Page 1

Display to 30 November 2017 HK$40





MICA(P) 244/07/2011 KDM No: PPS1645/3/2008

• where can you find the best property buys? • Commercial versus residential • Housing prices: Singapore versus Hong Kong



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

Publisher & EDITOR-IN-CHIEF Tim Charlton associate publisher Louis Shek production EDITOR Genelie Sta.Ana-De Leon graphic artist Elizabeth Indoy ADVERTISING CONTACTS Louis Shek +852 6099 9768 Rochelle Romero Angelica Biso ADMINISTRATION ACCOUNTS DEPARTMENT Advertising Editorial

Welcome to Hong Kong Business. Our annual property issue reveals that whilst sentiment in the retail market has been improving since earlier this year, it is yet to be strong enough to make retailers feel they need to resume expansion. For residential sales, research from Savills revealed that the buoyant market sentiment has been propelling luxury prices to historical highs, rebounding over the second quarter on the back of a booming stock market as the Hang Seng Index continued to rise. Meanwhile, the Hong Kong residential market has regained momentum with a total value of residential transactions rising 43% q-o-q, with overall home prices increasing 3.7% q-o-q as well. Our article on bonds reveals that the offshore RMB bond (dim sum bond) issuance further slowed down in 2017 on the back of not only the appreciation of yuan and the interest rate hike, but also the rapid opening up of China’s onshore bond market. With the Guangdong-Hong Kong-Macau Greater Bay Area (GBA) Plan coming to fruition, Hong Kong can expand its footprint along the Belt and Road geography to become a global financial centre. More Chinese companies will set up international operations in Hong Kong and nouveauriche individuals will use Hong Kong as their wealth management centre. How can Hong Kong maintain its premium over neighbouring cities in order to redefine its edge? This issue also bears the most recent awards that we’ve held. Now on its third year, the International Business Awards is an initiative to recognise the contributions of international firms to Hong Kong & Chinese economies whilst the Listed Companies Awards honours the notable publicly listed companies in Hong Kong. Start flipping the pages and get to know which firms were lauded at the 2017 Hong Kong Business Awards.

PriNting Gear Printing Limited Flat B, 3/F, Derrick Ind. Bldg., 49-51 Wong Chuk Hang Rd., Hong Kong.

Can we help?

Enjoy the issue!

Tim Charlton Hong Kong Business is available at the airport lounges or onboard the following airlines:

Editorial Enquiries: If you have a story idea or just a press release, please email: and our news editor will read it. For Media Partnerships, please email: editorial@hongkongbusiness. hk and put “partnership” in the subject line and it will forward to the right person. Subscriptions email: Hong Kong Business is published by Charlton Media Group. All editorial is copyright and may not be reproduced without consent. Contributions are invited but copies of all work should be kept as Hong Kong Business can accept no responsibility for loss. We will however take the gains. Sold on newstands in Hong Kong, Macau, Singapore, London, and New York *If you’re reading the small print you may be missing the big picture    





INSIGHT 22 FINANCIAL Hong kong’s bond market


FIRST 06 AI is taking the tedium out of recruitment

07 Hotel investments hit new highs 08 Will Alibaba steal Hong Kong’s luxury lustre?

10 Bankers on the move to digging coins

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 | NOVEMBER 2017 262 Des Voeux Road Central, Hong Kong



12 A pension system that Hong Kong needs

30 Hong Kong’s chance to rise to the top

34 Housing prices: HK versus SG

REGULAR 16 Industry Insight 20 Economy Watch 36 Legal Briefing 38 Marketing Briefing

EVENTS 40 Hong Kong Business Awards 2017

For the latest business news from Hong Kong visit the website

News from Daily news from Hong Kong most read



Ageing population to radically impact Hong Kong dubbed the world’s doing business in Hong Kong costliest office market again: CBRE

One in two companies already adopted cost-containment measures

The backdrop to doing business in Hong Kong, according to Deloitte, will change radically within a decade as retirees surge in number. The number of people in Hong Kong aged 65 and over will rise from just 1.2 million to 1.9 million by 2027.

88% of Hong Kong employers are concerned about rising medical costs, according to a report by global professional services firms, Mercer and Marsh. Most of the companies bear full premium costs for employee benefits.


Population to hit 8.22m in 2043 Hong Kong’s population is will peak at 8.22 million in 2043, then decline to 7.72 million by 2066, according to the Census & Statistics Department. Due to an ageing trend, Deputy Commissioner for Census & Statistics Marion Chan said the number of elderly people aged 65 up will more than double in 20 years.




Hong Kong is once again the world’s highest-priced office market according to CBRE’s semi-annual Global Prime Office Rents survey. The study also found that markets in the Americas and EMEA showed the most consistent growth in rent.


Headwinds for high-value pharma The Special Administrative Region has a large and growing elderly population and a rising prevalence of chronic diseases that will drive demand for treatments, reflected in a score of 65.8 out of 100 in BMI’s Innovative Pharmaceuticals Risk/ Reward Index. Difficulties faced by high-value pharma will be due to unregulated medicine pricing regime.


Average wage rate hikes by 3.8% About 68% of companies reported increases in average wage rates in June compared with a year ago, while 27% recorded decreases. The remaining 5% reported virtually no change. After discounting the changes in consumer prices as measured by the Consumer Price Index A, the overall average wage rate rose 1.5% in real terms.

FIRST Slow hiring shoos top IT talent in HK

A four-month hiring process is too long for the fast-paced IT industry and even longer for Hong Kong, which has been suffering a shortage in digital talent for the past years. Robert Half reported that as Hong Kong companies prolong their hiring processes, they risk losing top IT candidates who could immediately work on the firm’s IT needs. The report showed that the average process for hiring staff-level professionals lasts three months whilst the average process for hiring management-level professionals takes four months. But really, what is taking the hiring process so long? According to the Hong Kong chief information officers (CIOs) surveyed, 48% cite too many interview rounds, 47% say they could not find the right candidates with the perfect skill set, and 44% believe that there should be less stakeholders involved. Due to the shortage of talent, 92% of CIOs said that they also find it more difficult to hire IT talent compared to five years ago. Reducing the waiting game On a positive note, 95% of CIOs are doing the best they can to reduce the waiting time for their candidates. Almost half of them already have a pipeline of potential hires in order to minimise starting from scratch whenever a new position is open. Almost half have also improved communication channels to enhance engagement with candidates, whilst one in five have sped up their shortlisting by conducting initial interviews via phone and video conferencing. Adam Johnston, managing director, Robert Half Hong Kong, said that companies can ensure they are on the front foot to win the IT war for talent by having a welldefined hiring process with a limited number of internal stakeholders and interview rounds. They should be able to identify where the delays are coming from and take proactive steps to address the problems that drag the recruitment process. 6


Wade and Wendy are AI-powered recruitment chatbots

AI is taking the tedium out of recruitment


hen recruitment firm Randstad Hong Kong invested in the AI chatbot Wade & Wendy through its Randstad Innovation Fund this year, the goal that they had in mind was to eliminate the time consuming administrative components of recruitment. Randstad is currently piloting programmes that automate some of the recruitment processes in its operations in Hong Kong. “AI will take on a crucial role in the automation of simpler tedious tasks such as applicant profiles, processing applications and organising interviews,” said Natellie Sun, managing director at Randstad Hong Kong. Wade is a chatbot that serves as a personal career guide and offers career advices based on a jobseeker’s skills. Meanwhile, Wendy is an AI chatbot recruiter that joins hiring teams to automate many of their top-of-the-funnel recruiting efforts. Drew Austin, CEO of Wade & Wendy, reckoned that the response to the chatbot has been positive inspite of fears that AI will make

AI will take on a crucial role in the automation of simpler tedious tasks as managing applicant profiles, processing applications and organising interviews.

recruitment professionals obsolete. “As organisations become increasingly comfortable with bringing AI into the workplace, we’ll see a huge reliance on chatbots to automate many repetitive tasks. People will have more bandwidth to do the more human and cognitive intensive tasks,” he said. Another firm embracing such a technology leap is recruitment agency Hays where Natural Language Generation (NLG) AI is utilised. From piles of resumes, NLG outlines the best fit for the role at hand, freeing the recruiter of tasks like poring over a wider pool of applicants who may not be suitable. The company has also enlisted the help of an external organisation with expertise in the area to ensure this relatively novel approach delivers on its promise. “The early signs are that it works,” said Alistair Cox, chief executive officer at Hays. “Our consultants are freed up to concentrate on building relationships with their clients and candidates.” Need for human touch Adam Johnston, managing director at Robert Half Hong Kong, said the boons of AI make its adoption a must for firms who wish to remain competitive, but a complete machine takeover of the industry remains an unfounded fear. “Whilst AI is a powerful tool to find and identify potential candidates with particular skills, it doesn’t cover the entire hiring process,” he said. “Assessing the attitude in the interview and corporate culture fit, negotiating remuneration, and persuading candidates to accept a job offer are all examples of where human interaction and judgement are crucial,” he said.

Sample conversation using the Wade and Wendy chatbot


x Travelodge opened its second hotel in Hong Kong this yearts

Hotel investment hits new highs


nvestments in the hospitality industry are hitting new highs, with a total of seven en-bloc transactions recorded in 1H17 alone. JLL’s top ten single asset transactions for 1H17 are mid-scale hotels like Newton Place Hotel Kwun Tong sold at HKD2.3b and HKD3.9m per key for 597 rooms. A close second is The Bay Bridge Hotel sold for HKD1.7b and HKD3.9m per key for 438 rooms. Thanks to the recovery in the number of Chinese tourist arrivals after steep declines in 2016, Hong

Kong’s hotels are getting fully booked again. Together with the increase in tourist arrivals, the hospitality industry also welcomed positive developments such as the entry of new hotel brands like the first Travelodge hotel in Kowloon. CBRE analysts noted that the city continues to register the strongest RevPAR performance in Asia Pacific, thus enabling it to attract solid interest from domestic and foreign investors in the coming months. “Domestic investors continued to dominate the market and strong

demand was recorded from local buyers across the board,” analysts at CBRE said. Meanwhile. across different hotel categories, medium tariff or midscale hotels have the strongest correlation with the growth of Chinese tourists. “We expect midrange hotels to offer better investment returns. In the 1H17, we have seen nine mid-range hotel investment transactions for a total amount of $11b (US$1.4b) which indicates a strong interest in the hotel market by local investors,” Colliers said. In terms of the outlook for the remainder of the year, analysts remain cautious but hopeful. CBRE In the 1H17, said that as new supply comes on we have seen stream, there will be downward nine mid-range pressure on hotel performance. Some hotel investment assets will be faring well, but others transactions for will be struggling. Despite this, hotel a total amount investment activity will remain solid of HKD11 billion for the next few months following (USD1.4 billion). 2016’s bleak performance. Asia Pacific total transaction volume by country (2007-2017)

Source: JLL

The Chartist: Expect the economy to slow down amidst bleak outlook Hong Kong clocked in a robust 4% economic growth in the first half of the year, beating analyst expectations by almost 1%. However, the momentum is set to ease over the coming quarters amidst a softening housing market, moderated economic activity in mainland China, and unfavourable base effects. The Hong Kong Monetary Authority’s (HKMA) regulations on construction financing are also viewed as a drag as cooling prices negatively impact property development. This in turn will slow gross domestic fixed capital formation which rose by 8% YoY in 2Q17. Hong Kong will also be impacted by weakening economic activity from its largest trading partner, mainland China, which faces headwinds from tightening monetary policy and an easing of expansionary fiscal policy.

Q117 marked growth top Hong Kong - real breakdown, % chg y-o-y and percentage point contribution

Source: BMI, Censtatd

Showing signs of moderation Hong kong - total exports, and imports

Source: BMI, Censtatd



FIRST Mainland firms AIM FOR expanSION

Hong Kong’s prime areas might soon get a little more crowded than they already are, with a greater number of companies aiming to expand or set up shop. Mainland firms are leading the pack and are most confident in the direction of their business, as revealed by a recent Colliers Occupier Survey focused on Hong Kong. Specifically, 86% of mainland companies are expecting their businesses to expand, and are therefore looking at the best locations. Firms became more aggressive after Hong Kong’s 1H17 GDP grew at 4%, the fastest since 2011. Of the 174 survey respondents, 38% expect more hires whilst only 2% aim to reduce headcounts, with mainland Chinese companies more likely to hire than European companies. Only 3% expect a contraction. “Companies in the technology, media and entertainment sectors are least likely to relocate whilst a higher percentage of professional services, and sourcing and trading companies are planning for possible relocations,” Colliers said. Despite the overall positive outlook, only 24% are planning to increase their office budgets, and that for most of them, location and rental costs remain primary considerations. More than 50% identified Hong Kong Island as their top preference whilst more than 30% consider the CBD fringe area as their top choice for the sub-district level. Location preference “The core CBD is still the preferred home to most banking and finance companies as they consider that a right business location is more important than rental costs. On the other hand, insurance companies have opted to move into decentralised office hubs as they are highly sensitive to rental fluctuations,” said Daniel Shih, director of research at Colliers. With increasing rental costs, flexible workspaces have become the norm, especially for startups. Elsewhere, companies remain dominated by traditional office layouts.



