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

20 14

M HO OV NG ING KO TO NG

September 2014

A DRIVER OF GROWTH: POWERING HONG KONG AND BEYOND RICHARD LANCASTER CEO, CLP HOLDINGS LTD

Nominate a Nom

Woman W

of Influence The American Chamber of Commerce in Hong Kong proudly presents the 11th Annual Women of Influence Awards Awards. Once again we are seeking exceptional female executives who continue to make an outstanding contribution at the highest levels of Hong Kong's business world. The awards will be presented at the Women of Influence Conference and Awards 2014 on November 14, 2014 at the Four Seasons Hotel Hong Kong. This is your chance to nominate outstanding candidates for the following awards: 1. Professional of the Year 2. Entrepreneur of the Year 3. Master in Charity 4. Leading Woman on Boards 5. Champion for the Advancement of Women 6. Best Company for Women It only takes 10 minutes online: www.amcham.org.hk/woi Deadline: Monday, September 22, 2014 Sponsorship opportunities available Please contact Ms. Mary Simpson, msimpson@amcham.org.hk, (852) 2530-6922

Presented by:

Gold Sponsors:

Silver Sponsors:

Bronze Sponsors:

Official News Media:

September 2014

Contents

Vol 46 No 9 Richard R Vuylsteke

Editor-in-Chief Kenny Lau

Managing Editor Blessing Waung

Advertising Sales Manager

Publisher

COVER STORY

REAL ESTATE

TRADE & INVESTMENT

HOSPITALITY & TOURISM

From the first power station commissioned in 1903 to the development of coal- and later gas-fired power plants as well as renewable energy facilities, CLP Group has been an integral part of the city’s journey of tremendous development for over a century. CEO Richard Lancaster speaks about the past, present and future of electricity supply amid a public consultation on fuel mix

President of Ginnie Mae Theodore Tozer talks about providing liquidity and stability to the US housing market “by leveraging the full faith and credit of the United States to acess global capital” through a government guarantee for investors worldwide

US Export-Import Bank Chairman and President Fred Hochberg describes the critical role of driving US exports into markets worldwide by filling gaps in private export financing and helping foreign buyers purchase American goods and services

Hong Kong Disneyland has become one of the city’s iconic attractions since 2005. As the theme park celebrates its 10th anniversary next year, Managing Director Andrew Kam unveils a lineup of big plans and his vision in keeping the magic alive

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

AMCHAM NEWS AND VIEWS 04 For the Well-being of Mothers and Their Children The Hong Kong Code issued in 2012 covers not only the quality standards of formula milk and food products for infants and young children but also the marketing of breastmilk substitutes in a way that could potentially undermine the free flow of information and speech as well as Hong Kong’s competitiveness

07 New Business Contacts 77 executives joined AmCham’s business network last month

REAL ESTATE

14 A Guarantee in Support of US Homeownership President of Ginnie Mae Theodore Tozer talks about providing liquidity and stability to the US housing market “by leveraging the full faith and credit of the United States to acess global capital” through a government guarantee for investors worldwide

As bank financing has become more difficult to obtain for many small- and medium-sized real estate developers in China, many are turning to the shadow banking sector in an unregulated market estimated to account for as much as 55 percent of the country’s GDP

TRADE & INVESTMENT

ENTREPRENEURS/SME

18 Boosting Sales with US Sourcing Chairman and President of US Export-Import Bank Fred Hochberg describes the critical role of driving US exports into markets worldwide by filling gaps in private export financing and helping foreign buyers purchase American goods and services

40 Mark Your Calendar

COVER STORY 08 A Driver of Growth: Powering Hong Kong and Beyond CLP Group has been an integral part of the city’s journey of tremendous development for over a century. CEO Richard Lancaster in an interview speaks about the past, present and future of electricity supply amid a public consultation on fuel mix

CHINA BUSINESS 28 The Impact of Shadow Banking on China’s Real Estate Market

HOSPITALITY & TOURISM 22 With a Touch of Magic Hong Kong Disneyland has become one of the city’s iconic attractions since 2005. As the theme park celebrates its 10th anniversary next year, Managing Director Andrew Kam unveils a lineup of big plans and his vision in keeping the magic alive

32 An Exclusive Ride Unlike Others Uber has successfully launched in more than 150 cities worldwide since 2009. Sam Gellman, General Manager for Uber Hong Kong, believes it creates tremendous opportunities by connecting riders to drivers through a highly interactive platform

INTELLECTUAL PROPERTY

36 The issue of UGC and Hong Kong’s Copyright Amendments Bill Dr Mihály J Ficsor, Chairman of Central and Eastern European Copyright Alliance and a member of WTO’s intellectual property panel for dispute settlement, discusses the issue of user generated content (UGC) in relations to key aspects of copyright

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

biz.hk 9 • 2014

COVER SPONSOR

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 Jay Walder, 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

Walter Dias Colin Browne Seth Peterson Lili Zheng Charlie Pownall Oliver Rust Diana Tsui Rick Truscott Laurie Goldberg Jim Taylor Beth Smits

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 Al Miyasato Senior HR Forum Bianca Wong Sports & Entertainment Ian Stirling Taxation David Weisner Trade & Investment Patrick Wu Transportation & Logistics Jared Zerbe Women of Influence Anne-Marie Balfe Anna-Marie C Slot Young Professionals Alison Carroll Michael Harrington

FOR THE WELL-BEING OF MOTHERS AND THEIR CHILDREN

he “Hong Kong Code of Marketing and Quality of Formula Milk and Related Products, and Food Products for Infants & Young Children” is an effort by the government to regulate nutrition labeling and claims of infant formula and other related products, as well as to promote, protect and support breastfeeding in Hong Kong. To promote breastfeeding and allow parents to make informed decisions free from commercial influence, Hong Kong’s Department of Health set up a taskforce in 2010 for the purpose of developing a set of guidelines similar to the International Code of Marketing of Breastmilk Substitutes adopted by the World Health Organization in 1981. The Hong Kong Code was subsequently issued in 2012 to cover not only the quality standards of formula milk and food products for infants and young children but also the marketing of breastmilk substitutes. However, it has far-reaching effects in an over-regulation of marketing activities for any food products intended for children aged up to 36 months, undermining the free flow of information and speech as well as Hong Kong’s competitiveness. The health benefits of breastfeeding are widely recognized and are

unquestionably important for the well-being of mothers and their children. In fact, WHO recommends infants should be exclusively breastfed in their initial six months after birth and continue their intake of proper nutrition from a mixed source of breastfeeding and baby food up until the age of two or three. While it is important to develop an environment that encourages and supports breastfeeding for obvious reasons, it is equally important to achieve such goal in a way that affords parents options and a free flow of information when they need to make decisions regarding the well-being of their children. The Hong Kong Code should align with the WHO Code and global best practices in developed countries because any biased or over-regulation of marketing activities of related products intended for children aged up to 36 months will simply be contrary to the longstanding value of Hong Kong as an open and free market economy. Parents’ right to access information should be upheld under any circumstances if they are to make truly informed decisions. Contrary to the fundamental right of consumers to information, any excessive ban on marketing and promotional activities could limit access to legitimate information that parents often seek and

biz.hk 9 • 2014

could potentially lead to misinformation from unofficial sources. The issue is simple: an excessive ban can undermine the capability of parents to make informed choices about complementary food for their children. Undoubtedly, exaggerated or misleading information should be prohibited under any condition. On the other hand, for responsible industry players who comply with all relevant regulations in Hong Kong, their right to communicate evidence-based information should be respected. Such information provision is regarded as fair participation in the free economy of Hong Kong. It is also common sense. A Hong Kong Code that is voluntary in nature may bring unfairness and inequity to the market, confusing consumers. Instead, legislative enactment will be needed to bring greater fairness and a level playing field as well as greater certainty and consumer confidence. To ensure full compliance of the code, incorporating it into the legislation could be a viable way to go. Amid concerns that the Hong Kong Code is more trade restrictive than necessary and goes further than most international standards (for example, Codex and WHO Code), Hong Kong needs to formulate a suitable regulation that will truly protect the mutual benefits of all parties, including the trade and consumers.

biz.hk 9 • 2014

AMCHAM AMCHAM Means Means Business Business

Members Directory

New

Business Contacts The following people are new AmCham members: Accenture Co Ltd Christina Wong Managing Director

w w w. a m c h a m . o r g . h k www.amcham.org.hk

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

Alexander Proudfoot

DBS Bank (HK) Limited

Ravi Thanawala Vice President of Asia Operations

Deloitte Touche Tohmatsu

Alberto Vettoretti Managing Partner

Carsten Brenker Business Development Director Bianca Wong Group Human Resources & Corporate Communications Director Helmuth Hennig Group Managing Director

Dow Jones & Co

JP Morgan

ApexOne Consulting & Training Demetris Booth Founder & CEO

MEMBER PRICE HK$800 HK$104

B G Srinivas Group Managing Director, PCCW

Ann Taylor Sourcing Far East Ltd

Romy Serfaty Regional Marketing Leader Sushant Upadhyay Managing Director, Hong Kong and Taiwan

LC 98-645651 LC 98-645651 NON-MEMBER PRICE Local Delivery HK$1500 Overseas Delivery US$195 Shipping costs: Local HK$45 (per copy) US/International HK$50 (per copy)

PCCW

Ryan Wan Business Development Manager, Enterprise Acquisition

InterContinental Hong Kong

Aon Hewitt

ISBN 978-962-7422-18-1 ISBN 978-962-7422-20-4

InterCall

Tanya Lau Partner Soh Fern Boey MD, Head of Global Transaction Services, Hong Kong Terry Fung Senior Vice President Alex Cheung MD, Head of Institutional Banking Group, HK

Tony Tong EVP - Asia James Ogilvy-Stuart EVP - Asia Graham Moore President - Asia

Over 500 500 pages pages in in three three major major sections, sections, including including aa complete complete guide guide to to chamber chamber services, services, Over corporate sponsors sponsors and AmCham Charitable 1,700 corporate Charitable Foundation. Foundation.This Thisdirectory directorylists listsabout over 1,800 members from from over about700 700companies companiesand andorganizations. organizations. members

CTPartners

Arkadin Global Collaboration Services

Mark Rittmayer Associate Director

Dezan Shira & Associates

Mark Pope Managing Director Asia Pacific, Dow Jones & Publisher, The Wall Street Journal Asia

