biz.hk Sep 2011 by The American Chamber of Commerce in Hong Kong

loc IN at SI ion D & E: M ov in

Journal of The American Chamber of Commerce in Hong Kong

www.amcham.org.hk

September 2011

COVER SPONSOR

September 2011

Contents

Vol 43 No 09 Richard R Vuylsteke

Editor-in-Chief Daniel Kwan

Assistant Editor

COVER STORY

CHINA BUSINESS

FINANCE

TRADE & INVESTMENT

Chinese Vice Premier Li Keqiang visited Hong Kong in August and delivered a raft of “goodies” ranging from further liberalization of trade to making Hong Kong the ultimate offshore Renminbi center. Will small businesses be able to benefit from these new measures?

Hong Kong and Shanghai are now China’s largest financial centers; yet the two cities remain strategically important to each other in spite of competition

Jing Ulrich, Managing Director & Chairman of Global Markets, China, J.P. Morgan explains the development of an offshore Renminbi market in Hong Kong and how the prospect will boost the city’s role as a leading financial center

The annual premium environmental trade fair will return to the AsiaWorld-Expo under the theme of “Green Tech for a Low-carbon economy”

Publisher

Kenny Lau

Advertising Sales Manager Regina Leung

biz.hk is a monthly magazine of news and views for management executives and members of the American Chamber of Commerce in Hong Kong. Its contents are independent and do not necessarily reflect the views of officers, governors or members of the Chamber. Advertising office 1904 Bank of America Tower, 12 Harcourt Rd, Central Hong Kong Tel: (852) 2530 6900 Fax: (852) 2537 1682 Email: amcham@amcham.org.hk Website: www.amcham.org.hk Printed by Ease Max Ltd 2A Sum Lung Industrial Building, 11 Sun Yip St, Chai Wan, Hong Kong (Green Production Overseas Group) Designed by Overa Creative Co Rm A, 12/F, Sun Fai Comm Bldg, 576 Reclamation St, Mongkok ©The American Chamber of Commerce in Hong Kong, 2011 Library of Congress: LC 98-645652

AMCHAM NEWS AND VIEWS

18 Endorsement of City’s Role

04 Chairman’s Memo Rob Chipman highlights the recent visit of Chinese Vice Premier Li Keqiang who spoke out in favor of Hong Kong as a premier offshore Renminbi financial center

07 New Business Contacts

HEALTH & WELLNESS

57 executives joined AmCham’s business network last month

20 A Call for Negative Blood Donation The dilemma as a result of a very limited supply of Rhesus-negative blood in Hong Kong and how you can help to alleviate the problem

44 Mark Your Calendar

22 Multiple Sourcing and Storage Urged

COVER STORY

08 The Early Christmas Present from Beijing Chinese Vice Premier Li Keqiang announced a raft of “goodies” for Hong Kong during his visit in August. What will these measures mean for your business?

14 Changing Landscape – The Shanghai Story Hong Kong and Shanghai are now China’s largest financial centers; yet the two cities can still benefit from each other’s strength in spite of competition

An advocate for patients is calling for multiple sourcing and storage of a rare blood type across hospitals in Hong Kong to ensure sufficient supply

TRADE & INVESTMENT 28 Repeat of Success Predicted for Eco Expo Asia 2011 The annual premium environmental trade fair will return to the AsiaWorld-Expo under the theme of “Green Tech for a Low-carbon economy”

29 From Highway to High-Rise The story behind an entrepreneur who found a way to create environmentally friendly concrete products using glass wastes

31 Government Support Crucial for Green Business In a conversation, founder of a California-based food waste equipment manufacturer talks about the importance of staying in touch with governments

ENVIRONMENT 24 Letting Go of Fuel Tesla’s sports car Roadster changes people’s perception about electric vehicles as it runs purely on electricity

For comments, please send to biz.hk@amcham.org.hk Single copy price HK$50 Annual subscription HK$600/US$90

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COVER SPONSOR

Board of Governors Chairman Robert Chipman Vice Chairman James Sun Treasurer John Sigalos Executive Committee Frank Lavin, Anita Leung Belinda Lui, Charles Wellins Governors Sara Yang Bosco, Brian Brenner, Tom Burns, Janet De Silva, Rob Glucksman, Peter Levesque, Charles Ma, Toby Marion, Ross Matthews, Andrea Richey, Catherine Scown, Leland Sun, Colin Tam, Elizabeth L Thomson, Richard Weisman, Frank Wong, Shengman Zhang Ex-Officio Governor President

David L Cunningham Jr Richard R Vuylsteke

Chamber Committees AmCham Ball Apparel & Footwear Business Briefing China Business Communications & Marketing Corporate Responsibility

Kay Kutt Andre Leroy Don Meyer Wendy De Cruz

Energy Entrepreneurs/SME Environment Financial Services

Sean Purdie Donald Austin Bradley Punu Kuresh Sarjan Catherine Simmons Peter Johnston Hanif Kanji Ross Matthews

Food & Beverage Health & Wellness Hospitality & Tourism Human Capital

Susan Reingold Ed Ahnert

Noble Coker Peter Liu

Rob Chipman Chairman

Chairman’s Memo

Dear Members,

I don’t know about you, but I’m looking forward to the lower humidity and the fall off in the sizzling temperatures we have endured this past summer. The days are growing shorter, and I sense the long awaited change of seasons. I plan to venture out, take advantage of Hong Kong’s wonderful hiking trails, and enjoy the fine weather that the fall brings with it. This past summer saw the visit of Chinese Vice-Premier Li Keqiang to Hong Kong. The Vice-premier spoke out in favor of Hong Kong as a premier offshore Renminbi financial center. AmCham has been a leading voice on this subject as we know how important it is for many of our members, and how much Hong Kong stands to benefit. If you are interested in learning more about the Vice-Premier’s visit, I encourage you to read the coverage in this issue. AmCham’s Insurance and Healthcare Committee has had a busy summer. If you are like me, you probably are not aware that Hong Kong needs more donors of Rhesus negative blood. Dr Hanif Kanji, who chairs the Committee, has toiled long and hard to bring this issue to the forefront and raise the level of awareness. If you’d like to know more, we have two articles on this – and related subjects – I encourage you to read closely. The all electric TELSA Roadster is a stylish, high performance, two-seater sports car that would get anyone’s pulse racing. Owners Philip Ma and Gigi Chao share their

joy of ownership, and Kevin Yu of TELSA Asia Pacific describes their plans to bring more electric sports car to the Hong Kong market. So take a minute to read what may be in store for you if you are a car-guy at heart. Finally, this month features a pull-out section on a subject dear to my heart – relocation. That has been my business for the past 20 years and I can assure you that the articles will leave you well informed and conversant with the major challenges facing our members in this increasing mobile, connected world. That’s all I have to report for this month. Cooler weather is just around the corner. Meanwhile, I’ll see you around at the Chamber. Best wishes to my fellow members,

Information Technology & Telecom Rex Engelking Intellectual Property Alvin Lee Law Eric Szweda Pharmaceutical Stephen Leung Real Estate Brian Brenner Senior Financial Forum Alvin Miyasato Senior HR Forum MaryAnn Vale Sports & Entertainment Ray Roessel Taxation Evan Blanco Trade & Investment Patrick Wu Transportation & Logistics Brian Miller Women of Influence Jennifer Van Dale Lee Georgs Young Professionals Roger Ngo

Rob Chipman Chairman

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MEMBERS DIRECTORY 2010/2011

New

Business Contacts The following people are new AmCham members: AIA Group

Dow Jones & Co

Ignite Media Group

Maryan Broadbent SVP & Chief Customer Officer

Almar Latour Editor in Chief, Asia, The Wall Street Journal

Reginald Macdonald Director

APCO Worldwide

Egon Zehnder International

Tamora Leonard Vice President

w w w. a m c h a m . o r g . h k

APL Co Pte Ltd

LC 98-645651

Jones Lang LaSalle Allen Liang Director, Greater China, Energy & Sustainability Service Courtney Smith Associate Director - Corporate Consulting, Asia Pacific

Donnie Dong Associate

English Language Services

Brock Wilson Vice President

Bloomberg LP

John-Sean Withrow Director

Kerry Logistics (Hong Kong) Limited

Alexa-Maria Rathbone Barker Sales Manager for Hong Kong

Fong's International Trading Ltd

Franklin Wang Director of HK Government Affairs

Children's Place (HK) Ltd, The

ISBN 978-962-7422-03-7

Jeffrey Johnston Vice-President

Baker & McKenzie

Caterpillar (HK) Limited

Over 500 pages in three major sections, including a complete guide to chamber services, corporate sponsors and AmCham Charitable Foundation. This directory lists nearly 1,900 members from over 700 companies and organizations.