Will Alibaba steal Hong Kong’s luxury lustre?


ong Kong’s enduring appeal as the go-to destination for affluent luxury shoppers in Asia is facing a tough competition as e-commerce giant Alibaba forays into luxury sales with Luxury Pavillion. In August, Alibaba unveiled the Luxury Pavilion, its dedicated portal for luxury brands like Burberry, Hugo Boss, Maserati, Guerlain and Zenith. This has been viewed by analysts as a smart move for the e-commerce giant and, more worryingly for the Hong Kong economy, a potential blow to touristdriven luxury retail sales. “Alibaba’s Luxury Pavilion is expected to open later this year. When it does, Hong Kong will have to brace for its detrimental impact on tourist arrivals,” said Josh Holmes, consumer analyst at BMI Research. Luxury customers will likely find the idea of shopping at the comfort of their homes more appealing. The stakes are high for the luxury market. By 2025, 7.6 million Chinese households will represent RMB1t (US$151b) in global luxury sales, doubling from 2016, and equivalent to the combined market size of the US, UK, France, Italy and Japan in 2016. Lambert Bu, partner at McKinsey & Company, said that online purchases

Where wealthy Chinese luxury consumers shop

Source: McKinsey and Company

of luxury have yet to take-off, with only 7% of luxury sales occurring in official online channels. “Nevertheless, as luxury brands further develop ‘O2O’ initiatives that bridge the online and offline worlds into a seamless experience, it is likely that more luxury sales will be conducted online,” he added.

By 2025, 7.6 million Chinese households will represent RMB1t (US$151b) in global luxury sales.

Online luxury wars Whilst Hong Kong remains the top destination for luxury purchase in 2017 according to a McKinsey report, the breadth of its online competitors are rising. Aside from Alibaba’s Luxury Pavilion, in June, luxury conglomerate LVMH also launched an e-commerce platform in more than 70 countries globally called 24 Sevres, offering over 150 luxury labels, like Louis Vuitton, Dior and Fendi. Smaller independent brands, who do not possess the financial resources or economies of scale to offer their own online platform, will look to partner with luxury e-commerce players such as Farfetch.

Mobile App Watch

Smart Transfer allows peer-to-peer global payments Smart Transfer is a person-to-person mobile payment platform that enables international social payments across multiple currencies at no charge to users. Aside from bank accounts, Smart Transfer allows international money transactions to be made to any phone number, email address, or social media platform. This is something that the existing remittance business model cannot Francis Lu, Chief Executive Officer accomplish yet, as it remains to charge high fees with long waiting hours before the cross-border remittance is completed. Francis Lu, chief executive officer and co-founder of Smart Transfer, said that they not only support remittances, but also social person-to-person payments in multiple currencies across six countries: Hong Kong, Singapore, US, UK, Indonesia, and Australia. It is also supported by a chatbot that leverages AI-based natural language processing technology to support Ajeesh Sadanand, Chief Technological Officer English, Chinese, Japanese, and Indonesian.


Bankers on the move to digging coins


hen former Deutsche Bank trader Neelabh Dixit left his heftypaying banking job, he did not move to another bank. Instead, he started digging coins—bitcoins. The lure does not come as a surprise. In August, Bitcoin’s value shot above $3,000 to a record high of $3,360.87, more than tripling in value for the year. This has attracted professionals like Dixit to ditch their 7-figure salaries in big shot Hong Kong banks for initial coin offerings or ICOs. “While traditional finance knowledge is useful, it is also very important to have a sound understanding of blockchain technology to be successful in this space. We cant predict future but at present well structured ICOs can raise millions in just few hours.” Dixit said. More former employees of the financial sector are hopping in on the bitcoin trend in Hong Kong. Gavin Yeung who used to work as a trader and portfolio manager at a bulge bracket investment bank for almost 5 years ditched his job for ICOs too. He said that this trend is also evident in his group, the Bitcoin Association of Hong Kong where he estimated that more than half of the 2,700 members came from banks the financial sector too. “We started using algorithms to trade my own money in early 2017, I discovered that passive investing is the best

strategy even in the cryptocurrency space,” Yeung said. After diving into the coin market, the Dixit and Yeung found some pain points that encouraged them to build Cryptomover, an index fund that allows investors to diversify the placement of their assets by trading it through an aggregate token. “I started exploring the trading patterns in Crypto space at the beginning of the year. In a matter of a few months, we observed that the cryptocurrency market is very volatile and makes it difficult to invest. We realised that by indexing a crypto portfolio, one can enjoy a more stable portfolio while reducing trading fees. So we decided to give our full time in setting up Crypto Index fund.” Dixit added. The total market cap of crypto market at the beginning of the year was around US$17b and after eight months, the market cap has hit over US$150b. In 2016, cryptocurrencies rose by 126.2% beating out all other fiat currencies against the US dollar. A word of caution However, some view that it may be too early to equate, or even compare, cryptocurrencies with fiat currencies. Deloitte’s Asia Pacific investment management leader Jennifer Qin said that cryptocurrencies must prove their resilience first before being considered an

Former bankers Gavin Yeung and Neelabh Dixit

alternative to payments. She said that whilst people are riding a “bandwagon” towards crypto assets, people should enter with full caution. “The technology that supports cryptocurrency itself has a limitation and the cryptocurrency itself as a fiat currency replacement, its status, its trust, who gives it values, are under question,” she said. Another consideration would be the regulations, or lack thereof, placed in the ICO landscape. Qin noted that it might be too premature to dictate the guidelines for ICOs right now. “There are reasonable companies that have substantial operations and a profit and revenue and are listed and offering stocks on stock exchanges,” she said. “There are clear rules regarding what’s the responsibilities and obligations for each of the party, but if you purchase an ICO, there’s no current regulations upon it.” she said.


Dwellworks moves from cubicles to high ceilings Expat relocation and dwelling solutions start-up Dwellworks Hong Kong moved into their new corporate home at The Hennessy in Wanchai. Paul Lucas, vice president of Dwellworks said that the first two things he checked in the new office were the windows and the ambient sunlight. “My first thought was ‘where’s the view?’ It took a while to see its potential, as the pre-existing layout was cellular with small office cubicles blocking the windows.”he said. Working with One Space interior architects and managing director Greg Pearce, the new office transformed into a home-like workspace that for Lucas will inspire employees and embody the ideals of the brand.“Our business is helping newly arrived expats find and create a home so that they feel comfortable and happy in Hong Kong, and I wanted to reflect that sense of being ‘at home’ in our new space,” said Lucas. Sharing his inspiration for the new office space, Lucas said he envisioned a cosy workspace where nearly two dozen employees would enjoy. 10


Work stations

High ceiling and quirky accents

Home-like features

Office pantry


Left over holidays

Technology improvements can help unlock better service for MPF recipeints

A pension system that Hong Kong needs


Source: Skyscanner



mprovements for the Mandatory Provident Fund (MPF) system come at a critical time in Hong Kong as the city grapples with a rapidly ageing population. The population aged 65 and above is estimated to balloon to 36% by 2064, from 15% in 2014. Meanwhile, the overall dependency ratio — or the number of people aged under 15 and over 64 relative to the population aged 15-64 — is estimated to climb to 83.1% in 2064, from 37.1% in 2014. According to the latest Mercer MPF Market Shares and Estimated Net Fund Inflow Report. Total assets under management (AUM) in the MPF system rose to a new high of $745.7b in the second quarter of 2017, up 6.4% from the first quarter, “Movements in rankings and inflows/outflows observed by MPF providers signify the proactive approach taken by MPF subscribers to look for better service, which is encouraged and in turn would prove beneficial to subscribers themselves as different providers strive to improve their MPF offerings to stay competitive,” said Billy Wong, wealth business leader, Hong Kong, China, Korea at Mercer. High fees, unattractive returns, and heavy reliance on paper-based processing currently plague the MPF system, said Marie-Anne Kong, asset and wealth management practice leader at PwC Hong Kong. But there is a way forward: Technology

The MPF system rose to a new high of $745.7b in the second quarter of 2017.

improvements can not only move the system away from inefficient paper processing, but also help unlock better service and satisfaction. Specifically, Hong Kong should consider constructing a centralised database that will contain a traceable record of all MPF members on a single platform shared by service providers, members, regulators and government departments. “The centralised platform can also be used to streamline the onboarding process via a Know Your Client utility, which would provide a faster and more efficient onboarding, lower cost of operations and greater customer satisfaction,” said Kong. “Making efficient use of technology is an essential next step for the MPF system,” added Albert Lo, financial services consultancy partner at PwC Hong Kong. “It is currently far too dependent on paper processes. This pushes up costs and doesn’t enable members to track their investments.”

Comparison of pension returns and inflation rates

Source: PwC, Morningstar, Canada Pension Plan, SuperGuide, Money Facts

Asian and Western, historical and modern, traditions and innovation - These are the elements you can discover in the district of Lan Kwai Fong Hotel @ Kau U Fong. Discover the hidden gems when staying with us and you will be amazed‌ l l l l

No.3 Kau U Fong, Central, Hong Kong Tel: (852) 3650 0000


Snapask expands to three cities


acked by US$8m in funds to-date, e-learning and tutorial platform Snapask aspires to become a global education powerhouse by expanding to Japan, Thailand and Korea in the next six months. Snapask founder Timothy Yu boasts of their 350,000-strong members across Asia who have found a haven in Snapask where they can ask questions and learn at their own pace with the help of virtual tutors. “Neither school class or tuition centre has the time in the tight schedule to cater to students’ needs in detailed explanation of topics and questions,” said Yu.

He also noted that one-on-one chat makes it less embarrassing for students to ask core questions and to grasp core concepts. Snapask also supports students who are preparing for their Hong Kong Diploma of Secondary Education Examination or HKDSE. “Unlike most e-learning tools available around Asia, we are not simply providing a platform for students to get one-way learning. It allows our students to take the lead by asking questions that they have at hand during their revision. Contents are therefore personalised to every student’s needs,” said Yu. Branching out from Hong Kong and four other countries where it currently operates—it debuted in Malaysia and Indonesia earlier this year—Snapask plans to attract more students in Japan, Thailand, and Korea. “We are aiming to become the first global education company by 2020. We are therefore expanding rapidly in different regions to support this ambitious goal. Ultimately, we hope to establish operations in 30 regions around the globe and be the leader in self-directed learning trends,” said Yu. Its pool of tutors has also ballooned to 20,000 in its two years of operation.

Trading platform Qupital raises HKD$20.5m


or a small business with slow-paying clients, a cash flow problem can quickly escalate to an operational nightmare, especially if banks refuse to lend in time. This led Hong Kong startup Qupital to propose an alternative: Why not raise financing against your account receivables by connecting with professional investors? Qupital’s auction-based financial solutions seem to have found a ready market, and investors believe the startup can scale up in Asia. So far, it has received HKD$20.5 million in total funding from MindWorks Ventures, Alibaba Entrepreneurs Fund, Convoy Financial, Aria Group, and other investors.



As part of its expansion plan, Qupital plans to expand in Taiwan and Southeast Asia, where there are many small- and medium-sized enterprises (SMEs) with limited access to traditional bank financing. It is also looking to grow from an account receivables trading platform to offer other financial products to businesses and more asset classes to professional investors. “We work with a client who retails and distributes confectionery products. They are a young but very successful company that has expanded rapidly. However, their operating cash has not been able to grow at the same rapid pace,” said Winston Wong, co-founder of Qupital. “We approached them through cold calling, and introduced our solution to them. They were able to fund their invoices in 48 hours or less, and now have the strong confidence to be able to handle larger orders from big customers such as supermarkets, department stores, and convenience stores,” he added.

Whizpa helps busy parents find educational providers


ong Kong education review start-up aims to help busy parents who barely have the time to scan through piles of education provider flyers and ads whilst searching for the best education providers in the city. By consolidating all the schools, education centres and activities in one platform, Whizpa makes it easier for parents to search and compare every learning service available in the city. Jennifer Chin, founder of Whizpa says she hopes to ‘revolutionise the way parents search for activities for their children’.“For busy parents living in Hong Kong, not to mention those with more than one child, it is never easy finding the right learning centres, classes, or activities,” said Chin, a mother of three with investment banking and education industry experience. “It’s not that we don’t have information around us. In fact, we have almost an overload of information—so much so that it has become difficult to sift through everything and find out what works and what doesn’t,” she noted. She explained that many Hong Kong parents have been taking to Facebook, Wechat, and social media blogs as well as group discussions to try and ask friends, families, and even random online strangers for suggestions. In fact, she cites a recent survey that revealed close to 90% of parents in Hong Kong rely on word of mouth and recommendations from other parents when looking for kids’ activities and education providers for their children. Blogs and group discussions are a great source of recommendations, but the problem is that questions can easily get lost or moved down. Huge potential “We plan to grow to a platform where users and providers can book, transact, and pay for classes for their children online through our platform. Currently, most kids’ classes and activities in HK are cash- and cheque-based. Providers don’t offer online payment systems and at best, they have a bank account for parents to transfer fees without going to the center to pay in person,” said Chin.“If becomes a huge success in Hong Kong, I believe that it can be replicated in many cities in the world like Singapore, Shanghai, Beijing, Taipei, Jakarta etc. where children’s education is a focus and a big industry,” she noted. “The education industry is huge with lots of potential to revolutionise how parents search, compare, and transact on kids’ activities and classes.“ In terms of funding, Whizpa is currently bootstrapped but they are planning the launch of their Series A funding next year.


