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Ho G tel ui s a de nd to Re so rts

Journal of The American Chamber of Commerce in Hong Kong

www.amcham.org.hk

March 2013

THE UNITED STATES OF

“AWESOME POSSIBILITIES”


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March 2013 Vol 45 No 3

Contents

Richard R Vuylsteke

Editor-in-Chief Daniel Kwan

Managing Editor Kenny Lau

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08

Publisher

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COVER STORY

TRADE & INVESTMENT

CHINA BUSINESS

FOOD & BEVERAGE

US Consulate General Hong Kong & Macau launches new, streamlined visa application procedures making it easier for tourists to realize the ‘American Dream’ and promoting the US as a travel destination of “awesome possibilities”

Myanmar has become a global focal point for new investment ever since President Thein Sein signaled an opening two years ago

A number of scholars, diplomats, journalists and businessmen describe their first in-China experience in a new book

Part of the Chicago food tradition since 1949, Garrett Popcorn is positioning to become the gourmet popcorn of choice

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.

AMCHAM NEWS AND VIEWS 04 Editorial The announcement by the US Consulate earlier that it is streamlining the visa application process for Hong Kong and Macau passport holders is terrific news as visa facilitation is a key step to revive tourism to the US

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

07 New Business Contacts

Printed by Ease Max Ltd 2A Sum Lung Industrial Building 11 Sun Yip St, Chai Wan, Hong Kong (Green Production Overseas Group)

08 A Travel Destination of “Awesome Possibilities”

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

27 executives joined AmCham’s business network last month

44 Mark Your Calendar

18 What You Must Know about Investing in Myanmar Ola Nicolai Borge, Executive Director, Tax & Legal Services, KPMG, shares his on-the-ground observations and experiences of investing in the “next economic frontier” in Asia

20 Call for Financial Institutions to Act Swiftly Beth Smits, Head of Corporate Affairs, Asia Pacific, SWIFT, explains in a conversation what Myanmar’s priorities should now be and how international institutions can help

HUMAN CAPITAL 30 Plugging the Employment Contract Law Loopholes The National People’s Congress Standing Committee seeks to protect the interests of China’s (roughly estimated) 60 million workers hired under “labor dispatch” arrangements

CHINA BUSINESS 34 Knowing the Unknowable China

COVER STORY US Consulate General Hong Kong & Macau launches new visa application procedures making it easier for tourists to travel to the US

10 Committee to Support Tourism Initiatives

TAXATION 22 Is the Fiscal Cliff over? Despite recent legislations passed to delay sequestration and to provide continuous funding for federal agencies until September, growing federal deficits remain a key concern

Visit USA Committee chairman Walter Dias talks about public-private initiatives aimed at promoting US travel

LAW

TRADE & INVESTMENT

26 FATCA Is Here: Are You Prepared?

12 Myanmar – Gold Rush Fever Myanmar has moved swiftly from being one of the world’s most economically isolated countries to become a global focal point for new investment

The US Treasury and IRS have issued long-anticipated final regulations of a law requiring foreign financial institutions to identify US beneficial owners of accounts

A number of scholars, diplomats, journalists and businessmen describe their initial inside-China experience in a period during which foreigners were largely shut out

38 A Kaleidoscopic View Publisher Frank Proctor talks about the ideas behind his recently released book entitled My First Trip to China and his observations about understanding China

FOOD & BEVERAGE 40 Poppin’ Fresh Part of the Chicago food tradition since 1949 and having opened a shop in Hong Kong, Garrett Popcorn is positioning to become the gourmet popcorn of choice

Single copy price HK$50 Annual subscription HK$600/US$90

2

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COVER SPONSOR Ad_coverSponsor.3.output.pdf

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 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 Alison Carroll

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4:09 PM

biz.hk Editorial

Board of Governors

Ex-Officio Governor President

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AWESOME POSSIBILITIES

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he announcement by the US Consulate early this month that it is streamlining the visa application process for Hong Kong and Macau passport holders is terrific news. Effective immediately, Hong Kong and Macau applicants can enjoy much greater flexibility and convenience in making payments, choosing interview times, and collecting their visas. Such facilitation measures come on top of improved application processes in China in recent years, allowing more Mainland visitors to visit the US. Although the measures recently announced have not gone the whole way to accord Hong Kong and Macau residents visa free treatment, they are nonetheless positive steps that should help boost tourism to the US. (For details of the new measures, see cover story on Page 8.) The US has long been a favorite destination for holidaymakers worldwide. Disneyland, Grand Canyon, New York City – the list of “awesome possibilities” for visitors in the US is nearly endless. Nevertheless, the less

user-friendly visa application procedures introduced since 911 served to dampen enthusiasm for US travel. At the same time, competitive tourist destinations elsewhere took advantage of the US by simplifying their visa processes, especially as the number of Asia-based international travel began to boom. Some would say that the past 10 years were a lost decade for the US tourism industry. According to US Travel Association statistics, the US’s share of the long-haul travel market has fallen from 17 percent in 2000 to 12 percent in 2010. In 2010, 6 million travelers from China, India, and Brazil visited Western Europe, while only 2.6 million went to the US. As a result, an estimated 467,000 American jobs were lost since 2000 because of the tourism decline. Visa facilitation is a key step to revive tourism to the US, but other measures are needed to bring Asian travelers, Chinese in particular, to American shores. Over the past decade Asia-based travelers have become more sophisticated and demanding. An airline movie or two

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10 years ago could qualify as in-flight entertainment; today the typical movie playlists of most Asian airlines carry over 100 selections. American tourism service providers must benchmark their products and services with some of the best players in the field in order to compete – and to be considered world class. Another cruel fact is that many of America’s tourism facilities are poorly maintained, or simply inadequate. Airports are a prime example. Asian travelers have experience of airports worldwide, and most US airports simply do not measure up. Everything from cleanliness and food variety to intelligent and clear signage (using more than English) badly needs upgrading. There is no shortcut to addressing such infrastructure issues. The stakes are high. While the tourism industry in the US has lagged behind, the variety and quality of its destinations remain world class. The time has come to seize the opportunity and work to make every step from visa to destination show visitors just how awesome America truly is.

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New

Business Contacts The following people are new AmCham members: American Airlines Inc

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

Anne De Jesus Manager, Hong Kong & Macau

Aon Hewitt Ken Wong Director

Appway Hong Kong Ltd Reto Merazzi General Manager

Asia Hands Robyn Meredith President

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. ISBN 978-962-7422-18-1

Bird & Bird David Renton Partner

LC 98-645651 BSI Pacific Limited Emmanuel Herve VP Standards & Professional Services, APAC Beata Tang General Manager, Hong Kong David Horlock Managing Director, Asia Pacific

Concur Technologies

SWIFT

Daniel Wong Regional Manager Hermi Chu Regional Manager Alex Cheng Regional Director, Asia Michael Eberhard Executive Vice President & GM Asia

Ivy Tsang Regional Markets Analyst, Asia Pacific

Telstra International Group Andrew Wildblood Head of North Asia

Truphone (Hong Kong) CSL Ltd Rex Engelking GM, Strategic Relationship Management

Alexis Ip SVP, Asia & Hong Kong

University of Hong Kong ecVision Ltd Thomas Ng CEO

Maire Apiou Director, Career Development Office

Esquel Enterprises Ltd Dodie Hung Associate Director, Corporate Communications

GlaxoSmithKline Ltd Henry McCarthy II Classic Brand Business Unit Director

McMillan LLP Jay Hayden Associate Counsel

Cathay Pacific Airways Ltd Joe Locandro Director Information Technology

Mellmo Sean Luangrath Vice President and GM, China

CBRE HK Ltd Jacquelyn Drozdoff Senior Manager, Communications, Asia

Newport Logistics (HK) Ltd

China International Capital Corporation Limited (CICC)

Santa Fe Relocation Services

Joy Lin Vice President

Monte Wong Director

Edward Ng Corporate Account Manager

View our other members at:

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

biz.hk 3 • 2013

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COVER STORY

THE US AS A TRAVEL DESTINATION OF

“AWESOME POSSIBILITIES”

US Consulate General Hong Kong & Macau launches new, streamlined visa procedures making it easier for tourists to realize the ‘American Dream’

By Kenny Lau

US Consul General Stephen Young, left, and Visit USA Committee chair Walter Dias announce a new visa application process and other initiatives promoting the US as a premier travel destination in a press conference at Hong Kong Disneyland Resort.

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he United States Consulate General in Hong Kong has introduced streamlined US visa procedures for Hong Kong and Macau passport holders as part of an initiative aimed at promoting travel to the US as a destination of “awesome possibilities.” “I am here today to deliver a simple message to tourists from Hong Kong and Macau: ‘The United States of

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Awesome Possibilities’ welcomes you,” US Consul General Stephen Young said in a press conference recently held at the Hong Kong Disneyland Resort. “Whether you are looking to experience the history and beautiful changes of seasons of New England, where I grew up; the excitement of America’s big cities; or the scenic beauty of our national parks and beaches, the United States has some

thing for you,” he says. Effective March 16, applicants holding a Hong Kong SAR, Macau SAR or British National Overseas (BNO) passport are provided with more options for scheduling appointments, a more convenient way to pay visa application fees, and a home or office delivery service of their passports to most locations in Hong Kong free of charge as well as an option for in-person pick-up in three locations on

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Hong Kong Island and in Kowloon. According to George Hogeman, Consular Chief of the US Consulate General here in Hong Kong, a total of 8.9 million business and tourist visas (B1/B2 type) were issued in 2012 by US consulates and embassies worldwide, a 35-percent increase since 2008. In Hong Kong, the US Consulate General granted 49,103 visas for business and tourism, a 41-percent jump since 2008. The rate of having

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successfully obtained a visa among Macau passport holders was 97.7 percent while that among Hong Kong passport holders was slightly higher at 98.3 percent.

help people from Hong Kong and Macau visit the US, and we want to make the process in Hong Kong easier.” “We also want to help people from Mainland China visit the US,” he adds, noting roughly a million visas issued to holders of PRC passports with an approval rate of 91.5 percent during the same period. A new, web-based information system solely dedicated to applying for a US visa and a free call center service are now available to make the process easier; visa applicants from Hong Kong and Macau are able to book appointments through an online system associated with the new Website or by speaking with a call center agent. “Our present call center has been open for eight years and provides great service but we had to charge callers a small fee to use it,” Hogeman notes. “The new call center will be free of charge.” In the past, “applicants had to come back to the consulate two days after their visa appointment to pick up their passports but will now be able to arrange for a return delivery for their passports to any address in Hong Kong or to pick up their passports at one of three convenient locations in Tsim Sha Tsui, Wan Chai, and Kwun Tong.” “You will also be able to track your passport’s return online,” he adds. “Best of all, these services are included in the application fee.” Under the new scheme, applicants are no longer required to pay for visa applications at Dah Sing Bank in Hong Kong or Banco Comercial de Macau as in a previous arrangement but can instead make their payment at any 7-11 store located in Hong Kong or Macau to avoid being confined to opening hours of any commercial banks.