Emerson Electric Asia-Pacific

Ingenium Group Limited, The

Dave Murray VP, Global Supply Chain, Emerson Network Power Embedded Computing & Power Rusty Lamboley VP and General Counsel Asia Pacific

John Garrett Regional Sales Director

www.amc ham.org .hk

Steven Greenberg Consultant

Macy Tsang Director, HR & Admin

Citizen Thunderbird Travel Ltd Stephen Louies Sales & Customer Service Manager Corporate Department

CLS Communication HK Ltd

Kit Fong Sales Manager Maisie Wong Secretary Francis Fong Managing Director

Foundation for Amazing Potential Steven Ying Chairman & Trustee

Fusion Systems Ltd Huw Rogers Managing Partner

Gibson Dunn & Crutcher LLP

Anita Lai Regional Financial Controller

Adam Goldberg Associate Attorney

Colliers International (HK) Ltd

Global Payments Asia Pacific Ltd

Dylan Mattes Account Manager, Integrated Client Services/Corporate Solutions - Asia Pacific

Columbia Business School Kelley Blanco Assistant Dean, Executive MBA Programs

Columbia Sportswear Company (HK) Ltd Girish Menon Director - Apparel Liaison Office

Jojo Wai Regional Vice President of Sales, Hong Kong and Macau Renata Smutna Vice President, Finance James Hicks President, Asia Pacific

Guangdong Healz Medical Equipment Ltd Ying-Bing Huang Chairman

Hallmark Cards (HK) Ltd

Control Risks Pacific Ltd

Joel Ma Global Procurement Manager - Hallmark North America

Kim Frisinger Market Director - Legal Technologies, Asia Pacific John MacPherson General Manager (Hong Kong)

Hitachi Data Systems Ltd

Mona Lai Quality & Client Relationship Manager

Susan Yeung Senior Account Manager Olivia Pang Senior Marketing Manager Andrew Sampson General Manager, HK and Macau

Daiwa Capital Markets Hong Kong Ltd

HK University of Science & Technology

Thomas Jackamo Managing Director

Etta Wong Head, MBA Student Development

Damco Hong Kong Ltd

ICS TRUST (ASIA) LIMITED

Thomas Young Transpacific Trade Lane Manager

Sherry Lin Business Development Executive

Crown Worldwide (HK) Limited

JPMorgan Chase Bank

Kenneth Ko Executive Director - International Freight Forwarding

Lyondell Asia Pacific Ltd Russell Daniels Asia Intermediates and Derivatives Director

Mayer Brown JSM Geofrey Master Partner

Merrill Lynch Arch Hoffman Global Wealth Management

Nielsen Company (HK) Ltd Jason Byun Vice President, Consumer Research, Nielsen Greater China

Norton Rose Hong Kong Daniel Kim Registered Foreign Lawyer

PricewaterhouseCoopers Jeffrey Boyle Partner

Regus HK Management Ltd Eric van der Wulp Area Sales Director - Hong Kong

Skadden, Arps, Slate, Meagher & Flom Edward Sheremeta Partner

Time Warner Inc Michelle Zhou Policy Analyst, TimeWarmer Public Policy Asia Pacific

Walmart Asia Regional Office Morten Knudsen CFO & Strategy

Wells Fargo Bank NA John Gough Director, Global Banking

William E Connor & Associates Ltd Justin Kent Managing Director of Strategy and Client Services

Wynn Macau Jay Clayton Executive Vice President - Operations

View our other members at:

http://www.amcham.org.hk/index.php/AmChamMembers.html

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9 â&#x20AC;˘ 2011

COVER STORY

The Early

Christmas Present from Beijing Chinese Vice-premier Li Keqiang visited Hong Kong in August and announced a raft of “goodies” for Hong Kong. These measures range from further liberalization of trade in services, strengthening of the city’s competitiveness as an offshore Renminbi centre, and the signing of another supplement document of the Closer Economic Partnership Arrangement (CEPA) with Hong Kong this year. Daniel Kwan talks to a Hong Kong SME owner and economist to find out what the early Christmas present from Beijing may mean for your business.

hen Felix Chan Kwok-wai of Kin Man Garment Factory launched his Zpecial label swimsuits targeting mainland consumers, he knew it would be a tough sell. “As a Hong Kong Small and Medium-sized Enterprise (SME), the biggest challenge is that we don’t know the Mainland market,” he says. That challenge, he believes, is what the latest 12th Five-Year Plan (12th FYP, 2011-2015) presented to Hong Kong’s small OEM manufacturers too. The one important message that he has picked up from the mega development plan is a clear commitment by the Chinese government to switch from exporting to the West to boosting domestic consumption. But for local SMEs, penetrating China’s domestic market is no easy task. Chan knows very well that there are many pitfalls faced by OEM manufacturers in Hong Kong who want to find gold in the China market. As the honorary

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president of the Hong Kong General Chamber of Commerce of Small and Medium Business, Chan knows many friends who have had their fingers burnt over the years. He frankly admitted that he has lost “millions of dollars” in his own endeavor in the past and only began to see the “light” in recent years.

Changing world Chan’s story is typical among Hong Kong’s SMEs. Tens of thousands of them have moved production north in the 1980s virtually taking over the Pearl River Delta. They churned out toys, watches, footwear and garments, and household appliances which Western brand owners were eager to move offshore as they moved up the value chain. Leveraging on unbelievably cheap wages and land costs in the Mainland, these factories thrived and marked the beginning of a new era of China’s industrialization. Hong Kong played a dominant role in the process. For more than a decade, Hong Kong was the major source of foreign investment, business orders and technology to China. At the same time, it has built up its financial industry and service sector grooming talents including lawyers, accountants and bankers locally and from around the world. For many years, the term “compatriots from Hong Kong” was often analogous to “VIPs” and “big bosses”. This storyline began to change with China’s ascension to the World Trade Organization in 2001. After more than two decades of reform (and lessons learned), many Chinese companies were ready to flex their economic muscle on the world’s stage. Newcomers like Haier and Legend began to become recognized by foreign consumers as the brands from China. Meanwhile, key enterprises started to pick up foreign companies and assets through acquisition (see Box 1). Major events such as the Beijing Olympics in 2008 and World Expo in Shanghai in 2010 further drew the world’s attention to the Middle Kingdom. Hong Kong meanwhile struggled to find its new position. Questions were raised about the city’s competitiveness and comparison was often drawn between the city and its rivals like Shanghai and Singapore. As China took off – backed by a decade of continuous double-digit economic growth – pundits speculated over the city’s future and some predicted that Hong Kong would become “marginalized” as other cities took the centre stage.

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Li Keqiang

Photo: Getty Images

Beijing’s gifts Hong Kong being pushing aside – certainly not. That was announced and confirmed by the 12th Five-Year Plan promulgated in March and the recent visit to Hong Kong by Vice-premier Li Keqiang (see Box 2). Li who is widely tipped to be the next premier succeeding Wen Jiabao next year reassured local political and business leaders at a forum in August that Hong Kong plays an “irreplaceable role in the Mainland’s reform, opening-up and modernization drive.” According to Pansy Yau, Deputy Chief Economist of the Hong Kong Trade Development Council, an important message by the Vice-premier is the Central government’s commitment to give policy support for Hong Kong. Such support is no longer just broad conceptual ideas but applicable measures carefully crafted by individual ministries and organizations in charge. “The importance is that the Mainland govern-

Box 1 Growing share of Asia in world investment

China India East Asia

Share of inward FDI

Share of outward FDI

1995-2004 6.5% 0.5% 10.4%

1995-2004 0.4% 0.1% 5.2%

2010 8.5% 2.0% 15.1%

2010 5.1% 1.1% 13.2%

Source: World Trade Organization

ment now agrees Hong Kong will develop along this direction and it will give Hong Kong support to the maximum degree,” Yau says. Using the announcement that Hong Kong will develop as China’s offshore center for Renminbi business as an example, Yau says the city can now move ahead and enjoy the “first-mover” advantage with the policy boost. “For example, the People’s Bank of China will work out specific measures of how to achieve this direction for Hong Kong to become the Renminbi offshore centre,” she says. “After they’ve worked out the details, they will allow some approved companies to do direct investment in China using Renminbi and local banks can inject capital [into their sub-branches] in Guangdong using Renminbi.” “This is very important because if we have a lot of Renminbi deposits here but we don’t have the outlet, then all the money will just sit here and the market will not be active at all,” the economist adds. “The market will only become alive if we have channels to move the money back to China and to use it in a productive way.”

