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BUSINESS
FROM THE EDITOR
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Welcome to our annual Salary Survey issue. Hong Kong Business caught up with top recruiters and discovered that Hong Kong professionals will be getting large salary increases this year, as employers look to stack up on top talent. On the flip side, contracting is also now in vogue in Hong Kong, becoming an increasingly valuable recruitment tool for many companies.
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In this issue, we also explored the effects of an increasingly volatile environment on Hong Kong’s economy. Analysts warn that uncertainty is rising to unprecedented levels, caused by concerns over moderating growth rates in the mainland, interest rate normalisation in the United States, the increase in global financial market volatility and the emergence of demand-side factors pushing down crude oil prices.
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Meanwhile, a clash of telco titans is also brewing in Hong Kong, with new alliances being forged and new battle lines being drawn as competition sizzles in the sector. We have a lot more in store for you so start flipping through the pages.
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CNH: Will Qianhai jeopardize Hong Kong’s position? 6 Sep 2013
Interest rate strategy
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CNH: Will Qianhai jeopardize Hong Kong’s position? DBS Group Research
6 Sep 2013
In mid-2012, the China’s State Council approved the development of the Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone. Four industries were focussed upon: finance, logistics, information services and science & technology services. Particular emphasis was placed on finance, for which the government designated Qianhai to be built into an experimental zone for financial innovation and further opening-up to the outside world. Back then, market watchers found it difficult to associate the mudflat with such bold plans. We, however, have been optimistic about the project. Specifically, we stated in earlier report that the zone’s development would be kicked off by the launch of a cross-border RMB lending scheme (see “CNH: RMB lending set to cross border in pilot plan”, 16 April 2012). In Jan13, only nine months after the approval has been granted, fifteen Hong Kong banks were authorized to offer a combined RMB2 bn of loans for Qianhai companies. More impressively, the first Qianhai land auction was held in July and construction is planned to start by October. It signals that the zone has already entered into an expansion period.
An analogy of Shenzhen SEZ in 1980s While many were previously skeptical about Qianhai’s future, they have now turned to the other extreme of worrying that its rise might jeopardize Hong Kong. Such fears are overblown. In our view, the Qianhai project is similar to the establishment of the Shenzhen Special Economic Zone (SEZ) in the 1980s, which has, in fact, bolstered Hong Kong’s competiveness.
Three decades ago, Hong Kong’s manufacturing industry was seriously hit by soaring costs
Three decades ago, Hong Kong’s manufacturing industry was hit by soaring costs. Factory rents and manufacturing labor wages ballooned 140% and 170% respectively during 1980-90. The city’s international competiveness was being challenged by several lower-cost developing countries in the region. For instance, the manufacturing labor costs in IndoneChart 1: Transformation of HK economic activities sia at the time was only during 1980-2000 one-fourth that of Hong Kong. 30% 90% Shenzhen became an expansion outlet for Hong Kong manufacturers and the timing could not have been better. The availability of abundant inexpensive land and labor in Shenzhen made it possible for Hong Kong manufacturers to move labor-intensive processes across the river. Meanwhile, more skill-inten-
Manufacturing 25%
Service (rhs)
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65% 1980
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Nathan Chow • (852) 3668-5693 • nathanchow@dbs.com 1
*If you’re reading the small print you may be missing the big picture
HONG KONG BUSINESS | MAY 2016 1
CONTENTS
24
analysis Clash of telco titans: Price war heats up in Hong Kong
42
analysis China sneezes and ASEAN catches a cold
Cover story
26 2016 salary survey FIRST 06 HK banks stalled by bad China-related loans
07 Retailers hit by dry spell 08 HK pushes FinTech to spur IT demand
RANKINGS
REGULAR 18 Financial Insight 22 Economic Insight 36 Legal Briefing 38 CMO Briefing
10 Why large firms are ditching core CBD over decentralised areas
40 Hong Kong’s blistering hotel investment takes a breather
OPINION 44 Ian Perkin: Too much budget pessimism?
46 Tim Hamlett: The kids are all right 48 Hemlock: Beijing’s dilemma
12 HK aviation to suffer market turbulence
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 2016 262 Des Voeux Road Central, Hong Kong
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RESIDENTIAL PROPERTY
Will Hong Kong home prices crash in 2016? Hong Kong’s housing market has been going cold since September 2015 with prices falling on a slow but steady basis. According to a research note from Colliers International, fueled further by fears of a deeper downturn in the property market, housing sales volume looks set to remain at snail pace. “In January, mass and luxury residential prices have dropped by 8.9% and 4.6%,” Colliers said.
hr & education
3 in 10 Hongkongers don’t believe in major impact of tech on their jobs It has been noted that Hong Kong employees are skeptical of technology use in the workplace, based on Randstad Hong Kong’s Q1 Workmonitor research. According to Randstad, Hong Kong comes second to the last in Asia’s rankings.
MARKETS & INVESTING
Companies tapping asset sales to fuel growth It has been noted that nearly half of all Asia-Pacific corporations polled by EY plan another divestment within the next two years, compared to last year’s 15%. According to EY, further, half of APAC firms expect opportunistic bids as the catalyst for their next divestment sale, though EY research shows this strategy is among least likely to positively affect the remaining firm’s valuation.
COMMERCIAL PROPERTY
HK commercial landlords making the most of high capital values It has been observed that real estate markets in Asia Pacific are expected to deliver strong total returns in the next three years driven by a huge weight of capital. Real estate investment is likely to see even more interest.
HR & EDUCATION
Women filling only 28% of management roles in HK: study Hong Kong’s reputation as an international centre is not matched by its diversity statistics with women filling 28 per cent of management roles, according to the findings in the 2016 Hays Asia Salary Guide. According to Hays, this is a fall from the 31 per cent reported in last year‘s Guide and the 33% of the year before. When it comes to cultural diversity, foreign employees comprise 18% of HK’s workforce.
COMMERCIAL PROPERTY
Only 3% of APAC-focused private equity real estate funds are in HK Asia Pacific-focused private equity real estate funds disposed 310 assets, totaling US$25.5 billion in 2015—37% higher than the fiveyear average of US$18.7 billion. Only 3% of these assets are located in Hong Kong.
FIRST services partner at EY, says while the slowing down of Chinese GDP will lead to a deterioration in quality loans, banks are in turn becoming increasingly cautious in managing risks resulting from their credit businesses. Lee says among risk management measures implemented by banks is the monitoring on post loan granting status of borrowers. “Red flags and early warning signals become very important attributes for the risk managers to identify problematic borrowers in order to allow early remedial measures to be taken,” Lee adds.
no privacy
Hong Kong’s professionals may be getting cozy due to the proliferation of creative co-working spaces, but privacy remains a top concern. According to a survey by global workplace provider, Regus, the two most popular reasons for choosing co-working spaces are the opportunity to meet like-minded workers from different firms (82%) and to broaden their network (80%). Regus adds that Hong Kong businesses regard co-working as a cost-effective alternative compared to fixed-office. Some 80% of Hong Kong respondents agree that co-working spaces are ideal environments for start-ups, compared with a global average rate of 74%. In fact, Regus adds that Hong Kong is ranked as one of the world’s top 25 start-up hubs and in the top five fastest growing start-up ecosystems. “Finding a workspace is one of the fundamental steps when starting a business and it has always been a roadblock for cash-strapped start-ups in Hong Kong,” Regus says. Flexibility minus isolation Meanwhile, while a co-working space enables workers to enjoy the combined benefits of flexibility of going into an office without the feeling of isolation. 87% of Hong Kong respondents confirmed that the environment provided by co-working spaces is sometimes not professional enough for client meetings, higher than the global average of 76%. “Some 81% of Hong Kong firms say that there is a risk to privacy (75% globally) and 71% of Hong Kong entrepreneurs say that meeting room space is scarce, which is a higher rate than the global average of 59 per cent,” the survey says.
6 HONG KONG BUSINESS | MAY 2016
Hong Kong loan impairments are rising
HK banks stalled by bad China-related loans
I
f there’s anything Hong Kong banks need to watch out for in 2016, it’s risk-riddled Chinarelated credit quality. According to analysts from Fitch Ratings, Hong Kong banks’ loan impairments are expected to inevitably rise, with Chinese borrowers likely to account for a larger bite of non-performing loans (NPLs). “Retail banks’ classified mainland loans rose to 0.77% of mainland loans, compared to a total classified loan ratio of 0.65%. We estimate that the China-related NPL ratio will likely rise to about 1.5%-2% by end2016,” Fitch Ratings says. Decreasing exposure Concurrently, Fitch adds that the mainland China exposure (MCE) of Hong Kong banks have contracted to US$806b, or just below 30% of system-wide assets, down from a peak of US$899b or 34% of assets last year. “A large part of MCE is state-related via lending to stateowned entities (SOEs) or claims on mainland banks in the forms of trade finance or interbank placement. Individual banks’ business models and market positions continue to drive the quality and composition of their China exposures,” Fitch says. Meanwhile, Jasmine Lee, financial
Retail banks’ classified mainland loans rose to 0.77% of mainland loans compared to a total classified loan ratio of 0.65%.
Meticulous selection Besides risk management measures, Lee says banks are also becoming more prudent in selecting their borrowers through know-yourcustomers procedures. “This is a time which calls for banks to exercise prudent judgment in establishing their risk appetite and setting proper credit risk governance, coupled with the front line’s due care in assessing the quality of their borrowers and implementation of proactive and focussed risk management,” Lee says. Moving forward, Lee says this trend is expected to continue in the near future, and Hong Kong’s banks need to strike a good balance between business development and risk management. Lee proposes that in the medium to long run, corporations can leverage on government initiatives such as “One Belt, One Road”, opportunities presented by RMB internationalisation, along with other national strategies to capitalise on potential growth.
Loan growth came below deposit growth in 2010-2014, but the tide turned in 2015
Source: Citi
FIRST Number of mainland visitors to HK and y-o-y growth, Jan-2014 to Dec-2015
Source: Hong Kong Tourism Board, HSBC
A decline in tourist arrivals is hurting retailers
Retailers hit by dry spell
O
nce a vibrant, economically reliable sector supported by several luxury brands, Hong Kong’s retail sector is expected to feel a bit of a pinch this year as tourist arrivals onto the island continue to slow further in 2016. “Inbound visitation from China to Hong Kong started to really deteriorate late last year. While Lunar New Year low visitation is not a surprise and retail sales were bound to be under pressure, we struggle to find a positive catalyst for Hong Kong,” says Erwan Rambourg, global co-head of consumer and retail at
Sales values contracted by 8.5% yearon-year in December and were down 3.7% overall.
HSBC Global Research. In a separate report, HSBC Global Research noted that 2015 ended poorly for the retail sector, particularly for luxury goods, which hints at a rough 2016 as well. “The biggest change in mainland tourists’ consumption behavior is that they staying away from luxury items due to the anti-corruption policy and the slowdown of the Chinese economy,” says Joe Lin, executive director, retail services, CBRE Hong Kong. For 2016, luxury retailers are urged to adopt new strategies to mitigate the effects of weaker sales,
which are expected to continue. “Luxury brands will have to adjust their sales forecasts as well as their business strategies. They will most likely need to consolidate their retail network, close down the less profitable stores, ask for a rental reduction, as well as adjust their merchandising tactics by promoting less expensive items,” Lin advises. Another analyst is more optimistic, however, seeing 2016 as an opportunity to actually expand in Hong Kong. “Whilst rents will still drop by a further 20% before the years end we are at a point where sales have reached equilibrium and are unlikely to continue dropping. Therefore, using the current data (and not looking in the past), it is in fact the best time to consider opening a store in Hong Kong,” argues Sebastian Skiff, Colliers executive director, retail development and asset management, Asia at Colliers.
The Chartist: Solid fiscal position allows more for countercyclical policies Hong Kong’s fiscal reserves are expected to balloon in the coming years, as Hong Kong is slated to run a fiscal surplus in FY2015/16 and FY 2016/17. According to Bank of America Merrill Lynch, the FY 2015/16 fiscal revenue was revised lower to HK$457b, from HK$478b originally, mainly reflecting the HK$45b injected into the Housing Reserve. “Among the major components, revenue from land sales is HK$8bn lower than original estimates,” says Bank of America Merrill Lynch. According to BAML, this solid fiscal position leaves the policymakers room to provide countercyclical support to the economy through more expansionary fiscal policy when needed. “Fiscal reserves are estimated to reach HK$870bn,” it added.
HK is expected to run a fiscal surplus in 2016/2017
Leading to further accumulation of fiscal reserves
Source: BofA Merrill Lynch Global Research, HK Government
Source: BofA Merrill Lynch GLobal Research
HONG KONG BUSINESS | MAY 2016 7
FIRST
HK pushes FinTech to spur IT demand
Survey
Retaining top talent
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ong Kong’s already booming financial technology (FinTech) sector is expected to receive a further boost this year in light of Financial Secretary John Tsang Chun-Wah’s recent announcement of funding support and other incentives. “While FinTech can disrupt traditional business models, we believe it can also help companies reinvigorate their services and redefine their offerings in a rapidly evolving environment. As such, we also back Tsang’s $2-billion Innovation and Technology Venture Fund that will co-invest with private venture capital funds on a matching basis in local technology start-ups,” says Fiona Ng of PwC. Since 2011, Hong Kong’s FinTech industry has seen “rapid but steady growth,” says James McKeogh of KPMG, citing data from CB Insights. “This trend has continued in 2015, where venture capital-backed investment was nearly USD 10.5 billion by the third quarter. FinTech is not only an opportunity for financial services industry players, but also opens up the market to many other participants.” McKeogh explains. As a result of this funding from the
FinTech is disrupting traditional business models
government, growth for related small and medium enterprises (SMEs) and other industries is also foreseen in the near future. “The Financial Secretary’s push for advanced manufacturing industries and intelligent systems will strengthen the demand for IT sales managers who are able to sell ‘super computers’ with artificial intelligence as a business solution. It will also be a boost to SMEs and start-up businesses in Hong Kong as the initiatives provide support for the development of innovative FinTech,” says Kieran Sim, associate director at Randstad Technologies.
survey
Cybercrime threats scare Hong Kong companies Companies in Hong Kong may have to rethink their cyber security initiatives as half of the firms in the city-state reported experiencing economic crime in the form of cybercrime this year, compared to only 37% in 2014. As a matter of fact, according to a survey by PwC, 51% of respondents say they felt that the risk of being assaulted in cyberspace has increased during the last 24 months. According to John Donker, lead forensic services partner for PwC China and Hong Kong, cyber criminals thrive on dynamic environments such as Hong Kong, a technology-dependent financial hub, adding that unprepared organisations are now more exposed than ever. “At the same time, we can see that companies on the mainland that fail to establish robust compliance practices face the very real risk of serious financial and reputational damage that can result from investigations,” Donker says.
8 HONG KONG BUSINESS | MAY 2016
This trend has continued in 2015, where venture capital-backed investment was nearly USD 10.5 billion by the third quarter.
