biz.hk Feb 2013

2 Fi Guid 013 ne e Di to nin g

Journal of The American Chamber of Commerce in Hong Kong

G N O K G N O H IS

www.amcham.org.hk

February 2013

ble a l i a v A h

Marc

2013

Your Best Guidebook for Settling in Hong Kong Living 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.

Living in Hong Kong 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

February 2013

Contents

Vol 45 No 2 Richard R Vuylsteke

Editor-in-Chief Daniel Kwan

Managing Editor Kenny Lau

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Publisher

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COVER STORY

EDUCATION

ENVIRONMENT

AVIATION

Hong Kong has never been a destination of choice for technology and innovation businesses; yet, there has been a rise of startup activities in the past year. Is Hong Kong ready to become a startup hub? Will we miss the boat again?

Janet De Silva of AmCham’s Education Affairs Group explains why Hong Kong needs to re-think holistically about its education strategy

Chair of AmCham’s Environment Steering Group Evan Auyang outlines a number of recommended measures to improve on Hong Kong’s overall air quality

Walter Dias of United Airlines speaks on Hong Kong’s role in air transportation and United’s latest development following the merger with Continental

Advertising Sales Manager Regina Leung

biz.hk is a monthly magazine of news and views for management executives and members of the American Chamber of Commerce in Hong Kong.

Its contents are independent and do not necessarily reflect the views of officers, governors or members of the Chamber.

Advertising office 1904 Bank of America Tower, 12 Harcourt Rd, Central Hong Kong Tel: (852) 2530 6900 Fax: (852) 2537 1682 Email: amcham@amcham.org.hk Website: www.amcham.org.hk Printed by Ease Max Ltd 2A Sum Lung Industrial Building, 11 Sun Yip St, Chai Wan, Hong Kong (Green Production Overseas Group) Designed by Overa Creative Co Unit 1613 16/F, Workingbond Commercial Centre, 162 Prince Edward Road West, Kowloon ©The American Chamber of Commerce in Hong Kong, 2013 Library of Congress: LC 98-645652 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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AMCHAM NEWS AND VIEWS

EDUCATION 18 There Simply Aren’t Enough

04 Editorial A reflection on the past ten years from Hong Kong’s darkest moment in 2003 when it lived under the shadow of SARS (Severe Acute Respiratory Syndrome) to an introduction of a series of policy initiatives by Mainland China to revitalize the city’s economy

07 New Business Contacts 44 executives joined AmCham’s business network last month

44 Mark Your Calendar

Janet De Silva of AmCham’s Education Affairs Group explains why Hong Kong needs to re-think holistically about its education strategy in order to be better prepared for future challenges

ENVIRONMENT 20 Chamber Lobbies for Clean Air Measures Chair of AmCham’s Environment Steering Group Evan Auyang outlines a number of recommended measures to improve on Hong Kong’s overall air quality

COVER STORY 08 Is Hong Kong Ready to Become a Startup Hub? Hong Kong has never been a destination of choice for technology and innovation businesses; yet, there has been a rise of startup activities in the past year. Is the city ready? Will we miss the boat again?

11 A Big Hand Steven Kopec, Director, Emerging Technologies, Turner International Asia Pacific, which has taken an active part in supporting startups in Hong Kong, talks about a variety of programs and support mechanism

Jacob Fisch, co-founder of NEST, which invests in and supports early stage businesses, shares his view on Hong Kong as a place for startups and what it needs to do to succeed

On an official trip to Beijing, Shanghai and Hong Kong, Representative Rick Larsen in a conversation discusses about the goals of his bipartisan US-China Working Group

TRADE & INVESTMENT Hong Kong-based lawyer Robert San Pe describes the recent political and economic reforms in the Southeast Asian country that was once in diplomatic isolation from the outside world

27 Myanmar: Memoir of a Journey

16 My Entrepreneurship Journey The story of Dickson Tong, CEO and Co-founder of Y-stage Productions, and how entrepreneurial ideas are put together to create a viable business despite endless barriers

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Jon R Parker, Principal of Transaction Services at KPMG, shares his analysis on the current outlook of China’s merger and acquisition activities and how an acceleration of industrialization and urbanization may lead to more deals

AVIATION 32 Flying “Above and Beyond” Hong Kong Walter Dias, Managing Director for Greater China and Korea, United Airlines, speaks on Hong Kong’s role in air transportation and United’s latest development following the merger with Continental

FOREIGN AFFAIRS 22 Mission-Critical Dialogue on Sino-US Relations

24 Lifting the Veil on Myanmar

13 “Nest” Do It

CHINA BUSINESS 28 Survey of China’s M&A Market in 2013

The first encounter of a young college graduate who is of Anglo-Burmese heritage with a foreign country to which he had little exposure as a child growing up in the UK

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TRANSPORTATION 36 Turning over a New LEAF Nissan’s Executive Vice President Andy Palmer waxes lyrical on the benefits of electric vehicles and what the future may hold for the industry

REAL ESTATE 40 Bucking the Trend Despite uncertainties about Hong Kong’s economy, The Link Management Limited is off to a good start in the year. CEO George Hongchoy shares his 2013 growth strategy for one of Hong Kong’s largest commercial property management companies

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biz.hk Editorial

Board of Governors Chairman James Sun Vice Chairman Peter Levesque Treasurer Tom Burns Executive Committee Evan Auyang, Janet De Silva, Anita Leung Philip Leung , Belinda Lui, Alan Turley Richard Weisman Governors Sara Yang Bosco, Brian Brenner, Ewan Copeland Walter Dias, Rob Glucksman, Toby Marion Jim Muschalik, Thomas Nelson Catherine Simmons, Colin Tam Elizabeth L Thomson , Frank Wong, Eden Woon Ex-Officio Governor President

Robert Chipman Richard R Vuylsteke

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

Rex Engelking Andre Leroy Seth Peterson Lili Zheng Roxana Daver

Corporate Social Responsibility

Robert Grieves

Energy Entrepreneurs/SME Environment

Rick Truscott Donald Austin Courtney Davies Corey Franklin Brock Wilson Veronica Sze Damien Lee Peter Liu

Financial Services Food & Beverage Hospitality & Tourism Human Capital Information & Communications Technology Insurance & Healthcare

Rex Engelking

Owen Belman Hanif Kanji Intellectual Property Gabriela Kennedy Amy Lee Law Clara Ingen-Housz Pharmaceutical Stephen Leung Real Estate Neil Anderson Alan Seigrist Senior Financial Forum Alvin Miyasato Senior HR Forum Jacqueline Algar Sports & Entertainment Ian Stirling Taxation Evan Blanco Trade & Investment Patrick Wu Transportation & Logistics Jared Zerbe Women of Influence Anne-Marie Balfe Anna-Marie C Slot Young Professionals Sherry Lin

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TEN YEARS PAST

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t was Hong Kong’s darkest days. Around this time of the year, in 2003, Hong Kong lived under the shadow of SARS (Severe Acute Respiratory Syndrome). Schools were closed, shoppers stayed at home, and tourism dried up. The epidemic to which there was no apparent cure infected 1,755 people and 299 of them died. Caught off guard, Hong Kong defended itself by doing the basics – strict implementation of disease control measures, better public hygiene, and of course good application of science. Last but not least was determination. Hong Kong was almost brought to its knees then but stood up again because people had not lost faith in themselves or their values.

On the economic front, 2003 turned out to be a watershed year.

China introduced three policy initiatives during the year to give Hong Kong a helping hand. Looking back, these initiatives had extraordinary impact on Hong Kong.

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First, the launch of the Individual Visit Scheme (IVS) opened the floodgate to Mainland tourists; their arrivals transformed the local retail scene. Retailers – especially in luxury and consumer goods as well as hotels and other tourism-related sectors – benefited substantially. But commercial rents in certain districts also skyrocketed, driving many small businesses elsewhere.

Second was the Closer Economic Partnership Arrangement (CEPA).

The principal CEPA document was signed in June 2003, and nine supplements had been added since then.

The impact of CEPA is much less visible compared to the IVS since it mainly deals with zero-tariffs for Mainland-bound goods, market access and trade facilitation, and national treatment for local professionals in Mainland China. However, CEPA reinforced the already close economic integration between Hong Kong and the mainland and gives local service providers a head-start as China opens up its service sector.

The third is the experimentation on conducting Renminbi business in Hong Kong. In 2003, the RMB experiments were of baby steps; today, RMB internationalization is no longer a pipe dream as Hong Kong is the world’s premier offshore RMB business center. The financial press today is filled with acronyms related to the RMB internationalization process – Dim Sum bonds, CNY-CNH, and

biz.hk 2 • 2013

RQFII – and they are all linked to Hong Kong in one way or another.

Thanks to these developments, Hong Kong’s economy has for the most part remained vibrant and strong for the past 10 years. But Hong Kong is at the cusp of another change. If IVS, CEPA, and RMB have turbocharged Hong Kong’s structural transformation over the past decade, what will be the catalyst for the next 10? Are these super-chargers running out of juice?

Yes and no. Recent events concerning the poor treatment of Mainland tourists in Hong Kong suggests that the yearly number of mainland tourists through IVS may have reached a maximum threshold.

And, already in its ninth incarnation, it is difficult to imagine how CEPA can generate much new growth for Hong Kong. Of the three, the RMB business remains the best trump card.

To win, Hong Kong needs to be both vigilant and bold. As the premier RMB offshore center, it needs to adopt the highest regulatory standards to stay ahead of the competition and be the global model. At the same time, bold innovations – new RMB products – should be encouraged.

It’s imperative that Hong Kong continues to strengthen its international characters and take leadership in refining its regulatory environment to embrace the best global standards.

The alternative is to gradually slide into being just another Chinese city.

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New

Business Contacts The following people are new AmCham members: Abbott Laboratories Limited

Hallmark Cards (HK) Ltd

AbbVie Limited

Hill & Associates Ltd

Akamai Technologies Hong Kong Ltd

Hill & Knowlton Asia Ltd

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

Pingo Luk General Manager, Abbott Nutrition International Andrew Hexter General Manager

Alice Ting Country Manager, HK & Taiwan

LC 98-645651

John Morgan President and CEO, Asia

Hysan Development Co Ltd

Asia Pacific Properties Ltd

Informa Limited

Avery Dennison Hong Kong B V

IPPF - Independent Power Producers Forum

Luigi La Tona Associate Director

ISBN 978-962-7422-18-1

Mike Groves Country Manager, Hong Kong

APCO Worldwide

Amy Wendholt Managing Director, Hong Kong

Over 500 pages in three major sections, including a complete guide to chamber services, corporate sponsors and AmCham Charitable Foundation. This directory lists over 1,800 members from over 700 companies and organizations.

Phil Turner Global Procurement Manager Hallmark International & Greetings Subsidiaries

Gene Yang VP & GM, North Asia, Retail Branding and Information Solutions

Cathay Pacific Airways Ltd

Cecilia Leung General Manager, Corporate Communications

Charles Schwab HK Ltd

Chloe Yin Vice President, Financial Consultant

Concordia International Forwarding Ltd Henry Tso District Manager

CSL Ltd

Siu-Chuen Lau Deputy Chairman and Chief Executive Officer Dickson Barnhoorn Principal Consultant Joel Laykin Secretary General

PDI Ninth House

James Warner Consulting Director, Greater China Adam Walz Director of Leadership Development

Philip Morris Asia Ltd

Mark Tan Director Tax Asia Herman Cheung Manager Government Affairs

Renaissance Harbour View Hotel Hong Kong Hans Loontiens General Manager

RS Components Limited Juergen Lampert Head of Sales, APAC

Standard Chartered Bank

Wilson Kwan Asia Financial Controller

Paul Sung Director, Global Corporates, Origination & Client Coverage,Wholesale Banking

JPMorgan Chase Bank

Talent2 Hong Kong Ltd

Travis Spence Managing Director, Head of Global Liquidity Asia, JPMorgan Funds (Asia)

Burt Baptiste Managing Director, North Asia

Langham Hotel Hong Kong

Grace Lee Policy Analyst (Intern)

James Chow Director of Sales & Marketing

Marriott International, Inc

MichaelMuller General Manager, Hong Kong SkyCity Marriott Hotel

Debevoise & Plimpton LLP

MasterCard Asia/Pacific (Hong Kong) Ltd

Du Pont China Ltd

Seung Chong Partner

ITW Graphics Ltd

Philip Mottram Chief Executive Officer Allison Lee Associate

Orrick, Herrington & Sutcliffe

KevinGoldmintz Head of Hong Kong & Macau

Time Warner Inc

Tommy Bahama Group Limited

Adrian Lai Director of Finance and Administration, Asia-Pacific Brian Pearce Managing Director Asia-Pacific Raymond de Malherbe Senior Managing Director International

Towers Watson Hong Kong Ltd

Joseph Romanelli Managing Director, Hong Kong

Ferd Davis III Director, Executive Compensation, Towers Watson Pennsylvania, Inc

First Victor Medical Group

MTR Corporation

Ziegler Logistics (HK) Ltd

Golden Gate Wine Co Ltd

Orangefield ICS Limited

Zuellig Group Incorporated

Aldik Mo President

Jacky Chang CEO

Fifi Smith General Manager

Merck Sharp & Dohme (Asia) Ltd

Jay Walder Chief Executive Officer

Devin Ehrig Business Development Manager

David Lacey Chief Executive Officer

Steffen Naumann Chief Financial Officer

View our other members at:

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

biz.hk 2 • 2013

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COVER STORY

www.amcham.o rg.hk

IS HONG KONG READY TO BECOME A STARTUP HUB? Traditionally, Hong Kong has not been the first destination for technology and innovation businesses. But the city has seen a blossoming of startup activities in the past year.