A spokesman from BOCHK said Hong Kong’s offline payment market has been highly developed

Hong Kong banks are lagging behind regional peers in digitisation drive Legacy systems, regulatory challenges, and exposure to the mainland are taking a toll on banks’ operations.


ingapore and other global financial hubs trump Hong Kong again as the latter remains stuck in a mire of issues, old and new. With the rapid increase in digital disruptions, Hong Kong’s banking executives and the Hong Kong government are faced with a huge balancing act of restructuring the banking industry whilst keeping tabs on the latest digital innovations. The city’s excessive exposure to mainland China has also made things a bit more complex, especially since the mainland has been receiving way more investments in fintech than Hong Kong. Some experts agree that legacy systems are the major drag for Hong Kong’s financial institutions and that a drastic industry overhaul has been long overdue. Despite the introduction of mobile apps and the rise in the number of online offerings, banks still lag in terms of straight



through processing in services such as credit card applications. Alicia Garcia Herrero, chief economist for Asia Pacific, Natixis, said that to prepare for the digital era on a sustainable basis, banks could use a shortcut by starting from scratch with a parallel bank, but with the in-house or client knowledge. Meanwhile, other experts believe that as the regulatory environment remains difficult, firms can begin transforming internally through the creation of a forward-looking and innovative culture among their employees. “System renewal is on every bank’s agenda, and legacy systems and processes put a real brake on a bank’s ability to adapt and change quickly. However, in our experience, many benefits are possible that do not require immediate systems improvements. Changing staff behaviours to be more customer

and digitally oriented, eliminating redundant legacy policies, and redesigning processes can all have significant impact whilst investment in digital building capabilities is underway. The prize of pulling these levers is a triple play of customer experience improvement, employee experience improvement, and financial benefits,” said Richard Hatherall, partner, Bain & Company. Garcia Herrero said that as a China dominates Asia-Pacific investments

Source: Accenture

INDUSTRY INSIGHT: Banks result of this and a host of other factors, Hong Kong’s current fintech workforce is the smallest among the main fintech centres. Lack of public funding programmes and a high competition from China also led to the city being ranked second last in terms of access to capital among seven global fintech centres including the United Kingdom, California, New York, Singapore, Germany, and Australia. While fintech investment in the UK has reached around £524m, investment in Hong Kong has been slow to catch up at a measly £46m. Mobile payments The world of mobile payments also sees Hong Kong as a laggard, particularly when compared to China. Michael Wang, deputy general manager of E-Finance Center, Bank of China (Hong Kong), said that Hong Kong’s disadvantage can be attributed to differences in business environments and people’s payment habits. Consumers in the mainland have been quick to respond to the rise in smartphones and, consequently, the rise in online shopping payments during the last decade. “Meanwhile, Hong Kong’s offline payment market has been highly developed, in which people can always buy what they want easily through the contactless smart card system. A process of change in the payment habits of Hong Kong people is needed to foster the growth of mobile payments. With the efforts of different parties, together with the recent changes in customer payment habits, the mobile payment market of Hong Kong can be expected to grow further,” Wang added. However, despite distinct differences, whatever happens to China’s banking and finance industry is immediately felt in nearby Hong Kong. Chua Han Teng, head of Asia country risk, BMI research, said that the loan books of Hong Kong banks are highly exposed to mainland China, and they are therefore vulnerable to a slowdown in the Chinese economy. In order to reduce risks, Hong Kong banks are expected to slow lending towards less profitable state-owned enterprises versus private companies. “Hong

Kong banks are also exposed to the overvalued domestic housing market, and a significant negative price shock would undermine asset quality. Hong Kong regulators are wary of financial instability, and they have been putting in place macro-prudential measures to slow property lending,” he added. Garcia Herrero agreed that the top three risks for Hong Kong banks are excessive exposure to Chinese corporates, a large correction in Hong Kong’s real estate market, and pressures on the Hong Kong dollar. She further noted that whilst appreciation pressures have eased recently, the Hong Kong Monetary Authority cannot keep on accumulating reserves without revaluing the currency. The Hong Kong economy does not seem to be in the doldrums, as the first half of this year saw the strongest showing of loan growth since 2011, said Asheefa Sarangi, analyst, CLSA. Sarangi noted that financial concerns has been the biggest key sector driving demand. However, the coming months are expected to slow down with the recent property measures forwarded by HKMA. All hope is not lost The bigger picture may look very grim, but Hong Kong has made several moves to ensure that progress happens, albeit slowly. With developments in the UK and Singapore, Hong Kong implemented last year a fintech sandbox to provide appropriate regulatory support by relaxing specific legal and regulatory requirements for fintech. Garcia Herrero said that in order for this move to work, Hong Kong’s regulatory regime must be simpler, clearer, and more transparent in order to attract new fintech players. “Hong Kong should increase its cooperation with the Chinese government on fintech matters to have a mutual regime and better access to each other’s market. Hong Kong should also increase its taxation policy incentives to catch up with UK and Singapore initiatives,” Garcia Herrero noted. Amidst threats from non-traditional competitors, banks continue to find ways through the regulatory labyrinth

Alicia Garcia Herrero

Richard Hatherall

Chua Han Teng

Michael Wang

in order to meet the demands and expectations of their evolving clientele. Hatherall said that banks should develop omni-channel sales and service propositions, migrate services to digital channels, finding new ways to engage customers, leverage new technologies to improve the customer experience. At the present, Hatherall said that banks are exploring how they can leverage new technologies like big data and advanced analytics to equip an increasingly digitally enabled frontline. “In parallel, they are looking to understand the intentions of the ‘big techs’ in terms of financial services. They have huge customer bases, are nimble and are increasingly building trust with customers. In China many ‘big techs’ also have financial services arms, the banks’ expectation is that some will look to Hong Kong as an attractive market,” Hatherall added. Wang said that the mobile payments services scene in Hong Kong is looking bright. He called 2017 the base year of mobile payments in Hong Kong as different kinds of mobile payment services such as Samsung Pay, WeChat Pay, and Alipay have emerged. “In 2017, Bank of China (Hong Kong) and WeChat Pay Hong Kong collaborated to promote local mobile payment usage in Hong Kong, offering customers faster and simpler one-stop mobile consumption experiences. Collaborating with high-tech companies can help enhance customer experience and technological innovation. It also expands banks’ customer acquisition channels and accelerates banks’ transformation in the digital banking aspect, he concluded.

Hong Kong GDP annual growth rate

Source:, Census and Statistics Department, Hong Kong




The three-day E-sports event drew 50,000 visitors

E-sports fantasy: HK’s next growth sector PwC forecasts global revenues to rise from US$327m in 2016 to US$874m by 2021.


hen Hong Kong held its first-ever e-sports festival in July, the spectacle was a trial by fire for the territory in its quest to become an Asian e-sports hub that attracts tourists and pumps billions of dollars to the economy. The ICBC (Asia) e-Sports and Music Festival Hong Kong saw thousands of fans troop to the Hong Kong Coliseum to watch their favorite videogame professionals, but the event was marked with planning and production hiccups. Analysts said this highlights the need to develop more infrastructure for large e-sports events, enhance the government’s expertise in e-sports, and bolster support for e-sports organisations and young gamers. The Hong Kong government has promised to invest more resources. During the new budget announcement earlier this year, which included a HK$10b earmark to support innovation and technology initiatives, Hong Kong financial secretary Paul Chan specifically 18


Amongst entertainment and media segments, the “Play” category— which includes e-sports, video games, and virtual reality— will grow the fastest over the next 5 years.

pointed out e-sports as having economic development potential. By becoming a bona fide e-sports hub, Hong Kong hopes to reap tourist bucks and technology investments, as what other countries like China and South Korea have done in recent years. The biggest e-sports events feature skilled virtual athletes battling it out in live video game matches. Droves of spectators pay to watch these events, including tourists that will drive up retail sales in the island. There is also a big market for goods and services related to e-sports, from merchandise to pay-per-view subscription. Next growth sector “Hong Kong has the potential to become a global and Asia Pacific hub,” said Wilson Chow, China and Hong Kong Technology, Media & Telecommunications leader at PwC, citing the island’s unique position to tap into the lucrative gaming market of mainland China, which has 600 million gamers.

“The popularity of online and mobile games amongst the young generation and certain global renowned game titles such as League of Legends have made e-sports an international event,” he noted. E-sports creates enormous entertainment and technology consumption. Millions of viewers tune in to e-sports matches, play against each other in competitive matches, and purchase everything from team merchandise to gaming peripherals. China’s total video games revenue stood at US$15.4b in 2016 and this is expected to balloon to US$26.2 billion in 2021, growing at a CAGR of 11.2%. This will make China the secondlargest video games market after the US, according to the PwC Global Entertainment and Media Outlook 2017-2021. Amongst entertainment and media segments, the “Play” category—which includes e-sports, video games, and virtual reality—will grow the fastest over the next 5 years, expanding

INDUSTRY INSIGHT: E-Sports at 6.5% CAGR or faster than the other categories like “Read” (books, magazines, newspapers), “Watch” (box office, Internet video) and “Listen” (music, radio). Chow reckoned the Hong Kong e-sports industry, if developed well, can become a strong economic driver due to the multiple revenue streams along its digital entertainment and media value chain. These include admission fees for venues, sponsorship deals and product placements, alliances with sports and apparel firms, video games and merchandise sales, TV rights and live streaming, as well as virtual reality and augmented reality applications. “So far, fans have had to seek out platforms to watch tournaments and players, but now people can stumble upon e-sports whilst flipping through channels. Even old-fashioned brands are taking notice and there is a growing interest in advertising to the coveted millennial male demographic on a medium they know well,” said Superdata Research. Meanwhile, PwC forecasts global revenues to rise from US$327m in 2016 to US$874m by 2021, with growth led by five countries, two of which are from Asia: US, South Korea, China, Germany, and UK. Advantages and challenges Chow believes Hong Kong can ride on this global rise in e-sports popularity due to inherent advantages when it comes to market access to the Chinese gamer market, array of business incentives for domestic and foreign companies, and strong support for new technologies. Hong Kong knows the language and culture in mainland China, enabling the island to more easily attract and service to the latter’s growing number of gamers. One key challenge for Hong Kong is the conversion of existing indoor and outdoor venues such as West Kowloon, Cyberport, Science Park, and the upcoming Hong Kong Stadium and Kai Tak Sports Stadium to become weatherproof and e-sportsfriendly. Currently, the lack of such venues increases the costs of e-sports event organisation. In July, organisers of Hong Kong’s first e-sports and music festival, the

ICBC (Asia) e-Sports and Music Festival Hong Kong, had to relocate the event venue to Hong Kong Coliseum in Hung Hom from the Central harbourfront since the former had a weatherproof feature that shielded attendees from the summer heat. It pushed through in August, showcasing former League of Legends world champions from four regions and charging tickets from HK$80 to HK$480 (US$10 to US$61), but not without criticisms on the last-minute venue change. Given the missteps, the milestone e-sports event revealed how Hong Kong still has a long way to go before it can mount e-sports tournaments on the scale and polish of mainland China and South Korea, which are recognised as the region’s e-sports leaders. Hong Kong is looking to follow South Korea and mainland China’s lead, but competing against them head on will be a tough task. Chan’s budget announcement is a good first step as it signals that the government will be willing to boost e-sports through funding and regulation. Investments, government support Investments are starting to trickle in and the government has been eager to support initiatives to put Hong Kong in the global e-sports radar. The Cyberport, a thriving business hub in Hong Kong, has been tapped to look into developing e-sports In June, Three Group, the mobile telecommunications arm of Li Kashing’s CK Hutchison, and popular US gaming peripherals maker Razer unveiled the first concept store in Hong Kong located at 1 Cannon Street in Causeway Bay. “Hong Kong has the potential to be a great e-sports hub given the high penetration of gaming PCs and enthusiasm of gamers here,” said a Razer spokesperson. “However, we need to have public and private sector support to make it happen, and so far this has been happening with Razer setting up the RazerStore and the Hong Kong government driving the August Hong Kong Tourism Board event.” Aside from increasing product

PwC forecasts global revenues to rise from US$327m in 2016 to US$874m by 2021.

availability to gamers, Three and Razer also intend to foster e-sports startups in Hong Kong by connecting them to zVentures, Razer’s newly announced US$30m fund to support ventures in video games, virtual and augmented reality, and other frontier technologies. Creating an e-sports ecosystem Lucrative tournaments are also critical to establish a vibrant e-sports community in Hong Kong, as seen in the successful models in leading markets like the US, China, and South Korea. Millions of dollars in cash prizes build excitement for highstakes matches and drive up demand for streaming services and live events. They also incentivise fans to invest more time playing video games and upgrading their gaming equipment in the hopes of becoming a professional e-sports gamer. First Asia Group, seeing the potential of the Hong Kong e-sports market, acquired the Hong Kong e-sports Training Centre, which provides e-sports education and vocational training services to aspiring e-sports gamers. The company wants “to create a complete e-sports ecosystem” in the island, so it will not only provide financial support and hardware to the training centre located in Kowloon, but also organise e-sports events to foster high-potential Hong Kong e-sports talent. “With the advantage of being backed by a giant market in China as well as the professional services in connecting other markets in Asia like Taiwan and Korea, Hong Kong is well-suited to be a competitive city for e-sports,” the group said. “By making optimal use of the excellent business environment and comprehensive education system, we could develop an Asia e-sports hub in the future.”

