Hong Kong Business (April - May 2017)

Display to 31 May 2017 HK$40

THE ART ISSUE

ASIAN

ART

TO THE RESCUE Market players look to Asia for renewed growth amidst declining global art sales

THE RATE RISES

HK NEEDS

M&A TO PICK UP PACE

BLEISURE INFLUX TO BOOST HOTELS WIDENING PAY GAP MAINLAND DEVELOPERS

EAT UP HK LAND PIE 41

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

GS N I NK ST RA LARGELES 50 HOT

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

Welcome to Hong Kong Business. In this issue we bring you our annual Asian Art Report, where we found out how market players are looking to Asia for renewed growth amidst declining art sales around the world.

Publisher & EDITOR-IN-CHIEF Tim Charlton associate publisher Louis Shek production EDITOR Terry Gangcuangco graphic artist Elizabeth Indoy

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buyers from Asia.

What’s interesting to note is that in 2016, 31% of what Christie’s sold worldwide went to Asian buyers. More interestingly, of the top 10 works sold by Sotheby’s last year, half were purchased by

We also looked at what’s happening in Hong Kong’s mergers & acquisitions space, as well as at the government’s plans to get the economy back on track. This issue also has a special feature on cloud technology.

louis@hongkongbusiness.hk Rochelle Romero rochelle@charltonmediamail.com Angelica Biso angelica@charltonmediamail.com

Inside you’ll also find our list of the largest hotels in Hong Kong. We found out what’s new with hotels in the territory and how this growing trend of business travellers who extend their stays for touring purposes is boosting the hospitality sector.

Enjoy the issue!

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CONTENTS

26

COVER STORY Amidst declining global art sales, market players look to Asia for growth

FIRST 06 07 08 10 12

The rate rises HK needs Ultras find comfort in liquidity Hi-tech sleeping pods now in HK Please mind the gap

REGULAR 20 Economy Watch 22 Financial Insight 34 CMO Briefing

30

Ranking the influx of ‘bleisure’ will boost hotels in Hong Kong

36

analysis 2016: An active year for Asian investment

OPINION 46 Tim Hamlett: Here’s why military training is not suitable for children

48 Hemlock: Hong Kong officials get bored, play insurance salesmen

Mainland developers eat up HK land pie

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 | MAY 2017 262 Des Voeux Road Central, Hong Kong

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AVIATION

Cathay Pacific to offer 14 new destinations with Lufthansa Group Cathay Pacific signed a cooperation agreement with the Lufthansa Group that will see the airline codeshare on flights to a number of destinations in continental Europe. The Lufthansa Group will codeshare on Cathay Pacific services to four of the airline’s most popular destinations in Southwest Pacific.

ECONOMY

Key economic concerns that continue to haunt Hong Kong Domestic demand continues to face significant downside risks from an extremely expensive housing market. BMI Research cited the following factors: worsening affordability, rising interest rates amidst the US Fed rate hiking cycle, and government policies such as increasing housing supply and curbing of speculative activity.

4 HONG KONG BUSINESS | MAY 2017

HR & EDUCATION

Average wage rate in Hong Kong rises 3.6% December’s average wage rate grew 3.6% in nominal terms over a year earlier, the Census & Statistics Department said. About 67% of companies reported increases in average wage rates in December compared with a year ago. 30% recorded decreases, whilst 3% reported virtually no change.

ECONOMY

2 reasons behind Hong Kong’s lower February inflation Headline CPI inflation dropped to -0.1% year-on-year in February from 1.3% yoy in January, below market expectations of 0.7% yoy, according to Bank of America Merrill Lynch (BofAML). The underlying inflation, which nets out the effects of the government’s one-off relief measures, declined to 0.7% yoy in February from 2.1% yoy in January.

RETAIL

Consumers in a ‘casual’ relationship with fast-fashion retailers They like the brand but do not want to be too engaged. Global loyalty marketing agency ICLP surveyed 750 consumers in Hong Kong and asked them the brand that comes to their mind first of the retailers that they shop regularly.

Over 30% named supermarket brands as their top-of-mind brands.

COMMERCIAL PROPERTY

Hong Kong is the world’s most expensive office market: CBRE Hong Kong is the world’s highestpriced office market, according to CBRE’s Global Prime Office Rents survey. Hong Kong had two of the top three most expensive office markets. Hong Kong (Central) held the top spot with prime office rent of US$264 per sq ft per year and Hong Kong (West Kowloon) (US$163 per sq ft) was third.

FIRST “That effect will reverse in Q3 and with property prices reaching new all-time highs in March, we expect inflation will rise quickly later this year and in 2018.” They believe that, with actual property prices rising and most other components of the CPI showing rising inflation, the headline figure could be understating true inflation. A year from now it will be obvious that higher US – and so Hong Kong – interest rates are just what is needed, they argue.

FORGING TIES WITH FINTECH FIRMS

If the PwC Global FinTech Survey is anything to go by, then it means more financial institutions are now more open to forge partnerships with financial technology firms in the next three to five years.

The study revealed that 82% of financial firms want to tap fintech firms rather than radically reinvent themselves.

“The survey respondents in Hong Kong are showing a very pragmatic response to the challenge thrown down by fintech startups,” says PwC China and Hong Kong financial services leader Matthew Phillips, noting that incumbents can import culture change through partnership, and the startups can more easily gain penetration.

However, the survey found that there are concerns likely to dampen enthusiasm. Three in five financial firms are wary of the regulatory uncertainty that could arise. Competition for talent could also be an issue, with 87% of respondents saying it is difficult to hire and retain people who can innovate.

Exciting opportunities Still, for PwC fintech & regtech lead Henri Arslanian, the survey highlights a number of exciting opportunities in Hong Kong.

“Respondents here show strong interest in Robotic Process Automation and other regtech solutions that can greatly reduce the cost of compliance. This presents a unique opportunity for Hong Kong to position itself as a relevant hub for such services that can then be successfully exported regionally, or even globally.”

The survey also revealed that firms are seeing potential applications for blockchain. The main uses are for fund transfers and payments, but respondents also see a lot of potential in digital identity management.

6 HONG KONG BUSINESS | MAY 2017

Hong Kong’s GDP growth in 2016 was 1.9%

The rate rises HK needs

H

ong Kong’s retailers may have been hoping for a better start to the year but early results have been disappointing.

The government estimates that on a seasonally adjusted basis, retail sales volumes in January/February averaged about 4% lower than the Q4 average. This surprised economists who had expected some sequential growth. And whilst the year-on-year trend in retail sales growth is still in the right direction, it’s not quite as positive as they thought it would be.

This is at odds with both rising incomes in Hong Kong and tourism numbers, which seem to be improving. Sure, tourist arrivals rose 1.4% yoy in January/February, which may not sound like much but was actually the fastest growth in two years. The good news is, in general, the economy is going great guns, growing 4.8% yoy.

The implication for broader consumption is complicated, however, by the fact that CPI inflation – which until 2013 tracked retail prices closely – is falling. That’s because the housing component of the CPI lags market rents by about 16 months, and so the CPI today is being dragged down by the temporary decline in property prices in late 2015, explains Deutsche Bank economists.

The value of exports of goods jumped by 6.7% yearon-year in the first two months of the year after growing by 5.4% in the fourth quarter of 2016.

Numbers to watch out for Hang Seng Bank economists note that for 2016 as a whole, Hong Kong’s GDP growth was 1.9%, a figure at the upper end of the government’s estimate of 1 to 2%. Expecting the growth momentum to continue and assuming a stable global environment, the government now forecasts a further upturn in GDP growth to a range of 2 to 3% for 2017.

“Indeed, recent data suggests a modest improvement in economic activity at the start of 2017. The value of exports of goods jumped by 6.7% yoy in the first two months of the year after growing by 5.4% in the fourth quarter of 2016,” they note.

Economists add that whilst retail sales volume recorded a 3.6% annual rate of decline in the January to February period – a performance that was only marginally better than the 3.7% fall in the fourth quarter of last year – the persistence of a low unemployment rate as well as the rebound in the number of tourist arrivals should continue to provide support for retail spending. Now all Hong Kong’s retailers need is for those extra tourists to restart their spending.

Tourist arrivals and median household income

Sources: CEIC and Deutsche Bank Research

FIRST Top 10 overseas destinations for Asian UHNWIs to own overseas property

Source: Knight Frank

Hong Kong’s elites favour quick access to their money

Ultras find comfort in liquidity

W

e all know that when it comes to money, Hong Kong is different. But just how different has been shown by a recent wealth survey by property consultancy Knight Frank. Where the rest of the world’s ultra high net worth individuals (UHNWIs) – defined as people with more than US$30m in assets – see wealth preservation as the most important concept behind their money, it was not so for Hong Kong’s elites who favoured quick access to their money over all the other factors. In fact, the global average for liquidity as an important factor in a wealth plan was 27%, but Hong

Kong’s wealthy topped the poll at 65%. Whilst property may not be the most liquid of assets, Knight Frank’s Nicholas Holt reckons that real estate in liquid, secure, major global markets – that proves a hedge against inflation and provides long-term capital growth upside – continues to be a key target of many wealthy individuals throughout the world.

The survey also showed that amongst investable asset classes, real estate investments came top of the list for Asians’ wealth allocation at 29%, compared to the global average of 24%. Another interesting finding was that on average, survey respondents

Real estate investments came top of the list for Asians’ wealth allocation at 29%, compared to the global average of 24%.

across the world stated that their clients typically own about three homes. Only Malaysia and Taiwan respondents stated four homes on average.

Overseas property investments The survey findings also show Hong Kong as the market with the largest group of private wealth among UHNWIs across Asia-Pacific to have already invested in overseas commercial property. Interestingly, Hong Kong itself is not high as a preferred destination for commercial property investment, with Singapore coming in as most preferred, followed by the UK and the US. The other interesting thing to come from the survey was that China’s wealthy have the greatest preference for buying a second property outside of the mainland, and Hong Kong remains their preferred place. This helps explain why it is proving so difficult for the Hong Kong government to get prices down.

The Chartist: stronger economic growth is expected overall Export volumes ended 2016 growing at their fastest pace in three years, notes Deutsche Bank Research. In value terms, growth in exports rose to 8.8% year-onyear in January/February. “If we ignore a spike due to a lunar new year event in 2013, this would be the fastest growth in exports since late 2011,” says Deutsche Bank.

Retail sales data, on the other hand, have not been meeting expectations. However, Maybank Kim Eng Research notes that the sales decline appears to have bottomed, based on Hong Kong statistics bureau data. It says if recent trends continue, the stabilisation should be sustained this year.

This is also supported by the steadying number of mainland visitors to Hong Kong after two years of decreases.

Hong Kong exports and China trade

Sources: CEIC and Deutsche Bank Research

Retail sales volumes and retail prices

Source: Deutsche Bank

HONG KONG BUSINESS | MAY 2017 7

FIRST

Hi-tech sleeping pods now in HK

Survey

Tug-of-war for talent

S

triking the right balance between space and convenience has always been tricky, especially in Hong Kong where hotels are faced with space constraints. SLEEEP, licensed in late 2016 as the first legitimate capsule hotel in Hong Kong, may have gotten the right balance with its SLPer capsules.

A brainchild of Space is Ltd’s founders Alex Kot and Jun Rivers, SLEEEP is a technologically advanced twist to the capsule hotels concept developed and popularised in Japan.

Enclosed by an innovative magnetic curtain, each capsule has real wood linings, circadian lighting, active air supply, and climate control – all of which are subtle use of technology to enable high-quality sleep. Guests can also choose their preferred mattress firmness, pillow type, and blanket thickness – something often only seen at high-end hotels.

Guests can book for either an hourly or overnight stay

activity that is practiced by everyone, everyday, everywhere. Yet, in a stressful and overworked environment such as Hong Kong, that foundation is sacrificed in the name of improving living standards. We thought that contradictory and unsustainable.”

This hospitality concept might just fit well with Hong Kong’s adjusted tourism strategy aimed at attracting high-yield overnight visitors. To Staircase surprise Not only the rooms are maximising the recall, Secretary for Commerce & limited space, the hotel itself is cramped Economic Development Gregory on 242 Queens Road Central in Sheung So in February said $17m has been Wan, halfway along a staircase between allocated to encourage the development of projects with local characteristics Queen’s Road Central and Gough and environmental tourism. Visitor Street. In the words of co-founder numbers slumped 4.5% in 2016, the Rivers, “It’s a breathing space within a worst fall since the SARS outbreak hit suffocating environment.”

Hong Kong in 2003.

Rivers says, “Sleep is an essential SURVEY

Tech talents found to be “restless for new jobs” Employers are facing an even greater challenge to retain finance technology and IT talent this quarter with more candidates restless for new opportunities, according to recruiting experts Hays. The Hays Quarterly Report tracks recruitment trends in Hong Kong and reveals that technology candidates are upskilling in their own time in readiness for a job move from April onwards.

Dean Stallard, regional director for Hays in Hong Kong, says many fintech candidates are giving notice or planning to do so after receiving their annual bonus, and this is only increasing the intensity of the hiring challenge.

“We are seeing an increasing number of employers recruiting from regions outside of Hong Kong, especially for newer technology skill sets as local candidates with the right skills are hard to find,” notes Stallard.

8 HONG KONG BUSINESS | MAY 2017

It’s a breathing space within a suffocating environment.

Expect more hiring and heated competition for recruits in the insurance sector this quarter.

Hays Hong Kong regional director Dean Stallard says the insurance sector is growing particularly strong and also diversifying product ranges to meet the demands of consumers and regulatory change, thus creating fierce competition for talent. “Insurance employers may have to use buy-out options to lure candidates away from competitors.”

He notes that multiple insurers have been reviewing their portfolios and now need to effectively manage and expand their product lines. For instance, major regulator and health reforms are making product changes a necessity. Majority of the demand for talent will be from life and health insurers.

Financial planning roles This rapidly growing insurance sector would then create more financial planning & analysis and management reporting roles.

Financial reporting candidates with project management skills are also in demand in banking to meet the still relatively new IFRS 9 and IFRS 4 accounting reporting standards.

Meanwhile, new Hong Kong Monetary Authority regulations are creating demand for mid to senior level talent well versed with the relevant guidelines.

Demand is particularly high from Chinese banks.

Stallard notes that employers in the accountancy & finance space may need to consider hiring expatriate talent or attracting back local talent from overseas. This is the same case as with the procurement sector, where talents leave for better salaries and work-life balance.