Dicky Shek GM, Arkadin Hong Kong

Scott Fife Senior Manager - Indirect Tax

Asia Society

FedEx Express

Christine Davies Managing Director, External Affairs Patricia Hayward Development Manager Helen Chen Head of Strategic Development

Kawal Preet Vice President

Bank of America NA

Frazer Jones

James Li Managing Director/ Head of Trade & Supply Chain Finance, Greater China Michael Chan Director, Global Trade & Supply Chain Finance

Bird & Bird Michelle Chan Partner

Bureau Veritas Consumer Products Services Alvin Fung VP, South China Elizabeth Hausler VP, Global Technical Services

Four Seasons Hotel Hong Kong Christoph Schmidinger Regional VP & General Manager

Crystal Vision Energy Ltd John Kerk VP & General Counsel

Travis Spence Head of Global Strategic Relationship Group, Asia Pacific Andrew Butcher Chief Administrative Officer, Asia Pacific, Senior Country Officer, Hong Kong Jed Laskowitz CEO Asia Pacific, Asset Management Ann Li Managing Director, Head of CIB Strategy Asia Pacific

Koehler Group Anik Tremblay Business Development Manager

Le Meridien Cyberport

Christina Ellerker Executive Director, Office of Government Affairs David Adelman Managing Director

Anthony Lee Director

Marita Marcos Director of Sales & Marketing

MasterCard Asia/Pacific (Hong Kong) Ltd Anna Yip Head of Hong Kong & Macau

Mira Moon Jorgen Christensen General Manager

O'Melveny & Myers

Ophilia Chow Associate, Global Markets

Gigi Woo Partner

Intel Semiconductor (US) Limited

Oxford Group

Stephen Perchard Vice President, North Asia, McAfee

Cesar Fragozo Minister for Asia

Rhombus International Hotels Group Calvin Mak Founder & President

RS Components Limited Simon Hulme Global Head of Pricing

Sofitel Legend Metropole Hanoi Franck Lafourcade General Manager

Standard Chartered Bank Helen Hui Managing Director, Head of Transaction Banking, Hong Kong

Study Abroad Center Paula VanZee Associate Director of Study Aboard Center

Target Sourcing Services Hong Kong Ltd

Thomson Reuters Hong Kong Ltd

Mandarin Oriental, Hong Kong

Hongkong and Shanghai Banking Corporation Ltd

ProMexico

Lockton Companies (Hong Kong) Limited

Mirley Perec Business Development Manager

Morton Joshua Holbrook III Executive Director

Scott Likens Partner, Analytics Consulting Margaret Hao Associate Director James Quinnild Financial Services Consulting - Asia Pacific Leader, China/HK Consulting COO

Doris Chan Senior Director (Apparel & Accessories)

Great Place To Work

HAVI Supply Chain Solutions

PricewaterhouseCoopers Ltd

Yen Wu Director of Sales and Marketing

Matthew Lee Chief Operation Officer

Hong Kong-America Center Ltd

Andor Meszaros Director

Jebsen & Co Ltd

Goldman Sachs (Asia) LLC

Chinese University of Hong Kong

Citi

Jeannie Crestejo Director of Sales and Marketing

KPMG

Eric Lo GM, HK, Macau & South China Hub Grace Wong Vice President - Human Resources, Asia

Simon Lee Senior Lecturer, School of Hotel and Tourism Management

Island Shangri-La Hong Kong

Vicky Tung Associate Director Shook Liu Manager

Peter Yiu Associate Director - Portfolio Consultant

Charles Schwab HK Ltd

Linda Hodgson Director of Sales and Marketing

Clive Barrow Managing Director, Asia

James Mirfin Managing Director, North Asia

University of Southern California Susan Madon Director, Hong Kong

Walmart Asia Regional Office Maarten Jager CFO & Senior Vice President Strategy

WR Grace (Hong Kong) Ltd Robert Au-Yeung Business Director - Building Envelope, Asia Pacific

Yahoo! Hong Kong Ltd Connie Chan Head of Human Resources, Hong Kong

Yew Chung Education Foundation Limited Norm Dean Deputy Director

View our other members at:

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

3753 1208

biz.hk 9 â&#x20AC;˘ 2014

COVER STORY

Richard Lancaster

A Driver of Growth: Powering Hong Kong and Beyond From the first power station commissioned in 1903 to the development of coal- and later gas-fired power plants as well as renewable energy facilities, CLP Group has been an integral part of the city’s journey of tremendous development for over a century. CEO Richard Lancaster speaks in an interview about the past, present and future of electricity supply amid a public consultation on the issue of fuel mix

By Kenny Lau Photos: Silver Image

biz.hk 9 • 2014

hen China Light & Power Company (CLP) was incorporated in 1901, demand for electricity in Hong Kong in that year was less than one-tenth of a megawatt. Today, CLP and Hongkong Electric – Hong Kong’s two utility companies – together have a total electricity generation capacity of well over 12,600 megawatts, meeting all the needs of the city’s entire population and powering the economic development of a place that was once a simple trading port. From the first power station with a capacity of only 75kW to the development of coal- and later gas-fired power plants as well as renewable energy facilities, CLP has grown to become a strategically important part of Hong Kong, serving close to 80 percent of the local population and lighting up the lives of millions in a city renowned for its vibrancy. Over the last 25 years, as Hong Kong has begun to integrate more closely with the Mainland, CLP has been leading the way with new energy infrastructure projects which have supported the growth of both Hong Kong and China. Importing natural gas from the South China Sea, building transmission lines to interconnect with the Mainland and opening up opportunities for the development of nuclear power in Guangdong have all played their part in the wider development of the Pearl River Delta. Looking ahead to the 2020s, with the objective of further reducing carbon and air emissions, the Hong Kong government earlier this year launched a public consultation on the issue of fuel mix for power generation. Two specific options were proposed: Hong Kong would significantly increase the use of natural gas to about 60 percent of the mix or could buy more electricity directly from Mainland China by tapping into the China Southern Grid. While technically feasible, importing electricity through purchase from a power grid in China is a new concept and an issue leading to questions about the potential impact on reliability and

environmental performance of imported grid power distributed in Hong Kong.

CLP’s current local generation portfolio

Local consumption The demand for electricity in Hong Kong continues to grow at a modest rate – on an average of about 1.3 percent yearly from 2008 to 2012 – while Hong Kong’s population is also growing by about one percent per annum. At the same time, Hong Kong achieved a total GDP growth of 19.3 percent in those four years – it is a reflection of higher productivity in an age of increasingly efficient energy consumption. “If you look around Hong Kong, there are many infrastructure projects taking place, including some large ones such as the new rail lines and cross-border facilities. All of them require more electricity,” says Richard Lancaster, CEO of CLP Holdings Ltd. “At the same time, even as our population is growing, people are becoming more energy efficient – which does offset some of the growth in electricity demand.” “Nevertheless, we are seeing an increase of a little under 2 percent per annum, and we expect this level of growth to continue in the next ten years,” he adds. “We do see that we will need some new capacity before this decade is out.” One key challenge of electricity generation is that – unlike oil or gas – it can’t be stored easily, and utility companies must always be prepared to have enough peak capacity to meet demand every second of the day. Hence, it requires significant longterm strategic planning. “We always plan at least ten years ahead and make accurate projections as best as we can by taking into account high levels of demand in the summer months or during extreme weather when our system is pushed to generate more capacity,” Lancaster says. “And, we always have to build some margins into those projections because if we don’t have enough capacity, it is a huge problem for Hong Kong.”

Castle Peak Power Station Coal

Gas

Station A:

4 x Coal-fired units

Station B:

4 x Coal-fired units equipped with emission control facilities (2 units can use gas)

Black Point Power Station Gas

8 x High efficiency combined cycle gas turbines

HK’s fuel mix Hong Kong had generated almost all of its electricity using diesel oil until the early 1980s when a switch to coal was made due to the volatile oil market of the 1970s. By the end of the 1980s, coal had become an exclusive choice of fuel for power generation in Hong Kong. That was until a policy was adopted by CLP in the 1990s to diversify its fuel sources with a mixture of coal, natural gas and nuclear power – a portfolio that remains today.

biz.hk 9 • 2014

“Coal is relatively cheap and readily accessible. It has a very reliable source of supply and can be easily stored,” Lancaster points out. “It is a very good fuel for power generation; but, it comes with a bigger environmental impact in the form of emissions.” “Nuclear power and natural gas, on the other hand, are much cleaner fuels than coal but are also more expensive,” he says. “And we have to plan well ahead for these sources because new infrastructure would be needed.” Currently, nuclear power makes up about 23 percent of Hong Kong’s overall fuel mix – and electricity is

biz.hk 9 • 2014

supplied to Hong Kong from Daya Bay Nuclear Power Station near Shenzhen through dedicated lines designed and operated by CLP under a contractual agreement. Some 70 percent of the plant’s capacity is already reserved for Hong Kong. The diversity of fuels has allowed CLP to serve Hong Kong reliably and effectively, Lancaster points out. “For security of supply, we now have three sources instead of one. Secondly, it helps stabilize the overall cost when you have multiple sources. More importantly, it improves our environmental performance.”

Penny’s Bay Power Station Oil

3 x Diesel oil fired units to meet peak demand

on which we buy the power and how much influence we have on how the power is to be supplied to Hong Kong will determine the price, reliability and environmental performance of the electricity we consume.”

Environmental impact

New York

Berlin

Rome

Madrid

Sydney

biz.hk 9 • 2014

“That way, we will have the flexibility to choose between using more natural gas and importing more power from China,” he says. “And, we can do it in a way that ensures Hong Kong has its input into the planning process. The worst thing Hong Kong could do is to close down options.”

Luxembourg

A sensible approach to the issue of planning for a future fuel mix is one that offers choices and flexibility, Lancaster suggests. “We can meet our immediate needs by adding more gas-fired generating capacity. Simul-

“At the end of the day, the question for Hong Kong is how can we make sure that we will be getting the most reliable and affordable electricity in an environmentally responsible way?”

Wellington

A flexible approach

taneously, we can start work on planning for a new transmission line and working with our counterparts in southern China on the best means to make additional supply available for Hong Kong.”