Is the city ready? Will we miss the boat again?

By Daniel Kwan

I

t’s graduation day! But this is not an ordinary school. It was Demo Day for AcceleratorHK – Hong Kong’s first accelerator program focused on hybrid mobile development – and six startups “demo” their creation to packed rooms at the Time Warner Center in Taikoo Place.

Despite the huge crowds and rising temperature in the rooms, the audience was – judging from their response – mesmerized by what they saw. These were real “cool stuff”.

In startup parlance, accelerators are for-profit incubator programs that provide seed investment, training and mentorship to startups in return for an equity stake.

Founders Steve Forte and Paul Orlando brought the accelerator program from the US to Hong Kong last year. While other programs cover hardware and software development, their three-month accelerator focuses exclusively on mobile apps (software applications run on smartphones or tablets).

That night in Quarry Bay was a highlight in Hong Kong’s nascent startup scene. In the past, Hong Kong is rarely seen as an attractive destination for technology businesses. Investors, entrepreneurs and technology developers often

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look elsewhere for talents and opportunities.

But things have begun to change in the past two years. Today, Hong Kong is like the next hot spot. “There seems to be a lot more startup activities going on now,” says Donald Austin, Managing Director of Austin Pacific and Chair of AmCham’s Entrepreneurs/SME Committee. “Hong Kong is an international city and you get a lot of people from different places. That’s how you get different ideas and innovation.”

program that I run, I have people from 15 different countries … You have people from different places working together – much more so than even in the US. To me, that’s really great,” says Orlando.

“The international flavor of Hong Kong is a great advantage.”

The perfect launch pad

More and coming To be fair, the local community is still in its infancy. Observers estimate the local community could be as big as one-tenth the size of that in New York’s. A list kept

by Orlando shows that there are about 150 startups coded in or run in Hong Kong.

According to Charles Ng, Associate Director-General of InvestHK – the branch of the Hong Kong government to help foreign entities settle or do business here, the past year has seen an increase in foreign startups setting up in Hong Kong.

Of the projects completed by InvestHK last year, about 15 percent involved startups and mainly of them were from Europe.

Donald Austin

“There are both push and pull factors behind the increase. ‘Push’ because Europe is still not out of the [debt] crisis and the US economy is sluggish. The ‘pull’ factor is that for businesses, Asia still has the greatest potential for growth,” says Ng. “And for startup entrepreneurs, Hong Kong has all the ingredients for them to be successful,” he adds.

Orlando of AcceleratorHK says Hong Kong is attractive to startups. “In the

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Indeed, when Orlando began recruitment last summer, he received more than 80 applications from the world over. At the end, they have chosen six whose founders come from countries such as Tajikistan, Malaysia, Mexico and the US. Furuzonfar Zehni, founder of GOnnect.me – an app designed to enable better networking at social and business events – is from Tajikistan. According to him, Hong Kong is the perfect launch pad for his business.

“The special thing about Hong Kong is that a lot of technology is adopted very quickly here. Take mobile phones as an example. People here have two mobile phones per person and Internet speed is very high here,” Zehni says. “Hong Kong is a very mobile city and the technological penetration point [in Hong Kong] is one of the best you can get in the world. It

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makes a lot of sense for tech companies to start here.”

“The reason why we have chosen to start GOnnect in Hong Kong is because it is a great market for this app,” says the 22-year-old Zehni. “The market here for MICE (Meetings, incentives, conferences, and exhibitions) is very large, with so many conferences and trade shows every day.”

Speaking in more general terms, Carlos Grajeda of PayAllies – a mobile app that deals with online payment in countries where credit cards are not popular – also thinks that Hong Kong is great for startups. “My friends told me that there are already too many startups in the US,” says the 25-year-old marketing graduate from Guadalajara of Mexico.

“Hong Kong is good. The law here is clear and setting up [a business] is easy.”

In fact, a confluence of factors helps fuel the startup movement in Hong Kong.

Like New York, Hong Kong has the advantage of being an international

financial center providing startups the financial infrastructure and easy access to capital. Other Hong Kong’s well-known attributes – rule-of-law, efficient transport system and low tax – also add to the city’s allure as a potential startup hub in Asia.

Jacob Fisch, a co-founder of NEST, which invests in and supports early-stage businesses, suggests that Hong Kong also has the advantage of being China’s gateway city. “If you can do deals that somehow have a strong Hong Kong nexus

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A BIG HAND

Turner Broadcasting has taken an active part in supporting startups in Hong Kong. Steven Kopec, Director, Emerging Technologies, Turner International Asia Pacific, tells biz.hk why and what’s in the pipeline:

Demo Day

– Hong Kong being a gateway to China – but that use Hong Kong as an anchoring point, there is a lot of value in that,” Fisch says (see sidebar, “Nest Do It”)

Why we do it For startups, Hong Kong has its charms and weaknesses. While the city may not be best known for producing home-grown techno wizards, it has more than made up with its open attitude in welcoming overseas talents. For decades, Hong Kong families have sent their children to study in some of the best universities in the US, Canada, the UK and Australia. Many of these well-educated young men and women are now back looking for opportunities after they have had a taste of startups in places where they studied and graduated.

One example is Nick Wang, a co-founder of 100village.co – an app which aims to foster innovative parenting through forming play groups. Born in Hong Kong, Wang moved to Seattle in 1991 when he was 15. After graduation, he worked for seven years for Microsoft

Paul Orlando

and Yahoo in the US before he moved to Tokyo to join CUUSOO in 2007 to work on crowdsourced design system. During the last few months of his stint in Japan, he co-founded Makible.com – a startup for personalized manufacturing – in Hong Kong with two other co-founders.

After Makible.com flopped (but its successor, MakiBox.com, was a hit), Wang turned to build 100village.co. This to-be-released new app, according to him, grows out of his own frustration of early parenting in Hong Kong.

After witnessing what his two young boys experienced in local play groups, Wang decided that “these things are killing the child’s creativity” and “enough is enough.” He says 100village.co allows like-minded parents to form play groups among themselves and keep track of the development of their children.

“Throughout the whole entrepre-

Carlos Grajeda

neurial path, I didn’t consciously think that I am an entrepreneur. I am kind of very naïve. I want to do this, and then I just go do it,” Wang explains. The fact that he was out of work after Yahoo’s job cuts also makes the decision-making easy. “We are like entrepreneurs-by-necessity.”

In fact, many startup founders interviewed for this story share a similar kind of urge (or frustration) behind their near crazy enterprise. Jeffrey Broer from the Netherlands set up Surroundapp.asia because he has this strong desire to follow Weibo – a Chinese micro blog akin to Twitter – but he can’t read Chinese.

“I need translation. You can do that by copy-and-paste, switching apps and going back-and-forth. It’s not easy and also the quality of translation is not that good. So [I asked] why isn’t there an app that does all that? And that’s what we’ve built,” says Broer.

biz.hk: Turner Broadcasting supports startups in Hong Kong through a variety of programs and assistance. What are these programs and support?

Kopec: Turner Broadcasting is working with startups in multiple capacities in Hong Kong and across Asia. We provide mentorship in business development, technology, agile development and how large companies work; we also provide facilities for local events, such as the AcceleratorHK Demo Day in February and the first Bar Camp HK in 2008 and will continue to do so. We also work with local bootcamps like Startups Unplugged (Paul Orlando’s bootcamp) by providing corporate sponsorship for the program.

Turner’s people also maintain personal and professional connections to the startup community in Hong Kong and Asia providing introductions to venture capitalists, potential investors, technical partners and co-founders.

focused on duplicating a business model, wanting to be another stock purchase app or the next Open Rice (an online dining guide in Hong Kong).

Now, we are seeing Steven Kopec a more diverse class of startups. People from around the globe are coming to Hong Kong to develop their products because it is a perfect market – small enough to be manageable for product development and testing, but large enough to have a realistic chance to monetize their product. The 150+ startups listed at http://wearehktech.com are a testament to that growth potential and diversity. That said, compared to other regions, such as New York or Silicon Valley, it is still a small, tight-knit community but now growing rapidly.

biz.hk: Can you comment on the startups in Hong Kong – compared with what’s going on in other cities (e.g. New York)?

Kopec: The startup scene in Hong Kong has been quite a slow growth story up until last year. Previously, startups

biz.hk: Turner Broadcasting is the first corporate sponsor for Hong Kong Bootcamp. For startups to grow in Hong Kong, what can big corporate practically do – taking into account the unique culture of the startup community?

Kopec: We think Turner has done a

biz.hk: Will Turner Broadcasting bring its Media Camp accelerator program to Hong Kong?

Kopec: Turner is constantly evaluating potential partnerships to bring our Media Camp initiative to other locations. That is evidenced by our recently-announced partnership with Warner Bros. to host Media Camp in Los Angeles this spring. Keep watching the Media Camp website (http://www.mediacamp.com) for more announcements and information about our plans for the accelerator program.

Co-working space

have your lunch for HK$30 if you want. If you can get a relatively cheap place to live, Hong Kong is a very good place to do this (startup).”

Since rents in Hong Kong are expensive, many startups and early-stage businesses – being who they are: agile, small-sized (usually two to eight people) and mobile – have found comfort in the rise of ‘co-working space’ in the city in

the past two years. Popular in the US, co-working space provides a relatively low-cost environment to up-and-coming entrepreneurs, freelancers and even out-of-town developers to work, meet and exchange ideas. Not only charging below-market rents, they – most importantly – regularly organize events and workshops bringing together entrepreneurs, mentors and investors. “For a

Although others have faulted Hong Kong for its high costs of doing business, Broer who is 40 and has run half-a-dozen ventures before he took the latest plunge in startups disagrees. “Aside from the rents, Hong Kong can be a very cheap place to live,” says Broer who moves to Hong Kong two years ago. “You can still

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good job in our engagement efforts with the startup communities in Hong Kong and beyond. In San Francisco, we have established an office to directly connect with Silicon Valley entrepreneurs, and we have dedicated personnel in Hong Kong and London who work with startups as part of our Emerging Technology efforts.

From a practical perspective, those efforts take the form of attending events to meet the local community, offering volunteer expertise and opening our network of connections for companies we believe in. On a larger scale it may take the form of providing space for the AcceleratorHK Demo Day or acting as a corporate sponsor for the Startups Unplugged program. The key thing is that these efforts don’t have to cost the company anything; they can mainly rely on the passion and drive of their personnel. Startups are always looking for advice and help in many ways; the hardest part for a large company is finding the ones worth working with.

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“Nest” Do It

Is Hong Kong ready for the startup revolution? Is Hong Kong on the right track? Jacob Fisch, a co-founder of NEST, which invests in and supports early stage businesses, believes Hong Kong needs a battle plan to succeed. The following is the inter interview with biz.hk: Nick Wang

Furuzonfar Zehni

relatively small fee, these co-working spaces offer startups excellent networking opportunities and chances to learn from each other,” says Ng of InvestHK. So far, co-working space in Hong Kong is limited. CoCoon in Tin Hau, Hive in Wan Chai, BootHK in Sheung Wan and Cheung Sha Wan, and Hong Kong Commons also in Sheung Wan are the four better known ones. These establishments are small and potential to grow is huge. CoCoon, for example, now has about 100 members since it was officially opened in June last year.

Meanwhile, the rise of the startup community has caught the attention of big companies. Turner Broadcasting, for example, is supporting budding entrepreneurs with mentorship and provision of space. “Startups are always looking for advice and help in many ways; the hardest part for a large company is finding the ones worth working with,” says Steven Kopec, Director, Emerging Technologies, Turner International Asia Pacific. (see sidebar, “A Big Hand”)

A stumbling block There is a major stumbling block to Hong Kong’s aspiration as a startup hub however. Hong Kongers of this generation seem to have grown accustomed to the idea of job security. A high-paying job at a big bank, for example, is deemed much more desirable to young people as their career choices. In addition, a thriving real estate market also presents a powerful temptation for entrepreneurs to invest their money in bricks instead of brains.

Orlando of AcceleratorHK says

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Jeffrey Broer

compared with their American counterparts, local parents – although their own parents were likely to be risk-taking entrepreneurs – seem to prefer a more secure career path for their kids.

“The first time I ran a Bootcamp here, I had one team that had applied and I accepted them. A few days before the Bootcamp started, they dropped out; it was because their parents said, ‘you can’t do this. You have to get a regular job’,” Orlando says.

“In Hong Kong, you have the opportunity every year to graduate at least a few hundreds of students who are interested in building their own startups or joining one. They have the technical skills, but you lose a lot of them to the banks and the multinationals because their parents want them to do that conventional job. To me, that’s the biggest obstacle,” he adds.

Low hanging fruits For startups to really grow, Hong Kong has two low-hanging fruits to pick.

On the one hand, Hong Kong needs to continue to welcome foreign investors and talents with open arms. At present, InvestHK is already assisting foreign companies setting up here to obtain visas for staff. Still, visa facilitation will be a handy solution to encourage more startups to set up shops here and bring their talents to Hong Kong.

