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BANKS BUST OUT THE CHATBOTS RISE OF THE NANO FLATS START UP FUNDING HIT NEW HIGHS INVESTMENT BANKING SURVEY 46
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FROM THE EDITOR
Established 1982 Editorial Enquiries: Charlton Media Group Hong Kong Ltd 19/F, Yat Chau Building, 262 Des Voeux Road Central Hong Kong. +852 3972 7166
Welcome to Hong Kong Business. This is the seventh year that we are rounding up the hottest start ups in Hong Kong. Based on the amount of funding raised, we present to you the up and coming start ups to watch out for in the city. One of them is a Fintech start up that raised a whopping US$220m last November, putting Hong Kong’s VC investment scene in the map.
Publisher & EDITOR-IN-CHIEF Tim Charlton associate publisher Louis Shek production EDITOR Genelie Sta.Ana-De Leon graphic artist Elizabeth Indoy ADVERTISING CONTACTS Louis Shek +852 6099 9768 louis@hongkongbusiness.hk Rochelle Romero rochelle@charltonmediamail.com
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Catching up in the digital party, Hong Kong banks are also busting out the chatbots. HSBC rolled out Ask Amy whow as able to respond to 97,000 questions with a 90% success rate and hold 38,000 customer conversations. Hang Seng Bank has rolled out HARO and DORI, whilst Standard Chartered is preparing for the launch of their banker bots this 2018. Will bankers be replaced by robots? Meanwhile, Hong Kong remains as the most expensive location for expat rentals, and we’ve talked to some expats who have long been bearing the brunt of this dilemma. 2017 also saw the rise of the nano flats, or houses with less than 200 sq ft in floor area. JLL reports that the supply of nano flats will more than triple to 510 units annually between 2017 and 2020, from the 151 units annually in 2014 to 2016. Lastly, our annual investment banking review revealed that it has been a busy year for Hong Kong’s deal-makers. According to Thomson Reuters data announced M&A deals posted strong growth at 169% year on year to $113.6b on the back of larger average deal sizes and a modest rise of 6.7% in the number of deals. On the IPO front, EY research revealed that listings on the HK Exchange remained flat in 2017, at 72 IPOs for both 2016 and 2017. Proceeds fell to $14.8b, down 40% compared with 2016, which was largely due to the Postal Savings Bank of China’s (PSBC) mammoth $7.4b IPO listing in Hong Kong in September 2016.
PriNting Gear Printing Limited Flat B, 3/F, Derrick Ind. Bldg., 49-51 Wong Chuk Hang Rd., Hong Kong.
Our channel checks with industry experts also revealed that Hong Kong should transform its investment banking playbook in 2018, with digital innovation, workforce transition planning, and customer trust-building at the core of transofrmation. These are but a few of the long-term strategies that, if not implemented, could set investment banks on a path of low returns and irrelevance.
Tim Charlton
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HONG KONG BUSINESS | MARCH 2018
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CONTENTS
16
COVERAGE 40 eVENT High Flyers 2017
COVER STORY 26 Startup funding hit new highs in 2017
FIRST 06 Hong Kong banks bust
out the chatbots
07 Contracting gains traction in HK 08 Rise of the nano flats 10 Hong Kong banks to benefit
from renminbi internationalisation
12 Hong Kong is the priciest city
for expats
FINANCIAL INSIGHT Why investment banks should transform their playbook in 2018
RANKINGS
REGULAR
30 Man vs bots: Will Hong Kong
20 Economy Watch
INDUSTRIAL INSIGHT 22 The changing face
34 Hong Kong poise
of Hong Kong’s retail Beating trade finance challenges amongst Asian banks
for insurtech growth in 2018
OPINION
24 No bank is an island:
fully embrace legaltech?
44 Looking the Lands Dept’s gift
horse in the mouth
48 Maybe they should call it
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START UPS
residential property
Hong Kong’s startup scene takes off amidst strong government support
ASEAN e-commerce forecasted to grow 32% to almost US$90b by 2025
Hong Kong is the priciest housing market for eighth time in a row
The local startup scene has taken off thanks to sustained government initiatives enabling Hong Kong to clinch a spot as one of the world’s top startup hubs, according to Financial Secretary Paul Chan during the StartmeupHK Venture Festival.
Credit Suisse reported a forecast of 32% CAGR increase in ASEAN e-commerce spending, rising to almost US$90b by 2025. Growing e-tailing markets may be stimulated by the entry of Chinese tech giants, amongst other foreign players.
With a red-hot property market that not even the threat of a Fed rate hike can curb, it comes as no surprise that Hong Kong once again holds the title of having the least affordable housing market in the world, according to Demographia.
commercial property
Which sector dominated the yearend capital market? As the investment market continued its sustained upward trajectory, the office sector posted the highest level of activity in Q4 in both en-bloc and strata-titled markets, according to Colliers Asia Market Snapshot Q417. The largest deal in Q4 was the office sale of 48 floors of The Centre for $40.3b.
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Economy
HONG KONG BUSINESS | MARCH 2018
Building & Engineering
Construction contract in Kai Tak West signed for $6.24b The Highways Department signed a contract for works in Kai Tak West worth $6.24b as part of the Central Kowloon Route project with the aim of slashing travel times during peak hours between Yau Ma Tei and Kowloon Bay to five minutes, according to a government press release.
energy & offshore
Asia-Pacific countries to invest up to US$250b in solar and wind projects PwC reported that major AsiaPacific countries may invest up to US$250b in utility-scale solar and wind projects by 2025. According to PwC, climate change has driven an increase in renewable energy (RE) investments among Asia-Pacific countries, with a total amount of US$114.8b RE in investments.
FIRST by Hang Seng Bank’s merchant partners, from dining, beauty service and cosmetics, to entertainment. Some of limited-time-and-quantity offers were exclusively sent to DORI users when paying with Hang Seng credit cards, and the business result has been “encouraging” with most offers being fully redeemed quickly, according to Margaret Kwan, executive director and head of retail banking and wealth management of Hang Seng Bank.
BRACE YOURSELVES FOR LOW PAY HIKES
Salary increases in Hong Kong will be moderate in 2018 with 49% of firms planning to offer salary increases from between 3% to 6%, down 1% from the actual reported in 2017 according to recruitment firm Hays. Meanwhile, 22% of employers this year plan to offer salary bumps of more than 6% in the year ahead. Employers will also remain cautious on increasing headcount, with only 43% intending to do so in 2018, a small improvement from the 39% in 2017, even as the number of employers expecting the economy to strengthen further in 2018 rose 9 percentage points to 20%. “For candidates, these conditions represent something of a challenge,” said Dean Stallard, managing director of Hays Hong Kong, citing the firm’s latest Salary Guide survey. “Those staying in a job are likely to see only modest salary increases whilst those changing employers have a better chance of securing a higher salary, but there is likely to be fewer new jobs coming to market.” Candidates’ best bet is to do ample research in the developments in their sector to gauge their bargaining power either for a salary raise or a new hire package. It is also critical to look into the skills that are in great demand, for which employers will be willing to pay a higher premium. “A preoccupying worry for many employers in Hong Kong is the continuing skills shortages issue in the territory that is also a prevailing theme across the Asia region,” said Stallard noting that 89% employers still believe that skills shortages will hamper the effective operations of their businesses, only 2% down from the previous year. In Hong Kong, employers reported that the hardest roles to recruit for are for entry up to middle management IT roles (27%), entry up to middle management accountancy & finance roles (19%) and entry up to middle management engineering roles (18%). 6
HONG KONG BUSINESS | MARCH 2018
HARO covers the mortgage, personal loan, credit card, and medical insurance and travel insurance services.
Hong Kong banks bust out the chatbots
W
hen HSBC launched its chatbot Amy to answer general enquiries from its commercial banking customers in January last year, it did not take long for the bank to realise that its pioneering initiative was a home run - and for other banks to follow suit. By December 2017, or just a year after its debut, Amy was able to answer 97,000 questions with a 90% success rate and hold 38,000 customer conversations. HSBC said that Amy’s popularity, as shown in the volume of interactions, revealed a customer preference to interact with an easy-to-use chatbot. A year after Amy launched, Hang Seng Bank debuted its own chatbots, a pair named HARO and DORI. HARO covers the mortgage, personal loan, credit card, and medical insurance and travel insurance services. It is designed to analyse customer enquiries, say on policy coverage of travel insurance, and subsequently provide relevant product and service information. Meanwhile, DORI makes recommendations on offers provided
Amy was able to answer 97,000 questions with a 90% success rate and hold 38,000 customer conversations.
Nascent technology Kwan reckoned chatbots are still a nascent technology for retail banking, but expects the new generation of digital savvy banking clients to shift to the chatbot as their preferred mode of interaction. She explained that chatbots appeal to the new customer profile: Uses mobile frequently, is comfortable with self-assistance, prefers texting to calls, demands service at their fingertips, and expects real-time feedback for their enquiry. “Compared with the traditional way of displaying banks’ products and offers via static webpage, chatbots like HARO and DORI will become more popular, as they offer a more interactive way to provide customers with relevant information through smartphone devices,” said Kwan. Standard Chartered also plans to roll out a chatbot in the second quarter of 2018, subject to regulatory approval. The bank expects the general enquiry service would be significantly shifted to chatbot post launch, said Vicky Kong, managing director, head of retail banking at Standard Chartered.“We’re operating in a competitive environment where expectations on client experience and innovation run high,” Kong added.
HSBC’s ASK AMY has answered 97,000 questions to date
FIRST The second half of 2017 saw strong demand for contract talent across industries such as medical, luxury retail, business services and telecoms.
Hong x Kong will hire more contract workers in 2018.
Contracting gains traction in HK
W
hen the fourth quarter of 2017 saw Hong Kong’s unemployment rate fall to 2.9% — the first time that it has dipped below 3.0% in nearly 20 years — it signaled not only a further tightening of the Hong Kong job market but also a shifting approach amongst employers as they took on more contract workers. “The contracting market in Hong Kong continues to strengthen, gaining momentum in both the broader financial services sector as well as the commercial sectors,” said Sharmini
Wainwright, managing director at Michael Page Hong Kong. “For a number of multinationals, this has become their preferred way of hiring in Hong Kong, and they typically transition 1 in 4 temporary resources to permanent status after the contract duration. This particularly appeals to the younger workforce.” According to recruiting firm Ambition, the second half of 2017 saw strong demand for contract talent across industries such as medical, luxury retail, business services and telecommunications.
Even global banks are exploring contract arrangements for urgent projects, mainly within their middleoffice, operations and technology departments. “Employers have adopted a new mindset; they have become more open-minded and flexible in hiring contractors,” said Matthew Bennett, managing director Greater China at Robert Walters, noting that the contracting trend has gained momentum not only amongst employers but also amongst candidates that have shown more willingness to take up contract roles. Contract workers stand to benefit from the skills acquired during any contract employment role they accept in 2018, said Dean Stallard, managing director at Hays Hong Kong. “Given the evolving landscape, companies are creating flexible headcounts by adding temporary and contract employees to their teams.”
Hiring intentions across industries
Source: ManpowerGroup Employment Outlook Survey
The Chartist: Upswing in Grade A office rents seen in 2018 The strong restraint for rental hikes is set to ease up, as a brightening business outlook is expected to further accelerate rental growth in 2018, according to Colliers International. The fourth quarter of 2017, overall Grade A office rents in Hong Kong rose 0.9% quarter on quarter with strong increases in Causeway Bay and Island East. Coworking operators such as WeWork and Atlas Workbase have stepped up demand and contributed to the positive net take-up in the period, preferring to settle in Kowloon, where large floor areas with affordable rents are easier to secure. Looking to 2018, Hong Kong’s office market is set to benefit from the expansionary cycle led by rising business confidence amongst mainland Chinese firms, Colliers said, citing the results of its Occupier Survey 2017.
