biz.hk Nov 2014 by The American Chamber of Commerce in Hong Kong

November 2014

FATCA:

THE EFFECTS ON AMERICANS OVERSEAS

SPECIAL SUPPLEMENT:

ADVANCED EDUCATION

A wealth manager can either serve your needs or sell you products. Guess which produces the most satisfied clients?

2014 AMCHAM HUMAN CAPITAL CONFERENCE THE POWER OF MANY: HOW TO USE TEAMS TO DRIVE SUPERIOR PERFORMANCE Tuesday, December 2, 2014 8:00am – 3:15pm Four Seasons Hong Kong AmCham’s 23rd Annual Human Capital Conference ǁŝůů ĞǆƉůŽƌĞ ŚŽǁ ƚŽ ƵƐĞ ƚĞĂŵƐ ƚŽ ĚƌŝǀĞ ƐƵƉĞƌŝŽƌ ƉĞƌĨŽƌŵĂŶĐĞ ŝŶ ǇŽƵƌ ŽƌŐĂŶŝǌĂƟŽŶ͘

What your portfolio needs and what your relationship manager would like to sell you could be two entirely different things. At BNY Mellon Wealth Management, our Hong Kong-based professionals are driven solely by your best interests. With a personalised approach and a deep knowledge of the complexities of managing wealth locally and globally, we keep an unwavering focus on serving the right goals – yours. A different kind of wealth manager is now in Hong Kong. Contact BNY Mellon Wealth Management to learn more: +852 3926 9330 WealthManagementHK@bnymellon.com

dĞĂŵƐ ĂƌĞ ƚŚĞ ĨŽƌĐĞƐ ƚŚĂƚ ĚƌŝǀĞ ŽƌŐĂŶŝǌĂƟŽŶƐ ĨƌŽŵ ƚŚĞ ƐŵĂůů ƉĂƌƚŶĞƌƐŚŝƉ ƚŽ ƚŚĞ ^D ͕ E'K ĂŶĚ ƚŚĞ ůĂƌŐĞ ŐůŽďĂů DE ͘ tŚĞƚŚĞƌ ŝƚΖƐ Ă ůĞĂĚĞƌƐŚŝƉ ƚĞĂŵ͕ Ă ĨƵŶĐƟŽŶĂů ƚĞĂŵ͕ Ă ĐƌŽƐƐͲĨƵŶĐƟŽŶĂů ƚĞĂŵ Žƌ Ă ƉƌŽũĞĐƚ ƚĞĂŵ͕ ƉĞŽƉůĞ ŐĞƚ ŵŽƐƚ ĚŽŶĞ ǁŚĞŶ ƚŚĞǇ ǁŽƌŬ ƚŽŐĞƚŚĞƌ ĞīĞĐƟǀĞůǇ͘ ^Ž ǁŚĞŶ ŵĞŵďĞƌƐ ŽĨ Ă ƚĞĂŵ ĚŽŶΖƚ ǁŽƌŬ ǁĞůů ƚŽŐĞƚŚĞƌ͕ ƉĞƌĨŽƌŵĂŶĐĞ ĂŶĚ ƉƌŽĚƵĐƟǀŝƚǇ ĐĂŶ ƐƵīĞƌ͘ dŚĂƚΖƐ ŶŽƚ ŐŽŽĚ ĨŽƌ ĂŶǇŽŶĞ͘ :ŽŝŶ ƵƐ ĨŽƌ ƚŚŝƐ ĞŶŐĂŐŝŶŐ ĂŶĚ ŝŶĨŽƌŵĂƟǀĞ ĐŽŶĨĞƌĞŶĐĞ ĂƐ ǇŽƵ ŚĞĂƌ ĨƌŽŵ KƐ͕ ƚŚŽƵŐŚƚ ůĞĂĚĞƌƐ͕ ĂŶĚ ^ĞŶŝŽƌ ,Z ůĞĂĚĞƌƐ ĂďŽƵƚ ŚŽǁ ƚŚĞǇ ĂƌĞ ƉŽƐŝƟŽŶŝŶŐ ƚĞĂŵƐ ŝŶ ƚŚĞŝƌ ŽƌŐĂŶŝǌĂƟŽŶƐ ĨŽƌ ƐƵĐĐĞƐƐ͘ ŽŶŶĞĐƚ ǁŝƚŚ ĨĞůůŽǁ ďƵƐŝŶĞƐƐ ƉƌŽĨĞƐƐŝŽŶĂůƐ ƚŽ ƐŚĂƌĞ ŝĚĞĂƐ ŽŶ ŚŽǁ ƚŽ ŵĂŬĞ ƚĞĂŵƐ ŵŽƌĞ ĞīĞĐƟǀĞ ĂŶĚ ůĞĂƌŶ ǁŚĂƚ ďĞƐƚ ƉƌĂĐƟĐĞƐ ĂŶĚ ƚŽŽůƐ ĂƌĞ ĂǀĂŝůĂďůĞ͘ Target Audience: Business leaders looking for unique keys to success including CEOs, VPs MDs and anyone who needs the teams in ƚŚĞŝƌ ďƵƐŝŶĞƐƐ ƚŽ ŵŽƌĞ ĞīĞĐƟǀĞůǇ ĚƌŝǀĞ ďƵƐŝŶĞƐƐ ƉĞƌĨŽƌŵĂŶĐĞ͘ WůĂƟŶƵŵ ^ƉŽŶƐŽƌƐ͗

SPEAKERS

ǀĂŶ ƵǇĂŶŐ͕ ĞƉƵƚǇ DĂŶĂŐŝŶŐ ŝƌĞĐƚŽƌ͕ dŚĞ <ŽǁůŽŽŶ DŽƚŽƌ ƵƐ Ž͘ ;ϭϵϯϯͿ >ƚĚ͘ Anne-Marie Balfe͕ dĂůĞŶƚ >ĞĂĚĞƌ &ŝŶĂŶĐŝĂů ^ĞƌǀŝĐĞƐ͕ ƐŝĂ WĂĐŝĮĐ͕ ƐŝĂ WĂĐŝĮĐ ŝǀĞƌƐŝƚǇ ĂŶĚ /ŶĐůƵƐŝǀĞŶĞƐƐ >ĞĂĚĞƌ͕ z Sundi Balu͕ ŚŝĞĨ /ŶĨŽƌŵĂƟŽŶ KĸĐĞƌ͕ /ŶƚĞƌŶĂƟŽŶĂů͕ dĞůƐƚƌĂ Margaret Choi͕ ŝƌĞĐƚŽƌͬ,ĞĂĚ KƌŐĂŶŝƐĂƟŽŶĂů īĞĐƟǀĞŶĞƐƐ ƐŝĂ WĂĐŝĮĐ͕ ^ǁŝƐƐ ZĞ Michael Long͕ ,ĞĂĚ ŽĨ ^ƚƌƵĐƚƵƌĞĚ KƌŝŐŝŶĂƟŽŶ͕ 'ůŽďĂů DĂƌŬĞƚƐ͕ ƐŝĂ WĂĐŝĮĐ͕ ƵƌŽƉĞ Θ ŵĞƌŝĐĂ͕ ƵƐƚƌĂůŝĂ ĂŶĚ EĞǁ ĞĂůĂŶĚ ĂŶŬŝŶŐ 'ƌŽƵƉ >ŝŵŝƚĞĚ Michael MacLeod͕ ŚŝĞĨ ǆĞĐƵƟǀĞ͕ ,ŽŶŐ <ŽŶŐ WŚŝůŚĂƌŵŽŶŝĐ KƌĐŚĞƐƚƌĂ Maaike Steinebach͕ ŚŝĞĨ ǆĞĐƵƟǀĞ͕ ,ŽŶŐ <ŽŶŐ ƌĂŶĐŚ͕ ŽŵŵŽŶǁĞĂůƚŚ ĂŶŬ ŽĨ ƵƐƚƌĂůŝĂ Joy Xu͕ ŚŝĞĨ ,ƵŵĂŶ ZĞƐŽƵƌĐĞƐ KĸĐĞƌ͕ ƐŝĂ WĂĐŝĮĐ ZĞŐŝŽŶ͕ WĞƉƐŝ Ž ,ŽŶŐ <ŽŶŐ >> Cecilia Zhang͕ DĂŶĂŐŝŶŐ WĂƌƚŶĞƌ ŽŶƐƵůƟŶŐ 'ƌĞĂƚĞƌ ŚŝŶĂ͕ z

More speakers to be announced

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PROGRAM

*Opening Keynote: dĞĂŵƐ dŽĚĂǇ͗ ƌĞ ƚĞĂŵƐ ĚƌŝǀŝŶŐ ƐƵƉĞƌŝŽƌ ďƵƐŝŶĞƐƐ ƉĞƌĨŽƌŵĂŶĐĞ͍ *CEO Panel: DĂŬŝŶŐ ǇŽƵƌ >ĞĂĚĞƌƐŚŝƉ dĞĂŵƐ tŽƌŬ *Three Concurrent Breakout Sessions (each session is run twice): ϭͿ DĞĂƐƵƌŝŶŐ dĞĂŵƐ ϮͿ DĂŶĂŐŝŶŐ ŝǀĞƌƐŝƚǇ ŝŶ dĞĂŵƐ ϯͿ ŶŐĂŐŝŶŐ dĞĂŵƐ *Luncheon Speaker: &ƵƚƵƌĞ ǁĂǇƐ ŽĨ ǁŽƌŬŝŶŐ͗ ƌŝŶŐŝŶŐ ƚĞĂŵƐ ƚŽŐĞƚŚĞƌ ƚŚƌŽƵŐŚ ƚĞĐŚŶŽůŽŐǇ ĂŶĚ ƚŚĞ ǁŽƌŬƉůĂĐĞ *Closing Plenary: ƌŝǀŝŶŐ ƐƵƉĞƌŝŽƌ ƉĞƌĨŽƌŵĂŶĐĞ ŝŶ ƚĞĂŵƐ

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The Bank of New York Mellon, Hong Kong branch is an authorised institution within the meaning of the Banking Ordinance (Cap.155 of the Laws of Hong Kong) and a registered institution (CE No. AIG365) under the Securities and Futures Ordinance (Cap.571 of the Laws of Hong Kong) carrying on Type 1 (dealing in securities), Type 4 (advising on securities) and Type 9 (asset management) regulated activities. The services and products it provides are available only to “professional investors” as defined in the Securities and Futures ordinance of Hong Kong. BNY Mellon Wealth Management conducts business through various operating subsidiaries of The Bank of New York Mellon Corporation. ©2014 The Bank of New York Mellon Corporation. All rights reserved.