“Compared with big firms, it’s harder for smaller companies to sponsor someone on visas and it usually takes time because you don’t have couple of administrative [staff] running around to deal with immigration,” says Austin. “The key for the startups and smaller companies is

reducing the paperwork.”

At the same time, Hong Kong should do more in spreading the news of success stories of startups based here.

Despite the explosion of information, people in other parts of the world – the US and Europe – know little about Hong Kong and the business opportunities it can offer.

According to Charles Ng, InvestHK is in the process of building a web platform dedicated to startups. “We are planning to launch several initiatives in the startup hubs in the US such as the Silicon Valley, New York and Boston and we will reach out to the respective startup communities there,” he says. “We may organize a few road shows to those hubs too.”

Locally, young entrepreneurs need all the help that they can get. Starting a business is a scary thing to do anywhere in the world. While talents, great ideas and capital are essential, igniting the fire in the belly for Hong Kong young men and women so that we will have more people like Carlos Grajeda from Mexico, Furuzonfar Zehni from Tajikistan, and Nick Wang from Seattle is a challenge.

How? The answer may lie in how Hong Kong takes care of its own talents.

More often than not, these young men and women don’t see themselves as businessmen or entrepreneurs, or the next Mark Zuckerberg or Larry Page.

Instead, they see themselves as just the ordinary guys who want to build a better future. “I’m just another guy who wants to make the world a better place,” says Wang of 100village.co. But in order for his dream to come true, freedom and creativity are essential. Can Hong Kong provide such an environment?

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biz.hk: Is Hong Kong a good place for start-ups?

Fisch: First of all we have to be careful about definitions. What you are really asking me about is the kind of “startups” people typically think about coming out of places like the US’s Silicon Valley: i.e. asset-lite, high growth, low capital-intensive, and potentially disruptive (from a technologically perspective) businesses – not traditional trading businesses or other traditional businesses even if such business are indeed SME’s and “startups” as well. Hong Kong has a deep history of SME’s in the traditional space. There is a cliché that in Hong Kong there is perhaps a cultural predisposition against “risk” which is a critical element for the startup ecosystem. I don’t buy it. Hong Kong has a long tradition of entrepreneurism so I don’t really buy the argument that Hong Kong’s culture is risk averse. At the same time, I agree Hong Kong has not been a major hi-tech startup hub and the potential to be one has only emerged in recent years. But it is a very entrepreneurial culture. These are two separate points.

Two things contribute to the perception in recent years, I believe, about there being an unfavorable

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“culture” in Hong Kong. One is Hong Kong’s low unemployment rate and the availability of high-paying jobs particularly in the financial sector. So the conventional jobs for those that can get them in banking, accounting or other professional services are relatively stable and high-paying. It would be less rational perhaps to take such a risk if you get job like that, especially if financial factors are key determinants for job seekers. The risk-and-reward calculation just doesn’t make sense to do otherwise.

Another factor is from an investment perspective – that is the rapidly appreciating value of property. Why would you put your money in something that’s asset-lite, untested and unknown when you know that if you buy an apartment next door and in a year, it is going to go up 30 percent in value? So there are macro global economic factors contributing to that too. That’s the context in which we are asking these questions, calling to question broad generalizations about Hong Kong or Chinese “culture” being unfavorable to the development of a startup ecosystem. It’s not a matter of culture so much as other factors, I believe. And let’s remember that Hong Kong has a great history of developing and supporting SME’s.

biz.hk: What are the key elements for startups to flourish?

Fisch: There are three key elements necessary to support a startup culture: the first one is the entrepreneurs themselves, the second is the availability of good ideas, and the third is the capital to support. You need all these elements. And in a sense you also need momentum. These elements need to function together and they feed off of each other. This is the challenge to the formation of the ecosystem for startups, especially high-growth startups that require investment capital.

Why do I think there an opportunity now? One reason is that data suggests that entrepreneurship flourishes in adverse economic environments.

Although Hong Kong continues to fair pretty well, the global economy isn’t out of the woods yet it seems. Also the pendulum that swings back and forth every few years has recently swung back to the position whereby a great number of people have decided again that doing business in China isn’t that easy and there are a lot of challenges in China particularly in the area of ruleof-law. A derivative of that point is that “trust”– i.e. the fundamental glue that holds business relationships together and allows deals to get done – seems to

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be as absent as ever in the context of deal-making in China. Hong Kong, with its sophisticated business climate, rule of law and relative transparency, offers an antidote to that. If you can do deals that somehow have a strong Hong Kong nexus – Hong Kong being a gateway to China – and use Hong Kong as an anchoring point, there is a lot of value in that.

Hong Kong is simultaneously a gateway from China out to the rest of the world. It’s sort of a mix of cultures.

So it is as good a time as any and frankly perhaps better than the last five or six years when there was so much enthusiasm of getting into China. Back then if you talked to the big funds, they just didn’t have interest in spending any time in Hong Kong except to live.

No interest at all.

Hong Kong really is unique in terms of the business culture, infrastructure, and geography. Here, there is strong willingness of business people to meet and get involved in a variety of different things. The reality is that Hong Kong today is very different from what it was 10-15 years ago in terms of how international and sophisticated it is. With that, it provides opportunities. biz.hk: What does Hong Kong need to become a startup hub?

Fisch: Two things that are needed to happen that will ultimately allow Hong Kong graduate into a globally recognized hub. One is success to point to – some real tremendous success stories.

Brands that have started in Hong Kong and gone global. Something really new and innovative that has drawn global attention. Something that can be celebrated.

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We’ve got the raw talent. Also Hong Kong is full of high quality academic institutions, several being internation internationally ranked. There are research capabilities here. It’s just a question of harnessing that raw talent and directing it towards great ideas. The second thing that is needed is investment and the capital to support these innovative businesses and the entrepreneurs driving them. These things need to come together at the same time otherwise it’s hard to make it work. Now you don’t want a lot of people investing in bad ideas because they are going to be failures, and investors and vehicles that support such investments are going to lose their taste. So you need both good businesses, good entrepreneurs and, finally, experienced and discerning investors who are good at making investments into good businesses and willing to do so. These things need to come together at the same time. There is a real risk of there being a sudden burst of interest in supporting startups, lots of money thrown all at once in an undiscerning fashion at bad ideas that mostly fail in the end. We need success stories. If this newfound enthusiasm is met with failure, it will be short-lived. This has happened before and probably to some extent Hong Kong is still digging itself out from this recent past history. biz.hk: So should government play a more active role?

Fisch: People often point to Singapore and its matching grant system as an example of a more activist government approach. Singapore has its critics and supporters in this area. I think the jury is still out on this approach.

Patience is important. But there’s a time frame for everything so we can’t wait forever. For Hong Kong, I think it’s really critical that there have to be some early wins and successes. They don’t have to be the next Google, but

we have to think about how we can create businesses that are really meaningful businesses and I will be disappointed if all we start doing was attracting and creating the next “me too” social media website. The world is full of these things right now.

People celebrate Hong Kong government’s non-interventionist approach. Maybe this is best for Hong Kong. But frankly, you need some infrastructure to kick-start the investment side of the equation – whether it’s partnership with government, subsidy of some kinds, provision of space, or some kind of expertise to ensure some level of return to investors. It’s valuable if it’s done in the right way. If Hong Kong maintains a purist laissez faire attitude, say no one should get involved and just hope it happens, it will be very difficult. biz.hk: Tell us about NEST. Fisch: We have had as many as 10 companies in our portfolio at one time.

Some of our companies have third party investors. We have two mandates – as investors, we want our investments to succeed. On the other hand, we also are part of the Hong Kong’s infrastructure. In order to have our long-term mission be successful, we want to see this ecosystem develop.

This is a good thing for Hong Kong to have and we want it to be successful and that’s why we are involved. biz.hk: What do you consider important in reviewing an investment project?

Fisch: The quality of the individuals, the leaders, and the team, and that of the business. We look at the extent to which the business plan has been thought through and we look at the leader’s ability to execute on that plan.

The role of investor is two-fold.

One is to supply capital to early companies that need it – unless it is fortunate enough to be led by somebody who has their own money from other sources.

The other role is to build his reputation. Part of a healthy ecosystem [of startups] is the investors themselves developing a degree of reliability and respect. Then people would say, ‘oh,

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this guy has done some great deals.’

Trust is very important and an investor needs to build his reputation of success and then they can leverage that. With a good track record, they can bring in co-investors and get others involved because they can see what the earlier investor has achieved and then that will develop momentum. That’s good for the ecosystem.

It’s a bit of a misnomer or misconception that the angel investors are exceptionally wealthy people. Often [startups] are not worth the time for someone who is in the business of deploying large chunks of capital. I find a lot of angel investors are in fact professionals, lawyers, bankers – people who have made some money perhaps, or entrepreneurs themselves who have a little bit of excess capital and want to diversify their investment.

They find [startups] interesting and have the right risk appetite for these kinds of deals. biz.hk: Is Hong Kong on the right track of becoming a startup hub?

Fisch: Hong Kong needs to do it quickly and correctly. Probably it’s not good enough now. Someone needs to champion the project and liaise with the private sector, the universities and the government. It sounds like InvestHK may be taking that lead. It would be good to have someone dedicated to and focusing on this, and looking at the history of other economies that have developed this space successfully. A working group should study how governments have been

involved or not involved to come to a clear conclusion of what’s best for Hong Kong in light of the city’s unique attributes. They should be thinking through the barriers historically in other places, how places have been successful. For example if Hong Kong’s problem is cost of living, well, New York is not a cheap place either.

Silicon Valley is not a cheap place (though maybe it was more so today than 30 years ago when things were still getting started). So cost of real estate should not be a fatal factor but it’s a challenge and it’s worth researching.

What we need is to have someone looking at this stuff and finding out how to fit it all together in a way that works best for Hong Kong – [we need] a battle plan in a relatively short period of time and then advertise that to the world, to the right people and to the right places. What strikes me as amazing is – I spent a lot of time in New York and I’ve talked to people in California – how insular those places still are. They still do not get this part of the world. So there is an opportunity and there is a need to communicate globally about Hong Kong.

We need to figure out what is unique about Hong Kong. We’ve got a lot of the elements – proximity to China, cultural and social mix, and consumer market mix. There are a lot

Jacob Fisch

of things that make Hong Kong unique but it requires a little bit more thoughts of what’s really valuable, and how to position that and how to bring the right people into that equation and make it work. I think with a little focus and support we’ll get there.

“Hong Kong needs to do it quickly and correctly.

Probably it’s not good enough now. Someone needs to champion the project and liaise with the private sector, the universities and the government. It sounds like InvestHK may be taking that lead. It would be good to have someone dedicated to and focusing on this, and looking at the history of other economies that have developed this space successfully.”

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MY

ENTREPRENEURSHIP JOURNEY Author Steve Blank, who is widely regarded for launching the lean startup movement that emphasizes customer development and validation of products, has once said “entrepreneurs are crazy.” They are mad because – rationally – it would make a lot more sense for them to exchange labor for money than starting their own businesses. However, the fact that they are insane is a good thing. The world is a much better place because of them, the Stanford professor has also famously said.

Dickson Tong, CEO and Co-founder of Y-stage Productions, is not crazy. On the contrary, Tong is more visionary than mad.

Like many other young entrepreneurs in Hong Kong, he has dreams – and plans to make these dreams come true. In an interview with biz.hk in December, Tong shares his entrepreneurship story – a decade-long journey that reached a turning point last year when he finally took the plunge to devote to Y-stage full-time

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T

he year was 1997 – a historic year for Hong Kong. Then an average guy working in the air-conditioning business for a company in Vancouver, Dickson Tong decided to uproot himself and returned to Hong Kong where he had spent his childhood (he was born in Macao). Landing in Hong Kong on June 29th, he found a job three days later in the same industry. Starting his own business was an idea that has never occurred to him.

Partly because of his experience in Canada and his qualifications, Tong was put in charge of a new line of business. The new job has put him in a front-row seat of the fast growing air-condition construction industry at the time. While the industry was growing fast, so was the competition.

Market reality soon prompted Tong to think, generate some ideas and discover untapped market opportunities. Together with a few friends and partners, Tong had the idea of developing what he called “simulated products” for the air-conditioning industry and they even went to Japan looking for manufacturers who might be interested.

Let go Although it was a great business idea and Tong’s team had the necessary expertise to pull it off, they encountered a typical problem many SMEs faced – a shortage of capital. “It was a dilemma. Should I press ahead and start my own business?” recalls Tong.

In 1999, Tong decided that he would hold back. It was a difficult decision to make. It was the height of the dotcom era when everybody was talking about “being your own bosses” or “building your own business. ”However, a cool-headed look into the market convinced Tong that he would not be able to raise the necessary funds to realize his plan. “My decision then was that I had to let go,” he says.

Tong changed job a year later and joined a telecom company in Hong

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Y

Kong. It turned a new leaf in his career.

According to him, he began to come across a lot of young entrepreneurs in Hong Kong who had a background in the Silicon Valley. A lot of these young guys were active in Information and Communications Technology (ICT) and e-commerce businesses. “A lot of these people have brought their experiences from Silicon Valley to Hong Kong,” Tong says. “It intrigued me why these people were so passionate about starting their own business.”

