Hong Kong Business (October - November 2018)

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WHY PROPERTY OWNERSHIP IS A PIPE DREAM WILL YOU LET BOTS MANAGE YOUR MILLIONS? HOW MUCH IS YOUR MBA DIPLOMA WORTH? SHOPPING INSIDE UNMANNED SHOPS 2018

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MICA(P) 244/07/2011 KDM No: PPS1645/3/2008

EY V S R SU ARGESRTAMME L OG R AP B M

The new V-Class Exclusive Edition Grand. Unique.

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HONG KONG

BUSINESS

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

Will you live inside an old drainage pipe? Hong Kong Business’ annual property issue delves into the unconventional low-cost housing alternatives in landstarved Hong Kong. One example is the OPod, a 100 sqft concrete pipe that packs most of living essentials, including a couch, a bed, a desk, some storage for clothes and other items, a kitchenette, and even a shower. But is this a concrete solution?

Hong Kong property prices and rents remain at record high levels, and industry observers say a pullback on either front is unlikely even as recent cooling measures are set to weigh on residential demand.

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

ADMINISTRATION ACCOUNTS DEPARTMENT accounts@charltonmediamail.com Advertising advertising@charltonmediamail.com Editorial editorial@hongkongbusiness.hk

Meanwhile, channel checks with ground experts revealed that this year, the industrial sector is characterised by three factors – lack of new supply, tech-driven logistics, and flight-to-quality relocations as a result of building conversion or redevelopment. Rising demand from tech firms makes the supply issue even more eminent and prominent. To support the market growth, adding more industrial supply should be the top priority for policy stakeholders.

We also rounded up the largest MBA programmes in Hong Kong. Students taking up a Master of Business Administration (MBA) degree in one of Hong Kong’s three biggest MBA providers are almost certainly looking at a financially rewarding future, with reports noting that professionals and entrepreneurs who graduate from the top MBA programmes can expect a salary increase of more than 100%.

This issue also bears the coverage of our most recent event, the Hong Kong Business Awards 2018. Hong Kong Business hailed the most exceptional international firms in the city in a joint awards ceremony for the Hong Kong Business International Business Awards (IBA), Listed Companies Awards (LCA), National Business Awards (NBA) and the Business Rankings Awards. Held at Island Shangri-La, Hong Kong on September 5, 2018, the awards night was attended by 90 executives.

PriNting Gear Printing Limited Flat B, 3/F, Derrick Ind. Bldg., 49-51 Wong Chuk Hang Rd., Hong Kong.

Flip the pages and get to know the biggest winners!

Tim Charlton

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HONG KONG BUSINESS | NOVEMBER 2018

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CONTENTS

22

COVER STORY Why property ownership is a pipe dream

FIRST 06 Shopping inside Hong Kong’s

unmanned shops

your millions?

RANKING

20 Economy Watch 42 Marketing Briefing

26 E-commerce boom fuels

warehouse wars

30 Hefty salaries await MBA graduates

in top universities

OPINION

INSIGHTS

on bubble tea craze

10 Will you let bots manage

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EVENT COVERAGE Hong Kong Business hails the most outstanding companies in 2018

REGULAR

07 Office supply runs out in 10 years 08 Retail landlords cash in

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fINANCIAL INSIGHT Hong Kong’s equity capital market set to raise $250b; debt market turns sour

46 Totting up the cost of our new toy 48 Fad comes to Soho, officially dies

12 Developers lure new buyers

with lower deposits and sweet hotel treats

Published Bi-monthly on the Second week of the Month by Charlton Media Group Pte Ltd, 19/F, Yat Chau Building, 2 HONG KONG BUSINESS | NOVEMBER 2018 262 Des Voeux Road Central, Hong Kong

For the latest business news from Hong Kong visit the website

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News from hongkongbusiness.hk Daily news from Hong Kong most read

COMMERCIAL PROPERTY

COMMERCIAL PROPERTY

45-year-old Excelsior Hotel soon to be an office building

University of Hong Kong injects $10m into Hangzhou space lab

Hong Kong ranks second best city for cross-border property capital

The Excelsior Hotel will shut down

by March 2019 as it faces conversion into a mixed-used commercial building, owner Mandarin Oriental Hotel Group revealed. They have agreed to convert the hotel into a mixed-used commercial building.

The University of Hong Kong is injecting $10m (US$1.28m) into the establishment of a new space research laboratory near Hangzhou in Zhejiang province in a move that marks deepening research collaboration with the Mainland.

Hong Kong nabbed the title as the second leading city for crossborder investment in Q2 after a series of back-to-back blockbuster transactions by Mainland investors boosted the SAR through the global rankings, said Cushman & Wakefield.

HR & EDUCATION

7 in 10 elderly lament Hong Kong’s insufficient product range Seven in 10 (71%) of elderly consumers lamented Hong Kong’s insufficient choice of goods and services for their demographic, even as their numbers continue to grow steadily, according to a survey by the Hong Kong Consumer Council. Insurance and travel were amongst the industries with poor satisfaction rates.

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HR & Education

HONG KONG BUSINESS | NOVEMBER 2018

MEDIA & MARKETING

Struggling TV station TVB cuts another 150 jobs in restructuring Hong Kong’s biggest television station TVB has fired another 150 staff members from its magazine arm, production facilities division, art subdivision and non-drama production in its attempt to bounce back into the black as part of its restructuring. The moves comes after a wave of layoffs that started in June with around 100 staff retrenched.

TRANSPORT & LOGISTICS

Hong Kong $33.7b border project pushed back to 2019 Started in 2013, the $33.7b Liantang-Heung Yuen Wai boundary control point project is located in the northeastern part of New Territories.

Around $25b has been set aside for the border crossing but was hit by cost overruns of about $8.7b in 2015, data from South China Morning Post show.

FIRST GLOBAL Financial Centre rankings

Whilst Hong Kong maintained its third spot in the Global Financial Centres Index behind top-ranked New York, which unseated London in 2018, it has significantly narrowed its gap with the leaders. Hong Kong also retained its crown as the most dominant financial centre in the Asia-Pacific region, edging ahead of Singapore (4th), Shanghai (5th), Tokyo (6th), Sydney (7th) and Beijing (8th), although the rivalry will likely remain heated.

“The long-term news is that Singapore, Hong Kong, and Shanghai will be over-and-under taking for a while before ratings settle, if ever. It is highly likely that an Asian centre will have the top slot very soon,” said Michael Mainelli, executive chairman at Z/Yen Group, which publishes the index by gathering quantitative measures as well as financial centre assessments from more than 2,400 respondents.

Closing the gap “Hong Kong, Singapore, and Shanghai have all continued to close the gap on the leaders, with Hong Kong now only three points behind London,” the report added. Amongst the five sub-indices, Hong Kong was ranked first in the human capital and infrastructure, and placed third in business environment, financial sector development, and reputational and general.

The report also cited the strong connectivity of Hong Kong, which helps support its position as a top global financial centre. “Financial centres thrive when they develop deep connections with other centres,” the report noted. Hong Kong was also assessed as one of the most stable centres in the rankings, which makes it less sensitive to changes in instrumental factors and have a lower variance of assessments. Respondents working in investment management also ranked Hong Kong as the top financial centre, whilst it trails behind London in the industry subcategories of banking and government.

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Alipay HK’s unmanned shop. Photo courtesy: Tofugear

Shopping inside Hong Kong’s unmanned shops

W

hen 38-year old Philip Wiggenraad heard that two unmanned shops are opening in Hong Kong in September, he immediately paid a visit to see the store concepts that have been creating a buzz and rapidly gaining ground in China.

Inside Alipay HK’s store in Olympian City in West Kowloon, there were no human staff in sight in the store. Instead, what greeted Philip and his colleagues was a two-step instruction: Have your faces scanned and snap the subsequently generated QR code with your smartphone.

Only then could shoppers start buying fashion items, settle payment, and even sip a cup of coffee brewed for them in between, entirely assisted by high-tech machines and robots.

Alipay HK spent the month testing its 4,000sqf unmanned shop.

Meanwhile, Four Seas Group, the operator of Okashi Land, also debuted an unmanned shop dedicated to selling a wide variety of snacks in a similar trial run in September. Like the Alipay HK store,

When stepping into the checkout area, the RFID technology is very fast and accurate and there is no need to hold the product against a reader.

it was equipped with a sophisticated Radio Frequency Identification system, which automatically identifies product tags and records a list of sales. Customers can verify the list of snacks they want to buy on a screen before paying through the QR code they scanned before entering the unmanned shop. Whilst the Okashiland store accepted only WeChat Pay services, the Alipay HK store featured its own payment application.

“The Okashi Land unstaffed store is very much a trial concept, which still requires plenty of staff to make it run smoothly. Whilst it is possible to check-in with WeChat, a member of staff then has to manually admit the customer into the store. There is a decent range of confectionery on sale, with RFID tags sticking out of the products.” said Wiggenraad.

“When stepping into the checkout area, the RFID technology is very fast and accurate and there is no need to hold the product against a reader. Payment via WeChat did take several attempts to register though.”

Wiggenraad noted.

Yhe interest in unmanned shops in Hong Kong is not surprising, as they projected it to be a global trend by 2020. “Indeed, it is quite conceivable that a number of unmanned 24-hour stores will see their appearance on High Streets across Europe at the end of the decade” JLL said. The same month Alipay and Okashi Land ran their unmanned shop trials, the island’s first unmanned warehouse center called RobEx also opened to the public. Located at the Science Park, the warehouse spans about 210 sqm and provides courier and selfservice storage services using big data to ensure smooth operations.

Okashi Land unmanned shop

FIRST Over the last 20 years, Grade A office stock has grown by 1.3 million sqft annually but net absorption has averaged at around 1.5 million sq ft per year, representing a shortfall of around 200,000 sq ft.

Office supply runs out in 10 years

I

f a recent report from real estate consultant JLL is anything to go by, Hong Kong only has 10 years before office space supply completely runs out in the land-starved city.

Grade A office space in Hong Kong has increasingly become reliant on government land sales (GLS) rather than redevelopment of privately-held land with estimates that the former could account for over 60% of Grade A office supply between 2018 and 2022 from a little over 30% in 2008 to 2017, said Denis Ma, head of research at JLL. He added that 100%

of Grade A offices set for completion in 2022 will come from GLS. This translates to around 20.1 million sq ft of potential office space that could be delivered from future GLS. “The Government needs to ramp up land supply for commercial office development if it is to ensure that Hong Kong continues to have room for businesses to grow and be competitive,” urged Joseph Tsang, managing director at JLL. With the assumption that demand for Hong Kong’s offices will remain heated in line with historical trends

of 2 million sqft take-up over the past 30 years, office supply will quickly run out as vacancy rates have been tightening over the past two decades.

Tight vacancy rates “The vacancy rate for the entire Grade A office market has fallen from 11.9% at the start of 1999 to just 4.2% at the end of August, whilst the vacancy rate in four of the city’s major office submarkets has fallen below 2%-1.5% in Central, 1.6% in Wanchai/Causeway Bay, 1.4% in Tsimshatsui and 1.6% in Hong Kong East,” the firm said.

Over the last 20 years, Grade A office stock has grown by 1.3 million sqft annually but net absorption has averaged at around 1.5 million sq ft per year, representing a shortfall of around 200,000 sq ft. In fact, office net absorption rate for the first half of the year has already broken the fullyear record from 2017, CBRE said.

Hong Kong office supply by development type

Source: JLL

The Chartist: Supply of Shopping Malls HIT 12-Year High AmidST Retail Recovery As the rebound in Hong Kong’s retail sector gains pace in 2018, the supply of shopping malls scheduled for completion by 2018 is expected to climb to its highest level since 2006, according to real estate consultant Savills. Developers are eager to cash in on the resurgence in consumption, with at least four shopping malls scheduled to open in 2019.

The K11 MUSEA in Tsim Sha Tsui scheduled to open in the third quarter of 2019 will likely account for half of the estimated new retail supply for that year, whilst three other projects will contribute the rest, including Swire Properties’ Citygate Outlets Extensions in Tung Chung spanning 345,000 sq. ft. Meanwhile, SHKP’s V Walk and Chinachem’s Nina Mall will likely contribute around 300,000 sq. ft. and 120,000 sq. ft., respectively.

New supply of shopping malls, 2008 – 2019E

Source: Savills Research & Consultancy

Savills prime street shop rental index, Q1/2008 – Q2/2018

Source: Savills Research & Consultancy

HONG KONG BUSINESS | NOVEMBER 2018

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FIRST faster payment system goes live

Hong Kong residents can now make and receive real-time payments across different banks and stored value facility (SVF) operators as the Faster Payment System (FPS) officially went online in September. Users can enjoy instant fund transfers in both Hong Kong dollar and renminbi through the use of their mobile number or email address, doing away with the usual two to three days of processing.

The public can use mobile apps of participating banks and SVFs to register their mobile phone number or email address with the system as an account proxy for receiving funds.

A new era of smart banking “I am pleased to witness the start of a new era for Hong Kong’s retail payment system. The launch of the FPS marks a key step forward in developing Hong Kong into a smart international financial centre,” finance secretary Paul Chan said in a statement during the launch.

The launch of the FPS is one of the seven initiatives outlined by the Hong Kong Monetary Authority last September to ease the city’s transition into a new era of Smart Banking.

This includes the authorisation of virtual banks, enhancing the fintech supervisory sandbox and formulating a policy framework on open API. The move aims to bring back the fading glory of the SAR’s banks who have been losing luster as they trail behind London and New York in the latest industry reading of the Global Financial Centres Index as rising tech upstarts like Shanghai and Beijing also pose a threat to its financial dominance.

“The domestic banks have a long way to go to compete with the likes of HSBC or Citibank from a technology standpoint. However, the Hong Kong regulators have responded to this by promoting and driving tech, RegTech, and FinTech,” said Sankar Krishnan, executive vice president, Banking and Capital Markets at Capgemini.

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HONG KONG BUSINESS | NOVEMBER 2018

Retail landlords cash in on bubble tea craze

W

hen HeyTea, a extremely popular bubble tea brand from mainland China, announced it was opening its first store in Hong Kong before 2018 ends, it signaled that the already fierce rivalry in the local bubble tea industry will not likely abate anytime soon. And for retail landlords, this presents an opportunity to sign up more high-revenuegenerating tenants.

One market watcher estimated that a bubble tea operator could rack up sales of up to $1,000 to $2,000 per sqft, compared to just $400 to $500 per sqft for Chinese restaurants. With their strong sales volume, shopping malls have been wooing them as tenants.