FIRST

Please mind the gap: A look at Asia’s widening salary discrepancies

F

or all the talk that bosses in Hong Kong are paid far more than workers, a new survey by benefits consultants Willis Towers Watson shows that local bosses are paid relatively less than their regional counterparts when measured against entry-level salaries. Over 2016, Hong Kong’s salary gap also rose from 6.2 to 7.5 times, which in itself is quite significant.

However, it pales in comparison to other markets such as Indonesia, which has the biggest base salary gap in 2016 of 15.8 times with top management earning US$190,000 a year compared to professional-level staff who earn about US$12,000. The differential there widened from 12 times in 2015 and 11.8 times in 2014.

in China rose from 9.7 times in 2015 to 10 times in 2016. The change in Singapore was minimal, rising from 6.3 to 6.5 times.

Although China saw the gap widen between 2015 and 2016, base salaries for top management and professional-level staff actually grew at similar speeds, by 18% and 16%, respectively.

Asia vis-a-vis the US Despite calls from some quarters to reign in executive pay, Asia is in fact leading the way in pay discrepancies between top management and line executives. Top executive base salaries in Asia overtake those in the US, but junior levels lag far behind. In Hong Kong and Singapore, total guaranteed cash salaries (base salaries plus total fixed allowances) last year were more than 25% higher than the average Gap leaders US$233,000 earned in the US. Following close behind Indonesia is In 2016, for every US$100 that top Thailand. Top management in Thailand management in the US earned in base earn about US$202,000 a year, 14.9 times salary, their peers in Singapore and that of professional-level staff (US$13,600), Hong Kong made US$132 and US$128, a gap markedly wider than 8.7 times in respectively. On the same basis, top 2015 – the biggest year-on-year jump in management in China (US$98), Thailand salary gap seen in Asia last year. The gap in (US$87), Indonesia (US$82), and South Vietnam also stood at 14.9 times in 2016.

Korea (US$82) also earned similar total Elsewhere in the region, the salary divide guaranteed cash to their counterparts in OFFICE WATCH

playground.work fosters a happy working culture playground.work is a coworking space in Hong Kong that provides a coworking community for its members. With spaces in Sheung Wan and Causeway Bay, it has a goal to create a happy working culture called Work Life 3.0. This means that in the new working generation, there is trust between employers and employees so that everyone can work and enjoy life at their own pace anytime, anywhere, says Winnie Chung, CMO of playground.work.

The Sheung Wan centre has 10 private offices, about 30 hot desks, as well as high-tech conference facilities. It also has a bouldering wall and a cafe with onsite baristas. “Our cafe@playground.work is an all-time favourite for members,” says Chung.

A spacious open area can also be converted into a versatile event venue. Membership is open to all. Meanwhile, the centre in Causeway Bay houses around 20 hot desks, and membership is by invitation only.

10 HONG KONG BUSINESS | MAY 2017

Hong Kong’s salary gap is 7.5 times

the US. Many top executives in the US, however, receive various incentives.

Understandably, whilst top executives in many Asian markets earned salaries close to or above those in the US, at lower levels in the corporate hierarchy was a different story. Amongst the above markets, for every US$100 that professional-level staff earned in the US, their peers in China (US$35), Thailand (US$21), and Indonesia (US$18) made just a fraction.

Noteworthy too is in India, where the figure was just US$15. Meanwhile, the difference was less pronounced in Japan (US$70) and in South Korea (US$63), but still very discernible.

So long as junior staff are still seeing salary rises, they may not mind the gap so much. But how much longer Asia’s corporate chiefs can be world leaders in pay gaps is an open question.

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FIRST NUMBERS

JOB SATISFACTION

More challanges in land bank replenishment is expected

Mainland developers eat up HK land pie

H

ong Kong’s property market just can’t be held down despite the government’s attempts to tug surging prices. Two mainland developers, KWG Property and Logan Property, paid a record $16.9b for a waterfront residential site on Ap Lei Chau island, equivalent to an average land cost of $22,118psf.

Raymond Liu, an analyst with Macquarie, says that it breaks the record land sales value in Hong Kong, compared to previous land king for Siu Sai Wan at $11.8b in 1997. A total of 14 developers participated in the land tender.

Chinese developer competition This record purchase is reflective of the aggressively growing role of Chinese developers in Hong Kong’s property market. “We anticipate more challenges in land bank replenishment for major developers, due to more active participation by mid-small scale developers and Chinese developers,” says Liu. Developers like Sun Hung Kai with an existing sizable quality land bank will have a competitive advantage, he adds. Others may suffer from lower profitability if they are to replenish their land bank in the open market.

Meanwhile Nicole Wong, analyst with CLSA, raises her concern that Chinese developer competition for land will reduce

12 HONG KONG BUSINESS | MAY 2017

Hong Kong developers’ reinvestment options. Additionally, she says, “The advantage of Hong Kong developers’ strong balance sheets and local knowledge is fading. The breakeven price of $28,000psf is above neighbouring Marina South, which means big price appreciation is needed for the project to be profitable; a reason why the Hong Kong developers shied away.”

Wong explains that Chinese developers have different considerations when buying Hong Kong properties. “First, the ability to source from a much bigger pool of mainland buyers means stronger pricing power, and second, the return from holding HK dollar assets as the RMB depreciates is a potential bonus,” she says. Wong also notes that Mainland company interest in Hong Kong’s land market has caused their market share to increase from 24% in 2015 to 45% in 2016, and is at 100% of all land sold year-to-date.

The advantage of Hong Kong developers’ strong balance sheets and local knowledge is fading.

Rolling saleable supply in HK (red, 000s units)

Sources: CEIC, Macquarie Research, February 2017

Source: Randstad Workmonitor Q1 2017

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startups

Ampd Energy offers cutting-edge energy storage for companies

P

ower storage company Ampd Energy ensures businesses and brands, as its founders say, see the light and stay switched on.

Co-founded by electric visionaries Brandon Ng and Luca Valente, Ampd Energy designs, engineers, and makes state-of-the-art, grid-connected energy storage systems.

The company’s Ampd Silo is at the cutting edge of energy storage. It uses 1,792 Li-ion batteries to store on-grid energy, and can deliver backup power instantaneously. Several patents have been filed relating to the technology and materials used in the Silo.

According to Brandon Ng, CEO, Ampd Energy, two years of research and development went into creating Ampd Silo. Ng shares that the lightbulb moment for Ampd Energy was during a blackout when he and Valente realised that their motorcycle EV batteries could be scaled to power buildings.

“From darkness came light, and compact, uninterrupted backup power supply for businesses and brands all over Asia, and beyond,” remarks Ng. He notes that three billion people and millions of companies do not have access to reliable electricity.

The Ampd Silo is eco-friendly and has a zero transfer time, allowing users to backup mission-critical devices found in airports, emergency room wards, and data centres. The business was started through a process of trial and error, as the founders painstakingly developed an on-grid energy storage system.

Numerous private individuals were eventually won over by the company’s vision and the first prototype, leading to US$3.7m in Series Seed funding. Series A funding is expected to be completed in Q3-Q4 of 2017.

Man’s best friend: DOTT is the dog tag of the future battery life is more than 6 months,” notes Ashley Tang, CEO, DOTT. “It makes use of existing pet owner communities, and help each other look for missing pets.”

Tang and DOTT co-founder and CTO, James Williams, started their initiative because of the fact that more than 10 million pets get lost in the United States every year. “Only 10% are ever found ,” says Tang. She is a passionate pet lover who, during her DOTT is a smart dog tag that replaces childhood, had 10 pets which got lost.

On the other hand, Williams is a dog the old, traditional pet tags and acts owner determined to develop new as a virtual leash. It provides pet owners with the latest technology to DOTT products which can improve the quality of life for pets, their owners, locate their missing pets with just a and the community. tap on their mobile devices.

The DOTT team comprises pet Based in Silicon Valley and lovers in Silicon Valley and Hong Kong, in Hong Kong, DOTT is backed with proven entrepreneurship and by well-established technology companies such as a partner of Texas corporate experience from Citibank, Linkedin, and Yahoo, amongst other Instruments. It is also supported by companies. “We met each other in dog world-class manufacturers. parks, we shared the same vision, and “DOTT is extremely small and light, only 7g and 1.5cm in radius, the we founded DOTT,” recalls Tang.

14 HONG KONG BUSINESS | MAY 2017

EONIQ turns watch buyers into designers of timeless pieces

EONIQ, a custom watch brand founded in Hong Kong, prides itself as the first in the world to bring customised mechanical watches designed by users at the price point of a fashion watch. “On top of offering selections for different watch components, we also enable users to upload their own designs and images so they can create truly unique watches,” says EONIQ founder Quinn Lai, who consider himself a mechanical watch lover.

Prior to the founding of EONIQ, Lai and his team aspired to build a Hong Kong-based startup that can address the global clamor for affordable customisable watches. With none of the founders originating from rich families, they understood the pain in finding a truly unique but affordable watch that they would be proud to wear, shares Lai. “EONIQ brings the originally luxury exclusive enjoyment of quality unique watches to everyone,” he says. “In addition, an easy to personalise watch with timeless quality makes EONIQ watches great gifts for special occasions.” The watches are sold online to the global market.

Bespoke and timeless “We did an indiegogo.com crowdfunding campaign and raised more than US$466,000,” shares Lai. On their indiegogo.com campaign, Lai and his team said, “We are a group of watchmakers creating custom mechanical watches that are timeless but affordable. Unlike the mass-produced quartz watch you usually get for US$200, EONIQ watches are handcrafted with a quality Japanese skeleton movement. We believe that everyone, regardless of their background, should be able to own a timepiece that’s both unique and meaningful.” In just one and half hours after kicking off the campaign, EONIQ managed to be 100% funded.

Buyers can design the watches online, and EONIQ can ship them internationally. Lai shares they had a client from the United States who wanted to design a watch using a personalised logo that his father created. “And we made his dream came true.”

Lai says EONIQ was able to launch four new products whilst also doubling headcount, going on indiegogo.com, and launching an offline store – all within a span of two months and without any backing by investors. Regarding future plans, EONIQ is focussing on the offline marketing of its Hong Kong store.

co-published Corporate profile

The Panda Hotel: Unique and memorable stays in Hong Kong that go beyond the usual

Some hotels offer excellent service – Panda Hotel aims to offer that, and more.

Starlit botanical terrace on 7/F of Panda Hotel

A

number of hotels in Hong Kong and the region pride themselves in offering unparalleled customer service: modern, polished, and highly detailed. The problem is, so are several more. As competition gets more cutthroat, hotels are challenged to differentiate and provide distinct and unique experiences for customers to plan more visits. The Panda Hotel considers itself to be one such hotel that manages to offer such a decidedly memorable experience, which, according to Raymond Lau, Panda Hotel director of human resources, entails “engaging with all our guests with positive service attitude and team spirit.”

A member-hotel of Hong Kong-based Hopewell Holdings Limited, Panda Hotel is considered to be the first sizeable hotel in the Tsuen Wan district, and one of Hong Kong’s largest with more than 900 elegant guestrooms and suites, and four dining outlets. “Located in a district that is full of history but yet is contemporary – the pathway that connects local and international – Panda Hotel is well-known as one of the most emblematic buildings in the bustling heart of Tsuen Wan,” shares Steffi Leung, Panda Hotel director of catering. Leung also notes that the Panda hotel exterior, with its iconic panda painting, is a favourite amongst travellers

for photo shoots and the like.

Location is not a problem as the hotel is accessible to various points in the city.

“Panda hotel serves as a landmark in the heart of Tsuen Wan, a developed area and key gateway between the Kowloon and the New Territories. We are conveniently located in a comprehensive transport network supported by the Mass Transit Railway, buses and taxis with 30-minute or less access to the Hong Kong International Airport and the AsiaWorld-Expo,” she says.

Thrilling venues and culinary delights Inside the hotel, guests will discover an array of event venues to suit all occasions.

The Panda Grand Ballroom is widely acclaimed for its glamorous ambience, advanced audio-visual (AV) system, and wi-fi technology. “This elegantly spacious venue accommodates up to 1,100 guests and with over five set-ups available for multipurpose events, giving you maximum flexibility,” says Leung.

Another venue that may interest more adventurous guests is the CRYSTAL, a 5,742-square feet function room designed by awarded architect Philip Liao. Recently renovated, the CRYSTAL now boasts of a unique, colour-changing LED (light-

emitting diode) crystal wall. Like the Panda Grand Ballroom, the CRYSTAL is also equipped with professional AV facilities and professional catering services. “It is a perfect venue for entertaining friends, hosting a wedding ceremony, scheduling a business meeting, or even a large-scale seminar,” notes Leung. This comes in addition to a stylish VIP room and a starlit outdoor terrace on the 7th floor.

Aside from events, dining at the Panda Hotel is also quite a treat with four sumptuous dining outlets to choose from: the Michelin-recommended Chinese restaurant YinYue, the award-winning European restaurant Balcony, the all-day dining Panda Café, and the Sports Bar – all with global cuisines curated by a team of honoured chefs. YinYue, which commands dazzling panoramic city views outside floor-to-ceiling curtain windows, is led by award-winning executive chef Leung Yiu-kei. YinYue makes the ideal choice for private dinners or other more formal gatherings.

Correct attitude, skills, attributes How does Panda Hotel, which believes people are its greatest assets, manage to operate and deliver such meaningful and memorable experiences for its guests? The secret, according to Lau, lies in instilling the proper philosophy or standard of service in its associates. “Hire for correct attitude, and train for the required skills, and align all associates with the required attributes,” explains Lau, citing caring and commitment, communication and engagement, creating an impression, innovation and responsibility, passion and service attitude, and teamwork as these required attributes.

2017 is shaping up to be a busy year for Panda Hotel with several plans in the pipeline, specifically in the areas of food and beverage, rooms, and MICE (meetings, incentives, conferencing, and exhibitions). “We will continue to actualise our service philosophy and strike to go beyond borders in service excellence,” remarks Leung.

“We are going beyond borders in service excellence.”

HONG KONG BUSINESS | MAY 2017 15

FEATURE: CLOUD TECHNOLOGY for the cloud services market in the near term.

Through 2020, cloud adoption strategies will influence more than 50% of IT outsourcing deals

Up, up, and away: Why the cloud is the way to go

Enterprise IT spending on cloud-based architectures will become an increasingly larger portion of the annual global enterprise IT spend.