ICT

Now deeply involved in the ICT field, Tong found a fascinating new market. Even the vocabulary was different – e-commerce, websites, portals, payment, banner ads and data centers. Meanwhile, the industry was experiencing rapid changes that mergers and acquisitions took place.

Although Tong again had the idea of being his own boss back in 2005, the turbulent time then again forced him to think twice.

“I realized that for many of the ICT companies from North America and Europe, their systems were not adapted to the local needs and culture in Asia,” he says. “I thought it would be a viable business if we could set up a company to function as broker to distribute these ICT products after adapting them to local customers’ needs.”

As the saying goes, “once bitten, twice shy.” Tong says his experience in 1999 was a key reason why he had not taken the plunge. “I was not convinced that I was ready,” he says. “Looking back, I would really appreciate if we could have mentors or advisers who could guide us through.”

According to him, he began to actively take part in business chamber activities after 2006. In 2009, he became vice-chair of AmCham’s Young Professional Committee.

Through these organizations, Tong became connected with more entrepreneurs who had similar experiences and ideas as he did. In fact, he met his current business partners through

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apps in the next five to six months.

The kiosk which combines telecom and multi-media technologies will have wide customer applications including in places like convenience stores.

“We are confident because we have gotten good feedback from the market,” says Tong. “We also have strong technology partners and have built a good client base.”

Winning recipe

Dickson Tong

these activities who had just started their own business then.

“We began to talk a lot about our ideas. Back then, angel funds or venture capital were too distant for us.

We felt that we were on our own and didn’t have much support.”

Y-stage

Tong however hasn’t given up his ideas. He continued with his day job but was slowly becoming more involved in Y-stage, which was primarily a media and content production company he helped found in 2009. At the same time, Tong has accumulated a wealth of experience in “unified communication” – a collaboration of voice, video and data – and was prepared to bring his expertise into Y-stage.

Now 46, Tong took the final steps last year and he began running Y-stage’s operation full time. With his direct participation, Y-stage’s transformation accelerated. It has evolved from a production company to become a “solution provider with customization capabilities to service medium and big companies,” Tong explains.

The company will launch an interactive kiosk that can display advertisement, handle payment and run mobile

In retrospect, Tong agrees that Hong Kong is a great place for entrepreneurs. The city is dynamic, fast-paced and receptive to new ideas.

What Hong Kong can do in one day may take months in other cities, he notes. “Here, it’s really easy to meet people – you may meet someone here in the morning, and meet another group in Shenzhen in the afternoon,” he says.

On the other hand, rents in Hong Kong are notoriously expensive and that remains a serious holdback for SMEs. This is important because SMEs need space to scale up once they find business.

Speaking from experience, Tong believes that good mentorship holds the key to nurturing local entrepreneurs.

“As I build my business, I feel that our gestation period would be much shorter if we had mentors or people with experience who could give us advice,” Tong shares with biz.hk. “Put it in another way: we would have had a clearer vision of our path or made fewer mistakes if mentors had been there to give us advices.”

When asked how he felt about being an entrepreneur now after all these years, Tong mused and said: “I feel confident. As I am in it full-time, I can see that there is actually a lot of room for development. At the same time, I have partners who share similar views about the business and we know we are not alone because we support each other.” Confidence, good ideas and support – are surely a winning recipe for entrepreneurs.

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EDUCATION

site redevelopment from various departments, especially given the current focus on public housing.

There Simply Aren’t Enough The international business community in Hong Kong has for years called for more international school spaces; even the government has recently acknowledged such a local shortage. Janet De Silva of AmCham's Education Affairs Group says Hong Kong needs to re-think holistically about our education strategy in order to meet challenges of the future

By Kenny Lau

Janet De Silva

A

bout a year ago, AmCham’s Education Affairs Group chair Janet De Silva testified before a Legislative Council panel on the critical shortage of international school spaces, stressing international executives are simply turning away from relocating to Hong Kong “because they can’t get their kids in school here, particularly for primary grades on Hong Kong Island.”

“The situation remains in crisis,” De Silva reaffirms, noting an average yearly intake of less than 10 new students in the primary grades on Hong Kong Island. “There simply aren’t enough places opening up. The findings we had 12 months ago continue to be relevant.”

In many ways, there is no significant improvement because “the

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demand is not letting up and we just aren’t having any movement,” she says.

“We have education stakeholders in the community who are quite willing to spend millions of dollars to increase school places. The problem is with space.”

Despite an urgent need for expansion, international schools in Hong Kong have not been able to move forward with their plans to create additional places to accommodate an increasing number of students and are simply “stuck” at their current level of capacity.

Executives say no “The situation has not really gotten any better,” De Silva notes. “It has become such a globally reported issue that people are well aware of the short-

age of school places, and potential executive transferees are asking these questions upfront.

“In fact, what we’ve learned from HR professionals is that many candidates are not even considering relocating to Hong Kong.”

It has also been reported that some executives have chosen to leave Hong Kong (and resign from their job in some cases) after having been here for only a year simply because they were unable to find school accommodation for their children. It is massively disruptive to companies in need of highly skilled professionals to fulfill their business plans in Hong Kong.

The issue of school expansion goes beyond acquiring an endorsement from Hong Kong’s Education Bureau; it is a very challenging process to get a site allocated and to seek approval for

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Growing demand Although some primary grade places are available on certain campuses (mostly in the New Territories), it is limited in numbers. Most parents are “just not comfortable putting their young kids on a bus commuting that far for school” when they live on Hong Kong Island where most residential infrastructures for the international community, especially for first-timers, remain.

The Education Bureau has recently acknowledged that there is likely a shortage of about 4,200 international school places in the near term; and, the government has been trying to provide a solution by making four underutilized sites available for bidding by educational institutions, including a location in Stanley for which more than 40 qualified schools had applied.

“That is indicative of the huge demand here, which comes from families of the international expatriate as well as local communities,” De Silva says, indicating a bottleneck situation in the supply and demand of international school places.

International schools have grown extremely popular among local parents who wish to provide their children an international learning experience without going abroad; they are also the only viable option among international families living and working in Hong Kong where many now tend to stay for a longer period per job requirement.

The good news is: Hong Kong has established for itself a reputation of having extremely high quality education available, particularly through the international schools here. “This is good for Hong Kong’s competitiveness,” De Silva believes. “However, there are simply not enough places in those schools to accommodate international transferees, let alone demand from the local population.”

The overall demand for primary grades – in both international and local

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schools – is unlikely to subside in the near future, partly due to a sudden increase in local birth rates in the past decade. The number of births by Mainland parents alone has gone from 26,838 in 2006 to 40,875 in 2010, thereby creating a generation of local “baby-boomers” who will require access to education in Hong Kong down the road.

Holistic strategy Hong Kong’s ability to provide sufficient primary (and later secondary) school places is being put to question amid an anticipated surge in demand for school places. Concerns over a severe lack of schools are now being raised collectively as more

“It has become such a globally reported issue that people are well aware of the short-age of school places, and potential executive transferees are asking these questions upfront. ”

parents line up in long queues trying to secure a spot for their kids.

“There seems to be a gap between what we had anticipated and actual numbers of international movement into Hong Kong and births by Mainland parents,” De Silva says, citing documents which have solely focused on birth rates of local families for planning purposes, hence the closure of 235 primary schools in the past eight years.

“We need to re-think holistically about our overall education strategy, from capacity planning to implementation, and do so in a more centralized

approach involving relevant departments of the government in order to better align our supply to changing demand,” De Silva suggests.

“Besides creating enough places, it should also be an overall strategy that helps equip all of our students with highly sough-after skills for the future through our entire education system here,” she adds, highlighting a threepronged approach aimed at local, international and special needs schools for a more modern, vibrant and relevant school system in Hong Kong.

“It is in our interest that local schools be highly effective and yield great graduates because many AmCham member companies are large employers who want to have the right talent and Hong Kong to be competitive,” De Silva reasons. “The more attractive schools we have, the more options for local and international parents and the more high-quality graduates for our economy.

“In fact, if we are to maintain Hong Kong’s competitiveness, we simply can’t afford to lose in the global war for talent.”

War for talent Hong Kong’s current demand for skilled personnel remains very high and will continue to be so in the near future as MNCs and Chinese enterprises are increasingly looking to Hong Kong as a base from which to expand into other markets.

“We continue to see economic growth and hence strong demand for talent in the region,” De Silva says. “We will see not only a real increase in talent requirement but also a shortage of available talent in the workforce over the next 20 years.”

“While China will remain an important global growth engine, the number of new entrants to its workforce is expected to decline just at a time when the country is shifting out of low-value manufacturing into a service-based economy...it means future demand for specific types of skill that will be sought after will be much higher than the supply of available talent.”

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ENVIRONMENT

Evan Auyang

Chamber Lobbies for Clean Air Measures The AmCham Environment Steering Group has made a submission to the government focusing on what needs to be done to improve air quality, emissions control and traffic management. Evan Auyang, ESG Chair, explains the thinking behind

By Kenny Lau

A

ccording to AmCham’s Annual Survey 2012, degradation of the environment, particularly in air quality, remains a serious concern among members and is one of the most often cited issue (along with rising cost/inflation and lack of international school places) believed to be affecting Hong Kong’s status as a world city in which to live and do business.

Environmental protection is one of AmCham’s priority issues because it has a direct impact on the welfare of Hong Kong’s entire population (regardless of background) and, ultimately, on the ability of the city as a whole to stay economically competitive.

Environment Steering Group AmCham has been at the forefront on issues about the environment through its long-standing Environment Committee. In 2010, it also formed an Environment Steering Group (ESG), tapping into cross-industry expertise in the sectors of energy, real estate as well as transportation and logistics to advocate

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for government actions on higher environmental standards consistent with those of other major world cities.

The Environment Steering Group has recently submitted to the government an advocacy paper in which AmCham “urges the Hong Kong government to demonstrate greater environmental leadership by providing supportive policies and imposing reasonable, clear, and forceful regulations to induce businesses and community leaders to adopt greener environmental practices.”

More importantly, ESG has stressed in the paper that members of the Chamber “have accorded top priority and urgency for Hong Kong to act upon supporting a greener environment,” where air quality is the top environmental concern.

“When AmCham members and businesses in general express such passion about the environment, it is telling you something,” says Evan Auyang, an AmCham governor and head of ESG. “People care so much because the quality of our natural environment goes hand in hand with our competitiveness.

“The environment is always one of the most important considerations. Why? Because people care a lot about being healthy, and they are particularly concerned about the health of their children.”

“Although Hong Kong ranks very high on economic freedom and rule of law, it has fallen behind in terms of environmental policies,” Auyang adds.

“In the long run, healthcare cost will increase significantly and some people will choose to leave Hong Kong if our environment remains poor…and you don’t want to wait until it gets really bad.”

Indeed, nearly one-third of the respondents in the recent AmCham annual survey indicated that companies had difficulty recruiting overseas professionals because of Hong Kong’s poor air quality.

The issues “Although the government has already implemented some policy actions, many are haphazard, ineffective and have received lukewarm support,” ESG notes in the advocacy paper.

AmCham, for instance, welcomes the

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inclusion of a PM2.5 target (particulate matter is a major pollutant) as part of Hong Kong’s new Air Quality Objectives (AQOs), but “is disappointed that the government has chosen to adopt the easier-to-meet ‘Interim’ targets rather than the more progressive ‘Final’ targets (of the WHO).” The new AQO targets, in many ways, are simply far too low and are highly unlikely to lead to any meaningful improvement in air quality.

To truly make a difference, “a significant change in behavior of businesses and consumers, backed by thoughtful regulations benchmarked against international best practices, is necessary,” AmCham believes.

And, “the government should leverage the power and energy of businesses more via greater engagement in formulating feasible, supportive policies and binding regulations similar to those adopted in developed countries.”

In consultation with AmCham core industry committees, ESG has learned that “many companies and business leaders actually stand ready to change behavior and do more to improve Hong Kong’s air quality.” The key, though, is a clearer “carrot and stick” approach by the government providing businesses reasonable incentives to become “greener” while leveling the playing field with much “clearer” environmental regulations.

“We have to have everybody involved in order to effect real change,” says Auyang. “That’s why we believe it is important for us to create a level playing field so that companies wanting to do more with progressive environmental policy are not financially penalized simply for being greener.”

“On a level playing field, nobody is singled out and everybody moves in the same direction towards a cleaner environment,” he adds, citing London and Singapore for having adopted such approach successfully. “There also needs to be a balance between the ‘carrot’ and the ‘stick’ without over-emphasizing on one side or the other in a basket of regulations and incentives.”

Recommendations Major air pollutants, namely sulfur

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oxide (SOx), nitrogen oxide (NOx) and particulate matter (PM), come mainly from the transportation (both ground and marine), energy and real estate sectors. While roadside air pollution may matter most because they are closest to people, emissions from ocean liners and power plants pose no less of a serious threat to public health.

Because buildings in Hong Kong account for roughly 90 percent of electricity consumed locally, real estate is a sector where adoption of energy efficient standards such as BEAM, LEED or Green Star in new buildings can “comfortably” reduce energy usage by 50 percent or more as well as SOx and NOx emissions by a significant amount.