E-sports’ stars: The gamers



economy watch more in the 2Q17 GDP growth than the previous quarter and is widely seen as instrumental to the impressive growth momentum that has lifted analyst outlooks and prompted an upward revision of the Hong Kong government’s full-year GDP growth estimate.

Hong Kongers are showing a stronger inclination to splurge

As domestic spending grows, trade activity slows down Domestic spending grew to a two-year high of 5.3% from 3.9% in the first quarter, but trade remains in the doldrums.


hen Singapore-based startup Li Da Foods unveiled a new 3,000-sq ft food factory in Hong Kong where it would produce superfoods-infused meals for hungry office workers, it could not have come at a better time. Hong Kongers are showing a stronger inclination to splurge not only on food, but also on clothing and even big-ticket items like cars. Domestic spending is climbing and has become a key catalyst to Hong Kong’s recent economic growth at a time when traditional drivers, namely trade and tourist visits, remain in the doldrums. The Hong Kong economy expanded in the second quarter of 2017 (2Q17) by an annual rate of 3.8%, far exceeding market expectations of 3.3%, as domestic consumption and fixed asset investment both accelerated, said Thomas Shik, chief economist, head of economic research at Hang Seng Bank. Hong Kongers are feeling more confident and wealthy. Unemployment is steady, the prices of goods and services are not rising too fast, and property values 20


Hong Kong economy expanded in the second quarter of 2017 (2Q17) by an annual rate of 3.8%, far exceeding market expectations of 3.3%.

are increasing. This has helped push personal consumption expenditure growth to a two-year high of 5.3% from 3.9% in the first quarter, as Hong Kongers spent more on non-durable goods and patronised services. “Tightening labour market conditions, booming asset prices, and an improving outlook for the world economy have been amongst the key factors underpinning growth in consumer spending,” said Shik. “Whilst monthly retail sales growth has remained near zero, this excludes services spending and therefore may not reflect the full picture.” Private consumption contributed Activity indicators

Source: Bloomberg Natixis

Fixed asset investment growth The Hong Kong government revised its forecast to a range of 3% to 4%, up from 2% to 3% previously, with Financial Secretary Paul Chan issuing a caveat that the upward revision might likely be just 0.5 percentage point. Hang Seng Bank, meanwhile, raised its full-year GDP growth forecast to 3.4%, up from its 2.8% estimate prior to the release of the 2Q17 GDP data. “Robust domestic demand but also China’s relatively strong economic growth are the key factors behind Hong Kong’s positive outlook,” said Alicia Garcia Herrero, chief economist at Natixis, noting that even though mainland tourists-related spending fell, local spending like motor vehicles sales climbed. Aside from increased domestic spending, the other hero in Hong Kong’s recent growth story is flourishing fixed asset investment, which rose 8% in 2Q17 and is the fastest pace in more than four years, according to Shik. “Although construction growth slowed, business spending on machinery, equipment, and intellectual property products rebounded after a double-digit decline in the first quarter,” he said. Whilst domestic consumption and fixed asset investment drove economic expansion in the first half of 2017, there is expectation that the second half will see a slight

economy watch Breakdown of retail sales (%)

Source: Bloomberg, Natixis

deceleration due to a possible slowdown in mainland China imports and global trade. “A key threat facing Hong Kong’s economy is a slowdown in trade activity due to slowing growth momentum in mainland China, which is its largest trading partner, and the potential for protectionist sentiment to rise,” said Chua Han Teng, head of Asia country risk at BMI Research. Trade troubles Mainland China is Hong Kong’s largest export market, with US$249 billion accounting for more than half (54%) of the latter’s total exports in 2016, according to government statistics. Bilateral trade between the two reached roughly US$3,045 billion last year, accounting for 8.3% of mainland China’s total external trade. But Shik noted that net trade subtracted 1.8 percentage points from Hong Kong’s 2Q17 GDP growth rate, as growth in goods exports and imports slowed in real terms. He added that the second half of the year presents a cautious picture—there is a risk of mainland China’s economy stumbling again and further hurt Hong Kong exports. “In the third and fourth quarters, we expect GDP growth to slow modestly, reflecting a higher base from the second half of last year. In addition, trade growth may ease without seeing a rebound in world commodity prices or a further acceleration in economic growth in the US and Europe,” said Shik. “The possibility of a slowdown in mainland China’s GDP growth from the current

China-HK trade (%yoy)

Source: Bloomberg, Natixis

pace of 6.9% also bears watching, although its economy has so far stabilised.” For other analysts, another major developing concern is the weak Hong Kong dollar (HKD), which might become a ticking time bomb that erodes robust domestic demand and property market sentiment. HKD: a weak currency “All in all, the Hong Kong economy has been stronger than expected during the first half thanks to large capital inflows from the mainland as well as robust domestic consumption,” said Natixis’ Herrero. “However, such large capital inflows are the source of excess liquidity which is pushing Hong Kong rates down, below US dollar (USD) rates, and thus depreciating the HKD. An immediate consequence is forex intervention by the Hong Kong Monetary Authority (HKMA) and uncertainty as to the way forward.” She said the HKD dipped to a historical low on August 7 since January 2016 due to the large interest rate differential against the USD. The HKMA responded with a sale of Exchange Fund Bills, but this action only strengthened the currency temporarily. Michael Spencer, chief economist at Deutsche Bank, observed that there has been “a record non-crisisdriven gap between USD and HKD interest rates” and that the HKMA has allowed excess liquidity to build up to the point that HKD rates have decoupled from USD rates. “This cannot last forever—at some point the differential will be so

Net trade subtracted 1.8 percentage points from Hong Kong’s 2Q17 GDP growth rate, as growth in goods exports and imports slowed in real terms.

wide that banks and investors will swoop in to take advantage of this arbitrage gains,” said Spencer. “The result is likely to be a sudden rise in HKD interest rates—potentially posing a significant negative shock to the housing market and domestic demand generally.” ‘Highly unaffordable’ homes Chua, for his part, warned that the elevated housing market is already “highly unaffordable” and the looming spectres of rising interest rates and the crush of new supply in the next quarters. These threats, coupled with an expected sluggishness in mainland China, led him to predict a slower growth forecast in the second half of the year. “Following a robust real GDP expansion of 4% yoy in the first half of 2017, we expect to see an easing of its growth momentum in the second half due to a softening housing market, a moderation in mainland China’s economic activity, and unfavourable base effect,” said Chua. Skyrocketing property prices seem to have pushed the market into a “wait and see” attitude, said Herrero, and government interventions to cool the market do not seem to be doing much to bring them down to more reasonable levels. “After renewed tightening measures, the number of transactions fell by over 2,000 units in July but the seemingly cooling market failed to bring down purchase or rental prices,” she said. “This seems to indicate that such macro-prudential measures are insufficient to rein in housing prices amid very large capital inflows and excess liquidity,” Herrero said. HONG KONG BUSINESS | NOVEMBER 2017



Deal #1: The most notable transaction is China Evergrande’s US$6.6b transaction which comprised of US$3.8b in new money raised and US$2.8bexchange offer.

Deal #2: State Grid Corporation’s US$5b note has created a record of the largest note issuance programme in global public utilities industry and the Asia-Pacific region.

Panda’s boom is the dim sum’s bane

Issuance of bonds in Hong Kong called dim sum bonds further slowed down in 2017 with the rapid opening up of China’s onshore bond market called Panda bonds.


he first half of 2017 seemed to carry the momentum of previous quarters as bond markets as well as the debt capital market in Hong Kong posted stellar figures that could very well carry on for the rest of the year if the current trend is sustained. Data from Thomson Reuters reveal that Hong Kong is among the top three G3 markets in the Asian region with US$30.9 billion bond offerings in 1H17 capturing 18.3% of the market volume. In the Hong Kong DCM scene, financial institutions still hold a majority in 2017 with more than 60% of the total issues (including government bonds) in 2017 according to Jianwei Xu, senior economist for Greater China at Natixis. Meanwhile, Chinese real estate companies have grown issuance at 525% this year to date. The real estate sector and airlines companies issued the second and third most corporate bonds at 15 and 5 issues, respectively. Michael Tse, APAC fixed income head at Dealogic also noted the positive turnout for Hong Kong’s debt capital market in the first half of 2017, describing it as a “great year” so far. “A large driver is that market observers are expecting another USD interest rate hike in the second half of the year, and this popular currency is driving issuers to rush before the funding costs rise,” he said. In terms of volume, the sector in Hong Kong has reached a year-to-date high buoyed by activity in the region. Tse elaborated on observations regarding a record number of participants on bonds, which does allude to the 22


The market share of US dollar (USD) bond remains substantial at about 58% for the Hong Kong bond market, followed by the share of Hong Kong dollar at 32%.

conversation that banks are now facing fierce competition this year. Hong Kong’s strength has also been reflected as shown in the latest Asia Bond Monitor from the Asian Development Bank (ADB), where Hong Kong witnessed the largest bond yield increase on both 2-year and 10-year government bonds, reflecting high yields in the United States as well as stronger domestic growth prospects. Yasuyuki Sawada, ADB chief economist, further noted that economies in developing Asia continue to grow strongly, with financial risks gradually receding. This continued growth, he further added, is a reflection of prudent policymaking and strong economic fundamentals, allowing markets to withstand risks related to possible changes to US Federal Reserve policy. Specifically, the report said that the the local currency (LCY) government bond yield curve of Hong Kong rose for all tenors between 1 June and 15 August. The yield curve also steepened, with longer-dated tenors rising at a much faster pace than yields with tenors of 1 year or less. The rise in Hong Kong’s government bond yields tracked United States (US) interest rate movements due to the pegging of the Hong Kong dollar to the US dollar. Better economic growth in Hong Kong, China also helped push yields up. Hong Kong, China’s gross domestic product (GDP) rose 3.8% year-on-year in the second quarter of 2017 after a 4.3% y-o-y rise in the previous quarter. Policy-wise, in July, the Hong Kong Monetary Authority

FINANCIAL INSIGHT: DIM SUM BONDS Dim Sum, panda and formosa bonds (ex self-funded)

Source: Thomson Reuters

announced that the mainland Chinese government’s State Council approved an increase in Hong Kong’s Renminbi Qualified Foreign Institutional Investor quota from 270 billion Chinese yuan to 500 billion Chinese yuan. Natixis Xu noted that “The bond market is blessed with low funding costs on the back of the low US interest rates, and a broad investor base that attracts overseas issuers,” he said. “As a result, Hong Kong dollar debt issuance has been continuously soaring over the years. The economic driver for the expansion of bond market was particularly strong for the first half of 2017, leading to a strong growth in Hong Kong’s bond market.” Notable deals Hong Kong’s decent showing on the bond market and debt capital market front is fuelled by certain notable deals—that could affect the bond market landscape in the Asia Pacific region as numbers and figures shoot up. Some of the more notable deals this year include the State Grid Corporations’ US$5 billion transaction completed in April as part of the US$7.7 billion overseas Medium Term Note Programme. Laura Li of KWM noted, that this transaction is the largest single-currency foreign note issuance programme in the history of Chinese stateowned enterprises and has created a record of the largest note issuance programme in global public utilities industry and the Asia-Pacific region since the beginning of 2017. Meanwhile, China Evergrande’s US$6.6b transaction which comprised of US$3.8b in new money raised and US$2.8b exchange offer becomes the largest US dollar bond ever completed in Asia. This transaction marked the largest bond raised by a Chinese real estate company on record, as well as the largest high yield bond priced in Asia ex Japan ever, according to Tse. Industry experts and observers are saying that this deal may raise borrowing costs in Asia’s booming bond markets. Dim sum vs Panda With the current interest rate differential, the market share of US dollar (USD) bond remains substantial at about 58% for the Hong Kong bond market, followed by the share of Hong Kong dollar at 32%. Chinese yuan (renminbi) takes the third largest share but remains a minor domination currency compared to the other two