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loud computing has gone a long way from being the industry foe in the past 10 years. By 2017, global cloud service providers (CSPs) are expected to generate approximately $235b of revenue from cloud computing services, according to PwC. “As it enters its second decade, cloud computing is increasingly becoming a vehicle for nextgeneration digital business, as well as for agile, scalable, and elastic solutions,” says David Mitchell Smith, vice president and Gartner Fellow. “CIOs and other IT leaders need to constantly adapt their strategies to leverage cloud capabilities.”

The cloud and big data are poised to reshape various facets of the consumer digital lifestyle and enterprise IT strategies whilst 16 HONG KONG BUSINESS | MAY 2017

The overall global public cloud market is entering a period of stabilisation, with its growth rate peaking at 18% in 2017.

creating new opportunities as well as challenges for different nodes in the entire ICT value chain. “Today the enterprise cloud market is poised for explosive growth as an increasing number of large and small enterprises are moving more and more of their applications to the cloud,” IHS says in a report.

IHS projects that enterprise IT spending on cloud-based architectures – in which storage, servers, applications, and content can be configured and delivered in a framework that is rapidly scalable, dynamically provisionable, on-demand, and with minimal management requirements – will become an increasingly larger portion of the annual global enterprise IT spend of approximately US$2t.

With these figures in mind, it’s worth looking at growth forecasts

Public cloud services’ growth Gartner says that the worldwide public cloud services market is projected to grow 18% in 2017 to a total of $246.8b, up from $209.2b in 2016. Cloud system infrastructure services (infrastructure as a service [IaaS]) will be the growth driver as it is projected to balloon 36.8% in 2017 to reach a market value of $34.6b. Cloud application services (software as a service [SaaS]), on the other hand, is expected to grow 20.1% to reach $46.3b.

“The overall global public cloud market is entering a period of stabilisation, with its growth rate peaking at 18% in 2017 and then tapering off over the next few years,” says Sid Nag, research director at Gartner. “Whilst some organisations are still figuring out where cloud actually fits in their overall IT strategy, an effort to cost optimise and bring forth the path to transformation holds strong promise and results for IT outsourcing (ITO) buyers.

Gartner predicts that through 2020, cloud adoption strategies will influence more than 50% of IT outsourcing deals.”

“Organisations are pursuing strategies because of the multidimensional value of cloud services, including values such as agility, scalability, cost benefits, innovation, and business growth,” says Nag. “Whilst all external-sourcing decisions will not result in a virtually automatic move to the cloud, buyers are looking to the ‘cloud first’ in their decisions, in support of timeto-value impact via speed of implementation.”

Slower SaaS market growth The SaaS market is projected to suffer a slightly sluggish growth over the next few years, no thanks to the increasing maturity of SaaS offerings: human capital management and customer relationship management. The

FEATURE: CLOUD TECHNOLOGY

CIOs and other IT leaders need to constantly adapt their strategies to leverage cloud capabilities

acceleration in the buying of financial applications does not help as well, according to Gartner.

Nevertheless, Gartner is confident that SaaS will remain the second largest segment in the global cloud services market.

“As enterprise application buyers are moving toward a cloud-first mentality, we estimate that more than 50% of new 2017 large-enterprise North American application adoptions will be composed of SaaS or other forms of cloud-based solutions,” says Nag. “Midmarket and small enterprises are even further along the adoption curve. By 2019, more than 30% of the 100 largest vendors’ new software investments will have shifted from cloud-first to cloudonly.”

Gartner predicts more cloud growth in the infrastructure compute service space as adoption becomes increasingly mainstream.

Additional demand from the migration of infrastructure to the cloud and increased demand from increasingly compute-intensive workloads (such as artificial intelligence [AI], analytics, and Internet of Things [IoT]) – both in the enterprise and startup spaces – are driving this growth.

Furthermore, the growth of platform as a service (PaaS) is also driving the growth in adoption of IaaS. “From a regional perspective,

China’s IaaS cloud market forecast has been increased to account for anticipated higher buyer demand over the forecast period. In particular, the larger pure-play IaaS providers in China, as well as other telecom-related cloud providers driving this market, are reporting significant growth,” says Gartner.

Beyond cloud-only strategy PwC says that in the current economy, companies are searching for ways to save money, limit fixed costs, and improve efficiencies. In addition, trends such as the use of smartphones, tablets, multiple devices, and telecommuting have created a perfect storm ripe for an alternative IT solution such as cloud computing.

“Companies have started using the cloud computing paradigm internally to improve on IT service delivery and foster innovation.

Some telecommunication providers are offering a range of services such as network data backup and in some cases, are partnering with established cloud providers to either resell their services or provide infrastructure and hosting services,” it adds.

With this, Gartner predicts that by 2020, anything other than a cloud-only strategy for new IT initiatives will require justication at more than 30% of largeenterprise organisations. During the past decade, cloud computing

has matured on several fronts.

Most security analysis suggests that mainstream cloud computing is more secure than on-premises IT. Cloud services are more often functionally complete, and vendors now offer migration options.

“Importantly, innovation is rapidly shifting to the cloud, with many vendors employing a cloudfirst approach to product design and some technology and business innovations available only as cloud services. This includes innovations in the Internet of Things and artificial intelligence,” says Gartner.

As the pressure to move to cloud services increases, more organisations are creating roadmaps that reflect the need to shift strategy.

Meanwhile, Celent warns that even though the understanding and openness to embrace the cloud are improving amongst capital market firms, there are still some challenges and concerns that financial institutions and their service providers must grapple Gartner predicts with as the industry navigates this that through phase of industry evolution. “Some 2020, cloud of the challenges are observed adoption in other industries as well, but strategies will stringent regulatory scrutiny on influence more capital market firms requires them than 50% of to design fool-proof solutions to IT outsourcing overcome the challenges, which can deals. slow down pace of adoption.”

Cloud services are more often functionally complete

HONG KONG BUSINESS | MAY 2017 17

CLOUD FEATURE

Towngas Telecom: Combining innovation and quality service Boosted by immense market demand for processing and information technology, Towngas Telecom (TGT) has been riding the wave of the big data era.

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eadquartered in Hong Kong, Towngas Telecommunications Co Ltd (TGT), a wholly owned subsidiary of The Hong Kong and China Gas Co Ltd and an associated company of Henderson Land Development Co Ltd, has long gained an outstanding track record for its pragmatic approach to quality services, particularly through the use of GIG (glass in gas technology).

GIG, a proven technology dating back to 1998, consists of harnessing Hong Kong’s existing gas pipeline network to offer muchneeded fibre connectivity in the territory by putting the fibre within the polyethylene casing pipe within the gas pipe, to prevent external interference. This way, TGT is able to maintain the reliability and sustainability of premium services to local clients.

A secure and cost-efficient technology According to TGT, GIG technology offers two important features for its customers: security, as well as reduced costs. “Using gas pipelines adds an additional layer of physical protection as pipelines are clearly marked in blueprints and the fibre is protected within an existing pipe. This prevents the potential of a mishap when other network providers are laying their own lines,” says Godfrey Chan, Vice President, Sales & Business Development (HK) at TGT. In terms of costs, GIG is also cheaper and hence, more efficient. “Since the technology is also less expensive, the cost efficiency is passed on to customers.”

Today, TGT’s vast GIG network has produced superior fibre connectivity to majority of Hong Kong. TGT now provides up to 100 gigabytes per second point-to-point fibre links and dedicated bandwidth services such as T3/DS3, STM-1, STM-64, GE, and 10GE. Outside Hong Kong, TGT also offers GAG (glass along gas) technology, particularly in mainland China, by simultaneously laying telecom cables with gas pipes. “Both techniques have produced excellent results and have minimised installation time and environmental pollution whilst saving the customer the cost of network infrastructure installation,” says Chan.

18 HONG KONG BUSINESS | MAY 2017

TGT is able to deliver its services through the help of two main high-performance facilities that provide a robust infrastructure and exceptionally high levels of reliability, designed and built in compliance with TIA (Telecommunications Industry Association)-942 rated-3 standards.

provide premium and environmentally-friendly services to telecommunications operators and broadcast institutions in Liaoning and Shanfong,” says Chan. Customers are then able to leverage these projects and the relationships formed from them to expand or connect to China-based operations.

Reliable data facilities “TGT Hong Kong Data Centre 2 (TGT HKDC2) was launched and started operation in Tseung Kwan O in 2014. With an area of 22,000 square metres, it is able to accommodate 3,000 racks. The centre aims to serve the company’s future development needs and provide services for small-tomedium enterprises,” notes Chan.

TGT HKDC2 joins San Po Kong’s TGT HKDC1 in Hong Kong and other carrierneutral world class data centres in Jinan, Dalian, Dongguan, and Harbin, which accommodate up to 15,000 server racks in Hong Kong and China. Due to the company’s significant links to mainland China, TGT customers can expect to reap concrete benefits from this key connectivity factor with the world’s economic powerhouse.

“TGT has spearheaded numerous telecommunications infrastructure projects to

Embracing the cloud Moving forward, TGT expects to focus on cloud computing. Chan says, “We are offering a solution for small-to-medium enterprises to move applications to the cloud.

The move comes at a time when small-tomedium enterprises are looking to mobility to further improve business productivity and competitiveness.”

In 2016, TGT unveiled its cloud solution called TGgo, designed for various business and information technology needs and tailored for small-to-medium enterprises.

With a robust cloud computing platform such as TGgo, small-to-medium enterprises can enjoy flexible and easily-managed cloud resources with rapid elasticity, lower capital expenditures, and a renewed focus on growing the business. “We provide a secure, high-speed tunnelling solution that connects their offices,” explains Chan.

“Since the technology is also less expensive, the cost efficiency is passed on to customers.”

CLOUD FEATURE

Over 250 leading experts and end-users to speak across 12 theatres

Cloud Expo Asia: Advancing the latest and best in cloudbased expertise in the region North Asia’s largest cloud computing event is once again here – with exciting new additions.

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ith the rapid advances in information technology (IT) taking place nearly each day, more customers are similarly becoming more demanding of IT firms. It is no longer enough to be knowledgeable on certain topics and issues – rather, the name of the game is now ensuring that IT professionals are up-to-speed on the latest and best practices.

Cloud Expo Asia, Hong Kong aims to offer just that. Dubbed as “North Asia’s largest dedicated cloud computing event” and organised by UK media company CloserStill Media, Cloud Expo Asia will be hosted on 2425 May 2017 at the Hong Kong Convention and Exhibition Centre.

Diverse participants and industry leaders During the expo, business leaders and IT professionals will get the opportunity to see the latest technologies and available IT solutions, and hear from various global and local groups that have overcome similar challenges in the field. The conference will help businesses develop or maintain a competitive edge, and provide insights into opportunities offered by solutions.

Cloud Expo Asia is structured to allow participants to gain maximum benefits by bringing together the world’s best cloud expertise, a world-class conference programme, and exciting event features. ”As Hong Kong’s largest IT event for business, attendees will benefit from meeting customers, suppliers, vendors, industry 20 HONG KONG BUSINESS | MAY 2017

legends, investors, startups, government personnel – the IT and business communities come together. It’s free to attend, so C-Suite business owners can attend with the infrastructure teams. They all leave better informed about the opportunities for their digital transformation journey,” says Chris Brown, Group Event Director, Hong Kong & North Asia, CloserStill Media Hong Kong.

Over 150 leading cloud providers and solution leaders such as Bosch, Emerson, HGC, Intel DCM, IBM, Microsoft, Panduit, Rahi System, R&M, Thales, Veeam, amongst others, will be present at Cloud Expo Asia.

Further, over 250 prominent industry experts from the public sector, international blue-chip companies, leading organisations, service providers, and innovative small and medium enterprises including Airbnb, Baidu Research, DBS Bank, Hong Kong Police Force, Hong Kong Science and Technology Parks, Intel, Interpol, Morgan Stanley, MTR, Sephora, and Twitter will be there to cover major technology and business issues.

New features and co-located events For 2017, Cloud Expo Asia is expected to host several new segments or events, namely an Information Security Summit co-hosted with Smart City Consortium, a FinTech (Financial Technology) Innovation Stage in partnership with FinTech.hk and Wireless Technology

Over 150 international exhibitors to showcase

Industry Association, a Smart IOT (Internet of Things) Showcases and Conference Stream on IOT/ Big Data & Analytics, an SME Solution Seminar on TVP (technology voucher programme) and case studies, a Unified Communication Experience Zone, and a Live Green Data Centre showcase.

“This is an ecosystem event, so everything from DevOps (software development/ information technology operations) and agile networks to data centre efficiency and industrial IOT,” notes Brown. “Any individual or organisation that has a stokehold in the delivery of deployment of IT solutions is welcome to attend. Over 7,000 delegates are expected, so there will be a new opportunity for everyone,” he adds.

There are also co-located events: Cloud Security Expo, Smart IoT Hong Kong, and Data Centre World. Cloud Security Expo and Smart IoT Hong Kong are two events in particular that are being held in 2017 for the first time. At the end of the day, Cloud Expo Asia seeks to cater to the widest audience as possible, all in the name of providing the best IT and cloud-related intelligence available.

Cloud Expo Asia, Hong Kong Venue and date: Hong Kong Convention and Exhibition Centre, 24-25 May 2017 Website: www.cloudexpoasiahk.com Email: ceahkmarketing@closerstillmedia.com

They leave better informed about the opportunities for their digital transformation journey.

186C Cool Gray 8C

HONG KONG BUSINESS | MAY 2017 21

econoMY WATCH Meanwhile China’s gross domestic product grew by 6.7% in 2016, continuing a steady decline in the past five years after climbing to 9.3% in 2011. The economic slowdown has led to a decline in mainland Chinese tourists travelling to and spending in Hong Kong, a trend which has pummelled the territory’s retail and tourism sectors. Value of retail sales, in nominal terms, plummeted 8.1% in 2016, worsening from the 3.7% decline in 2015, according to the Hong Kong Development Trade Council (HKTDC).

X Government spending on capital works will be increased by 39% this year to $86.8b

Hong Kong’s plan to get back in the growth groove

The latest Hong Kong Budget is providing a reprieve to besieged workers and businesses, whilst nurturing promising industries and millenials.

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hen Financial Secretary Paul Chan unveiled the 2017-18 Budget, he pronounced fresh measures to support battered sectors like tourism and the struggling small and medium-sized enterprises (SMEs), and also talked about the significant spending on infrastructure and education – a mix that the government hopes will help the Hong Kong economy snap out of its slow-growth stupor. Analysts forecast a better-performing year for the territory especially in light of stronger government support, but the nearterm horizon is laden with challenges.