Hong Kong grade a rental trend
Source: Colliers
Hong Kong grade a vacancy trend
Source: Colliers
HONG KONG BUSINESS | MARCH 2018
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FIRST IT Talent Crunch Calls for upgrades
Rise of the nano flats
W
If there was still doubt that Hong Kong could do a better job developing and attracting more skilled professionals, then the island’s chief information officers, or CIOs, will gladly point out the ongoing critical talent shortage, especially in the fast-growing fields of software and application development and IT security. More than nine out of 10 CIOs said it is more challenging to find qualified IT professionals today than five years ago, according to an independent survey by specialised recruiting firm Robert Half. Given the tightening IT job market, CIOs said there is a need to bolster Hong Kong’s IT education, with almost half of respondents calling for a focus on software and application development to meet market needs, as well as digitisation (41%), IT security (35%), data and database management (31%) and business transformation (31%). “Technology is changing continuously and rapidly, so too must the skillsets of IT professionals in order to adequately address the future jobs market,” said Adam Johnston, managing director at Robert Half Hong Kong. “Education systems and institutions play a key role, not just to guarantee a continuous influx of skilled IT professionals into the employment market, but also to help upskill existing staff.” Johnston said keeping pace with market demands will require educators to ensure their STEM qualifications, courses and degrees evolve at a similar pace as technology. Education and business must also start to work together to address the talent shortage that shows no signs of letting up in the coming years. The CIO survey showed that the IT areas identified as needing stronger educator focus are also the same areas expected by the executives to create the most jobs in Hong Kong, specifically IT security (69%), software and application development (52%) and data and database management (41%).
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hen “The Pit Stop”, a 150 sq ft studio flat, won the Hong Kong Institute of Architects’ innovative youth housing design competition in 2016, it was turned into a life-sized show flat and became a popular attraction in the New Territories. The award-winning studio was able to fit a loft bedroom, a pantry, a private bathroom and plenty of storage space in an area smaller than a one-car garage. Soaring property prices across the island have pushed many bigger apartments out of reach for first-time home buyers, making nano flats more attractive. The robust demand has driven developers to more than triple the supply of super small flats in the next few years. “Property prices lower than HK$5m will still be the most affordable to home buyers, which indicates that a flat unit size has to be under 250 sq ft. Developers will continue to push smaller size units to the market.” said Daniel Shih, director of research at Colliers International. The new supply of nano flats with less than 200 sq ft will more than triple to 510 units annually between 2017 and 2020, a significant increase from the 151 units annually in 2014 to 2016, according to the JLL Residential Sales Report as of October 2017.
Smaller and smaller homes
Where are the nano flats? JLL said the majority of nano flats in Hong Kong will be located in the New Territories, and are expected to target first-time home buyers that are also the focus of the government’s recently announced Starter Homes Scheme. The popularity of nano flats — which should persist even with the availability of the Starter Homes Scheme - stems from the penchant of first — time buyers to purchasing newer housing that fits their modest budget. Most first-time buyers can afford property costs within HK$6m, but record-high prices mean they can only buy a sizeable flat at more-than-30The new year-old housing estates in urban areas, supply of said Henry Mok, regional director nano flats of capital markets at JLL. “Given the with less than preference of first-time buyers for newer 200 sq ft will housing options, they may still resort more than to purchasing nano flats with more triple to 510 affordable lump sum price tags,” he said. units annually “All in all, strong demand from buyers between 2017 with a genuine need for housing is likely and 2020. to push prices up further.”
Mobile App Watch
Monaco eliminates forex fees with blockchain Spending money may already be a breeze, but three guys found the perfect way to save up to $40 per $500 money sent globally. Startup Monaco has pioneered its way through the complex world of cryptocurrency by allowing users to buy, exchange, and spend cryptocurrencies such as bitcoin and ethereum at perfect interbank exchange rates. Founded by CEO Kris Marszalek, CFO Rafael Melo, CTO Gary Or, and Managing Director Bobby Bao, Monaco aims to become the card of choice for consumers, replacing their current debit or credit card. According to Marszalek, Monaco App users will have the ability to buy and exchange cryptocurrencies, as well as send currency (both crypto and fiat) to each other for free and in real time with funds being available to the recipient instantly and accessible through their Monaco Kris Marszalek, Rafael Melo, Gary Or, and Bobby Bao, founders Card at ATMs and POS globally.
FIRST
Hong Kong banks to benefit from renminbi internationalisation
I
f Hong Kong was looking to provide support to Chinese banks where it most counts in 2018, then cross-border financing should be on top of its priority list. Chinese banks in Hong Kong view crossborder financing as the main focus for their renminbi, or RMB, business in the next 12 months, according to a KPMG survey. It would do well for Hong Kong to find ways to assist Chinese banks in this focus area, since it will be the first and biggest beneficiary of the trend given its status as the largest offshore RMB market.
“Chinese banks in Hong Kong should actively expand and participate in offshore RMB business amongst non-resident clients, seize the opportunities emerging from the opening up of the capital market in the mainland, and actively engage in major initiatives such as the Shanghai-Hong Kong Stock Connect, Shenzhen-Hong Kong Stock Connect and the Bond Connect,” said Edwina Li, partner and head of financial services assurance at KPMG China.
Rooms for improvement The KPMG report contained findings from RMB internationalisation a survey of 23 Chinese banks in Hong Nearly half, or 46%, of surveyed banks Kong, as well as interviews with 12 senior indicated that cross-border financing will be executives discussing the opportunities and the main focus for their RMB business in the challenges facing the sector in Hong Kong. next 12 months, notably higher than RMB Bankers reckoned there is a lot of room exchange (27%) and loans (18%). for improvement for Hong Kong even if KPMG explained that with the currently shines in many areas of offshore advancement of RMB internationalisation RMB business, such as maintaining the — a strategic priority for China’s central world’s largest offshore RMB liquidity pool government and the People’s Bank of of more than RMB50 billion as of the end of China — the proportion of individuals and March 2017, based on government data. enterprises not from mainland China in the Surveyed bankers recommended that RMB fund pool in Hong Kong has gradually the Hong Kong Monetary Authority increased, and the proportion of foreign should consider coordinating more closely investors amongst offshore RMB bond with mainland China’s banking industry buyers is also increasing. regulators and central bank to explore
N e m i c spe Cross-border financing will be the main focus of Hong Kong banks in 2018.
how to further open up and integrate RMB markets between Hong Kong and the mainland China. A regulatory agreement between both jurisdictions allowing Chinese banks in Hong Kong to access the inter-bank market in China and borrow and lend RMB in certain amounts would partially alleviate the problem of insufficient market depth due to a limited pool of offshore RMB funds, the KPMG report said.“Chinese banks in Hong Kong have witnessed remarkable growth over the past 20 years, both in asset size and in the number of institutions,” said Li. “With the advancement of RMB internationalisation and the establishment of Hong Kong as an offshore RMB clearing centre, Chinese banks in Hong Kong will see their market position strengthen and will develop a stronger link with the international financial sector.”
OFFICE WATCH
Inside Naked Hub’s swanky Hong Kong office spaces After opening its first two Hubs in Hong Kong in 2017, premium office space firm naked Hub is looking to further expand its portfolio in the Asia Pacific this year. Its goal: To add more than 40 new Hubs by the end of 2018. With naked Hub’s emphasis not only on aesthetics and design but also hospitality, it is not difficult to see why clients have been flocking to its first venture in Hong Kong. Deborah Negrash, naked Hub’s general manager, said naked Hub offers unique visual identity and language in its Sheung Wan and Sai Ying Pun locations. Its Bonhand Strand Hub boasts traditional Tea House elements whilst blending in contemporary office design solutions. Its New Street Hub is home to a street-level outdoor terrace, coffee bar, and multifunction rooms. It also features the naked Gallery where clients and community members can appreciate art from local up-andcoming artists. The company is eyeing expansion as it plans to open 10 more hubs in Hong Kong over the next two years. 10
HONG KONG BUSINESS | MARCH 2018
Living Room
Private Offices
Bruce Lee Meeting Room
Living Room
FIRST NUMBERS
cost of living basket - Price comparisons in major cities in the world
For Hong Kong’s expats, rental prices just keep on going up and up
Hong Kong is the priciest city for expats
L
Source: Employment conditions abroad 2017, ECA International
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aura Klemm currently pays $6,750 in monthly rent — an amount that would afford a large solo apartment in many other cities, but is good enough only for sharing a space in Asia’s most expensive place for expat rentals. “The prices are expensive for everyone,” said 30-year old Klemm, an American who works as an NGO staff, when asked if she found the rental rates in Hong Kong as too expensive. Rental prices for an unfurnished, mid-market, three-bedroom apartment in areas commonly inhabited by international executives in Hong Kong average $10,461 per month, making it the most expensive location in Asia for rental accommodation, according to the latest ECA International research report. This is $2,000 per month higher than Tokyo, the second most expensive Asian location, and is a pain point for expats like Klemm who are hunting for affordable flats. Shanghai has become the third most expensive city in Asia, up from fifth in 2017, and still the most expensive in mainland China. But the price disparity is still wide: The average monthly rent in Shanghai for a highend three-bedroom apartment is roughly half that in Hong Kong. “It can be hard for expats to find a place that is reasonable,” she said of the apart. “Either the agents just show them expensive places — some
agents have done that to me - or they are not willing to go with smaller places because their house in their home country is different.”
Rental prices for an unfurnished, mid-market, three-bedroom apartment in areas commonly inhabited by international executives in Hong Kong average $10,461 per month.
Consistently on top Hong Kong’s high population density and consistently limited supply of property has kept the average rent in the territory higher than other high-profile Asian cities, said Lee Quane, regional director – Asia at ECA International. “Rents have risen slightly in the past 12 months. However, despite the high rental costs in Hong Kong, rents for the type of accommodation featured in our research remain lower than they were in 2012.” Klemm attests to the supply crunch and reckoned this lengthens the hunt for the right accommodation that fits the budget. “When looking for a flat I usually look online first and then call the agents. The place is almost always gone,” she said. “I usually look at around ten places before deciding on one.”
The quest for affordable flats continue
AD
startups
Gaifong offers item rental online
W
hen founder Elliot Leung recalls the earliest prototype for Gaifong, a new peerto-peer platform for item rentals, it was simply a Google spreadsheet where people could list things they want to rent out and at what price. Still, the concept hit a deep nerve, with thousands of people signing up as members and listing their possessions for short-term rentals. “People started posting lots of amazing products, from camping tents to pet care kits – even a Mahjong table, and began renting from others in the list,” said Elliot Leung, founder and CEO of Gaifong.
The Gaifong platform, which is accessed through an app and established by Leung with co-founder Hon Kuan Chan, soon got on its feet through a CCMF startup grant and angel funding through the British Chamber of Commerce Business Angels. To date, the rental platform has attracted 25,000 members or so-called ‘neighbours’ (the Cantonese word for Gaifong) and 12,000 rental items in Hong Kong. The average item is worth around HK$4,000 and is rented out for HK$150 a day. Gaifong earns by charging a 15% to 20% platform fee on each transaction, and Leung said the startup has bright revenue prospects. “We’ve still got a 1020X revenue opportunity, so this will be our main focus area in the near future,” he noted. If the marketplace lacks the item they want to rent, members can use the Wish function to alert neighbors, which Leung said is a unique service in the market. “Once they see your ping, and they have what you need, they’ll upload it for you,” said Leung. “It’s a bit like Uber mixed with Chinese locationbased social app Momo, except it’s for item rentals only.”
Clare.ai brings banking to clients’ fingertips
C
lare.ai aims to provide clients with a personal virtual financial assistant powered by natural language processing and artificial intelligence. In its conception, the team behind Clare.ai envisioned a white-label chatbot to help banks deliver customer service with more controls and cost efficiencies. It provides a conversational solution based on machine learning algorithms and natural language processing, with over 10 Asian languages in its repertoire to date. Clare.ai co-founder Bianca Ho noted that its natural language processing engine, for example with Cantonese, remains dedicated to understanding conversations about finance, with 70%
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accuracy rate. “We take proprietary data from banks and take data such as call logs and emails and feed them to our bots.” she noted. Some of the features of Clare.ai allow clients to ask about the details of their finances anytime, anywhere through realtime chats and text messages. The virtual assistant called Clare will also provide clients guidelines on how to spend their money and manage their finances better by learning their spending habits, getting insights from their frequently asked questions, and eventually tailoring tips to give them on financial management. Apart from the intelligent financial management that Clare can provide, it can also manage all of their accounts in one place with the added flexibility and accessibility of the AI’s integration with Facebook Messenger. This can be done without the need to download another app to talk to Clare. This allows instant replies and correspondence providing an ease in transactions, anytime, anywhere.