&Žƌ ƐƉŽŶƐŽƌƐŚŝƉ ŽƉƉŽƌƚƵŶŝƟĞƐ͕ ƉůĞĂƐĞ ĐŽŶƚĂĐƚ DƐ͘ DĂƌǇ ^ŝŵƉƐŽŶ Ăƚ ;ϴϱϮͿ ϮϱϯϬͲϲϵϮϮ Žƌ ŵƐŝŵƉƐŽŶΛĂŵĐŚĂŵ͘ŽƌŐ͘ŚŬ

&Žƌ ƌĞŐŝƐƚƌĂƟŽŶ ĂŶĚ ŵŽƌĞ ĚĞƚĂŝůƐ ĂďŽƵƚ ƚŚĞ ĐŽŶĨĞƌĞŶĐĞ͕ ƉůĞĂƐĞ ǀŝƐŝƚ

ǁǁǁ͘ĂŵĐŚĂŵ͘ŽƌŐ͘ŚŬͬĞǀĞŶƚƐͬƐŝŐŶĂƚƵƌĞͲĞǀĞŶƚƐͬŚƵŵĂŶͲĐĂƉŝƚĂůͲĐŽŶĨĞƌĞŶĐĞ

November 2014

Contents

Vol 46 No 11 Richard R Vuylsteke

Editor-in-Chief Kenny Lau

Managing Editor Blessing Waung

Advertising Sales Manager

Publisher

COVER STORY

CHINA MARKETS

CHINA BUSINESS

ENTREPRENUERS/SME

As FATCA – a law passed in 2010 to tackle the abuse of using offshore financial accounts for the purpose of evading US taxes – requires foreign financial institutions worldwide to identify and report assets of US persons, Americans are facing an enormous challenge while living and working abroad amid an expanding regime of regulations

China’s economic development since 1978 is often associated with state capitalism – a view that Nicholas R Lardy overturns in his new book, highlighting the critical role of China’s private sector in driving the country’s economic growth

AmCham Hong Kong leads a business delegation to Guangzhou for a conversation with Chinese officials and corporate leaders on the economic development of the region and how Hong Kong can be a platform for collaboration

Panels of established entrepreneurs and business leaders share a diversity of strategic knowledge, experiences and wisdom with an audience of startup hopefuls at the annual AmCham SME Forum

Regina Leung

biz.hk is a monthly magazine of news and views for management executives and members of the American Chamber of Commerce in Hong Kong. Its contents are independent and do not necessarily reflect the views of officers, governors or members of the Chamber. Advertising office 1904 Bank of America Tower 12 Harcourt Rd, Central, Hong Kong Tel: (852) 2530 6900 Fax: (852) 3753 1206 Email: amcham@amcham.org.hk Website: www.amcham.org.hk Printed by Ease Max Ltd 2A Sum Lung Industrial Building 11 Sun Yip St, Chai Wan, Hong Kong (Green Production Overseas Group) Designed by Overa Creative Tel: (852) 3596 8466 Email: ray.chau@overa.com.hk Website: www.overacreative.com ©The American Chamber of Commerce in Hong Kong, 2014 Library of Congress: LC 98-645652 For comments, please send to biz.hk@amcham.org.hk Single copy price HK$50 Annual subscription HK$600/US$90

AMCHAM NEWS AND VIEWS 04 The Dilemma Of Americans Under FATCA Despite a clear intent to target US persons who are suspected to be evading US taxes, FATCA in reality has created a vastly different landscape in which Americans are essentially discouraged to live and work abroad because of the unintended consequences of the law

07 New Business Contacts 27 executives joined AmCham’s business network last month

CHINA BUSINESS 18 AmCham Business Leaders Visit Guangzhou

COVER STORY 08 FATCA: The Effects on Americans Overseas As FATCA requires foreign financial institutions worldwide to identify and report all financial accounts of US persons, Americans are facing an enormous challenge while living and working abroad amid an expanding regime of regulations

CHINA MARKETS

14 Markets over Mao: The Rise of Private Business in China China’s economic development is often associated with state capitalism – a view that Nicholas R Lardy overturns in his new book, highlighting the critical role of China’s private sector in driving the country’s economic growth

biz.hk 11 • 2014

32 APEC: 25 Years of Economic Advancement

AmCham Hong Kong leads a business delegation to China’s economic powerhouse for a conversation with Chinese officials and corporate leaders on the economic development of the region and how Hong Kong can be a platform for collaboration

Dr Robert S Wang, US Senior Official for the Asia-Pacific Economic Cooperation (APEC), disucsses the current state of affairs at the world’s largest economic group consisting of 21 diverse economies across the Pacific Rim

ENTREPRENURS/SME

TRADE & INVESTMENT

22 Where Is Your Business Heading? Panels of established entrepreneurs and business leaders share a diversity of strategic knowledge, experiences and wisdom with an audience of startup hopefuls at the annual AmCham Small & Medium Enterprises (SME) Forum

44 Mark Your Calendar

GOVERNMENT RELATIONS

26 10 Questions Entrepreneurs Should Ask Themselves A speaker at the AmCham SME Forum, Thomas D Gorman, Chairman and Editor-in-Chief, FORTUNE China, tells of a range of common challenges and issues based on personal experience that entrepreneurs should consider

TRANSPORTATION & LOGISTICS

36 The New Frontier of Capital Sourcing Author of the infamous yellow-covered ‘Crowdfund Investing For Dummies’ and Co-founder of Crownfund Capital Advisors, Jason Best talks about the opportunities of crowdfunding and how it is driving innovation

CHARITABLE FOUNDATION

40 A Night of Amazing Grace

The Charitable Foundation hosts a dinner in celebration of AmCham’s efforts throughout the years in providing support for various philanthropic engagements serving those in need and inspiring a generation of young students within the community of Hong Kong

28 Flying to New Heights

With a daily direct nonstop service flying between Seattle and Hong Kong, Vinay Dube, Delta Air Lines’ Senior Vice President for Asia Pacific, describes what the US legacy carrier is putting in place to become one of the best international airlines in the world

biz.hk 11 • 2014

biz.hk Editorial

Board of Governors Chairman

Peter Levesque

Vice Chairman

Walter Dias

Treasurer

Tom Burns

Executive Committee Evan Auyang, Sara Yang Bosco Belinda Lui, Alan Turley, Richard Weisman Governors Donald Austin, Brian Brenner, Ewan Copeland Janet De Silva, Rob Glucksman, Robert Grieves John (Jack) E Lange, Ryan Mai Catherine Simmons, Eric Szweda, Colin Tam Elizabeth L Thomson, Jennifer Van Dale Frank Wong, Eden Woon Ex-Officio Governor President

James Sun Richard R Vuylsteke

Chamber Committees AmCham Ball Apparel & Footwear China Business Communications & Marketing Corporate Social Responsibility Energy Entrepreneurs/SME Environment Financial Services

Ryan Mai Colin Browne Seth Peterson Lili Zheng Charlie Pownall Oliver Rust Diana Tsui Rick Truscott Laurie Goldberg Jim Taylor Derek Berlin

Food & Beverage Hospitality & Tourism Human Capital

Veronica Sze Damien Lee Peter Liu

Information & Communications Technology Insurance & Healthcare

Rex Engelking

Owen Belman Hanif Kanji Intellectual Property Gabriela Kennedy Law Clara Ingen-Housz Pharmaceutical Stephen Leung Real Estate Charles Kelly Senior Financial Forum Philip Cheng Senior HR Forum Bianca Wong Sports & Entertainment Ian Stirling Taxation David Weisner Trade & Investment Barrett Bingley Transportation & Logistics Jared Zerbe Women of Influence Anne-Marie Balfe Anna-Marie C Slot Young Professionals Michael Harrington

he Foreign Account Tax Compliance Act (FATCA) was never discussed or debated in great length in Congress before it was passed in early 2010 as part of the Hiring Incentives to Restore Employment Act (HIRE). The legislation was drafted rather quickly at a time when it became apparent to Congress that large sums of money are deposited in overseas bank accounts held by US citizens but undisclosed to the IRS. Today – more than four years later – FATCA is fully implemented as it went into effect on July 1st 2014, and Americans living and working overseas are learning about FATCA in a way that is up close and personal. At stake is also the prestige and future of the US economy. Because the US tax rules differ from those of every other developed country in the world by imposing tax on the worldwide income of US citizens and Green Card holders even when they live overseas, the application of FATCA is exceptionally onerous on US persons living and working overseas. As a result, it has created a vastly different landscape in which Americans are essentially discouraged to live and work abroad because of the unintended consequences of the law. Under FATCA, foreign (non-US) financial institutions are required to report to the IRS the names and assets of their US clients in order to be deemed compliant, or they risk a 30 percent withholding tax on their US-source income. As a result, some institutions – including banks, insurance companies and pension funds among others – are turning away Americans clients “due to the costly IRS reporting requirements

biz.hk 11 • 2014

THE DILEMMA OF AMERICANS UNDER FATCA and the perceived significant legal and financial risks.” According to American Citizens Abroad, there have been numerous reports about Americans overseas “who have had their foreign bank accounts closed, been refused entry into a foreign pension fund, or who cannot enter into insurance contracts” in foreign countries where they live. There are likely hundreds of thousands – if not millions – of similar cases that are simply unreported. In terms of competitiveness, Americans overseas are already at a disadvantage because the US is the only industrialized country that levies income tax based on citizenship rather than residence. Being denied access to banking and other financial services will only make things worse. When they are unable to be included in company pension funds or insurance contracts, they are rendered unemployable as a result. Americans living and working overseas are working hard to realize their dream of seeing the world, experiencing different cultures, working in jobs that expand their horizons and being an entrepreneur in a place

biz.hk 11 • 2014

where they see opportunities. Their freedom of choosing to do so, however, is becoming more limited. An American seeking to export US products or services to the international market, for instance, needs to have a foreign bank account to facilitate all sorts of transaction at one point or another. It is somewhat of a challenge under the current environment to do so, despite a national initiative aiming to double US exports within a five-year timeframe. At some point, the 7.8 million Americans currently living overseas will have to decide if they want to remain abroad and bear a heavy burden, or if they should pack up and return back to the United States when it no longer makes economic sense to live and work overseas. Some have already elected to renounce their US citizenship or terminate long-term US residency. It is deeply unfortunate that US international tax rules are out of step with international norms, undermining the ability of US individuals to compete internationally – which, in turn, undermines broader efforts to increase US exports for the benefit of the US economy.

AMCHAM Means Business

Members Directory

New

Business Contacts The following people are new AmCham members: Ashurst Ady Adefris Registered Foreign Lawyer Anna-Marie Slot Partner

Orangefield Group Donald Tsang Associate Director

www.amcham.org.hk

PCCW Limited Baker & McKenzie Stephen Crosswell Partner

Century Innovative Technology Ltd Janet Roberts Director of Education

Concordia International School

Over 500 pages in three major sections, including a complete guide to chamber services, corporate sponsors and AmCham Charitable Foundation. This directory lists about 1,700 members from over 700 companies and organizations. LC 98-645651 NON-MEMBER PRICE HK$1500 US$195 Shipping costs: Local HK$45 (per copy) US/International US$50 (per copy)

EtonHouse International Education Group Gim Choo Ng Group Managing Director

ISBN 978-962-7422-31-0

MEMBER PRICE HK$800 US$104

AmCham Member Name: Title: Company: Address: Tel: Fax: Email: Website: copy(ies) of Members Directory Total: HK$/US$ (postage inclusive) payable to The American Chamber of Commerce in Hong Kong check# Bank: Charge to AMEX (US$) Diners (HK$) Visa (HK$) Master Card (HK$) Cardholder's Name: Card# Expiry Date: Issuing Bank: Signature: (Not valid unless signed) The American Chamber of Commerce in Hong Kong 1904 Bank of America Tower, 12 Harcourt Road, Hong Kong. Tel: (852) 2530 6900 Fax: (852) 3753 1208 Email: hchung@amcham.org.hk

Darnay Chan Principal

Generations Christian Education Gail Maidment Executive Director Anna Wong Business Manager Terri Appel Business Development Director

Harris Communications Ltd Wendy Chien Senior Finance Manager

International Automobiles Limited Andy Hau Operations Director

Jones Lang LaSalle Gavin Morgan Head of Leasing and COO, HK Jeremy Sheldon Managing Director, Markets, Asia Pacific

Malvern College Hong Kong Jacqueline So Co-founder and Director

Tony Leung Vice President, PCCW Solutions

PricewaterhouseCoopers Ltd Ian Daniel Hosford Associate

SWIFT Chris Flanagan Managing Director

Tar Heel Trading International HK Ltd Dave Curley Managing Director

Tesla Motors HK Limited Sei Liu Head of Communications Julian de Jonquieres Business Development Manager Isabel Fan Country Director

Trimas Hong Kong Holdings Limited Rosa Chan Finance & Supply Chain Director

Vodafone Enterprise HK Ltd Leo Jiang Principal Consultant Daniel Beevers Head of Solution Sales & Operations, Asia Pacific

Waddell & Associates Stacie Waddell Global Communications Director David Waddell CEO

View our other members at:

http://www.amcham.org.hk/component/amcham_users/?view=memberlist

biz.hk 11 • 2014

COVER STORY

FATCA: The Foreign Account Tax Compliance Act (FATCA) – a law passed in 2010 to tackle the abuse of using offshore financial accounts for the purpose of evading US taxes – is now in effect after a two-year delay. As it requires foreign financial institutions worldwide to identify and report to the US all financial accounts owned by US citizens and Green Card holders, many Americans are facing an enormous challenge while living and working abroad amid an expanding regime of regulations

By Kenny Lau

t all started back in early 2009 when UBS of Switzerland entered into a Deferred Prosecution Agreement with the US government and agreed to turn over information of thousands of “suspicious” accounts held by US citizens and Green Card holders. It marked a new era of government regulations cracking down on tax dodgers alleged to be hiding their assets with overseas bank accounts. The Foreign Account Tax Compliance Act (FATCA) – as a part of the Hiring Incentives to Restore Employment Act (HIRE) designed for job creation amid high US unemployment – was subsequently passed in 2010 to tackle the abuse of using offshore financial accounts to evade US taxes. The new law went into effect on July 1, 2014, after a two-year delay. By now, it is well understood that FATCA requires foreign (non-US) financial institutions (FFIs) and certain non-financial foreign entities (NFFEs) worldwide to identify and report to the US Internal Revenue Service (IRS) all financial accounts held by US persons. It also imposes a 30 percent withholding tax on

biz.hk 11 • 2014

US-source income of institutions that are deemed non-compliant. In other words, FATCA serves as a reporting system for US tax compliance by requiring all banks and financial institutions on a global basis to submit information of their US clients about any existing accounts. When a bank fails to do so, it risks having 30 percent of its funds (to be transferred from US sources) withheld by the US Department of Treasury – and potentially being shut out from the global financial system by being disallowed to clear transactions denominated in US dollars. Because of its nature as a law to combat offshore tax evasion through a worldwide reporting regime, FATCA has had a significant impact on the lives and competitiveness of Americans living and working abroad as a result of the social, economic and legal implications of the new law.