Employers will have to double their efforts to retain their top talents this year, as 3 in 10 employees in Hong Kong are admittedly looking for a new job. Additionally, according to the 2016 Hays Asia Salary Guide, almost half are open to hearing about a fresh opportunity. “According to this year’s guide, 34% are worried they already don’t have the right talent on board to achieve current business objectives, and 96% say skills shortages have the potential to impact business operations this year,” Hays says. Meanwhile, employees are keen on looking for new jobs, as 21% want to be in a new role within the next six months, while 23% are expecting to change jobs within the year. According to Dean Stallard, regional director of Hays in Hong Kong, with almost a third of the workforce are looking for a change in scenery. Employers need to pay close attention to what triggers an employee to start looking for a new job as well as their motivations for staying in their current job. Top motivators According to Hays, among the top motivators for job hunting in Hong Kong include salary and benefits (65%), new challenges (40%), lack of career progression in their current role (26%), company culture (23%), poor work-life balance (16%), work location (12%), job security (12%), and lack of training or development opportunities (9%). Additionally, while over half (55%) of Hong Kong employees surveyed did not ask for a pay raise in the past year, candidates have higher expectations for the year ahead.
FIRST
Why large firms are ditching core CBD over decentralised areas
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hen insurance giant Manulife was looking to relocate its office space, it skipped the traditional core central business district and opted for decentralised area Kowloon East instead. By moving to the area, not only did the firm find security of tenure by purchasing their own office space, they also achieved long term stability on costs. According to Darren Nugent, senior director of office services at CBRE Hong Kong, other large companies are also considering moves to decentralise and consolidate operations, while other firms have already made the jump like Manulife and banking conglomerate Citi. Nugent says this trend is likely to intensify with the completion of cost effective space from 2017 onwards. “An uncertain global economic outlook has put the brakes on expansionary demand from some traditional occupiers of space in core areas, while others are seeking more cost-effective space to consolidate operations,” Nugent adds. Making economic sense Meanwhile, Nugent adds that while companies opt to locate in Hong Kong because it makes economic sense for them to do so, the real problem is the ability of Hong Kong to provide space for companies to expand. “The acute lack of vacant space
we continue to see is not conducive to economic growth and we reiterate our calls for the delivery of development sites, already identified, to be expedited,” Nugent explains. “We anticipate the completion of new projects from 2017 onwards but more needs to be done to guarantee a platform for growth and to keep Hong Kong competitive.” Denis Ma, head of Hong Kong research at JLL, agrees with Nugent, saying the rate of decentralisation will gather momentum over the coming year as new supply and transport infrastructure into new markets moves closer to completion, while rents are expected to increase by 5-10%. Positive rental reversions “The rental recovery in the Central office market over the past two years also means that most tenants with lease expiries (standard three year lease) will face positive rental reversions in 2016. Coupled with a lacklustre business outlook, demand for cost effective office space in the city will be on the rise,” Ma says. In addition to the leasing market, Ma says PRC corporates have also become more active in the investment market in recent months with an immense number of acquisitions; including China Life’s
office watch
Check out Microsoft Hong Kong’s cool office The Microsoft workplace in Cyberport 2 is unlike a traditional office, it is more like a laboratory, a sandbox and a springboard. An opportunity to break boxes and build communities. “At our new Hong Kong office, we wanted to identify and meet the unique needs of Microsoft’s businesses through the provision of appropriately designed and equipped work environments,” said Horace Chow, General Manager of Microsoft Hong Kong. Microsoft Office implemented new ways of working and function-based work environments to allow its employees to achieve more. For example, it removed dedicated seating to encourage social bonding and to promote a neighborhood concept. “Fully equipped with tables, personal lockers, massage chairs and ergonomic work desks, our office is designed to improve employee wellness,” explained Chow.
10 HONG KONG BUSINESS | MAY 2016
Microsoft Experience Centre
Creative blackboard
Firms are getting selective with their office choices
purchase of the entire West Tower at One HarbourGate for HKD5.85 billion, Evergrande Real Estate’s HKD12.5 billion purchase of Mass Mutual Tower and China Everbright’s purchase of Dah Sing Financial Centre for HKD10 billion. “Though these purchases may not necessarily result in large amounts of space being returned to the market, as PRC corporates move into their new offices, it does remove some of the leverage in the market for all other tenants,” Ma says.
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FIRST NUMBERS
hk employment report
Hong Kong aviation is ready for take off
HK aviation to suffer market turbulence
H
ong Kong’s aviation industry has a lot of potential, but a number of conditions have to be met before all aspirations take off. Tony Tyler, director general and chief executive officer of the International Air Transport Association says his group estimates that currently, aviation and related activities account for some 300,000 Hong Kong jobs and generate $25 billion in gross domestic product (GDP). He sees the figure more than doubling to 612,000 jobs and $52 billion in GDP in 2035. “That’s a potential for 103% growth,” he says. Tyler notes, however, that that won’t happen without some effort to keep costs low, provide sufficient capacity and keep efficiency high. Commercial aircraft current market values and leasing rates have been on a declining trend since 2015 and have accelerated in January 2016, according to ASCEND Flightglobal Consultancy. New generation aircraft Mohshin Aziz, analyst at Maybank Kim Eng, says the outgoing models are the most affected and the new-generation midsize wide-body aircraft’s midlife values are also plunging. “This 12 HONG KONG BUSINESS | MAY 2016
provides substantial cost savings to airlines as aircraft cost is the second highest after fuel. The cost environment has never been as kind to the industry as it is now,” Aziz says. On capacity, Hong Kong is moving in the right direction, says Tyler. “Last year the government took the important decision in its budget to announce that the construction of a third runway for Hong Kong International Airport would begin in 2016 with a completion target of 2023,” he says. Efficiency-wise, Tyler says with traffic growing in the 11% range year-on-year, managing growth in air traffic management capabilities is a major challenge. “If you have flown in China recently, there is a good chance that you would have experienced delays,” he adds.
Aviation and related activities account for some 300,000 Hong Kong jobs and generate $25 billion in gross domestic product (GDP).
Average annual aircraft utilization rates
Source: ASCEND
Source: Robert Half
FIRST the city is diminishing, many commercial buildings are being constructed to replace demolished factories. The average monthly desk rate is $3,650.
This serviced work space is located at Des Voeux Road Central, Hong Kong
HK’s top spots for flexible workspaces
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ong Kong’s flexible office market has grown aggressively in the past two years, according to Instant Office’s data. The city’s flourishing Technology, Media and Telecomms (TMT) sector has expanded rapidly and driven up demand for non-conventional space. The rapid growth in this sector and further demand for co-working, serviced offices and other flexible workspace, leads Instant Office’s research team to predict that it is set for continued growth and, increasingly, operators are looking to the region. According to Instant Office, the growth was initially quite localized to its tech hub in Cyberport but has subsequently become a citywide phenomenon. Further acquisition of space by flexible office operators is set across the City and further afield. The following are areas in Hong Kong where most numbers of flexible workspaces were recorded.
helps to keep prices competitive. There are around 41 flexible workspaces here with an average monthly desk rate of $7,400.
1 Central Home to many of the city’s landmark buildings and the highest concentration of flexible office space, Central is the ideal location for businesses many industries, particularly multinational corporations from finance and commerce. Consulates general and consulates of various countries are also based in this area located on the north shore of Hong Kong Island, across Victoria Harbour from Tsim Sha Tsui. While this is the most expensive area of Hong Kong (along with Admiralty), the abundance of options
3 Kwun Tong Traditionally a major industrial area, Kwung Tong has been transformed in recent years into an upscale business district. With 19 flexible workspace, the area is also popular with entrepreneurs and creatives looking for larger spaces and cheaper rents that can be found in other parts of Hong Kong. Kwun Tong is the most densely populated district, with 55,000 per km², but it is also one of the largest industrial areas in Hong Kong. But since the importance of manufacturing industry in
14 HONG KONG BUSINESS | MAY 2016
2 Wan Chai With waterfront locations in abundance and quick and easy access to Kowloon, Wan Chai provides a practical and more cost-effective option to Central making it popular with SMEs from a wide variety of industries. The area, with 30 flexible workspaces, is also home to unique landmarks and skycrapers, most notably the Hong Kong Convention and Exhibition Centre, Central Plaza and Hopewell Centre. They are all adding to the appeal of this location. Wan Chai is one of the busiest commercial areas in Hong Kong with offices of many small and medium-sized companies. Nonetheless, since it is one of the first areas in Hong Kong developed, many older buildings now face decay.
4 Tsim Sha Tsui Ideally situated for companies that do business with both mainland China and Hong Kong Island, Tsim Sha Tsui is a major tourist hub in south Kowloon that offers considerably cheaper rents to those in Central. It is home to many highend shops and restaurants that cater to tourists. Many of Hong Kong’s museums are located in the area. Admiralty can still be reached in around 10 minutes. Tsim Sha Tsui has 16 flexible workspace with an average monthly desk rate of $5,690. 5 Sheung Wan For companies that need to be close to Central but don’t want to pay the premium prices, Sheung Wan can provide the perfect compromise. Due to its close proximity to Central the area now provides a range of modern flexible office solutions but still retains a strong feeling of traditional Hong Kong. It has 11 flexible workspace with an average desk rate of $5,040 per month. 6 Mong Kok With over 130,000 people per km², Mong Kok is known as one of the busiest districts in the world. With a choice of 10 flexible workspace options to choose from the area provides some of the most costeffective options in Hong Kong. Mong Kok is amongst major shopping areas in Hong Kong. It features old and new multi-storey buildings with shops and restaurants at street level, and commercial or residential units above. The average monthly desk rate is $2,600.
Admiralty Located next to Central, this area provides some of the most prestigious and thus expensive flexible office solutions in Hong Kong. It has 8 flexible workspaces with an average monthly desk rate of $10,700. Admiralty has great transport links to the rest of the city and is popular with major financial institutions and provides the ideal location for businesses looking to impress. Buildings in Admiralty consist primarily of office buildings, government buildings, shopping malls and hotels. 7
startups
Cool project aims to make Hong Kong breeze cleaner
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hat is billed as the world’s most powerful two-phase immersion cooling project (2PIC) deployed in a 40+MW data center was just completed late last year in Georgia in Eastern Europe. The 2PIC project, aimed at boosting data center efficiency, claims to use an immersion coolant with a low global warming potential, designed and built by a Hong Kong-based engineering company, Allied Control. The purpose of founding Allied Control was to mine Bitcoins as extremely lucrative business with return on investments typically within six months. But while they
were already in the design phase, founding members faced technical and electricity cost challenges with traditional air cooling of hardware in Hong Kong’s sub-tropical climate. Founder Kar-Wing Lau adds that they are able to pack IT hardware much denser than any other competing system. “Typical server density is about 5kW per server rack, while we have systems running at 250kW per server rack. Using less space leads to less construction waste in consideration of landfills with limited capacity,” he says. Locally, the firm hopes to contribute in city-wide drive to make Hong Kong’s air cleaner by reducing carbon emissions of electricity generated primarily by burning fossil fuels. Kar-Wing says that since typical data centers in Hong Kong use only about 45% of their electricity for actual IT hardware, the majority of the rest is being spent on cooling alone. This means that their cooling technology could probably cut electricity costs of typical datacenters almost by half. They also hope to contribute in city-wide drive to make Hong Kong’s air cleaner by reducing carbon emissions.
Keeping everyone in the loop
For some entrepreneurs, founding startups has never been that easy. But that’s not the case for The Loop HK, a Hong Kong-based lifestyle news online platform that features the latest in food, city living and travel. It keeps up with the newest restaurants, profile locals who live and work in Hong Kong, and offer comprehensive destination guides for regional travel. Founder Adele Wong says she pitched the idea to potential co-founders and shareholding partners last year, 16 HONG KONG BUSINESS | MAY 2016
“forcing” them to sign a non-disclosure agreement while trying to convince them to get onboard at the same time. “We started discussing the business for real at a dinner meeting at Din Tai Fung! We’re proud to say that all our funding is from ourselves,” she said. The company currently has $500,000 total funding. “The Loop HK stories go beyond skin-deep, superficial information, and are published with a very culturally invested, locally based, Englishspeaking audience in mind,” Wong says. The Loop believes in “honest, uninhibited coverage that’s always transparent with readers.” They also offer ‘value-for-money’ service by writing editorial stories rather than the typical display of advertisements. On the other hand, they also mention of never compromising its integrity through sponsorship indication.
A love for preloved fashion
It started out as finding a solution to solve founder Olivia Lee’s own problem of over-stuffed wardrobe with her barely-worn and mostly new pieces. Previously, she started to post on various marketplaces and found that despite knowing it is a “quick sell” outlet, there was a lack of respect between the buyer and seller, like a flea market attitude of bargaining down after a confirmed price, no reply or even no-shows. Lee then spotted a gap in Hong Kong for pre-loved fashion. She wants to sell items in a presentable way, mimicking shops that she favors including attention to details and good service. The initial idea of The Closeteur slowly formed as a new way to sell and buy pre-loved items, and it since has developed and spanned into what it is, after a lunch conversation with co-founder SW. After hearing Lee’s idea to create such platform, SW did further research in concretising the idea. Aside from the personal issue, there was a deeper environmental issue. As a long time supporter and volunteer of different conservation organisations, this was a topic that really touched SW, especially as fashion consumers contribute to the international problem known as fashion waste. “We wanted to create a community and platform that not only engages consumers to buy, sell, support and appreciate pre-loved fashion, but also to learn about the environmental effects of our daily habits, as well as bring awareness to an other-wise “wear-ittoday, chuck-it-tomorrow” mindset,” she says. This gave birth to a new community that consists of a new online shopping destination and an online magazine. Led by celebrities, key opinion leaders, international bloggers and corporate leaders, the team is dedicated to preloved fashion. The online store, thecloseteur.com, is a community for fashion lovers to buy, sell, support and appreciate preloved fashion. The e-magazine, thecloseteurmagazine. com, bills itself as the world’s first interactive and digital magazine dedicated to preloved fashion, changemakers, lifestyle and the environment. “We are here to shake up the consumers’ shopping habit and to redefine the traditional second-hand market through disruptive convergence of channels,” Lee says. In Asia where it is still a relatively new concept, people tend to think that preloved clothing is old, worn by others and therefore dirty. The Closeuteur aims to change this perception.
FINANCIAL INSIGHT: Mergers & Acquisitions
Li Ka-shing’s reorganisation had a combined value of US$114 billion and accounted for 9% of Asia Pacific’s overall M&A activity in 2015.
HK M&A looks to extend hot streak
2016 will be a busy year for the Hong Kong mergers & acquisitions (M&A) market as the wave of acquisitions involving Chinese companies remains a dominant theme.