Critical mass The policy support notwithstanding, Yau cautions that timing is critical. Hong Kong needs to move fast in order to give its “first-mover” advantage full play. “We all understand that at the end of the day the Renminbi will eventually become fully convertible and Shanghai … will grow too,” she says. “If Hong Kong fails to establish the critical mass of Renminbi business before Renminbi becomes fully convertible, our position will more likely be affected by the other centers – it’s not just Shanghai but Singapore and London too as they are also talking about becoming centers for Renminbi business.” Yau says that the fact Hong Kong can move ahead of its competitors means a lot specially in developing services. Unlike in manufacturing where businesses can leapfrog by investing in hardware and technology, service businesses rely on human capital that needs years to nurture and grow. “For financial services, if we build the critical mass and the foundation – the people and expertise – now, then our position would be more secure,” she stresses.

Pansy Yau

Another key component of the Vice-premier’s message relates to Hong Kong’s participation in free trade. As a free port, Hong Kong which has virtually zero tariffs on most imports has been slow in entering into free trade deals with its trading partners. The Vice-premier now pledges support for Hong Kong’s involvement in the regional discussions among East Asian countries and to conduct a feasibility study on Hong Kong’s joining of the FTAs already signed by the Mainland. “In the future, when negotiating FTA agreements with foreign countries, greater consideration will be given to Hong Kong’s interests and concerns,” the Vice-premier said. Yau of HKTDC says that the move helps save Hong Kong from being “marginalized”. “This is important because there is a proliferation of free trade agreements in the region and in the world,” she points out. “If Hong Kong is left out in these FTAs then Hong Kong will become marginalized.”

CEPA Supplement VIII Soon to be announced now will be the signing of Supplement VIII of the Closer Economic Partnership Arrangement (CEPA). Essentially a mini-FTA, CEPA has played a crucial role in supporting Hong Kong’s economy during the post SARS period in 2004 and boosting local retail and tourism business by allowing Mainland tourists to visit the SAR independently. In recent years, CEPA also aims to provide Hong Kong service businesses greater access to the Mainland market. During his Hong Kong visit, Vice-premier Li made clear that Supplement VIII would be signed within this year and promised continued liberaliza-

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tion of trade and services between the Mainland and Hong Kong. In particular, he confirmed “broadening of market access” for Hong Kong professionals in areas such as medical, construction, legal, and testing and certification. The clear assurance by Li was pivotal because opening of these areas have been stalled in recent years despite announcements made under previous CEPA documents. Hong Kong doctors for example have been unsuccessful in their efforts to open private clinics on the Mainland and local architects were not allowed to practice even though they have obtained the equivalent qualification as their Mainland counterparts. For Chan of Kin Man Garment, CEPA has not had much impact for his OEM business. However, he is convinced by the 12th FYP that China is determined to develop domestic consumption and that means huge business opportunities for Hong Kong SMEs. As far as his business is concerned, market access is far more important than trade settlement in Renminbi or zero tariffs treatment as provided for under CEPA. Although he has tried to market his own brand Zpecial of swimsuits in China, he has yet been able to truly establish his brand in the Mainland market. The main obstacle he says is that China’s retail market is very different from Hong Kong’s. Department stores there often carry hefty “entrance fees” for vendors just for displaying their products and few Hong Kong SMEs can afford the expensive streetlevel rents in popular shopping districts in major cities. Moreover, government rules and regulations in the Mainland are complex and very different from those in Hong Kong. Very often, he says, the “main gate” has been opened but not the “little gate” – referring to local government’s reluctance to implement Central government’s decisions. “We don’t know how to swim in this water,” Chan says using swimming as an analogy to operating in the China’s market. “For SME, it is more important for us to know where and how to find help,” Chan says. “Fighting alone is a dangerous business.”

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One caveat about CEPA is whether foreigners can qualify as “Hong Kong service providers” (HKSS) and enjoy the preferential treatment granted. According to the Hong Kong Trade and Industry Department (TID), CEPA benefits apply to individuals (natural person) and businesses (juridical persons). For individuals, they must be Hong Kong permanent residents with Chinese citizenship. This means under CEPA, Hong Kong permanent residents with Chinese citizenship can set up individually owned stores in the Mainland. They are not required to apply to the TID for a “service provider” certificate in setting up their business. However, a “Chinese citizen” is a person of Chinese nationality under Chinese Nationality Law and that will exclude foreign nationals even if they are permanent residents of Hong Kong. Foreigners can still enjoy CEPA benefits if they own a business which has been engaged in substantive operations in Hong Kong for three to five years – depending on the nature of their business. They are required to apply to TID for the HKSS certificate before they can apply to the relevant Mainland authorities for providing services in the Mainland and enjoy CEPA benefits. Foreign investors can also make use of CEPA through acquisition of local companies which are qualified as Hong Kong service providers.

Box 2

Gists of support measures announced by Vice-premier Li Keqiang during his visit to Hong Kong: Liberalization in the trade in services:

o Signing of Supplement VIII of CEPA within this year o Broadening of market access for Hong Kong’s service providers in medical services, construction services, legal services, and testing and certification o Support Hong Kong travel agencies in setting up businesses on the Mainland o Promotion of the “early and pilot implementation” exercises in Guangdong and other provinces and municipalities o Before the end of the 12th Five-Year Plan period, achieve liberalization of trade in services between the Mainland and Hong Kong Hong Kong’s role in GuangdongHong Kong-Macau cooperation

o Speed up the implementation of GuangdongHong Kong and Guangdong-Macau cooperation framework agreements o Develop a world-class metropolitan cluster and a base for advanced manufacturing and modern service industries with greater overall competitiveness o Support the building of a Hong Kong-led financial cooperation area, a modern economic circulation circle and a high-quality life circle in the Pearl River Delta area

Hong Kong’s status as international financial centre

o The ETF (exchange-traded fund) constituted by Hong Kong listed stocks will be launched o Mainland-based enterprises will be encouraged to list in Hong Kong o Hong Kong-invested banks on the Mainland will be allowed to engage in mutual fund business o The Mainland will support Hong Kong banks to expand their networks of branches in Guangdong Province o Hong Kong’s insurance companies will be allowed greater access to the Mainland’s market o Support Hong Kong develop into an international asset management center

Hong Kong as an offshore Renminbi (RMB) centre

o The Central Government will actively support the growth of the RMB market in Hong Kong, expand RMB circulation channels between Hong Kong and the Mainland, and support the innovation and development of offshore RMB financial products in Hong Kong o Cross-border trade settlement in RMB should be extended to cover the whole country o Pilot projects for foreign banks to replenish capital with RMB will be launched o Support Hong Kong enterprises to make direct investment on the Mainland in RMB o The RMB Qualified Foreign Institutional Investors (RQFIIs) will be allowed to invest in mainland securities markets with an initial size of 20 billion RMB yuan o More mainland-based financial institutions to issue RMB-denominated bonds in Hong Kong o Allow mainland enterprises to issue RMB bonds in Hong Kong, and raise the amount of RMB bonds issued by mainland institutions in Hong Kong Hong Kong’s participation in international and regional economic cooperation

o Support Hong Kong’s active participation in multilateral and regional economic cooperation o Support Hong Kong’s involvement in East Asian regional cooperation o Conduct a feasibility study on Hong Kong’s joining of the free trade agreements already signed by the Mainland o When negotiating FTA agreements with foreign countries, greater consideration will be given to Hong Kong’s interests and concerns in the future Assist enterprises in both the Mainland and Hong Kong to “go global” together.

o Support to enterprises from both sides in terms of project matchmaking, investment expansion, information sharing and personnel training o Encourage enterprises to jointly develop international investment and infrastructure markets through joint investment, joint bidding and joint contracting of projects and other schemes

Excerpts from the speech delivered by Vice-premier Li Keqiang at the Forum on 12th Five-Year Plan and Mainland-Hong Kong Economic, Trade and Financial Cooperation

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by 2020. This view is echoed by a recent report, China’s Capital Markets – The Changing Landscape, completed by KPMG, an international accounting and professional services firm, in conjunction with Dagong Global Credit Rating and FTSE Group. According to the report, “Shanghai is on track to become the world’s largest financial center within the next decade, as China continues to open up its capital market and expand its investor base.”

opened up for trade as a treaty port in 1842, writes Niv Horesh in his book Shanghai’s Bund and Beyond: British Banks, Banknote Issuance and Monetary Policy in China, 1842-1937. The author, an associate professor at the University of Western Sydney, says that, “During the early twentieth century, European, American, and Japanese banks also entered the Chinese market” after the first British bank, OBC, opened a branch on mainland China in 1847. Years later, in 1865, The Hongkong and Shanghai Banking Corporation (HSBC) was founded in Hong Kong and Shanghai “to finance the growing trade between China and Europe.” Shanghai’s stock market was by that time the largest in Asia. In contrast, as a British crown colony, Hong Kong’s economy only experienced substantial growth following the industrialization of the 1950s, made possible mostly to the labor and technology inputs from mainland China. The post-WWII era marked the beginning of a period when Hong Kong strengthened its economy, along with its financial markets. Benefiting from a relatively stable political environment, it has gradually developed practices closely aligned with international standards and emerged as a pre-eminent international financial market. Shanghai’s financial development, on the other hand, stalled for more than three decades and, after its closure in 1947, the Shanghai equity market did not re-open until 1990. During the early reform period, there were also relatively limited investment options for investors amid stringent government controls. Compared to Hong Kong’s internationalized and mature equity markets, Shanghai, along with Shenzhen, is still relatively domestic in nature and young in its development.

