that surround it, Spiral Town is inverted, containing a green heart surrounded by its built environment. This enables green space to be generated instead of consumed by buildings, compressing linear horizontal distances and reducing the hazard of urban sprawl.

Dr Paul Friedli, Schindler’s Head of Advanced Research, explains, “The current urban model owes more to the needs of vertical mobility than is immediately obvious today. The fundamental model for tall buildings we see today is still largely driven by the elevator technology of the time when they were first built. With current technology, there are many more options

for vertical transportation meaning many new opportunities for future cities.”

From last December to February this year, Schindler was present at the Hong Kong exhibition of the Bi-city Biennale of Urbanism\Architecture at Kowloon Park in Tsim Sha Tsui. Participants of the conference, themed “Visions 2050, Lifestyle and the City,” were invited to experience Schindler’s award-winning immersive presentation technology, dubbed the Dome. This virtual reality environment, coupled with specifically prepared contents, eloquently supports the sharing of Schindler’s vision for the next generation of sustainable urban development and future cities.

About Jardine Schindler Group Jardine Schindler Group (JSG) is a Joint Venture between Jardine Matheson of Hong Kong and Schindler Group of Switzerland, who between them bring over 300 years of experience in business management, regional focus and engineering excellence. JSG is headquartered in Hong Kong and designs, engineers, installs, maintains and modernizes elevators, escalators and moving walkways in Hong Kong, Macau, Malaysia, Myanmar, Indonesia, the Philippines, Singapore, Thailand, Taiwan, Vietnam, Cambodia & Brunei.

Spiral Town

Changi Airport Terminal 4

HONG KONG BUSINESS | MARCH 2016 25

ANALYSIS: interest rates 1.90% from 1.45% previously.

Rates weigh down on domestic demand

Headwinds from higher rates The territory is in the midst of a storm as escalating rates give rise to multiple headaches.

W

e expect higher interest rates to weigh on domestic demand and pose downside risks to economic growth.

Interest rate increases could affect private consumption and investment through wealth and balance-sheet effects. However, the overall negative impact is likely to be contained due to relatively strong household balance sheets and solid fiscal positions. We maintain our below-consensus GDP growth forecast for 2016 at 2.0%.

Monetary conditions tightened on higher capital outflow pressures Monetary conditions in HK have tightened recently as the HKD moved towards the weaker end of the band under increasing capital outflow pressures. Aggregate balance, which is the sum of balances in the clearing and reserve accounts maintained by commercial banks with the central bank, is the most visible and readily available daily indicator of fund flows. As of 25 January, aggregate balance declined by 26 HONG KONG BUSINESS | MARCH 2016

Downside risks to China’s growth and deterioration in global risk sentiment can exert upward pressure on HIBOR.

HK$21.0bn since the end of last year.

The tightening in monetary conditions is also evident in the interbank rates. The benchmark interest rate, 3M HIBOR, has jumped 30bp to 0.697% since end-2015, which overtook the 3M LIBOR on 21 January. Our strategy team believes downside risks to China’s growth and deterioration in global risk sentiment can exert upward pressure on HIBOR. As a result, our strategists have revised up their year-end 2016 3M HIBOR forecast to

Higher rates likely to restrain consumer spending Private consumption growth will come under pressure as interest rates move higher, in our view. First, households’ debt burden, especially mortgage repayment burden, will increase with higher rates, posing headwinds to consumer spending. Household debt in HK stood at HK$1,587bn (67% of GDP) as of 3Q15, comparable to other Asian economies. Among which, 70% of the household debt are loans for the purchase of residential properties.

But, in our view, the negative impact is manageable as households balance sheets are relatively strong. As our property sector analysts point out, while the current housing-affordability ratio (ie, monthly mortgage payment as a percentage of median private household income) is at 67%, versus the historical average of 57%, it is not excessive compared to levels of over 100% seen in 1997. In addition, only one-third of owner-occupied households currently carry mortgages or loans, down from around half in 2001.

Multiple rounds of property-related macro-prudential measures, including tighter caps on loan-to-value and debt-service-to-income ratios, have contained the debt-service burden among new borrowers.

Second, private consumption could be negatively affected as interest rate increases could trigger downward adjustments in the property market and result in negative wealth effects.

Our property sector analysts expect residential prices to fall 20-30% over the next three years. By Sylvia Sheng, China economist for Merrill Lynch (Hong Kong).

Hong Kong’s historical affordability ratio for new home buyers

Source: BofA Merrill Lynch Global Research, HKMA, Centaline, R&V

hong kong’s hottest startups 2016

Hong Kong’s 20 hottest startups to watch out for in 2016

Here are the city’s promising startups providing products and services ranging from an all-in-one destination guide to a medical breakthrough to cure osteoarthritis.

F

or the fifth consecutive year, Hong Kong Business brings you 20 of Hong Kong’s hottest startups worth watching over the coming months. Get to know more about the companies and find out how the founders managed to make their ideas blossom into one promising startup endeavour.

The companies listed started their operations from 2012 and are ranked according to the generated funding to date, as provided to us.

1. WeLab Founder: Simon Loong Funding: HK$ 1.4B (US$ 180M); equity financing, CK Hutchison’s TOM Group, Khazanah Nasional Berhad, ING, Sequoia Capital, TOM Group’s Ule.com and Guangdong Technology Financial Group Start of operation:

2013 WeLab operates Wolaidai, one of China’s largest mobile lending platforms, and WeLend.hk, an online lending platform in Hong Kong.

WeLab’s loan disbursements increased ten-fold in 2015, and 28 HONG KONG BUSINESS | MARCH 2016

its customer base reached 2.5 million individuals within 1.5 years and sourced RMB9 billion in loan applications. It has maintained an industry-leading delinquency rate of around 1% based on loans that are 30 days past due.

2. Boxful Founders: Norman Cheung and Carl Wu Funding: HK$ 63.1M (US$ 8.1M); Arocrest Capital, Carlton Holdings, Great Eagle Holdings, Lonsdale Capital Partners, Soundwill Holdings, Tinghsin Group, Vega Properties Start of operation: January 2015 Boxful offers self-storage services for as little as HK$29 per month. Users manage their belongings from their mobile devices or computers, and know that retrieval can be delivered as fast as the next day. Boxful does not allow public access to the warehouses, and only staff are permitted to access its secured facilities. Its business model is patterned after companies in the US, such as Boxbee, which operates in San Francisco and New York.

hong kong’s hottest startups 2016 3. MailTime Founders: Heatherm Huang, Gary Lau Funding: HK$ 23.4M (US$ 3M); Zhenfund, Crystal Streams, Danhua Capital, Y Combinator Start of operation: December 2013 MailTime is an open messenger built on top of email. It connects everyone who has an email address and also makes the whole email experience more like text-messaging. It enables users to talk to anyone without adding friends on it or downloading the same app.

That makes communication open, easy and accessible to anyone without restrictions of closed networks.

All messengers now are based on closed networks owned by those companies. Users on fun messenger can not talk to users on WeChat, for example.

4. PassKit Founders: Paul Tomes, Nick Murray Funding: HK$ 20.3M (US$ 2.6M); Vectr Ventures; Angel Investors Start of operation: June 2012 PassKit is a mobile marketing automation platform for businesses to drive engagement with their customers. Marketers use PassKit’s software to integrate the latest mobile wallet and beacon capabilities into the business operations and applications. PassKit provides the infrastructure, the tools and the support to easily create, automate and optimise insight driven online-to-offline interactions with their customers. Some of the businesses that are already ‘powered by Passkit’ are Best Western International, DFS, Azul Airways and Heathrow Airport.

5. Dragon Law Founder: Daniel Walker, Jacob Fisch, Emmanuel Pitsilis Funding: HK$ 16M (US$ 2M); Angel Investors Start of operation: January 2015 Dragon Law helps businesses of all sizes draft legal documents, access legal advice, get incorporated, register trade marks, and obtain visas. By leveraging technology and working hand-in-hand with several of the most reputable local and international law firms, Dragon Law provides an end-to-end solution to clients’ legal needs that is safer, 10 times faster, and 5 to 10 times cheaper.

Startups sign up for an integrated solution to their legal needs that is affordable and reliable.

6. Delivery Republic Founder: George Kee Funding: HK$ 16M (US$ 2M); Global & local investors including Lap Man Start of operation: August 2014 Delivery Republic is a B2B On-Demand logistics company offering professional 60-minute deliveries, on-demand throughout Hong Kong. Currently it has over 180 clients. Because its fees are charged at an economical pay-per-use basis with no setup costs or monthly retainer fees, restaurants of any size do not have to invest a single dollar in costly delivery fleets. All restaurants have to do is download the Delivery App and they can start placing delivery orders immediately.

