Hong Kong Business (July-September 2020)

Display to 30 September 2020 HK$40

Issue No. 59

ONLINE BANKING SURGES AHEAD Hong Kong’s Best Selling Business Magazine

RETAILERS BLEND ONLINE AND OFFLINE WORLDS A GLIMPSE AT THE POST-COVID 19 OFFICE ACCOUNTING FIRMS ON THE HUNT FOR AUDITING CLIENTS

17 HOTTEST Startups

HONG KONG BUSINESS | NOVEMBER 2019 9

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

Hong Kong Business is proud to present the city’s 17 Hottest Startups in this issue. These companies secured the largest volumes of funding over the 12 month to the end of Q1. Head over to page 18 to learn why each of them stand out, and find out why there has been a noticeable drop off in the amount of cash being pumped into these young businesses.

PUBLISHER & EDITOR-IN-CHIEF Tim Charlton ASSOCIATE PUBLISHER Louis Shek MANAGING EDITOR Paul Howell PRODUCTION TEAM Nathanielle Punay Giullian Navarra Clarist Mae Zablan Frances Jade Gagua Alyssa Marie Divina Janine Ballesteros GRAPHIC ARTIST Tyrone De Los Santos ADVERTISING CONTACTS Louis Shek +852 6099 9768 louis@hongkongbusiness.hk Aileen Cruz aileen@chartonmediamail.com

ADMINISTRATION ACCOUNTS DEPARTMENT accounts@charltonmediamail.com

Meanwhile, debate continues on how the new National Security Law will impact Hong Kong’s status as a global finance hub. Reports show there has been a spike in enquiries amongst local banks about offshore accounts. Will the city’s capital market exposure to Mainland China be enough for lenders to withstand the political impact? Find out on page 14.

We also delve into Hong Kong’s retail sector is coping amidst the COVID-19 pandemic, including the growing adoption of online-to-offline business models. To know more about this, flip over to page 16.

Further, the labour market has been one of the most clearly impacted in the past few months, with rising unemployment across Hong Kong. As we approach a “new normal”, will we begin to witness fewer layoffs and have salary rises back on the table? Go to page 26 to learn what HR specialists think.

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HONG KONG BUSINESS | Q2 2020

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CONTENTS

20

COVER STORY STARTUP FUNDING GOES LOW KEY AMIDST COVID-19 AND SOCIAL UNREST

FIRST 06 Hong Kong to be the most hard-hit economy

07 Hong Kong retailers amp up online

sales capacity

OPINION 44 Eric Mayer and Sandra Bacha:

12 Space Watch 38 HR Briefing 40 Legal Briefing

30 Crisis speeds up online banking 14 Debates arise on security law’s effects on Hong Kong finance sector

Published Bi-monthly on the Second week of the Month by Charlton Media Group Pte Ltd, 19/F, Yat Chau Building,Q3 2020 2019 2 HONG KONG BUSINESS | JANUARY 262 Des Voeux Road Central, Hong Kong

take-up twice fold

34 Auditing buoys accounting firms as

Legal professionals: Fighting against money laundering without compromising clients’ interests

46 Eric Chin: Hong Kong’s possible

RANKINGS

1.3% in Q1

FINANCIAL INSIGHT

18

CEO INTERVIEW MEET ZA BANK, HONG KONG’S FIRST VIRTUAL-ONLY LENDER

REGULAR

08 Average salary increment stood at

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INDUSTRY INSIGHTS ONLINE-TO-OFFLINE RETAIL MODEL GAINS GROUND IN HONG KONG

loss of special status reiterates Singapore’s stability

48 Tim Hamlett: Prices that go up must

come down … very slowly

mergers tail off

For the latest business news from Hong Kong visit the website

www.hongkongbusiness.hk

HONG KONG BUSINESS | Q3 2020

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

ECONOMY

ECONOMY

Property sector continues to recover in Q2

Cathay Pacific reveals $39b recapitalisation plan

HKEX risks keeping dollars as Chinese firms rush in

Property transaction volume, in terms of sale and purchase agreements (S&Ps), continued to rebound from Q1 levels as it surged 41% MoM to 7,071 units in May from 5,015 in April, according to Cushman & Wakefield.

Cathay Pacific has proposed to implement a recapitalisation plan to raise aggregate proceeds of around $39b. This involves preference shares and warrants issue, a rights issue and a bridge loan that would allow them to bailout from the government.

The Hong Kong Exchange’s dash to lure big Chinese tech listings is risking its ability to maintain investing dollars flowing in, reports Bloomberg. The bourse has been trying very hard to attract China’s large firms such as Alibaba.

AVIATION

Business receipts post double-digit declines in Q1 Hong Kong’s industries recorded double-digit declines in the value of business receipts in Q1, when the lockdowns and restrictions implemented due to the COVID-19 outbreak brought many economic activities into standstill.

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TRANPSORT & LOGISTICS

HONG KONG BUSINESS | JANUARY 2019

ECONOMY

Nan Fung Group to turn Kai Tak site into commercial area for $32b Hong Kong conglomerate Nan Fung Group will build AIRSIDE, a 1.9 million sqft mixed-use commercial development in Kai Tak area, a press release confirmed. The total investment is expected to reach $32b and is set to open in Q4 2022.

ECONOMY

HSBC resumes plan to layoff 35,000 employees globally HSBC is resuming a redundancy plan that will see over 35,000 employees lose their jobs over the medium term, a memo seen by Reuters showed. The bank will also maintain a freeze on almost all external recruitment, according to a memo.

FIRST LOCAL HOUSEHOLD SPENDING TO SHRINK 5.2% IN 2020

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ong Kong’s household spending is tipped to contract 5.2% YoY in 2020 as consumers have been diligently avoiding crowds and retail establishments in fear of contracting the virus, according to a Fitch Solutions report.

As government measures are made to stem the flow of the COVID-19 infection, purchasing patterns have been observed to undergo shifts, with consumers placing a greater focus on essential spending categories.

