AmCham biz.hk Mar 2016 by The American Chamber of Commerce in Hong Kong

JOURNAL OF THE AMERICAN CHAMBER OF COMMERCE IN HONG KONG

March 2016

www.amcham.org.hk

THE PARADOX OF CHINA

DIRECTOR EMERITUS OF MCKINSEY

GORDON ORR

INDUSTRY FOCUS:

March 2016 • VOLUME 48 NUMBER 3

HEALTHCARE PROVIDERS

March 2016

Contents

Vol 48 No 3

Publisher

Richard R Vuylsteke

Editor-in-Chief Kenny Lau

Managing Editor

COVER STORY

Gordon Orr, Director Emeritus and Senior Adviser of McKinsey and a renowned expert on contemporary economics of China responsible for establishing McKinsey’s China practice in the early 1990s, illustrates “an increasingly diverse, volatile, US$11-trillion economy whose performance is becoming more difficult to describe as one dimensional”

Leon Lee

Assistant Advertising Sales Manager Tom Chan

AMCHAM NEWS AND VIEWS 04 April 15: A Stark Reminder of a Regressive Income Tax Policy (For Expats)

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, 2016 Library of Congress: LC 98-645652 Single copy price HK$50 Annual subscription HK$600/US$90

Without a comprehensive, simultaneous reform of the US individual and corporate tax codes, Americans overseas are rendered unemployable while US companies will be reluctant to diversify their investment in foreign markets

06 New Business Contacts 24 executives recently join AmCham’s business network

07 New Member Spotlight Each issue, biz.hk highlights a recently joined AmCham member. For this issue, we speak to Linda Wang, Head of Sales and Business Development, delivery.com

64 Mark Your Calendar

COVER STORY 08 The Paradox of China: Sluggish Growth & Economic Proliferation Gordon Orr, Director Emeritus and Senior Adviser of McKinsey and a renowned expert on contemporary economics of China responsible for establishing McKinsey’s China practice in the early 1990s, illustrates “an increasingly diverse, volatile, US$11-trillion economy whose performance is becoming more difficult to describe as one dimensional”

FINANCE & ECONOMICS

16 In Defense of Hong Kong’s Currency The Linked Exchange Rate System (LERS) has come under public scrutiny as the Hong Kong dollar weakened to a four-year low against the US dollar. Despite market speculations on a potential de-peg, it is no cause for concern, according to HKMA

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16 FINANCE & ECONOMICS The Linked Exchange Rate System (LERS) has come under public scrutiny as the Hong Kong dollar weakened to a four-year low against the US dollar. Despite market speculations on a potential de-peg, it is no cause for concern

36 CHINA BUSINESS

HEALTHCARE

A 30-member AmCham delegation made an exploratory trip to Zhuhai – to meet with Chinese officials and business leaders and to learn more about business opportunities in a region well-positioned to become an economic powerhouse

INDUSTRY FOCUS

22 The Latest and Greatest in Medical Innovation A survey of twenty-two pharmaceutical companies and healthcare providers in their latest development of cutting-edge medicines and health-related initiatives across the globe

FISCAL POLICY

28 Expenditures amid a Pessimistic Outlook Three renowned professional services firms – PwC, Deloitte and EY – share their insights on the 2016-17 Hong Kong Budget as Financial Secretary John C Tsang has recently unveiled a range of proposals on government spending for the coming year

32 2016/17 Hong Kong Budget: Business as Usual The government’s proposed measures are essential steps to help Hong Kong maintain economic development. However, many are questioning whether the latest Budget is doing enough, given the current market outlook

CHINA BUSINESS

36 Closer Economic Partnership in PRD A 30-member AmCham delegation made an exploratory trip to Zhuhai – one of the three key areas in the Guangdong Pilot Free Trade Zone – to meet with Chinese officials and business leaders and to learn more about business opportunities in the region

Concerns regarding a marketing ban on infant formula indicate a call for a more suitable regulation that places a top priority on children’s health and finds a balance while protecting the rights of the trade and consumers

HEALTHCARE

44 Marketing Ban on Milk Formula in a Free Market Economy Concerns regarding a marketing ban on infant formula indicate a call for a more suitable regulation that places a top priority on children’s health and finds a balance while protecting the rights of the trade and consumers

48 In Search of a Sustainable Pipeline Antibiotics are postulated to have saved millions of lives but are also becoming increasingly ineffective due to the rise of antimicrobial resistance. To stop the spread of superbugs, a truly unified response from the global population is necessary

52 The Labelling of Genetically Engineered Food In a conversation, Alison Van Eenennaam, an expert in genomics and biotechnology, discusses the safety of genetically modified food for human consumption and challenges associated with mandatory labelling

56 Taking Care of Your Heart Danica Yau, Medical Affairs Specialist at Wyeth Nutrition Hong Kong, provides an easy-to-understand guide to a heart-healthy diet as heart diseases are the third leading cause of death in Hong Kong

TAXATION

40 A Basic Guide To Filing Your US Tax Returns With the fast-approaching deadline of April 15 for filing US tax returns despite an automatic two-month extension for Americans abroad, here are 10 basic tips to making your annual US tax filing as stress-free as possible

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Board of Governors Chairman Vice Chairman Treasurer

Walter Dias Steve Lackey Sara Yang Bosco

Executive Committee Evan Auyang, Sean Chiao, John (Jack) E Lange, Alan Turley, Jennifer Van Dale Governors Donald Austin, Owen Belman, Elaine Cheung, Diana David, Sean Ferguson, Robert Grieves, Matthew Hosford, Clara Ingen-Housz, Michael Klibaner, Simon Ogus, Seth Peterson, Anna-Marie Slot, Catherine Simmons, Eric Szweda, Patrick Wu, Lennard Yong Ex-Officio Governor President

Peter Levesque Richard R Vuylsteke

Chamber Committees Apparel & Footwear Ball China Business Communications & Marketing Corporate Social Responsibility Education Energy Entrepreneurs/SME Environment Financial Services Food & Beverage Hospitality & Tourism Human Resources Information & Communications Technology Insurance & Healthcare

Mark Green Sara Yang Bosco Diana David Devin Ehrig Lili Zheng Oliver Rust Pat-Nie Woo Virginia Wilson Rick Truscott Cynthia Chow Laurie Goldberg Jim C Taylor Steven Chan Veronica Sze Mark Kemper Peter Liu Benny Lee

Rebecca Harrison Hanif Kanji Gabriela Kennedy Intellectual Property Jenny Wong Chiann Bao Law Jessica Bartlett Joyce Wong Pharmaceutical Edward Farrelly Real Estate Robert Johnston Terrance Philips SelectUSA Lili Zheng Philip Cheng Senior Financial Forum Bianca Wong Senior HR Forum Ivan Strunin Taxation Barrett Bingley Trade & Investment Gavin Dow Transportation & Logistics Jennifer Parks Women of Influence Jennifer Wilson Michael Harrington Young Professionals

biz.hk Editorial

t is around this time of each year when all Americans with any source of income have one particular item their mind: filing their US tax returns and making payment in taxes to the US Internal Revenue Service by the deadline of April 15. It is also a stark reminder to “US persons” – American citizens and permanent residents (Green Card holders) – living and working anywhere in the world outside of the United States that they, too, are subject to the same tax regime as their domestic counterparts. The logic of solely levying federal income tax on any form of income of US expatriates is questioned by every American taxpayer residing abroad, especially those who make a modest living and are without the means to make any market-shaking investment. Whether they owe anything in taxes to the IRS, they still have to file each year. The process of US tax filing itself is already expensive and time-consuming enough – it can be really expensive and time-consuming outside of the US. The United States is indeed the only developed economy with a system of Citizenship-based Taxation in which Americans abroad are taxed on their foreign-earned income – be it from a regular job or any type of earnings. Yes, it somewhat makes sense because an individual, after all, can ultimately become a beneficiary of the US system that somehow needs to be paid for, even as the individual lives elsewhere in the world. The only problem, though, is that it creates a “playing field” far from being “level” for Americans who are simply trying to make a living through their employment overseas and are much less likely to receive any kind of social welfare benefits. When there is a greater number of Americans working overseas, more jobs are also made available domestically. The notion of driving down unemployment by encouraging overseas employment in foreign countries for Americans should be given more credit. Most Americans, unlike their counterparts of other nationalities, can’t afford to live abroad

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APRIL 15:

A STARK REMINDER OF A REGRESSIVE INCOME TAX POLICY (FOR EXPATS)

without having to work (perhaps with the exception of US students on scholarship or international study programs). In other words, they do not choose to live in Hong Kong, Tokyo, London, Frankfurt, Sydney or any other world cities for most, if not all, of the year simply to evade US taxes or hide their assets. Guess what? Traveling out of the country for a prolonged period is not a prerequisite for the criminal act of US tax evasion. Worse yet is the liability to double taxation for which Americans abroad are essentially subject to getting taxed twice – once by the US and another by the country of their residence, unless there is a double taxation avoidance treaty with the country respectively. The maximum amount of foreignearned income which can be excluded from US tax liability under Section 911 of the Internal Revenue Code is US$100,800 for 2015, a relatively low threshold of deduction for those living in high-cost cities. Every other country, including the wealthiest nations in western Europe as well as Canada, Australia and New Zealand, relies on Residence-based Taxation, meaning their citizens overseas are only taxed on a territorial basis by governments of countries in which they work and live, a system deemed “fair, equitable, and efficient.” Americans overseas, on the other hand, are “fiscally penalized” with their foreign tax-free pension funds (a taxable item under US law) and are “highly restricted” in making even the smallest investment. With two vastly different taxation schemes

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side by side on a global basis, Americans – and the US economy – are at a huge competitive disadvantage in a “complex and costly” manner. It “discourages US companies from sending Americans abroad to promote US businesses, creates a major handicap for American entrepreneurs overseas and penalizes Americans working and living abroad.” The irony is that the US has always been an advocate of “leveling the playing field” in matters of international affairs, particularly in cross-border trade. It is to the mutual advantage of all countries if the exchange of goods, capital and services in international trade is not unduly hindered by taxation. Excessive taxation – whether as a result of double taxation or not – can only discourage international businesses, including US multinational companies, from making further investment for long-term, sustainable development – a common goal highlighted repeatedly by governments around the world, including that of the US. Without a comprehensive, simultaneous reform of the US individual and corporate tax codes, there will be no “level playing field,” effectively making US persons unemployable overseas and US companies reluctant to diversify their investment in foreign markets. It significantly undermines the global competitiveness and economic growth of the United States through a self-imposed ceiling – a barrier all Americans should be working to help break, and not build.

New

Business Contacts The following people are new AmCham members: 3M Hong Kong Limited Karen Jin General Manager

Allen & Overy Francois Renard Registered Foreign Lawyer, BEL

Baker & McKenzie

ERM Hong Kong Limited Robin Kennish Managing Partner

EY Treena Nairne Asia Pacific Diversity and Inclusiveness Alexandra Maiden Talent Leader, Financial Services, Asia-Pacific

Si Ying Kong Associate

J.P. Morgan

CenturyLink Technology Solutions

Joy Xu Head of Commercial Banking Hong Kong & North Asia

Jim Kolzlowski

Citi

FTI Consulting (Hong Kong) Limited

Al Demeter CSIS, Regional Director of Investigations

Bob Youill Senior Managing Director, Global Risk and Investigations Practice

Columbia Sportswear Company (HK) Ltd

Harvest Global Investments Limited

Girish Menon Director - Asia Liaison Offices

CXA Group Dawn Soo Chief Wellness Officer/ Head of Hong Kong Office

DHL ISC (Hong Kong) Ltd Stephanie Herminjard Head of Service Delivery, Asia Pacific, ISC Amanda Rasmussen Head of Operations, Asia Pacific / General Manager, South Asia Pacific, ISC

The Dairy Farm Company Ltd. - IKEA Division Ricky Li Assistant Sales Manager, IKEA Business

Pfizer Corporation Hong Kong Ltd Keith Choy Regional President, APAC Consumer Health Care

Philips Electronics Hong Kong Ltd Florence Tse

Schneider Electric (Hong Kong) Ltd Kate Mazzarella Regional Account Manager - APAC (AECOM)

Wynn Macau Linda Switzer Vice President - Retail

Joyce Lui Vice President

InterCall Elaine Chew Channel Sales Manager North Asia

IPSA International (Asia) Limited Bryan La Research Manager

LinkedIn Nathan Khan Enterprise Sales Manager, Talent Solutions

New Narrative Ltd. Joseph Chaney Co-Founder & Partner

View our other members at: www.amcham.org.hk/memberlist

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New Member Spotlight

Linda Wang Position: Head of Sales and Business Development, delivery.com Industry: E-commerce Member since: January 2016

Why did you join AmCham Hong Kong? As our business grew from a grassroots movement to a larger organization in Hong Kong, we hoped to connect with the broader business community to share best practices and to create new business opportunities. Being an American company with headquarters in New York, joining AmCham made sense. Can you tell us a bit about delivery.com? We are an e-commerce platform that empowers local communities by enabling customers to order from their favorite restaurants and shops online. Customers can choose from 200+ high quality merchants such as Cafe Causette, The Mandarin Cake Shop, MANA! Fast Slow Food and Sohofama for home or office delivery. How is business so far? Our business has been growing steadily over the past two years. Hong Kong has really embraced e-commerce and we are fortunate to have carved out a niche in delivery to corporate customers, supporting over 500 corporate clients for events, client and internal meetings, staff lunches and gifting. What advantages does Hong Kong offer to your business? Hong Kong is a fantastic place for a business like ours. Population and restaurant density is high, particularly in the business districts. There is a strong

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demand for convenience and high-quality food, wines and spirits and gifts. Rents are high and competition in the F&B industry is fierce so local merchants have been very receptive of growing their off-site revenue base, particularly from corporate clients. What about challenges? When we first started two years ago, the concept of on-demand e-commerce was still very new. Merchants and customers were very skeptical about service level and the quality of food delivered, particularly higher-end restaurants and corporate clients. Thankfully, over time, a strong emphasis on customer experience has served us well. By treating our merchants as business partners and delivering a high level of customer service, a significant amount of our business now comes from both merchant and client referrals. What are the company goals for 2016? We plan to grow the team this year to duplicate the success we have had with corporate clients in more districts in Hong Kong. Whatâ&#x20AC;&#x2122;s your favorite aspect of Hong Kong? Since moving to Hong Kong seven years ago, I have made friends from all over the world. I love how open-minded and friendly people are here, and the different perspectives and cultures I encounter every day.

COVER STORY

The Paradox of China: Sluggish Growth & Economic Proliferation Slower economic growth, more intense competition, growing overcapacity, a shift to services, new government priorities, and never-ending anti-corruption drives are just some of the challenges facing business leaders in China today. Gordon Orr, Director Emeritus and Senior Advisor of McKinsey and a renowned expert on contemporary economics of China responsible for establishing McKinsey’s China practice in the early 1990s, illustrates “an increasingly diverse, volatile, US$11-trillion economy whose performance is becoming more difficult to describe as one dimensional”

By Kenny Lau

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Gordon Orr

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Photos: Silver Image

ith the slowest growth in 25 years, China appears to have become a poster-child of the latest global market volatility and synonymous with declines in stock markets, equity prices and demand for commodities. The outlook in 2016 for China, despite having generated more than a third of global GDP in 2015, is far less favorable. The shift from phenomenal growth over a decade earlier to moderate development of recent years, however, is only part of the continuing story of the nation’s economic transformation. “The absolute scale of China’s economy is still massive – as are its potential opportunities. Regardless of China’s growth rate in 2016, its share of the global economy – and of many specific sectors – will be larger than ever,” says Gordon Orr, Director Emeritus and Senior Advisor of McKinsey and a renowned expert on contemporary economics of China, in addition to serving on the boards of Swire Pacific and Lenovo. Today, China is “an increasingly diverse, volatile, US$11-trillion economy whose performance is becoming more and more difficult to describe as one dimensional. The reality is that China’s economy is made up of multiple sub-economies, each more than a trillion dollars in size. Some are booming, some are declining. Some are globally competitive, others fit for the scrap heap. How you feel about China depends more than ever on the parts of the economy where you compete.”

Government plans There are few surprises in China’s 13th Five-Year Plan in relation to economic development, Orr believes. A challenge is to interpret the plan’s intent clearly in the backdrop of a new “party speak” of centralization now coming to dominate government pronouncements. “The key word here is implementation” as centralized decision-making is generally effective

on nationwide issues such as monetary and fiscal reforms while others are more industry- and city-specific requiring precise execution at a local level. A six percent–plus target of GDP growth target remains, and is the core objective of fiscal and monetary policies. As such, lower interest rates and pressure on the exchange rate against the US dollar in 2016 are expected, while financial reforms aimed at moving the economy towards a market-based allocation of capital will continue, entailing further progress on interest-rate deregulation, on the IPO process (registration rather than approval) and on permitting new entrants into financial services, Orr points out. “The plan will promote decentralization, but the reality is likely to be greater centralization,” he says. “The Chinese media, especially during President Xi’s increasingly frequent trips abroad, made it clear that economic decision-making has been centralized over the past two years. China will become still more centralized in 2016, rolling back decentralization where it had unintended outcomes.” Decisions will be “re-centralized” when, for instance, the sustainability of production and profitability of state-owned enterprises (SOEs) in the midst of massive government bailouts are questioned. A case in point is when some 150 new coal-fired power plants – more than three times the number approved in 2013 – were pushed forward in the first nine months of 2015 by local governments upon “higher up” approval, regardless of any realistic demand projection or the question whether new plants should be coal-fired at all. Likewise, in Mainland pension funds – controlled largely at the provincial level but covered by the central government in case of any shortfall – there is little incentive at the local level to improve performance as 90 percent of assets are held in bank deposits. “The coming centralization will try to remove perverse incentives

and to professionalize the overall approach to investments,” Orr says, noting also the plan for consolidation of SOEs to create fewer but larger companies, each possibly dominating a specific industry. The central government, he adds, will make big commitments to its citizens on “green initiatives” that local authorities will have to mount a serious effort to deliver. “There will be tougher emissions standards and more spending to support the development of non-fossil fuels. China will explicitly

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build new export engines in green products. Private-sector and stateowned companies will rebrand their ongoing initiatives as green, and green finance will be available.” “Increased ideological conformity, as demanded by the Party’s new rules, is almost by definition centralizing; people look to the top for approval of not just what they do but also of what they say and how they say it,” Orr says. “A major test of the effectiveness of centralization is when consumer confidence starts to decline in 2016.