Brussels

more power, we have to understand where and how the power supplied to Hong Kong is generated and make sure it comes from a clean source,” Lancaster says. “For Hong Kong to buy 30 percent of its power from southern China, we are talking about 3,000 megawatts of electricity generation capacity. It is not a small amount,” he says. “While Guangdong is importing different forms of renewable energy from western provinces and using natural gas as much as it can, coal is still a major part of the fuel mix.” “The key question is if Hong Kong puts a demand of 3,000 megawatts of power onto the China Southern Grid, are we likely to end up with just another new coal-fired station when they are already using as much renewable energy, natural gas and nuclear power as they can?”

Amsterdam

Notes: 1. Comparison based on average monthly domestic consumption of 275kWh 2. Tariff and exchange rate at January 2014

London

Tokyo

Manila

Lisbon

Paris

Singapore

Helsinki

Macau

Houston

Washington, D.C.

CLP Power Hong Kong

Miami

Seoul

San Francisco

Shenzhen

Jakarta

biz.hk 9 • 2014

Shanghai

360 320 280 240 200 160 120 80 40 0

Vancouver

Hong Kong has indeed been importing nuclear energy from Daya Bay for 20 years without interruption. The proposed option of purchasing more electricity from China is therefore highly feasible, especially given China’s rapid development in the energy sector but it is important to look in detail at how this would be done. For instance, supply reliability remains an issue – in comparison, CLP’s average unplanned power interruption is far lower than that of the China Southern Grid, although major metropolitan areas such as Guangzhou and Shenzhen have had a more reliable supply of electricity in the past few years. “It is important to distinguish what’s being proposed in the consultation

HK cents/kWh (as of January 2014)

Taipei

Current proposal

paper from how we have been importing power from Daya Bay,” Lancaster says, highlighting the current use of dedicated power lines to achieve a high level of reliability as well as the capability to disconnect from the Mainland grid in case of any widespread blackout in Guangdong. “Because they are independent lines operated as part of CLP’s network, even when there is a blackout in southern China, Daya Bay stays part of Hong Kong’s network,” he explains. “That’s different from simply going to the China Southern Grid and asking for a supply of electricity without Hong Kong being involved in anyway.” To meet Hong Kong’s demand for electricity in a highly reliable fashion, southern China would first need to make specific extra capacity available and a dedicated transmission system, Lancaster says. “Otherwise, we may end up getting opportunistic power – which means they may only supply us whenever they have it available.” “Hong Kong needs to participate and to be very specific about its requirements if the city is to get the best deal,” he stresses. “That’s because the terms

Residential Tariff

Kuala Lumpur

“In other words, from the viewpoint of price stability, reliability of our supply and environmental performance, having three different fuels has been very beneficial for Hong Kong,” he says.

One of the major goals of planning for a better fuel mix is to improve the local and regional air quality and to reduce Hong Kong’s greenhouse gas emissions in the fight against climate change. Hong Kong also has a number of ongoing targets – spanning over a decade – for a gradual reduction in air pollutant emission, with further emission caps to be fulfilled in the coming years and beyond. With the use of emission control technology, import of nuclear power and introduction of natural gas and low-emission coal, CLP has made significant progress in reducing air emissions in the past two decades by more than 80 percent, despite electricity demand having increased by 80 percent since 1990. To further improve the environmental performance of local power generation, more natural gas will be necessary as proposed in the recent public consultation paper. When demand grows, a new gas-fired power plant can be up and running in less than five years, Lancaster points out. “A large gas turbine generator is a standard technology that you can basically buy off the shelf. The cost of equipment is relatively small compared to the total cost of electricity supply and a plant can be built quickly as there is sufficient room in the existing plant sites.” Importing electricity from China in lieu of local generation can also be a solution to the issue of air quality, but only if the imported power comes from a defined and environmentally clean source of generation in the Mainland; otherwise, Hong Kong may find itself importing power but exporting emissions elsewhere. “If we are to make a difference on the environmental front by importing

Residential tariff comparison with other cities

Source: CLP

“As long as we maintain capacity in Hong Kong, a stronger connection with China can only help us with reliability,” he adds. “It has actually enabled us to get access to other forms of power that we can’t otherwise have in Hong Kong, such as nuclear power and renewable energy. It has also helped us achieve better environmental performance.” “At the end of the day, the question for Hong Kong is how can we make sure that we will be getting the most reliable and affordable electricity in an environmentally responsible way?” Lancaster points out. “The answers to those issues will involve some coordinated efforts between the commercial enterprises and governments in Hong Kong as well as across the border.” “We are very much willing to share our knowledge and experience and are keen to participate in taking this forward because this is important for everyone in Hong Kong,” he says. “We at CLP see ourselves as an industry participant who has been supplying the city with electricity for more than a century. And, we stand ready to continue doing our part and to contribute to the future of Hong Kong.”

REAL ESTATE

A Guarantee in Support of US Homeownership President of Ginnie Mae Theodore Tozer talks about providing liquidity and stability to the US housing market “by leveraging the full faith and credit of the United States to acess global capital” through a government guarantee for investors worldwide

By Kenny Lau

Theodore Tozer

biz.hk 9 • 2014

he Government National Mortgage Association of the US – commonly known as Ginnie Mae – has recently reached a remarkable milestone: a mortgagebacked securities portfolio that reached US$1.5 trillion (from US$1 trillion in mid-2010) in an unprecedented expansion of its role in stabilizing the housing market – a step deemed crucial to the recovery of US homeownership and the overall economy. There are now more than 9.1 million government-backed mortgage loans under Ginnie Mae, which remains the primary financing mechanism for all US government-insured or government-guaranteed mortgage loans. The sheer size of Ginnie Mae’s portfolio – having grown from having less than 10 percent of market share prior to the economic crisis of 2008 to a current share of more than 30 percent – is indicative of the value of a unique business model in a publicprivate partnership. A wholly owned US government corporation within the US Department of Housing and Urban Development, Ginnie Mae does not actually engage in the business of originating mortgage loans, buying or selling securities for investment purposes. Instead, it provides mortgage securitization programs for commercial mortgage lenders and product offerings for global investors. The purpose is to provide liquidity and stability “by leveraging the full faith and credit of the United States to access global capital” and to “guarantee investors the timely payment of principal and interest on securities backed by loans insured or guaranteed by other federal government housing agencies,” Theodore Tozer, President of Ginnie Mae, points out in an interview with biz.hk. “Our mission is to attract funding from around the world to support US mortgages and to bring global capital into the housing finance system,” he says. “My job is to balance the interest of the taxpayer, borrower and investor so that no one is shortchanged. Our

biz.hk 9 • 2014

business model is simply not sustainable if all three don’t benefit at the same time.”

Historical significance Despite its founding in 1968 as a whole new government agency, Ginnie Mae – and its role in providing homeownership opportunities for millions of Americans – has had a long history dating back to the Great Depression in the 1930s, when unemployment, loan defaults and home foreclosures were at a historically high level and dampened the US economy in an unprecedented fashion. In an attempt to rescue the US housing market and protect lenders from an increasing number of mortgage defaults, Congress passed a law in 1934 to create the Federal Housing Administration (FHA) as a national mortgage loan insurance program to encourage banks and other financial institutions to continue making loans, which would be backed by a government guarantee against any potential losses. The law was amended four years later to create the Federal National Mortgage Association, or Fannie Mae, for the purpose of developing a secondary mortgage market by purchasing FHA-insured loans from lenders – a move which would provide more liquidity to support the flow of credit in the housing market. It was the Fair Housing Act of 1968 that ultimately created Ginnie Mae by splitting Fannie Mae into two separate corporations. As a result, while Fannie Mae focused on purchasing non-US government-insured mortgages under specific underwriting standards, Ginnie Mae became a self-financing vehicle providing a guarantee backed by the US government for payment on mortgage-backed securities secured by pools of government home loans. “With Ginnie Mae, there is no question that you are going to receive your payment of principal and interest on these securities,” Tozer says. “That’s what investors want, especially when they are very concerned about

credit risk. Government guarantee is very valuable because it fills the gap for a group of investors who simply may not want to take too much risks and are keen to invest their money with a firewall of protection.” “And, with that firewall, we are able to get investors to buy mortgages and do so in large blocks by pooling them together, facilitating transactions that would not otherwise transact,” he adds, noting the requirement of generally having to group a large pool of mortgages in order to create investment-grade securities that investors often seek.

Market maker Because of the fact that it is nearly impossible to sell individual mortgages on the secondary market, banks traditionally have to retain mortgages on their books – which significantly limits their ability to make more new loans. In fact, Ginnie Mae developed the very first mortgage-backed security back in 1970 precisely to increase liquidity supporting homeownership. Ginnie Mae’s portfolio of mortgage-backed securities essentially supports the US housing market by attracting investment capital from markets all over the world to the US and increasing access to loans for neighborhoods across the country. More importantly, its countercyclical role is critical to ensuring the availability of mortgage financing for homeownership and rental properties regardless of the economic climate. “Our growing portfolio reflects the need for a government guarantee in order to attract the capital for the US housing market,” Tozer says. “This is especially the case following the downturn in the housing market in 2008 when people were staying away from investing in mortgage-backed securities as they were uncertain about the credit risk.” “Without a government guarantee, there was no way to import the money from around the world to support the housing market in the US and to keep it from sliding further down,” he says.

GOVERNMENT SUPPORT OF MORTGAGES Government Market Share of Single-Family Mortgages (1965-2013) and US Homeownership Rates 100.0%

70.0%

90.0%

69.0%

80.0%

68.0%

70.0% 60.0%

67.0%

US Homeownership Rate

66.0%

50.0%

65.0%

40.0%

64.0%

Government-backed mortgage pools and loans in portfolio

30.0%

63.0% 62.0%

10.0%

61.0%

0.0%

60.0%

1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

20.0%

Government Share of Single Family Mortgage Market

Homeownership Rates Source: Federal Reserve, Ginnie Mae

“Had Ginnie Mae and other government agencies not stepped in, home prices would have been a bigger debacle because you wouldn’t even be able to take full advantage of the ultra-low interest rate.” In the past few years, as the US Federal Reserve gradually reduced interest rates, refinancing of home mortgages has been a very substantial piece of Ginnie Mae’s growth, Tozer points out. “All of a sudden, people who were paying six or seven percent of interest for their home loans could get it down to three or four percent; as a result, it put a substantial amount of money back into the economy.” “From the perspective of economic recovery and keeping the housing market running, it was a huge win,” he says. “In a way, we created billions of dollars in stimulus without costing the taxpayers a dime.”