Mainland China, a top trading partner, continues to tread a sluggish growth trajectory. Retail sales will likewise remain suppressed this year after a brutal beating in 2016, although an expected stability in property prices and stronger support

22 HONG KONG BUSINESS | MAY 2017

The government expects that these measures should boost gross domestic product for 2017 by 1.1%.

for workers should help boost domestic demand.

How well Hong Kong copes with the potential whiplash of 2017 will depend on its response to key threats.

Chua Han Teng, senior analyst, Asia country risk and financial markets at BMI Research, identifies the most pertinent ones: the ongoing structural slowdown in China, an overvalued domestic housing market, and an uncertain external environment due to rising global protectionism.

“Hong Kong’s economy will face downside pressures over the course of 2017 as slowing economic activity in the mainland will weigh on trade and retail sales,” he says. “In addition, our long-held view for the housing market to decline will be negative for domestic demand as construction activity will be undermined whilst negative wealth effects will weigh on private consumption.”

Countering the mainland factor The latest Budget announcements contained some measures to help counter the impact of the slowdown in China. For instance, the Hong Kong government will waive license fees of $137m for thousands of travel agents, hotels, guesthouses, restaurants, and hawkers to assist the distressed tourism industry.

To recall, tourist spending growth moderated in January with retail sales of jewelry, watches, clocks, and valuable gifts – viewed as a close proxy for tourist spending – declined by 3.9% year-on-year after rising 2.3% year-on-year in December. Still, even as tourists appear to be keeping their wallets closed, more of them have been flocking to the territory, a refreshingly positive trend for the downtrodden tourism sector, says Sylvia Sheng, China economist at Merrill Lynch (Hong Kong).

“Apart from an improvement in the overall tourist arrivals growth in recent months, there are also emerging signs of recovery in overnight visitors which will likely offer support to tourist spending,” she says. “However, we think a strong Hong Kong dollar on the back of US dollar strength will likely pose challenges to tourist arrivals in the coming months.”

The appreciation of the Hong Kong dollar has helped dissuade mainland China tourists from coming to and shopping in the territory in favour of other popular tourist destinations in Asia and Europe. Retailers have been hit hard, with sales plummeting, but the bleeding should lessen in 2017 on the back of local spending.

econoMY WATCH “Looking ahead, we expect to see some stabilisation in retail sales growth in the near term,” says Sheng.

“Local spending growth will likely remain solid amidst resilient labour market conditions and expected stable property prices.”

In January, retail sales growth came in slightly above market expectations.

Retail sales volume contracted by 1.4% year-on-year in January, narrowing from the 2.9% year-onyear decline in December. Meanwhile, in value terms, January retail sales growth came in at -0.9% year-onyear versus the -2.9% year-on-year in December. Sheng attributes this mainly to stronger local consumption and seasonal distortions stemming from an early Lunar New Year.

Where Hong Kong might fall flat on its face this year is trade. “Hong Kong exports are not expected to fare much better in 2017 than in 2016, with value sales expected to show zero growth,” says Sheng.

“The rising trade tension triggered

by US President Donald Trump’s promised protectionist policies, possible shocks in the EU and Japan, untamed volatility of capital markets, a marked slowdown of the Chinese

economy, and escalated geopolitical tensions pose the major downside risks to exports.” HKTDC data show mainland China and the US were the top two largest trading partners of Hong Kong in 2016, with the former also the largest export market representing for 52.4% of Hong Kong’s total exports in 2016.

Even as the government attempts to support the tourism industry and domestic demand, some analysts question the effectiveness of these efforts. Chua, for one, believes it is unlikely that the one-off measures in the new Budget will have a significant impact on the Hong Kong economy.

“These measures appear to be aimed at mitigating the impact of the economic slowdown for Hong Kong’s more vulnerable residents, including extra handouts to the elderly and disabled,” he says, referring to the government’s plan to raise the Old Age Living Allowance and broaden asset and healthcare coverage. “In addition, given that the tax cuts to households and businesses are likely to be rather limited, we do not believe that it will lead to a significant rise in spending.” The latest Hong Kong Budget outlined a plan to reduce

Hong Kong GDP growth

Sources: Macrobond, Hang Seng Bank

Contributions to Hong Kong GDP growth

Sources: Macrobond, Hang Seng Bank

Chua Han Teng

Thomas Shik

Hong Kong trade growth

Sources: Macrobond, Hang Seng Bank

Hong Kong retail sales volume growth

Sources: Macrobond, Hang Seng Bank

salaries tax and tax under personal assessment by up to a maximum of $20,000 for the 2016-2017 fiscal year, impacting 1.84 million taxpayers and cutting government revenue by $16.4b (US$2.1b), based on HKTDC estimates.

But Thomas Shik, acting chief economist at Hang Seng Bank, holds a more sanguine outlook: “Thanks to the modest improvement in the outlook for advanced economies and the recent economic stabilisation on mainland China, Hong Kong’s growth momentum has gathered steam over the recent months. The pace of the year-on-year decline in retail sales volume has narrowed and trade growth has returned to positive territory after about two years of decline.”

Growth prospects “Assuming a stable global environment, we expect the growth momentum to continue. Before the release of the Budget, we projected that Hong Kong’s growth should accelerate to 1.8% this year from 1.4% last year. Now given the stronger-than-expected growth for the whole of 2016, we are considering an upgrade of our 2017 full-year growth forecast,” says Shik.

One possible risk lies in the fact that global growth remains relatively low, which can easily dampen prospects for the territory’s small and open economy.

“It is not surprising to see that Financial Secretary Paul Chan unveiled a new round of relief measures to support the economy including cutting salaries tax and profits tax and waiving rates,” says Shik. “The government expects that these measures should boost gross domestic product for 2017 by 1.1%.”

Wenda Ma, economist at HKTDC, reckons the measures will strengthen Hong Kong’s competitiveness and liveability. Government spending on capital works will be increased by 39% this year to $86.8b from $62.4b in 2012-2013, which is expected to contribute 4.7% to Hong Kong’s GDP. Another $1b will be earmarked for youth training and post-secondary local student education. Promising sectors such as transshipment, crossboundary e-commerce, air cargo, and startups will receive greater support. These initiatives are viewed as investments for the future.

HONG KONG BUSINESS | MAY 2017 23

FINANCIAL INSIGHT: MERGERS & ACQUISITIONS

Outlook for 2017 is mildly optimistic

Hong Kong M&A to pick up pace

Figures for Hong Kong’s mergers and acquisitions in 2016 were higher than the historical average, and 2017 is looking to be a good year, albeit with speed bumps, amidst rising global uncertainties.

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ong Kong’s centrality and position as a financial and corporate hub for Asia and the Pacific played a huge role in the consistent sustainable showing of the territory’s mergers and acquisitions (M&A) activities over the past year. Primary reason for this remains the increasing transactions of mainland Chinese companies upping their stakes and deals in putting their interest in the Special Administrative Region.

With the rest of the Asia and the Pacific maintaining a cautiously positive outlook towards growth in economic deals and acquisitions in 2017, it’s expected for Hong Kong to remain as one of the region’s bastions for financial deals and transactions. This is despite several factors including the looming increases in policy rates internationally, policy reforms in major markets like mainland China, and the rise in protectionism that’s currently creeping in international financial and trade markets. 2016 was a good one for Hong Kong’s M&A activities, but experts are saying 2017 may well be better if the right precautions are taken as various uncertainties abound.

2016 was a relatively positive year for M&A activities in Hong Kong despite a decline in actual growth rate compared to figures in 2015. According to Elaine Tan, senior analyst, deals intelligence, Asia-Pacific, Thomson Reuters, overall announced M&A activity involving Hong Kong-based companies totalled US$152.4b in 2016, down 44.2% after coming from a record high in 2015 at

24 HONG KONG BUSINESS | MAY 2017

Mainland Chinese companies buying listed companies in Hong Kong and using the listed status for further fundraising is a big trend.

US$272.9b. But the 2016 figures, according to Tan, remain positive and elevated when compared to historical M&A activity in Hong Kong. In terms of average M&A deal size for disclosed deals, Tan shares that numbers also declined year-on-year to US$99.7m compared to the US$218.8m recorded in 2015 as fewer transactions above US$1b were witnessed involving Hong Kong-listed companies.

In absolute terms, the Special Administrative Region only saw 24 deals above the billion-dollar mark with only two breaching upwards the US$5b threshold compared to 2015’s stellar figures with 33 deals announced above the billion-dollar mark, three of which were “jumbo deals” above US$10b, according to Tan. Interest from the mainland and abroad Psyche Tai, partner at Norton Rose Fulbright’s Hong Kong office, echoes this sentiment, saying “2016 saw a high level of cross-border M&A deals in Hong Kong,” what with the flurry of interest from mainland Chinese investors looking to set foot and increase their corporate footprint in the territory. Some of the reasons why Hong Kong remains to be a lucrative and attractive destination both for inbound and outbound M&A activities is its centrality as a financial and trading hub not just of the region but also of the world, favourable conditions involving large corporations as well as a conducive environment for trade and financial transactions to happen, and, partly, due to its cultural and

FINANCIAL INSIGHT: MERGERS & ACQUISITIONS geographic link from mainland China.

Tai shares that a big trend over the rally of M&A activities last year was the rapidly increasing interest of mainland Chinese investors in acquiring listed companies in Hong Kong. “Mainland Chinese companies buying listed companies in Hong Kong and using the listed status for further fundraising [is a big trend],” she says. “In many cases, the companies inject their businesses into the listed entity and use that to tap the capital markets.”

Another trend fuelling the numbers registered for M&A activities in Hong Kong in 2016, adds Tai, included an “increasing number of companies going outbound to invest around the world in Europe, Africa, Australia, and other destinations.” Patrick Yip, national M&A leader for Deloitte China, says that Hong Kong, with its currency pegged to the US dollar, “has increasingly become attractive to mainland-based investors who are concerned with the depreciation of the renminbi.”

Notable 2016 deals Driving the relatively positive figures in 2016 were the most notable deals involving Hong Kong-listed companies, with some of them acting as spillovers from the stellar activities in 2015. Thomson Reuters’ Tan shares that the 2015’s M&A deal flurry, which was driven by Hong Kong billionaire Li Ka-shing’s flagship companies’ – Cheung Kong (Holdings) Ltd and Hutchison Whampoa Limited – listing of two new companies as part of the reorganisation of his diversified conglomerate, continued its positive momentum in 2016.

The investor group led by Cheung Kong Infrastructure Holdings Ltd’s bid to acquire the entire share capital of Australia’s DUET Group for certain key energy assets for a total deal value of US$9.8b (including net debt) is the biggest M&A deal involving Hong Kong in 2016, according to Tan. The bid looks likely to push through as shareholders of Li Ka-shing expressed approval of the planned acquisition early in March.

Norton Rose Fulbright’s Tai, meanwhile, notes that another significant deal over the last 12 months for Hong Kong included the China Overseas Land and Investment Limited’s acquisition of a property portfolio from CITIC Group for US$4.8b. “The transaction is the largest M&A in China’s property sector, and a major consolidation between two large-scale state-owned enterprises,” she says.

The property sector took 26.49% of the overall share of all M&A activities

In terms of the trend in Hong Kong’s M&A over the past year, the real estate and property sector reigned supreme, taking 26.49% of the overall share of all M&A activities in the territory and toppling holding companies from the number one spot, according to latest data from Dealogic. It is followed, in terms of overall share, by finance, construction/building, computers and electronics, and professional services in the top five.

Elaine Tan

China outbound M&A

Patrick Yip

Source: Dealogic Source: KPMG

Psyche Tai

2017 outlook Outlook for M&A activities in Hong Kong for the next 12 months is mildly optimistic as the territory remains host to a number of companies seeking expansion regionally and globally. Some of the sectors that will likely see an upsurge in the next months, with a generally quite good outlook, according to Deloitte China’s Yip, include real estate, consumer products, and restaurant sectors or food and beverage.

Despite this, there will still be challenges along the way for Hong Kong’s M&A growth activity. Challenges facing M&A deals in Hong Kong include capital outflow restrictions in China. Deal flow may be impacted by the regulatory challenge that Chinese companies have to contend with.

Meanwhile, the International Financial Law Review for Hong Kong’s M&A outlook in 2016 detailed strong activities due to the increasing attractive valuations following recent market corrections, with “foreign investors continuing to see Hong Kong as an attractive target market for companies with underlying China businesses. Chinese companies continue to see Hong Kong as a useful platform on which to expand regionally and globally.”

These, according to Yip and Tai, will be a good indication on where M&A activities for Hong Kong could head in the next 12 months. The outbound M&A deals from Hong Kong-listed companies – with deals covering a range of sectors including real estate, mining, energy, and technology – along with increasing interest from mainland China will likely continue throughout 2017, notes Tai. HONG KONG BUSINESS | MAY 2017 25

FINANCIAL INSIGHT: MERGERS & ACQUISITIONS singapore view

Asia Pacific (ex Japan and ex Fairness Opinion) M&A volume ranking - announced deals

M&A is about cautious deal-making The past year saw a relative revitalisation of Singapore’s mergers and acquisitions (M&A) activities as firms entered into multiple transactions in the last quarter of 2016 that saw the highest increase in the sector’s activity since 2014. Figures have also increased on both deal value and volume.

With the rest of the Asia Pacific region poised to grow at a steady pace in 2017, deals involving Singaporean companies are expected not only to comprise the bulk of activities but also lead the way in dealing with fluctuations as policy changes loom.

Analysts share that apart from big-ticket deals, there’s room for opportunities for relatively smaller but more realistic transactions.

Source: Dealogic

For Deloitte China’s Yip, Hong Kong’s strategic location as a gateway of the rest of the world to the Asia-Pacific region and a platform for mainland Chinese firms for regional and global expansion, as the IFLR report shows, will remain a major selling point for the territory. “The more mature businesses with steady cash flows in Hong Kong would continue to be attractive targets for mainland investors,” he says.

Offshore deal flow Meanwhile, a report released by offshore law firm Appleby notes that the number and value of offshore M&A deals fell in 2016 when compared to a record 2015. Cameron Adderley, Hong Kong managing partner and global head of corporate at Appleby, says, “It was clear from the start of 2016 that offshore deal activity was going to struggle to keep up with the phenomenal levels of M&A volume and value generated in 2015.”