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Will the central government be able to pull the right levers? No one set of levers is likely to be fit for the entire economy, and it will be one of the greatest test of economic competence.”

China’s labor force China’s latest plan will shine a light on the success in raising productivity of labor over the past decade and the anticipated acceleration of productivity growth, for both capital and labor,

in the coming five years. Over 130 million Chinese workers are directly employed in the manufacturing sector, and increasingly these jobs require technical skills and are better paid, Orr notes. “This has been possible due to the double-digit increases in capital and labor productivity that have helped keep so much manufacturing in China,” he says. “However, it looks like that overall manufacturing productivity growth fell dramatically in 2015; a repetition in 2016 would put great

pressure on corporate profits, wages and jobs. Although only a handful of sectors – steel, coal, chemicals, etc – were responsible for much of this poor performance, but even more competitive sectors were challenged by continued factory price deflation.” More importantly, Orr says, are the implications of higher productivity for workers. That is, the disappearance of many traditional well-paying jobs and the need for increased labor mobility and for the lifetime renewal and development of skills. “But I am concerned that implementation will be left to local administrators and that the regions requiring the most help will have the lowest amounts of money to invest in reskilling the workforce and the least impressive actual skills to deliver results.” The workplace in China, he further points out, is already changing dramatically in ways that will create many individual losers – for example, workers in industries in secular decline (such as steel and textiles) or in industries

where technology is rapidly displacing people even as output grows (like financial services or retailing). Government figures indicate a loss of 15 million construction-related jobs and millions more in mining over the past year. The bad news is that these workers, despite being in their prime years, are unskilled for the modern service economy. “The government must help these workers reskill themselves to deliver on its commitment that all parts of society will benefit from economic growth and to keep people actively engaged in the economy,” Orr stresses. “China must roll out education, training, and apprenticeship solutions quickly and at scale to become the moderately well-off society its leaders aspire to achieve because the state educational system isn’t delivering for the migrant worker or the university graduate.” “This will be both complex and expensive, but it is simply not enough for officials to visit major local employers, as they did during the

global financial crisis, and press them to retain all their current workers,” he adds. “Not everyone can deliver e-commerce packages and, besides, the wages from that kind of work aren’t likely to bring people into the urban middle class.” The continuing pressure for higher productivity and on jobs overall will lead to lower growth in household income and, potentially, an erosion of consumer confidence in 2016 during which consumer spending was responsible for well over 50 percent of GDP. “If the government doesn’t handle less-confident consumers quite carefully, the kind of behavior the stock market experienced last summer will roil the broader economy,” Orr cautions.

Manufacturing in China Despite signs of deterioration as indicated in the manufacturing purchasing manager’s index (PMI),

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China’s role as a manufacturing powerhouse remains intact, with a share of global manufacturing value added reaching 26 percent in 2014 according to McKinsey Global Institute estimates. “Let’s be clear: manufacturing is not about to become irrelevant in China,” Orr says. “Its share will stay well over 20 percent for many years to come. And manufacturing still employs over 135 million directly.” Instead, Chinese manufacturing is moving towards into two extreme directions of performance: the truly awful and the genuinely competitive. “The fact that many companies – and even sectors – may be voting for a PMI below 50 forever doesn’t mean that the best emergence of internationally capable Chinese manufacturers will do anything but accelerate. Contrary to their historical reluctance to hire functional expertise outside their existing networks, CEOs of Chinese companies now do so incessantly to fulfill their needs.” A small Chinese manufacturing sector may be a strong global competitor, while other sectors suffer from massive overcapacity and substandard quality. “By aggressively adopting what we might consider Western concepts – lean and modular design, scaled learning, agile manufacturing, and intelligent automation – many companies are combining low costs with innovation. And their skills are spreading widely across China’s manufacturers,” Orr notes. On the other hand, it will be a very tough year for low value-added assemblers in China, many of whom “have no viable turnaround options,” he adds. “Multinationals in China are facing up to this double challenge of lower growth and increasing local competition. A few are quietly exiting; some are lowering their cost structures to match; and others will move aggressively on the front foot. In 2016, more multinationals will attempt to purchase Chinese competitors – if you can’t beat them, buy them.” Noteworthy is the growing number of innovators in industries ranging from construction equipment,

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consumer electronics and medical devices to solar equipment, moving beyond China and into international markets. The exhibition of the latest annual Consumer Electronics Show in Las Vegas is an indication of Chinese companies becoming increasingly influential as innovators, Orr says. “Over the last 15 years, they have evolved from naïve exhibitors to hosting some of the largest and highest quality stands that are a must-visit for buyers.” “The quality of marketing – and of products on display – demonstrated by the leading Chinese companies was of a higher level than in the past,” he notes of his experience in the January show. “They are increasingly seen as quality partners by others in the industry. And hundreds of less well-known Chinese companies, whom I had thought a few years ago would have disappeared from the show, were also there to make sales to global buyers.”

Agricultural imports

Because of a sluggish global economy and a downward trajectory in the prices of commodities including those of raw materials like iron ore and coal, Chinese imports are not expected to rise significantly in 2016. Yet, agricultural imports may be an exception as China’s demand for everything from cereal to beef continues to rise, Orr predicts. And, more importantly, these could be sold directly to middle-class consumers through the expanding online market for groceries. “Agricultural products are different because of the increasing demand for stock feed and for high quality fruits and vegetable in China,” he explains. “This is largely due to a rising middle class whose appetite for international products of premium quality from countries regarded to have high health standards has multiplied exponentially. It is not easy for China as a country to meet the demand nationwide through domestic means.”

In 2016, China’s growing needs for food will drive agricultural imports to record highs in both volume and value, and more countries than ever before will find agricultural-export opportunities there. Russia is one example: Chinese imports of grain and oilseed from Russia reached 500,000 tons in the first nine months of 2015, compared with just 100,000 for all of 2014, Orr points out. Even large volumes of corn from Ukraine are pragmatically finding their way across Russia and into China. Even as Russia’s reorientation towards China, following the imposition of Western sanctions, has taken some time to play out in agriculture amid a lack of infrastructure including border inspection points, this is nonetheless very significant. It is a direction, although in a slower fashion, similar to what happened with oil imports for which China reduced its reliance on the Organization of Petroleum Exporting Countries (OPEC) from more than 65 percent to roughly 50 percent by increasing imports from Russia. The free trade agreement between China and Australia is due to take effect in 2016, and there will be rapid growth in trade, particularly in meat and dairy products, Orr expects. And a more economically stable Argentina will compete with Australia to provide beef to China and with Ethiopia to provide alfalfa at scale to feed China’s dairy herds. “The recent decision of Australia to turn down an investment on national-security grounds will only have a temporary effect on deterring Chinese investors from putting more money into Australian agriculture,” he says. “Several had previously made approved investments, and others are sounding out international partners to invest jointly in new Australian projects.” Meanwhile, after a pause in 2015, US farmers should be able to increase their exports to China not just in soybeans (historically more than 40 percent of US agricultural exports to the country by value) but also in

cereals, intermediate goods and, especially, branded processed foods, Orr believes. “Food safety will remain a theme that benefits US and other international producers of branded foods.”

State of investment On the macro level, China’s outbound investment will accelerate in 2016 mostly due to “One Belt, One Road” initiatives and the need for distressed-asset acquisitions in basic materials and related sectors, Orr anticipates. “Chinese acquirers may plan not to extract the assets in the near term but simply to stockpile them as long-term insurance. Secondly, a growing share of the acquisitions will come from private companies that aspire to global leadership.” The volatility in the property and stock markets in 2015, he says, has also driven Chinese investors to diversify their investments into more stable vehicles. “Today, they still remain dependent on bank deposits and property. The need for wealth managers has increased dramatically. Often, their challenge is not about finding clients but rather credible products to sell. The challenge for investors is to find advisers they can trust; most simply push the products that give them the largest commission.” Wealth managers in China are moving online to deal directly with investors, and online lending sites are becoming broader wealth managers and are acquiring mutual-fund distribution licenses, Orr notes, citing Credit Ease, East Money, Jupai, Jimu, and Lufax as prime examples. “Whatever happens, sinking money into a second, third, or even fourth property will no longer be a major way of investing in China.” Opportunities for foreign fund managers and brokers are growing in China as well: Aberdeen Asset Manager and Fidelity have both received approval to open wholly- owned investment management operations; and HSBC

for the first majority foreign-controlled brokerage. Likewise, global asset managers will be asked to serve Chinese insurance companies and pension funds for a diversification of assets – many still hold as much as 25 percent of their assets with banks in the form of negotiable deposits. The launch of the Mutual Recognition of Funds (MRF) – initially through several Hong Kong-based funds with JP Morgan, Hang Seng, and Zeal – “will be good news not just for Chinese middle-class consumers who historically have had very few options to diversify their investments into assets outside China,” Orr says. “MRF is a two-way process. A number of Mainland funds are being made available to non-Chinese investors for the first time.” “While this is all quite exciting and positive, there is of course a risk that this openness to cross border investing goes away again during 2016,” he cautions. “Why? Because China’s exchange rate continues to weaken and is seen by many now as very much a one-way bet in the Mainland today. Somewhere between US$100 and $200 billion left China in December, and it is still an ongoing trend.” “And don’t forget the volatile mindset of Chinese investors. If a product makes a loss, they still expect to be bailed out,” he adds. “Taking personal responsibility for bad investment decisions isn’t the norm. Foreign fund managers will have to deal with anger online and in person when a product they sell doesn’t live up to expectations. The progress of allowing bad investments to fail will only be incremental.” “Nevertheless, China’s financial system is experiencing an increasing pace of change that is more market-based. While there’s still a long way to go on the journey towards a fully modernized financial sector, we should not ignore the positive changes that are underway. It is a new challenge for China’s leaders to guide this more complex, more diverse, and more globally connected economy.”

“While this is all quite exciting and positive, there is of course a risk that this openness to cross border investing goes away again during 2016. Why? Because China’s exchange rate continues to weaken and is seen by many now as very much a one-way bet in the Mainland today. Somewhere between US$100 and $200 billion left China in December, and it is still an ongoing trend.”

CMY

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20160120-biz-hk.pdf 1 20/01/2016 9:22:51 AM

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FINANCE & ECONOMICS

In Defense

of Hong Kong’s Currency The Linked Exchange Rate System (LERS) – introduced in 1983 to maintain “a stable exchange value of the currency of Hong Kong” through an official peg to the US dollar – has come under public scrutiny as the Hong Kong dollar weakened to a four-year low against the US dollar in what became the biggest intra-day loss since October 2003. Despite market speculations on a potential de-peg, it is no cause for concern, according to the Hong Kong Monetary Authority

By Kenny Lau

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he Hong Kong dollar, unlike the currency of most other developed economies, is rarely under the spotlight of the international foreign exchange markets. That’s because it is relatively free from sharp market swings as a result of a peg to the US dollar at the rate of HK$7.8 to US$1. The Linked Exchange Rate System (LERS), modified in 2005 allowing Hong Kong’s local currency to trade between HK$7.75 and HK$7.85 for every US dollar, has been instrumental in maintaining “a stable exchange value of the currency of Hong Kong” since 1983.

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The big news recently, tough, is that the Hong Kong dollar has depreciated by the largest amount within the price band in more than 10 years, dropping “as much as 0.29 percent – its biggest intra-day loss since October 2003 – to a four-year low of HK$7.7817 versus the US dollar in Asian trading on [January 14],” as reported by Bloomberg. “Options prices indicate there’s a 29 percent chance the currency will weaken beyond its permitted trading range of HK$7.75-HK$7.85 by the end of this year, up from 9.5 percent on Dec 31.” While the exchange rate hasn’t reached the limits of LERS, market volatility, once again, has re-ignited the debate on the merit of the currency peg at a time of massive capital outflows in a shaky global market. Some have compared the current financial turbulence with the Asian financial crisis of 1997/98, and others have speculated that Hong Kong would put an end to the 32-year-old currency peg. Regardless of the causes for

believe that adjustments in local interbank rates should not be too rapid.” Locally, a forecast of a slowdown in economic growth, moderation in credit expansion of banks with signs of deterioration in their asset quality, uncertainties in the property market and volatility in the financial markets are also contributing factors driving down the demand for the Hong Kong dollar, Chan points out. “Compounded by the easing growth rate of the Mainland China economy and weakening Renminbi exchange rate, some investors turned bearish on the prospects of the Mainland and Hong Kong economies.”

concern and anxiety, Hong Kong’s monetary base – backed with US dollars in reserve – is far stronger than it has ever been.

Recent depreciation One key reason for the “sudden and rapid slide” of the Hong Kong dollar against the US dollar: market capital are always attracted to higher yields, and in this case have moved towards US-denominated assets amid a stronger US dollar following a hike in US interest rates in December (although less so after a cautious outlook by the US Fed in mid-Feb about further hikes for 2016). It is a case in which Hong Kong dollars are sold in exchange for other forms of asset – be it another currency or funds – in hope of a better return on investment. This is a normal and unavoidable phenomenon, according to Norman Chan, Chief Executive of the Hong Kong Monetary Authority (HKMA), Hong Kong’s de facto central bank. “The US rate hike last December kick-started the process of interest rate normalization. There have been some outflows from the Hong Kong

dollar, driving up Hong Kong dollar interbank rates and narrowing the spreads between Hong Kong dollar and US dollar interest rates.” “However, we believe that the pace of further US rate hikes should be gradual,” Chan says in a statement released in early February explaining the inner workings of the HK-US dollar peg. “With fund outflows from Hong Kong, we should be prepared that the Hong Kong dollar will eventually weaken to 7.85, the weak-side Convertibility Undertaking.” According to the automatic adjustment mechanism of the currency board arrangement, HKMA will buy Hong Kong dollars from and sell US dollars to banks whenever the Hong Kong dollar weakens. It is to keep the Hong Kong dollar exchange rate within the convertibility zone of 7.75-7.85, but it also leads to a contraction in Hong Kong’s monetary base and an increase in the Hong Kong dollar interest rates. “[Despite] worries about the stability of Hong Kong’s financial systems…there are no causes for anxiety as our financial systems now are way more robust,” Chan reassures. “[With] a sizable monetary base – some US$130 billion have flown into the Hong Kong dollar since 2008, with the monetary base now standing at HK$1.6 trillion – we have large buffer to withstand outflows. Therefore, we

De-pegging? In the financial market, a security, a commodity or a currency has a price tag based on a “spot” rate and a “forward” rate – a spot rate is the current price at the moment for the purpose of immediate settlement, and a forward rate refers to the price agreed upon between parties for future transactions at a later time. The two rates can be different from one another at a given time, and they widen or narrow based on market sentiments, indicating the current and future demand of a particular financial asset. Under the arrangements of LERS, the strong-side and weak-side Convertibility Undertakings (which together form upper and lower limits of fluctuation of the Hong Kong dollar relative to the US dollar) are only applicable to the Hong Kong dollar “spot” exchange rate. The “forward” exchange rate, on the other hand, mainly reflects the demand and supply of Hong Kong dollar in the forward market, explains Howard Lee, Executive Director (Monetary Management) of HKMA. Likewise, as the Hong Kong dollar “forward” exchange rate has weakened to below 7.85 while trades in Hong Kong dollar options have increased significantly, there are questions whether market speculators have essentially forced the Hong Kong

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dollar to de-peg. The answer is: the weakening of the Hong Kong dollar forward rate does not mean the market is speculating on an imminent de-peg of the Hong Kong dollar with the US dollar, Lee points out. “More investors have recently hedged the currency exposures for their Hong Kong equity portfolios, leading to an increase in supply of Hong Kong dollars in the forward market and putting downward pressures on the Hong Kong dollar forward rate. As liquidity in the forward market is lower, the price is more volatile,” he says. “Similarly, the increase in turnover in the Hong Kong dollar foreign exchange options is also caused by the increase in hedging activities.” As a matter of fact, volatility of the Hong Kong dollar forward exchange rate has always been greater than that of the spot exchange rate since LERS was implemented more than three decades ago, Lee stresses. “While the forward rate traded beyond the prevailing convertibility undertaking rate from time to time, it had not affected the stability of the spot rate. We should not read too much into the fluctuations in the Hong Kong dollar forward exchange rate.”

