Hong Kong Business (October - November 2019) by Charlton Media Group

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HONG KONG

BUSINESS

FROM THE EDITOR

Established 1982 Editorial Enquiries: Charlton Media Group Hong Kong Ltd 19/F, Yat Chau Building, 262 Des Voeux Road Central Hong Kong. +852 3972 7166

In this issue, we take a look at how the ongoing unrest has affected businesses in Hong Kong, particularly the retail and tourism sectors which rely heavily on Mainland spending. Our cover story also explores the impact that reverberated across the residential property and professional services sectors as the city struggles to find a new normal under the world’s watchful eye.

PUBLISHER & EDITOR-IN-CHIEF Tim Charlton ASSOCIATE PUBLISHER Louis Shek PRODUCTION TEAM Sandra Sendingan Giullian Navarra Nathanielle Punay Frances Gagua GRAPHIC ARTIST Mark Simon Engracial II Tyrone Delos Santos ADVERTISING CONTACTS Louis Shek +852 6099 9768 louis@hongkongbusiness.hk Rochelle Romero rochelle@charltonmediamail.com

ADMINISTRATION ACCOUNTS DEPARTMENT accounts@charltonmediamail.com ADVERTISING advertising@charltonmediamail.com EDITORIAL editorial@hongkongbusiness.hk

Will the deteriorating social conditions also dent Hong Kong’s appeal to expats? Some experts say that expats are considering nearby options like Singapore, Vietnam and Indonesia or even exploring the possibility of moving back to their home countries. For foreigners in the banking, insurance and tech sectors, however, it is still business as usual. Flip to page 38 to find out more. Against a backdrop of growing recession risks and gloomy economic outlook, investors are increasingly buying long-term debt as our Financial Insight piece on page 18 examines. This edition also features event coverage from the Made and Designed in Hong Kong awards along with the International Business Awards and National Business Awards which gathered around a hundred executives. Enjoy the read!

Tim Charlton

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HONG KONG BUSINESS | NOVEMBER 2019 7

CONTENTS

12 Greater Central office rents to fall by up to 8%

13 Vacancy tax hits luxury home launches

REGULAR 14 IWG deepens Hong Kong footprint

EVENT COVERAGE HONG KONG BUSINESS HAILS THE MOST OUTSTANDING COMPANIES IN 2019

HR BRIEFING EXPATS KEEP OPTIONS OPEN AS PROTESTS DENT ‘WORLD CITY’ APPEAL

COVER STORY HOTELS AND SHOPS TAKE HEAVY BEATING AS PROTESTS REVERBERATE ACROSS HONG KONG

OPINION

FIRST

FINANCIAL INSIGHT SPOOKED INVESTORS BACK LONGTERM DEBT AS DEFAULT AND RECESSION RISKS RISE

in sleek Hennessy Road space

40 The changing role of the in-house

legal team in Hong Kong

42 Singapore stands tall as beacon for

rattled Hong Kong businesses

44 Keeping ‘business as usual’ in the

face of disruptive threats

46 She doesn’t get it 48 Yes, we have no imagination

16 Startups 22 Chinese banks snap up half of

office space

Published Bi-monthly on the Second week of the Month by Charlton Media Group Pte Ltd, 19/F, Yat Chau Building, 8 HONG KONG BUSINESS | NOVEMBER 2019 262 Des Voeux Road Central, Hong Kong

For the latest business news from Hong Kong visit the website

www.hongkongbusiness.hk

News from hongkongbusiness.hk Daily news from Hong Kong MOST READ

ECONOMY

RESIDENTIAL PROPERTY

COMMERCIAL PROPERTY

PMI sinks to eleven-year low in Q3 Government rejects all bids for Kai Tak AirTrunk to set up $1.1b data centre amidst declining demand and output site as tenders fail reserve prices in Tsuen Wan The private sector’s health remained stuck in a downturn although the Purchasing Manager’s Index (PMI) edged up slightly to 41.5 in September from sinking to an eleven-year low at 40.8 in August, IHS Markit reported.

LEISURE & ENTERTAINMENT

Watch sales expected to steady or grow in 2020: report About 48% and 32% of respondents expect sales of watches to remain steady or grow in 2020, according to an on-site survey conducted at the 38th edition of the Hong Kong Watch & Clock Fair by the Hong Kong Trade Development Council (HKTDC). Close to 18,000 visitors from 104 countries attended the fair.

HONG KONG BUSINESS | NOVEMBER 2018

The Hong Kong government has rejected all five tenders received for the purchase of New Kowloon Inland Lot No. 6546 at Kai Tak after the tenders failed to meet the reserve price for the site, according to the Lands Department.

ECONOMY

Hong Kong retains crown as world’s freest economy for the 37th year Hong Kong retained its spot as the world’s freest economy, a position it has occupied for 37 years, according to the 2019 edition of Fraser Institute’s Economic Freedom of the World report. It was also the highest-rated economy in the 1950-1965 mark. Singapore came second, followed by New Zealand, Switzerland and the USA.

Data centre startup AirTrunk will build a $1.11b-worth 20+ megawatt data centre in Tsuen Wan which is set to open in Q4 2020. The facility, AirTrunk HKG1, is specifically designed for hyperscale cloud, content and enterprise customers.

COMMERCIAL PROPERTY

IWG makes Regus and Spaces brands available for franchising International Workplace Group (IWG) launched a franchise scheme in Hong Kong where individual entrepreneurs can operate franchised Regus and Spaces locations in the city. The programme will provide an infrastructure for supporting franchise operators throughout the lifecycle of their investment.

FIRST director and head of office services for Hong Kong, said in a statement

STILL A FINANCIAL POWERHOUSE

The city ranks third globally.

Hong Kong has closed the gap with its global financial hub rivals, finishing only two points behind London to clinch the third spot in the latest ranking of the world’s financial centres by think tank Z/Yen and the China Development Institute. New York topped the Global Financial Centres Index (GFCI), extending its lead over London by over 17 points. Singapore finished fourth at only nine points behind Hong Kong, whilst Shanghai rounded-up the top five. By areas of competitiveness, Hong Kong ranked second globally when it came to human capital (quality of life, labour market, skilled workforce), infrastructure, and reputation. It also finished third for business environment and financial sector development. Growth areas Sector-wise, Hong Kong has the top investment management sector worldwide, pulling ahead of regional rivals Shanghai, Singapore and Shenzhen. Both the professional services sector and the banking sector finished second; whilst its government and regulatory sector, and its insurance sector, were third and fourth in their indices, respectively. Hong Kong was also the seventh most competitive financial centre for fostering the FinTech industry. Mainland China cities dominated the list, with Beijing and Shanghai occupying the top two spots and Guangzhou and Shenzhen finishing at fourth and fifth place, respectively. Interestingly, survey respondents counted Hong Kong as amongst the financial centres that will benefit substantially from Brexit. In Asia Pacific, Tokyo and Beijing rounded out the top five. The Chinese capital jumped two places to rank seventh globally whilst Shenzhen jumped five places to clinch the ninth spot. Tokyo remained at sixth place. Mumbai, Wellington, and Chengdu also showed strong increases in the current index. 12

HONG KONG BUSINESS | NOVEMBER 2019

In Q3, rents dropped 3.2%

Rental decline In Q3, rents dropped for the second consecutive quarter to $74.7 per sqft per month, down 2% QoQ. Most submarkets experienced rental declines during the quarter, led by Greater Central. The only exception was Hong Kong East where rentals edged slightly higher by 0.3% QoQ. “As sentiment in the office market has soured considerably in Q3 and with no end yet in sight to the current instability, rents across all sub-markets will come under increasing pressure over the remaining months of this year and into 2020. Our forecasts are for rents in Greater Central to fall by between 6% and 8% this year and by between 8% and 13% next year,” said John Siu, Cushman & Wakefield’s managing director, Hong Kong. Like the office sector, shops were not exempted from the rental decline. Retail rents in both core and non-core areas fell in Q3, led by a 7% drop in Causeway Bay which took the hardest hit from the declining numbers of tourists and interruptions to business due to the unrest. Rents in Causeway Net absorption Bay is projected to fall between 11for the full13% for the full-year period. year period is F&B spending also decreased. As expected to drop of September, business for Chinese to less than half restaurants was down by 10-12% the level last and non-Chinese restaurants down year. by 5-7%, whilst the fast food and drinks sector maintained a growth of 1-4%. This resulted to F&B rents dropping between 3% and 4.1%, with Causeway Bay suffering the hardest. However, trades that focus on mass market demand and local consumption may fare better in the current environment.

Greater Central office rents to fall by up to 8%

reater Central rents fell 3.2% in Q3 in the largest quarterly drop since 2012, informing expectations that leasing costs will fall between 6-8% in 2019, according to real estate consultant Cushman and Wakefield. Pre-leasing transactions inked before the social unrest wrecked the city contributed to an overall positive absorption, but tenants generally held off relocations or expansion in response to more cautious sentiment. As a result, availability in Greater Central rose to 7.4% in Q3, the highest level in 14 years. Net absorption in the Grade A office market fell from 513,697 sqft in Q2 to 295,214 sqft in Q3. Most transactions were concentrated in non-core areas such as Hong Kong East, where WPP leased 111,000 sqft in K11 Atelier on King’s Road. “We expect demand to drop considerably in Q4 with net absorption for 2019 falling to less than half the level last year,” commented Keith Hemshall, Cushman & Wakefield’s executive

Hong Kong Island Net Absorption (Q2 2019)

Net absorption dropped to 295,000 sqft in Q3. Source: CBRE

FIRST Developers may reject luxury homes in favour of mass residential units.

The levy will only boost supply in the near term.

Vacancy tax hits luxury homes

he looming implementation of vacancy tax is expected to prompt developers to reject luxury homes in favour of mass residential units since the former take a longer time to sell, according to real estate consultant JLL. In the near term, developers are expected to speed up the launches of new residential projects and lower asking prices in an effort to maintain sales volumes ahead of the levy in a move that is expected to lift supply in the short term. “Although the new levy will only apply to a small portion of the market,

it is still likely to help lift supply that is desperately needed over the near term with developers to accelerate launches of new residential projects ahead of the implementation of the vacancy tax,” Henry Mok, senior director of Capital Markets at JLL, said in a statement. “The glut of new units that are likely to hit the market because of the new tax comes at a time when market sentiment is weakening against the dour outlook for the local economy. For developers looking to maintain high sell-through rates, a further lowering of asking prices

appears to be unavoidable. Given the tight spread between the primary and secondary markets, we believe that this will ultimately result in a drop in secondary market prices,” he added. Supply boost The special rates on vacant units will be collected annually at 200% of the rateable value of the units, roughly equal to 5% of the property value. Units that have not been occupied or rented out for more than half of the past 12 months will be considered vacant, according to the government. The tax is expected to be passed as a law by end-2019 with the aim of easing the city’s chronic housing crunch by unlocking supply. As many as 10,000 vacant units were recorded by the end of June, accounting for about 20% of the total number of vacant units in the market by end-2018. “The introduction of the vacancy tax and the amendment to pre-sale consent will only affect the luxury market. Developers usually look to achieve strong sales for mass residential projects, rather than high prices. Even if developers speed up the sales of luxury projects, it won’t help average home seekers,” JLL said in a previous report. JLL maintains its forecast for prices to retreat by up to 5% for the year as a whole.Residential transactions in August continued to shrink amidst a deteriorating property market. According to data from the Land Registry, residential S&P volumes dropped by 15% MoM to 4,084 transactions during the month.