Online apparel brand GRANA secures funding from STI Group
Online apparel brand GRANA raised an undisclosed amount of capital venture debt financed by STI Financial Group, a Hong Kong-based investment group that provides bespoke capital solutions. The company said funds will be used to fuel the company’s sustainable business growth, improve cash flow management and advance its use of artificial intelligence to improve customer engagement and website functionality. The three-year old start up’s total funding is now at US$16m.“Being a young company, it’s important that we don’t rely on raising more equity,” said Luke Grana, CEO and founder of GRANA. “Right now, it’s about fueling long-term business growth, expanding our market penetration in key markets and continue making high quality basics at disruptive prices for our customers.” Humble beginnings In 2014, Grana visited Peru, and there he discovered the luxurious, super-soft and inexpensive Peruvian Pima cotton - literally the thread that would form the basis for his newest multi-million-dollar startup. “Living in Australia, I felt that everything was so overpriced for the quality. You should be buying clothing that has a long lifespan in your wardrobe, not get destroyed after a few washes or itch your skin when being worn,” said Grana. So when he encountered the long line fabric rolls in the Peruvian markets, he considered the possibility of creating a quality piece of clothing from the material for less than US$10. Grana made a few simple t-shirt samples from Pima cotton, and found a ready market amongst friends and family who bought t-shirts for $118. From this initial response and after some marketing research, GRANA was officially born in 2014. In three years it has become one of Asia’s fastest growing direct-to-consumer and e-commerce apparel brands, and a darling of financing opportunities. To date, the three-year old startup has attracted a steady stream of financing that amounts to US$16m or roughly HK$125m. At the end of 2016, GRANA successfully closed a Series A round of US$10m in capital with lead investment from Alibaba’s Hong Kong Entrepreneurs Fund, along with continued support from Golden Gate Ventures and MindWorks Ventures. “In Hong Kong and many parts of the world, mid-range brands like ours aren’t internationally available for everyone to buy from online but the demand is there with consumers wanting to wear consciously made clothing and we aim to close this gap by shipping to 67 countries,” he added.
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FINANCIAL INSIGHT: INVESTMENT BANKING
Deal #1: The largest deal in 2017 included the IPO of Guotai Junan Securities WHICH raised more than $2.1b and was the sixth largest IPO globally.
Deal #2: Hong Kong-based Wharf Real Estate Investment, valued at US$23.3b, was the biggest transaction for 2017.
Why investment banks should transform their playbook in 2018 Digital innovation, workforce transition planning, and customer trust-building are but a few of the long-term strategies that, if not implemented, could set investment banks on a path of low returns and irrelevance.
A
nalysts warned that whilst 2018 promises growth opportunities in the Hong Kong IPO market amidst strong dealmaking confidence and reduced concern for geopolitical risks, seizing these opportunities and ensuring sustained growth will require transformational change across their organisations. Digital innovation, workforce transition planning, and customer trust-building are but a few of the long-term strategies that, if not implemented, could set investment banks on a path of low returns and irrelevance. A year of major deals The call for transformational change follows what has been a “generally positive” year for the Hong Kong market in 2017, said Jan Bellens, global banking and capital markets deputy sector leader at EY. Thomson Reuters data revealed that announced M&A deals posted strong growth at 169% year on year to $113.6b on the back of larger average deal sizes and a modest rise of 6.7% in the number of deals. On the IPO front, EY research revealed that listings on the Hong Kong Exchange remained flat in 2017, at 72 IPOs for both 2016 and 2017. Proceeds fell to $14.8b, down 40% compared with 2016, which was largely due
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M&A deals posted strong growth at 169% year on year to $113.6b on the back of larger average deal sizes and a modest rise of 6.7% in the number of deals.
to the Postal Savings Bank of China’s (PSBC) mammoth $7.4b IPO listing in Hong Kong in September 2016. “Hong Kong continues to attract interest from overseas and was the second most active cross-border IPO destination globally, behind only the US,” said Bellens. “In fact, it enjoyed its highest ever annual proportion of crossborder IPOs in 2017, with 21 out of its 24 cross-border IPOs coming from ASEAN companies.” In terms of size, the largest deals in 2017 included the IPO of Guotai Junan Securities, which whilst smaller than the PSBC deal from 2016, managed to raise more than $2.1b and was the sixth largest IPO globally for the year, said Bellens. AIA Group’s US$3b acquisition of CBA’s life insurance business was the largest financial services deal of the year, whilst the spin-off of Hong Kong-based Wharf Real Estate Investment, valued at US$23.3b, was the biggest transaction for 2017. The Hong Kong IPO market is likely to grow by both the number of deals and proceeds, boosted by smaller, new economy companies, and the island will attract an increasing number of cross-border IPOs from South Korea and Japan, according to Bellens. Bellens said HKEx attracted a number of technology company IPOs in 2017, and has shown success in turning
FINANCIAL INSIGHT: INVESTMENT BANKING itself into a listing hub for technology and new economy players like Chinese online car retailer Yixin Group, which raised $867m, and Singaporean gaming company Razer Inc., which raised $529m. Other significant listings included China’s online-only insurer ZhongAN Online P&C Insurance, one of the first major fintech listings in the Hong Kong market, at $1.5b, and e-book publisher China Literature, which raised $1.2b, according to Bellens. “It’s been a very positive year compared to the year before,” echoed Robert Rooks, sector leader at Deloitte China Banking and Securities, citing client conversations. “We have seen, over last year, a significant number of new banking licence applications in Hong Kong, particularly for institutions coming out of the mainland,” he said, noting one of the key trends in the past year. “We’ve seen a rise in the level of interest in establishing financial services companies, family offices, and investment companies in Hong Kong, which is positive for Hong Kong as a financial services hub.” The generally strong performance came in spite of the challenges the market faced in 2017, which have remained constant, according to Rooks, such as how to manage margins and how to maintain profitability amid the rapid technology changes and evolving regulatory regimes. “Our clients have consolidated a lot further, share prices look good, capital has been returning to investors—a very positive underlying trend.” High level of interest Judith Lee, Head of Global Investment Banking, Asia at Royal Bank of Canada (RBC) Capital Markets, said the bank is focusing on assisting clients in the region acquire targets overseas by providing both advisory expertise and balance sheet support. The strategy comes as the bank expects Chinese government policy and market fundamentals to continue to be supportive of increasing levels of activity in Greater China outbound M&A. “We continue to see our clients having a high level of interest in pursuing good quality opportunities. In general, target valuations remain robust as there is a large amount of global capital chasing a limited number of opportunities,” Lee said. “The Greater China investment banking market is growing and changes quickly, with many global and regional banks competing for market share. In order to succeed and deliver the best results to clients, banks must align their local strategy with their global competitive advantage,” she sadded. Lee, citing Dealogic data, said Greater China announced outbound M&A activity in 2017 totalled US$166.b, down 11% from 2016 levels, excluding the February 2016 US$45b ChemChina and Syngenta transaction, but still represented a large increase when compared to other prior years. Investment firms will also benefit from the robust dealmaking confidence in the region. Bellens cited EY’s Asia-Pacific Capital Confidence Barometer survey released in November 2017, which showed 57% of Asia-Pacific companies expecting to actively pursue acquisitions in the next 12 months. Across the region, 56% of Asia-Pacific
Jan Bellens
Judith Lee
Robert Rooks
Thomas Olsen
companies expect deal completions to rise year on year and 52% forecast that the local M&A market will see improvements in 2018. The catch though is that amidst these growth opportunities, investment banks continue to face a barrage of challenges in costs, competition, and client value. Simply put, those that fail to start transforming their business to the new reality will find it hard to press an advantage. Restoring client trust Bellens reckoned that amongst the key areas of transformation “progressive” investment banks should focus on in the coming months, one of the most important ones is to put a concerted focus on clients’ needs such as how value will be added and how they will be served. “This is particularly important as millennials are rising to positions of influence and have less tolerance for poor conduct, low value add, and out-dated service. We expect to see greater competition for customer retention in the future, given their high propensity to switch service providers,” he said. Client trust has eroded due to recent bad press involving scandals, fines, and legal settlements, so Bellens said rebuilding client confidence is a top priority. “To rebuild trust, they need to move from being productcentric to become more client-centric,” he said. “They need to demonstrate true value to clients and retain the ability to innovate, yet also ensure they uphold risk management best practices and regulatory adherence.” Gone are the days when all investment banks can promise to be everything to their clients, especially in the face of growing competition and rising costs. “Whilst a small number may prevail with this strategy, there should be greater focus and specialisation, perhaps augmented by greater interoperability,” said Bellens. Cost management and digitalisation For investment banks that want to lead the pack in 2018, cost management will be a core concern. Bellens said investment banks have spent the recent years grappling with falling revenues whilst managing costs, which have risen due to a heightened need for regulatory compliance IPO vs Equity Funds raised
Sources: PWC
HONG KONG BUSINESS | MARCH 2018
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FINANCIAL INSIGHT: Private Equity Top 10 largest Hong Kong IPOs
Sources: KPMG
and legacy IT maintenance. Cost pressures continue to build up, as reflected in EY’s Investment Banking Quarterly report for the third quarter of 2017 which showed the average cost-to-income ratio for investment banks worsened year on year to 71.1% from 67.9%. “Consequently, investment banks in Asia-Pacific are maintaining a strict focus on managing non-compensation costs—such as legal and restructuring expenses—whilst looking to develop new operating models to leverage information technology, partnerships, and industry utilities to improve service and increase efficiencies,” said Bellens. “Although investment banks in Hong Kong have been reducing headcount, there seems to have been a reversal of late as they selectively seek IT talent to help achieve their digitalisation objectives,” said Bellens. “They are also looking towards hiring to bolster their transaction advisory teams in the TMT sectors, as they prepare for more such listings in 2018.” Fintech collaborations must also be accelerated in order to stay one step ahead of more nimble rivals. Organisational alignment and transformation Aside from effective cost management and digitalisation, investment banks must also grapple with the challenges of workforce alignment and business transformation to ensure their long-term vitality. Bellens said demographic shifts are afoot, with senior managers in investment banks in Hong Kong being displaced due to cost cuts or leaving for non-bank institutions. “This is leaving behind a less experienced workforce that have to step up into senior management roles,” he said. “Investment banks need succession planning programs in place to ensure that relevant knowledge is transferred as part of standard best practice.” Analysts also argue that banks can no longer afford to stay in reactive mode. “Anxiety about these massive shifts leads many bank management teams and boards to focus overwhelmingly on the short game, especially the next quarter’s stock performance,” said Thomas Olsen, partner, Bain & Company. “Waiting indefinitely to see how these themes unfold is not a viable option,” said Olsen. “Instead, senior banking teams benefit by committing to an explicit set of investments that prepare their organizations to seize the opportunities that unfold. That’s a more effective approach than scrambling reactively and allowing rivals or the external environment to define the rules of competition.” he concluded. 18
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Cost pressures continue to build up with the average cost-to-income ratio for investment banks worsened year on year to 71.1% from 67.9%
Singapore view
Tapping into regional deal hunger Singapore-domiciled companies tapping the equity capital markets raised $6.9b so far as of mid-December 2017, a 44.0% rise in proceeds compared to 2016 and reaching four-year highs. Activity picked up during the second half of 2017, raising $5.8b compared to S$1.1b during the first half. IPOs by Singaporean companies in domestic and overseas stock market bolstered activity, raising $4.2b as of mid-December, up 52.7% from the year-ago proceeds, as the number of IPOs climbed by nearly half. In 2017, Singapore also saw a lot of interest from Chinese companies seeking opportunities to align with their government’s Belt and Road economic initiative, said Jan Bellens, global banking and capital markets deputy sector leader at EY. He said these included the sale of warehouse operator Global Logistics Properties to China Vanke and a Chinese private equity consortium for $11.5b, making it one of the biggest transactions in 2017. Other listed Singapore logistics companies sold to Chinese players last year include CWT, which was acquired by HNA Group for $2.1b. Aside from GLP and CWT, other notable privatisation deals in Singapore in 2017 were the acquisitions of Poh Tiong Choon Logistics and Cogent Holdings, according to Edmund Leong, head of group investment banking at United Overseas Bank, Meanwhile, Bellens added that Japanese financial services players looking to expand in the region led to billion-dollar deals. Mitsui Sumitomo Insurance acquired Singapore insurer First Capital Insurance for $6.1b, whilst Temasek is selling its majority 73.8% stake in Indonesia Bank’s Bank Danamon to Bank of TokyoMitsubishi UFJ for an acquisition price that would reach $5.9b. Active year for bonds 2017 also saw one of the most active years in its bond market, with total issuance volume rising 30% year on year to about S$25b, Leong said, citing Bloomberg data. He added that institutional investors, in search for better absolute yield, have been favouring longer-term bonds instead of the medium-term issuances that used to be more popular. IPOs by Singapore and regional ASEAN companies look set to rise on annual basis in 2018, according to Bellens, with particularly strong opportunities in real estate, consumer industries and technology. “We envision Singapore remaining the hub for IPO activity by ASEAN companies, although Hong Kong will provide some stiff competition as an alternative listing hub,” he said.