The ripple effect With the rise of the Hong Kong Inter-bank Offered Rates (HIBORs), which are interest rates charged on lending between banks and are closely correlated with interest rates at the retail level, consumers are now more concerned that banks will raise interest rates on their existing loans imminently. However, an increase in local interest rates, if any, will depend on the timing, speed and size of fund outflows. “Recently, HKD HIBORs have risen slightly, but they remain at relatively low levels. The rises were largely driven by market expectations,” Lee points out. “Banks, in determining their deposit and lending rates, will take into account other factors

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Assessment of risks to Hong Kong’s financial stability Financial data

July 1997

29/01/2016

Aggregate Balance (HK$ bn)

1.5

363.4 (244.4 times)

Exchange Fund Bills and Notes (HK$ bn)

98.7

857.1 (7.7 times)

Monetary Base (HK$ bn)

189.6

1,609.5 (7.5 times)

Exchange Fund’s foreign currency assets* (US$ bn)

67.6

422.3 (5.2 times)

July 1997

29/01/2016

4,607.2

21,616.0 (3.7 times)

P/E ratio

19.2

8.0 (-58.3%)

P/B ratio

2.3

1.0 (-55.6%)

Hong Kong Stock Market# Market capitalisation (HK$ bn)

() denotes the magnitude of change * refers to figures in Jun 97 and Dec 2015 # P/E and P/B ratios correspond to those of the Hang Seng Index Source: Hong Kong Monetary Authority

affecting their funding cost such as changes in deposits and loan demand, in addition to interbank interest rates.” Although the Hong Kong dollar interbank rates have risen to a seven-year high, they have been rising from near-zero levels. The one-month and three-month HIBORs as of late January are at 0.4 percent and 0.7 percent, respectively. Any increase is not expected to be as drastic as what happened during the 1997/98 Asian financial crisis even if HIBORs in Hong Kong dollar continue to rise due to outflows of funds.

This is largely because of Hong Kong’s current monetary base of over HK$1 trillion, of which the aggregate balance accounts for HK$390 billion, much higher than the level of only several billion Hong Kong dollars in 1997/98, Lee notes. And it will be very difficult for speculators to “squeeze” interest rates higher by betting against the currency.

Moreover, banks in Hong Kong have had access to overnight liquidity in Hong Kong dollar since 1998 through repurchase transactions using their holdings of Exchange Fund Bills and Notes (EFBNs) in what’s known as the “Discount Window.” The Exchange Fund is a vehicle managed by HKMA to “provide full backing to the Monetary Base as required under the Currency Board arrangements…by holding highly liquid US dollardenominated assets.” The amount of outstanding EFBNs at the moment is about HK$850 billion – and banks are holders of a large majority of it. In effect, banks in Hong Kong – which are already stress-tested regularly on their ability to manage liquidity risks and to deal with outflows of funds – can easily swap between the Hong Kong and US dollars for the purpose of liquidity management. Hence, the ability of local banks to “dampen excessive volatility in interest rates” is greatly enhanced.

Short-selling Could the recent fall of the local currency be a result of market manipulation similar to the massive “short” positions taken against the

Hong Kong dollar during the Asian financial crisis in 1997/98? Was it a repeat of the infamous double-play attack in which “speculators shorted stocks and Hang Seng Index futures and then short-sold Hong Kong dollar to push up interest rates, with a view to creating panic in the market such that they could make huge profits from their short positions in stocks/index futures and the Hong Kong dollar?” Not likely, according to Lee. “The recent [simultaneous] decline of the Hong Kong dollar exchange rate and Hong Kong equities was a result of some investors reducing their Hong Kong equity holdings on the back of their bearish sentiment towards the prospects of the Hong Kong and Mainland economies and converting [their] Hong Kong dollar proceeds into US dollar. This caused the Hong Kong dollar exchange rate and Hong Kong equity prices to decline at the same time.” While market speculative interests in the Hong Kong dollar are always a possibility, they are also a much more difficult proposition to apprehend today than in previous years, simply because the aggregate balance of Hong Kong’s monetary base and the local banking sector as well as foreign assets of the Exchange Fund have grown exponentially since 1997, Chan explains. “Speculators will have to mobilize hundreds of billions of Hong Kong dollars to short-sell the Hong Kong dollar in order to push up interest rates.”

“Technically, speculators shortselling the Hong Kong dollar will have to take huge short positions in the Hong Kong dollar forward market. However, the forward market is thin,” he says. “If speculators were to make drastic moves in the forward market, the Hong Kong dollar forward exchange rate would drop quickly due to scanty trades, driving up the cost of short-selling. As such operation is not discreet, coupled with the escalating costs involved, it can rarely be successful.” Hong Kong’s banking sector is also “robust,” with abundant liquidity and its overall capital adequacy ratio exceeding international standards, and is therefore much more able to withstand market volatility as some seven rounds of counter-cyclical and other prudential measures have been put in place since 2009 by HKMA, Chan notes. “Banks are less likely to lend large amount of Hong Kong dollar funds to speculators” as a result of financial reforms and tightening supervision, including Basel III, following the financial crisis of 2008. The financial standings of Hong Kong are indeed very different in 2016 from where they were 20 years ago: foreign reserves totaling some US$360 billion now vs US$70-90 billion in 1998; a monetary base of about HK$1.6 trillion now vs HK$190 billion in the late 1990s. The price-to-earnings ratio of the Hong Kong stock market, moreover, is only eight times today as opposed to 19 times in 1997, thereby limiting the scope of profiting from short-selling Hong Kong stocks or futures. “There are always scaremongers spreading anxiety, pessimism and even panic whenever markets rattle. They do this in order to make gains during a market downturn,” Chan cautions. “Vigilance is one thing, but panicking is another. And we must get a full grasp of the situation and stay calm, especially when referring to the Linked Exchange Rate System. HKMA’s determination and ability to maintain the System are beyond doubt.”

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Private Events AmCham Feb 2016.pdf 1 3/3/2016 11:13:15 AM

INDUSTRY FOCUS

The Latest and Greatest in Medical Innovation: A Survey of Pharmaceutical Companies and Healthcare Providers

By Kenny Lau

3M This year marks the 50th (Golden) anniversary of the company’s first UV-blocking window film – a solution of providing sunlight control and comfort by rejecting solar heat with unique safety and security features designed for every home, every building and every automobile through material science. Window films are a combination of function and form: invisibly allowing the light in while keeping the heat out, redirecting sunlight “The UV-blocking indoor onto the ceiling to light a room as deep as window film has 40 feet from the window, provided a form of sun providing a high-end look of dichroic glass screen for 50 years.” without the high-end cost, and helping to shield occupants from natural disasters and blasts with a high level of optical clarity. The technology has played a critical role in providing a form of “sun screen” for health reasons and, more importantly, in reducing energy consumption and driving down the cost per every watt of electricity, while improving scalability and reliability.

AbbVie AbbVie, in cooperation with Neurocrine Biosciences Inc, has achieved positive top-line results from the clinical trials evaluating the efficacy and safety of Elagolix, a drug designated for premenopausal women suffering pain from endometriosis – a medical condition in which cells that normally line the uterus begin to grow outside of the uterus. Elagolix, an orally administered gonadotropinreleasing hormone (GnRH) antagonist, has been studied in over 40 clinical trials with “Elagolix eases pain in more than 3,000 subjects for diseases premenopausal women that are mediated by suffering from sex hormones, including uterine fibroids endometriosis.” and endometriosis. Trial results show that menstrual pain and non-menstrual pelvic pain associated with endometriosis are reduced after six months of continuous treatment, at month three and month six, as measured by the Daily Assessment of Endometriosis Pain scale. The new drug is anticipated for 2017.

AD MediLink AD MediLink, a provider of independent health insurance advice and healthcare concierge services to individuals and businesses based in Hong Kong, France or Switzerland, has launched Hong Kong’s first Maternity Conference in the last quarter of 2015 – a one-day, admission-free event designed for the general public of Hong Kong. The purpose of the conference was to “AD MediLink gather various maternity experts, healthcare launches Hong Kong’s institutions and practifirst Maternity tioners as well as relevant businesses and Conference.” organizations to inform current and future parents on the subject of maternity and related healthcare options available in Hong Kong and to showcase their services in a one-stop shop. The task for new parents and couples considering pregnancy is often to find a healthcare provider to suit their particular needs – a task which can be particularly challenging in Hong Kong where private healthcare is said to be one of the most expensive globally.

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Allergan Allergan has received a “Breakthrough Therapy” designation for a new anti-depressant named rapastinel from US FDA in an expedited approval process for new medicine showing clinical evidence of substantial improvement over existing therapies intended to treat a serious or life-threatening disease. Rapastinel is being evaluated for “Rapastinel gives hope adjunctive treatment of Major Depressive in the battle against Disorder (MDD), a medical condition clinical depression.” which affects approximately 16 million Americans. It could potentially provide an additional option of drug treatment for some 70 percent of patients who do not respond well to other anti-depressants such as SSRIs (Prozac, Zoloft) and SNRIs (Effexor). Unlike other anti-depressants, it has shown a rapid onset of efficacy one day after a single dose in a clinical trial of patients with MDD who have had an inadequate response to one or more antidepressants. No psychotomimetic or hallucinogenic side effects were observed with rapastinel.

Amgen Amgen, in collaboration with UCB of Belgium, is developing an investigational bone-forming monoclonal antibody called romosozumab, for postmenopausal women suffering from the medical condition in which their bones become brittle and fragile. By inhibiting the hardening of protein, increasing bone formation and decreasing bone breakdown, romosozumab can potentially reduce the risk of fractures in women with osteoporosis. Study results have shown that women having received “A bone-forming injection of romosozumab antibody is being monthly experienced a 36-perdeveloped for cent reduction in the risk of a clinical fracture as well as a osteoporosis.” 73-percent reduction in the risk of a vertebral (spine) fracture in a 12-month period, compared with those receiving placebo. In a 24-month period, romosozumab followed by denosumab (branded as Prolia and indicated as a treatment to increase bone mass) also reduced the risk of new vertebral fracture by 75 percent, compared with those subjected to placebo followed by denosumab.

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Baxter Baxter and Water Street Healthcare Partners have announced the approval by the US FDA of Cefazolin Injection in Galaxy Container, which is a flexible container made in a proprietary aseptic filling manufacturing process for an efficient, ready-to-use, flexible premix supply option of pre-operative prophylaxis treatment. Cefazolin is an antibacterial agent “A new antibacterial called cephalosporin and is indicated for the injection device joins prevention of infections, reducing the incidence the fight against for high-risk patients infections.” undergoing surgical procedures, and it is to be used to prevent infections that are proven or strongly suspected to be caused by bacteria. Cefazolin injection has been on FDA’s drug shortage list for some time due to high demand. Cefazolin (2-gram) injection is the first of nine molecules actively under development to provide a much-needed option.

Cook Medical A patient in the US has undergone treatment in a clinic in Cleveland, Ohio with Cook Medical’s new Zenith Alpha Thoracic Endovascular Graft – an improved version of a medical device used for conditions involving the blood vessels and, specifically, to reinforce a weak spot in an artery as blood pressure could inflate the surrounding area “like a balloon” and cause it to burst. Zenith Alpha Thoracic is indicated for the endovascular treatment of patients with isolated lesions of the descending thoracic aorta having vascular anatomy suitable for endovascular repair. It was developed to provide vascular access and delivery with a lower profile device, allowing physicians to consider repair of blood vessels without “A low-profile graft resorting to larger-profile devices. provides a better-fit Zenith Alpha toolset that is Thoracic – addressing unique disease patholminimally invasive.” ogy by fitting the device to the patient, not the patient to the device – is the newest addition to a growing family of endovascular grafts, which are normally tubes made of medical fabric and reinforced with a metal mesh.

Covestro Covestro, formerly Bayer MaterialScience and a supplier of high-performance plastics for the medical technology sector, has partnered with Elcam Medical, a maker of OEM disposable medical devices, for the creation of a special three-way stopcock, a self-sealing valve which prevents the backflow of infusion solutions and other fluids in a closed system for medical use “High-end plastic in hospitals, thereby reducing the risk of is used in a stopcock infection from infusion ports that are open to maximize patient and hard to flush and safety.” clean. The “Marvelous” stopcock, a Luer-activated valve that acts as a barrier against bacteria and a novel inner channel that ensures self-flushing and minimized residual volume, is made with the high-performance plastic commercially known as Makrolon. It is a new technology for the purpose of ensuring maximum patient safety by minimizing the possibility of infections from intravenous infusions as a result of minimal residual volume and continuous flushing of the interior volume of the stopcock.

Eli Lilly Eli Lilly and Company’s Humulin R U-500 KwikPen, a pre-filled human injection device containing a highly concentrated formulation of insulin, is now available to treat high blood sugar in people with Type-1 and Type-2 diabetes who need more than 200 units of insulin per “High dosage of day. It is the only FDA-approved insulin insulin in one-go is that is five times made available for more concentrated than standard U-100 diabetes.” insulin. It was designed to eliminate the need for dose conversion and to deliver a large dose of insulin for patients with diabetes and severe insulin resistance. Humulin R U-500 was only previously available in a vial, administered with either a U-100 insulin syringe or a volumetric (tuberculin) syringe – a hassle for some patients as it requires conversion to “unit markings” or “volume markings” of their respective syringe.

General Electric Aurora St Luke’s Medical Center in Milwaukee, Wisconsin becomes the first hospital to use a newly developed ultrasound software as part of a larger system – all designed by GE Healthcare – to help physicians effectively diagnose cardiovascular conditions in patients, with life-like clarity of 4D images of the human heart’s chambers, valves, vessels and other intricate structures. Traditional hardware-based beamforming machines can only process each individual piece of data separately, thus losing some in the “Supercomputerprocess and leading to unclear images. Software inspired software beamforming, on the leads in 4D imaging other hand, analyzes all of the data upfront and of the heart.” produces one, highquality image at once. The supercomputer-inspired software is able to collect a practically infinite amount of data from a patient on the spot and select pixel-by-pixel precise information for use in generating an image – all executed inside a machine that is portable, low-cost and without ionizing radiation.

Herbalife Herbalife, a global nutrition company, has unveiled a new sports drink, CR7 Drive, in a campaign with soccer star Cristiano Ronaldo, highlighting how a proper diet in combination with select nutrients can help bolster fitness and athletic performance. CR7 Drive is a contemporary take on traditional sports drinks, without any artificial flavors or sweeteners. The idea is to help athletes refuel and rehydrate before and during exercise with a light-tasting and refreshing experience, “CR7 highlights the to supply carbohydrates as a source of energy need for a refreshing and to replenish what is supply of typically lost, such as key electrolytes, from carbohydrates.” heavy sweating. Like all Herbalife24 products, CR7 Drive has been tested for all banned substances through the National Sanitation Foundation (NSF) certification program, and it meets the stringent standards set forth by the Good Manufacturing Practices for dietary supplement.

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HK Adventist Hospital Adventist Health has teamed up with Total Loyalty Company (TLC) for a project aiming to help companies improve the health and wellbeing of their employees as well as the level of employee engagement and productivity. Their collaboration project – Corporate Wellbeing Solution (CWS) – caters to companies unable to internally develop and sustain effective, ongoing programs, making “Corporate Wellbeing a program with a high level sophistication available Solution targets SMEs of particularly to SMEs. CWS targets strucin employee tured health campaigns, engagement.” information seminars, practical classes as well as healthy perks and lifestyle benefits, with a year-round program, supported through a web portal and mobile app, to drive interaction between employees and teams with a game-changing approach to corporate wellness. Hong Kong Adventist Hospital is the first hospital in Hong Kong designated by World Health Organization (WHO) as a health-promoting hospital.

Kimberly-Clark Kimberly-Clark reported a fourth quarter 2015 net sales of US$4.5 billion, a six-percent decrease compared to the same period a year ago, as changes in foreign currency exchange rates reduced sales by 11 percent. Organic sales rose five percent, including a nine-percent increase in developing and emerging markets and a five-percent volume increase in the North American consumer products business. “Adjusted earnings per Performance benefited from organic sales growth, share in 2016 are cost savings, input cost expected to range from deflation and a lower share count. Full-year US$5.95 to US$6.15.” adjusted earnings per share were US$5.76 in 2015, up 5 percent compared to adjusted earnings per share from continuing operations of US$5.51 in 2014. Adjusted earnings per share in 2016 are expected to range from US$5.95 to US$6.15. At the end of 2015, Kimberly-Clark deconsolidated its Venezuelan business from the company’s balance sheet and moved to the cost method of accounting for its operations in Venezuela. The company recorded an after tax charge of US$102 million in the fourth quarter of 2015 as a result.

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Matilda International Hospital Matilda International Hospital (MIH) has added to its portfolio Hong Kong’s first and only Certified Infant Massage Instructor Course for Japanese speakers, a five-day course presented and certified by the Sweden-based International Association of Infant Massage (IAIM), following the courses in English and Cantonese first introduced in 2009. Each year an IAIM “Infant massage instructor travels to instructor course for Hong Kong to train instructors-to-be, and Japanese speakers is hundreds have been certified to teach now available in others the techniques Hong Kong.” of infant massage and promote bonding between mothers and babies in private sessions. The exercise of infant massage has been attributed to reducing stress, promoting breastfeeding and enhancing parent-child bonding in adults, while babies have been noted to experience better bowel movement as well as less discomfort from colic, teething and emotional stress.

Mead Johnson Mead Johnson Hong Kong has made a donation of HK$1 million to the Joshua Hellmann Foundation for Orphan Disease (JHF) for the launch of VITAL STEP – a screening and educational program for newborns against Inborn Errors of Metabolism (IEM), a rare form of metabolic diseases that can cause developmental delays and shortening of life. One in every 4,000 newborns in Hong Kong suffers from IEM. The program is a critical step in support“VITAL STEP raises ing the research and development of screenawareness of ing tests, conducting metabolic diseases seminars for expecting parents, and helping for parents.” families of diagnosed cases. The company also helps pay for the costs of IEM screenings at CUHK’s Center of Inborn Errors of Metabolism (CIEM) for 500 babies born in the last two months of 2015. The program is dedicated to Joshua Hellmann, deceased at age15 after a five-year battle with Melas Syndrome, a metabolic disorder that occurs when lactic acid builds up in the bones.