But Adderley comments further, “Nonetheless, Hong Kong was a standout story for the offshore market as one of only two jurisdictions to see an increase in deal volume over 2015. And though China’s growth may have slowed after many years as the rocket propelling international deal volumes forward, the market continues to be highly active, with the offshore world a prominent beneficiary.”

According to the report, the volume of acquirer deals involving offshore-incorporated buyers has increased steadily over the last five years and is now at the point where more transactions are flowing out of offshore jurisdictions than are flowing in. The past year recorded 3,127 such deals worth a cumulative US$339b.

What’s interesting to note is that the majority of offshore acquirers hail from Hong Kong, “whose companies led 969 outbound deals in 2016 worth a combined US$82.4b,” says Hong Kong-based Appleby partner Judy Lee. “The offshore region allows dealmakers to establish holding companies in a jurisdiction with technical, legal, and regulatory advantages, and those companies can then be used for acquisitions,” she explains. The report says Cayman continued to be home to the largest number of deals, but Hong Kong and the British Virgin Islands – the second and third most active – were the only two offshore jurisdictions to see an increase in activity.

26 HONG KONG BUSINESS | MAY 2017

The more mature businesses with steady cash flows in Hong Kong would continue to be attractive targets for mainland investors.

Gaining momentum Deal-making activity in Singapore gained momentum in 2016 when M&A transactions hit a record high worth US$93.4b, says Elaine Tan, senior analyst, deals intelligence, Thomson Reuters. She described 2016 as the “best annual period” of the sector in the last two years with the stream of deals that included sizeable increase in acquisitions involving sovereign wealth funds, amongst others. This is on top of the increase in outbound and domestic acquisitions.

Overall M&A activity in Singapore in 2016 grew 14% year-on-year (yoy) compared to 2015, reaching an overall value at US$71.3b, according to a Thomson Reuters report. This is on the back of the surge in deals closed in the fourth quarter as the value of announced M&A involving Singaporean companies reached US$25b, a 38.8% sequential increase from Q3 2016 and 41.5% yoy increase from Q4 2015.

Preliminary findings from the report further stated that the average M&A deal size for disclosed deals in Singapore grew to US$126.2m, compared to the US$105.6m in 2015, as more transactions above US$1b were witnessed by Singaporean companies.

“In the past year, Singapore companies and funds were active in outbound Singapore M&A as compared to previous years and this particularly dominated the market last year,” says Sheela Moorthy, partner at Norton Rose Fulbright’s Singapore office.

Total cross-border deal activity, meanwhile, amounted to US$34.5b in 2016, an 11.3% decline from the same period in 2015 (US$38.9b).

Singapore cross-border & domestic M&A annual volume comparison

Source: Thomson Reuters

COVER STORY

Jehangir Sabavala’s The City-II, Courtesy: Sotheby’s

Amidst declining global art sales, market players look to Asia for renewed growth Sotheby’s latest Impressionist, Modern & Surrealist Art evening sale raised US$240.8m, a 78.5% increase from 2016 and said to be “a statement on the momentum of the global art market in 2017.”

A

After another year of sharp decline in global art sales, early auction results for 2017 have offered comfort to art professionals. On March 1, Sotheby’s Impressionist, Modern & Surrealist Art evening sale raised a record US$240.8m, a 78.5% increase from last year – thanks largely to a rare masterpiece by Gustav Klimt that achieved US$59.3m, demonstrating there was still pent up market demand for works of extraordinary calibre. This prompted the auction house to declare the result as “a statement on the momentum of the global art market in 2017.”

Christie’s evening sale, a day before, also had high energy with notable biddings from Asia. Combined, the auctions achieved high sell through rates of 92% by lot and 96% by value, setting a world auction record for a work by René Magritte. Yet, there are still some clouds hanging over a market which is often seen as a bellwether of high net worth individuals’ views on the world’s economy.

As stock and foreign exchange markets continue their roller coaster ride amidst the uncertainties related to the new US administration policies, many art players are also waiting to see how art sales could be impacted by China’s latest measures to stem capital outflow, including a vetting of overseas transfers above US$5m.

Edie Hu, vice president, art advisory specialist at

28 HONG KONG BUSINESS | MAY 2017

Last year, 31% of what Christie’s sold worldwide went to Asian buyers, compared with 29% in 2015.

Citi Private Bank, notes that the ongoing tightening of regulation on overseas transfers could have an impact on the market, though she believes it is more likely to affect the lower end rather than the higher end of the market.

“There are many high net worth clients who have a lot of investment outside of China due to business dealings involving overseas operations and partners, and they will continue to buy art and real estate. This is more likely to affect the affluent clients,” she says.

A break in the clouds?

“I think the auction houses in Hong Kong are bracing themselves for the fact that it’s going to get harder for Chinese collectors to get their money out of China.

More importantly, it is also harder for them to get consignments because clients are concerned about the current uncertainties and don’t want to put their best works on the market. I think everybody is in a cautious wait-and-see attitude, but there is still some optimism.

Art tends to be more about passion investing, and people can sit on their hands for only so long, and then at some point the rational side will lose to the emotional side.

They will buy,” adds Hu. After a difficult 2015, when global art sales were estimated to have contracted 7% – the first annual fall

ASIAN ART REPORT since 2011 – the market’s contraction accelerated in 2016.

Christie’s total sales dropped 16% to US$5.4b whilst Sotheby’s sales contracted 27% to US$4.9b.

Artprice, working with Chinese partner Artron, recently estimated that global art auction sales were down 22% to US$12.5b in 2016, reflecting the sharp fall in the number of works put on the market worth more than US$10m. Amidst the gloom, China re-emerged as the market’s leading art power in 2016, having briefly ceded that place in 2015 to the United States. China (including Hong Kong) recorded US$4.8b in auction sales in 2016, representing 38% of total world sales, Artprice reported, with traditional calligraphy and painting comprising the vast majority of sales.

Meanwhile, Asian buyers continued to flex their muscles internationally. Of the top 10 works sold by Sotheby’s in 2016, half were purchased by buyers from Asia. On the business side, Sotheby’s largest investor is now a Chinese: Chen Dongsheng, the founder and CEO of Taikang Life Insurance and the founder and president of China Guardian, the world’s fourth biggest auction house, announced in July that he had taken a 13.5% stake.

“So far we haven’t seen much restraint from our Chinese buyers. Last year, 31% of what Christie’s sold worldwide went to Asian buyers, compared with 29% in 2015. And within that 31%, 80% were Chinese buyers, so at this stage we can’t say we’ve seen any softening in the Asian market,” says Francois Curiel, the Hong Kongbased Chairman of Asia-Pacific at Christie’s, adding cautiously “that said all these (capital control) measures were only announced at the end of last year and it’s still a wait-and-see for their full impact.”

Gustav Klimt’s Bauerngarten sold for US$59.3m

There are many high net worth clients who have a lot of investment outside of China due to business dealings involving overseas operations and partners, and they will continue to buy art and real estate.

“The Asian buyer is still here and it’s evident from the sales that we see coming in,” adds Talenia Phua Gajardo, founder and CEO of The Artling, an online art platform established in 2013 in Singapore that focusses primarily on Southeast Asian art. Hu says that amidst the economic ups and downs, Citi Private Bank is receiving more enquiries about art financing as a way to unlock liquidity from an otherwise illiquid asset.

“For qualified clients in Asia who have purchased art and kept them outside of China, this is a way to fund the purchase of more art, consider other investments or pay off higher interest loans. It’s one way of getting the art to work for the client without having to sell. I do expect that there will be more people looking to do more of these deals as it gets harder to move money around,” explains Hu. The dominance of Hong Kong Recognising the importance of Asian clients, Sotheby’s and Christie’s decided to delay their traditional early February London sales to later that month to avoid conflicting with the Chinese New Year. Meanwhile, competition has been heating up in Hong Kong in the last couple of years, with new entrants in the market (Artcurial, Phillips) and a wider offering (comics, western art) that again attests to the financial muscle of Asian collectors, as well as their evolving tastes.

In 2016, Artcurial’s second annual sale focussed on comic strips and street art, with the former doing particularly well – two new world records were set and the auction house stated 80% of the lots sold went to buyers in the region. Phillips also launched its inaugural 20th-century and contemporary art and design sale in Asia, and raised HK$151.97m (US$19.6m), nearly 50% more than the pre-sale estimate, thanks in large part to a 1996 monumental artwork by American Pop artist Roy Lichtenstein, which sold for HK$35.48m (US$4.57m), exceeding its high estimate. Later this year in Hong Kong, Phillips will auction 200 photographs taken by Andy Warhol during his trip to the city and Mainland China in 1982. Estimates start at HK$50,000 (US$6,439).

Undeterred by the increasing competition, Curiel says, “I think the more auction houses there are in Hong Kong, the more the art market will grow and the pie will be larger. So personally, I’m delighted. Until now you had New York and London, with Hong Kong a clear number 3, but I think Hong Kong is increasingly closing the gap, in part due to the increasing presence of other auction houses.”

The rise of Hong Kong as a major international art platform is also recognised in the primary market. David Zwirner, which already has galleries in New York and London and represents over 50 prominent artists and estates, including Jeff Koons, Yayoi Kusama, and Sigmar Polke, has committed to two floors in the yet to open H Queen building, believing that “Hong Kong is absolutely destined to be a major art hub in the region.”

Situated in Central and due to open in the middle of this year, the building is set to transform the way highend art galleries operate, with an external gondola and HONG KONG BUSINESS | MAY 2017 29

COVERART ASIAN STORY REPORT curtain wall facade that allow large-scale artworks to be delivered directly to each gallery floor. Other companies that have committed to take space here include Pace Gallery, Pearl Lam Galleries, Tang Contemporary Art, Whitestone Gallery, as well as Seoul Auctions, which has operated in Hong Kong since 2008, but will now have a much more visible presence.

Online potential The online market for art sales remains niche, but according to a 2016 report by insurer Hiscox Ltd, it has continued to grow strongly, “indicating that the lower end of the art market could be more resilient to a slowdown than works selling in the mid- to high-end price range.” According to Hiscox, online art market sales reached an estimated US$3.27b in 2015 and could be worth US$9.58b by 2020.

Curiel noted that pure online sales at Christie’s only totalled US$67.1m last year, and though this is a small proportion of the auction house’s total US$5.4b revenue, it increased by 84% year on year. But he adds that the online platform was the point of entry for 33% of Christie’s first-time buyers, who typically migrate to traditional auctions over time. The average selling price on the platform last year was US$6,047 with the top selling lot being Irregular Curves by Sol LeWitt, which sold for US$269,000.

The Singapore-based online art marketplace The Artling currently represents 100 galleries, with prices ranging from US$100 to half a million, and Gajardo says revenues have doubled year-on-year since the platform started in early 2014, but acknowledges it is “not yet profitable.” This has not been a barrier to expansion though, and in January the e-commerce platform

Christie’s does not see any softening in the Asian market

30 HONG KONG BUSINESS | MAY 2017

The online market for art sales remains niche, but according to a 2016 report by insurer Hiscox Ltd, it has continued to grow strongly.

secured US$1.7m in Series A funding from Edipresse Media, a European luxury lifestyle media company, using some of this investment to acquire another online platform based in Hong Kong, ArtShare.com, which helped it expand its database and offering.

“We set up with a view of helping bring Asian art to people outside of Asia, but I also realised that we needed to have a big presence in Chinese art to make it really work. Acquiring Artshare really helped us save time in terms of customer acquisition,” she says. By Sonia Kolesnikov-Jessop

Zeng Fanzhi’s Mask No. 6, Courtesy: Sotheby’s

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RANKING: HOTELS

L’hotel Nina et Convention Centre

The influx of ‘bleisure’ will boost hotels in Hong Kong

Competition heats up amidst limited supply and increasing demand.

W

ith steady inbound arrivals from mainland China and Southeast Asia, Hong Kong’s hoteliers are suiting up for what looks like a busy year ahead. The city’s occupancy rates and tourism numbers are signalling the need to add more supply and reevaluate the property market.

And developers are rising to the challenge with some promising projects and enhanced service offerings this year.

Hong Kong has been plagued with land shortage and skyrocketing property prices in the past years, but this has not barred investors from buying in. According to Frank Sorgiovanni, head of research Asia Pacific at JLL Hotels and Hospitality Group, Hong Kong’s property market remains competitive and boasts strong trading fundamentals.

This is why high net worth investors like the Chinese are very keen on positioning themselves

32 HONG KONG BUSINESS | MAY 2017

A number of new hotels will open in 2017, which will give tourists and business clients more options.

here. In fact, Chinese firms looking into growing internationally as well as businesses aiming to expand into the mainland have both made Hong Kong their hub.

Bleisure – a growing trend of business travellers who extend their stays for touring purposes – has been gaining traction in Asian financial centres such as Hong Kong, Singapore, Seoul, and Taipei. Hotels are jumping in on the bandwagon to offer services to meet bleisure travellers’ evolving needs, which range from digital accessibility to short evening tours after a long day at a conference room.

Regional rendezvous When faced with a sluggish property market, Hong Kong looks to its business sector for relief. As a result of the territory’s key position in the region, the meetings, incentives, conferences, and events (MICE) industry saw the growth of overnight visitors amidst an otherwise lacklustre

year for Hong Kong real estate.

The Hong Kong Tourism Board (HKTB)’s MICE division, which introduced its Hong Kong Top Agent Award in 2016, recognised top agents from mainland China, India, Indonesia, and South Korea for raking in the numbers.

HKTB recognised an overall 9.9% growth in MICE arrivals in the previous year. Kenneth Wong, general manager of the HKTB MICE and cruise division, adds that Hong Kong saw a staggering double-digit growth in some of its long-haul and short-haul markets.

“We foresee the rebound may continue due to the growth in the number of Southeast Asian tourists and overnight visitors who came to Hong Kong to attend meetings, conventions, and exhibitions,” says John Girard, vice president of development, area general manager (Hong Kong) of Regal Hotels International. “We continue our strategic alliance with the Asia World-Expo and partners in promoting Hong Kong as a meeting destination, and attracting more visitors and business travellers from China, Korea, and across Asia.

For example, in March and April, we have the Asia Jewellery Fair and Global Sources,” he adds.

Girard, also the general manager of Regal Airport Hotel, believes that Hong Kong’s varied tourism offerings will keep travellers coming. He says that travellers can expect the government and the HKTB to initiate more versatile tourism projects with a local touch and an infusion of environmental elements.

