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Ho GU tel ID s& E Re TO so rts

Journal of The American Chamber of Commerce in Hong Kong

www.amcham.org.hk

March 2012

THE TEAM behind SelectUSA COVER SPONSOR

Member’s Price

HK$200

b le Availa

March

2012

Your Best Guidebook for Settling in Hong Kong is a compendium-style all-you-need-to-know guide for newcomers to

school, getting settled when arrived and enjoying life in Hong Kong. This consumeroriented book is designed as a sort of “hotline” with useful phone numbers and contacts to other sources of help. bookshops in Hong Kong. AmCham members often buy the book for their relatives and Americans), the book is one of the best-selling publications for AmCham.

Contact: AmCham Publication Department Advertising Manager: Regina Leung Direct Line: 2530 6942 Email: rleung@amcham.org.hk

March 2012 Vol 44 No 03

Contents

Richard R Vuylsteke

Editor-in-Chief Daniel Kwan

Managing Editor

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08

14

COVER STORY

TRADE & INVESTMENT

COMMERCIAL PROPERTY

APPAREL & FOOTWEAR

The US government is keen to lure more foreign investment and jobs back to the country despite an improving economy where unemployment figures are improving

Government officials, business leaders and AmCham representatives gather in Washington DC for a Global Business Conference sponsored by the US Department of State to discuss how America’s foreign policy can champion US businesses abroad and drive recovery at home

The transformation and integration of Kowloon East redevelopment into Hong Kong’s new CBD is an essential step in providing additional supply of Grade A office space and maintaining Hong Kong’s status as an international financial and business center

Global Apparel, Footwear and Textile Initiative (GAFTI) is formed to achieve the goal of a more uniformed industry by being the “global voice” setting standards in the global supply chain for the 21st century

Publisher

Kenny Lau

Advertising Sales Manager

18

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, 2012 Library of Congress: LC 98-645652

04

TRADE & INVESTMENT

AMCHAM NEWS AND VIEWS Chairman’s Memo James Sun talks about the Global Business Conference in Washington DC and previews two upcoming China-related events including a delegation trip to Beijing and a conference on China business here in Hong Kong

07 New Business Contacts

14 US State Department – Global Business Conference Government officials, business leaders and AmCham representatives gather in Washington DC to discuss how America’s foreign policy can champion US businesses abroad and drive recovery at home

17 Hong Kong Scorecard

39 executives joined AmCham’s business network last month

The US Consulate in Hong Kong scores high on any measure of constructive cooperation with AmCham member companies and executives

33 Mark Your Calendar

COMMERCIAL PROPERTY

COVER STORY

18 Kowloon East: Transformation and Integration into Hong Kong’s CBD

08 Investing in America The US government is keen to lure more foreign investment and jobs back to the country despite an improving economy

12 China to Continue on Buying Spree in 2012 Gabriel Wong, Head of PricewaterhouseCoopers China Corporate Finance, shares his insights in a conversation on Chinese outbound investment in the year ahead

The implementation of a Kowloon East Business District to provide additional supply of Grade A office space deemed critical to Hong Kong’s status as an international financial and business center

APPAREL & FOOTWEAR 22 GAFTI: Standardization of the Global Supply Chain

ENVIRONMENT 24 Growing Concern among SMEs but Little Action on Climate Change A survey by the Climate Change Business Forum shows SMEs in Hong Kong are concerned about climate change but are taking limited action to reduce their risk exposure

REAL ESTATE 26 Real Estate 101: An Introduction to Buying Property in Hong Kong Chris Dillon – a unilingual expat – tells of his experience of buying and renovating an office, an apartment and a factory over the course of five years and of Hong Kong’s unique property market

CULTURE 29 Water Margin – Hong Kong’s Link to the Sea The story of Asia-based photojournalist Robin Moyer who documented Hong Kong’s link with the sea through his lenses for a photo essay dedicated to environmental NGO Ocean Recovery Alliance in a book called Water Margin

Global Apparel, Footwear and Textile Initiative (GAFTI) formed to achieve the goal of a more uniformed industry by being the “global voice” setting standards for the 21st century

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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3 • 2012

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3

COVER SPONSOR

Chairman’s Memo

Board of Governors Chairman James Sun Vice Chairman Richard Weisman Treasurer Peter Levesque Executive Committee Janet De Silva, Frank Lavin, Anita Leung Philip Leung, Belinda Lui, Alan Turley Governors Evan Auyang, Sara Yang Bosco , Brian Brenner, Tom Burns, Nicholas de Boursac, Walter Dias, Rob Glucksman , Toby Marion , Thomas Nelson, Andrea Richey, John Sigalos, Colin Tam, Elizabeth L Thomson, Frank Wong, Shengman Zhang Ex-Officio Governor President

Robert Chipman Richard R Vuylsteke

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

Susan Reingold

Corporate Responsibility

Robert Grieves

Energy Entrepreneurs/SME Environment Financial Services

Kay Kutt Andre Leroy Donald Meyer Frank Wong

Dominic Yin Donald Austin Bradley Punu Catherine Simmons Brock Wilson Food & Beverage Peter Johnston Hospitality & Tourism Noble Coker Human Capital Janet De Silva Peter Liu Information & Communications Technology Rex Engelking Insurance & Healthcare Owen Belman Hanif Kanji Intellectual Property Gabriela Kennedy Amy Lee Law Clara Ingen-Housz Pharmaceutical Stephen Leung Real Estate Alan Seigrist Senior Financial Forum Alvin Miyasato Senior HR Forum Brian Chitester Sports & Entertainment Raymond Roessel Taxation Evan Blanco Trade & Investment Patrick Wu Transportation & Logistics Brian Miller Women of Influence Jennifer Van Dale Young Professionals Sherry Lin

4

Dear Fellow Members: Time flies. Before you know it, spring is almost over and summer is just around the corner. As the old Chinese saying goes, “a year’s plan starts with spring.”

Talking about making plans, I have been truly impressed by the efficiency of how events are being planned and executed at the Chamber. In late April and mid-May, we will be hosting – on top of our regular daily breakfast meetings, luncheons, and committee meetings – respectively our annual AmCham Ball and the China Conference, both at the Four Seasons Hotel’s Ballroom. We are confident that you will find both events – albeit very different in nature – highly rewarding.

In addition, I will lead a delegation of senior Chamber members to Beijing later this month for our annual Doorknock

visit. With the recent conclusion of the Chinese parliamentary meeting in Beijing, we are excited to be able to meet with top Chinese leaders, officials, and business chamber representatives to exchange views on issues pertinent to the promotion of Sino-US trade and investment, Hong Kong’s prosperity and long-term competitiveness, and China’s future reform plans. Watch this space for an update of our visit next month.

Preparations for the China Conference (May 18) are now underway in earnest. We are fortunate to have Charles Li, Chief Executive of Hong Kong Exchange and Clearing, and John Rice, Vice Chairman of GE and President & CEO of GE Global Growth and Operations, as our two keynote speakers. The one-day event will also include a slate of distinguished panelists who will share their thoughts and insights on the status of China’s efforts at economic reform and near-term business opportunities under China’s 12th Five-Year Plan. We are working hard to ensure that the conference will be highly interactive and provide practical business information of immediate importance to the participants.

At the Global Business Conference held in Washington DC last month, Secretary of State Hillary Clinton pledged that the State Department would work closely with American businesses abroad to promote what she called “Economic Statecraft.” By putting economics at the center of Washington’s foreign policy, Secretary Clinton called upon embassies and consulates worldwide to strengthen partnership with the private sector. Such partnership will form the core of her “job

biz.hk 3• 2012

diplomacy” agenda. (For more details, see a full report of the conference in this issue of biz.hk.)

AmCham Hong Kong fully embraces and supports the new commitment by the State Department and its businessfriendly agenda. We expect that even more events and briefing programs will be held in conjunction with Foreign Service and Commercial officers from the US Consulate in Hong Kong.

As the Chinese Premier Wen Jiabao said recently at his last official press conference, Hong Kong “now faces both difficulties and opportunities” and the city must “continue to work hard to develop the economy, improve people’s livelihood, advance democracy and maintain social harmony.” For more than 40 years, AmCham Hong Kong has witnessed the resilience and innovative power of the local population. We are convinced that despite some anticipated choppy waters, the summer months of 2012 will be full of energy and optimism for Hong Kong.

James Sun Chairman

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3 • 2012

5

New

Business Contacts

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

The following people are new AmCham members: AIA Group

Esprit Holdings Limited

O'Melveny & Myers

Sonia Tsang Vice President, Group Corporate Communications

Paul Cheng Deputy Chairman

David Johnson Managing Partner

Executive Centre, The

Parsons Brinckerhoff (Asia) Ltd

Gigi Liu Communications Director

Sean Purdie Development Director Power

Google Inc

Rainbow Foundation Ltd

Andy Yee Government Affairs Manager

Matthew Pine Manager

Insigniam Performance

Rouse Legal

APCO Worldwide David Hall Senior Counselor

ASB Biodiesel (Hong Kong) Ltd Anthony Dixon CEO

Baker & McKenzie Julia Powers Associate

Bird & Bird

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.