Here to help

My American Dream

“Most people get 10-year visas with little or no waiting,” Hogeman says. “Our team is here to help people visit the USA. We really like it when we can

In support of tourism promotion, US Consulate General Hong Kong has also organized a contest called “My American Dream,” in which

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Consular Chief George Hogeman outlines details of applying for a US visa.

participants (holders of Hong Kong SAR, Macau SAR or BNO passports) can win a vacation to experience the splendid America landscape and unique culture and history. “In the contest, we are asking people to tell us about their American dream for a chance to make their dreams come true,” says Nini Forino, Director of Public Affairs, US Consulate Hong Kong. “All they need to do in exchange is to share their American dreams with us when they return.” Participants in the contest can submit a 1-2 minute video, a short essay, a blog entry or a photo slide show with captions explaining their “American Dream,” and why their dreams should be fulfilled as they talk about a specific tourist attraction or any other tourist site, city, state or park in the United States. “For years, millions of tourists have traveled to the United States to fulfill their American dreams,” Forino adds. “Whether that dream is to see the Grand Canyon, experience real American barbeque in Texas, surf the big waves in Hawaii, tour the White House or even visit a long lost friend, we welcome everyone to come and discover our diverse and beautiful country.”

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COMMITTEE TO SUPPORT TOURISM INITIATIVES By Kenny Lau

Visit USA Committee Hong Kong chairman Walter Dias (from right to left), Consular Chief George Hogeman, and Director of Public Affairs (US Consulate General Hong Kong) Nini Forino take questions from the media on recently introduced initiatives to promote travel to the US.

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ccording to the US Department of Commerce, travel and tourism is the nation’s largest services sector export, representing 25 percent of service exports and seven percent of all US exports. The average spending of each tourist to the country is about US$4,000 per trip while every US$140,000 of visitor spending in the US supports one new job. In 2010, international travel to the US supported 1.8 million jobs. “The US has amazing things to offer any international visitor,” says Walter Dias, Chairman of the Visit USA Committee Hong Kong, a non-profit association dedicated to promoting the US as a travel destination, speaking at a press conference on recent US travel and tourism initiatives. “As one of the world’s largest countries geographically and having the most culturally diverse population in the

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world, the US offers a wide range of travel experiences,” he notes. “The goal of the US’s National Tourism Strategy and Brand USA is to reach more than 100 million international visitors by 2021.” Brand USA is a US-based publicprivate partnership formed under the Travel Promotion Act of 2009 signed into law by US President Barack Obama in March 2010 to promote the US as a premier travel destination. “It is the US’s first-ever integrated global marketing campaign to market the US abroad, highlighting the unique features of the US as the world’s top travel destination,” Dias points out. It works in a close partnership with the travel industry to inspire travelers to explore US’s boundless possibilities and to maximize the economic and social benefits of travel. It is also responsible for providing useful information to potential travelers to the US as well as identifying and addressing perception issues

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regarding US entry policies. “The US truly offers an endless range of travel experiences so there is something for everyone,” Dias notes. “Based on Brand USA’s research, the broad array of experiences of interest to international visitors fall into four general categories: great outdoors, urban excitement, indulgence at theme parks and resorts, and culture.” Last year, more than one million Chinese tourists visited the US, making China the sixth largest international travel source market. And, China is expected to be the fastest growing market with forecasted growth of over 259 percent in the period from 2011 to 2017. “For that reason, Brand USA is planning to devote significant resources in Greater China to promote travel,” Dias says. “Brand USA has opened offices in Beijing and Shanghai, and I am happy to share that they intend to open an office in

Hong Kong very soon.” “Of course many in Hong Kong have visited the US many times, but there are also many products for people to experience in various places,” he adds. “I’ve lived there for more than 30 years and I still go back and have a new experience every month for the rest of my life.” Brand USA is leveraging a wide variety of media as well as social media such as Facebook, LinkedIn, and Twitter to help provide information about travel to the US, Dias says. In Hong Kong, the Visit USA Committee was recently launched in Hong Kong as a non-profit, publicprivate association with the objective of promoting travel to the US. Members include stakeholders in the travel trade such as airlines, hotels, travel agents, media, service providers, convention & visitor bureaus and State governments. “We already have some strong industry and government support,” Dias says. “One of the Committee’s first goals will be to reach out to welcome additional members to join us and to share our mission of promoting travel to the US.” “Travel industry members will benefit because our coordinated promotional activities will help us all more effectively promote the US and our respective products and services,” he says. “Media partners will benefit with more editorial content and advertising opportunities. “Travelers from Hong Kong will also benefit from the Committee, because we will help them get more information about traveling to the US and about special tours, services, promotions, and discounts.”

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TRADE & INVESTMENT

E MYANMAR – GOLD RUSH FEVER Myanmar has moved swiftly from being one of the world’s most economically isolated countries to become a global focal point for new investment. Richard Vuylsteke reports on the “state of play” revealed during his two recent visits to the country on Chamber delegations

By Richard R. Vuylsteke

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ver since President Thein Sein signaled the opening of Myanmar two years ago, global business players have been streaming to the country to assess market entry possibilities. Some indications of the interest (and the problems): hotel room prices as well as office and housing rental costs have more than doubled over the past year. A massive surge in tourism has also driven costs higher, and has heavily taxed existing service infrastructure. Costs aside, businesses are eager to be on the ground to assess challenges and opportunities. “Right now, it seems like it’s time to look, listen, learn, and leave,” says a senior executive from a US multinational agribusiness. That said, depending upon business sector, it may be a prime time to set up a representative office, become familiar with what’s happening with the rapid reform process, and be on the ground floor to do proper risk assessment before scaling up. “This is a good time for legal consultants, business development people, and infrastructure executives to come,” says a long-term expatriate. “For example, we are expecting all the big four accounting firms to be setting up soon.” Along with the US Chamber of Commerce in Washington, AmCham HK has been closely monitoring Myanmar’s reforms and steps toward market opening. Since November 2012, AmCham HK representatives have participated in three high-profile events with Myanmar political and business leaders. (See biz.hk, August 2012, for a report on the Secretary Hillary Clinton meeting in Siem Reap, Cambodia, where Myanmar President Thein Sein spoke to the delegates.) All this interest was prompted back in September 2011, when President Barack Obama started to waive many of the existing Executive Branch sanctions on the country in an effort to promote greater political and economic reform. Even though other sanctions, passed into law by the US

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AmCham HK delegation

Congress, remain in force and will require Congressional action before they are lifted, many US businesses see the partial lifting as a signal of further easing, thereby making investment in Myanmar an attractive option. “It’s a country that needs virtually everything,” says one Yangon-based consultant. “After 50 years of isolation, everything from basic physical infrastructure and education to legal and regulatory structures need substantial development.”

Substantial development This was a message heard repeatedly by a 19-member AmCham HK delegation to Yangon, Myanmar, 11-12 March 2013. On the first day the delegation was treated to a “Hong Kong-paced agenda” with 11 sessions and 31 panelists covering topics including taxation, real estate, logistics, human resources, energy, CSR, financial services, telecoms, and apparel & footwear. AmCham HK, and its on-theground scheduler Tractus Asia Ltd, identified knowledgeable speakers with the close assistance of the UMFCCI, the Union of Myanmar Federation of Chambers of Commerce and Industry. Dr Maung Maung Lay, Vice President of UMFCCI, opened the day with a warm welcome to the

delegation and over lunch gave a candid assessment of the stay of play in Myanmar reform and opening to business development. “We are re-booting our economy,” he says. “We are committed to not going backwards on democratic development, but we have so much to do. It’s especially difficult because even though the government has good will about development, the bureaucracy is not fully prepared to capture the opportunities. We have a real capacity issue. The government is working to abolish red tape and is putting out the red carpet, but the response from international business has been so strong sometimes we are concerned about an American-style gold rush here!” The US Embassy team, led by Deputy Chief of Mission Virginia Murray, briefed the delegation on both Myanmar and the critical topic of the status of US sanctions, which remain a concern to potential US investors. The message was clear throughout the discussion: among business decisionmakers there is considerable concern about falling afoul of US law. There are significant risks to company reputations if sanctions are even accidentally violated after thorough due diligence. “One problem is the difficulty of really doing reliable due diligence at this stage,” says one delegation member. “We also need clear guideline from the US government.”

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Virginia Murray

The day’s discussions, which concluded with cocktails and dinner with more than 50 guests, including local and expatriate business people, focused on the extraordinary possibilities for business development. Local and expats alike sent the message that, yes, it’s a challenging place, but so were (and are) Vietnam, China, and other emerging markets. Experience in those markets will help in navigating in Myanmar. This view was reinforced on the second day of meetings, which

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Maung Maung Lay

featured a morning roundtable discussion with a panel of Myanmar-based expatriate law and tax experts.