AmCham also supports a migration towards a cleaner fuel mix for power generation by relying less on coal and more on natural gas as well as other forms of renewable energy, for which there needs to be “a clearly defined, achievable timeline and roadmap for the most appropriate fuel mix for Hong Kong.”

The impact of the sea-trade logistics sector on air quality is far more significant than what is often perceived: ocean liners and related port activities are major contributors of SOx, NOx and PM because of the use of bunker fuel and sulfur diesel (as opposed to the ultra-low sulfur diesel that road vehicles are now using). To mitigate the effect, the government will have to either mandate more stringent fuel standards and/or help offset the cost of switching to cleaner but more expensive fuel while at berth in Hong Kong.

Franchised buses, light and heavy goods vehicles in Hong Kong are now mandated to run on Euro V-grade diesel, which has reduced the sulfur content to nearly zero, but remain major sources of NOx and PM, particularly in the case of older goods vehicles, an area where “an integrated carrotand-stick solution that drives real change” has yet to be fully worked out.

The recently announced government “carrot and stick” initiative to upgrade diesel goods vehicles is a significant step forward, ESG notes.

Hong Kong’s franchised buses are

now in a replacement cycle in which older fleet are being phased out for more environmentally friendly Euro V models.

For example, two-thirds of KMB’s fleet of more than 2,000 buses will be of either Euro V standard or some form of electric type by 2018; and this will reduce emission of NOx by 54 percent and of PM by 80 percent.

The bus company is now investing heavily in early trials with electric buses (one type is super capacitors-equipped and the other is battery-only buses).

Other clean technologies are also being explored.

The adoption of technological upgrades in vehicles, however, is highly costly and only serves as part of a complete solution to alleviating Hong Kong’s roadside pollution problem.

Traffic management is equally, if not more, vital to an efficient road transport system because “clogged up” traffic will simply undo much of the on-going efforts in bringing the latest technology.

Congestion on Hong Kong’s major roads has noticeably worsened in recent years: average vehicle speed has slowed; journey duration has increased; hence “more delays and a higher toll on the environment” as a result of an increasing number of cars and vehicles running inefficiently on the road as well as inadequate enforcement on illegal parking.

Except during peak hours, franchised buses are rarely full to their capacity because of route duplication and redundancy, causing numerous “empty buses” running on certain routes while adding to the problem of road congestion. It is recommended that the current bus route network be restructured in order to improve roadside air quality, ease road congestion and bring about efficiency and reliability for commuters.

“Technology alone will make some difference but it will not be enough,” Auyang says. “In other international cities, their policies always target both technology and traffic flows; what we need is a holistic approach, which means better technology, better traffic management and better enforcement on traffic rules.”

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FOREIGN AFFAIRS

through it. This is a country that went through a very difficult time in the Vietnam era; and yet, we got through those issues, which were infinitely tougher than what we are now dealing with. I strongly believe in the institution of the US Congress and we will live up to the expectation people have of the institution.

Mission-Critical Dialogue on Sino-US Relations Leading a US congressional delegation on an official visit to Beijing, Shanghai and Hong Kong in January, Representative Rick Larsen (D-Washington) talks about bilateral economic and political issues and the goals of the bipartisan US-China Working Group that he co-chairs biz.hk: Can you tell us about your latest trip to China?

Larsen: In this trip, we spent two days in Beijing, two days in Shanghai and two days in Hong Kong to get a better understanding of Mainland China’s continued economic reform and leadership transition and how these developments impact Hong Kong.

In Beijing, we met with Chinese Vice Premier Wang Qishan, Foreign Minister Yang Jiechi, Li Wei of China’s Development Research Center of the State Council and among others to talk about economic issues and US-China bilateral relations. biz.hk: What is the current Sino-US relationship like?

Larsen: The current state of the US-China bilateral relationship is generally strong. There continues to be commitment from leadership on both sides not only to continue strong exchanges but also to understand that there are differences. These differences don’t mean that we don’t talk to each other but that we need to spend more time in dialogue.

There is definitely a school of thought in China seeing US involvement in Asia Pacific as containment.

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It means that there are people in China who think that China could be contained. It is an argument you hear more from people in China than you ever hear in the US. The US is a Pacific country; we have always been involved in Asia and will continue to be involved in Asia. I would note that our diplomatic, economic and trade presence in Asia is stronger over the last several years. Our defense presence is also stronger; but, when it comes to Australia, we are only talking about a rotation – and not a permanent station – of 2,000 to 2,500 marines. I don’t understand the conclusion that this somehow means a China containment policy or how anybody in China would think that China could be contained. biz.hk: Is the US losing its global leadership position as a result of its political gridlock?

Larsen: One should not count out the US or its political institutions. The US Congress has dealt with tougher things in the past. While this may not resonate directly with folks in Hong Kong or China or anywhere else, we fought a civil war and got

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biz.hk: Do you find the current US Congress hostile towards China?

Larsen: One just can’t take one brush and paint the US Congress with the same brush about China because there are so many different views. The old joke is that there are 435 members in the US House of Representatives and there are 900 opinions [among them]. Individual members of Congress each have their different views about China. So, it is just not accurate to say there is only one view about China.

And, that’s part of what the US-China Working Group is about. It is to educate members of Congress about China as well as leaders in China about the US Congress. I think it is important that members of Congress travel to China – and Asia in general – to get a bigger picture perspective of the region. There is no doubt that there are members who do see China as a threat; but, there are also members who think it is vitally important that the US engages with China on a number of issues in a positive manner as well. There ought to be a lot more focus on the engagement that is taking place. biz.hk: Can you tell us more about your US-China Working Group?

Larsen: It is a bipartisan group created in June 2005 to develop a space in the US House of Representatives where members of Congress can have discussions about China and its relationship with the US. We also talk to the US business community in China, Chinese leaders and administration officials and we hear from scholars. The goal is to find a pathway to have a positive agenda with China.

What was telling in our meeting earlier with Deputy Chief of General Staff of the PLA Qi Jianguo was how he thought it was important for members of the PLA to meet with members of the US Congress.

About a year and a half ago, we had dinner in China with the then-PLA Chief of General Staff Chen Bingde who came to the US the next month on an official visit and insisted to meet with members of Congress.

These are examples of changes taking place in the bilateral relationship. When we started this working group in 2005, we could barely get PLA officials to understand what Congress was about; and now they understand our role in policy-making in the US better and think it is important to interact with Congress.

This can only help dispel some of the myths that get

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Rick Larsen

created when members of Congress make announcements about their own position with regards to defense and security issues. biz.hk: What about the issue of labeling China a currency manipulator?

Larsen: The number one thing on the currency issue is to educate people about currency and to note the change of the Chinese currency. There has been quite a bit of appreciation in the last six years by about 25 percent. Can there be more? Probably.

Should we label China a currency manipulator? Or, should we continue pressing China on financial market and capital account reforms? It is the latter the US should take as opposed to taking an approach that might lead to a trade war.

I am not going to make an argument that every job that has left the US has gone to China. Some have and others have gone to Mexico or Vietnam; and some just disappeared. At the same time, we have also created new kinds of jobs in the US as well. biz.hk: How should the US approach China on economic issues?

Larsen: Economics are very complex and what’s important is doing our job in the US to get our fiscal house in order and invest in things like transportation, research and education so that we have the foundation for economic growth and job creation in the US. That’s what we need to be doing. We ought to spend more time explaining what we can do to create jobs in our own economy than trying to explain why China or any other country is good, bad or indifferent.

One of the issues has to do with Chinese investment. China’s investment in the US is welcome.

Chinese investment in the US amounts to over US$6 billion in 2012 and is increasing. There have been very few instances of attempted Chinese-based investment in the US that have been stopped; and there have been many more instances of successful Chinese-based investment into the US. Whoever is in charge needs to do a better job of talking about those successes.

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TRADE AND INVESTMENT

Economic Indicators 2011 - Myanmar

A local taxi in Myanmar

GDP growth (% change per year) 5.5 CPI (% change per year) 4.2 Unemployment rate (%) 4.0 Fiscal balance (% of GDP) (5.5) Export growth (% change per year) 10.1 Import growth (% change per year) 23.8 Current account balance (% of GDP) (2.7) Source: Asian Development Bank ( ) = negative

Bus on a street in Yangon

Lifting the Veil on Myanmar

Photos: Thinkstock

The US decision to lift a ban on exports could give Myanmar its best shot at becoming the world’s next low-cost manufacturing base but risks and uncertainty about investing in the Southeast Asian country remain. The outside world knows very little about Myanmar so proper due diligence and thorough study of the local market is paramount.

Hong Kong-based lawyer Robert San Pe who presented on Myanmar at the Chamber late last year talks to biz.hk about the opportunities and challenges the country present

By Kenny Lau

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yanmar was a very different place in a very different time when Robert San Pe of Anglo-Burmese heritage returned for the first time to the homeland of his father in 1991 upon finishing school in the UK. It was a life-changing experience that helped define his future involvement with the country.

In addition to his role as a partner at international law firm Orrick, Herrington & Sutcliffe in Hong Kong, Pe is an advisor to Nobel Peace Prize laureate Aung San Suu Kyi.

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Since 1962, Myanmar had been under a military regime, operating a “centrally planned, closed” economy whereby international trade was highly restrictive. For decades, with the exception of a few countries within Asia, Myanmar had had minimal diplomatic or trade relations with the outside world. Many Western countries had imposed strict economic and military sanctions on Myanmar for alleged human rights violations.

Myanmar is centrally located in Southeast Asia, with a 1,200-mile coastline along the Bay of Bengal and

Andaman Sea, and is rich in natural resources including gems, oil and natural gas. It is however one of the poorest countries in the region due to decades of political and economic mismanagement and isolation.

“In terms of being a market, it is untapped,” Pe says of Myanmar. “It is a big market of 60 million people, most of whom have not had access to all the things we take for granted. It has a workforce that is quite eager. The local people are capable of being trained and are generally not difficult to deal with.”

“Strategically, Myanmar is very

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well placed and is a location important for China, India, Thailand and other ASEAN countries,” he adds. “Because it has a lot of natural resources, if well managed, it can actually afford to buy a lot of things.”

Political reform The political landscape of Myanmar has undergone drastic reform in recent years; and it began with a constitutional referendum in 2008 calling for a more democratic form of government and a number of political changes following the general elections in 2010.

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“Myanmar has certainly come a long way moving in the right direction; and the momentum remains very strong, although it is probably an overstatement to say that things are very stable simply because we don’t know how things are going to play out.”

“Myanmar has certainly come a long way moving in the right direction; and the momentum remains very strong, although it is probably an overstatement to say that things are very stable simply because we don’t know how things are going to play out,” says Pe. “We are now in a situation where the government is civilianized but the people running it come mostly from the military-backed Union Solidarity and Development Party,” he adds.

“Many feel that the country still has a long way to go; and the elections in 2015 will be a real test.”

Although status quo remained after the elections in 2010, it marked the beginning of a series of political and economic reforms – including the release of pro-democracy leader Aung San Suu Kyi from house arrest and subsequent participation of her party in the 2012 elections in which

National League for Democracy won 43 of 45 available parliamentary seats.

Recent political reforms have been key to a gradual normalization of foreign relations and in effect prompted the US and European governments to suspend most sanctions on Myanmar. The United States resumed full diplomatic relations in early 2012 and lifted a ban on imports from Myanmar following an official visit by then-Secretary of State Hillary Clinton. Bilateral ties received a further boost last December when Barack Obama became the first US President to visit the country.

“Aung San Suu Kyi is obviously incredibly impressive and has amazing charisma,” Pe says. “She has peacefully resisted a very harsh regime over many years and has been – not completely yet but at least partially – successful in changing the course of a country. I simply can’t compare her to

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anyone else as she has done what probably nobody else could do.”

“She is a natural leader and very strategic in her thinking and she is very efficient in dealing with all of the key issues in a meeting,” he notes.

“She has a very good grasp of what’s happening in Myanmar and its place in the world and has a very clear vision for the country.

“While some people have reservations about her, the vast majority of those people also acknowledge that if it were not for her, the country would not be moving in the direction it is moving now.”

“There is no question about what she has already achieved. Having achieved something this massive and difficult also suggests that there is more she can do, a lot more,” he adds.

Economic development Myanmar is now emerging to become a part of the international community and is taking careful steps in creating a foundation to facilitate further development; and it is at a stage where massive infrastructure will need to be developed in order to create an environment in which foreign investors are confident to do business.

“It is a pretty safe place if you stay on the beaten track, but some areas can be dangerous as well,” Pe tells of Myanmar. “Generally, crime against tourists in the country is much less common than many other places. And, I’d be surprised if the police tried to make life difficult for foreigners.”

“The country is ready in a sense but is not yet ready in many respects because many of the things that we associate with big cities are still missing in Myanmar,” he continues.

“There aren’t many good ports or airports; telecom has a long way to go; legal infrastructure needs to be rejuvenated; and finding professional services firms of high caliber is not easy. All of these will need to change and will take time.”

“While the country has been very

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Myanmar: Memoir of a Journey

welcoming of foreign investment and has taken many steps to accommodate investors, they are also disappointed that there has not been more high value financial investment in the country,” Pe notes.

Foreign investment In an effort to attract more foreign investment, President Thein Sein earlier proposed a series of amendments to Myanmar’s Foreign Investment Law, which were adopted in November last year. Highlights of the amendments include land-use rights of foreign companies for up to 50 years with a possible extension for two additional 10-year terms.