ISBN 978-962-7422-03-7

LC 98-645651

Matthew Laight Managing Partner, China

Caterpillar (HK) Limited Mark Thompson CFO

Chinese University of Hong Kong, The Cheung-Kwok Law Associate Director, Aviation Policy and Research Center/Dept of Decision Sciences and Managerial Economics

Citi Ernesto Pittaluga Director Edward Lam Head of Global Banking, Hong Kong

Connell Brothers Co (HK) Ltd Azita Owlia Vice President, North Asia

Felicity McRobb Consultant

InterCall Andy Kun Business Development Manager

Kimberly-Clark North Asia April Lai Managing Director, Hong Kong

KPMG Jeremy Fearnely Partner Irene Chu Partner, Audit

SGT Limited Marie-Annabelle Mermaz Chief Executive Officer

Sino Private Aviation (HK) Ltd Karin Hoo Vice President, Sales Diana Chou Managing Director

Transamerica Life (Bermuda) Ltd

Perry Lam Chief Excellence Officer

David Wolf Chief Operating Officer, AEGON Asia Ellen van der Hoog Assistant Vice President, AEGON Asia Beth Wang Head of Operational Risk and Compliance, AEGON Asia

Loyens & Loeff

University of Pennsylvania, The

LAM (Leadership & Advanced Management) Institute Ltd

Carola van den Bruinhorst Partner

Mayer Brown JSM

Control Risks Pacific Ltd

Hong Tran Partner

Jake Boswell Senior Consultant

Morrison & Foerster LLP

Karen Bowman Principal

Vena Cheng Of Counsel Timothy Blakely Partner

DHL Global Forwarding (HK) Ltd

Oldham Li & Nie Solicitors

Torben Kock Vice President, Global Head of Consumer

Michelle Liu Registered Foreign Lawyer

Deloitte Touche Tohmatsu

Christopher Vale Partner

Sharon Kim Associate Director, Business Development

USA Girl Scouts Hong Kong Elizabeth Derrick Co-Chairperson

View our other members at:

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

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COVER STORY

Investing in America Despite an improving economy, the US government is keen to lure more foreign investment and manufacturing jobs back to the country

By Helen Luk

A

fter more than two years of gloom and doom, the US economy has recently begun to show signs of life. Unemployment figures are improving, stock markets are rebounding and the US Federal Reserve forecasts that the economy will grow at a faster pace of 2.5 percent this year.

Despite the silver lining, the US government still sits on a mammoth fiscal deficit and faces many economic challenges ahead. To spur further economic growth and job creation, attracting foreign direct investment (FDI) to the US has become a priority for the Obama administration.

Unlike some developed countries, the US does not have a centralized investment promotion infrastructure and its states and cities compete against foreign governments to attract investment. That’s why President Barack Obama issued an Executive Order last June to set up SelectUSA, a government-wide initiative focusing on attracting and expanding business investment in the US (see story on page 14).

“My administration is committed to enhancing the efforts of the United States to win the growing global competition for business investment by leveraging our advantages as the premier business location in the world,” President Obama wrote in the executive order.

Laying the groundwork Christopher Clement, Manager of Global Business Attraction for SelectUSA, was in Hong Kong last month to promote the initiative. He says it aims to facilitate investment in the US by providing relevant information to prospective investors, helping them resolve issues that could delay their investments, as well as coordinating outreach at the state and local government levels in the US to promote the country as a prime FDI destination.

“We are the first point of contact for a company that wants to know how to incorporate a business in the US, how US federal tax laws work or how to apply for and, we hope, successfully get a visa to travel to the US to start their business,” Clement tells biz.hk in an interview.

“We educate foreign businesses on the logistics of the US market so that they know how to do a deal that is best for them. We also serve as an ombudsman and explain to investors how to move forward in a regulatory process.”

David Murphy

Eric Crowley

Christopher Clement

Kamal Vora

Catherine Spillman

Photo: Create Images

8

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New deal, new money

T

he new US-South Korea free-trade agreement (FTA) that took effect in mid-March is expected to spur more investments and create more jobs in both economies, Catherine Spillman, Commercial Attache at the US Embassy in Seoul, said.

“When there is an increase in trade, there is an increase in FDI,” she said. “For example, there is value to companies of being closer to their customers once a certain sales volume is reached from both a logistical and marketing point of view.”

As South Korea’s wealth and economic power grew, so has its investment in the US, particularly since the 1990s. According to Spillman, South Korean FDI in the US grew by 23 percent from 2005 to 2010. FDI flows from South Korea into the US reached US$15.2 billion in 2010, up 12.6 percent from US$13.5 billion in 2009.

“Most Korean investment is in the wholesale trade sector. In many cases, new Korean investment follows previous ones – for example, auto supply companies clustering around Korean automobile manufacturing plants in the US,” she said.

An estimate from the US International Trade Commission shows that the FTA with South Korea, the biggest trade deal for the US since the North American FTA took effect in 1994, is expected to boost exports by up to US$10.9 billion in its first year of full effect.

As part of the FTA, the South Korean government has also pledged to strengthen intellection property rights protection for US products and to open up its US$580 billion services market.

10

Part of the reason for his visit to Asia is to train Foreign Commercial Service officers who have been tasked with the extra responsibility to promote FDI to the US and coordinate outreach with chambers of commerce and foreign companies.

This year, the US government has selected 10 markets, namely Brazil, Canada, China and Hong Kong, France, Germany, India, Mexico, Russia, Spain and South Korea, as part of the SelectUSA pilot. The plan is to expand the program to 25 markets next year, including Australia, Japan, the Middle East and more European and Asian countries. The administration has announced plans to request US$13 million for funding the program next year.

Despite lingering concerns over Europe’s debt crisis, Clement is upbeat about potential investment from the continent into the US market.

“A company in a local economy that is not doing very well may be forced to invest in the US if that multinational is to continue to grow globally. In an era where capital mobility is extremely high, companies can’t rely on their own home market to spur their growth forward,” he says.

“The US accounts for 42 percent of the total global consumer market and therefore, for any company to be considered global, they need to have a presence in the United States.”

The emerging economies Although developed nations such as the UK, Japan and Germany remained the top three foreign investors in the US in 2010, emerging countries such as China, India and Brazil were quickly catching up (see Table).

“China is the fastest-growing source of FDI in the US and it’s growing even more dramatically this year. It is a testament to the fact that Chinese firms are coming to understand opportunities in the US market,” Clement says.

Fueled by Beijing’s push for Chinese companies to expand globally in recent years, the total stock of Chinese FDI in the US reached US$5.8 billion in 2010 while the FDI flows from China into the

US was US$3.1 billion in the same year, more than doubling the US$1.2 billion in 2009. The investments cover a wide range of industries, such as energy, renewable energy, biotechnology, transportation, hotels and retail.

In November 2010, China’s Pacific Century Automotive Systems Co acquired Saginaw, Michigan-based auto parts supplier Nexteer Automotive from General Motors Co for US$420 million.

In March 2010, Jinjiang International Hotels acquired Arlington, Virginiaheadquartered Interstate Hotels & Resorts Inc for US$150 million.

Despite the keen interest from Chinese companies to invest in the US, some of them have complained about the difficulty of getting US visas. The political resistance triggered by certain high profile deals involving Chinese companies acquiring US assets in the past has also raised suspicions that Chinese capital may not be welcomed in the US (see sidebar on page 12).

Clement stresses that the US has no restrictions by industry or sector on FDI from any country coming into the US. “It’s only those specific merger or acquisition deals, which raised specific national security concerns. It’s a very small slice of all FDI in the US,” he says.

David Murphy, Commercial Officer at the US Embassy in Beijing, reassures investors that the US government is taking active steps to address the visa issue.

“Our interest is to improve the perception about investment in the US from China. We want to let people know that visas are very easy to get, unlike what a lot of people are saying. We want them to know that the US government does not discriminate against Chinese investment or investment from anywhere. It’s wide open,” Murphy says.

He says the US embassy and consulates in China have hired 50 extra staff this year to speed up the approvals of visa applications, with the target of reducing waiting times to single-digit days. About 1.4 million visas are expected to be issued this year, up 40 percent from last year’s 1 million.

The US embassy officials in China have also beefed up their outreach efforts

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US FDI Trends Top 10 FDI Stock Positions, 2010 Rank

2010 FDI Position in the United States

Billion USD

1 2 3 4 5 6 7 8 9 10

United Kingdom Japan Germany Canada France Netherlands Ireland Switzerland Australia Belgium

497.5 263.2 257.2 238.1 209.6 118 61.7 61.6 52.9 52.2

Source: Department of Commerce, Bureau of Economic Analysis - FDI by Ultimate Beneficiary Owner

this year to meet with US service providers and Chinese entrepreneurs in different Chinese cities, including Changchun, Chengdu, Jinan and Xian.

Hong Kong’s role If the China FDI figures are combined with Hong Kong’s, the numbers become even more impressive.

In 2010, Hong Kong recorded US$4.3 billion FDI flows into the US and the total stock of its FDI in the US was US$11.6 billion.

Eric Crowley, Commercial Consul at the US Consulate in Hong Kong, says the territory remains an important gateway and platform for Chinese companies to invest overseas.

“About 65 percent of overseas Mainland Chinese investments actually happen through Hong Kong,” he says, adding that the territory also has a critical mass of consultants, legal and financial services professionals who can assist Chinese companies in their overseas investment.