Any singapore involvement announced M&A Top five target industry
Source: Thomson Reuters
economy watch
The property market has also staged a rebound.
Economic recovery traverses a confidence tightrope 2018 will be a year of stability, barring the shakeup that could happen if asset markets plummet, taking consumer confidence down with it.
H
ong Kong’s economy expanded at a rate that beat market expectations, driven by strong private consumption and further fuelling an economic rebound that has been gaining steam since 2016. Whilst the fourth quarter will likely post a mild slowdown, according to economists, 2018 will be a year of economic stability, barring the shakeup that will happen if asset markets plummet and take consumer confidence down with it. “Looking into 2018, we think private consumption is likely to remain resilient on the back of stable growth,” said Kelvin Lam, economist, Greater China at HSBC. “More specifically, the retail sector, one of four main pillars of [the] Hong Kong economy, will likely continue to be supported by the recovery in tourist arrivals and stable domestic demand.” One of the signs of a recovery underway is that retail sales have stabilised, including amongst luxury brands that have taken a big hit from the recent drop in mainland Chinese tourist arrivals. Part of the credit in stemming the retail sales bleeding can be attributed to robust local demand,
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Hong Kong’s real wage index rose an annual 2.2% in September 2017, faster than the 1.5% increase in June 2017.
which Lam said can be attributed to a combination of factors such as low unemployment rate that dipped to a low of 3.1%, and a tight labour market and subdued inflation that has driven up real wages. Hong Kong’s real wage index rose an annual 2.2% in September 2017, faster than the 1.5% increase in June 2017. Consumer confidence Naturally, Hong Kongers felt more confident to splurge. “This extra spending power has given retail spending a shot in the arm, ending the double-digit falls in sales of durable goods in the first half of 2017,” said Lam, adding that some of
these supportive factors are expected to persist in 2018. Hong Kongers also basked in the positive wealth effects from rising asset prices, according to Lam, further boosting their confidence to spend. Stock and property markets have remained buoyant, from falling below the 22,000 mark in December 2016, the benchmark Hang Seng Index has risen steadily in the 2017 to breach the 30,000 mark in January 2018. The property market has also staged a rebound since the second half of 2016, and has steadily been picking up in spite of attempts to temper its rise. “As property value continued to trend higher, authorities implemented new tightening policies in early November 2016 and further enhancement measures in subsequent months,” said Lam. “But higher stamp duty did not cool activities, mortgage approvals remains elevated and house prices continued to reach new highs. As of September, prices are 4.7 times the value of the trough in 2003.” Although numerous rounds of macro-prudential measures have so far failed to cool the property market, the pace of increase has “shifted down a gear” from its high in June 2017, according to Lam, adding that a mild adjustment in residential property prices is expected in 2018 that could lessen the wealth effects driving local consumption. “A key risk to growth comes from the housing market, in our view,” he said. “Whether Hong Kong’s property market will undergo an adjustment hinges crucially on several factors: the supply side dynamics, the direction of capital flows for real estate investment, and the possibility of external shocks or black swan events,” Lam added.
Starting to lose momentum
Source: BMI, Hong Kong Rating and Valuation Department
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INDUSTRY INSIGHT 1: Retail
The idea is to add more value to the brick-and-mortar store experience.
The changing face of Hong Kong’s retail Retailers should be ready to revamp their stores into unique lifestyle concepts to battle e-commerce.
A
n upgraded mall shopping experience will be crucial for retailers that want to combat the rise of online shopping. Aggressive mainland Chinese firms such as JD.com and Alibaba Group are courting high-end shoppers with new online retail sites stocked with luxury goods, which they previously could only obtain by traveling to Hong Kong or other countries. With Chinese consumers accounting for nearly a third of global luxury spending, a change in habit to high-ticket shopping at home will have an impact on Hong Kong luxury retailers. Joe Lin, executive director (advisory and transactions services) at CBRE Hong Kong forecasts that luxury items will be more focused on quantity sales than the price value in the coming year. “Chinese tourist numbers rebounded in recent quarters, and shopping still ranks high in their agenda. However, they are shifting to more mid-range products and buying less in quantity, as the gifting culture has been greatly
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diminished,” he said. “Although we are seeing the sales value of jewellery items rebound in the last couple of months because of the low-base effect year-on-year, but in longer term its momentum may not be as strong as the last decade.” Cynthia Ng, director at Colliers Hong Kong expects tourism numbers to improve mildly but does not foresee a jump, owing to a slew of factors that has diminished retail demand and will require a complex solution. “The market slump in [the] past few years was not triggered by a single incident or a financial crisis but simply the policy of anti-corruption, political relationship with China, and a lack of confidence or clarity towards the government bodies in Hong Kong,” she said. “Such confidence could only be gradually picked up, [rather] than overnight.” Alicia Garcia-Herrero, chief economist at Natixis forecasts tourism numbers to continue to increase, but at a more moderate level unlike previous years. She noted that
The world is competing for tourists through improvement in experience and Hong Kong may not be able to use its old growth model forever.
visitors from other countries are also growing, such as Japan and Korea, representing a small but improving diversification of tourist sources that can benefit different parts of the retail industry—and a chance for Hong Kong to reinvent its retail growth paradigm. “Retail sales have bottomed out but still quite far from the rapid expansion period previously. This points [to] a more fundamental problem of the narrow focus in shopping, which is against the global trend is switching to higher quality tourism,” she said.
Hong Kong’s retail sales growth by subsector
Source: Collier’s
industry insight 1: retail
Alicia GarciaHerrero
2018 promises to be a year of stabilisation for retailers
“The world is competing for tourists through improvement in experience and Hong Kong may not be able to use its old growth model forever,” she said. 2018 promises to be a year of stabilisation and significant adjustments for retailers, with a particularly promising outlook for segments like jewellery and cosmetics. Aside from convincing shops to tweak their product lineups to cater more to domestic demand, the retail transformation will also push more stores to launch unique lifestyle concepts. The idea is to add more value to the brick-and-mortar store experience and make walking through store aisles a compelling alternative to increasingly convenient online shopping. The hunt for retail space is also expected to heat up as the retail rent correction likely bottoms out. Stable market “In 2018, we think the market will be more stable,” CBRE Hong Kong’s Lin said. “Multi-brands cosmetic operators and jewellery are starting to look for good opportunities in the high street market; the tier-one high quality shops will be absorbed first if the rent is reduced to an attractive level which the retailers can survive with today’s retail market situation.” He reckoned that more retailers are feeling relieved as the rental burden has eased in the past two years, with overall rent on major retail streets dropping significantly in the period. Instead of costs, the focus now is on how to generate a stronger, more diversified revenue stream—one that is more grounded on the local market
to protect their businesses somewhat from the shock of low tourist numbers, as it has in recent years. “The main concern will be how to tap for new business sources when Chinese tourists are no longer their main support,” said Lin. “We tend to believe that it is a positive recovery, especially when we have seen so many retailers change their strategies quickly to focus more on the local market or the less expensive product range for tourists. With this observation, this recovery can last.” Winners and losers Given this shifting market focus amongst some retailers, Lin expects cosmetics to be one of the best performing segments in 2018. “Mainland tourists are indeed the main customers for beauty and skincare retailers, but, at the same time, local people are also a strong segment for this business,” he said. “Given their prices are mostly not expensive, especially the Korean brands, all ages of ladies—and men— can find what they want easily and affordably.” Lin also noted that Hong Kong hosts most of the renowned cosmetic brands in the world, with beauty and makeup stores still dominating the most prominent areas in the city’s shopping districts and department stores. The medicines and cosmetics as well as jewellery segment will shine in 2018 on the back of an expected rebound in Chinese tourists, pushing total retail sales up slightly for the year, said Garcia-Herrero. “The destiny of total retail sales value pretty much hinge on jewellery as
Cynthia Ng
Joe Lin
the industry account for around one-fifth of total value. However, the improvement may be rather limited to the industry itself,” she added. Aside from cosmetics and skincare, two other segments—food and beverage (F&B) and lifestyle apparel and premium accessories—have been doing well as of late and will continue to drag retail sales up in 2018, said Ng. She reckoned cosmetics and skincare have been the most sustainable in sales during the retail market slump, proving to be a virtual necessity as Hong Kongers strive to stay youthful and beautiful amidst societal expectations. Meanwhile, the biggest trend in F&B is fine dining at an approachable price, especially when paired with interesting and authentic food concepts. Lifestyle apparel and premium accessories will also remain strong and continue to post market gains from traditional luxury due to increased local consumption, particularly from affluent millennials,. “The positive recovery should not be short term as the market is steadily picking up confidence overall,” said Ng. Another supportive factor would be the adjusted rentals, where a cost of $1m or below are only half or even a third of its previous asking price, and will be attractive to premium international brands who can afford it. Overall, there is a twist of taste and preference by the consumers who are now looking for designer products that offer the experience and a brand identity,” she added. “This is supported by multiple social marketing activities and digital platform to connect with the customers.”
Consumption vs retail sales
Source: DBS
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INDUSTRY INSIGHT 2: TRADE FINANCE
Banks such as UOB get help to digitise trade finance
No bank is an island: Beating trade finance challenges amongst APAC banks Banks build alliances to tread tricky waters of technology and regulation.
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hen United Overseas Bank (UOB) partnered with the Monetary Authority of Singapore and Singapore Customs to create the National Trade Platform (NTP), working together made sense given the scale of the industry-wide digitalisation task at hand. Other banks have also chipped in to make NTP a one-stop trade information management system that enables the sharing and reusing of digital data for trade-related transactions amongst businesses, and with the Singapore government. Banks involved with the project seem to have realised that cooperation will not only move the industry forward but also benefit them individually. Adopting a collaborative mentality seems to have become a necessity for banks, at least when it comes to solving the complex technological and regulatory challenges in the trade finance sector. The beauty of the NTP is it lets 24
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traders re-use permit data already uploaded to its system to apply for trade financing, effectively speeding up transactions and advancing the digitalisation of Singapore’s trade finance industry, said Ng Poh Yee, executive director and head, corporate trade sales/financial supply chain management, group transaction banking at UOB. The NTP is also an open innovation platform, which means businesses and value-added service providers can create new digital solutions and applications that can support any new needs of the end-to-end trade finance cycle, she said. However, the NTP initiative continues to be the exception rather than the rule in Asia. The region faces a huge trade gap and poor implementation of financial technology solutions to reach underbanked areas, according to a recent ADB annual survey.