The Asian market A key aspect of Ginnie Mae is to market mortgage-backed securities to the right investors, Tozer notes. “We are similar to other types of government programs for which you have an import-export environment, and we have the same kind of role of facilitating

trade by going into different markets and enabling the movement of capital more effectively.” “The Asian market is without a doubt very important to the US, and it is no exception when it comes to finding support for the US housing market,” he says. “Right now there is a large pool of savings here in Asia as a result of the tremendous economic expansion and growth in the region, and we’d very much like to establish an even closer tie with investors in Asia.” And, it is important to establish a bridge to Asia, Tozer says. “Sometimes investors simply don’t have a very clear idea of how to go about buying these securities, and sometimes they don’t even know how they can start analyzing these potential markets. That’s why we are expanding our information system to provide more transparency so that investors can better analyze the quality of the loans in the pool.” “By doing so, we are basically benefiting everyone in the chain: the lender, the consumer and the investor,” he says. “Investors, including those in Asia, will benefit from a government guarantee for their investment, and lenders in America will have access to a larger pool of funds at lower cost, which

can be passed on to consumers. Everyone is better off because we guarantee.” “To me, this is an opportunity to make a difference because I felt that people didn’t understand the mortgage process that well,” he adds. “I am doing it from the perspective of trying to develop a system that has a longevity to really do well in the future and minimize any unintended consequences at the same time.”

Prospects The current US housing market continues to recover despite the amount of damage done to the confidence of investors and consumers worldwide during the financial crisis of 2008, Tozer says. “Historically, in the housing market, everyone felt that they could trust one another. But, people simply lost faith in the system following what was probably the greatest housing debacle since the 1930s, and as result credit started tightening up, slowing down the recovery.” “Over time, things will improve and people will become more comfortable as more safeguards are put in place,” he says. “It will recover but will take a while because of the scale of the crisis and the amount of wealth destroyed.”

biz.hk 9 • 2014

“What’s important to bear in mind is that the US has always been able to recover regardless of how bad things become economically,” he stresses. “We saw that in the 1980s, when people thought the US was no longer strong because of all the things happening at the time. But, it has since reinvented itself. It seems like you can never bet against the US because of its ability to be prosperous.” One of the keys to a relatively stable market in the US is by shifting the interest rate risk away from the consumer, Tozer points out. “The US made a determination after the Great Depression that the interest rate risk is not something the consumer could handle. The 30-year fixed rate of repayable mortgage was therefore created to form the backbone of the US housing market, and it has led to tremendous stability.”

“When Ginnie Mae was created, it was a decision that the American consumer should not have to bear the risk,” he notes. “Instead, the capital market had the tools and ability to manage that risk. It was a determination that has made the US housing market so stable – and a determination no other country has made.” “When interest rates turn back up, it will be something a lot of countries are going to wish they’d had because the payment shock will be phenomenal,” he adds. “An 2-percent increase in interest rates on a mortgage from four to six doesn’t sound like much of a change, but that is a 50-percent increase in payment. It is much worse to go from four to six than it is to go from 10 to 12.”

A hike soon? The good news is – at least for now – there is no inflationary pressure to

constitute a hike in interest rates. “Probably not because interest rates are by definition tied to inflation, which is still somewhat muted,” Tozer says. “Economic growth is alright but not great. There aren’t many reasons to hike interest rates any time soon.” “But, as I always tell people, even our interest rates are not going up soon, when you are at zero, there is only one direction you can go. You can stay at zero for a few years, but at some point it will go up because you can’t go negative. It is just a matter of time before it happens.” “And, when you start having interest rate increases, it means the world economy has generally recovered,” he adds. “Right now, it has some more ways to go before it is vibrant again. If rates go up too soon before the economy is ready, it could actually slow down the economic recovery and lead to another recession.”

TRADE & INVESTMENT

ore than 30 years ago, Fred Hochberg first landed in Hong Kong and China to do business as a representative of a small US-based family mail order company which he later helped transform into an international, publicly traded direct marketing corporation. Recently, he came back to the city as Chairman and President of the US Export-Import (Ex-Im) Bank. As head of the Ex-Im Bank, Hochberg plays an essential role in President Barack Obama’s plan to double US exports by the end of 2014 – a national initiative set about five years ago by the Obama Administration and a mission for which the Ex-Im Bank has made enormous progress by driving US exports into markets worldwide and supporting US jobs domestically. “The whole point of the National Export Initiative is to have a more complete government approach to supporting US exports in a number of aspects, from negotiating trade deals and creating a level playing field, maintaining commercial diplomacy and economic statecraft to providing support in financing and development,” Hochberg says in an interview while in Hong Kong as part of a two-week trip to Asia. The results have been impressive: in fiscal year 2012, the Ex-Im Bank for the fourth straight year set export finance records in a number of key areas. Overall financing for the first time exceeded US$35.7 billion and supported US$50 billion in exports and about 255,000 export-related American jobs at more than 3,400 US companies. Moreover, small business financing increased by over 70 percent from US$3.3 billion to US$6.1 billion in just four years, with an increase of 16.5 percent in authorizations for minorityand woman-owned businesses during a period in which the bank has put a large focus on service to foreign buyers and US exporters through streamlined processes while seeking new markets for US goods and services in emerging economies.

Fred Hochberg

Boosting Sales with US Sourcing The Export-Import Bank of the United States serves to fill gaps in private export financing and help foreign buyers purchase American goods and services through working-capital guarantees, export-credit insurance and financing at no cost to US taxpayers. While in Hong Kong as part of a two-week trip to Asia, Chairman and President Fred Hochberg describes the critical role of driving US exports into markets worldwide

By Kenny Lau

biz.hk 9 • 2014

80th Anniversary The Ex-Im Bank is the official export credit agency of the United States helping to finance the export of US goods and services to international markets – a mission which dates back exactly 80 years ago, when President Franklin D Roosevelt established the bank to “aid in financing and to facilitate exports and imports and the exchange” of goods during a period of economic distress. The bank today continues to support US manufacturers and exporters in a role that is deemed particularly important in times of economic crisis and commercial credit crunch, hence a focus as an export credit agency for companies – large and small – to turn export opportunities into real sales that are essential to the creation of US jobs and a stronger national economy. “We think of the Ex-Im Bank as America’s competitive tool as making sure that US exporters have access to global markets,” Hochberg says. “We want US companies to have an edge in the global competition on a level playing field so that they would not be losing out when selling their products internationally.” And, no transaction is too large or too small. On average, more than 85 percent of the Ex-Im Bank’s transactions directly benefit US small businesses through working capital guarantees (pre-export financing), export credit insurance, loan guarantees and direct loans (buyer financing). Yet, it does not compete with private sector lenders but only fills a gap in trade financing. “We exist to fill a gap in financing when the private sector is unwilling or unable to make that loan,” Hochberg says. “Generally speaking, we don’t take on the role of private banks or financial institutions when they can do these deals within the private sector. We go in to pick up the slack whenever necessary.”

“In the past year or so, we were supporting about US$36 billion dollars worth of loans and guarantees, up from the pre-crisis level of about US$14 billion. We simply filled in as banks pulled out,” he points out. “While banks are now doing more lending, we still have to be robust.” “By doing so, we had supported some 205,000 jobs in communities across the country last year in the specific industries we were financing,” he adds. “These jobs would not have necessarily existed if we hadn’t financed those projects.”

US competitiveness The world market for exports is exceedingly competitive. “That’s because countries are looking to export their way out of their economic malaise,” Hochberg points out. “For instance, in China, there is a huge emphasis on exports and

manufacture of goods as millions of people have left the informal economy and joined the formal economy, some leaving their farms and going into cities for manufacturing jobs.” The good news is that the US remains a highly competitive place for manufacturing, he says. “The US has been getting more efficient in terms of productivity and is the fastest growing developed economy in the world today.” “You import from the US because American-made products are still the highest quality, most innovative in the world,” he adds, noting that on a level playing field, US goods and services can easily compete globally on the merits of their price, quality and value.

“When it comes to export and global trade, financing is always an important part of the deal,” Hochberg says. “If you are working with US companies and are not bringing financing to the table as part of the proposal, it often puts them at a disadvantage. “It is a really competitive world out there. We need to be doing this so that US exporter can close a transaction and not lose it, and we are doing this at no cost to the US taxpayer as we collect a fee for our work from our customers. In fact, we made a profit last year.”

The key is to get more US companies into the game and to get small businesses to become more exportfocused, Hochberg stresses. “The impact of US exports on the US economy in terms of trade deficit reduction and job creation is enormous. And, once companies get a taste of it, it often becomes an essential part of their business.”

China market Throughout its history of 80 years, the Ex-Im Bank has supported more than US$567 billion of US exports, primarily

to developing markets worldwide including China which is now the third largest destination for US exports after Canada and Mexico. “We’ve had a strong rise in our exports to China, which have nearly doubled since 2009,” Hochberg points out. “When you add in Hong Kong, which is a conduit in many ways for products going into China, it is even a stronger number three.” “More importantly, it is export growth across the board for small and large US businesses. And, we are gaining ground on the manufacturing side, partly because of our advanced manufacturing technology and better energy prices in the US,” he adds.

biz.hk 9 • 2014

It is estimated that the Ex-Im Bank is on track for a new record of transactions supporting US exports to China in fiscal year 2014 – which contributes to a more balanced trade relationship with China, where exports from American companies including small US businesses have already reached a total of US$1.8 billion. “As the worlds’ second largest economy and the third largest importer of US goods, China represents an incredible opportunity for US small businesses,” Hochberg says. “Our programs can be a bridge to China’s vast market for these companies, especially when their shipments are too small to constitute a viable business case with commercial banks.” “With the help of the Ex-Im Bank, American small businesses are competing on a more level playing field while expanding their exports to China and creating jobs in the US through both direct sales to China and supplying larger US exporters,” he says. “While we frequently see ‘Made-inChina’ labels on products we use, the inverse is increasingly true – and we are proud to be part of that trend.” As a result, a number of Chinese communities are now equipped with state-of-the-art fire fighting technology and gear, provided by WS Darley of Itasca, IL because of an US$18 million loan guarantee, Hochberg notes. And, China’s growing middle class can now have a taste of a special blend of coffee and frozen desserts from Lions Gate of Honolulu and Bassetts Ice Cream of Philadelphia, respectively. Larger exporters like Haldor Topsoe of Houston or GE Healthcare in Waukesha, WI and small businesses like Michigan Instruments of Grand Rapids, MI are all part of the supply chain of American-made products to China through Ex-Im-financed transactions, he adds.