Jianwei Xu

Michael Tse

Yasuyuki Sawada

at 4%. In the offshore RMB bonds (dim sum bond), however, issuance further slowed down in 2017 on the back of not only the appreciation of yuan as well as the hike in interest rate, but also the rapid opening up of China’s onshore bond market with programs such as Bond Connect. Bond Connect is the mutual bond market access scheme between Hong Kong and mainland China, which would allow foreign investors to expand their investments in the onshore market minus the paperwork required on the mainland. “Bond Connect will allow international investors to trade onshore RMB bonds in Hong Kong, thereby easing their access to the onshore bond market,” says Ivan Chung, associate managing director and head of Greater China research and analysis team at Moody’s. “Therefore, Bond Connect is likely to attract more international investors and enable them to expand their investments in the onshore market more quickly. As Bond Connect transactions will be conducted via settlement accounts in Hong Kong, it will be more convenient for investors to move the invested funds across borders,” says Chung. In the latest Monitor, Moody’s also says regulatory efforts to tighten supervision of financial institutions’ funding and investments in the bond markets have resulted in tighter liquidity and higher funding costs in the onshore market this year, which is dampening issuance growth. Data from BMI Research suggested that whilst increasing linkages between China’s onshore financial markets with Hong Kong will likely continue to place the latter as a top offshore yuan clearing centre, the offshore dim sum bonds market in Hong Kong will gradually lose appeal over the coming quarters as the onshore bond market gains prominence. “The weakness of the yuan over recent years has served as a boon for the panda bond market and its upwards growth trajectory, largely at the expense of dim sum market for yuan-denominated bonds sold offshore (predominantly Hong Kong) by overseas firms,” according to BMI Research. The Hong Kong bond market’s fate and its status as the regional offshore yuan clearing centre of choice may take a dent and will most likely depend on how monetary policy—specially on onshore bond market CNH Bond Fundraising in Hong Kong, CNY billion

Ivan Chung

Source: KPMG




Onshore RMB assets CNY billion

SG Bonds: Who borrowed where?

Source: KPMG

policy—and the currency of mainland China will be for the rest of the year. BMI Research forecasts that Hong Kong will continue to be the largest offshore yuan clearing centre over the coming years amidst efforts by Chinese policymakers to internationalise the Chinese yuan and push for greater use of the currency globally. According to SWIFT, Hong Kong processes the lion’s share of yuan payments, approximately 76% in value terms in 2017 compared to the 74% recorded the previous year. Whilst Hong Kong will remain the world’s largest offshore yuan clearing centre—ahead of London and Singapore—its appeal may wane over policies in the mainland.“Foreign investors are likely to tap on it due to the larger pool of liquidity as compared with the offshore bond market,” BMI Research said. Outlook This strong connection with mainland China will likely remain a strong push-and-pull point for Hong Kong’s bond markets. Natixis’ Xu said that looking ahead, uncertainties are rising despite the market continuing to grow for the next year. This is due to certain issues including the possibility of more restrictions for Chinese corporates issuing bonds in Hong Kong next year. “To fight the rising debt issue, the Chinese government has obviously tightened their control over Chinese companies issuing foreign debts, especially for the sectors with high debt ratio,” the Natixis senior economist noted, adding that because of this, the issuance of debts from sectors such as real estate and quasi-government will be weaker next year. The incentive for issuing Hong Kong dollar or US dollardenominated debts will become weaker, forecasts Xu, if the USD starts to appreciate and the funding cost in USD/HKD will increase in the next year or so. This view is echoed by Dealogic’s Tse saying that the trajectory of Hong Kong’s bond market and debt capital market will largely depend on the monetary policy in mainland China. “If the borrowing costs onshore remain high, then we expect to continue to see this momentum of companies choosing to raise funds offshore and as a result, the wider region will grow,” he said. “All in all, we still have confidence in Hong Kong’s debt market, as it is one of the limited alternatives for Chinese corporates to issue non-yuan (renminbi) denominated debts, but it will apparently confront more headwinds in the next year,” concluded Xu. 24


If the borrowing costs onshore remain high, then we expect to continue to see this momentum of companies choosing to raise funds offshore and as a result, the wider region will grow.

Singaporean companies have cut back on local issued bonds to finance operations and have moved towards more overseas borrowing and perpetual bonds, new data shows. Meanwhile, Singapore local banks remain the largest bond issuers, accounting for 61.8 % of the market in the first half of 2017. Property developers remained active issuers in order to refinance maturing debt and raise debt capital for overseas expansion, whilst smaller companies offering higher yields also came back to tap the local capital markets. Primary bond offerings from Singapore-domiciled issuers reached US$12.8b in the first half of the year, translating to a 23.2% decline in proceeds after a strong momentum sustained over the same period last year which recorded $16.7b in primary bond offerings. Notable deals HSBC Holdings issued its debut Singapore offering of Additional Tier 1 capital in June this year for S$1b (US$724.4m), the largest issuance this year in the Singapore-dollar bond market. For Singapore-dollar bonds, OCBC Bank was the sole lead manager and bookrunner of the Frasers Centrepoint Limited deal priced at S$348m, 10-year bonds at a coupon rate of 4.15%. In the Financials sector, OCBC Bank was joint lead manager and bookrunner of the deal with BNP Paribas priced at S$250 million for a 7.5-year bond issue at a coupon rate of 3.65% in March 2017, as well as Commerzbank’s S$500 million, 4.875% 10-year non-call 5-year issue in February 2017. Some of the players in the Singapore-dollar bonds category include the Housing and Development Board’s issuance of S$900m, UOB’s S$750m issuance, as well as Singapore Airlines Limited and Mapletree Treasury Services’ issuances at S$700m. This also includes foreign financials like Huarong Finance,, and the return of smaller higher yielding issuers like Centurion Corp Ltd, Tuan Sing Holdings Limited, and Chip Eng Seng Corp Ltd. City Developments Limited (CDL), through its wholly-owned subsidiary CDL Properties Ltd (CDLP), has successfully launched the first green bond by a Singapore company. The two-year senior secured green bond has raised S$100 million at 1.98% fixed rate due 2019. The investors comprised mainly financial institutions and fund managers. The green bond is issued under the CDLP S$700 million secured Medium Term Note (MTN) Programme first established in 2001. DBS Bank Ltd. (DBS) is the sole bookrunner on this transaction.

Singapore Dollar Bonds Volume - Top Macro Industry - 2017 YTD

Sources: Thomson Reuters

cover story

One of the best buys for residential spaces will be Tseung Kwan O

Why the ‘growing’ property market should be careful of every step it takes Hong Kong’s property market is growing and showing positive signs in all sectors, but experts and observers are saying that for this growth to be sustainable, right steps have to be taken.


he property market is experiencing a relatively healthy first half of the year in all major categories. But whilst the numbers are turning out positive and rosy on paper, industry experts and on-the-ground observers are also pitching out warning signs, saying that for every step to be taken by the market, right measures from all stakeholders — realtors, regulators, financiers, and buyers — should be implemented. “Most of Hong Kong’s property sectors continued their rising trends in 2017 with retail being an outlying sector as rents remained on the fall,” said CBRE’s Marcos Chan. He added that whilst sentiment in the retail market has been improving since earlier this year, it is yet to be strong enough to make retailers feel they need to resume expansion. For residential sales, research from Savills revealed that the buoyant market sentiment has been propelling luxury prices to historical highs, rebounding over the second quarter on the back of a booming stock market as the Hang Seng Index continued to rise. This is aided by the continuously low interest rate environment, with local financial institutions continuing to offer attractive mortgage packages despite the US Federal Reserve raising their interest rates four times since the end of 2015. 26


Luxury transaction volumes on Hong Kong Island and in Kowloon, as well as in the New Territories reached 202 and 269 respectively.

Luxury transaction volumes on Hong Kong Island and in Kowloon, as well as in the New Territories reached 202 and 269, respectively, in the second quarter of 2017 — representing a 44% and 55% quarter-on-quarter increase. Savills’ senior director for research & consultancy Simon Smith said in a briefing report that luxury prices look set to head north over the remainder of 2017 with the impact of new restrictive measures receding and supply remaining tight. This is echoed by research from Colliers International, noting that the Hong Kong residential market has regained momentum with a total value of residential transactions rising 43% q-o-q, with overall home prices increasing 3.7% q-o-q as well. Transaction volume reached 18,892 units as the market was mainly driven by end-users with the impact of the government’s cooling measures being absorbed by the market. Completion target of 20,000 units per year for the residential sector is also looking more achievable in 2018 and 2019 even though the target has been missed over the past five years. “As buyers generally believe a sharp decline in prices triggered by the burst of a supposed housing to be unlikely, the mass market has benefitted from the demand from lower-net-worth buyers who only enter the

cover story market when the outlook is at the least uncertain stage,” according to Zac Tang, senior analyst for Colliers Hong Kong. Up and up: Office rents reach market peak levels For the office sector, decentralisation seems to be the name of the game at the moment with companies from mainland China continuing to dominate and shooting up prices for premium commercial spaces in the central business district (CBD). Research from JLL Hong Kong showed that rents in Central have grown by 3.6% to $116.4 per square foot in the first half of 2017, returning to the same market peak level records in 2008. The stronger growth in Central saw the gap in rentals between Central and other business districts in Hong Kong Island to widen further. As of the first half of 2017, gap in rental prices reached as wide as 58%, compared with 56% in the same period last year. This will likely fuel the decentralisation theme for firms and corporations looking for more cost-effective options outside Central, although JLL also expects that the rental price gap will continue to broaden in the 2Q17 owing to the large amount of new supply being built in locations outside of Central. “With the vacancy rate in major office submarkets remaining below 3%, larger requirements will likely be fulfilled in decentralised locations where there’s ample availability of high-quality office space,” Ben Dickinson, head of agency leasing at JLL Hong Kong, said in a release. He further noted that rent in Kowloon East may fall 10% to 15% owing to the high vacancy and large amount of new supply being completed in the market. Hottest deals For property buyers looking to purchase their homes despite the soaring prices, Denis Ma, head of research at JLL, reckoned that the best buys are likely to be found in areas such as Tseung Kwan O, Yuen Long and Tuen Mun where the concentration of supply and pressure on prices is greatest. “Opportunities may also arise in Kai Tak as more supply comes on the market but prices are already quite elevated,” he said. For commercial spaces, Ma reckoned that Wong Chuk Hang is probably the only market that is still providing good investment value at the moment given the surge in demand for office space since the opening of the South Island Line in late 2016. “Kowloon East is still very well priced given that it will be the city’s future second Hottest locations for Hong Kong property

Residential: Tseung Kwan O Yuen Long Tuen Mun Kai Tak

Source: Hong Kong Business

Commercial: Wong Chuk Hang Kowloon East

Rents in Central has grown by 3.6% to HK$116.4 per square foot in the first half of 2017, returning to the same market peak level records in 2008.