To encourage and establish higher adoption rates of FinTech-based solutions, governments, regulators and banks are working together to standardise
Ng reckoned the two key challenges affecting wider use of emerging FinTech-based solutions for trade finance are the low rate of industrywide adoption and the high cost of making technology investments. “This is because FinTech-based solutions require the digitisation of documents, especially those related to the transfer of title of goods, custom certification and clearances,” she said. Technology partners “As digitisation processes are still under development, they do not cover all cross-border transaction types and this limits market adoption.” To encourage and establish higher adoption rates of FinTechbased solutions, governments, regulators and banks are working together to standardise processes such as ‘Know Your Customer’ requirements, customs clearance and, in the case of NTP, the legal
industry insight 2: TRADE FINANCE
Ng Poh Yee
Multiple growth opportunites for banks like ADCB
acceptance of digital trade data, said Ng. Over in Australia, banks have been collaborating with technology partners since last year to overcome challenges in implementing FinTech solutions, with themes around data and blockchain as focus points, said Adnan Ghani, head of trade finance at Westpac Institutional Bank. Westpac, ANZ, and IBM, for example, have teamed up to create a proof of concept for the application of blockchain technology to streamline and digitise the issuance of bank guarantees for commercial property contracts with Scentre Group, owner of Westfield Group. “Currently, large volumes of applications and manual processes that underpin the issuance of these instruments lead to longer lead times and higher risks of error, relatively speaking,” said Ghani. “Using a streamlined solution that takes advantages of blockchain technology - and the transparency it brings - as a substitute to existing practises, will help businesses issue and change guarantees quickly in the midst of a stressful relocation move, or a property title change-over.” “The major issue that hampers fintech solutions is the overall trade community making the shift towards technology,” said Krishnakumar Duraiswamy, head of trade finance, transaction banking group at Abu Dhabi Commercial Bank. “As trade involves several counter-parties, unless everyone in the environment adopt fintech solutions, supply chain is still going to be affected.” “Banks have to come together with other stakeholders of trade namely shipping companies, freight
forwarders, chambers of commerce, customs, amongst others, to start a new journey towards fintech,” he said, adding that whilst small blockchain pilots will always be successful, the key challenge moving ahead is to bring all counter-parties into single platform. Pockets of opportunities The development of industry solutions that not only standardise protocols but also clear regulatory hurdles takes some time. The emerging realm of cryptocurrency, which some believe holds the potential for shaping the future of trade finance, is one prime example. Amidst moves by regulators in South Korea and other countries to tighten oversight on the use of cryptocurrencies, the near-term prospects of using initial coin offerings, or ICOs, for trade finance is remote.“It is still early days to see ICOs for trade finance in Asia or any other part of the globe,” said Duraiswamy, citing the lengthy regulatory process that the sector would need go through before such a trend could catch on. “Regulation takes much longer time to evolve and in the area of cryptocurrencies it would take much longer as it can potentially change the entire landscape on how counterparties exchange value with each other.” In 2018, the ability to master technological adoption in key industries and deftly moving with regulatory changes will determine the winners and losers in trade finance, as banks forecast a trade acceleration. This year, commodity prices will
Adnan Ghani
Krishnakumar Duraiswamy
rebound and help fuel a pick-up in the global economy, Ng said, with UOB holding a cautiously optimistic global trade outlook in view of modest 2018 gross domestic product forecasts for key trading economies including China, Hong Kong, Japan, US and Europe. “Investments in the TMT industry continue to be on the rise in many countries as governments roll out or sustain their initiatives on automation and productivity, and logistics and telecommunication connectivity in line with their national planning objectives,” said Ng. The construction and infrastructure sectors, especially within the ASEAN region, are notably attractive as well. Ng said UOB will be on guard for any potential rise in U.S. trade protectionism in 2018 and any negative effect on trade flows with key partners like China, India, Japan and South Korea. He foresees trade margins to be hampered as a result of additional rate hikes, affecting the overall growth in trade. Still, those looking for new opportunities will find them in Africa, Middle East, and Europe.“Banks will have to diversify and grow in other geographies,” said Duraiswamy. “You will see more of the mix happening between various geographies that will help in trade during 2018.” Asia is going to be a mixed bag with countries like Thailand that are focused on infrastructure growth, and those like Vietnam with growing GDP in 2018 to likely see increased trade flows. “Opportunities would be there in trade. Technology and efficiency will be the key to capture these opportunities.” Duraiswamy said.
Key trade finance export markets
Source: Asian Trade Finance Markets Program , East & Partners
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Hong kong’s hottest startups 2018
The $220m capital infusion for fintech startup WeLab was the ninth largest year-end deal in Asia.
Startup funding hit new highs in 2017 This year’s crop of hottest startups were mostly funded by traditional venture capitalists, but one tapped the potential of the initial coin offering space and successfully raised US$10m in one round. This is Hong Kong Business’ 7th edition of the hottest startups issue where we present local startups who have successfully raised a significant amount of funding in the past year. KPMG reported that Hong Kong-based startups raised record-high funding as total VC investments hit $425m in the fourth quarter of 2017. The $220m capital infusion for fintech startup WeLab was the ninth largest yearend deal in Asia. To compile the list, we first looked at the startups that 1. WeLab Founders: Simon Loong Funding: US$400m in total funding as it recently raised US$220m in strategic funding from Credit Suisse Group AG, World Bank’s International Finance Corp. and Alibaba Start of operations: 2013 WeLab is a fintech startup which operates two leading lending platforms, Wolaidai in China and WeLend in Hong Kong. Through its proprietary risk management technology, WeLab analyses unstructured mobile big data to make informed credit decisions and provide seamless mobile lending experiences for its growing user base. WeLab is able to approve loans in as quickly as 21 seconds. The startup has since processed over $28b in loans. 26
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we featured on our website, hongkongbusiness.hk. We filtered the list by the amount of funding raised. We don’t claim that this is the most comprehensive list, and whilst we have tried to verify funding quantums, we cannot verify all amounts declared. Nevertheless, we feel this list represents the most talked about startups in Hong Kong. Enjoy the read, and send feedback to research@charltonmediamail.com. 2. moneyhero.com.hk Founders: Alister Musgrave Funding: US$90m in total funding after series B led by IFC, Alibaba Entrepreneurs Fund, SBI Group, H&Q Utrust, Goldman Sachs Investment Partners VC. Start of operations: 2013 Operating under CompareAsiaGroup, moneyhero.com.hk is an online marketplace that compares various financial product offerings. It is a personal finance management platform that compares credit cards, personal loans, mortgages and travel insurance to help consumers find the most suitable personal finance product from over 400 financial companies. Customers must first fill out a form detailing their financial requirements and moneyhero.com.hk does all the work by comparing various products offerings.
Hong Kong’s hottest startups 2018
Start of operations: 2014
3. Eatigo
6. Oddup
Founders: Michael Cluzel, Siddhanta Kothari, Pumin Yuvacharuskul, Judy Tan Funding: Eatigo has raised US$15.5m in series B funding from TripAdvisor.
Founders: James Giancotti Funding: US$7m in total funding after series A funding led by The Times Group, 500 Startups and Click Ventures. Start of operations: 2015
Eatigo is an online restaurant reservation platform that ‘connects empty tables with empty stomachs.’ Through its app or website, users make bookings at partner restaurants during allotted times — mostly during off-peak hours such as before or after lunchtime or dinnertime rush — and get as much as 50% discount with no required upfront payments. This way, both restaurants and diners benefit as Eatigo delivers traffic to restaurants during its off-peak hours and diners are available to access discounted dining options from a wide selection of partner establishments.
Amidst an increasingly competitive and saturated startup ecosystem, investors face the growing dilemma of where to direct their money to find the next big thing. Oddup aims to address this pain point through its insights platform which rates startups on their profitability and growth potential. It structures and compiles news and research data on various startups across Asia from a wide array of sources that would otherwise be time-consuming and difficult for investors to do manually. Oddup then uses this information to derive data-driven insights and assign ratings on the potential success of a startup to help investors.
4. Gobee.bike
7.
Founders: Raphael Cohen, Claude Ducharme Funding: US$9m in series A funding last August 2017 led by Grishin Robotics. Start of operations: 2017
Founders: Brandon Ng, Luca Valente Funding: Ampd Energy currently holds US$3.7m in seed funding. Start of operations: 2015
Gobee.bike is one of Hong Kong’s leading bike-sharing apps that aims to provide a long overdue solution to the city’s car congestion problem. The bright green GoBee bikes are equipped with solarpowered GPS smart lock, smart light system for night rides and alarm system to prevent theft. Through the mobile app, bikes closest to the user can be located and unlocked by scanning a unique QR code. Once the ride is over, bikes can be parked in any public parking spots. It also offers cashless payments via credit card or through Apple Pay, Android Pay, and Alipay and record the distance travelled as well as the calories burnt during the ride.
Ampd Energy
Ampd Energy is an energy-storage engineering startup that aims to make pollutive diesel generators obsolete and replace them with the cleaner, more sustainable alternative of battery-based, energystorage systems. Its banner product, the Ampd Silo, is both cost and energy-efficient as it runs on lithium-ion batteries and can provide up to four hours of uninterrupted power. As the product operates on a zero transfer time, it allows users to back up mission critical devices in airports, energy room wards and data centres. Ampd Energy aims to provide mass-produced and commoditygrade batteries for a wide range of residential, commercial, and industrial applications.
5. Snapask
8. Qupital
Founders: Timothy Yu Funding: Total of $8m after preseries A venture funding from Kejora Ventures, Cai Wensheng and Welight Capital last June 2017. Start of operations: 2015
Founders: Andy Chan, Winston Wong Funding: Total of US$3m in total funding in seed round led by MindWorks Ventures and Alibaba Entrepreneurs Fund. Start of operations: 2016
Snapask is an edtech company that utilizes machine learning and cloud computing techniques provide more personalized education for students. Snapask is supports over 500,000 students with their studies. Their main features include instant Q&A service where students can simple snap a picture of the question at hand, and get one-to-one support from Snapask tutors within 10 seconds. A newly launched ‘Learning Planner’ feature allow student to take tests on particular topics of a subject to assess their level of mastery and build up a personal learning profile. The system will recommend suitable practice questions according to test performances.
Qupital is an online accounts receivables finance platform that aims to provide efficient trade finance solutions for SMEs that are underserved by traditional banking services. SMEs with unpaid invoices first approach Qupital’s platform which then connects them to a wide pool of institutional investors who will bid on their invoices through online auctions and turn the SMEs accounts receivables into cash with 24 hours or less. Qupital currently serves a wide range of businesses in the export, distribution, retail and services sectors. HONG KONG BUSINESS | MARCH 2018
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cover story 9.
12. Eoniq
Kami.ai
Founders: Alex Cheung Funding: Raised US$1.7m in seed investment round led by ARM Innovation Ecosystem and Accelerator Limited last December 2017. Start of operations: 2014
Founders: Quinn Lai Funding: Raised US$466,000 in an online crowdfunding campaign Start of operations: 2014
Kami is an AI-driven customer service platform that is a cut above chatbots since it makes use of sophisticated machine reasoning to create a conversational platform. As a specialist in AI and software engineering, Kami combines unique neural networks and machine learning algorithms to step up its conversational AI platform and create literate machines that have the cognitive abilities to reason and communicate. Firms can then use the Kami platform to automate customer service processes and generate critical insights from customer interactions. 10. DOTT: The Smart Dog Tag
13. WeMine Founders: Horris Tse, Jim Mau Funding: Raised US$128k (HKD1m) in an angel round last March 2017. Start of operations: 2015
Founders: Ashley Tang Funding: Raised US$1m in Kickstarter campaign Start of operations: 2016 DOTT is a dog tag that uses smart technology to detect the location of your pet to increase the likelihood of finding lost pets. The tag is lightweight, waterresistant and powered with a battery that can last up to one year. It also provides real-time pet activity updates from walks, potty breaks, food, and medication which allows for easier pet parenting. The dog tag also offers neighborhood alerts for nearby pet dangers like extreme heat, flood, poison, and construction. DOTT was named as one of “Best Kickstarter Inventions” by MSN Money. They are also Amazon’s best selling products. 11. Agentbong Founders: Sam Ng Funding: Agentbong has raised around $735,000 in angel investment for the development of its mobile application. Start of operations: 2015 Derived from the word ‘bong’ which means ‘help’ in Cantonese, Agent Bong is an online marketplace for home services in Asia. It connects households in need of various services from cleaning, babysitting, elderly care, cooking, and grocery shopping to temporary household helpers. With Agentbong’s proprietary matching engine, home owners can book a professional home service in 60 seconds. To ensure the quality of domestic services performed, the startup only registers helpers who have been personally vetted. Agentbong has served over 5,000 families with more than 100,000 hours of work and has operations in Hong Kong and Singapore. 28
HONG KONG BUSINESS | MARCH 2018
Eoniq is a watch brand that offers customised mechanical watches designed with the input of users at the price point of a fashion watch. They do this by allowing users to upload preferred designs and images to create truly unique time-pieces. It has two custom watch series - Navigator and Pinot Blanc. Users can then customize the watch to their unique design preferences, tweaking from a wide selection to the watch’s face, mechanism, case, hands, band and buckle. Users also have the option to add a personal text, logo or signature. After inputting the customizations, the Eoniq team does all the work and ships the bespoke watch to your preferred address for optimum convenience.