Girard shares that Regal is the first airport hotel in Hong Kong to introduce a built-in high-definition 9-metre width, 4-metre height LED wall in the pillar-free grand ballroom, thus levelling up the visual experience for events or meetings. Regal also introduced the convenience of its Regal MICE app, which services meeting and conference events and is greatly valued by its clients.

Meanwhile, Renaissance Harbour View’s former lobby lounge has been transformed into a

RANKING: hotels Last quarter, the Butterfly on Morrison Boutique Hotel was sold for HK$880m (US$113.5m) to the Hong Kong-based Gale Well Group,” says Simon Smith, senior director of research Asia Pacific at Savills.

Smith adds that despite the moderate decline in occupancy across Asia Pacific, most of the regional markets showed strong growth rate. He says that the average daily rate (ADR) will continue to drive performance in Asia Pacific’s hotel sector in 2017.

“As a mature market, Hong Kong’s inbound market is expecting a slow but steady increase in arrivals to Hong Kong. Overall, we think HK remains an attractive visiting destination, as this compact city is safe and it has a good legal environment for businesses.

A number of new hotels will open in 2017, which will give tourists and business clients more options,” says Tiu.

Hong Kong Disneyland Disney Explorers Lodge

brand new Mirage Bar & Restaurant where clients can enjoy a stunning view of the harbour whilst having dinner or conveniently holding meetings. “Its full-length windows offer guests panoramic view to mirage an airy environment. The iconic 25ft high island bar is covered in lush greenery, creating an oasis away from the hustle and bustle of the city for guests to unwind day and night,” says Alice Tiu, director of marketing, Renaissance Harbour View Hotel.

Unparalleled leisure Alongside developing innovations for the bleisure market, Hong Kong’s hotels continue to roll out creative offerings for the traditional tourism crowd. Girard shares that Regal Airport Hotel has established a stateof-the-art gallery which showcases rare and regional works for varied audiences. Regal also introduced the world’s first smart storage facility at the Regal Airport Hotel, which provides a convenient and secure service to store valuable items such as art pieces and expensive souvenirs.

A visit to Hong Kong is also not complete without a trip to Disneyland, and tourists who will be arriving in May 2017 will get to enjoy the new Disney Explorers Lodge, Hong Kong Disneyland’s third hotel.

With reservations now open, tourists can book in advance and choose from 750 hotel rooms which have an open sea view or a landscape view of one of the four lush themed gardens that exemplify the cultures of Asia, South America, Africa, and Oceania.

“Hong Kong Disneyland is committed to investing in new offerings for our guests. Disney Explorers Lodge is not only a fantastic getaway for Disney guests, but it’s also a one-of-a-kind hotel experience for those visiting the cosmopolitan city of Hong Kong,” says Samuel Lau, executive vice president and managing director of Hong Kong Disneyland Resort.

The Disney Explorers Lodge brings Hong Kong Disneyland Resort’s hotel rooms to a grand total of 1,750.

Since 2013, the resort has undergone massive expansions and implemented plenty of innovations. At present, the resort has seven themed lands and a whole suite of entertainment offerings. It is the first Disney park to feature a Marvel-themed attraction, the Iron Man Experience.

Physical growth Renaissance Harbour View Hotel’s Tiu shares that one of the biggest changes in 2016 was the acquisition of Starwood by Marriott Hotel, making it the world’s largest hotel company.

Tiu adds that, currently, they have a total of nine hotels under the family.

And it’s not just Starwood on the acqusition trail, with mainland Chinese investors driving the purchases in Hong Kong, according to Savills. “In Hong Kong, activity continued to be boosted by mainland Chinese investors’ purchases, based on confidence fuelled by relatively limited new supply and high occupancy rates. Total transactions in Hong Kong reached US$287m.

Who made it to HKB’s list?

With the MICE boom in Hong Kong, L’hotel Nina et Convention Centre As a mature takes the top spot this year with 1,608 market, Hong rooms. Regal Airport Hotel and Regal Kong’s inbound Riverside Hotel grab second and third market is spots with 1,171 and 1,138 rooms, expecting a respectively. Harbour Plaza Resort City slow but steady places fourth with 1,102 rooms whilst increase in at number five is Panda Hotel with a arrivals to Hong total of 911 rooms. Combined room Kong. count for the 50 hotels is 34,506.

Regal Airport Hotel

HONG KONG BUSINESS | MAY 2017 33

RANKING: HOTELS 2017

Hotel

2016

1

L'hotel Nina et Convention Centre

2

Regal Airport Hotel

3 4 5 6 7 8 9

Number of Rooms

General Manager/ Head of Hotel Operations

2017

2016

1

1608

1608

George Kuk

2

1171

1171

John Girard

Regal Riverside Hotel

3

1138

1138

Peter Chiu

Harbour Plaza Resort City*

4

1102

1102

Dickson Lee

Panda Hotel

5

911

911

BERNARD RODRIGUES

The Excelsior, Hong Kong

6

869

883

Jan-Hendrik Meidinger

Renaissance Harbour View Hotel Hong Kong

7

861

862

Hans Loontiens

The Park Lane Hong Kong a Pullman Hotel

8

832

834

Luc Bollen

Harbour Grand Hong Kong

9

828

828

Benedict Chow

10

Rambler Oasis Hotel*

10

822

822

Anthony Lui

11

Harbour Plaza Metropolis

11

821

821

Andres Teofilo Castillejos Anthony Lui

12

Rambler Garden Hotel*

12

800

800

12

Mexan Harbour Hotel*

12

800

800

Patrick Ng

14

Sheraton Hong Kong Hotel and Towers

14

782

782

Charles Woo

15

The Kowloon Hotel*

15

736

736

Victor Chan

16

Harbour Plaza North Point

22

714

669

Virginia Tam

17

Harbour Plaza 8 Degrees

16

704

704

Christina Cheng

18

Royal Plaza Hotel

17

699

699

chak-fung Peter Wong

19

Pentahotel Hong Kong Kowloon

18

695

695

Andy So

20

Royal View Hotel

19

688

688

chak-fung Peter Wong

20

Kowloon Shangri-La, Hong Kong

19

688

688

ULF BREMER

22

The Royal Pacific Hotel & Towers

21

673

673

Kevin Chuc

23

Marco Polo Hong Kong Hotel

23

665

665

Thomas Salg

23

Cordis, Hong Kong

24

665

664

Shane Pateman

25

Hong Kong Skycity Marriott Hotel

25

658

658

Michael Müller

26

Holiday Inn Golden Mile Hong Kong

26

621

621

Michel Cottray

27

City Garden Hotel Hong Kong*

27

613

613

Annie Jea

28

JW Marriott Hotel Hong Kong

28

602

602

Mark Conklin

29

Regal Kowloon Hotel

29

600

600

Christo Diamandopoulos

29

Disney's Hollywood Hotel

29

600

600

Cecilia Ho

31

InterContinental Grand Stanford Hong Kong*

31

570

570

ALEXANDER O. WASSERMANN

32

Island Shangri-La, Hong Kong

32

565

565

Franz Donhauser

33

Hyatt Regency Hong Kong, Sha Tin

33

559

559

WILSON LEE

34

Harbour Grand Kowloon

34

555

555

PETER POTTINGA

35

ibis Hong Kong Central & Sheung Wan Hotel

35

550

550

Simone Hansen

36

Dorsett Tsuen Wan, Hong Kong

36

547

547

Florence Ng

37

The Kimberley Hotel

37

546

546

Samantha Hui

38

Grand Hyatt Hong Kong*

38

545

545

Philip Yu

39

Newton Place*

39

540

540

Chi Ping Tommy Chan

40

B P International

40

529

529

Bernard Chan

41

Courtyard by Marriott Hong Kong Sha Tin

41

524

524

Peter Sih

42

Conrad Hong Kong*

43

513

513

Thomas Hoeborn

43

Novotel Century Hong Kong

44

508

510

ADAM HIPP

44

InterContinental Hong Kong

42

503

514

Claus Pedersen

45

Mandarin Oriental, Hong Kong

45

501

501

Anthony Costa

45

Headland Hotel

45

501

501

Jackson Lum

47

Hong Kong Harbour Hotel*

47

500

500

Panda Leung

48

The Langham, Hong Kong

48

498

498

Shaun Campbell

49

Regal Oriental Hotel*

49

494

494

Christoph Szymanski

50

The Mira Hong Kong

Gerhard Aicher

DATA PROVIDED BY COMPANIES. SURVEY PERIOD: JANUARY-FEBRUARY 2017 *DATA RETAINED FROM 2016 REPORT 34 HONG KONG BUSINESS | MAY 2017

50

492

492

TOTAL

34,506

34,490

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CMO Briefing

Mobile-first doesn’t equate to mobile only

Personal computers still generate 70% more volume of web usage than smartphones.

A

mongst marketing trends for this year, digital marketing will focus on leveraging technology and data to help marketers execute on highly targetted campaigns. Three marketing professionals give their thoughts on digital marketing and how big data analytics has affected and will affect initiatives.

In Asia and the Pacific, moving to digital means moving to mobile, notes Ng Yew Hwee, Greater China managing director at Adobe Systems. “The proliferation of digital, and the ubiquity of mobile in this region, means people are consuming more content across more devices than ever before in our history,” says Ng. “Sometimes they’re consuming all that content on multiple devices at once. The digital mobility of our region sets us apart.”

Mobile-first design strategy In some countries, he says, an entire generation has bypassed the desktop computer and their first interaction with the Internet has been on mobile devices. The challenge for businesses, then, is how to reach customers on their mobile devices and deliver the most engaging experiences.

Ng also notes how a mobile-first design strategy for the webpage has been a hot topic over the last few years, and how they expect it to keep drawing attention from marketers and designers. “Mobile-first design optimises the experience for a customer viewing content on the screen of a mobile device,” he says. “And it also provides opportunities to integrate with the capabilities of various devices – location services and built-in scanning, amongst others.”

For Catherine Williams-Treloar, APAC CMO, MarkyCo, mobile marketing must involve accessibility.

36 HONG KONG BUSINESS | MAY 2017

Far from a one-way shift from desktop to mobile, we’re seeing consumers move between smartphone, tablet, and PC.

“Make it easy and quick to find you on mobile when people are on-the-go. Don’t lose a customer because they can’t find you, contact you, or get more information,” she says.

Williams-Treloar further comments that marketers should be where customers are. “Be ready to chat and engage on messaging or chatbots. Start manually first to learn until you can get it automated. Tell people if you are only available to chat for certain hours such as 9am6pm whilst you get up and running,” she advises.

Williams-Treloar also says mobile-first in 2017 is a given, and that the question now is how frictionless and seamless the experience is for customers. “Sometimes, this falls under the responsibility of marketing, other times it’s also related to product and technology. Bring everyone together and map out the full experience,” she says. Spend time, for example, checking out brands and businesses that you love and see how their mobile experience stands up to the test.

“We are so fortunate to have everything at our fingertips – we’ve lost patience and if anything takes too long or isn’t easy, consumers walk away,” she also notes.

Mobile isn’t exclusive It’s hard not to get excited about mobile, especially in Asia, says Caroline Hsu, CMO, Appier. “After all, Asia is on the forefront of the global shift to mobile, home to millions of people who have leapfrogged desktop to come online for the first time on mobile,” she says.

Indeed, notes Hsu, in the excitement around mobile, many businesses might make the leap to conclude that mobile is a better bet than desktop entirely. And amongst marketers, the number of voices calling for a “mobile only” strategy is growing.

But she says the fact is mobile-first doesn’t mean mobile only. Though PCs represent only a fraction of total unique reachable devices, they generate 70% more volume of web usage than smartphones. And each individual PC is used about three times as much as each individual smartphone.

“Far from a one-way shift from desktop to mobile, we’re seeing consumers move between smartphone, tablet, and PC throughout the day,” notes Hsu. According to her, in the post-mobile world, people use all of those screens.

Which screen consumers choose at any given time depends on a complex array of factors, including individual preference and habit. Some activities occur frequently or even primarily on mobile, such as social networking, adds Hsu. “For others, such as online shopping, PC predominates: our data shows that in the first half of 2016, PCs accounted for more purchases on websites than any other device. And for others still, such as online banking or educational activities, the split between mobile and PC appears roughly equal,” reveals Hsu. What all of this means, she shares, is that today’s reality is much more complex than we’d imagined and that marketers need to take a cross-screen approach, even in mobile-first Asia.

ANALYSIS: ASIAN PROPERTY

Property transaction volume in China has strengthened significantly

Here’s where investors put their money

Mainland Chinese developers and institutions were a major force behind the 15% increase in property transaction volume in 2016 that left Hong Kong as the third-ranked urban investment market in Asia.

W

hilst interest in Asian property from investors based outside the region remains modest, intra-regional investment has been very strong.

Based on RCA data, aggregate intra-regional property investment in Asia reached US$69.3b in 2016, a 34% increase from US$52.9b in 2015. The statistics from RCA match the evidence from other sources that 2016 was a very active year in Asian property investment markets.

Perhaps the chief point to note is that property transaction volume in China has strengthened significantly. In fact, as measured by total property transaction volumes excluding undeveloped land, China has overtaken Japan to become the region’s top country investment market. Japan’s status over many years as the Asia Pacific region’s top property investment market reflects Tokyo’s position as Asia’s largest single urban property market. However, property transaction volumes in Japan fell by 37% in 2016 to US$29b as a consequence of a sluggish economy (one of the weakest in Asia at present) and the strength of the Japanese yen last year, which deterred foreign investment. The decline in investment activity accelerated in Q4 2016, which saw a 68% drop in investment to US$4.2b.

By contrast, over 2016 as a whole total property transactions in China increased by 10% to US$36.5b, thereby just exceeding the level in Japan. This strength accelerated in Q4, which saw a 32% year-on-year 38 HONG KONG BUSINESS | MAY 2017

Besides China, Hong Kong and Singapore enjoyed very active investment interest in 2016.

increase in transaction volumes to US$14b. For 2016 as a whole, China accounted for 28% of aggregate property transactions in the region, whilst for Q4 2016 the proportion was 35%.

Strong investment interest Besides China, Hong Kong and Singapore enjoyed very active investment interest in 2016. In Hong Kong’s case, total property transaction volumes increased by 15% over the year to US$13.5b, on which basis Hong Kong ranked as the fourth largest country investment market in Asia Pacific. In Singapore’s case, total property transaction volumes increased by 38% over the year to US$8b, on which basis Singapore ranked as fourth largest country investment market in Asia Pacific.