Guilty unless proven otherwise The basic principle of FATCA is the assumption that every financial account held by US citizens overseas is potentially used for the purpose of

“These people are more than willing to fulfill their US tax obligations but are very concerned about getting something wrong in a tax filing, and they now carry a Hong Kong passport even though they don’t speak any Chinese or have any family roots here.” “The fact that they are being forced to abandon their US citizenship to pursue the American dream of being an entrepreneur and starting a business really speaks volumes,” he adds.

US competitiveness Americans living and working abroad with people of different cultures and backgrounds are an important part of US foreign policy – they are often the unofficial ambassadors to countries around the world. Having lived in Hong Kong for 17 years, DeSombre is an example of an overseas American working for an American company and exporting American products and services. “Having Americans working overseas and running US companies is critical for our goal of increasing US export of goods and services,” he believes. “These are entrepreneurs who create US jobs and play an important role in helping the US sell American-made products.” The benefits are simply enormous “when you have a strong presence of

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(Individuals renouncing US citizenship or terminating long-term US residency) 1200

1,130 1,001

1000 800 679 560

600

502 397 398

400

238

Q 1 20 14

20 13

Q 1

20 12

63 67

Q 1

23 22

20 11

576

360 189

Q 1

123

403

630

460

179

158

Q 1

200

560 499 519

20 10

Michael DeSombre

Number of Published Expatriates Per Quarter (2008 to Q2 2014)

20 09

Banks and financial institutions around the world have been scrambling to put in place their own system of due diligence and building up an infrastructure for the purpose of identifying those who may be subject to US tax liability. Yet, because the requirements for FATCA compliance are so cumbersome, there are an increasing number of cases in which Americans are reportedly denied banking services, particularly among those seeking to open a new account. “Because of the various regulatory requirements, more and more financial institutions are finding it disadvantageous to have American citizens as clients in their system,” DeSombre says. “Banks around the world, particularly the smaller ones, are very, very reluctant to open an account for US citizens. There are people whom I know have been denied banking services just because they are Americans.” “The largest effect is on business accounts for overseas companies owned by Americans,” he further points out. “It’s nearly impossible for an American citizen as an owner or a majority holder of a company to go to any bank in Hong Kong and get them to open a business bank account. While some banks may still be willing to open a basic checking account, they just won’t do any investment accounts.” The impact on Americans living and working abroad has gone far and beyond. “Whether you are a teacher working in China or a senior business executive running a multinational company in Hong Kong, you are affected as long as you are American,” DeSombre sighs. “When you go abroad to have a job, you can’t open an account to pay your bills. When you are finally able to earn more money, you can’t invest it for your future. So, you’re essentially robbed of your freedom.” “I know of people who have given up their US citizenship because they are afraid that they couldn’t comply with all the legal requirements,” he says.

Americans overseas,” he says. “You’ll find that, wherever they may be, they end up using American washer and dryers at home, they end up outfitting their offices with equipment that originates from the US, and they are certainly much more likely to be buying and selling American products.” “The most important aspect – again – is one of entrepreneurship. We have many cases where Americans are highly successful in developing and running global businesses not only here in Hong Kong but around the world,” he adds. “They have certainly achieved a great deal. But, if you make it needlessly difficult for them, they will not have the incentive to continue doing it.” From an employer’s perspective, it has simply become much more expensive to hire Americans for jobs overseas. As a result, companies are all moving towards other nationalities to fulfill their needs for human resources from any country except the US. That’s because US is the only industrialized country that levies income tax based on citizenship rather than residence – and regulations such as FATCA are making it even harder for US citizens to compete in a foreign country. “At some point, people will either stop going overseas or renounce their US citizenship – which has been a growing trend in the last few years,” DeSombre says. “The number of Americans giving up their US passports has indeed doubled in 2013, and it looks to be going up even higher. Strangely, rather than addressing the root causes of such expatriation, the US government decided instead to increase the cost of filing for expatriation by 422 percent, from US$450 to US$2,350.” The bottom line is that “when Americans are discouraged to live and work overseas, it really decreases our national competitiveness in a highly competitive world,” he stresses. “And, you’d want Americans working abroad to drive US exports and to attract investment back to the US, especially when there’s high unemployment and slow economic growth.”

Q 1

Unintended consequences

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evading US taxes, notes Michael DeSombre, Worldwide President of Republicans Overseas and a resident of Hong Kong for 17 years. “The thought that an American living in Switzerland is assumed to be engaged in nefarious activities by having a Swiss account is completely unfounded.” “Every American who has come to live in Hong Kong needs to have a bank account here simply because he or she needs to be able to write checks and pay utility bills just like anywhere else,” he says. “It would at least make a little bit more sense if the law were limited to disclosure of overseas account information from those who live in the US but might not otherwise in general have reasons to have an overseas bank account.” “Likewise, Green Card holders in the US actually fall in the same camp of overseas Americans because it is quite likely that they would retain bank accounts in their home country,” he adds. “Again, to presume that a US permanent resident living in America and having a bank account in his home country is engaged in nefarious activities is just as silly.” The number of Americans living abroad is estimated to be 7.6 million worldwide – from whom there are about 440,000 IRS tax forms filed for Section 911 Foreign Earned Income Exclusion every year, DeSombre points out. “The vast majority of overseas Americans who are not filing US taxes are not trying to evade taxes but in most cases simply believe they do not need to file because they do not owe anything or they know they fall underneath the exemption threshold allowed under Section 911.” “Previously, if you did not owe any taxes it was not a problem that you did not make any filings, but this is no longer the case under FATCA,” he says. “Nonetheless, I am sure there are some American residents overseas that are trying to evade US taxes, and those persons should be prosecuted. I do not believe, however, that tax evaders represent a significant percentage of Americans overseas.”

Source: US Treasury Department, Andrew Mitchel LLC

Constitutionality Critics of FATCA have often cited the new law to be an infringement of freedom and the right to privacy of overseas Americans. “The fact that overseas Americans need to report all of their financial information of any asset or bank account to the IRS is staggering,” DeSombre says. “Conversely, in the US, the IRS must have reasonable cause and get a subpoena to be able to retrieve bank account information.” “The increase of tax revenue expected from FATCA is relatively small. Yet, the price we have to pay in terms of our freedom and privacy is tremendous,” he notes. “If the police had the right to raid everybody’s home and search for potential evidence of a crime without a warrant, I bet our crime rate would be lower. However, we’ve decided as a government, as an institution and as a people that such intrusion on our privacy would not be appropriate.” “I am fully in support of going after tax cheats. There is no question about that,” DeSombre stresses. “But, to go after a small number of people in a way that takes away the freedom of 7.6 million Americans overseas is overreaching. Whether Americans are in the US or abroad, our freedom is recognized in the Constitution.”

“Obviously, the fact that some people are not paying their taxes bothers me immensely because we should all be meeting our tax obligation,” he says. “I have no sympathy for those who evade taxes, whether they are wealthy or not; however, we should go after them in a targeted way, not by removing the freedom from all of us.” “This is ultimately a bipartisan issue – whether you are a Democrat or Republican, you have the same concerns,” he further notes. “It goes back to the question whether it is worth the freedom of every single American overseas. The answer from the US Constitution is clearly no.”

Legal grounds for a challenge With chapters in 40 different countries, Republicans Overseas has been garnering support from US officials and elected representatives to address the issues of FATCA deemed insensibly onerous. It is about to launch a challenge to the constitutionality of FATCA in a US court of law on three major legal grounds. The Intergovernmental Agreements (IGAs) are bilateral agreements signed between the US and partner countries and are designed to facilitate compliance for FATCA. There are two

types of such agreement: Model 1 requires a foreign government to report to the IRS information collected from financial institutions within its jurisdiction, whereas FFIs report directly to the IRS under Model 2 without involving a foreign government. Model 1 IGAs can be challenged under the Treaty Clause of the US Constitution because they have not been submitted to the US Senate for its advice and consent, DeSombre points out. “These are essentially treaties with foreign governments. Before we sign a treaty, we need to have it ratified by two-thirds of the Senate. Because this has not been properly done, Model 1 IGAs can be rendered unconstitutional.” Secondly, excessive reporting of personal information is a violation of the Fourth Amendment to the US Constitution by which “the right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures” is guaranteed. “When FFIs are required by law to report every single detail of your financial information of every US citizen abroad to the IRS unconditionally, it is in reality seizure without probable cause or warrant,” DeSombre explains. Thirdly, FATCA can be deemed a violation of the Eighth Amendment due to “cruel and unusual punishment” in the form of excessive fines and penalties. The 30 percent withholding tax (to be imposed on FFIs for noncompliance) “is not a tax but a penalty designed to compel financial institutions to comply with FATCA” and “is grossly disproportionate to the offence of not complying with FATCA’s mandates.” Similarly, fines and penalties also apply to the individual American. “If you have a bank account with $100,000 and haven’t declared it for four years, you can be fined up to $50,000 for every one of those four years and could theoretically end up getting a $200,000 fine,” DeSombre points out. “Even if it is an account that has no interest payments or income tax obligation, you are still liable for the fine.”

A two-pronged approach The legal challenge is part of a two-pronged “attack” on FATCA. On the legal side, Republicans Overseas will file a lawsuit to challenge the constitutionality of FATCA; on the legislative side, it will try to “repeal” FATCA through a bill that is likely to be part of an overall tax reform package. “Given the impact of FATCA, we’re spending a lot of time raising the issue with US politicians, especially among Republicans,” DeSombre says. “They are generally in support of what we’re doing. In fact, Senator Mike Lee (R-Utah) joined us for a trip to Paris, London, Luxembourg and Geneva to promote our anti-FATCA efforts and to raise funds for our cause.” “The lawsuit is actually complementary to our legislative effort because it makes it easier to gather support once people start seeing the process and understanding more about the issues,” he says. “Although we’re pursuing this through the Republicans, it is really a bipartisan issue,” he adds. “We truly believe supporting the effort to make a change is good for everybody. “And, people shouldn’t be turned off just because it’s being done through one political party. It would be great if Democrats Abroad could join us in doing this exact same thing.” “These are obviously fundamental rights that are very important to every American,” DeSombre says. “Through the lawsuit we are trying to serve a purpose in addressing issues that are not as well understood in US domestic politics but could affect the lives of millions of overseas Americans as well as some domestic Americans.” “There are after all some 7.6 million Americans living overseas in countries all over the world,” he says. “Collectively, we would be the 13th largest state in the union based on population. That’s a lot of people who are affected by some of the current US tax laws, including FATCA.”