WeMine is a martech (marketing technology) startup that provides an intelligent marketing suite to launch and track marketing campaigns on instant messaging app WeChat/WeiXin. It assists companies to successfully apply for a Weixin public account, WeChatPay and does the heavy lifting of account management and data analytics to derive insights that will enhance marketing campaigns. It offers a flexible management platform with modular coding structure for companies to add and expand their functions on WeChat to tap and promote their various product and service offerings to the large and active Chinese audience in WeChat. 14. pickupp Founders: Crystal Pang, Paco Chan, Eric San Funding: PICK-UP has raised an undisclosed amount in venture round led by Axis Capital Partners last October 2017. Start of operations: 2016 PICK-UP is a logistics technology optimisation platform that makes use of multiple delivery partners from walkers, bikers, scooters, motorcycles, vans, and trucks to deliver packages for its merchant clients. Its competitively-priced packages are tracked real-time using GPS to execute two-hours, four-hours, or same day deliveries via a wide range of technological tools including order clustering, ranked dispatch, auto delivery notifications, delivery agents ratings, and feedback. The startup ensures the safety of delivered packages as merchants first need to print and attach an invoice with a QR code which delivery agents will in turn scan to start the delivery process.
Richard Wolf GmbH
spirit of excellence Richard Wolf GmbH is a mid-sized medical technology company based in Germany. It supplies a broad spectrum of products and solutions for endoscopy and extracorporal shock wave treatment. Richard Wolf also offers integrated operating room (OR) management systems. A track record spanning more than 100 years empowers Richard Wolf to contribute to the development at new and innovative medical products. The experience also includes a continuous process of advanced evolution of patient-friendly, minimally invasive treatment methods. The company‘s core competence and experience is in the area of endoscopic systems for a range of disciplines in human medicine. Richard Wolf employs some 1,500 people worldwide with a workforce of around 1,100 employees in Germany. The company maintains a global network of 14 subsidiaries and 130 foreign representatives. The headquarters and the facility for production, development and sales are in Knittlingen / Baden-WĂźrttemberg, Germany.
excellence in healthcare
legal industry survey
Legal firms are embracing artificial intelligence and machine learning
Man vs bots: Will Hong Kong fully embrace legaltech? No robot could ever replace a good lawyer, according to our legal experts.
F
or Hong Kong Business’ 25 largest law firms, Deacons retained the top spot with 231 legal professionals last year, an 8.5% increase from the 213 legal professionals registered with the firm in 2016. Deacons is followed by Clifford Chance with 199 legal professionals in 2017 at second place and Linklaters with 191 legal professionals registered last year, jumping to third place from being fifth place in 2016. Rounding out the top 5 are Mayer Brown JSM and King & Wood Mallesons which saw their staff pool numbers for 2017 decrease to 186 and 177, respectively. The number of legal professionals for the top 4 and top 5 firms in 2016 were 190 and 184, respectively. More and more law firms are welcoming the advantages and opportunities that technologies provide to improve their services and products, and this will likely be the trend for most, if not all, legal firms in Hong Kong for the next few years. “Clifford Chance is embracing innovative resources and ways of working to provide the very best combination of people, processes, and technology solutions to deliver 30
HONG KONG BUSINESS | MARCH 2018
Baker McKenzie have been deploying a artificial intelligence and machine learning to improve their due diligence, contracts review, and e-discovery activities for more efficiency and organisation.
a service that exceeds evolving client expectations,” said Andrew Beasley, Continuous Improvement Portfolio Management at Clifford Chance. Kirsty Dougan, head of Axiom Asia, noted in an article from Asia Law Portal that the rise of legal tech—not just in Hong Kong—will be inevitable and that the evolution is well underway. “Law is currently going through an evolutionary phase—from artisanal to industrial to digital—and law in the future will be tech-enabled, but services-led,” she said. This is echoed by Beasley, saying that “We are witnessing a technology revolution that is transforming our client base and our clients’ business” which are largely paving the way for the future of the legal sector not just in Hong Kong, but elsewhere in the world. Scrutinising tech Sumit Indwar, partner for Linklater’s Financial Regulation Group, said that there has been an everincreasing trend towards both private practitioners and clients being more open to the use of legal tech in the delivery of legal services. “Legal teams within clients, particularly in the
financial services sector, are facing more pressure to demonstrate that legal output is delivered in an efficient way,” he said. Baker McKenzie have been deploying a number of high-tech tools including artificial intelligence and machine learning to improve and process their due diligence, contracts review, and e-discovery activities for more efficiency and organisation. However, Milton Cheng, partner at Baker McKenzie Hong Kong, noted that despite the rise in technology and innovation, human interaction and comprehension will remain an integral part of the future of Hong Kong’s legal landscape. “No robot could ever replace a good lawyer. We still need lawyers to meet with clients to understand their business needs and come up with an appropriate strategy and tactical plan,” he said. “Ultimately, lawyers who can embrace technology to become more efficient and innovative in their service delivery not only will add value to the law firm itself, but also to its clients.” The rise in technological integration in the legal sector in Hong Kong has been both timely and gradual. King & Wood Mallesons’ Peter Bullock noted that until recently, the belief has been that technology will have its primary impact on the commodity end of practice. For example, work being undertaken by legal process outsourcers such as due diligence reviews, discovery, and repetitive document management tasks. “Our focus has been on investigating the best use cases for new technologies to ensure the best possible results, and we believe we are front-running in this space with artificial intelligence products such as Nakhoda,” said Indwar. At the same time, such technology will enable our lawyers to have more time to focus on the parts of the work which require specialised judgement, bespoke analysis, and advice based on experience.” However, with sufficient scrutiny, there are caveats on
legal industry survey Salary Expectations - Legal & Compliance
Source: Robert Walters Salary Survey 2017
the usage of technology in the legal industry. Bullock noted that perhaps the greatest area of concern is maintaining the confidentiality of client materials, and compliance with privacy laws. Caveats on tech usage “This can be as simple as being sensitive to avoiding overuse of social media platforms for client communications,” he said. “Like most multi-jurisdictional regulated businesses, international law firms need to grapple with the movement of personal data of clients and employees.” Hayden Flinn, co-chief executive of King & Wood Mallesons Hong Kong, noted that with the Belt and Road Initiativefrom the Chinese government, more investments across the entire spectrum of the foreign policy can be expected, particularly in financing, corporate, investment funding, infrastructure, and construction. “The legal and operational risks that may arise in reaching these markets may bring opportunities for litigation and international arbitration to control risks and avoid disputes, and so much more in the year ahead,” he said. This sentiment is noted by Cheng, saying that his firm’s Belt and Road report predicts that China-linked Belt and Road projects will be worth US$350b over the coming five years.“Lawyers with strong mergers and acquisitions and project financing capabilities are likely to be in hot demand,” he explained. “Same can be said for experienced lawyers in the areas of anti-trust/competition, compliance, regulatory, employment,
and tax—issues that Chinese companies are likely to face in their efforts to go global.” Another is the increasing importance and significance of the fintech industry, with the rise of online banking, digital payments, and virtual currencies or cryptocurrencies but also in fundraising for startups. Flinn added that the Hong Kong Exchange’s plan for a third board targeting “new economy” companies, including both tech startups and mega-firms, Hong Kong listings for Chinese fintech companies (online peer-to-peer platforms) should be noted. Broad outlook In terms of broad outlook for the next 12 months, Flinn noted that Hong Kong will remain one of the Asia-Pacific region’s biggest legal tech hub, but the territory should make sure that the potential gains
The greatest area of concern is maintaining the confidentiality of client materials, and compliance with privacy laws.
from strengthening transactions with mainland China, as well as with the fintech industry, are crucial. “Hong Kong is still the gateway to China and much activity is generated through Hong Kong’s close connection with the mainland,” he said, adding that the city’s well-developed capital markets and strong legal, regulatory, and financial regimes provide an ideal backdrop for expansion of Chinese entities. For McCormack, 2018 would see an exceptionally strong pipeline of work for the legal tech industry, particularly on digital payments and cryptocurrency, AI solutions, and cybersecurity, to name a few. “Law firms have no choice but to adapt, to ensure that they can add value to the ‘new economy’,” she said. “This often requires innovative pricing solutions for startup clients, as well as pushing the boundaries to apply the law to very different models. Sustainability and success in this space also require being part of the solution, which involves becoming good strategists, risk managers, and helping develop new regulation.” For Indwar, legal tech adoption is not any more an option, but a requirement. “Adoption of legal tech will soon become a necessity rather than simply a nice-to-have. We expect to see an increasing awareness of and willingness to use new technologies both in private practice and on the client side and we hope [to see] lots of very interesting use cases for legal tech,” he noted.
2018 would see an exceptionally strong pipeline of work for the legal tech industry, particularly on digital payments and cryptocurrency, AI solutions, and cybersecurity.
HONG KONG BUSINESS | MARCH 2018
31
LEGAL INDUSTRY SURVEY 2017
Company Name
2016
Foreign/Local
2017 Legal Professionals
2016 Legal Professionals
Managing Partner
1
Deacons
1
LOCAL
231
213
LILIAN CHIANG
2
Linklaters
5
FOREIGN
191
179
NATALIE HOBBS ASIA MANAGING PARTNER
3
Mayer Brown JSM
3
FOREIGN
186
190
TERENCE TUNG
4
King & Wood Mallesons
4
FOREIGN
177
184
ZHANG YI HAYDEN FLINN
5
Clifford Chance
2
FOREIGN
168
199
GERAINT HUGHES
6
Baker & McKenzie
6
FOREIGN
167
169
MILTON CHENG
7
Stephenson Harwood
12
FOREIGN
127
97
VOON KEAT LAI
8
Herbert Smith Freehills
9
FOREIGN
124
113
MAY TAI
9
DLA Piper Hong Kong
7
Foreign
114
140
SUSHEELA RIVERS
10
Reed Smith Richards Butler
10
FOREIGN
94
91
DENISE JONG
11
Norton Rose Fulbright
13
FOREIGN
85
79
PSYCHE TAI
12
Woo Kwan Lee & Lo
11
LOCAL
84
86
WILLIAM KWAN
12
Li & Partners
14
LOCAL
84
75
ROBIN LI
14
Latham & Watkins
16
FOREIGN
80
66
JOSEF ATHANAS
15
Eversheds
17
FOREIGN
75
64
STEPHEN KITTS
16
Robertsons
19
LOCAL
63
55
MICHAEL LINTERN-SMITH
17
Simmons & Simmons
19
FOREIGN
54
55
PAUL LI
18
Skadden, Arps, Slate, Meagher & Flom
24
FOREIGN
52
50
JONATHAN STONEHONG KONG OFFICE LEADER
19
Clyde & Co
21
FOREIGN
50
52
SIMON McCONNELL
19
Wilkinson & Grist
23
LOCAL
50
51
RAYMOND CHAN
21
HFW
18
FOREIGN
48
52
HENRY FUNG
22
Tanner De Witt
25
LOCAL
47
45
IAN DE WITT
23
Jones Day
21
FOREIGN
44
52
JOELLE LAU
24
Gallant
27
LOCAL
38
39
BRENDA LEE
25
Cleary Gottlieb Steen & Hamilton (Hong Kong)
28
FOREIGN
33
33
MICHAEL GERSTENZANG
2,467
2,421
TOTAL
-DATA accurate as of oct 31, 2017
32
HONG KONG BUSINESS | MARCH 2018
Insurance INDUSTRY survey
China’s first online insurer ZhongAn held the first major initial public offering (IPO) in Hong Kong in 2017, raising US$1.5b on a market valuation of US$10b.
Hong Kong poise for insurtech growth in 2018 Chatbots, e-claims, and online sales await expectant clients this year.