Pfizer Pfizer has received FDA approval for two new drugs: 1) QuilliChew ER in extended-release (long-acting) chewable tablets for patients with Attention Deficit Hyperactivity Disorder (ADHD) and 2) XELJANZ XR extended-release tablets as the first and only once-daily oral treatment of moderate to severe rheumatoid arthritis (RA). Approximately eleven percent of children “New drugs for ADHD between ages 4 and 17 in the United States have and rheumatoid had diagnosis of ADHD, a neurobehavioral disorarthritis have been der with symptoms approved by FDA.” including difficulty paying attention, impulsivity and being overly active. QuilliChew ER is a central nervous system (CNS) stimulant indicated for the treatment of ADHD. RA is a chronic, inflammatory autoimmune disease with which the immune system mistakenly attacks healthy tissues. XELJANZ XR is a Janus kinase (JAK) inhibitor, and is the only JAK inhibitor included in the 2015 American College of Rheumatology Guideline for the Treatment of RA.

Philips Philips is poised to introduce a next-generation monitoring solution, enabled by wearable biosensors and supporting software, for at-risk patients in low acuity hospital settings. The new medical-grade, connected biosensor automatically and continuously measures vital signs, then transmits the data to a connected clinical decision support software application, and “Integrated solutions promptly notifies medical will help detect early personnel when signs exceed preset limits. signs of deterioration It is an integrated solution designed to help in patients.” doctors detect early signs of deterioration in patients, with a connection to analytics tools and dashboards to meet the goal of giving clinicians insights as a way to help improve access to care. With a growing aging population and a rising number of people suffering from chronic illnesses, healthcare providers are seeking more cost-effective ways to monitor, diagnose and treat patients.

Sealed Air Corp Sealed Air Corp’s Diversey Care division is test-driving IntelliTrail, a full-service, intelligent cloud-based fleet management system combining smart technology, GPS tracking and web applications to provide managers with real-time visibility of fleet performance. It is part of an expanding “Internet of “Cloud-based Clean” platform with numerous technology management system solutions for highdrives intelligent grade commercial cleaning. performance.” A device is physically mounted on the designated equipment and contains a SIM card and hardware to record and transmit data. Users have access to machine data including geographical position, run time and critical service information such as battery state – which collectively can help reduce total cost of ownership and enhance quality of service.

Sinophi Healthcare Sinophi Healthcare, a UK company which manages and invests in hospitals across China, has signed seven hospital deals in China. These are focused on proton therapy to treat cancer, including one oncology hospital with a proton center, one maternity hospital in the city of Huai’an, and five other Sinophi Proton Centers in Beijing, Changchun, Fuzhou, Luoyang and Nanjing. The combined “An investment worth total investment in building, infrastruc£800 million will ture, operation and costs is worth £800 establish multiple million. medical centers Sinophi Healthcare has agreed to across China.” build some additional Proton Centers in a number of hospitals: China-Japan Union Hospital of Jilin University in Changchun, Jilin Province; Beijing Shijitan Hospital of Capital Medical University in Beijing; Nanjing Drum Tower Hospital of Nanjing University Medical School in Nanjing, Jiangsu Province; Luoyang Central Hospital of Zhengzhou University, in Luoyang, Henan Province; and Fuzhou City Health Bureau in Fuzhou, Fujian Province.

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Walgreens Boots Alliance Walgreens Boots Alliance has acquired Sleek Capital Limited, owner of the Sleek MakeUP brand. With over 20 years of experience in the beauty industry, Sleek MakeUP is recognized for its innovative, high-quality products in the beauty industry and is particularly known for superior performance cosmetics with strong pigmentation. The acquisition will accelerate the international growth of Sleek MakeUP through an expanded network of retail channels and “Prospects of selected third party retailers. international growth Walgreens Boots expand on M&A of Alliance is the first global pharmacy-led, health and healthcare brands.” wellbeing enterprise. The company was created through the combination of Walgreens and Alliance Boots in December 2014, bringing together two companies with well-recognized brands, complementary geographic footprints, shared values and a heritage of trusted health care services through pharmaceutical wholesaling and community pharmacy care dating back more than 100 years. It is now one of the world’s largest purchasers of prescription drugs and many other health and wellbeing products.

Waters Corp Waters Corporation, a developer of advanced analytical and material science technologies and a pioneer in separations science, laboratory information management, mass spectrometry and thermal analysis systems for over 50 years, has introduced two new chemistries, pushing “New chemistries the limits of separation efficiency and throughmake unprecedented put in highly advanced advances in scientific scientific applications. The idea is to applications.” improve the resolution, speed, and sensitivity of separations, a scientific process of “mass transfer” turning a “mixture of substances” into two or more “distinct mixtures.” The enhanced process will give scientists additional selectivity choices, allow them to develop methods quickly and generate more information with every analytical run in their laboratory works. The two additions are CORTECS C8 and

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CORTECS Phenyl (that latter is available in particle sizes measuring 1.6 and 2.7 micron). These are built on proven solid-core particle technology and are designed for scientists who need to expand their chromatographic separation space.

Zuellig Pharma Asia-based healthcare services provider Zuellig Pharma has renewed a major regional contract with research-based pharmaceutical giant GlaxoSmithKline (GSK), committing to continuing their current distribution partnership in Asia worth over US$1 billion in annual sales. The agreement covers 10 key markets across North and South East Asia and paves the way for the two companies “Partnership in Asia’s to explore new areas of partnership and growing markets innovation in Zuellig continue on a renewed Pharma’s core distribution service, as well commitment.” as its fast evolving new areas of healthcare solutions. Discussions between Zuellig Pharma and GSK are underway to flesh out details of several key strategic initiatives, specifically ways to enhance a number of key areas: market reach and patient access, cold-chain innovation to enhance GSK’s end-to-end vaccine management, data analytics to explore new ways in which data can be leveraged to further empower how GSK interacts with – and serves – its customers and patients; and various other areas of digital technology.

FISCAL POLICY

Expenditures amid a Pessimistic Outlook Hong Kong’s Financial Secretary John C Tsang has recently delivered his ninth annual Budget on government spending for the coming year – in a fashion considered nearly identical to those of the previous eight years. With the continuation of a government fiscal policy deemed conservative, there are few surprises despite a range of short-term, one-off relief measures intended to alleviate pressure in a volatile global economy. Let’s hear what three renowned professional services firms – PwC, Deloitte, and EY – have to say about the 2016-17 Hong Kong Budget

By Kenny Lau

PwC: Breadth, not Depth

n the 2016-17 Hong Kong Budget, Financial Secretary John Tsang “has not departed from his prudent fiscal management philosophy,” PwC believes. In other words, it is a continuation of a fiscally conservative approach in government spending as in the past eight years, despite offering billions of dollars in “sweeteners” on a wide range of short-term one-off relief measures. He has also cautioned explicitly the possibility of more economic and political volatility in the year ahead. In addition to a forecast of a 2015-16 provisional budget surplus of HK$30 billion – or HK$75 billion if the Housing Reserve of HK$45 billion is included, Tsang has proposed a number of measures “to cultivate new businesses, technologies and talent” as part of a collective effort to “shore up Hong Kong’s competitiveness.” Most relevant to the individual employee is the increase in basic allowance (deductions) from HK$120,000 to HK$132,000 and from HK$240,000 to HK$264,000, for single and married persons, respectively. The increase fell

short of PwC’s recommendations and is more of an adjustment to the skyrocketing level of inflation people of Hong Kong have had to endure in the past few years.

One-off items All of the one-time measures, such as the refund of salaries tax and waiver of rates as well as the revision of allowances for people supporting dependent parents or grandparents, are of “recurring” themes – measures Tsang hopes will “alleviate the financial pressure [and] spur domestic economic growth.” The idea is also applied through waiving business registration and other license-related fees and extending the application period for SMEs interested in the Financing Guarantee Scheme. What’s encouraging, PwC notes, is Tsang’s moves to “embrace the adoption of technological breakthroughs in financial services and to cultivate start-ups and R&D in this area.” That is aligned to results of PwC’s 19th Annual Global CEO Survey, in which

77 percent of respondents believed technological advances are a top trend poised to “transform wider stakeholder expectations of businesses within their sectors over the next five years.” While the development of technology in financial services, startups, and SMEs may help to “reinvigorate services and redefine offerings in a rapidly evolving environment,” they may not be “sufficient to stimulate sustainable advances and stabilize the economy,” according to PwC. “Reducing the profits tax rate from 16.5 to 10 percent for qualifying high-tech companies and [providing] additional tax relief and incentives to encourage growth” may prove to be more effective.

Long-term items The allocation of some surplus into the Future Fund (in addition to the HK$220 billion from the Land Fund) reflects an anticipation of a government structural deficit down the road, and it is “a responsible and prudent step in planning and financing the city’s future,” PwC points out. “The HK$45 billion top-up into the Housing Reserve will strengthen the financial health of the Housing Authority [in support of an increasing] supply of public housing.” Setting aside HK$200 billion to expand and upgrade healthcare facilities in a 10-year hospital development plan amid an aging population is “commendable,” but it is largely on the hardware. Investment in the software – attracting, training and retaining healthcare workers for the public healthcare system – is equally, if not more, important. The “prudent approach” to government spending is “perhaps understandable,” given an economic outlook far less optimistic than in previous years, PwC believes. What’s important is “whether his proposals will be fully implemented in a timely manner to the intended effect.” Lastly, a comprehensive review of the Inland Revenue Ordinance as a first step towards a modernized tax legislation is “long overdue.”

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Deloitte: No ‘Exciting’ Relief Measures While the 2016-17 Budget is a commitment to long-term growth with measures to nurture innovation, identify new markets and foster talent development, there is a lack of exciting short-term relief measures to help alleviate pressure on the individual and corporate levels, according to Deloitte’s analysis. On the positive side: The focus on innovation and new markets through rapid development of information technology can “energize” under what Financial Secretary John Tsang calls the “New Economic Order,” says Yvonne Law, Partner, Deloitte China. “The government is aware of the importance of Fintech in shaping the future of Hong Kong, and there are programs and measures to promote research and the development of start-ups and creative industries.” Hong Kong is also aware of the increasing need to remain relevant in the global market, and the government intends to “leverage Hong Kong’s long standing competitive advantages of having one of the most efficient and transparent regulatory regimes” through the proposed measures announced in the Budget in a way which is “also in tandem with the deepening of reforms in China.” The three-runway system, support for the work of Asian Infrastructure Investment Bank as well as trade and investment agreements are “initiatives to find new markets.” On the not-so-positive side: The proposed short-term relief measures are “unexciting,” despite that fact that “nearly two million taxpayers will benefit from the increase in basic allowance and married person’s allowance,” notes Davy Yun, Tax Partner, Deloitte China. “With ample fiscal reserves, the government could be more aggressive in relief measures, especially for the business community.” One important key, Yun points out, is the lack of proposed “action to

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address the problem of a narrow tax base” even as the government has taken significant steps in preparing for the future with a “foresight to invest our fiscal reserves for Hong Kong’s long-term [needs] through the Future Fund.”

For the people While the increases in deductible allowances are largely beneficial to the middle class, the government could have considered introducing tax allowances for working couples through further deductions for expenses relating to children’s education and salary to domestic helpers, Deloitte highlights in a commentary. The budget could also have introduced deductions for “medical insurance premium” for taxpayers and their dependents. Deloitte also considers Hong Kong’s role as an international trading center to be an equally critical pillar industry, an area which could use – and deserves – more support from the government by putting forward tax incentives for foreign-owned companies engaged in the trading business in the city. This is simply to take advantage of Hong Kong’s geographical location as a global trading center in Asia already equipped with a network of well-developed infrastructure. An amount totaling HK$800 million intended for elderly residential care services with 3,000 vouchers under a three-year pilot scheme will provide some assistance to the elderly. The one-month extra allowance to recipients of social welfare benefits, including those of the CSSA, Old Age Allowance, Old Age Living Allowance and Disability Allowance, also reflects a focus on the needy. The larger question, however, is about an aging population – an issue for which “the government will need a more comprehensive plan to tackle” in the long run, says Alfred Chan, Tax

Director, Deloitte China. “We are pleased that the government has held consultations on setting up a universal retirement scheme, and we hope the government is able to find a solution that balances the need for retirement care while allaying the [fiscal] pressure on long-term expenditure.”

Broader issues The Budget essentially contains a plan of “long-term directions” and “immediate measures for various industries to [build on] Hong Kong’s advantages and gear up for an economic downturn. Immediate reliefs include waivers of the business registration fee and of license fees for the tourism and catering industries. The government has also announced it will examine the use of tax concessions to promote the aircraft leasing business. The Profits Tax rate remains the same for 2016/17 – 16.5 percent generally and 15 percent for incorporated businesses. But a one-time tax rebate of 75 percent of Profits Tax payable for 2015/16 has been proposed, up to a ceiling of HK$20,000. A further reduction in the rate could help Hong Kong maintain its competitive edge over the long term at the cost of a short-term reduction in tax revenue, Deloitte suggests, even though Hong Kong’s low Profits Tax rate is considered quite competitive in attracting foreign investment. The Budget is comprehensive for individuals, with a broad coverage of relief measures catering to “the underprivileged, the working class and middle income earners” in ways similar to measures of previous years, Deloitte notes. “From a business perspective, although a strategy has been set out to explore new markets and nurture innovation for sustainable economic growth, short-term relief measures for businesses are fewer than expected.”

EY: Diversification in midst of Paradigm Shifts The economic challenges facing Hong Kong are a result of “breakthroughs in IT which have had an impact on both traditional and emerging industries…and have led to a more open market ecosystem, [causing] ground-breaking paradigm shifts that have impacted existing market players,” according to EY’s interpretation of the 2016-17 Budget. The need for economic diversification, hence, has never been more crucial. Financial Secretary John Tsang, EY notes, has “opted for a more creative game plan,” with a much larger focus on innovation, new markets and talent development, while dropping “the usual monologue concerning the four [legacy] pillars of Hong Kong’s economy.” The concern, however, is that “Hong Kong has no track record in certain of the areas Mr Tsang [has] proposed to develop.”

“Sweeteners” The handout of “sweeteners” has become “somewhat of an annual rite” that is “coming under ever-increasing scrutiny, with other fee waivers and tax concessions labeled as having “done little to reduce the gap between Hong Kong’s rich and poor and to address concerns over Hong Kong’s aging population or its narrow tax base.” And many argue the increase in expenditures on education, social welfare and healthcare services “are not of sufficient magnitude.” Nonetheless, “given that Hong Kong may be entering a challenging era of slow economic growth this year, the proposed one-off relief measures would help alleviate the tax burdens of individuals and enterprises, and help those within the social security net to better face the challenges ahead,” says Agnes Chan, Managing Partner for Hong Kong and Macau, EY.

The 10-percent increase in tax deductible allowances for single and married persons as well as single parents – which were last revised in the 2011/12 year of assessment – is indicative of inflation over the years, notes Grace Tang, Partner, Tax and Business Advisory Services at EY, adding that the proposed 75-percent reduction for the 2015/16 final tax, capped at HK$20,000, is a targeted approach primarily intended to benefit middle lower income earners. “We welcome the proposed increase in dependent parents/grandparents allowance and the increased deduction ceiling for elderly residential care expenses,” Tang says. “However, whilst an additional allowance of an equivalent amount is currently granted to taxpayers who live with their dependents, there are often situations that prevent taxpayers from doing so.” “We hope the government will consider adopting our proposal that taxpayers would be granted the full amount of the additional allowances, regardless of whether they reside with their dependents, so long as the remaining qualifying conditions are met,” she adds.

Other initiatives On IP rights, Tsang will expand the scope of tax deduction from the existing five categories to include rights of integrated circuit designs and other related items, but can also consider such tax deductions for certain license rights and indefeasible rights of use typically acquired in the telecommunication industry. But Hong Kong needs to examine whether the current requirement of legal ownership of IP rights as a pre-condition for granting any tax deduction should remain.

The proposal of granting tax deductions for interest paid by a Hong Kong corporate treasury company (CTC) to its overseas affiliates and of levying a 50-percent concessionary tax rate on certain profits may not turn out to be as striking as expected because it can be “difficult to calculate how much overseas tax paid in a current year or a subsequent year is attributable to the interest or sum concerned.” In turn, a simple “subject to tax” requirement may be an alternative in the promotion of Hong Kong as a corporate treasury center, EY notes. “Given that Singapore grants similar tax incentives more flexibly, [we] may need to consider the suggestion that a concessionary tax rate be granted so long as the relevant activities undertaken by a CTC satisfy the qualifying conditions defined in the legislation.” To promote the local asset management industry, Hong Kong is contemplating with the idea of allowing the structure of “open-ended fund companies” (OFCs) – which is “a collective investment scheme structured in corporate form with limited liability and variable share capital.” Because exemption from profits tax will only be granted when an “unauthorized” OFC is a “non-Hong Kong resident…a new separate profit tax exemption regime for resident OFCs” in Hong Kong is therefore considered beneficial. Despite a forecast of deficits in two years’ time (with fiscal reserves of some HK$860 billion dropping to HK$830 billion by early 2020), there should be no cause to be overly concerned, EY believes. “If Hong Kong is successful in diversifying its economy, our fiscal reserves may not fall and our government may also be able to increase its recurrent expenditure program to better serve the needs of Hong Kong’s aging population.”