In the coming months, Crowley says they will work with chambers of commerce and service providers to organize events for “Chinese companies

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considering” investing in the US. For example, AmCham will be organizing a China Conference in May and the Chinese Chamber of Commerce will hold a China Overseas Investment Summit in November.

“Both of those events are programs for which we would like to partner with the AmCham members to help provide information and services to potential Chinese investors in the US,” he says.

In the US, the Department of Commerce will host the first annual SelectUSA Investment Summit later this year, where local officials, federal agencies and economic development organizations will address questions from companies that are interested in investing in the US.

“Insourcing” manufacturing In addition to encouraging foreign investment, President Obama is urging manufacturers to “insource” jobs back to the United States, as part of his measures to alleviate unemployment, which stood at 8.3 percent in February despite having fallen for five straight months.

Since December 2009, the number of manufacturing jobs in the US has increased by 300,000, reversing a declining trend since 1998. Companies like Ford, Honda, General Electric and Caterpillar have all insourced jobs back to the US. To encourage the trend, the president has proposed scrapping tax deductions for shipping jobs overseas and give new incentives for returning those jobs back to the United States. He is also pushing for a US$2 billion per year tax credit to encourage manufacturers to invest in communities that have been hardest-hit by companies choosing to relocate their operations.

“I don’t want America to be a nation that’s primarily known for financial speculation and racking up debt buying stuff from other nations,” Obama told an “Insourcing American Jobs” forum in the US in January. “I want us to be known for making and selling products all over the world stamped with three proud words: ‘Made in America.’”

Reversal of fortune

I

ndia has bumped up investments to the US in recent years although America remains the top foreign investor in the South Asian country, according to Kamal Vora, Commercial Specialist at the US Consulate in Mumbai.

India recorded more than 500 outbound investment deals between 2009 and 2010, 20 percent of which went to the US. That trend continued to accelerate last year, with the number of outbound deals exceeding 100 in the first quarter of 2011 alone, of which 25 percent were US bound, he said.

FDI flows from India into the US reached US$3.3 billion in 2010, up 37.5 percent from US$2.4 billion in 2009.

India was the eighth fastest-growing source of FDI in the US over the five-year period from 2005 to 2010.

“The government is very encouraging, and Indian banks and financial institutions are supportive,” Vora told biz.hk during a visit to Hong Kong last month.

India used to be a pure recipient of FDI from the US, particularly in the form of outsourced IT work from US companies seeking to lower costs.

But the trend has somewhat reversed since the financial crisis: Some Indian IT companies, such as Infosys, Tata Consultancy Services and Wipro, set up shop in the US and have been hiring Americans to do work that was once outsourced to India. The “reverse outsourcing” model allows these Indian companies to take on larger projects and cut down on travel costs and time delays so that they can better serve their clients.

In addition to information technology, the other sectors that attract most Indian investments are pharmaceutical, manufacturing and energy, Vora said.

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China to Continue Buying Spree in 2012

W

ill Chinese outbound investment continue its impressive growth in 2012 despite the uncertain global outlook? Gabriel Wong, head of PricewaterhouseCoopers China Corporate Finance, is probably one of the most qualified commentators on the issue. A veteran China hand, Wong has advised Chinese and foreign investors on M&A for more than 20 years. The following is an excerpt of his interview with biz.hk: biz.hk: Do you expect the momentum of Chinese outbound investment to increase in 2012?

Wong: The trend [of Chinese outbound investment] is going to accelerate in 2012. In 2011, China outbound continued on its impressive growth trajectory climbing to a new record of 207 deals in one full year, up 10 percent and to a value of US$42.9 billion an increase of 12 percent from 2010 levels.

There were 16 outbound M&A deals

by China buyers with a value exceeding US$1 billion announced in 2011, compared to 12 in 2010. Fourteen were in the resources and energy sector. biz.hk: Where and in what sectors will we see the bulk of Chinese investment this year?

Wong: In terms of deal value, the key sectors will still be in mining, energy and resources, and agriculture because these projects typically involve substantial investment. But in terms of number of transactions, we are going to see a lot of Chinese investment going into consumer and industrial products industries. These projects are what Chinese want as goods made in China move up the value chain. biz.hk: Would the appreciation of Renminbi affect the flow of Chinese investment abroad?

Wong: Frankly speaking, the driving force for Chinese investors to invest abroad is not because of the value of the currency. Chinese investors are interested in buying foreign companies which have a good value proposition. The currency

12

factor is only a deal sweetener. biz.hk: Will we see more Chinese investment in Europe?

Wong: Acquisition by Chinese enterprises in Europe will continue in 2012. First, Europe’s cheap assets are one factor but it may not be the only driving force. The key driving force will be availability of good technology in Europe. One change we are going to see is the rise of small and medium-sized companies in the M&A field.

In the past, M&A activities used to be dominated by big Chinese state-owned enterprises. One unique character about Europe is that there are a lot of small and medium-sized companies. These companies may not produce a full array of products but they are very good in some particular fields. We are seeing more Chinese companies interested in these SMEs because of their technology. The current Euro debt crisis is only a catalyst.

Another factor is that the mindset of the Europeans has changed. Eight or seven years ago, Europeans were more resistant to the idea of acquisition by Chinese investors. Nowadays, they are much more receptive. There are various reasons behind the change of mindset.

One key reason is that more people in Europe now understand and appreciate the changes China is going through.

Improved communication and transparency also help in lowering the barrier. biz.hk: Are we going to see more Chinese investment for the US? What about the perception that Chinese

Gabriel Wong

investment is not welcomed in the US? Wong: We should not follow a simple generalization or stereotypical view of a few high-profile failure cases [because of political or regulatory reasons]. There are different buyers in China and they all have different consideration. For instance, the behavior and decision-making process of state-owned enterprises are very different from that of private enterprises. For private investors, political factors are not likely to play a key role [in their M&A activities]. They would focus more on the commercial value of an investment. biz.hk: There are concerns in the US that Chinese investors will come in with their acquisition and then move the production to China. The fear of job loss to China is always cited as the reason why Chinese investment should not be welcomed. Are Chinese investors aware of such concern and how do they deal with it?

Wong: We need to understand that the real rationale behind Chinese outbound investment nowadays is very different from what it used to be years ago. In the past, the key rationale of Chinese outbound was the cost differential. Today, production cost in China – taking everything into account – is no longer cheap. Why would they want to move production to China today? It is the market that’s driving Chinese investors to go abroad. The rationale now is that the overseas acquisitions are meant to serve the China’s growing consumer market.

This is why we will see more Chinese acquisitions of foreign brands. This is why they want “Made-in-US, Sell-in-China.”

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TRADE & INVESTMENT

US State Department – Global Business Conference A Commitment to “Economic Statecraft” The Secretary’s Global Business Conference, hosted by Secretary of State Hillary Clinton in Washington DC, 21-22 February, emphasized that US Embassies and Consulates around the world “need to do more at the intersection between business and diplomacy.”

By Richard R. Vuylsteke Photo courtesy: State Department

I

n her welcoming remarks, Secretary Clinton made clear that time has come for the US to take new look on how to conduct diplomacy. “We gather today,” she told the audience, “to discuss how America’s foreign policy can champion US businesses abroad and drive recovery here at home, and also help provide a strong foundation and effective economic tools that can strengthen and sustain America’s global leadership. Here at the State Department, we call this Economic Statecraft.

“We understand that America’s economic strength and our global leadership are a package deal,” Clinton said.

“You’re not going to have one without the other. Our power in the 21st century depends not just on the size of our military but also on what we grow, how well we innovate, what we make, and how effectively we sell. Rising powers like China,

14

India, and Brazil understand this as well, and we can’t sit on the sidelines while they put economics at the center of their foreign policies.”

The State Department-hosted conference brought chairs and presidents from 100 AmChams around the world together with Vice President Joe Biden and more than 30 Administration officials to promote a new tone in governmentbusiness interaction.

Throughout the day-and-a-half conference, Clinton’s remarks were consistently echoed and amplified in the plenary sessions and interactive breakout meetings with senior diplomats and other officials from the Departments of State, Commerce, Treasury, Homeland Security, Office of the US Trade Representative, Export-Import Bank, USAID, Overseas Private Investment Corporation (OPIC), US Trade and Development

Authority as well as many private sector business & trade specialists.

Thomas Nides, Deputy Secretary of State for Management and Resources, who Clinton credited with pulling the conference together, told participants, “Good diplomacy is good economics, and good economics is good for diplomacy.

American global leadership and our economic strength at home are fundamentally a package deal and we need to shore up both of them.”

Not surprisingly, the prominent theme throughout the meetings was jobs, jobs, jobs. As Nides pointed out, “Building sustainable global growth and creating jobs at home is fundamentally a joint venture.

The private sector innovates and allocates capital, and delivers remarkable products and services. And the government opens new markets and ensures the rules are fair.

We in diplomacy and business have to

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bring our partnership to the next level.”

And, in contrast with what is often heard on Capitol Hill, the Administration speakers generally agreed with Nides’ assertion that “In a global economy, there’s no such thing as a purely domestic recovery” – but that “we’re all in this together,” as interdependent economies have interdependent interests.

The speakers repeatedly stressed the links between a strong US economy and a muscular trade agenda that also helped create jobs for trading partners. “We just don’t seek a fair shake for American companies; we seek a fair shake for all companies,” Clinton said.

“We fundamentally believe that increasing trade and growing prosperity will benefit not just our own people, but people everywhere. Our economies are interdependent as never before, and so are our fates.”