The city was the first region where panic buying and hoarding was recorded in relation to the pandemic, when consumers in 2020 feared that they would lose access to toilet paper and other supplies if their land border with China was sealed. With this, three sectors, all relating to food and supermarkets, saw a double-digit increase in sales in February 2020.

As the population became health and hygiene conscious following the 2003 SARS outbreak, the current COVID-19 pandemic could drive them to become even more aware of their health, and boost the sales of health related goods at pharmacies or traditional Chinese medicine shops.

On the other hand, the population has avoided restaurants and other recreational spaces, and some food service chains have either reduced operating hours or closed their dine-in services.

Further, it was decreed on 2 April that any premises that are exclusively or “mainly” used for the sale or supply of alcohol are to be shuttered, which affected about 1,200 bars and pubs across the city.

For the furnishing sector, major companies in the city have yet to reveal revenue declines, but furniture retailer Pricerite has cut executive pay by 40%. This could gove a hint at the pressures the company is currently facing.

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HONG KONG BUSINESS | Q3 2020

Victoria’s Secret flagship store is the latest retail casualty in Hong Kong.

Hong Kong to be the most hard-hit economy

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ong Kong is expected to struggle the most economically in the AsiaPacific region due to the COVID-19 pandemic, according to a Moody’s report. This was attributed to the strict social distancing policies and closures of non-essential businesses, which has also affected the Singapore and Malaysian economies.

“The very open nature of the Hong Kong and Singapore economies makes them more vulnerable than others in the region. Korea and Thailand face considerable risk as well in the near term,” said Steven Cochrane, chief Asia Pacific economist at Moody’s.

Even as these markets’ economies are expected to recover in 2021, it still faces two uncertainties as recovery accelerates. The first is whether supply chains are able to fully return to the region as a critical driver of growth, and whether global investment may work to bring supply chains closer to final markets. The second is whether a rising debt load throughout the region will weigh on the pace of economic growth as households and industries

Hong Kong and Singapore economies are extremely vulnerable to downswings in global trade flows and tend to thrive when the global economy is on an upswing.

work to manage their increased debt.

“The depth and length of economic distress differ across the region, but no APAC country is avoiding recession. China and much of APAC experienced declines in GDP in the first quarter of this year. China is beginning to rebound in the current quarter, but the rest of the region will endure a decline in the second quarter as well,” Cochrane said.

Hong Kong, along with Singapore, Japan, Taiwan and Thailand are projected to suffer modest declines in 2020 compared with 2019.

Cochrane added that another reason why Singapore and Hong Kong will be the worst-hit economies is their export exposure. These two markets have the largest export exposure at around 180% of GDP. “As a result, these economies are extremely vulnerable to downswings in global trade flows and tend to thrive when the global economy is on an upswing. Both economies underperformed through 2019 as US-China trade dampened global demand. Vietnam’s economy is next in line, with exports forming around 100% of GDP,” he stated.

In addition, Singapore and Japan are projected to face the slowest paths to recovery as both economies were weak prior to the onset of COVID-19.

Japan has been in recession since Q4 2019 following the October hike of its value-added tax and, in that same month, the unfortunate arrival of Typhoon Hagibis on Honshu near Tokyo, whilst Singapore’s growth rate already was near zero in Q4 2019 and declined in the Q1 2020.

“Singapore is amongst the most export-dependent countries in the region. It was first weakened by the impact of the US-China trade war and then went into a tailspin with the loss of trade with China in January and February, and the rest of the world in March and April. Japan and Singapore will require the broad global economy to run at full speed before they reach new peaks,” Cochrane explained.

However, both countries’ strong fiscal and monetary policy responses will help stabilise their paths this year, but Conchrane warned that neither will truly recover without the global economy—including China, Europe and North America—leading the way.

FIRST The online penetration rates in Hong Kong remain relatively low and have ample room to grow compared to other APAC markets such as Mainland China and Korea.

Platforms such as Shopline are on the rise as they help retailers to turn online.

Hong Kong retailers amp up online sales capacity

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ocal retailers are responding to the current environment by increasing investment in online sales capacity and consolidating brickand-mortar store networks, according to CBRE Research’s latest Asia Pacific Retail Flash Survey.

During Q1, most of major APAC retail markets, including Hong Kong SAR, recorded a contraction in retail sales, and 87% of APAC survey respondents identified loss of sales as their top concern. To support longterm business growth, 78% of them plan to invest more in online retailing

and delivery apps and 80% said they will boost their social commerce capacity. “More retailers have shifted to digital sales channels to sustain their businesses during this period. The online penetration rates in Hong Kong remain relatively low and have ample room to grow compared to other APAC markets such as Mainland China and Korea,” said Ada Choi, head of occupier research in Asia Pacific and head of research in Greater China at CBRE. The role of digital sales channels has significantly and rapidly changed in

retail business in the past few months.

About 31% of the APAC respondents now view online sales as their core business from 9% the pandemic.

Where landlords’ response to relief measures are concerned, all respondents from Hong Kong said they have been offered some relief measures by landlords. Nevertheless, these respondents would like landlords to be more accommodative with regards to the relief measures.

“Apart from negotiating rental discounts, landlords typically provide marketing support, such as shopping promotion campaigns, CRM programs, parking discounts, to support tenants and attract local customers. The local consumer spending power still has ammunition.

Whilst retail footfall is recovering as the outbreak is contained, customers are usually incentivised to spend with appropriate marketing efforts,” said Lawrence Wan, senior director of advisory & transaction services–retail at CBRE Hong Kong.

Wan also added that the demand for healthcare, education and daily groceries remained stable in Hong Kong and that a number of international brands and retailers are looking for the right time to enter the market, considering the increased availability of prime spots, lower rents and reduced operational costs.

“We may see more new retailers branching out to Hong Kong in H2 or early 2021,” added Wan.

COVID-19 TO DRIVE DIGITAL PAYMENTS TAKE-UP IN HONG KONG Pandemic-stricken Hong Kong consumers are increasingly taking up mobile wallet solutions for in-store payments as they seek ‘safer’ alternatives to paying for their purchases, a caution brought about by the COVID-19 pandemic, reports data and analytics firm GlobalData.