Bubble tea shops are estimated to be leasing around 100,000 sqft in Hong Kong, according to Maureen Fung Sauyim, executive director of Sun Hung Kai Properties (China). She reckoned takeup volumes will rise further amidst a growing number of tea brands from the Mainland and Taiwan hoping to cash in on the bubble tea frenzy.

“Many tea brands from Taiwan and mainland have not arrived yet. We are helping two new entrants looking for shops in Hong Kong. The sector is expanding at lightning speed,” said

Milktea craze hits Hong Kong

Kevin Lam, executive director and head of retail services for Hong Kong at Cushman & Wakefield.

There are 62 different brands of bubble tea with 282 shops in operation in Hong Kong as of end July, Helena Ma, senior director and head of retail services at Knight Frank said.

A bubble tea operator could rack up sales of up to $1,000 to $2,000 per square foot, compared to just $400 to $500 per square foot for Chinese restaurants.

Crazy for tea The trend has accelerated over the past year with popular Taiwanese bubble tea operators such as Xingfutang and Jenjutan recently opening their first stores in Hong Kong, and Mainland Chinese chain Heeretea opening more than 10 shops during the period.

Some are even establishing expansive flagship stores despite the islands’s sky-high retail rents, with HeyTea planning to open a 1,000-sq.ft. shop in anticipation of high demand. The operator is banking on its splashier store to draw in bubble tea fans who like to order flavorful drinks and share their experience on social media.

Mobile App Watch

Transport Department unveils travel information app Hong Kong’s Transport Department has launched HKeMobility, a new travel app that integrates HKeTransport, HKe Routing and eTraffic News.

It features a comprehensive search for public transport, walking, and driving.

It offers walking routes in Causeway Bay and Tsim Sha Tsui with options of barrier-free routes to suit the visually impaired and the mobility impaired. This feature will be progressively extended to other districts, and the department said that walking routes covering all districts would be available in two or three years. It also provides information such as stop locations and fare tables. It has an improved keyword search and also features an “Elderly Mode,” which uses larger fonts and displays concessionary fares. The app’s development cost roughly HK$600,000 (around S$104,000). As of writing, the app has a 3.5-star rating on the Google Playstore.

HK eMobility

FIRST

Will you let bots manage your millions?

U

p-and-coming technology entrants that offer wealth management services to Hong Kong’s mass affluent and ultra-rich are expected to snap 5-10% of assets under management (AuM) from incumbents like private banks by 2023, according to a report by the Private Wealth Management Association and KPMG. These includes robo-advisory companies or Wealthtech firms that have tapped on emerging technologies like AI to manage the wealth of Hong Kong’s ultra-rich clients.

“Hong Kong is becoming a hub for a number of Wealthtech companies that are either serving or partnering with existing players or going to market directly,” the report’s authors said. “This brings welcome innovation to the industry, provides opportunities for incumbents to partner and learn from new innovation and offers clients a broader range of options to manage their wealth.”

banking executives Alex Ypsilanti and Ross Milward, Quantifeed provides B2B roboadvisory services for banks, online brokers, and wealth managers including Cathay United Bank, whose parent firm, Cathay Financial Holdings, led the latest capital injection into the startup.

“We are bringing about wealthcare, a service aimed at helping everyone make the most of their savings to achieve their financial goals. Our mission is to enable financial institutions transform themselves into providers of this service on a large scale.

The additional funding allows us to fulfill this mission,” Ypsilanti said.

The fintech’s wide range of services include goal-based investment advice, analytics platform and sales and customer engagement tools. With a team of experienced quantitative analysts who monitor market activity, Quantifeed is also able to offer a library of portfolios across major global markets for asset allocation, Wealth management goes digital thematic investments and other trading One of the companies reaping the rewards of strategies. the popularity of wealthtech is Hong KongAnother wealthtech firm on the rise is based B2B robo-advisor Quantifeed. In 8 Securities, which offers a robo-advisory June Quantifeed has closed US$10m series service called Chloe and a mobile stock B funding round to accelerate its regional trading app that charges zero commission expansion plans and open a new office in called Tradeflix. Chloe first asks users a Singapore. number of questions to assess their risk Founded in 2013 by former investment appetite and investment goals before

Quantifeed team

generating a customised investment portfolio based on the data and the company’s machine learning technology.

In April, 8 Securities secured a US$25m investment from Nomura Asset Management. The startup is focusing on launching new digital wealth management services for millennials, with its current average customer age at under 30.

The stakes are high Wealthtech firms, along with external asset managers or non-bank wealth managers, are expected to cumulatively hold a 15% to 30% share of assets under management by 2023. This will likely prompt incumbents to adjust their business models in order to better defend segments that are most vulnerable to such digital disruption. Hong Kong has beat the commercial centers of New York, Tokyo and Los Angeles as it serves as home to the largest ultra-wealthy population in the world with the number of people with a net worth of over US$30m hitting 10,010 in 2017, according to a report from Wealth-X.

OFFICE WATCH

Shanghai-based Forchn unveils elegant new office Nestled in the heart of the CBD is Forchn’s stylish new international headquarters. Shanghaibased investment holding company Forchn Holdings has recently opened its doors in Hong Kong, through the establishment of Forchn International (HK) Ltd. “This 3000 sqf office suite opens to quite a nice view of the CBD and the ferris wheel which is a desired focal point in the area. In this compact yet comfortable space, we house a 200sqf reception area with a 320sqf and 120sqf meeting rooms adjacent to it,” says Lina Chan, spokesperson at Forchn.

The reception area features neutral colours and minimalistic elements to convey a sense of warm and cozy feeling to visitors. Meanwhile, the meeting room utilises a mix of select finishes, neutral colors of fabric and dark wood veneer creating a subtle yet elegant feeling. Staff workstations are allocated at both sides of the main hallway, with enclosed offices lined with glazed partitions framed in black.

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HONG KONG BUSINESS | NOVEMBER 2018

Reception area

Hallway

Boardroom

Meeting room

FIRST NUMBERS

the drive for the digitallyworkplace

Mantin Heights in Kowloon

Developers lure new buyers with lower deposits and sweet hotel treats

W

hen Hong Kong announced a new vacancy tax in June, residential developers responded by either making their properties more enticing to buy through a bevy of sweeter incentives in the form of massive discounts, travel packages and lower deposits. CK Asset Holdings, for one, has been offering high-speed rail holiday and travel packages with accommodation worth $35,700 when purchasing a four-bedroom unit at its recent development in west Hong Kong. Meanwhile, Kerry Properties has made it easier for buyers to move into their Mantin Heights unit in Kowloon by lowering the required deposit to 10%, according to a Bloomberg report.

Source: IDC Asia/Pacific Employee Sentiment Survey 2018, commissioned by Workday, IDC Asia/Pacific Digital Transformation Pulse Survey 2017, IDC FutureScape: Worldwide IT Industry 2018 Predictions – APEJ Implications

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HONG KONG BUSINESS | NOVEMBER 2018

of its units faster or risk taking on additional costs.

Other developers have reportedly taken the big discount route to woo buyers, with Paliburg Holdings and Regal International taking of as much as $10m from the selling price of one of their 12 unsold Yuen Long villas to $29.4m. “Under the new CK Asset tax, developers will adopt a more Holdings, cautious pricing strategy in new luxury for one, has launches to ensure all units are sold,” been offering JLL managing director Joseph Tsang. high-speed Another private developer owned rail holiday

by Kwok Kwei-wo and Tang Yuk-kwei and travel have also slashed 20% off the prices packages with for two units of their village houses accommodation in Yuen Long. “However, this trend when is likely to be more evident in the purchasing a top-end of the market since luxury four-bedroom properties typically take a longer unit period of time to sell.”

Vacancy tax bites developers “By ramping up their incentives, developers are hoping to boost interest Transactions over HK$50m for projects they are not confident in selling such as those with poor public transportation access,” said Patrick Wong, a property analyst at Bloomberg Intelligence.

The move comes after the government announced a vacancy tax on units that have not been occupied or rented out for more than six of the past 12 months at a rate roughly equal to 5% of the property value. This has put pressure on developers to dispose Source: JLL

startups

Klook bags US$200m in Series D

B

arely a year after its successful series C funding round, Klook Travel has once again convinced more investors to hop aboard its widely popular travel activities platform.

The four-year-old startup closed a US$200m series D funding round in August, with support from global investors including Sequioia Capital China and Goldman Sachs.

This brings Klook’s total financing to date to US$300m, making it the most-funded company in the tours and activities sector globally. Other investors in this round include Matrix Partners, Boyu Capital, Asiabased sovereign wealth fund TCV,

OurCrown, and some family offices.

“The funding and extensive experience from our new investors will let us to further solidify our merchant portfolio and provide travelers with even more activities and destinations to explore around the world,” says Ethan Lin, CEO and co-founder of Klook.

The company will open an office in the US this year and will also add more US and Europe-based curated activities and services onto the platform to fulfill an increasing demand from Asian travelers for diverse and unique in-destination experiences. At the same time, Klook will look to bring more US and European travelers to Asia, supporting the company’s long-term vision of serving travelers worldwide.

“The new funding will help us deepen our partnership with merchants through more technological solutions that bring new sources of customers and optimize operational efficiencies,” adds Erick Gnock Fah, COO and co-founder of Klook. Klook has been a pioneer in QR-code based e-voucher redemption, and its technology has been adopted by its partners including world-renowned attractions, mass railway transit, and other offline service operators.

Healthcare app CareVoice enters Hong Kong

Shanghai-based health insurance startup The CareVoice will soon offer its services in Hong Kong through an agreement with Inter Partner Assistance Hong Kong. CareVoice is a mobile cost and quality transparency tool that lists, rates, and recommends healthcare providers.

On the platform, people can find a comprehensive listing of hospitals and clinics, including their doctors, which have been rated and reviewed by a community of users.

CareVoice’s core product is a VIP membership solution for insurance members, which helps insured patients find and access high-quality medical care according to their needs and their

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HONG KONG BUSINESS | NOVEMBER 2018

health plans and ease the usage of their insurance benefits.

The partnership with Inter Partner Assistance Hong Kong will give The CareVoice a foothold into Hong Kong’s more mature health insurance market.

The two companies will jointly offer patients an integrated platform for mobile, web, and WeChat accounts.

They will also provide access to a voicebased virtual health assistant powered by AI, as well as an overview of their medical care coverage and benefits.

In January this year, the startup bagged $2m in early stage funding. The funding round was led by two Chinaand US-based VCs, Haitao Capital and SOSV, and involved local Chinese and Southeast Asian healthcare investors. In China, CareVoice is currently active in key cities such as Shanghai, Guangzhou, Shenzhen, Beijing, and Chengdu. The company has revealed that it is also planning to enter the Southeast Asian market within the upcoming months.

Fintech firm OneDegree bags HK$200m for pet insurance push

Online insurance startup OneDegree is looking to cash in on Hong Kong’s over half a million uninsured household pets. The fintech firm recently raised HK$200m in funding to finance its goal to plan to offer pet insurance.

OneDegree is part of the first batch of purely online insurers applying for a licence with the Insurance Authority. It plans to offer medical insurance to cover the 510,000 cats and dogs in Hong Kong.

The company will operate purely as an online tool, allowing owners to insure their pets using a mobile app.

OneDegree’s insurance platform cuts out the middleman by allowing consumers to purchase insurance products without having to consult an agent. The app automates claims processing, customer service, and policy management.

An untapped market Only about 2% to 3% of pets are insured in Hong Kong, a far cry from 42% in the United Kingdom and 10% in Japan. On the other hand, the global population of dogs and cats has grown by 60% over the past decade, OneDegree noted.

OneDegree will use its fresh funds to improve its technology platform. The funding will also serve as risk capital once it launches its insurance business. It declined to name its investors, but the funds are believed to come from both institutional investors and family offices.

OneDegree’s new shareholders are still being vetted by the Insurance Authority. It is amongst the startups that participated in Cyberport, the Hong Kong government’s startup incubato where it joins five other startups that have already raised over US$10m in funding.

“As a key driver of digital technology development in Hong Kong, we are definitely excited to see local fintech startups like OneDegree successfully securing recognition from renowned institutional investors and attracting sizable funding that will enable faster growth,” says Cyberport chairman George Lam. Half of OneDegree’s funding was pledged by investors pending regulatory approval through the Insurance Authority’s new fast-track licensing program for onlineonly insurers. The Insurance Authority’s online-only fast track licensing proposal has proven to be widely popular amongst insurers, with over 40 companies expressing interest in the programme

FINANCIAL INSIGHT: IPOS & EQUITIES

Deal #1: Chinese smartphone maker Xiaomi’s lacklustre IPO raised $4.7b in late June.

Deal #2: Chinese tech giant Tencent’s $5b bonds is the company’s largest-ever bond sale and the largest by any Chinese tech company.

Hong Kong’s equity capital market set to raise $250b; debt market turns sour Whilst the equity capital market is in full swing, the debt capital market landscape has been relatively quiet.

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ong Kong’s equity capital market looks on track to have a record-breaking year in 2018 and once again become the world’s largest venue for initial public offerings (IPOs) with expected total fundraisings between $200b to $250b. Eddie Wong, partner of capital markets for PwC Hong Kong, noted that the new listing regulations allowing biotech firms to list in the local bourse have helped in sustaining the healthy growth of the territory’s equity capital market.

“The market response regarding listing opportunities has been very encouraging following the implementation of the new listing regulations for Hong Kong’s IPO market in April 2018,” he said.

The big-ticket list includes are Chinese drug developers, Suzhou Kintor Pharmaceuticals and Frontier Biotechnologies,.Kintor, which develops treatments for cancer and cardiovascular diseases, earlier delisted from China’s National Equities Exchange and Quotation in June. Frontier, on the other hand, is a clinical-stage drug developer that focuses on HIV treatments.

The two companies are said to be planning IPOs that could raise roughly US$300m each, as they join about half a dozen such firms taking advantage of sweeping reforms to Hong Kong’s listing regime. A slew of companies from Amazon-backed Grail to Shanghai-based Hua Medicine

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New listing regulations allowing biotech firms to list in the local bourse have helped in sustaining the healthy growth of the territory’s equity capital market.

are already lining up or mulling a local listing, in a win for the Hong Kong bourse which seeks to compete against New York and Nasdaq in global IPO rankings.

On the losing end Meanwhile, Hong Kong’s debt capital market is another story. Data from Wind showed that the issuance of dim sum bonds is on a continuous decline in recent years.