THE CHARTIST: HONG KONG FACES THIRD-GREATEST HOUSING BUBBLE RISK GLOBALLY Hong Kong grapples with the third-highest risk of a housing bubble in the world, scoring 1.84 to tie with Amsterdam, according to the latest UBS Global Real Estate Bubble Index. The city fell down two notches from its first place ranking in the previous year as housing bubble risk shifted towards the Eurozone. The greatest risk of a real estate prices bubble is currently on Munich, Germany, where real prices have more than doubled over the last 10 years, whilst real rents have risen by 40%. Toronto, Canada followed as real housing prices in the city almost tripled between 2000 and 2017. Amsterdam tied with Hong Kong for the third spot, recording the strongest price increase of all cities in the study since 2015, noted UBS. Another German city, Frankfurt, closed the top five.

Annual house price growth rates

Development of sub-indices

Inflation-adjusted in %

Standardized values

Source: UBS Global Real Estate Bubble Index 2019

HONG KONG BUSINESS | NOVEMBER 2019 13

EXCLUSIVE: SPACE WATCH

IWG deepens Hong Kong footprint in sleek Hennessy Road space Spanning 22,700 sqft, the workspace offers 60 private offices and 270 workstations.

nternational Workplace Group (IWG)’s latest Spaces offering is a 12-floor coworking tower located at 200 Hennessy Road that provides a calming environment in a bustling commercial district surrounded by restaurants, bars and stores. Coworking membership starts with a 24-month contract priced at $3,980 a month, but interested tenants can consider renting a one-person office space for $5,648 monthly. The 22,700-sqft-wide workspace offers nearly 60 private offices and 270 workstations on top of flexible hot-desking memberships. It also provides functional amenities like two meeting rooms, a two-storey business club with semi-private meeting booths and communal tables. Tenants can stop by the outdoor balcony for a whiff of fresh air. Like other Spaces locations, Spaces Hennessy Road incorporates a contemporary European design aesthetic rooted in minimalism to provide a “defined yet refreshing look.” Upon entry, one will be greeted with curated background music designed to facilitate focus and concentration amongst workers. The Spaces community team provides professional knowledge to tenants to help enhance their business. They have also been holding monthly drinking sessions where tenants can connect with each other and relax. IWG has expressed plans to host a wider variety of activities at Hennessy Road in the future. “IWG believes that business success is underpinned by the effectiveness and happiness of its people. To achieve this, the group delivers easy-to-use real estate solutions, with a full suite of support services to enable people to focus on their core business and enjoy a great day at work,” Nancy Yip, IWG Hong Kong area director, told Hong Kong Business. “Spaces is all about its inspiring community of entrepreneurs. Within the local Spaces locations, a vibrant and energetic tenant community furnishes work life and create opportunities for its tenants,” Yip said. Since entering Hong Kong in July 2018, Spaces has opened in five locations including Causeway Bay, Kwun Tong, Wong Chuk Hang, Sheung Wan and Wan Chai. IWG has also expressed plans to expand to 30 cities across Asia Pacific, including eight new cities by 2019. 14

HONG KONG BUSINESS | NOVEMBER 2019

Reception

Nancy Yip

Business Club

Reserved coworking

Brought to you by

How Secure Is The Cloud? THE ADDITIONAL SECURITY CHALLENGES FACING CLOUD BASED COMPANIES The first three virtual bank licences in Hong Kong have been approved, encouraging digital banking to start disruption of the traditional banking world. Amidst the current increase in the volume and intensity of cyber attacks, it comes as no surprise that there is growing concern about security for companies who have transferred their entire operation to the cloud.

Whilst the cloud is more secure than a traditional data centre, Mandiant, the industry leader in incident response consulting, estimates that % of its incident response involves public cloud assets.

The public cloud addresses many historical security operations pain points, but it also introduces new ones that require security practitioners to adapt. These blind spots created as a result of using the public cloud create additional opportunities for hackers to compromise cloud assets and steal data. Rather than undertake a direct infrastructure compromise, attackers are now using phishing, client-side exploits or victim missteps – and sometimes

all three – to acquire valid credentials, leveraging them to do as much damage as possible. Many public cloud compromises occur without any cloud hacking at all Cloud security requires the traditional security solutions that cover network, endpoint, and email, enhanced with visibility and analytics-based approaches to catch what others miss. FireEye approaches cloud security holistically, with products to provide protection, visibility and detection as well as services to help with staff education and augmentation, including: • Intelligence-led technology enabled incident response • Incident and security posture preparedness and development services • Managed defence services • High fidelity cyber threat intelligence to help minimize risk through proactive defence, informed decision-making and rapid incident response. • Comprehensive security, hunting and incident response at scale • A complete understanding of threats facing an organization to help manage and reduce their risk profile

The public cloud addresses many historical security operations pain points, but it also introduces new ones that require security practitioners to adapt Industry trends show a huge migration to the cloud, it is anticipated that virtual banking will play a big role in this movement. As the cloud grows, FireEye is growing with our customers to ensure that emerging technologies are not an attacker’s playground. This robust level of protection is critical in defending against today’s evolving threat landscape, as spear-phishing, ransomware and impersonation attacks continue to rise. To learn more, contact our team at HongKong@FireEye.com or visit www.FireEye.com

FireEye approaches cloud security holistically, with products to provide protection, visibility, and detection. HONG KONG BUSINESS | NOVEMBER 2019 15

STARTUPS How GitStart streamlines tech hiring

Hamza Zia

s companies rush to plug tech vacancies, GitStart is aiming to connect software developers with companies in need of individuals with their specific skillset. Through the AI-powered platform, software developers can earn money through small coding tasks. As they improve, GitStart would recommend them for full-time employment. “We started the company as many junior devs, especially around ASEAN, struggle to find their first job. And when they do, they stick to it for a very long term and learn little. With GitStart, the goal is to give them bigger exposure on real work, and get them trained first

before they start their first job,” said Hamza Zia, the founder of GitStart. The startup earns from commissions from each coding task and hire made through its platform. The startup makes sure that software developers are paid fairly by having a base income for developers to earn above minimum wage. Zia explained that a high rank developer will be the one to write a plan and assign a cost for a task, before getting picked up by a different developer. “Over 200 devs have got jobs after doing GitStart, and over 1200 were rejected from GitStart funnel in the last year. So it’s quite selective and works really effectively,” Zia said. “Using this system, customers get up-front quote for task before it begins. Developers get a dynamic pay based on number of tasks completed”. In August, GitStart raised US$150,000 from California-based incubator Y-Combinator. They are also part of the Hong Kong Science and Technology Park incubation programme. Zia claims that 90% of the talent pool listed on their platform were hired within a single interview. Most companies that come to them hire between 10 to 100 developers a year and he added that it removes the risks in hiring new developers and reduces on-boarding cost for developers by 20 times.

How HOMI aims to make homes smarter

Amar Dhillon

As part of its vision to boost the number of smart homes in Southeast Asia, consumer IoT services company HOMI Smarthome offers a wide array of products, including light switches, smart locks, cameras and modules, that can be controlled through an app. “We started this business because we realised that smart home devices in North America didn’t translate into products in Southeast Asia. For example, light switches are different sizes and voltages than the ones we’ve seen in North America,” said Amar Dhillon, CEO and founder of HOMI Smarthome.

HONG KONG BUSINESS | NOVEMBER 2019

He observed that most of the incumbent and smart home startups in Asia are hardware-entrenched companies that don’t offer smart home services. Promising quick installations, Dhillon claims that HOMI’s installations services can take up to three hours or less. They charge customers for as low as US$2 a day. “We then offer them a curated list of smart home devices that address their pain points and proceed with installation. Post-installation, HOMI supports all products and devices and will repair or fix anything that doesn’t work,” Dhillon said. In July, HOMI secured a US$1.3m funding from SeedPlus, Xoogler Angels and AngelCentral. They aim to focus on hiring more smart home architects and technicians and are also in talks with property developers who would be interested in its products and services in Hong Kong. Dhillon is also looking to set up online and offline campaigns such as experience centres across the region.

Booqed monetises unused business spaces

David Wong

Many office buildings have business spaces left unused, a common pain point for landlords who are not able to fully monetise their properties. Booqed aims to solve this by providing a booking platform where clients can book unused office spaces for a few hours, days and even months, in the process helping landlords get a better return-of-investment and aiding clients find suitable meeting or event spaces. “If you look deeper, there’s tons of spaces out there but people either don’t know how to access it, or companies don’t know how to get that out to market. So for us, it’s about being able to tap into that make that happen,” David Wong, CEO and co-founder of Booqed told Hong Kong Business. The spaces available on their platform include restaurants, cafes, business centres and coworking spaces. Booqed offers a mobile app where clients/ landlords can enter the type of space and availability they need/offer and makes profit by extracting 15% from every transaction. “Most of the platforms or competitors or comparables that you see out there at the moment, they’re primarily what we call listing platforms. They put up the listing, but if you want to book a space they’ll refer you directly to the space, and then you have to negotiate and do everything. For us, we actually handle the transaction,” Wong continued. He stressed that their competitive advantage against listing platforms is their ‘agnostic’ approach to space. “Space is space, however it can be used, however it can be utilised. We want to be able to support that. It’s about building what we call multiple customer touch points with these clients. Basically, it helps us improve the stickiness, and it helps us improve revenues,” he continued. Regional expansion In August, the startup had raised US$1.675m in a seed round, bringing its total funding of around US$2m. Booqed has offices in Singapore and Shenzhen and is looking to expand in North Asia and major cities across the Asia Pacific, such as Tokyo and Sydney as part of the company’s vision of monetising unused spaces. “First of all, we’ve not really done very much in the way of marketing to increase awareness and to generate transactions, so part of the funds is going to be dedicated towards rolling out a number of digital marketing campaigns. The second part is really building up our team,” Wong added.

HONG KONG BUSINESS | NOVEMBER 2019 17

FINANCIAL INSIGHT: DEBT CAPITAL MARKETS

Spooked investors back long-term debt as default and recession risks rise Approximately $3.2t in Chinese debt is poised to mature by 2023, spelling trouble for Hong Kong.

hen Hong Kong Telecommunications unveiled its $500m USD bond offering in the last week of September, it single-handedly proved that investors are still keen on high-grade Hong Kong bonds despite increased economic volatility and relentless pro-democracy protests. The 10-year bond issuance was oversubscribed and its order book reportedly exceeded $1.85b, showing that strong corporate names can still thrive when it comes to securing debt financing. Hong Kong Telecommunications is not alone in pursuing dollar-denominated bonds. Supply chain manager Li & Fung will issue USD-denominated notes to repay its existing USD$750m debt and Cathay Pacific is also reportedly courting investors for a dollar bond issuance. Despite the steady stream of corporate bond issuance, companies may face tougher financing conditions as more investors favour long-term bonds over short-term bonds, spooked by continuing unrest and the escalating US-China trade war. “Uncertainties in the global and local markets might have dampened market sentiment in the DCM market, as we see that the yields of short-term bond currently exceed that of long-term bond which suggests that investors are concerned about the economic downturn,” Eric Lau, partner for deal advisory, corporate finance at KPMG China told Hong Kong Business.