Rise and fall

Growth repeatable?

Shanghai was China’s financial capital in the pre-revolution era, and the city became the center of British interests in mainland China after the city was

Both Shanghai and Shenzhen picked up steam over the last two decades. According to FTSE, the stock market capitalization of Shanghai and Shenzhen

CHANGING LANDSCAPE –

THE SHANGHAI STORY By Gary Tsang

Photo: Getty Images

Hong Kong and Shanghai have two of the biggest financial markets in China. Notwithstanding strength gained over the past few years, as well as planned developments, Shanghai can still benefit from its counterpart in the south.

ong Kong has been the leading financial center in China for decades. For the size of its equity market capitalization, as well as the breadth and depth of available products, Hong Kong has been peerless in Asia until recently, with the exception of Tokyo. By the end of 2010, however, the Shanghai Stock Exchange (SSE), which is currently the sixth largest exchange in the world, surpassed the Hong Kong Stock Exchange (HKEx). Few would bet against Shanghai to continue increasing in significance on the stage of global finances, especially after the release of China’s 12th Five-Year Plan (12th FYP, 2011-2015) early this year. In the Plan, the Chinese government pledged that Shanghai will become a global financial center

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rose to US$4.2 trillion at the end of Q1 2011 against a backdrop of a robust economy. The SSE accounted for roughly 68.5 percent of the share, or US$2.904 trillion, whereas the Shenzhen Stock Exchange (SZSE) reached US$1.336 trillion. In comparison, the HKEx had a total market value of US$2.751 trillion. The growth in the two Mainland stock exchanges has been fuelled to a great extent by more than 500 initial public offerings, including the listings of China’s largest banks, notes the KPMG report. Many will look at the IPO boom and conclude that it will be difficult to see how China’s equity market can repeat the growth rate over the past six years, during which the total stock market capitalization has risen more than tenfold. “The market expects more private companies’ acquisition as it becomes more mature,” says Simon Gleave, Partner in Charge Financial Services, KPMG China. “The post-resources era will involve more different categories of companies. Growth could come from emerging retail chains and the domestic consumer goods sector.” Another possible source for widening the investment Simon Gleave choices comes from overseas companies which, under current regulations, are not yet able to list directly in China. The proposed launch of the Shanghai International Board is a closely watched move which signifies market development, financial openness, and a degree of internationalization. While the launch – originally rumored to be within the year but has now been delayed – will no doubt lift Shanghai’s profile as a financial centre, China’s regulators still need to formulate in key areas such as listing rules and related market regulations. “In addition to the much talked about areas of listing and disclosure standards, one of the main concerns has been - and will remain to be - the liberalization of the country’s capital account, Gleave says. In the absence of a liberal capital account, questions will be raised by those international companies listed on the Board about the use of the raised capital. The liberalization has been a subject of debate, and Gleave believes it is difficult for everyone to agree on the time frame for an opening up of the issue. Similarly, another key challenge is the internationalization of the Renminbi. Even though Chinese authorities have taken measures to internationalize the currency, including the promotion of the currency in international trade settlements, it is a process which will not be decided purely on the grounds of market forces.

“There is the potential problem of increasing inflow of hot money into China against a backdrop of inflation threat,” says Gleave, adding that China is “in no rush” to liberalize its capital account.

Offshore RMB center Ever since the RMB business was first launched in Hong Kong in 2004, and thanks to the view of anticipated appreciation of the currency, the RMB deposit in Hong Kong reached RMB553.6 billion in July 2011, according to Hong Kong Monetary Authority data. In 2009, Hong Kong was at the center of attention following the first sovereign bond sold by China’s Ministry of Finance, raising RMB6 billion. In the first two months of 2011, sales in the city of RMBdenominated debt totaled RMB13.3 billion. Last month, the MOF just completed the third and the largest bond sale of RMB20 billion in Hong Kong. With the recent announcement of Mini-QFII or RQF-II, many financial experts share the view that Hong Kong will see a gradual expansion of the RMB business in the years to come and the city’s economy can benefit as an offshore RMB center. Under the current environment where the interest rate is controlled by the People’s Bank of China, however, China’s bond markets may not be able to realize their true potential. “The fact that it is relatively easy to arrange corporate finance with banks in China makes it a less attractive option for a company to issue bonds. Besides, there is the pricing issue associated with any bond issuance,” Gleave points out. Having said that, many pundits believe that ever since the sale of the first sovereign bond in Hong Kong in 2009, China’s MOF has tried to establish a benchmark yield curve for RMB-denominated bonds in an offshore market. This will allow private companies to price their bonds when they decide to do so. All in all, the Chinese government has introduced “a series of measures to liberalize the RMB” and there has been important progress in facilitating capital inand out-flows. As the KPMG report highlights, however, “the government will continue to hold an interest in overall currency stability”. Hong Kong, on the other hand, has an established track record as Asia’s premier center for cross-border financial transactions because, for the most part, it allows free capital flow, and because of the quality and depth of its business services. In many ways, the operation of financial markets in Hong Kong is different from Shanghai. Yet, a special link with Mainland China, along with its experience in international finance, is likely to further consolidate Hong Kong’s leading position as an international financial center. It is often said that Hong Kong and Shanghai will

be able to complement each other in promoting the financial interests of China, especially in the case of the internationalization of the RMB. As Donald Tsang, Chief Executive of the HKSAR government, commented on the 12th FYP, “There is no direct competition between Shanghai and Hong Kong in the [RMB internationalization] process because Shanghai is a leading financial center on the Mainland and is good at on-shore financial intermediation services, while Hong Kong is focusing on offshore RMB business development.”

FOLLOW THE MONEY For international investors, a more sophisticated financial market that comes with an array of financial products could bring about the international status that truly reflects China’s economy, now the world’s second largest after the US. Over the last decade, a series of steps – including few only announced last month – has been taken by Chinese authorities to facilitate the flow of investment, both into and out of the country. In 2002, the Chinese government introduced the Qualified Foreign Institutional Investor (QFII) scheme in which accepted international institutions can invest in the domestic-listed equity and debt markets. However, the total investment is subject to a quota approved by the State Administration of Foreign Exchange (SAFE). At the end of 2010, the quota had reached US$19.7 billion, or less than 2 percent of the total stock market capitalization. In 2006, the Qualified Domestic Institutional Investor (QDII) program was introduced in which, as the name implies, qualified investors are allowed to invest in approved overseas markets, again subject to SAFE license and approval. By the end of 2010, 95 institutions were granted the status with a total amount of US$68.4 billion allocated. In addition, it is now widely expected that China will soon launch the Exchange Traded Fund (ETF) constituted by Hong Kong-listed stocks. The forthcoming Mini-QFII or RQF-II program is another measure to facilitate capital inflow into China. It will allow qualified Hong Kong subsidiaries of both Chinese securities and fund management companies to channel RMB deposits in Hong Kong into Mainland financial markets via investment products. However, Chinese regulators have yet to announce details of the program.