US Chamber delegation Conclusions about opportunities and challenges in Myanmar during AmCham HK’s trip closely reflected the findings of a US Chamber of Commerce business delegation to Yangon and to the new capital city of Naypyidaw,

held two weeks earlier, 24-28 February. That delegation, led by US Chamber Vice President for Asia Tami Overby, included more than 50 representatives from 25 companies representing a dozen business sectors. Four Asiaregion AmChams also participated – Hong Kong, Thailand, Cambodia, and Singapore. The US Chamber also drew upon the expertise and connections of Tractus and the UMFCCI to organize the event. Following an opening address by Assistant Secretary of State for Economic and Business Affairs Jose Fernandez, the rest of the first day was filled with panel discussions and presentations on Myanmar’s investment environment and opportunities and challenges in sectors including financial services, information technology, and energy. The delegation also met with US Ambassador Derek Mitchell and the Embassy team for a candid roundtable discussion. In Naypyidaw, the US Chamber delegation met with Myanmar’s economic leadership, including Vice President Nyan Tun, Opposition leader Aung San Suu Kyi, Lower House Speaker Shwe Mann, Union Minister for Industry Soe Thane, Chief Political Advisor to the President Ko Ko Hlaing, Minister of Commerce Win Myint, and a large number of other senior officials. The US Chamber delegation emphasized a number of key points

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Sunset in Yangon

during its discussion with government and business interlocutors that were also topics of discussion during the AmCham HK trip: • US companies are strong proponents of increased economic engagement with Myanmar and have thus far been impressed with the country’s commitment to reform, but for implementation to move forward, American companies need transparency, predictability, and the rule of law if they are to invest. • The US Chamber and regional Chambers in Asia and their members are willing to work with Myanmar to promote trade, investment, and market-oriented reform. • To facilitate this process, the Myanmar government needs to more clearly articulate its economic reform plans, objectives, and strate-

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gies, and to include stakeholders in that process; US companies are willing to be involved in consultative activities as new laws and regulations are formulated in the country. • While most sanctions have been waived, uncertainty remains with respect to reporting requirements on new investments, and the limitations on doing business with individuals and entities on the Specially Designated Nationals (SDN) list; Chambers will continue to urge the US government to be clear on sanction policy and interpretation. During delegation meetings, Myanmar ministers and officials strongly welcomed and encouraged US investment. Myanmar’s leadership emphasized their commitment to reform, but acknowledged that the

reform agenda is massive. As Minister of Commerce Win Myint said in one discussion, “We have so many priorities that our biggest challenge is to prioritize our priorities.” Many speakers expressed this sentiment, in recognition that “capacity issues” were severe in government, business, and education.

Prioritize priorities The country is working to draw up new laws, rules, and regulatory frameworks for trade and investment, financial services, governance and administrative procedure, rule of law, labor rights, and judicial reform, among other areas. These are all solid goals, but the capacity power to succeed is rather thin on the ground. Officials pointed out repeatedly

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that Myanmar’s capacity to implement reform is extremely limited, and institutions are weak due to the historic concentration of power with individuals. As one local consultant pointed out, “Myanmar has had a military command structure for a long time. Orders came from above and weren’t questioned. People don’t have experience with discussion or even dealing with consultants.” Nevertheless, Myanmar’s leadership remains committed to the reform process, and emphasized that the reforms are “irreversible.” To illustrate, Myanmar officials pointed to the adoption of a new foreign investment law, plans for a new telecommunications law, and a new central bank law. Myanmar also plans to join the Extractive Industries Transparency Initiative (EITI) and the legislature has recently voted to join the New York Convention on dispute resolution. In addition, local officials and business people frequently raised the topic of corporate social responsibility (CSR). They expressed great interest in US-style CSR activities, as they see American company CSR as a global model and one that makes US investment even more attractive.

Opportunities and challenges

So what are some of the opportunities? Meaningful reform: President Thein Sein and his allies have embarked on a reform process which, if sustained and expanded, is bound to substantially transform the country. Those foreign companies who enter the market early are in a prime position to shape the reform process in their business sectors. As a local businessman points out, “Investors shouldn’t just focus on money issues when they come here. Talk with the government about what you bring in – the technology, jobs, training, and CSR. The goal should be to succeed in business, but also to help the country.” Interest in outside help: During the US Chamber delegation visit,

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Level playing field: The pace of reform is indeed rapid, but corruption and poor labor practices, environmental rights, and human rights standards are still problematic. That said, the government commitment to reform seems to prefer Western investment. As several panelists mentioned, Myanmar wants to diversify investment

Many priorities: The pace and breadth of reform is extraordinary, but by trying to do so much so fast, the quality and implementation of reform efforts are bound to be uneven. Companies investing in Myanmar will need to closely monitor and help shape the laws and regulations that relate to their sectors of activity.

Aung San Suu Kyi (center) and Tami Overby (right)

interlocutors from the Executive and Legislative branches expressed a strong interest in receiving assistance from abroad, saying that they welcome advice and support from a range of experts, including private sector institutions and NGOs. “Giving advice – consulting – is a new idea in Myanmar,” warned Steve Marshall, the ILO representative in Myanmar. “It’s important to work collaboratively, to work with people, and not come across too heavy-handed by knowing it all.” For those who have worked in other emerging markets, “face” is an issue that is found in economies across Asia. Embrace of the rule of law: The government understands that attracting foreign investment requires substantial legal reform and updating of laws as well as adherence to the rule of law as it is understood internationally. Foreign investors are well positioned to explain their expectations to the Myanmar government in terms of the kind of economic and legal environment they require in order for them to invest. Certainly all meetings with government officials indicated an awareness of this. Promote development: Myanmar interlocutors repeatedly mentioned the country’s need for

Steve Marshall

US Chamber delegation meeting with Lower House Speaker Shwe Mann

responsible investment as a means to promote economic, social, and political development. The Chamber delegations emphasized the role of American business standards and law, such as the Foreign Corrupt Practices Act, and how it meant that US investment would set a high standard of practice for investing in the Myanmar economy. The challenges? A selection:

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beyond China, for instance. US investors have an opportunity to introduce higher standards of investment and operations. Basic laws: Major foundational areas of law have yet to be developed or reformed. Examples: privatization laws, government contracting, government procurement, land tenure & land use, IP, patent, and trademark.

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Limited capacity: There is a serious lack of legal capacity in the public, private, and non-governmental sector. Thus, companies investing there should take a leading role in drafting legal documents relating to their activities. For any significant operations, there will be no substitute for having an on-the-ground presence.

Corruption: Corruption is endemic, even after reforms. That said, however, there is a commitment at the top to substantive reform and, according to the panelists at AmCham HK’s meetings, the awareness that corruption must be vigorously attacked is widespread. Nevertheless, investors will have to be exceptionally vigilant and understand that despite the commitment to reform, they will have to close the gap between the commitment and the reality themselves. SDNs: There are currently about 100 “specially designated nationals” – individuals or entities with which US persons are prohibited from doing business. These include major investors throughout all major areas of Myanmar economic activity. Lack of transparency in Myanmar corporate structures will require a substantial amount of due diligence to ensure companies do not partner with entities that have SDN investors. There needs to be a better process for SDN de-listing after substantial remediation measures are taken. Complicating matters further, US disclosure requirements can seem draconian. They impose annual reporting requirements on US companies investing in Myanmar, which means US companies will face additional compliance costs above and beyond what other companies globally will face investing there. In short, Myanmar is indeed a land of opportunity, but it also offers complicated approaches to investment. AmCham HK will continue to monitor and report on the state of play in the country, as well as closely cooperate with the US Chamber on future interactions with the government and people of Myanmar. Stay tuned.

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What You Must Know about Investing in Myanmar KPMG is the first of the Big Four professional services organizations to have established a presence in Myanmar. Ola Nicolai Borge is their Executive Director, Tax and Legal Services. He shares with biz.hk his on-theground observations and experiences of investing in the “next economic frontier” in Asia

biz.hk: What’re Myanmar’s biggest challenges now in order to attract foreign investment? Borge: Myanmar is currently receiving significant international investments, covering a wide range of sectors. In order to grow the level of investments further, we believe that challenges within infrastructure and real-estate needs to be dealt with. Furthermore, the shortage of people with higher education represents a challenge for many industries. Our impression is that many investors still are trying to learn the Myanmar market, taking the time required to fully understand the opportunities and challenges in the market. Many feel that this approach also gives them time to verify that the positive trend is stable and developments are sustainable. biz.hk: What are your advices for companies that need to carry out due diligence in Myanmar? Borge: Performing a due diligence in Myanmar can be rather challenging. For key questions like who owns the company and what do the company actually own the answer might not be as straight forward that we are used to from more emerged markets. There is often a discrepancy between what is formally recorded and what is claimed by the target. Similarly, the quality of the books is in general not up to international standard. Running a due diligence does require detailed local knowledge and understanding of local business practice. At the end of the day, the result of a Myanmar due diligence tends to provide less assurance than what would normally be the case in more emerged markets. biz.hk: Given the uncertainty in Myanmar, when is the best time to invest in Myanmar? Should foreign investors wait until 2015 after the election to invest, or should they take the risk now and take the plunge? Borge: For investors who believe that they will go into the Myanmar market within the next few years, we generally recommend that they move into the market now. This will in particular apply where a local joint venture partner is required, as the pool of suitable JV partners within each area might prove to be rather limited. This also will be the case where workers with particular skills are required, as these often are a limited resource in Myanmar.

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biz.hk: How should foreign investors choose between wholly foreign-owned investment and partnership with local Myanmar businesses in investing in Myanmar? What are the factors that they need to consider in making their decisions? Borge: We do not have any generic recommendations in this regard. Teaming up with a Myanmar JV partner can bring many benefits, like strong local connections and established market access. The foreign investor should however keep in mind that local business in several sectors is still quite far behind within technological development, as well as corporate governance. biz.hk: Corruption is a pertinent issue for investors interested in markets such as Vietnam, Cambodia and now Myanmar. What are your advices for investors in dealing with the issue when investing in Myanmar?

“We believe that this challenge can be addressed by deploying a higher level of expatriates in the initial stage of the project, combined with a strong training program for the employees with less experience.”