Consumers are switching from in-store to online purchases in order to avoid exposing themselves to disease vectors such as cash and POS terminals, noted GlobalData. For example, Hong Kong-based e-commerce platform HKTVmall reported a 165% increase in the number of orders in February 2020 compared to the same month in the previous year.

The shift in payment attitudes is also reflected in the increase of use of mobile wallets, as these solutions are arguably ‘safer’ due to the lack of physical contact with foreign objects. Electronic payments firm Octopus announced that its mobile wallet usage increased by 20% and 30% in January and February, respectively.

“Both ATM card withdrawals and card payments in Hong Kong are set to grow at a more subdued pace through 2023. Revised forecasts predict that the ATM cash withdrawals value will grow at a subdued compound annual growth rate (CAGR) of 1.2% between 2019 and 2023. Similarly, card payments value will rise at a CAGR of 4.7% during the same period, a slower pace than the previous estimates.

ATM and cash withdrawals payments value from 2016-2023

Source: GlobalData

HONG KONG BUSINESS | Q3 2020

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FIRST EV SALES TO SURGE IN 2020: ANALYST

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he demand for electric vehicles (EVs) in Hong Kong is slated to remain elevated in 2020 despite constraints in spending, according to a Fitch Solutions report.

Higher incomes relative to the Asian region will drive demand for EVs as the affordability constraints seen in many other markets are reduced. EV sales may expand by 34.5% in 2020 to reach 3,315 units, on the back of a strong performance in Q1 when sales skyrocketed 408% YoY. The report also noted that this figure in EV sales growth will significantly outperform the total vehicle sales in the SAR. “We currently forecast total vehicle sales to contract by 17.4% in 2020 to reach 41,433 units, as growing political risks combined with an expected economic contraction in 2020 leads to sales contracting further,” Fitch Solutions said.

In addition, another main driver will be the concessions on first registration taxes (FRT) of up to $97,500 on the value of newly registered passenger EVs, which was introduced on 1 April 2018.

The scheme also allows for higher FRT concessions of up to $250,000 on the value of newly registered passenger EVs for owners who de-register their internal combustion engine (ICE) vehicle or old passenger EV with the intention of replacing it with a new vehicle.

This has led to EVs being competitively priced relative to their ICE counterparts, which combined with higher incomes in Hong Kong will result in the EV market proving resilient in 2020.

Incentives also include commercial vehicles and motorcycles in the FRT concession scheme, which may bode well for the general adoption of EVs in Hong Kong as it opens up opportunities for a broader adoption of EVs by consumers and businesses.

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HONG KONG BUSINESS | Q3 2020

Average salary increment stood at 1.3% in Q1

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verall salary adjustment is 1.3% in Q1, which is significantly lower than last year’s 5.1%, according to the JobsDB salary survey report. In addition, only 50% of 4,000 employees surveyed have received a raise in salary this year, a 20% drop when compared to last year.

Moreover, 40% of respondents reported a salary freeze, whilst 75% of respondents have negative views on the employment outlook and are actively seeking alternative options.

The retail and tourism sectors have faced a challenging time with a pay drop of 8.9% and 8.1%, respectively. Over 30% of respondents across both industries also indicated that their salary has been cut.

Meanwhile, 76% of job seekers are open to switching job functions, especially employees in the hospitality and tourism (26%), customer service (20%), and general management (20%) sectors. On the other hand, employees in information technology (IT) and analytics have recorded the highest salary increment, at 6.1% and 5.8%, respectively.

In addition, the survey found that 27% of job seekers confirmed they are looking for positions in different sectors, with nearly 20% saying they wanted to change job functions as prospects in their current industry are getting worse.

The survey also noted that 75% of

Source: JobsDB

The softening of the job market has led to 64% of employees revealing that they took less than 2 months in making the decision to change job.

respondents hold a negative view on the employment outlook in Hong Kong due to possibilities of local recession due to socio-economic situations (78%), uncertainties around the external environment (67%), and foreseeable closedown of local companies (61%).

Because of these, 30% of job seekers and employees are willing to switch to a company with better job security, whilst 19% of employees and 32% of job seekers wish to switch to another job function or occupation with better job security or greater demand in the market.

The softening of the job market has led to 64% of employees revealing that they took less than 2 months in making the decision to change job function, whilst 35% took at least 3 months for consideration. Over 7 in 10 or 73% of respondents with work experience between 3 to 5 years had a higher incidence of salary increase when switching careers, followed by those with 6 to 10 years of experience (62%).

Considering the cautious economic outlook, 46% of job seekers expect their job hunt will take 3 to 6 months.

37% of employees consider starting their own business One in three, or 37%, of employees stated that they want to leave their current jobs in order to start their own business, according to Randstad Hong Kong’s Workmonitor survey. This sentiment is highest amongst workers aged 18 to 24, with close to one in two workers considering this path.

“Red tapes, long-drawn approval processes and inaccessibility to digital solutions can limit an employee’s growth potential. Add these reasons to unmet salary expectations and inadequate learning opportunities in a traditional corporate structure, and employees might just want to take matters into their own hands,” said Natellie Sun, managing director in search and selection for Greater China at Randstad.

Even though 75% of respondents feel valued and appreciated in their jobs, 39% feel they are not being paid enough as compared to similar jobs in other companies. More than two in five younger workers (42%) felt that

Source: Randstad

they are not paid competitively in their roles.

“To ensure sustainable employability in a rapidly evolving and uncertain climate, candidates need to be more marketable by equipping themselves with relevant technical and soft skills to stand out in the crowd. Slash careers can also help enhance employability as it demonstrates the candidate’s ability to manage time and grow business.”

Most companies tend to hire younger talent for their digital capabilities and tech-savviness to drive innovation and fill the gaps that the existing workforce is unable to keep up with.