CBD yet offices still cost less than a half as the amount as the current CBD in Central. The only problem is that Kowloon East will be inundated with supply over the foreseeable future, which will keep rental yields at very low levels,” he said. In terms of investment, Ma suggested that downside risks are greater in the residential market compared to the commercial market given that prices on both are at elevated levels. “A lot of commercial properties look overpriced given that rental growth is now slowing but tight vacancy and ongoing decentralisation should help support growth in emerging commercial locations such as Wong Chuk Hang,” he said. The industrial sector is also showing signs of improvement in the second quarter of 2017. Tang said that retails sales are bottoming out, and this should support the demand for logistics warehouse space from retailers. Market activity is being driven by the consolidation of large operators, demanding large warehouse spaces in core areas. Industrial property prices increased by 2.9% in the second quarter over the first quarter this year, reflecting strong investment interest. JLL research showed that net take up for the industrial market moderated to 60,622 sq ft in the first half, compared to 211,729 in the second half of 2016. Against such a backdrop, warehouse rents edged down by 0.3% to $12.9 per sq ft in the first half. Retail’s rebound For the retail market, David Ji, Knight Frank Asia Pacific’s head of research & consultancy for Greater China, said that retail property sales increased 81% to 1,067 in the first half of 2017 compared to 589 over the same period last year. Prime street shop centre rents continued to record mild growth, especially those in noncore areas. JLL research showed that high street shop rentals fell a further 6.4% in the first half of 2017 and are now down 41.2% from their 2014 market peak. Lower rents along with improving inbound tourism and retail sale data are encouraging more retailers to re-enter the market. The expected delivery of new retail space with a total of 6.6 million of new prime shopping centre supply to be completed between 2017 and 2021 (77% will be located outside Hong Kong’s traditional retailing areas) is also set to bring more opportunities to retailers. Notable deals Some of the notable deals are as follows: For residential, it’s the sale of Mount Nicholson Phase I, House 1, with the transaction price of $1.08b for a total of 9,950 sq ft. This translates to $108,543 per sq ft, the highest lump sum for estate-type houses in Hong Kong. For office, it’s the Nam Fung Development winning the Kai Tak Area 1K Site 2 for commercial and hotel usage worth $24.6b, with an accommodation value of $12,863 dq ft. This is a record high lump sum price for a commercial land in Hong Kong, beating previous new high set by the Murray Road site in Central within a week. For retail, HONG KONG BUSINESS | NOVEMBER 2017


cover story Grade A office rental growth

Source: Jones Lang LaSalle IP, Inc.

it’s the Thai Kong Building in Causeway Bay with the transaction price of $510m for 1,928 sq ft. This amounts to about $264,523 per sq ft. The ‘mainland’ factor JLL research reckoned that mainland Chinese companies will remain as the most active tenants in Central’s Grade A office market and will be the key driver of growth over the next 20 years. About 50% of all new lettings — in terms of floor area leased — in Central arose from mainland Chinese companies’ demand, an increase on the 45% recorded in 2016. Dickinson said that mainland Chinese companies have been the most active in Central’s office market over the last two years and will continue to do so over the next few years. “We believe that this is just the start of a secular trend that will continue under China’s Going Global Strategy,” he said. Even in the residential sector — both in the buyer and developer side — mainland Chinese individuals and companies are forming a significant portion of the pie. PRC developers continue to pour into Hong Kong’s land sales market, snapping up all of the residential sites tendered and put into the market by the Hong Kong government so far this year. JLL research revealed that in terms of consideration, the share of residential sites awarded to mainland Chinese developers has increased from a mere 1% in 2011 to virtually 100% this year so far. In terms of maximum developable Gross Floor Area for the residential sites awarded via government public land sale, the contribution from mainland Chinese developers in 2016 has also doubled to 4 million sq ft. Mainland Chinese developers now also account for 62% of the total market capitalisation of property development companies listed on the Hong Kong stock exchange. “Chinese developers were particularly active and aggressive in the residential land sale market whereas local developers showed bigger appetite for commercial land,” CBRE’s Chan said. Cautious growth JLL research showed that housing prices in Hong Kong is expected to grow 15% in the next couple of years or so. “Housing affordability remains a challenge for the younger generation as home prices continue to hike to new record levels,” said CBRE’s Chan, although noting that low 28


Residential price may grow 2% to 5% during the second half of 2017.

mortgage rates and higher barriers to purchase prevent households from selling, impacting market liquidity. JLL’s associate director for research Ingrid Cheh also said that whilst Hong Kong’s housing market is currently at an elevated position, rising interest rates alone are unlikely to tip the market over. “There still exists a significant amount of pent-up demand to be satisfied in the market,” she said. Knight Frank’s Ji said smaller flats have become prevailing, with the primary market more active whilst the secondary market remaining sluggish. In terms of floor area, JLL analysis reveals that average size of new flats currently under construction stands at about 600 sq ft — the smallest since 2001. The bubble scare is also toned down when we look at the demand and financial capability of people, despite higher lump sum prices. Whilst a typical flat now costs about $7m, compared to $4 million in 1997, the mortgage payment to private household income ratio stands at 47% at the end of May. Outlook For residential, Ji said that residential price may grow 2% to 5% during the second half of 2017, led mainly by the mass market primary transactions. This is due to the expected completions of Hong Kong’s new supply of private flats climbing to a high of 98,000 units over the next three to four years — which may help drag down prices. For the office sector, the upcoming supply on Hong Kong Island will provide more options for relocation for companies and firms looking for cost-effective locations outside Central. Ji said Chinese firms will continue to prefer Central and remain to drive growth and activity in that area. Kowloon rents will continue to face downward pressure during the remainder of 2017. For retail, Ji said the market is on track to bottom out during the second half of 2017 with rental rates drop narrowing down and stabilising. This is echoed by CBRE’s Chan, saying that retail rents will likely hit the bottom within the next six months, with interest rates expected to pick up marginally from the trough in 2018, whilst the “mainland” factor will continue to feature prominently. “Fund flow from mainland China will play a key role in driving the direction for investment demand but limited availability of investible assets will ensure limited pressure on capital values in any case,” Chan concluded.

To 10 fastest growing retail and residential submarkets

Source: JLL

ANALYSIS: Guangdong-Hong Kong-Macau GBA Plan centre for the provision of high end ervices, such as ship finance, management and insurance services. Along with closer transportation links to the mainland and the potential easing of entrance restrictions on mainland GBA residents, visitor numbers GBA cities, with a total population of 58.7 million, are expected to surge. Hong Kong will need to create new cultural, leisure and retail facilities in locations that are easily accessible to accommodate new wave of visitors. If successfully implemented, the GBA plan will put Hong Kong at par with New York and London as the world’s top global city.

A chance to rise to the top

With the GBA Plan coming to fruition, Hong Kong can expand its footprint along the Belt and Road geography to become a global financial centre.


ong Kong’s future role will be greatly shaped by the successful implementation of the Belt and Road Initiative and the further integration of Guangdong-Hong Kong-Macau Greater Bay Area (GBA) Plan. Leveraging on its historical strength as an international business hub, Hong Kong can expand its footprint along the Belt and Road geography to become a global financial centre. China’s global expansion plan, if successfully implemented, will put Hong Kong on par with New York and London as the world’s top global city. To move up in the ranking, Hong Kong will need to establish much stronger connections with Belt and Road countries, which account for 50% and 40% of the world’s population and GDP respectively. Emerging markets have seen faster GDP growth and will become important trading partners for Hong Kong. Excluding trade values with China, the share of emerging countries of total import and export values have increased by 10% over the last ten years and accounts for 40% of total trade values. Collaboration with other GBA cities will give Hong Kong a better chance to achieve the global city status. The finance and professional



Companies within GBA region will have an advantage over other Chinese companies by working closely with Hong Kong when implementing their global expansion plans.

services sector had been the key for advising on foreign capital investments into China. In the next phase of global expansion of Chinese capital, Hong Kong’s common law system and expertise in international dispute settlement and mediation services will become even more critical for Chinese companies investing overseas. Companies within Greater Bay Area (GBA) region will have an advantage over other Chinese companies by working closely with Hong Kong when implementing their global expansion plans. The heydays of Hong Kong’s container port operation are gone as ports in Guangzhou and Shenzhen are taking larger market shares due to competitive pricing. By working together with GBA cities, Hong Kong can evolve into a leading Asian

A wealth management centre With the growing of personal wealth comes the need for overseas investment in an attempt to diversify risks. As reported in the CMB-Bain report, the percentage of Chinese High Net Worth Individuals (HNWIs) and Ultra-HNWIs with overseas assets has increased to 37% and 57% respectively in 2015. Among these individuals, thanks to Hong Kong’s favourable tax policy, geographical location and open economic environment, it retains the primary destination for overseas investments in financial products, such as stocks and funds for China’s HNWIs. We anticipate Hong Kong’s status as China’s primary asset management centre will further solidify as more Chinese banks will set up branches in Hong Kong to serve Chinese HNWIs. With more personal wealth to be generated in GBA, the need for Hong Kong’s financial and professional services will continue to grow to serve the newly rich class. From Colliers International

Existing office stock & future supply (2017-21)

Source: Colliers

RefReshing Life with gReen eneRgy China Resources Power Holdings Co.,Ltd. (CR Power) was founded in August 2001. The Company is among the most efficient and profitable integrated energy companies in China. It also acts as a flagship company listed in Hong Kong for China Resources Holdings Co.,Ltd.(CRC),which is a Fortune 500 company. Its business primarily covers thermal power, wind power, hydropower, photovoltaic power generation and distributed energy.

CR Power was listed on the Main Board of the Hong Kong Stock Exchange on November 12,2003 (stock code: 0836.HK). In March 2004, CR Power was added to the Hang Seng Composite Industry Index (Utilities) and the Hang Seng China-Affiliated Corporations Index. In May 2005, CR Power was included into the Morgan Stanley Capital International (MSCI) China Index. On June 8, 2009, the Company formally became one of the constituent stocks of the Hang Seng Index (Blue-chip stock).

As at 30 June 2017, CR Power’s total assets amounted to HK$210.5 billion and its attributable operational generation capacity amounted to approximately 37GW. It covers 27 provinces, municipalities and autonomous regions. For the ninth consecutive year, CR Power was named in the Platt’s Top 250 Global Energy Companies and listed in Forbes Global 2,000, ranking 75th and 646th respectively. Since its establishment, CR Power has been a strategy-driven enterprise, and saw a fast and solid development in the past decade due to its clear strategy and efficient execution. In the next five years, CR Power is going to focus on green energy development, greatly enhance the mix of clean energy, develop highquality thermal power, optimize coal assets, and actively tap into the electricity retail business. CR Power is also searching for opportunities in overseas energy markets and cultivating new profit growth opportunities by extending its value chain. CR Power looks forward to working with stakeholders hand-in-hand and implementing the responsibility, as well as pursuing of “Refreshing Life with Green Energy”, so as to establish CR Power as an excellent and sustainable international energy company.


analysis: Hong Kong & SIngapore housing

The supply of housing has hardly grown in Hong Kong

Housing prices: HK versus SG Macro prudential measures are seen as the silver bullet to ease housing woes.


he violent aftermath of the Great Financial Crisis (GFC) caused central banks to be vigilant, especially regarding the risk of spillover to the real economy in the case of a downturn. Since 2009, both the Hong Kong Monetary Authority (HKMA) and the Monetary Authority of Singapore (MAS) have introduced macroprudential tools to cool property prices. So far, it seem hard to argue that “macro-pru” (as economists refer to such policies) are indeed the silver bullets to solve Hong Kong and Singapore problems with excessively high – and rising – housing prices. Within that context, housing price developments in Hong Kong and Singapore have differed quite substantially during the last few years and the question is why. First, Hong Kong demand policies are much more constrained (at least monetary and exchange rate policies due to its currency board regime). Fiscal policy – the only leeway left – has not been enough to compensate the other two. Second, the market structure is different as Hong Kong’s home ownership is much lower (so that “macro-pru” becomes less effective as it is designed to constrain households in their home purchases more than investors). Third, and most importantly, the supply of 32


Singapore’s supply has remained persistently positive relative to demographic growth and even more so in the past three years.

housing has hardly grown in Hong Kong while it has rapidly increased in Singapore. Hong Kong private real estate prices and Singapore’s have responded very differently to regulators’ efforts to clamp down prices. Despite the multitude of macro-prudential measures, Hong Kong prices continued to surge, rising almost three times since end 2006. In contrast, the MAS has been very effective at cooling domestic private house prices, with it peaking in Q3 2013 and declining since. We also represent the %YoY changes of prices. The key question is why their effectiveness diverges even though both rather similar characteristics. First, macro-prudential measures work through the demand side of prices. The purpose is to create a hurdle to access funding through higher LTVs, higher stamp duty, etc.

to ensure that only buyers with sustainable funding have access to the market, cool prices, and cause banks to better manage risks. The supply side, too, is more supportive of the MAS’ efforts to cool prices than the HKMA’s. Hong Kong’s housing supply has clearly not kept up with the pace of population growth rates (purple line), with supply contracting from 2011 to 2013 when adjusted for population growth rates. It has since improved but still growing negligibly. Meanwhile, Singapore’s supply has remained persistently positive relative to demographic growth and even more so in the past three years. The massive jump of inventory adds a supply-side downward pressure to prices, in addition to demand. That said, the inventory build-up is slowing, which means the worst may be behind Singapore’s property price downtrend. To this end, studies have found that the HKMA is effective at lowering risks in financial system1. For example, the LTV ratio has declined substantial due to tighter macro-prudential measures. The limited impact of the HKMA’s tightening measures on real estate prices is a reflection of the central banks’ limited policy support, such as a more rigid FX and fiscal regime and low home ownership structure. And most importantly, supply-side constraints make demand-side curbs less relevant than the MAS, where both the demand and supply sides of the equation work together to cool prices. From Natixis, Hong Kong versus Singapore Housing Prices, September 2017

Singapore and Hong Kong residential house prices (%YoY)

Source: Natixis, CEIC

LadycodeÂŽ is an online platform for buying and sellingthe wide range of authentic luxury goods. We provide luxury consignment services for you to sell your handbags, accessories and clothes. All goods on this website are authenticated and appraised by our professional team. We will carry out different marketing strategies to target different potential markets. Our aim is to satisfy both the buyers and sellers by our excellent and efficient service.