“The bottom line is that America’s economic renewal depends on the strength of our global economy,” she added. “We know that when the competition is open and free and transparent and fair to all people [that] the same values that help our companies will also help local entrepreneurs, foreign businesses, and ultimately everyone.”

Jobs diplomacy The Global Business Conference was the platform at which Secretary Clinton launched the State Department’s implementation of an ambitious “job diplomacy” agenda to promote American business, pursue policy priorities for US competitiveness, and equip State Department personnel with the skills and tools they need to advocate for US economic interests abroad.

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“What do we want to accomplish?”

Clinton asked. “We at the State Department want to help create the conditions that will empower American business to get out there and take the risks that will drive a recovery around the world.”

How does State intend to be “the most effective force multiplier for business”? Here’s a sample: • Use all tools at its disposal to create an open, rules-based global economic system.

• Use its economic staff at embassies and consulates to connect domestic US industry, small businesses, and state and local governments with economic information and business opportunities abroad.

• Invest in personnel and systems to strengthen State Department support of business and job creation.

• As a matter of policy, senior State Department officials are to conduct economic outreach during any foreign visit.

• State will boost key policy initiatives.

These include the National Export Initiative (NEI) and working with Commerce to increase inward investment to the US through “Select USA” (see story on page 8).

• In line with its policy goal of “competitive neutrality,” State wants to create a level playing field for US companies competing against businesses that are owned, supported, or championed by foreign governments. It will help by developing ‘rules of the road’ through tabling relevant proposals in the Trans-Pacific Partnership (TPP) negotiations, the OECD, the Trans-Atlantic Economic Council, and elsewhere.

“I have made ‘Jobs Diplomacy’ a priority mission at the State Department,” Clinton said. “Just as our companies are ready to out-work, out-innovate, and out-compete their rivals, so we intend to be the most effective diplomatic champions for prosperity and growth.”

Where the shoe pinches Clinton’s goals of more aggressive interaction with overseas business leaders drew immediate productive responses in the breakout sessions, where AmCham

participants didn’t pull any punches.

Of the 10 breakout sessions – including Public-Private Partnerships, Trade Policy, US Government Advocacy, IPR, Energy & Climate Policy – AmCham Hong Kong participated in two sessions directly related to the Chamber’s 2012 priorities.

Facilitating Business & Leisure Travel to the US. As Hong Kong strengthens its position as a gateway for China companies to ‘go global’ and, specifically, invest in the US, it’s important that the efficiency of visa procedures in China be substantially improved.

The Greater China AmChams commended State for increasing consular personnel to shorten waiting time for appointment interviews (now 10 days), but emphasized that oftentimes business travel requirements require immediate response. They also encouraged Homeland Security and Immigration officials to find ways to facilitate screening for business travelers, investment groups, and others who seek to invest in America.

Participants recommended expanded visa waiver programs – including Hong Kong – and strongly criticized the lengthy lines at US ports of entry. They saw adding immigration officers on duty as only a partial and near-term fix, especially as the number of middle class travelers is expected to expand tremendously over the next decade.

US airport infrastructure and related transportation facilities are already inadequate to meet the challenges. The US should be positioning itself for the coming tourism boom, especially as it is a great creator of jobs.

Moreover, while participants were pleased with US approval of the APEC card, which will assist many business travelers, they recommended still greater attention to IT solutions (similar to that for HK residents clearing immigration) as well as significant upgrading of airports, ground transportation, and other tourism support.

US Tax Policy. Perhaps one of the most spirited exchanges in the breakout sessions was with Treasury officials.

AmCham representatives from Germany, Korea, Thailand, Hong Kong, the Middle East, and others all reported on how the outdated US tax code was making Ameri-

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Photo courtesy: State Department

On stage: (from left to right)Deputy Secretary of State Thomas Nides, US Trade Representative Ron Kirk, President and CEO of the US Chamber of Commerce Thomas Donohue, and Assistant Secretary of State for Economic and Business Affairs, Jose Fernandez.

can businesses and individuals less competitive.

Chamber reps, including Hong Kong, argued that although American expatriates are on the front line in America's efforts to double exports by 2014, they are penalized under the US tax code. Unlike every other developed country in the world, the US imposes tax and a wide range of reporting obligations on the worldwide income of its citizens, even when they work and reside overseas.

One key point: While other OECD countries have actively reformed their tax laws by lowering their tax rates and moving to territorial tax systems to increase their competitiveness, the US has failed to do so. Imposing worldwide taxation on US citizens based overseas undermines the competitiveness of US companies and individuals, and results in fewer US exports and fewer US jobs.

Several chambers said that upcoming Doorknock advocacy visits to Washington would urge adoption of a territorial tax system and reduction in the corporate tax rate, more in line with OECD competitors.

One other topic singled out for special attention was FATCA (Foreign Account Tax Compliance Act). The participants urged an “immediate review and cost-benefit analysis.” They complained that while its goal was understandable – to ensure compliance with US tax reporting of offshore income – its implementation was seen as being “enormously compli-

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cated,” “onerous,” and “overkill.”

In contrast, the Treasury officials present were quite upbeat about the clarity of FATCA rules and downplayed the compliance costs, especially as FATCA was seen as driving global best practices.

The AmCham participants left convinced that Doorknock agendas need to bring salient facts to the table at upcoming meetings at Treasury and on the Hill concerning this topic, especially by showing how the implementation costs “outsourced to foreign financial institutions” was turning those institutions away from Americans.

The Treasury officials welcomed solid evidence that FATCA was causing such disruptions and expenses. This appears to be a necessity. As one AmCham participant noted, “We seem to be working in parallel universes that are significantly different from each other.”

Raising consciousness Overseas participants came away with another reinforced idea for Doorknock visits – the need to explain the intricacies of supply chains and encouraging appropriate expectations on what jobs could actually “return to America.” Secretary of Commerce John Bryson, for instance, closed his remarks with the comment that the US business goal should be “To make it here, and sell it everywhere!”

For overseas business participants, the

challenge is more appropriately focused on job creation in the US in line with expanded international trade, not the recovery of jobs lost as the US moved from a manufacturing to service economy.

Such points are difficult to sell in “rust belts,” but the truth isn’t always pleasant.

This point was driven home immediately following the Global Conference during a panel discussion held at the US Chamber of Commerce.

Four Washington-based Vice Presidents for Government Relations from major MNCs – Procter & Gamble, IBM, General Electric, and Microsoft – also lamented several ways in which the US was losing competitiveness: • “The US educational system is failing.” The panelists went beyond the often-heard complaints about the K-12 public school system to complain about university students, particularly in computer science and engineering, not being up to 21st century requirements.

“We just can’t find the talent we need in the US because the education system is not turning out what’s needed,” said the IBM representative.

• “The US immigration policy makes no sense.” US universities are seeing a flood of excellent students from overseas, a large portion of which major in math, science, and engineering fields, but they are in most cases required to return home. “We help subsidize the education of the best of the best from abroad, and then we can’t hire them.

We should give them all green cards,” said a panelist to general nods of agreement.

• “Regulation is off the rails.”

Panelists complained that at the same time the State Department, for instance, is working diligently on leveling the regulatory playing field for business internationally, lawmakers at home were making extensive regulatory changes that make the US business and investment environment less attractive.

• “US tax policy is insane.” The panelists argued strongly that “every country has to have a value proposition,” and that a competitive tax policy for domestic and foreign companies is at the core. They expressed some optimism that following the 2012

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presidential election that both parties would come to the table to begin revising the tax code.

Speaking immediately following the panel, US Chamber Executive Vice President for Government Affairs Bruce Josten cautioned otherwise. “The current Congress has had the worst year since 1959 for passing laws – only 80 laws, 40 of which were substantive.”

Moreover, Josten said, the public approval rating for Congress in December only increased from 9 to 11 percent. This, he said, demonstrated “panoramic discontent” with Congressional inaction, a product of extreme polarization between the parties.

This operational tone in Congress will have to be overcome before anyone sees major tax reform.

Regional architecture

The Global Conference ended with six regional sessions, hosted by senior State Department officials. AmCham HK participated in the East Asia and Pacific session, co-hosted by Principle Deputy Assistant Secretary of State Joseph Yun and by Ambassador Hans Klemm, Senior Coordinator for Economics and APEC. Discussions covered key regional issues – IPR, energy security, and regional architecture. In all cases, according to DAS Yun, “getting the balance right when dealing with China is essential – we don’t want to appear as being too accommodating or too threatening.”

Despite huge areas of mutual interests between the US and China, such issues as the South China Sea, human rights, and trade frictions can always put the relationship in choppy waters. Both Yun and Ambassador Klemm said that observers should expect even more attention being given to open and balanced markets, regulatory coherence, and harmonization of standards as well as trade enforcement of deals already made (WTO, FTAs).

February’s Global Business Conference, according to Secretary Clinton, was only the first of a series. She announced that State will convene regular leadership conferences around the world to promote US business. The next one is slated for Asia.

Like the first one, State will be pursuing three lines of action, Clinton says: “Promoting US businesses; attracting investment back to the United States; and, leveling the playing field for fair competition.”

“Effective Jobs Diplomacy also requires partners on the ground with deep knowledge and extensive networks,” she told the AmCham audience. “And that’s where all of you come in. American chambers of commerce and other bilateral trade associations are at the heart of our effort.”