The yields of short-term bonds currently exceed that of long-term bonds which suggest that investors are concerned about the economic downturn.

IN MAY, THE GOVERNMENT RAISED US$1B FROM ITS INAUGURAL GREEN BOND ISSUANCE 18

HONG KONG BUSINESS | NOVEMBER 2019

“Following the reduction of interest rate by the Fed, we are seeing a falling trend in yields for longer-tenor bonds. We think other banks may follow the rate cuts, whilst other downside factors also create pressure on yields. Overall, we expect the low rate environment will continue in the fourth quarter of 2019, and the bond yields will stay at a low level,” he added. Green bonds on the rise Another trend shaping Hong Kong’s debt capital markets is the rise of green bonds. These bonds are designed to fund projects that have positive environmental benefits. In May, the government raised the US$1b in inaugural green bonds under the $100b Government Green Bond Programme. With a coupon of 2.5%, the bond attracted over US$4b in orders from global investors as sovereign wealth funds, supranationals and central banks accounted for the biggest share at 41%. The proceeds of the oversubscribed green bond will be used to finance or refinance public works projects in clean transportation, air quality improvement and green buildings. “As a rapidly growing green finance market, Hong Kong will play a key role in the development of the Greater Bay Area as a leading centre for green finance in Asia, with great potential to grow the city’s bond and project finance markets,” Dr. Ma Jun, chairman and president of the Hong

IN SEPTEMBER, HONG KONG TELECOMMUNICATIONS UNVEILED ITS US$500M BOND OFFERING

FINANCIAL INSIGHT: DEBT CAPITAL MARKETS Offshore Bond Issuance by Chinese Firms (USD b)

Source: Natixis

Kong Green Finance Association said in a statement. In 2018, the issuance of green bonds in Hong Kong hit about US$11b, data from OCBC Treasury Research show. However, this still trails behind green bond issuance in Mainland China which rose 33% YoY to US$31.2b in 2018. In order to accelerate the development of green bonds, the government provides subsidies via the Green Bond Grant Scheme and Pilot Grant Scheme. “We are expecting the green bond market to keep booming in 2019/ 2020. Institutional investors have a rising awareness of the importance of sustainability and many global asset managers are incorporating ESG considerations into their investment decisions,” noted Angela Chiu, associate director for deal advisory, corporate finance, KPMG China. “For instance, some Chinese banks have specific KPIs on Green Bond deals. These market fundamentals, combined with the supportive initiatives introduced by the Hong Kong government, will continue to drive the development of the green bond market in 2019 - 20,” she highlighted. Corporates have also jumped aboard the green bond bandwagon. Swire Properties launched its first green bond in 2018, raising US$500m at a coupon rate of 3.5 %, due 2028. The 10-year green bond was issued under its US$4b Medium Term Note Programme and part of the proceeds will be used to finance its newest Grade-A office development, One Taikoo Place. Dealmakers Hong Kong’s outstanding local currency bonds reached $1.96t at the end-March. A report by the Asian Development Bank shows that government bonds accounted for the lion’s share of the bond market at 59% of total local currency bonds outstanding at the end of March. In July, the government issued its fourth Silver Bond, which received applications amounting to over $7.9b. The final issue amount is $3b, with a tenor of three years. Bond holders will be paid interest once every six months at a rate linked to inflation in Hong Kong, subject to a minimum rate of 3%. In Q1 2019, the government also issued a 10year bond worth $1.5b and a 15-year bond worth $600m under the Institutional Bond Issuance Programme. A Chinese government-backed bank had also issued its first listed bond on the Hong Kong Exchanges and Clearing Limited (HKEX).

Eric Lau

Angela Chiu

“This provides a new type of investment opportunity for retail investors whilst allowing Agricultural Development Bank of China to diversify its financing base and increase its market visibility,” HKEX CEO Charles Li said in a statement. “This is the latest step in HKEX’s continuing development of its fixed-income markets. This is the first to be open for subscription to both retail investors via HKEX, and to professional investors in the Over-theCounter (OTC) market, following Hong Kong Monetary Authority’s Exchange Fund Bills.” Whilst Hong Kong remains the largest offshore centre for bond placement by Chinese firms, a vast majority of Chinese issuers opt for USD-denominated bonds instead of traditional dim sum bonds. Data from Natixis showthat over 80% of Chinese offshore bonds issued in Hong Kong are in USD, whilst less than 10% are in RMB and other currencies. “The Hong Kong bond market is dominated by issuance in the USD with a shrinking and tiny part in the RMB (Dim Sum bonds). The amount of the offshore bonds issued by Chinese firms looks small when comparing with the onshore market but it is indeed mighty as the funding is liquid and convertible in foreign currencies,” Alicia Garcia Herrero, chief economist for Asia Pacific at Natixis, said in a note. “Compared to the onshore bond market, Hong Kong also has a very high proportion of international investors. Even if China’s onshore market is obviously much bigger, the relatively small share of foreign participants makes Hong Kong a larger source of foreign investment for Chinese issuers than their onshore share today,” she added. Hong Kong is by far the largest offshore centre for bond placement by Chinese firms, contributing 66% of offshore bond issuance. As China’s preferred offshore financial centre, Hong Kong offers the channel to finance in longer term maturity compared to the onshore market. Over half of onshore bond issuance is less than one year maturity, but the proportion is only 25% for Chinese firms financing in Hong Kong. From a sectoral perspective, financials and real estate are the most reliant on Hong Kong for bond issuance, which form 8% and 13% of their total issuance respectively, data from Natixis show. For instance, in the first 10 days of July, Chinese property developers issued overseas bonds worth over US$4b, taking advantage of low US Treasury yields. A stark example is Tahoe Group’s issuance of three-year bonds worth US$400m three-year bonds with a coupon rate of 15% in July, the highest-yielding debt amongst Chinese developers, compared with an average yield of 8.34% amongst developers tapping the offshore bond in the first six months of the year. Chiu cautioned that the surge in bonds issued by Chinese property developers will not last long. “We share the view that Chinese property developers is likely to slow in the second half of the year in response to not only the weakening property sales, but also more restricted NDRC control as well as less refinancing needs. Adding to that, drop in investment and M&A volumes also create less bond financing needs,” she said. Offshore bond issuance by Chinese property developers HONG KONG BUSINESS | NOVEMBER 2019 19

FINANCIAL INSIGHT: DEBT CAPITAL MARKETS counterparty risk from the restructuring of troubled regional lender, Baoshang Bank. “Defaults for both state-owned and private firms will increase due to the government goal in clearing zombie corporates by 2020, which is similar to the supply-side reform after 2015,” Garcia Herrero said in another note. “Over these five years, we expect that debt costs will likely rise, though monetary policy has recently eased funding costs, and government reforms and investment in the infrastructure of the domestic capital markets will likely help business sustainability, promoting debt issuance in the process,” S&P noted.

Offshore and Offshore Bond Issuance by Chinese Firms

Source: Natixis, Bloomberg

crashed US$1.6b in August from US$7.4b in July, data from Moody’s show. This is expected to decline due to lower refinancing needs, depleted quotas and new restrictions on offshore issuance. Chiu expects that some of the regulations designed to cool the property market, including the move by the National Development and Reform Commission to tighten approval procedure for quota applications from real estate developers, may be relaxed in an effort to lend support to the economy. “Investors will tend to focus on quality investment grade bonds. The slower economic growth in China, the challenging retail environment in Hong Kong and prolonged trade talks are creating pressure on issuers’ earnings, which might eventually trigger downgrade in ratings and impact the issuance costs,” added Lau. Default risks surge Amidst surging issuances, a growing number of Chinese firms are at risk of default as liquidity conditions tighten. Data from S&P show that a sizeable volume of approximately $3.2t is poised to mature in the domestic Chinese debt market by 2023. The majority of the $6.2t in corporate debt maturing by 2023 is financial debt at $3.7t. Another $3t in government debt (both national and local) is also set to mature by 2023. “Of the Chinese domestic nonfinancial corporate debt maturing by 2023, industrials hold roughly half, at $1t, followed by real estate at $282b. Following utilities with $197b, materials and energy tie for fourth place at $186b. Lower demand for real estate and lower profitability will likely increase the perception of risk for these firms and subsequently push refinancing costs to potentially unsustainable levels to compensate investors for the risk they are taking on. Some issuers in this sector may face increasing default risk as well,” S&P noted in a report. In the Mainland, onshore gross bond issuance decelerated to 9% YoY in Q2 2019 from 50% YoY in Q1 2019, data from Natixis show. However, net issuance remained high, indicating firms managed to raise capital in the bond market instead of simply rolling over old debts. The public sector accounted for the largest part of gross issuance whilst small improvement was seen in private firms, showing government policies are partially effective. Financials had a slower pace of issuance, which could be a result of higher 20

HONG KONG BUSINESS | NOVEMBER 2019

Of the Chinese domestic nonfinancial corporate debt maturing by 2023, industrials hold roughly half at $1t followed by real estate at $282b.

Path forward “Looking into 2020, we are expecting long term bond yields will remain at low level. Some issuers might take the opportunities to refinance some of their bank debts with longer-term bonds to reduce overall financing cost. There might be more refinancing needs at the beginning of next year when investor appetite returns which may boost the DCM trade volume,” Lau noted. Lau warned that the tightened financial conditions and market volatility will continue to influence investors’ attitude. “Investors will tend to focus on quality investment grade bonds. The slower economic growth in China, increasingly challenging retail environment in Hong Kong and prolonged trade talks are creating pressure on issuers’ earnings, which might eventually trigger downgrade in ratings and impact the issuance costs,” he said. On the flip side, some Hong Kong investors may choose to shift their investments in equities in light of global uncertainties which may create some demand for DCM instruments, he added. “Given the political uncertainties, dependence on the US for dollar funding might be considered more risky than in the past, offering an edge for Hong Kong bond issuance instead,” Garcia Herrero said. “Hong Kong plays a vital role in offshore bond financing for mainland China, i.e. the best way to fund in hard currency funding and to reach diversified investors. In addition, Hong Kong has been the key actor in the RMB internationalisation as well as attracting foreign investment through the setup of Bond and Stock Connects.”