Total investment volumes in Singapore were, of course, boosted by the largest single transaction in Asia last year, the landmark sale in Q2 of Asia Square Tower 1 to the Qatar Investment Authority for SG$3.38b (US$2.43b).

However, investment activity remained strong in H2, with 44% yoy growth in Q4 to US$3.2b.

As an urban centre rather than a country, Hong Kong ranked as the third largest investment market in 2016 in the Asia Pacific region after Tokyo and Shanghai, whilst Singapore ranked sixth. However, perhaps the biggest surprise in the region was Seoul, which saw a 142% increase in total transaction volumes to US$9.92b, and on

ANALYSIS: ASIAN PROPERTY this basis came in fourth place.

Indeed, the office property sector in Seoul was very active last year. The largest buyer was KORAMCO, which acquired eight office and retail buildings. Samsung Life Insurance, AIG, and Alpha Asset were the three biggest sellers; Samsung Life Insurance alone disposed of property assets worth about US$1b.

Since Samsung Life Insurance holds 18 properties across South Korea and plans to continue shedding non-core investments, the investment market in Seoul ought to stay active this year. It is harder to predict to what extent foreign groups may participate in the activity. However, anecdotal evidence suggests that foreign interest in Seoul is increasing. Property yields in South Korea seem to have been rising, perhaps reflecting increased concerns about North Korea; and foreign investors appear to be looking at Seoul again as a market offering good value.

Chinese interest set to shift to Asia Mainland Chinese investors account for a high proportion of aggregate capital deployment abroad by Asian investors.

Capital outflows from China to foreign property markets were almost negligible before 2010. Since then, however, Chinese investment in foreign property has grown at great speed, reaching US$37.2b in 2016. This total was split between US$25.2b invested outside Asia and US$12b invested within it.

Whilst the 2016 outcome represents a tiny 0.4% decrease from the level of 2015, it is more important to note that 2016 was the fourth consecutive year in which mainland China ranked as the largest source of capital in investment flows from Asia to the rest of the world. Since the US accounted last year for 49% of aggregate property investment outside the region by Asian investors, it is fair to say that mainland Chinese interest in US property assets has been the primary reason for the trebling of property investment outside Asia by Asian investors between 2012 and 2016. Prior to 2013, Singapore was the primary source of capital for real estate investment by Asian financial institutions and property developers outside the region.

Whilst mainland Chinese groups have been investing heavily outside Asia, they have been less active within the region. The Chinese accounted for 43% of Asia-to-global property investment last year, but for only 17% of intraregional property investment.

One market in which mainland Chinese developers and institutions have shown strong interest in is Hong Kong.

Indeed, Chinese groups were a major force behind the 15% APAC property deals in 2016: market as % of total transaction volume

Sources: RCA, Colliers

Investors have shown particular interest in Hong Kong

Chinese investment in foreign property has grown at great speed, reaching US$37.2b in 2016.

increase in property transaction volume in 2016 that left Hong Kong as the third-ranked urban investment market in Asia. In 2016, based on the RCA data, Chinese groups invested US$6.6b in Hong Kong; and they have clearly continued to invest so far in 2017. The Chinese have concentrated on purchases of en-bloc office buildings on Hong Kong Island but undeveloped land in Kowloon, where the developer HNA Group recently made three successful bids for three large land sites in Kai Tak for residential use.

In our view, there are three reasons why Chinese investors have shown particular interest in Hong Kong: Firstly, Hong Kong is on China’s doorstep, and is culturally and linguistically similar. Secondly, Hong Kong is politically very acceptable as a Special Administrative Region of the People’s Republic of China. Thirdly, the Hong Kong dollar is pegged to the US dollar. Concern about potential continued renminbi depreciation has clearly been an important factor behind Chinese foreign investment in general. Investment in Hong Kong represents a simple way to hedge against this risk.

Besides being the largest source of foreign investment in Hong Kong property, mainland China was the largest source of foreign investment in Japan and Malaysia in 2016. In Singapore, Chinese individual investors invested in low to mid-end residential property, whilst Chinese developers tendered for state and private land for development, mainly in the low to mid-end segment.

Some Chinese groups also bought small commercial developments, including the db2Land Building along Robinson Road and the CityVibe retail mall in the Clementi suburb. However, total Chinese investment in Singapore was only US$0.6b in 2016, or just 9% of the total for Hong Kong.

As we have hopefully made clear, in our opinion perhaps the most important factor behind mainland Chinese investors’ rush to purchase property assets overseas, and in particular outside Asia, has been concern about possible further renminbi depreciation.

Chinese investors have been especially interested in the US because the economy has been expanding and HONG KONG BUSINESS | MAY 2017 39

ANALYSIS: ASIAN PROPERTY APAC property transaction volumes by country in 2016 (US$)

Source: Real Capital Analytics

because the US dollar is the world’s most important reserve currency; and to some extent they have probably considered Hong Kong as an extension of the US due to Hong Kong’s currency peg.

However, the bulk of renminbi depreciation has probably already happened. Over the three years from January 2014 to December 2016, the US dollar appreciated by 15% against the Chinese renminbi (meaning, to state the situation conversely, that the renminbi depreciated by 13% against the US dollar). We agree with the majority opinion expressed at Colliers’ CEO Breakfast in Hong Kong in January 2017, i.e. that the Chinese renminbi will depreciate modestly against the US dollar this year. However, the key word here is “modestly”. Oxford Economics predicts a US$/ RMB exchange rate of 7.15 for end-2017, compared to the rate at time of writing (26 February) of 6.87, implying 3-4% further depreciation this year.

In view of the strong economic news from China, we regard Oxford Economics’ forecast as a realistic projection.

Chinese real GDP growth looks set to reach about 6.3% in 2017; recent trade data have been strong, with exports posting their first increase in January in US$ terms since March last year; and China’s producer price index (PPI) grew by 5.5% in December, reaching the fastest growth rate in more than five years and continuing the recovery that began in early 2016. Whilst near-term prospects for the US economy are also improving, to state matters simply we believe that one needs to be both rather optimistic about the US and rather pessimistic about China to assume further substantial renminbi depreciation from now on.

Reduced Chinese investment outside Asia There are at least three additional reasons to believe that the bulk of renminbi depreciation has already happened.

Firstly, reflecting official concern about high levels of capital outflow from the country, the Chinese government began to impose new capital controls in November 2016, including strict limits on large corporate investments abroad. In the short term, the restriction will probably slow deal flows originating with mainland Chinese investors to Hong Kong and reducing the run-up in prices there.

However, for companies which have already established a lending platform outside of China, the impact is likely to be much less significant. For example, a joint venture of two Chinese developers listed on the Hong Kong Stock Exchange, Logan Property Holdings of Shenzhen (Stock 40 HONG KONG BUSINESS | MAY 2017

The Chinese accounted for 43% of Asia-toglobal property investment last year, but for only 17% of intra-regional property investment.

Code: 3380) and Guangzhou-based KWG Property Holding (Stock Code: 1813), set a new lump-sum sale record of HK$16.86b (US$2.17b) for a plot of residential land on Hong Kong’s Ap Lei Chau island on 24 February 2017, topping market valuations by almost 50%. This demonstrates mainland Chinese companies’ strong interest in Hong Kong’s property market under the current market and policy circumstances.

Overall, we believe that the long-term trend of mainland Chinese companies investing in overseas real estate will revive once the authorities relax restrictions.

After all, internationalisation of the renminbi and expanding China’s global influence are two of the priorities of the current administration.

Secondly, and on a related point, we suspect that the Chinese authorities may put quiet pressure on financial institutions to moderate their investment activity outside Asia, notably in the US. This will be especially true if the new US president translates his protectionist rhetoric into concrete measures such as high tariffs on Asia and other imported goods. If political relations between the US and China start to cool down, it may become politically difficult for Chinese groups to continue their heavy investment on the other side of the Pacific. Even if political relations do not cool down, we suspect that in the long run the Chinese authorities would prefer to see a shift in investment to countries closer to home, for example “One Belt, One Road” markets in Southeast Asia and central Asia.

Thirdly, quite apart from political considerations, another motivation for the Chinese authorities to press financial institutions to moderate overseas investment may well be the desire to protect them from potential big expensive mistakes. The trophy acquisitions which have been pursued recently by Chinese groups like Anbang Insurance bear more than a passing resemblance to the rash of acquisitions in the US made by Japanese companies in the late 1980s, when Mitsubishi Estate purchased the Rockefeller Centre in New York and the electronics producers Sony and Matsushita purchased Hollywood film studios. Many of these acquisitions proved highly overpriced, and resulted in large writedowns for the acquiring companies. From “2017 - the year in which Asian property capital flows reverse: Fact or Fantasy?” by Colliers International 2016 investment volume by property market segment in Asia (US billion, % of total, excluding land sites)

Source: Real Capital Analytics

ANALYSIS: wealth report

The Prime International Residential Index tracks the value of luxury homes in 100 key locations worldwide

The Wealth Report: Going up, going down Knight Frank’s latest research into the world’s key prime residential property markets reveals a significant – and growing – gap between the top and bottom performers.

T

he value of the world’s leading prime residential markets recorded slower growth in 2016, according to Knight Frank’s unique Prime International Residential Index (PIRI), which tracks the value of luxury homes in 100 key locations worldwide. On average, values rose by 1.4% in 2016, compared with 1.8% in 2015.

However, the PIRI 100 also reveals a huge gap of 49 percentage points between the top and bottom ranking, up from 45 in 2015. The top tier is dominated by cities in China, New Zealand, Canada, and Australia, whilst oil-dependent markets such as Moscow and Lagos bring up the rear.

Of the locations tracked by PIRI, 61% recorded flat or rising prices in 2016, down from 66% the year before.

Along with the slight drop in average price growth already noted, this suggests a marginal slowdown in the performance of global luxury residential markets.

That said, there are several outstanding performers that will raise an eyebrow amongst even the most experienced investors. China’s cities have catapulted themselves up our rankings with Shanghai, Beijing, and Guangzhou claiming the top three slots, all exceeding 26% year-on-year growth.

Last year’s front-runner, Vancouver, was once again a top performer, but it was a year of two halves for Canada’s third most populous city. Sales volumes grew ever higher leading up to the summer, before cooling off and then retreating after British Columbia imposed a 15% tax on 42 HONG KONG BUSINESS | MAY 2017

Over the coming months, all eyes will be on policymakers in China as they attempt to reign in prices in the largest cities.

foreign buyers in August. Prime prices ended the year 15% higher, notably lower than the 25% increase in 2015.

London, where many of the world’s super-rich have a home, slipped down the PIRI rankings with prime prices declining by 6.3% year-on-year. Our data shows it was the 3% hike in stamp duty for additional homes, introduced in April 2016, rather than the UK’s decision to leave the EU that helped to rein in demand. But the tail end of 2016 saw an uptick in sales volumes and improved sentiment as the market readjusted to the new tax burden.

And what of the world’s other big-hitting financial hubs? New York had its challenges in 2016. The strong US dollar negated some overseas interest and the delivery of a large number of new luxury projects helped inflate supply.

But whilst volumes slowed, prices proved resilient. With President Trump expected to embark on a programme of fiscal stimulus, reduced regulation, and infrastructure investment, there is potential for stronger growth in 2017.

Cooling measures For its part, Hong Kong, which has languished in the bottom half of our PIRI rankings since 2014, has started to drift upwards, recording annual growth of 2.1% in 2016.

The increase would be higher were it not for the extension of a 15% rate of stamp duty that now brings Hong Kong residents (who previously paid 8.5%) in line with nonresidents.

ANALYSIS: wealth report This latest tax change is just one of a raft of measures introduced since 2010 to keep a lid on price inflation in one of the world’s least affordable housing markets. Given Hong Kong’s currency peg to the US dollar, some further relief may be proffered by the Federal Reserve if it restarts its rate-lifting campaign in 2017. However, it will have to go some way to counter the demand from buyers based in mainland China, eager to hold a US dollar-linked asset.

Over the coming months, all eyes will be on policymakers in China as they attempt to reign in prices in the largest cities. The wider mainstream market, where price growth of 30% year-on-year is not uncommon, continues to overshadow the luxury sector. New cooling measures, including higher deposit rates and home purchase restrictions, have already been introduced in some cities in the hope of both slowing the rate of growth and deterring speculative demand. By the final quarter of 2016, these were beginning to take effect.

Whilst some of our strongest performers, such as Auckland, Sydney, and Berlin, appear to have become permanent fixtures at the top of the rankings, a number of our newer prime movers, such as Guangzhou, Seattle, and Amsterdam, can attribute their sudden ascent to the fact that their prime prices are rising from a low base.

Guangzhou, for example, now finds itself sitting alongside Shanghai in the rankings, having recorded 27% annual price growth. Yet in real terms, prime prices here are half those found in China’s financial capital. Seattle and Amsterdam are also rising from a low base, but in both cases this can be considered a price correction following falls of 29% and 18%, respectively, post-Lehman.

Meanwhile, Europe continues to send out mixed messages. Of those locations recording a fall in prices in 2016, 50% were located in Europe. A year earlier this figure was 65%, suggesting that the continent’s recovery is gaining traction. Amsterdam, Gstaad, Munich, Berlin, and Barcelona were Europe’s top performers in 2016, but second home markets such as Ibiza, Mallorca, the Western Algarve, and Lake Como also rose up the rankings.

Market drivers A breakdown of the PIRI 100 by world region shows that Australasia (+11.4%), Asia (+5.1%), and North America (+4.5%) are the key engines of growth. Europe and the Caribbean sit firmly “mid table”, recording moderate shifts of 0.5% and -0.3%, respectively. Latin America (-2.7%), the Middle East (-3.3%), Africa (-3.4%), and Russia/CIS (-5.5%) all recorded negative growth, due to a combination of weak currencies, slowing economies, rising inflation, low oil prices, and growing political risk.

Wealth creation and resulting cross-border flows have continued to shape prime property markets in 2016, with security concerns, currency movements, education, and even healthcare also emerging as influential market drivers.

However, this year’s PIRI results highlight two key points.

First, local economic activity has a strong bearing on price performance (all of this year’s top 10 rankings report 3% or more in annual GDP growth). And second, economic growth is firmly concentrated in the world’s cities (22 of the top 25 PIRI rankings are occupied by cities).

How many square metres of prime property US$1m buys

Source: Knight Frank Research

Hong Kong has started to drift upwards, recording annual growth of 2.1% in 2016.

A breakdown of the PIRI results by property type also confirms this latter point. Based on results from 2016, the value of a city-based luxury home increased by 2.4% on average, a ski home by comparison saw 1.9% growth, and a beach or coastal property slipped marginally by 0.5%.