“It is clearly a statement of intent that it welcomes foreign investment and wants to make life easier for investors,” Pe notes. “In some ways, it is quite generous in some areas such as taxes on foreign companies but also very broad-brushed.

“In theory, it is very liberal in terms of allowing foreign companies to choose how much cash they want to put in as there does not appear to be a minimum threshold to be a Myanmar Investment Commission-approved company,” he describes referring to the government agency responsible for vetting investment projects. “And, it is pretty clear that companies will not be just confiscated by the government.”

“The law is positive but a bit vague; and too much discretion is left to the Commission,” he adds.

While the amended Foreign Investment Law makes clear that parties can choose how they want to resolve their dispute, arbitration remains difficult. In most cases, international arbitration awards are not enforceable inside Myanmar.

Unlike more than 140 other sovereign states, Myanmar has not yet acceded to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

“What the New York Convention means is that when there is a dispute

A

Robert San Pe

that people don’t have to resolve in the local courts but can go to Singapore or Hong Kong for a resolution that can be enforced in Myanmar,” Pe explains.

“It is an important aspect in terms of giving investors some level of confidence.”

According to Pe, direct investment is just one of the options available to foreign businesses to establish a presence in the country. Regardless of which way one chooses, being patient is important.

“In terms of setting up a factory, it is likely easier if you are a big company with a strong brand,” he notes. “My impression is that the current government welcomes big businesses and wants the numbers to increase quickly.

“If you are smaller or less well known company, it may be harder and you will have to be patient, take your time and find good local people to work with.”

“One possibility is to start with basic trading,” Pe suggests. “You don’t necessarily have to start building a factory there right away. That’s probably a bit too ambitious. By trading with local businesses as a way to build relationships, it gives you exposure to the country and that’s a foot in the door.”

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s a child of AngloBurmese heritage growing up in the UK, Robert San Pe had very little exposure to the Southeast Asian country of Myanmar.

His father who moved to the UK and gave up his nationality had not been able to obtain a visa to return to his native country for over 30 years.

“The country was very isolated in those days as it embarked on a road to socialism,” Pe says. “Burma, as it was called back then, went from being a very wealthy country when my father was growing up there to being a very poor country.”

“We would occasionally get some phone calls from Myanmar and my dad would rush to the phone; but it was usually some bad news,” he recalls.

“Because it was very hard for people in Myanmar to communicate with the outside world, they would only do it in very extreme circumstances.”

The news and implication of Aung San Suu Kyi’s return to Myanmar in 1988 sparked an interest in the issues and affairs of the country. “Her story was amazing and I felt so passionate about what she was trying to do,” Pe says. “I have admired her since the time she first came to public prominence. I feel so lucky to have my current role as an advisor as I have been in love with the country for over 20 years.”

Immediately after law school in 1991, Pe made a trip to Thailand where he also planned for a visit and applied for visa to Myanmar. “I wasn’t confident at all because my surname is obviously from Myanmar, which could

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be a problem,” he remembers. “It was a big relief for me when I got the news that a visa had been granted and I rushed to take a flight to Yangon.”

In the early days, Yangon’s airport was very basic, a somewhat leftover from the British colonial era. There weren’t any gates or bridges but only movable stairs on a tarmac. “That was in September 1991 and it was very hot when I stepped off a small plane,” Pe recalls.

“As I walked across the tarmac, I sort of saw some people waving at me and shouting a little bit but didn’t know exactly who they were. As it turned out, my father had been sending photos to my family in Myanmar over the years, so they knew what I looked like.”

Speaking with the family in English was not a problem as Pe’s two uncles had studied at Cambridge University and his eldest aunt had lived in the UK a long time ago. His grandfather, who passed away in the 1980s, was also Cambridge-educated and had been a judge in Myanmar. “It was very odd that I connected with them very quickly; maybe that is just in the blood,” he senses.

Arriving at the family compound where his grandfather’s mansion stood was quite impressive although it had started to decay somewhat. Most striking was the warm welcome of the family who gathered for a welcome dinner at a restaurant overlooking Shwedagon Pagoda. “I was very conscious of where I was during the whole meal,” Pe says.

“Early on, my family took me on a trip to show me the country and we

initially went by train, which was actually quite comfortable but very slow,” he says of his five-week stay in Myanmar. “As we left the train station, I could hear rocks and stones hitting the train and was later told that people would throw stones at trains because they were a symbol of the government.”

During most of the trip, Pe was accompanied by family members and did not have complete freedom as to interact with the local people. “They would probably be a little nervous if I spoke to strangers. But I was able to meet some people and speak with them a little bit although I had a sense that my family was probably a little nervous.”

“The family is still nervous for me but I don’t think it surprises them that I want to be involved because they have always known from the first visit I made that I fell in love with the country,” he says. – Kenny Lau

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CHINA BUSINESS

Survey of China’s M&A Market in 2013

“Social stability is the key. For the remainder of the 12th Five-Year Plan and likely for the 13th, the focus will be narrowing the perceptions of economic inequality through enhancing disposable income and quality of life.”

With Europe in doldrums and the US still slowly recovering, China remains the market to watch. But 2012 was a low year of merger and acquisition activities in China. KPMG published the 2013 M&A Outlook Survey late last year and suggested that acceleration of industrialization and urbanization in China may lead to more M&A deals. biz.hk talks to Jon R Parker, Principal, Transaction Services of KPMG, to find out more about what’s in store for China in 2013

biz.hk: 2012 was a record low year of M&A activities in China. Debt crisis in Europe, US slow recovery and China’s tight monetary policy probably contributed to that. Now, China has a new leadership who have indicated their desires to speed up reform, would foreign and domestic M&A activities pick up significantly in China in 2013 both in deal counts and in value? Will the acceleration happen in the first half or second half of the year?

Parker: No, although we expect there will be an increase in deal activity in 2013 that will result in a great number of deals and values as compared to 2012, there will likely not be a significant jump in closed transactions during the year. In addition to the factors you’ve mentioned, this is also due to the longer gestation periods for deals to be completed.

Unlike in years’ past when investors were able to close deals quickly in order help Chinese companies IPO (typically resulting in great investment returns over a short time period), with the current lack of an IPO market, buyers and sellers need to develop a greater relationship prior to a deal in order to consider how much interests might be aligned, what realistic returns on investment may be (and when), since they may need to work together for a much longer period of time. biz.hk: In 2012, the largest M&A transactions in China came from the US, Singapore and Hong Kong. The targeted industries are financial services, materials, media and real estate. Will the same trend and pattern continue in 2013?

Parker: Yes, we expect these sectors will continue

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to see a significant share of the deal activity in 2013.

Given the likelihood that the current Chinese leadership will continue to focus on the development of infrastructure and commerce domestically, while also trying to protect and strengthen China’s export capabilities, investment in materials will continue to be a priority. Additionally, a rebounding real estate market, greater regulatory flexibility for investment in financial services, and tremendous growth potential in many of the media sub-sectors as consumerism continues to emerge domestically, all point to considerable value creation potential in these sectors. biz.hk: What’s your analysis of the Private Equity market in China in 2013? 2012 was a poor year for PE in China. Has PE turned the corner in China yet?

Parker: As you’ve pointed out, for the most part PEs had difficulty finding and closing deals in 2012. However, there are a number of bright spots that point to better years ahead. First, negative investor sentiment shown towards a number of Chinese companies listed on foreign stock exchanges have resulted in bringing down their valuations, which in turn has brought into play a new population of companies that PEs previously would have had less interest in. Not only does this also potentially provide a more favorable reference point for PEs when negotiating valuations with owners of private companies that have similar characteristics to representative public companies, but it also provides opportunities to take public

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companies private. There have already been a number of privatizations in 2011 and 2012, and the momentum is expected to continue in 2013.

Secondly, as quick deals involving financing with a short IPO process and exceptionally high returns on exits after only holding periods expire have faded into the past, companies that are looking for investment typically are considering more thoughtfully what a financing partner might be able to bring to the table besides money, such as industry experience or other organization improvements and connections. In addition, PEs are also many times getting greater influence over a business they are investing in, such as roles within management or board seat(s), as the timing of an IPO has become harder to predict, making the finding of a financial partner who may also be able to help the business in other ways over a somewhat undefined period of time more important.

Lastly, as first generation entrepreneurs assess their succession plan, opportunities are arising for PEs where the next generations do not want to take over the family business. With each year that passes, more of these opportunities are presenting themselves, though as mentioned previously, the time necessary for PEs to develop a relationship and come to an understanding about the future strategy for the business can be quite extended. biz.hk: Outbound M&A was relatively strong in 2012. Will the momentum continue in 2013? Will the US remain the No 1 destination for Chinese investment in 2013? Or will Chinese investors

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move to Europe where ‘good value’ assets (technology, resources and brands) are more readily available?

Parker: Absolutely. Outbound investment is still being encouraged at almost every level of government and many Chinese companies are becoming more experienced and capable of making investments overseas. In addition, Chinese companies are finding different ways of obtaining financing (e.g., other than traditional banks) to invest in their business, including making acquisitions internationally. We expect more deals will be made in the US and Europe during 2013. It is hard to imagine that Chinese companies will not find good value investment opportunities in Europe over the coming few years as European banks reconsider their investment portfolios and certain industries continue to struggle with what is expected to be a slow economic recovery in Europe. Hence, you will probably see a larger share of Chinese outbound investment targeting Europe over the next couple of years. biz.hk: Given China’s changing demographics, investment in health care (pharmaceutical, hospitals, health food) is expected to increase. But finding the right partners has been proven a challenge to foreign investors. What strategies would you recommend to foreign investors who want to enter the China market?

Parker: With the aging demographics, previous China leadership already identified improvement of the entire healthcare sector as a major area for

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Jon R Parker

investment. Not surprisingly, with social stability continuing to be a, if not the, top priority for the current Chinese leadership, investment in many areas of the healthcare sector will remain key to their success.

With this as a backdrop, foreign investment and know-how will also find many opportunities to get involved. For most foreign investors, finding a local partner will be essential. And in identifying that partner, it is important to do due diligence of that partner in order to understand their financial stability, their marketplace contacts and their industry/sector knowledge. In addition, given the fact that central, provincial and local governments will likely have numerous incentives to attract investment, it will be important to understand how your partner might be able to assist. In addition, setting up the proper business structure with your partner that protects your investment to the greatest extent possible, while also providing flexibility for tax planning, remuneration of key employees and flow of fund and dividends, will also be keys to making your investment a success. biz.hk: China has often been criticized for the lack of transparency both in rules and regulations, and government policies. But data seems to suggest that by and large the 12th Five-Year Plan does provide a roadmap for investors to follow. Considering that, what are the key industries to watch in the remaining years of the 12th Five-Year Plan?

Parker: Social stability is the key. For the remainder of the 12th Five-Year Plan and likely for the

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13th, the focus will be narrowing the perceptions of economic inequality through enhancing disposable income and quality of life. The healthcare industry is a good example of where Chinese leadership will focus to try to meet both of these goals.

Changing China’s economics from one of generally simple manufacturing to one of sophisticated value-added product manufacturing and services means a relative rise in the value of those products and services, resulting in greater average pay for employees, and hence consumer spending power. In looking at the China healthcare industries, the Chinese government has incentivized companies and universities to invest in R&D capabilities. The output of PhD graduates by Chinese universities has eclipsed that of the US and many of these graduates are being used to increase the R&D capabilities of the infrastructure sectors, including healthcare. In addition, local and foreign investment has resulted in some of the most technologically advanced medical devices also being made in China. Chinese leadership is betting that the growth in these areas will undoubtedly spill over into China’s own domestic healthcare system, increasing the quality of care, as well as, how and where that care is administered, which will hopefully help assure growing consumerism and social stability. biz.hk: e-Commerce has taken off dramatically in China. Do you expect some Chinese companies in this field will be able to go global successfully in the near future? What will be their key challenges?

Parker: There is no doubt e-Commerce is finding a booming market in China. Aside from personal computers and tablets, the increasing ease of acquiring smart phones at substantially reduced prices, has provided Chinese consumers with additional e-Commerce connectivity (or in many cases, as a replacement to a PC or tablet). Given the current market size and the rapid expansion, there is no doubt that a number of companies will continue to make a fortune offering services in this space to Chinese consumers. However, in many cases, adapting these products and services to the global marketplace will likely take time. In addition, to the extent that the success of certain China e-Commerce products or platforms is based on similar version elsewhere globally, there may be significant competition for the Chinese version to expand past local or regional borders. Finally, depending on the type e-Commerce that might be expanded globally, laws and regulations in foreign jurisdictions may also slow the ability for Chinese companies to expand overseas.

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AVIATION

FLYING “ABOVE AND BEYOND” HONG KONG Here for some 30 years, United Airlines – currently the largest US carrier in town and second largest in Asia – has grown up with the city which is now one of the world’s greatest aviation hubs. Walter Dias, Managing Director for Greater China and Korea, speaks in an interview about Hong Kong’s role in air transportation and United’s latest development following the merger with Continental

By Kenny Lau

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Walter Dias

ong Kong is a prime aviation hub renowned for a world-class airport and some of the busiest air traffic movements on the planet. It is a strategic “gateway” city serving tens of millions of travelers yearly to and from anywhere in the world.