L
ast year when Chinese companies were faced with a slowing domestic economy and a weakening currency, their appetite for acquisitions shot through the roof. This lent the Hong Kong M&A market a tremendous tailwind – and there are signs that more of this hunger will manifest in 2016. Chinese companies still possess vast amounts of deployable capital and seem more than willing to splurge on M&A deals this year to build new revenue streams and slash costs, according to analysts. This bodes well for the Hong Kong M&A market, which serves as a conduit for such outbound acquisitions by mainland firms, provided that equity market volatility does not go haywire. Continued strong M&A activity Even after an acquisition spree in 2015 that spanned major deals in Europe, US and Asia, Chinese companies are far from hitting the brakes. “There are still large amounts of capital to deploy in China, along with pressure to grow in an increasingly challenging economy. We expect continued strong M&A activity as a result,” says Ryan Reynoldson, head of transaction services, KPMG China. “Chinese institutions will continue to direct capital to outbound investments, and ongoing State Owned Enterprise reforms will drive further domestic consolidations. The recent market turmoil may also assist the very active private equity community, which is seeking 18 HONG KONG BUSINESS | MAY 2016
Outlook is very positive with an expected 9% increase in appetite and a 19% capacity growth.
more reasonable valuations,” he adds. Reynoldson cites data from the latest edition of the KPMG M&A Predictor which shows that the China outlook is very positive with an expected 9% increase in appetite and a 19% capacity growth, based on key ratios tracked by the proprietary forecasting tool. North America and Europe are also expected to increase capacity at 15% and 12%, respectively, notably lower than the China projection. In fact, apart from a few pockets of forecasted weak capacity growth like South America, most of the major M&A markets will see brisk activity, with China and Hong Kong expected to lead the Asia Pacific region. “We expect M&A activity to remain high in 2016, driven by themes such as a flight to scale and further technological disruptions,” says Ng Jiak See, executive director and leader of southeast Asia corporate finance advisory services at Deloitte. Ng explains that the end of the commodity supercycle has spurred on more aggressive strategies in M&A markets. “Pressure on revenues has meant that companies are looking to further consolidate in order to achieve top-line growth and diversification, as well as to improve profitability through cost synergies,” says Ng. She reckons strategic acquisitions have become popular as a way to boost growth and innovation, and many companies are looking to pick up disruptive technologies to overtake competitors or at least avoid falling into the
FINANCIAL INSIGHT: Mergers & Acquisitions obsolescence trap. This includes Chinese companies that are under immense pressure to continue growing despite dwindling growth on the domestic front. China slowdown a boon In fact, analysts argue that China’s sluggish economic growth and depreciating currency have been the most explosive catalysts for China and Hong Kong M&A markets last year, and also likely in 2016. In 2015, Chinese outbound M&A volumes increased for the sixth consecutive year to US$112 billion, which Ng attributes to consolidation in sectors such as commodities, shipping and logistics which largely depend on growth in trade. “The decline in China’s gross domestic product growth coupled with the shift to a consumption driven economy, is believed to have fueled Chinese outbound M&A activity either directly or through Hong Kong,” says Ng. This year more Chinese companies, particularly those in the technology and industrial sectors, will be searching for deal opportunities overseas with the hope of acquiring new technology to improve manufacturing and environmental issues, says David Fleming, head of Asia Pacific M&A Group at Baker & McKenzie. “The weakening yuan and slowdown in the domestic market made China and Hong Kong the most active M&A markets in the region last year. Chinese outbound M&A has not really shown any signs of slowing,” he adds. Chinese companies will also continue to gobble up companies in Europe and the United States with data revealing an initial salvo in 2016. Chinese outbound activity witnessed the best start to a year in 2016 with US$76.5 billion worth of deals, accounting for 34% of the global cross-border M&A, according to Elaine Tan, senior analyst, deals intelligence at Thomson Reuters. “The Chinese slowdown is the major driver for Asia Pacific’s increased outbound activity this year. Chinese companies are purchasing more assets abroad, mostly targeting Europe and the United States, to elude the slowing domestic growth,” says Tan. Burgeoning interest in Southeast Asia Chinese outbound M&A activity has also targeted firms in Singapore and other Southeast Asian countries to make China the largest investor in the region, says Fleming. In explaining Southeast Asia’s appeal among Chinese companies, Fleming says the region boasts a young
Venture Capital deals volume, from 2011 to 2015
Source: Thomson Reuters, ChinaVenture, and PwC Analysis
Ryan Reynoldson
Private Equity deals, from 2011
Elaine Tan
Source: Thomson Reuters, ChinaVenture, and PwC Analysis
David Fleming
population and rising incomes, especially in consumerrelated and e-commerce industries. Southeast Asian economies like Myanmar, Vietnam, and the Philippines are also developing their domestic markets to become more attractive to foreign investments, including potential Chinese buyers. Fleming singles out Vietnam as potentially benefitting from the formation of the Association of Southeast Asian Nations (ASEAN) Economic Community (AEC) which seeks to integrate the region’s numerous and diverse economies in a single market. “The AEC is very much a work-in-progress but investors looking for medium to long-term opportunities will see these as more positive factors that will hopefully catalyse greater dealmaking activity,” says Fleming. China and Hong Kong dominate the share of M&A deals in Asia, but Singapore companies have also been getting in on the acquisition action and will be making their presence felt this year. “Singapore’s corporates were active on the outbound trail with the bulk of the total deal value in Singapore last year attributed to overseas acquisitions, with the US being the top destination for Singapore companies, followed by India and the UK. ” says Fleming. “We also expect Singapore companies to continue on their outbound acquisition quest as they seek to stay competitive in a consolidated business landscape,” he adds. Among Asia Pacific countries, China, Japan, Hong Kong, Australia and Singapore were the top five most active acquirers in 2015 by deal volume, according to Baker & McKenzie’s Fleming. The region reached a record high in outbound activity in 2015, rising to 1,268 deals worth US$313.4 billion, based on Mergermarket statistics. Chinese and Hong Kong deals were predominantly focussed on consumer goods, technology, financial services and construction deals. Aside from acquisitions, the Hong Kong M&A market was particularly galvanised by the massive reorganisation of tycoon, Li Ka-shing’s diversified conglomerate into two new listed companies. Thomson Reuters’ Tan estimates that the jumbo deals HONG KONG BUSINESS | MAY 2016 19
FINANCIAL INSIGHT: Mergers & Acquisitions involving the Li Ka-shing reorganisation had a combined value of US$ 114 billion and accounted for 9% of Asia Pacific’s overall M&A activity in 2015. “Bolstered by Li Ka-shing’s reorganisation, deal making activity in Hong Kong also had a banner year in 2015,” says Tan. She notes that overall announced M&A activity involving Hong Kong hit an all-time high as deal value totalled US$287 billion in 2015, up 64.7% from over a year ago. Telecommunications and real estate witnessed significant percentage increase in deal value and accounted for 30.1% and 25.3% of the market share, respectively, involving Hong Kong M&A activity. Sector hotspots This year, expect the spotlight to be trained on the energy, basic materials and consumer staple sectors. Reynoldson says the strongest sector performers in terms of appetite are expected to be energy, with a 23% increase forecasted in 2016, basic materials at 12% and consumer staples at 6%. Meanwhile, utilities will lose its appeal as appetite is expected to decrease by 6%. When it comes to capacity growth, Fleming reckons technology is the star performer, with an expected increase of 90% in 2016 as technology companies continue to increase their cash stockpiles. Most signs point to another flourishing year for Chinese and Hong Kong M&A, and this is despite equity market volatility, which is not likely to pose too much of a hindrance in 2016. “Despite recent market jitters, the expectation that M&A activity will remain robust in 2016 is well-founded, based on corporates’ ample cash reserves and their desire for growth, coupled with consistent demand for quality opportunities from private equity sponsors,” says KPMG’s Reynoldson. Fleming chimes in that, if anything, the equity market volatility can be a bit of a distraction and may hurt public company M&A, but it may also open a wealth of deal opportunities in the region. “Most multinational acquirers are in reasonable financial condition. Credit is still relatively available and cheap. Corporates are also seeing the benefits of restructuring and fine tuning. Increased market volatility may, to the extent it reduces confidence, lead to buyers taking more time, doing more extensive due diligence or looking for greater conditionality,” says Fleming. Strategic buyer deal value by industry sector
Source: Thomson Reuters, ChinaVenture, and PwC Analysis
20 HONG KONG BUSINESS | MAY 2016
Hong Kong hit an all-time high as deal value totalled US$287 billion in 2015, up 64.7% from over a year ago.
singapore view
Singapore’s M&A drive stumbles The economic tumult in 2015 might have pressured Singapore companies to sit on the deal making sidelines, but 2016 could see more of them seizing opportunities that other Asia Pacific markets, including rival Hong Kong’s, have earlier identified as too good to pass up. Singapore companies are already in great financial shape to pursue M&A deals, according to analysts. There are also looming developments such as the unified ASEAN Economic Community and the possibility of tempered volatility that may further kindle Singapore M&A activity this year. Singapore finds its footing Capacity to fund M&A growth is expected to rise 15% in 2016 among Singapore-based companies, says Benjamin Ong, head of mergers & acquisitions and capital advisory at KPMG in Singapore. He reckons transactional activity will be robust due to the relatively low cost of financing and the hunger for inorganic growth in the current weak economy. “Singapore companies have maintained healthy balance sheets and have the capability to finance M&A activity to boost market share and keep up with competition in the increasingly consolidated marketplace,” says Ong. This is not to say that Singapore firms will no longer exercise caution amid the heavy pounding of external and domestic headwinds. M&A appetite in Singapore could still be dampened by such opposition, says Elaine Tan, senior analyst, deals intelligence at Thomson Reuters, but there are supportive factors such as the roll out of the unified ASEAN Economic Community that could temper the risk. 2016 should offer a more conducive environment for Singapore M&A than 2015, when overall activity plummeted to US$60.8 billion, a 35.9% decline in deal value from the previous year’s record annual volume. Tan also recalls that in 2015, average deal size for disclosed deals dropped to US$106.3 million compared to US$133.4 million in 2014, as deal activity involving Singaporean companies in 2015 witnessed only eleven deals above US$1 billion compared to sixteen deals last year. Moreover, overseas acquisitions and domestic activity declined 62% and 50% in deal value, respectively, from over a year ago. Tan says concerns over uncertain global economic growth, volatile stock markets and slowdown in China caused the decline. Despite this, Tan says that Singapore will continue to be an attractive destination for deal activity. In 2015, Singapore inbound M&A reached US$19.6 billion and witnessed a 35.1% increase in deal value compared to 2014, making it the highest annual volume since 2012. China, Japan and United States were the most active acquirors in terms of number of deals targeting Singapore, notes Tan. Industrials, energy & power and high technology were the most targeted sectors and accounted for a combined market share of 72.8% of Singapore inbound deals.
economic INSIGHT: trade and finance casting a shadow over the city’s economic outlook for 2016, he says. With the mounting external uncertainties and the softer-than-expected domestic demand growth, Hang Seng Bank has cut its 2016 full-year economic growth forecast from 2.4% to 1.8%, with risk tilted towards the downside. In addition, the adverse spillover effects from external economic uncertainties may be greater than expected and this will weigh on domestic demand, which has been a good driver of growth since the end of the global financial crisis in 2009, Wong says.
Mainland crises are extending to Hong Kong
Headwinds mar HK economy A volatile external environment is not doing any favours for Hong Kong, with an economy on course for muted growth.
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he level of external uncertainty seems relatively high for Hong Kong in 2016 with headwinds coming from concerns over moderating growth rates in the mainland, interest rate normalisation in the United States, the increase in global financial market volatility and the emergence of demand-side factors pushing down crude oil prices. “In addition, the adverse spillover effects from external economic uncertainties appears to be greater than expected, weighing on domestic demand, even though this may be somewhat supported by private consumption expenditure growth amid stable labour market conditions and weak inflation,” says Jackit Wong, senior economist at Hang Seng Bank. Oil price slump Wong says that a plunge in crude oil prices and an increase in financial market volatility will probably pull in different directions in terms of their impacts on Hong Kong’s economy. 22 HONG KONG BUSINESS | MAY 2016
Surging global financial market volatility would likely dampen business investment and consumer spending sentiment in Hong Kong.
“If mainly due to supply factors, the oil price decline would be generally good news for Hong Kong (and the mainland). However, there appears to be the emergence of demand-side factors that are pushing down on crude oil prices, reducing the positive impact that lower oil prices might have on Hong Kong’s economy,” he says. In addition, surging global financial market volatility would likely dampen business investment and consumer spending sentiment in Hong Kong,
Crisis in the mainland For BMI Research, the potential for a financial or economic crisis in China continues to be by far the biggest risk factor for Hong Kong. BMI says such a crisis would hit Hong Kong hard given its deep trade and financial linkages to the mainland, and the high proportion that financial and trade services comprise of Hong Kong’s economy. “We also continue to see a tail risk of a Hong Kong dollar devaluation (taking the form of an adjustment to the currency’s peg versus the US dollar) as volatility in the Chinese yuan ramps up. Hong Kong’s increasingly deep ties with the mainland could make it difficult for policymakers to maintain the peg versus the US dollar should the Chinese New Year experience an acute sell-off, thereby putting downwards pressure on the decades-old peg,” BMI adds. Amid the grim outlook for the region, the finance secretary announced another round of relief measures amounting to HKD38.8 billion, aimed at boosting household consumption. “The government dedicated more recurrent resources for long-term
4Q15E expected to slow further given market volatilities
Source: CEIC, Citi Research
economic INSIGHT: trade and finance development of Hong Kong, addressing key issues like an aging society and enhancing productivity with innovation and technology,” says Adrienne Lui of of Citi Research, adding that Hong Kong’s growth is expected to hit 1.7% in 2016. Provisions for the elderly have been on top of the policy agenda for the government with the finance secretary increasing the tax allowance for dependent parents or grandparents, and raising the tax deduction ceiling for elderly care, increased funding for and capacity of care places. “Although details have yet to be announced, the pilot Silver Bond is likely to become a new investment tool for residents aged 65 and above. In line with the policy goals mentioned in the Policy Address to create a smart city and nurture innovation and technology, multiyear pilot programs like Technology Voucher and the Innovation and Technology Venture Fund will be put together,” she says. Lui adds that the government also stepped up commitment to social welfare, environment and food, education and health, as their respective expenditure rose by 13.4% year-on-year, 7.7%, 3.1% and 1.5%, against last fiscal year. Public expenditure estimate is also at 21.2% of gross domestic product (GDP) in 2016 to 2017. Improving labour productivity For HSBC economist John Zhu, however, Hong Kong’s long-term economic prospects and fiscal sustainability will ultimately depend on improving labour productivity. “New incentives to boost research and development and technological innovation will help, but expenditure on basic education would better prepare the local population for
an economy in transition,” he says. Zhu says what was notable in the finance secretary’s budget speech was the emphasis on innovation, research and development and the creative industries. As an advanced economy with first-world standards of living and infrastructure, Hong Kong’s longterm growth prospects must depend on raising labour productivity instead of adding labour (especially as it has an ageing population with very low fertility rate of 1.1 births per woman). The main challenge to boosting overall productivity comes from the fact than many of Hong Kong’s pillar industries have peaked and may not be able to drive growth in the future, he says. The largest sector of the economy, import and export services, faces increasing competition from ports in mainland China. Retail, accommodation and other tourism-related industries had been success stories over the past decade due to strong growth in inbound tourism from mainland China, but recent tourism arrivals data signal a sharp reversal of fortunes. Encouraging R&D “Policies to encourage research and development are therefore welcome. Hong Kong spent just 0.7% of GDP on R&D, which is significantly less than many other advanced economies such as Japan, South Korea, Singapore and Taiwan. Finally, one area that could do with more attention is in basic education. Expenditure on education for 2016 to 2017 will be HKD75 billion, accounting for 21.5% of recurrent government expenditure,” Zhu says. He notes, however, that Hong Kong’s government spending per primary and secondary student is low compared with many of its peers.