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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

2016/17 Hong Kong Budget: Business as Usual The government’s proposed measures announced by Financial Secretary John C Tsang in his ninth annual Budget speech are essential steps intended to help Hong Kong maintain economic development and fiscal health, support local enterprises, cope with market volatility and safeguard employment. However, many are questioning whether the latest Budget is doing enough, given the current market outlook

By Charles Kinsley and Wade Wagatsuma

verall, we welcome the proposed measures of the HKSAR government, announced by Financial Secretary John C Tsang in his annual Budget speech, to maintain Hong Kong’s economic development and fiscal health, support local enterprises, cope with market volatility and safeguard employment. In terms of economic performance of Hong Kong in 2015, Tsang reported a headline inflation rate of 3 percent. When netting out the effects of the government’s one-off measures, the underlying inflation rate was 2.5 percent, down by one percentage point from 2014. Looking ahead, he forecast

a 2.3-percent headline inflation rate for 2016, with an underlying inflation rate at two percent. The Financial Secretary also announced an overall budget surplus forecast of HK$30 billion for the fiscal year 2015/16.

Domestic spending The Budget speech is in many ways a case of “business as usual,” with a number of proposed one-off relief measures similar to what had been put on the table in previous years. This year, they include reductions in payable Salary and Profits Tax up to 75 percent and capped at HK$20,000, a waiver of business registration fees, an extra allowance to recipients of social

security benefits, and a waiver of property rates with a ceiling of HK$1,000 per quarter. Tourism is one particular industry highlighted for additional government support. It currently accounts for five percent of Hong Kong’s GDP and employs 270,000 people. Despite rapid and extraordinary growth in the last ten years, the industry is facing challenges because of external and domestic factors, which have been covered extensively in the news media in recent months. Several initiatives in support of Hong Kong’s tourism industry are a continuation of steps introduced last year in response to the Occupy Movement of 2014. While it was encouraging to see many of the one-off or short-term measures in support of the local economy, we had hoped to see more of a longer-term focus in the form of strategic development. It is a good sign in this regard that a “Housing Reserve” is being set up for the purpose of public housing, that an amount totalling HK$200 billion is set aside for a ten-year hospital development plan and that of a “Future Fund,” in addition to a focus of the government on nurturing innovation related in large part to R&D, Fintech, Startups, and other creative industries. In his speech, Tsang specifically mentioned that the establishment of incubation programs and technologyrelated laboratories in Hong Kong by professional services firms “underlines our edge in [the development of] Fintech.” To move forward in the field, he proposed a range of spending measures: a funding of more than HK$17 billion targeting the innovation and technology sector, including a HK$2 billion Innovation and Technology Venture Fund to co-invest with private venture capital funds on a matching basis in local technology start-ups. To further facilitate the progress on Fintech development, three government agencies, namely the Hong Kong Monetary Authority (HKMA), Securities and Futures Commission, and Office of the Commissioner of Insurance, will establish

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Summary of how Kong Kong's 2016-2017 Budget addresses some concerns

Source: Hong Kong Budget Summary 2016-2017, KPMG

dedicated platforms in order to liaise with the industry and to drive the sustainable development of innovative financial products and services in Hong Kong.

Global trade Incentives for the offshore funds regime, aircraft leasing, and corporate treasury center initiatives, which have been introduced in previous budgets, were mentioned again this year. While the changes to the offshore funds regime have come into force and are a positive development for the asset management sector, the other incentives are still yet to be realized. The proposed corporate treasury incentive announced last year has generated much positive response from the business community of Hong Kong. The Financial Secretary has also proposed to allow, under certain conditions, interest deductions in Profits Tax for corporate intra-group financing arrangements and to reduce the Profits Tax rate on offshore

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income by 50 percent for qualifying corporate treasury centers. However, the timeline of its adoption is still unclear, given that the bill for the corporate treasure center incentive remains subject to approval by the Legislative Council. Noting the “New Economic Order,” Tsang emphasized that emerging markets are increasingly important to the global economy, highlighting the need to develop such markets for enterprises in Hong Kong and to expand trading ties with the rest of the world. China’s “One Belt, One Road” initiative is a key area providing opportunities in the fields of commerce, logistics and financial services. However, there were few new additions in these areas, with the familiar initiatives reiterated and further developments limited. It is interesting to note, in a recent KPMG survey of over 300 senior business executives about their business concerns in Hong Kong and their expectations for the 2016/17 Hong Kong budget, that a majority of

respondents indicated the “biggest opportunity” for Hong Kong under the “Belt and Road” initiative lies in its role as a financial center and its ability to help raise funds – a view shared by the Financial Secretary as he announced that HKMA will establish an office to help facilitate financing, among other services, with respect to infrastructure projects in “Belt and Road” countries. In support of the measures, we believe Hong Kong should further broaden its network of Double Taxation Agreements (DTAs) with the “Belt and Road” countries. With favorable withholding tax rates and greater certainty on the tax outcome of cross border trade, Hong Kong could benefit significantly as a business platform with an increasing number of DTAs because it creates an attractive environment for multinational companies doing – or looking to do – business in Hong Kong. So far, Hong Kong has only concluded DTAs with 13 countries out of the 65 along the “Road,” and is in

Expectations of over 300 senior business executives in a survey prior to the 2016-17 Budget

Source: Hong Kong Budget Summary 2016-2017, KPMG

negotiation with another eight countries. Meanwhile, Singapore has 39 DTAs with the “Belt and Road” countries, so there is still a long way to go before Hong Kong can become competitive on this front.

Gone far enough? From a social perspective, we support the particular focus of the government on caring for people through investment in healthcare and additional support for the under-privileged, and we welcome the one-off relief measures for SMEs, including an extension of the application period for the “special concessionary measures” under Hong Kong’s SME Financing Guarantee Scheme through a ten-percent reduction in the annual guarantee fee rate and the removal of the minimum guarantee fee. It is unfortunate that some of the Financial Secretary’s proposals stopped short of where certain other jurisdictions have particularly headed a forerunners. Whilst we welcome the Financial Secretary’s proposal to expand the categories of intellectual rights eligible for deduction on purchase, this may have limited substantive benefit. In the case of tax incentives for R&D activities, other countries are already ahead of Hong Kong by

offering much more generous tax incentives. In Singapore, for example, qualifying businesses can enjoy a deduction of up to 400 percent or allowances of up to S$400,000 of expenditures incurred on certain qualifying innovative activities. The government’s continued commitment to modernizing Hong Kong’s tax legislation by maintaining a fair tax environment, aligning its tax system with international standards and enhancing the city’s overall competitiveness is nonetheless a very positive and important key – a commitment reflected in the legislation introduced earlier to facilitate the automatic exchange of tax information. Tsang also stated that Hong Kong would consider participating in the international framework being developed by the Organisation for Economic Co-operation and Development to defend against Base Erosion and Profit Shifting (BEPS). Whether Hong Kong will make a commitment or how it will participate remain to be seen as there are potential impediments to signing up for certain international conventions. And we certainly look forward to seeing the government follow through with the implementation of the new initiatives proposed in this year’s Budget.

Charles Kinsley, Partner KPMG China A financial services tax partner with over 25 years tax experience, Kinsley has extensive knowledge and experience in retail and investment banking, securities dealing, funds (including those in the private equity, real estate, alternative investments and infrastructure business) and fund management. His role includes advising on operational taxes, the US Qualified Intermediary regime, FATCA, CRS and AML tax evasion.

Wade Wagatsuma, Partner KPMG China Head of US Corporate Tax, Wagatsuma specializes in the area of US federal income taxation, with an emphasis on transactional tax planning, both domestic and cross-border. He has extensive experience advising clients on the structuring and implementation of acquisitions of foreign and domestic assets by foreign funds with US investors, the structuring of inbound investments by foreign companies as well as funds having or acquiring US assets.

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CHINA BUSINESS

Closer Economic Partnership in

PRD

Earlier this year, a 30-member AmCham delegation made an exploratory trip to Zhuhai – one of the three key areas in the Guangdong Pilot Free Trade Zone – to meet with Chinese officials and business leaders and to learn more about business opportunities in a region well-positioned to become an economic powerhouse

By Leon Lee

ollowing the success of the establishment of the Shanghai Free Trade Zone (FTZ) in 2013, the State Council of China announced plans for the construction of three additional FTZs in Guangdong, Fujian and Tianjian in April 2015. Each was strategically chosen to leverage the unique aspects of their locations and other advantages in developing the Chinese economy. For the Guangdong Pilot Free Trade Zone (GDFTZ), it will assist in

cooperation between Guangdong, Hong Kong and Macau as well as the development of the burgeoning Pearl River Delta. According to a 2015 report from the World Bank, the Pearl River Delta collectively has overtaken Tokyo to become the world’s largest urban area in terms of size and population.

Economic viability The GDFTZ consists of three areas – the Nansha New Area of Guangzhou, Qianhai and Shekou in

Shenzhen, and the Hengqin New Area in Zhuhai. While Shenzhen is just over the border from Hong Kong, Zhuhai also provides an attractive option to not just Hong Kong but to Macau businesses as well. The city of Zhuhai is conveniently located only 34 nautical miles away from Hong Kong while Macau is less than 200 meters away from the narrowest point of Hengqin. And when the Hong KongZhuhai-Macau Bridge is completed, Zhuhai will be the only city in the world to be directly linked to both metropolises.

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With this connectivity comes access to five international and domestic airports, four deep-water ports and eight expressways to various parts of China. The goal is to make the region both an international and regional economic center. Through experimental reforms over the next few years, the GDFTZ will create a law-based, market-oriented and internationalized business environment and establish a new and open economic system with in-depth integration between Guangdong, Hong Kong and Macau.

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The Hengqin New Area of the GDFTZ is one of three state-level economic districts in Zhuhai, which itself is one of the four original Special Economic Zones in China. It focuses on industries such as travel and leisure, business services, financial services, science, education and R&D, cultural and creative industry, TCM and Healthcare. The Hengqin New Area also offers favorable policies to businesses in various industries. Besides 24-hour customs clearance, simplified clearance

procedures are in place for both Hong Kong and Macau residents into the area. The transportation of freight and goods will fall under the principle of â&#x20AC;&#x153;relaxed control at the first line, strict control at the second line [in] a categorized management [system].â&#x20AC;?

Financial capacity A number of policies have been implemented for the financial services sector to boost the ease of doing business in the GDFTZ. Financial

Delegates visit the headquarters of major appliance corporation Gree Group

institutions in the trade zone may borrow Renminbi (RMB) funds from overseas lenders. Those with parent companies based in Hong Kong and Macau can issue RMB-denominated bonds in China. Also, non-banking financial businesses located in the FTZ can conduct cross-border RMB settlements. The GDFTZ is poised to become a trade zone where eligible foreign financial institutions can establish banking joint ventures with Chinese enterprises or set up foreign-owned

banks in the trade zone while commercial banks are encouraged to set up a business to conduct offshore foreign currency activities. Eligible insurance companies based in Hong Kong or Macau can also set up branches in the area. In Hengqin, the threshold of required total assets for Macau-based banks seeking to set up branches in the region has been reduced to US$4 billion. According to the government website, financial institutions are “given support to launch a pilot

franchise business of individual domestic and foreign currency conversion and to explore and develop a pilot two-way conversion for RMB, Macao Pataca and Hong Kong Dollar under individual item and within certain quota.” Tax exemptions are implemented in the Hengqin New Area with the enterprise income tax set at 15 percent for eligible enterprises. Hong Kong and Macau residents working in the area will be levied the individual income tax equal to that of their resident cities. A full subsidy will be given to the difference of individual income tax. For production-related goods made in Mainland China and sold to Hengqin, they will be considered exports, and tax refunds will be handled as such. Goods traded between businesses in the Hengqin New Area will be exempted from value-added tax and consumption tax.

Steady growth Even before the announcement of the GDFTZ in Zhuhai, Zhuhai has

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In tourism, the Chimelong International Ocean Tourist Resort opened in January 2014, which includes the Zhuhai Chimelong Ocean Kingdom and Zhuhai Chimelong Hengqin Bay Hotel as well as one of the longest roller coasters in the world. It received seven million visitors with operational revenue of about RMB 2 billion in the first year. Earlier this year, construction began on a new ocean park featuring an 800-meter long undersea tunnel for visitors to experience marine lives.

The bridge Executive Director of HZMB Authority Wei Dongqing and AmCham HK President Richard Vuylsteke

been flourishing in the past several years. In 2013, its GDP was RMB 166.2 billion, up 10.5 percent from the previous year. In 2014, the GDP jumped over 10 percent to RMB 186.72 billion, with the industry sector accounting for 45 percent of it. Forecast for their 2015 GDP has it equaling or even surpassing its 2014 GDP growth. According to an article published in The Telegraph, Zhuhai has attracted US$3.06 billion in European investment in 2014 alone, with large corporations like BP, Shell and Bosch having a presence in the city. Out of the world’s top 500 companies, 42 have investments in the city. As for the Hengqin New Area, it has already attracted around US$36.5 billion in investment capital for 56 projects in commerce, tourism, entertainment, scientific research and technology, amongst other sectors. By April 2015, more than 8,400 companies, including over 850 financial institutions, have registered in the region. The Industrial and Commercial Bank of China, Agricultural Bank of China, and Bank of China have already established operations in Hengqin. Macau’s BNU is looking to open its first Mainland branch in Hengqin in the second half of this year.

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In the legal profession, a new joint venture in the trade zone was announced last month by Hong Kong’s Fongs Lawyers, Beijing’s Zhong Yin Law Firm and Macau’s Rato, Ling, Lei & Cortes (Lektou). As the first of its kind in China, it will bring together over 1,000 lawyers specializing in corporate, banking, finance and M&A. In August 2014, the University of Macau moved into its brand new campus on Hengqin Island, which covers an area of around one million square meters, 20 times of its old campus. The new space has more than 70 buildings and can accommodate 15,000 students. The construction was a collaborative project between Guangdong and Macau, which China’s policymakers applauded as a new pilot development scheme under the “one country, two systems” framework. Another collaboration between the two regions is the Guangdong-Macao Cooperative Science and Technology Industry Park. Developed as an international industrial zone for science, technology and healthcare, particularly traditional Chinese medicine (TCM), it focuses on the high-quality development in the aspects of health services, information and industry culture. The project is jointly planned, invested and run by Guangdong and Macau.

The 42-kilometer-long Hong Kong-Zhuhai-Macau Bridge will certainly play a big role in connecting the three cities and its economies. When completed, it will feature dual three-lane highways, shortening the travel time between Zhuhai and Hong Kong from over four hours to 40 minutes. Amongst the many advantages of the bridge currently under construction, one is the greater access to the Hong Kong International Airport. Governments of the three cities involved in the project share a portion of the total cost of construction, and each is responsible for building and running their sections and boundary -crossing facilities of the extensive bridge. However, the project has been facing some headwinds. Originally scheduled to be completed by the end of 2016, it is estimated to take another year. Parts of the construction of the bridge in Hong Kong have been delayed due to a number of difficulties, such as labor shortage, unstable supply of building materials and challenging environmental requirements. The cost of the project has also risen, and additional funding of HK$5.4 billion has been approved by the government in January. Despite delays, the project linking three cities is moving forward, with the first 3.3-kilometer of the bridge now open to traffic between north Hengqin and Hongwan.

TAXATION

A BASIC GUIDE TO FILING YOUR

US TAX RETURNS

The deadline of April 15 for filing US tax returns is approaching quickly. Although US persons – citizens and permanent residents of the United States – living abroad are allowed an automatic two-month extension of time to file their tax forms, they remain liable for payment of interest incurred on any tax not paid by the regular due date. Here are 10 basic tips to making your annual US tax filing as stress free as possible

By Ishali Patel

t feels like we have only just said goodbye to 2015, and yet we now need to start thinking about filing our 2015 US tax returns. Taxpayers are just getting back into the swing of things after the festive holidays while professionals are trying to grapple with all the new tax changes for 2015 to achieve the best result for their clients. With the increasing complexities of the US tax system and the regulatory burden placed on taxpayers, filing US tax returns, particularly for expatriates living and working outside the United States, can be very stressful. Ensuring a smooth filing process is becoming more and more important. Here are our tips for making the 2015 filing season as stress free as possible.

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2) Tell of any changes in circumstances It is really important to let your tax preparer know about any changes in your circumstances during the year so that they can advise you on – and prepare your – tax return based on full knowledge of the facts. It is also essential that you make them aware of such matters as early as possible so they can identify any tax planning opportunities around your new situation. 3) Inform about any one-off transactions No one likes an unexpectedly high tax bill. By informing your tax preparer early enough about one-off events, such as the sale of your home or other property, bonus receipt, or share option exercise during the year, they can run calculations for estimated taxes due which you can pay ahead of time and minimize your exposure to incurring interest and penalties. 4) Start organizing funds for payment ahead of time Often times, when you are living outside the US, it is difficult to raise checks or other forms of payment in US dollar. And there can be delays with electronic payments, especially if you do not have an account with a US bank. If you are looking to a non-US bank to write a check in US dollar, it can take from several days to even a longer period. It is best to find out ahead of time how long your particular bank usually takes for the process. 5) Review your prior-year tax return To avoid repeated requests for information, it is always good to look at your tax return of the previous year and ensure that you have equivalent back up for the current year – documents that you have previously provided to your tax preparer and questions that you have been asked through the prior-year filing process. This is a great way to save time and improve efficiency.

1) Get in early Although it feels like stating the obvious, getting your tax filing out of way as early in the year as possible really is best. For a start, you can forget about it once it is done. Secondly, you will suffer no late filing or late payment penalties, nor any interest on unpaid taxes if you file and pay your unpaid tax by the April 15 deadline. Another advantage of this is that certain deductions for 2015, such as IRA (Individual Retirement Account) contributions, can still be taken on your 2015 US return if they are made up to April 15, 2016. Getting your return started early also allows your tax return preparer to identify these opportunities for you early enough to claim the benefits and reduce your taxes.