Since the dawn of commercial aviation some 80 years ago, major international airlines have designated Hong Kong as a place of interest and a vital part of their route networks, including North American carriers more than 7,000 miles across the Pacific Ocean. In many ways, US airlines have always found Hong Kong special in a relationship that has also marked some of the milestones in aviation history.

As early as the 1930s, Pan American Airways (PanAm), an iconic US carrier, already had regular service established between Hong Kong and San Francisco via a number of South Pacific islands using flying boats commonly known as “Clippers,” in which passengers could “comfortably” reach the Far East in six days, instead of having to spend weeks, if not months, in an

ocean liner on the high sea.

Upon the introduction of jumbo jets in the post-war era, US carriers continued to focus on Hong Kong as a destination to which many record-breaking long-haul transpacific flights were launched, making air travel easier, faster and cheaper than ever. Many notable non-stop flights to Hong Kong launched over the years, including PanAm’s from San Francisco and Los Angeles, United’s from Seattle and later Chicago, and Continental’s from Newark, were crowned the world’s longest.

Focal point Hong Kong has historically been a “focal point” city of major US carriers and it will remain so in the future because “Hong Kong is a very important market,” says Walter Dias, Managing Director, Greater China and Korea, United Airlines.

United is currently the largest US carrier in Hong Kong and second largest in Asia; it launched maiden flights to Asia (Hong Kong and Tokyo) from Seattle in 1983, acquired PanAm’s Pacific Division

and became a major carrier in Asia Pacific in 1985, and merged with Continental and created the largest route network of a single airline in 2010.

“Hong Kong is definitely Asia’s international city because of all the infrastructures in place including the airport,” he says. “In a way, United and Hong Kong have grown up together as we have been here for 30 years.”

The old Kai Tak Airport was Hong Kong’s window to the world for nearly 70 years and blossomed in the post-war era; yet, the new airport in Chek Lap Kok commissioned in 1998 created an aviation platform with numerous possibilities, thereby expanding the aviation market of Hong Kong by reaching nearby cities.

“Hong Kong is playing a very important role offering world-class airline service for customers not only in Guangzhou but entire PRD region, for which the Airport Authority has done a fantastic job,” Dias says. “We want to bring innovation and we always look at Hong Kong as a place where we can do that more easily because of the infrastructure here.”

Photos: Create Images

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“It is a very seamless experience here in Hong Kong when passengers can board our flights using their Webenabled mobile devices as their boarding passes or transit from nearby cities in southern China by taking a ferry to the airport with their bags checked in,” he notes.

“In fact, we have a large customer base in Guangzhou today using our flights flying in and out of Hong Kong and we have recently become the first airline in the PRD to offer check-in service from Dongguan [near Shenzhen] for flights to USA.” In a broader geographic picture, Hong Kong is strategically complementary to United’s network in Beijing and Shanghai, accounting for three of the 11 daily nonstop transpacific flights from these three cities to the US. “Beijing and Shanghai are very dynamic markets and remain fairly robust,” Dias points out.

“There were 1.4 million visitors from Mainland China to the US in 2012.”

“I would want to publicly tip my hat to US Ambassador Gary Locke and the whole consulate staff within China for their efforts in making the visa process more efficient,” he says. “Because of their efforts in the past 24 months, there has been an 80-percent increase in the number of visas granted to Chinese passport holders.”

“Given China’s economy and demographics, we think the potential number of Chinese visitors to the US is over four million a year,” he adds. “Being the largest airline in the US domestically, we want to bring more Americans to see China and serve more Chinese going to the USA.”

Business viability United operates more than 5,500 flights a day to hundreds of airport on six continents and is the only airline to have a “hub” in each of the four largest US cities, namely New York, Los Angeles, Chicago and Houston, where a large number of US Fortune 500 companies are headquartered. In 2011 alone, it flew more than two million flights for 142 million passengers.

Despite a volatile global aviation

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market in the last decade, United has continuously focused on building a leading airline, a commitment reflected in a number of industry accolades. It has been named “Best North American Airline” by readers of Business Traveller Asia-Pacific for 12 years in a row and has been voted to have the best frequent-flyer program in Global Travel for eight consecutive years. It also made FORTUNE magazine’s most admired airline in 2012.

“The key to our business is being able to offer seamless service and generate benefits to the customer, and we are definitely focused on all key destinations,” Dias points out. “When we can offer business travelers 378 destinations around the world, we are more likely to meet their service desires.”

“When Continental and United merged, it gave us a great opportunity to offer more service in the Pacific seamlessly,” he says. “With very minimal overall network duplication, it was a very compelling value proposition to put these two networks together.

“The merger has allowed us to produce a lot of synergies and to make the company a sustainable business. If we weren’t a merged entity, I am not sure either company by itself would be profitable at this point, given the price of oil.”

From a Hong Kong perspective, it was a perfect match of two networks as Continental offered service mostly to US’ East Coast while United covered destinations spanning from the Midwest to West Coast. The combined network is particularly convenient for travelers flying out of Hong Kong and China in a “ping-pong” itinerary when multiple US destinations are scheduled within a single trip.

“Of course the network is compelling and we became the largest airline; but, what we want is to become a leading airline,” Dias stresses. “The philosophy that drove the merger process forward within our groups was that of bringing the best of both airlines together.”

“We have accomplished much in the last 24 months and have completed most of the heavy technical things; and at the same time we are also focusing on the softer things that are important to an exquisite service experience,” he says. “Our goal is to

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The merger so far has not only created the largest route network of any international airlines but also put Continental and United on better financial footing. It has allowed the combined carrier to “take some money and invest back into the product.”

“When United was in bankruptcy protection, it simply did not have the money to make any investment back into the product for the customer,” Dias explains. “But we do now and we are spending the money to do that.”

United announced in mid-2011 an investment of US$550 million in fleet-wide onboard improvements, including more flat-bed and “Economy Plus” seating, doubling the overhead storage space in smaller aircraft, and installing satellite-based WiFi as well

aircraft on order for deliveries through 2022, including 100 Boeing 737 Max-9s, 50 Boeing 737-900ERs, 50 Boeing 787s and 25 Airbus A350s.

These new planes will allow the airline to serve the market with a better product that is not only more modern in features but also more environmentally friendly as they are significantly quieter and more fuel-efficient.

Airframes made of carbon fiber, such as the Airbus A350 and Boeing 787, are indeed very light and by far the most fuel-efficient. More importantly, they create a flying experience unparalleled to any other conventional airplane.

“Firstly, they are very quiet airplanes,” Dias points out. “One difference you’ll notice is that humidity is higher inside the cabin. They are able to humidify the air because carbon fiber is not prone to corrosion like metal.”

“Another significant difference is that the cabin can be pressurized at

as wireless video streaming for access to the Internet and in-flight entertainment content onboard aircraft.

“All these improvements are being introduced to our fleet, and some are already available; it will be a significant step forward in terms of an enhanced in-flight experience,” Dias notes. “For entertainment, we now offer on some long- and mid-haul flights wireless video as well as WiFi, which will be available across our entire mainline fleet by 2015.”

In addition to retrofitting interior of aircraft, United has more than 272 new

6,000 feet instead of 8,000 feet; it would take out 85 percent of the impact of the detriments of pressurized cabin to the human body,” he adds. “In other words, there is more oxygen and humidity in the air which together will make your body feel better.”

Coupled with a recent introduction of upgraded food and beverage as well as amenities options onboard United flights, passengers are bound for a new flying experience that is more comfortable and refreshing.

create a fantastic experience for our customers when they fly on United.”

Onboard improvements

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TRANSPORTATION

P

almer, with the company for more than 22 years, is Executive Vice President in charge of, among other things, Corporate Planning, Product Planning and Program Management, Market Intelligence, and the Global Infiniti Business Unit. The latter is especially significant as by 2014 a new Infiniti model will be launched in the market, which the prototype, Infiniti LE, has been showcased last year, and will be a luxury electric vehicle. It is one of four such electric models to be produced by Nissan over the next few years.

Nissan has taken a leadership role in both developing the technology for electric vehicles – they have developed and produced their own quick chargers and also showcased prototype of induction charger at 2012 New York Motor Show too – but they are also committed to making come true the statement that “10 percent of the world’s cars will be electric by 2020.”

“When the technology for electric cars was being developed – and Nissan has been a pioneer in the field – many people thought it was a niche market.

However we see it as a strategic market…and just like with any other new technology, the market needs time to mature.”

And for more governments to come on board and offer incentives to buyers to help offset the costs of both the electric vehicle and the infrastructure (read: chargers) needed to be cost effective for the owners.

Turning over a New LEAF

China market – and Hong Kong

Nissan’s go-to-guy for electric vehicles and the accompanying technology – Executive Vice President Andy Palmer – waxes lyrical on the benefits of EVs and what the future may hold for the industry

When the LEAF was launched in Hong Kong in 2011 to great fanfare, it was just the second market in Asia to have the electric vehicle. The HKSAR government was so enthusiastic by the potential of the LEAF that they purchased over a 100 vehicles to use in their fleet. In a report released in September 2011, government officials were quoted as saying they were aiming for 30 percent of privately owned cars in the city to be hybrid or electric by 2020.

By Megaen Kelly On paper Hong Kong seems like the perfect place to have a significant percentage of its vehicles be electric. In addition to being better for the environment in general, EVs would help greatly in combating the territory’s notorious air pollution problem. And Hong Kong’s compactness means that the dreaded ‘range anxiety’ of EV naysayers is moot.

Yet, despite the enthusiasm shown by the Hong Kong government in offering subsidies and other ‘carrots’ to buyers of electric vehicles, there seems to be an unspoken barrier to seeing more EVs on the roads. Why? To find out more about this green type of vehicle, we speak to Nissan’s go-to-guy for all things EV, EVP Andy Palmer

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biz.hk 2 • 2013

biz.hk 2 • 2013

Furthermore the government is, according to a report by Bloomberg in November 2011, giving buyers of the LEAF incentives that are three times what purchasers in Japan are getting and twice what buyers on the Mainland are getting. And what about China and its potential for EVs? “It is acknowledged that soon China will be the biggest automotive market in the world. And while there are 25 cities participating in a nationwide EV pilot program, we feel that China could be even more EV-friendly,” admits Palmer.

In fact, a report published by the Boston Consulting Group in June of last year forecast that China will be purchasing more electric cars than the world’s current largest automotive market – the US – by 2020.

To capitalize on this booming market, Nissan's joint venture with Dongfeng Motor Group Co., Ltd., Dongfeng Motor Company Limited, will produce EV on the Mainland, called Venucia e30, a prototype debuted at the car show in Beijing in April 2012 and is expected to go into mass production by 2015. The Venucia e30 shares the bodywork, dimensions, electric-drive specs and other features of the LEAF. In addition to gearing up for manufacturing on the Mainland, Nissan is expanding its manufacturing globally, with January 2013 seeing the LEAF produced in the US and assembled in late 2013 in the UK.

Leading the EV way A strategic move on Nissan’s part is having EV manufacturing in the US and the UK. An unusual reason for this is that the car company has approached the city governments of New York and London about using an EV as part of the cities’ taxi fleet. One of the objectives for this is a green solution to a big issue.

“London has a big air pollution problem. There are 22,000 cabs in London creating 20 percent of the pollutant in central London. The Mayor wants to go to a zero emission fleet by 2020. Just imagine what that

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does for the population?”

According to Palmer, Nissan has a verbal agreement with the Mayor of London to bring in both the diesel NV200 – which is a van – and the e-NV200 – which is the electric version – to use as London taxis.

However, both models need to satisfy ‘certain conditions of fitness’ in order to adapt to London’s unique road conditions.

“The e-NV200 will be manufactured in Barcelona, where we have a verbal agreement with the Barcelona City Council that we will introduce the e-NV200 as part of their taxi fleet.

The e-NV200 will be launched in 2016 as one of the four models of EV vehicles that Nissan have pledged to release.”

“In New York City we have an agreement with Mayor [Michael] Bloomberg to use the gasoline engine version NV200 as their sole taxi provider with a presumption that eventually there will be EV version tested for use as a taxi. We had to make a lot of modifications to the NV200 to meet the mayor’s demands.

For example, we had to put in a panoramic roof for the tourists. We are now running experiments to see how it will all work out.”

The company considers the 2013 LEAF as an updated, improved version of the current LEAF. that they want to roll out to consumers. Compared with the current models, the new LEAF is different in a number of ways.

Part of those ‘entry-grade features’ include dispensing with alloy wheels and using less expensive steel wheels with plastic covers. Another item is that the elongated headlights will no longer use expensive LEDs. Rather, they will feature cheaper HighIntensity Discharge bulbs.

While the LEAF will be less expensive, what about the infrastructure it takes to make the car viable?

That is a country to country issue, Palmer explains. For instance, it is less of an issue in Japan than it is elsewhere because there are fast chargers within 20km throughout most of the country .

Palmer admits that it’s the perceived ‘range-anxiety’ of the LEAF that is the biggest obstacle to it being accepted by more people. But he believes that it is more of a mental block that people have, as the facts and figures don’t bear out that range is a problem with the LEAF.

“If we say that the LEAF has a range of 160km and most people who live in cities don’t travel more than 100 miles (160km) in one week, that means that they only have to charge their LEAF twice, maybe three times, in one week.