“So my message is, I hope, clear: We’re here, actually, to help,” she concluded. “We want to come with you as we open new markets and create new opportunities for jobs and investments. So when you confront unfair regulations, when you need help cutting through red tape, or if you just want advice on local customs, come to us.” It’s clearly a welcome offer with an upbeat tone.

Note: AmCham President Richard Vuylsteke was nominated by the US Consul General in Hong Kong to attend The Secretary’s Global Business Conference; his trip was supported by the Chamber.

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Hong Kong Scorecard

The US Consulate in Hong Kong scores high on any measure of constructive cooperation with AmCham member companies and executives.

S

ecretary of State Hillary Clinton, during her Global Business Conference address to more than 100 AmCham representatives, forcefully committed the State Department to be “the most effective force multiplier for business.”

While this commitment was lauded by conference participants as a welcome new tone to Embassy/Consulate-business interactions, the impact on attitude and operations at the US Consulate General in Hong Kong will be minimal. Why? Because, like Hong Kong itself, Consul General Stephen Young and his colleagues are already focused on being business-friendly.

Hardly a day (including weekends!) passes at AmCham Hong Kong without interaction with the Consulate’s highly professional officers, and it goes far beyond the Monday through Friday early morning conversations between the Consul General and AmCham president at the American Club fitness center.

Stephen Young Foreign Service and Commercial officers make presentations at AmCham committee meetings, coordinate with the Chamber on delegation visits and conferences, and – most importantly – help solve business issues for American companies both here and in the region, drawing when needed upon their network of colleagues in Asia.

AmCham often passes business issues to Agriculture, Consular, and Public Affairs officers, who are usually able to produce significant results. Seemingly mundane travel or information issues can make a real difference to business success. These offices are invariably ready to assist.

The Consulate leadership group interacts frequently with the AmCham volunteer leadership and office staff to discuss macro issues such as the status of China economics, US-China relations, and Hong Kong business sector development.

Importantly, the Consulate also argues forcefully with VIP visitors – including Administration officials and Congressional delegations – saying that they really must meet with AmCham.

There’s more, but the bottom line is that Secretary Clinton’s commitments are already being met by the US Consulate in Hong Kong. AmCham has every reason to be appreciative. – Richard R. Vuylsteke

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Choi Hung

COMMERCIAL PROPERTY

Kowloon H East: Transformation and Integration into Hong Kong’s CBD

By Kenny Lau

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ong Kong is a renowned financial and business center, a status reaffirmed in China’s 12th Five-Year Plan, which supports Hong Kong's expanding role as an international asset management hub and an offshore Renminbi trading center. But the city is also is experiencing a “fierce” shortage in the supply of commercial accommodation, particularly Grade A office space in core business districts.

According to government statistics, the number of regional headquarters (RHQ) and regional offices (RO) for multi-national companies increased from 2,514 to 3,638 (a 45 percent increase) between 1997 and 2010. The total gross floor area (GFA) of office space in Hong Kong grew only 18 percent, from 12.14 million to 14.29 million sq meters in the years between 2000 and 2010.

Kowloon Bay Ma Tau Wai

Ngau Tau Kok

Kwun Tong Kai Tak Development

Growing market Today, despite a tepid market due to concerns over economic uncertainty in the US and Europe, vacancy in commercial buildings is close to an all-time record low, hovering at below five percent, Gavin Morgan, Chief Operating Officer and Head of Leasing at Jones Lang Gavin Morgan LaSalle Hong Kong, points out.

“Organizations are generally positive about their future and business prospect in this part of the world,” he says. “Their aspirations going forward here are to grow, which will put pressure on the market in Hong Kong to provide more office space.”

“Hong Kong’s future commercial supply pipeline relative to other centers in the region will see a very limited supply of office space being delivered in the next five years.”

Real estate is a fundamentally important component of a number of issues dictating a company’s decision on relocating to or expanding in a particular location, Morgan points out. Without adequate supply of quality office space, “real estate prices in the commercial sector will become increasingly expensive, perhaps prompting organizations to look to other parts of the region for their business needs.”

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Hung Hom

Development plan for Kai Tak, Kwun Tong, Ngau Tau Kwok and Kowloon Bay Source: Kai Tak Outlining Zoning Plan, Jones Lane LaSalle

The current real estate environment, residential and commercial alike, is making it increasingly difficult for organizations to locate or expand in Hong Kong because of space constraint and prohibitive cost, he adds.

CBD2 The shift of factories from Hong Kong to Mainland China throughout the 1980s and relocation of the airport from Kowloon to Chek Lap Kok in 1998 have left many industrial buildings as well as some land for re-development. The transformation of Kowloon East, covering the old Kai Tak Airport, Kwun Tong and Kowloon Bay, is one that focuses on well-rounded urban designs to construct a multifaceted district to meet Hong Kong’s growing needs for residential and commercial space (see map).

Construction of the first-phase development, which includes public rental housing and a cruise terminal within the proximity of the old Kai Tak Airport, is on schedule for completion by mid-2013.

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The government has also mapped out a conceptual master plan for a Kowloon East Business District, which is currently branded as CBD2 (Connectivity, Branding, Design and Diversity).

In his 2011-12 Policy Address, Chief Executive Donald Tsang calls for the adoption of “a visionary, coordinated and integrated approach to expedite the transformation of Kowloon East into an attractive, alternative CBD to support Hong Kong’s economic development.”

The idea behind CBD2 is to ensure a sufficient supply of Grade A office space and to meet the growing demand of businesses in Hong Kong, particularly for companies in need of large floor plate commercial space. The proposed transformation of Kowloon East into Hong Kong’s next-generation CBD will undoubtedly be an important key to the city’s continuing success as a global financial center, Morgan notes.

“It is an idea we strongly support not only because we believe it is important that the government articulates initiatives that help Hong Kong to continue to

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An encompassing plan While the proposed CBD2 is an important development for more commercial office space, it is equally important in the planning and implementation stages to integrate the traditional CBD that stretches eastwards from Central to Wanchai and Causeway Bay, along with Island East as well as all the way across the harbor to Tsim Sha Tsui.

“In addition to the development of CBD2 as a commercial district, we also need to make sure that CBD2 can and will fit with other existing districts,”

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Morgan says. “It is critical that CBD2 will be able to be incorporated with other key commercial districts in order to create one core business district in Hong Kong.”

“It will be hugely beneficial to Hong Kong to promote a relationship between all of the commercial districts rather than overly focusing on one district,” he adds. “That would be an intelligent, logical way to plan going forward.”

Kowloon East is perceived to be “relatively remote” compared with other commercial office districts. An efficient transport system between Kowloon East and the existing CBD on Hong Kong Island is essential, Morgan points out, adding that direct express routes such as the announced Shatin to Central Link and a monorail system connecting commercial developments within CBD2 as well as key MTR routes will be of utter importance.

While the government is actively planning for more commercial space, it will likely take 10 to 15 years before CBD2 becomes a district available to the market. To address the anticipated supply vacuum of new buildings during this period, Hong Kong needs an “interim” plan enhancing the traditional commercial locations on Hong Kong Island, Jones Lang LaSalle points out in the white paper.

“Given that Asia is expected to grow at a relatively high rate, Hong Kong will continue to play a very important role in facilitating and being platform for that growth,” Morgan says, noting the supply of office space is poised to become tighter.

A viable option West Kowloon and Causeway Bay are now viable alternatives to tenants who are used to being in Central exclusively. Many, including some in the high-end business sector, have already expanded beyond Central’s 23 million sq ft of Grade A office space. It is suggested that the government should continue to support enhancing a number of existing districts on Hong Kong Island.

“Our view is that the potential of other commercial districts, particularly those on Hong Kong Island, could be maximized as a way to ease the shortage problem in the near term,” Morgan says, noting Wanchai North, Causeway Bay and Hong Kong East as business locations where certain existing office space can be refurbished or redeveloped and some stratified buildings can be incorporated.

Specifically, the commercial cluster surrounding

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Kowloon East Grade A Office Stock Future Stock Growth

30 25 million sq ft (NFA)

grow to its full potential but also because it embraces a district as a whole rather than individual developments,” he says.

Projections estimate a potential stock growth of about 14 million square ft net floor area within Kowloon East over the next decade, bringing the district’s total Grade A office supply level to about 26 million sq ft net, or roughly on par with the size of Central as a commercial district, according to Jones Lang LaSalle in a white paper on Hong Kong’s Grade A office market landscape (see chart).

The paper suggests that Kowloon East presents an excellent opportunity to provide a platform on which MNCs are able to do business in Hong Kong “at a reasonable cost and in suitable premises, within an environment that appropriately accommodates staff.”

It is therefore important to facilitate the right kind of development in order to attract large MNC occupiers, particularly on green field sites in Kai Tak. While Kwun Tong and Kowloon Bay together could provide a large share of commercial space through either green field or brown field development, Kai Tak would provide a better and more suitable environment to create commercial space with large floor plates, a feature attractive to large occupiers such as those in the banking and finance sectors, the paper notes.

“To fulfill the government’s aspirations of turning CBD2 into Hong Kong’s next business hub, we need to see appropriate commercial real estate clustering across Kowloon East and extensive gentrification works to complete its metamorphosis from an industrial district to a commercial center,” Morgan says.