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Endorsement of City’s Role Jing Ulrich, Managing Director & Chairman of Global Markets, China, J.P. Morgan, explains below the development of the Renminbi market in Hong Kong and how the propect will boost the city’s role as the leading offshore Renminbi centre.

n recent weeks, mainland and Hong Kong regulators have been accelerating the launch of several new initiatives in the equity and bond markets. Non-financial mainland companies will be allowed to raise funds in the dim sum bond market in Hong Kong for the first time, while the Chinese government will increase its Renminbi debt issuance in the city. On the equity side, notable developments include the re-emergence of the previously shelved "mini-QFII" (qualified foreign institutional investor) programme, as well as the introduction of onshore-listed exchangetraded funds that will track Hong Kong equity indices. Authorities have indicated for some time that advanced preparations are under way for both launches, and their inclusion in the latest suite of supportive policies for Hong Kong appears to suggest they could be introduced relatively soon. On the heels of Vice-Premier Li Keqiang's visit to Hong Kong last month, the People's Bank of China expanded its Renminbi settlement programme across the nation. This should provide a further boost to Renminbi circulation in Hong Kong. Renminbi deposits have surged since mid-2010, when China implemented measures to broaden the scope of eligible participants and increase product diversity in the offshore Renminbi market. Obtaining Renminbi through foreign currency exchange is still heavily restricted, and trade settlement remains the main channel of supply into the offshore market. The beginning of the rapid increase in the offshore Renminbi deposit base has also coincided with the loosening of exchange rate policies; since mid-2010, the yuan has appreciated by 6.8 per cent against the US dollar. By the end of July, total Renminbi deposits in Hong Kong had reached 572.2 billion yuan (HK$656

Jing Ulrich

billion), a five-fold increase on the year before. Among channels through which offshore Renminbi proceeds can be repatriated to mainland China, Hong Kong's dim sum bond market is by far the biggest. To date, the universe of eligible issuers has been limited to companies incorporated offshore, Chinese financial institutions, supra-nationals and the Chinese government itself. The mix of issuers has been heavily skewed towards government-related entities, foreign companies and banks. The inclusion of non-financial mainland companies should greatly increase the number of instruments available for offshore Renminbi investment. However, the framework for eligibility and regulatory oversight must still be clarified. While companies issuing dim sum bonds are, for the most part, confident that funds can be repatriated, the process can be time-consuming, with limited transparency about the criteria for approval. To clarify the framework for offshore Renminbi repatriation, the Ministry of Commerce has released a draft regulation on repatriation through foreign direct investment. Some of the suggested measures include regulating crossborder direct investment in Renminbi under the same rules used for other currencies, and restricting the use of repatriated funds from investment in securities or from repayment of onshore or offshore debt. The latest round of measures is geared towards enhancing the breadth and depth of the offshore market by broadening the universe of eligible issuers and formalizing the procedure by which offshore Renminbi can be repatriated. Expectations of Renminbi appreciation as well as the limited number of investable instruments have allowed dim sum bond issuers to achieve a much lower cost of raising capital than is available in the domestic bond market. But the measures should help improve the balance of supply

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and demand, and it is likely that expectations of a substantial increase in products will translate into more competitive yields. New investment products should increase crossborder portfolio fund flows over time. The market quota for the mini-QFII programme has initially been set at 20 billion yuan, and it is expected that the first batch of funds will concentrate on investing in the onshore bond market. On fund outflows, Chinese authorities will soon allow the launch of A-share exchange-traded funds linked to Hong Kong-listed stocks under the qualified domestic institutional investor (QDII) programme. Domestic asset managers have modest initial expectations for Hong Kong exchange-traded funds, in light of subdued investor sentiment. The scheme began weakly after its launch in 2007 as the first generation of funds booked considerable losses during the global financial crisis. While the first batch of four equity-based funds raised US$4 billion each, the average for funds launched last year was only about US$89 million. But despite much weaker fund-raising, the pace of

new launches has been accelerating; 18 new QDII funds were launched last year. The launch of Hong Kong-linked exchange-traded funds may breathe new life into the scheme. The swift regulatory action since Li's visit suggests an accelerated timetable for the introduction of this new round of Renminbi internationalization measures. Taken as a whole, the measures indicate further endorsement of Hong Kong's role as the leading offshore Renminbi centre, as well as recognition on the part of top national leaders of the need to develop a wider product suite for the offshore market.

Editor’s note:

This article was first published in the South China Morning Post on September 9, 2011. The re-print is authorized by the author and SCMP. Ms Ulrich will speak at a Chamber’s luncheon on December 1. Members who are interested are welcome to contact the Events Department for more details and registration.

HEALTH & WELLNESS

CALL FOR Negative

Lin Che Kit

Appeal for donation

Blood Donation By Linda Yeung

n a modern city like Hong Kong, people tend to take certain things for granted. For example, street safety, and punctual bus and subway services. Although Hong Kong is Asia’s world city, there are services and standards that are “given” in the West but not here. Few people are aware that the supply of Rhesus negative blood in Hong Kong is much less compared with that in western cities. A key factor behind the lack of supply is demographic. For local Chinese, only 0.23 per cent are Rh-negative, meaning that only two or three in every 1,000 are of the rare blood type, according to Dr Lin Che-kit, Chief Executive and Medical Director of the Hong Kong Red Cross Blood Transfusion Service. For Caucasians, the percentage is much higher at 17 percent. “We have to concentrate on finding more Rh-negative donors,” says Lin.

Changing mindset It has taken decades for voluntary blood donation to become accepted in Hong Kong. As the Hong Kong Red Cross celebrates its 60th anniversary next

year, Lin recalls with satisfaction the Red Cross’s success in overturning the traditional Chinese belief that donating blood amounted to a disgrace to one’s parents. Decades ago, only a handful few out of the hundreds of blood donors were Chinese. Today, it’s 99 per cent. The idea of blood donation has become embedded in the local school curriculum, on top of school talks and exhibitions, planting the seed for change. Hong Kong is now a leader in the region in donor recruitment. Nowadays, the Red Cross stores up to 230,000 units of blood in total each year at its King’s Park headquarters in Kowloon. They are subject to the most stringent safety tests and procedures before being supplied to public hospitals. Lin expresses confidence in the latest technology the Red Cross uses to detect viruses, HIV, and antibodies in blood units collected from donor centers around the territory, and in the precautionary measures adopted to minimize risks. “Every year we have three to six donors who are found to be HIV positive, but we discard more than that because some people show at a certain stage of testing that there may be a virus,” he says.

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Increased blood donation is undoubtedly a key to ensuring transfusion of matching blood type. The Red Cross now runs seven donor centers across the territory, including one in Central and another in Causeway Bay, which are open seven days a week. It has also lowered the age of eligible donors to 16 (for first time donation, parental consent is required for the 16-18 age group), as young people’s share constitutes up to 22 per cent of the total units donated annually. To reach out to more negative blood donors in the expatriate community, the Red Cross used to operate mobile donation stations, sponsor screen messages shown during the annual Rugby Seven game and other publicity campaigns. It also keeps a registry of about 1,000 names of active Rh-negative donors, i.e., people who have donated blood at least once in two years. Yet this number falls short of what is needed to sustain supply. Adding to the shortage is expatriates’ high mobility, adds Lin.

To drum up support among youth donors, the Red Cross has resorted to social networks such as Facebook and YouTube. Understandably, young donors can contribute blood over a much longer period of time. One obstacle is the wavering enthusiasm among young people for donation. “Even with successful school programs, we still lack expatriate donors,” Lin says. “It is easy to motivate them (young people) for the first time but when the novelty is over they move on to something else.” “We have to do programs to retain them, give out

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special badges, souvenirs, recognition, etc. We want youth to be our ambassadors so that they will tell their friends to come.” Lin expects Hong Kong’s demand for blood in general to continue to rise, partly because of the city’s ageing population. “More than 60 per cent of our blood is used by people aged 60 or above,” he says. “There are also people from other countries, including China, who come for medical treatment here. That could be another reason (behind the increase in demand).”

Hemolytic anemia and storage Should an Rh-negative woman become pregnant with a baby with Rh-positive blood and if a small amount of the baby’s blood mixes with the mother’s blood, which often happens, the mother’s body may respond as if it were allergic to the baby. When this happens, the condition is called hemolytic disease or hemolytic anemia. This means the mother’s body may make antibodies to the Rh-antigens in the baby’s blood. In other words, the mother have become “sensitized” and her antibodies can cross the placenta and attack the baby’s blood causing the baby’s red blood cells to break down. It can become severe enough to cause serious illness, brain damage, or even death in the fetus or newborn. Hemolytic anemia can be prevented in most cases with an injection or Rh-immunoglobulin (RhIg). The key is for the mother to be tested for her blood type. However, the chance of hemolytic anemia happening because of blood transfusion is extremely rare, Dr Lin maintains. “Based on statistics, that is a minority case.” To allay worries, he adds that 99 per cent of pregnancies do not require blood transfusion. Concerns about immediate and adequate supply of Rh-negative blood have prompted calls for distribution of the rare blood type at all hospitals, public and private, as opposed to central storage. Lin cautions, however, that there may not be enough to meet the vast need in emergency situations regardless where the blood is stored. According to Dr Lin, the Red Cross Blood Transfusion Service now keeps no less than 20 units of O Rh-negative blood in liquid form and another 30 frozen units at its King’s Park blood bank at all times. In addition, one to two units of the blood are stored at six major public hospitals: Queen Mary, Queen Elizabeth, Princess Margaret, Pamela Youde Nethersole Eastern, Prince of Wales and Tuen Mun Hospital.