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6) Request relevant documents from third parties Key documents issued by your banks, local accountants and employer should be collected as early as possible, particularly where you need to obtain information from non-US entities because it may take time for third parties to collate the information in a format that you need for the US tax year (January to December). This is especially important in Hong Kong as the Hong Kong tax year runs from April 1 to March 31. Inadequate information can lead to delays and therefore potentially increase your exposure to interest and penalties. Your tax adviser will be able to help you with any information request to third parties or even approach them directly for certain specific information that they need for your tax return (provided that you grant them consent to do so).

7) Maintain records on a real-time basis It is never too late to start maintaining real-time records and keeping your tax preparer informed of what is going on as and when it happens. Tax planning is always easier in advance rather than in hindsight. Fees for advisors are much better value when they are spent on coming up with tax-saving ideas ahead of time rather than trying to fix problems afterward. By doing so, it also means you already have most of the documentation ready for tax return filing in a given year. Please note that under IRS regulations you should retain the records and documents relating to tax returns for at least seven years from the end of the relevant tax year. 8) Be aware of relevant deadlines Most people are aware that the filing deadline for their income tax returns is April 15, with an automatic two-month extension to June 15 available for US persons residing outside the US). In addition, people are generally aware that the filing deadline is extendible to October 15, with a discretionary final extension available to December 15 available under certain circumstances. However, it is important to note that there is no extension for payment of tax, and in order to minimize any penalties, it is essential to estimate the tax due and make your payment by the deadline of April 15, even if the return is filed at a later date. Furthermore, it is also important to note when your quarterly estimated tax payments are due (April 15, June 15, September 15 and January 15) and ensure that these are made on time. Note also that for 2015, deadline for the Foreign Bank Account Report (FBAR) is June 30 2016, which is not extendible. The deadline for the 2016 FBAR (to be filed in 2017) will follow that of the tax return. Some other tax-related forms, such as Form 3520-A, are due March 15, with the available option of an extension to September 15. 9) Understand the filing process Even after the return has been finalized, often the actual logistics around getting it filed can be a big cause of stress. A clear understanding of the electronic and/or paper filing processes for your tax return, FBAR and subsequent payment will allow you to avoid any conflict of schedule, especially when you need to manage all your tax-related deadlines around travel plans. Whenever a return is being electronically or paper filed, authorization forms need to be signed and returned, and paper returns need to be posted and submitted along with tax payments. In the case of your return being filed close to the deadline, you need to make sure your tax preparer is aware of your availability to make any required authorization for the relevant tax forms.

10) Don’t panic if you can’t pay Sometimes, you can be caught off guard with a large tax bill. If you can’t pay the full amount by the April 15 deadline, pay whatever you can at the time to bring the level of interest and penalty to a minimum. The IRS has an Online Payment Agreement application available on its website for those who need a little help with payments: https://www.irs.gov/Individuals/Payment-Plans-Install ment-Agreements

Ishali Patel is a senior manager with the Expatriate Tax Services Team at Buzzacott, an accountancy firm based in the United Kingdom. She specializes in advising on all aspects of US and UK expatriate tax, with a focus on various programs of the US Internal Revenue Service (IRS), international pensions, expatriation and US tax-related issues surrounding ownership of non-US structures including corporates and trusts. Based in Hong Kong, she is dually qualified in US and UK tax, and is an IRS Enrolled Agent and a Chartered Tax Advisor (CTA) in the UK.

biz.hk 3 • 2016

HE AL TH CA RE PR OV IDE RS

Marketing Ban on Milk Formula in a Free Market Economy Benefits of breastfeeding are scientifically proven and widely known, but exclusive breastfeeding is no longer a norm in many communities. In the free market economy of Hong Kong, concerns that a legislation would go further than most international standards are indication of a call for the formulation of a more suitable regulation that places a top priority on childrenâ&#x20AC;&#x2122;s health and finds a balance while protecting the rights of the trade and consumers

By Channy Lee

biz.hk 3 â&#x20AC;˘ 2016

ccording to Transparency Market Research, the infant formula market in Asia Pacific was valued at US$10.3 billion in 2013, and is predicted to expand to be worth US$18.2 billion by 2020. China’s presence is particularly notable in the region, a growing market which has bought an estimated 40 percent of the world’s baby milk formula in 2014. The market for formula milk is correspondingly large in Hong Kong. While shopping in any one of Hong Kong’s supermarkets or local drug stores, one can expect to face a plethora of choices of formula milk. The options available range from Japanese brands to those of Australia and New Zealand, formulated specifically for infants between six and 36 months old. But concomitant to the continuously increasing demand for formula products are concerns in a dynamic market where early cessation of breastfeeding is encouraged and consumption of formula milk over breastmilk is endorsed. The formula milk market is often characterized by prevalent and extensive promotion of breastmilk substitutes, and that is precisely the area around which heavy restrictions have long loomed. The “Hong Kong Code of Marketing and Quality of Formula Milk and Related Products, and Food Products for Infants & Young Children” is a major part of the government’s effort to regulate breastfeeding over formula milk, placed under persistent scrutiny from parent groups and workers in healthcare and formula companies.

Basis of claims Benefits of breastfeeding are scientifically proven and widely known. Beyond its nutritious superiority to formula milk, many research reveal that breastfeeding also nurtures infants in the optimal immunological and emotional environment for growth while contributing to prevention of chronic conditions. It is therefore recommended by the World Health Organization (WHO) that infants be breastfed exclusively in their initial six months post-partum for the well-being of both mothers and their children. But exclusive breastfeeding is no longer a norm in many communities. Over the past few decades, trends have turned from primarily breastfeeding to some deeming formula more nutritious and well suited for children’s health. Based on an annual survey conducted by the Hong Kong Department of Health in 2014, breastfeeding rate stood at 80 percent on leaving hospital, but fell to 22 percent after a month, and below five percent after six months.

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As the burgeoning need to promote breastfeeding became evident with diminishing inclination towards exclusive breastfeeding, WHO adopted the International Code of Marketing of Breastmilk Substitutes in 1981. Commonly referred to as the Code, the unbinding health policy framework prohibits unethical marketing of formula as well as provision of free samples to parents and health facilities. Many jurisdictions since then have followed suit of the WHO guidelines. Within three years after the Code was passed, 130 countries either passed legislation or formulated policies in varied forms to restrict advertising. To develop a version of the Code that is suited for Hong Kong, the Hong Kong Department of Health also set up a taskforce in June 2010 and subsequently issued a draft of the Hong Kong Code in 2012.

Concerns raised With the purported aim of eradicating factors that contribute to low breastfeeding rate in the region, the Hong Kong Legislative Council responded to what it refers to as aggressive marketing of formula milk, with regulations in two parts: The larger framework being the Hong Kong Code enforced as a voluntary guideline; and two legislations concerning nutrition labelling and advertising claims on product packaging. Once implemented, the Hong Kong Code will serve as a recommendation for manufacturers and distributors of formula products as well as workers in the healthcare facilities, targeting not only advertising of formula milk but also formula-related products such as bottles manufactured for feeding infants. The two food laws, on the other hand, are intended to regulate provision of inaccurate information through labels and overselling of benefits that breastmilk substitutes bring about. So far in Hong Kong, only the former of the two laws has been implemented, and only a draft of the Hong Kong Code has been released. Public consultation results were reported to the Legislative Council Panel on Health Services in July 2014, which inferred that the delay may be due to policy debates that are especially contentious in the context of Hong Kong. A research from The Lancet, a medical journal in the UK, states that the compound annual growth rate (CAGR) predictions for milk formula in China and Hong Kong from 2014 to 2019 were 15.9 percent and 12.8 percent, respectively, compared to the world average of 9.5 percent. Such a large market in the Greater China Region is explained with the huge local demand for breastmilk

Photo: Thinkstock

Breastfeeding rate on discharge from hospitals, 1992-2012 85.8 73.9

61.8 51.3

50 25

37.8 19.0

0 92

Breastfeeding rate on discharge(%)

100

Source: Baby Friendly Hospital Initiative Hong Kong Association

Breastfeeding patterns among babies born in 2012 100

82.5

Percentage(%)

Breastfeeding(All forms) 55.5

44.3

32.7 22.1

25 0

Exclusive breastfeeding

68.6

21.7

19.1 2.3

Less than onr month

One month

Two months

Four months

Six months

Age of babies Source: Family Health Service, HK Department of Health

substitutes from working mothers in Hong Kong and those from the Mainland. For mothers in Hong Kong, the dire need for formula milk arises from the number of hours they invest into work, leaving them deprived of the time and resources to breastfeed their children as recommended. For those from the Mainland, high costs of formula milk products in China followed by subsequent upsurge of parallel trading have increased the product’ market value in Hong Kong. Despite the two-can limit on the amount of infant formula a person can take over the border between Hong Kong and Mainland China – which aimed to curtail parallel trading – Mainland consumers still account for the majority of sales. It is a key concern among formula producers that the Hong Kong Code will mostly affect these 70 to 80 percent of consumers that are not the primary targets – the local mothers – of the administration’s goal of encouraging breastfeeding. Exemplified by concerns as such, it further fuels the debate that the city is branded as a free

market economy. Limiting free flow of communication between the business sector and consumers may be of detrimental damage to the free market, undermining the freedom of business operations. Results from public consultations about the administration’s proposals imply that the general public’s primary concern is consumers’ right to make informed choices, also a key value in a free market economy. Any excessive ban on marketing and promotional practices could limit access to legitimate information to which all consumers are entitled – and could potentially lead to inaccurate information from unofficial sources, undermining parents’ capacity to make choices based on information about food for their children. Manufacturers and distributors should be required to act morally responsible, but the responsible industry players who comply with all relevant regulations in Hong Kong should also be respected for their right to communicate evidence-based information.

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Breastfeeding rate (%) in selected countries and areas

Norway (2010)

Breastfeeding rate (%) (initiation)

at 1 month

at 2 months

at 4 months

at 6 months

98.5

Exclusive breastfeeding rate (%)

Australia (2012)

UK (2012)

US (2013)

76.5

48.6

42.5

29.1

16.4

66.9

56.1

44.9

27.9

51.6

55.0

55.8

94.7

19.3

14.5

Taiwan (2013) Japan (2011) Malaysia (2010) Singapore (2013)

Hong Kong (2012)

82.9

22.1

21.7

19.1

2.3

Source: Family Health Service, HK Department of Health

Larger Context The government continuously reiterates the importance of aligning local policies concerned with formula marketing to international standards. An important aspect in which they differ, is the range of products covered by the code. The WHO Code recommends exclusive breastfeeding for infants during their initial six months after birth. Regarding follow-up formula which is intended to be a part of the weaning diet, the Code declares that “products covered by this standard are not breastmilk substitutes and shall not be presented as such,” excluding follow-up formula from the range to be covered by a ban. Similarly, the Hong Kong Code targets products sold for not only those under the age of six months but also up to 36 months. This is another point in the trade’s argument that the administration is pushing for overachieving policies that goes beyond a merely effective strategy in encouraging breastfeeding and intervenes in interactions between the trade and consumers. The argument sets forth that such large demand for formula milk in Hong Kong should be noted not just as an indication of low rate of – or unwillingness to – breastfeeding, but rather as an indication of mothers’ inability to breastfeed due to external barriers laid upon them. As for the blanket ban on nutrition and health claims, many practices in developed economies place a strong emphasis on scientific substantiation and evidence-based claims, following established procedures to evaluate nutrition and health claims. The European Union, for instance, allows for nutrition and health claims on infant and young

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child formula given that expert panels approve of the claims after an extensive review procedure. Furthermore, the United States only enforces bans on a specific type of nutrition claims, those that compare the nutrient content of products to others. Conversely, there is a blanket ban on advertising of formula products in the Republic of Korea, but there are now talks of lifting the ban in recognition of the population educated enough to judge for themselves what is best for their children, and for the sake of inducing more economic opportunities. There are factors other than marketing of breastmilk substitutes contributing to a low breastfeeding rate, and it is questioned whether banning certain marketing strategies – either with a voluntary or a legislative approach – will serve as an effective method of encouraging breastfeeding. In fact, a survey conducted by Hong Kong Infant and Young Child Nutrition Association and the University of Hong Kong Public Opinion Programme in 2012 found that over 50 percent of respondents disagreed on that low breastfeeding rate is a result of formula advertisements in the locality. It is essential that more effort is put into improving Hong Kong’s poor breastfeeding rates and securing an appropriate level of nutrition for children. But claims presented on both ends of the policy debate are reasons of significant implications. In the free market economy of Hong Kong, concerns that the Hong Kong Code is more trade restrictive than necessary and goes further than most international standards are calling for the formulation of a more suitable regulation that places a top priority on children’s health and finds a balance while protecting the rights of the trade and consumers.

In Search of a Sustainable Pipeline Antibiotics â&#x20AC;&#x201C; a class of drugs commonly used in modern day medicine and designed to selectively target and kill disease-causing microbes â&#x20AC;&#x201C; are postulated to have saved millions of lives but are also becoming increasingly ineffective due to the rise of antimicrobial resistance. To stop the spread of superbugs, a truly unified response from the global population is necessary

By Channy Lee

biz.hk 3 â&#x20AC;˘ 2016

ir Alexander Fleming warned of bacteria becoming resistant to penicillin in 1945 when he accepted the Nobel Prize for his discovery of the first commercialized antibiotics. Antibiotics, a class of drugs commonly used in modern day medicine and designed to selectively target and kill disease-causing microbes, are posing a worldwide challenge larger than what Fleming had cautioned. That is, the existing family of antibiotics is becoming increasingly ineffective in the fight against bacterial infections. In 2013, it was estimated by Centers for Disease Control and Prevention (CDC) that more than two million people fall ill every year with antibiotic-resistant infections in the US, causing at least 23,000 deaths. The number of deaths puts to foreground the critical case of rising antibiotic resistance, which is classified as the ability bacteria develop over time to overcome the pathogen-malignant effect of antimicrobial agents. The market for this essential class of drugs is part of a larger problem. The pipeline for antibiotics is, in effect, gradually turning obsolete because few new antibiotics have proved to be an effective alternative and even fewer have been approved for the greater market in the last 30 years. After 70 years of birth of the revolutionary medicine, the healthcare industry – and governments worldwide – stands before a race against fast-adapting bacteria.

A post-antibiotic era? The discovery of antibiotics is postulated to have saved millions of lives. The medicine has enabled the progress of treatment and surgery with preventive measures of disease-causing infections, promoted stable growth in livestock animals, while significantly reducing the possibility of an epidemic outbreak. It remains a weapon of choice among healthcare professionals in the fight against bacterial infections – and will be so in the foreseeable future. The use of antibiotics, however, has continued to expand in ways that critics say are having a negative impact on the pharmaceutical effects of the drug and are leading to the rise of antimicrobial-resistant bacteria. Viruses or bacteria developing resistance to drugs is a natural phenomenon, but the case of antimicrobials, namely antibiotics, has been greatly exacerbated by a plurality of misuse and overuse. According to a study conducted by CDC, a total of 262.5 million courses of antibiotics were prescribed for outpatients in 2011, which is equivalent to 842 prescriptions per 1,000 people. Being so familiar with a drug prescribed so often, many demand antibiotics as a form of treatment for virus-induced illnesses, such as a cold or a flu, for which antibacterial compounds are useless.

How Antibiotic Resistance Happens

Lots of germs. A few are drug resistant.

The drug-resistant bacteria are now allowed to grow and take over.

Antibiotics kill bacteria causing the illness, as well as good bacteria protecting the body from infection.

Some bacteria give their drug-resistance to other bacteria, causing more problems.

Source: Centers for Disease Control and Prevention, US Department of Health & Human Services (Antibiotics Resistance Threats in the United States, 2013)

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Antibiotics are optimally prescribed only in 50 percent of the time, and even when prescribed properly and accordingly, many patients have a tendency to stop taking the drug when they feel better. They can lead to the growth of antibiotics resistance in patients and the spread of resistance strains. In some countries, access to antibiotics is simply too easy because they are commercially available over the counter, exposing the drug to potential abuse. Inessential use of antibiotics also prevail across livestock raising, with hundreds of animals being fed with antimicrobial-administered food or through direct injection in animal husbandry. Pervasive acceptance towards such practices has contributed to the emergence of a threat to public health alongside the danger arising from overconsumption of antibiotics among humans. Gonorrhea and tuberculosis, for example, used to be diseases that could be cured in a few days with antibiotics. It is no longer the case as antimicrobial resistant genes continue to spread among strains of bacteria because the constant use of antimicrobials can fundamentally alter microbial ecosystems of humans. As a result, microbes began to fight back for survival in a natural selection process and are now winning by out-doing the arsenal of medicine. Strains of tuberculosis completely drug-resistant that emerged in India a few years ago have now been identified worldwide.

A vicious cycle Fundamentally, reducing misuse and overuse of antibiotics in human medicine and food production is one way to alleviate the drugs’ declining effectiveness. The need for containment of antimicrobial resistance has been recognized decades ago on a global scale, as evidenced by the Resolution of the World Health Organization (WHO) in 1998, which urged member states to formulate appropriate measures to tackle antimicrobial resistance. There are multiple dimensions as to why the historically stable and effective use of antibiotics is failing. Resistance is a problem on its own, and the fact that there are few alternatives once resistance renders existing antimicrobial agents no longer reliable has expanded the battle against antimicrobial resistance beyond the realm of bacteria and drugs themselves. From 1983 to 1987, there were 16 new antibiotics approved by the US Food and Drug Administration. From 2008 to 2012, only three were approved. More than 20 large pharmaceuticals had programs to develop new antibacterial agents twenty years ago.