“In short, there needs to be Grade A office buildings with large floor plates and environmentally sustainable features as well as amenities such as hotels, serviced apartments and other facilities nearby to create a vibrant business district,” he adds.

20 15 10 5

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E

Source: Jones Lang LaSalle Research

the government office complex in Wanchai, including Wanchai Tower, Immigration Tower and Revenue Tower, could be redeveloped to expand the supply of buildings with large podium floor plates, which are in great demand and highly sought after by the finance sector, Morgan notes.

Similarly, existing commercial premises in parts of Causeway Bay as well as the areas surrounding Quarry Bay and Taikoo Shing could benefit from the same redevelopment, he adds. “We do think many of the buildings in those locations are right for redevelopment, which could provide the type of accommodation right in the sweet spot of what corporate organizations typically demand in the market today.”

“The interesting thing about Wanchai, Causeway Bay and Hong Kong East is that many of the existing accommodation in those districts are already quite modern,” Morgan explains. “If you look at the amenities in Wanchai and Causeway Bay and to a slight extent in Island East, everything that a business needs to support its staff and clients is already there in those districts.”

“Connectivity along these districts is only going to get better because of the MTR’s Island Line and the

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Wanchai Bypass which is under construction,” he adds. “They are some of the most vibrant districts on Hong Kong Island where most of your staff probably want to be there in the evening as well.”

A bright prospect “We are confident that Kowloon East will succeed as a fully-fledged heavyweight CBD if the proposed moves are implemented,” Morgan says. “The suggested measures to enhance the business districts on Hong Kong Island also appear to be a logical way to facilitate commercial growth.”

“More importantly, it is a master plan that will present very well to the global corporate community looking to come to Asia,” he adds. “It presents Hong Kong as a financial and business center that is organized, orderly and thoughtful and a place that is several steps ahead of where it needs to be in terms of providing a solid business platform for the business community here.

“It will also go a long way to enhance Hong Kong’s overall commercial real estate strategy and keep its competitive edge over other regional financial centers in the near, medium and long term.”

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APPAREL & FOOTWEAR

GAFTI: Standardization of the Global Supply Chain

Global Apparel, Footwear and Textile Initiative (GAFTI) formed to achieve the goal of a more uniformed industry by being the “global voice” of the apparel, textile and footwear industry and by setting standards for the 21st century Thomas Nelson

I

t all started three years ago at the Prime Source Forum (PSF) here in Hong Kong. At the annual conference for the global apparel, textile and footwear industry, representatives, in their discussion of issues and challenges, came to the conclusion that there needed to be better coordination and standardization of the global supply chain in order to meet manufacturing and regulatory requirements of today efficiently and effectively.

Because there is no single source of standards in the apparel, textile, and footwear industry, conflicting requirements often arise due to a lack of standardization, says Thomas Nelson, managing director and vice president of global product procurement at VF Asia, a subsidiary of US-based VF Corp (a US$9 billion apparel and footwear powerhouse with a portfolio of over 30 lifestyle brands).

“Just like a USB memory stick, it is a universal standard that is applicable to every modern computer on earth. You can use it on any computer,” he explains. “And we believe the apparel industry could benefit from a similar standard where everyone is on the same page.”

The future of the global supply chain, he believes, lies in having commonality where there is less complexity and more certainty.

The idea was put into action two years ago at PSF when a board member of Institute of Electrical and Electronics Engineers (IEEE) was invited to meet with representatives in the apparel business and to advice ways to bring about industry-wide standards.

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By Kenny Lau

GAFTI A group now called Global Apparel, Footwear and Textile Initiative (GAFTI) was formed in 2010 to help achieve the goal of a more uniformed industry by being the “global voice” of the apparel, textile and footwear industry and by setting standards for the 21st century.

An independent, self-governing association of a diverse group representing all parties involved in the development, manufacture and distribution of apparel, textiles and footwear, GAFTI is to reduce complexity, increase clarity, lower costs through the adoption of common industry practices and prevent unnecessary scrutiny and regulation through better transparency.

“Instead of working on the issues by ourselves, what we are trying to do is to bring retailers, brands, mills, and factories together to improve efficiencies and set standards globally,” Nelson says. “The key here is to put the focus of a large number of groups in one direction in terms of where we as an industry want to go and how we can get there together.”

It is an inclusive process allowing all parties in the supply chain to participate in the ongoing development towards a set of global standards, Nelson notes. Brands, retailers, manufacturers, agents, mills, trim suppliers, associations, and testing and compliance firms are encouraged to be actively involved in the process.

The key, he adds, is to inspire a high level of confidence in the apparel industry among all stakeholders, including government and regulatory agencies as well as consumers around the world.

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The strategy

Consistency

GAFTI focuses strategically on three core areas: compliance, product safety and sustainability.

The Compliance Committee focuses on finding ways to establish efficient production facilities whereby proactive improvements are made in the area of employee safety and health as well as global sustainability. The Sustainability Committee focuses on finding a “common language” in areas such as agricultural processes, materials processes and consolidation as well as modes of transportation.

“If we can get our way of compliance fine-tuned and standardized, we will be able to meet mandates in a much more effective way,” Nelson points out. “For example, if we can get to the point where factories are audited in a unified, trusted system, our industry and our consumers will only benefit from streamlining a complicated process.”

The Product Safety Committee is focused on working with governments, brands, retailers and other industry organizations to help reduce the global product safety complexities. Specifically, it is looking to create common global testing methods, common global restricted substance lists (RSLs) and common global labeling requirements, all of which aim to ensure the production of safer products in an effective way.

Unlike the early days of garment manufacturing when products were more or less “made locally for local consumption,” apparels sewed in a single factory are nowadays sold to many regions of the world, hence the need for a system capable of meeting requirements of different consumer markets and regulatory regimes that often vary to a wide degree.

“I might make the product in Asia, Europe or South America but I might sell it anywhere in the world,” Nelson explains. “If I don’t have a consistent test and a standard operating procedure (SOP) to carry out the test, it makes it harder to give our end customers a guarantee that we know for sure is right.”

Because there is not a single standardized test globally to rely upon, results are prone to inconsistency.

“Right now there is just too much variation across the industry and we need to work with different groups to come up with a test that works globally,” Nelson says.

“It is an issue of how we can ensure our products meet all product safety standards globally when labeling requirements are all different or when third party testings are conducted differently and may provide inconsistent results.”

“Not only do we need a standard test but also a standard operating procedure specifying the steps for carrying out the test,” he continues. “That’s because labs may use the same test but they may carry it out in slightly different ways, and the results could be hugely different.”

The goal is to get to the answers more consistently, Nelson says, noting a 38 percent variation among the results of a recent test run by three different labs in three different countries. It could potentially lead to enormous burdens that are unnecessary in the supply chain, simply because when variation exists so does the need for wider buffers to offset the difference.

For instance, when the highest level of a restricted substance such as lead legally allowed in a particular product is set at 100 parts per million (PPM), it is essentially 60ppm given the variation rate of the three labs stated above. In other words, a requirement becomes 38 percent more stringent just to be sure that it meets a certain regulatory level.

“That’s why we need to get our industry towards a standardized test that is applicable on a global basis,” Nelson stresses. “From a brand’s standpoint, it takes out complexity as it also does away with having to go through the same audit multiple times for different jurisdictions.”

“Consistency in our products means a higher level of confidence when we ship them out to our customers,” he adds. “And we’ll need to be more proactive in managing our operation if we want to maintain our industry that can and will compete with any industry in the future.”

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The future While prospects of success look promising, it does require “a lot of work within the industry to get to where it needs to be.” At the moment, GAFTI has a membership of moderate size but it is not merely about membership.

“What we’d like to see is more people from different sectors to participate in areas that they feel passionate about, to help drive the industry,” Nelson says.

“As regulations are tightened up, we’ve got to be better by becoming more streamlined in our approach to product manufacturing and testing,” he says. “It is always better to take a leadership role instead of being led by people who have little understanding or knowledge of the fundamentals.”

Through the initiative, Nelson is hopeful that the apparel and footwear industry continues to be a competitive industry that not only provides a lifestyle for billions of consumers worldwide but also an industry for which people want to work.

“While GAFTI strives for higher efficiency and less complexity in our industry, it is also a platform on which to create a better working environment for all the people who make our products, an environment that we want our employees to participate,” he says. “If we are able to do that, then we are all better off.

“All too often we spend time focusing on today instead of trying to devise what our industry needs to look like. The point is we’ve got to work together and we’ve got to look more closely at our longer-term strategy as to where we want to be in the years to come.”

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ENVIRONMENT

Survey Finds Growing Concern among SMEs but Little Action on Climate Change

55% Reducing energy use and combating climate change will reduce the risk that we are impacted by tightening regulations

S

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40%

Reducing energy use and combating climate change will differentiate us from our competetion

38% Developing low-carbon or energy efficient products and services would allow us to target new custimers

By Daniel Kwan

mall and medium-sized businesses in Hong Kong are concerned about climate change but are taking limited action to reduce their risk exposure, a survey by the Climate Change Business Forum (CCBF) shows.

The survey – the second by CCBF – also indicates businesses anticipate growing demand for green products and services but are taking little action to develop such products for a low-carbon economy.