FATCA Statistics The Foreign Account Tax Compliance Act (FATCA) was enacted by Congress in 2010 as a way to target non-compliance by US taxpayers using foreign accounts. Here are some statistics and numbers related to FATCA’s implementation.

We see the individual.

30%

the taxes to be imposed on many overseas payments to financial institutions that don’t share information with the IRS

80,000+ the number of financial institutions that have registered with the US government

80+ the number of countries the United States has reached final or provisional agreement with for streamlined information exchange, including the Cayman Islands and beginning discussions with China

45,000 the number of US taxpayers who revealed offshore bank accounts through the IRS offshore voluntary disclosure programs (OVDP) since 2009 $6.5 billion the amount of taxes, penalties and interest collected as a result of OVDP 30 the number of banking profes-

sionals charged by the Department of Justice in offshore tax evasion matters from 2008 to April 2013

60 the number of US taxpayers charged by the Department of Justice in offshore tax evasion matters from 2008 to April 2013

Hong Kong Academy offers a rigorous international education that engages students as unique individuals with different interests, goals, and approaches to learning. As an IB World School for students ages 3 to 18, Hong Kong Academy challenges all students to reach their potential and prepares them for life in a dynamic and diverse world. To learn more about our school and community or to arrange a tour, please visit www.hkacademy.edu.hk or call 2655-1111.

2,999 the number of US citizens who renounced their citizenship in 2013, the highest number on record

Source: BostonTaxAttorneyBlog

learning, growing, understanding

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CHINA MARKETS

hina has had a remarkable period of economic transformation since it embarked on a path of continuous reform some 35 years ago. Between 1978 and 2013, China’s economy grew 25 times larger in real terms, and it is now the second largest economy in the world. With a share of global GDP of 12 percent, China is the world’s largest trading economy and second largest destination for foreign direct investment – an achievement that is often associated with “state capitalism.” Many believe that “China largely eschewed reliance on market forces in favor of retaining direct ownership of the commanding heights of the economy.” Similarly, it is often assumed that “the government exercised substantial indirect control of the rest of the economy by allocating credit via the state-owned banking system, despite China’s undeniably growing private sector.” It is a view that Nicholas R Lardy overturns in his new book entitled Markets Over Mao: The Rise of Private Business in China.

More market-driven A senior fellow at the Peterson Institute for International Economics and a guest speaker at a recent AmCham luncheon on the critical role of China’s private sector in driving the country’s economic growth, Lardy believes that “China has maintained extraordinarily rapid growth since 1978 primarily because of the freeing of the private sector and the shrinking of the state.” “My book basically argues that most of China’s economic growth, employment and investment going on now as well as most of the exports are coming out of private businesses in China, despite the conventional wisdom that China is still a statedominated economy,” he says. “The rise of market and private business is responsible for most of China’s economic success.” “The basic foundation was laid down when China started to give up state control of prices at the beginning

Markets over Mao: The Rise of Private Business in China Between 1978 and 2013, China’s economy grew 25 times larger in real terms, and it is now the world’s second largest economy – an achievement that is often associated with state capitalism. It is a view that Nicholas R Lardy overturns in his new book, highlighting the critical role of China’s private sector in driving the country’s economic growth

By Kenny Lau

Nicholas R Lardy

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of the reform period,” he explains. “They used to set the price for almost everything without any regard for scarcity. By the late 1990s most prices were determined by supply and demand in the market – and it is about as competitive of a market as we see in the United States in terms of production in various sectors.” One of the major shifts in China’s economy is the financing of investment, Lardy points out. “In the 1980s we still had a system where most investment was being financed through the state budget, and it began to fade away in the 1990s when 40 percent of investment was being financed from retained earnings. By the 2000s, more than 70 percent of all investment by non-financial corporations was undertaken with retained earnings.” “Even with the huge increase in credit growth starting from the latter part of 2008, it was still the case that well over half of all investment was financed from retained earnings rather than bank loans or issuing debt,” he adds. A key reason that China’s private industrial sector has done so well is that private companies have generally had a higher return on their assets than state-owned companies, Lardy points out. “There was a beginning of a convergence in the middle of the last decade, and then the gap has continued to widen.” “A private company today earns almost three times as much on their assets as a state company,” he notes. “That’s the fuel for China’s economic growth that the private sector has been to achieve over the last three decades.”

The declining role of SOEs A number of perceptions have become fairly common about the nature of the Chinese economy. Most notably is the view that state-owned enterprises are dominant from the notion that the state picks the winners and creates national champions. However, SOEs in many cases are no longer the main driver of economic growth in a country of 1.3 billion people.

The share of output by value coming out of state enterprises has in fact gone down from about 80 percent when economic reform began decades ago to about 25 percent in most recent years, Lardy notes. “If you just look at manufacturing, the state’s role has diminished dramatically. These stateowned companies are only producing a fifth of the total output of the manufacturing sector, which still accounts for more than 30 percent of GDP.” “While the state remains very dominant in certain sectors including those in electric power, water supply and energy, it falls off very rapidly even in some sectors you might suspect the state has a very substantial role, such as the steel industry,” he says. “Data indicate that there are 24 sectors in which the state’s share is less than 15 percent and averages about 6.5 percent.” “These are things like apparel and furniture for which state companies are responsible for less than 2 percent of the production output,” he adds. “That’s because private companies are more efficient and can grow more rapidly than state companies.” When it comes to investment in the manufacturing sector, state companies are only responsible for about 10 percent while domestic private companies account for over 70 percent of the total investment. Meanwhile, as an employer SOEs have shrunk considerably. This is most evident in the services and manufacturing sectors where they only account for 13 percent of employment in China today. State-owned companies – which accounted for two-thirds of China’s exports in the early 1990s – have also steadily lost share in the export market, down to around 10 percent today. “Foreign companies and foreign-funded enterprises were the first ones to pick up the initial slack and made China a big exporter,” Lardy points out. “But, their share of China’s exports actually peaked in 2005 and has been coming down gradually since then.” “Then, we had a huge pickup in exports coming out of private firms.

These private firms were not in the export business until the beginning of the century but are now producing around two-fifths of China’s exports,” he further notes. “On an incremental basis, foreign firms are exporting a little bit more but their shares are coming down. It is the Chinese private firms that dominate the export market.” “You look at the employment, output, investment and export

state enterprises at the expense of private and foreign companies, there seemed to be some evidence that China was moving in this direction.” “The profitability of state companies, however, is only two-tenths of one percent higher than that of private companies. In other words, their profitability levels are almost identical in the last few years,” he says. “If these state companies really had so much market power, they would certainly

“Despite all these industrial policies that are supposed to help them become more profitable, it doesn’t seem like they did so well,” Lardy says. Furthermore, it becomes more compelling that private companies are way more competitive than their state-owned counterparts when their ratios of earnings to the cost of capital are compared, he adds. “In past decades, there was a couple of years in which SOEs were earning a return that

components of the Chinese economy, it basically shows that the state sector is much less powerful than it used to be,” he says.

raise their prices and try to earn more. So, this does not look like a picture supporting the idea that SOEs are very powerful.” More importantly, even though the profits of a small number of stateowned companies – particularly those in energy and telecommunications – went up according to the official data of China’s State-owned Assets Supervision and Administration Commission (SASAC), their share of profits actually went down from 11 percent in 2003 to 10.5 percent in 2013.

was roughly equal or even slightly ahead of the cost of capital. But, in the last six years, their return on assets has declined dramatically.” “As they kept up their profit growth by adding to assets in a very rapid rate, their efficiency went down. Their return on assets is barely more than half their cost of capital,” he continues. “You can’t be a national champion if your return on assets is at that level. In my view, with a few exceptions, these state companies under SASAC are actually a drag on China’s economic growth.”

The rise of private business Despite the notion that there may be fewer but more powerful stateowned enterprises in China, Lardy suggests otherwise. “Because of various industrial policies that were geared towards the development of

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Meanwhile, China’s private sector is not starved for cash to the extend most often claim, Lardy says. “How could these private companies grow so fast if they don’t have access to any credit for capital?” “In terms of loans outstanding by ownership, state companies had a lot of access to credit in the three years starting from 2009 when private companies had a share of only 26 percent. But, three years later, that of the private sector went up to 36 percent,” he notes. “Once you take into account the fact that credit outstanding in 2009 was already 120 percent of GDP, it means the flow of credit going to the private sector is quite a bit higher in an increase from 26 percent to 36 percent.” Additionally, the share of loans going to private enterprises were roughly 50 percent in the three years starting from 2010, while state companies had a share of about 32 percent, he adds. “In other words, private companies are getting much better access to capital than state companies, at least in recent years, although historically state companies did have a lot of better access to credit – that’s how they had 56 percent of all credit outstanding in 2009, but their shares are coming down.” “Why do banks lend so much money to private companies? It goes back to their return on assets,” Lardy explains. “If you look at their pretax earnings relative to what they pay in interest, you can see the private companies have pretty consistently been more credit worthy than state companies. The difference now is two to one, meaning private companies have twice as great an ability to pay the interest on loans.” “I am of the view that the private sector is now contributing about two-thirds to as much as 75 percent of China’s GDP, and they are getting only about half of the lending,” he says. “I would say that the private sector is still underserved. But it’s not the case that private companies are starved for cash or that state companies have easy access to credit.”

De-monopolization The big monopolies where state companies still dominate are in the services sector, most notably in financial and business services as indicated by the amount of investment made through state and private companies. While investment in the manufacturing sector by state companies is now down to roughly a 10 percent share, investment in services is more four times larger at 45 percent. “The state seems to be in a dominant position and is not eroding in a very rapid pace,” Lardy says. “It reflects the fact that there are regulatory barriers that make it difficult for private firms to enter into services. This is particularly obvious in the financial and information technology sectors. The only area where private companies are a little bit ahead is in the business leasing and business services.” “Investment in services is extremely important to the new growth model in China, and I see it as a huge opportunity to keep China’s economic growth going,” he says. “Through de-monopolization you could gain efficiency and allow China to maintain its growth at a fairly high rate while bringing down the rate of investment.” With the anticipation of a hike in interest rates amid continuous reform of China’s financial system, private companies are in a stronger position financially than their state-owned counterparts to be a driver of growth, Lardy believes. “This leads to a growth model that services will be more important. Consumption growth will improve as a share of GPD as China transitions away from growth based on capitalintensive investment.” “China is not an example of successful example of state capitalism if there is such a thing,” he concludes. “The rise of market forces and private businesses is China’s new growth model. The banking system is doing a better job of servicing the private sector than what critics suggest. The way forward is to de-monopolize business services and liberalize deposit rates.”

CHINA BUSINESS

AmCham Business Leaders Visit Guangzhou Building upon previous meetings and relationships with the provincial government and businesses in Guangdong, AmCham Hong Kong recently led a business delegation to China’s economic powerhouse for a conversation with Chinese officials and corporate leaders on the economic development of the region and how Hong Kong can be a platform for collaboration

By Blessing Waung

uangdong, China’s economic powerhouse and most populous province, has a GDP of RMB6.2 trillion, accounting for 10.8 percent of China’s total GDP. As an engine of growth for the Pearl River Delta with an undeniable link to Hong Kong economically, environmentally and culturally, there are many opportunities for continuous collaboration as the province continues its ascent onto the world stage. Building upon previous meetings and relationships with the provincial government and businesses based in Guangdong, AmCham Hong Kong visited Guangzhou with its largest delegation of the year, led by Vice Chairman Walter Dias, Governor Alan Turley and President Richard Vuylsteke. Altogether, 32 participants representing multinational corporations, SMEs and non-governmental organizations joined the conversation on the development of both economies for future prosperity. Immediately upon arrival from Hong Kong, delegates attended a VIP reception hosted by AmCham South China with President Harley Seyedin at the Grand Hyatt Guangzhou. A longtime China resident, Seyedin is a recipient of the “Peace through Commerce Medal,” an award given to less than 20 individuals since its inception by Thomas Jefferson in 1790 as the highest honor awarded by the US Department of Commerce. There, members of both chambers had the opportunity to network and exchange business cards, establishing links and engaging in dialogues for updates on various industries in the region such as financial services, real estate investment, and estate planning.