Green bonds are gaining momentum

Source: Refinitiv

HONG KONG BUSINESS | NOVEMBER 2019 21

NUMBERS CHINESE BANKS SNAP UP NEARLY HALF OF HONG KONG OFFICES Net Absorption of Chinese Firms by Sector by Submarket

Grade A Office Occupancy Structure Chinese Firms

Five Largest Sectors amongst Chinese Firms

Distribution of Chinese Companies by Company Origin and Submarket

Coworking Centres by Submarket

Source: CBRE

HONG KONG BUSINESS | NOVEMBER 2019

FINANCIAL INSIGHT: BONDS

HONG KONG BUSINESS | NOVEMBER 2019 23

COVER COVER STORY STORY

Sa Sa’s flagship store in Causeway Bay

Hotels and shops take heavy beating as protests reverberate across Hong Kong In August, retailers saw their worst sales performance on record since the 1998 Asian Financial Crisis, which could spill over to other sectors like property, professional services, finance and merchandise trade.

year ago, when the trade dispute was just beginning to afflict the region, Hong Kong’s business sector probably never thought that things could make a turn for the worse. But destiny rolled the dice in the form of the much-contested extradition bill. What began as a movement seeking its withdrawal has turned into a full-fledged social upheaval, gravely denting local and international businesses in the city. Not even the withdrawal of the bill in early September allayed the protestors’ discontent. The result is a lacklustre third quarter that saw the city’s various business sectors, already struggling under the weight of a weakened renminbi and protracted trade dispute, take another heavy hit from plummeting tourist numbers and cautious spending. In August, tourist arrivals plunged 40% in its sharpest decline since the 2003 SARS crisis. In the same month, the retail sector plunged to its worst performance on record since the Asian Financial Crisis in 1998. Stand-alone restaurants and small to mid-size retailers are also closing down as sales steadily crashed in September. Even international luxury brands are feeling the pain: British fashion house Burberry and French high-brand Hermes are expected to book as much as 24

HONG KONG BUSINESS | NOVEMBER 2019

Citywide RevPAR could drop by more than 15% for FY2019. In August, citywide occupancy rates have dropped between 3040%.

hundreds of millions in losses during the period with the latter temporarily closing some of its five stores, including its airport shop. Inhospitable conditions An estimated 20-30% of businesses in Hong Kong, including cosmetic retailer Sa Sa International and luxury hotel The InterContinental, have reportedly told their staff to take several days of both paid and unpaid leave in light of the mass protests that have brought the city to a standstill. A collapse in hotel bookings, which was primarily attributed to the steep crash in visitor arrivals from Mainland China, led to a 13% YoY decline in revenue per available room (RevPAR) in July alone, data from CBRE show. According to Edmond Wong, director for valuations & advisory services, hotels at CBRE Hong Kong, citywide RevPAR could drop by more than 15% for FY 2019. “RevPAR performance varied across different segments but has displayed signs of decline since early 2018. RevPAR fell by 1.98% YoY for high tariff A hotels, rose by 0.31% YoY for high tariff B hotels, and declined by 0.79% YoY for medium tariff hotels,” he explained. “Citywide occupancy fell by 100 bps to 90% as the rise in

COVER STORY overnight visitors was insufficient to sustain the current level of high hotel occupancy.” As the unrest scared tourists away, citywide occupancy rates dropped between 30-40% in August, according to Simon Haven, senior analyst at market research provider Euromonitor International. “We have heard testimonies that certain hotels saw their number of check-ins fall to five to six per day during the days where the protest hit the hardest,” he told Hong Kong Business. No commercial establishment appears to be exempt from the visitor decline. “Disneyland and Ocean Park, the two major tourist attractions in Hong Kong, do not report monthly visitor statistics, but there have been reports and pictures of the parks being empty this summer,” Haven said. “We have not heard of any attractions cutting down on their opening hours, but employees have also been asked to take up to four days of unpaid leave per month.” Major conferences and events such as the Hong Kong Tattoo Convention, which would have seen over 300 artists and thousands of attendees from all over the world in November 2019, has been cancelled, whilst the 2019 Global Wellness Summit (GWS) gathering 600 industry experts was relocated to Singapore in light of the unrest. Although a spokesperson from the Hong Kong Tourism Board (HKTB) noted that flights at Hong Kong International Airport are ‘operating as normal’, Haven said that this may not be entirely true from the other end of the flight journey. “Several airlines have been reducing their service to the region, with Qantas’ CEO say[ing] at the latest FY earnings call that the company has seen reduced demand for flights to Hong Kong, and hence would be downgrading the route,” he explained. “United Airlines has also suspended its direct connection between Chicago and Hong Kong, although it did not blame the decision on the protests directly.” As many as 40 countries and jurisdictions have issued travel advisories against going to Hong Kong, heaping further pressure on the tourism sector. Retailers suffer heavy blows Given the intricate relationship between tourism and spending, the retail front also took a heavy beating. In the first six months of the year, retail sales slipped 2.6% YoY. Sales of luxury goods nearly halved not only because of dwindling tourist numbers—by which it had traditionally relied on—but also due to the cautious spending by locals. In August, sales of medicines and cosmetics saw a 16.5% drop, apparel with a 13% decline and department store sales with a 10.4% fall. “As we recall, 2013 was the year when luxury sales reached its peak. Last year had already seen it drop 27% from that peak. Judging from official statistics, however, this year’s luxury sales figure is expected to fare even worse,” Knight Frank said in a report. “At estimated $70b, it means that it would fall 40% from the peak of 2013. It is comparable to the recent trough of 2016.” Sa Sa International reportedly saw its share price fall by close to 25% in August, whilst sales dropped by 32% in its Hong Kong and Macau operations. In a profit warning announcement filed with the Hong Kong

International visitor arrivals may drop after strong H1 2019 period

Source: CBRE

Raiky Wong

Denis Ma

David Ji

Exchange (HKEX), the firm outlined a prudent finance management approach to cushion the operational impact of the challenging environment such as proactive implementation of cost control initiatives, including rental reduction negotiations with landlords, and reducing operational expenses such as staff and administration costs. Denis Ma, head of research at JLL Hong Kong, noted that the decline in retail sales is negatively affecting turnover rents, which in turn has caused rental income in shopping centres to trend lower. “On the streets, the disruption has put greater pressure on shop rents that were already slipping against slowing sales through the first half of the year,” he said. On its part, landlord Swire Properties gave a temporary rental cut to most of its tenants in the first time that a major shopping centre offered adjusted rents amidst a failing retail environment roiled by a triple whammy of trade tensions, a weakening yuan, and social unrest. In Causeway Bay, where many of the protests take place, a vacant Percival Street shop halved its rent. Data from Centaline Commercial revealed that the 1,000 sqft space is being offered for only $200,000, representing a 55% discount compared to the lease paid by its previous tenant China Mobile. Even fashion startup hub Lai Chi Kok did not escape the rental culls. D2 Place, owned by textiles firm Lawsgroup, announced a 20% rental reduction that translates to a seven-digit loss in rental revenue. A D2 Place spokesperson said that the decision was made for the sake of 100 tenants of the centre. “Hong Kong’s retail sector remains an important cog of the local economy. In recent years, the sector has accounted for less than 2% of the city’s GDP but around 3% of all persons employed, putting it amongst the largest employers in the city by industry trade,” Ma underlined. “Weakness in the retail sector, however, would have a contagion effect on other parts of the economy such as the property market, finance, professional services, merchandise trade, etc.” In August, Prada surrendered its lease on Russell Street in Causeway Bay, which has a $9m monthly rent for the 15,000 sqft space. Korean fast-fashion brand SPAO is also shutting down its Hong Kong branch. HONG KONG BUSINESS | NOVEMBER 2019 25

COVER STORY STORY COVER

InterContinental Hotel

In the meantime, some companies are renegotiating their leases. “There are cases of tenants requesting a rental decrease, hoping to overcome [the] market down fall,” said Raiky Wong, director of retail department at Centaline Commercial. Centaline’s Wong shared that a lower ground floor space at the Malahon Center in Central was rented out to a bar for $293,000, a 22% discount from the $380,000 that was paid by its previous tenant, Wong Chi Kei restaurant, which translates to a $1.04m loss in a year. Eating away at sales Fewer tourists also spell a disaster for restaurants, which rely heavily on tourist spending. Restaurant receipts dropped 0.4% to $28.7m in Q2, impacted by the yearlong trade war and weaker yuan. With the number of tourists almost halved and people reining in spending, it is increasingly likely that the restaurant sector will report far gloomier Q3 numbers. In September, Cushman & Wakefield estimates that business for Chinese restaurants was down by 10-12% and non-Chinese restaurants down by 5-7%, although the fast food and drinks sector maintained a growth of 1-4%. “I’ve actually observed that some of the restaurants in the normal rush hours have been very quiet,” David Ji, director and head of research & consultancy for Greater China at Knight Frank, told Hong Kong Business “The most impacted prices will be the restaurants which heavily depend on foot traffic, from tourists and from [locals]. Hong Kong is a place where people like to go out and have food. But the protests are unpredictable and if they deem it unsafe... people are unsure and are unwilling to go out.” With fewer receipts to show, retailers face only two choices: stay and hope for recovery; or cut their losses and close down. “Retailers are unlike other commercial sectors: they can’t just move from one district to another. You’re either in a street that attracts the most customers or you’re not. You can’t just move it to a cheaper location. Say if you are an international brand, why would you want to move to a secondary location? So you’re either in that location or you just withdraw,” said Ji. Shop sale prices are falling with a 1,089 sqft ground floor 26

HONG KONG BUSINESS | NOVEMBER 2019

Weakness in the retail sector would have a contagion effect on other parts of the ecoomy such as the property market, finance, professional services, merchandise trade.

stall at Poplar Street in Sham Shui Po, sold at $18m or 35% lower than the original asking price. A 1,100 sqft space at Boundary Street, Prince Edward was also purchased 25% below its asking price, added Centaline’s Wong. Sellers lost $10m and $8m, respectively, from these two transactions alone. “The landlords themselves are also under pressure because if they own shops in the prime streets, it used to be filled with luxury retailers. But [now] the luxury spending of tourists has dropped quite significantly, not only because of the trade war but also because nowadays they are spending more on the mid-priced items,” Ji said. “So the landlords themselves cannot guarantee they can rent it out to luxury retailers; they will have to accommodate more mid-range retailers such as sports goods or medicine in cosmetic shops. In that sense, the rental price that they are offering has to drop,” he added. As of September, Knight Frank expects retail rents in prime streets to fall by at least 15% for 2019. Centaline took a more cautious stance, with Wong expecting shop rents to drop between 20-30% by end2019. “At the same time, as the rent drop will make the rental return decrease, some owners will mark down their asking prices so as to attract investors to buy shops, so we forecast shop sales prices may fall around 10% to 15% by year end,” Centaline Wong continued. Curbing the tide In an attempt to lend support business activities amidst the sociopolitical unrest, the HKTB has rolled out relief measures, enabling over 8,000 merchants accredited under the HKTB’s Quality Tourism Service Scheme to have their full renewal fees waived for one year from 1 October 2019 to 30 September 2020. A 50% reduction on the application fee will also be applied for new applications to the scheme. “Starting 01 October 2019 to 31 March 2020, we will waive the participation fees of the local travel trade who join trade fairs and travel missions organised by the HKTB outside Hong Kong,” the board’s spokesperson told Hong Kong Business. Likewise, the government has waived issuing fees and renewal fees for the Hotel and Guesthouse Licence and Travel Agent Licence, whilst the Travel Industry Council of Hong Kong (TIC) has waived its membership fee for its

Retail sales are tipped to crash in H2 2019, affecting rents

Source: Knight Frank Research / Rating and Valuation Department / Census and Statistics Department