Borge: Corruption is indeed an area where many foreign investors are concerned. We do fully believe that this is a challenge that is fully manageable, and that Myanmar might have been given a worse reputation than what is actually the current situation. There is a lot of focus from the government on reducing corruption and unfair business. Our advice is simply to stand firm on your rights. We believe that companies that start off with doing the right thing will be able to do that in Myanmar with limited problems. This is in line with the feedback we get from our clients.

biz.hk 3 • 2013

Ola Nicolai Borge

biz.hk: The lack of senior and middle-level managers in Myanmar is a serious problem for investors. What human capital strategy should foreign businesses adopt in setting up in Myanmar? How can foreign investors effectively overcome the problem of lack of local managers who can make decisions independently? Borge: We believe that this challenge can be addressed by deploying a higher level of expatriates in the initial stage of the project, combined with a strong training program for the employees with less experience. One of our advices in this regard is often to hire more people than is actually required, in order to take into account that there will be a fight to retain employees as more and more potential employers come into the market. biz.hk: For low-end manufacturing, is Myanmar a viable and competitive option vis-à-vis destination like Bangladesh and Vietnam? Borge: We do see that a number of manufacturers are looking to Myanmar as an alternative for new operations. The key challenges for such operations seem to be to find a suitable location, both regarding available infrastructure and price. These are areas where significant improvements are expected in the future. All in all, with available work force, access to natural resources, and a government very focused on building manufacturing capabilities, we believe that here are good opportunities for manufacturing in Myanmar.

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Myanmar’s participation in ASEAN is another important channel for Myanmar to engage with its nine South East Asian partners, and Myanmar’s chairmanship of ASEAN in 2014 should offer significant opportunities for international attention on how to support its economic development.

Beth Smits

Call for Financial Institutions to Act Swiftly SWIFT is the lead sponsor for the AmCham Myanmar delegation. Beth Smits, Head of Corporate Affairs, Asia Pacific, SWIFT, explains to biz.hk what should Myanmar’s priorities be and how international institutions can help biz.hk: What should Myanmar’s priorities be as the country rebuilds its economy? Smits: Clearly, the most important concrete steps that the public and private sector can take have to do with building infrastructure. A great deal of attention is being focused on Myanmar’s physical infrastructure needs – roads, bridges, tunnels and airports – and whilst they are indeed important, now is also the time for attention on the nation’s financial infrastructure. Where the SWIFT community can help is to bring to Myanmar a common language and platform that meets local needs and ensures that money and financial instruments can flow seamlessly between various systems and players within Myanmar and abroad. Myanmar needs to build a financial infrastructure that will be able to handle its rapid economic re-integration with the rest of the world as well as what one

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expert called the ‘craving’ for financial services from its own population. biz.hk: What roles can international institutions such as World Bank, IMF and ADB play to help Myanmar to rebuild its economy? Smits: Basically, a common role I would ascribe to them is the need to ensure that they help Myanmar learn from the lessons of other emerging markets and not repeat their mistakes. Even in two days that we are here I could sense the ‘gold rush fever’ that was referenced by many of the experts we met, and as the country catches up on 50 years of isolation, these international organisations (including global organisations like SWIFT) should assist the public and private sector to focus on the areas of partnership and investment that bring stable – and scalable – support to the country’s development. I would add that

biz.hk: Banks in Myanmar are not sufficiently reformed to handle 21st century commerce and trade. Is it too early for international banks to consider Myanmar? What opportunities are there for international banks? Smits: It was significant that as US and EU sanctions were lifted, one of the first steps that Myanmar banks took was to join SWIFT. Fifteen out of the 19 commercial banks in Myanmar have been granted Authorised Dealership (FX) licences to trade, and 13 of these banks are members of our global cooperative, with another two in the process of joining. “Leapfrogging” was a major theme during our visit, and Myanmar banks recognise that they need to use globallyrecognised standard practice like over SWIFT to be able to catch up quickly. And they will catch up fairly quickly, with support from organisations like mine. This also represents an opportunity for international banks to enter this market. Right now, 34 of our member organisations have foreign representative offices in the country, building up relationships and market knowledge, and the advice from all of the experts we met was that those who wait for full liberalisation of the domestic market will miss an important window of opportunity over the next year or so. This is particularly so as banks’ corporate customers – from Japan, from China, from Europe, from the United States and from other ASEAN nations – recognise the potential of Myanmar and take steps now to invest and partner in this country of 60 million people between China and India. The benefits of coming closer to truly interoperable financial markets within Myanmar – and for Myanmar with the rest of the world – will be shared by financial institutions and their customers throughout the retail and corporate sectors.

biz.hk 3 • 2013


TAXATION

IS THE FISCAL CLIFF OVER? Can things ever get done in Washington? Judging from the drama over the ‘fiscal cliff,’ the answer seems to be ‘yes’ and ‘no.’ Despite the temporary relief now, the drama is far from over. Larry Lipsher, an expert on US taxes, worries that things will get worse before they get better

By Kenny Lau

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I

t was an intense moment of “relief” in the early hours on New Year’s Day (2013) when the US Congress passed the American Taxpayer Relief Act, following months of endless political debate on how the US should deal with its growing deficit. The law, signed by US President Barack Obama the next day, ended speculations of a doomsday scenario in which government agencies would cease to function from “automatic” budget cuts. The 150-page law was a last minute compromise and primarily dealt with what became known as the “fiscal cliff,” which would have resulted from expiring tax provisions of the “Bush tax cuts” and activation of federal budget sequestration (automatic across-theboard spending cuts in both defense and non-defense items) on January 2nd. First and foremost, the law delayed sequestration by two months, pushing it to March 1st while affording Congress more time to agree to an alternative that is less likely to have slowing-down effect on the underlying economy. It also made some changes to tax provisions mandated under the Bush tax cuts: Rates on a yearly taxable income of US$400,000 or less stay the same; those over are subject to revised – and possibly higher under certain circumstances – rates. “In other words, only the top 0.7 percent of individual income tax filers will be subject to the reverted top marginal tax rate at 39.6 percent while their capital gains rate goes up from 15 percent to 20 percent,” notes Larry Lipsher, former chairman of AmCham South China and a Hong Kong and California CPA having lived in Hong Kong for nearly 23 years. “The 2-percent payroll tax stimulus reduction in effect since 2010 expired on December 31, 2012,” he adds. “You will start losing your personal exemptions and itemized deductions when your taxable income is over US$250,000. “The US$5-million gift tax exclusion remains but the gift tax rate increases from 35 percent to 40 percent.”

biz.hk 3 • 2013

Official White House photo by Pete Souza

US President Barack Obama and the Vice President Joe Biden, center, meet in the Oval Office in late December with Congressional leadership to discuss the fiscal cliff.

Balanced budget Despite an on-going effort by the government toward a balanced budget, it is a goal unlikely to be achieved in the near future as the percentage of revenue in the federal budget declines while government expenses continue to rise sharply. “As a share of GDP, US tax revenues are at their lowest levels since 1950,” Lipsher points out. “Including state and local taxes, the US remains a low-tax nation with revenue share of GDP at 24.8 percent compared to OECD average of 33.8 percent.” Without imposing higher tax rates, revenue can only increase from a growing economy. According to Congressional Budget Office’s (CBO) budget and economic outlook as of February, economic activities in the

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US will only expand slowly in 2013 for which real GDP is forecast to grow by 1.4 percent, a mixed result of continuous improvement in the domestic economy and fiscal tightening measures that may have been introduced or scheduled to take effect imminently. CBO had projected in August a total deficit of US$2.3 trillion for years between 2013 and 2022; however, the figure has been revised (as of February) to reach US$4.6 trillion, mostly as a result of the American Taxpayer Relief Act of 2012 (ATRA) signed into law in early 2013. The good news is: US’s overall federal budget deficit had fallen three years in a row in the fiscal years between 2009 and 2012, with an estimated deficit totaling US$845 billion in 2013, a deficit below US$1 trillion in five years. But the bad news is, federal spending is highly unlikely

to subside amid an aging population requiring healthcare and becoming eligible for federal subsidies. “For every dollar a US taxpayer over a lifetime contributes to Medicare, the government in return will pay back almost four dollars in healthcare for this individual,” Lipsher points out. “When that happens, it won’t take long to go bankrupt, and something has got to give to remain sustainable. In political terms, there has to be a willingness to compromise.”

Stalemate In the last few years, President Obama and Congress have worked together to bring the federal deficit by more than US$2.5 trillion through spending cuts and increased tax rates. And, a series of legislations on the federal budget have been introduced

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Federal Debt Held by the Public

Total Deficits or Surpluses

(Percentage of gross domestic product)

(Percentage of gross domestic product) 10

120

Actual

Projected

100

2013 Projected

5

Surpluses

0 -5

80

Deficits

-10 60

-15 -20

40

-25 20

-30 -35

0 1940

1945

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020

Source: Congressional Budget Office

Larry Lipsher

as a result. “In essence, Republicans believe now is the time to rein in a growing deficit by retaining most stuff but also starting to cut back, while Democrats believe there should be more moderate cuts and higher tax rates for people who can afford it,” Lipsher says. “It is an impasse between one concept and another, neither of which seems willing to budge.” “There are 232 Republicans currently in the House of Representatives, and

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1940 1944

1948

1952

1956

1960

1964

1968

1972

1976

1980

1984

1988

1992

1996

2000 2004

2008

2012

Source: Congressional Budget Office

219 of them are from congressional districts that voted for Republican candidate Mitt Romney in the last presidential election,” he also notes. “It means Republicans in the House now have a stronger mandate, and a stalemate is much more likely.” When Congress in 2011 agreed to raise the debt ceiling, a limit by which US Treasury is able to borrow for funding of government programs, in order to avoid a sovereign default, it did so with a mandate to bring the growing deficit under control, and subsequently passed the Budget Control Act of 2011, which formed a joint committee of 12 (six from each political party), dubbed the “Super Committee,” to issue a plan detailing specific spending cuts. The Budget Control Act, while having increased the debt ceiling to a higher limit, would also trigger automatically sequestration of about US$1 trillion over 10 years starting in 2013 if the Committee failed to come up with a plan to reduce the deficit by US$4 trillion. “The whole design of these

arbitrary cuts was to make them so unattractive and unappealing that Democrats and Republicans would actually get together and find a good compromise of sensible cuts as well as closing tax loopholes and so forth,” President Obama says on his Website. “And so this was all designed to say we can’t do these bad cuts; let’s do something smarter. That was the whole point of this so-called sequestration.” Congress has been unable to agree to a compromise to date, and automatic cuts of about US$85 billion for 2013 were set to kick in on New Year’s Day. The American Taxpayer Relief Act passed on January 1st was designed largely to put sequestration on hold – but only until March 1st, and some subtle cuts – which would not completely eliminate any federal government functions – are reported to have taken place. These cuts, critics say, “will jeopardize our military readiness and eviscerate job-creating investments in education and energy and medical research, and don’t take into account whether they eliminate some bloated

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program that has outlived its usefulness, or cut a vital service that Americans depend on every single day.”