Climate change portends extreme weather, variable temperatures, precipitation and growing conditions, and a demand for cleaner, lower-carbon energy, among other impacts. As businesses can’t change the weather, a vast majority are cutting energy use. Conducted by Ipsos on behalf of the CCBF late last year, the survey finds that businesses generally feel that the region is not prepared for climate change and SMEs are seeking stronger leadership from the government.

“What people want is stricter regulations and direction so they know what to aim for,” says Thomas Ho, chair of the CCBF executive committee and also

43%

31% Investing in sustainable and emissions reduction practices would allow us to charge higher prices for our product

Base: all respondents Respondents were asked to identify business opportunities in relation to climate change

the CEO of one of the region’s largest construction companies, Gammon Construction.

According to him, a good place to start for Hong Kong would be to set a target of carbon neutral emissions in the property sector on new building stock by 2018. As a reference, the UK has set a zero carbon target for all new housing as of 2016 and for new “non-domestic buildings” by 2019.

The CCBF survey interviewed about 300 companies by telephone in September and October last year.

It finds that rising cost of power, extreme weather events and disruptions due to pandemics and infectious diseases top business concerns about climate change. Moreover, over 70 percent of SMEs expect such climate impacts to affect their businesses in the next three years.

Compared with 2010 survey results, concern about extreme weather, pandemics and the scarcity of environmental resources increased significantly in 2011, up by an average of 22 percent.

Although businesses expressed concern over climate change in the survey, nearly three quarters of companies surveyed are taking action to address

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climate risks mainly through cutting energy use. For instance, the majority is focused on reducing energy consumption in the supply chain (53 percent), and setting energy or carbon reduction targets in their operations (36 percent).

The flip side however is that only a small number of firms are embracing the market opportunities a low-carbon economy may bring. A vast majority (69 percent) anticipates growing demand for “green” products and services in the coming three years but only 12 percent say they are actively developing energyefficient, low-carbon products and services. In addition, present market demand remains low, at just 14 percent.

Ho points out that adopting defensive strategies alone is not enough. Instead, firms should go on the offensive to create the energy-efficient, low-carbon products and services that the new economy will demand.

He says that standing still is not an option for Hong Kong especially when Mainland China is committing substantial resources and laying down policies to address environment and energy issues and build a low-carbon economy. For example, China is

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Developing low-carbon or energy efficient products and services would allow us to target new markets

Source: CCBF

going to spend 3.4 trillion yuan (HK$4.2 trillion) in the 12th Five-Year Plan period (2011-2015) on environmental protection and pollution control alone.

This doesn’t include investment in seven designated new industries – many of them positioned to be a driving force behind a low-carbon economy.

“The problem is that while we're standing still – waiting for government regulation or market demand – mainland China is moving ahead,” he warns.

“The Hong Kong government should accelerate progress by demanding greener products, providing incentives and disincentives to those businesses it signs contracts with,” says Ho. “It should also establish a resource centre where businesses can learn about climate risks, as well as strategies to mitigate or avoid them.”

Established in 2008, CCBF is an initiative of the non-profit Business Environment Council which is the longest running independent, non-profit organization in Hong Kong promoting corporate social and environmental responsibility. CCBF conducted its first SME survey in 2010 interviewing about 500 business managers in the SAR.

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REAL ESTATE

Real Estate 101:

Buying tips:

An Introduction to Buying Property in Hong Kong

Best buy: “When you do some research, you realize that all of the fortunes in Hong Kong are one way or another related to property.”

Author of Landed: The expatriate’s guide to buying and renovating property in Hong Kong, Chris Dillon – a unilingual expat – tells of his experience of buying and renovating an office, an apartment and a factory over the course of five years and of Hong Kong’s unique property market

Before

Make a wish list: “You need to know what is in your heart before you can make an effective purchasing decision.”

By Kenny Lau

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nlike expatriates who relocate on corporate assignments, Chris Dillon is in Asia on local terms. Originally from Canada, Dillon has lived in Hong Kong for 20 years and worked as a writer and public relations specialist for a number of corporations and media groups. In 2000, he founded Dillon Communications, which serves corporate clients.

“If you wanted a place in Asia where you could do business and where there was good infrastructure, it came down to two places: Hong Kong and Singapore,” Dillon says of his decision to move to Hong Kong in 1992 after living in Tokyo for three years. “If you are entrepreneurial, this is probably the best place on earth.”

Since then, Dillon started businesses and a family here and acquired a 1,000-squarefoot Grade B office in Central, a four-bedroom apartment in Pokfulam and a 3,500square-foot factory in an industrial building in Wong Chuk Hang.

“It had never occurred to me that expats could buy property here until I talked to some friends,” he recalls, highlighting the fact that Hong Kong’s property market is equally accessible to expatriate and local buyers. “When you do some research, you realize that all of the fortunes in Hong Kong are one way or another related to property.”

“What makes Hong Kong great for expats is that all contracts and documentation are in English. We have the rule of law and very little corruption,” he says. “Banks are typically very willing to provide mortgages because you make such a large down payment that their risk is relatively low. It is actually one of their preferred means of lending money.”

Localization The trend of expats buying property is increasingly common in Hong Kong because “you wake up one day and you realize it is your home,” Dillon believes. “What I increasingly see post-1997 is people like me, people who came here and fell in love with the place.”

Unlike the early days when many expats were on “expat” packages, most are now on local terms. Despite the growing number of expats living and working in Hong Kong, “the reality is that the number on packages drops by the day.” And more of them are living and working outside traditional expat neighborhoods like Mid- Levels, the Peak and the South Side.

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Length of stay: “If you are not here for the long term, it is rarely a good idea to buy, unless you are wealthy enough to let it sit.”

Managing expectation: “You’re never going to buy at the very bottom or sell at the very top unless you are insanely lucky.”

After Renovation of a 3,500-square-foot factory in a 30-year-old industrial building in Wong Chuk Hang, Hong Kong Island South

“Being one of two expats in a Wong Chuk Hang factory building was different,” Dillon says. “My neighbors included a Chinese medicine manufacturer and a frozen meat wholesaler, which made for some interesting rides in the freight elevator.”

An expensive place Hong Kong is indeed the most expensive place on earth when it comes to real estate. “If you compare it to where you come from, even places like Mayfair or Manhattan, it is still really, really expensive,” Dillon acknowledges.

“This is an unusual market because you have a growing economy north of the border and a lot of hot money flowing around,” he says. “This is something you have to accept. If you constantly compare it to prices back home, your head will explode.”

The property market in Hong Kong can also be volatile. In 1997, the real estate market crashed following the Asian financial crisis and prices in some segments of the market subsequently dropped as much

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as two-thirds. In 2000, the real estate market remained “pretty grim.”

By early 2002, Dillon had been running a new business for a couple of years and it was time to renew the lease on his office. “I looked around and thought to myself: I have money from the sale of my previous business. Why don’t I just buy?” he recalls.

“When I started thinking about buying, my expectation was very modest because I had never bought real estate before and I knew how little I knew,” he continues. “So, I was being very cautious and conservative because it might blow up in my face.”

Chris Dillon Dillon bought the office in Central at a steep discount. “I figured for 20 cents on the dollar my downside was limited,” he says. “It could get worse but it wasn’t going to get much worse. Of course, I bought in 2002 and we were hit by SARS in 2003. So things did get worse.”

“You’re never going to buy at the very bottom or sell at the very top unless you are insanely lucky,” he believes. “If you set yourself up with that expectation, it will prevent you from ever doing anything.

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CULTURE

Current market The current property market is still fairly close to the top of the cycle, Dillon believes. “There is a good possibility that we have hit the peak, but you never know.

However, we are closer to the top than the bottom.”

It is also important to realize that this is a segmented market. “This is not a homogenous market. Industrial space in Wong Chuk Hang behaves differently and does so on a different schedule than luxury property on the Peak or in Mid-Levels,” he points out.

“What we are seeing is a tremendous influence on the part of Mainland buyers who first started looking at luxury places in Kowloon and are now getting into commercial and industrial space.”

The market for real estate in Hong Kong is unique in that it tends to be bipolar. “We are giddy with enthusiasm or utterly despondent, and there is very little in between,” Dillon points out. “People are watching what’s happening in the Mainland economy, which has slowed down a little bit, and what’s happening in the US and Europe. The big concern is contagion.”

However, default ratios on mortgage in Hong Kong have been historically miniscule, even during the Asian financial crisis in 1997.

Buyers generally make a down payment of 30 percent (or more) and are very reluctant to sell at a loss. “In Hong Kong, we have a great affinity for real estate,” Dillon says. “It is part of the investor psychology here.”

Despite valuations being on the high side and the global economic outlook remaining gloomy, Dillon believes it can be a good time to buy. “I would be very selective and conservative. I wouldn’t just show up on a Sunday afternoon with a checkbook,” he suggests. “But if you find a unit on the right floor with a view you want and it is within your price range, buy it.”

“Of course if you are here on an assignment, you'll want to think carefully because Hong Kong property prices can be volatile” he cautions. “If you are in a situation where you are re-assigned somewhere else, you may have to liquidate on short notice. That can be very painful.”

Your options Length of stay is often the most important factor dictating whether to become a property owner or not.

Water Margin

“If you are not here for the long term, it is rarely a good idea to buy, unless you are wealthy enough to let it sit,” Dillon stresses. “If you are going to be here on a longer term, then volatility becomes less of an issue.”