A level playing field Even when the US is increasing its volume of exports to China, there are

biz.hk 9 • 2014

significant barriers and risks that could undermine US competitiveness. For one, many of the export credit agencies of other nations, including those of China and Russia, are offering trade support often unregulated on the same international transparency and lending standards as their counterparts.

Chinese government to bring their export financing more in line with international guidelines and create fairer competition for US exporters,” he says. “We were pleased to hear from our Chinese counterparts at the Sixth US-China Strategic and Economic Dialogue in Beijing that they

“Encouraging foreign buyers to purchase made-in-America goods and services is never difficult, but meeting the competition on a level playing field and equipping our small businesses with the tools they need to enter new markets is why the Ex-Im Bank is so important.”

“As indicated in our recently released Competitiveness Report to Congress, we have noted that this trend poses a serious risk to US competitiveness,” Hochberg says. “A new, and frankly frightening, statistic I recently learned is that the China Export & Credit Insurance Corporation, more commonly known as Sinosure, provided Chinese exporters with US$300 billion in short-term credit insurance in 2013 alone. In comparison, we authorized only US$5.4 billion last year.” “That’s why I joined Treasury Secretary Jack Lew in calling on the

supported continuing the negotiation of new international guidelines.” “This recent trip to Asia opened my eyes even wider to the opportunities that exist for US businesses in this rapidly growing region of the world, while also serving as a stark reminder of how fiercely competitive the global economy has become,” Hochberg says. “Encouraging foreign buyers to purchase made-in-America goods and services is never difficult, but meeting the competition on a level playing field and equipping our small businesses with the tools they need to enter new markets is why the Ex-Im Bank is so important.”

HOSPITALITY & TOURISM

Since opening in 2005, Hong Kong Disneyland has become one of the city’s iconic attractions for millions of tourists locally, regionally and internationally. As the theme park celebrates its 10th anniversary next year, Managing Director Andrew Kam unveils a lineup of big plans and his vision in keeping the magic alive

By Blessing Waung

Andrew Kam

biz.hk 9 • 2014

s one of Hong Kong’s iconic attractions, Hong Kong Disneyland is about to become even better. In early July, the joint venture between the Hong Kong government and Disneyland received approval from the Legislative Council for an injection of further equity as well as a shareholder’s loan, enabling the theme park to move forward with the expansion plan for a third hotel. “We had already been looking into the feasibility of a new property for nearly two years,” says Andrew Kam, Managing Director of Hong Kong Disneyland. “Almost immediately after LegCo gave the go-ahead, we set out to start work on the project. Altogether, the investment will total around US$500 million from both the government and Disney.” The hotel is tentatively titled “Explorers,” a theme to be found only in a Disneyland hotel in Hong Kong. It will have 750 rooms, which will increase the capacity for guest accommodation by 75 percent and will serve as a welcome addition to two hotels that are consistently full, with an average occupancy rate of 90 percent. “We certainly expect the demand will continue, and, in fact, we have a lot of unmet demand. We have to turn away business all the time, particularly during peak seasons such as Chinese New Year and summer vacation,” says Kam. “A lot of our guests really want to enjoy a complete Disney experience, and obviously staying in one of our hotels will enable them to do so while they’re in Hong Kong.”

New infrastructure The “Explorers” is the brainchild of a concerted effort between Disney’s management and its team of Imagineers armed with an arsenal of creative ideas, Kam notes. “Among all of the possible themes presented, everyone agreed that this would have the highest appeal to consumers.” “At the moment we have two hotels – Disneyland Hotel has a theme based on the Victorian era, already pretty

unique in that sense. Hollywood Hotel, as the name already implies, is all about 1930s, art deco, California and Hollywood,” he says. “We understand we draw a lot of guests from Southeast Asia, Hong Kong and also Mainland China. Because of the guest mix we have, we want to offer them something quite unique, to complement our existing product,” he explains. “Our number one priority is we want something different, and we want to offer something that is not available from downtown Hong Kong – that is, to be able to differentiate our product from anything we have both on-site and off-site, while really making use of our location.” Without giving too much away, Kam hints that the hotel will take the name quite literally, featuring scenes from Southeast Asia, South America, Polynesia, and even China, amongst others. Rainforests and jungles will play prominently into the thinking behind landscaping and decorations, in an attempt to recreate the different look and feel of various continents but within a single architectural structure. And, of course, Kam is quick to point out that guests are always on the lookout for Disney characters – a magic that he assures will be incorporated into the final design. Currently, half of the demand for guestrooms comes from Southeast Asia and the other half comes from Mainland China, Kam points out. “We believe the demographic will probably stay the same, but because of the limited supply of rooms in the last couple of years, our Hong Kong guests have had a hard time getting a room. Hopefully when we open up the new hotel, we will attract a lot of local guests.” Hong Kong Disneyland is hoping to finish the project by the end of 2016 or early 2017.

Shanghai Disneyland One of the most frequently asked questions is how Shanghai Disneyland,

which is scheduled for opening by the end of next year, will potentially affect the patronage in Hong Kong, given that a large of number of visitors travel from Mainland China to the city each year for Hong Kong Disneyland. “It is important to understand how the two resorts are going to be differentiated,” says Kam.

Thirty percent of Hong Kong Disneyland’s guests, he points out, are local. “We hope that if they travel to Shanghai, they will go and take a look at our park in Shanghai, but I don’t think the local business is going to change.” Another 25 percent come from Southeast Asia, he adds. “A lot of our Southeast Asian guests or even Mainland guests come to Hong Kong Disneyland and are attracted to the brand, but the bigger reason for them to come is because of Hong Kong. It is a really popular destination for a short break.”

biz.hk 9 • 2014

On average, tourists coming to Hong Kong spend about four days to enjoy the local attractions, and that is unlikely to change with another park opening in Shanghai, Kam says. “Guests will continue coming because of the appeal of Hong Kong itself, and we are trying to be a part of that appeal. So, when they come, hopefully we can attract them to come spend one or two days with us.” The soon-to-open park in Shanghai is designed to serve the Yangtze River Delta area and is geared more towards

biz.hk 9 • 2014

local visitors. Meanwhile, many of the Mainland Chinese visitors to Hong Kong are coming from Guangdong, thereby meeting the demand of a different and specific market. “I tell everyone that even though the two resorts share the same brand, we are going to differentiate them,” says Kam. “In Shanghai, they will have products unique to them, but so do we.” In fact, Hong Kong Disneyland has many unique details that are not so apparent to visitors, including nets hand-weaved by Hong Kong fishermen

for Grizzly Gulch and Asian curios and paintings prominently displayed throughout Mystic Point, which is based on Disneyland’s Haunted Mansion in California. Hong Kong Disneyland is also well aware of the need to cater to visitors from Southeast Asia, and specially prepared Halal food is made available around the park. “What Hong Kong Disneyland is trying to achieve is a synergy between the two parks. With our park in Shanghai, we’d like to create an experience so wonderful for our guests that they would also want to experience our park in Hong Kong,” Kam says.

Branding The Hong Kong Tourism Board plays an important role in promoting Hong Kong as a destination and is one of the park’s strong partners, Kam points out. “We work closely with HKTB, and we are usually part of their delegation whenever they go out to promote Hong Kong.

Opportunity is everywhere. everywhere So are we.

“In addition to that, we engage in different campaigns to promote our park in Hong Kong,” he says. “That’s because we have movies, TV channels and a lot of other means to help us build the Disney name in the US. It isn’t so much the case here in Asia.” “In the US, Disney theme parks have had a history of 60 years and have already become a multi-generational culture,” he adds. “In Asia, particularly in Hong Kong, we don’t have that sort of media penetration in the market. It’s still a relatively new idea.” To boost their marketing efforts, Kam says that Disney does extensive broadcast marketing in Hong Kong and partners with various television stations. The most important marketing tool is still the word of mouth of each and every individual customer regarding the total experience. “Even though Disney is a familiar brand to many in Asia, some 70 percent

of our guests coming to Hong Kong Disneyland are actually here for their first Disney experience,” Kam says. “We work with a lot of social media platforms to provide as much information about us as possible.” “Facebook is very popular, of course, but there are also other local sites that every country goes to dig up information about Hong Kong,” he points out. “In Thailand, there is a site all about Hong Kong. Yahoo! Taiwan is a helpful source for our Taiwanese guests to understand what they can do here. Whenever tourists are planning a trip to Hong Kong, these are websites where they go to find information.”

A growing market Hong Kong tourism will continue to develop and grow because of the region’s economic development, Kam believes. “In the next couple decades, Asia is going to have the highest concentration of middle-class families anywhere in the world. That is going to create a lot of outbound travel demand.” “While theme parks are a relatively new idea here, consumers are very eager to explore,” he says. “Asia is attracting a lot of global investment, particularly from the US, for the development of theme parks. Dreamworks and Warner Brothers are working on a number of projects, and Universal Studios i still expanding.