“From 1983 to 1987, there were 16 new antibiotics approved by the US Food and Drug Administration. From 2008 to 2012, only three were approved. More than 20 large pharmaceuticals had programs to develop new antibacterial agents twenty years ago. The number was down to four in 2013.”

The number was down to four in 2013. Researchers have even noted a diminishing supply of existing drugs, although still far from a critical point. When it comes to antibiotics, the drugs are not working and neither is the market, partly due to a larger focus on drug development for anti-viral infections and other diseases. The commercial valuation of any new antibiotic is tricky because of the uncertainty a drug may involve. Plus, it is harder to estimate actual future demand for antibiotics than those for other long-term drugs targeting, for example, cancer or heart diseases. The investment on developing new antibiotics is risky business because drug resistance may emerge any time after they are introduced to the market. The financial burden of research and development, in terms of resources and time, is immense. On average, it takes 23 years for an antibiotic development to realize some return on investment, according to estimates by the UK Review Committee on Antimicrobial Resistance. The paradox in establishing a sustainable supply of antimicrobial agents is: there must be enough demand and purchases just to offset the development cost and help fund R&D of the next-generation antibiotics; yet, there must be minimal use of the drug in order to extend its effectiveness and to prolong shelf-life before resistance develops again. The good news is: governments are getting involved. British Prime Minister David Cameron in 2015 appointed former Goldman Sachs chief economist Jim O’Neill to head the UK Review Committee on Antimicrobial Resistance – to specifically devise a comprehensive plan to tackle the issue of antimicrobial resistance. The consensus is that the world market needs a fix to steer away from the direction headed towards a global epidemic.

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Examples of How Antibiotic Resistance Spreads George gets antibiotics and develops resistant bacteria in his gut.

Animals get antibiotics and develop resistant bacteria in their guts.

Drug-resistant bacteria can remain on meat from animals. When not handled or cooked properly, the bacteria can spread to humans. Fertilizer or water containing animal feces and drug-resistant bacteria is used on food crops.

Vegetable Farm

George stays at home and in the general community. Spreads resistant bacteria. George gets care at a

hospital, nursing home or other inpatient care facility.

Resistant germs spread directly to other patients or indirectly on unclean hands of healthcare providers.

Drug-resistant bacteria in the animal feces can remain on crops and be eaten. These bacteria can remain in the human gut.

Patients go home.

Healthcare Facility

Resistant bacteria spread to other patients from surfaces within the healthcare facility.

Source: Centers for Disease Control and Prevention, US Department of Health & Human Services (Antibiotics Resistance Threats in the United States, 2013)

Racing against the clock No new major class of antibiotics has been discovered since 1987, according to WHO. In spite of a pessimistic outlook, there are indications of new approaches to the development of a class of medicine deemed so vital in the fight against bacterial infection in the human body. Some involve looking back to precursors of modern day treatments that served the same purpose prior to the discovery of antibiotics, and microbiology is an entirely new approach to the objective. Then, there are the proposed solutions leveraging economic means – close to 100 pharmaceutical companies and trade associations at the World Economic Forum in Davos earlier this year issued a joint statement urging more action on the governmental level to incentivize development of new antibiotics. Public-private partnerships have since been surfacing, and governments across the globe have issued plans to drive research and development for new antibiotics. De-linkage is another economic option being proposed by economists, where profitability would be ‘de-linked’ from volume of sales. Although controversial, it may prove useful “given the difficulty

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in significantly curtailing use, [the] incentive for drug companies to sell more drugs, and weak market incentives for private companies to undertake research into areas that society needs but are not profitable. Translated into a procedure, one or several lump sums would be paid to the developer regardless of how many courses of drugs are sold.” The World Economic Forum has identified antimicrobial resistance as a global risk beyond the capacity of any organization or nation to manage or mitigate alone. At the World Health Assembly in May 2015, a global action plan on antimicrobial resistance was adopted, outlining five objectives in an approach that requires coordination among numerous international sectors and actors. It is set to acknowledge the importance of securing a sustainable pipeline for replacing drugs that are no longer effective. To stop the spread of superbugs – bacteria which have become resistant to antibiotics typically used to combat the microbe – it is yet to be clear which solutions will be sufficient to compensate for the circumstances of reduced economic incentives and strenuous regulatory requirements. The crisis therefore is not just a convoluted challenge posed on the healthcare sector, but calls for a truly unified response from the global population.

The Labelling of Genetically Engineered Food The Guidelines on Voluntary Labelling of GM (Genetically Modified) Food for Hong Kong has been in place since 2006. In a conversation with biz.hk, Alison Van Eenennaam, an expert in genomics and biotechnology and Cooperative Extension Specialist in the Department of Animal Science at University of California-Davis, discusses the safety of genetically modified food for human consumption and challenges associated with mandatory labelling

By Leon Lee

biz.hk 3 â&#x20AC;˘ 2016

Photo: Thinkstock

enetically engineered (GE) foods have been in the market since the early 1990s. And since the beginning, there has always been debates on its use and safety for both human and animal consumption. About 90 percent of genetically engineered crops globally, such as corn and soybeans, are consumed by livestock. A major issue raised by concern groups is that consumers are not informed of exactly what’s in the food or what’s been genetically modified. They advocate for mandatory labelling of GE foods to differentiate ones that have been modified or those that contain GM (genetically modified) components. According to the World Health Organization, the three main health concerns with GM foods are the potential problems with allergic reactions, gene transfer and outcrossing. Currently, regulations on GM food vary around the world. In the US, GM products are assessed by an agency with the Department of Agriculture, but the Food and Drug Administration does not require those products to be approved before marketing for sale. So far, there has been no cases reported of harmful effects from the consumption of approved GM food globally. In Hong Kong, the Food and Environmental Hygiene Department conducted a regulatory impact study on the possibility of introducing a labelling scheme for GM food in 2002. According to their report, there would be no increases in costs to the food trade under a voluntary labelling scheme. However, if it were mandatory, there would be cost increases, especially for small and medium enterprises. The Guidelines on Voluntary Labelling of GM Food for Hong Kong has been in place since 2006. To learn more, biz.hk sat down with Alison Van Eenennaam, Cooperative Extension Specialist at the University of California-Davis and a leading expert in the field, who was in Hong Kong late last year for a seminar on the topic. biz.hk: Let’s start off with GM foods. What is the process like? Van Eenennaam: You’re basically bringing in a piece of DNA from, perhaps, another species to give your plant a particular characteristic. Like the papaya, for example. It’s resistant to ringspot disease. That’s the only thing that that piece of DNA does. It doesn’t produce a protein, and it doesn’t do anything to it, except making it disease-resistant. We often breed disease resistance using other breeding methods like radiation mutagenesis where you can nuke the genome, then select the

ones that are resistant to a disease, and bring it into the population. I’m a breeder and geneticist, and we do this all the time. There’s nothing unique about this breeding method that has unique risks associated with it. biz.hk: Do you believe that labelling of GM foods is necessary? Van Eenennaam: In the US, labelling is reserved for a material difference in the products. So, if maybe there are peanuts in the product, you need to know there are peanuts because you might have an allergy. In this particular case, we’re talking about a breeding method. There are lots of different breeding methods that are used, and we don’t typically mandate that you have breeding methods on the label of a product. Typically that’s for safety concerns. There’s no safety issue here so if you’re going to have mandatory labelling for this breeding method, I want to know why because if I get a papaya that says GM, what does that mean. It doesn’t really tell me anything. It doesn’t tell me what it’s genetically modified for. In the US where there’s a lot of genetically modified crops that are grown, basically all of our processed food probably contain sugar or oil from a GM plant. There’s no mandatory labelling of GM food [in the US]. There is a couple of voluntary programs for people that want to differentiate themselves as being non-GM. So there is a non-GMO (genetically modified organism) project and also [one for] organic food, both of which don’t allow the use of that particular breeding method in their products. That provides a choice for consumers in the marketplace who are actually worried about this. biz.hk: Would you elaborate on that? Van Eenennaam: We do that with a lot of different production methods in the United States – kosher, halal, grass-fed, cage-free chicken. But it doesn’t mean that everybody that’s not halal has to label their stuff as being non-halal. Typically, the way it works is that people who want it have a differentiated market that they pay more for. They bear the cost of keeping all of their products separate. We don’t ever have a system where the rest of the food supply has to go through the expensive labelling for something that’s not associated with safety. We absolutely have to label for composition and nutrients for allergens and products “made in a factory that might contain gluten,” but we never have to label for “brought to the supermarket on a red truck” because it’s not germane to the product

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itself. It doesn’t change the composition or the safety or anything to do with the product. biz.hk: Besides an increase in cost, what are the impacts of mandatory labelling of GM food? Van Eenennaam: When you talk about mandatory labelling, it’s a law. If you didn’t label it or if you labeled it incorrectly when, for instance, the sugar you used in fact came from a plant [producing] genetically engineered foods, then you would be liable for legal responsibilities or getting a lawsuit. Sugar, for example, comes from sugar beets or sugar canes. Sugar beets are genetically engineered, sugar canes are not. Sugar is about half genetically engineered and half not. But the product itself is sucrose. It doesn’t have any DNA or protein, and there’s no way to tell whether it came from a genetically engineered sugar beets or non-genetically engineered sugar canes. If I were to correctly label a product that contains sugar, I would have to have segregation in the entire supply chain of all the sugar that comes from sugar beets in order to make sure it gets labelled correctly. Now let’s do the same for oil. Similarly, oil doesn’t contain DNA or protein so there is no idea if it came from a genetically engineered plant or not. To do that, you would have to do an entire supply chain segregation of oil. You can imagine all the ingredients in a cookie. There’re probably 30 ingredients and lot of vitamins and minerals. There’s just a lot to it to accurately label a cookie. Now let’s try that with the hundreds of thousands of processed foods. biz.hk: It does sound like an enormous task, but what about the safety of eating GM foods? Van Eenennaam: [People] think there is something in the food like some type of a nasty chemical or something toxic. All it is, is a breeding method that was used in the process to create this particular plant, and the plant itself is not dangerous because we eat DNA all the time. The basic digestion is that you digest proteins and DNA and then metabolize it. So what is it that’s dangerous? There’s nothing in the food other than the idea that it’s just food. There’s nothing there, but there’re all these benefits that we never talk about. The papaya is disease-resistant, and if it weren’t for that gene being introduced, there would be no papaya industry in Hawaii. Often people get bogged down in how you genetically engineer something without talking about why. Why we do it is because there are ways we can address these problems in agriculture that we can’t address in any other way except through using this technology. Disease resistance is particularly

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compelling because we seriously won’t have these crops unless we’re allowed to use some of these technologies to develop resistant varieties. As an agricultural scientist, I see this as a really valuable breeding method that I would like to use to create disease-resistant animals and plants that are incredible sustainability options. We can’t use this technology now but I’m certainly comfortable with the safety of it and am feeding it to my kids. And I already do.

Dr Alison Van Eenennaam is a genomics and biotechnology researcher and is Cooperative Extension Specialist in the Department of Animal Science at University of CaliforniaDavis. Her outreach program focuses on the development of science-based educational materials including biotechnologies of genetic engineering (GE) and cloning. She has served on several national committees including the USDA National Advisory Committee on Biotechnology and 21st Century Agriculture and as a temporary voting member of the 2010 FDA Veterinary Medicine Advisory Committee meeting on the AquAdvantage salmon (the first GE animal to be evaluated for entry into the food supply). Van Eenennaam is the recipient of the 2010 National Award for Excellence in Extension from the American Association of Public and Land-Grant Universities as well as the 2014 Borlaug Council for Agricultural Science and Technology (CAST) Communication Award.

Taking Care of Your Heart Heart diseases are the third leading cause of death in Hong Kong and account for approximately 13 percent of overall fatalities. In the city, 11 people died of coronary heart disease per day on average in 2013. Danica Yau, Medical Affairs Specialist at Wyeth Nutrition Hong Kong, with a focus on paediatric nutrition, obesity and diabetes, provides an easy-to-understand guide to a heart-healthy diet

By Channy Lee

biz.hk 3 â&#x20AC;˘ 2016

biz.hk: What are some of the most common heart issues? Yau: Heart diseases refer to a spectrum of conditions involving the heart and blood vessels, being largely categorized by the part of circulatory system where the problem arises and different causes behind. The most common heart disease in Hong Kong is coronary heart disease, which occurs when blood flow to the heart muscle is limited due to a blood clot. This is often a result of the buildup of cholesterol layer inside coronary arteries, and it can lead to a heart attack. Other common heart problems include hypertensive, chronic rheumatic and congenital heart diseases. biz.hk: How prevalent are these diseases in Hong Kong? Are there any risk factors especially pertinent to the Hong Kong or Asian population? Yau: Heart diseases are the third leading cause of

biz.hk 3 â&#x20AC;˘ 2016

death in Hong Kong, accounting for approximately 13 percent of deaths. In 2013, 11 people died of coronary heart disease per day on average. Although the rate is considerably lower than that of Western countries, it is still important to note risk factors that make the population of Hong Kong more prone to heart diseases. Diabetes is more common in Hong Kong compared to the world average, and diabetic patients are about two times more likely to develop coronary heart disease. Severe air pollution in Hong Kong and China increases the risk as there is growing evidence that exposure to particulate matter (an air pollutant) contributes to prevalence of heart diseases. Chronic stress that is especially prevalent in a fast-paced city like Hong Kong is also associated with an increased risk. biz.hk: What is the significance of healthy eating in reducing the risk of heart diseases?

Type of dietary fat

Impact on heart heath

Examples of food sources

Cholesterol

• LDL (bad cholesterol) – contributes to blocked arteries and risk of heart disease • HDL (good cholesterol) – helps protect arteries from plaque formation

• Eggs • Squid and eel • Cakes

• Limit intake to less than 300 mg/day

Saturated fat

• ↑ Total cholesterol level • ↑ Heart disease risk

• Regular fat dairy products and fatty meat • Palm oil and coconut milk • Cakes, pastries, biscuits and deep fried foods

Trans fat

• ↑ Both total and LDL levels • ↓HDL level • ↑ Heart disease risk

• Cakes, pastries, biscuits and deep fried foods • Found in low levels naturally in beef, lamb and dairy products

• Try to limit and replace with unsaturated fats • Saturated fat: <10% of total daily energy intake (<5-6% if already have abnormal lipid levels) • Trans fat: <1 % of total daily energy intake

Unsaturated fat: Mono-unsaturated fat

• ↓ LDL level • ↓ Heart disease risk

• Olive oil, canola oil and peanut oil • Nuts • Avocados

• Replace saturated and trans fats

Unsaturated fat: Poly-unsaturated fat (Omega-3 fats such as DHA)

• Oily fish such as salmon and sardine • Eggs and meat such as lean beef • Seeds, walnuts, soybeans and canola oil

• 500 mg omega-3 fats per week (e.g. 2-3 servings of 150 g oily fish) • Additional benefit of DHA in pregnant women is that higher intake (600-800 mg/day) may provide greater protection against early preterm birth

Unsaturated fat: Poly-unsaturated fat (Omega-6 fat)

• Sunflower, soybean and sesame oils • Walnuts, pecans and pine nuts • Sunflower seeds

• Replace saturated and trans fats

Yau: Healthy and balanced nutrition is a key focus of disease prevention as such approaches are also recommended by authorities. Diet is an important modifiable factor as it not only helps reduce the risk of heart diseases, but also reduces the chances of comorbidities such as obesity, high blood pressure and abnormal blood lipids. But diet alone may not suffice. A healthy lifestyle involving physical activities with abstinence from smoking and alcohol is concurrently needed to support heart health. biz.hk: What is a healthy diet for the heart? Yau: The broad principle of a heart healthy diet encompasses the following: Choose • A range of fruits and vegetables (≥ 5 servings/day) • Skim or low-fat dairy products, or alternative calcium supplemented foods and drinks (1-2 glasses/day) • Lean meat and fish (5-8 taels/day) • More nuts and legumes • More wholegrains • Vegetable oils (limit cooking oil to 2 teaspoon max per person in each meal) Limit • Red meat • Foods high in saturated fat and trans fat (eg cakes, biscuits) • Foods high in salt (e.g. processed meat like bacon, sausages and spam) • Sweets and sugar-sweetened beverage • Alcohol Following the above dietary pattern will reduce the intake of sodium and sugar, while consuming more fiber and achieving an optimal fatty acid intake profile. Emphasis should also be placed on portion control and corresponding calories for weight management.