Legal briefing

BEO a boost for liner shipping industry It aims to improve the efficiency and competitiveness of the liner shipping industry in Hong Kong.


n August 2017, Hong Kong’s Competition Commission has finally approved and issued a five-year block exemption order (BEO) for liner shipping companies over a year and a half following their application to have their vessel sharing agreements (VSAs) exempted from the Commission’s “first conduct rule” — a provision that upholds and champions economic competition in Hong Kong. The decision came after comprehensive discussions and significant lobbying from various stakeholders from the liner shipping industry. Some insights even point to the fact that the decision, officially in place last 8 August, will improve the operational efficiency and competitiveness of the significant liner shipping industry in Hong Kong. What are the key features of the BEO? The key features and provisions of the five-year BEO on liner shipping companies’ VSAs, considered as a realistic approach to maintaining Hong Kong’s importance as a major port in the region, are pretty much straightforward. Lianjun Li, partner, Reed Smith Richards Butler, said that the Hong Kong Competition Commission has granted the BEO in respect of VSAs, subject to some conditions. This includes conditions where shipping companies or related parties do not collectively exceed a market share threshold of 40% or 45% in two consecutive years. “These conditions appear, for the time being, to be considered reasonable,” he said. “These [are] relatively clear guidelines which liner companies can follow.”

“This includes conditions where shipping companies or related parties do not collectively exceed a market share threshold of 40% or 45% in two consecutive years.” Other conditions include a situation where the VSA does not authorise or require shipping lines to engage in cartel conduct (or which harms healthy competition in the industry) and that shipping lines are free to withdraw without penalty from the VSA upon giving reasonable notice. Adam Ferguson, Asia head of competition at Eversheds, said that any move to increase legal certainty for companies has to be welcomed, with the BEO being a prime example as it gives a degree of clarity to liner shipping companies of the legal and operational landscape. Who benefits from the approval of the BEO? With the BEO being an overall positive development, it will definitely be a benefit to players in the liner shipping industry in Hong Kong, according to Ferguson. Apart from clarity, the recently granted BEO will also give more legal and operational certainty to the shipping carriers, 34


The shipping industry currently employes 2.5% of the city’s working population

Lianjun Li

Adam Ferguson

Stephen Crosswell

especially when they think of their next moves in the industry. Ferguson said that VSAs can benefit customers by giving them access to more destinations, more convenient schedules, and reduced costs by increasing utilisation rates and enabling use of larger, more costefficient vessels. In the long-term, the BEO on VSAs could be a needed boost to the general Hong Kong economy and its efforts to stay as one of the Asia Pacific region’s main shipping hubs. Shipping has been a mainstay of the Hong Kong economy — it contributed 1.4% of Hong Kong’s GDP in 2014 and currently employs 2.5% of the city’s working population. Transshipment business accounts for about 69% of Hong Kong’s ports activities. “They give businesses more certainty about what is prohibited … and when the Hong Kong Commission will be prepared to accept efficiency arguments,” said Stephen Crosswell, Asia Pacific head, Baker McKenzie’s Antitrust & Competition Practice. How will it affect stakeholders? The approval of the BEO will also bring Hong Kong’s liner shipping industry at par with international standards of general competition laws around the world. Hong Kong joins Singapore and Malaysia as jurisdictions offering block exemptions to liner shipping. Li said, however, that not all players in the industry may see this as a pot of gold. Whilst big and established liner shipping companies have more elbow room, the ruling may also disproportionately affect smaller liner operations in the long-run — something that the Competition Commission’s “first conduct rule” is determined to avoid. Crosswell also noted that, despite the ruling being welcome, the block exemption may have adverse effects on the larger Hong Kong economy. “It is more restrictive than other exemptions in the region, if shipping liners have a choice, they may move business to other economies that have been receptive to broader exemptions and which are demonstrating a more business-friendly attitude,” he said.

marketing Briefing

How businesses can benefit from SPO Supply Path Optimisation will remain a buzzword in the ad tech panels for the next few months.


s Hong Kong continues to embrace digitalisation, marketing executives are discovering more ways to streamline processes between media suppliers and buyers. The concept of supply path optimisation or SPO has been making rounds in the marketing industry as of late, and experts say that it will remain a buzzword in the ad tech panels for the next few months. Xen Chia, strategic marketing director at XGATE, said that SPO applies to media agencies who use the platform to help brands bid for ad positions in an open market. SPO is a way of creating value through buying media at optimised prices.

correctly, a current bidding strategy should be return of investment (ROI) positive before the application of SPO, can generate profit. “If you are not generating an ROI with your current strategy, then optimising that strategy might never deliver a ROI,” Feiner emphasised. Chan said that marketing executives can use SPO to understand how buyers can build better relationships with publishers, emphasising that advertisers should use SSPs as pipes and not as media companies. He added that advertisers should be aggressive about finding the best path to supply, which is challenging and likely requires using a DSP with built-in supply path optimisation.

Is it a potential money-making machine? Whilst some believe SPO can generate profit, many emphasise that it only helps save costs for strategies that have already been making money prior to the use of SPO. Chia said that ad placement platforms may contribute indirectly to revenue, but not in an accurately measurable way. “The right metric should be called Return-On-Spend (ROS). This means they measure how much impressions or clicks can be generated given the lowest possible ad spend. ROI on the other hand measures (not guess work) how much revenue can be generated through the campaign. If I spend $1,000 to get 100 clicks on my banners, how many of those clicks brought in actual purchase of products?” he added. Carman Chan, managing partner, Click Ventures, said that some also use SPO to turn off supply-side platforms (SSPs) that are not implementing second-price auction, a model that lets buyers bid the true value. Through SPO, firms can take out bad actors and benefit the entire ecosystem. “This technology saves demand-side platforms (DSPs) huge money on server cost. If they buy directly from publishers, they don’t have this layer of filtering and have to listen to all bid requests, which is less efficient. SSPs normally filter most of the bids and send only those with the highest probability to win,” Chan added. Steve Feiner, co-founder and chief executive officer at Singapore-based A Better Florist, added that if done

“If I spend $1,000 to get 100 clicks on my banners, how many of those clicks brought in actual purchase of products?”



Xen Chia

Carman Chan

Steve Feiner

At the end of the day, SPO is fundamentally a way for marketers to enhance their knowledge in the pursuit of improving digital practice. “This part of the competence involves less creative but more science in their job. A marketer unable to use science to help its own brand is not fully understanding the importance of digital marketing discipline,” Chia said. The outlook Plenty of media buying agencies are already using SPO and with more education in the next 3-5 years, Chia said that such optimisation tools and algorithms will continue to be introduced by different players. “However, the winning formula is when you’re able to converge DSP technology for efficient ad placement with marketing platforms that tracks actual sales conversion online and at offline stores. This is a necessary step to transform digital marketing business for brands as they face the ever increasing advertising costs pressure in the market,” Chia said. Meanwhile, key players in the US have already caught up with the SPO bug. According to Chan, Dennis Publishing recently announced a prototype SSP, underpinned by blockchain and backed by five other publishers. This prototype SSP is aimed at removing any undisclosed buyside fees, so that buyers can see exactly where their budgets are going. IPONWEB also launched TrustX, a platform to tackle fraud, viewability, and buy-side fees. “There is one potential acceleration driver out there that could drastically change the course of SPO. That is the agencies and the large advertisers that are spending hundreds and even billions of dollars. If a WPP or a Unilever objects to current processes and pulls the plug, that would create a very strong desire to fix the current situation bringing the issue that SPO is trying to fix to the forefront,” Feiner said.

Communications Technology Data and Analytics

Visit and follow us on Hong Kong +852 28696393

© 2017 Broadridge Financial Solutions, Inc., Broadridge and the Broadridge logo are registered trademarks of Broadridge Financial Solutions, Inc.

We are proud to be recognised for Best Financial Technology at the International Business Awards in Hong Kong for the successful transformation of our client’s post-trade processing operations into an agile platform for growth. Broadridge, a global fintech leader with over $8 billion in market capitalization, provides communications, technology, data and analytics. Backed by global resources and on-the-ground presence in Hong Kong, we help drive business transformation for our clients with solutions for enriching client engagement, navigating risk, optimizing efficiency and generating revenue growth. With five decades of experience combining people, technology and insights to deliver real business value we offer a unique vantage point from the centre of the financial services industry.

Global Post Trade Management – Pathway to Profitability

event coverage: IBA, LCA 2017

IBA, LCA 2017 honours 26 trailblazing firms


ome of the biggest firms in Hong Kong gathered in a remarkable night as Hong Kong Business held this year’s International Business Awards, Listed Companies Awards, and Business Ranking Awards. Now on its third year, the International Business Awards is an initiative to recognise the contributions of international firms to Hong Kong & Chinese economies. The Listed Companies Awards honours the remarkable initiatives of publicly listed companies in Hong Kong whilst the Business Ranking Awards lauds the largest firms in Hong Kong listed in the HKB industry ranking published both online and in the print magazine. The winning companies were honoured and presented to nearly 100 attendees at a joint awards ceremony held on 25 July 2017 at the Island Shangri-La in Hong Kong. This year’s judges are Roy Lo, managing partner at SHINEWING (HK) CPA Limited; Andrew Ross, managing director at Baker Tilly Hong Kong; and Charbon Lo, director at Crowe Horwath Hong Kong.

Thales Team

Hong Kong Business congratulates the following winners:

Listed Companies Awards 2017: • China Resources Power Holdings Company Limited – Energy • CSI Properties Ltd – Real Estate International Business Awards 2017: • Broadridge Asia Pacific Ltd – Financial Technology • Greater Group & New Balance – Retail • Hamlyn Williams HK Ltd – Human Resource Consulting • KBQuest Group Inc. – IT Services • MullenLowe Profero – Advertising • Richard Wolf Hong Kong Limited – Health Products & Services • Thales – Transportation

Richard Wolf Hong Kong Limited Representatives

Business Ranking Awards 2017: Largest Accounting Firms • HLM CPA Limited – Rank 18 • Mazars – Rank 11 • Baker Tilly Hong Kong – Rank 10 • Crowe Horwath HK – Rank 8 • SHINEWING (HK) CPA Limited – Rank 8 • HLB Hodgson Impey Cheng Limited – Rank 7 Largest Hotels Rank • Pentahotel Hong Kong Kowloon – Rank 19 • Harbour Grand Hong Kong – Rank 9 • The Park Lane Hong Kong a Pullman Hotel – Rank 8 • Renaissance Harbour View Hotel Hong Kong – Rank 7 • Panda Hotel – Rank 5

Representatives from Mullenlowe Profero and The Peninsula Hotels

Largest Insurance Firms Rank • MetLife – Rank 19 • Generali Worldwide – Rank 18 Largest Law Firms Rank • Eversheds – Rank 17 • Norton Rose Fulbright – Rank 13 • Stephenson Harwood – Rank 10 • King & Wood Mallesons – Rank 4 Largest MBA Programmes • CUHK MBA - The Chinese University of Hong Kong 38


Ryan Arrowsmith of Greater Group and Bob Neville of New Balance




event coverage: IBA, LCA 2017

Representatives from Broadridge Asia Pacific Ltd

Wang Xiao Bin and Karl Ho of China Resources

Chris Ballard of Greater Group and Bob Neville of New Balance

Eric Moy and Pierre Shui of KBQuest Group Inc.

Flavia Tai and Ludovic Lang of Thales

Samuel Christian of Mullenlowe Profero and Matthew Dray of The Peninsula Hotels

Askin Leung of Broadridge Asia Pacific Ltd

Ali Sharaki, Chris Bolton, and Alex Esson of Hamlyn Williams

Hamlyn Williams HK Ltd Representatives

KBQuest Group Inc. Team



Richard Wolf GmbH

spirit of excellence Richard Wolf GmbH is a mid-sized medical technology company based in Germany. It supplies a broad spectrum of products and solutions for endoscopy and extracorporal shock wave treatment. Richard Wolf also offers integrated operating room (OR) management systems. A track record spanning more than 100 years empowers Richard Wolf to contribute to the development at new and innovative medical products. The experience also includes a continuous process of advanced evolution of patient-friendly, minimally invasive treatment methods. The company‘s core competence and experience is in the area of endoscopic systems for a range of disciplines in human medicine. Richard Wolf employs some 1,500 people worldwide with a workforce of around 1,100 employees in Germany. The company maintains a global network of 14 subsidiaries and 130 foreign representatives. The headquarters and the facility for production, development and sales are in Knittlingen / Baden-WĂźrttemberg, Germany.

excellence in healthcare

event coverage: IBA, LCA 2017

Cecilia Wong of Renaissance Harbour Charbon Lo View Hotel Hong Kong of Crowe Horwath Hong Kong

Annie Chan of Mazars CPA Limited

Kalvin Chung of The Park Lane Hong Kong a Pullman Hotel

Irene Ng of Panda Hotel

Kendy Lee of MetLife

Lawrence Chan of CUHK

Meggie Tao and Joan Liao of Norton Rose Fulbright



Malene Wang of Stephenson Harwood

Matthew Tong of Baker Tilly Hong Kong

Martina Chan of Harbour Grand Hong Kong

Ricky Chan and Clara Ng Ronald Chan of H ​ LB Hodgson of Pentahotel Hong Impey Cheng Limited Kong Kowloon

Michael Yau of Eversheds

Roy Lo of SHINEWING (HK) CPA Limited

Cindy Shek and Janine Ding of King & Wood Mallesons

Kenny Wong of HLM CPA Limited

China Resources Power Holdings Co., Ltd. Team




Co-published corporate profile

Thales leverages big data analytics to deliver best MTR experience yet

The company’s strategy shift towards digital transformation takes a leap forward.