Total issuance of dim sum or yuan-denominated bonds in Hong Kong slid from US$6.8b in the second quarter of 2016 to US$2.68 in the second quarter of 2017, falling further to $1.72b in the third quarter 2017 before rebounding slightly to $2.98b in the fourth quarter of 2017, the highest quarterly issuance in a year, according to Thomson Reuters data. In 2018, the amount of Panda bonds that have been issued is also slightly above that of dim sum bonds, coming in at $3.34b compared with $2.9b as of March.

“Since the beginning of this year, several macroeconomic factors have caused a downturn in the market sentiments for Chinese bonds: Sino-US trade war tensions, US tightening monetary policy (i.e. rising interest rates from the Fed Reserve), a slowdown of the Chinese economic and the devaluation of the yuan,” noted Gordon Ng, head of corporate finance, Enoch Wong and Lee Man

FINANCIAL INSIGHT: IPOS & EQUITIES Chiu, corporate finance partners at Denton’s Hong Kong.

“This downturn has been further compounded by microeconomic factors such as rising defaults from Chinese corporate issuers and restrictions placed by the National Development and Reform Commission on overseas financing on Chinese property companies, which account a majority of high-yield deals,” they said.

This is significant since an overwhelming majority of the bond issuances in Hong Kong and Asia have been comprised of Chinese-domiciled issuers. Most of the deals for Hong Kong originate from issuers in the following industries, according to the Dentons official: financial institutions, real estate, conglomerates—which is a mixture of IT, healthcare, pharmaceuticals, infrastructure, finance, securities, tourism, and property development—and technology companies.

James Fong, partner at Bird & Bird Hong Kong, echoed this sentiment, noting that Hong Kong’s debt capital market, in terms of funds raised, have experienced a slight downturn in 2018, although the slump in total funds raised is relatively minor compared to the major slumps in Europe and the United States. But he quickly noted that Hong Kong’s debt capital market will likely pick up in the next half year as the pipeline for bond issuances for the rest of 2018 remains strong.

Lacklustre mega IPOs Hong Kong’s IPO market continued to be active in 2018 with small and medium-sized deals dominating the landscape, whilst new economy players will continue to boost the territory’s upbeat outlook for equity capital market for the rest of the year.

Some of the most notable deals for Hong Kong’s equity capital market, include the listing of some high-profile names in the technology, media, and telecom (TMT) sector, including Xiaomi Corporation and China Tower Corporation Limited. However, some industry experts and observers have been billing the Xiaomi IPO as a deal that is not exactly living up to expectations on the back of the inconsistency with the company’s valuations vis-à-vis its unique business model. Keith Pogson, senior financial services partner for EY Hong Kong, acknowledged that whilst there have been some uncertainties, the whole situation shouldn’t be looked at as a negative deal so soon, and instead be looked at in the proper context.

“I think we have to look at this in context as Xiaomi was coming from a pretty strong multiple and valuation.

It has gone through a series of private funding rounds, so obviously there was a lot of speculation in the market as to how the numbers would go,” he said, adding that there are a number of factors that need to be considered: one is that people should look at the valuations in a more realistic way, and second is to consider what’s really going on in the global market with the ongoing trade discussions between the US and China. “It’s also about timing in the market.”

Another notable deal is the listing of the first biotech company to take advantage of the new listing regime, Hangzhou-based pharmaceutical company Ascletis Pharma Inc—something that experts are seeing is the first

Eddie Wong

Gordon Ng

Enoch Wong

Lee Man Chiu

James Fong

of many for biotech companies listing in the Hong Kong equity capital market. The firm is aiming to raise as much as US$457m in its IPO that has already lured Singapore sovereign wealth fund GIC as cornerstone investor.

Other noteworthy transactions include the listing of Ping An Healthcare and Technology Ltd from the healthcare sector; Jiangxi Bank Co. Ltd and Bank of Gansu Co. Ltd from the financial services sector; and Zhenro Properties Group Ltd and A-Living Services Co. Ltd from the real estate sector.

Notable debt deals For Hong Kong’s debt capital market, Fong noted that real estate/property sector as well as the finance sector continued to dominate Hong Kong’s debt capital market in 2018. One notable deal, according to the Bird & Bird official is the $6.4b senior bond offering in six tranches by China National Chemical Corp (ChemChina) in March 2018, with the bond’s proceeds offering used to refinance debt incurred by ChemChina for its $43b takeover of Swiss seed maker Syngentia in 2017.

“This deal was notable for its large size, the backing of a large syndicate group of 18 firms, and the relatively high yields offered in the backdrop of the relatively quiet market compared to 2017,” he said. These firms include Bank of America Merrill Lynch, Barclays, BNP Paribas, BOC International, China Citic Bank International, Commerzbank, Crédit Agricole, Credit Suisse, First Abu Dhabi Bank, HSBC, Industrial Bank Co Hong Kong branch, Morgan Stanley, MUFG, Natixis, Rabobank, Santander, Société Générale, and Unicredit.

Other notable deals, Ng noted, is the issuance by Chinese tech giant Tencent in January 2018 of about $5b of bonds that mature in 5, 10, and 20 years, which is the company’s largest-ever bond sale and the largest by any Chinese tech company.

“Tencent’s bond issuance marked the latest in a string of Chinese technology companies issuing more debt as their market caps swelled,” the Dentons official explained.

“Investor demand for its bonds was so strong that it managed to lower the spread for its bonds over the US Treasury Yields and LIBOR, as applicable, as compared to its issuance of bonds three years ago.”

In terms of outlook, analysis from KPMG noted

2018 H1: Top 5 sectors - by numbers of IPOs

Source: KPMG

HONG KONG BUSINESS | NOVEMBER 2018

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FINANCIAL INSIGHT: IPOS & EQUITIES that the TMT sector looks set to boost the Hong Kong IPO market along with the expected surge of biotech companies in the local bourse.“The implementation of the new listing rules for emerging and innovative companies has driven market sentiment and attracted the attention of companies, which were previously seeking US listings,” said Maggie Lee, head of capital markets development group of KPMG Hong Kong.

“We anticipate at least 10 biotech companies to apply for Hong Kong IPOs by the year-end. In addition, a number of TMT firms are also eyeing large Hong Kong listings.”

Surge in biotechs Some of the expected biotech firms, considered as new economy companies, that have already filed applications for listing in the Hong Kong equity capital markets include US-based Stealth BioTherapeutics Inc as well as China’s Hua Medicine Ltd and AOBiome Therapeutics Inc. Fong noted that given the impending mega-sized technology listing after the introduction of the new listing regime, “Hong Kong’s equity capital market is in prime position to nab a place in the top three in terms of IPO proceeds.”

This is echoed by Benson Wong, entrepreneur group leader of PwC Hong Kong, when he said that Hong Kong’s IPO market is in a unique position to be able to offer investors worldwide access to one of the fastest growing markets in the world—China.

“We welcome the recent agreement between HKEX and China’s National Equity Exchange and Quotations (NEEQ), which opens the door for NEEQ-listed firms to float in Hong Kong under a dual-listing model,” he said, adding that this will help Hong Kong’s local bourse to attract more Chinese tech and innovative companies to list, whilst promoting mutual access to the financial markets of mainland China and Hong Kong.

Credit conditions For the rest of 2018, the territory’s debt capital looks set to pick up as a strong pipeline for bond issuances will most likely remain for the rest of 2018 given China’s escalated deleveraging efforts onshore and Chinese issuers’ continuous needs for offshore funding, although this still depends on prevailing market conditions.

“Credit conditions in the onshore Chinese debt capital market will have a huge impact on the Hong Kong debt capital market,” Fong said. “If credit conditions loosen for issuers onshore, it will the pressure off the dollar market.

Otherwise, more default cases may surface in relation to Chinese issuers, which may further dampen investors’ appetites in the Hong Kong bond market.”

In terms of trends, there is an expected increase on issuances by Chinese technology companies whilst bond issuances by Chinese property companies in Hong Kong is projected to decline over macro and microeconomic factors, according to Ng. As for the outlook, however, Ng has maintained a more restrained outlook for Hong Kong’s debt capital market given inherent domestic and global economic uncertainties at the time being.

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Singapore view

Equities up, bond markets down

Keith Pogson

Maggie Lee

Benson Wong

Singapore’s equity capital market (ECM) has been abuzz with activity with companies raising US$3.8b in Q3 2018, according to Thomson Reuters. The expansion in proceeds represents double-digit growth of 10.4% that are also the highest since 2016. This could be attributed to a robust quarterly ECM performance in Q2 which hauled US$2.34b but lost some of its momentum in the coming quarter.

“The larger equity deals this year have been mainly by the real estate investment trusts such as Mapletree Logistics Trusts and Manulife US REIT, reflecting that investors in the equity capital market remain yield driven,” said Edmund Leong, head of group investment banking at United Overseas Bank (UOB), although he noted that recent global developments in trade have led to challenging market conditions and continued concerns around emerging markets. “This contributed to the subdued post-listing performance for new IPOs this year, with only two out of 11 trading above their IPO price.”

Decline in debt deals Meanwhile, Singapore’s bond issuance in Q3 2018 saw a decline, with primary bond offerings from Singaporedomiciled issuers reaching US$12.3b down by 7.1%, according to data from Thomson Reuters. Total bond proceeds by the end of Q3, saw a massive 73% rebound at S$8.8b from the dismal show in the April-to-June quarter at S$2.2b. In September alone, S$3.7b in deals were recorded, mainly from banks and government offices such as the Housing Development Board and the Land Transportation Authority. Bank perpetuals made a comeback in Q3. OCBC, DBS and HSBC issued perpetuals which were lapped up by investors. Investment-grade bond offerings from Singaporean companies, on the other hand, slowed down, raising $9.5b, which is a 21.3% decrease in proceeds and a 43.7% decline in the number of investment-grade bond issuance.

In terms of sectors, financials have captured 73% of the share of Singapore’s bond market and raised $10.5b, which is an 18.1% increase in proceeds compared to the same period last year. The same sector also got 72.7% of the share in total bond proceeds issued by Singaporean borrowers. Luke Pais, partner for EY Singapore and ASEAN M&A leader for Ernst & Young Solutions LLP, noted that both debt and equity markets in the city-state have so far been stable for the first half of 2018, but prospect for the rest of the year for both markets will be mixed.

Singapore ECM by Issue Type

Source: http://dmi.thomsonreuters.com/

C

M

Y

CM

MY

CY

CMY

K

economy watch lead to falling incomes and rising unemployment.

“Monthly repayments could also rise with interest rates and the debtincome ratio at the loan’s inception would mask the risk of repayment difficulty or even default,” said Pang.

“Though we don’t expect a housing market crash now, it is increasingly possible in one to two years’ time when the job market deteriorates from a trade war.”

Rising interest rates crank up Hong Kong’s economic risks A housing market crash will be increasingly possible in one to two years’ time when the job market deteriorates, according to analysts.

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ising interest rates may weigh heavily on Hong Kong’s economic outlook, as analysts note that it could heighten the risk of an asset price correction, dampen business investment and put pressure on the housing market through higher repayments. “Due to the dollar peg of the Hong Kong dollar, the monetary policy normalisation of the Fed and the interest rate differentials are going to put pressure on the Hong Kong dollar,” said Alicia GarciaHerrero, chief economist for Asia Pacific at Natixis.

“This raises questions on the correction in asset prices, such as the equities and housing, but the impact on the latter may be more limited due to the lack of supply from the government,” she added, notwithstanding the escalated U.S.China trade row that has dampened business sentiment with potentially negative consequence in investment.

Garcia-Herrero said Hong Kong’s GDP growth is expanding quicker than expectations due to strong consumption underpinned by a positive wealth effect in asset prices and record low unemployment

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Hong Kong’s GDP growth in the second quarter disappointed at 3.5% yoy.

rate. Financial services continue to perform well, she said, and noted a pick-up in retail sales due to solid domestic consumption and inbound tourism. However, she warned that the real estate sectors will face a tougher ride amidst a higher rate environment in the future.

Iris Pang, economist for Greater China at ING, said rising interest rates pose increased risk not only in the business sector, but also in the housing sector that has long been characterised by the low interest environment. She noted that the regulatory maximum debt-income ratio is 50% but rising interest rates and a weaker economy could

Trade war woes Hong Kong’s GDP growth in the second quarter disappointed at 3.5% yoy, with weak investment growth at 0.4% that’s suggested high house prices have deterred further real estate development. She warned that future growth and employment could be deteriorate amidst the trade war, as over half of trade in Hong Kong is related to Mainland China.

“These workers face the possibility of lower salaries or even losing their jobs. And while the overall labor market is currently solid, with unemployment at 2.8%, employees in this sector could turn to low skilled work, which would put at risk the salary trend of low-income labor,” said Pang. “This, in turn, could reduce consumption demand, which has been the main growth driver of the economy.”

The good news for Hong Kong is that it has a significant fiscal surplus, said Pang, at 7.05% of GDP in the first quarter of 2018. “History tells us that the government could use this surplus to boost the economy during bad times. We think this time will be no different.” She foresees government measures such as tax cuts on salary earners and corporates, as well as cash handouts to residents.

Hong Kong exports to selected countries (YoY)

Source: Bloomberg, Natixis

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cover story

Staying in the OPod would only cost renters as little as HK$3,000 per month.

Why property ownership is a pipe dream Housing prices are not only at record high levels, putting the city consistently on top as the least affordable globally. Yet prices of mass residential housing climbed a further 8.6% in the first half of 2018.

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ill you live inside an old drainage pipe? Hong Kong’s expensive housing market has bred an unconventional low-cost housing alternative.

Constructed from readily available 8-feet diameter concrete pipes, the OPod is tiny at 100 sqft but it can pack in most of living essentials, including a couch, a bed, a desk, some storage for clothes and other items, a kitchenette, and even a shower. A smart layout and use of space-saving furniture houses all of these amenities inside the OPod, making it comfortable for possibly even up to two dwellers.

When James Law came up with the concept for OPod Tube House, he had young Hong Kongers who are facing soaring rents firmly in mind. Staying in the OPod would only cost renters as little as HK$3,000 per month.

“Micro flats are the by-product of the immensely high costs of living in Hong Kong. The demand for them is really a result of people not able to afford more sizeable homes,” said Law, although some analysts believe alternative options such as co-living spaces could be more feasible in the world’s least affordable housing market.