4Q consumption resilient, investment however dived into red
Source: HKMA, CEIC, Citi Research. Note: Fund flows proxy sums the changes of net spot FC positions v of Als and changes in monetary bases
Hong Kong is focused on improving labour productivity
The government has also wisely put aside HKD45 billion from the 2015/2016 budget into the Housing Reserves for future public housing construction needs.
“It is impossible to predict which sectors will become the future drivers of growth in Hong Kong, but a workforce with a strong basic education will give it the better chance of grasping any opportunities that do arise,” he says. Lui says the budget for 2016/2017 is “prudently expansionary and focussed on sustainability.” “This is considered generous when compared to the provisional budget surplus of HKD 30.5 billion expected for 2015/2016,” she says. Lui says the budget’s medium range forecasts are fairly conservative, expecting fiscal surplus consolidation in 2016 to 2018, and a potential deficit in 2018 to 2020 due to a larger social burden. “The government has also wisely put aside HKD45 billion from the 2015/2016 budget into the Housing Reserves for future public housing construction needs,” Lui says. A third of the 2015/2016 fiscal surplus will be injected to the Future Fund (a scheme set up on the January 1 this year to allocate funds for long term investment and hopefully yield higher returns in the medium to long term), combining with the initial endowment of HKD219.7 billion from the Land Fund. The economic support packages are expected to have a fiscal stimulus of boosting GDP for 2016 by 1.1%, Zhu says, with the main relief measures designed to ease financial pressures on households. HSBC expects Hong Kong’s economy to grow 2% this year. “Salaries tax and tax under personal assessment for 2015 to 2016 will be reduced by 75% subject to a ceiling of HKD20,000. HONG KONG BUSINESS | MAY 2016 23
Analysis: telecommunications subscriber offerings. “In 2016, we expect competition in the residential broadband market to remain intense,” says Tsz Wang Tam, equity research analyst at DBS. Tam reckons residential broadband subscribers in Hong Kong will grow this year due to an increase in the number of households, and telecommunications giants will be racing to rope them in. HKBN, with its aggressive pricing strategies, is poised to dominate the market share growth game. The telecommunications firm should continue to offer cheaper deals than its competitors, which has allowed it to almost double its market share to around 29% in 2015 from 16% in 2008 to become the second largest residential broadband operator in Hong Kong.
Hong Kong’s telcos are slugging it out to gain subscribers
Clash of telco titans: Price war heats up in Hong Kong
New alliances will be forged and battle lines drawn as competition in the Hong Kong telecommunications sector remains heated.
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he gloves will come off this year, if they have not already, as Hong Kong telecommunications companies look to beat down their rivals while subscribers look on in glee. Some operators will be recruiting allies through cunning cooperation agreements, while others will be doling out a barrage of specially packaged services in attempt to overwhelm opponents and impress the subscriber crowds. If anything, it may be the subscribers that emerge victorious in this intensifying telecommunications scuffle with analysts anticipating lower-priced, better-valued broadband and mobile offers. Residential broadband brawl This year, one of the most contentious arenas in Hong Kong
24 HONG KONG BUSINESS | MAY 2016
As of the first half of 2015, HKT still led the residential broadband market with a 55% share, with HKBN trailing in second, and HT and iCable placing third and fourth with 9% and 7% market share, respectively.
telecommunications will be in residential broadband. The likes of Hong Kong Broadband Limited Network (HKBN) Limited will continue to wield lower pricing as a preferred weapon of choice to cull customers away from rivals. There will also be a slew of cooperations between players that will produce more attractive
Luring customers As of the first half of 2015, HKT still led the residential broadband market with a 55% share, with HKBN trailing in second, and HT and iCable placing third and fourth with 9% and 7% market share, respectively. “It strategically offers deep discounts to lure subs away from competitors from time to time. Upon contract renewal, it raises the tariff back to normal level which is still lower than that of its major competitor Hong Kong Telecommunications (HKT) Limited,” says Tam of HKBN’s low-price advantage. “The incumbent operator HKT
Hong Kong residential broadband market share (1H15)
Source: HKT, HKBN, HT, i-Cable, DBS Vickers
Analysis: telecommunications focuses on stable profitability and cash flow, and therefore has less flexibility to undercut HKBN’s pricing,” he adds. HKBN will also gain market share momentum from its cooperation with Letv, drawing in fans from HKT broadband and NOW TV service package users. More of such cooperations should enter the pipeline now that players have seen their value. “We expect to see more cooperations between fixed-line players and over-the-top (OTT) multi-media content providers, providing alternatives for existing pay-TV and broadband users. HKBN, a pure broadband operator, is likely to benefit from gaining market share from existing integrated players such as HKT and i-Cable in the next few years,” says Tam. HKBN expects its subscriber growth to be concentrated in the second half of 2016 during which its partnership with Letv on English Premier League content becomes more relevant as the next football season starts, says Wen Du, analyst at Barclays after an analyst briefing. Surging subscribers In fact, HKBN management forecasts a doubling of its subscriber additions to around 120,000 in 2016, up from 62,000 net adds in 2015 and 32,000 in 2014, mainly due to the Letv collaboration. Tam says HKBN is in talks with other local and foreign OTT multi-media content providers in addition to the cooperation with Letv. Other players are also exploring HK telcos- residential broadband subscriber share (%)
Source: OFCA, Company data, Barclays Research
HKBN management forecasts a doubling of its subscriber additions to around 120,000 in 2016, up from 62,000 net adds in 2015.
Industry Trends - Mobile (2012-2019)
Source: Operators, BMI
cooperations. Late last year, Hutchison Telecom (HT) signed a memorandum of understanding with Letv that will enable more collaboration between the two companies. Tam reckons HT’s 3Home Broadband wll be another platform to distribute Letv’s services, including the EPL broadcasting, and products. Also, Netflix launched its multimedia content service in Hong Kong last January as part of a larger global expansion, and Tam believes the popular provider of streaming movies and TV shows will partner with local fixed-line operators to distribute its service. Eventually the type of collaborations in the Hong Kong telecommunications sector will become more diverse and complex. “We expect cooperations to grow beyond simple distribution between fixed-line operators and OTT players,” says Tam, and identified online shopping, content production and payment service as prime targets for collaboration.
advantage and will help it maintain its market positions of over 50% in both the broadband and fixedline segments, says Gloria Tsuen, analyst at Moody’s Investors Service. “HKT Limited’s broadband service will continue to benefit from PCCW’s IPTV service as the latter will give customers a strong incentive to subscribe to its broadband service, while HKT Limited’s broadband service provides PCCW’s IPTV business with direct access to customers,” says Tsuen. In the same vein, Tsuen reckons HKT Limited is well positioned to take advantage of the growth in smartphone and tablet users, given the integration of its mobile and WiFi wireless platforms with the fiberbased fixed broadband networks. “Its backhaul capacity in the broadband business will allow the company to deal with the rising demand for data from mobile users and control its capital expenditure effectively,” she says.
Relying on sheer size While HKBN basks in the boons of its Letv cooperation and hounds HKT through its aggressive pricing, the incumbent residential broadband market leader will rely on its sheer size and synergistic offerings to keep competitors at bay. Together with PCCW, HKT Limited is the only telecommunications operator that can offer fixedline voice, broadband, mobile and IPTV services, which gives HKT Limited a significant competitive
Mobile market saturation While price wars will flare up in the Hong Kong residential broadband market, the mobile market will be marred with a more pronounced subscriber drought. BMI Research have downgraded their mobile sector outlook, given the high mobile market saturation and decline in total subscriber numbers in 2015. It further notes that the contraction in the prepaid market, which had been expanding until early 2015, highlights the over-penetrated market. HONG KONG BUSINESS | MAY 2016 25
SALARY SURVEY 2016 increases of around 10%-15%. For critical positions or positions in great demand such as compliance, audit and risk, increments could even be more significant at around 15%-25% when candidates change jobs. Salary increments for candidates changing jobs will average 10%-to 15% in 2016, according to the Robert Walters 2016 Global Salary Survey, as employers inflate their salary offers for crucial hires. “As companies seek to drive top-line growth, sales managers with a proven track record will also be highly sought after. However, such professionals are often presented with multiple job offers and are only likely to move when offered a significant increase in their remuneration package,” says Matthew Bennett, managing director for greater China at Robert Walters.
HK salary offers balloon as battle for talent intensifies
Hong Kong employers will spend 2016 stealing away top talent from competitors and other industries with blown-up salary packages.
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ove out to move up: This mantra will resonate strongly among Hong Kong professionals looking for large salary increases this year. Salary surveys for 2016 reveal that employees that stay put and perform decently can expect up to 6% salary increases – not too shabby when compared with rates in other countries outside of China. But this pales against the up to 30% salary increase that employees can get from hiring offers, especially if they belong to the small crop of elite talent in key industries like compliance and information technology. Moderate salary increases Hong Kong companies will provide moderate salary increases to staff this year of between 1%6%, according to hiring experts. 26 HONG KONG BUSINESS | MAY 2016
Hong Kong companies will provide moderate salary increases to staff this year of between 1%-6%.
The Michael Page 2016 Greater China Salary and Employment Outlook report says that 74% of employers surveyed expect to increase salaries by 1%-5%. Meanwhile, the 2016 Hays Asia Salary Guide says that the majority of Hong Kong employers will increase salaries between 3%6%, which is similar to forecasts in Singapore and Malaysia, but lower than in China where 60% of employers expect to increase salaries by more than 6% in the next 12 months. “Basic salaries will remain steady in 2016,” concurs Ben Tang, director, client solutions, banking & financial services at Randstad. “We expect an average increase of approximately 6%.” Raises for top performers Tang notes, however, that top performers may receive higher pay
Lucrative compliance sector Among the sectors in Hong Kong, compliance will become one of the most lucrative and active areas for employment in 2016. Robert Walters reports that compliance professionals specialising in areas such as antimoney-laundering and control room could receive increases of up to 30% when switching jobs. Compliance as a whole is showing the biggest promise for salary and hiring growth, says Tang. “While recruitment in the market risk sector has generally slowed of late, demand for compliance and operational risk professionals is continuing to climb.” The demand for compliance professionals will strengthen this year after the Hong Kong Exchanges and Clearing released a new corporate governance code and corporate governance report for Hong Kong-listed companies. Risk management awareness “This has raised the awareness of risk management amongst listed companies, and is an obvious call for them to improve risk governance to the levels of mature global markets. With this, we
SALARY SURVEY 2016 see an increasing demand for talent across functions including compliance, internal audit and risk management, says Sharmini Wainwright, managing director, Hong Kong at PageGroup. “To attract these candidates to new opportunities, professionals with the relevant work experience are often approached with a generous pay increment,” she says. Digital and IT deluge Similar to compliance, the digital and information technology (IT) sectors will continue to see a deluge in hiring. Coupled with the dearth of talent in the territory to fill the increasing number of openings, professionals in these two sectors will have a wealth of employment options and can demand exceptional salary increases. “The digital sector is a major growth area for Hong Kong as more companies market themselves online and set up e-commerce channels. However, the talent pool remains relatively small and inexperienced given the lack of maturity within this area in Asia as a whole,” says Wainwright. Wainwright reckons candidates with a demonstrable track record in this area can expect salary increases between 20%-25% if they are looking to change jobs. Benefitting from cloud tech IT professionals, particularly in the fast-growing but relatively new areas of cloud technology and big data, will also be in high demand among Hong Kong employers who will have little choice but to offer as much as they can to the small
number of hires with such skill sets and experience, says Robert Walters’ Bennett. On the flip side, the battered retail sector will be more prudent in hiring and raising staff salaries. Luxury retailers have also been hit the hardest by the decline in tourist numbers, and this will manifest in a drastic shift in hiring patterns. “The retail market has softened in Hong Kong, as mainland Chinese consumers have become slightly more conservative with their money, and this has seen rents fall in some key shopping areas,” Wainwright says. With this, retailers are more prudent with their hiring strategies and are reluctant to pay well unless the candidate is an ideal fit,” adds Wainwright. Tough 2016 for luxury retail “Luxury retailers in particular may find 2016 challenging, leading to reduced demand for hiring overall,” Wainwright explains. We have seen luxury retailers making the shift away from hiring explicit sales staff to those who are more adept at client servicing and brand education, such as personal shoppers and stylists,” adds Wainwright. Wainwright reckons that back office employees are generally not expecting any major salary increments or attractive annual bonuses due to the state of the retail market, as many may be thankful enough to still have a job after employee redundancy measures were implemented as a result of major restructuring efforts in specific functions such as retail buying and merchandising.