Diet tips

biz.hk: How do dietary fats play into a heart healthy diet? Yau: Fat is a macronutrient and is a fuel and energy source for the body, while also aiding in the absorption of fat-soluble vitamins such as vitamin E. Very importantly, dietary fat plays a role in body cholesterol levels. Cholesterol is the waxy substance that occurs naturally in the body but forms plaque that narrows or even blocks arteries when there is an excessive amount. Fats are categorized by their structure and properties, each impacting heart health in different ways (see above table). One fact about dietary fats that needs particular attention is, eating large amounts of food containing saturated and trans fats is a more relevant dietary cause of high blood cholesterol level than consuming cholesterol- containing foods. biz.hk: Is there an aspect of culinary culture or eating habits that needs to be further promoted? Yau: Eating out being a prominent part of Hong Kong’s culture, it is important to know how to choose healthier alternatives while doing so. This includes simple choices such as adding a side of vegetables, removing the skin from chicken wings, choosing fish over steak, limiting sodium rich sauces such as oyster sauce, asking for less rice for calories and portion control, and opting for coffee or tea without sugar. When grocery shopping, the nutritional content of food products may not always be evident, and there is a likelihood that they can be easily misunderstood due to common misperceptions. By paying closer attention to nutrition labels on food packaging to compare nutrient levels, we can be a step closer to a healthy heart.

biz.hk 3 • 2016

biz.hk: Any food myths that must be busted? Yau: It is a myth that eggs, particularly the yolk, should be avoided for health reasons of the heart. Fat found in eggs is mostly unsaturated – the healthy fats - and cholesterol found in eggs (220 mg per egg on average) is limited in amount to affect our blood cholesterol level. The Australian Heart Foundation recommends up to 6 eggs each week as part of a healthy balanced diet without increasing the risk of heart diseases. In addition, the Hong Kong government advises to avoid consuming other high cholesterol foods on an egg-day to prevent exceeding the daily upper-limit cholesterol intake of 300 mg. Another widespread myth is that there is no limit to consumption of good fats – the notion that it can be consumed as much as one wants. While it is true that the good fats may help support heart health, one needs to keep in mind that fat is the most calorie dense macronutrient with 9 kcal per gram, while carbohydrates and protein both contain 4 kcal per gram. The reference values for daily energy intake are 2350-2400 kcal and 1850-1900 kcal for adult men and women, respectively, and a diet with fat as 15-30 percent of total energy intake is recommended. Lastly, it is a myth that vitamin supplements can aid in preventing heart diseases. Some people have turned to vitamin supplements with the notion that vitamins with antioxidant properties are beneficial for heart health. However, the American Heart Association, based on available scientific data, concluded in 2004 that the use of vitamin supplements is not justified, and a dietary pattern with wholesome foods is recommended instead. The latest recommendation made by the Association states vitamin supplements may only be considered if intake from a normal diet is deficient, with the advice of healthcare professionals.

biz.hk: What are some other lifestyle factors to consider for a synergetic effect in prevention? Yau: There are several tips to preventing heart diseases in everyday life. It is important to exercise regularly, at least 30 minutes every day to maintain cardiovascular fitness. With that, a healthy weight should be maintained. Using Body Mass Index (BMI) as a measure, BMI of 18.5-22.9 and waist circumference of less than 90 cm and less than 80 cm for men and women, respectively, are considered healthy. Secondly, smoking should be avoided. Tobacco in every form and exposure to second-hand smoke are harmful. Overall, learning to recognize and manage stress in healthy ways will contribute to the prevention of heart diseases, as some individuals tend to over-eat, smoke and consume alcohol when under stress. More importantly, any individual experiencing heart disease symptoms should seek medical attention from healthcare providers. Dietary information about maintaining a healthy heart only serves as a reference for the general public.

biz.hk: Who should be most concerned about eating right for the heart? Yau: Men of advancing age and those with a family history of heart diseases are at higher risk and hence it is an aspect of their health requiring more attention. However, with the current trend of heart-related problems, it is recommended – and always best – to establish a healthy eating pattern from a young age. If not, we need to start now. A healthy diet for the heart is also aligned with overall health: appropriate body weight, less prone to diabetes, cancers and other non-communicable diseases. So everyone can benefit from it in different ways.

Danica Yau is a medical affairs specialist at Wyeth Nutrition Hong Kong. She is an Accredited Practising Dietitian (Dietitians Association of Australia) and Accredited Dietitian (Hong Kong Dietitians Association), with an interest in paediatric nutrition, obesity and diabetes. She graduated from the University of Sydney with a Bachelor of Science (Honors) degree in Nutrition and has recently completed a Master of Science degree in Endocrinology, Diabetes and Metabolism at the Chinese University of Hong Kong.

biz.hk 3 • 2016

HEALTHCARE PROVIDERS Hong Kong Adventist Hospital – Stubbs Road 40 Stubbs Road, Hong Kong SAR China

Company Activities/History Hong Kong Adventist Hospital - Stubbs Road (HKAH-SR) offers a comprehensive range of services in a safe and comfortable environment. The Hospital operates first-class equipment and state-of-the-art facilities. Our team of highly skilled medical professionals is committed to ensuring optimal treatment, promoting healthy lifestyles, and restoring patients back to health in body, mind and spirit. The Hospital has accreditations from international associations including: • Australian Council on Health Care Standards (ACHS) • Health Promoting Hospital (HPH), the global network initiated by the World Health Organization • Hong Kong Laboratory Accreditation Scheme (HOKLAS) • ISO 22000 Certification for Food Safety Management Systems

Highlights of Our Services • 24-hour urgent care services • Out-patient clinic and specialist centers • The Heart Center, Cardiac Catheterization & Interventional Center, and Arrhythmia Center / Electrophysiology Laboratory provide world class cardiology services • Oncology Center is the only facility in Hong Kong equipped with CyberKnife G4 and TomoTherapy • Operating Rooms, Robotic and MIS Center is equipped with the da Vinci robotic surgical system • Minimally Invasive Spine Surgery Center (MISS) offers a full range of spine care, including invasive and non-invasive treatments

Hong Kong Adventist Hospital – Stubbs Road 40 Stubbs Road, Hong Kong, SAR China Tel: (852) 3651 8888 Fax: (852) 3651 8800 Email: hkahinfo@hkah.org.hk

www.hkah.org.hk

Adventist Medical Center Unit 1606-10, 16/F., Hang Lung Centre, 2-20 Paterson Street, Causeway Bay, Hong Kong Tel: (852) 2782 2202 Fax: (852) 2782 3022

www.adventistmedical.hk

biz.hk 3 • 2016

Mead Johnson Nutrition (Hong Kong) Limited 25/F, ACE Tower, Windsor House, 311 Gloucester Road, Causeway Bay

Nourish the Best Start in Life

Contribute to the Community

Mead Johnson Nutrition (MJN) was one of the first companies in the United States to focus scientific research on nutrition for infants and children. For more than a century, it has led the way in developing safe, high-quality and innovative nutrition products, guided by our mission “To nourish the world’s children for the best start in life”. MJN was built on a foundation of science-based nutrition. Globally, we operate four MJN Pediatric Nutrition Institutes in the United States, Singapore, China and Mexico. These centers connect MJN’s researchers to scientists and healthcare professionals around the world, putting us at the forefront of pediatric nutrition science. MJN was listed on the New York Stock Exchange in 2009 and is part of the Standard & Poor’s 500 Index.

MJN has been supporting local families for more than 40 years. We offer regular parenting advice and healthcare information to consumers through a wide variety of channels, including the MJN Mothers’ Club, service hotline, as well as social media platforms such as Facebook and WeChat. To support the local community, MJN has been supporting the “Feeding Hope” program initiated by The Boys' and Girls' Clubs Association of Hong Kong since 2009 to improve health and nutrition for children in low-income families. The program recorded a total attendance of over 90,000 to date. Last October, Mead Johnson Hong Kong donated HK $1 million to the Joshua Hellman Foundation for Orphan Disesase (JHF) to launch VITAL STEP, a screening and education program to help parents safeguard their newborns against Inborn Errors of Metabolism (IEM), which can have serious consequences, including death. To foster wider public awareness, award-winning film director, Adrian Kwan Shun-fai produced a micro film based on a true story of an IEM patient.

Fast facts about Mead Johnson

• Founded in 1905 by Edward Mead Johnson • Employs approximately 8,000 employees globally • Sells more than 70 products in over 50 markets • Operates 4 MJN Pediatric Nutrition Institutes worldwide

In Aug 2015, MJN invited 19,726 HongKongers to build a toy block model, setting a new Guinness World Record™ for the ‘Most Participants in Toy Block Model Building’. Service / Product:

Nutrition Product About the service / MJN’s portfolio of brands represents specialized pediatric nutrition products Product: parents have trusted for more than a century to encourage healthy growth, support brain development and address common feeding issues. Our products include milk formula for routine feeding, to those for rare metabolic disorders that require specialized treatment. Ms. Ruthia Wong, Vice President and Key Personnel: General Manager of Hong Kong (852) 2510 6321 Tel: Fax: Contact Us:

(852) 2969 5528 www.meadjohnson.com.hk/contact-us

In Oct 2015, MJN partnered with JHF to launch a public awareness campaign, calling all Hong Kong expecting parents to take the vital step to safeguard their newborns from IEM. * Nielsen Infant Milk Formula Market Track Service data shows that Mead Johnson ranked first in Sales Volume and Sales Value within the Infant Milk Formula market from May 2002 to April 2015 in total Hong Kong supermarkets and drug stores. (Copyright©2015, The Nielsen Company)

www.meadjohnson.com.hk biz.hk 3 • 2016

HEALTHCARE PROVIDERS Wyeth Nutrition Hong Kong 12/F Lincoln House, Taikoo Place, 979 King’s Road, Island East, Hong Kong

Science as Foundation Wyeth Nutrition is part of Nestle S.A. We develop premium-quality nutritional products scientifically-designed to meet the needs of people in different life stages. As pioneers in infant nutritional science, our mission is to provide the best nutritional support for future healthy outcomes. In the past century, Wyeth Nutrition has leveraged clinical rigor, scientific research, world class manufacturing and product safety standards to drive scientifically-sound solutions that offer parents confidence, help nourish children and support their healthy futures.

Professionalism as Principle At Wyeth Nutrition, quality and professional integrity are our highest priorities. Our commitment to quality and integrity has always extended beyond formulation to manufacturing. Milk formulas are among the most stringently regulated consumer products in the world. We manufacture our products with reference to food quality and safety standards set by the Codex Alimentarius Commission, a body run jointly by the United Nation's Food and Agriculture Organization and World Health Organization, and we comply with all regulations in the countries where we operate. We bring to the manufacture of nutrition products the same diligence and attention to detail used in pharmaceutical production, striving for total consumer confidence in our products. With our persistence of state-of-the-art facilities and the strictest standards of quality and safety, all formula products of Wyeth Nutrition Hong Kong are manufactured by its plants that achieve ISO and HACCP certifications in recognition of their manufacturing excellence.

Key Personnel: Tel: Fax: Email:

* IMPORTANT NOTICE: The World Health Organization recommends exclusive breastfeeding during the first 6 months of life and continued breastfeeding for as long as possible. Products shown are formula milk for young children aged 6 months to 3 years and above, or nutritional supplement for women who are planning to become pregnant, who are pregnant, or who are breastfeeding, and are not breast milk substitutes. Before taking any maternal supplement, please consult your healthcare professional to determine which product is appropriate for you. For picky eating children, should provide them with normal diet and continue to correct their picky eating behavior. If there is any question, please consult doctors or dietitians for details.

Nutrition Product Wyeth Nutrition Hong Kong offers a full line of safe, quality and scientifically-designed nutrition products, including infant formula, follow-on formula, growing-up formula, prenatal and lactating supplements, and adult supplement. Ms May Chung, Country Business Manager (852) 2599 8888 (852) 2599 8999 enquiryhk@wyethnutrition.com

www.wyethnutrition.com.hk 62

Starting with the first infant formula brand, Wyeth Nutrition has created many firsts that have advanced the science of children’s nutrition, such as the first formula to carry an expiration date to ensure freshness, the first infant formula enriched with alpha-lactalbumin, a high-quality whey protein, etc. We share your vision of success and will continue to develop the most innovative nutritional products of today and tomorrow. In addition to maintaining our leadership, we are also committed to create shared value for our society by driving and supporting various corporate social responsibility programs with our different stakeholders.

WYE-PM-033-FEB-16

Service / Product: About the service / Product:

Nourishing Pioneers – For More Than 100 Years and Beyond

WYETH® is a registered trademark of Wyeth LLC. used under license.

biz.hk 3 • 2016

BODYQ Health Specialists Suite 1701, Hong Kong Pacific Centre, 28 Hankow Road, Tsimshatsui, Kowloon, Hong Kong

Company Activities/History

Services include:

We are a Comprehensive Health Management service based in Hong Kong • Represent a group of medical specialists of different specialties • Mostly graduated from UK, HK or Australia

• Specialist outpatients and 24 hour emergency medical and surgical services • Inpatient services with access to all private hospitals in Hong Kong • House call service to client’s home or hotel • Medical Transport and Medical Escort service to and from China • Comprehensive medical check up plans for both personal and corporate clients • Vaccination service in clinic and at corporate venues • Health seminars both in clinic and at client venues • Strong Partnership with most International Insurance companies • Cater for both local and expat patients from Hong Kong and China

“YOUR HEALTH IS OUR CONCERN” 24 HOUR HOTLINE: +852 699 33 993 Key Personnel:

Ms. Zenki Chua

Tel:

(852) 2369 2222

Mobile:

(852) 6993 3993

Email:

info@bodyQ.com

www.bodyQ.com

biz.hk 3 • 2016

MARK YOUR CALENDAR Mar Managing Legal and Reputational Risk in Global Business

Transactions: Lessons and Trends in International Trade Enforcement and Corporate Social Responsibility

Daniel Feldman, Partner, Akin Gump Strauss Hauer & Feld LLP, Washington, DC Thomas McCarthy, Partner, Akin Gump Strauss Hauer & Feld LLP, Washington, DC Tatman Savio, Partner, Akin Gump Strauss Hauer & Feld LLP, Hong Kong Vena Cheng, Senior Consultant, Akin Gump Strauss Hauer & Feld LLP, Hong Kong Rebekah Jones, Counsel, Akin Gump Strauss Hauer & Feld LLP, Singapore This program will feature senior attorneys from Akin Gump’s global international trade and litigation teams, including Ambassador Daniel Feldman, who recently joined the firm after serving as the U.S. Special Representative for Afghanistan and Pakistan at the Department of State. The session will highlight the extraterritorial reach of U.S. international trade laws and their impact on companies’ global operations, focusing particularly on recent enforcement cases and trends, and explore the ways in which compliance and corporate social responsibility programs are effective tools in mitigating risks and enhancing business opportunities in the global marketplace. Given recent developments related to Iran and the implementation of the Joint Comprehensive Plan of Action (“JCPOA”) between the P5+1 (China, France, Germany, Russia, the United Kingdom, and the United States), the European Union, and Iran, the panelists will provide an overview of developments in the United States’ Iran sanctions regime, particularly as those developments apply to non-U.S. companies and foreign subsidiaries of U.S. companies.

Mar China's Economy: Powerhouse, Menace, or the Next Japan?

Arthur R. Kroeber, Head of research, Gavekal & Editor, China Economic Quarterly In the last three decades China has surged from impoverished backwater to become the world's second-biggest economy and largest trading nation. Yet as the recent tumult on global markets shows, China risks destabilizing the world as it makes the hard shift from an investment-driven to a consumer-oriented economy. The headwinds of a rapidly aging population, a battle against rampant corruption and an enormous national debt are also slowing the country's growth. Will China mature into a global economic leader, trigger a crisis, or stagnate like Japan? Arthur Kroeber, one of the world’s leading commentators on the Chinese economy, will tackle these tough questions. Arthur Kroeber is founder of the Gavekal Dragonomics research service, editor of China Economic Quarterly and author of China's Economy: What Everyone Needs to Know (Oxford, April 2016).

Mar What Matters in Digital Age:

Accelerating Meaningful Connections into Transactions

Ran Almog Vice President, Operations and Customer Success, APAC, LivePerson & ISID Hong Kong’s Strategic Partner Many have changed in the age of digital. Everything we used to need to go out to do is in our hands now as we are going into the generation called Digital First Generation. To businesses, this means that all of your consumers’ needs are in your hands as well. In fact, digital marketing investment of companies has marked the highest in 2015 and digital channels such as mobile app, online store and mobile site keep evolving to be more and more convenient. In given situation as such what matters is how to engage properly and more importantly, meaningfully with consumers seamlessly across channels and devices. Yet it seems the more convenient it becomes the less in touch we are with consumers. LivePerson Inc., a Strategic Partner of ISI-Dentsu of Hong Kong, Limited (“ISID Hong Kong”), is the pioneer of digital engagement and provides scalable and world-class security solution that is ROI effective while creating meaningful connections with consumers improving metrics such as LTV, CSAT and loyalty. In this presentation, Ran Almog will share the global trend of the digital age, effective ROI methodology and case studies focusing on how to survive the digital age by creating meaningful connections.

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

Tel: (852) 2530 6900

Venue: The American Chamber of Commerce in HK 1904 Bank of America Tower 12 Harcourt Road Central, Hong Kong Time: 12:00 - 1:45pm (Sandwiches & beverages included) Fee(s): Member: HK$280 Non-member: HK$400

Venue: The American Chamber of Commerce in HK 1904 Bank of America Tower 12 Harcourt Road Central, Hong Kong Time: 8:00 - 9:30am (Light breakfast included) Fee(s): Member: HK$180 Non-member: HK$300

Fax: (852) 2810 1289

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Email: byau@amcham.org.hk

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Special Offer New customer can enjoy a 50% discount on buying ONE CRIF China credit report! Promotion Period: From now until 30 June 2016 *Special offer is only applied to the first 30 reports sold. CRIF reserves the right to make the final decision on the terms & conditions of this offer and our service.

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About CRIF CRIF is a global company specializing in the development and management of credit bureau services, business information systems, and credit solutions. Established in 1988 in Bologna (Italy), CRIF has an international presence, operating over four continents (Europe, America, Africa and Asia). Over 3,100 banks and financial institutions and more than 25,000 business clients use CRIF services in 50 countries on a daily basis.

CRIF Hong Kong Limited Address: Room 1020-21A, Ocean Centre, 5 Canton Road, Tsimshatsui, Kowloon, Hong Kong

JOURNAL OF THE AMERICAN CHAMBER OF COMMERCE IN HONG KONG

www.amcham.org.hk

March 2016 • VOLUME 48 NUMBER 3