7. Snapask Holdings Founders: Timothy Yu, Bradley Chiang, Phoebe Hung Funding: HK$ 14M (US$ 1.8M); Private Investors, Education Institution, Singapore Press Holdings Start of operation: October 2014 Snapask, dubbed as ‘tutor in your pocket’, is a mobile application that allows students to ask questions and get answers on various subjects ranging from Mathematics and English to film studies and hotel operations.

It bills itself as the number 1 app in Asia for on-demand homework help. The app provides a solution allowing students to communicate to their tutors using photos, text and audio messages. Trusted by 50,000 students across Asia, Snapask provides on-demand academic support from 1,000 tutors, from the convenience of your pocket. Tutors are vetted based on their academic achievements. Snapask Holdings was formerly known as Appedu (Holding).

8. Omate Founder: Laurent Le Pen, Shao Guoguang Funding: HK$ 11.7M (US$ 1.5M); crowdfunding, 500startups, Angels Start of operation: July 2013 Omate is a hardware / software design company that develops telecom wearable products and services designed to keep the world connected through your wrist. The concept started at the Mobile World Congress 2013 in Barcelona. Its flagship product, the TrueSmart, is a smartwatch 2.0 which became the 5th most funded project of the Design category through Kickstarter.

The company raised $1 million on the crowdfunding platform. The TrueSmart is billed as the world’s first water-resistant Android smartwatch 2.0.

HONG KONG BUSINESS | MARCH 2016 29

hong kong’s hottest startups 2016 9. Easyship Founders: Tommaso Tamburnotti, Augustin Ceyrac Funding: >HK$ 7.8M (> US$ 1 million); 500 Startups Start of operation: January 2015 Easyship is an online platform that removes the pain of international shipping from eCommerce companies - the problem of shipping offering an on demand pick-up, packing, shipping, and tracking. With Easyship, the retailer can simply request a pick-up from its cloud interface, and within 2 hours its staff will go to pick-up the item at the client location, arrange the all shipping process, choosing the cheapest and most reliable shipping solution.

10. Kavout Financial Technologies Founders: Alex Lu Funding: HK$ 7.8M (US$ 1M); Angel Investors, China Growth Capital Start of operation: April 2015 Kavout is an investing platform built for our users to generate, screen, and analyze stock ideas. Its artificial intelligence enhanced robot analyst crunches the financial numbers and learns from real world professionals. Its proprietary K-Rank model could score every stock from various perspectives, thinking like a savvy stock analyst. Kavout aims to build nextgeneration financial services driven by artificial intelligence and machine learning technologies.

It is creating an intelligent platform to empower investors and traders to outperform in the market. For the first time Kavout makes these institution-grade analytical tools available to everyone and level the playing field of investing.

11.TeamNote Founders: Roy Law Funding: HK$ 7.8M (US$ 1M); YCombinator, ACT, JDB holding Start of operation: January 2015 TeamNote is a mobile workflow application for companies, which aims at providing both employers and employees with the most effective means under secure environment to communicate and manage work on mobile devices anytime and anywhere.

It supports iOS, Android and web clients, as well as the webbased admin portal.

It facilitates the mobile workforce efficiency by delivering easy-to-use features for companies’ performances on various tasks. The primary features of TeamNote are instant text/voice/ video messaging, group chat, and individual chat mode.

30 HONG KONG BUSINESS | MARCH 2016

12. Spacebox Founder: Lewis Cerne, Stuart Cerne Funding: HK$ 7.8M (US$ 1M); Hong Kong angel network Start of operation: December 2014 Spacebox believes that Hong Kongers’ home lives can be radically improved by changing the way their belongings are organised. It is an on-demand storage solution serving everywhere in Hong Kong and with warehouses in Hong Kong Island, Kowloon and New Territories. Outer Island service is extended to Tung Chung.

At Spacebox, users order space on-line, send things in storage and keep a digital inventory of all their things. Anytime they need anything it get delivered to their home. A standard box costs HK$49. For extra peace of mind, Spacebox covers each boxes/items up to HK$2,000 against theft and damage.

13. Novus Life Sciences Founder: Wilson Wong, Nicholas Wong, Kenneth Lai Funding: HK$ 7.8M (US$ 1M); Government and Angels Start of operation: February 2014 Novus Life Sciences is a biotech and medical research company established by three young graduates of the University of Hong Kong. It has developed a new technology which significantly slows down the progression of osteoarthritis. Based on the latest research and further computer simulation on the knee joint model, a new minimally invasive surgery treating osteoarthritis is now possible.

The key technology includes an innovative formulation for bone repairing and technology for cartilage repairing. These synthetic biomaterials can cure bone and cartilage with small gauge needle injection through minimal invasive surgery.

14. CFO Online International Founders: Roy Lee, Wilson Chong, Bobby Toda, Gary Miller, KC Leung Funding: <HK$ 7.8M (under US$ 1M), private investors Start of operation: Q1 2015 CFO Online International was founded by executives of a previously successful directory service venture named Psychologytoday.com which generated over US$20 million in profit on a US$35 million annual revenue. The founding members are Chinese-American and senior managers with over 100 years of combined experience in IT and accounting services.

CFO-Online has built an accounting provider services directory services to help small businesses. Also, they are helping USA accounting providers to lower their costs.

hong singapore’s kong’s hottest hottest startups startups 2016 2014 15. Neat Founders: David Rosa, Igor Wos, and George Cotsikis Funding: HK$ 7.3M (US$ 925K); Angel Investors; HK investors and a family office in Europe Start of operation: November 2015 Neat is a mobile-only banking and payments solution for the Millennial generation in Asia.

While this is an established model in the US and Europe, it claims to be the only such solution in Asia. Neat aims to solve the ‘frustrating’ customer experience being offered by traditional banks to their clients.

The team raised a round of funding from angel investors in HK and Europe that wish to remain anonymous. It was founded in November but was only launched in 2016.

16. ClassCruiser Founders: Rosh Pritmani Funding: HK$ 3.9M (US$ 500K); Angel Investors, private investors Start of operation: September 2015 ClassCruiser is an exclusive fitness membership offering its members unlimited access to a variety of group fitness classes at over 60 studios in Hong Kong.

Through its program, members can build a fun and diverse workout routine, spanning yoga, Pilates, CrossFit, Dance, Strength Training, and so much more.

It is dedicated to building a close-knit community of fitness lovers who are looking to live an active and healthy lifestyle.

ClassCruiser costs $899 per month, comparing that to the average $300 drop-in class rates or $2500/monthly rates at most of the trendy gyms in Hong Kong, by attending at least 3 classes a month, your membership has already paid for itself.

17. GROM Founders: Koen Munneke Funding: HK$ 3M (US$ 380K); 500 Startups, GrowthX Start of operation: November 2012 With its web application, doctors will be able to directly customize and order medical devices that satisfy the corrective and lifestyle needs of their patients. No longer limited in their ability to treat unique physical ailments with only standardized medical devices, doctors can offer more effective and expedient healing for their patients.

This is made possible by GROM’s ability to seamlessly integrate 3D scanning, 3D printing, and mass manufacturing technology into a user friendly web application.

18. Gaifong Founders: Elliot Leung Funding: HK$ 630K; Cyberport CCMF, Cyberport Incubation, Hong Kong Cyberport Start of operation: November 2014 Renting consumer goods, rather than buying, can be 90% cheaper for the consumer. It also saves space, and is a great way to lower carbon footprints. Yet, no rental store or platform offers a wide enough range of goods and convenience to make this a compelling lifestyle for consumers. Gaifong bridges this gap, by making rentals as easy as tapping on a mobile phone and visiting a neighbour in the same building.

19. GENIE Founders: Dominic Ho, Mary Cheung, Kelvin Lo Funding: SHK$ 500K; Hong Kong Social Enterprise Challenge Champion, Private investors Start of operation: July 2015 GENIE combats the headache of hiring temporary workers. Its mobile app provides a platform for employers to post and hire businesses quality temporary worker in as fast as 5 minutes. Traditionally there are three channels to hire temporary staff: job posting sites like JobsDb and Recruit, newspaper and agencies. Founders of Genie claim this approach is outdated and inefficient. Genie actively pushes suitable job recommendations to the job seekers. Its recommendation algorithm analyses a user’s skill set and job preferences. Not only does this simplify the process, it also means that users know that every job recommendation they receive is something that is suitable for them.

20. POKEGUIDE Founders: Brian Hui, Andre Hui, Ian Fung Funding: HK$ 400,000; HKFYG JP Morgan Program and Facebook FbStart Program Start of operation: June 2015 As an all-in-one destination guide serving Hong Kong people to ultimate efficiency, POKEGUIDE app tells users which train door to stand close to in order to get the shortest distance between the train and the exit of their choice. It also recommends over 1000 leisure activities, appealing cuisine, shop discounts and benefits nearby your destination.