Average % increases from last reviews across all countries
Source: Hays
Contracting now in vogue Contracting used to be an unattractive career path for many professionals in Singapore and Hong Kong, but short-term job assignments are becoming an increasingly valuable recruitment tool for many companies in both territories. “We are very positive about the contract market in 2016, and expect companies to offer growing numbers of contract roles,” says Toby Fowlston, managing director, Robert Walters Southeast Asia. Whilst historically, contracting has not been seen as a viable career option, Fowlston says that the two regional financial centres are now seeing highly talented and qualified professionals becoming ‘career contractors’ in search of a better work-life balance and greater flexibility. Apart from providing greater flexibility for employees, contract positions also allow companies to effectively manage higher workloads despite slowing economic growth. “Contract staffing allows the flexibility for an organisation to manage their talent pool more effectively and efficiently. Despite the slowdown in permanent hires, this strategy allows the company to pursue its business goals and objectives during this uncertain time,” says Foo See Yang, vice president and country general manager at Kelly Services in Singapore. “As a result of Singapore’s flat economy, we expect more companies to hire more contractors to help supplement their workforce during this period,” notes Sebastien Hampartzoumian, senior managing director, Singapore & India, PageGroup. He adds that contracting is fast becoming popular in the financial services industry, as contract workers offer the opportunity to quickly hire someone with specialist skills, or to bolster a department in the interim. Popularity surge in Hong Kong In Hong Kong, contracting is growing in popularity because temporary assignments help employers to counter either cost management challenges or headcount issues, says Sharmini Wainwright, managing director, Michael Page Hong Kong. “Back office roles, such as operations within banks, have the least growth in new permanent headcount – therefore resulting in the growth of their contracting workforce,” Wainwright says. He adds that contracting opportunities available in Hong Kong also allow candidates with less experience to enter the field. “Contracting will also continue to be a popular recruitment solution for financial institutions during busy seasons such as year-end closings, systems implementation and mergers and acquisition (M&A) projects,” Wainwright notes. Dean Stallard, regional director, Hays Hong Kong, says that there is now a wider variety of contract positions available including senior contract roles. He says that contract hiring will remain strong throughout 2016 as ongoing projects from several major players in the market require flexible hiring solutions. “Hiring in the service contracting space will continue to grow, rather than dispatch contracting and this will eventually become the mainstream,” Stallard notes. HONG KONG BUSINESS | MAY 2016 27
SALARY SURVEY 2016 ACCOUNTING & FINANCE
PERMANENT SALARY PER ANNUM HKD ($)
ROLE
2015
2016
Internal Auditor
324-456K
360-456K
Financial Analyst
300-420K
312-420K
Junior Business Analyst
276-429K
276-440K
AR/AP Supervisor
279-400K
288-400K
Management Accountant
264-429K
264-442K
Senior Accountant
264-416K
312-429K
Financial Accountant
216-325K
240-338K
Assistant Accountant
156-286K
180-300K
Billing Specialist
150-300K
162-276K
Accounts Clerk
132-195K
160-200K
Part & Newly-qualified
ACCOUNTING & FINANCE
permanent
contract
Salary per Annum HKD ($) 2015
Salary per Month HKD ($) 2016
2015
2016
Chief Financial Officer
2.2m+
2.2m+
Finance Director - Regional
1.5-2.4m
1.5-2.5m
80-100k
80-110k
Finance Director - Country
1.0-1.6m
1.1-1.6m
80-90k
80-90k
Financial Controller - Regional
1.2-1.7m
1.2-1.8m
60-95k
70-95k
Financial Controller - Country
840k-1.2m
850k-1.3m
60-80k
60-80k
Tax Director
1.2-2.0m
1.2-2.0m
Tax Manager
700k-1.1m
700k-1.2m
50-68k
50-70k
Audit Director
1.1-2.0m
1.1-2.0m
Audit Manager
650-900k
650k-1.0m
40-48k
40-50k
Corporate Auditor
480-650k
500-700k
Treasury Director
1.2-1.9m
1.2-2.0m
Treasury Manager
600k-1.0m
600k-1.1m
45-60k
45-65k
Corporate Finance Director
1.5-2.5m
1.6-3.0m
Corporate Finance Manager
900k-1.45m
900k-1.5m
40-60k
45-65k
Corporate Finance Analyst
500-800k
600-800k
35-45k
35-50k
FP&A Director - Regional
1.2-1.8m
1.3-1.8m
FP&A Manager
680k-1.05m
700k-1.1m
45-60k
45-60k
Senior Finance Manager
840k-1.1m
850k-1.1m
48-68k
50-70k
Finance Manager
600k-850k
600-850k
45-65k
45-65k
Accounting Manager
480-600k
550-750k
40-50k
40-50k
Senior Accountant
400-600k
450-600k
30-48k
30-50k
Credit Control Manager
480-700k
500-700k
45-55k
45-55k
Senior Financial Analyst
500-600k
550-750k
35-50k
35-55k
Financial Analyst
400-550k
450-600k
30-45k
30-45k
Business Analyst
480-650k
500-700k
35-45k
30-50k
NB: Figures are basic salaries exclusive of benefits & bonuses unless otherwise specified.
28 HONG KONG BUSINESS | MAY 2016
SALARY SURVEY 2016 BANKING & FINANCIAL SERVICES FRONT OFFICE
PERMANENT SALARY PER ANNUM HKD ($) 1-3 YRS’ EXP 2015
3-6 YRS’ EXP
2016
2015
2016
1.0-1.5m
1.1-1.6m
6-10 YRS’ EXP 2015
2016
INVESTMENT BANKING M&A
700k-1.0m
780k-1.1m
1.4-2.0m+
1.6-2.0m+
Debt Capital Markets
700k-1.0m
660-960k
1.0-1.5m
960k-1.4m
1.4-2.0m+
1.4-2.0m+
Equity Capital Markets
600k-1.0m
600k-1.0m
1.0-1.4m
1.0-1.4m
1.4-2.0m+
1.4-2.0m+
Credit Research
400-720k
480-780k
720k-1.1m
780k-1.5m+
1.1-1.8m+
1.15-1.8m+
Equity Research
360-600k
420.720k
660-960k
720k-1.1m
960k-1.7m
1.1-1.7m
1.1-1.8m
1.15-1.8m
900k-1.4m
900k-1.4m
ASSET MANAGEMENT
Institutional Sales
400-700k
420-660k
700k-1.2m
660k1.15m,
Wholesale Distribution
350-650k
360-660k
650k-1.1m
660-900k
BANKING & FINANCIAL SERVICES middle & back OFFICE
PERMANENT SALARY PER ANNUM HKD ($) 1-4 YRS’ EXP 2015
2016
5-8 YRS’ EXP 2015
2016
8+ YRS’ EXP 2015
2016
RISK MANAGEMENT Counterparty Risk
300-600k
300-540k
600-900k
540-840k
800k-1.5m
840k-1.5m
Credit Risk
300-540k
300--540k
540-840k
540-720k
700k-1.5m
720k-1.5m
Market Risk
400-660k
300-540k
660-900k
540-960k
900k-1.5m+
960k-1.5m+
Operational Risk
300-480k
300-540k
480-840k
540-720k
840k-1.4m
720k-1.4m
FINANCE & ACCOUNTING Change Management
240-480k
240-480k
480-900k
480-850k
850k-1.4m
850k-1.5m
Financial & Regulatory Reporting
360-540k
360-540k
540-930k
540-900k
930k-1.65m
900k-1.7m
Fund Accounting & Admin
190-380k
156-420k
380-840k
420-864k
840k-1.3m
864k-1.4m
Management Reporting
380-540k
380-540k
540-930k
540-900k
900k-1.45m
900k-1.5m
Product Control & Valuation
453-580k
450-580k
580-900k
580k-900k
900k-1.45m
900k-1.5m
Tax Planning & Advisory
360-480k
360-480k
480k-1.1m
480k-1.1m
1.1-1.65m
1.1-1.7m
Treasury
240-360k
240-444k
360-720k
444-840k
720k-1.2m
840k-1.3m
INTERNAL AUDIT 1.3mFund & Wealth Management
420-360k
240-444k
360-720k
444-840k
720k-1.2m
840k
IBD & Markets
4520-600k
450-600k
600k-990k
600-900k
900k-1.78m
990k-1.8m
Insurance
430-570k
430-550k
570--940k
550-900k
900k-1.6m+
900k-1.6m+
Information Technology
420-600k
420-600k
600-950k
600-950k
930k-1.5m+
950k-1.6m+
Retail & Commercial Banking
400k-540k
400-540k
540-880k
540-800k
800k-1.40m
800k-1.45m
BUSINESS OPERATIONS Change Management
300-530k
300-540k
540-950k
540-960k
1.0-1.35m
1.0-1.4m
Client Servicing & Corporate Actions
300-540k
300-540k
540-900k
540-900k
900k-1.5m
900k-1.5m
Collateral Management
300-540k
300-540k
540-900k
540-900k
950k-1.5m
950-1.5m
KYC/Client Onboarding
240-480k
240-480k
480-960k
480-960k
960-1.5m
960k-1.5m
Trade Support & Settlement
300-540k
300-540k
540-900k
540-900k
950k-1.5m
950k-1.5m
NB: Figures are basic salaries exclusive of benefits & bonuses unless otherwise specified.
HONG KONG BUSINESS | MAY 2016 29
SALARY SURVEY 2016 BANKING & FINANCIAL SERVICES MIDDLE & BACK OFFICE
PERMANENT SALARY PER ANNUM HKD ($) 1-4 YRS’ EXP 2015
5-8 YRS’ EXP
2016
2015
2016
8+ YRS’ EXP 2015
2016
FINANCE Financial & Regulatory Reporting
30-40k
30-45k
45-60k
45-70k
80-110k
70-100k
Fund Accounting & Admin
20-30k
25-35k
30-40k
35-45k
45-65k
45-70k
Management Reporting
30-45k
30-45k
45-60k
45-65k
75-110k
65-95k
Product Control & Valuation
22-30k
30-50k
50-75k
50-75k
75-110k
75-1105
Treasury
18-35k
18-35k
35-60k
35-60k
60-90k
60-90k
GOVERNANCE Compliance - AML/Surveillance
320-45k
30-50k
80-120k
65-120k
120-140k
120-140k
Compliance - Control Room
40-80k
40-80k
80-110k
65-120k
110-140k
110-140k
Compliance - Investment
40-70k
45-75k
75-115k
60-120k
115-130k
115-130k
Management
40-70k
45-75k
70-115k
75-115k
115-130k
115-130k
35-65k
35-70k
70-100k
70-100k
100-130k
100-130k
BUSINESS OPERATIONS Change Management Client Servicing
20-38k
20-40k
40-55k
40-60k
55-85k
60-90k
Collateral Management
20-40k
20-40k
35-50k
35-50k
50-75k
50-75k
Confirmation
18-32k
12-35k
35-45k
35-45k
45-65k
45-65k
Corporate Actions
20-40k
20-40k
40-50k
40-50k
50-70k
50-70k
Data Management
20-40k
20-40k
35-65k
65-85k
65-85k
654-85k
KYC/Client Onboarding
25-45k
25-45k
45-75k
40-80k
45-110k
75-110k
Settlements
18-35k
18-35k
40-50k
35-50k
50-60k
50-70k
Trade Support
20-40k
20-45k
40-50k
45-60k
50-75k
60-50k
Client Servicing & Corporate Actions Business Analyst KYC/Client Onboarding Operational Risk human resources
permanent
contract
Salary per Annum HKD ($)
Salary per Month HKD ($)
2015
2016
2015
2016
COMMERCE & INDUSTRY HR Director
1.2-1.6m
1.2-1.6m
90-120k
90-110k
Head of Compensation & Benefits
1.2-1.6m
1.2-1.7m
95-115k
95-120k
HR Manager
540-800k
600-900k
35-55k
35-50k
Organisational Development Manager
550-950k
600k-1.0m
40-65k
45-70k
Payroll Manager
600k-1.0m
540-800k
40-80k
40-75k
Recruitment Manager
5008-800k
540-800k
55-78k
55-80k
Shared Services Manager
500-800k
540-800k
45-73k
45-75k
Training & Development Manager
540-840k
540-840k
45-58k
45-60k
HR Generalist
360-500k
360-600k
28-45k
30-45k
NB: Figures are basic salaries exclusive of benefits & bonuses unless otherwise specified.
30 HONG KONG BUSINESS | MAY 2016
SALARY SURVEY 2016 INFORMATION TECHNOLOGY
PERMANENT SALARY PER ANNUM HKD ($) 3-7 YRS’ EXP 2015
8-14 YRS’ EXP
2016
2015
2016
15+ YRS’ EXP 2015
2016
MANAGEMENT Chief Information Officer
1.58-2.7m
1.6-2.7m
IT Director
1.0-1.8m
1.2-2.0m
Program Director
950k-1.4m
1.0-1.4m
IT Manager
800-1.1m
850k-1.2m
930k-1.4m
930-1.4m
INFRASTRACTURE Data Centre
435-765k
435-765k
715k-1.15m
715k-1.15m
DBA - Oracle/SQL/Sybase
480-660k
480-700k
540-700k
550-750k
620-795k
620-795k
Help Desk
480-690k
500-720k
740-965k
740-965k
950-1.1m
350k-1.1m
Incident Management
400-720k
400-750k
680-980k
680-980k
870k-1.05m
880k-1.1m
Infrastructure Services
440-850k
450-850k
820k-1.8m
820-1.3m
1.15-1.4m
1.2-1.6m
Network Administration
500-800k
500-800k
530-800k
530-850k
630-850k
650-860k
Network Support
580-700k
580-720k
690-780k
700-800k
750-785k
750-800k
Security Specialist
480-720k
480-750k
720k-1.15m
750k-1.2m
920k-1.3m
920k-1.4m
Service Delivery
425-700k
440-720k
700-980k
720k-1.0m
850-1.25m
950k-1.35m
Cloud Technology
650-890k
680-900k
820k-1.4m
850k-1.5m
1.25-1.8m
1.25-2.0m
Technical Consultant
520-860k
520-880k
780k-1.1m
800-1.25m
960k-1.25m
980k-1.3m
460-650k
460-665k
670-905k
570-905k
780-955k
780-955k
PROJECTS Business Analyst Implementation Consultant
500-550k
500-580k
720-910k
740-910k
780-965k
780-965k
Project Manager
560-780k
560-800k
795-995k
820k-1.0m
940k-1.5m
940k-1.5m
480-540k
480-580k
700-900k
700-900k
725-935k
725-950k
725-935k
744-960k
SOFTWARE Business Intelligence Software Engineer
540-640k
540-640k
640-850k
640-850k
Support
490-600k
490-600k
630-750k
630-750k
contract SALARY PER MONTH HKD ($) 3-7 YRS’ EXP 2015
2016
8-14 YRS’ EXP 2015
2016
15+ YRS’ EXP 2015
2016
INFRASTRACTURE Data Centre
38-48k
40-50k
55-65k
58-68k
70-100k
70-100k
DBA - Oracle/SQL/Sybase
45-55k
55-65k
55-65k
65-75k
75-85k
80-90k
Help Desk
25-45k
28-48k
38-58k
40-58k
65-70k
65-70k
Incident Management
40-505k
45-55k
55-65k
6545-70k
83-101k
83-101k
Infrastructure Services
38-48k
38-48k
45-55k
45-55k
65-120k
65-120k
Network Administration
45-55k
45-55k
65-68k
65-68k
80-100k
80-100k
Network Support
30-60k
35-65k
65-75k
65-75k
75-80k
75-850k
Security Specialist
35-55k
35-55k
55-65k
55-6580
65-80k
65-80k
Service Delivery
35-55k
35-55k
55-60k
55-70k
70-100k
70-100k
Cloud Technology
45-60k
55-65k
60-75k
65-75k
70-120k
75-125k
Technical Consultant
40-50k
45-55k
58-68k
60-70k
68-100k
70-100k
NB: Figures are basic salaries exclusive of benefits & bonuses unless otherwise specified.
HONG KONG BUSINESS | MAY 2016 31
analysis: cloud technology out as a major challenge to implementing IoT applications.