COVER STORY travel agent members. “It will be important for the HKTB to own the narrative as there are headlines of protests beamed around the world. It is important to showcase and communicate that safety and security of visitors is paramount, and that no visitors have been caught up in the protests. It will also be important for the HKTB to remind people that the protests are localised in specific areas, meaning that there are still plenty of other destinations within Hong Kong, such as Lantau Island and its Tian Tan Buddga, Lamma Island, and the Nan Lian Garden in Wong Tai Sin,” Haven of Euromonitor said. It remains to be seen how Hong Kong can revive its all too important tourism industry in light of the persistent unrest. “The most worrying thing is that the situation is not likely to turn around in the near future,” Financial Secretary Paul Chan wrote in a blog post in September. Chan refuses to rule out the possibility of a technical recession after the local economy had overall shrank 0.4% QoQ in Q2. Residential holds down the fort Like retail and tourism, August marked one of the gloomiest months for the residential property market. Monthly sales dropped 17.6% to 4,084 units compared to June’s 6,211 sold units whilst total consideration crashed 30.4% YoY to $42.4b on a yearly basis, according to data from the Land Registry. September figures are of the same tone, if not worse than August sales crashed 14.8% YoY to 4,090 units, whilst total consideration slid 20% YoY to $36.4b. This represents a 14.2% decline from August. But despite these gloomy numbers, the protests’ impact on the residential property front is “less obvious” compared to other sectors, said Knight Frank’s Ji. “[This is] because the price is only dropping in a zero-point-something on a monthly basis. We’re still seeing oversubscriptions in some of the first hand sales, although the number of sales in the second hand market has dropped quite dramatically,” he observed. There is room to argue that the residential market has yet to feel the impact of the protests in the same way that the protracted trade war has been hitting businesses: slowly but surely. “The trade war has dragged on for a year now and Hong Kong has limited options in terms of manipulating their monetary system. So [similar to the trade war] the impact will be felt more [in] long term,” he added. The declines in residential sales was mainly driven by declines in the secondary home market, which fell 15% YoY. Knight Frank’s September property report noted that investors’ appetite soured in response to the prolonged protests. Data from Centaline Property also revealed that earnings from secondary sales also declined 19.57% YoY to $226.4m compared to the $281.5m earned in August 2018. Since 2018, secondary transactions have been on a decline, down 17% in the first nine months of the year. Ji explained that sellers remain hesitant in the face of both the protests as well as the effects of the ongoing trade war. Soaring housing prices, insufficient public housing and a tight mortgage policy have pushed buyers toward the primary markets as developers at least offer secondary mortgages, added Ji. Home price corrections are projected

Secondary homes’ transaction value fell 17% in 9M2019

Source: OCBC Investment Research / Land Registry

Edmond Wong

Simon Haven

Louis Chan

Ringo Yu

to continue in the coming months, particularly in the secondary market, according to the Knight Frank report. However, there is a chance that things might turn around. Louis Chan, vice president and CEO (Residential) for Asia-Pacific at Centaline Property, believes that transactions will pick up now that the extradition bill has been withdrawn. The uplift of the loan-to-value (LTV) ratio cap for first time buyers is also likely to revitalise the secondary market and drive the prices of mid-end properties, according to OCBC Investment Research. Under the new rule, first time buyers are eligible for 90% LTV for properties value lower than $8m, and 80% for properties priced less than $10m (from $6m). Contrary to expectations, property agents have not observed any suspended or delayed launches. “We’re expecting some launching activities in the next few months. So we haven’t seen any real announcement publicly saying that they will delay their project launch,” Ji said. “But I think, it will have more impact on the construction side, because the constructors and the developers of those projects that have been built or are planning to be built might take a more cautious view to see what happens in the next few months.” On the posh side, the luxury residential market held steady. A house on Mount Nicholson with a saleable area of 6,326 sqft was sold for $538.9m or at $85,188 psf. A house on 45 Tai Tam Road was also sold for $99,335 psf, which is a record-high in the district. But this doesn’t mean that the overall primary market was left unscathed. Though oversubscribed, units at The Aurora in Tsuen Wan were offered a 10% cheaper rate by its developer Billion Development & Project Managers compared to the nearest project in the neighborhood. Wheelock Properties also priced the Marini development 8% below property prices sold in the area just two months ago at around $14,997 psf, a discount of more than 20%. However, it is likely that such discounts were offered due to several conditions and non-political developments, said Knight Frank. “Let’s say if more people come to buy, then they can apply the discounts selectively and then raise the price according to the size of the crowd as well,” added Ji. “If you have a normal subscription, why do you want to offer a discount? That just defies logic.” HONG KONG BUSINESS | NOVEMBER 2019 27

COVER STORY Hong Kong’s fading relevance to Mainland China (2010-2018)

Source: Natixis

On the leasing front, landlords have become more flexible in lease negotiation. For example, some are offering a rent-free period in the hopes of attracting new tenants. There has also been an increase in renewals as existing tenants want to avoid moving costs. Overall demand remained stable, driven by local tenants. Professional services takes a beating Against persistent protests that reverberated across the property sectors, the professional services sector has not been left unscathed. According to a survey by AmCham Singapore, 80% of respondents - 64% of which have offices in Hong Kong - said that the political unrest has affected their decision to invest in Hong Kong. More than half of the respondents also shared sentiments that the protests have tarnished Hong Kong’s reputation as a regional base of operations for businesses and as a centre of excellence for the rule of law. “The immediate risk for HK’s reputation lies in it being the regional base of operations, as it is unlikely to attract those who are currently not having any presence in HK,” the report said. Nine in ten respondents whose regional headquarters are based in Hong Kong indicated Singapore as their top choice should they wish to relocate. A February 2018 report from KPMG revealed that Singapore edges out Hong Kong as the top Asian location for multinational corporations (MNC) to set up regional headquarters, thanks to its favourable tax policies. There are about 46% of Asian MNCs stationed in Singapore, whilst only 37% choose to settle in Hong Kong. In terms of big tech corporates, the disparity is more evident, with Singapore hosting more than half (59%) compared to 18% in Hong Kong. The Philippines and China both account for 4% of tech MNCs whilst Taiwan and Malaysia house 2%. The number of firms reportedly moving their regional headquarters out of Hong Kong, coupled with inbound investments being put on hold, may spell trouble for the accounting sector that rely on these firms for clients. In addition to the accounting sector, law firms are on the hot seat as well. In a statement, the Law Society of Hong Kong said that they are seeing court injunctions and have been receiving criticisms on the leniency of judges in handling protest-related cases. Lawyers and other legal professionals are also finding it difficult to do business 28

HONG KONG BUSINESS | NOVEMBER 2019

The unrest has really upset the whole development of the engineering industry. Job security is quite difficult for employees. There may be low employment coming up.

as they cite a number of their clients that were arrested during the protests and “were denied timely access to legal assistance and representation,” a media statement from the Hong Kong Bar Association revealed. “There is no doubt that the attractiveness of Hong Kong as an international financial centre will continue if these fundamental core values upholding the rule of law and the independence of the judiciary are maintained intact,” Law Society said. Engineering firms have also been trimming down their headcount as the unrest continues to threaten profitability. Ir. Ringo Yu, the president of The Hong Kong Institution of Engineers, told Hong Kong Business that the organisation employs around 300,000 individuals under the engineering or construction industry although their security of tenure is put at risk. “The unrest has really upset the whole development of the engineering industry,” said Yu. “Job security is quite difficult for the employees and I heard that some of the large construction engineering firms are cutting staff, including engineering consultants. There may be low employment coming up.” In addition to layoffs, employee productivity has also taken a hit as employees struggle to go to work amidst worsening traffic conditions. Yu added that the protests have also damaged Mass Transit Railway (MTR) stations and traffic lights as well as their construction work. “You can do construction works on site. But let’s say we want to pour concrete, we need to have a time constraint from the delivery to pouring the concrete, which takes two hours to do so. With the traffic condition, you’re not sure whether we could do it,” Yu added. The engineering and construction industry is heavily reliant on government projects, which usually consists of redevelopments, according to Yu. The government has set aside $70b to the completion of projects, prompting investors to put most of their investments on hold. Some of the projects that were put on hold include the $18b integrated basement in West Kowloon Cultural District, $7b water treatment works, $2.4b public housing developments in Wang Chau, the $10.9b redevelopment of Kwai Chung Hospital, Prince of Wales Hospital and an expansion up North District Hospital and Princess Margaret Hospital. By Arianna Danganan, Frances Gagua and Nathanielle Punay

Private sector health has been steadily deteriorating

Source: IHS Markit

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EVENT COVERAGE: HONG KONG BUSINESS AWARDS

Hong Kong Business hails the most outstanding companies in 2019

s the world’s fourth easiest place to do business, Hong Kong continues to be a prime location for both multinational corporations and homegrown firms seeking to grow their businesses and capture the Asian market. In an effort to recognise companies that have made significant contributions to the regional economy, Hong Kong Business hailed the most outstanding businesses in the world city with its annual International Business Awards, National Business Awards, Made in Hong Kong Awards and Designed in Hong Kong Awards. The joint awards ceremony, held on 27 August 2019, was graced by around 100 executives at Island Shangri-La, Hong Kong. Supported by the Hong Kong International Chamber of Commerce and The Hong Kong Exporters’ Association, the Made in Hong Kong and Designed in Hong Kong Awards lauded the country’s most unique and innovative B2C and B2B products in the following categories: luxury, apparel, and beauty & cosmetics. The panel of judges for this year’s awards included Charbon Lo, Director at Crowe (HK) CPA Limited; John Poon, Head of Accounting & Outsourcing Solutions at Mazars Hong Kong; Ryan Swann, Audit & Assurance Director at Baker Tilly Hong Kong Limited; Kevin Lam, Partner at ShineWing; and Falcon Chan, Strategy & Operations Partner at Deloitte China. Meanwhile, the fifth installment of International Business Awards honoured the most remarkable international firms in Hong Kong, whilst the National Business Awards hailed the finest homegrown businesses on its third edition. The joint awards programme was made possible with the support of 11 chambers of commerce. This year’s nominees for IBA and NBA 2019 were judged by a panel consisting of Charbon Lo, Director at Crowe (HK) CPA Limited; Anthony Tam, Executive Director in Tax Services at Mazars Hong Kong; Andy Wong, IPO Leader at ShineWing (HK) CPA Limited; Edward Au, CoLeader of the National Public Offering Group and Audit & Assurance Partner at Deloitte; and Eugene Liu, Managing Partner at RSM Hong Kong.

Hong Kong Business congratulates the following winners:

HKB International Business Awards 2019 trophies

HKB National Business Awards 2019 trophies

Made in Hong Kong and Designed in Hong Kong Awards 2019 trophies

Made in Hong Kong Awards 2019 Luxury - Dilys’ Collection Designed in Hong Kong Awards 2019 Apparel (Women) - Must Garment Corp Ltd Beauty & Cosmetics - Concord Medical Limited International Business Awards 2019 Banking - United Overseas Bank Business Services - Siemens Limited Financial Technology - Merrill Corporation Retail - ASSA ABLOY Asia Pacific Limited National Business Awards 2019 Furniture and Fixture - Carezza Transportation - Hong Kong Aircraft Engineering Company Limited (HAECO) 30

HONG KONG BUSINESS | NOVEMBER 2019

Concord Medical Limited

Hong Kong Aircraft Engineering Company Limited (HAECO)

IGNED

HONG KONG AW

0 RDS 2

Merrill Corporation

ASSA ABLOY Asia Pacific Limited

Dilysâ&#x20AC;&#x2122; Collection

Must Garment Corp Ltd HONG KONG BUSINESS | NOVEMBER 2019 31

EVENT COVERAGE: HONG KONG BUSINESS AWARDS

Siemens Limited

Carezza

Networking dinner 32

HONG KONG BUSINESS | NOVEMBER 2019

United Overseas Bank

HONG KONG BUSINESS | NOVEMBER 2019 33

BEAUTY & COSMETICS

Find out how this ISO certified company is refining smooth skin Concord Medical’s skin rejuvenation pad has received zero quality complaints in the last five years.