It bills itself as the first mobile app in the world that has metro car door exit data not only in Hong Kong, but also in 10+ busiest cities in the world such as New York, London, Paris, Tokyo, Seoul and Singapore.

HONG KONG BUSINESS | MARCH 2016 31

HONG KONG’s 25 LARGEST law firms

What’s fuelling the legal sector?

Debt and equity markets drive the city’s legal sector More clients are seeking to access funds through DCM and ECM.

D

espite much talk of the Chinese economy cooling down, 2015 has been a strong year for the corporate legal sector in Hong Kong. Phillip John, Norton Rose Fulbright head of North Asia, notes that they have seen a strong deal flow this year and that their Chinese clients are still very keen on pursuing investment opportunities in international markets.

“We’ve continued to see these clients seeking to access funds through the debt and equity capital markets in Hong Kong.

There may be some cooling, we don’t see a material decline in that trend in 2016,” he said.

Deacons’ partner Ronny Chow explains that the substantial and rapid growth of Hong Kong’s debt capital market in the past few years can be attributed to the wide range of product 32 HONG KONG BUSINESS | MARCH 2016

Many companies which have traditionally relied on loan financing have become more willing to tap the debt capital market.

offerings, coupled with open access for issuers and investors, both domestic and international, and the increasing significance of offshore RMB bond issuances in Hong Kong. “In recent years, with the easing of monetary policy in the United States, Europe and Japan, the market has witnessed an increasing number of companies which have entered the debt capital market, including PRC- based companies taking advantage of the lower funding costs relative to the onshore market. Many companies which have traditionally relied on loan financing have become more willing to tap the debt capital market,” says Chow.

Chow adds that while the market has been dominated by US and Hong Kong dollar issues, increasingly bonds denominated in other currencies are being issued, including the Euro, Singapore

dollar and RMB. The Hong Kong listed bond market has also grown substantially in recent years.

Chow explains that one of the criteria for investment for some investors, such as institutional funds, is to invest in listed securities. Therefore, the listing of debt securities in Hong Kong has helped to broaden the investor base for bond issuances and provided a viable financing option for many issuers.

According to the Hong Kong stock exchange, for the year ended 31 December 2014, there were 281 newly listed debt securities on the Hong Kong stock exchange and the amount raised was approximately HK$961 billion.

As at 31 December 2014, there were a total of 640 debt securities listed on the Hong Kong stock exchange.

According to Chow, the growth in listed debt securities is due to the simplified and streamlined application and approval procedures for listing of debt securities issued to professional investors. He adds that the Hong Kong stock exchange no longer pre-vets the contents of the listing documents, and formal approval by the Listing Committee is no longer required. “The simplified listing process has brought the Hong Kong stock exchange more in line with the requirements of other stock exchanges in the region and provided an attractive listing venue for debt securities.”

Who made it to HKB’s list?

Hong Kong’s very own Deacons topped this year’s rankings of largest law firms based on total number of legal professionals with 213 headcount. It displaced foreign law firm Mayer Brown which occupied the position from 2013-2015. Its headcount was reduced by 8 to 195.

Nevertheless, foreign firms continue to dominate the pack with only 5 local firms making it to the list of the largest 25.

HONG KONG’s 25 LARGEST law firms 2015 RANKINGS

COMPANY NAME

2014 RANKINGS

Foreign/Local

2015 LEGAL PROFESSIONALS

2014 LEGAL PROFESSIONALS

MANAGING PARTNER

1

Deacons

2

LOCAL

213

200

Lilian Chiang

2

Mayer Brown JSM

1

FOREIGN

195

203

Elaine Lo

3

Clifford Chance

4

FOREIGN

186

178

Peter Charlton

4

Baker & McKenzie

3

FOREIGN

184

179

Milton Cheng

5

Linklaters

4

FOREIGN

179

178

Marc Harvey

6

King & Wood Mallesons

5

FOREIGN

176

164

Zhang Yi and Hayden Flinn

7

DLA Piper Hong Kong SERVICES

6

Foreign

143

144

Terry O’Malley

8

Allen & Overy*

7

FOREIGN

99

99

Vicki Liu

9

Herbert Smith Freehills

8

FOREIGN

97

98

Julian Copeman

10

Reed Smith Richards Butler

9

FOREIGN

93

87

Roger Parker

11

Woo Kwan Lee & Lo*

10

LOCAL

86

86

William C.Y. Kwan

12

Stephenson Harwood

17

FOREIGN

70

57

Voon Keat Lai

13

Hogan Lovells

12

FOREIGN

69

69

Owen Chan

14

Li & Partners

13

LOCAL

69

67

Robin Li

15

Norton Rose Fulbright

11

FOREIGN

66

73

Philip John

16

Skadden, Arps, Slate, Meagher & Flom

16

FOREIGN

62

58

John Adebiyi

17

Holman Fenwick Willan

14

FOREIGN

61

63

Paul Hatzer

18

Clyde & Co

15

FOREIGN

59

59

Michael Parker

19

Latham & Watkins

18

FOREIGN

56

56

Simon Powell

20

Robertsons

19

LOCAL

55

52

Michael Lintern-Smith

21

Simmons & Simmons

23

FOREIGN

55

41

Paul Li

22

Wilkinson & Grist

21

LOCAL

51

48

Raymond Chan

23

Jones Day

20

FOREIGN

48

49

Robert L. Thomson

24

Eversheds

23

FOREIGN

45

41

Stephen Kitts

25

Orrick, Herrington & Sutcliffe

22

FOREIGN

39

45

Xiang Wang

total

2,456

2,394

Data provided by companies. Survey period: September - November 2015. *Obtained from previous reports/media reports.

HONG KONG BUSINESS | MARCH 2016 33

Legal briefing

A victory in 2016’s first mis-selling case Hong Kong court sets the limit of a bank’s responsibility after selling a fraudulent product.

F

or the first time in 2016, the Hong Kong Court of First Instance handed down another victory for the banks in the mis-selling case of Li Heem John v Standard Chartered International (USA) Limited.

In a lengthy decision, the court considered a number of issues highly relevant to banks and other institutions engaged in selling financial products.

“It is another victory for banks, following on the case of DBS Bank (Hong Kong) Ltd v Sit Pan Jit in 2015,” says Wing Ho Lam, a consultant at Deacons.

The claim arose when a claimant, upon recommendation of Standard Chartered, invested a total of US$1,171,562.67 in August 2005 in Fairfield Sentry Fund, which turned out to be one of the Ponzi schemes operated by Bernard L. Madoff. The claimant, a chartered accountant and former audit partner of PricewaterhouseCoopers (PwC), sued for misrepresentation and breach of duty of care.

The court held that on the specific facts of the case, the bank did provide advice to the client in relation to the fund. However, the bank was not liable as its advice was not negligent, given that it had conducted its due diligence on the fund with reasonable care and skill. Instead, the client suffered loss because the fund was not genuine.

It was held that any reasonable financial institution at the time could not and would not have discovered the Ponzi scheme.

“In previous leading English and Hong Kong mis-selling cases such as JP Morgan Chase Bank v Springwell and DBS Bank (Hong Kong) Ltd v San–Hot HK Industrial Co Ltd & Anor, the Court has refused to imply the duty to advise a customer.

In this case, was there negligence on the part of the bank?

The issues of a claim based on a warranty (there may be evidence of an intention by one or both parties that there should be contractual liability in respect of the accuracy of the representations) or a collateral contract do not appear to have been considered, says Wing.

Francis Edwards, partner at Clifford Chance, says the court considered what the bank had done by way of due diligence. The bank had analysed the fund’s returns by comparing them against various benchmarks, including the S&P 100, deposit rates and other hedge funds.

34 HONG KONG BUSINESS | MARCH 2016

Kevin Yam

Francis Edwards

It had concluded that the fund produced good, but not spectacular annual returns. Senior employees of the bank had had meetings and discussions with representatives of Fairfield Greenwich Limited (FGL), the fund’s investment manager, about its investment strategy and operations. The bank had reviewed due diligence questionnaires prepared by FGL on the fund and had studied 12 years of financial statements audited by PwC. “Although Mr. Madoff rarely met with investors, the bank requested meetings with him every six months.

When a meeting finally took place in April 2008, nothing about the meeting itself or the bank’s followup enquiries aroused any suspicions,” Edwards says.

The bank disagreed that any additional “reasonable enquiry” could have uncovered the Ponzi scheme.

It was noted that Mr Madoff had honoured over US$3billion in redemption requests from the fund during the course of its existence.

“The court said the question was a narrow one of whether the bank was negligent in not discovering the Ponzi scheme. The standard to apply should be the industry standard prevailing at the time before the fraud was revealed,” he says.