“Competition will certainly intensify, but, at the same time, there’s no better place in the world if you’re in the theme park industry than Asia right now.” “What we have in terms of our competitive advantage is obviously our brand, our stories and our characters,” Kam says. “All of them really come to life within our theme parks, and our guests want to come and meet their favorite characters and experience their favorite stories firsthand. These are our foundation for sustainable growth.” As Hong Kong Disneyland celebrates its 10th anniversary in 2015, there are big plans underway and exciting times ahead, with new products and attractions lined up for the next four years. In October, it will unveil its newest attraction, a nighttime parade called “Disney Paints the Night” which will be similar to the parade at Disneyland in California but will be specifically tailor-made for Hong Kong. With 20 years of experience as an executive driving sales of consumer goods, including famous soft drink Behemoth Coca-Cola, Kam has had a vastly different role in the past six years leading Hong Kong Disneyland. “With a product like ours, a resort, what we are really creating for our guests is a memory that will last for a lifetime,” he says. “And we do our best to make that magical moment come alive for them every time they come to our park.”

biz.hk 9 • 2014

UniGroup Relocation is the largest commonly branded global mobility network with nearly 1,200 locations serving more than 180 countries across 6 continents. Our broad range of preassignment, transportation and destination services will support your assignees along every step of the journey, from beginning to end. Built on the heritage of the U.S.’ largest and most experienced moving companies – Mayflower and United Van Lines – UniGroup Relocation provides the unique benefits of a common voice, a consistent standard of quality and unsurpassed local knowledge. Contact the regional office nearest you. Americas: americas@unigrouprelocation.com EMEA: emea@unigrouprelocation.com Asia/Pacific: apac@unigrouprelocation.com UniGroupRelocation.com/amchamhk

CHINA BUSINESS

As the central government began to increase its efforts to cool down the property market in 2010, bank financing has become more difficult to lower case for many small- and medium-sized real estate developers in China, leading to a rise in demand for lending from the shadow banking sector in an unregulated market estimated to account for as much as 55 percent of the country’s GDP

By Ada Choi

n recent years, domestic banks in China have been more cautious in lending to the real estate sector, and bank loans have become increasingly difficult to obtain. As a result, more developers are seeking alternative sources of funding to finance their growth and expansion. One option is to raise debt through the shadow banking market. The shadow banking system in China encompasses a collection of non-bank financial intermediaries that provide services similar to commercial banks but are not subject to banking regulations. There are a wide range of such intermediaries, including underground banks, microcredit companies, off-balance sheet loans for domestic banks, private equity funds and trust products.

Shadow banking The most regulated component of China’s shadow banking system is the trust market, which is bound by the Trust Law and supervised by the

China Banking Regulatory Commission (CBRC). China’s trust sector has expanded almost 10 times in the past five years from RMB 1.24 trillion in 2008 to RMB 10.9 trillion in 2013, bypassing the asset size of the insurance sector. The trust sector now accounts for about 20 percent of China’s GDP. Trust products can be sold directly to individual investors as collective investment products but are subject to a maximum limit of 200 holders. Alternatively, a trust company can design a trust plan according to a commercial bank’s specifications. The commercial bank then raises funds under its brand through a package of “wealth management products” (WMPs) for retail investors, and funnels the capital to the counterpart in the form of trust loans. By doing so, the loans will not be added to the official loan quota on the bank’s balance sheet. WMPs are therefore a major type of off-balance sheet loan. This relates to the point that

products are starting to overlap and are involving more complex structures. The size of the shadow banking sector in China is estimated by various institutions to fall in the range of US$3.5-5 trillion, accounting for as much as 38 to 55 percent of the country’s GDP. However, calculating its exact size is not easy, especially in areas where there is a lack of an established legal framework to regulate activity.

Supply & demand Small and medium-sized enterprises (SMEs) have long been the backbone of China’s domestic economy, contributing up to 60 percent of national GDP. However, domestic banks are highly reluctant to lend to these companies, many of which are small property developers. Consequently, over 90 percent of SMEs are reportedly unable to obtain loans from domestic banks whilst 62 percent can only rely on private loans, according to a survey conducted by

biz.hk 9 • 2014

the China Federation of Industry & Commerce in 2012. Under these circumstances, the shadow banking system has emerged to meet the borrowing demand of SMEs. China’s economy grew at a company annual growth rate (CAGR) of 9.8 percent between 2000 and 2013. However, its M2 (an indicator of broad monetary supply) grew at a CAGR of 17.7 percent during the same period, far outpacing GDP growth. The increased money supply floating in the economy is pushing investors to aggressively search for investment products. Because restrictions on the movement of capital prevent a lot of this money from going abroad, there needs to be a domestic channel for it to flow into for investment purposes. However, there are limited investment channels, as bond and equity markets are underdeveloped and volatile. Property investment is also now subject to far more restrictions. Liquidity is therefore being pushed to other channels such as shadow banking and offshore investments.

biz.hk 9 • 2014

Impact on developers The China property sector is highly fragmented, with over 85,000 developers. There is a very big pool of small local developers with varied quality and experience. Traditionally there have

been three key sources of funding for Chinese developers: proceeds from the pre-sale of new properties, bank loans and fund-raising in the capital markets. After the central government began to increase its efforts to cool down the property market in 2010, the domestic capital markets for Chinese

Major Components of the China Shadow Banking Sector Components

Characteristics

Trust investment products

• Size: RMB 10.9 trillion in 2013* • Can be a collective trust with a maximum of 200 holders or a single unit trust entrusted to banks for distribution • Regulated under the Trust Law and supervised by the China Banking Regulatory Commission (CBRC)

Wealth management products

• Structured investment products with a wide range of underlying assets distributed via commercial banks • Can be securitised trust loans as a major type of off-balance sheet loan

Private lending

• Includes a range of lending institutions such as underground banks, microcredit companies, internet credit, private lending and private funds

Source: CBRE Research, Q2 2014.

* China Trustee Association

developers essentially shut down. At the same time, domestic banks turned more cautious towards the sector due to increasing risks. Most A-share listed developers still have access to domestic bank loans, but bank financing has become more difficult to obtain for small- to medium-sized developers. Hence, proceeds from pre-sales have become the major source of funding for smaller developers, meaning that their cash flow has become largely dependent on the pace of pre-sales. The central government’s introduction of a number of austerity measures in recent years to slow down the real estate market has also resulted in a slowdown in sales, greater uncertainty over the rate of pre-selling and a squeeze on profit margins. In a good year such as 2013 when property sales were booming, developers had the means to embark upon more acquisitions and expansion. However, in a more challenging year such as 2011, developers had to rapidly scale down their expansion, and in some cases even had to slow or suspend construction activity on new projects.

Defaults Since the beginning of 2014, there have been a number of significant defaults. In the real estate sector, Xingrun Real Estate, a local developer based in Fenghua, Zhengjiang, collapsed in March, leaving a total of RMB 3.5 billion (US$556 million) of

Size of the debt market in China Public Debt RMB 26.9 Trillion US$4.4 Trillion

Private Debt RMB 101-110 Trillion US$17-18 Trillion RMB 80 Trillion US$13.2 Trillion

RMB 21-30 Trillion US$3.5-5 Trillion RMB 18.4 Trillion US$3 Trillion

GOVERNMENT BOND

RMB 8.5 Trillion US$1.4 Trillion

CORPORATE BOND

SHADOW BANKING

BANK LENDING

Source: CBRE Research, Asian Bonds Online, PBOC, Moody’s, S&P, Fitch, Q4 2013. Note: Government bonds include obligations of the central government, local governments, the central bank, and state-owned entities.

unpaid debt. The company has a number of residential projects, all located in Fenghua, a tier III/IV city. Out of the RMB 3.5 billion of unpaid debt owed by the company, approximately RMB 2.4 billion was

obtained from banks and the remainder from sources of private loans such as the shadow banking sector. The company reportedly had to pay interest rates of between 18-36 percent on its private loans. This high-profile default

biz.hk 9 • 2014

has put the spotlight on the distressed situation facing many developers in lower tier cities where market conditions are deteriorating rapidly, primarily due to oversupply. Concern over shadow banking is expected to result in credit tightening of alternative financing channels. Going forward, it will become more difficult to raise funds for new trust or wealth management products. As inflation pressure has come down substantially as internal consumption has softened, there is less pressure to raise the policy interest rate and more leeway to loosen monetary policy. Small- and medium-sized local developers in lower tier cities that have largely been reliant on the pre-sale financing model will be more exposed to risks arising from the slowdown in pre-sales and availability of working capital. More defaults in the China property sector are expected but only within the tolerance level of the central government as authorities want to ensure lenders are more vigilant towards controlling the quality and volume of their lending.

Near future For a nation as big as China there is no way to avoid bad loans. The shadow banking issue requires the government to create a sound and enforceable legal framework on loan defaults and bankruptcy. There needs to be a more comprehensive legal framework covering the

biz.hk 9 • 2014

different types of financial intermediaries in order to raise the transparency and sophistication of loan underwriting. At the same time, there is a pressing need to modernize the Chinese banking sector and introduce a more effective credit evaluation scheme so that banks can effectively price loans. However, banking sector reform in China is a broader issue and will take time to resolve. There is still a need for the existence of the shadow banking sector as a counterpart to the banking system and as a means to offer a wider variety of services to fulfill the needs of the Chinese economy, which continues to grow in size and complexity. Increasing concern over the shadow banking system has led the central government to increase its oversight on trust products. As a result, the amount of capital raised through trust loans fell by 79 percent year-on-year in April 2014. The shadow lending pool is likely to shrink or at least grow at much slower rate in forthcoming quarters. Despite the short-term uncertainty over the resolution of the overexpansion of the lending market and problematic lending, the long-term outlook for economic growth in China remains largely positive. The current situation presents a window of opportunity for investors to negotiate lower prices and yield-enhancing investment terms on projects in upper tier cities where the demand-supply situation is more balanced.

About the author

Ada Choi is Senior Director of CBRE Research Asia Pacific and is a Certified Financial Analyst. She acts as the leader of real estate capital market analytics within the Asia Pacific team to assist the delivery of researchbased strategic advice to key real estate investment clients. She is responsible for leading the team to monitor investment activity, including capital flow, price movement and investment strategy. Choi plays a major role in producing regional research publications and thought leadership papers. These papers include pan-Asia topics such as “Asian REITs Return to Acquisition Mode,” and country-specific analysis such as “China HighSpeed Rail and the Promotion of Regional Urban Development.” Prior to joining CBRE, Choi worked for Hong Kong Exchanges and Clearing’s Planning and Research team, where she focused on financial market development trends of leading financial centers around the world.

ENTREPRENEURS/SME

hile some in Hong Kong are fortunate to have a private driver, what if everyone could have one? Uber, a mobile app connecting drivers and passengers at the touch of a button is a business model with the belief that everyone can, and should. A globally successful – and often controversial – phenomenon, Uber has launched in more than 150 cities worldwide since the company was founded in 2009, including four cities in Mainland China and, as of June this year, Hong Kong. The concept is seemingly simple: download the Uber app, input contact and credit card details, and order a car whenever and wherever. Sam Gellman, General Manager for Uber Hong Kong, believes the app will be a welcome addition to Hong Kong’s transportation landscape in a city known for the movement of millions of commuters on a daily basis. Gellman has been with the company for a bulk of its international launches, including Amsterdam, London, and most recently, Shanghai. Before joining Uber, Gellman attended Stanford University and worked at Goldman Sachs for six years in Hong Kong, a place he wholeheartedly calls home. “Hong Kong is a technology forward city. It’s a city that’s ahead of the curve and ahead of the game,” says Gellman. “[It] recognizes the importance of innovation and wants to make sure that startups can thrive here. That environment makes it exciting to be here.”