Concord Medical’s team at the HKB Designed in Hong Kong Awards

oncord Medical Ltd., an ISO 13485 the outside world. certified manufacturer for sterilised Backed with this idea, Concord medical products, has been Medical collaborated with the nouveau specialising in the medical and beauty field New York beauty brand, Hong Kong since 2010. Polytechnic University and a German Concord Medical’s flagship product, professional supplier of health care raw “Line Refine”, the skin rejuvenation pad, is material. Concord Medical Ltd. said that a product of its belief and manufacturing Hong Kong provides them with a lot of experience. For over 30 years, the product’s opportunities to take the advice from local main material Silpuranier (medical grade academic elites as well as international silicone) has been used and trusted by skin care professionals. A two-year R&D clinics, hospitals, collaboration with doctors and SiO Beauty New surgeons as a York helped the “WE WILL MOVE FORWARD very safe and TO REACH MORE DIVERSIFIED company to undergo effective way clinical trials, MARKETS, AND FOR SURE, WE several to heal and whilst German skin SINCERELY HOPE THAT HONG normalise scars care engineering and burns. It can KONG PEOPLE WILL APPRECIATE technology greatly now be treated THE LOCAL MEDICAL SKIN CARE supported the as a cosmetic. manufacturer’s highPRODUCTS.” When the quality materials. additive-free As a result, the and non-surgical skin rejuvenation pad company was awarded the “Excellent” is placed on the skin, a microclimate rating certificate by the German environment is formed between the skin Dermatology Institute: Dermatest. Over the and the silicone. It is this very unique last five years, Concord Medical attained environment that helps the skin heal itself. zero quality complaints. In August, the The principle is to apply moisture therapy. company’s flagship product got its FDA In fact, Line Refine can promote approval, and over the last three years, the subcutaneous circulation and bring enough skin rejuvenation pads have experienced a oxygen to the skin. Semi-breathable 100% increase in sales growth. material prevents moisture loss and helps Concord Medical’s products are mainly avoid skin allergy. When there is enough exported to the United States, Germany, oxygen and moisture, the skin will be Australia, Sweden, Japan and Singapore, naturally encouraged to make collagen. It whilst promotion is done through online smoothens out wrinkles, dilutes scars and shops and exhibitions in Germany and isolates the wound surface of the acne from Dubai. Although its products have been 34

HONG KONG BUSINESS | NOVEMBER 2019

recognised and popular in foreign markets, the company observed the ever-changing macroeconomic environment and consumer demands. “It is necessary for us to optimise our target, our service and products. That’s the reason why we set up our factory in HK and to participate in the Hong Kong Business Designed in Hong Kong Awards event. It’s our first step to let the global and Hong Kong people know that we are proud of being in Hong Kong, an international city, with easy access to all types of resources and connections,” said Frankie Ng, Managing Director at Concord Medical. Ng added that Concord Medical was invited to guest in famous financial programmes in October. The company is also joining as an exhibitor at MEDICA, the magnificent international medical trade fair held every year in Dusseldorf, in November. By setting up a factory in Tsuen Wan, Hong Kong, Concord Medical aims at continuously surpassing their accomplishments. “We have a clean room and certified machinery in a sterile environment. With our strong industrial foundation, our local workers are wellequipped with on-the-job training and are required to wear a full suit of sterile uniform. It’s a good chance to upgrade and fine-tune our products in terms of its appearance, durability and effectiveness. We will move forward to reach more diversified markets, and for sure, we sincerely hope that Hong Kong people will appreciate the local medical skin care products,” Ng concluded.

L INE R EFINE F a c e t h e d ay f o r wr ink l e fre e disco v e r m o r e a t c on cor d-m e di c al. c o m

HONG KONG BUSINESS | NOVEMBER 2019 35

TRANSPORTATION 9

HAECO earns praise for introducing GSE location tracking system with LoRa technology at HKIA HAECO Hong Kong has recently won in the transportation category at the Hong Kong Business National Business Awards 2019.

(Left to right) Timothy Charlton, Editor-in-Chief, Charlton Media Group; Aron Leung, Partner, Transaction Advisory Services, RSM Hong Kong; Patrick Wong, Executive General Manager, Line Services, HAECO Hong Kong.

he HAECO Group, headquartered in Hong Kong, is a leading aircraft engineering and maintenance service provider. The Group consists of 16 operating companies, employing around 17,000 staff in Hong Kong, mainland China and the United States. The Group provides airframe services, cabin solutions, component services and engine services to airlines from around the world. Safe, high-quality line services HAECO Hong Kong is an integral part of Hong Kong International Airport (HKIA), which is one of Asia’s major aviation hubs. It offers a full suite of line maintenance, cabin and 24/7 Aircraft on Ground (AOG) recovery services for approximately 100 airlines at HKIA. The company provides airlines with comprehensive line services, covering transit and overnight servicing, as well as progressive maintenance up to A checks, including inspection, defect rectification, technical log certification and airworthiness release. Smart use of LoRa technology In order to handle hundreds of transit checks every day at HKIA, the 2,000-strong HAECO line services team needs to allocate around 200 pieces of various types of non-motorised ground services equipment (GSE) such as maintenance platforms, ladders and steps, to specific locations at designated times during busy flight schedule and traffic at HKIA. Traditionally, engineering personnel use radios and phones to locate the necessary GSE. However, this is time-consuming

HONG KONG BUSINESS | NOVEMBER 2018 2019

because HKIA is vast and adverse weather conditions can add difficulty to this task. To enhance operational efficiency, HAECO Hong Kong introduced an innovative GSE location tracking system. The software system, which makes the best use of the latest IoT and long-range WAN (LoRaWAN) networking technology, is available anytime, anywhere for engineering personnel to

“HAECO HONG KONG IS AN INTEGRAL PART OF HONG KONG INTERNATIONAL AIRPORT (HKIA), WHICH IS ONE OF ASIA’S MAJOR AVIATION HUBS.” track GSE using their digital devices such as smartphones and tablet devices. Enhanced operational efficiency The GSE location tracking system represents the pioneering commercial use of LoRa

technology at HKIA. HAECO Hong Kong also introduced an e-tally solution through its mobile app HAECO Mobile – Line Services to reduce paper consumption and to facilitate work process during line services operations. The new system has successfully shortened GSE delivery lead time and increased GSE utilisation. As a result, the average cycle time was dramatically reduced from 30 minutes to less than 1 minute. And thanks to big data analysis, the company can now predict usage, placement and maintenance activities, thereby improving how it manages its assets. Sustainable progress The GSE location tracking system is just one of the many technology-based solutions that HAECO Hong Kong has introduced over the past few years. In 2017, HAECO Hong Kong won the Best Mobile Apps (Enterprise Solutions) Gold Award at The Hong Kong ICT Awards after rolling out HAECO Mobile – Line Services to the line services team. Features of the platform include viewing of flight information, individual staff assignments, flight change notifications and weather alerts, real-time resource deployment for aircraft parts and tooling, work status updates, and more. At HAECO, sustainable development has been key to driving business. The company is committed to running and growing its business with a view to minimising its impact on the environm ent and maintaining good relations with the communities where it operates.

The GSE location tracking system showing the location (right) of a working stand (left) at the maintenance area of HKIA.

One purpose, one voice and one brand HAECO’s diversiﬁed portfolio of airframe, cabin, component and engine businesses has come together to operate as one global force.

Together, our businesses have one purpose: to deliver best-in-class, integrated and innovative solutions for your aircraft engineering and maintenance needs.

Together, our businesses speak with one voice: we put our customers ﬁrst by delivering a comprehensive range of airframe, cabin, component and engine services that exceed expectations.

Together, we stand behind one identity: HAECO. With a solid, 65-year reputation for resourcefulness, dependability, and performance-oriented staﬀ, we have a common mission: engineering safe and enjoyable skies.

www.haeco.com

HONG HONGKONG KONGBUSINESS BUSINESS||NOVEMBER NOVEMBER2018 2019 37

HR BRIEFING

Expats stationed at banks are likely to stay put.

Expats keep options open as protests dent ‘world city’ appeal Foreigners may turn to destinations like Singapore, Indonesia and Vietnam in light of increasing unrest.

xpats that once flocked to Hong Kong for a career boost are re-evaluating their employment options in light of the unrest. Of Hong Kong’s sevenmillion population, around 650,000 are foreign residents in 2018 and this workforce grapples with shrinking and less appealing employment opportunities, especially in industries that have been battered by the unrest. The retail, hospitality and aviation are the industries that have been directly hit by declining inbound travellers, according to Natellie Sun, managing director at Randstad Hong Kong. Retailers, in particular, have taken a heavy hit, with sales falling 2.6% YoY in the first half of 2019, according to data from the Census & Statistics Department (C&SD). Retail sales are expected to fall between 3.7% to 8.1%, steeper than the sales decline brought about by the 2014 Occupy Movement, data from Moody’s show. “The decrease in sales revenue may affect manpower, as companies will adjust sales projections and may no longer need full headcount to meet these new targets. However, this trend may be limited to the sales and customer services departments at this moment,” Sun told Hong Kong Business. Expats who are already thinking of leaving Hong Kong may be considering Singapore as their next option, or choose to move back to their home countries, said Sun. “Companies that were planning to set up in Hong Kong may already be re-evaluating their decision and exploring other options around the region, such as Singapore, or other fast-emerging markets such as Vietnam and Indonesia.” For foreigners employed in the banking, insurance, technology and real estate industries, however, it is still 38