The court found that the bank had conducted its due diligence with reasonable care and skill. The bank had proved on a balance of probability that it had reasonable grounds to believe and did believe up to the time the fraud was discovered that the representations made to the plaintiff were true, he added.

Was the bank required to give advice to the customer?

Kevin Yam, partner at Kennedys, says that in previous leading English and Hong Kong mis-selling cases such as JP Morgan Chase Bank v Springwell and DBS Bank (Hong Kong) Ltd v San–Hot HK Industrial Co Ltd & Anor, the Court has refused to imply the duty to advise a customer.

These were in circumstances where breaching contracts in question explicitly stated that the bankercustomer relationship was “execution-only”, that the bank was not required to provide any advice, and that the bank assumed no responsibility for the accuracy of the information provided.

In this case, however, the bank’s general business condition stated that the bank may provide the client with information, advice and recommendations in respect of dealings in securities (although it was under no obligation to do so), he added.

“On that basis, the court concluded that, by proactively making recommendations to the client, the bank assumed a duty to advise the client in relation to the fund,” Yam adds.

HONG KONG’s 50 largest insurance firms

A significant change is on the horizon

HK establishes Independent Insurance Authority

Asia’s most developed insurance market steps up insurance regulation.

I

n July of 2015, the Insurance Companies (Amendment) Ordinance was gazetted in Hong Kong, establishing an independent authority to directly regulate insurance agents and brokers. This marked the beginning of significant change in the way that the industry is being regulated in Hong Kong, given that regulation will now be carried out by a non-industry and non-government affiliated entity. Previously, the insurance companies were regulated by the Office of the Commissioner of Insurance (OIC) and the intermediaries are watched by an industry-led regulatory system.

“In future, insurance intermediaries will need to be licensed by, and will be subject to direct regulation by, the independent Insurance Authority,” according to Scott Carnachan of 36 HONG KONG BUSINESS | MARCH 2016

Independent Insurance Authority is being phased in to replace the Office of the Commissioner of Insurance as regulator.

Deacons HK’s Financial Services Practice. He notes that there is a need to develop a regulatory framework for insurance intermediaries that is akin to that which governs the securities industry and financial markets.

Carnachan likens this ideal framework to that implemented

by Hong Kong’s Securities and Futures Commission, where intermediaries are licensed and directly regulated by the independent authority.

Taking a step in this direction, the Independent Insurance Authority is being phased in to replace the Office of the Commissioner of Insurance as regulator. The organization will originally be seeded by the OCI with HK$500m and incrementally funded via levies of 1% on insurance premiums up to a limit of HKD100 for life policies and

HKD500 for non-life policies.

Various license and user fees will also provide additional funding moving forward.

The dynamics of the insurance industry’s supply chain creates a number of possible conflicts of interest for intermediaries, which must be managed by an independent regulator devoid of vested interest. Insurance brokers are not contracted with any insurance company and represent the customer or policy holder, which incentivizes them to act in their client’s best interest.

However, the insurance agent represents the insurer and is incentivized on their ability to push products, which may create a conflict of interest between the customer/policyholder which must be managed. The IIA will issue a code of conduct outlining the required conduct from intermediaries and set the boundaries for the roles of insurance agents and insurance brokers, which will also spell out guidelines for best practices.

Tow Lu Lim, a partner at Mayer Brown LLP notes that this amendment will bring about a new era of insurance regulation in Hong Kong. “All insurance industry stakeholders should carefully revise the amended ICO and ensure that they have taken all necessary steps to comply with the requirements under the new regime.”

Who made it to HKB’s list?

The annual ranking of largest Insurance firms in Hong Kong based on gross premiums found HSBC Life topping the list for the second year in a row with values in 2014 growing by 13% to $66.2billion. The data was compiled from the Office of the Commissioner of Insurance.

At $64.4billion, AIA International followed closely.

It’s a whopping 30% jump from $49.5billion in 2013. AXA General, ranked 17th overall, is the largest general insurer with $5.5billion gross premiums.

HONG KONG’s largest 50 insurance firms Insurance Company

Classification

2014 Ranking

2014 GROSS PREMIUM (‘000)

2013 GROSS PREMIUM (‘000)

1

HSBC Life

LIFE OR LONG TERM BUSINESS

1

66,166,888

58,559,690

2

AIA International

LIFE OR LONG TERM BUSINESS

2

64,422,448

49,468,521

3

Prudential (HK) Life

LIFE OR LONG TERM BUSINESS

-

49,027,667

139,580

4

China Life

LIFE OR LONG TERM BUSINESS

3

42,174,910

30,540,391

5

BOC Group Life

LIFE OR LONG TERM BUSINESS

5

26,667,064

28,837,533

6

Manulife (Int’l)

LIFE OR LONG TERM BUSINESS

6

25,081,198

22,699,186

7

AXA China (Bermuda)

LIFE OR LONG TERM BUSINESS

7

23,711,588

20,171,253

8

Hang Seng Insurance

LIFE OR LONG TERM BUSINESS

8

16,530,700

15,056,199

9

FWD Life

LIFE OR LONG TERM BUSINESS

9

15,523,904

13,731,337

10

Transamerica Life (Bermuda)

LIFE OR LONG TERM BUSINESS

22

10,052,955

2,603,248

11

Sun Life Hong Kong

LIFE OR LONG TERM BUSINESS

10

9,793,696

10,130,624

12

MassMutual Asia

LIFE OR LONG TERM BUSINESS

12

7,750,650

7,760,963

13

Ageas

LIFE OR LONG TERM BUSINESS

13

7,173,117

7,437,828

14

AXA China (HK)

LIFE OR LONG TERM BUSINESS

14

5,494,056

5,878,799

15

Generali Int’l

LIFE OR LONG TERM BUSINESS

15

4,228,546

4,249,546

16

Zurich International

LIFE OR LONG TERM BUSINESS

17

4,036,936

4,019,536

17

AXA General

GENERAL - DIRECT $ REINSURANCE INWARD BUSINESS

18

3,650,920

3,501,126

18

Old Mutual International

LIFE OR LONG TERM BUSINESS

-

3,468,132

675

19

ACE Life

LIFE OR LONG TERM BUSINESS

23

3,347,229

2,549,034

20

Standard Life Asia

LIFE OR LONG TERM BUSINESS

19

3,342,607

3,382,069

21

Friends Provident Int’l

LIFE OR LONG TERM BUSINESS

16

3,051,885

4,103,308

22

Zurich Insurance

GENERAL - DIRECT $ REINSURANCE INWARD BUSINESS

21

2,656,973

2,615,013

23

Bupa

GENERAL - DIRECT $ REINSURANCE INWARD BUSINESS

26

2,351,697

2,094,191

24

MetLife

LIFE OR LONG TERM BUSINESS

24

2,288,712

2,517,125

25

BEA Life

LIFE OR LONG TERM BUSINESS

29

2,243,342

1,945,106

26

Hong Kong Life

LIFE OR LONG TERM BUSINESS

28

2,230,360

2,023,582

27

Aviva

LIFE OR LONG TERM BUSINESS

25

2,191,235

2,174,882

28

CTPI(HK)

GENERAL - DIRECT $ REINSURANCE INWARD BUSINESS

31

2,043,633

1,782,030

29

Dah Sing Life

LIFE OR LONG TERM BUSINESS

27

2,014,681

2,047,456

30

BOC Group Insurance

GENERAL - DIRECT $ REINSURANCE INWARD BUSINESS

30

1,842,610

1,783,708

31

QBE HKSI

GENERAL - DIRECT $ REINSURANCE INWARD BUSINESS

33

1,763,152

1,423,023

32

AIG Insurance HK

GENERAL - DIRECT $ REINSURANCE INWARD BUSINESS

32

1,551,169

1,712,738

33

CNOOC Insurance

GENERAL - DIRECT $ REINSURANCE INWARD BUSINESS

35

1,452,387

1,409,444

34

Asia Insurance

GENERAL - DIRECT $ REINSURANCE INWARD BUSINESS

34

1,254,681

1,415,920

35

AXA China (HK)

GENERAL - DIRECT $ REINSURANCE INWARD BUSINESS

40

1,161,252

1,073,242

36

MSIG Insurance

GENERAL - DIRECT $ REINSURANCE INWARD BUSINESS

39

1,133,110

1,081,976

37

Blue Cross

GENERAL - DIRECT $ REINSURANCE INWARD BUSINESS

41

1,129,945

1,059,938

38

CIGNA Worldwide Life

LIFE OR LONG TERM BUSINESS

38

1,112,373

1,095,971

39

ACE

GENERAL - DIRECT $ REINSURANCE INWARD BUSINESS

42

1,089,261

1,027,045

40

AIA (HK)

LIFE OR LONG TERM BUSINESS

43

1,041,450

1,000,226

41

AXA Wealth Mgt (HK)

LIFE OR LONG TERM BUSINESS

37

924,650

1,109,209

42

RSA

GENERAL - DIRECT $ REINSURANCE INWARD BUSINESS

46

833,446

765,442

43

Lloyd’s

GENERAL - DIRECT $ REINSURANCE INWARD BUSINESS

44

793,761

841,147

44

Wing Lung

GENERAL - DIRECT $ REINSURANCE INWARD BUSINESS

45

737,090

765,469

45

AGCS SE

GENERAL - DIRECT $ REINSURANCE INWARD BUSINESS

49

705,885

612,424

46

Zurich Life

LIFE OR LONG TERM BUSINESS

36

686,644

1,190,380

47

A Generali

GENERAL - DIRECT $ REINSURANCE INWARD BUSINESS

50

667,238

599,892

48

Liberty Int’l

GENERAL - DIRECT $ REINSURANCE INWARD BUSINESS

-

649,042

524,962

49

Prudential (HK) General

GENERAL - DIRECT $ REINSURANCE INWARD BUSINESS

-

619,922

-

50

HDI-Gerling

GENERAL - DIRECT $ REINSURANCE INWARD BUSINESS

-

604,439

493,916

2015 Ranking

*Data compiled from the Office of the Commissioner of Insurance as at february 4, 2016.