HONG KONG BUSINESS | Q3 2020

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STARTUPS Spidfier solves a multibillion dollar problem in fisheries

Spidfier’s Harold Mollison and Dr. Syed Shakeel Ahmed

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n one of the largest importers of fish products in the world, Hong Kong is no stranger to fish fraud, a problem could incur a total loss of $178.25b (US$23b) a year. Nine out of 11 fish products are often found mislabelled in six Hong Kong markets, which are usually sold higher than it actually costs. Whilst companies may take it to labs, hire fish morphologists or put expensive trackers in each fish in verifying, the processes are still lengthy and pricey—one that is not entirely accessible to the whole seafood industry.

In addressing this multi-billion dollar problem, biotech startup Spidfier has created a lab-in-abox solution that can be used any time along the supply chain process, even at the end when a customer calls for quality assurance.

“There’s just no way to tell the difference between a farmed fish and a wild one. They look exactly the same as they’re the same species.

It’s only really through DNA that you can tell the difference between them,” Harold Mollison, CEO and co-founder of Spidfier, told Hong Kong Business. “Our tech doesn’t rely on any trackers, it reads the DNA. So [the lab-in-a-box] can go into any point along their supply chain using the machine that doesn’t need to have any prior information put in any fish and then they can identify it.”

In the traditional way where a fish gets taken into a laboratory, the process could take a week and may cost up to $775.02 (US$100) excluding logistical costs. Spidfier claims that their solution is cheaper at around $465.03 (US$60) and can shorten the processing time to just 30 minutes.

They can identify over 9,000 kinds of fish.

In February, Spidfier nabbed $415,149 (US$53,566) from UK-based accelerator Entrepreneur First. They also have three more fundings secured from SOSV’s Hax Accelerator, University of Hong Kong and Hong Kong Science and Technology Parks Corporation.

The funds will be used to boost their production capabilities and distribute those to various firms. “Our solution is the only one that is comprehensive, so we’ve used this to leverage connections with the Hong Kong government, with largest sourcing companies and even worldwide regulatory companies,” Mollison added.

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HONG KONG BUSINESS | Q3 2020

This ecommerce startup can up conversion rates for merchants they visited my ecommerce website.

That’s how I realised the importance of real-time messaging communication, and understanding of the behaviours of e-commerce users.”

Omnichat aims to help ecommerce merchants connect all their users’ messenger channels, such as Facebook, Omnichat CEO Alan Chan and COO Lewis Pong WhatsApp, Line and WeChat, and map very ecommerce business’ all their purchasing behaviours through nightmare is low conversion a single platform. The platform can rates, or the percentage of web identify which are the most viewed and visitors who were able to get what they purchased products. It can also tell which came for out of the total number of messenger channels are the best way to visitors. Solving this pain point, startup convert users from a website visitor to a Omnichat has created an omni-channel real purchaser. messaging platform that claims to In March, Omnichat secured $6.2m achieve higher conversion rates, sales and (US$800,000) in a seed funding led customer service efficiency. “I started the by Taiwan-based VC firm AppWorks, business because I faced the same pain which was also participated by other point before when I was running my investors including the Hong-Kong own ecommerce business in 2012,” Alan based Aria Group. They aim to Chan, founder and CEO of Omnichat spend 50% of their funding in further told Hong Kong Business. “I missed a perfecting the product, whilst the other lot of orders due to lack of efficiency half will go to business development and to communicate with people when marketing initiatives.

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How FDT is modernising the trust scene

FDT CEO Vincent Chok

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hen it comes to the finance industry, all eyes are on the fintech scene even before the pandemic prompts players to keep up with the heightened demand. But the same cannot be said for the trust industry. Filling this gap is Hong Kong-based startup First Digital Trust (FDT), riding on the bulk of opportunities fintechs are currently enjoying.

“A lot of fintech companies are very good at technology but have little experience in running financial institutions—you have to comply with international standards, tax regulation, especially if you’re servicing cross-border clients and moving money across borders,” FDT’s COO Gunnar Jaerv told Hong Kong Business. “Trust has always been an old-fashioned concept, hence the name—we’re modernising and digitising these functions. We’re going through a new revolution with virtual banks and open

banking, and doing the same in the trust space.”

FDT is the digital asset custody arm of Hong Kong-based financial firm Legacy Trust. It is a fiduciary taking on a B2B approach in holding businesses’ assets and enables cross-border asset settlements.

It has built up its platform to launch Asia’s first R ​ apid Settlement and Clearing Network (RSCN)​, which will allow the startup to manage digital assets under their custodianship safely and efficiently. Currently, RSCN is currently in use by some of their clients and a public launch is yet to come.

FDT recently nabbed a $23.25m (US$3m) seed funding from Taiwanese VC firm Nogle last March. In the next 18 months, they will conduct another funding round when their products are more mature, Jaerv said.

“Custodians are important to ensure trust in holding the underlying assets backing tokens and First Digital Trust can already play a key role to facilitate this trend, being set-up as public trust company holding a Trust and Company Service Provider license, allowing the custody of various asset classes to ensure the trust required for this industry to mature,” said Jonathan Leong, co-founder and chairman of Nogle.

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 | Q3 2020

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EXCLUSIVE: SPACE WATCH

Check out CBRE’s two new offices in Admiralty and Ngau Tau Kok

Both offices take pride in having state-of-the-art facilities and modern working environments.

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BRE Hong Kong relocated to two new offices at One Pacific Place in Admiralty and at International Trade Tower in Ngau Tau Kok, according to a press release. The workplace design is based on a “city and park” concept inspired by Hong Kong’s unique traits.

Their regional managing director Tom Gaffney shared that they had two offices before the move, one on the Island and another in Kowloon. However, CBRE saw the need to provide a technology upgrade for better efficiency and more mobility, privacy

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Tom Gaffney

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for confidentiality and focused work, support on health and wellbeing of employees, as well as an active workplace to build a more collaborative and transparent culture.

The new 22,500-sqft office at One Pacific Place has consolidated CBRE’s workforce onto one single floor from the previous two-and-a-half floors, whilst the International Trade Tower office provides close access to clients from the heart of Hong Kong’s CBD2. Both offices feature state-of-the-art facilities and modern working environments designed.

1 Engagement Walls Murals painted by talented local artists capture the City & Park theme and have blank spaces for staff to build content over time.