HONG KONG BUSINESS | NOVEMBER 2019

Alex Martin

Natellie Sun

business as usual. Sun added that she has not observed any companies that have gone over and beyond to revise their employee packages in light of recent developments. “We have not observed any changes to labour demands in these industries that can be directly attributed to the unrest,” Sun said. “Expats who have stayed in Hong Kong for a long period of time have called Hong Kong their home and are less likely to move or have a changed sentiment about this city.” Hong Kong’s appeal to expats has long been challenged by the extremely high cost of living in the city fuelled largely by the meteoric prices of residential properties. The city is ranked as the world’s most expensive city for expats, beating Tokyo, Singapore, Zurich and New York in an annual study by Mercer. Despite the summer of unrest, companies are adopting a wait-and-see approach, suggested Alex Martin, manager of financial services and legal at Robert Walters Singapore. “Both talent and corporates, in and beyond Hong Kong, are observing the situation closely but not making any major moves as yet,” he said. “We notice that there are more senior talent from Hong Kong who are keeping their options open, but we have yet to see a major shift in talent flow out of Hong Kong.” World city It’s not easy to see why expats are staying put. Expat pay packages in Hong Kong are the fourth highest in Asia at US$276,417 last year, data from consultancy ECA International show. Overall packages grew US$7,902 since 2018 to reverse the slight drop in 2017 and this comes with an average cash salary of around US$86,000. “Global and local firms are fully aware of the benefits of doing business in Hong Kong, as there is a high inflow of funds and investments, rich talent pool, as well as an attractive tax regime,” Sun said. The city has managed to secure its place as the world’s third best financial centre, finishing only two points behind London, based on a ranking of the world’s financial centres by London think tank Z/Yen and the China Development Institute. Its firm human capital, infrastructure, business environment and financial sector development were to thank for its high scores. Sector-wise, Hong Kong topped the investment management sector worldwide, beating regional rivals Shanghai, Singapore and Shenzhen. As foreigners decide to stick around, a survey of close to 1,000 Filipino domestic helpers in the city conducted by recruitment platform HelperChoice, also found that nearly half (45%) expressed worry about the protests but it was not enough reason to leave Hong Kong where salaries are often higher than in their home country. Filipinos make up approximately 200,000 of foreign residents in Hong Kong as of December 2018, according to data from the Immigration Department. If expats are single and employed for a regional remit in a highly attractive field such as technology, they may want to stay as there are plenty of opportunities for them to grow professionally. “However, Hong Kong may not be the top expat destination for people with very young children at this moment,” Sun noted. Arianna Danganan

interior design architecture 連續十三年榮獲Hong Kong Business頒發

傑出室內設計獎2006–2018 Outstanding Interior Design Award 2006–2018

20年設計經驗及專業資格 20年公司商譽及誠信表現

誠信．準時．不超支屢獲名人客戶多次推薦本公司 (註1) 連續30個工程準時完工及準確預算 (註2) 20 years of professional experience 20 years of credible reputation

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九龍塘．牛津道註 1 : 請參考本公司網頁 - 名人推薦 *1: For more details please refer to our website - clients references 註 2 : 請參考本公司網頁 - 工程準時完工記錄 *2: For more details please refer to our website - projects record

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西九龍．君臨天下

HONG HONGKONG KONGBUSINESS BUSINESS||NOVEMBER NOVEMBER2018 2019 39

OPINION

KIRSTY DOUGAN

The changing role of the in-house legal team in Hong Kong

oday, most big businesses in Hong Kong will have some form of in-house legal function. In an environment where regulation and legislation are constantly changing and more companies are operating on a pan-Asian basis, it is essential. Despite current unsettling times, Hong Kong is, and will continue to be, a legal hub. Many Asia-wide businesses chose to base their in-house legal teams in the region due to its reputation as a global legal services centre, the quality of legal talent and its trusted and well-respected local legal system. All of these factors mean the region has a high number of in-house lawyers and specifically, those in the general counsel (GC) role. Traditionally, these in-house legal teams did exactly what it says on the tin – legal work, whether it be advising on incoming legislation which might impact how a business functions, changing employment law, or doing the behind-the-scenes legal leg work on a deal. Whilst essential, these teams were often dismissed by the wider business as the ‘naysayers’, risk adverse and not a money-making department. Therefore, this often meant they received the bare minimum when it came to budget and resource. However, attitudes are changing, and more than ever we are seeing businesses not only beginning to recognise how essential this in-house legal role is, but also what these teams can contribute to the wider company when it comes to expertise, advice on strategic direction and decision making. Commenting in an interview in 2017, Nadine Maurellet, general counsel for The Hongkong and Shanghai Hotels spoke about how the role of an in-house counsel has grown and how the skillset for people in this role has also had to change. “Project management skills, the ability to think ahead of the game and evolve with the business and problem-solving: these are the skills for aspiring in-house counsels,” said Maurellet. The business world is evolving and with this, we’re also seeing in-house lawyers having to break new ground as technology evolves. Commenting in the latest Financial Times’ Asia-Pacific Innovative Lawyers report, Katrina Johnson, Asia-Pacific head of legal at Uber touches on this: “We do not have the benefit of established case law, well-formed regulatory frameworks, and clear-cut legislative environments to guide us in our legal work.” Evolution of this sort makes the in-house role exciting and very important. And whilst we are seeing businesses recognise the vital role GCs and their team play in the wider company, this switch in perception does not necessarily mean smooth sailing for lawyers in this role – in fact, we often see the opposite. Rather than seeing legal budgets increased due to this bigger, more holistic role within the business, we’re increasingly seeing these teams having to do more with less. Pressure is increased and stress levels for GCs are high. So, with budgets under pressure across the business world, 40

HONG KONG BUSINESS | NOVEMBER 2018 2019

KIRSTY DOUGAN Managing Director of Asia Vario at Pinsent Masons

Average salaries of legal professionals in Hong Kong

Source: Robert Walters

what can be done to ensure a company is getting the most out of their in-house legal team, without breaking the bank? • Invest in technology - often the in-house legal team would be left behind when a business invested in its technology infrastructure, with the assumption that the finance or HR team would benefit more acutely from better technology. Those days are over. Now we are seeing innovations like artificial intelligence shake-up the legal profession to a significant degree and the efficiencies this sort of technology can offer is important. Investing in this technology can freeup time for a GC and their team by offloading some of the more routine but time-consuming legal work to tech. • Invest in team - a shrunken budget also means an in-house team has to do more work with less people. Working with legal consultants can be a good way to increase the team’s capacity without having to ask for an increased budget to cover ongoing staff costs. A legal consultant can be brought in to cover particularly busy times of year for example, and by working with a provider like Vario, GCs also don’t have to devote time to ensuring they hire a quality candidate as this work is done by the provider. • Don’t forget wellbeing - this piece has talked a lot about the pressure and stresses a GC and their team can be under in Hong Kong. That is why a focus on wellbeing should be a priority to ensure staff remain healthy, motivated and working. Relatively simple and cost-effective policies, such as increased flexible working or sessions on meditation and yoga, for example, can go a long way in boosting mental health in the long-term. GCs and their teams in Hong Kong are undeniably some of the hardest working in business – recognising the stresses and strains these teams are under can go a long way in ensuring they can function effectively and successfully for the wider company.

HONG KONG BUSINESS | NOVEMBER 2019 41

OPINION

SATISH BAKHDA

Singapore stands tall as beacon for rattled Hong Kong businesses

here is no secret of the tumultuous times in Hong Kong right now. Almost one third of the Hong Kong population has protested in the streets, fighting against the proposed Chinese extradition bill. Tear gas, arrests, and injuries, as well as the constant fear of an escalating Chinese crackdown looms large. That sort of chaos seems unfathomable to most Singaporeans, who value order and peace above all. Singapore and Hong Kong have long shared a kinship based on being ex-British colonies, as well as diverse, bustling financial centres of Asia. As a result of this, the Singapore government has declared no intent to exploit the current misfortune of Hong Kong. Law and Home Affairs Minister K. Shanmugam has said, “We benefit from stability across the region, including Hong Kong. If China does well, Hong Kong does well, the region does well, we do well. There’s no profit in seeing instability. And if Hong Kong is at odds with China, it’s a problem for everyone, including us.” There is already a shift to the safety of Singapore There are rumblings of a shift of capital from Hong Kong to Singapore amidst the current tension and uncertainty. From Tara Joseph, president of the American Chamber of Commerce in Hong Kong, “The real concern here, which we’ve seen slight signs of, is that people are moving their companies and their money in greater numbers to Singapore.” One Hong Kong tycoon has already shifted over $100m from Hong Kong to Singapore, and several private banks have reported a trend of a shift of wealth out of Hong Kong. What are the risks for businesses in Hong Kong? If China succeeds in passing their extradition bill, it won’t just affect native Hongkongers but foreign nationals too. In this scenario, Beijing will claim jurisdiction in cases where anyone commits a crime in Hong Kong, including foreigners. The term ‘crime’ is a loose one. Given Beijing’s notoriety for harsh enforcement with high discretion, this is a genuinely concerning prospect for any foreigner operating out of Hong Kong. If you or your family is seen to have different political views from the Mainland, you may well be targeted. If your company holds intellectual property that Beijing deems a threat, they may regulate you out of operation. This may sound like fear mongering, but it is a real possibility that all Hong Kong businesses must be considering. And it’s not just foreigners that will be scared away, but Chinese resident investors too. Notably, Mainland China will be able to collect income and asset data of Chinese residents in Hong Kong, motivating them to move their wealth offshore. The United States may also decide to remove the special independent status that Hong Kong has, which will mean they will have the same tariffs and customs that Mainland China has. Reducing trade from the largest economy in the world would have dire effects for Hong Kong. 42

HONG KONG BUSINESS | NOVEMBER 2019

SATISH BAKHDA Chief Operating Officer Rikvin

Views on leading treasury locations in Asia

Source: EY

If Hong Kong is to lose its identity as an economic force in the region, Singapore needs to continue, and even step up its role as a safe haven for investors looking for stability and prosperity. It is Singapore’s responsibility to continue to be a beacon of steadiness and success in the region, and embrace any business looking for refuge from the instability from Hong Kong. The advantages of operating out of Singapore are clear: • The #2 nation on earth to do business in, according to the World Bank • Ranked the #1 most competitive country in the world by IMD Business School • GDP per capita is ranked #3 in the world • #2 in the Index of Economic Freedom • Ranked #1 in the 2015 OECD Global Education Report • #2 in the Global Information Technology Report by the World Economic Forum How would a company move to Singapore? As you might expect of a country with Singapore’s reputation, the incorporation process can be relatively simple — however, with all things business, it’s best to have an expert onboard. Eric Chin, group head - business development at InCorp Group says, “Our latest clients want to ensure they are based in a politically and economically stable location that appeals to consumers and investors, and Singapore is the obvious answer for them. Thankfully, incorporating a new company or deciding to set up a subsidiary in Singapore is simple, with minimal paperwork that can be done within a day if all documents are in order. Noteworthy, depending on the situation of the companies, we will be able to advise further to ensure our clients’ long term objectives can met post shifting to Singapore.” It’s that sort of economic freedom that will keep Singapore in fine stead for a long time to come. Whilst we wish Hong Kong a safe and speedy recovery to normality, Singapore will keep their arms open for those looking for certainty and sure-footedness in worrying times.