Multiple Sourcing

And

Storage Urged

patient advocate has called for multiple sourcing and storage of Rhesus negative blood across hospitals in Hong Kong, instead of central storage. Dr Vivian Mark of health support and advice provider Health Concierge also advises patients to be aware of which hospitals have the above blood type. The US-trained medical professional speaks strongly about the need for hospitals storing Rh-negative blood on site. “The protocol and timing of getting blood to a hospital where someone needs it urgently is the dilemma; we would like to see certain units of [Rh-negative] blood available where most expats would be going,” Mark says. “Post-delivery bleeding can happen to any woman; it happens very suddenly at any private hospital,” she adds. “In any trauma centre in the States, you have the universal blood, the O-negative blood on site, because staff there will not have the time to match blood types,” says Mark, who is based at

Central Health Medical Practice, a provider of primary health care in family practice, obstetrics and gynecology, pediatrics and psychiatry. The obstetrician founder of Central Health Medical Practice, Dr Lucy Lord, delivers at Matilda Hospital and the Adventist Hospital. Dr Lord has expressed concern about patients’ Vivian Mark immediate access to Rh-negative blood in case of an emergency, at a panel discussion hosted this summer by the American Chamber of Commerce. Mark says that it is not ideal for an Rh-negative person, male or female, to be given positive blood, except of course, in life-saving situations. “You do run the risk of having a hemolytic reaction. They can die if their blood cells burst,” she cautions. “And there is also a chance of infertility (on the part of the woman), though it is not certain that it will happen.” The chances of a negative blood baby getting infected by antibodies from the negative mother exposed to positive blood are slim, Mark agrees. But she maintains there is still a chance of miscarriage occurring as a result. To increase negative blood supply, she favors sourcing it abroad, for example, from the Londonbased Blood Care Foundation. Shared protocols among hospitals on standards of care and proper blood storage that can avoid wastage are also vital. Mark recommends storage of six to eight units of Rh-negative blood on each site, which can be replenished every month. An open dialogue with the Red Cross Blood Transfusion Service on the issue would be useful, she suggests. Mark adds that increased blood donation drives are always one valuable solution. And they should certainly not be the responsibility of the Red Cross alone, but shared by community groups or professional organizations, locally or overseas-based. - Linda Yeung

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ENVIRONMENT

Tesla Roadster changes people’s perception about electric cars

By Gary Tsang

here is nothing quite like it, at least not in this part of the world. The Tesla Roadster runs purely on electricity, provides zero gaseous emissions and, thanks to its sleek shape, is cool to the eyes. The California-developed two-seater was first launched in the US market three years ago, while the UK-built right-hand-drive version was available to a handful of markets from 2010, including Hong Kong. The Roadster was the first series production electric car to use a lithium-ion battery and is said to have a realistic driving range of 394 kilometers (244 miles).

Deliver value The mission of Tesla is to “change the world,” according to Kevin Yu, Director of Retail Operations, APAC, Tesla Motors. “The company doesn't want its cars to use fuel.” Many mainstream car manufacturers have sometimes forgotten what it takes to build a car the market wants, says Yu, who was formerly an executive

of PayPal Japan before joining Tesla three years ago. “Tesla realized from the start that it had to build cars which are better and cheaper than fuel-powered cars in the real world in order to stand a chance to be accepted as a viable option.” “Like any car manufacturer in the world, Tesla has to deliver value,” Yu continues. “While the image of using an environmentally-sound car is important to some people, to most of us, the image is not as important as our money.” Globally, Tesla has delivered around 1,800 Roadsters to date, but Yu declines to reveal the number sold in any individual market. He is based in Tokyo and is responsible for a number of markets in the region, including Japan, Singapore, and Hong Kong. Sources close to the local car sector estimate that there are around 20 Tesla Roadsters in Hong Kong. A Roadster costs around HK$1.1 million (US$128,247) on-the-road in Hong Kong, thanks to the waiver of the first registration tax for electric vehicles. Like many governments in other parts of the

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world, the HKSAR government is offering an incentive, until March 2014, in an attempt to promote the use of electric vehicles. If not for the tax breaks, a Tesla Roadster would likely cost close to a Porsche 911 Carerra with tons of options. The Roadster is equipped with a lithium-ion battery pack with a capacity of 56kWh and an electric motor capable of producing 248 horsepower. Considering the current rates for electricity in Hong Kong, the cost of charging the battery will set you back the equivalent of a couple of coffees and scones at Starbucks. The mileage cost of the Roadster is therefore significantly lower than the most efficient hybrid car in the city, even though the hybrid operates in the most fuel efficient, and fun-deprived, mode. In June, Hong Kong Tesla Club organized a charity rally that witnessed a dozen Roadsters lapping Hong Kong with stops in Central, Cyberport, Chek Lap Kok airport, the Science Park, Sai Kung, and the Kowloon peninsula, taking in various road surfaces en route. The members of the group each did around

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200 kilometers in over four hours of driving. It was reported that many Roadsters used roughly half of the battery reserve, or under HK$30 worth of electricity, even their drivers enjoyed the comfort of air-conditioning most of the drive.

Real performance Forget other electric cars that can hardly outsprint a 16-seat mini bus; the carbon fiber clad Roadster is more than a match for most performance-oriented cars in the twisty and hilly roads in the territory. In other words, it is a performance car in its own right. “The Roadster is built on the chassis of the Lotus Elise; it even comes with the same great AP brakes,” says Philip Ma, President of Hong Kong Tesla Club. “The handling of the Tesla Roadster is therefore similar to the Lotus. But as the weight is more rear-biased with the Tesla, there is a slight tendency for it to under-steer when you find yourself approaching a corner too fast.” One has to take note of the fact

Philip Ma

that the battery pack weights around 900 lbs (or 410 kgs). Not that Philip has a desire to find out the grip limits of the Roadster to and from his office in Central, but he has developed a wonderful feel of a sports car following years of racing in some of the most competitive series in Asia, including the inaugural Asia Pacific series of the Ferrari Challenge Trofeo Pirelli in which every driver races in a factory-supported Ferrari 458 Challenge. He also owns a Porsche Panamera for hauling kids around in the back seat, but finds most supercars (a term reserved for those examples characterized by a level of performance of little significance in the real world) “no use” in Hong Kong. His comment is echoed by Gigi Chao, a fellow member of the Telsa Club. “Sports cars with ridiculous power output are such a waste in Hong Kong,” she says, even though she admits to fondness of performance in a car. “The Roadster is nimble and easy to handle. Yet, it is also powerful enough that it can give any real sports car a run for its money driving up the hills.”

It is reported that the Roadster can accelerate to 100km/h in less than four seconds. For a similar thrill of acceleration and performance, a driver of a traditional, engine-powered sports car would be fortunate to achieve 30 kilometers in fuel for the same amount spent charging up the lithium-ion batteries in a Roadster. Chao enjoys the thrill of the Roadster, said to be the first car she has paid “out of her own pocket”. But as an executive director of a listed company with interests in property development and investment, she must be known to have access to a fair share of different cars. She now regularly charges up the batteries of the Roadster, and uses the car “pretty much every day.” According to Tesla executives, charging the batteries can be done regardless of the reserve.

Daily use Aside from the performance, the Roadster may surprise many people as it also makes a lot of sense for daily use. It is true that it comes with no more than a pair of leather seats, which means it extends no invitation for free rides for anyone other than the driver’s partner in most cases. However, the luggage space set at the rear of the motor and electricity compartment is good enough for errands such as the weekly supermarket runs. The air-conditioning system works fine under Hong Kong’s sweltering conditions, too. In other words, it is also a very usable car. Tesla offers a warranty (three years or 60,000 kilometers) comparable to those offered by most car manufacturers of “normal” cars. It is said that there is little regular care needed for the motor, the ECU, or the battery pack. Ma points out that the cooling system is carefully thought out as well as laid out in the car. There are ventilation fans in the front and a liquid cooling system close to the battery/motor combination. While both owners would recommend the

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Roadster to any environmentally-conscious person, Chao points out that the Roadster leaves something to be desired when it comes to luxury features (such as electric mirrors). And Ma has not come to terms with the awkward positioning of the battery charging connection, which like the Lotus Elise’s fuel cap position, is set at the side of the car. “You have to ensure the charging device is long enough to reach the car every time.”