HONG KONG BUSINESS | MARCH 2016 37

CMO Briefing

“Before the dawn of data-driven marketing, it was a challenge for marketers to tie investments to performance and returns in a quantifiable manner.

With the help of analytics, we are now better able to understand what the customer wants and cares about,” says Lim. As a result, Adobe marketers can present strong business cases for their marketing budgets through econometric modelling that are based on data insights.

Dominating with data-driven marketing

Marketers reveal how to use data analytics to better understand customers and offer optimised propositions.

I

f you are using data analytics simply to measure campaigns or come up with a list of impressive but ultimately inactionable insights, then chances are you are lagging way behind the marketing game. Experts across the region reveal that knowledge no longer immediately equates to power. Rather, it is where you lead customers next – to a better product match or to a more memorable brand experience – that will set youapart from other self-proclaimed data-driven marketers.

Beyond campaign KPIs Compiling data for flashy year-end reports, while still essential, is fast losing its priority among the data-driven marketer’s checklist. “We need to move beyond simply using data to report on campaign key performance indicators and use it to gain customer insights and competitive advantage,” says Janie Lim, marketing director, digital media, APAC at Adobe.

Lim shares how Adobe as an organization uses data-driven marketing to optimize customer engagement, and focusing most of their efforts into improving how customers engage with and value their relationship with the brand.

In order to do this, Adobe sought to reduce fragmentation and friction between its functional departments. “With the advent of marketing technology, connecting different functions in the company has increasingly become a two-way street. On one hand, Marketing now partners with Information Technology to gain more useful single-view customer data to enrich our customer experience; on the other hand, even our Chief Financial Officer regularly asks Marketing for business performance numbers,” says Lim.

38 HONG KONG BUSINESS | MARCH 2016

Compiling data for flashy yearend reports, while still essential, is fast losing its priority among the data-driven marketer’s checklist.

Actionable insights Parsing through mounds of customer data will uncover a treasure chest of insights, but the trick is in picking out the gems of actionable insights from the rest of the rubble.

“The key to winning at data-driven marketing is the ability to extract actionable insights from all the information captured. Data that is not actionable does not have any significant meaning to it,” says Fang Fang, senior marketing manager at Skyscanner Greater China.

Skyscanner is a meta-search engine that gathers and aggregates search results from airline, hotel, car hire partners for more than 50 million unique monthly visitors, who then use that information to find flights, accommodation, and car hires. “You can only imagine the amount of data we collect every day,” says Fang. “To make meaningful use of all these data, we need to block out the noise and focus only on those that provide insights that will help us meet our business objectives.”

Four winning strategies There are four strategies that marketers should employ to win at data-driven marketing, says Derek Laney, head of product marketing at Salesforce Asia Pacific.

First, marketers must observe customer behavior across all channels. They can use web and mobile analytics to natively capture customer data and visualize it in real time, then make it immediately actionable across all messaging channels.

Second, marketers must be able to consolidate data into a single view of the customer, seamlessly integrating data from multiple sources. This will let them view all data points and gain a deeper understanding of customer attributes and behavior.

Third, marketers must drive meaningful, relevant and personalized journeys for their customers.

There is an array of next generation tools that can help segment customers into targeted campaign lists.“Leverage technology to ensure each message in the journey is automatically personalized in real time, for every single customer,” says Laney.

Fourth and last, marketers must track and report in real time. By tracking and visualizing multidimensional, real-time campaign metrics around audience, timing, channel, and content, the best marketers will be able to optimize every message, says Laney.

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High-Flyers 2015

Outstanding Enterprises and Business Leaders

The 2015 Hong Kong Business High Flyers Awards gave due credit to outstanding companies that have shown how businesses can excel through constant innovation, customer centricity and social responsibility.

This year, the 12th year that the awards are handed out, the magazine also gave special recognition to three companies that have been awardees since 2006. Speaking at the event, Tim Charlton, publisher of Hong Kong Business, said: “Everyone here is a testament to a lot of hard work that has been done over the year.”

List of Honorees Ageas Insurance Company (Asia) Limited Altruist Financial Group Ltd Canadian International School of Hong Kong CITIC Pacific Limited City University of Hong Kong Elite Concepts GODIVA Chocolatier Hang Seng Insurance Hong Kong Matchmakers HSBC Life (International) Limited InterContinental Grand Stanford Hong Kong Lan Kwai Fong Hotel @ Kau U Fong MassMutual Asia Ltd. Mercedes-Benz Hong Kong Ltd Ovolo Group OZO Wesley HK Rhombus International Hotels Group Sound Concepts Ltd. The Cityview Thomas Mayer & Associés Uni-Bio Science Group Ltd Wharf T&T Zchron Design

40 HONG KONG BUSINESS | MARCH 2016

Life Insurance Financial Planning International School Property Developers MBA Innovative F&B Concepts Premium Chocolatier Leading Insurance Company Professional Matchmaker Outstanding Enterprise Award Luxury Hotel Boutique Hotel Innovative Insurance Company Automobile Innovative Designer Hotels Select Service Corporate Hotel Leading Hotel Management Company for Worldwide Investors Professional AV Consultancy Green Business Hotel Law Firm Innovative Healthcare Solutions Fixed Network and Broadband – Telecommunications Interior Designer

HONG KONG BUSINESS 2015 2014 HIGH-FLYERS AWARDs

The winners’ trophies

CITIC Pacific Limited Team

Wilson Law of Elite Concepts

Cindy Kwan of CITIC Pacific Limited

Penny Pan of Canadian International School of Hong Kong

Mei Ling Ng of Hong Kong Matchmakers

Angela Yam of Ageas Insurance Company (Asia) Limited

Eric Mayer of Thomas Mayer & Associés

Glenn Turner of Altruist Financial Group Ltd

Uni-Bio Science Group Ltd Team

Candy Yuen of KONG HSBC Life HONG BUSINESS (International) Limited

| MARCH 2016 41

HONG KONG BUSINESS 2015 HIGH-FLYERS AWARDs

Ageas Insurance Company (Asia) Limited Representatives

OZO Wesley HK Team

Dr Wilson Chan of City University of Hong Kong

Samantha Lee of Wharf T&T

Candy Yuen of HSBC Life (International) Limited

Kingsley Leung of Uni-Bio Science Group Ltd

Alex Wu of The Cityview

Linus Yuen of Lan Kwai Fong Hotel @ Kau U Fong

Sunny Lee of Sound Concepts Ltd.

Canadian International School of Hong Kong Team 42 HONG KONG BUSINESS | MARCH 2016

Altruist Financial Group Ltd Team

HONG KONG BUSINESS 2015 HIGH-FLYERS AWARDs

Wilson Tang of Hang Seng Insurance Company Limited

Linus Yuen of Lan Kwai Fong Hotel @ Kau U Fong

Stefan Borm of Ovolo Group

Dr Wilson Chan of City University of Hong Kong

Louis Chan and Hoffman Ho of Zchron Design

Peter Yip of MassMutual Asia Ltd.