AUTOMOTIVE & TRANSPORT

HONG KONG BUSINESS | NOVEMBER 2019 43

OPINION

NANCY YIP

Keeping ‘business as usual’ in the face of disruptive threats

ong Kong topped the list as Asia’s most natural disasterprone city in 2015, according to the Sustainable Cities Index. A few years have passed by, but business risks caused by disasters, such as storms and floods, have only expanded. Last September, Super Typhoon Mangkhut has caused damages and broken windows of even grade-A commercial buildings, including two of the city’s highest structures, International Finance Centre and International Commerce Centre. With over 60,000 reports of fallen trees and more than 600 road blockages, traffic was largely disrupted and so was business operations. Whilst Hong Kong’s financial industry is required by the Monetary Authority to have a business continuity plan in place, majority of the business sector has not been active in guarding themselves against these business risks. There seem to be a common fallacy that “if workplace destruction has never happened to us, it will never happen to us.” With climate change as the backdrop, it is expected more severe typhoons are to come in the coming years, resulting in threats to workplace destruction that can easily escalate into wider corporate crisis. The stakes at hand Daily operations of businesses in any sector will bear the outright brunt of workplace destruction. The loss of the workplace interrupts operations and services, leading to financial losses to the organisation from the loss of clients or even regulatory penalties. Experts have said that if Super Typhoon Mangkhut has caused the city’s entire workforce to pause work the day after it passed, the economic loss could amount to up to $7.3b. Financial loss may seem short-term, but failure to manage workplace recovery risks can snowball into extended brand and reputation crises. Customer confidence can be held at stake if businesses cannot guard themselves against continuity risks, which is especially important to certain businesses such as financial institutions, legal firms and consultancies. With a robust and practical workplace recovery solution set up in advance, there’s a much higher chance of walking away from disaster risks unharmed. Why traditional solutions are not enough Traditionally, organisations employ a “single static site” solution, where employees will be moved to a backup site when the main office can no longer be in use. This approach, however, is vulnerable to instances such as city-wide transport disruptions or extreme weather conditions. With the lack of flexibility, businesses adopting a single site solution will likely still have to battle against the same workplace risks which 44

HONG KONG BUSINESS | NOVEMBER 2018 2019

NANCY YIP Country Head of Hong Kong, IWG (International Workplace Group)

caused the initial disruption. On the other end of the spectrum, working from home has also been increasingly accepted as a workplace recovery solution. Whilst more businesses are encouraging “home office” as typhoons hit, a sofa or a dining table at home is far from an ideal place to work and can easily lead to a slip in productivity. According to the IWG 2019 Global Workspace Survey, 3 in 5 of APAC home-workers said they are easily distracted by family members at home. Respondents also named other nuisances, such as the absence of office supplies and equipment, slow or unreliable internet connection and family and pets disturbing work telephone calls, further proving that home is no replacement for an office. The ideal recovery strategy If adopted wisely, an inclusive recovery plan is a low-cost investment that effectively shield businesses against workplace disruption risks. On that account, decision makers should ensure their recovery strategy is both practical and employeecentric. For instance, certain solutions in the market offer workstations but do not guarantee seating. Businesses might think they have a comprehensive backup plan in place, but only come to find out that all the seats in that recovery centre have already been taken. Employee participation is also critical when it comes to the success of workplace recovery. Organisations are advised to consider all employee-related aspects as they outline their recovery strategy, for instance giving employees a choice from various work locations, allowing them to give equal importance to family needs during a wide area crisis incidents such as typhoon. According to a recent global study by Regus, a staggering 73% of respondents agreed that flexible workspace solutions have helped mitigate risks that could threaten the flow of business operations. The ideal recovery plan varies from company to company, but no business can be safe without one. Global economic losses from natural disasters 2018

Source: AON

HONG KONG BUSINESS | NOVEMBER 2019 45

OPINION

TIM HAMLETT

She doesn’t get it

he doesn’t get it, does she? The problem of our Chief Executive Carrie Lam, epitomised in the quote lovingly plucked from her tearless apology by the Standard’s sub editors, is that she thinks this is just a little skid on the road to paradise, easily corrected by a twitch of the wheel and a lifting of the brake foot. Here we go: “I want another chance to deliver the many initiatives that will help Hong Kong’s economy and improve the livelihood of Hong Kong people.” This divides policy decisions into two crisp categories: economy and livelihood stuff, which she thinks she’s good at, and the political/legal stuff, which we shall carefully avoid in future. This is a false division. The extradition bill is an economic issue. If businesspeople think that they cannot live and work in Hong Kong without the risk of a few months in gaol fighting extradition, followed by an appearance on Confessiontube and a few years in a mainland prison, then they will live and work in Singapore, and take their money and their business down there. People have a variety of views about the merits of living in Singapore, but we can all agree that it’s an improvement on a mainland prison. Similarly, extradition is a livelihood issue for anyone who thinks he might be on a shitlist north of the boundary. The standard of living in mainland gaols is low, and opportunities for gainful employment non-existent. You cannot even sell your own organs when you die. They are already spoken for. And even if the safety precautions work, and your legal ordeal in Hong Kong ends with extradition being refused, you will generally spend the intervening period in custody. A lot of people in the government seem to be having difficulty getting their heads round what has happened. How many people have parroted that line about “the Complaints against Police Office and Independent Police Complaints Council have always been effective in handling complaints”? This is beyond a joke. The CAPO gets about 130 complaints a month. This is what happened to them in the last period I can find detailed figures for: “In 2006 to 2008, 325 police officers were disciplined on substantiation of the complaints against them. Of these, 292 were given advice, 12 given warnings, 12 cautioned, two reprimanded, six severely reprimanded and one dismissed subsequent to criminal conviction.” In other words, of about 3,000 complaints, more than 2,500 produced no result at all. They were “unsubstantiated,” or classified as “not pursuable”, which is the committee’s tactful way of saying that all the witnesses present were policemen who saw nothing. Nearly 300 of the remaining complaints resulted in a police person being given “advice”. Ouch! The only person dismissed had been convicted of a criminal offence. There is no reason to suppose that the recent performance of the system has been any different. Another massively inappropriate response was produced by Ronnie Tong, who suggested that anyone who turned up at a 46

HONG KONG BUSINESS | NOVEMBER 2019

TIM HAMLETT Former Editor of Sunday Standard and Associate Professor of Journalism

The Umbrella Lennon Wall atMovement Admiralty immortalised across the city.

protest wearing a hard hat could be charged with intention to riot. Actually a shortage of pretexts for putting people in prison is not the government’s most pressing problem at the moment, but even if it was, Mr Tong’s suggestion has the drawbacks of being illogical and illegal. What, no presumption of innocence? Actually the only person amongst the government troops who appears to realise the seriousness of what has happened is Alice Mak, who sits in Legco for the NT West constituency, where she ran on behalf the Federation of Trade Unions. Reportedly Ms Mak’s opinion of Ms Lam, as expressed in a closed-door meeting for the government’s poodles, went on for five minutes, was highly critical and included some of the Cantonese words which when translated into English contain four letters. This is unnecessary. The traditional resort on these occasions is to reach for your Browning – the poet, not the pistol – who produced this gem for a “Lost Leader”. What Ms Mak realises, and Ms Lam apparently doesn’t, is that the last couple of weeks have not been a minor hiccup in the smooth flow of public administration. They have been a political earthquake. Tsunami to follow in coming elections. Hong Kong people traditionally divided into three roughly equal groups. There were those who welcomed the handover, and liked, or for a variety of reasons pretended to like, the idea of ever-closer unification with China. There were those, on the other hand, who thought that the preservation of the rights and freedoms to which Hongkongers were accustomed was far from certain, and could only be ensured by allowing residents of the city a greater say in their own government. And there was a middle group, who took things from day to day, had other things to worry about, and hoped that if they did not bother politics then politics would not bother them. This group has, effectively, been kicked off the fence. Few of them are landing on Ms Lam’s side of it. The government needs a new selling point, something fresh that will appeal to the disillusioned. May I suggest “a high degree of autonomy” and “Hong Kong people ruling Hong Kong”?

HONG KONG BUSINESS | NOVEMBER 2019 47

OPINION

HEMLOCK

Yes, we have no imagination

he Hong Kong government – enfeebled, emasculated, eviscerated and more lobotomized than ever – draws on all its powers of creativity to Be Seen To Do Something. In a dazzling display of originality, it draws on the same script used under three former chief executives and announces that the city (bursting at full capacity with shortages of labour and accommodation) faces imminent economic collapse. Going further into outof-the-box lateral-thinking wackiness, it proposes a range of extremely tired one-off sweeteners including the stale free-electricity-for-everyone, an extra month’s welfare payment for the poor, tax waivers, a rent-free month for public-housing tenants and subsidies for school students, plus even more stunningly inane little quasi-handouts for smaller businesses. The SCMP, trying to be delicate about the crass and hackneyed freebies, reports that ‘different sectors found them underwhelming’. Financial Secretary Paul Chan insists that the package has nothing to do with the massive protests that have rocked Hong Kong. Everyone else insists that it is totally a reaction to unrest – but will, just as totally, have zero impact at all in calming things. From HK Free Press: a review of front-line protesters’ materiel, and 360-degree video view of the demonstration at Tai Po. For graphic arts fans: Badiucao’s latest great cartoon (check mug and T-shirt offer), and a reminder that Hong Kong’s anti-government movement is so broadbased that we now have to like not only civil servants, but dog people – posters for protesting pets. Willy Lam asks Will Xi Send the PLA In? In a nutshell: probably not. However, he has interesting thoughts on what happens further ahead, including the installation of an administration of local CCP loyalists under Liaison Office direction. Time magazine does a good wrap-up of the whole situation in Hong Kong – just in case anyone hasn’t been following things up to now. And SCMP Magazine does an in-depth article on – not handbags or some fancy new restaurant, but… tear gas. This is a Party-state that claims to have benevolent global ambitions, to offer a “China Solution” to issues facing the world – and yet it cannot speak a human language. It cannot admit any subtlety on complex issues. HK govt not incompetent – just vacant Carrie Lam before the quasi-election saying she would quit as Chief Executive if the people wanted her to go. It hasn’t aged well. (Nor, in all truth, has she in that short time.) Her opinion poll approval ratings were last seen disappearing down a dark vortex. 48

HONG KONG BUSINESS | NOVEMBER 2019

BY HEMLOCK www.biglychee.com Email: hemlock@hellokitty.com

Carrie Lam announcing her CE bid

Carrie’s administration has, for all practical purposes, been relieved of its serious decisionmaking governance duties (it is still allowed to manage sewerage-clearing and other municipal stuff). But, for reasons we can only guess at, Beijing is as yet unable or unwilling to hand down any further instructions. In the absence of leadership, local government is reduced to two visible current functions, plus one remaining future one. The first is the police, who are trying to beat and tear-gas an angry population into peaceful contentment. They are by all accounts following procedures set out in manuals written years ago, and doubling down on them when they don’t work. There is no-one to tell them to try something different. The second is the administration’s press conferences and other activities designed to give us the impression they are in charge when they, we, everyone knows they are not. It is painful and hideous to watch. Even Carrie herself seems uncertain what she is really saying when she ‘clarifies’ that it’s not about ‘not responding to questions’ but about ‘not accepting popular demands’. Walking obliviously into the old ‘refusal to rule out’ trap, she manages to accidentally announce imminent Sweeping Emergency Powers, from curfews to massarrests to an Internet shutdown. The future function the administration has yet to perform is to be ritually decapitated by Beijing to take the blame for everything. The point is that the ‘Hong Kong government’ has long passed the stage where it is under amazingly incompetent control – it is now on autopilot, repeating the same inanity over and over whilst the Chinese Communist Party puzzles or argues over what to do. From Xi Jinping’s point of view, there is no ‘win-win’. There’s not even a ‘win’.

“Carrie’s administration has, for all practical purposes, been relieved of its serious decisionmaking governance duties.”

HONG KONG BUSINESS | NOVEMBER 2019 49