Security risks leave companies with second thoughts about cloud technology
Cloud technology and security: a balancing act
While cloud solutions undeniably bring better and faster solutions, these benefits are often downplayed due to numerous privacy and security risks.
H
ong Kong has lagged behind its regional peers like Japan, Singapore, and South Korea in terms of cloud market growth and smart city advancements, but its recent IT push might be enough for the city-state to outmuscle its rivals. Specifically, Hong Kong could use its advantage of a highly developed ICT sector as a launch pad to gain more mileage in terms of cloud technology, says Cheryl Tan, telecommunications analyst at BMI Research. Tan says Hong Kong also has other advantages including an advanced network infrastructure and a highly skilled workforce. Tan adds that the latest Hong Kong budget, which puts a premium on technological innovations including cloud advancements, will accelerate 32 HONG KONG BUSINESS | MAY 2016
Total cloud computing spending in Hong Kong increased 35.1% to HK$1.59b.
smart city innovations in 2016. “The impact of this is multi-fold, with enterprises, exports and operators standing to gain by varying degrees,” Tan says. BMI Research says total cloud computing spending in Hong Kong increased 35.1% in 2015 to HK$1.59b. “We attribute this strong growth in spending on cloud services in Hong Kong to the advanced composition of the Hong Kong enterprise market, including among the highest software and infrastructure-as-a-service (SaaS/ IaaS) penetration rates in APAC,” BMI Research says. BMI Research adds that the cloud computing market will continue to expand over the medium term, reaching HK$3.91b in 2019. On the other hand, Tan warns that security and privacy concerns will continue to stand
Holistic security Anne-Marie Allgrove, global chair of Baker & McKenzie’s information technology & communications group agrees, saying while implementing cloud solutions undeniably brings the appeal of better, faster, and cheaper approaches to computing challenges, businesses continue to emphasise that these benefits can not come at the expense of security and privacy. “In fact, as such technology becomes increasingly ingrained in any business, we are seeing buyers looking to more tightly integrate cloud solutions in dayto-day operations, such as with greater ability to audit providers’ platforms,” Allgrove says. Nevertheless, Pierre Noel, chief security officer of Microsoft Asia believes that cybersecurity threats could be dealt with using a new approach. “Companies must evolve from a simple, “protect and recover” model to a more holistic protect, detect and respond posture that utilizes real-time insights and predictive intelligence across networks to stay ahead of threats,” Noel says. “To stay ahead of these threats, we need to make full use of the cloud to collect and analyze such information that will tell us what to expect, and where to expect it.” Noel adds that it is also critical for companies to strengthen their core security hygiene; adopt modern platforms and comprehensive identity, security, and management solutions; and leverage features offered within cloud services. “While organizations across the region are in various states of readiness with regards to cybersecurity, I remain optimistic as we see more organizations, government and non-governmental companies alike, making cybersecurity a priority and cooperating to ensure threats are identified and dealt with,” Noel adds.
Special Feature: Cloud Technology
Real Cloud @ Your Fingertips by Wharf T&T
Always a step ahead of its competitors in the city-state’s ICT landscape, Wharf T&T has made continuous cloud enhancement since its launch.
Reducing Cloud Complexities Cloud Enhancement Never Stops • High Input/Output Operations per The explosive growth in the sheer volume of data nowadays makes enterprises Second (High IOPS) - Continuous hunger for a business-grade cloud enhancement on FibreCloud has storage solutions. Wharf T&T is ambitious been made since its launch. High to deliver highly secure cloud storage IOPS provides a world-class storage solutions yet can enable users fast and performance which significantly simple access to their data securely and minimizes latency and maximizes efficiently. A further enhanced cloudthroughput to address the commercial, financial and regulatory enabled storage solution focusing on security, backup and performance needs of organizations facing with enhancement to reduce cloud complexities explosive volume growth. Wharf T&T Kam Poon, Vice President, Business Market, Wharf T&T and enhance cloud security is one of our takes pride to offer local business a high IOPS service performance riding key tasks in the coming year. s a leading ICT service provider in on our self-built cloud infrastructure. Hong Kong focusing on business, Wharf T&T ICT Mall • Virtual Data Centre (VDC) Wharf T&T has been taking Another newly launched FibreCloud Wharf T&T ICT Mall is set to be an business enterprises of all sizes to new online ICT resource centre for business solution receiving overwhelming altitudes offering its growing clienteles customers to identify feasible ICT services response from various business amazing real cloud solutions to address sector is VDC. Enterprises subscribing that can help them optimize business their dynamic business needs. efficiency. Customers can visualise the to Wharf T&T VDC service can With the best-of-breed FTTD network latest ICT solutions through vivid video create and configure their Virtual infrastructure well in place, Wharf T&T demonstration. Machines (VMs) and choose their is more than ready to offer a variety of “With a competent menu of extensive preferred vCPU, RAM, storage, subscription-based cloud services for every ICT product range and bundle promotion bandwidth and IP address via our business need with unrivaled scalability offers available, customers can compare cloud portal that comes with a to provide enterprises, SMEs in particular, each of them in details, make online user-friendly management portal flexible, scalable and user-friendly cloud order and initiate online live chat,” says for administrating cloud resources solutions. Mr. Kam Poon, Vice President, Business to enhance productivity of IT Innovative and scalable service, administrator. Pre-built off-the-shelf Market, Wharf T&T Limited. “The launch FibreCloud, builds a cost-effective of this unprecedented online ICT mall service templates and value-added infrastructure and resource layer that help fully demonstrates our passion and services make implementation enterprises drive capacity utilization higher commitment to ICT service excellence.” process simple and shorten the than ever. implementation lead time. Auto-scale FibreCloud pushes forward the cloud up feature is the best example to edge to the whole new level with illustrate the unparalleled flexibility substantial investment in building a real and scalability of FibreCloud VDC. cloud platform, which adopts cutting• ecMeFi - Another newly launched edge cloud technologies from the world’s service, ecMeFi, is a global all-in-one leading companies namely VMware, Cisco mobile Wi-Fi service supporting 4G and EMC. LTE networks and working seamlessly It combines the best-in-class network across over 100 destinations with and compute infrastructure, virtualization high-speed internet access that suits and storage technologies with highsophisticated corporate users. The performance and highly-available battery life of ecMeFi lasts for over connectivity. 10 hours which outperforms standard FibreCloud redefines business-grade consumer-level pocket WiFi only lasts Wharf T&T ICT Mall clouding computing standards with for 5 to 6 hours. premium services serving a wide spectrum of metropolitan-based business at an “Wharf T&T is more than ready to offer unprecedented value-for-money offering subscription-based cloud services for every that has brought tremendous value to business need with unrivaled scalability.” local enterprises.
A
HONG KONG BUSINESS | MAY 2016 33
Special Feature: Cloud Technology
Cloud Expo Asia and Data Centre World to launch world-class hybrid event in Hong Kong CloserStill Media (CSM) brings the biggest gathering of technology professionals to Hong Kong, following its huge success in London, Frankfurt, Paris, and Singapore.
Data Centre World 2015 in Singapore
C
loud Expo Asia and Data Centre World (CEA & DCW)—a world-class conference programme—will launch in Hong Kong Convention and Exhibition Centre (HKCEC) on May 18 and 19, 2016. This two-day co-located duo of educational exhibitions and conferences will gather the most innovative organisations in the Cloud industry together for two days of knowledge, insight, excitement and inspiration. According to Chris Brown, group event director at CloserStill Media, the conferences “are designed to help businesses and the public sector unlock the growing potential of cloud computing and data centre technologies.” Brown, together with the rest of the CSM team, is enthusiastic to bring CEA & DCW to Hong Kong after its mega-hit launch in Singapore. “Our first launch in Asia was in Singapore in 2013. Since then, there has been a huge jump in the attendee numbers, from 5,033 in 2013 to 11,225 in
34 HONG KONG BUSINESS | MAY 2016
2015. All the statistics are independently audited by the BPA. The results prove the appetite for this format of event in Asia, and we’re excited about bringing it to Hong Kong,” Brown added. Last year, CEA & DCW’s data showed that the attendees came from 44 countries and majority of them (79%) were decision makers in their respective companies; 68% of the delegates were from organizations that spend more than S$200,000 in data centre equipment and services; and 25.4% had yearly budgets over $1 million. Past success Participants last year expressed their delight over the outcome of Cloud Expo and Data Centre hap at Suntec Centre, Singapore. “The crowd is a mature group. They are international, extremely knowledgeable. The questions they ask are relevant and they know what they’re looking for. We have products to show off this year so I think that’s sparked more interests around
the standard,” said Elaine Lee, HGST manager. Likewise, Telstra’s marketing manager May Loy enthused, “The show provides an effective platform for branding and awareness. It’s the biggest industry event in Asia, and delivers the right target audience of C-level executives and above,” she notes. This year, CEA & DCW HK attendees can look forward to a professionally organised, high-value learning, networking and procurement event with relevant content and solutions for IT driven businesses, regardless of their size. With a conference program featuring
“These conferences are designed to help businesses unlock the potential of cloud computing and data centre technologies.”
Special Feature: Cloud Technology
many of the foremost minds in cloud computing, and the leading companies sharing and demonstrating their solutions across all facets of the cloud, Cloud Expo Asia and Data Centre World represent an unmissable opportunity to meet, learn from, network and collaborate with the best of the best in the industry. Brown guarantees both events and all conference sessions are free to attend. Showcasing advancements As for some advancements/innovations in both industries (cloud and data centre) which will be featured in both events, Brown said: “This is where a trade show comes into its own, showcasing innovation and providing a platform for solution providers to demonstrate their latest technologies— for a true insight you’ll need to visit the show.” Five thousand attendees are expected for the two-day event. These are predominantly from Hong Kong and Macau but Brown says they have already seen strong registrations from Korea, Taiwan, Shenzhen, and Vietnam. There will be approximately 200 international speakers and over 100 exhibiting solutions providers across the
The conference program features the foremost minds in cloud computing
two co-located events making this the largest dedicated cloud and data centre solutions event in the region. Key speakers for the Cloud Expo Asia 2016 will discuss compelling topics about the cloud. Ajay Sunder, vice president for Information & Communications Technologies at Frost & Sullivan will talk about opportunities for cloud and data centre services providers in Asia Pacific. Hong Kong’s privacy commissioner for personal data Stephen Wong will tackle
“This year, CEA & DCW HK attendees can look forward to a professionally organised, high-value learning, networking and procurement event with relevant content and solutions for businesses.”
building trust in the cloud era—protecting and respecting personal data. Opposing views pushed by policy and the likely outcome of global or territorial clouds will be discussed by Einar Tangen, a TV/Radio economic and public affairs commentator. Supporting Hong Kong’s cloud computing and data centre industries development through professional talent development will be discussed by Hong Kong Productivity Council Senior Manager of Productivity Training Institute Dr. Victor Ng. About CloserStill Media The organizer of CEA & DCW HK, CloserStill Media, is a UK-based business media company specialising in high-value content driven events and the nurturing of B2B or professional communities. CSM operates chiefly in the healthcare and technology markets. The company has a portfolio of some of the most awarded and fastest growing events such as Learning Technologies, Cloud Expo Europe, The Pharmacy Show, and Data Centre World Europe. For eight years, CloserStill has been presenting the co-located Cloud Expo Europe and Data Centre World events, and for the past three years since 2013 in Singapore. This year the media company’s duo of tech-market events will invade Hong Kong.
Personalities in the cloud industry gather for networking
HONG KONG BUSINESS | MAY 2016 35
Legal briefing
HK commits to implementing AEOI
Government vows to comply with new rule for automatic exchange of financial information.
I
n an effort to boost tax administration efforts, the Hong Kong government has pushed for the passage of the Inland Revenue Bill, a show of support for the new international standard for automatic exchange of financial account information (AEOI) in tax matters promulgated by the Organisation for Economic Cooperation and Development (OECD). According to the OECD, the standards were put in place “to better fight tax evasion and ensure tax compliance.” “It sets out the financial account information to be exchanged, the financial institutions required to report, the different types of accounts and taxpayers covered, as well as common due diligence procedures to be followed by financial institutions,” OECD notes. What are the implications of the new bill? Anthony Fay, foreign legal consultant at Clifford Chance, says the new bill will put in place the necessary regulations to implement AEOI in Hong Kong under the OECD’s common reporting standard. “This is a global tax initiative that will allow Hong Kong to implement a globally consistent standard under which taxpayer information can be exchanged with Hong Kong’s tax treaty and information exchange partners,” he says. Fay adds that in many respects, AEOI is quite
“Because taxpayer information must first be reported to the Hong Kong government under AEOI, financial institutions will also need to implement procedures to comply with new reporting requirements.” similar to the Foreign Account Tax Compliance Act (FATCA) and raises similar issues in terms of the need to develop frameworks and processes to identify and report on reportable persons. “Because taxpayer information must first be reported to the Hong Kong government under AEOI (which in turn exchanges such information with its partner countries), financial institutions will also need to implement procedures to comply with new reporting requirements. The good news is financial institutions should not be starting from ground zero. The internal frameworks and processes developed for FATCA, together with existing know-your-customer and anti money laundering processes, should give financial institutions a head start in implementing 36 HONG KONG BUSINESS | MAY 2016
Susan Leung
Wing Wo Lam
Anthony Fay
AEOI,” Fay says. Wing Wo Lam, consultant at Deacons, says it could drive some business away from Hong Kong, and will add to the cost of doing business in the region. “If so, this is a price that we have to pay in order to continue to be a member of the international financial markets. The requirement that financial institutions confirm the reasonableness of their customers’ selfcertification could result in problems and sanctions for the institutions,” Lam says. How should financial institutions brace for new rules under the bill? Lam says institutions will need to establish, maintain and apply systems and procedures to comply with the new legal requirements. “This would require more back office, compliance staff and cost,” Lam adds. For Fay, the AEOI will require Hong Kong financial institutions to identify and report on reportable persons under the OECD common reporting standard. “While there are many similarities with FATCA, the scope of reportable persons is broader under AEOI. Under FATCA, financial institutions only need to identify US taxpayers. Under AEOI, they must expand their search to include tax residents of Hong Kong’s tax treaty and information exchange partners. This will require Hong Kong financial institutions to enhance their due diligence procedures and to build awareness of the new compliance requirements across the organization,” he says. Susan Leung, consultant at Herbert Smith Freehills LLP, says the proposed information which financial institutions will have to report to the Inland Revenue Department on each reportable financial account holder comprises personal data such as the name, address, date and place of birth, jurisdiction of residence and taxpayer identification number and financial data such as interest, dividends, account balance or value, income from certain insurance products, sales proceeds from financial assets and other income generated with respect to assets held in the account or payment made to the account. “Financial institutions will have to conduct due diligence procedures to identify reportable accounts and ascertain the tax residence and other reportable account information of the account holders,” she says. Do you see any challenges in implementing the bill? Fay says while the first exchange of information for Hong Kong will not take place until 2018, both financial institutions and the Hong Kong government will need time to ensure that proper procedures are in place to meet the requirements of AEOI.