2. Wood Art Piece Named “Continue” by wood upcycling artist Parry Ling, the concierge table in the One Pacific Place office is built from tree debris.

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3. Workplace 360 This include a variety of work settings where employees choose to work, support their flexibility, productivity and wellness.

4. RISE Cafe This is made in partnership with a Hong Kong-based lifestyle brand The Coffee Academics, which aims to offer quality healthy food and beverages.

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5. Wellness A comprehensive suite of physical and operational features that cater to employees’ health and wellbeing.

6. LED TV Walls These are installed in each office displaying the realtime front of house view of the other office, enhancing visibility and connectivity of both offices.

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HONG KONG BUSINESS | Q3 2020

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HONG KONG BUSINESS | Q3 2020

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FINANCIAL INSIGHT: BANKS

Debates arise on security law’s effects on Hong Kong finance sector

Various sources claims that there is a capital exodus from Hong Kong to Singapore, but both markets deny it.

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midst all the ruckus brought about by the pandemic, tensions have flared again as China imposes a national security law on Hong Kong, which would allow for the establishment of a national security agency in the city and would criminalise subversion and secession. People across the city and around the world raised alarm bells and protesters returned to the streets once more. In response, the United States government has stripped Hong Kong of its special status, a move which will further jeopardise the city’s image as a global business hub.

Hong Kong has been struggling to keep itself attractive to foreign businesses ever since the antiextradition protests began in 2019. Banks’ asset qualities have taken a heavy beating and the COVIDled economic downfall made it worse. As a result, some have seen increasing enquiries about moving capital to other Asian countries like Singapore.

Singapore will benefit from growth as a wealth management centre as assets under management flee Hong Kong.

Money moves Talks about capital flight were first reported in early June when HSBC, Standard Chartered and Citigroup saw spikes in enquiries about offshore accounts, with Singapore, Sydney and Taiwan as the popular destinations. In particular, HSBC and Standard Chartered have seen enquiries surge by 25-30%,

Citigroup is one of the banks that got a bulk of enquiries about offshore accounts in other APAC markets.

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HONG KONG BUSINESS | Q3 2020

according to a Reuters report.

Although customers have been mulling about relocating their money elsewhere, Jefferies Head of China FIG Research Shujin Chen doesn’t see a lot of outflows at the moment. In an exclusive interview, she said that whilst clients have been moving their registrations to Singapore, Hong Kong remains an attractive destination for foreign money, especially from the mainland.

“There are still quite a lot of inflows to Hong Kong.

We do hear from banks that some private banking clients move their registrations to Singapore. But Hong Kong’s capital market is more mature and it has more exposure to Mainland China where a lot of investors want to invest in,” Chen explained.

Alicia Garcia-Herrero, the chief economist for Asia Pacific at NATIXIS, also expressed concern about private banking clients “as wealthy individuals may not feel fully protected,” she said.

Nevertheless, if China goes ahead with the security law, the US could conduct more actions on the banking sector. Commercial banks with more overseas business, including those that help firms go abroad under the One Belt One Road projects, may be more affected, Chen told Hong Kong Business.

Moreover, Garcia-Herrero thinks Hong Kong banks

The Monetary Authority of Singapore debunked reports on a number deposits flocking from Hong Kong.

FINANCIAL INSIGHT: BANKS will diversify their operations further into the rest of Asia, but mainland banks operating in the city will not see a major difference.

Singapore as main beneficiary?

The Lion City is said to be gaining from the supposed capital outflow from Hong Kong even with denials from analysts and regulators of outflows happening in the first place. A UOB Kay Hian (UOBKH) analysis revealed that non-resident deposits jumped 43.8% YoY to $44.6b (S$62.1b) in April, with overall deposits for domestic banking units (DBUs) rising 13% YoY in the same month because of individuals’ “flight to safety”.

“Singapore will benefit from growth as a wealth management centre as assets under management (AUM) flees Hong Kong and repositions in Singapore,” UOBKH analyst Jonathan Koh wrote.

The spike in bank deposits likely stipulates the deleveraging of private banking portfolios and increasing risk aversion as Hong Kong’s political woes go on, according to a Bloomberg Intelligence analysis.

But just like its Hong Kong counterpart, the Monetary Authority of Singapore (MAS) came out to dispel reports of capital inflows, saying that currency deposits have actually risen since 2020 began but “have come from diverse sources and for varied reasons.”

Whilst Garcia-Herrero thinks that Singapore is “clearly” benefiting from all the events unfolding in Hong Kong, she cautioned that the degree of relocation might not be as large.

“Whatever is Mainland-related will remain in Hong Kong and this is the bulk of Hong Kong’s financial transactions even today. This is particularly true for IPOs and bond issuance but less for syndicated loans,” she said.

On the other hand, Chen noted that it is hard to say whether Singapore or other Asian markets would gain from the money exodus from Hong Kong or from the mainland, as the Chinese market

Eddie Yue

Alicia Garcia Herrero

Shujin Chen

is too big and Hong Kong enjoys much greater freedoms regarding capital restriction.

In addition, relocating business may prove to be an ordeal for Chinese banks but they may still try to move their US operations to Hong Kong or to the mainland.

The process may be even harder for Hong Kong banks as they have nowhere else to go, she said.

certain bank branches. Regarding the sustainability of the Linked Exchange Rate System (LERS) and whether the US can revoke it, Yue stated that the best approach in keeping confidence in the system is “to stick to facts and uphold a high degree of transparency.”