Economic transformation The next morning, delegates first met with officials from the Guangdong Department of Commerce, including Director General Guo Yuanqiang. “In all of my years working in the Department of Commerce, this is the largest delegation I have received,” Guo said. “Sincerity is shown.”

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To illustrate the outward vision that Guangdong has for its future, Guo began with anecdotes from the past year. The Department of Commerce’s slogan, as prominently displayed in their offices, is “Transformation of Economic Structure.” Last month, Governor of Guangdong Province Zhu Xiaodan attended a commercial exchange and conference in the US, visiting with more than 50 different American businesses and signing a sister relationship with the state of California. “The goal is to return on a regular basis and build upon collaborative relationships,” Guo said. Additionally, Guo spoke of Zhu’s enthusiasm in visiting the state of Washington, with site visits to the headquarters of The Boeing Company and Microsoft. At the former, Zhu was warmly welcomed, as China Southern Airlines (headquartered in Guangzhou) recently purchased a large batch of brand new aircraft, including the Boeing 787 Dreamliner. Mainland China is also a customer of more than one-third of the company’s 737 aircrafts.

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Continuous development In Guangdong, new development is not sustainable as the market focus, Guo said. Instead, the provincial government is focusing on development of quality and efficiency in its economy. The key factors in the transformation of the province’s economic structure are in modern services, strategies, innovation, and modernizing its manufacturing industry.

“We need to rely on Hong Kong and strengthen our cooperation,” he said. “It is important as a platform to the outside world, and we can strengthen and extend cooperation with the US and EU countries. Transformation happens in the open economy backdrop.” Guangdong has introduced foreign investment for the past thirty years, and in its next thirty years it hopes to become even more globalized in the international arena. While the PRD region is highly developed, the eastern, northern and western parts of the

such as government aided development, environmental issues, franchise development, and others were discussed. In terms of human capital, companies in attendance concurred that expectations of employees are different from just a decade ago – in the past workers simply sought higher pay but are now looking for personal development and growth opportunities.

Energy

Guo Yuanqiang, second from right, Director General, Guangdong Department of Commerce

Lin Daoping, second from right, Chief Executive, Tianhe District Government

province are still lagging. The provincial government hopes to have a balanced development for the region, including a pan-PRD cooperation strategy. “There is an old Chinese saying that ‘all things are difficult before they are easy,’ but this is a good beginning,” Guo said. He also vowed to make his own visit to AmCham Hong Kong in the near future.

Investment Immediately afterwards, AmCham delegates met with Huang Yukun, who

is Deputy Director General of the Department of Commerce of Guangdong Province and Vice Chairman and Secretary General of Guangdong Association of Enterprises with Foreign Investments, in a meeting with more than 10 representatives from investment enterprises. Attendees included representatives from MNCs such as McDonald’s and Mondelez (formerly Kraft Foods), as well as locally owned enterprises such as Guangzhou Wang Cheong Adhesive Product Factory and Nansha International Logistics Park Development. During the conversation, topics

Delegates then enjoyed a networking luncheon held at the Four Seasons Guangzhou with officials from the Guangzhou Tianhe District Government, before paying a visit to the headquarters of China Southern Power Grid for a meeting with Vice President Wang Jiuling. Wang emphasized that because the US and China are the two largest economies in the world, their combined consumption of energy – and hence their impact on the environment – is critical. He spoke of his experience in high-level conversations at the Harvard Kennedy School of Government regarding future energy trends and ways to deal with climate change, meetings with relevant US agencies and sharing knowledge on advanced technology. China and Guangdong Province in particular have seen rapid economic development over the past 10 years, and energy supply is a vital component fueling growth. In recent years, China Southern Power Grid as a company has put a larger focus on neighboring countries including Vietnam, Laos and Myanmar. Currently, it works closely with Hong Kong and Macau. The company has already been working with CLP Hong Kong for years, Wang said. By 2020, Hong Kong will likely face an energy shortage for which China Southern Power Grid could play an important role in supplying energy. “Thank you for making the bridge for future cooperation in America. It not only benefits our two countries but the whole world,” Wang said in closing.

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Trade In the last meeting of the day, delegates engaged in a conversation with Guangdong Development and Reform Commission’s Deputy Director General Wu Daowen, who outlined the current economic situation in Guangdong, as well development plans for the future. With a trading volume totaling US$1 trillion in 2013, Wu cited Guangdong’s excellent market system and improved infrastructure base. The first three quarters of the year saw a growth of 7.6 percent, with an increase of 9.2 percent in energy consumption and an increase of 12.1 percent in financial loans. Guangdong Provincial Government has also applied for a Free Trade Zone (FTZ) similar to the experimental area in Shanghai in order to foster a closer relationship with Hong Kong, Macau and other cities within the Pearl River Delta. Another topic discussed in the conversation was the provincial government’s prioritization of energy conservation and restoration of the ecosystem, with water and air quality as key priorities. For now, Guangdong Province aims to keep a growth rate of 7.5 to 8.5 percent, whilst improving livelihoods of residents and further developing infrastructure to connect rural areas to urban centers, Wu said. “Guangdong will enter mediumand high-speed development as we estimate,” Wu said. “We face many opportunities and challenges in the road ahead, including more complex development and more obvious restrictions as a trading province, both at home and abroad.” All of the Guangdong representatives and Hong Kong delegates agreed, though, that the two cities’ pasts, presents, and futures are interwoven and that the development and prosperity of one could not be achieved without the other’s success. Hong Kong as an internationally recognized platform has a vital role in the opening of Guangdong’s economy to the outside world.

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AmCham Delegation • Richard Vuylsteke, President, AmCham Hong Kong • Walter Dias, Managing Director, Greater China & Korea, United Airlines • Alan Turley, Vice President, International Affairs, APAC, FedEx Express • Seth Peterson, Partner, Heidrick & Struggles • Rick Truscott, Director – Power Systems, CLP Power Hong Kong Limited • Devin Ehrig, Vice President, The Winterbotam Trust Company (HK) Ltd • Jade Chan, Founder, Health Care Advocator • David Chao, First Vice President, Foreign Direct Investment Advisory, United Overseas Bank Limited • Diana Chou, Managing Director, Aerochine Aviation Ltd • Terrill Frantz, Professor, Peking University HSBC Business School • Ashley Nelson, Business Development Manager, Sovereign Trust (Hong Kong) Ltd • Jacky Ng, Head of Programme, CIE Department of Professional and Advanced Studies, Hong Kong College of Technology • John Ngai, Managing Partner, Blue Ocean Strategy Co. Ltd. • Tommy Patterson, Associate Director, Kreab Gavin Anderson • Chris Tsang, Executive Director (School Development & MSc Programs), HKUST • Donald Tsang, Associate Director, Orangefield • Edith Terry, Managing Director, Cotton Tree Advisors • Ken Wong, CEO, QWeUs • Alvin Yam, Executive Director, EXS Capital • Eric Chan, Deputy Director (Corporate Strategy & Commercial Development), CLP Power Hong Kong Limited • Fabian Knopf, Senior Associate & Co-Head of German Desk, International Business Advisory, Dezan Shira & Associates • Andrew Pearson, Managing Director, Qualex Asia Limited • Patrick Smidts, Managing Partner, GoGreenRide • Kennon Tam, Associate Director, APCO Worldwide • Jing Wu, Manager, Government Affairs, Mattel • Lawrence Yeung, Managing Associate, Bird & Bird • Wei Yue, Senior Counselor, APCO Worldwide • Johnny Zhang, Vice President, EXS Capital

ENTREPRENEURS/SME

Where Is Your Business Heading? Panels of established entrepreneurs and business leaders engage an audience of start-up hopefuls and like-minded individuals at the annual AmCham Small & Medium Enterprises (SME) Forum through sharing a diversity of strategic knowledge, experiences and wisdom to help small to medium enterprises make better choices in a stimulating discussion

Forum organizers: (from left) Dan Harrison, Laurie Goldberg, Elizabeth L Thomson and Rob Glucksman

By Nan-Hie In

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any entrepreneurs, start-up hopefuls and like-minded individuals congregated at the 2014 AmCham SME Forum to soak up invaluable advice and tips from panels of guests speakers who addressed questions about running a small- or medium-sized enterprise as well as common issues concerning business planning, strategies, options, and execution in a half-day conference that stimulated much thought and discourse from a mesmerized audience.

Media Partner

Strategies for sustained growth Everyone has a tendency to fall into a comfort zone, and companies can lull into stagnation. James Haybyrne, CEO of Strategic Thinking Group, says organizations can chart a new course of action with a shift in thinking and processing information, outlining a

number of guiding principles to help companies formulate well-conceived decisions to achieve sustained growth. Haybyrne encourages everyone to engage in broader, peripheral thinking from different angles for different possibilities when approaching a business. Otherwise, tunnel vision can have a jeopardizing effect. “When you're

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building a business, you tend to develop a way of doing things, a way of processing information [that delivers the same results] over and over,” he points out. As a result, a company begins to miss opportunities, he says. That includes failing to adapt amid shifting realities such as new technology that may be emerging or customer preference that may be evolving – trends that could lead to a decline in results.

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Once an organization is cognizant to these changes and decides to shift its direction, it should begin with grasping the company’s core fundamentals. What is the DNA, or anchor points, of the business? Anchor points help organizations focus, but growth also requires diversification to a certain extent, Haybyrne says. The two key questions are: what do I focus on and how do I diversify to grow the business? Anchor points are varied and depend entirely on the nature of a given business. “Understanding your anchor point is critically important because it allows you to build your business around it,” he says. “The anchor point determines what you will sell, to whom and where.” Haybyrne suggests creating a map of how all these patterns fit together in relation to the vision of a company, by taking into account the variables it will likely encounter along the path into the future. Additionally, company leadership plays a vital role in facilitating

strategic change. “The leader’s role is to describe what that future is, to paint a picture that is compelling and motivational for people, and to convince them that a new way is fundamentally better than the existing way.”

Funding your growth One of the toughest obstacles at the early stage of a company is securing funds to expand the business – a topic on which Simon Squibb, CEO and Founder of NEST Investments, and Kevin Leung, CEO of Muku Labs, shared their insights, with a focus on how to effectively pitch to angel investors and raise money from crowdfunding platforms such as Kickstarter. Squibb advises entrepreneurs to avoid two common mistakes. One is to avoid leading a pitch with how much of a financial return a potential investor would capture for funding a startup. “Sometimes people pitch what they think investors want. In fact, the best

Panel 1: Jim Haybyrne

Panel 2: (from left) Simon Squibb, Kevin Leung and Elizabeth L Thomson

Panel 4: (from left) Tom Gorman and Brendan Blumer

approach is to pitch what you need and see if we are the right fit,” he suggests, noting that some prefer to invest in entrepreneurs who are passionate about solving a problem through their business idea. Secondly, don’t mention exit strategies. The idea of an entrepreneur with a detailed plan to exit within three years can be a turn-off for some investors because a business founder should not necessarily want to depart the company, Squibb points out. Even after a startup matures into a sprawling company or a successful IPO, founders tend to remain at the organization, just like LinkedIn and Facebook. Investors at pitch sessions are there to assess the entrepreneur’s key motivation behind the business, which directly affects the startup’s future success, he adds. “If you’re in the business only to make money, you won’t last.” Moreover, entrepreneurs should cultivate a positive culture within their organization, Squibb stresses. He believes having the right culture in the organization, where company leaders

Panel 3: (from left) Gabriella Zavatti, Dan Harrison, Claire Fenner and Katie McGregor

and staff love the business, goes much further than the best training and education in the world. “Culture can eat strategy for breakfast; without culture, strategy doesn’t matter.” It is essentially the key ingredient in making things happen in a business. Leung in 2013 generated funds from a successful campaign on Kickstarter for his smartphone selfie remote Shuttr. His advice on generating funds through this platform is to make sure a product is 90 percent ready prior to the launch of a campaign – which is a critical step to pre-empt imitators. “[Otherwise] three months later

there will be lots of copycats in the market before you can ship it,” Leung cautions. The first batch of your product should be ready for shipping prior to rolling out your crowd-funding campaign.