The long-held “safe haven” narrative still has its place, but with strong capital growth eluding the world’s top financial capitals, we expect secondary markets across Europe and the US to come under the spotlight. Cities that offer the potential for attractive margins, where prices are rising from a low base and where any risk is tempered by a level of transparency and good governance (Paris, Berlin, Madrid, Dublin, Chicago, and Seattle) look likely to perform well.

Whilst the PIRI 100 helps us to gauge where a location is in terms of its property market cycle, this chart (above) gives a picture of the value offered by key global HONG KONG BUSINESS | MAY 2017 43

ANALYSIS: WEALTH REPORT Prime International Residential Index (PIRI)

Source: Knight Frank Research

residential markets in relation to each other. We have selected 20 prime city markets and calculated, based on the typical luxury residential value for each city and the exchange rate at the end of 2016, how many square metres US$1m would buy in each. The top four, Monaco, Hong Kong, New York, and London, jostle for position each year. The gap between this tier and the rest of the pack is significant, regularly exceeding 12 sq m or, in monetary terms, US$10,000 per sq m.

Since we started this exercise six years ago, Monaco has held on to the top spot – and values have remained largely static. At the end of 2016, US$1m would have bought a diminutive 17 sq m in this exclusive 2 sq km enclave, much the same as in 2010. New York (26) and London (30) have regularly switched positions over the years, but the strength of the US dollar and softening prices in prime central London in 2016 have enabled New York to edge ahead.

These latest results also highlight the relative value of key European cities such as Paris (55) and Berlin (87), where for US$1m you can buy significantly more than in New York or London. Despite both cities recording strong price growth, there is a 51 sq m differential between the two top Australian cities, Sydney (59) and Melbourne (110). At 162 sq m, the top residential market in the Middle East, Dubai, finds itself sandwiched between Melbourne and São Paulo, underlining the emirate’s relative affordability.

Compared with Monaco’s 17 sq m, US$1m buys a palatial-sounding 209 sq m in Cape Town, although this is 18% smaller than the 255 sq m the same sum bought in 2015. This shrinking floor space is attributable to both currency (the rand strengthened against the US dollar in 2016) and rising prices on South Africa’s Atlantic seaboard.

By Kate Everett-Allen, head of international residential research, Knight Frank; Excerpt from Knight Frank’s The Wealth Report 2017 44 HONG KONG BUSINESS | MAY 2017

The signs are that UHNWI Asian investors are set to expand their property investment requirements.

Future view The narrative surrounding China’s economy shifted from “opportunity” to “risk” after the financial crisis, as all the upbeat arguments about stellar wealth creation were replaced by angst over indebted local governments and state enterprises. The gloom is overdone: whilst the annual percentage growth rate may have fallen, in 2017, the IMF is forecasting Chinese GDP to reach US$12.4 trillion, more than twice the level recorded in 2010.

Asia has been through several years of readjustment, due to commodity price corrections and a shift away from export-driven growth towards a consumer-led economy. In 2017, this will begin to pay dividends, as threats of Western protectionism recede and domestic consumption creates a more self-reliant Asia. The signs are that UHNWI Asian investors are set to expand their property investment requirements.

Geopolitical issues aside, the single biggest trend shaping investment patterns globally is digital disruption.

To take a single example, Airbnb and similar sites have facilitated the growth of short-stay accommodation options just as fragmentation in the global economy is sending more employees “on the road”: the latest OECD data points to close to 20% year-on-year growth in international temporary assignments.

This process is set to be super-charged as firms move London-based staff around Europe – at least until there is greater clarity over Brexit. City authorities are struggling to work out how to police this process, concerned over the impact both on the hotel sector and on full-time residents. Expect investors to focus on these emerging sectors – with the world’s leading cities the main investment targets. By James Roberts, chief economist, Knight Frank; Excerpt from Knight Frank’s The Wealth Report 2017 2016 investment volume by property market segment in Asia (US billion, % of total, excluding land sites)

Source: Knight Frank Research

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OPINION

tim hamlett

Here’s why military training is not suitable for children

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tim hamlett Former Editor of Sunday Standard and Associate Professor of Journalism

he row over the Po Leung Kuk’s so-called leadership training camps casts an interesting light on Hong Kong’s obsession with militarism and uniforms. Overseas readers: students who have been to the camp complain about being made to eat grass as a punishment, lay in mud, and be grabbed and shouted at.

Actually, the camps are clearly not doing leadership training. If you want to get a grant to take your students away for a few days (but not far enough away to call it a study tour), the easiest thing is to say you are offering leadership training. Nobody knows what it means but it sounds like something useful. I must admit to perpetrating this innocent deception myself.

Team-building exercises Fortified by the training provided by the Hong Kong Scouts, for whom I was a voluntary leader, I decided to take all my journalism students who were willing away for a few days, so that the editors of the student newspaper might forge relationships with the reporters in a context less fraught than working on stories. We called it a leadership training camp on the grant application because I couldn’t think of anything else.

After the first one, I ditched formal sports and one or two other things which had not worked too well, and consulted some books on educational camps. In the following years, we settled on mostly teambuilding exercises, which are fun, physical, interesting, and useful if you want people to get to know each other in an uncustomary environment.

Team-building exercises involve giving a large group a task and letting them get on with it. If facilities permit, you can have two or more groups and make a competition of it, but this is not essential.

On the many videos posted by survivors of the Po Leung Kuk camp, I found some of my old favourites.

The difference of leadership training Leadership training is quite different. For this, you need a much smaller group with a designated leader. After completing the task, you examine the way the group performed, how the leader helped, or didn’t, and what worked, or didn’t.

The result should be that members of the group have some idea of what effective leadership would look like in a small group. You then repeat the exercise with different tasks, and leaders. Some European universities offer leadership courses. Oxford actually offers a Diploma in Leadership. This is not done at a camp in the country.

So it’s not leadership. What the Po Leung Kuk has fallen for is the supposed advantages of military training. Nor should this come as a big surprise. When the Jockey Club announced it would pay for an upgrade of 46 HONG KONG BUSINESS | MAY 2017

the camp site, the club’s website said the facilities would include “a three-storey, 196-bed hostel block with lecture halls, an assault course (!), a parade ground with flag podium, and camping and barbeque facilities.” I don’t know what it is about Hong Kong people.

They seem to love this stuff. My age group in the UK, saved from conscription only because it was abolished just before we reached it, regarded the military as a trap from which we had been rescued just in time. Hong Kong people, on the other hand, seem to enjoy wallowing in it.

On parades and uniforms As we do not have an army (the PLA garrison spends most of its time in Shenzhen), the “patient zero” for this disease is the Hong Kong Police Force. Their parades are magnificent. They have two full-time professional bands. And they are assiduously copied.

The only uniformed government department which does not have a band for parade purposes is the Fire Brigade. They borrow the police one. All the uniformed groups do parades except the Englishspeaking part of the Scouts, who are allowed to be pacifist.

The biggest band in Hong Kong belongs to the Saint Johns Ambulance Service. Nurses do passing out parades in the full Florence Nightingale.

Large numbers of adults dress in uniforms of their own devising and disappear into the countryside to shoot polystyrene pellets at each other. We are a city of reluctant civilians.

So we get the PLK camp offering, as the PLK Grandmont Primary School tells its parents, “marching, leadership training, selfmanagement, and self-challenge training.”

Programme under review

Parents at PLK Ngan Ko Ling College are told that “we sincerely invite parents to join the passing out ceremony.” Parents at PLK Tong Nai Kan College are told of “marching training.” And we get pictures like this: (See bottom left-hand corner.)

Clearly there is a fundamental misunderstanding at work here.

Basic military training is not leadership training; it is followership training. The recruit is stripped of his civilian identity. He is relieved of his possessions, his clothes, even his hair (resemblances to the induction habits of our Correctional Services are not a coincidence). His time is not his own; everything is decided for him by the organisation, and his personality is reconstructed with its central feature his relationship to and membership of the unit. The procedure can be seen in all its dubious glory on YouTube.

It’s the approach Harsh treatment is justified by the need for the recruit to learn, as one general put it, that life includes pain and hardships, most of which are not distributed fairly. Clausewitz said that war is the domain of exertion, suffering, and danger. The more of these you can import to the training, the better prepared the troops will be. This approach, even in a very attenuated form, is totally inappropriate to the education of Form Five students, and if inflicted on primary kids is, in my opinion, difficult to distinguish from child abuse. That is not to say that there is no place for challenging experiences.

I used to take my scoutlets on a vessel called the Adventure Ship Huan. The captain was a very impressive character with advanced qualifications in both navigation and youth leadership. The kids would have walked through fire for him and so would I. Amongst other attractions was a sort of climbing course which led round the rigging. This was quite intimidating; I tried it. The kids were also encouraged, at one point, to jump off the highest part of the ship into the water. There was no shouting, no punishment, and no suggestion that refusal would be something shameful. But as far as I remember, everyone managed both tasks in the end, and walked a bit taller when they got off the boat as a result. You don’t have to be a drill sergeant.

Technically illegal Another objection to the military paradigm is that it is technically illegal. I am indebted to one of my legal friends who pointed out to me that under Section 18 of the Crimes Ordinance, it is an offence if

a person “trains or drills any other person in the use of arms or the practice of military exercises or evolutions” without the permission of the Governor or the Commissioner of Police. Clearly this covers foot drill, which is a military exercise, if an obsolete one.

The name of the assault course speaks for itself. Many weeks ago I did try asking the Police Public Relations Bureau if anyone in Hong Kong had been given the necessary permission, but I have not yet had a reply. So this may be another of those laws which the Department of Justice no longer thinks is worth enforcing.

National education?

A further point which may worry parents is that it seems the camp, at least as supplied to Po Leung Kuk schools, incorporates what some of us call national education and some of us call brainwashing.

The Tong Nai Kan School website, for example, promises “marching training, national education, and field-trip challenges to develop students’ leadership skills, team spirit and further foster a sense of belonging to the school and our nation.”

Lo Kit Sing College says to parents that “The aims of the training are to arouse students’ patriotism and nurture their leadership and team spirit.” Po Leung Kuk Number One W. H. Cheung College says that “The training camp aimed at enhancing self-confidence, discipline, and cooperation amongst students through national education and outdoor adventure activities such as wall climbing.”

Whatever you think of national education as a school subject, the sort of teaching approach which is appropriate for citizenship education is totally different from that used in “outdoor activities such as wall climbing”, and the two are unlikely to cohabit happily.

Suggestions We are told that a committee of the Po Leung Kuk is now reviewing the training programme. So some suggestions: 1.) People with unfulfilled military ambitions should be kept well away from the kids.

2.) Skip the politics. See above.

3.) This activity is listed by all the schools I could find expressing an opinion on the matter as compulsory. It should be voluntary. This sort of thing is not for everyone.

4.) Not for primary, please.

HONG KONG BUSINESS | MAY 2017 47

OPINION

Hemlock

Hong Kong officials get bored, play insurance salesmen

W

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

hen it isn’t trying to mastermind the development of the city’s space-age whizzbang IT-web-innovation-tech sector, the Hong Kong government and its numerous bureaucratic offshoots love to manage the growth and direction of the financial services industry. Amongst their many past obsessions are Islamic banking, fintech (whatever it is), ‘green finance’ (ditto), and the endless Yuan offshore blah-blah stuff – all of a ‘hub’ nature, of course.

This hankering to out-do the private sector extends to offering actual retail investment products. Thus the (surplus-laden) Hong Kong government issues limited quantities of inflation-linked ‘iBonds’, giving lucky successful subscribers a higher yield than any bank deposit (or instant profit if they sell). The aim seems to be to make some small savers happy whilst spreading magic Asian Bond-Market Hub pixie-dust around the place.

Dreary annuities Now, the government (in the guise of its HK Mortgage Corporation) is getting into the business of annuities.

These are dreary retirement income products popular – I am guessing – amongst the sort of people who play golf. The benefit, presumably, is that they are easy to understand, at least as described by pushy insurance salesmen who make a ‘lifelong income’ sound somehow amazingly generous. In reality, since someone else is taking a cut, you would enjoy a better return if you invested the money yourself directly.

Another drawback is that the lump sum is probably locked up.

As with the government’s iBonds, the HKMC annuities will be limited to a specific number of purchasers/amount of investment. The maximum investment would be HK$1m, which would yield HK$5,800 a month – a big deal to those who can’t afford a million, but not worth bothering with for those who can. Still, the payout is 3-4%. If this is linked to inflation, it is a very good deal for the lucky subscribers, and bad for the rest of us who will no doubt subsidise it in some way. But it presumably is not index-linked, otherwise the officials would mention it rather than refer to the returns as ‘fixed’ and ‘stable’.

By contrast, the Tracker Fund currently yields around 3%, which should more or less rise with inflation, and you can draw on the capital if you want, or leave it for your grasping heirs to enjoy after you go.

As with the iBonds, the initiative has no real purpose.

It seems to be just another ‘thing’ for hyperactive, meddling bureaucrats to occupy themselves with whilst 48 HONG KONG BUSINESS | MAY 2017

waiting for their handsome public-sector pensions.

The payout is 3-4% In fairness to these particular officials, they can at least do their visionary work without launching realestate projects. This contrasts with their colleagues’ efforts at the high-tech hub at Cyberport, with its special high-tech luxury apartments, the arts-andculture hub at West Kowloon, with its (planned) special arts-and-culture luxury apartments, or the innovation-tech-Shenzhen-toxic-swamp hub planned for the Lok Ma Chau Loop, with, you can be sure, lots of special innovation-tech-toxic-Shenzhen-swamp luxury apartments. For sparing us the Sukuk Bond Hub-Zone concept with special Islamic Banking luxury apartments, they deserve a bit of gratitude.

At last – a Hong Kong government U-turn on tourism. For years, officials have implemented a strict Cram More Tourists In Endlessly policy, inflicting misery on residents. I am delighted to see that the Tourism Board is now implementing a subtle strategy to repel visiting hordes. Behold its list of our Top 10 Attractions: The Peak, Avenue of Stars, Hong Kong Disneyland, Ladies’ Market, Ocean Park Hong Kong, Temple Street Night Market, Clock Tower, Tsim Sha Tsui Promenade, Golden Bauhinia Square (and HKCEC), and Lan Kwai Fong. Anyone who knows Hong Kong can tell you that these are amongst the most tedious or simply unpleasant places in the city.