“Hong Kong’s financial sector continues to display strong resilience in adversity: the Stock Exchange of Hong Kong (HKEX) continues to be Banks unfazed the world’s top listing destination, Whilst the general consensus is turnover of the Shanghai-Hong that the security law symbolises Kong Stock Connect has doubled, China’s deep-seated attempt to and that of the Bond Connect has ensnare Hong Kong once more, tripled. All these are testaments to some financial institutions are not Hong Kong’s edge as a dominant that worried about its potential gateway to the Mainland,” he wrote. implications on the wider The Bank of China (Hong Kong) monetary system. believes that the formation of the The Hong Kong Monetary security law “will help restore Authority (HKMA) opines that social order and the stability of the the law should not bring forward business environment.” The bank any fundamental changes to the explained that the security law, city’s monetary and financial under the current “one country, system. In a 26 May statement, two systems” principle, will clear chief executive Eddie Yue assured the path for the city’s long-term that the Article 112 of the Basic development and bolster enterprises’ Law will preserve “the free flow and investors’ confidence. of capital and free convertibility “It will also create favourable of the Hong Kong dollar” and conditions for economic recovery, that the banking system has ensure the prosperity, stability and strong capital positions, adequate robustness of Hong Kong, and liquidity, good asset quality and further consolidate Hong Kong’s a convincing track record in position as an international financial operational resilience. centre,” told Hong Kong Business.

“The Hong Kong dollar Regardless of everything that exchange rate has remained stable has taken place, Garcia-Herrero and on the strong side of the opines that Hong Kong’s rule of law convertibility zone. Interest rates regarding commercial transactions have stayed low. Financial markets is still in good standing which will have also been operating in a give the city an edge to prosper smooth and orderly manner. There even more, in addition to a taxhas not been a noticeable sign of free environment and full capital fund outflow from either the Hong account convertibility. She praised Kong dollar or banking system,” HKMA’s move to enact free liquidity he said, adding that the regulator requirements for banks, something will be on the lookout to allay that may help the industry adjust. “unfounded rumours.”

However, despite numerous One week later, on 2 June, Yue assurances that everything will be came out again with a statement alright, Garcia-Herrero has warned after the US government that the security law’s intention not announced that it is ending its to affect the sector was much easier special treatment of Hong Kong. said than done.

He reiterated that the HK$ “In reality, Hong Kong’s financial market has been “functioning centre is set to be even more focused normally” and dismissed reports on the Mainland and, at most, the of fund outflows and shortage rest of Asia, but it will not be as of US$ banknotes amongst global as before,” she said.

HONG KONG BUSINESS | Q3 2020

15

INDUSTRY INSIGHT: RETAIL

Chow Tai Fook outlet in Hefei

Online-to-offline retail model gains ground in Hong Kong The unlimited operating hours that the internet allows has attracted merchants towards selling online.

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etailers in Hong Kong have been facing a steep fall in demand, with retail sales falling as steeply as 44% YoY in February, according to data from the city’s Census and Statistics Department. This has driven them to turn to online avenues to get by. In the case of the food and beverage segment, nearly half or 46% of consumers in the city are looking to eat at home more often, a survey by Nielsen revealed.

“The shifts away from outof-home dining to at-home food delivery, takeaways and cooking during the COVID-19 period are locally nuanced by traditional consumption habits but also by the different quarantine and shutdown measures by market. For example, the Japanese have hardly increased ordering food 16

HONG KONG BUSINESS | Q3 2020

delivery, whilst Thailand has leaned heavily on this channel.

Hong Kong consumers have embraced food delivery and light cooking,” commented Andrea Borelli, the managing director for Nielsen in Hong Kong and Macau.

As retailers began experimenting with online avenues to tap into this demand, the online-to-offline (O2O) model has been emerging amongst businesses.

For instance, Chow Tai Fook Jewellery Group rolled out an O2O sales channel called “CloudSales 365”, which was built on WeChat Work for its frontline and back office staff in Mainland China to promote and sell products to their families, friends and customers through their social media networks.

They have also launched a self-

Analysts noted that a tailormade strategy that caters to their specific concerns and needs is vital for the success.

developed O2O tool in Hong Kong and Macau earlier in 2020.

The company shared that these O2O tools helped them leverage the social presence in e-shopping and connect with their customers effectively despite business disruption. “We found that O2O sales channels can lead to higher customer trust through private domain engagement. During February to April 2020, our CloudSales 365 generated higher average selling price, higher nongold product mix and higher conversion than our eShop,” a spokesperson from Chow Tai Fook told Hong Kong Business.

They shared that the company has been stepping up their O2O integration efforts, aiming to enhance customers’ experience.

“For instance, we leverage the Group’s physical stores to

INDUSTRY INSIGHT: RETAIL

Source: Nielsen

deliver online product orders to customers located nearby, so as to shorten customer’s waiting time,” the spokesperson said.

A white paper by e-commerce platform Shopline reflects this as a trend, revealing that over half of Hong Kong merchants on the platform already have physical stores, whilst over a fifth or 21.6% are planning to set up one in the future. Similarly, 20% of its merchants are planning to focus on O2O as part of their future plans in the long term, such as opening pop-up stores.

“Traditionally, visiting physical retail outlets in the city’s shopping malls has been a very popular pastime. But since summer of last year, political turmoil in the city acted as a big push for retailers to start experimenting with O2O business models,” Shopline’s general manager Plato Wai said.

Whilst brick-and-mortar shops would typically close at nighttime, what’s driving merchants to consider O2O is the extended operating hours to sell and operate online. Nearly four in five or 78.3% of the merchants felt that being open all day can give them a competitive edge.

To tide over the current uncertainties in the market, merchants have been opting for multiple channels.

One in five or 20% of the merchants are selling on Facebook, and a few others are selling on other platforms. For their future marketing plans, 90% of the respondents plan to use social channels for marketing, followed by SEO (51.6%).

Plato Wai

Simon Haven

Growing online In general, one strategy that has been key for local retailers in order to cope with the changes in consumer demand driven by the pandemic is the shift towards online sales, commented Euromonitor international’s senior analyst Simon Haven.

“Although not all retailers have the necessary infrastructure to make a total shift toward online sales, those that have been able are faring better than others,” Haven said.

However, the crisis has highlighted that many retailers have not yet been well-equipped to venture into the e-commerce era, he added, citing long queuing times, websites that have issues handling the increased traffic, and products quickly going out of stock experienced by the city’s stores. Further, the online shopping market in Hong Kong is still considered to be relatively small. Wai cited the high density of shopping malls and advanced transport connectivity in the city, which enables easy access to physical shops, as one of the biggest challenges hindering the development of Hong Kong’s e-commerce market. As a result, analysts noted that a tailor-made strategy that caters to their specific concerns and needs is vital for the success.