Temporary fix Despite on-going battles on spending cuts, Congress has passed the Consolidated and Further Continuing Appropriations Act in late March to continue funding federal government programs through end of September, at full-year funding levels for Defense, Military Construction and Veterans Affairs, Homeland Security, Commerce, Justice and Science, and Agriculture. Other federal departments and agencies are also provided with funding at the fiscal year 2012 levels. “This legislation provides funding for essential federal programs and services, helps maintain our national security, and takes a potential shutdown off the table,” House Appropriations Chairman Hal Rogers (R-Ky) said in a press release. The bill also “protects national security while meeting compelling

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human needs, makes investments in human infrastructure like early childhood education, and creates jobs today and jobs tomorrow by supporting research and innovation,” Barbara Mikulski (D-Md), Chair of Senate Committee on Appropriations, noted. “It appears that they are trying to provide more flexibility around limitations set by sequestration in order to avoid irreversible damage to the system,” Lipsher observes. “This could potentially offset some of the impact of budget cuts in federal expenditures.” However, it will only provide a near-term solution to the problem of funding and not to the issue of growing deficits, he stresses. “We’ll again be facing something similar when it comes to budgeting for fiscal year 2014 and beyond, and possibly another fiscal cliff scenario will resurrect by the end of the year.”

Frustration “What’s amazing is how they were able to come up with a law that is 150

pages long in the very last minute and pass it in time to avoid sequestration and a law that provides continuous funding until September,” Lipsher notes. “It tells us that things can get done when they put their acts together, and makes me wonder to what extent this is all political posturing on both sides. “We have an elected legislature of 100 Senators and 435 Representatives, whom we empower to represent us and vote on key issues affecting our lives. Yet, the country is unable to move forward the way many voters expect; it is very frustrating.” “It can be even more frustrating for those of us as US taxpayers who live and work overseas,” Lipsher says. “There may be 7 or 8 million of us overseas but there aren’t enough to singularly impact any congressional race. “I fear since we are without a full-fledged voice in Congress that we are a convenient whipping boy, as suggested by an increasing number of legislative restrictions which have put our lives at a severe disadvantage in some cases.”

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LAW

that it is unlikely a platform for tax evasion.

Final regulations

IGAs FFIs

FATCA Is Here:

Are You Prepared? The US Treasury and IRS have issued long-awaited final regulations under FATCA in January. Now, foreign financial institutions have eight months to prepare for compliance. What should FFIs do to avoid disruption to business?

By Kenny Lau

T

he Foreign Account Tax Compliance Act (FATCA) was signed into law in 2010 as part of an effort of the US government to crack down on abuse of using offshore bank and investment accounts to get away from US tax liability. The longanticipated final regulations finally came out on January 17, 2013, providing a much clearer set of guidelines for compliance of a tax law deemed “onerous.” “The length of time involved in the process for the proposed regulation to be drafted and now for final regulations to be issued reflects the complexity of the exercise,” says Richard Weisman, Tax Partner at international law firm Baker & McKenzie.

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“This is a very complicated law, and it has taken some time both to develop the rules and for financial institutions and governments around the world to really understand it and how to go about compliance.” “In short, FATCA provides the US tax authorities with vastly greater ability to access information about the non-US financial accounts of US persons all around the world,” Weisman stresses. “It is very important that US expatriates appreciate this in light of the US’s worldwide system of taxing its citizens and green card holders.”

FATCA Unlike a Report of Foreign Bank and Financial Accounts (FBAR), for

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NFFEs IRS

which US persons have personal legal responsibility to file disclosing their financial accounts (with assets in excess of US$10,000) in a foreign country, FATCA mostly requires foreign (nonUS) financial institutions to identify accounts that belong to US citizens and permanent residents and to share such and other relevant information with the US Internal Revenue Service (IRS). “The principal purpose of FATCA is to provide the IRS with additional sources of information in order to prevent US citizens, resident aliens and entities (defined as “US Persons”) from avoiding US taxation of unreported income or assets held in or paid to accounts outside the US,” Weisman points out. “FATCA does so by requiring foreign financial institutions (FFIs) and certain non-financial foreign entities (NFFEs) to identify and document the US beneficial owners of accounts and US source payments according to mandatory procedures,” he adds. “Any FFI or NFFE that fails to provide the required information risks having a 30-percent withholding tax imposed on payments to it of US source income.” Since February 2012 when the proposed regulations were issued, financial institutions throughout Hong

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Kong and in other locations have started to focus intensively on what “this means for them” while industry groups and chambers of commerce, including AmCham Hong Kong, have engaged in a dialogue with US Treasury and IRS officials on the subject. “AmCham met with US Treasury and IRS officials and explained the concerns of Hong Kong’s financial services community during our annual Washington Doorknock trip to Washington, DC last year,” Weisman, an AmCham governor and leader of an AmCham delegation for a meeting at the US Treasury Department in June 2012, notes. “We reviewed specific comments submitted by a working group representing Hong Kong’s financial services industry, covering many topics affecting banks, asset managers, insurance companies, trustees and retirement accounts,” he says of the meeting with US officials last year. One of the most important points highlighted at the meeting was how Hong Kong’s MPF scheme would potentially be affected under the proposed regulations and why it should be exempted from FATCA compliance given that it is a mandatory retirement program for good policy reasons and

While many of the key provisions in the “proposed regulations” published a year ago are retained in the final regulations, there are a number of significant changes. More importantly, new deadlines and timeframes for FATCA compliance as well as definitions and rules are clearly laid out in the 560-page final regulations, eliminating much of the previous ambiguity about information reporting requirements. “The IRS has remained broadly consistent in the final regulations and persisted with many of the key provisions despite substantial comments received from industry participants,” says Timothy Clough, Partner, Risk and Control Assurance, PwC Hong Kong. “However the final regulations do provide increased granularity and clarity which should make an institution’s compliance activities much easier as

Richard Weisman

many gray areas in the draft regulations have now been clarified,” he adds. The vast majority of financial institutions, in particular those which accept deposits, hold financial assets and are in the business of investing and trading securities, are under the scope of FATCA. In other words, it applies to all retail banks, investment banks, asset

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management and brokerage houses and insurance companies. “FATCA requires institutions to review how they onboard customers and assess whether there are any red flags that would indicate US tax liability within their new as well as existing customer base,” Clough notes. “If they are presented with, or find within their systems, a data element that suggests US status, they’ll now need to react and potentially collect additional data and documentation.” It will be a form of classification for which financial institutions will need to train their frontline employees and have a formal policy in place, somewhat similar to requirements of USA PATRIOT Act’s Know-Your-Customer scheme in that it is all about collecting and sharing information “so that your understanding of individual customers is a true representation.” “It is difficult as a financial institution to remove yourself from complying with the regulations,” Clough says. “If you operate in the financial services industry, you will likely discover that in some shape of form you are going to have to comply. Despite the initial shock and confusion caused by the regulations, financial institutions around the world have begun to realize that FATCA is here to stay and that they need to prepare for it.” “If I were a financial institution and had yet to start thinking about FATCA, I would start to get worried,” he adds, noting imminent deadlines for registration and compliance. “Until you perform an assessment on the extent to which you are exposed to the regulations, it is difficult to determine the level of effort you’ll need to expand in order to comply. “It is very difficult to manage a business with this level of regulatory uncertainty. Although the regulations appear to be scary, it doesn’t need to be that way. By taking methodological steps to prepare, a project can be designed that is predictable, controlled and cost effective.”

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IGAs The United States has been working closely with governments globally to facilitate implementation of FATCA via intergovernmental agreements (IGAs) for which there are two models, namely “Model 1” and “Model 2.” In fact, many of the changes in the final regulations result from attempts to align the requirements of FATCA to the requirements prescribed in the two model IGAs, Weisman points out. Often, FATCA obligations as laid out in the final regulations are modified in each of the jurisdictions where there is an IGA. Upon entering into an IGA with the US, financial institutions in a given country are deemed compliant and will no longer be subject to the 30-percent withholding tax requirement when conditions stated in the agreement are duly met. Financial institutions in countries under a Model 1 agreement will be required to report to the IRS via the tax authority of their jurisdiction whereas reporting will be made directly to the IRS under Model 2. The US has entered into six “Model 1” and one “Model 2” IGAs as of mid-March and has engaged more than 50 countries and jurisdictions in talks about an agreement. In Hong Kong, financial institutions are now intensively focused on taking the steps necessary to address their obligations under FATCA following the issuance of the final regulations. A key variable, which will determine how institutions here are to comply with FATCA, is whether Hong Kong will enter into an IGA with the US. “Under either model, laws of the jurisdiction will need to accommodate FATCA compliance,” Weisman notes. “For most, compliance would be greatly

Timothy Clough

simplified and facilitated if Hong Kong were to enter into an IGA. If Hong Kong does ultimately enter into an agreement, it is likely to be a Model 2 IGA.” Model 2 is generally regarded as the easier one to implement as it mandates a direct exchange between institutions and IRS and forgoes the need to establish a local framework in a jurisdiction. However, it has no reciprocity clause, which would otherwise enable partner governments to receive financial information of their citizens in the US. “I am convinced that a number of countries other than the 50 countries mentioned in the IRS notification are at various stages of negotiation with the US,” Clough says. “They just prefer not to disclose publicly these negotiations as it is a sensitive topic and could create unnecessary noise in the market.” “It would not surprise me if all of the countries in Asia were in some type of discussion with the US on IGAs, regardless of whether their intention is to enter into an agreement or not,” he adds.

biz.hk 3 • 2013


HUMAN CAPITAL

Photo: Thinkstock

Plugging the Employment Contract Law Loopholes China has gone a long way from the sweatshop country of the world to the economic powerhouse that it is today. The 2008 Employment Contract Law marks a milestone in the protection of workers’ legal rights. Amendments of the ECL by the National People’s Congress Standing Committee last year took another step further to ensure the interests of the country’s (roughly estimated) 60 million agency workers are protected. Andreas Lauffs, Partner of Baker & McKenzie, who recently spoke at the Chamber, explains the amendments and their impact on employers