A year after OPod was brought to life, Hong Kong property prices and rents remain at record high levels, and industry observers say a pullback on either front is unlikely even as recent cooling measures are set to weigh on residential demand.

David Ji, director, head of research & consultancy, 22

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Fusion Foundation, a startup building an “inclusive cryptofinancial platform,” raised US$110m.

Greater China, Hong Kong at Knight Frank said that despite uncertainties in the residential market, the supply shortage and price growth should persist although at a more cautious pace, forecasting home prices to rise 10% to 13% and office rents to climb at a relatively slower 5% at the end of 2018.

“Today housing prices are not only at record high levels but the city is ranked as the least affordable city, globally.

Yet prices of mass residential housing climbed a further 8.6% in the first half of 2018 and sell through rates have been strong,” said Denis Ma, head of research at JLL in Hong Kong.

Ma reckoned policy measures, spanning from the introduction of higher taxes and lower loan-to-value to the rollout of the 15% Double Stamp Duty, have also inadvertently led developers to build ever smaller units and other properties they believe can be digested by the market.

About 3,300 new nano flats — units with a saleable floor area of 200 sq ft or less — will be finished between 2018 and 2020, up 35% from the previous three-year period, according to the JLL Residential Sales Market Monitor.

The new supply of nano flats accounts for over 4% of the total housing supply over the next three years. Notable upcoming developments with nano flats include ‘Upper East’ in Hunghom with about 450 flats and ‘T Plus’ in Tuen Mun with about 280 flats.

cover story “The figures not only show developers building more nano flats, but also smaller flats,” JLL noted, citing how 64 of the 68 flats at ‘The Unit’, a new serviced apartment project in Happy Valley developed by Emperor Group, are nano flats with a saleable floor area as small as 91sqft.

“Despite their small size and eye-popping rents, which can be as high as $124 per sqft per month, nearly all flats were leased within a few months of being made available, reflecting the general acceptance of nano flats by users in the market,” JLL said.

“The popularity of nano flats has seen supply skyrocket in recent years with construction spreading from the city’s urban areas to more decentralised regions,” said Cathie Chung, National Director of Research at JLL. “And with the introduction of the new vacancy tax announced at the end of June, we expect this trend to continue as developers build more affordable housing units,” she added.

JLL noted that a new upcoming development at Area 1a/1b in Discovery Bay will push the limits on how small nano flats can go. The smallest units at the project have a saleable floor area of less than 90 sq ft.

The strong buying appeal of nano flats stems from the relatively more attractive lump sums involved in the purchase, said Henry Mok, Regional Director of Capital Market at JLL. “With the growth in salaries lagging home prices, developers are now adjusting the sizes of flats built to maintain smaller lump sums that can be absorbed by buyers.”

Upswing in shared spaces Aside from smaller units, Ma noted that one of the more interesting new trends in the Hong Kong market that may make an immediate difference is the emergence of co-living schemes. Co-living spaces cost US$600/bed (HK$4700) to rent per month and the average facility size is at around 190 beds as average facility size, based on JLL’s compilation of news articles and websites of co-living hub operators.

One such example is Bibliotheque, a 166-bed project developed by Synergy Group.

“What we offer is an atmosphere for them to get to know each other,” said Joey Hui of Synergy Group. “We notice that part of the application, the residents say they want to meet some people or learn new skills from other residents living in the building.”

Smaller units, bigger demand

Source: JLL

Denis Ma

Vacancy tax Henry Mok

Simon Smith

Stephanie Lau

Will the the new vacancy tax make a dent in prices?

In June, the Hong Kong government announced a plan to impose a new tax on newly built flats that remain unoccupied for six months in any year at a rate of 200% of the property’s annual rental value. The measure is intended to help ease the tight housing supply and soaring prices in Hong Kong by freeing up units that have been completed but remain unsold.

The tax will likely have a mild cooling effect on residential property prices since developers will be incentivised to accelerate project launches and employe more competitive pricing strategies, said Lau.“The initiative will have a moderate but manageable impact on our rated Hong Kong developers because most of them have either sufficient liquidity to absorb the proposed tax, or have a sufficient profit cushion to absorb discounts needed to clear inventory,” she said.

Moody’s cited government statistics which showed the number of unsold first-hand private residential units in completed projects has risen from around 4,000 units at the end of March 2013 to 9,000 units at the end of March 2018.“With the tax estimated at around 5%, its effectiveness would depend on whether developers believe property prices would continue to grow at 5% or more a year,” said Lau. Lau reckoned that if residential prices grow at more than 5%, the tax could be easily passed on to home buyers. However, Moody’s expects residential market sales will be dampened by increasing capital and stock market uncertainty, which may lead developers to accelerate the pace of their project launches with less aggressive pricing. This will end up putting pressure on developers that have lower profit margins or weaker liquidity.

“Overall, we do not expect a material impact on Hong Kong’s physical market because of a generally low overall private residential vacancy rate of 3.7% in Hong Kong at the end of 2017, and a relatively small level of inventory units held by most developers relative to their annual sales,” said Lau. Ma reckoned the vacancy tax and the requirement to offer at least 20% of the total units in a project per batch launched will push developers to adopt a more conservative pricing strategy during sales, which has already been seen in recent launches. “The new tax is likely to have a bigger impact on the luxury segment of the market where properties usually take a longer period of time to sell,” he said.

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cover story Most notable transactions

Source: JLL

Synergy Group expects increased demand for co-living spaces in the coming years, and the developer is now looking for other properties, particularly old tenement buildings in the downtown area with low utilisation rates, that they can turn into their next projects.

“By providing a common space for residents to prepare meals and socialise, co-living operators are able to reduce rooms sizes and increase resident densities. With more residents, they are then able to offer lower rentals,” he said. “Right now, most of these schemes revolve around affordable housing but it is the aim of operators to be able to transform this into a lifestyle, especially for the young.”

Meanwhile, Ma had a less sanguine view of the OPod, arguing that whilst such unique ideas that have been proposed to solve the city’s housing problems are conceptually attractive, “the reality is that they would be difficult to implement owing to issues around building, planning and land use regulations.”

Simon Smith, head of research and consultancy, Savills Hong Kong said technology has helped a hand in transforming the functions in the Hong Kong property sector, resulting in key trends such as co-living and coworking, as well as mixed use logistics and experiencedriven retail.

Co-working, in particular, has gained significant traction in the office market on the back of the high cost of renting office space. The number of co-working operators setting up in the city has exploded, according to Ma, led early on by the U.S.-based co-working giant WeWork. However, in the past 12 months, he noted a crush of mainland China operators, including Ucommune, Atlas and KR Space, launching in the island. Traditional service office operators have also been expanding into the sector.

Bye-bye Central With office rents soaring to new highs, an increasing number of multinational corporations have also been pushed to decentralise their offices, observed Ma. “For the leasing market, the biggest challenges for occupiers has been securing affordable office space,” he said. “With mainland China corporates dominating the leasing market in Central, vacancy rates have been anchored below 2% whilst rents have soared to record high levels.”

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Key trends shaping the sector include Hong Kong venture capital firms also getting in on the ICO game.

Ma noted that in the legal sector, which has traditionally been a stalwart industry in the Central office market, a growing number of firms have moved out over the past 24 months, mostly to Hong Kong East, which offers new supply and slightly higher vacancy.

“Whilst tight vacancies and limited new supply will support Grade-A office rents, we expect areas like Central’s rental growth will moderate from a high base because of increasing cost consciousness of multinational corporation tenants,” said Stephanie Lau, vice presidentsenior analyst at Moody’s Investors Service.

“As such, we expect competition to increase for landlords in Central and other Hong Kong island locations amid a gradual migration trend of legal and financial institutions to decentralised locations, such as the eastern part of Hong Kong Island,” Lau added, expecting overall office rental growth of Moody’s-rated developers to moderate to 0%-5% in the next 12-18 months, lower than the overall office rental growth of 5.4% year over year at the end of December 2017.

Ma said there will be little incentive for landlords to soften on rents, given that vacancy rates on Hong Kong Island are currently below 2% and new supply have been largely pre-leased in the next 18 months.

However, Ji argued that there is not much room for decentralising on Hong Kong Island. “So even if they want to leave Central to other parts of Hong Kong Island, you’re still facing a shortage of supply.” Overall, Ji said the office market is still “doing very well”, with rents going up in the single digits at 5% on average. “Considering this is the most expensive office market in the world, 5% rental growth year over year is actually quite fast,” he noted, whilst flagging that investment yield on the office market will be “pretty low” even as prices and rentals continue to rise.

In terms of recent deals, Smith said one of the most notable ones in the office market was CK Asset Holdings sale of 75% of The Center for $40.2b at $32,951 psf in November 2017. “This was a record deal for an iconic Grade A office building in Central,” he reckoned, adding that buyers are local veteran investors rather than mainland Chinese companies who are traditionally active in such en-bloc deals. “Some of the buyers sold their shares for over $50,000 psf, representing a gain of 50%

Most notable transactions

Source: JLL

deals

Twelve-month outlook

Notable property deals in 2018

Source: JLL

within a year.”

Over at the Hong Kong retail market, analysts reckoned a shift in customer buying habits amidst the recovery in tourist numbers. Whilst mainland Chinese tourists are returning to visit the island, their spending is now more focused on medicine and health products as well as F&B and mid-priced goods, according to Ji, which supports retail rents in many of the major districts. “The retail market is actually doing pretty well at the moment, although it cannot be compared to the heydays when everybody was buying lots of watches and jewellery. But this so-called ‘new normal’ is much healthier than the previous craze for luxury.”

Analysts reckoned the completion of the Hong KongZhuhai-Macao Bridge and the new Express Rail Link between Hong Kong-Shenzhen-Guangzhou will help further buoy inbound tourism and lend support to the retail sector. “After enduring a near 4-year long slump, the sector’s property market appears to have turned the corner, with high street shop rents rising in the second quarter 2018 for the first time the middle of 2014,” said Ma. Ma noted that improvements in the retail property market have largely mirrored the recovery of key demand drivers for the sector, including inbound tourism, especially visitors from mainland China, and stronger retail sales.

However, he said a V-shaped recovery will not likely be in the cards despite what recent data in inbound tourism and retail sales suggest. “Rather we expect an L-shaped recovery ahead, largely because much of the leasing demand that is driving the market continues to be from F&B and costconscious retailer groups who are unable to push rents up at the margins.”

Lau expects overall shopping mall rental rates of Moody’s-rated mall operators to rise 5% to 10% in the next 12 to 18 months, which will be reflected in their lease renewals. “This trend will track the overall Hong Kong retail sales recovery seen since the fourth quarter of 2017.”

“Throughout the retail slump, what became apparent was that neighbourhood malls and retail assets that were more focused on the domestic shopper fared better,” said Ma. “As a result, investors have been focusing primarily on shopping podiums and centres in more suburban locations rather than assets in traditional core retailing precincts such as Causeway Bay and Tsim Sha Tsui.”

Key trends shaping the sector include Hong Kong venture capital firms also getting in on the ICO game.

Overall, Ma reckoned investors remain optimistic on the long-term outlook for Hong Kong’s property market despite increasing tail risks, especially those that believe that the recent influx of mainland Chinese demand is only the start of a secular trend spurred on by Beijing’s goingout policies. “For investors, the influx of investment from mainland China has seen capital values soar to record high levels across the market and led to a convergence in yields.

Capital values have also been boosted by strong results in the government land sales,” said Ma, citing the sale of the former Murray Road Multi-storey Car Park on the fringes of the Central office market for $23.3b or $50,065 psf in May 2017, nearly 40% higher than the prevailing average for the Central Grade A office market at the time.

Ji, however, noted a slight shift in the investor landscape in 2018, with mainland Chinese investorsfailing to find adequate takeover targets apart from smaller investments, which will likely result in a decline in their total investment volume in 2018. “Everybody’s still in the market. But the deals are more or less completed by Hong Kong local investors rather than mainland Chinese investors,” he said.

Henderson Land Development, a property firm owned by one of wealthiest families in Hong Kong, bought the government’s Murray Road commercial plot in Central for a record $23.28b, beating mainland Chinese developers.

Another notable deal in the past 12 months was Link REIT’s sale of a portfolio of shopping malls totaling 2.2 million sqft. for $23b to a consortium of investors led by the private equity fund Gaw Capital Partners.

Ma further noted that the Hong Kong market has witnessed a string of record-breaking transactions over the past 12 months, with some strata-titled office units have sold well above $50,000 psf. “The challenge for investors will be whether they can continue to push rents to offset rising borrowing costs, especially with the outlook on demand less certain today compared to 6-months earlier,” he said.

Hottest locations for investment Some of the hottest locations for Hong Kong property buying and investment lies in West Kowloon for residential, Wong Chuk Hang and Cheung Sha Wan / Lai Chi Kok for office and industrial, and Tseung Kwan O for retail, according to Ma. Looking forward in 2019, Ma reckoned investors should watch out for areas that will see a surge in new supply over the next few years such as Tseung Kwan O, Yueng Long, Tuen Mun, Tai Po and Ma On Shan. He said these will likely provide buyers more room for negotiation, especially if developers price new units to sell. He added that the new vacancy tax may also open up some opportunities to negotiate in the luxury segment, especially in the New Territories, where shifting rental markets are thin.

For Smith, top buying and investment locations include Kai Tak for residential, Tuen Mun for industrial and commercial, Grade B offices in fringe locations, and New Territories and Jordan for retail. Home buyers in 2019 can also look forward to Kai Tak as the Shatin to Central Link MTR is scheduled to open in 2019, although he said there is a fair chance it will be delayed. LOHAS Park should be of keen interest to home buyers as well, with one of the four sites launching in August and further launches in 2019.

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REAL ESTATE INSIGHT: Industrial Property

Initial design of Alibaba’s hub. Photo courtesy: Alibaba

E-commerce boom fuels warehouse wars Logistics players are aggressively snapping up space, which may force other tenants to relocate to the Mainland as costs rise and leasing opportunities vanish.

W

hen Alibaba’s logistics affiliate snapped up a massive industrial site in Kwo Lo Wan in June, it proved that e-commerce players are the new kings of Hong Kong’s industrial property scene. The site boasts 4 million sqft of strategic logistics space, and a consortium led by Alibaba’s Cainiao Network will splurge $12b to turn it into a state-of-the-art logistics centre.