Thales clinched an International Business Award for Transportation at the Hong kong Business Awards


hilst big data analytics and machine learning have made huge strides in industries such as finance and real estate, it has yet to make a significant impact in the transportation industry. This is set to change with Thales’s Train Occupancy and Platform Crowding Analytics for MTR Network in Hong Kong, considered as one of the pioneer transport projects in the age of digital disruption. Armed with its Innovation Hub, Thales aims to deliver the most upto-date and accurate digital solution as a service to one of the busiest urban rail networks in the world. With eleven railway lines and 93 stations, Hong Kong’s Mass Transit Railway (MTR) accommodates around 5 million passengers resulting in more than nine million data inputs each day. Ludovic Lang, Head of innovation for Transport & Security activities at Thales in Hong Kong, said that transit operators around the globe are generating huge amounts of data such as this and they have begun looking for solutions to make the data talk and create value for them. Through the Train Occupancy



Technology-driven by nature, Thales has always been about providing top notch software and systems solutions to its customers in the aerospace, space, transport, defence, and security markets. With a 25,000-strong team of researchers and engineers deployed around the globe, Simplifying the complex 17,000 of which are working on systems “Thales’s big data analytics platform and software engineering, Thales has delivered through the project assesses a mission of building its local industrial the performance of the urban rail network capacity and transferring technology by processing the data from the network through proximity. delivering on a 15-minute interval the “Committed to the number of long-term in Hong passengers per “Hong Kong’s MTR train, per platform accommodates around Kong, Thales enjoys a presence since 1986 and per station. 5 million passengers and 350 staff. A large It provides MTR resulting in more than proportion of them are key performance nine million data inputs specialized engineers, indicators such as which reflects the high train occupancy, each day.” level of competencies platform required to deliver against complex crowding, and waiting time or missed trains, multidisciplinary projects. Our Hong Kong enabling them to study, plan and adapt the customers can also benefit of Thales’ large capacity of the lines and train services, product portfolio as well as its extensive ultimately giving riders a better commuting experience that can be transferred and experience,” Ludovic Lang said. and Platform Crowding Analytics for MTR Network project, Thales is shaping up not only to become a pioneer in the new digital era of the transport industry, but also in the smart city domain worldwide.

Co-published corporate profile

Ludovic Lang, head of innovation at Thales

adapted to the local environment,” Ludovic Lang added. In its MTR project, Thales commissioned a pipe to securely gather passenger data and collect it all in what is called a data lake. With an accuracy level of 95%, Thales reconstructs anonymously the journey of each single passenger on the train and provides key performance indicators that the MTR can use for improving and developing its services. According to Ludovic Lang, not only can the MTR use the data to better plan and operate its services, the data can also be used as a policy tool to create win-win situations for both the MTR and its passengers and as a tool for marketing campaigns. “Thales is proposing tailored big data analytics as a service. Technical solutions are not sufficient. Data science as well as new development techniques (design thinking, lean usability, fast prototyping) are Thales’s additional value, as it has demonstrated the importance to jointly work with the client through an iterative process to make big data analytics really meaningful to the user. In the rail industry as well as other industries, big data analytics is the future of operational efficiency targeting improved passenger experience,” Ludovic Lang commented. Not only does Thales provide a solution

customers can gain access to prominent at the beginning of a customer’s journeyexperts in the field of innovation, thus -it aims to be dedicated by being with the helping them make better decisions as they customer every step of the way. In order manage and direct their companies. to provide a more efficient and focused To further enhance its capabilities and solution that understands the unique needs establish its position in the of its customers, world of big data, Thales Thales deploys “With an accuracy also made a strategic a new design level of 95%, Thales move in the acquisition of technique called reconstructs the Silicon Valley big data Minimum Viable analytics giant Guavus, Product or MVP ANONYMOUSLY the as an approach for journey of each single with extensive experience the telecommunications early adopters. passenger on the train.” in industry in the US. Ludovic “The flow of Lang says that Thales will passengers, the benefit from the algorithms developed by way the passengers travel may be different, Guavus, and at the same time gain insights in because there will be an event, there will terms of business approach and application be an opening of a new line, unforeseen which may be applied not only in the field of circumstances. The solution has to be telecommunications. adaptive and customized through time. Instead of delivering the full functionality Empowering trains of the future at the beginning, we start by addressing a Thales’s customers are also highly minimal scope covering the user appeal, supportive of the company’s upcoming usability, reliability and functionalities, plans for the market. At present, it uses present the prototype to the client, gather offline data to reconstruct the passenger’s the feedbacks, fine-tune the prototype journey, but it is moving towards using before expanding the scope of each real time data analytics to better predict component to deliver the final solution,” crowd movements and analyse passenger Ludovic Lang noted. sentiments.. “Also, we are working on what we call passenger sentiments. We use Building a big data empire the data crawling approach to cross the Thales is inspired to meet its goals in information from the current platform with four core digital technologies: connectivity, the way the people feel and comments on data analytics (including real time), artificial social media. It is completely anonymous.” intelligence, and cyber security. Over the Ludovic Lang added. “Passengers can past 2-3 years, Thales has invested €1b see breakdowns In the system first-hand to reinforce the group in these four core and react on social media. Real-time technologies. Recently, Thales launched a data crawling help the operator to detect fully-fledged digital platform for industryincidents faster in the system and, hence, focused services called Digital Factory to this can serve to improve the passenger cater to customers’ digital transformation experience as well,” Ludovic Lang said. in key markets. Through the Digital Factory,

The team behind Thales’ Train Occupancy and Platform Analytics for MTR Network in Hong Kong




tim hamlett

Money down the train tim hamlett Former Editor of Sunday Standard and Associate Professor of Journalism


ell this may be a rude question, but the arrival of a new train for the new Express Rail Link/white elephant/colocation catastrophe had me wondering. Why are we paying for the trains? According to Global Rail News, which takes an interest in these things, the one which arrived the other week was actually the third. The first two arrived before the rails were ready so they came by sea. Why they could not wait was not mentioned. There will in due course, apparently, be another six, bringing the grand total to nine. Now let us assume that the official figure for a trip to Guangzhou — 48 minutes — is accurate. Allow a few hours a day for maintenance, cleaning and such, we can hope to see each train do maybe 10 return trips. This means with nine trains, assuming journeys go all the way to Guangzhou, which of course they may not, “our” trains can manage about 90 trips. According to a leaked document published in Ming Pao recently, there will be 190 trains a day in our extravagant new station. This is an interesting figure. It appears actually that planning has proceeded on the basis that about half of the trains which are going to visit Kowloon should be paid for by the Hong Kong taxpayer, even though four fifths of the line between here and Guangzhou is in China. This was very accommodating of us. Shenzhen officials have been complaining for years that their part of the line is losing money, a deficiency which they fondly hope will be remedied when travellers can carry on to Hong Kong. Why can the existing trains not just extend their journeys another 30 km? It is difficult to believe that having us as the new end of the line is going to double the existing traffic. By coincidence, my last holiday included a trip by train from London to Edinburgh. Nowadays, this takes a little over four hours. The distance is about 400 miles so the train averages about 100 miles an hour. Top speed is about 120, same as our tunnel. A faster link This is not considered worth making a fuss about. The train runs on the same rails that the old steam trains used. In fact it passes a small memorial on one stretch of track reporting that at that spot a steam locomotive named Mallard did 125 mph in 1938. This was, and still is, the record for steam propulsion. We really haven’t come very far. And as far as the Express Rail Link is concerned, we are not going to be going very fast either. According to Ming Pao, of the 190 trains a day in the planning document, only seven will skip the first new station on the line — Futian in Shenzhen — and only one (one!) will actually go non-stop to Guangzhou. 46


Michael Tien Puk-sun, chairman of LegCo’s Panel on Transport, reportedly told Ming Pao that the arrangement was appropriate as most passengers’ destinations were Futian or Shenzhen North, and Guangzhou South was only an interchange station to other mainland cities, so if trains did not stop at other stations the service would not be sustainable. But this is not what we were told when we were invited to pony up 80 megabucks for the new line. It was not supposed to provide a faster link to Shenzhen. An expensive experience If Guangzhou South is only an interchange station for other Chinese cities, we are going to pay through the nose for an alternative to air travel which will only appeal to very nervous fliers. High Speed Rail technology is totally unsuitable for providing local services. According to Dr. Jean-Paul Rodrigue, “A distance of 50 km is often considered a minimum, leaving enough for trains to accelerate and reach cruising speed. Servicing too many stations undermines the rationale of high speed systems.” This is an interesting view in the light of the distance between Hong Kong and Shenzhen (29 km). There is another 100 km to go to Guangzhou, but the latest maps show four intermediate stations on that part of the trip, so we may suppose them to be on average about 20 km apart. Politics, I fear, have trumped technology. Prepare for an expensive experience.

Hong Kongers are in for an expensive travel



Airline serves as metaphor for city


he glory days of Cathay Pacific are ancient history, an analyst said. Others are forecasting that Hong Kong’s major airline faces more financial losses and further cost-cutting. The “glory days” would most likely have been the mid-80s to mid-90s. During that time, Asian air travel boomed. Japanese tourists started flooding into the region and beyond, and Taiwanese businesses poured into just-opening China. Airlines couldn’t expand fast enough, and nonstop Taiwan-Mainland flights were forbidden. Cathay managed to grab market share by buying a load of second-hand L1011 TriStars from the US, and offering crazy packages to lure cockpit crews from the UK and Australian militaries. With a preferential government policy and only one runway at Kai Tak, the airline didn’t have to worry much about competition. Profits rolled in. But it couldn’t last. Hong Kong’s high inflation pushed up Cathay’s costs much faster than its regional rivals, and started to undermine its competitiveness. To complicate things, the coming handover of Hong Kong created uncertainty and led the British owners— the Swires — to sell stakes to Chinese state aviation interests. Still, the airline went on to expand massively, notably on the back of the China growth/Chinese tourist phenomenon, growing a major cargo business, and developing Dragonair as a classy rival to nasty, cheap, and even scary Chinese carriers on Mainland routes. It went through labour problems, fuel-price surprises, and outsourcing, but nothing unusual by industry standards — though it has long suffered exceptionally whiny employees and customers. Fast-forward to today. Mainland carriers have matured into big, serious regional and global operators, as have Middle-Eastern ones; Hong Kong has inevitably declined in relative prominence as a hub linking Asia to North America and Europe. And budget airlines like AirAsia and Peach have become a low-cost choice for regional travellers who don’t mind arriving at the destination late and hungry. Meanwhile, Hong Kong’s costs still drag on the city’s comparative advantage as an old-style airline’s home base.Cathay is not alone in the industry in struggling to adjust. It has to charge a premium to survive, yet it can’t differentiate its product — modern air travel is basically a longish bus-ride, and only pretentious bores and ad agencies think “service” and “quality” and slinky, doeeyed cabin attendants are deal-breakers. But CX has additional burdens. The Swire system of appointing eager British “chaps” as core managers is 48


a curious colonial hangover. It is also a reminder that the company hails from one of Hong Kong’s familyrun cartel/landlord-conglomerates. And as Hong Kong undergoes Mainlandisation, it can only be time before Beijing wants the airline in more dependable party-state-linked hands. But, like Hong Kong, it was amazing for a while. Beijing is not only trying to tighten its grip on Hong Kong through long-term demographic engineering. It wants the continued support of co-opted octogenarian property tycoons whose cartels squeeze the domestic economy. That’s why you can forget all this disruptive innovative/creative tech industry stuff – we have vested interests to protect. By allowing in more Mainlanders while artificially restricting the supply of affordable housing, the Hong Kong government forces more people into privatesector accommodation. At the lower end, this pushes up rents in nasty sub-divided apartments and similar accommodation. But the pressure on per-square-foot housing prices obviously trickles up into other market segments, hence the HK$8,500-a-month nano-flats at Shouson Hill, and ever-rising rents generally. So Mainland immigrants make our population more loyal and patriotic – and help to push up Beijing-shoeshining landlords’ profits. Talk about a win-win!

by hemlock Email:

The glory days of Hong Kong’s flag carrier is over according to analysts.

Hong Kong Business (October - November 2017)