Marketing essentials Elaborating on strategies for visibility and awareness of their brands, Gabriella Zavatti, Founder and CEO of ZAVVA Concepts, shared her approach to business from a product-based perspective while Claire Fenner, Founder and CEO of Heels & Deals, revealed her strategies to market her

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serviced-based organization, a company that supports women’s economic empowerment. Today, consumers are perpetually bombarded with marketing content that often times they tend to simply shut off. “You’ve got to be able to cut through that,” says Fenner, highlighting a strategy of engagement through conversations and sharing news and information via digital channels including social media. While Fenner’s organization rolls out marketing messages, too, 80 percent of its strategy is dedicated to information and engagement activities with its target audience. “Understanding your audience is essential,” she says. “Identify and define your customer persona.” For Zavatti, her target audience is mostly the younger crowd but is poised to expand into a much wider market segment. At the age of 23, Zavatti launched ZAVVA Shots, an alcoholic beverage homegrown here in Hong Kong and a product that is small, compact and bursting with energy. The strategy behind this mini-beverage line is to get the product to customers for a first-hand experience in a “cool” setting as a product that does not compromise on style, taste or image.

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Zavatti and Fenner are both advocates of brand collaboration to raise the profile of their respective company. For instance, Zavatti has partnered with many DJs and other entertainment providers in brand campaigns and engaged opinion leaders to represent her brand in a more “natural” fashion. “You can’t do hardselling as we as a generation have grown up more skeptical of brands due to many scandals,” Zavatti says. “Customers think twice when they are told something.” It underscores an earlier point made by Fenner of generating a more engaging campaign to better reach consumers who are more apathetic to commercial content.

Lessons from successes and failures

In the discussion with panelists Tom Gorman, Chairman and Editorin-Chief of FORTUNE China, Brendan Blumer, CEO of ii5 Ventures Ltd, and Elizabeth L Thomson, Chairman and Founder of The Amber Foundation Ltd, divulged colorful tales of career successes but also shortcomings and invaluable lessons derived from these experiences. Gorman arose to success from a humble beginning. He arrived in Hong Kong in 1974 with just US$150 in his pocket and has since achieved great success in business, including establishing a Chinese translation service (which was later acquired) and running FORTUNE China. What’s the most important ingredient to his success? Passion, he says, which he has an endless amount for media even after forty years in the business. The power is how it infuses elsewhere in your business, Gorman says. “Your passion outweighs the value of your asset. You need that passion because it’s contagious,

consistent and convincing for all kinds of reasons.” It is an attribute that allows others to have a reason to follow your cause, including generating investments to a business and coaxing excellence from staff. Additionally, Gorman believes entrepreneurs must choose a business partner carefully. The process should involve defining exit scenarios for which he recommends involving a lawyer in a discussion to cement an agreement early among shareholders to limit unexpected impact of a possible breakup in the future. Having previously endured difficult dissolution of a partnership, Gorman says a split can be more problematic particularly when the venture is making money. It is a view with which Blumer strongly agrees, after having encountered similar scenarios in his earlier days. Blumer recommends that entrepreneurs assess the market size of a chosen industry and understand its limits as it can affect how a company generates money. “Every time you do business, there’s a certain risk and reward potential,” he says. With his first start-up, a venture called MMORPG in the video game industry selling virtual assets, it was a market segment limited to 10 million people, which later became a ceiling of frustration because the company had no room for continued growth, Blumer explains. He ultimately made a shift to a “bigger pond” in the real estate sector by establishing OKAY.com in 2008. The speakers also revealed how they dealt with people who took a run at their business as they all have had a similar experience. For instance, Gorman at one point or another has had to manage his business while over a dozen copycats of his magazine appeared in China over the years. Blumer advises addressing – rather than ignoring – the problem early since these issues would only get worse before they could get better. “If you haven’t been ripped off in your business in Hong Kong, then you haven’t really been in business,” Thomson acknowledges. “Everybody has some kind of story.”

10 Questions Entrepreneurs Should Ask Themselves By Thomas D Gorman, Chairman and Editor-in-Chief, FORTUNE China The vision, dream and path for each entrepreneur is unique; but there are some challenges which we commonly encounter along the way. Here, based on my experience, are ten questions I suggest entrepreneurs should consider. What’s the most important thing when you’re starting up? Most people would tend to answer “capital,” but in many if not most cases the founder’s passion far outweighs the value of their assets. That passion must be contagious, consistent, and convincing, and should be communicated effectively to key employees, customers, partners and potential investors. With passion, and a business idea which has a decent chance of being monetized, you can obtain capital; but capital cannot buy you passion. Do you want partners, or to go it alone? You need to know yourself – and be brutally honest with yourself about your strengths and weaknesses. Bringing partners in because they are nice folks with time on their hands is most likely not a winning strategy. This will only become clear when you either start making, or losing, a lot of money. No matter what, spend money at an early stage on sound legal counsel to draft a shareholders’ agreement. This should define – among other things – the share valuation formula applicable if one partner chooses to depart at some stage, for whatever reason. It is a very common mistake to overlook this step, which often has disastrous and costly results. What are you most preoccupied with at the starting gate? Getting up and running, right?! Right. That’s normal and fine, but you need to think through the potential exit scenarios. There are two parts to this question: your personal exit scenario, and that of the company. Potential future opportunities to sell the business in whole or part should be considered when building your longer-term strategic plan. Are you easily swayed by the “conventional wisdom?” I reckon I’ve made some brilliant business decisions in the past 40 years, as well as some really boneheaded ones. The great decisions often flew in the face of the conventional wisdom of “the leading experts” at the time, and often involved saying “no” to a newly proposed business deal rather than saying “yes.” Bad decisions were often based as much on gut feel as on empirical data, or at the very least a combination of the two. Don’t be daunted when people say your ideas are crazy. That’s often an indicator you’re onto something innovative and promising. Are you too mainstream? To be a visionary and anticipate the customers’ needs before they know them, you need to be something of an outlier, sometimes a loner, a wanderer, or an explorer. Don’t be afraid of that. And be prepared for the reality that being an entrepreneur involves a fair number of lonely moments.

How well topped up is your optimism tank? Relentlessly refill your optimism and self-confidence tanks because they will be essential to your success, and they will be sucked nearly dry repeatedly along the way. Never underestimate the power of positive thinking, and remember that it needs recharging frequently. Will you be able to pay key employees better than your top, big competitors? Probably not, so you as a leader will need to inspire them better than the competition does. Think carefully about how you are going to do that, day in and day out. This is critical to your success. How arrogant are you capable of becoming? Jim Collins writes in “How The Mighty Fall” about the numerous examples of companies that fall from sustained greatness to dismal failure because of “hubris” creeping into the leadership suite following prolonged periods of great success. Hubris is the kind of bold arrogance which makes leaders feel invincible, creating big blind spots, and deafening them to the intensity of the competitive drumbeat. Hubris covers our rear view mirror with duct tape, so that as leaders we lose the vigilant watch on approaching competition. Whatever you do, don’t go there! Are ethical business practices and core values a tactical choice? No. They represent a strategic decision, of the sort you need to consider at the outset. Having well-enunciated core values and principles, even when they differ from those of key competitors, provides clarity, confidence, pride, and a sense of differentiation to key employees. They also help insulate you from a corrosive, self-depreciating, less predictable and slippery environment. As the founder and leader, you have clear choices and alternatives. Taking the high road and communicating effectively about it has a positive impact on the bottom line, even though it may cost some lost business along the way. It will help attract better quality managers, as well as investors and partners. How much time are you personally planning to spend on mentoring key staff? You may not have given it much thought, but I suggest you do. There are many aspects to total employee compensation, and in an entrepreneurial environment, exposure to mentoring from the boss can be a huge and persuasive bonus. Paychecks to staff are not issued on a random basis. Mentoring should not be random or occasional either. Mentoring is not micro-managing. Teach them well, and let them get on with their jobs. Tom Gorman’s bilingual English and Chinese blog: http://app.fortunechina.com/blog/sibuxiang/

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TRANSPORTATION & LOGISTICS

rom advertisements plastered on the sides of double-decker buses to splashy campaigns throughout Central, Delta Air Lines made one thing clear: it wants you to check out Seattle. The airline company launched the first nonstop service flying to Seattle from Hong Kong, emphasizing how the company is re-establishing the American city as a major hub on the West Coast. The flight, aboard an Airbus 330-200 aircraft, features 34 full-flat beds in Business Elite class, 32 seats in its Economy Comfort, and 168 economy class seats. Vinay Dube, Senior Vice President for Asia Pacific, has served in his role since May 2010, coming from a previous post in Delta’s corporate headquarters in Atlanta. Dube himself has traveled to Seattle a dozen times over his career for work, and says that he is excited to be a part of the team that will hopefully make the destination a household name in Hong Kong.

Flying to New Heights With a daily direct nonstop service flying between Seattle and Hong Kong, Delta Air Lines is re-establishing the American city as a major hub on the West Coast while connecting passengers to cities across the region. Vinay Dube, Senior Vice President for Asia Pacific, describes what the US legacy carrier is putting in place to become one of the best international airlines in the world

Seattle – a major hub Seattle is a part of Delta’s heritage as an original hub for Northwest Airlines, which was merged with Delta in 2010. According to Dube, what is different now is that the domestic portfolio was not poised to support the international network that Delta now can. By this winter, Delta will have close to 100 departures a day from Seattle. “The Seattle-Hong Kong route is about three things: it is about the origin of the destination, it’s about Seattle, and what’s beyond either one of these destinations. It’s a story about all of them,” Dube says. “Why Seattle? Delta has a set of hubs in various parts of the US – Atlanta, Detroit, Minneapolis, New York, and Salt Lake City,” Dube explains. “We were wanting to build a larger presence on the West Coast. Candidly, San Francisco was not an option. It’s already very established,

By Blessing Waung

Vinay Dube

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and it’d be silly to try to sit on top of them. LA and Seattle were the other west coast cities that were an option.” Airport real estate in Los Angeles is already very crowded, Dube says, making it a less than ideal place for Delta to make its home on the West Coast. Los Angeles International Airport does not have the ability to accommodate 100 new flights for Delta, though it will continue to be an important part of the airline’s network. Seattle-Tacoma International (Sea-Tac), on the other hand, does have that capability. It has the real estate availability and moreover, from an Asia-Pacific perspective, has great geography. “If you’re flying from almost anywhere in Asia to almost 90 percent of the US, you will almost pass over Seattle in any of those routes,” Dube points out. “It’s a great hub for us for that reason, but it’s also in general a very underserved city for a city of that size,” he adds. “They just don’t have the international air services that a city of that magnitude deserves.”

Market prospects Indeed, Delta provides more choices for international flights flying out of Seattle than all other carriers combined. Altogether, the airline has the capacity to fly 2,500 people internationally out of Seattle. Currently, it’s Delta’s aim to market Seattle as a leisure destination to Hong Kong travelers, who are likely to look at destinations such as New York, California or Vancouver for their holidays. “You’ve got to sell Seattle as a destination, and that’s where we team up with the Seattle Convention and Visitors Bureau, the Seattle airport authority and all the other constituencies that want to market the city as much as we do,” Dube says. “Some markets survive entirely on leisure traffic, such as Orlando, Miami, and Hawaii,” he says. “But in general, markets survive because of the mix of both business and leisure. That certainly is something we were interested in: not just a base of business, but a growing base.”

The fact that major American corporations such as Microsoft, Amazon, Boeing and Starbucks are based in Seattle is a major bonus for the route as well. “If you look at city GDP or growth rate, industrial production, Seattle is right up there in the US in terms of business growth,” Dube notes. “It’s important for us not just to have an outlook for 2014 and 2015, but for a ten-year horizon. When we make an investment in a hub, billions of dollars of infrastructure eventually go into the airport build-outs.”