“E-commerce and data centres have been the two hottest topics in the industrial and warehouse market recently,” says Simon Smith, head of research and consultancy at Savills Hong Kong. “The increasing demand for faster shipment of larger volumes of internetSelected leasing transactions in Q2 2018

Source: CBRE Research, Q2 2018

26

HONG KONG BUSINESS | NOVEMBER 2018

Leasing momentum will continue to be boosted by stronger tech-related demand.

related trade means newer and larger logistics centres with more automation and robotics are in high demand.”

“This year the industrial sector is characterised by three factors – lack of new supply, tech-driven logistics, and flight-to-quality relocations as a result of building conversion or redevelopment,” says Samuel Lai, senior director for advisory & transaction services - industrial and logistics at CBRE Hong Kong.

The industrial property sector will also be heavily influenced by the completion of new infrastructure projects. The Guangzhou-Shenzhen-Hong Kong Express Rail Link is set to open in September, shortening the travel distance amongst these three major cities in the Greater Bay Area. The Hong Kong-Zhuhai-Macao Bridge and the Liantang/Heung Yuen Wai Boundary Control Point, both of which will be up and running by end this year, will create further demand for logistics facilities in Hong Kong, Lai notes.

Tech-driven demand Leasing momentum will continue to be boosted by stronger tech-related demand. In the second quarter alone, an electronic goods e-marketplace leased 100,000 sq. ft. in Tuen Mun to support business growth. In Shatin, meanwhile, two data centre operators committed to a atotal of 344,000sqft. of space in two industrial buildings, which they plan to convert into data centres for expansion.

REAL ESTATE INSIGHT: Industrial Property Rental index

Source: CBRE Research, Q2 2018

“The increasing popularity of internet shopping, cloud services and blockchain technology all translate into high demand for cyber-storage space, and thus higher demand for high-tier, well managed data centres,” says Smith.

CBRE’s Lai adds that multi-national, mainland Chinese and local companies running businesses related to technology and innovation, e-commerce as well as smart solutions are active in expanding and settling in Hong Kong. “The upside is that technology is rising as a demand driver. They fuel the market and energize the sector,” he shares.

However, the rising demand from tech players will only exacerbate Hong Kong’s already dire industrial space shortage. “New transport infrastructure, along with the growing demand arising from e-commerce and from non-traditional industrial users such as mini-storage and data centre operators will likely underline demand for warehouses in Hong Kong over the medium-to-longer term,” says Dennis Ma, head of research at JLL Hong Kong. “Supply, on the other hand, remains constrained with almost all new prime warehouses built over the past 10 years arising from Government land sales. Moreover, industrial stock in general, continues to be shrinking as more industrial areas are rezoned for non-industrial use,” he warns.

“Rising demand from tech firms makes the supply issue even more eminent and prominent. To support the market growth, adding more industrial supply should be the top priority for policy stakeholders,” Lai adds.

Will supply woes kill Hong Kong’s data centre dreams?

A stable and pro-business environment bodes well for Hong Kong’s ambitions of being a consolidation point for data centres in North Asia as cloud providers and Chinese powerhouses continue to set up shop in the SAR with AWS, Microsoft and Mainland-based BAT amongst the big-ticket names in the scene.

Global Switch earlier opened the first phase of its Tseung Kwan O facility by end-2017 as it aims to build up a total capacity of circa 60 MW whilst Mega Plus boasts of a 24 MW build, data from real estate consultant JLL show.To capture the opportunity from the region’s growing data connectivity, a 2.74 hectare-site was recently released by the government in Tseung Kwan O with bids due by the

Simon Smith

Samuel Lai

Denis Ma

end of 2018. The site could yield in excess of 1m sqft and a potential capacity of up to 200 MW, lending support to Hong Kong’s data center dreams.

“The primary markets of Singapore, Hong Kong, Sydney and Tokyo have been the preferred locations for data centre investments. These cities’ robust infrastructure, connectivity and relative ease of doing business will see them remaining as operator and investor favorites for the foreseeable future,” the report’s authors said.

Hong Kong’s estimated capacity ranks third in the so-called Big 4 data center markets at 285 MW which trails behind Singapore at 330 MW and Tokyo at 315 MW. Sydney is also making its mark with an estimated capacity of 197 MW. However, the city’s severe land shortage could hit these ambitions which could push costs up until new sites could be unlocked. Additionally, the site at Tseung Kwan O may not necessarily cool demand as core and shell could be phased over 7 years and delivery of actual facility could be phased over a longer period.

As such, parties have been doubling down to unlock more land options where it competes with housing in land requirements.“In the meantime, pursuit of brownfield options seem to be the preferred strategy for several operators. They provide an alternative choice in terms of location to TKO,” it added.

If relevant parties do not get their act together soon, Hong Kong may run the risk of falling out of the Big 4.

“China may become an alternative in future,” the report’s authors noted.

Too many tenants, too little space If Hong Kong fails to address the lack of industrial space, some companies may soon opt to transfer to cheaper cities in the Mainland to cut costs, particularly on back of improved transport connectivity with Hong Kong. “Today, Hong Kong is one of the most expensive warehouse markets in the region,” notes Ma. “The shortage of industrial stock has also been cited by industry participants as a key factor behind why the city’s has fallen behind in the development of its technology sector when compared against its peers.”

The industrial space dearth is also the reason why some manufacturers have been unable to relocate their assembly lines back to Hong Kong from mainland China under the territory’s re-industrialisation initiative. “The lack of affordable warehousing options has seen a lot of occupiers move into ‘tin-sheds’ in the New Territories, which are largely situated on brownfield sites and areas that the Government is exploring to redevelop as part of its broader solution to the city’s housing supply issues,” Ma notes.

CBRE’s Lai highlights that whilst almost 1.1 million sqft of new industrial land has been released this year, most of the new supply is in new buildings that are divided into small units which makes them unsuitable for the needs of large industrialists. “The key challenge remains the shortage of supply. The two logistics sites sold by the government this year will not be completed any HONG KONG BUSINESS | NOVEMBER 2018

27

REAL ESTATE INSIGHT: Industrial Property time soon and there is no new supply scheduled for 2019 and 2020,” Lai says. “Hong Kong has been constantly short in industrial land supply and corporations in need of large floor plates struggle to find available sites.

As improved infrastructure enables better connectivity, Lai warns that some companies will find alternatives in nearby cities such as Zhuhai, Dongguan, Zhongshan and even Huizhou to save land costs. CBRE Research data shows that among the Greater Bay Area, Guangzhou, Shenzhen and Hong Kong already handle the largest flow of goods in the region. However, running logistics centres in these eastern cities is costly, with monthly rents averaging RMB40 per sqm and rents in Hong Kong reaching around RMB117 per sqm The monthly rents of logistics centres in western cities average RMB30 per sqm.

“With several major railways and roads launching to connect the eastern and western cities, some logistics operators have moved their delivery hubs out west. We have seen some businesses that are involved in making furniture or luxury items, of which instant delivery is not required, relocating to other Guangdong cities,” Lai says.

Redevelopment and relocation Another major trend shaking up the industrial property sector is the ongoing redevelopment of former industrial redevelopment of former industrial sites into residential properties, which will only heighten the lack of supply.

For instance, two old warehouses, Yuen Fat Wharf & Godown and Kerry Hung Kai Godown in Cheung Sha Wan, with 1.5 million sq. ft. GFA, will likely be redeveloped into 3,140 housing units.

Selected sales transaction in Q2 2018

Source: CBRE Research, Q2 2018

Two old warehouses, Yuen Fat Wharf & Godown and Kerry Hung Kai Godown in Cheung Sha Wan, with 1.5 million sq. ft.

GFA, will likely be redeveloped into 3,140 housing units.

“The redevelopment trend continues to heat up in Hong Kong. We have seen 11 properties totaling H$5.3b change hands with the purpose of redevelopment this year.

Many investors are eyeing the redevelopment potential of industrial buildings and plan to convert the higher quality warehouses into data centers or technology-related space.

This trend also triggers relocation needs, which boost leasing activities,” Lai says.

Savills’ Smith adds that leasing activity in the traditional warehouse segment remained firm, partly because of displacement demand from older warehouses being redeveloped by new owners. “Another notable trend was the relocation of some electronics manufacturers to traditional warehouses, some looking for higher specifications whilst others were looking for expansion space. Meanwhile, the modern warehouse leasing market has remained active as many high-end, fast-moving logistics operators have successfully emerged from last

ON THE MOVE

Here are the biggest movers and shakers in Hong Kong’s industrial property scene Amongst the largest industrial real estate deals this year is the sale of Cargo Consolidation Complex. The property, which has already been converted into a data centre and where average rents are expected to rise from $22 per sqft currently to $28 per sqft over the next six years, was sold to a local investor for $2b ($7,513 per sqft), with a buy-in cap rate of 3.5% eventually rising to 4.4%.

Meanwhile, Brilliant Cold Storage II was sold to investor Tang Shing Bor for $1.55b ($5,275 per sqft). Experts expect that with the current lease due to expire next year the new owner could opt to convert the premises to a higher-yielding use, possibly a data centre. Based on the GFA of 293,850 sqft (27,300 sqm), the average price was $5,517 (USD707) per sqft. The value of the property had increased more than three times in nine years, as the previous owner bought it for $390m (USD50m). Further, the Mee Wah Factory Building was sold for $1.25b to investment firm PAG. Elsewhere, companies that are engaged in businesses related to technology, e-commerce and high value logistics have entered the scene this year. Equinix, the world’s largest IBX data center & colocation provider, expanded their footprint in Hong Kong by leasing a space of nearly 400,000 sqft in Shatin. GDS, a leading Chinese data center operator, expanded their footprint in Hong Kong by closing an enbloc industrial building transaction.

Possehl Electronics signed a lease for a 136,000 sqft unit

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HONG KONG BUSINESS | NOVEMBER 2018

in Tsuen Wan Industrial Centre ahead of the redevelopment of its current space. Elsewhere, Tsit Wing Coffee and Dongnam Logistics, both of which are tenants in the Winner Godown redevelopment, relocated to a 33,000 sqft space in Safety Godown and a 32,000 sqft space unit in Hutchison Logistics Centre. The logistics sites on Siu Leng Shui Road in Tuen Mun and at Hong Kong International Airport were awarded in H1 for building smart logistics solutions and e-commerce operations.

Brilliant cold storage

Equinix Data Centre

Dyson’s new R&D centre

Hutchison Logistics Centre

REAL ESTATE INSIGHT: Industrial Property year’s market downturn unscathed, and are now again in expansion mode, thanks to growing air and sea freight volumes,” he notes.

Ma highlights that the gentrification of older industrial areas is also drawing a lot of investors towards industrial properties as a more affordable option for offices. These spaces are particularly popular with owner-occupiers who are looking at long-term investments. “Buildings approved for wholesale conversion can effectively be used for nonindustrial uses for the lifetime of the building. Areas such as Kwun Tong and Kowloon Bay, which form part of Kowloon East—the city’s 2nd CBD—and emerging office clusters in Cheung Sha Wan and Kwai Chung in Kowloon as well as Wong Chuk Hang on the south side of Hong Kong Island, have seen significant investment activity,” he says.

Looking ahead In spite of rising uncertainty and heightened volatility, experts are confident that Hong Kong’s industrial property sector is well-positioned to weather the storm. “The industrial and logistics market is resilient. Despite all the volatility in other property subsectors, the industrial market is stable, underpinned by sustainable demand. Hong Kong is famous for having the priciest commercial and residential properties in the world but industrial market is getting more attention due its relatively lower price tag and the growing yield,” says Lai. As an illustration, Lai notes that the land value of a Kwai Chung industrial land lot is $4,000 per sqft and for a brand new industrial building there, the property value is around HK$9,000 per sq. ft. But an office building in the same district could cost up to $10,000 - $12,000 per sqft and the price can get to over $40,000 per sqft for offices in Central.

“For the yield, the industrial sector is around 3-4% whilst office is below 2.5%. That explains why this sector has gained pace in recent years and will continue to strengthen in the years to come,” he says.

“With global trade weakening, warehousing demand is expected to ease. Yet, based on deals in progress, vacancy is expected to tighten after rising through the first half of 2018 and coupled with the absence of new supply, we expect warehouse rents to remain broadly stable over the coming 12-months though and risks to our forecast will be on the downside owing to the potential escalation of the US-China trade war,” Ma notes.

Map of major Hong Kong industrial areas

The land value of a Kwai Chung industrial land lot is $4,000 per sqft and for a brand new industrial building there, the property value is around HK$9,000 per sq. ft.

THE VIEW

Will the number of industrial property transactions in Hong Kong drop amidst the brewing trade war?

Denis Ma, Head of Research at JLL in Hong Kong.

“For the warehouse sector, yes, but the severity and extent remains unclear at this stage. We think that leasingdemand will ease but not necessarily to the extent where occupiers start downsizing, unless the trade-war escalates significantly. The impact of the trade war on the broader industrial market will depend on whether it’s the broader economy beyond just the external trading sector.

The prime warehouse market continued to be hold up reasonably well through the first half of 2018 though concerns of a growing trade war between the US and China, the city’s two largest trading partners, saw the vacancy rate rise to a near 10-year high and rents retreating by 0.3% q-o-q in the second quarter.

Overall, rents are still up 0.1% for the first half of the year. Still there are bright spots in the market, air-freight cargo volumes at Hong Kong International Airport (HKIA), the world’s busiest air cargo airport in 2017, continued to record solid growth through the first half (up 4.4.% y-o-y) offsetting a 3.9% y-o-y drop in container throughput at the city’s major ports.

In the broader industrial property market, where properties are largely used as ancillary offices and light industrialactivities, market performance more closely follows the trends of decentralised office markets. As a result, flatted factories rents been able to nudge higher, up 2.8% through the first half of the year.

The strong demand for industrial property from owneroccupiers has led to most new buildings completed in recent years being sold on the sales market and having little impact on the rental market.”

Samuel Lai Senior Director, Advisory & Transaction Services Industrial & Logistics, CBRE Hong Kong “The impact of the trade war to industrial property transactions is minimal thus far. The reason for the resilience is that the local industrial market mainly provides goods to local and mainland Chinese markets.

The logistics sector is indeed the most exposed due to the fact that China and U.S. are Hong Kong’s largest trading partners. Uncertainty reigns but the demand appears to be undented as evidenced by a number of large deals in the market this year.

But investors should watch closely how the trade conflicts evolve and also how the interest rates hikes may impact the investment environment.”

Simon Smith, head of research and consultancy at Savills Hong Kong “The logistics/trading related leasing transactions may drop in the short term, but not sales volumes as investors are still keen on industrial premises. Leading logistics operators have shown their confidence in the long-term prospects of the local logistics sector by committing substantial capital to two logistics sites sold in the second quarter of the year.”