By Kenny Lau

30

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T

he Employment Contract Law (ECL) in 2008 marked a significant step forward in providing workers in China with greater protection of their legal rights as it sought to drastically improve the work conditions for hundreds of millions of Chinese workers through a mandate making them “direct employees” of their respective companies with labor contracts. The intent of the law was to have a vast majority of China’s workforce sign “direct employment” contracts by which companies would have the legal responsibility to ensure fair and equal treatment for employees in terms of work rules, pay and benefits. Under the law, companies would hire their workers directly, give them written

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contracts, buy social insurance and pay any applicable tax. However, companies have instead “seized” on the vagueness of certain provisions in the law and expanded their practice of hiring employees solely on a “temp” basis through “labor dispatch” in order to avoid having to hire workers directly. “Labor dispatch refers to the practice of hiring employees through an employment service agency, as opposed to hiring workers directly without a third party,” notes Andreas Lauffs, Partner at international law firm Baker & McKenzie and a legal expert on China’s labor law. “It is about finding people to work for you.” “Once they are hired, they are basically your own people doing the same work as any other employees,” he adds. “In the context of the law, it is intended for exceptional cases such as when companies need to find substitution to temporarily replace workers who may have resigned.” In other words, companies believe they are able to avoid certain legal obligations under the Employment Contract Law by hiring workers through a third-party “job placement” service agency, which is a part of the 2008 law meant to afford employers some flexibility in their labor arrangement in exceptional cases. As a result, labor dispatch has become a form of employment arrangement widely used in China since enactment of the law in 2008. For some companies, it is “the main or only method” used to fulfill their human resources needs and as a way to minimize their liability as an employer. “Because the law was somewhat unclear on labor dispatch and some employers did not want to hire workers directly, there has been a huge surge in labor dispatch since 2008,” Lauffs says. The number of workers employed in a “labor dispatch” arrangement has in the past few years increased significantly, reaching 37 million in 2011 according to reports in the official Chinese media, although other reports have suggested a much higher number

Andreas Lauffs

of 60 million. And, the number would have likely increased by another 30-50 percent in 2012 as “companies scrambled to cut costs in the face of rising minimum wages,” Wang Kan of the Institute of Industrial Relations in Beijing was quoted saying in a Bloomberg Businessweek report published a year ago. “There were some agency workers in China prior to the law in 2008 but surely not as many as there are now,” Lauffs says. “There has certainly been a substantial increase…so much that the Chinese government took action in making sure that labor dispatch doesn’t become the dominant form of staff hiring in China.” There is also a distinction between “labor dispatch” and “outsourcing,” Lauffs says. “The former is all about people while the latter is all about service. There is basically no restriction on how many functions a company can outsource, but they have to be business type-specific functions defined by your business license such as those we see in information technology.” The heavy reliance on labor dispatch, from Chinese government’s perspective, essentially defeats the core purpose of a law designed to guarantee workers’ rights. The “proliferation” of labor dispatch arrangements in China became a focus issue,

31


facing increasing scrutiny from government officials, union representatives and the public at large. In mid-2011, Shanghai Municipal Human Resources and Social Security Bureau, in collaboration with the Shanghai chapter of the All-China Federation of Trade Unions, Shanghai Enterprise Federation, and Shanghai Chamber of Commerce and Industry, issued a joint Guiding Opinion to Regulate the Use of Labor Dispatch in Shanghai in an effort to align practice closer to the original intent of the law. The Standing Committee of the National People’s Congress finally passed an amendment in late 2012 to tighten up the standard by which companies could hire staff through an agency, practically outlawing the practice and allowing few exceptions under “very narrow circumstances.” The amendment, which will take effect on July 1st, conforms to the original intent prescribed in the 2008 law but clarifies ambiguous language over the use of “labor dispatch” with definitions that are much more solid. “In the past, many workers in China had no written employment contracts and had very little legal protection of their rights,” Lauffs points out. “The law in 2008 created a contract system encouraging direct employment as a way to promote the welfare of workers in China by mandating equal rights for those hired through labor dispatch.” “The problem, however, was that the rules on labor dispatch were very vaguely worded and didn’t include any penalty for misuse of such arrangement,” he adds. “It led to an explosive growth of labor dispatch arrangement as companies found a way to reduce their payroll costs by hiring through an agency.” Under the newly amended Employment Contract Law, companies are to hire most employees directly and may use labor dispatch “only” (instead of “generally” as previously stated) for temporary, auxiliary and substitute job positions. And, there are now concrete definitions of these types of jobs, Lauffs notes.

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A “temporary” job position is defined as a position in which the person is hired for a consecutive period of no more than six months; an “auxiliary” position is one in which staff engaging in a company’s non-core business provide services to those involved in the core business; and a “substitute” position is one for which staff are hired to temporarily replace employees who leave work for a fixed period of time for study, leave or other reasons. Other key changes made in the amendment include a limit to only a certain number or percentage (to be specified by the Ministry of Human Resources and Social Security) on which companies will be able to hire employees through agencies while

MILLION The estimated number of Chinese workers employed under a "labor dispatch" arrangement

staff hired under a dispatch arrangement must be paid the same compensation as their directly hired counterparts. Under the amended ECL, agencies are now required to obtain a license and a capital requirement of RMB2 million in order to provide labor dispatch service or they risk a fine of up to fives times the amount of “illegally generated income” (or RMB 50,000 if no “illegal” income has been generated). Violations of provisions can cost hosting companies a fine of RMB 10,000 for each employee. “The amendment has placed a stronger boundary on the use of labor dispatch, with rules that are much

clearer,” Lauffs says. “It specifically states that direct employment is now the rule and that dispatch is the exception. “Although it will not likely end all illegitimate practice of labor dispatch, the numbers will certainly come down as they are moving to regulate staffing agencies with higher capital and other licensing requirements as well as heavier penalties against agencies and hosting companies for violation of the law.” The downside from an employer’s perspective is less flexibility and potentially higher cost of labor when operating in China. “Because many companies are restricted with a limit on headcount and may need to seek approvals from their headquarters for an increase of permanent staff, dispatch is a good alternative, but only if it is legal,” Lauffs stresses. “The new amendment also adds to compliance and due diligence issues.” “Strictly by how the law is written, China can almost be seen as an employee-friendly country similar to France where there are stringent labor laws that employers have to keep in mind,” he says. “Whether it happens depends to a large extent on the local governments and how they will enforce it, and whether the court will allow individual employees in a dispatch arrangement to claim de facto employment with the host company.” “Similar problems exist anywhere in the world, especially in times of economic instability when companies are reluctant to hire permanent staff or make any long term commitments,” Lauffs says. “So, China is not unusual in that sense, and it is good that they realize this is a problem they need to solve.” “It also fits in the big picture of China’s economic reform moving away from cheap manufacturing to more value-added production and domestic consumption,” he adds. “When there are stable employment relationships in a country, employers are much more likely to invest in their employees who can then build up more skills and produce better products.”

biz.hk 3 • 2013


CHINA BUSINESS

B

KNOWING THE UNKNOWABLE CHINA My First Trip to China is a collection of essays by 30 leading China experts about their first encounters with China. Published last year, the book has earned rave reviews from around the world. AmCham recently hosted a panel discussion with Orville Schell and Leo Goodstadt – two contributors of the book. The following story is compiled from panel discussions and additional interviews conducted afterwards

My first trip to China

By Kenny Lau

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biz.hk 3 • 2013

biz.hk 3 • 2013

ehind a story of emerging as a global economic powerhouse, there also lies a story of a country once so isolated from the outside world that it was nearly impossible to penetrate diplomatically other than, perhaps, forcing into it militarily. One can only imagine what life within a “closed” China constituted when foreigners were largely shut out from what was then “the faraway” or “the mysterious.” To provide an understanding of post-war China, a number of scholars, diplomats, journalists and businessmen describe their first encounters with the country in a newly published book entitled My First Trip to China, which document first-hand accounts of insideChina experience for which only a few had access in the decades following the founding of the People’s Republic of China in 1949. “The world has undergone dramatic change in many ways these past 30 years, but the pace, depth and scope of change in China has been nothing short of phenomenal,” says Tom Gorman, a former AmCham chairman and who moderated a panel discussion on the new book. “Having been there in the pre-open door era gives one a benchmark against which to compare and evaluate what has changed, and what has not.” “The US and China were ensconced in a hostile, non-conversational relationship,” Gorman notes. “China was in the early stages of the Cultural Revolution; American news media at the time referred to the Mainland as Red China.” The time was 1966, also when Gorman as a high school student in the American Midwest studied Mandarin Chinese, thanks to federal government funding made available under the National Defense Education Act.

The unknowable Many stories documented in the book date back to the 50s, 60s and 70s, a period during which Americans were forbidden from traveling to China, with their passports stamped with such an “explicit prohibition.” Yet, fascination and curiosity brought a handful of Westerners including Americans (and there were not many of them) to a “newly closeted land, irrevocably locked behind the ‘bamboo’ curtain of a new Cold War enemy.” “Since it was so difficult to gain access and see their inner workings, we were left with an uneasy sense of confronting a

Tom Gorman

phantom adversary that made it tempting for us to project unwarranted abilities and powers onto them,” writes Orville Schell in the book’s foreword. “Mao’s determination to make China ‘self-reliant’ helped create something of a legend of defiance, inaccessibility, and even invincibility.” Hong Kong, because of its proximity, became the ultimate – and in some cases the only – door through which access to China was made available. Despite sharing a border with Hong Kong, “China seemed at once far away and very near,” Schell notes. “The boundary that demarcated the New Territories [of Hong Kong] from the People’s Republic of China was actually one of the starkest

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dividing lines in the world.” “To be in Hong Kong was to be so close but also so far. Looking at the tracks of the train station near the Star Ferry Terminal where the Clock Tower stands today, I knew I wasn’t able to go down those tracks to get to the other side of the border,” he says. “Those tracks were like a magic highway to not only the unknown, but the unknowable.” An exchange student at National Taiwan University in the 1960s, Schell first arrived in Hong Kong in 1961 and finally boarded a train in 1975 “setting off for the frontier” and “crossing a bridge under the watchful eyes of armed PLA soldiers stationed along the tracks,” he recalls. “Their presence gave an added sense that we were, in fact, crossing from one universe to another.”