Special Feature: Cloud Technology
TGT to embrace more golden years to come by conforming to Big Data developments Boosted by immense market demand for processing and information technology, Towngas Telecom (TGT) has been riding the wave of the big data era.
T
he world’s economic environment is currently entering the “Big Data” era, where there is high demand for data processing and information technology. A report published in 2013 by American research company, Gartner, found that the world used 1 Zetta bytes of data (ZB) in 2010, and in 2012 that number dramatically increased to 2.7 ZB. It forecasts the world’s data usage to increase 50 fold by 2020. It is apparent that the data market holds tremendous investment potential. TGT’s data centres have developed as a direct result of immense market demand. The company currently operates two large scale data centres in Hong Kong and four in Mainland. The Chinese data centres are located in Shandong Province (Jinan City), Liaoning Province (Dalian City), Guangdong Province (Dongguan City) and Heilongjiang Province (Harbin City). In addition, TGT aims to invest in three additional large-scale data centres in Mainland China – further satisfying the increasing demand for this service. Hong Kong is Asia’s hub for information and communication technology, and the need for data centre services is high. TGT Hong Kong Data Centre 1 in San Po Kong (established in 2006), along with the newly established TGT Hong Kong Data Centre 2
in Tseung Kwan O, aim to fulfill the industry’s needs. The new TGT Hong Kong Data Centre 2 has an area of about 22,000 square metres, and is able to accommodate 3,000 drive cabinets. The centre aims to serve the company’s future development needs and provide services for local and overseas markets. In order to ensure a secure environment and confidentiality, TGT delivers a robust infrastructure and the highest level of reliability, in compliance with the TIA-942 Tier 3+ facilities and The United States Green Building Council has awarded TGT Hong Kong Data Centre 2 as its coveted Leadership in Energy and Environmental Design (LEED) Gold certification.
(GIG) and Glass-Along-Gas (GAG) European technology, TGT has also been able to provide customers with up to 100Gbps point-topoint fibre links and dedicated bandwidth services such as T3/DS3, STM-1, STM-64, GE and 10GE, as well as economic and efficient network communication services to reputable corporations, international network service providers, and professional clients. Further inland in mainland China, TGT has developed numerous telecommunications infrastructure projects to provide premium and environmentally friendly services to telecommunications operators and broadcast institutions in Liaoning, Shandong and Jiangsu. From previous success, TGT has also been able to develop a reliable mode of operation. TGT has helped contribute to a more sustainable future by minimising environmental pollution derived from the roadwork required in the construction process. Additionally, by integrating reliable and high-speed connectivity with advantages such as world-class data centres, TGT has also been able to build a Cloud Computing platform of secured privacy and high flexibility to meet growing needs for this type of service. TGT has been providing customers with bespoke intelligent home solutions to make life easier and more enjoyable. This unique Cloud Computing solution is designed with infrastructure with high security and reliability to devise advanced private Cloud solutions.
About Towngas Telecom (TGT) Founded in 2004, Towngas Telecom (TGT) is a wholly owned subsidiary of The Hong Kong and China Gas Company Limited (Towngas). Adopting the company’s pragmatic approach to quality services, TGT is a carrier-neutral telecommunication service provider with a number of world-class data centres and network infrastructures operating in Hong Kong and Mainland. Riding on the advantage of the colossal gas pipe network and synergizing it with the advanced Glass-In-Gas
“TGT’s data centres have developed as a direct result of immense market demand. It operates two large scale data centres in Hong Kong and four in Mainland.” HONG KONG BUSINESS | MAY 2016 37
CMO Briefing
How to get away from social media disasters
Social media is a double-edged sword, and brands can use this relatively young technology to their advantage.
I
n the digital age where companies have tapped into the power of social media to promote their respective brands, getting embroiled in crises of varying degrees is nothing but usual. For Josh Steimle, founder and chief marketing officer of digital marketing agency MWI, they have their own social media crisis management plan and separate ones for their clients. “A social media crisis management plan must include, at a minimum, the following four steps: detect, analyze, strategize and respond,” he says. Steimle says they actively monitor their own social media channels and encourage all their team members to pay close attention to their social media channels so they can respond quickly when an emergency arises. “We identify what or who caused the crisis or allowed it to happen, how it could have been prevented, and what changes need to happen to prevent a similar occurrence in the future,” he adds. In more serious cases, such as hacking, their response is different than what they would do if it were just an angry customer. Steimle says that no crisis is so bad that a poor response can’t make it worse. Sometimes speed is of the essence, but on occasion the best advice is ‘Don’t just do something, stand there!’ he says. “Generally we want to respond as quickly as possible. If we’ve been hacked, we want to fix the vulnerability immediately. If a customer is angry and venting publicly we want to address that as soon as possible, also publicly,” Steimle adds. Get a squad with some serious goals Daphne Lim, marketing officer of Minibox Chai 38 HONG KONG BUSINESS | MAY 2016
The biggest mistake companies make when confronted with negative feedback on social media is to not respond at all.
Wan, says a crisis management plan should have a team which includes the decision maker, a legal team and a communications team. Steimle stresses the importance of ensuring that members of the crisis management team are aware and understand the plan. “It’s good to have a plan, but if someone creates a plan and nobody else knows about it, do you really have a plan? A good plan is only as good insofar as team members know about it and understand it,” he says. It is also important to set out guidelines on what to respond, when to respond and which channels to respond, Lim says. In addition, the team must ensure that all social media channels are in sync, answering in a uniform manner especially when answering negative comments. A company must have good access controls to their social media channels, and know how to turn negative comments into positive opportunities. Hope Frank, chief marketing officer of Nexusguard, says transparency is also important. “Keep external audience up to date hourly. Communicate up through management organization hourly,” Frank says. Dealing with haters Steimle says that the biggest mistake companies make when confronted with negative feedback on social media is to not respond at all. The second mistake is to respond too slowly, which in Internet time is almost the same as not responding at all. “This makes a company look as though they are not truly savvy about social media, that they’re fake or lack authenticity. At worst it can make it look as though the company doesn’t care about the crisis,” he says. For Lim, it is important to investigate and gather facts quickly to assess if the negative feedback is valid. “Provide findings objectively and thoughtfully. Explain clearly to customers if the negative feedback was not valid (e.g. there are times where customer may mistakenly post on social media site of the wrong company that has similar brand name). If the company made a mistake then we should apologise sincerely via the social media platforms and provide corrective actions, solutions and compensation where necessary,” she says. Frank says that it is ideal would be for your trusted community to stand up for you, rather than the brand respond or correct negative feedback. “Choose key messages and share with company social media ambassadors for the brand to share. Consider DM or Private Message for specific correction. Be prepared it may be amplified via public communication,” she says. Frank says companies have to respond to positive posts and mentions as well, because responding exclusively to a negative issue will make negativity the overall voice of the brand on the social network.
HONG KONG’s 50 largest hotels
L’hotel Nina et Convention Centre
Hong Kong’s blistering hotel investment takes a breather The sales pace should moderate in 2016 as investors play it safer.
H
ong Kong has had an impressive hot streak in hotel investment sales, even clinching the second-largest transaction worldwide in 2015, but the acceleration will likely abate this year. Hong Kong hotel investors, for one, are taking a “wait-and-see’ approach due to the flailing inbound tourism from Mainland China, says Craig Collins, chief executive officer, Australasia at Jones Lang LaSalle. “Over the past few years, Hong Kong has been increasingly reliant on Mainland Chinese visitors. Consequently, Hong Kong’s tourism and hotel market is vulnerable to the impact from a Chinese economic crisis, changes in travel preferences of the Chinese or jeopardised political links with Mainland China,” says Collins. He expects limited growth in 40 HONG KONG BUSINESS | MAY 2016
Hong Kong recorded US$2.24 billion in hotel investment sales or 24.8% of the region’s total volume and at a whopping 677% increase from the previous year.
trading performance in all sectors as visitor arrivals continue to be weak, including leisure demand which has so far continued to show a decline in 2016. Collin reckons Hong Kong visitations from Mainland China have declined partly because of the removal of unlimited Hong Kong entry to Shenzhen residents back in April, and amending it to only one visit a week. Tempering the interest spike Analysts are arguing that the pessimism on inbound tourism and the state of the local economy will temper the interest spike among investors, many of whom flocked the market and hunted for deals in 2015. The past year was one of the strongest years in Asia Pacific hotel investment with total value of investment sales increasing 1.2% year-on-year to
US$9.04 billion, according to Simon Smith, senior director, research, Asia Pacific at Savills Research. The majority of the Asia Pacific transaction volume came from 4 countries: Japan, Hong Kong, Australia and China, in descending order. Hong Kong recorded US$2.24 billion in hotel investment sales or 24.8% of the region’s total volume and at a whopping 677% increase from the previous year. In contrast, while Japan still led the region with US$2.46 billion in sales or a 27.2% share in the region, this was 2.6% lower than the previous year. The explosion in Hong Kong transaction volume was led by the sale of one of Hong Kong’s premier luxury hotels, InterContinental Hong Kong, which sold for $938 million. Collins says this was the largest single hotel transaction in Asia Pacific and the second largest in the world. Selective investors Investors will continue to keep Hong Kong hotels within their radar, based on pwc’s Emerging Trends in Real Estate In 2016 Asia Pacific report. The survey respondents indicated ‘fair’ investment prospects for the hotels sub-sector with a a 3.30 rating out of 5. This was only slightly lower than the ratings of the industrial/distribution (3.56 rating) and office (3.37) subsectors, and slightly higher than the ratings of the residential for sale (3.08), apartment residential (3.07) and retail (3.07) subsectors. The lowest rating of 1 means ‘abysmal’ investment prospects and the highest rating of 5 means ‘excellent.’ Who made it to HKB’s list? L’hotel Nina et Convention Centre remains the city’s largest hotel based on number of rooms. It added 9 more rooms this year to 1608. The list welcomes a new entry - the Hong Kong Harbour Hotel at 47th place which has 500 rooms.
HONG KONG’s largest 50 HOTELS GM / HEAD OF HOTEL OPERATIONS
2016 Ranking
HOTEL
2015 Ranking
Number of Rooms 2016
Number of ROOMS 2015
1
L’hotel Nina et Convention Centre Hong Kong
1
1608
1599
George Kuk
2
Regal Airport Hotel
2
1171
1171
John Girard
3
Regal Riverside Hotel
3
1138
1138
Peter Chiu
4
Harbour Plaza Resort City
4
1102
1102
Dickson Lee
5
Panda Hotel
5
911
1026
Stephen Yuen
6
The Excelsior, Hong Kong
6
883
883
Michael Chia
7
Renaissance Hong Kong Harbour View Hotel
7
862
857
Hans Loontiens
8
The Park Lane Hong Kong a Pullman Hotel
8
834
833
Luc Bollen
9
Harbour Grand Hong Kong
9
829
828
Benedict Chow
10
Rambler Oasis Hotel
10
822
822
Anthony Lui
11
Harbour Plaza Metropolis
11
821
819
Andres Teofilo Castillejos
12
Rambler Garden Hotel
12
800
800
Anthony Lui
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 8 Degrees
16
704
702
Christina Cheng
17
Royal Plaza Hotel
17
699
699
Peter Wong
18
Pentahotel Hong Kong Kowloon
18
695
695
Andy So
19
Royal View Hotel
19
688
688
Stephen Au
19
Kowloon Shangri-La, Hong Kong
19
688
688
Ulf Bremer
21
The Royal Pacific Hotel and Towers
21
673
673
Kevin Chuc
22
Harbour Plaza North Point
22
669
669
Virginia Tam
23
Marco Polo Hotels - Hong Kong
23
665
665
James Ong
24
Cordis Hong Kong At Langham Place
24
664
661
Shane Pateman
25
Hong Kong Skycity Marriott Hotel
25
658
658
Michael Muller
26
Holiday Inn Golden Mile Hong Kong
26
621
621
Anne Busfield
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
554
Yngvar Stray
35
ibis Hong Kong Central and Sheung Wan
35
550
550
Simone Hansen
36
Dorsett Tsuen Wan Hong Kong (Kwai Chung)
36
547
547
Gary Au
37
The Kimberley Hotel
37
546
546
Samantha Hui
38
Grand Hyatt Hong Kong
38
545
539
Philip Yu
39
Newton Place
46
540
500
Chi Ping Tommy Chan
40
B P International
39
529
529
Bernard Chan
41
Courtyard by Marriott Hong Kong Sha Tin
40
524
524
Peter Sih
42
InterContinental Hong Kong
43
514
503
Claus Pedersen
43
Conrad Hong Kong
41
513
512
Thomas Hoeborn
44
Novotel Century Hong Kong
42
510
510
Darren Cann
45
Mandarin Oriental Hong Kong
44
501
501
Anthony Costa
45
Headland Hotel
44
501
501
Jackson Lum
47
Hong Kong Harbour Hotel
-
500
-
Panda Leung
48
The Langham Hong Kong
47
498
495
Shaun Campbell
49
Regal Oriental Hotel
48
494
494
Christoph Szymanski
50
The Mira Hong Kong
Gerhard Aicher
49
492
492
total
34,491
34,021
average
690
694
source: Data provided by CBRE as of January 18, 2016 HONG KONG BUSINESS | MAY 2016 41
analysis: ASEAN SLOWDOWN
ASEAN faces a delicate balancing act
China sneezes and ASEAN catches a cold Slowing growth in the economic powerhouse will have an adverse effect on regional economies, but some countries can weather the storm better than others.