Source: CBRE Research

HONG KONG BUSINESS | NOVEMBER 2018

29

MBA PROGRAMMES SURVEY

Hong Kong University of Science and Technology (HKUST)

Hefty salaries await MBA graduates in top universities Salary increases for MBA graduates this year from the Hong Kong University of Science and Technology (HKUST) can go up to 112%

S

tudents taking up a Master of Business Administration (MBA) degree in one of Hong Kong’s three biggest MBA providers are almost certainly looking at a financially rewarding future, with reports noting that professionals and entrepreneurs who graduate from the top MBA programmes in Hong Kong can expect a salary increase of more than 100%. This is according to the Financial Times’ Global MBA Ranking 2018, which listed expected salary increases for MBA graduates this year from the Hong Kong University of Science and Technology (HKUST), The University of Hong Kong (HKU), and The Chinese University of Hong Kong at 112%, 121%, and 108%, respectively.

The three universities also topped Hong Kong Business’ rankings this year, with Chinese University of Hong Kong registering 614 MBA students in their records, followed by the Hong Kong UST Business School and the University of Hong Kong with 315 and 310 students studying advanced business degrees, respectively.

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HONG KONG BUSINESS | NOVEMBER 2018

Computational design techniques are increasingly changing the way how we work.

These techniques include BIM automation and VR/AR technologies.

This important element for prospective MBA students has continuously helped put more lustre in Hong Kong as one of the most competitive and attractive places to get and earn an advanced business degree in the Asia-Pacific region. And with the continuously evolving nature of business and entrepreneurship with the rise of technology, innovation, and digital transformation in business operations and strategies, MBA providers in Hong Kong are constantly trying to accommodate to these trends to remain competitive in offering more holistic and marketdriven MBA programmes.

“There is a need to offer a broad range of electives, as students now require a wider choice. At HKU MBA, we have responded to this trend by opening up electives from our specialised Master programmes to our MBA students,” said Sachin Tipnis, senior executive director for marketing & admissions for HKU’s MBA & EMBA–Global Asia.

“We have also added more relevant electives to the changing landscape, namely courses like Artificial Intelligence for Business Leaders,

Doing Business in the ‘New Silk Road,’ Introduction to FinTech and its Impact on the Future of Banking & Finance, and so on.”

Tipnis explained that in response to this technological trend, HKU has introduced “many courses which are aligned to the requirement of our students connected to the rapid changes in the technological changes in the business sector.” These courses include Business Intelligence and Big Data; Creativity and Business Innovation; Marketing for TechIntensive Industries; and Online Business Strategy, amongst others.

“The challenge is connected to the changing landscape where in the Fourth Industrial Revolution is here, wherein digitalisation, robotics, machine learning, and AI are going to dominate the business landscape,” he said. “We are responding to these challenges by introducing new courses, inviting experts to deliver workshops, conducting company visits to organisations which are adopting to such trends, etc.”

Technology, real-world experience But whilst MBA providers in Hong Kong scramble to offer programs about technology which fit in the requirements of a more technologically driven and savvy employment market, officials in these institutions have also noted that technology has also been transforming the way MBA classes, discussions, and simulations are conducted.

Stephanie Villemagne, Associate Dean for the Graduate Programmes and the Director of MBA Programmes at CUHK Business School, citing her institution’s example noted that it is important for academic institutions offering classes and educational endeavours to embrace the benefits of technology, particularly in its power to transform the way institutions provide learning to its students and the way students get to make their educational experience more well-rounded and innovative.

“CUHK Business School is the first school in Hong Kong to offer a

MBA PROGRAMMES SURVEY full-fledge flex MBA mode of learning that allows our part-time students to study 50% online (through quizzes, videos, games, etc.) and attend 50% face-to-face classes,” she explained. “This approach provides students the flexibility in managing their schedules, but also maintains interaction and networking amongst students, professors, and professionals as this is an essential component of MBA programmes.”

This is similar to HKU’s experience, according to Tipnis. He cited HKU’s efforts in offering and releasing a series of Massive Open Online Courses (MOOC) since 2014, which were designed to be interactive and taught by world-renowned professor from the university. “These are built around self-paced video lectures, online discussion groups, and assessment exercise,” he explained, sharing that the MOOC module on “Introduction on FinTech” drew more than 15,000 sign ups and highlighting the popularity and innovativeness of these online lectures.

CUHK Business School’s Villemagne explained that her institution has partnered with one of their recent alumni, co-founder of startup firm Rocketbots Gerardo Salandra, to develop a chatbot that helps the school with admissions processes and transactions. “We plan to implement the application in our classrooms to enrich students’ learning experience throughout their MBA journey,” she said.

For instance, Tipnis explained that there is, amongst academic institutions in Hong Kong, an increasing notion and emphasis of providing courses and modules that teach skills relevant (and demanded) in the current labour market, including “ability to work in teams” and “ability to expand networks.” To address these, he said that HKU MBA has added more initiatives including more personalised coaching, live networking sessions, and introducing courses like Negotiation and Influencing Skills for Business.

“The future, surely we will be looking at ‘flip the classroom’, wherein the basics will be learned through a series of web-enabled material and classrooms will be more of simulated business skills learning.

This will probably be the future of education,” Tipnis said, adding that HKU’s Business Lab elective was also launched to provide students with opportunities to pursue their passion for entrepreneurship.

Notable trends The new pocket of opportunity, according to Tipnis, will likely be for part-time student enrolments, specifically from the Greater Bay Area involving neighbouring Macau and Shenzhen. “The Greater Bay Area is able to provide us with new markets, especially for the weekend mode. The new infrastructure projects (express train link and Hong Kong-ZhuhaiMacao Bridge) may further provide growth avenues,” he said.

In terms of the demographic for MBA applicants or prospective students, there is also a growing demographic shift according to Villemagne. “In recent years, GMAT test takers are getting younger and younger in search of short master’s programmes they can enrol immediately after completing their undergraduate studies before entering the evolving job market,” she said.

The CUHK Business Official explained that this is what prompted her institution to launch and offer an MSc in Management programme this year, as interest in pre-experience programmes increase, particularly for fresh graduate and early-career professionals from mainland China.

This diversity in demand and

The basics will be learned through a series of web-enabled material and classrooms will be more of simulated business skills learning.

offerings will only make the MBA landscape better for both academic institutions and students, according to Villemagne.

Rise of disruptors Meanwhile, alternative providers of educational materials and skills development trainings in more unconventional ways have also popped up, thanks to technology.

Bizversity, a new platform that provides individuals a new approach to business education through a personalised programme “without the need of ever having to undergo further postgraduate business studies,” have been making a case for alternative corporate learning. Business author and educator Dale Beaumont, founder of Bizversity, noted that degrees conferred by traditional educational institutions may not exactly anymore be the golden ticket professionals covet for success in today’s corporate world.

“When it comes to career development, up until now, the options have been quite limited.,” he said. “That’s why we built Bizversity, a multipurpose built learning platform that offers individuals a world-class business education from the world’s best teachers, in a way that is fast, personal, affordable, and accessible.”

Currently, the app offers its over 60,000 users worldwide opportunity and access to explore over 80 different business-related topics including SEO analytics, financial planning, and strategic marketing, amongst others.

The University of Hong Kong (HKU)

HONG KONG BUSINESS | NOVEMBER 2018

31

MBA PROGRAMMES SURVEY MBA Programme

Total Number of Students 2017

2018

Head of Hong Kong Office/Dean

Chicago Booth EMBA*

The University of Chicago Booth School of Business

160

160

Richard Johnson

CityU MBA

City University of Hong Kong

130

131

Kevin Chiang

CUHK Executive MBA

The Chinese University of Hong Kong

107

98

Andrew Chan & William Wan

CUHK MBA

The Chinese University of Hong Kong

218

223

Stephanie Villemagne

CUHK MBA in Finance

The Chinese University of Hong Kong

**

293

Ming Liu

PolyU MBA*

The Hong Kong Polytechnic University

197

197

June Cheng

Kellogg-HKUST EMBA

Hong Kong UST Business School

60

50

Judy Au

HKUST MBA for Professionals (Part-time MBA)

Hong Kong UST Business School

110

109

HKUST MBA for Professionals Bi-weekly Part Time

Hong Kong UST Business School

64

69

HKUST Full-time MBA

Hong Kong UST Business School

99

87

University of Wales, Newport MBA*

International Academy of Management

800

800

William Chow

The University of Hull Executive MBA

Kaplan Higher Education

70

35

Rebecca Lui

HKU MBA

The University of Hong Kong

300

310

Sachin Tipnis

Manchester Global MBA*

Manchester Business School (The University of Manchester)

355

355

University of Iowa Hong Kong MBA

University of Iowa Tippie College of Business

48

40

Victor S K Lee

University of Northern IOWA MBA

Hopkins Training & Education Group

300

116

Clara Chan

total

3018

3073

*retained figures from last year/no response ** OPTED TO NOT SUBMIT IN 2017

32

Provider/Local Partner

HONG KONG BUSINESS | NOVEMBER 2018

"Tai Yuan Chen " "Tai Yuan Chen " "Tai Yuan Chen "

MBA PROGRAMMES SURVEY Total Number of Students Full Time

Part Time

Minimum Cost (HK$) Full Time

160

45

86

152

263

Full Time

"General Curriculum (40 credits): $338,000

"General Curriculum (40 credits): $283,600

One Concentration (49 credits): $414,050

One Concentration (49 credits): $347,410

Double Concentration (58 credits): $490,100"

Double Concentration (58 credits): $411,220"

Part Time 21 months

12 or 18 months 24 or 36 months

604,000

550,000

410,000

Number of Intakes Per Year

12 or 16 months

1

1

24 months

1

24 months

1

293

$453,242.40 (RMB 398,000)

24 months

1

197

230,100

2 - 4 years

4

50

1,370,933.09 (US$175,500)

18 months

1

109

450,000

24 months

1

69

478,000

24 months

1

87

60

Part Time 1,200,000

98

71

Duration

585,000

12 or 16 months

1

800

108,000

18 months

3

35

174,800

2 years

1

2 to 4 years

1

250

552,000

396,000

14 months

355

386,000

2.5 years

2

40

258,000

15-18 months

12

116

151,900

average 18 months

2 to 3

2810

HONG KONG BUSINESS | NOVEMBER 2018

33

marketing Briefing

Is location-based marketing the best way to target customers on the go?

Marketers can drive nearby consumers to visit their shops and better understand their offerings.

W

hen Terence Mak saw that brick and mortar stores were beginning to lose their shine against online retailers, he thought of a way to help the “left behind” players keep their businesses going. His idea was to come up with an app that helps customers locate spaces real-time — spaces that would provide them a value-added experience compared to the experience of just swiping for goods on their phones.

Location-based marketing has garnered increased attention over the past year, as brands continue to look for ways to attract customers on the go. WhereisWhere now has 2,500 retail locations across Asia, including 1,500 retail locations in Singapore, since late February this year.

According to Mak, founder and CEO, WhereisWhere, their company enables offline businesses to reach nearby consumers and effectively launch promotions to attract and keep them.

“Location-based marketing platforms like WhereIsWhere are designed for merchants to create and better self-manage and differentiate their product and services, which drive nearby consumers to visit their shops and better understand their offerings. This strategy allows offline businesses to build a substantial number of followers, in turn, increasing the likelihood of repeat customers. Along with the capability to promote new products in the market more effectively, merchants can leverage location-based marketing to update customers on new offers in nearby outlets and build a loyal customer base,” Mak added.

Strategy for retail giants Elsewhere across the globe, location-based marketing has become quite the norm, as brands like Target in the United States employ platforms like YouAppi to help them reach the right customers in the perfect regions and the right zip codes. Moshe Vaknin, founder and CEO, YouAppi, said that their platform is being used by big brands like

Terence Mak

MosheVaknin

Benny Chow

Cheryll Cheah

Retailers can target nearby mobile customers by leveraging location based marketing.

34

HONG KONG BUSINESS | NOVEMBER 2018

Amazon and Google to acquire customers to their app business. YouAppi has also attracted popular brands in Southeast Asia such as Shopee, a factor for the platform to extend its global footprint in the region by opening new offices in Singapore.

“They come to us, and they give us their targets and what they’re looking for. For instance they want customers in Singapore, Manila, or Jakarta. Sometimes they want to drive customers to specific locations, like big malls, so we look for users that will have a good chance to become shoppers. So it’s not just the location, but we also ensure that these users will purchase. First of all, find users who will become shoppers, and match their location to the brands,” he said.

This strategy allows offline businesses to build a substantial number of followers, in turn, increasing the likelihood of repeat customers Vaknin said that YouAppi currently has 1.5b profiles around the globe, which their clients will have access to depending on the preferences and locations of these profiles. According to him, their platform is the first comprehensive 360 Platform for premium mobile brands, designed to increase acquisition and retention of highvalue customers. Meanwhile, other brands have yet to find a place for location-based marketing in their businesses.

Benny Chow, project and marketing manager, Firefly Photography Pte Ltd, said that their business currently operates on an appointment-based model that is done digitally. Many times, their brand also goes to the client’s desired location, something which Chow describes as more productive. According to him, location-based marketing is more relevant for businesses that target walkin customers.

Cheryll Cheah, sales and marketing executive, Quorier, said that their logistics company’s service is available online, and that they do not have a physical location specific for deliveries, unlike retail stores. Nonetheless, they are looking into leveraging location intelligence to prompt couriers to pick up parcels when they are in certain locations, so that it helps them save time and petrol.

“The outlook for location-based marketing looks promising, with offline businesses realising its potential to enhance their ability to reach nearby consumers, drive in-store traffic, and launch promotions for attracting and retaining customers — all at a fixed price. In Asia, 5 million merchants and around 4.55 billion consumers will benefit from this disruption,” Mak said.

Atradius Atrium wins the Insurance Technology Award

This International Business Award recognises cutting-edge innovations that have made a real impact to their industry and have proven to be flexible to changing environments and opportunities. Thankful for this accolade, it will motivate us even more to be a leading credit management partner.

The cutting edge in credit management.

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event coverage: hong kong business awards

Hong Kong Business hails the most outstanding companies in 2018

H

ong Kong Business hailed the most exceptional firms in the city in a joint awards ceremony for the Hong Kong Business International Business Awards (IBA), Listed Companies Awards (LCA), National Business Awards (NBA) and the Business Rankings Awards held at the Island Shangri-la on September 5.