Haven expects Hong Kong to likely remain a “brick-

and-mortar shopping paradise” for the foreseeable future, and Euromonitor is not expecting any significant shift toward online sales in the city for the next six to 12 months. “The next 12 months are expected to remain challenging for the industry as a whole, and times of crisis are not generally seen as favourable for major investments and change in strategic direction for companies,” he said.

Still, merchants are expected to go from offline to online in the longer term. “Over the next two to three years, as the industry recovers, there will be a growing incentive to shift toward online and become less reliant on physical traffic in-store,” Haven said.

On top of the push factor caused by the pandemic, the cost of expanding stores physically might also encourage further digital push for the retailers.

“In Hong Kong, opening a physical shop is costly in terms of rent and labor costs, whilst the cost of operating an online store is much lower,” Wai noted.

Looking forward, the city’s revenue from e-commerce is tipped to grow at an annual rate of 6.8% from 2020 to 2024, which would result in a market volume of $7.16b by 2024. “With customers no longer venturing out for shopping and food, e-payments and last mile delivery has never been more important. Customers have become more comfortable and familiar with e-commerce,” Wai said.

Budget allocation for online ads will rise whilst offline sinks

Source: Nielsen

HONG KONG BUSINESS | Q3 2020

17

INTERVIEW

Meet ZA Bank, Hong Kong’s first virtualonly lender The bank’s slogan of co-creation belies a strong charm offensive of attractive deposit rates.

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he first half of 2020 saw the dawn of a new era of banking in Hong Kong, with the city’s virtual-only lenders kicking off operations. The recent lockdown resulting from precautions amidst the pandemic outbreak only further fueled digital banking take-up. In fact, a survey by the Finastraexpects that almost a third or 28% of Hong Kong’s adult population will own a digital bank by 2025, with around 760,000 people forecasted to open a virtual-only account in the next five years. For Finastra, whoever emerges on top will depend on which of the eight digital-only banks would be the quickest to establish operations in Hong Kong and the first to do so is ZA Bank, that has no plans to focus on cooperation rather than competition. This is a thought reflected on its slogan ‘“Be Different, Together.”

“ZA Bank does not see other virtual banks as competitors. On the contrary, we hope to promote financial inclusion together with them, to foster the development and innovation of the banking industry,” Rockson Hsu, CEO of ZA Bank, stated.

The brainchild of ZA International—the business development platform of Chinese online-only insurance platform ZhongAn Online— instead highlights its operating model, which is centred on co-creation with its clients.

But as every business man knows, it’s the silent competitor that often proves to be the most deadly, and ZA Bank has definitely launched a strong charm offensive to mark its entrance in the industry. In January, the bank offered a competitive introductory rate of 6% for deposits capped at $200,000, over 3 percentage points more than established banks such as HSBC, Standard Chartered, and Bank of China Hong Kong. Currently, ZA Bank offers a savings rate of 1% for a deposit value of up to $500,000, compared to the 0.001% general savings deposit rate.

Hong Kong Business caught up with ZA Bank CEO Rockson Hsu to learn more about ZA Bank, it’s goals for the future, and outlook for Hong Kong’s virtual banks.

Tell us more about ZA Bank. What have you been up to since you first launched?

Unlike traditional banks, ZA Bank provides users with a full suite of services, 24/7. These services include efficient mobile banking facilities, such as remote account opening, multicurrency savings accounts, time deposits, local transfers, and e-statements The structure of ZA Bank is relatively simple, and it has strong innovation capabilities. We can quickly respond to market needs with innovative products. ZA Bank does not have any physical branches. Due to an efficient operating model and lower operating cost, we can provide attractive

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HONG KONG BUSINESS | Q3 2020

Due to an efficient operating model and lower operating cost, ZA Bank can provide attractive pricing to its customers.

ZA Bank CEO Rockson Hsu

pricing to our customers. For example, savings products with attractive interest rates. Because of our commitment to financial inclusion, we do not impose a minimum savings balance requirement or any maintenance charges.

With its community-driven approach, ZA Bank has prioritised the rapid launch of its innovative capabilities that align with customers’ changing lifestyles. In March 2019, a community known as ZA Fam was established by ZA International, in which members are invited to participate in ZA Bank’s product development and design processes, thus guiding ZA Bank to create innovative products and services to better serve the needs of Hong Kong users.

Tell us more about your products and services. What services does ZA Bank offer, or plan to?

For individual customers, we provide savings deposits, time deposits, loans and transfers. We launched ZA Savings Go, a flagship savings product on 24 March. With ZA Savings Go, we offer a savings rate of 1% for deposit balances at $500,000 or below, whilst base interest rate will be applied to deposit balances exceeding $500,000 .

Time deposits offer multicurrency deposits, including HKD, RMB and USD. Minimum time deposits start at just $1 and the range of tenors is flexible from one month to one year.

We also introduced Hong Kong’s first-ever 30 Minutes Pledge for our loan service. From submitting the complete set of information and documents to receiving the application

INTERVIEW ZA Bank mobile app

Source: ZA Bank mobile app

results, the whole process will be within 30 minutes. Should any applicant have to wait for more than 30 minutes, we will provide a cash rebate of $10 for every minute of overtime until the application result is provided to the applicant, with an upper limit of $500. There will also be a seven-day cooling-off period for ZA Personal Loan, during which users may choose to repay early without incurring any early repayment charge.

Regarding fund transfers, the Faster Payment System (FPS) offers round-the-clock instant fund transfers with no service fee. With just a mobile number, email or QR code, users can transfer HKD and RMB. We also support “5 seconds recall” in case users transfer to the wrong account. Users can also transfer USD to other local banks through “CHATS”.

Can you give us an estimate of when you believe you will start making a profit?

We have set a “Five-year Plan” for our future development, one of the targets is to break even within the period. As an important initiative of the fintech reform and innovation in Hong Kong, virtual banks aim to lower the entry barrier of banking services by fintech, to cover more people with different financial needs.