Aircraft utilization In addition to investments in airports, Delta also looks to invest in aircraft. For every route, the airline looks to fly the most suitable aircraft on a particular route to ensure the right economics among its entire fleet. Longer term, Delta is in the midst of a wide body request for proposal right now, Dube says, which will conclude by the end of the year or early next year. The company is looking to purchase perhaps up to 50 additional wide-bodied planes, including next generation Boeing 787s, -9s, 777x, as well as Airbus 330s. The very first point when deciding which aircraft will fly a particular route is simply which can make it for the duration, in this case a 13-hour flight. The next is the supply and demand equation: if it is a route that the airline is forecasting to have 400 passengers every day, it will likely be a 747 aircraft, if 300 passengers, a 777.

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“Thankfully, the airline industry is very rich in data so we can estimate the future demand on new routes reasonably well,” Dube says. “We don’t always get it right, but given the amount of data we have, we generally are close in our forecasting.” As to why Hong Kong is on the other end of the route, Dube says that outbound travel to the city, among other large, growing markets, is certainly among the top of the list. There are already Delta routes connecting Seattle to Tokyo, Shanghai, Beijing and Seoul; Hong Kong was the next logical choice.

A focus on service So far, the flight is performing on par with the airline’s expectations, both as an end destination and as a transit point, with a considerable portion of the plane's passengers traveling beyond Seattle. Delta comes in a close second place amongst American carriers in the Asia-Pacific market, but where it hopes to stand out is in its customer service, especially in a market that has a proven track record of customer loyalty. “Customer service is the part we’re most proud of,” Dube says. “We’ve invested a lot, all the way from the quality of our seats to the in-flight entertainment to training we’ve provided our flight attendants. We’ve

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also improved our lounge experience and technology that makes it convenient to check in.” Dube also cites operating statistics published by the US Department of Transportation that validate Delta’s track record of on-time arrivals, luggage arrivals, which he says are “far, far better than either of our US competitors.” In the Asian market, Delta seeks to change travelers’ perceptions about US carriers that could have been made five or ten years ago. This will happen naturally because of the number of departures per day that they can access from hubs such as Hong Kong, but also because of what the experience has to offer. It will take longer in Asia than in the US, but that’s the goal so that people have an “irrational affinity” to Delta as they do to any other international brand, where customers will tailor their travel plans to what the airline has to offer. “It’s about creating a brand loyalty,” Dube says. “When I like a particular brand, I’ll make an irrational decision relative to that brand. That’s really the next step for us. You can check the box

on all of the customer experiences, but it takes time to build the brand. We have checked a lot of those boxes, and we have others we need to continue to check, but I would say that we’re proud of where we are today.”

Continued success As for Delta’s overall success, Dube says that they are proud of their brand and want to see it comparable to the best airlines in the world. “As an airline, we’re doing extremely well,” he says. “This year we will make 3.5 to 4 billion dollars of pre-tax income, and no airline has ever made that much money, ever, in the history of aviation. That’s part of our success story and part of the reason that I sit here with confidence to say we can offer premium services. We have the financial wherewithal.” “The transition point for us is that we think we have already done a lot in terms of creating a world-class customer experience,” he adds. “That’s our plan: deliver a really good experience for our customers, and then they’ll keep coming back.”

GOVERNMENT RELATIONS

Wang says. “If you’re having to wait four days because of port congestion or other reasons, it’s very important to find a way to reduce that as much as possible. As you spend time waiting at the port to load and unload – that’s a lot of money.” Alongside the private sector, APEC plans to undertake a study to see whether results have been achieved as result of the initiative, he points out. So far, they have already produced a midterm report and are optimistic about reaching their goals by the proposed deadline.

APEC:

25 Years of Economic Advancement A career foreign service officer in the US Department of State, Dr Robert S Wang is currently the US Senior Official for the Asia-Pacific Economic Cooperation (APEC). He was recently in Hong Kong for a roundtable discussion with AmCham members about the current state of affairs at the world’s largest economic group consisting of 21 diverse economies across the Pacific Rim

By Blessing Waung

ounded a quarter of a century ago to facilitate effective economic cooperation across the Pacific Rim region, the Asia-Pacific Economic Cooperation (APEC) has been a long-serving organization of increasing importance, particularly as economies in Asia continue to expand. There are currently 21 member economies within APEC, focusing mainly upon trade and investment liberalization, business facilitation as well as economic and technical cooperation. Dr Robert S Wang, a career foreign service officer in the US Department of State, has served as the US Senior Official for APEC since August 2013. Immediately prior to this role, he was Deputy Chief of Mission at the US Embassy in Beijing from January 2011 through August 2013.

Other priorities

Robert S Wang

Wang was in Hong Kong earlier and attended a closed-door invitation-only roundtable discussion with AmCham members about the current state of affairs at APEC and to touch upon the priorities and commitment to economic development across Asia Pacific.

A platform for cooperation “APEC is an institution that works very closely with the private sector and people around the table,” Wang says. “What we need is to get more input from them as to what their issues are. They need to let us know.” “Our key input comes from the private sector because we’re trying to expand and facilitate trade,” he adds. “If they have issues that they are struggling with, including the anti-monopoly issue in China, they should try to press their

case and we could bring this up in APEC. To the extent that we can, we will.” In all of the 21 economies engaged in APEC, there is also an APEC business advisory council (ABAC) that includes three members from the private sector of each jurisdiction, Wang says. For the US, President Obama has appointed three leaders from Qualcomm, Caterpillar and Eli Lilly. A key priority that Wang and his counterparts are focusing is the issue of cost reduction in the supply chain, an undertaking that he says APEC will be able to achieve by 2015, specifically a 10 percent reduction in the cost and time for getting goods around the region. “We’re looking at air, sea, and land freight, with a focus on sea freight. Not just the speed of ships, but also how many days are spent at the port,”

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In the meantime, Wang emphasizes that APEC is focusing its principles on anti-bribery laws by incorporating those of the Organisation for Economic Co-operation and Development (OECD) and building structures into government systems to reduce the probability of bribery. Regarding China’s new Asian Infrastructure Investment Bank (AIIB), a collaboration with other member nations such as India, Myanmar, Cambodia, Vietnam and the Philippines, “our main concern is that, as with any multilateral development bank and whether it’s [AIIB] or another, they need to meet the standards that have been established, including transparency, safeguards for labor, and fair procurement practices,” Wang says. Immediately prior to his visit to Hong Kong, Wang attended a human resources development ministerial in Hanoi and in the Philippines, meeting with his counterparts to discuss next year’s APEC leaders meeting. Altogether, he has attended about 12 ministerials in the past year. “We gradually narrow down our priorities from 40 to 50 to several that we think are ripe for delivering this year,” Wang says. “We then work with the other economies to get their support. One of my jobs is to talk to my counterparts, especially in China, to see if they would be able to support our priorities.”

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Source: APEC

Dr Robert S Wang (third from left, back row), US Senior Official for APEC, in a meeting at the US Department of State in Washington DC with an AmCham delegation during the annual Washington Doorknock advocacy trip to the nation's capital in June

APEC CEO Summit Wang is scheduled [at press time] to head to Beijing in early November, joined by US President Barack Obama, Secretary of State John Kerry and US Trade Representative Mike Froman for the APEC CEO Summit, which Japanese Prime Minister Shinzo Abe and Russian President Vladimir Putin are also expected to attend. The summit in Beijing – a highprofile platform for economic leaders and business executives – will feature a keynote address by Chinese President Xi Jinping and will include corporate leaders such as Dalian Wanda Group CEO Wang Jianlin and Fosun International Chairman Guo Guangchang. During the APEC Summit, leaders will also focus on development of the free trade area of the Asia-Pacific (FTAAP) and will collaborate on activities including knowledge sharing, infrastructure building and an analytical study on how to move towards a larger free trade zone. This is the second time that APEC meetings have been held in China – the last time was in 2001 when Shanghai

hosted APEC leaders. Originally, it was scheduled to take place in Hong Kong in September, but the location for the summit was changed in late February. Specifically, APEC is held this year in Yanqihu, a suburban neighborhood in Beijing known for its swans, 50 kilometers outside of the city center. According to the municipal government, it made such decision because it creates an opportunity for many of the economic leaders in attendance to appreciate the scenery of the outskirts of Beijing. Ahead of the conference, Beijing’s municipal government has also taken sweeping actions to prepare the city for the visiting leaders and announced a number of measures to ease congestion in the city, including a week-long holiday, a reduction on the number of automobiles allowed on the road and special incentives for local residents to travel elsewhere within the domestic market. The measures are similar to pollution controls imposed on Beijing and neighboring regions during the 2008 Summer Olympics in an effort to maintain air quality by temporarily closing down industrial plants within a 200-kilometer radius of the capital, despite the fact that factory shutdowns

could lead to a half percentage point loss of nationwide domestic production growth for the month.

Hong Kong’s role Hong Kong plays a key role in many areas because it is a role model, Wang says. In terms of anti-corruption, the Independent Commission Against Corruption (ICAC) is a model for many economies in the region to combat a difficult problem. Hong Kong also serves as a free and open trade economy, from which other economies within APEC can learn much in terms of making and attracting investment on a wider scale, he adds. “Hong Kong can play an even stronger role by pushing forward areas it has been good at and can offer valuable information, advice and guidance to others,” he says. “At this point, APEC is solely focused on expanding economic cooperation among all of our 21 members. Clearly, we could be affected by various ongoing politics, but from our perspective, our job is simply to do what we’re paid to do: to focus on the economic side and leave the political to other forums.”

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TRADE & INVESTMENT

C The New Frontier of Capital Sourcing

Jason Best

Author of the yellow-covered ‘Crowdfund Investing For Dummies’ and Co-founder of Crownfund Capital Advisors, Jason Best has spoken at The White House, South by Southwest and the World Bank’s Forum on Innovation and Technology Entrepreneurship. In an exclusive interview with biz.hk, Best talks about the opportunities of crowdfunding and how it is driving innovation

By Blessing Waung

rowdfunding is a relatively recent phenomenon of sourcing funds for a project or venture by raising capital from a large number of people, generally done over the Internet. With the viral success of websites such as Kickstarter, Indiegogo and Rocketfund, it is the world’s fastest growing new form of finance, geared towards helping company starters who otherwise wouldn’t have the opportunity to realize their entrepreneurial dreams. “For most small- to medium-sized businesses, there is no access to capital from traditional investors or big banks, and private equity groups are only investing in very specific kinds of businesses,” says Jason Best, Co-founder and Principal of Crownfund Capital Advisors, speaking at a recent AmCham luncheon. Best is a co-author of the “Crowdfund Investing Framework” embedded into the JOBS Act, which was signed into law by President Barack Obama in April 2012 to legalize equity and debtbased crowdfunding in the United States. He has been one of the trusted advisors in the US since crowdfunding hit its initial wave of popularity. He has spoken at The White House, South by Southwest and the World Bank’s Forum on Innovation and Technology Entrepreneurship, and he also happens to be the author of the infamous yellow-covered Crowdfund Investing For Dummies. Working together with his co-founder Sherwood Neiss, Best started an independently financed, grassroots campaign on Capitol Hill, literally knocking on doors within a 460-day timeline. The approval of the JOBS Act, which in part allows online sales of stock to a large pool of investors, ended up being one of the largest changes to securities regulations in 80 years.

Phenomenal growth The crowdfunding market is growing at a very rapid rate, at nearly 100 percent a year, Best says. According to Massolution, a research and advisory

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firm which tracks the crowdfunding market, the market last year was estimated to be US$5.1 billion globally, and the number will be nearly US$10 billion by end of this year. There are three different types of crowdfunding: rewards-based crowdfunding, such as Kickstarter; debtbased crowdfunding, whether peerto-peer or peer-to-business; lastly, equity-based crowdfunding, where shares are exchanged. Different approaches should be tailored to different companies, depending on the objective of potential investors. Best’s company, Crowdfund Capital Advisors (CCA), helps other companies, angel investors, private equity and venture capital firms as well as governments and NGOs to understand the concepts behind crowdfunding better and to create successful investing strategies. The World Bank last year commissioned CCA for a report on how to create crowdfunding ecosystems in developing economies. In the report, CCA shows some different cases of how this new form of finance could be utilized in different economies outside of the US and the UK. “The crowdfunding ecosystem is forming now,” Best says. “This is the sequel to prior industry development opportunities.”