Vivian Yuen of Intercontinental Grand Stanford Hong Kong

Peter Larko of Mercedes-Benz Hong Kong Ltd

Wayne Mak of Rhombus International Hotels Group

Representatives from Rhombus International Hotels Group

Grand and Platinum Awards Trophies

HONG KONG BUSINESS | MARCH 2016 43

HONG KONG BUSINESS 2015 HIGH-FLYERS AWARDs

Lan Kwai Fong Hotel @ Kau U Fong Team

Mael Vastine of OZO Wesley HK

The HKB High Flyers 2016 Annual issue

Wilson Tang of Hang Seng Insurance Company Limited

HSBC Life (International) Limited Representatives

Winners of the 2015 High-Flyers Awards

Representatives from Mercedes-Benz Hong Kong, KGK 44 HONG KONG BUSINESS | MARCH 2016 Jewellery and The Cityview

Louis Chan of Zchron Design

Elite Concepts Team

HONG KONG BUSINESS 2015 HIGH-FLYERS AWARDs

Tim Charlton with Eric-Jean Thomas of Thomas Mayer & Associés

Peter Larko of Mercedes-Benz Hong Kong Ltd and Filip Ziolek of 3.six.5 hong kong

Louis Shek of Hong Kong Business with Mandy Lam (Bose) and Raymond Chui (www.crystallize.me)

Representatives from Thomas Mayer & Associés

Guests and VIPs enjoying the event

Rhombus International Hotels Group and Ovolo Group Representatives

The Hong Kong Business Team

Uni-Bio Science Group Ltd Representatives

HONG KONG BUSINESS | MARCH 2016 45

regional analysis: chinese tourism

Outbound tourism will surge

Chinese tourists to hit 200m by 2020

A surge in tourists from the largest country in the world tells an even broader story, including booming tourist spending and locals getting bored of the same old attractions.

C

hinese outbound tourism remains on track to reach 200m by 2020. Since our Social pressures report in January last year, which included annual data up to 2013, we have seen 19% growth outbound trips in 2014 and 7% expected growth in 2015, dragged down

by Hong Kong and Macau which fell by 1% combined. We continue to expect 200m outbound trips by 2020, which implies a 9% Cagr, down from 11% in last year’s report due to the higher base. Of the 9%, we expect Hong Kong and Macau to enjoy a 3% Cagr and all “others” to grow by 16%.

Moreover, the absolute outbound travel numbers do not tell the whole story either, with tourist spending also on the rise. The key drivers of rising wealth, increasing desire to travel and greater accessibility remain unchanged, while expectations of a weakening renminbi is unlikely to impact the upward trajectory too much. Key country beneficiaries in our view are South Korea, Japan, Thailand, Europe, USA and Australia.

2015 on track for another good year As highlighted in last year’s report, the Chinese population is getting richer and aspirations are rising for more adventurous and exotic locations, driven by growing social media pressures. The first step on that ladder is to go to more glamorous locations in Asia, versus Hong Kong and Macau, which has been a part of the Chinese outbound

46 HONG KONG BUSINESS | MARCH 2016

“We maintain our longrunning forecast of 200m outbound trips by 2020. That amounts to a 9% Cagr from 2015.”

staple diet for many years. As a result, there has been a surge in interest in the North Asian destinations, given proximity, accessibility, lower cost and helped currently by weakening currencies.

Looking at 2015, while we don’t yet have the final numbers, we have largely seen a continuation of the 2014 trend, with Hong Kong and Macau lagging and a surge in ‘cooler’ holiday destinations to brag home about on social media. Riding on the weak yen, Japan is on track to more than double its visitation from China, while Thailand and New Zealand have also seen a sharp increase YoY. Meanwhile, Hong Kong and Macau lagged, with currency pressures (both the Hong Kong dollar and Macau Pataca are effectively pegged to the US dollar, which has remained strong), a lack of new attractions and a less than welcoming local population towards mainland Chinese people key factors in the stagnant growth. Hong Kong and Macau, combined, is on track to be down 1.2% YoY. Meanwhile, everywhere else combined is on track to be up 20% YoY. 200m is still the magic number So where does that leave us with our estimates for the next five years? We maintain our long-running forecast of 200m outbound trips by 2020. That amounts to a 9% Cagr from 2015. However, that is weighed down by an expected 3% growth in HK/Macau, which currently account for

regional analysis: chinese tourism 54% of all outbound Chinese tourists. If we exclude HK/ Macau, we expect growth to experience a 16% Cagr to 2020.

Clearly, the growth rate is slowing. The average growth was around 20% over the past five years so 9% is quite a deceleration. This is due to the higher base but also the well-documented problems in the core HK/Macau markets. This slowdown is also reflected in our survey results where people said they could slightly reduce the number of trips over the next three years. For nonGuangdong residents, they plan 2.5 trips in the next three years compared with 2.4 trips planned in last year’s survey, For Guangdong residents, the decline was more significant with 4.4 trips planned vs 5.1 last year. Again, this is due to the falling desire to visit Hong Kong and Macau. Note that we are surveying existing members of the middle class and we expect the growth to come from an expansion of the middle class in the coming years.

Regional forecasts We expect the largest relative growth to come from Australasia, where growth is coming off a very low base for that part of the world. We expect higher absolute growth to come from North Asia and Southeast Asia, given easier accessibility. We expect the North Asian countries of Japan, Korea and Taiwan to contribute around 16% of total outbound traffic from China in 2020, versus an estimated 12% in 2015. For Southeast Asia, we expect it to contribute around 13% of total outbound traffic from China in 2020, versus an estimated 10% in 2015.We expect Hong Kong’s market share to drop from 42% at the peak in 2012 to 27% in 2020. Similarly, we expect Macau’s share to drop from 25% in 2008 at their peak to 14% in 2020.

Our country and regional growth forecasts are reasonably consistent with the results from our survey.

South Korea, Japan and Thailand rank as the most likely travel destinations in the following three years. These destinations also have a high retention rate. Notably Macau is very low at only 8%.

If money was no object, respondents flag USA, France, Maldives and Australia as their most desired destination.

Therefore, we are more positive on these locations over the medium term as income levels continue to rise.

Currently, the percentage of total global outbound travel that originates out of China is 10%, half the 20% global population that reside there. Given rising wealth Chinese outbound trips to HK/Macau

Source: CLSA, Euromonitor, CEIC

Hong Kong is still a shopping paradise

and increasing aspirations of the Chinese middle class, we expect that differential will compress, ie, growth in Chinese outbound tourism will surpass the global average in the next five years. By 2020, we anticipate that Chinese outbound travel, as a share of the global total, will reach 14%.

In addition to the strong growth in absolute outbound tourist numbers, the World Travel & Tourism Council (WTTC) estimates that China, already the No.1 contributor to global outbound travel, will overtake the USA in 2017 as the biggest spenders on tourism globally.

However, what is interesting from our survey is that 35% said they were spending more than RMB6,000 on shopping vs 42% in 2014 and 44% in 2013. Although 49% did say they would increase spending on shopping in the next three years.

“Currently, the percentage of total global outbound travel that originates out of China is 10%, half the 20% global population that reside there.”

Becoming more culturally aware When asked what was your impression of the destination you visited in the past three years, people often cite: “nice environment”; “experience of foreign culture”; “expand my vision”; and “beautiful scenery”. Only in Hong Kong is “shopping paradise” mentioned as the number one impression. These cultural factors are becoming a major driver of overseas travel compared with the past when shopping was the main priority.

The long-term drivers remain intact and include: Improved affordability (income growth), easing travel restrictions (loosening of visa restriction, increased leave, improved transportation infrastructure), increasing desire to travel (greater travel experience, impact from internet and social media, deteriorating living environment, etc).

While not a specific driver of growth, it is important to consider the starting point ie, the low base. Travel penetration is defined by the number of annual outbound trips divided by the population. China is currently around 9% vs Japan at 13%, Korea at 37% and Taiwan at 56%.

Rising wealth to drive growth As wealth rises in China, the ability of the population to HONG KONG BUSINESS | MARCH 2016 47

regional analysis: chinese tourism fund more exotic trips abroad also increases. The Chinese are moving into a phase where broadening their horizons and increasing their experiences is Finding GDP per capita of US$8,000 to be the tipping point where travel penetration accelerated in Japan, Korea and Taiwan, we find ourselves at that tipping point now in China - the IMF projects China to cross that threshold in 2015 - and expect that to be a key driver for a continued upward trajectory in outbound trips. See previous reports for more detail.becoming more important. We saw this in Japan, Korea and Taiwan in the 80s and 90s.

Alleviation of such restrictions in the form of visa loosening, increased holidays and better transportation infrastructure will improve Chinese’s ease to travel.

Historically, difficulty in obtaining travel visas has been a factor limiting mainland Chinese from going abroad.

According to Henley & Partners’ visa restriction index, outbound travel freedom of China citizens is ranked at the bottom among all countries. Over the years, there has only been moderate improvement in mainland Chinese’s travel freedom, with the number of countries that Chinese can travel to without a visa (or visa on arrival) slightly increasing from 33 in 2008 to 45 in 2015. Chinese’s travel freedom is still significantly below that of Americans and British who can travel to more than 170 countries without a visa.

With multiple countries dedicated effort, visas seem to be less of a constraint to most Chinese visitors now.