Renting instead of buying can be a better option for some and “there is nothing wrong with that,” he adds. “In fact, sometimes renting is the best option.”

Potential buyers need to figure out where they want to live and acquaint themselves with the buildings and prices in the neighborhood, Dillon strongly recommends. “Doing your homework reduces the risk and lets you take advantage of opportunities when they arise.”

That is because, “you might buy one or two homes in your life time,” he explains. “When you do, you’ll deal with a solicitor who understands all of the aspects of the legal process, you'll get a mortgage from a banker who understands the actuarial tables and you'll deal with an agent who does nothing but buy and sell property.

“It’s what economists call information asymmetry: You know a little and everyone else in the process knows a lot. Reading books, talking to people in the industry and other people who have bought, and walking around target neighborhoods will help you make an informed decision and save you money and grief.”

It is also a good idea to make a wish list to get an idea of what’s important, Dillon suggests. “Because it is all about trade-offs, you need to know what is in your heart before you can make an effective purchasing decision,” he says. “Get used to the idea that Hong Kong is really expensive and don’t compare it to other places. It is a psychological hurdle you have to overcome in order to realize an opportunity.”

Buying a property is the biggest investment most people will ever make. “It is breathtaking in terms of the sheer size of the down payment,” Dillon says.

“When you sign a mortgage with that many zeros attached to it, you can find yourself lying in bed at night staring at the ceiling.”

Stress-testing your purchase against an interest rate hike or economic slowdown is a good idea. So is being conservative and knowing your financial limits.

“We all want to be savvy investors, but real life doesn’t work that way and you are going to get it wrong sometimes,” Dillon says. “The secret is to do your homework.”

Hong Kong’s Link to the Sea

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t the age of 67, Asia-based photojournalist Robin Moyer hasn’t really slowed down. The acclaimed photographer recently completed a photo essay chapter for a book called Water Margin for Ocean Recovery Alliance. Through his lenses, Moyer documented Hong Kong’s link with the sea.

The Alliance is a registered non-profit organization in Hong Kong and it focuses on bringing new technologies, innovations, creativity and collaborations to solve issues that face the health of the ocean today.

Moyer spent most of his earlier career capturing some of the most critical events of our time such as People Power in the Philippines, the Lebanese War and the Soviet Occupation of Afghanistan. He has published a collection of personal photos capturing the USA in the 1970s in a book titled “As American A Picture . . .” His Water Margin photographs are now on exhibit at the AmCham office until the end of April.

The junction of Possession Street and Queen’s Road, just below Possession Point marks the original waterfront where the British landed to claim possession of Hong Kong in 1841.

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Photos courtesy: Robin Moyer

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Hong Kong

Maipo Marches

biz.hk: Before we talk about this project, can you first tell us about yourself and when did you move to Hong Kong?

Moyer: I was born in Wilmington, Delaware – “corporate capital of the world.” I moved to Hong Kong in 1962 when I was 17. My father was the general manager of DuPont Far East. It wasn’t our first brush with Asia though. My mother was born in Shenyang in 1919 when it was called Mukden and my grandfather was the secretary of YMCA in Shanghai up until 1936. My family has a strong connection with China.

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After we arrived in Hong Kong, I went to King George V where I completed my Form VI. I then worked for a year as a manager of Harper Marine’s Hebe Haven Marina in the New Territories – which relates later on to this project. I then went back to the US and studied at the University of North Carolina and graduated in motion pictures. I started my career as a television sound and cameraman in Vietnam and Cambodia in 1970.

After that, I went back to the US and lived in Washington DC for five years

learning photography and almost started photographing immediately as a professional. I then moved to Taiwan and lived there for three years. Moved back to the States again and started working for Time Magazine in 1979. I was based in the US but worked mostly in Asia and the Middle East. I became a contract photographer for Time Magazine in 1982 and was their Chief Photographer for Asia, based in Hong Kong 19851998. biz.hk: Why this project?

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Moyer: I was approached by the publisher of this book and they asked me if I could provide them with 10 photographs. I thought that would be interesting and I had some time. We started doing this in late August. I was interested in exploring places that I had been before, re-discovering Hong Kong’s coastline and thinking about Hong Kong’s links to the sea. So it was almost a no-brainer. I would go by boat, by car and go through the country parks, to Tai O, the Wetland Park and the Mai Po Nature Reserve. It wasn’t an intensive

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The Rambler Channel runs under Stonecutter’s Bridge in the Western Harbor

assignment. I had thought it would have been a 10-day or two-week assignment.

But the more I photographed, the more intrigued I became. With the help of the Royal Hong Kong Yacht Club and some fishy friends, we managed some long speedboat photo trips all around the Hong Kong coast that resulted in some good images. biz.hk: How do you select the subjects of your photos?

Moyer: They are really targets of opportunity. We just have some general ideas

of where we want to go and then we go.

We take the boat along the shoreline.

We stop here or stop there and go back and look at that. biz.hk: You must have a strong sense of how Hong Kong has changed over the years.

Moyer: Physically, Hong Kong changes a lot. But I am not so sure how much Hong Kong changes sociologically. I mean the people who live here. Hong Kong people are very individualistic and a little bit contemptuous of authority.

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2012 Mar

Mark Your Calendar Mar China's Design Revolution

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Lorraine Justice, PhD, Dean of the College of Imaging Arts and Sciences Rochester Institute of Technology (RIT) Lorraine Justice, former Director and Dean of the School of Design at Hong Kong Polytechnic University, will chronicle the rise of design, creativity and innovation in the Mainland and what it means for Hong Kong and the rest of the world.

When Lorraine first moved to Hong Kong she looked forward to learning about the East. What she learned was about the West. The Western individualism that drives many of the products in the US and Europe have been in stark contrast to the products that have been made for the Chinese people. As China designs new products for their own economy, whether the ideas, meanings and shapes of Western products are adopted remains to be seen.

Prior to RIT, Dean Justice headed the School of Design at PolyU in Hong Kong, bringing it to international prominence in four years. She is a fellow of the Industrial Designer's Society of America and was named one of the top 40 in ID to watch by ID magazine. Prior to joining PolyU, Dean Justice was Director of the Design Program at Georgia Tech. She is an international presenter and has recently published China's Design Revolution with MIT Press at MIT.

Mar Pitfalls in Doing Business in China

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Tai O, Western Settlement on Lantau Island, Hong Kong

biz.hk: Can you give us an example of your photos of how the water has shaped Hong Kong, and vice versa?

Moyer: There is one picture that I made from Tsing Yi Island looking at Hong Kong. In the foreground, we have containers and some ships, all of Hong Kong Island and then the Tsing Yi Bridge.

They are all together. Hong Kong for the longest time was just an entrepot. It wasn’t a financial center. Hong Kong then was all about shipping and trading. Hong Kong didn’t really take off until China took off.

Official portrait of Robin Moyer

biz.hk: What’s next?

Moyer: I plan to continue taking pictures of Hong Kong and its waters. Maybe at some point, I would have enough work for a book on my own. Maybe Water Marginal.

It’s not enough to conduct business without knowing Chinese habits and customs that affect everyday interactions between Chinese and non-Chinese individuals. Often, it’s the little things that count.

This presentation will provide an introduction on the skills needed to build the necessary degree of rapport, comfort, and trust. The knowledge gained will help develop the confidence needed to conduct business more effectively in China.

Danny Chau has extensive managerial experience in China, as Executive Director for Yanion Group, MD of L&D Property Group, MD of China Plus Network, and CFO of Great China Property Group. Across diverse industries, he has worked with clients that included Caltex Oil, China Venture Capital & Investment, Dun & Bradstreet, IBM, New Zealand Insurance, Shenzhen Huawei Technology, and Wharf Holdings.

As a trainer, Danny’s expertise includes corporate financial management, financial statement analysis, and funds investment & planning. He has trained staff at American Express Bank, Bank of China, Bank of Communications, Belgian Bank, China Construction Bank, and Citibank.

Mar Succeed in China, Succeed Anywhere:

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Individualism is the thing that’s most important.

Danny Chau, Managing Director, Ambrose Financial Services (HK) Ltd

Louisa Wong, Founder and Executive Chairman, Bó Lè Associates Louisa Wong of Bó Lè Associates, the largest executive search firm in China, will discuss the attributes, values and character required to excel in the world's most dynamic market. Louisa will share her insights regarding job opportunities and career development in China, offering guidance on how to cultivate and grow a career in one of the most competitive environments in the world.

• What does it take for a professional to succeed in China?

• How to avoid potential pitfalls in career development • What companies are looking for in a business leader in China?

• Profiles of successful CEOs in China Louisa has over 26 years of recruiting experience, specializing in CEO searches particularly in the sectors of finance, consumer and manufacturing & engineering. Louisa was cited by BusinessWeek magazine as one of the "50 Most Influential Search Consultants in the World" in 2008.

Louisa has written numerous opinion articles for and granted interviews to well-known journalists from leading international publications and media organizations such as Fortune, South China Morning Post, The Economist, Time, among others. She has also appeared on live television broadcasts including Bloomberg, CNBC and CCTV International, China's premiere English language 24-hour news channel covering over 120 countries.

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Venue: AmCham Office 1904 Bank of America Tower 12 Harcourt Road, Central

How to Win in a Highly Competitive, Fast-changing and Cutthroat Environment

For information, see website: www.amcham.org.hk

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