Model S If the Tesla Roadster sounds good enough for you in Hong Kong, you better hurry if you are keen to buy one. The local Telsa office has confirmed that it is still taking orders despite reports that the Palo Alto-based company will stop production of the Roadster. Meanwhile, the company is close to the final pre-production development stage of its second model, called the Model S, which is a four-door sedan offering five seats. “The Model S already has an order book of 5,000 worldwide,” says Yu. “And the priority will be given to current Roadster owners.” The right-hand-drive version of the new five-seater, said to cost between HK$600,000 to HK$700,000, will not arrive in the Hong Kong market before 2013, but it has already attracted attention. There is little information about the specifications of the new Model S, but Tesla has released images of the new car and its appearance looks like a winner. “I have already paid a deposit for the Model S,” Ma says. There is no need to ask him if he looks forward to the second model of Tesla, or if he enjoys his experience with the Roadster. You can tell by the gleam in his eyes – especially as it is believed that Tesla has moved the battery charging connection to a better position in the Model S.

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TRADE & INVESTMENT

From Highway to High-rise

TIOSTONE Environmental Limited Product categories: Eco-blocks using glass wastes

hen Dixon Chan hung out at Minden Avenue – a mini version of Lang Kwai Fang in Tsim Sha Tsui – in the middle of the night six years ago, he didn’t go there to have fun. Yes, the music was in full swing and guests were being entertained inside, but Chan was sweating in the back alleys alongside the garbage collectors. Together with his two business partners, they were collecting waste bottles for their newlyestablished environmental company which makes concrete products such as paving blocks. “We could hear the disco music but we were more focused on collecting bottles,” Chan recalls.

The Secretary for the Environment, Edward Yau (Centre), at last year’s Eco Expo Asia Photo provided by Global Eco Resource

Repeat of Success Predicted for

Eco Expo Asia 2011 By Daniel Kwan

he annual premium environmental trade fair – Eco Expo Asia – will return to the AsiaWorld-Expo next month under the theme of “Green Tech for a Low-carbon economy.” Supported by the Environment Bureau and jointly organized by the Hong Kong Trade Development Council and Messe Frankfurt (HK) Ltd, the four-day event is expected to attract a record number of exhibitors and visitors this year. “Last year, the co-launching of the Eco Expo Asia and the C40 Conference [in Hong Kong] has made it (Eco Expo Asia) a huge success,” says Secretary for the Environment Edward Yau, in promoting this year’s fair. “We expect a repeat and more success this year,” In 2010, the expo attracted more than 260 exhibitors, over 8,000 and 1,800 trade and public buyers respectively. The C40 Hong Kong conference – held alongside with the fair – brought together government officials and environmental experts from more than 40 cities to share their insight of the climate change solutions. Primarily an industry fair, Eco Expo Asia provides a convenient platform for exhibitors, quality buyers,

environmental industry professionals, government agencies, and non-government organizations to exchange ideas and explore business opportunities. In 2010, a large contingent of Mainland officials participated and their presence underscored the growing interest in and demand for green technology and products in China. This year, the fair will feature six thematic zones or specialized areas covering E-waste management, new materials, testing, inspection and certification, green financing, green building, and green transportation. For example, a number of eco-friendly vehicles, charging system technologies, and related accessories will be showcased in the green transportation zone. As in 2010, US exhibitors will join together at the USA Pavilion. The first three days of Eco Expo Asia is for trade only, and the last day is open to public. The two companies featured below have signed up to participate in Eco Expo Asia this year. Business for both companies began to take off in the past year as the Hong Kong government launched new initiatives to promote recycling and waste management. One of them has a strong US background and the other is a local success story.

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Concrete business Six years later, Chan frankly admits that he had never thought he would end up running an environmental business. After graduating from McMaster University in Canada in 2003, he had set his sights on a Ph.D. in civil engineering and a career in academia. His master’s thesis was about concrete and after graduation he got a job to help build Highway Seven in Ontario. But he knew his interest was in research and he started looking for opportunities. With the aid of the internet, it didn’t take him long to find what he had wanted. Hong Kong Polytechnic University was looking for a research associate (he also sent his resume to City University). Within weeks, Chan received an appointment letter from Professor Poon Chi Sun of Polytechnic. “I got a job offer before I came back to Hong Kong,” he remembers. He was 24. Convinced that his future was in research and teaching, Chan made his first move for his Ph.D. Under Poon’s tutelage, he began research into the application of glass waste in concrete products, one of six projects Poon was supervising at the time. By 2005, the technology was proven a success – at least in the laboratory – and Chan’s mission then was to try it out in the marketplace. Like many other business novices, Chan found his business partners among the usual suspects. One of them was a schoolmate from Canada, and another research associate from Polytechnic also joined the team. They also found an investor, one of Chan’s family friends, to give them a small piece of land in

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Fanling for their factory and some initial investment. They then licensed the technology from Polytechnic and paid the school royalties on a yearly basis.

Zero market In hindsight, Chan Dixon Chan says the start-up wasn’t really a good business move. “If we were real businessmen at that moment, we would not have done that because we hadn’t done our market research well.” “There was zero market [for our products] at that time,” he says. “But I was lucky enough that I don’t have too much financial pressure from my family.” In early 2006, Chan actually had not yet given up his Ph.D. ambitions, so he helped run the business with his partners and also continued his research work at Polytechnic. But reality soon caught up with him and he realized he needed to make a choice. Although there wasn’t a clear prospect for the business then, he was already deeply involved. At the same time, he recognized that academia also had a limited future in Hong Kong. “The future of a professor is limited in Hong Kong and that makes me change my mind [about getting a PhD],” Chan says, adding that he wasn’t sure if there would be jobs available for him if he stayed on and got his Ph.D. For the next four years, Chan and his partners committed themselves to the business. They approached companies like Coca-cola for bottles and sought out potential clients who would be interested in using environmentally friendly paving blocks. The process from making a product and marketing to a potential client could be as long as six months, imposing serious constraints on the company’s cash flow. The Chinese University was their first client but the business produced only limited revenue, Chan and his partners kept their overhead as low as possible and at that time also had no administrative support staff. “The Chinese University was our first client and I want to thank them for helping us – three young men who were crazy enough to do this business,” Chan says.

[in paving blocks] because it was not in compliance with [government] specifications. At that time, we had huge piles of glass in our factory.”

Global Eco Resource Product categories: Food waste treatment systems

Go north

Eco-blocks by TIOSTONE used in a local housing estate

Turning point A turning point came in October, 2010, when the Highways Department changed its practice and gave priority in road maintenance contracts to paving blocks made from environmentally friendly materials. That decision was a life-saver for Chan’s business because it opened up the market for private developers who were interested in government road maintenance contracts. “If the government didn’t decide to go green in 2010, we would have given up – seriously,” he admits. It was not just that the tough market environment would have meant the end of their business; it was also frustrating to see consumers – the general public – denied the choice to adopt a more environmental friendly lifestyle. Clay bricks, which dominate the local market, are not just more expensive; they also have a bigger carbon footprint because they are imported from countries like Australia. “We felt frustrated because we had better and cheaper products, we utilized local labor and transportation, and we were creating employment. But in 2009 and early 2010, [our products] weren’t acceptable to Highways Department,” Chan says. Moreover, Hong Kong poses a unique challenge for green manufacturers like TIOSTONE because their products are sometimes confined to the commercial market. “In Australia, Canada, and the US, households can purchase them for their patios or backyards. In Hong Kong, you won’t have this market. It’s purely government’s decision … and even if the government isn’t going to buy the products, the specifications or policies [set by the government] are essential.” “Before October 2010, glass couldn’t be used

Government Support Crucial for Green Business

During that period, Chan’s company looked north and transferred the technology to a company in the ceramic town Chaozhou, in Guangdong Province. Instead of glass waste, Chan and his business partners helped the Mainland company use ceramic waste to manufacture a new generation of Eco-blocks. They didn’t have any investment or shares, but they did earn a consulting fee in transferring the technology. That venture proved successful and the Mainland company expanded rapidly. They have not only purchased a second set of machinery to make Eco-blocks, they are planning to add yet another one next year. “In Hong Kong, the government won’t subsidize any private companies, so it isn’t easy to start an environmental business here,” Chan says. “In China it’s different. The government will subsidize you if you are making environmentally friendly products.”

High-rise targets Despite the frustration, Chan has no regrets about what he has sacrificed – his Ph.D. or a more financially rewarding career. “Personally, it’s worth it because I see things more broadly now instead of focusing on academics,” he says. “You can’t measure everything in monetary terms. If I was in my 40s and you asked me if I would do the same thing, I might have a different conclusion.” “I’m happy with what we have achieved – not financially, maybe,” he concludes. “We have at least made a positive impact about glass recycling in Hong Kong.” The company has mapped out a five-year plan to forge ahead. While it will continue to develop new products for the paving block market, it will also look into producing environmentally friendly interior building materials. “Paving block is a very small market compared to high-rise building interiors. If you can win a project for a high-rise building, then the business there is perhaps ten times larger,” he says. Chan says he can enjoy himself when he goes to Minden Avenue for a Friday night out now. “Thankfully, when we go to Minden Avenue now we can really enjoy our beer!” he says. “When the [garbage collection] people pass by, they still say hi to me - it's fun.”

biz.hk

9 • 2011

or many businesses, being able to leverage government support is almost half-way to success. That statement carries even more weight for environmental businesses given their long lead-times and lower-than-average returns. Billy Lee, founder of the California-based food waste equipment manufacturer Global Energy Resource, seems to have excelled in doing just that. According to him, government support often holds the key to whether a business thrives or fails. “For environment business, the number one key is that you must stay in close touch with government,” says Lee. “You must know what the government is thinking and maintain constant communication with them.”