According to our survey, only 14% of respondents said that “visa availability” was a main factor affecting their destination choice, down from 35% in 2013.

Increased annual leave More rigorous enforcement of paid annual leave will also benefit outbound travel. Many Chinese companies have yet to implement the annual-leave policy and many workers don’t even know they are entitled to paid holidays. According to a 2012 survey among 500 Chinese employees, one-third said that their employers did not have an annual-leave policy while 12% didn’t know if their companies had one at all.

Most workers only took an average six to seven days paid leave per year - 70% of their entitled annual leave.

The number of paid annual leave days in China is also significantly lower than that in other countries, with most employees only entitled to five days of paid holidays, Annual routes out of China to key destinations

Source: Capstats

48 HONG KONG BUSINESS | MARCH 2016

Visas are less of a constraint to Chinese visitors

In the 12th Five-Year Plan (2011-15), China targeted to increase the total number of airports by 55, or 31%.

which is significantly lower than 10-30 days in other OECD countries. As China gradually increases annual leave days for its people, we expect to see a further increase in outbound travel.

In the 12th Five-Year Plan (2011-15), China targeted to increase the total number of airports by 55, or 31%.

That would lift the number of airports from 175 as of end-2010 to 230. The plan calls for 55 new airports, 91 airport extensions and 16 relocations for a total investment of Rmb425bn (US$69bn). Construction of new airports should help improve the ease of outbound travel. Annual routes out of China have increased dramatically in recent years.

Routes to Thailand are up over 5x from 8k in 2010 to 43k now. Routes to New Zealand are up over 4x since 2010 to 1.1k now. Mirroring the growth that we’ve seen in the outbound figures, access to the likes of Thailand, Japan and New Zealand have seen strong growth in 2015, while Hong Kong’s lag matches the flat growth.

Increasing desire to travel The desire to travel is also stronger than ever in China. That in part is due to travellers becoming more experienced. Proliferation of the internet and social media also encourages the desire to travel. Lastly, the poor living environment in China and the congested domestic tourism infrastructure also drives people out of the country for vacation. People seek overseas travel because it makes they happy, particularly when they are relaxing and widening their horizon.

As flagged in last year’s, Social pressures report, social media, internet and TV shows are having a profound impact on the Chinese. According to a survey done by McKinsey, China had the world’s most active social media users with 95% of respondents from Tier-1 to Tier-3 cities registered on social-media platforms.

Social-media platforms have become a useful tool for information search. Travellers get inspirations and gather information of destinations by browsing photos or posts uploaded by friends or government tourism authorities.

By Aaron Fischer, regional head of consumer & gaming research, CLSA

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Mark Wadsley

Here’s how fitness will improve performance management

I

Mark Wadsley Senior Director HCM Transformation, Oracle APAC

have been thinking and contemplating how performance reviews are done in companies annually or monthly. Some companies are even getting rid of it completely. Then it occurred to me that performance management should really move to “just-in-time performance management.”

The purpose of the Fit for Work concept is to explore the idea of just-in-time performance management. It’s a concept that we’re developing about how to use human capital management, data metrics as well as sales data metrics, and create business intelligence to help people improve their performance, their talent.

This isn’t about saying you’re unfit, from a physical standpoint or a mental standpoint. This is a concept which is about enhancing employees on an optimum basis which can improve their performance - much like a work athlete.

So for example, imagine a call from HR service centre that goes: “Hi, John, we noticed today that you have an elevated heart rate of 160 beats per minute, and you’ve skipped your breakfast, and you’ve got a sales meeting in an hour worth about US$12 million. We’d like to put a nutritionist on the line who’d like to share with you a high nutri-food that you can eat now. And a psychologist will have a chat with you and discuss some visualisation techniques on how to calm your heart rate down prior to your meeting. And then we will put a sales coach on the line to discuss with you in broad strokes how to position your sales deal.”

Work athlete If you’re a work athlete, your performance data would be captured and correlated to your sales data. And typically you would have to wait for the HR shared service centre to monitor those analytics, and then advise you on how you can optimise your performance.

So that would potentially be one end of a work athlete. Or you can imagine a call from HR shared service centre where it goes, “Hi, John. We noticed that the retail team in your retail store are on their feet for eight hours a day, we tracked it through Fitbit. We have noticed they’re not taking any breaks, and the sales dashboard we’re looking at in real time tells us that we’ve decreased sales by 20% in the store over the last couple of days. So we’d like to put an efficiency coach on the telephone to have a chat with you about how we can increase break times, or how we can help you rotate your staff. We will also put the fitness coach on the line to discuss with you and the team about stretching techniques so that they’ll be fitter and more agile. We think we’ll be able to see an increase in sales because of it.”

So really the idea of Fit for Work is about a crossover between wellbeing and fitness as a correlation to sales activity, and how you can drive real-time performance just in time by having some sort of shared service centre.

We are trying to create a concept or initiative that we will then share with our customers so they can look at how technology can enable them to have HR performance management 50 HONG KONG BUSINESS | MARCH 2016

data dashboard all in one screen, with customer-relationship management with sales data. And they can draw reports to create some analysis, and figure out how to use your team to their full potential, how to help an individual perform at their best, and improve the organisation’s overall performance.

Ultimately, businesses are in business to make money, right?

Businesses are about revenue, costs, and talent. So if you know how to improve your revenue because you have high-performing individuals, if you know how to reduce your costs because you’re not off work from being sick or having back pain or what have you, and if you know how to look after your people, you’re going to retain your talent. It is those three things which will make you interested in something like this as an initiative.

If you track employees’ health benefits through to an incentive program, and you know people care, you know that the company cares about you, that it doesn’t just care about you once year or once a month or once a week or a conversation-- it cares about you second by second. Think of it like an astronaut in space. You’ve got NASA control looking at every single aspect of you. You’ve got people monitoring all aspects of your well-being and it’s all about keeping you while it’s all about looking after you. Consequently, people–by nature, by definition of you encouraging them in the right way–will be less sick, lessor be less ill. It isn’t surprising if it didn’t correlate to reduction in sick days or in low performance.

Ready, set, work!

ECONOMICs

Ian Perkin

Asian stocks: Still feeling the pressure

T

he across-the-board sell-off on the re-opening of the world’s stock markets this year came as a shock. Most pundits had thought that after their very ordinary performance in 2015, world markets would bounce back in 2016, or at least hold their own. No one, it seems, predicted a rout. Yet in the opening couple of weeks of 2016, global markets recorded one of their worst starts ever to a new trading year. This could change at any time though (even as this is being written) as clear value begins to emerge in many markets.

With the benefit of hindsight though, the 2016 market opening should not have been such a surprise, Looking back, it is clear that at the end of 2015 there were too many unresolved economic issues for the markets to approach 2016 with much confidence.

On the global stage, the one issue that was resolved towards year’s end was when the US Federal Reserve would begin to raise interest rates (it did!). But what did remain unresolved was what the reversal of monetary policy would mean. The more investors thought about it, the more bearish they became. Closer to home (for Hong Kong at least), concerns about the mainland economy (its general health, its volatile share markets, the value of the Yuan and much else) spilled over into the New Year, affecting not only the region, but also global markets.

The US economy improved throughout 2015 (although not as much a some had hoped), but China’s continued to slow, while Europe and Japan stagnated (despite continued loose monetary policies) and emerging markets (big ones, like Russia and Brazil, amongst them) went backwards. Commodity prices, including all-important oil, subsided through 2015 (due in part to real and perceived lower demand from China) and have remained depressed into the new year, heightening concerns about the overall direction of the global economy.

Global issues Moreover, all this occurred against the backdrop of heightened geopolitical tensions and sporadic terrorist attacks, which did nothing to engender confidence in global markets. In short, the big global issues that most concerned world markets in 2015 had not improved as the new 2016 calendar year dawned.In many ways, 2015 was a “lost year” for the world’s stock markets, including those in the Asia region (see table 1).

Worldwide, a handful of the more obscure markets bucked the trend, posting good gains on the back previously lacklustre performances. But they were the exceptions. The majority of the most closely followed markets showed little, if any, improvement.

As the accompanying table shows, the world’s major markets – and those in the Asian region (including Hong Kong, which nevertheless topped the global table for new share issues) – pretty much stood still year-on-year.