“Developing economies have the opportunity to use crowdfunding to leapfrog over developed economies in creating jobs, innovation and high growth sales,” he adds. “There aren’t 80 years worth of calcified regulations to have to unwind. This is an opportunity for regulators in some new and different ways to be able to make change. It’s modernizing regulation.” International demand has been strong for crowdfundng, and the UK currently holds the title as the most sophisticated crowdfunding ecosystem in the world. It has been up and running for three years, with hundreds of millions of British pounds invested. Best and his company have traveled to 28 different countries and met with regulators to emphasize that this is a securities business and that it needs to be regulated in order for it to be successful in the long term. “In the past, regulation was highly prescriptive, meaning that for every possible situation, it was ‘if this happens, then this,’” Best says. “What we need to move to is a regulatory environment that is data intensive and prescriptively light.” “If I’m able to tap into the data stream of Kickstarter, Crowdfunder or any other equity-based crowdfunding platforms, I’ll able to be alerted in real

Benefits of Crowdfunding A crowd with a vested interest is more than money Knowledge/Experience Strategy Market Opportunity Product Demand Money

Funders bring relevant industry knowledge and experience to the table They assist the entrepreneur in crafting winning strategies

They provide introductions to entrepreneurs that provide valuablemarket opportunities They assist in refining a product offering so that it meets the demands of the market They assist entrepreneurs in gauging demand for a product by attaching monetary bets on the company future And they provide the capital entrepreneurs need to execute on vision

Source: Crowdfund Capital Advisors

time if there are problems,” he points out. “It’s an opportunity to have better access to data than I’ve ever had before.”

In a right environment In a movement from the traditional offline and institutional investment to one that is online and individually based, crowdfunding capitalizes on three macro trends. The first one is the move towards marketplaces online where efficiency is key. It is a market force similar to that of other Internetbased entities such as Uber and AirBnB. Secondly, social media is an important driver for the adoption and innovation of crowdfunding. “It’s pervasive throughout our lives,” Best says. “We use social media in every other part of our lives. And, making investment decisions is one of the newest areas where it’s moving into.” Lastly, they are now seeing a market validation of the business model that can result in driving an acquisition. An example is in the real estate sector where Realty Mogul in the US that put a tranche of money they were trying to raise for a Hard Rock Hotel in Palm Springs – and they were able to raise several million quickly. This was a hybrid campaign, with an opportunity to buy a piece of the debt in this hotel, but also to receive free nights and other perks for being a debt holder. In addition to entrepreneurs and SMEs using crowdfunding, there is opportunity for already established corporations as well. “Large corporations need to know how they’re going to understand crowd finance broadly, and where they may choose to utilize it in what they’re doing today,” Best says.

A driver of innovation There are a few easy entry points by using crowdfunding as a way to source innovation and to source talent. This is exemplified by the most-funded

Kickstarter campaigns of all time, a project called Coolest Cooler involving a 60-quart ice chest with a built-in ice crushing blender, waterproof Bluetooth speakers and a USB charger, along with other amenities. “You may know a camping company called Coleman, and if I were the CEO of Coleman and their ice chests didn’t change in 30 years, I would walk down the hall, fire my director of innovation and hire this guy,” Best says. “Here’s somebody who saw the problems, took initiative, solved them,and clearly found a significant market opening.” Founded by Ryan Grepper, an inventor based in Portland, Oregon, the product sold 62,000 units and garnered US$13.2 million dollars. Ironically, when Grepper tried out his Coolest Cooler project on Kickstarter for the first time, it didn’t even meet the goal of raising US$125,000. Despite the view that Hong Kong is not considered an ideal place for startups, Best is enthusiastic about the opportunity for crowdfunding to enhance the startup landscape. “When you have an economy like this, it reminds

me a bit of Dubai – a highly experienced, sophisticated place with a deep pool of capital. They’d also like to have a startup scene there as well.” “When people are used to talking about investment in billions or trillions of dollars, it’s harder to get people excited to talk about investment in millions or hundreds of thousands of dollars,” he says. In Hong Kong, there are numerous government programs, accelerators and incubators; yet, entrepreneurship has not taken over, Best says. In a market where angel investors are used to investing in traditional assets, there is a need for the gap to be bridged, while startup investments should to be de-risked and become more attractive to customers – a proposition crowdfunding investment is able to do. Best notes of four key factors in determining whether crowdfunding would be a success in a given environment: entrepreneurial culture, community engagement along with utilization of social media, availability of technology, and regulations that are conducive to fostering relationships, predictability and execution.

biz.hk 11 • 2014

CHARITABLE FOUNDATION

A Night of

Amazing Grace

‘Amazing Grace, how sweet the sound, That saved a wretch like me.... I once was lost but now am found, Was blind, but now, I see.’ ‘When this flesh and heart shall fail, and mortal life shall cease, I shall possess within the veil, a life of joy and peace.’

The AmCham Charitable Foundation Dinner – held on a breezy Friday evening at the historical site of Crown Wine Cellar at Shouson Hill – was a night of celebration in honor of AmCham’s efforts throughout the years in providing support for various philanthropic engagements that not only serve those in need but also inspire a generation of young students within the community of Hong Kong

By Queenie Tsui

he AmCham Charitable Foundation Dinner was held on a breezy midAutumn Friday evening at the Crown Wine Cellar, a historical site located at Shouson Hill. Originally known as the Central Ordinance (Munitions) Depot and now a UNESCO Asia Pacific Heritage Site, this pre-WWII structure was taken over by Crown in 2003 in pursuit of an exclusive private member’s wine storage and tasting facility. The site is the first of its kind in Asia. Constructed by the British troops with a military purpose, its underground locality with 1-meter thick concrete walls combined with state-of-the-art computer equipment

provides an excellent cellar environment – and is a remarkable location of elegance for a night of celebration. Just before budding musicians Jerry Sun and Andrew Cheung officially opened the evening with a beautifully sung ‘Amazing Grace,’ distinguished guests walked through the glass-housed conservatory and meandering tunnel to find an elegantly furnished dining room 20 meters underground, which was referred to as the bunker during wartime. All were enthralled by the architecture of the site as they mingled and sipped South Africa’s premium bubbly in the library at the rear of the dining room. Charitable Foundation Chairman James Sun welcomed guests and expressed heartfelt gratitude for James

E Thompson, AmCham Charitable Foundation Trustee and Chairman of the Crown Worldwide Group, who for the third year hosted the dinner by sponsoring the venue, four-course dinner with wine pairings, as well as selected wines for the auction. “The happiest thing is that we are able to raise money for charities – a lot of charities – may it be for facility provision or for food,” says Thompson. “This gives me a great pleasure in hosting the dinner tonight because we are giving back this facility to the community, and to let amazing things get going on there.” Sun also thanked Thomas Gorman, who is also a trustee and a past AmCham chairman, as well as Stephen Mercer and his wife for their

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additional support to the Charitable Foundation. The giving of grace did not just stop there: Sun subsequently announced this year’s Ira Dan Kaye Community Service Award winner and introduced Sunny Mak, Founder of Sunshine Action, a local charity solely operated by volunteers (see biz.hk October issue for full story). “We don’t have a fundraising manager, receptionist, or event organizer – by inviting people to join us as volunteers, we aspire to let them know what is happening on the other side of Hong Kong,” says Mak. “You have to come and see – come and see our food bag programs, meet the people whom we are helping. Don’t just donate money, but send your

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friends and your kids.” The excitement of the evening continued as Gregory De’eb conducted one of the most fun wine auctions in AmCham history. All 16 lots of selected wines were sold to wine lovers after rounds of competitive bidding for wines of limited edition from Napa Valley, St Helena, Australia, Saint-Julien, Pauillac, Côte de Beaune and Constantia in Cape Town. Proceeds of around HK$150,000 raised during the evening will go to AmCham Charitable Foundation for various philanthropic engagements throughout the year, including book prize awards and scholarships for local secondary and university students, as well as financial assistance to lesserknown charities in Hong Kong which

serve the disadvantaged, the elderly, women and children in need every year. The night was concluded on a high note when AmCham President Richard Vuylsteke announced it was time for the lucky draw. Special thanks go to United Airlines for sponsoring two business class tickets with a choice to Singapore, Ho Chi Minh City or Guam, and Rediscovered for offering a three-day two-night complimentary stay at Petchara Residence in Bali. As the opening lines of ‘Amazing Grace’ suggests, AmCham is grateful for everyone who attended the dinner and for being the angels offering help through their philanthropic hands to the underprivileged.

biz.hk 11 • 2014

MARK YOUR CALENDAR Nov Development for a Sustainable Water Supply

Bobby Ng, BBS, JP, Deputy Director of Water Supplies, Water Supplies Department, HKSAR Government Facing the challenge of an increasing demand for water amid rapid population and economic growth, competition of water resources from other nearby cities and a risk of rainfall deficit due to climate change, Hong Kong is entering an era that requires careful planning on the smart use of water to ensure a sustainable supply. The speaker will share his views on how technology, engagement and infrastructure can enhance the implementation of sustainable water management strategies, and discuss the way forward to secure quality water supplies for the development of Hong Kong. Bobby Ng is responsible for the departmental policies and procedures on the planning and management of water resources and water supply systems, design and construction of waterworks projects, operation and maintenance of water supply and distribution systems, control of water quality, provision of customer services and the enforcement of Waterworks Ordinance.

Nov Liberalization of the PRC Legal Market –

is it within reach?

Huen Wong, BBS, JP, Past President, The Law Society of Hong Kong This will cover the current hot topics in the Hong Kong legal market, particularly the prospect of liberalization of the legal services in the PRC. It will also focus on how the legal profession in Hong Kong can be instrumental in assisting to enhance confidence in the Mainland legal system. Huen Wong is President-elect of the Inter-Pacific Bar Association and Honorary Chairman of the Hong Kong International Arbitration Centre. He is also Past President of the Law Society of Hong Kong and the Hong Kong Institute of Arbitrators. He currently serves as Chairman of the Hong Kong Copyright Tribunal and Deputy Chairman of the Inland Revenue Board of Review. Wong was admitted to practice as a solicitor in Hong Kong and England & Wales in 1985 and 1989, respectively. Prior to becoming a consultant for Fried, Frank, Harris, Shriver & Jacobson, he was managing partner at two international law firms in Hong Kong. Wong serves on many public and professional bodies, including the Hospital Authority, Competition Commission, Judicial Officers Recommendation Commission and HKTDC’s Professional Advisory Committee.

Nov Power Sector Reform and New Energy Development in China

Giuseppe 'Joseph' Jacobelli, Senior Analyst, Asia Utilities & Infrastructure Research, Bloomberg Intelligence, Bloomberg LP The presentation will introduce the profile of China’s power sector and the reliance of the power system on thermal coal. Different measures of moving away from thermal coal will be explained, including gas, nuclear, hydro and renewable in addition to their energy efficiency. Some market-driven energy pricing initiatives such as direct power sales and emissions trading will also be discussed. Joseph Jacobelli leads Asia energy and infrastructure research for Bloomberg Intelligence. He has been involved in Asia’s energy sector in roles including as a financial analyst, utility executive and investor for 25 years. His expertise ranges from conventional power and gas utilities to clean energy and carbon markets. For over 20 years, Jacobelli has gained tremendous expertise in energy utilities equities from research at leading global investment banks and has been named in several ranking awards and regional analysts’ polls. He is also known as an execution expert who has gained experience as an executive at a leading Asian utility where he was responsible for low carbon investments.

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

Tel: (852) 2530 6900

Fax: (852) 2810 1289

Venue: The American Chamber of Commerce in HK 1904 Bank of America Tower 12 Harcourt Road Central, Hong Kong

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Venue: The American Chamber of Commerce in HK 1904 Bank of America Tower 12 Harcourt Road Central, Hong Kong

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Venue: The American Chamber of Commerce in HK 1904 Bank of America Tower 12 Harcourt Road Central, Hong Kong Time: 08:00 - 09:30am (Light breakfast included) Fee(s): Member: HK$180 Non-member: HK$300

Email: byau@amcham.org.hk