On its fourth year, the IBA honoured the top international businesses in Hong Kong. The 4th Listed Companies Awards (LCA) celebrated the most outstanding publicly listed companies whilst top homegrown businesses were lauded at the second National Business Awards (NBA). The awards programme also recognised Hong Kong’s largest firms who were part of the magazine’s business rankings list. This year’s nominees were judged by Andrew Ross, Managing Director at Baker Tilly Hong Kong; Roy Lo, Managing Partner at SHINEWING (HK) CPA Limited; Charbon Lo, Director at Crowe (HK) CPA Limited, and Anthony Tam, Executive Director in Tax Services at Mazars Hong Kong.

Hong Kong Business congratulates the following winners:

International Business Awards 2018 Advertising - JCDecaux Transport Architecture - Baumschlager Eberle Hong Kong Ltd Automotive and Transport - Mercedes-Benz Hong Kong Limited Business Insurance - Euler Hermes Asia Pacific Computer Software - EventBank Cybersecurity - Kaspersky Lab (Asia Pacific) Health Products & Services - FrieslandCampina (Hong Kong) Limited Hospitality & Leisure - WeWork Insurance Technology - Atradius Crédito y Caución S.A. Telecommunications - NTT Communications Marketing Software - AlikeAudience National Business Awards 2018 Advisory - GreenPro Capital Corp.

Financial Services - Odyssey Capital Group Limited Financial Technology - Privé Technologies Food & Beverage Product - Jing Holdings Limited (Jax Coco) Food & Beverage Services - EatNow ICT - WTT HK Limited Logistics - LF Logistics (Hong Kong) Limited Real Estate - Garage Society Technology - Shadow Factory Listed Companies Awards 2018 Apparel - Shenzhou International Group Holdings Limited Business Rankings Award 2018 Largest Accounting Firms # 6 - RSM Hong Kong Largest Accounting Firms # 7 - HLB Hodgson Impey Cheng Largest Accounting Firms # 8 - Crowe (HK) CPA Limited Largest Accounting Firms # 8 - Shinewing (HK) CPA Limited Largest Accounting Firms # 10 - Baker Tilly Hong Kong Largest Accounting Firms # 10 - Mazars Hong Kong Largest Law Firms # 4 - King & Wood Mallesons Largest Law Firms # 6 - Baker McKenzie Hong Kong Largest Licensed Banks # 10 - Industrial and Commercial Bank of China (Asia) 36

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Frederik Gollob, President and CEO of Mercedes-Benz Hong Kong Limited

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Hideaki Ozaki, President & CEO, NTT Com Asia Limited received the IBA for Telecommunications

Gilbert Loke, GreenPro Capital accepts the NBA for Advisory

Doris Chan, WTT HK Limited accepts the NBA for ICT

Oliver Ford, Atradius received the IBA for Insurance Technology

Xiaoyin Tan, Baumschlager Eberle received the IBA for Architecture

George Lam for Crowe (HK) CPA Limited

Alan Choy, FrieslandCampina (Hong Kong) received the IBA for Health Products & Services

Tricia Koh, Euler Hermes received the IBA for Business Insurance

Tony Cheung, Kaspersky Lab (Asia Pacific) received the IBA for Cybersecurity

Leonard Leung for Baker McKenzie Hong Kong

Eugene Liu for RSM Hong Kong

Clara Ng and Ricky Chan for HLB Hodgson Impey Cheng

Xia Linfeng for Industrial & Commercial Bank of China (Asia)

Kenji Chan, Shenzhou International Group accepts the LCA for Apparel

Kanne Leung for King & Wood Mallesons

HONG KONG BUSINESS | NOVEMBER 2018

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event coverage: hkb awards

Roy Lo for Shinewing (HK) CPA Limited

Cynthia Lo for Baker Tilly Hong Kong

WTT HK Limited Team

Atradius Team

Representatives from HKB’s Largest Accounting Firms List

Mercedes Benz Hong Kong received the IBA for Automotive & Transport

Euler Hermes Team

Mazars Hong Kong team

FrieslandCampina (Hong Kong) Team

Shirley Chan, JCDEcaux Transport presented the IBA for Advertising

NTT Communications Team

Representatives from ROCHAM and NZCCHK

Tim Charlton, Editor-inChief of Hong Kong Business

John Poon for Mazars Hong Kong

Over 90 executives present at the ceremony 38

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APPAREL

Capacity expansion of overseas plants boosts Shenzou Group’s market performance The Group’s equipment upgrade also improved efficiency and environmental protection.

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henzhou International Group Holdings Limited (the Group), the largest vertically integrated knitwear manufacturer in China, focused on the innovation and improvement of the quality of its fabrics to better cater to its booming market demands. As a manufacturer of high-end knitwear on an original equipment manufacturer (OEM) basis, the Group is focused on producing sportswear, casual wear and lingerie wear for major international renowned clients including Uniqlo, Adidas, Nike, and Puma.

The products’ market is also gradually expanding from Japan to Asia Pacific, Europe and the United States.

Part of the firm’s efforts to improve its market performance is the expansion of its overseas bases’ production capacity.

Ma Jianrong, the chairman at the Group, says this has played an important role of the company’s business development.

Ma cites the performance of the Group’s plants in Vietnam, which have already become profitable in the first year.

“Operation of newly installed equipment in fabric plants in Vietnam made production capacity of upstream business of the Group to increase sharply and provided capacity supplement for upgrade and transformation of equipment in domestic bases,” says Ma. “During the year, staff recruitment of garment factories in Vietnam have met expectations, progresses were made in respect of the technical training provided to the staff and the management level has been matured. With the increase in staff size and efficiency, the garment factories in Vietnam had rapidly increased yield, and apportioned fixed costs per finished product has significantly declined and made profit in the first year,” he explains.

“Newly established special fabric factory of the Group in Vietnam was smoothly operated, which completed the talents reserve and training of management and technician, and laid foundation for further expansion of productivity scale.”

The Group also highlights technological contents of its fabric as well as develops a series of new fabric with differentiation advantage on the aspect of function

and environmental protection. It also integrates existing resources from research and development institutions to cultivate and introduce high-end professional talents via increasing input in R&D and innovation as well as enhances the project cooperation with scientific research institutions to build a leading fabric R&D centre in the industry.

Moreover, the clothing manufacturer began to upgrade and transform the equipment of its domestic fabric factories by stages. The Group introduced more efficient and energy-saving equipment which effectively reduced resource consumption of water and electricity. It intends to continue the upgrading and transformation of its other workshops in 2018. Ma also says the company’s implementation of an “informatisationbased system” which has reduced the number of frontline operators, improved accuracy of production process, and promoted stability of product quality.

To reduce nitrogen oxide and dust particle emissions, the Group completed the installation of two new natural gas boilers. These use natural gas as basic fuel instead of biomass. “The construction of the project increased the investment and operation costs of the enterprise,

but it had important significance to improvement of environment. In addition, the Group cooperated with scientific research institutions on exhaust collection and treatment of setter and recycle of waste heat to greatly reduced emission of exhaust gas,” explains Ma. “The Group has changed to use LED lamps as lightning source in all plants to effectively save electricity energy. The environmental protection ability will become an important barrier of entry to the industry and the Group will continue to invest in environmental protection,” he says. “In addition to equipment transformation, the Group took all-round renewal of original sewer line facilities to avoid bad influence on environment by effluent seepage.”

All these strategies have also led to the improvement of the Group’s production efficiency and thereby also promoted increase in sales. “The labor pressure of the Group in domestic bases had been alleviated through popularisation and application of automation equipment, improvement and optimisation of production process, continuous deepening of lean production management and intensified management and control of production plan,” says Ma.

“It intends to continue the upgrading and transformation of its other workshops in 2018.”

Shenzou Group’s plant

HONG KONG BUSINESS | NOVEMBER 2018

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TELECOMMUNICATIONS

NTT Communications: Bridging businesses to the future through digital transformation NTT Communications (NTT Com) once again cemented their position as one of the world’s top technology solutions provider when they won the International Business Awards for Telecommunications.

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TT Com’s expertise have gone far and wide across the globe in bridging businesses and enterprises to the future characterised by technology and innovation. NTT Communications solves the world’s technology challenges by helping enterprises overcome complexity and risk in their information and communications technology environments with managed IT infrastructure solutions.

The company is responsible for the global market, providing one-stop ICT solutions to help enterprises transform and optimise business with technology innovation.

Beyond business For instance, the company delivered software-defined wide-area network (SD-WAN) solutions for the global WAN network used in about 40 countries and regions where Hitachi, a Japanese multinational conglomerate company, operates in. The solution, according to the NTT Com official, has been deployed in 1,000 offices, making it amongst the largest-scale solutions of its kind ever delivered in Japan.

NTT Com’s suite of technology-based solutions to Hitachi Group is mainly due to the need for the Japan-based company to have diversity and flexibility in its networks and strengthen infrastructure given the firm’s broad range of business, which include energy systems, infrastructure systems, as well as information and telecommunication systems. This is on top of the company’s goal of helping resolve social issues through the global implementation of its Social Innovation Business. Some of the solutions that NTT Com provided Hitachi include Hybrid WAN Solutions like CLOUDWAN, a software defined networking service.

There is also the case of NTT Com’s efforts in the sporting world, highlighting its increasingly strong capabilities in pioneer technologies. This year, McLaren, a pioneering leader in F1 motor racing for more than 50 years, adopted NTT Com’s SD-WAN technology to connect the McLaren Technology Centre with racing

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circuits in 21 countries.

This comes after the successful test deployment of the technology during the 2017 Grand Prix, when McLaren was able to send 100 gigabytes of data during a race from Japan to the United Kingdom through the technology. The move was aimed to strengthen the remote management of McLaren’s race strategy using telemetry data that is provided at extra high speed.

The collaboration is an innovative case to apply SD-WAN and networking technology in the aspect of sports.

With SD-WAN, data flows during crucial moments would have better control, which enabled the team to drive faster. For big decisions such as these, enterprises need the most accurate, relevant, [and] clear information possible—immediately.

A world-renowned leader NTT Com’s leadership position, however, is not just because of the awards the company receives for its future-proof solutions and services to its global clients.

For example, The IDC in February of this year tagged NTT Com as a Leader

in the MarketScape: Worldwide Service Providers 2018 Vendor Assessment report.

The ranking looks at technology solutions providers around the world and measures their ability to provide a comprehensive global portfolio of services ranging from traditional voice and data networking services to cloud and collaboration services.

The company’s strategy and objectives is rooted on the desire to provide solutions that will enable enterprises and businesses not only to cope with market changes and trends, but also get ahead of the competition when and where it matters. With the help of the company’s state-of-the-art services and solutions, can offer tailor-made solutions for all sort of industries.

Backed by its worldwide reach, industry expertise, and strength in Asia, NTT communications is cementing its position as the ultimate ICT partner.

NTT Communications recently won the International Business Awards in Telecommunications at the Hong Kong Business Awards 2018.

“With the help of the company’s state-of-the-art services and solutions, NTT Communications can offer tailor-made solutions for all sort of industries.”

NTT Com’s Hong Kong Financial Data Center Tower 1 &2

www.ntt.com.hk

One connection opens up the world.

With NTT Group behind it, NTT Communications is the leading ICT company with solutions you can depend on to expand your business around the globe. NTT Group is number one in data centers, and our network covers 196 countries and regions.* If 88% of the Fortune® Global 100 Companies choose NTT Group, shouldn’t you?** Connect with NTT and connect with the world.

Source: TeleGeography, Largest Retail Operators by Gross Floor Space by Region, 2016

*

Source: Fortune® 2016; NTT Group Customers as of Marc h 2017. Fortune® is a trademark of Time Inc.

**

Mercedes-Benz Hong Kong fuels growth through top-notch retail initiatives

Through ingenious store concepts such as the Mercedes me Store and one-of-a-kind events, MercedesBenz is pulling out all the stops to redefine luxury car retail in Hong Kong.

Mercedes me Store

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estled in the heart of bustling Central is the brand new Mercedes me Store.

Designed like a large, luxurious home, Mercedes’ new store offers much more than a sophisticated retail experience. It is a lifestyle destination unlike any other, offering access to exclusive events and a first-rate all-day dining experience.

A lifestyle of luxury The new Mercedes me Store opened to wide acclaim in May. The store offers an oasis of calm amidst the hustle and bustle of the Central district, and draws inspiration from both Mercedes’ German heritage and Hong Kong’s urban liveliness.

The Mercedes me Store is a successful platform to communicate the brand and products and provide the best experience to customer or even general public. Since 2015, the Mercedes me Store Hong Kong has achieved great success and become one of the most popular venues in town.

From the entrance living room and the

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The Mercedes me Store also offers in-store boutique retail area to the lounges all-day dining options for guests from inside of the store, customers will navigate breakfast through late night dinner and through a comfortable and familiar space drinks. The culinary team have carefully that will make them feel at home. selected ingredients synonymous with Covering a total area of 500 square European and Asian cuisine and married metres spread over two floors, the store is them with cutting edge and open fire also designed as a flexible event space for cooking techniques different kinds of to create a lifestyle, cultural, selection of or corporate “The Mercedes me Store is modern, casual and activities. The a successful platform to eclectic dishes. boutique area In addition to its draws inspiration communicate the brand and lunch, dinner and from a modern products and provide the cocktail menus, wardrobe and best experience to customer Mercedes me Store offers luxury or even general public. ” will also offer allsportswear, leather day food and drink goods, accessories, options, complete homewares, and with freshly made breakfast pastries and gifts from both Mercedes-Benz Collection exceptional coffee to go. and local exclusives. Meanwhile, the latest Mercedes-Benz has long been at the Mercedes-Benz models as well as classic or forefront of luxury in Hong Kong, but the concept vehicles will be showcased in the company is not resting on its laurels. In “garage” area.

AUTOMOTIVE & TRANSPORT

2018, Mercedes-Benz Hong Kong has introduced the new A-Class, C-Class, CLS, S-Class Cabriolet, S-Class Coupe, and the AMG 53 series to the market.

The new A-Class also has the very latest driving assistance systems, giving it the highest level of active safety in this segment with functions adopted from the S-Class.