C
hina’s economic slowdown is having a significant impact on growth in Southeast Asia, in part reflecting the importance of regional trade ties. These ties have grown considerably in recent years as barriers to trade have been lowered and the region has become more closely integrated through cross-border supply chains and intra-regional foreign direct investment (FDI) flows. In the late 1990s, for example, the US and EU together accounted for around 37% of the merchandise exports of the ASEAN-6 economies, while China took just 3% and other economies in emerging Asia accounted for 17%. By 2014, China’s Destination of ASEAN-6 merchandise exports
Source: Oxford Economics/Haver Analytics
42 HONG KONG BUSINESS | MAY 2016
Commodity exporters are doubly exposed due to China’s substantial impact on global commodity markets.
share had risen four-fold to 12%, the share of other emerging Asian economies had risen to 25%, while the US and EU combined share had fallen to 20%. China is now the largest trading partner for Singapore, Malaysia and Thailand. It represents the second-largest trading partner for Indonesia and the third-largest for the Philippines and Vietnam. Resilience under threat Different countries’ vulnerability to slower growth in China is also influenced by the nature of their exports. Countries such as Indonesia, the Philippines and Vietnam are less exposed to manufacturing sectors where China has excess capacity, and their wage competitiveness means that developments in China should not significantly constrain their continued industrialisation. Thailand also appears well placed in the region to benefit from increased demand for consumer goods and services as China rebalances. Among the ASEAN-6, Singapore and Malaysia are likely to be more vulnerable due to their position in regional supply chains for electronic goods. Commodity exporters are doubly exposed due to China’s substantial impact on global commodity markets. In the decade to 2012, for example, the commodity-intensive nature of China’s investment-
analysis: ASEAN SLOWDOWN led growth accounted for almost 50% of additional global demand for oil and more than 80% for steel and coal. But as Chinese demand for such commodities has slowed, this has been a major driver of declines in the global price of these commodities. Although Singapore ranks highest on the measure of commodity exports as a percentage of GDP, this mainly reflects the country’s role as a regional trading hub. To put it another way, the resource-rich economies of Malaysia and Indonesia have a much higher share of commodities in total exports. Indonesia has at least been reasonably successful in diversifying its economy, reflected in a fall in the ‘primary sectors’ share of GDP from 31% in 2000 to 22% in 2015. More worryingly, Malaysia has succumbed to the classic ‘resource curse’, whereby rising commodity prices force up the exchange rate, making it more difficult to successfully develop other export sectors. As such, Malaysia is more exposed to the negative shock to prices from the commodity down-cycle. On the other hand, commodities are relatively less important for other economies in the ASEAN-6, with Thailand and the Philippines standing to benefit from lower oil prices as they are net importers of energy. Currency and competitiveness Countries in the region also vary in terms of their exposure to potential further shifts in the Yuan exchange rate. In fact, the trade-weighted value of the Chinese Yuan (CNY) has actually moved remarkably little since mid-December, despite declining against the USD recently. But mixed signals and uncertainties regarding the path of policy in Beijing could trigger more significant moves in the future. Owing to solid current account surpluses and fast productivity gains, we expect the CNY to weaken modestly in 2016; but our baseline forecast only sees a relatively small additional depreciation of 3.5% against the USD from current levels to 6.8 by mid-2016 and to remain around that level until late 2017. Using Oxford’s Global Economic Model, we assessed the likely implications of a stronger depreciation of the CNY. In a scenario where the CNY weakens by 10% vs the USD to 7.5 by Q3 2016. If it remains around that level until the end of 2017, our model simulation shows that Chinese exports strengthen due to the resulting boost to competitiveness and there is a small positive effect on Chinese GDP growth (+0.3% in 2016). But the global picture is less positive. China’s key competitors in Asia would experience the greatest impacts on GDP growth as an improvement in China’s relative competitiveness in manufactured goods sectors hurts these countries’ exports in
Commodity exporters will suffer
particular. Singapore is, by some distance, the hardest hit in this scenario. It is also worth noting that we did not include the potential for an increase in financial stress and risk accompanying the CNY depreciation in our scenario. Such an addition would, of course, result in weaker growth across the board than we report here.
The key risk is a broaderbased negative interaction of a number of variables that could lead to sustained weak economic performance.
Disinflationary forces are growing In the wake of China’s economic slowdown, and the accompanying sharp drop in global commodity prices, much attention has also been given to the risk of the ASEAN-6 countries sliding into deflation. Deflation is defined as a sustained fall in price levels, but there are a variety of different price measures we can look at in ASEAN, which tell slightly different stories. In terms of headline consumer price inflation, there are negative readings currently in Thailand and Singapore, while inflation is also currently at low levels in Vietnam and the Philippines. That said, at least part of the weakness in consumer prices is due to falling energy costs – measures excluding energy costs generally remain positive across the region. But it is developments in factory gate prices (wholesale prices) that are probably the main current area of concern. Wholesale prices are falling sharply in several of the ASEAN-6 countries, with year-on-year declines in manufacturing wholesale prices of more than 5% in Singapore and the Philippines. Annual wholesale price inflation is also in negative territory in Malaysia and Thailand, while it is close to zero in Vietnam. Among the ASEAN-6, only Indonesia has annual wholesale price inflation that has remained clearly in positive territory. Wholesale price developments could point to future developments in consumer prices, although one reason for caution in interpreting in this way is that they are also influenced by collapsing commodity prices. From Economic Insight: Southeast Asia by ICAEW and Oxford Economics HONG KONG BUSINESS | MAY 2016 43
ECONOMICs
Ian Perkin
Too much budget pessimism?
H
ong Kong Financial Secretary, John C Tsang’s ninth budget, presented to the Legislative Council (Legco) on February 24, may have erred too much on the side of pessimism – an unusual outcome for a document more normally known for its upbeat approach. Some budgetary caution was obviously necessary given the upheaval on global and local markets in the last months of 2015 and the early weeks of the New Year, but did the Financial Secretary go too far in his economic (and political) remarks? No doubt some will see some vindication for Mr Tsang’s views in the subsequent downgrade of Hong Kong’s outlook from “stable” to “negative” by the credit rating agency, Moody’s, in early March. But even Mr Tsang downplayed the Moody’s assessment. More tellingly, the Financial Secretary had barely finished presenting his 2016-17 Budget when things began to look somewhat brighter on international markets (although the geopolitical situation in many parts of the world still looked dire.) Since the budget was unveiled, the global economic outlook has become somewhat healthier with the US economy still improving (albeit slowly), Europe and Japan continuing with their quantitative easing (QE) programs and even the Mainland easing monetary policy. The prospect of higher interest rates in the US seems to have receded (at least for now), share markets have improved markedly after an awful start to the year and commodity prices (including oil) have also picked up from their recent lows. In short, the global outlook has improved since the 2016-17 budget was drawn up and that is no small thing for an open, trading and service-based economy like Hong Kong’s. Vital adjustments That said, Mr Tsang’s ninth budget as Financial Secretary, was chiefly notable for three things: First, the political comments that opened and closed his address, warning Hongkongers that political stability would vital to the special administrative region’s future prosperity (one of the chief concerns of the Moody’s assessment as well). Secondly, his downbeat assessment of Hong Kong’s immediate economic outlook, which is highly unusual from a Financial Secretary. Even during the 1997-98 financial crisis, the then Financial Secretary, Donald Tsang, remained upbeat. And finally, the tax cuts and spending outlays in the budget aimed at alleviating the impact on the community of the more moderate pace of expected economic growth (the so-called “people’s livelihood” issues). Opening his address and referring directly to the recent unrest in Mong Kok, Mr Tsang said he had been shocked by the violence of the incidents and, indeed, that they should occur in a modern, prosperous Hong Kong. “Openness, diversity, freedom and the rule of law, which have all along been the core values of the people of Hong Kong, have guided our way,” he said. He predicted that with 2016 being an election year (with a Legco by-election and general election later in the year)
44 HONG KONG BUSINESS | MAY 2016
IAN PERKIN Independent Economic Consultant perkin888@hotmail.com KEY BUDGET NUMBERS 2016-17 Component
2016-17 Forecast
2015-16 Outcome
2015-16 Forecast
Revenue $b
500.00
457.00
477.6
Expenditure $b
490.00
427.00
440.8
Surplus $b
11.00
30.00
36.8
GDP Growth %
1-2
2.4
1-3
Inflation %
2
2.5
3
Source: HKSAR Government budget papers
political disputes might intensify and negatively impact the economy. At the close of his address he expressed his own frustration at the political tensions within the community and even rounded on the Legco members for the intensity of the struggle between “rival factions” and the lack of rationale debate on the issues. Rarely, if ever, has a Financial Secretary taken such an overtly political stance in bringing down a budget. Between these political “bookends” to his speech, the Financial Secretary indicated Hong Kong faced economic headwinds in the 2016 year and the budget had to respond to this outlook. A risk-laden economy “The local economy is laden with risks in the year ahead; the outlook is far from promising,” he said. Mr Tsang predicted the economy is expected to grow between 1% and 2%, which is lower than the estimated 2.4 % growth over 2015 and the 1.9% growth in the final quarter. Inflation is forecast to remain subdued at 2% (underlying rate) and 2.3% (headline rate). “Since the start of 2016, the global economic climate has continued to be unsteady, marked by increasing risks, amid the modest and patchy economic growth of advanced economies, downward pressures on emerging markets and heightened geopolitical tension,” he said. The Financial Secretary outlined extensive measures to alleviate the impact of the slowing economy on the community, including the $200 billion in medium term spending initiatives outlined by the Chief Executive in his policy address earlier in the year.He predicted that total spending (see table) for the 2016-17 year would be around $490 billion (up from $427 billion in 2015-16) and revenue would top $500 billion (up from $457 billion in 2015-16). The surplus for the fiscal year will be a modest $11 billion, down from a $30 billion outcome in 2015-16. Looking to the medium term, the Financial Secretary predicted an average growth rate of to be 3% a year in real terms from 2017 to 2020, lower than the trend growth of 3.4 per cent over the past ten years.
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OPINION
tim hamlett
The kids are all right
tim hamlett Former Editor of Sunday Standard and Associate Professor of Journalism
P
eople have been complaining about the deteriorating standards of behaviour among the young since Socrates was executed for corrupting the youth of Athens with the notion that truth was the highest good. Rioting, like other strenuous sports, appeals mainly to people in their late teens/early 20s, so recent events have provoked much speculation about what is wrong with our young things. For up-market tastes there are the offerings of Prof Richard Wong, which appear rather incongruously on the back page of the SCMP’s business section. Last week we had Hegelian historicism and post-modernism. This week German romanticism, the decline of Liberalism and post-modernism again. I confess to some doubts about this approach. I do not claim to understand those noisy discussions which fill the air in Mong Kok teahouses but I do not believe they are devoted to the rival merits of Hegelian historicism and Popper’s criticism of them. Postmodernism is a purely academic construction with no points of contact with the real world. It asserts that there is no such thing as truth so all beliefs are valid, depending for their status only on the fervour with which they are held. This is the sort of thinking which, as Nissam Taleb puts it, people with jobs in the real world leave for the weekends. Most of us cling to the belief that there is a real world, that some words explain it better than others, that actions have consequences and these can to some extent be predicted and evaluated. Dealing with media For a cheap and cheerful explanation of current events, on the other hand, we can always depend on Rita Fan, who said that young people were being led astray by “bad media”. This seems an unkind slur on the Hong Kong media, most of which have already bowed to the wind from the north and some of which are actively fanning it. In any case this explanation flies in the face of a great deal of research which has revealed that media really have very little effect on what people think and even less on what they do. Somewhere in between we have the complaint that our young people “do not understand China.” I find this extremely hard to believe. In the first place Hong Kong is the only place in China where the media are allowed – if they wish, and some of them don’t – to report China matters as honestly as they can. If you want to understand China then Hong Kong is probably the best place in the world to do it, because you can avoid the avalanche of official lies. Also, a great many people in Hong Kong come from China, and most of the rest have visited it, often frequently. Anyone who is in the least bit interested can feast on personal experiences of China, his own and other people’s. I believe Hong Kong young people know China very well. They know it is a rising power with a growing economy. They also know it is a nasty police state which combines traditional despotism with modern technology to promote the 46 HONG KONG BUSINESS | MAY 2016
compulsory pretence that it is loved and admired. Another interesting suggestion puts the blame on the Liberal Studies subject, now compulsory in all schools. This, we are told, gives teachers — who are all rabidly pro-democracy as we can see from the people they put in Legco — the chance to corrupt young minds with unhelpful Western notions. You know the sort of thing: that we are entitled to life, liberty and the pursuit of happiness, or that our government should observe and implement the Universal Declaration of Human Rights. Shocking stuff. But this surely overstates the affection which most schoolkids feel for the material being shovelled over their desks. University students, in theory, are encouraged to think independently, leading to a regrettable tendency to think things which their elders disapprove of. But for most of the school population this is a distant dream. The purpose of the Hong Kong education system, as they experience it, is to reduce the number of people eligible for university to a manageable number by eliminating them and their friends from the queue. Some observers have pounced on the fact that many of those arrested during or after the disturbances were unemployed. If only we could create jobs for these idle young men then all would be well, they think. But this is surely confusing a symptom with a cause.
Are the youth developing alarming behaviour?
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OPINION
Hemlock
Beijing’s dilemma
by hemlock www.biglychee.com Email: hemlock@hellokitty.com
I
s tycoon Henry Tang secretly a supporter of Hong Kong’s localist/nativist movement? If Beijing agrees to the landlord class’s request to swamp the city with millions of additional shopper-tourists, support for the splittists will surge. It would be a gift to HK Indigenous. Given that he is not enormously good with secrets, it is likely that Henry is as he appears – simply eager to keep his buddies’ rents high. The official expresses a desire to attract more ‘overnight visitors’ and ‘diversified and high value-added tourists’. In other words, not crossborder smugglers and not cheapo rustic hordes who bring their own instant noodles. The spokesman also stresses the need to avoid ‘conflicts due to the local pressures caused by too many tourists’. The wording makes it clear that while the administration doesn’t want to openly reject the idea, it can’t and won’t accept it. Basically, that’s a polite ‘no’. Micro-managing woes It is an example of Beijing’s dilemma in micromanaging Hong Kong. Well before the 1997 handover, the Communist Party started to co-opt ‘various sectors’ to form a local support base. The two most prominent of these were the cartel-running property tycoons and the New Territories’ Heung Yee Kuk power-brokers. In exchange for loyalty to Beijing and its appointed local government, these interests essentially enjoyed rent-seeking opportunities and other privileges at the expense of the rest of the economy/population. Over the years, they have acquired a massive sense of entitlement – but the rest of the population has become increasingly resentful, angry and restive. Beijing’s supposed friends are looking more like a liability. With the Legislative Council election coming in September, the Chinese and Hong Kong governments struggle to find a balance. It is already clear that the property tycoons have been losing favour locally and in Beijing. Revisiting housing policies Accustomed to having everything handed to them on a plate, they are not happy with Chief Executive CY Leung’s housing policies. And local officials have – on one or two occasions – shown signs of at least mild skepticism about the Heung 48 HONG KONG BUSINESS | MAY 2016
Yee Kuk’s ‘traditional rights’ to grab, plunder and despoil the land. These client groups are getting stroppy. James Tien of the pro-business Liberal Party has long been awkward in an opportunistic way. His team did not seem to do much to help Beijing’s chosen candidate in the recent NT East by-election. Nor apparently did the Heung Yee Kuk, which is threatening to launch its own party. These grubby and selfish factions need Beijing far more than Beijing needs them. But the Hong Kong government is friendless and besieged, and the Communist Party’s local paranoiacs probably see this in terms of United Front discipline versus hostile Western-backed pro-independence insurgents. China can buy the loyalty of the tycoons and the village henchmen, yet only at the cost of – ultimately – marginalizing and alienating the population and further feeding localist sentiment. Moving forward On this occasion, the decision was simple: Henry Tang’s landlord buddies will just have to live without millions of Wuhanese peasants lining up to buy all the tacky shiny baubles on display in their malls. But the dilemma won’t go away. It will probably get more pronounced in Hong Kong, in Taiwan, and everywhere, so long as the Chinese Communist Party fails so hopelessly to figure out how to become lovable.
The dilemma is in micro-management