An Exclusive Ride Unlike Others

A globally successful and often controversial phenomenon, Uber has launched in more than 150 cities worldwide since the company was founded in 2009, including four cities in Mainland China and, as of June this year, Hong Kong. Sam Gellman, General Manager for Uber Hong Kong, believes it creates tremendous opportunities by connecting riders to drivers through a highly interactive platform in a densely populated city

Debut in HK The company first dipped its toes into the Hong Kong market with a “pop-up” during the raucous Hong Kong Sevens festivities, posting a conversational “Uber’s Guide to

By Blessing Waung

biz.hk 9 • 2014

Avoiding Mauls at the Sevens” on their global blog. With the near impossibility in securing taxis and massive crowds in the MTR, the company provided a welcome alternative mode of transport, and an opportunity for Uber to change the market. The Uber office in SoHo has all the trappings of a startup in San Francisco, with glossy new Apple desktops, marked-up whiteboards and half-full coffee mugs. Currently, there are only three employees working full-time in the office – a majority of Uber employees come from backgrounds with name brand universities and/or experience in the finance sector – but that stands to grow. The company’s latest valuation stood at US$18.2 billion, a drool-worthy number ubiquitous in tech blogs and in the minds of venture capitalists. “We are a startup everywhere we go,” says Gellman. “Every city we enter, it’s just three of us trying to build a business. You need to be scrappy. We need to figure out how to solve problems and we don’t have the resources we otherwise might. The city’s been good to us. It’s hard to say we’re in the same position as a startup because we’re well-funded.” In fact, Uber has received strong support and endorsement from partner organizations such as The Hive in Wan Chai as well as Startup HK as strong initial advocates. “Some of the obstacles startups run into in Hong Kong, such as real estate prices, we don’t run into as much,” Gellman notes. “That said, there is a really burgeoning ecosystem here for startups.” Uber aims to collaborate with local startups as much as possible, he adds.

Constant innovation It is nearly impossible for one to keep up-to-date with Uber’s latest

Airport on Lantau Island, and about HK$100 more from Hong Kong Island.

A growing network

Sam Gellman

offerings without religiously monitoring its development, as every week there seems to be a new innovation. Marketing techniques include getting local celebrities on Instagram such as coolhunter Roberto De Rosa or model Amanda Strang to ride in sleek Uber Black vehicles and posting “selfies.” Most recently in mid-August, Uber launched its taxi service, enabling taxi drivers to log into the app and connect with users who simply wish to catch a cab. “Hong Kong citizens are very tech savvy so I think the idea of a cashless taxi transaction that’s initiated via an app will also contribute to its forecasted success,” says Arnold Aranez, regional research and development lead at AIA group and an active Twitter user, with more than 100,000 followers. “It is exactly like a normal taxi ride except when you get to your destination you don’t have to reach into your pocket (physically) – just say thank you and leave,” says Aranez. “I also believe UberTaxi HK will raise the level of service by allowing users to rate each driver.”

Indeed, on Twitter, users excitedly touted the app as a way to reach a “cashless society,” one in which Hong Kongers will only have to carry their phones, Octopus and credit cards. Easy Taxi, an app that similarly includes GPS navigation and real-time positioning, has been available in Hong Kong since the beginning of this year. “With Easy Taxi, you still have to use cash and in most cases still have to clarify where you are going, even after entering your destination,” says Aranez.

A driver of my own At its genesis, Uber was meant to be a bespoke service. Indeed, the app was originally conceived to be a traditional black-car service for a group of friends who dreamt about having a Mercedes arrive at their request. It has since turned out to be much more – an exclusive experience open to public, and tested by biz.hk (Editor’s note: A ride was arranged and fully paid for without the knowledge or involvement of the company).

Shortly prior to the ride, Uber driver Kwai Fuk has been waiting in front of Hutchison House in Central standing with the door open. Cheery and dressed in casual chauffeur garb, his greeting is a cheery “Hello, I am your Uber driver,” opening and closing the door. The first thing noticed about the beige Toyota Alphard is that there’s an Uber-issued iPhone attached to the car’s windshield, and two more smartphones perched in the console tray. Playing it safe, he still consults a paper map to reassure the exact location when told “Staunton Street, please.” There’s intense pressure on Uber drivers to arrive at their pickup locations as quickly as possible, Kwai Fuk says. Since the app gives passengers a minute-specific estimated time of arrival, drivers are expected to arrive sometimes within three minutes of taking an order. The level of English proficiency among drivers varies, with many of them more accustomed to speaking in Cantonese and Mandarin. Crucially,

biz.hk 9 • 2014

though, unlike some taxi drivers in Hong Kong, they’re trained to ask passengers, “Which cross-harbor tunnel would you like to use?” One major technical hurdle Uber has faced in the Hong Kong market thus far is a systemic global positioning system (GPS) problem – which is very common in urban areas of countless skyscrapers. Glitches in GPS precision can create difficult situations in which the driver and passenger are misinformed about the other’s position.

Supply & demand Uber has run into vehement opposition from taxi drivers in major markets such as London, New York and Taipei, with tens of thousands of drivers taking part in protests. Most recently in July, the Seoul city government said it would seek a ban on the app, while also launching its own organic app scheduled for December, featuring many Uber-like amenities such as geo-location data on taxis and driver ratings. The municipality of

biz.hk 9 • 2014

Berlin, Germany has also banned Uber. “You have an industry that’s very, very used to the status quo,” says Gellman. “It’s an industry that hasn’t really changed a whole lot for thirty to fifty years.” When asked about industry resistance in Hong Kong, though, Gellman says that there has been “no backlash” so far. “Uber doesn’t own a single car anywhere in the world,” he points out. “We’re just a technology platform. The cars that we work with are the same cars at the Mandarin Oriental and the Four Seasons.” According to Gellman, five-star hotels all rely on the same network of limousine providers in town for their needs of VIP and celebrity transportation. “Our view is that really nice rides shouldn’t just be for celebrity, out-oftown people or only at hotels,” says Gellman. “They should be for anyone who wants one, where and when they want it.” Here in Hong Kong, it costs HK$500 to get from Kowloon to the

Gellman is quick to point out the Uber’s ability to create jobs. According to him, the company is currently creating 20,000 jobs per month around the world. “The more drivers we have, the more money the drivers make,” says Gellman. “The more drivers you have, the less wait time, and your arrival times can go from 12 minutes to three minutes. When consumers start using it, and they’re thinking, ‘Holy cow, I can push a button and there will be a car downstairs in two minutes.’ That’s crazy.” Uber, however, is tightlipped when it comes to exactly how many drivers are already on the road in Hong Kong. Instead, “you have a product here that’s providing people with choice. That’s creating a higher-end option and getting people to stop using their own cars,” says Gellman. “We hear all the time people who say they’d rather not buy a car, they’d rather just use Uber. You’re taking cars off the road in the end.” “The opportunity for licensed operators to supplement their income is enormous,” says Gellman. “Every now and then in China, there would be a 30-minute glitch in the server. It was our drivers who would complain the most, saying I want to be back on, I want to be making money, and I want to be building my business. Riders would get frustrated, but it’s the drivers that really grow to build businesses off Uber.” “These guys take their rating very, very seriously,” he says. “You need to deliver good service if you’re on the platform, and there’s a constant feedback loop. Good behavior is constantly being reinforced. “When Uber is really in its groove, the efficiency is incredible. All that is in line with what Hong Kong is going after.”

INTELLECTUAL PROPERTY

n o l l i B s ’ n g o n l o il K B g Kong’s ng WWhhyy HHoon s i s t n e is s m t n d e n e m d men Am ghhtt A CCooppyyrriig C C G G U f U f o o e e u u s s s s I I e e on th ighhtt o RRig r Ficso r. M Dr. iháályly Ficsor Mih BByy D

he issue of user generated content (UGC) concerns key aspects of copyright, and governments around the world are diligently working to determine the best approach to it. I was the Assistant Director General of the World Intellectual Property Organization (WIPO) in charge of copyright during the negotiation and adoption of the two WIPO “Internet treaties.” Moreover, the first thorough interpretation of the “threestep test” for exceptions was made by a WTO panel in which I was the intellectual property expert (see WTO document WT/DS/114/R). For this reason, I followed with interest the preparation of the Canadian provisions on UGC, and I pointed out the unintended consequences they might create, in particular, the possible conflicts with the WIPO Treaties and the three-step test (see www.copyrightseesaw.net). In the meantime, the issue has also been addressed in the framework of the recent European Union consultation on the future of copyright, in which I intensively participated as the chairman of the working group on UGC in my country. I have noted with satisfaction that the draft White Paper recently published by the European Commission summing up the results of the consultation has adopted a prudent approach, which accords with our main suggestions. This is why I also follow with attention the preparatory work of the copyright amendments in Hong Kong where the issue of UGC has also surfaced. There are at least seven reasons for which Hong Kong policy makers are right to follow the judicious European approach rather than rushing to legislate on UGC as a generic concept. The first reason is that the Copyright (Amendment) Bill 2014 does address the issue of UGC where it is necessary for establishing due balance of interests, for guaranteeing freedom of expression and for providing an adequate legislative basis for flourishing creativity of online users – but only there. The Bill contains provisions on parody, a typical form of UGC creation, which truly should not be subjected to authorization by the authors of the “targeted” works because it could unduly restrict the freedom of