Crossing the border At the time, no direct mode of transportation, whether it is by airplane, ferry, or highway links, from Hong Kong to China existed. Instead, a journey required a trip on the train to the border for immigration clearance on both sides, then to Guangzhou for an overnight stay before catching a flight the following day to a final destination. At the border, “passengers walked with their luggage across the quaint, covered wooden bridge – with the PRC flag waving ahead and the Hong Kong flag flapping behind,” Gorman describes. “The Shenzhen River was not very wide but crossing it at that point brought you into a very different world.” “The view from the train windows was overwhelmingly agricultural: no paved roads or high-rise buildings, virtually no factories, and few mechanized vehicles,” he continues. “Chinese people who had reason to talk to foreigners, and approval to do so, introduced themselves by surname only. For ordinary Chinese to be accused to having unauthorized contact with foreigners was a very serious matter indeed.”

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The telephone played virtually no role in doing business in China at the time and only telex, telegrams and letters – all impersonally addressed – were used for business communications, Gorman also notes. “A private telephone was such a rarified, elite device that the telephone book was also considered a state secret.” During his first visit in 1975, Gorman was left with a long-lasting impression in the first morning at the Dong Fang Hotel in Guangzhou: he was rudely awakened at 6 am by an piercingly loud broadcast from loudspeakers in the streets, “with the latest thoughts of Chairman Mao recited by a high-pitched female announcer in a staccato style reminiscent of a dentist’s drill” as well as harsh denunciation on “American Imperialists and Their Running Dogs.” An irony hit hard: “A few years ago at home, I’d been teased about studying the language of Red China, marginally at risk of being labeled a pinko or commie sympathizer,” Gorman reflects. “Now that my journey had finally brought me to China, it seemed I was being labeled an imperialist running dog.” “I’m pretty sure I am not an imperialist but I’m not sure what exactly constitutes a running dog,” he thought to him at the time.

Others were listening By early 1976, the campaign against the so-called “right deviationist” started and it created a frosty atmosphere. Despite a sense of apparent willingness to reach out for international trade from China, it was a sensitive time for people doing business in the country, John Kamm, also a contributor to the book and a former AmCham chairman, notes. “Trade minifairs, an innovation introduced as a modest reform in 1975, were under fire as examples of the roots of capitalism.” The number of Westerners in China at the time was very small and they were in

Leo Goodstadt

John Kamm

China only for business or other matters related to commerce, or perhaps for a few occasional diplomatic visits; and there were virtually no tourists from Western countries. “If you got in trouble you were in trouble because there was no consulate protection,” Kamm says. The initial encounter with China occurred in January 1976 when Kamm as a representative of the National Council for US-China Trade went to Shanghai for the China Feather and Down Garments Minifair, where he was to write an article reporting on the fair. “The interview was a formal affair, no smiles or words of greeting,” Kamm recalls. “I read off my questions but few if any of them would be answered; I was given the bare bones facts of the trade fair. That was it.” Little did he know during his first trip that he was identified as “a target” and was already under close surveillance of Chinese officials as a result of a critical review he had written as editor of a business magazine in 1975 on party material published by the Chinese leadership. Circulation was subsequently banned in China and stacks of soiled copies of the magazine were returned with a letter warning of having committed to counter-revolutionary propaganda. “I could have been dealt with in a number of ways but for some reason it did not happen,” Kamm says. “When I was there, they definitely had an eye on me and were listening when I talked to people.

They also kept me off from certain activities during my first trip. “They had plenty of eyes to keep on you; there were people who didn’t do anything but that, all over the place. Looking back now, I am sure I was under close surveillance.” “In those days, a foreigner never had an encounter with a crowd of Chinese in general, and there were no such opportunities,” he adds. “Walking down the street, you would meet people in some one-off, sporadic encounters but nothing organized. People did not want contact with foreigners because it was too dangerous for them.” Kamm however met and struck up a conversation in the Seamen’s Club, an entertainment hub for foreigners in Shanghai, with a young Hong Kong sailor who was working on a tramp steamer registered in Hong Kong and operated under the Chinese flag. They had dinner and played pool for a few hours back in the Shanghai Mansions where Kamm was staying. It was a casual friend-to-friend conversation in which the sailor talked about his life on a vessel and “political study sessions” among his fellow seamen while onboard; but it was not a conversation between them only as it turned out that “others” were also listening. The next day the young sailor called. “His voice was trembling, and I guessed he had company sitting nearby,” Kamm recalls. “Obviously distressed, he told me

biz.hk 3 • 2013

biz.hk 3 • 2013

that he was leaving Shanghai early, and that I was not to try to contact him. He told me he would always remember our friendship. He then rang off and a cold shiver ran up my spine.” During the trip in January 1976, there were a number of moments in which Chinese people resented to party propaganda and policy, Kamm notes. A few young waiters in a restaurant at the Peace Hotel were wearing black armbands and explained that they were doing it to commemorate the death of Zhou Enlai, although they had been told not to, but were doing so anyway and they were not afraid. Coincidently, Kamm reunited with

Orville Schell

the young waiter some 30 years later when he took members of the board of The Dui Hua Foundation (of which he is the founder and chairman) to the same restaurant in Shanghai where the young waiter had become manager. “Young people have no idea how we lived then, and they aren’t interested,” he told Kamm, misty eyed. “I came away convinced that China is not a monolith, and Chinese people do have strong individual views,” Kamm says in reflection.

National interest During an era in which “news [in China] was more an export commodity to

be managed and packaged rather than professionally reported,” Leo F Goodstadt, a British journalist for the Far Eastern Economic Review and another contributor to the book, was “invited” by Xinhua News Agency to join a group tour of Guangdong, for which his coverage had led to formal protest by Chinese officials, “alleging that he had tried to bring China into disrepute.” “From time to time, even in Hong Kong, I had been asked to meet this official or that who would upbraid me for a recent article. The dialogue rarely varied,” Goodstadt recalls. “I would be told that my account of official policy or economic performance was distorted and that my offense arose from my habit of quoting published material whose circulation overseas was not authorized.” In his coverage, Goodstadt was once reminded in “a very enlightening encounter” of life in China during the Cultural Revolution. A commune leader speaking in an interview started off by refusing to talk in Putonghua (Mandarin Chinese), then described how poor people in China were, pointing to a group of people without adequate clothing and stressing the need to feed them; yet, there was nothing they could do to ease poverty but only to end up in frustration or anger. “When I thanked the cadre and apologized for disturbing, he said he had indeed sacrificed precious time, complaining that foreign journalists who had come to the commune in the past failed to acknowledge the persistent poverty and preferred to paint a pretty picture of life in New China,” he recalls. “It was an example of another China which was talking to a foreigner.” “The truth is, life was extremely difficult, and many from the outside world found it shocking,” Goodstadt says. “What hasn’t changed regardless of era is China’s sense of national interest. “If the ideology got in the way, they just worked around it. There is a kind of continuity, driven by the same goal of making China prosperous.”

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Frank Proctor is the publisher of Muse, which publishes My First Trip to China. Muse which used to publish a monthly magazine on arts and culture in Hong Kong until December 2010 now concentrates on digital media, books, and specialized publishing projects. Proctor talks to biz.hk about ideas behind the book and some of his observations about understanding China

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biz.hk: Where do you get the idea of My First Trip to China? Proctor: The concept of the book was Kin-ming Liu’s idea and it came together initially when he started this project for the Hong Kong Economic Journal website (he was an editor of the journal then) to collect these essays – in particular when he saw the farewell essay by Richard Bernstein in the International Herald Tribune about Bernstein’s first trip to China. He collected these essays one by one and started editing some. When the project was finished, it seemed that it would be a great book, and it kind of cried out to be made into a book because the essays were kind of long and of a mixed bag. The Hong Kong Economic Journal then has gone to a different direction and was scaling back with some of their English [media] ambition. They also didn’t have the interest of publishing these essays as a book. Muse at that time had recently closed [as a magazine] and we were doing some book publishing projects. Over lunch, Kin-ming and I were talking about the possibility of Muse publishing this book, and we thought it would be a great contribution to the dialogue about China. In addition, it will give Kin-ming a chance to re-edit, re-think,

and re-organize, and also to reach a more global audience. We had the initial conversation about the project around Christmas in 2011 and Kin-ming chose a selection of about 30 essays and organized them more thematically. This really helps the readers and gives an opportunity to play one view point off another – because I think that’s what made the book a kaleidoscope of different viewpoints on China and on [the authors’] first experiences there. biz.hk: This book is different from what Muse used to do, which is arts and culture. This book is about social changes, journalism, China and politics. Why such changes? Proctor: It just seems like a really interesting opportunity to work on this project and to work with Kin-ming, and it’s something that needed to get out and become a discussion point. And that’s why this book. biz.hk: Are you not worried about losing money over this project? Proctor: In this era of transition in media, if there is something that seems like an intriguing opportunity, you should grab it and you shouldn’t think too long about ‘oh, what’s the strategic implication of this.’ Muse at its heart is still very much an arts and culture and very Hong Kong-oriented publishing organization but [this book] is too good an opportunity to

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pass. I would have really kicked myself if I had not done it. I am trying to approach this book project as its own case and trying to pull together a sustainable model for publishing although publishing as a printed book is a part of that. But I am also looking for ways to amplify that through the digital medium, through e-books, and getting revenue on blogs and online as well as print. biz.hk: Are there any particular chapters that impress you most? Proctor: Honestly, I think the whole book is that way and the thing that’s most fascinating for me is, there is no one view point on China – everyone who is included in the book had different expectations before they went to China for the first time and they got very different perspectives and there was even a little bit of a running debate through some of the essays – as if one person is criticizing the perspective of another person saying their hopes were too high or they were too apologetic. I think that says a lot about Westerners. We come to China and we have this mental image of what China would be like. It was just as true for an average guy like me as it was for Perry Link (Princeton professor) or someone. You had this image of what you had expected. Then you encountered reality and it was different from what you had expected, and thinking about the personal reactions that come from

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that. Of course, the difference is that the 30 essays in this book are by people who really shaped the policies and so how their perceptions changed really had a profound impact on what Westerners and policymakers have been thinking about China for the last 40 years. biz.hk: What will be your next project? Proctor: It’s too soon to think about following up on this book. Although I know a number of people have suggested to us and particularly to Kin-ming that it would be interesting to have essays by Chinese people who made their first trips to the West or to the US. It would be interesting although probably kind of challenging to carry it off and to get candid viewpoints. Kin-ming is also continuing this series on Asia Society’s China File website. So there are more interesting stories and essays. Orville Schell is overseeing that project the Asia Society runs. This book has taken on a life of its own in a number of ways. As for Muse, the next project that we have is a series of – coming out and to be translated – literary works by local Hong Kong writers. There will be a series of three. We are deeply involved in the translation and editing

Frank Proctor

of those books now. That will be of a return to our arts and culture, and Hong Kong-oriented materials. biz.hk: Are books published by Muse available in electronic formats? Proctor: That’s right. For all the books that we published, we have also created digital books and they are available on Kindle. It’s because the Hong Kong market is small. But technology allows us now really to project ideas and culture and content coming out of Hong Kong to a global environment, and Kindle is one of the ways to do that.