Transforming retail Setting the benchmark Mercedes-Benz is also pioneering new The much-awaited new A-Class offers a events and marketing formats to enhance refreshing and dynamic look. It is as youthful brand experience and engage younger and dynamic as ever, and comfortable consumers. In June, the new A-Class was like never before. It completely redefines launched at the BAM festival held at Central modern luxury in the compact class, and Harbour Front. This marked the first-ever revolutionises interior design. Thanks to festival format car launch event in Hong the innovative multimedia system, MBUX— Kong which was opened to the general Mercedes-Benz User Experience, the new public, drawing over 5,000 participants.

A-Class not only takes first place: it also Set against the iconic Hong Kong skyline, offers a number of functions that were the festival featured previously the music performances, preserve of the sport activities and luxury class.

“Thanks to the innovative workshops, bringing A unique multimedia system, enjoyment and fun to feature of this system is its MBUX—Mercedes-Benz User both customers and ability to learn Experience, the new A-Class the public.

Apart from the thanks to artificial not only takes first place: debut and test ride intelligence. it also offers a number of the new car, the MBUX can be of functions that were event offered a individualised and adapts to previously the preserve of sports and mini game zone, a silent disco, suit the user. Its the luxury class.” and a concert. In the further strengths PlAy area, visitors include the experienced Croquet, high-resolution Yoga, Giant Jenga, and Mini soccer designed Widescreen cockpit with touchscreen for both families and kidults. operation, intelligent voice control The BAM festival successfully targeted with natural speech recognition, which the younger customer group. It has also is activated with the code words “Hey successfully set the benchmark in the Hong Mercedes”. The touchscreen is part Kong automotive market. of the comprehensive MBUX touchAnother pioneering initiative is the new control concept – a triad consisting of Mercedes-Benz Brand Centre in Hung Hom, the touchscreen, touchpad on the centre which has become the benchmark for other console and touch control buttons in the markets. It is a typical example of an urban steering wheel.

Frederik Gollob, President and CEO of Mercedes-Benz Hong Kong Limited

The all new A-class

showroom in an optimal inner-city location with restaurants and places to shop.

Customers get to experience a whole new level of quality in advice, sales and service.

All the core elements of the new brand presence including mobile advice and new processes in sales and after sales have been consistently implemented in Hong Kong, in the context of the realignment of Mercedes Benz’ sales network.

Driving the future More thrilling events are in the pipeline for Mercedes-Benz Hong Kong. For instance, the new G-Class is set to be launched this year, reinvigorating a vehicle that has long been an icon in its class. Whether on or off the road and whatever the operating conditions, the vehicle impresses with its performance, cutting-edge assistance systems, outstanding handling, and safety.

Early in September, Mercedes-Benz celebrated the world premiere of its new, electric vehicle, known as the MercedesBenz EQC. Unveiled in Stockholm, the EQC is also the first Mercedes-Benz model under the product and technology brand EQ..

It brings design, functionality and service together in a unique way. It offers day-today suitable e-mobility with more than 450 km as an electric driving range. MercedesBenz Hong Kong will endeavour to bring in the EQC by the end of next year.

HONG KONG BUSINESS | NOVEMBER 2018

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BUSINESS INSURANCE

Dealing with defaults: Euler Hermes helps clients stay protected as insolvencies escalate With more than 120 years of expertise in insurance, Euler Hermes is well positioned to aide its clients.

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orporate insolvency is rising worldwide, and Asian businesses are particularly at risk as China’s soft landing continues. The Euler Hermes Global Insolvency Index reveals that there will be a double-digit growth of insolvencies in 2018 and 2019, largely driven by China’s tightening financing condition and a cleanup of so-called zombie companies.

Against this menacing backdrop, mitigating credit risks has become crucial to maintain profitability and growth.

“At Euler Hermes, we recognise that payment risk is crucial to business success. For companies to avoid a vicious circle, that will only lead to businesses losses, we offer data and analysis of indicators such as payment delays (Days Sales Outstanding - DSO), past-dues, non-payment and insolvencies in order to keep our customers informed. Monitoring is done across countries and sectors of the economy to provide our customers better trend analysis and forecast,” says Tricia Koh, Regional Market Management Director, Asia Pacific, Euler Hermes.

Insolvency protection Trade credit insurance protects businesses against the failure of its customers to pay trade debts. “This can arise because your customer becomes insolvent or because your customer does not pay within the set timeframe,” explains Koh. The framework is surprisingly seamless: Euler Hermes’ network of risk offices monitors the financial performance and well-being of customers. Each customer is allocated a grade that reflects the health of their activity and the way they conduct business.

“From this risk assessment, each of your buyers is then granted a specific credit limit up to which you can trade and claim should something go wrong. This limit may be revised upwards or downwards as new information becomes available.

Throughout the lifetime of the policy, we inform you of any changes that might impact the financial health of your buyers and their ability to pay you for goods or services you have delivered. If your buyer cannot or will not pay you, you will be insured and indemnified up to the limit

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of your policy. We can also manage the collection of the debt for you if/should the need arise,” Koh says.

On average, 40% of a company’s assets are in the form of trade debts, but sometimes the figure is far higher.

Koh explains that it is very difficult for a company to predict which client will default on payment. In fact, close to 50% of all payment defaults arise from vendors with whom stable and long-term trade relationships have been established.

“Non-payment weakens the company and lowers its investment capacity. A trade credit insurance policy helps in the management of accounts receivables and protects the company in the event of nonpayment,” she notes.

Trade credit insurance is crucial in helping companies identify sales opportunities, grow their business and protect cash flow. However, only approximately 5% of suitable businesses in APAC buy trade credit insurance, compared to 15% market penetration rate in Western Europe. “The main alternative to trade credit insurance is self-insurance, a practice many APAC businesses opt for. Businesses can put a reserve on their balance sheet to cover any bad debt that may incur over the year.

However this is not a very capital efficient

solution. Rather than have capital in balance sheet acting as a reserve for bad debt, why not purchase trade credit insurance and then invest that excess capital into growth or new products?” Koh notes.

Euler Hermes provides many valuable services including economic and trade insights, real-time risk monitoring, and even debt collection. It provides original research and thorough data analysis to equip customers with necessary information to run their businesses. “In Euler Hermes, our online risk monitoring platform provides our customers realtime visibility over trade receivables and encourages a culture of risk management by providing timely intelligence,” Koh says. “We believe in being in partnership with our customers and that is why we inform our customers should there be changes that might impact the financial health of their buyers.” In terms of debt collection, Euler Hermes Collections handles 380,000 debt collection files and collects about €640m worldwide each year. They provide a detailed review of local regulations and procedures, including exclusive perspective from our marketbased collection specialists on local payment cultures and legal practices.

“Euler Hermes Collections handles 380,000 debt collection files and collects about €640 million each year. ”

Our track record of excellence is why our customers trust us and share our confidence in tomorrow.

OPINION

tim hamlett

Totting up the cost of our new toy tim hamlett Former Editor of Sunday Standard and Associate Professor of Journalism

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et us hail one unheralded record broken by the Express Rail Link: it has surely spawned more official mis-statements per kilometre than any previous railway project. We are now expected to nurture the delusion that the new line may someday make a “profit”. This is a gross abuse of language. It will never make a profit in the normal sense of the word because in order to do so it would first have to repay the cost of construction. This is what making a profit means.

The Express Rail’s chances of making a profit are on a par with Carrie Lam’s chances of being elected the next Pope.

The financial indicator which is now being watched with bated breath by fans of the new line is not whether it makes a profit or loss, but whether it covers its running costs. In other words will the MTR, which is operating the thing, actually take in enough in fares to cover the expenses involved in doing this, while the railway, stations etc. are donated free of charge by the taxpayers.

If this does not happen, then the line will have to be subsidised.

Under the circumstances it is perhaps a pity that the Express Rail Terminus, unlike other MTR erections, is not surmounted by a luxurious housing estate.

Instead it has a flamboyant and quite unnecessary roof. Nineteenth century railway termini had huge roofs – considerable engineering achievements in their day – because the locomotives all contained a raging coal fire. The resulting smoke and steam had to go somewhere.

The Express Rail terminus has no such requirements. The trains are electric, and in any case are five floors down, separated from the surface by three layers of immigration desks, customs halls, ticketing counters, shops, shops and – this being a Hong Kong project – more shops. The conspicuous roof has no purpose except to remind us that our expensive toy is under it somewhere.

So with no subsidy from property, will it break even?

Reading earlier predictions of how the railway would work does not inspire confidence.

In 2008 the “key project parameters” were that it would have 99,000 daily passengers, and cost $39 billion. In 2009 we had the first appearance of the claim that the building of the station would create 10,000 jobs, which was repeated frequently over the ensuing nine years. The Legislative Council was also told that owing to changes in policy on the mainland “there will be a significant increase in the patronage”.

At the same time the “economic benefits” of the railway over 30 years were valued at $87 billion. Curious that a government which consistently fails to predict its own fortunes in the coming 12 months expects to be taken seriously when it offers a prediction for the next 30 years.

No doubt the figure is conservative. Still

Express rail link

it became an alarming one as the cost of constructing the railway approached it, and then overtook it.

In 2009 the construction cost took its first upward leap, to $66 billion. At this point the figure was massaged back down by taking out $11 billion worth of “non-railway works” and treating them as an entirely separate item. So the official prediction became $53.7 billion. In 2010 members of the Public Works Sub-committee were entertained with the notion that daily patronage “could go up to 116,000”, while a “less optimistic figure” would be 89,000.

Work started on this optimistic basis, and produced a stream of cheerful reports until 2014. By this time much work had been done.

Cancellation was inconceivable. The cost to completion was revised up to $85 billion. At roughly the same time the “non-railway” items went up from $11 billion to $16 billion.

This leads us to the conclusion that the honestly stated cost of the whole project was $100 billion, which rather puts the estimated economic benefits in the shade. At the same time the expected daily traffic was increased to 109,200. Why the person responsible for this forecast thought it was accurate enough to be worth including the extra 200 remains a mystery.

The latest “best guess” of the daily traffic is 80,000. That could increase so we can wait and see on that one. But now that the Great White Elephant is finished we can come to a solid conclusion about the repeated claim that the actual construction would create 10,000 jobs. This was a gross exaggeration. Every six months the government provided a report for the railways sub-committee of the Legislative Council on the progress of the project. And each report included the number of people currently employed on it. In December 2010 this was about 3,000. By June, it had crept up to 3,600.

By June 2012 it was up to 6,000. The report was still predicting a peak of 10,000 to come later.

But come it did not. At the end of June 2013 the daily average was about 8,500.

Hong Kong’s MTR

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OPINION

Hemlock

Fad comes to Soho, officially dies

Situated conveniently next to the Mid-Levels Escalator in the Soho Tacky Overpriced-Restaurant Themed Hub-Zone – a shiny new Bitcoin ATM. Could it be a hip, ironic art installation, mocking the follies of our era? Or is it a cynical ploy to lure shallow nightlife types who think they will look cool and glamorous using it as the world goes by?

I thought everyone had worked out by now that the space-age techie trendy edgy anarcho-libertarian cryptocurrency thing with its idiotic proof-of-work transactions on hyped-up blockchain was a silly fad, kept going only by gambling addicts/day-traders who thought technical analysis wasn’t voodoo.

The device likes HK$500/1,000 bills. If you have a largish stack of 1,000s and you’re too – shall we say – shy to deposit them at the bank, I guess this is one way to shift them. Downside: each transaction might take 24 hours (free canapes while you wait); Russian scammers might take it all; rather than being anonymous, there is actually a trail, by design; and the asset you are holding is just electronic blips of no intrinsic worth.

An alternative for the officialdom-averse would be to take your stack of cash to a friendly foreign-exchange dealer, jewelers or gold store in Central, who will be happy to convert it into some other medium if their slice is right. And this way you can help support one of Hong Kong’s pillar industries! Downside: no mojitos.

A couple of local items you might have missed…

Belt and Road (like Bitcoin, to be filed by history under ‘bullshit’) worms its way into the United World College at Ma On Shan courtesy of a local property tycoon’s donation. Guess they need the money. On a more uplifting note, a trailer for Last Exit to Kai Tak. This movie seems notable for two (related) things: high production values, and a treatment of Umbrella movement figures in a way that would repulse the proBeijing crowd as idolization. Wait for it not to appear at a screen near you anytime.

On the China front… Vice President Pence gets nasty with Beijing; the US Navy ponders a show of force against the PLA; and (this is all happening right now by coincidence, right?) Bloomberg gets a scoop on how China planted secret miniature chips in sensitive Amazon and Apple hardware.

I declare the weekend open with a modest selection of other recommended rabid red-baiting links.

Students informing on ideologically incorrect teachers in the Mainland (how long before this comes to Hong Kong?) A good summary on how the CCP has focused on Oz and NZ for United Front operations. And to

reassure you that not all Beijing influence-pushing is sinister but rather just about making money, how China is threatening the world’s health by promoting primitive supernatural non-science.

That is the nightmare scenario suggested by the latest news from Discovery Bay, where landlord HKRI is evicting yacht-owners from the marina. All other leisure berths in town are full. Angry boat-dwellers believe the company is renovating the facility in order to rent it out to billionaires with mega-luxury oceangoing vessels.

The eviction sounds like the sort of gentrification any Hong Kong developer would instinctively do. Indeed, HKRI is turning other parts of DB into a Mainland tourism/shopping/property hub-zone. The company probably sees the whole area as an under-yielding patch of real estate, clogged up by middle-income foreign managerial types who want an affordable suburb to live in. Foreigners who live in boats are a fringe subset of Hong Kong’s expat population. (Coincidently, someone recently proposed putting container homes on ships as a way to tackle Hong Kong’s housing crisis, prompting memories of a time when much of the city’s population lived on fishing vessels.) Like DB residents in general, cryptocurrency investors, golfers, the remarried and others with questionable life-skills and judgement, they insist they have made a superior choice, while sounding rather defensive about it. They are now finding out how clever it was. The deal is that for a HK$5-10 million boat-purchase and marina membership, plus monthly fees, you can get a 2,000-sq-ft home. This is a tiny fraction (20% max?) of what such an apartment on land would cost. The gods of Hong Kong property cannot abide such willful defiance or such an extreme aberration of nature, and will take their revenge.

by hemlock www.biglychee.com Email: hemlock@hellokitty.com

Bitcoin ATM

2376 1001

2827 7777

2739 1133

1/F, Ashley Centre, 23-25 Ashley Road, Tsim Sha Tsui, Kowloon

2/F, Sun Hung Kai Centre, 30 Harbour Road, Wanchai, Hong Kong

Shop G18, Empire Centre, 68 Mody Road, TST East, Kowloon