expression. This has been a concern in the EU as well; the above-mentioned draft EC White Paper points out exactly the availability of exceptions for parody, quotations and incidental use of works when it concludes that no general UGC exception is needed. The Hong Kong Bill also includes provisions on a quotation exception; this is specifically provided in Article 10(1) of the Berne Convention under strict conditions for certain purposes such as commenting on existing works. In view of this, it is not clear what else the separate exception for “commenting on current events” might mean under the Bill. In order to avoid possible conflicts with the international treaties, it would be advisable to clarify and narrow the scope of that exception, preferably along the lines of Article 10bis of the Berne Convention. Secondly, the concept of UGC is too broad and vague. As a result, a general exception for UGC may hardly meet the first condition (“step”) of the internationally agreed Berne three-step test, namely that an exception may only be provided in a special – limited and duly determined – case. This would also be true if the concept were somewhat narrowed to adaptation of existing works by users. The third reason is that opening the gates broadly, for any kind of UGC, might also lead to conflicts with authors’ moral right under Article 6bis of the Berne Convention to oppose any alteration of their works that would be prejudicial to their honor or reputation. The fourth reason is that, in fact, there does not seem to be any real need to legislate on UGC as a general concept. The situation is not different in Hong Kong from the EU, and the above-mentioned draft EU White Paper notes: “There is a lack of evidence that the current legal framework for copyright puts a brake on or inhibits UGC (absence of ‘chilling effect’)”. The fifth reason is that the criterion frequently presented as a guarantee to avoid conflicts with normal exploitation of works – namely that a general UGC exception would only be applicable in the absence of commercial purposes – is hardly a true guarantee. Photo: Thinkstock

biz.hk 9 • 2014

If an unauthorized adaptation (see Article 12 of the Berne Convention) is uploaded on the Internet without profit-making purposes, its impact on the normal exploitation of the works concerned (the second part of the “three-step test”) is hardly different from the case where profit is a purpose! (The difference is not in the loss caused to the owners of rights but only in the profit gained by others). It is notable that even if the adaptation does not generate profit for its creator, the websites on which UGC adaptations are included are themselves usually profit-oriented (based, in general, on advertisement money). The sixth reason is that appropriate licensing mechanisms have been developed and are ever more broadly offered by owners of rights and their representative bodies. The EC White Paper mentions this as a fundamental means of facilitating UGC creation. The system outlined on the www.ugcprinciples.com website and applied in practice on YouTube by Google is also a good example. The final reason is a genuine “last but not least” one and may also serve as a summary: “Mash-ups,” “memes,” and similar electronically generated secondary productions based on existing works are widespread new forms of creativity, which in certain specific cases such as parody should be supported by fine-tuned exceptions. However they may not be regarded as being able to come anywhere close to replacing “mainstream” original works requiring serious creative efforts and financial investments. Possible exceptions aimed at facilitating secondary productions must not endanger the sustainable creation and production of the primary works. The draft EC White Paper warns that, although new exceptions may result in easier access in the short term to existing works for certain uses, “[t]he economic incentive to create and to invest in new works could weaken, with the dynamic, medium- to longer-term effect being that the production of creative content could be reduced.” This would be a most undesirable outcome; it is a key reason why the EU is not accepting the principle of a broad UGC exception. I believe Hong Kong has solved the freedom of expression issue through the exceptions mentioned above, and implementation of a broad UGC exception by Hong Kong would be unwise, unnecessary and inconsistent with the WIPO system’s rules.

About the author Dr. Mihály J Ficsor is Chairman of Central and Eastern European Copyright Alliance and a member of WTO’s intellectual property panel for dispute settlement. He also serves as a member of the Board and Honorary President of the Hungarian Copyright Experts Council, Honorary Chairman of the Hungarian Copyright Forum Association and a member of the Executive Committee of the International Intellectual Property Association as well as Chairman of the Central and Eastern European Copyright Alliance with permanent observer status at WIPO. Dr. Ficsor served as a judge at the Central District Court of Budapest from 1966 to 1968, and was Section Head at the Codification Department in the Hungarian Ministry of Justice from 1969 to 1975. From 1975 to 1985, he was Director General of the Hungarian Copyright Bureau. In 1981 and 1982, he was also Chairman of three WIPO-UNESCO working groups for the adoption of IP-related guidelines, and in 2003 and 2004 co-chaired a group for the UNESCO Convention on the Protection and Promotion of Diversity of Cultural Expressions. Between 1985 and 1999, Dr. Ficsor worked as Director and later as Deputy Director General of the World Intellectual Property Organization in charge of copyright and related rights. He is recognized as having played a decisive role in the preparation, negotiation and adoption of the so-called “Internet Treaties,” including the WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty.

biz.hk 9 • 2014

MARK YOUR CALENDAR Sep The Changing Landscape of US Business and Society

Ken Mehlman, Member and Global Head of Public Affairs, Kohlberg Kravis Roberts & Co, LLP

Please join us for a luncheon meeting for a discussion on “The Changing Landscape of US Business and Society: How global investors and companies can simultaneously create value for their shareholders and stakeholders impacted by their operations.” Ken Mehlman is a member at Kohlberg Kravis Roberts & Co, LLP and serves as Global Head of Public Affairs helping KKR assess and improve the companies in which it invests by better understanding and managing geopolitical risk and engaging with their key stakeholders. He also oversees the firm’s global external affairs activities, including corporate marketing, regulatory affairs and public policy & communications. Mehlman spent a dozen years in national politics and government service, including as 62nd Chairman of the Republican National Committee and Campaign Manager of President Bush’s 2004 re-election campaign, in addition to high-level positions in Congress and the White House. Mehlman, who currently lives in New York City, is Chairman of the Private Equity and Growth Capital Council. He is a trustee of Mt Sinai Hospital of New York, Franklin & Marshall College, American Foundation for Equal Rights, Sponsors of Educational Opportunity (SEO) and the Ideal School of Manhattan. He also serves as Co-chairman of the American Enterprise Institute’s National Council and a member of the Council on Foreign Relations.

Sep 2014 Global Human Capital Trends and China Data Analysis

Jungle Wong, Partner, Human Capital Advisory Services, Deloitte Touche Tohmatsu Deloitte recently released the Global Human Capital Trends 2014 Report based on interviews with 2,500 business and HR chiefs worldwide. Only one in four senior executives rated their HR teams as capable of delivering excellent or good capabilities, highlighting challenges facing organizations in leadership, retention and engagement. The key question is: what are we doing today to get in front of these trends? Jungle Wong will address a number of the key issues in an analysis in this luncheon talk. Jungle Wong is the practice leader of Deloitte’s Human Capital Advisory Services (HCAS) in Asia Pacific and the management partner of HCAS in China. He is a specialist in the areas of HR transformation, HRIS implementation, talent management and leadership, organizational design, and change management. Wong has substantial experience in working with MNCs and SOEs, particularly in the financial services, manufacturing and life science industries. Key clients of his include UBS, China Development Bank, China Investment Corporation, and China Machinery. Before joining Deloitte, Jungle was a partner at Arthur Andersen and a director for Bearing Point.

How are Chinese SOEs and POEs viewing and

Sep capitalizing on the booming insurance industry in China?

Johnny Chen, Chairman of China, Zurich Insurance Group China is expected to surpass US, Japan and the UK by 2020 to become the largest insurance market in the world. A lot of state-owned enterprises (SOEs) are setting up their insurance arms to complete their kingdoms in the financial sector, while a number of private enterprises are also trying to leverage insurance as a way to diversify their businesses. What opportunities will it present to the financial services industry in Hong Kong? Johnny Chen is currently the China Chairman for Zurich Insurance Group. Prior to December 2013, he was the CEO, Asia Pacific General Insurance for Zurich. Chen joined Zurich in March 2005 as CEO to establish and lead the Group’s operation in the Greater China region. His responsibility was extended to cover the Southeast Asia region and later the entire Asia Pacific region. Prior to joining Zurich, Chen was an executive member of the Greater China Management Board and of the Operating Committee of PricewaterhouseCoopers (“PwC”). He was also Managing Partner of PwC’s Beijing office. During his 12-year tenure at PwC, he played a vital role in the evolution of China’s capital market and related professional service industries by advising leading Chinese companies in numerous transactions.

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

Tel: (852) 2530 6900

Fax: (852) 2810 1289

Venue: Conrad Hong Kong Hennessy Room (7/F) Pacific Place 88 Queensway Admiralty, Hong Kong

2014 Sep 01

Mon

Tue

Wed

Thu

Fri

Sat

Sun

Mon

Tue

Wed

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

Thu

Fri

Sat

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

Sun

Mon

Fee(s): Member: HK$280 Non-member: HK$380

Tue

Wed

Thu

Fri

Sat

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

Sun

Mon

Tue

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

Wed

Thu

Fee(s): Member: HK$280 Non-member: HK$380

Fri

Sat

Sun

Mon

Tue

Time: 12:00 - 02:00pm Fee(s): Member: HK$580 Non-member: HK$680 Corporate table: HK$7,300

Email: byau@amcham.org.hk

THE AMERICAN CHAMBER OF COMMERCE IN HONG KONG

FAST FACTS COMMUNITY AmCham celebrates over 45 years of promoting business and fostering greater trade ties and community service in Hong Kong

ACTIVITIES Members can access more than 400 programs, seminars, and conferences each year featuring top business and government leaders, industry experts and professional facilitators who address timely and relevant business issues. MEMBERS Over 1,700 members (40 different nationalities) from over 800 organizations, including multinational firms, small and medium enterprises, entrepreneurs, and non-profit organizations. COMMITTEES Our members can join and access up to 28 different committees covering industry sectors, professional service sectors, and special segments of the membership.

The American Chamber of Commerce in Hong Kong 1904 Bank of America Tower 12 Harcourt Road, Central, Hong Kong T: (852) 2530 6900 E: amcham@amcham.org.hk www.amcham.org.hk

BUSINESS NETWORKING

INFORMATION

VISIBILITY AND CORPORATE EXPOSURE

ADVOCACY

ACCESS

1-6 Dec 2014 Hong Kong Convention and Exhibition Centre

SHAPING THE FUTURE Registration and Programme Details

Programme Highlights Main Conference

International Knowledge Transfer Conference

Tech Forums

FT Innovate

APAC Innovation Summit @ PRD

Investment Conference

Hong Kong Technology Showcase @ IDT Expo

Networking Cocktail and Dinner

Featured Speakers Mr Yaakov Peri Minister for Science, Technology and Space, Israel

Mr Jean-Pascal Tricoire Chairman & CEO, Schneider Electric SA

Mr Bin Lin Co-founder, President of Xiaomi

Mr Li Dongsheng Chairman of TCL Communication