W
ith more than 47% increase in gross premiums to $101m Prudential (HK) Life moved up from second place in the previous year to the top spot this year. Prudential switched places with AIA International, which has also experienced an increase of 35% from $71mto $96m gross premiums. China Life and Manulife also went up the rankings from 4th and 6th to 3rd and 5th, respectively. HSBC Life went down one notch from 3rd to 4th. According to Guy Mills, chief executive officer of Manulife Hong Kong, the increase in his company was mainly attributable to higher sales from their bancassurance and broker channels, and a well received investment-linked product during 2016. When Hong Kong’s Insurance Authority launched flagship programmes Sandbox and Fast Track late last year, it opened a huge opportunity for insurers to finally move away from their clunky legacy systems and collaborate with insurtechs in a more open and encouraging environment. These two platforms have allowed stakeholders 34
HONG KONG BUSINESS | MARCH 2018
2018 is likely to be the year of innovation for the insurance market in Hong Kong.
to be more hopeful of the future of insurtech in Hong Kong, a city that has been left behind by neighbouring China’s speed of innovation in the insurance space. EY’s Fintech Adoption Index 2017 revealed that Hong Kong has an average adoption rate at around 32%, compared to the adoption rate in China at 69%, India at 52%, and UK at 42%. In terms of insurtech, which has gained traction a little later than fintech, the numbers could be much lower, thereby leaving plenty of room to develop for Hong Kong. “Sandbox provides a safe place for insurers, together with technology firms, to experiment with ‘insurtech’ pilot projects without the need for full compliance with the Insurance Authority’s usual regulatory requirements. This flexibility allows insurers to collect real market data and user feedback. The Insurance Authority could also assist insurers to overcome any regulatory issues before formal market launch,” said Kevin Bowers, partner, Howse Williams Bowers Hong Kong. In fact, the city could be at an advantage when it comes to innovating life insurance. Hong
Kong has one of the longest life expectancies in the world, and the insurance industry must step up in order to cover the risks associated with old age and capture the opportunities that this brings. As insurers recognise the demand for advanced-stage insurance products, they must also wager on their heavily tech-savvy population as well as on the evolving expectations of millennials. Speed is king in this arena, making it the perfect opportunity for insurers to overhaul their back-end systems and finally make it big in the digital landscape. “2018 is likely to be the year of innovation for the insurance market in Hong Kong. To maximise the benefits of the regulator’s supportive stance, we predict that insurers will blend technology with insurance products, from distributing microinsurance products via Chatbots to using Internet of Things devices to collect customer data, thereby monitoring risks more accurately and offering more competitive prices to customers,” said Joyce Chan, partner, Clyde & Co Hong Kong. Pioneering care Tony Chan, associate director for policy and development, Insurance Authority, said that insurtech is still considered a relatively new phenomenon compared to banking and other areas of financial services. Despite this, insurtech is rapidly catching up on the back of strong investor confidence in the sector’s growth potential. For instance, China’s first online insurer ZhongAn held the first major initial public offering (IPO) in 2017, raising US$1.5b on a market valuation of US$10b. “We are excited to see more insurtech start-ups emerging in Hong Kong. An increasing number of Insurtech start-ups have approached the Insurance Authority (IA) to explore possible applications of their Insurtech initiatives. From the discussions with these startups, we find that the potential applications of Insurtech could be wide-ranging, covering
Insurance INDUSTRY survey What customers increasingly want is convenience, responsiveness, and the chance to have all sorts of information at their fingertips.
claimsimple.hk allow members to make medical claims anywhere in less than a minute
almost the full spectrum of the insurance value chain, from product development, underwriting, sales and advisory, policy administration to claims management,” Chan said. Several insurers have already achieved strides in developing digital solutions for their products. ManulifeMOVE, Manulife’s unique insurance concept integrating a health-tracking program with insurance solutions, has experienced tremendous success as more clients jump on the bandwagon of maintaining active lifestyles in exchange for discounted premiums. Manulife has also recently launched claimsimple.hk, an e-claims solution that allows customers to make a medical insurance claim anytime anywhere in less than a minute. Insurers have also begun leveraging data analytics to monitor and observe the needs of their clients and provide them more personalized solutions. Edward Moncreiffe, chief executive officer, HSBC Insurance Hong Kong, said that they have been working on a simple, purely digital solution that is unmatched in the market in terms of value for money and ease of online application. The application for HSBC Term Protector takes just around five minutes, making it the fastest in the market. Moncreiffe said that by answering just three questions, clients can be covered by up to $5m. Meanwhile, HSBC’s Insurance Academy, launched in 2017, provides rigorous training and development of staff in order for them to deliver an innovative range of services. According to Moncreiffe, the training curriculum is designed based on
Engage-Discover-Recommend-Actand-Service (EDRAS) sales process, which provides a framework to train the staff and partners based on customer- and user-centric approach. Keeping customer-centricity According to Chan, IA has seen increasingly greater interest in developing customer-centric innovations. For instance, some insurers have introduced e-onboarding and e-Financial Needs Analysis (e-FNA) to speed up the underwriting process. He said that many of these insurers are employing chatbots with artificial intelligence (AI) to handle customer enquiries as well as a claims management system to speed up and standardise the claims process. “Just to give an example, patients who have pre-existing diseases in the past would always face challenges in purchasing medical insurance, either
being rejected by insurance companies or being charged with premium loading. Now, thanks to the innovative online health management tools that could track and analyse the users’ health indicators, insurers may now use the data to adjust premiums based on the risk level,” Chan said. Better customer experience Mills said that advances in technology, particularly the adoption of mobile devices, is one of the biggest consumer trends for all insurers. Mobile devices have made it possible for insurers to get to know their clients more and engage with them much faster and more effectively. “The demand for a better customer experience will continue to drive technology change in 2018.What customers increasingly want is convenience, responsiveness, and the chance to have all sorts of information at their fingertips,” Mills added. “It’s been reported in many instances that Fintech would disrupt the financial industry, including the insurance industry. So far, are those Insurtech applications we have seen disruptive or just facilitating the sale and development of new insurance products in Hong Kong? What areas of Insurtech would be most promising in the near future? Blockchain, AI, chatbots? I do not have the crystal ball, but these may be promising areas for further advancement of the Insurtech ecosystem in Hong Kong,” said Chan of the Insurance Authority.
HSBC Insurance’ staff and development programme
HONG KONG BUSINESS | MARCH 2018
35
Insurance INDUSTRY SURVEY 2017
Insurance Company
Classification
2016 Gross Premium (HK$)
2016 Rankings
2015 Gross Premium
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
Prudential (HK) Life AIA International China Life HSBC Life Manulife (Int'l) BOC LIFE FWD Life AXA China (Bermuda) Hang Seng Insurance Sun Life Hong Kong MassMutual Asia Ageas (formerly FTLife) Transamerica Life (Bermuda) Hong Kong Life MetLife AXA China (HK) Generali * Chubb Life (formerly Ace Life)
$101b $96b $93b $67b $35b $32b $28b $25b $18b $17b $10b $9b $7b $6b $5b $5b $5b $4b
2 1 4 3 6 5 9 7 8 11 12 13 10 15 19 14 17
$68b $71b $48b $61b $27b $38b $17b $25b $18b $10b $8b $6b $13b $4b $3b $5b
19
AXA General
$4b
16
$3b
20
BEA Life
Life or Long Term Business Life or Long Term Business Life or Long Term Business Life or Long Term Business Life or Long Term Business Life or Long Term Business Life or Long Term Business Life or Long Term Business Life or Long Term Business Life or Long Term Business Life or Long Term Business Life or Long Term Business Life or Long Term Business Life or Long Term Business Life or Long Term Business Life or Long Term Business Life or Long Term Business Life or Long Term Business General - Direct and Reinsurance Inward Business Life or Long Term Business General - Direct and Reinsurance Inward Business Life or Long Term Business General - Direct and Reinsurance Inward Business General - Direct and Reinsurance Inward Business Life or Long Term Business Life or Long Term Business Life or Long Term Business General - Direct and Reinsurance Inward Business General - Direct and Reinsurance Inward Business Life or Long Term Business General - Direct and Reinsurance Inward Business Life or Long Term Business General - Direct and Reinsurance Inward Business General - Direct and Reinsurance Inward Business General - Direct and Reinsurance Inward Business General - Direct and Reinsurance Inward Business Life or Long Term Business Life or Long Term Business General - Direct and Reinsurance Inward Business General - Direct and Reinsurance Inward Business Life or Long Term Business
$3b
24
$2b
$3b
23
$2b
$3b
18
$3b
$3b
20
$3b
$3b
$2b
25
$2b
$2b
$2b $2b $2b
27 22
$2b $3b
$2b
29
$2b
$2b
$2b
31
$2b
$2b
Life or Long Term Business
21
Bupa
22
Generali Worldwide
23
CTPI(HK)
24
Zurich Insurance
25 26 27
TPLHK * Dah Sing Life Zurich International
28
BOC Group Insurance
29
AIG Insurance HK
30
Friends Provident Int'l
31
QBE HKSI
32
Aviva
33
Chubb Insurance
34
Blue Cross
35
Asia Insurance
36
Generali
37 38
AIA (HK) Principal
39
MSIG Insurance
40
AXA China (HK)
41
Standard Life Asia
42
Fubon Life Hong Kong *
43
Allied World
44
CIGNA Worldwide Life
45
AIA International
46
Old Mutual International
47
AGCS SE
48
Prudential (HK) General
49
Liberty Int'l
50
AXA Wealth Mgt (HK)
General - Direct and Reinsurance Inward Business Life or Long Term Business General - Direct and Reinsurance Inward Business Life or Long Term Business General - Direct and Reinsurance Inward Business General - Direct and Reinsurance Inward Business General - Direct and Reinsurance Inward Business Life or Long Term Business Total
-Data obtained from HONG KONG INSURANCE AUTHORITY *not part of 2016 rankings
36
HONG KONG BUSINESS | MARCH 2018
G20 - 2016
$3b
$3b
$2b
26
$2b
$2b
30
$2b
$2b
28
$2b
$1b
34
$1b
$1b
$1b
33
$1b
$1b
$1b
37
$1b
$1b
$1b
41
$800m
$1b
$1b $1b
39 50
$1b $600m
$1b
36
$1b
$1b
$1b
35
$1b
$1b
$1b
32
$1b
$1b
-
$1b
43
$800m
$1b
38
$1b
$900m
49
$600m
$900m
21
$3b
$800m
42
$800m
$800m
$800m
46
$700m
$800m
$800m
47
$700m
$800m
$700m
44
$800m
$614b
$481b
$2b
$1b
$900m
interior design architecture 連續十一年榮獲Hong Kong Business頒發
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西九龍．君臨天下
Legal briefing
Tax reform bill boosts Hong Kong’s growth Experts agree that it would help foster a more favourable business environment in Hong Kong.
T
he Hong Kong government’s decision to gazette the Inland Revenue (Amendment) Bill 2017, which proposed the codification of transfer pricing principles into law, is seen by experts and industry observers alike as a much-needed step to further solidify the territory’s reputation as a regional and global financial centre. Discussed by the Legislative Council of Hong Kong last 10 January, the bill intends, amongst other things, to implement a two-tier profits tax system that will push competitiveness amongst local and international firms based in the territory and align the Hong Kong tax system with international standards. According to analysis by Baker McKenzie, the bill, when enacted will impose legally binding transfer pricing regulations on multinational corporations (MNCs), and also signals Hong Kong’s intention and commitment to increasingly and more aggressively enforce the arm’s length principle, or ensuring that two parties in a transaction are acting on their own self-interest and free from outside pressure. Government officials have been bullish about the bill, saying it would help foster a more favourable business environment in Hong Kong apart from driving growth and competitiveness. What are the key features of the amendments to the Inland Revenue (Amendment) Bill 2017? Stefano Mariani, counsel and senior associate at Deacons Hong Kong, noted that the foremost objective of the bill is to secure Hong Kong’s compliance with guidelines on international taxation devised by the Organisation of Economic Cooperation and Development (OECD) and ensure that Hong Kong fulfills its obligation as a partner jurisdiction to OECD’s so-called Base Erosion and Profit Shifting (BEPS) initiative.
The proposed changes could provide corporations and firms in Hong Kong savings of up to HK$165,000 a year, and an unincorporated business up to HK$150,000 given the adjustments in taxation. “Its key features are therefore the insertion of a comprehensive transfer pricing regime into the Inland Revenue Ordinance (IRO), the introduction of countryby-country record-keeping and reporting obligation for qualifying MNCs, and the amendment of certain existing provisions in the IRO which are at risk of being inconsistent with the BEPS project,” he said. The OECD BEPS measures are a global tax initiative to introduce specific measures to increase tax transparency and combat tax evasion, according to Anthony Fay, foreign legal consultant at Clifford Chance Hong Kong. He mentioned that in Hong Kong, the new BEPS-related 38
HONG KONG BUSINESS | MARCH 2018
regulations will seek to improve cross-border dispute resolution and introduce arbitration as a way of resolving cross-border tax disputes, as well as introduce changes to Hong Kong’s tax incentive regime to make taxation more competitive. Stefano Mariani
Anthony Fay
How will this bill affect businesses in Hong Kong? Mariani argued that perhaps the recently proposed changes can be considered as the most extensive and profound change to the IRO since 1986, given that the bill discussed will likely impose greater compliance costs on enterprises based in Hong Kong or with a Hong Kong permanent establishment. “That means that certain forms of tax structuring that were historically effective in Hong Kong will need to be radically rethought if they are to remain viable once the bill is enacted,” Mariani explained, noting that intra-group transactions and arrangements will come under very close scrutiny, which was not common previously given that Hong Kong’s fiscal system has always been territorial in scope. The increased regulatory focus is also true for enterprises caught in country-by-country reporting requirements. Fay agreed, saying that these proposed changes are a very significant change for Hong Kong given that the Inland Revenue Department will have the more streamlined power to make tax assessments on various business and fiscal transactions which could result in a tax disadvantage to the territory with more formal standards that a taxpayer must follow. “Fortunately, not all taxpayers will need to comply with the mandatory transfer pricing reporting requirements if they do not meet relevant thresholds for business size or related party transaction volume,” he said. Other reports also suggest that the proposed changes, once implemented, could provide corporations and firms in Hong Kong savings of up to HK$165,000 a year, and an unincorporated business up to HK$150,000 given the adjustments in taxation.