Most markets finished the year within 1% (up or down) of their 52 HONG KONG BUSINESS | MARCH 2016

IAN PERKIN Independent Economic Consultant perkin888@hotmail.com Major Asian and Global Markets 2015 Market New York

London

Index

2015 Close (points)

Change on 2014 Close (%)

2016 January 13 (points)

DJIA

17,425.03

-2.23

16,151.41

S&P

2,043.94

-0.73

1,890.28

Nasdaq

5,007.41

+5.73

4,526.86

FTSE

6,242.30

-4.93

5,860.97

Europe

Eurostox

3267.52

+3.85

3,063.00

Tokyo

Nikkei

19,038.71

+0.27

17,715.63

Australia

All Ords

5,344.60

-0.41

5.043.30

China

Shanghai Composite

3,539.18

-0.94

2,986.18

Hong Kong

Hang Seng

21,194.40

+0.15

19,934.88

Thailand

BSE30

26,160.90

+0.17

24,682.83

Indonesia

Jakarta Composite

4,593.01

+0.52

4,357.18

Malaysia

KLSE Composite

1,692.51

+0.00

1,642.54

New Zealand

NZSE

6,324.36

+0.08

6,151.87

Singapore

Straits Times

2,882.33

+0.00

2,696.80

Korea

Seoul Composite

1,861.81

+0.25

1,916.28

Taiwan

TWI

8,336.06

+0.70

7,824.61

Source: Various stock markets

starting point (the close of 2014), which puts into some sort of context the subsequent falls in the first two weeks of 2016.

What the year-on-year outcome disguises, however, is the substantial volatility that marked most markets during the year.

Geopolitical tensions (particularly those stemming from the Middle East) contributed to this heightened volatility, but by far the biggest issues affecting markets were concerns over monetary policy (especially in the US), the uncertainties in China (its share market collapse and Yuan manipulation) and world trade and commodity price declines (and what they mean for overall global growth).

That said, it is early days yet and there could still be a recovery in store for world stocks in 2016. At some stage, it is inevitable that stocks will be judged to have fallen far enough to attract “value” investors and the rest will fall in behind. It remains an open question though whether the performance of the global economy (and world trade and commodity prices) will be enough to sustain a recovery in stocks in the medium to longer term.

I can’t get no…inspiration Inspirational leadership is a rare thing in the world, but it is not so rare that a smart and vibrant city like Hong Kong should be without it over such a sustained period. The HKSAR Chief Executive, C Y Leung’s Policy Address on January 13 did its job – as far as it went – but was still missing that crucial ingredient for a leader’s annual statement on his government’s policies and programs to the legislature – a sense of vision and inspiration.

OPINION

tim hamlett

Rail wails

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

F

rederick Ma Si-hang, the chairman of the MTR Corporation, has been campaigning for the Legislative Council to fund the cost over-runs of the MTR’s baby, the Express Rail Link. You might have thought that Mr Ma would have devoted some attention to the alleged merits of the project: its important role as a link, a tourist attraction, an architectural ornament, or whatever. But, at least according to the items in last week’s newspapers, Mr Ma did not take this course. Instead he warned that up to 7,000 people in the construction industry would lose their jobs if the project was aborted.

This struck me as a rather odd use of language. It is a commonplace in the construction industry that workers are taken on for a project, with no guarantee of continued employment after the work on the project stops. Whether the project is finished or cancelled does not make any difference; when work stops you’re on the street. So these 7,000 people for whose prosperity Mr Ma expresses such concern, are the people who would have been sacked without apology or compunction last year if the project had finished on time.

They are still working because it is running late. It is not necessarily their fault that it is running late, but the fact that they are still working on it is in a sense an unexpected bonus. The question is whether they get an extra two or so years added to the expected contract period or only one. This is no doubt a matter of considerable importance to the people concerned but it hardly seems to merit the “jobs at stake” headlines which Mr Ma was angling for.

Mr Ma’s other original contribution to the argument was the suggestion that if the project were cancelled then international contractors might “give Hong Kong a bad name.” I can believe that.

International contractors would no doubt like to believe that Hong Kong people are a bunch of gullible suckers who will continue to pour money into a hole in the ground however late or over budget the hole may be. Does having a bad name mean having a reputation for axing projects which are missing the date and price promised?

Bring it on.

Also weighing in on the construction industry’s employment needs last week was the president of the Hong Kong Construction Subcontractors Alliance, Lawrence Ng San-wa. Mr Ng picked up a broader brush, complaining that the Legco log-jam was threatening the approval of a large number of government projects.

If these were cancelled the Construction Industry Alliance had estimated that 20 per cent of the 400,000 people who work in the sector could be thrown out of work. Picking up this point Mr Ng asserted that “taking into account the family members of those affected employees, the affected people would be as much as 1.4 million”.

This casts an interesting light on family sizes in the construction sector. One fifth, or 20 per cent, of 400,000 people is 80,000. If we divide Mr Ng’s 1.4 million affected family members

54 HONG KONG BUSINESS | MARCH 2016

by 80,000 we come to an average size per worker of 17.5. This is not terribly convincing. Even if we assume that every construction worker is married and supports both his and his wife’s parents, we are still asked to believe that the average number of kids in construction families is 11.5, compared with 1.5 for the population generally. Are people in the construction industry breeding like rabbits? Or does Mr Ng need a new calculator?

Together with the talk we also had some figures. The upshot of these is that we can still save something over $10 billion by cancelling the rail link. And that disregards the possibility that the vacant hole in West Kowloon can be turned into something that makes better economic sense than a loss-making railway line. So the question before Legco is quite simple.

Do we want to blow another 10 billion on a political gesture masquerading as an infrastructure or can we think of something else to do with the money? I fear we all know what the eventual answer will be.

Meantime Messrs. Ma and Ng need to get their heads around the point that the purpose of government infrastructure projects is not to provide employment to workers in the construction industry. If the nicest thing you can think of about a project is that large numbers of people are employed building it, many of us will suspect that its other merits are imaginary.

Are people in construction breeding like rabbits?

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OPINION

Hemlock

The ‘innovative dreams’ zone

T

he banner says, “Innovative dreams bring a world of endless possibilities.” Could this be the slogan of a residential realestate project – perhaps the Yuccie in glamorous exurban Yuen Long? Is it a pithy quote from a best-selling self-help book? Is it the blurb of a loan-sharking business?

Hong Kong’s housing market seems to be the product of an innovative dream – a parallel universe in which Stein’s Law does not apply.

Now, after dragging it out for three (four, five) years, the Federal Reserve’s Janet Yellen is finally going to tweak interest rates up by a microscopic degree. The slower and duller 95% of the property herd will (surely) pick up on the recent falls in transactions and rents, which ultimately must reflect the pre-emptive retreat of their nimbler and smarter peers.

One of many signs that change is in the air is that real-estate agents are losing it. Some, like starved, cornered rats, are attacking MTR staff in broad daylight. Others are fantasizing about more price rises, possibly with occasional modest and fleeting corrections that can be laughed off.

One writing in the South China Morning Post insists that the downside is trifling because the likelihood of a dramatic fall off following 2015’s all-time high seems unlikely, as excess liquidity throughout the global economy, without any oversupply and with construction costs remaining high, will prevent a drastic decline of 30% to 40% in prices.

As we have seen in the past, ‘oversupply’ is just another way of saying ‘too little demand’, it sometimes just appears when you don’t expect it.

But the really exquisite delusion here is the comment about construction costs (which, like that of land, have been over-inflated in recent years).

She assumes that the cost of production sets a magic unbreakable price floor. It might work with FairTrade coffee, but otherwise it isn’t so. If someone charged you HK$5 million to build an apartment, but no-one will pay you more than HK$4.9 million to buy it, you screwed up.

Hong Kong’s Education Secretary, Eddie Ng has been regaling his adoring public with tales of his lightning-fast reading skills. The man claims to be able to finish 10 books in a 10-hour flight, and polish off a couple of magazines while dining. Of course, many Hong Kong people, traumatised by their school experiences, see reading

56 HONG KONG BUSINESS | MARCH 2016

books as a painful past necessity, and the idea of doing it in adulthood is as peculiar as, say, having root canals done as a hobby.

But those of us brought up in more literary surroundings need to know just one thing: exactly what is Eddie reading? And this brings us to self-help books, as it seems Eddie has perused one 7 Habits of Highly Effective People, seen at airport bookstalls everywhere.

Eddie is certainly not a great advertisement for the genre, though he would do credit to the impact of 7 Habits of Complete Bumbling Idiots.

Maybe he hopes that by divulging his voracious consumption of the printed word, he will somehow induce admiration, or perhaps pity, among the legions of parents who detest his Bureau’s arrogant dismissal of their concerns. Or maybe this is an attempt to shoe-shine his boss and the boss’s bosses up in Beijing. He says he reads China Today – an old proto-soft-power propaganda sheet with roots in the 1950s and 60s, when gullible Mao-loving foreigners would lap up tales of peasant doctors using acupuncture to perform open-heart surgery. No-one has read it for a couple of decades.

As any sentient being will have guessed by now, the ‘Innovative dreams bringing a world of endless possibilities’ motto is that of a loansharking operation. Rumbling noises deep within the property market and the Education Secretary’s claim to super-human powers point to a something strange happening in the world.

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

Housing market a product of an innovative dream