Getting started Lee, who emigrated from Hong Kong to the US in 1991, is back in the city running his own environmental business. The Hong Kong subsidiary uses the name Global Eco Resource to distinguish it from its California-based parent. Lee used to run an electric appliance trading business in California, but decided to change track six years ago when he met a Korean professor at the University of California, Los Angeles. “The professor had been doing research in waste management for many years, and he asked me if we might want to do this together and apply to the US government for funding through the university,” Lee says. Not only did they manage to obtain funding from the US Department of Commerce, Lee also found out that the compost produced using their food waste processing systems met the health standards set by the US Department of Health. This means anyone who bought their machines – restaurants, supermarkets and even households – could sell the compost the machines made as fertilizer. With the US government funding and a bit of their own investment, Lee says they started a factory in South Korea, using the professor’s connections. Since the production of the machines requires some heavy machining work, Hong Kong is disadvantaged compared with South Korea. They did not choose China to set up the factory because they were worried about the theft of intellectual property there. Lee says one advantage of their on-site machines is

biz.hk

9 • 2011

Billy Lee

that they can turn food waste into compost in just 12 to 16 hours, compared with the days or even weeks other machines may require. In addition, their machines are compact in size and can fit into most restaurant kitchens. They also generate virtually no odor during the waste treatment process. Most important, Lee says, is that their machines can reduce waste volume by 90 percent. In other words, even if the compost is to be thrown away, it will only take up one-tenth of the space that would otherwise have been needed.

Running out of space This is a crucial feature for cities which face the problem of overflowing landfills. In the US, food waste contributes 35 percent by weight of the daily municipal solid wastes. Hong Kong faces a similar if not more serious problem. According to estimates by the HKSAR government, the city will run out of landfill space much sooner than expected. At present, Hong Kong disposes about 3,000 tons of food waste to landfills each day, of which about 2,000 tons were produced by domestic households. This is a serious issue. According to the Environmental Protection Department website, “Unless

Injection of capital by government for Environment and Conservation Fund: Year Amount (HK$) 1994 1998 2002 2006 2008

50,000,000 50,000,000 100,000,000 35,000,000 1 billion

Source: Website of Environment and Conservation Fund

solutions are identified immediately, we could face a crisis in the next decade of having nowhere to put the thousands of tons of waste thrown away each day,” Convinced that his machines present an ideal solution to Hong Kong’s food waste problem, Lee is now in discussion with the government in hopes to market their machines to housing estates under a funding scheme sponsored by the government.

Government funding

In 2011, Jones Lang LaSalle (Tenant & Project Manager) and its partners, Swire Properties (Landlord) and M Moser Associates (Interior Designer), embarked on a journey to achieve the Platinum LEED® in fitting out its new offices at Three Pacific Place in Hong Kong. In July, JLL received confirmation of their success and ended up achieving the world's highest LEED® Platinum score. Please join us for this unique site visit to JLL and luncheon as AmCham focuses upon the process it took to obtain this outstanding certification, including the challenges and unexpected benefits that came out of the experience.

Billy Lee demonstrates his food waste treatment system to Andrew Wylegala (right), Chief Commercial Consul of the American Consulate General of Hong Kong and Macau

“If you calculate how much it costs to dump the food waste in the landfills, I dare say it is actually a very good deal for the government to help fund the installation of the machines,” he says. “Bear in mind that we can reduce the volume by 90 percent.” The entrepreneur says they are now developing a household unit using micro-wave technology, and the new products will target high-end and environmentally conscious residential developers. “We believe developers are considering such features so that they can capture buyers who want a green living style,” he says.

The Challenges In Achieving The World’s Highest Platinum LEED® Rating

* Cary Chan, Head, Technical Services and Sustainability, Swire Properties Limited * Wendy Leung, Director, M Moser Associates * Allen Liang, Director, Energy and Sustainability Services, Greater China, Jones Lang LaSalle Moderator: Gavin Morgan, Deputy Managing Director and Head of Leasing, Jones Lang LaSalle Hong Kong

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Fee(s): Member Fee: HK$200 Non Member Fee: HK$290

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Venue: Jones Lang LaSalle 6/F Three Pacific Place 1 Queen's Road East, Hong Kong

MEDIA WELCOME

Nov

Congratulations to AmCham member Gordon Watson, Executive Vice President & Regional Managing Director of AIA Group, for winning AmCham's Member Referral Contest and referring the most new members during the period between June 1 and August 15, 2011. The prize is dinner for two with a bottle of wine at AL MOLO.

AmCham/ SCMP Women of Influence Conference & Awards 2011 Connecting, Collaborating and Inspiring CONFIRMED SPEAKERS – More to be announced *Saori Subourg, President, Asia Pacific, BASF *Umran Beba, President, Asia Pacific Region, PepsiCo Inc *Shanthi Flynn, VP-HR, Walmart Asia *Pooja Grover, Managing Director, Investment Banking Division, Goldman Sachs (Asia)LLC *Karen Koh, Founder & Principal, Intermedia *Shalini Mahtani, MBE, Founder & Advisor to the Board, Community Business *Susan Reingold, SVP, Corporate Development, Asia Pacific, Grey Group *Lizette Smook, Founder & CEO, InnovAsians Ltd. The American Chamber of Commerce in Hong Kong and the South China Morning Post proudly present the eighth Women of Influence (WOI) Program. Join us for a special half-day conference and awards ceremony to recognize some of Hong Kong’s most outstanding women and their significant impact. This year’s conference is about the importance of connecting, collaborating and inspiring. It will highlight insights, strategies and advice from women who have successfully reached the pinnacle of their careers. The culmination of the conference will be the presentation of the eighth Women of Influence Awards.

Nov AMCHAM HONG KONG GOLF OPEN

Discovery Bay Golf Club Valley Road Discovery Bay Lautau Island TOURNAMENT DETAILS Format: Teams of four. First tee-off at 12:50pm onwards Charity: Part of the proceeds will go to the AmCham Charitable Foundation Prizes for players: Winner, First and Second Runner-ups of Stableford. Special awards for Closest to Pin, Longest Drive, and other fun prizes Package includes * Green fees * Shared buggy and locker * Halfway house expenses (snacks and drinks) * Standard drinks (wines not included), lunch buffet and BBQ dinner * Practice balls at driving range * Souvenir Pack (Metal Bag Tag, Yardage Book & DBGC Ball Marker)

Venue: Four Seasons Hotel Grand Ballroom, Level 2 8 Finance Street, Central Time: 8:20am – 2:15pm Conference & Awards Ceremony (Lunch included) Fee(s): Member Fee: HK$1,250 Non Member Fee: HK$1,450 Corporate Table Fee (10-12pax): HK$15,000 MEDIA WELCOME

Venue: Discovery Bay Golf Club Valley Road Discovery Bay Lautau Island Time: 11:30am - 8:00pm Fee(s): Member Fee: HK$2,200 Non Member Fee: HK$2,400

Transportation to Discovery Bay at player’s own arrangement. A ferry schedule will be sent to the confirmed players. Complimentary Shuttles to the golf club will be waiting at the Discovery Bay Ferry Pier at the arrival of each ferry.

Gordon Watson (right) accepts award from Mike Tsang, AmCham Membership Director.

For information, see website: www.amcham.org.hk Tel: (852) 2530 6900

Fax: (852) 2810 1289

Email: kalau@amcham.org.hk

2011 November

Rolled out in July by the Environment and Conservation Fund (which was set up by the government in 1994 to provide funding for non-profit making organizations for environment projects), the scheme will – among other things – provide subsidies to 10 housing estates across the territory to install on-site food waste treatment equipment. Initial funding of HK$50 million has been set aside for the two-year program and the Heng Fa Chuen residential estate in Chai Wan is among the first groups to participate in the scheme. Lee is confident that such largesse will help environmental businesses grow in Hong Kong. His next step is reaching out to government again, hoping it will subsidize operators of shopping malls to install the food waste treatment facilities.

Oct Going Green To The Extreme -