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7
High Flyers 2017
Outstanding Enterprises and Business Leaders Now on its 14th year, Hong Kong Business High Flyers Awards honours 23 outstanding companies that have exemplified how a remarkable commitment to innovation, strong focus on customer service, and adherence to social responsibility make a business successful. The awards ceremony was held at the Tamarind & Terrace, Sun Hung Kai Centre, Wan Chai, Hong Kong on January 16, 2018. The winners received a crystal trophy as well as tokens during the awards night. They were also given a 2-page editorial feature in the 2017 Hong Kong Business Annual Issue.
List of Honorees Grand Award – Outstanding Enterprise Award Reliable Enterprise Communications and Innovative Retail Solutions Wealth Management and Financial Advisory Airlines Best Family Hotel in Hong Kong Innovative F&B Concepts Life Insurance Premium Chocolatier Outstanding Insurance Company Best Commercial Bank Online Luxury Consignment Services Boutique Hotel Insurance Broker - Business & General Insurance Innovative Insurance Company F&B Management Automobile Outstanding Finance Company Serviced Apartment Retail Banking Most Innovative Technology in Connectivity Law Firm Fixed Network, Broadband & Cloud Services - Telecommunications Interior Designer 40
HONG KONG BUSINESS | MARCH 2018
HSBC Insurance (Asia) Limited Able Communications Group Athena Best Financial Group British Airways Dorsett Wanchai, Hong Kong Elite Concepts FTLife Insurance Company Limited Godiva Hang Seng Insurance Company Limited Hang Seng Bank Ladycode Lan Kwai Fong Hotel @ Kau U Fong Lifestyle Insurance MassMutual Asia Ltd Mayfare Group Mercedes-Benz Hong Kong Limited PrimeCredit Limited Shama Serviced Apartments Standard Chartered Bank (Hong Kong) Limited TGT Thomas, Mayer & Associés WTT Zchron Design
HONG KONG BUSINESS 2017 HIGH FLYERS AWARDs
Hong Kong Business Annual High Flyers Special Edition
Edward Moncreiffe of HSBC Insurance (Asia) Limited, recipient of High Flyers Grand Award
Nison Chan of Zchron Design with his team
2017 High Flyers Awards Honorees HONG KONG BUSINESS | MARCH 2018
41
HONG KONG BUSINESS 2017 HIGH FLYERS AWARDs
Guests enjoying the event
High Flyers Awards Crystal Trophies
HSBC Insurance (Asia) Limited
Tim Charlton, Publisher of Hong Kong Business 42
HONG KONG BUSINESS | MARCH 2018
Louis Shek with Heidi Chan of Ladycode
Louis Shek with Derek Yu of HP
HONG KONG BUSINESS 2017 HIGH FLYERS AWARDs
Networking
Lan Kwai Fong Hotel @ Kau U Fong guests Networking
Anita Chan of Dorsett Wanchai, Hong Kong
Pamela Put of British Airways
Ryan Fung of Standard Chartered Bank (Hong Kong) Limited
Tommy Lai of Shama Serviced Apartments
Priscilla Wong & Danny Tse of Athena Best Financial HONG KONG BUSINESS | MARCH 2018
43
HONG KONG BUSINESS 2017 HIGH FLYERS AWARDs
Rajeev Bhasin of Mayfare Group
Damien Chang of Elite Concepts
Jessica Chan of TGT
Oliver Wurtz of Mercedes Benz Hong Kong Limited
Nison Chan of Zchron Design 44
HONG KONG BUSINESS | MARCH 2018
Eric Mayer of Thomas, Mayer & Associés
Samantha Lee of WTT
Wilson Tang of Hang Seng Insurance Company Limited
John Wong and David Ma of Hang Seng Bank
Ernest Fung of FTLife Insurance Company Limited
HONG KONG BUSINESS 2017 HIGH FLYERS AWARDs
Heidi Chan of Ladycode
Sandy Li of Able Communications Group
Standard Chartered Bank (Hong Kong) Limited
Linus Yuen of Lan Kwai Fong Hotel @ Kau U Fong
Neil Mccormick of Lifestyle Insurance
Beril Shen of PrimeCredit Limited
K. P. Tay of MassMutual Asia Ltd
Congratulations to all the winning High Flyers of 2017! HONG KONG BUSINESS | MARCH 2018
45
OPINION
tim hamlett
Looking the Lands Department’s gift horse in the mouth
S
ome months ago, the Lands Department—the Hong Kong Government Department which presides over land use—came in for a certain amount of stick concerning the ease with which some people mysteriously acquired the free use of bits of government land. Sundry homeowners—this seems to be a disease of the rich— had managed to establish such facilities as swimming pools and tennis courts on said patches. The department, beset by much other work no doubt, had failed to assert any control over the matter. Part of the department’s response was to upload to the internet a map—which you can see here—offering some 300 “Vacant Government Sites Available for Application for Greening or Government/Institution/Community Uses”. The implication is that NGOs might find a use for a site, and apply to the department to borrow it. Apparently the question of rent will not arise—the idea is to put idle assets to good use. This looked interesting. I have for some years longed to find an abandoned and inexpensive place where several arts groups of which I am a member could have a permanent home: a place to store their stuff and practice. I know of several arts groups which have gone out of business because of the lack of such a place. Others have to rely on public provision, for which the competition is fierce. Also you cannot book anything on a long-term basis. As a result, my dancing career has taken me to a wide variety of community halls and sports centres which I did not know existed. The idea is not to open a performance venue, just a couple of biggish rooms for regular practice sessions. The Lands Department’s map is searchable and the offerings come in two categories—vacant school premises and “others”. It seems from the sample I have looked at that the others are mostly odd-shaped pieces of land currently occupied by grass and trees, which the department thinks someone might enjoy “greening”. In other words, no buildings. As far as the vacant school premises are concerned, there are none in the urban area at all. It is difficult to believe that the provision of schools has so exactly matched requirements. Not one vacancy in the urban area? Never mind. I am broad-minded and I live in Shatin. In my district, the department is offering three “vacant school premises”. Two of them are in the middle of nowhere. One is at the back of an inaccessible village. One is actually in an area which appears on Google earth to be entirely forested and have no houses at all. I suppose there was a village there once. Also lacking is any kind of road. It’s miles from civilisation. The third looked more hopeful. This is described as “near Lung Hang Estate”, which suggests accessibility, and indeed on the map it appears to be a short walk from Tai Wai Station. So I thought before considering a visit to the local Land Office, I could have a quick 46
HONG KONG BUSINESS | MARCH 2018
tim hamlett Former Editor of Sunday Standard and Associate Professor of Journalism
Tai Wai Station
look and see what was on offer. The site is, as I surmised, a mere 10 minutes walk from Tai Wai station. You go down an alley between two schools. You then come to a rather handsome fence, through which you can see a lot of tombs and urn repositories. The fence has a gate. Although this sported two padlocks neither of them was actually locked so I pushed the gate open and went in. There is a flight of steps, which I correctly guessed would lead to the school. They are small (meant for kids?) and rather neglected. Lots of rubble. Who builds things up here? I came to the remains of the school gate—two concrete pillars and, lying on the ground, an arch with Chinese characters in wrought iron, now turning into wrought rust. Then, on the left, a flat patch which presumably used to be the playground. This sported a row of brand new tombs, which solves the building mystery. Onwards and upwards and a building appears. Monkeys fled at my approach and several bits of tree had to be pushed aside. So to the “vacant school premises”, which turned out to be a picturesque ruin. A few more or less intact walls and some reminiscences of a roof. The department’s website notes the existence of “derelict structures”, an understatement. I do not like to appear unwelcoming of a well-intentioned innovation, but NGOs tempted by the thought of a vacant government site need to keep two things in mind. The first one is that a “vacant school building”, if you can find one near you, may not be much of a building. In fact it may be more of a wreck. The second is that the vacant site may not be all that vacant either. I fear that anyone who takes up the offer of a vacant school near Lung Hang Estate is going to be very unpopular with the local tomb industry, which has evidently become accustomed to using this site for its own purposes. It seems the Lands Department does not actually have much control over what happens on vacant sites. Which, alas, is where we came in.
Hong Kong’s housing woe goes on and on
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OPINION
Hemlock
Maybe they should call it a Task Feebleness
T
he Hong Kong government’s main effort to solve the city’s housing problem has been the formation of a Task Force on Land Supply. It has had no visible impact on making housing more affordable. Instead, it has discussed drug-induced fantasies like building platforms above container ports and reclaiming reservoirs. Such ramblings confirm that the officials behind the Task Force wish to divert public attention from realistic measures (and insult our intelligence). It is possible they will next try to amuse us with a sliver of a golf course. A few months back, an idealistic NGO quietly floated a suggestion. They proposed a fully independent body (something like a specialized citizens’ jury) to list and examine all the possible new sources of land for homes. With no vested interests undermining the process, we would at last get an objective view of the options to make housing more affordable. Needless to say, no more was of heard of it. A column in South China Morning Post mildly concedes that the official approach has its limits. It actually calls the port/reservoir inanity a ‘diversion’ and admits that re-zoning brownfield, agricultural and other sites would be more practical. It even starts to hint at extremely obvious and easy solutions, when it states that ‘the government prospered’ last year from auctioning land to developers at wacko prices – but then the Don’t Think Out Of That Box alarms go off. Maximum land revenues By seeking maximum land/development revenues for itself (in addition to the developers’ fat margins), the government just pushes housing prices up further. It is a perverse system: rather than acting as an enabler, the state in Hong Kong competes with the rest of the population and economy in a zero-sum struggle for an essential resource. The government actively tries to make it as expensive as possible for people and businesses to access space to live and work. It then acts puzzled when people complain of poor living conditions and limited spending power, or entrepreneurs can’t thrive (or people have illegal structures). And the government has no use of the extra revenue! It could pull the plug on this idiocy tomorrow. Other ways to make homes cheaper involve tackling the demand side, like barring Mainland moneylaunderers from buying property here. The list of possibilities is long. Again, the government and its supporters act 48
HONG KONG BUSINESS | MARCH 2018
by hemlock www.biglychee.com Email: hemlock@hellokitty.com
oblivious to the fact that such options exist.The naïve A task force was formed NGO mentioned above was suffering a major delusion: to address Hong Kong’s it imagined that the government sees unaffordable housing dilemma housing as a problem, and land supply as a solution. The truth is that unaffordable housing is the aim, and land supply is the means and excuse. HK survives first week of 2018 2018 will be a year of continuous, quite possibly accelerating, Mainlandization in Hong Kong. Not a day is going by without another step towards authoritarianism – a young activist being tried or retried, a pro-dem academic losing his job, an opinionated foreign visitor being turned away at the airport. The effect is (presumably intentionally) numbing. But Beijing’s imperial edict on co-location (officially termed an NPCSC decision) is different. It crosses a line, partly because it enables Mainland law enforcement to operate openly in part of the city, but mainly because it shatters the idea that the sovereign power might be subject to any legal constraints within Hong Kong. By conjuring a legal justification for colocation out of nowhere, without any reference to the Basic Law, let alone the local laws and process, Beijing establishes law by fiat, rule by man, might-is-right as a reality here. In principle, all bets are now off. Most companies here have exposure to and interests in the Mainland, and they will be unperturbed so long as Beijing doesn’t crush the life and freedoms out of Hong Kong too quickly or unexpectedly. The question from a business viewpoint is: will the Communist Party be able to criminalize opinions, neuter the legislature and sidestep judges and juries discreetly and gradually enough?
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