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FOOD & BEVERAGE

Poppin’ Fresh By combining popcorn made daily using quality ingredients with superior customer service, Garrett Popcorn is positioning itself at the top of the gourmet popcorn market

Scott Schroeder

By Megaen Kelly

H

ong Kong loves trends, either setting them or embracing those established by others. But trends can have a short shelf life, passing out of memory in a few weeks or months. However, if a trend holds on, it can eventually become a tradition. Certainly this is the case with Garrett Popcorn, an American

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gourmet popcorn company. Part of the Chicago food tradition since 1949, Garrett Popcorn was one of the earliest gourmet popcorn companies in the US. However, it remained largely a regional specialty until, according to the company’s CFO and Chief Brand Ambassador Scott Schroeder, they opened their shop in New York City in 2006. Then the brand really

exploded onto the consciousness of the American public. Back to tradition for a moment, Chicago’s food culture is one of the great American focal points of cuisine. Predominately it relies on two main stalwarts of local dishes – Chicago-style pizza (both deep dish and stuffed) and the Chicago-style hot dog. However, get outside the city limits

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and the Illinois countryside abounds in its main crop, corn. As Schroeder sees it, “We’re intrinsically wired to like popcorn. It’s in our (Illinois) DNA.” So gourmet popcorn fits in nicely with the Chicago food tradition. And while over the past few decades many other gourmet popcorn companies have opened in the States, most remain localized. However Garrett Popcorn is more ambitious than most, and has opened several shops internationally, including Dubai, Singapore and Tokyo. In 2011 they opened their shop in Hong Kong, located in the IFC Mall in Central (next to city’super). However, before gourmet popcorn in the territory can transition from a mere trend to become a mainstream tradition, it must overcome two hurdles: perception and price.

More than a cinema snack

When one enters a movie theatre one of the first things a film patron notices is the smell of popcorn. Bags of the usually greasy snack food accompany many on their cinematic travels. Garrett Popcorn’s task is to get people to think outside of the cinema-box when it comes to where and when popcorn can be consumed. According to Schroeder, “It’s true that people don’t think of popcorn as a go-to snack. But we have 2,000,000 ardent fans across the globe who know otherwise and they turn to us in all points in their life.” “They turn to us when things aren’t going well because we’re a great comfort food. They turn to us when it’s something to celebrate, like weddings. They turn to us because it’s Wednesday and they want to get through the balance of the week.” “It’s remarkable how people who have sampled Garrett Popcorn have

incorporated us into their lives. And as Chief Brand Officer, I’m not only trying to build a brand, I’m trying to build a category,” he sums it up. So popcorn, especially the gourmet type that Garrett Popcorn offers – including their proprietary flavors of CaramelCrisp® and CheeseCorn™ can be an anywhere, anytime snack food. But cost is another matter. As a high-end snack food, gourmet popcorn is not the cheap, plain or buttered kind found in cinemas. Addressing the issue of price Schroeder comments, “We make the product in our kitchen throughout the day, every day here in IFC. We pay so much attention to the authenticity of our recipe. Many of the ingredients we actually bring in from Chicago. What that guarantees is that it matches every

2,000,000

ARDENT FANS ACROSS THE GLOBE

Popcorn has been a big part of the movie-going experience for decades. thing that you’re gonna have on Michigan Avenue in Chicago, or in Las Vegas, or in New York. We want to provide that kind of continuity. And so as a consequence, we are positioned as a premium product. You get what you pay for.”

Getting the word out In a city known for being a food paradise, getting noticed can be tricky. Schroeder is taking a very hands-on, proactive approach to getting the word out about his company’s products. “I’ve been spending a lot of time at the shop just talking with consumers as they walk by. I’ve also been out and about talking to people, going to corporations … having only one location in Hong Kong is both a blessing and a problem, because it’s limited; there’s only so many people in a day that I can reach.” The company also relies on word of mouth, with a growing fan base in Hong Kong. And speaking of fan bases, Hong Kong has long been used by multina-

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biz.hk 3 • 2013

biz.hk 3 • 2013

tional companies as a stepping stone into the massive Mainland China market. Garrett Popcorn approached this issue with a slight difference, combining entering Hong Kong in and of itself while at the same time positioning itself to enter the Mainland as well as another surprise destination. “Certainly a stepping stone into Mainland China but also Macau. We have a great shop in Las Vegas that is sort of [the same] demographic…we do great hotel business, and I’m hoping to replicate that here in Hong Kong and in Macau. “But also, when you look at high-end retailers, when you look at the façade of a Cartier or a Hermes, you see New York, you see London, you see Hong Kong, you see San Francisco, so if we want to continue to enhance our global reputation, it made really good sense for the brand to be here in Hong Kong.” Because of that, the company is

looking to open an additional shop in Hong Kong in the near future. They are also toying with the idea of offering Asian-themed flavors of popcorn, to further entice local fans to their shop. In fact, for this past Lunar New Year, Garrett Popcorn released a special Chinese New Year tin, with the 12 Chinese animals that comprise the zodiac on it. Further proof that the company’s products are above and beyond typical cinema popcorn offerings. Only time will tell whether gourmet popcorn, in particular Garrett Popcorn’s offerings, will be a temporary trend in the city or become part of the local food tradition. But judging from the initial market response, it looks like the Chicago icon has found a new home in Hong Kong.

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2013 Apr

Mark Your Calendar Hong Kong as the Primary Offshore Banking and

Apr Financial Services Hub for Mainland Chinese Travelers

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Oliver Rust, Senior VP, Global Financial Services Practice, The Nielsen Company The latest Nielsen “Mainland Chinese Financial Monitor” Survey confirmed the unparalleled position of Hong Kong as the primary offshore banking and financial services hub for Mainland Chinese travelers. 49% of them currently owned financial products in Hong Kong while 76% planned to take up Hong Kong financial products in the next 12 months. In this seminar, we will provide analysis on the underlying reasons, the investment behavior, the risk appetite, the product range, and the anticipated growth of mainland Chinese travelers with regards to their investments in Hong Kong. Oliver Rust spearheads Nielsen’s worldwide efforts to help international and regional banking, insurance and wealth management players for continued business growth, through the provision of our world-class insights and innovative solutions. Prior to that, Rust held various leadership roles within Nielsen Greater China region. He was the Managing Director of Nielsen Hong Kong from September 2009 to March 2013. Prior to that, he was the Executive Director of Nielsen China, based in Shanghai.

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

Security in the Cyber Age: Opportunities and Challenges

Venue: Club Lusitano, 27/F 16 Ice House Street Central, Hong Kong

Lt General (Ret) Kenneth A Minihan, Managing Director, Paladin Capital Group The globalization and ubiquitous nature of cyberspace creates vulnerabilities, from individuals to national security concerns, as private and public sectors are equally dependent on such networks to operate. Can businesses deploy cutting-edge technologies and processes to defend against, cope with, and recover from cyber attacks? What are the lessons from the most recent attacks against target-rich businesses such as financial institutions and oil companies? Please join Lt General Kenneth Minihan for a lively discussion on the opportunities and challenges of Security in the Cyber Age. Lt General Kenneth Minihan served over 33 years of active commissioned service to the United States. On his final tour of duty, he was the 14th Director of the National Security Agency, a combat support agency of the Department of Defense with military and civilian personnel stationed worldwide. He is past President of the Security Affairs Support Association and Founder of the Intelligence and National Security Alliance in Washington DC, the flagship organization for industry, government partners and academia to enhance effective intelligence development.

Women on Boards Series: Apr Board Diversity on the Agenda

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

Board diversity has become an ongoing topic for boards of organizations worldwide. In fact, these days, diversity has many persuasive advocates. Why then are boards diversifying so slowly? Should boards speed up the pace of diversification? What does the board need to work well with diverse board members? What steps can organizations take to develop more diverse boards? Noel Harwerth is a non-executive director of Royal and Sun Alliance Insurance Company (Chairman, Risk Committee); non executive director of Standard Life (Chairman, Risk Committee) Avocet Mining (Chairman, Compensation Committee), and Harry Winston Diamond Corporation (Chairman, Audit Committee). She also serves as Chairman of Sumitomo Mitsui Banking Corporation Europe, a subsidiary of Sumitomo Bank and Chairman of GE Capital Direct, a subsidiary of GECC. In 2006, she was appointed by the UK Government to the Board of the Tote. She served on the board and audit committee of Corus Group (British Steel) until it was acquired in April, 2007 and the board of Logica until it was acquired in 2012. From 1998 to 2003, Harwerth was Chief Operating Officer of Citibank International PLC in London. Prior to joining Citicorp in 1988, she held senior positions in Dun & Bradstreet and Kennecott Copper Corporation, where she worked on large, complex international mining transactions.

Tel: (852) 2530 6900

Time: 12:00 - 2:00pm (Lunch included) Fee(s): Member Fee: HK$420 Non Member Fee: HK$520 Corporate Table Fee (10-12pax): HK$5,300

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

Noel Harwerth, Board Member, London Metals Exchange

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

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

Fax: (852) 2810 1289

Time: 5:00pm-6:30pm Fee(s): Member Fee: HK$200 Non Member Fee: HK$300

Email: kalau@amcham.org.hk

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