Actually, the LEAF has a 95 percent satisfaction rating among consumers who have purchased it.

That is the highest percentage in the entire Nissan fleet of cars.”

And the fourth vehicle that Nissan plans to add to their EV stable? “It’s a secret,” Palmer slyly says but adds, “It will be a vehicle for city drivers.”

Finally, what is the future of EVs down the road?

A car for the younger generation Palmer firmly states that, “It is inconceivable that EVs will not be part of the future.”

A major factor for this is a bit surprising – since the LEAF is fully and permanently connected to the Internet, this “allows the Facebook generation to communicate more easily.”

Palmer continues, “The younger generation is more predisposed to buying EVs than older generations, not because of the green angle but because of the ease of communicating.

The younger generation want their environment to be more social, and EVs enables that.”

Palmer believes that eventually cars can look very different from how they do now and allow people to drive hands-free, allowing them to sit in a circle within their vehicle, discussing the matters of the day or just hanging out and listening to music with their friends.

And since Hong Kong is a leader of sorts in the field of telecommunication devices, it just makes sense from this angle that electric vehicles be embraced. So, better for the environment, socially enabling – there truly seems no downside to EVs.

Andy Palmer

The new LEAF As Palmer puts it, “The 2013 LEAF – which has already been released in Japan – will introduce lower-grade features for a cost reduction. The roll out in the US took place in January 2013.”

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biz.hk 2 • 2013

biz.hk 2 • 2013

39

REAL ESTATE

BUCKING THE TREND Despite uncertainties in the Hong Kong economy, The Link Management Limited is off to a good start in the Year of the Snake. CEO George Hongchoy shares his 2013 growth strategy for one of Hong Kong’s largest commercial property landlords

By Helen Luk

George Hongchoy Photos: Create Images

H

ong Kong will be on a bumpy road to recovery this year, with economists forecasting that the city’s first-half growth rate will be well below its trend.

Luxury retail sectors such as jewelry and watches have been hit by a slowdown since the second half of last year. Yet, The Link Management, one of the biggest commercial property landlords in Hong Kong, has managed to buck the downward trend.

Chief Executive George Hongchoy says sales at the company’s shopping complexes, mostly located in Hong Kong’s public housing estates, have remained relatively shielded from the

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downturn. In fact, its tenants’ businesses have benefited from two government policies in recent years: the implementation of a minimum wage in Hong Kong and the HK$6,000 cash handout for each citizen.

“The recipients, including those benefiting from the minimum wage, do tend to spend at mass-market shopping centers like ours. That’s why we haven’t been affected,” Hongchoy tells biz.hk in an interview at its glitzylooking flagship mall, Lok Fu Plaza in Wang Tau Hom of Kowloon. The company manages the Link REIT, a real estate investment trust that owns 182 retail and car park properties.

Over the past two years, thanks to a

series of marketing schemes and promotions in mainland China, mainland tourists visiting Hong Kong have found their way to the Link’s shopping complexes, especially those along the railway lines, and helped bump up sales.

The Link’s total revenue was HK$3,197 million for the six months to last September, up 10.7 percent from the same period a year ago, and tenants’ gross sales also jumped 11.6 percent. Overall occupancy rate at its shopping centers, which have around 11 million square feet of retail space, has continued to improve since 2008, reaching 93 percent as of last September, while tenants’ turnover rate was

biz.hk 2 • 2013

less than 20 percent, despite an average rental increase of 8 percent a year. “We attract a lot of good tenants.

I think more and more tenants believe in what we do,” Hongchoy says.

Small change, big difference His success strategy for drawing a greater number of patrons to the Link’s shopping complexes includes bringing in more high-quality tenants and maintaining the right trade mix, which includes food and beverage, supermarkets, different types of services such as banks and clinics, and even Jockey Club betting centers.

biz.hk 2 • 2013

Hongchoy says sometimes, it can be as simple as making a small change like bringing in a restaurant with good word-of-mouth in order to revitalize business in a not-so-popular mall. A case in hand is the Shek Wai Kok Commercial Centre in Tsuen Wan, where a newly opened Chinese restaurant with better food managed to draw three times more clients compared to the previous tenant.

“I think the assumption that people don’t care and [accept] lower quality just because they are in public housing estates is not true. So I put better retailers, better restaurants and better quality shops there so that we can attract them to visit,” Hongchoy

says.“This is a trick to gradually improve the quality of tenants, [as good operators] also want to see how we manage our business better before they come.”

The CEO says many investors have misperceived the Link as a property developer, whose main job is to build and sell properties before moving onto the next project.

But he says maintaining and enhancing its portfolio of assets is a key part of the Link’s work: The company spends an average of HK$700 million a year to give its shopping complexes makeovers (some of which are more than four decades old and in need of major renovations). So far, the

41

now CEO, he has improved its financial disclosure, changed its capital structure, raised funds and brought the Link REIT on par with other international property trusts like Singapore’s CapitaMall Trust and Australia’s Westfield Group, which have longer histories of running shopping centers.

Exploring new investments

Link has finished refurbishing 27 of its shopping centres and is working on at least 20 more in order to continue to provide a pleasant shopping experience for its patrons.

“It is an ongoing process. We are not just reacting to the customers, but also the tenants… So you have to keep renovating, upgrading and changing,” he explains.

Right positioning Judging by the Link’s occupancy rates, this strategy has clearly worked.

Hongchoy, however, stresses that it has taken several years to shore up recognition for the Link’s market positioning.

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He recalls that when he first joined the company as its chief financial officer back in 2009, it was very difficult to convince well-known local brands such as fashion retailer Giordano and Sa Sa, one of Hong Kong’s top cosmetics retailers, to set up shop in the Link’s properties.

“Giordano at the time thought we were so low that we would hurt their brand name. At the time, we didn’t have a single Sa Sa. Now we have five and there are two more on the waiting list,” he says.

In recent years, however, top European and US luxury brands keen to establish their presence in Hong Kong to tap the vast China market have

continued to push up retail rents in the high-end malls in prime shopping districts such as Central, Causeway Bay and Tsim Sha Tsui. As a result, Hongchoy says local brands and second-tier operators have been forced out of such malls and increasingly moving into mass-market shopping complexes such as those run by the Link.

“This is like a domino effect,” he says. “For retailers, they need to maintain market share. At the same time, we are ready – more and more of our shopping centers have been upgraded.

If we haven’t upgraded the centers, we wouldn’t have captured these tenants.”

Yet, there is a downside to having

biz.hk 2 • 2013

these bigger-brand tenants. In recent years, the Link has come under growing criticisms that it has forced out mom-and-pop operators who had been running their shops in its public housing properties for decades to create room for the cash-rich brands.

Hongchoy refutes such criticisms.

“We still keep about 60 percent of tenants as small operators. They really add variety and good-quality stall food.

The actual number of tenants has increased, but the percentage of small operators remains the same,” he says.

As a former investment banker, Hongchoy brings a wealth of banking and corporate finance experience to the Link. As the company’s CFO and

biz.hk 2 • 2013

Looking ahead, Hongchoy says the Link plans to explore the possibility of purchasing new types of assets after Link REIT unit holders approved expanding the trust’s investment mandate last July to include non-residential commercial properties, other than shopping centers and car parks.

“We are also looking into office buildings, mixed-use buildings, warehouses and a variety of properties.

So that gives us the flexibility of what to look at and we will continue to look at various things to find the right ones we want,” he says.

One possibility is office buildings that have a variety of businesses operating in them, such as beauty salons, travel agents, and retail stores. “In Hong Kong, the format of retail is no longer just in shopping centers. It is not quite what people call ‘vertical retail,’ but it is certainly happening in high-rise buildings that were originally built as offices. We are looking at those types rather than office buildings just for office use… We just want to invest in retail. It can be retail in any form,” he says.

Asked whether the Link has plans for overseas acquisitions, Hongchoy says the company will stick to Hong Kong for now. “We haven’t changed the mandate in terms of geography to go beyond Hong Kong. There is just a lot to do in Hong Kong,” he says. “We are not in Mongkok. We are not in TST. We are not in Causeway Bay or Central.”

He says asset prices in these districts are too high right now, but the expanded investment mandate gives the company greater flexibility to

explore different options in order to grow the business in coming years.

Engaging the Community In addition to expanding its property portfolio, Hongchoy says the unit holders also approved the setting up of a charity and community engagement program at the last annual general meeting, which enables the Link to give donations and do more support work to improve the lives of public housing estate tenants.

“Under the trust law, we actually cannot use our money for anything else but the purpose of the trust, which is to make money for the unit holders,” he explains. “So in July, we took the initiative to seek and get approval from unit holders to spend up to 0.25 percent of the previous year’s net property income – it’s about HK$10 million for spending every year – [on community projects.] And as our income grows, that number will grow as well.”

The program, called The Link Together Initiatives, will initially focus on providing services to the elderly and the disadvantaged, education, training and the development of children and youth services in communities where the Link operates. Each approved project will have a maximum budget of 30 percent of the total fund, or around HK$3 million. The Link has appointed WiseGiving Limited, a subsidiary under the Hong Kong Council of Social Service, as its partner and consultant to advise the company on the selection of worthwhile programs to support.

In addition, Hongchoy says the company rented 8 percent of its total retail space, or 883,000 square feet, to 163 welfare organizations at a concessionary rent of HK$4.2 per square foot last year, versus more than HK$30 per square foot paid by other tenants.

“You can’t find that anywhere,” he says. “We hope we can continue to promote the well-being of the community – the more engagement and happiness in the community, the better.”

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2013 Mar

Mark Your Calendar Mar

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Mar

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Big Data Transforms Business Vincent Kwok, Director, Global Services, EMC Hong Kong Big Data is a simple term used to describe the emergence of incredibly powerful ways to gather and analyze digital information to gain new insights about nearly every aspect of our world and lives. It is characterized by large volumes, a variety of formats and velocity (near real-time).

During this session, Vincent Kwok will walk you through how Big Data is transforming business, enabling organizations to find new ways to interact with customers, to improve operations and to innovate in ways that weren’t possible due to technology limitations.

The session will cover: • Big Data Transforms Business • Manage Data Growth, Simply • Gain New Insight from All of Your Data • Deliver Insights Through Big Data Joining EMC Hong Kong in 2001, Vincent Kwok brought with him extensive knowledge in IT infrastructure gained in leading IT companies. He leads a team of technology professionals to help EMC customers to select, architect, plan, implement and manage the most appropriate and trusted information infrastructure solutions. He is also a high-end storage system expert, and has led several large scale deployments in the financial services and telecommunications sectors.

Privacy and Data Protection Allan Chiang, SBS, Privacy Commissioner for Personal Data (Hong Kong) In this luncheon talk, Allan Chiang, SBS, Privacy Commissioner for Personal Data (Hong Kong), will speak to our members regarding the latest developments of the Ordinance.

Topics include: • The evolving privacy landscape • Is privacy about hiding or about bad things?

• Data Protection Principles: an overview • Highlights of the Personal Data (Privacy) (Amendment) Ordinance 2012 • Special focus on the new regulatory regime for direct marketing • Privacy is more than a legal and compliance issue Allan Chiang’s past career was in the Hong Kong Government where he retired as the Postmaster General, after having transformed the Post Office from a traditional government department to a successful business operation.

Since he assumed office as the Privacy Commissioner in 2010, Chiang has successfully tackled a number of important and high profile privacy cases in Hong Kong. He has been instrumental in the improvement of privacy policies and practices of many corporate data users. He also assisted the Government in a major overhaul of the data protection legislation, which culminated in the enactment of the Personal Data (Privacy)(Amendment) Ordinance in June 2012.

Re-branding Hong Kong:

Mar Making "the Fragrant Harbour" Live up to its Name

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Peter Kam Fai Cheung, Director of Intellectual Property, HKSAR Government Peter Cheung is Director of the Intellectual Property Department, and Registrar of Patents, Designs and Trademarks, Government of the Hong Kong Special Administrative Region, People’s Republic of China.

Cheung has been representing Hong Kong in WIPO law-making conferences and has made interventions at such conferences as part of the China delegation. As a WTO Dispute Settlement Panelist, he settled two international disputes concerning trademarks and geographical indications (US v EU and Australia v EU) 2004 - 2005. He was an invited speaker at the Harvard Asia Business Conferences 2005, where he shared his intellectual property insights.

In bilateral free-trade agreement negotiations between Hong Kong and other economies, Cheung was Hong Kong’s lead intellectual property negotiator. Apart from playing the traditional role, his service innovation is to foster international intellectual property trading in Hong Kong. His goal is to create more public value.

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

Tel: (852) 2530 6900

Fax: (852) 2810 1289

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Time: 12:00pm-2:00pm (Sandwiches & beverages included)

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Fee(s): Member Fee: HK$250 Non Member Fee: HK$380

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Venue: AmCham Office 1904 Bank of America Tower 12 Harcourt Road, Central Time: 12:00 - 2:00pm (Sandwiches and beverage provided) Fee(s): Member Fee: HK$250 Non Member Fee: HK$380

Venue: Hogan Lovells 11/F One Pacific Place 88 Queensway, Hong Kong Time: 12:00pm-2:00pm (sandwiches & beverages included) Fee(s): Member Fee: HK$250 Non Member Fee: HK$380

Email: kalau@amcham.org.hk

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