How has ZA Bank been received by the public so far? Can you reveal some numbers?

ZA Bank has been well received since our official launch on 24 March. Notably, since we launched the promotion campaign riding on the Government’s cash payout scheme “I Want 11K” in late May, the number of new customers grew faster than we had ever seen.

A month after our official launch on 24 March, we published the data of our first batch of customers. Surprisingly, our youngest and oldest customers are 18-year-olds and 87-year-olds, respectively. As of the end of May this year, the oldest customer we have is 93 years old. This interesting data showcases that virtual banks could be an emerging service that brings innovative user experiences to different age groups.

On the gender perspective, we found that the ratio of men to women is about two to one.

Has the pandemic affected your operations, or led ZA Bank to reangle its strategies and goals? If so, how?

As a virtual bank, ZA Bank has no physical branches and

ZA Bank’s ultimate goal is to make banking and financial services more user-friendly and support Hong Kong’s underserved population.

can open accounts and conduct transactions online.

Our customers can enjoy 24/7 banking services anytime, anywhere, only needing a mobile phone and their Hong Kong ID card, and account opening can be completed in only five steps. Customers’ mobile phones become their personal branch. Our digital-only service covers the most basic multicurrency savings accounts, time deposits, local transfers, and electronic statements, amongst others.

Therefore, pandemic or not, our users can always use the banking service on their phones, without leaving the house.

Since the beginning of this year, we began to conduct risk assessments and prepare contingency plans to minimise the impact of the epidemic. Right after the Chinese New Year holiday, we asked all employees to work from home, even after the public holidays. At the same time, we already made a good deployment of hardware, so that every colleague can work remotely through the intranet and their laptops at home. ZA Bank operates as usual during the epidemic period, to provide customers with 24-hour banking services.

If possible, can you share with us your future projects and plans you have in store in the coming year?

Currently, we are still focussing on the Hong Kong market, as there is still quite a journey for Hongkongers to take before they fully embrace virtual banking and fintech in everyday life. We will focus on nurturing the local users for the time being. We are putting customers at the heart of our product design to solve their pain points and allow users to enjoy offerings that break the traditional boundaries of time and conventions.

Our ultimate goal is to make banking and financial services more user-friendly and support Hong Kong’s underserved population, which will in turn accelerate fintech innovation in the city and, at the same time, encourage traditional banks to up their game in Hong Kong. Ultimately, this will help to build the Hong Kong economy for the benefit of all consumers.

What is your outlook on Hong Kong’s virtual banks for the next few years?

Hong Kong’s fintech sector is growing fast. With the full launch of other virtual banks in Hong Kong this year, as well as traditional banks beginning to embrace AI and cloud technology, fintechs are set to disrupt the traditional model of financial services and blur the lines between different sectors.

At the same time, traditional banks are expected to adopt more technology-based solutions to manage costs and achieve operational efficiency amidst a rapidly evolving and increasingly competitive industry landscape.

As we look to the financial industry’s future, one thing is certain: change will be the only constant. The broad themes we are predicting are around the changing nature of risk, a more competitive environment and increasing digital transformation, all underpinned by a focus on data.

The development of virtual banks in Hong Kong will promote fintech application and innovation, enabling the expansion of banking services to people with different financial needs, to foster financial inclusion.

HONG KONG BUSINESS | Q3 2020

19

HOTTEST STARTUPS 2020

The Hong Kong Science and Technology Parks Corporation teamed up with one of the Hottest Startup Genvida for R&D in sensor technology.

Startup funding goes low key amidst COVID-19 and social unrest The total value of startup deals hit $9.84b, a 39% drop compared to last year.

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enture capital (VC) firms are starting to hold back on injecting funds into startups as economic uncertainties continues to threaten Hong Kong’s financial stability. But despite this, it is business-as-usual for some startups and VCs. In this issue of Hong Kong Business’ Hottest Startups, we identified the 17 biggest disclosed and early-stage funding rounds between Q2 2019 and end-Q1 2020, by startups that are not more than three years old.

On top of the list is indoor mapping startup Mapxus, also known as Maphive Technology Limited, which clinched $23.28m in a seed funding round led by Beyond Ventures last November.

Coming up at second place is gaming firm Area28 Technologies with a $16.69m seed funding from Vectr Ventures and Alibaba Hong Kong Entrepreneurs Fund, followed by fashion edtech startup MOTIF which secured $15.52m.

Proptech startup HOMI Smarthome came in at fourth place, with a $13.19m funding, whilst rounding up the top five is business spaces booking platform Booqed, which secured $13m in funding.

Other notable startups are OneOneDay ($10.09m), Genvida (10m), OliveX ($7.76m), Volt14 ($7.41m), Carnot Innovations ($6.21m), enabot ($3.88m), ZuBlu ($2.33m), Wizpresso ($2m), GitStart ($1.16m), Neufast 20

HONG KONG BUSINESS | Q3 2020

Sam Ameen

Denis Tse

($1.16m), Zhenhub ($1.16m) and Bookairfreight ($777,725) Overall, the average funding of these 17 startups is at $8m.

“It’s been a tough last year for Hong Kong in general due to the political climate and protests which caused some uncertainty in the economy,” said Betatron’s venture partner Sam Ameen.

“It’s certainly caused a knock-on e ect for our startup ecosystem with investors becoming more risk-averse. ey have been closely monitoring the situation before committing to deploying capital.”

For the whole of 2019, data from the Hong Kong Venture Capital and Private Equity Association (HKVCA) showed that venture capital (VC) firms participated in 58 startup funding deals, which totalled $9.84b (US$1.27b). This was a 39% drop compared to $16.2b (US$2.09b) in 2018, despite having fewer deals, 51, in the prior year.

“The fund-raising activities were active particularly in the first nine months of 2019. But the situation turned around since October 2019 due to the social movement in Hong Kong especially the implementation of antimask law and the siege of the Hong Kong Polytechnic University in October and November 2019 respectively,” Lap Man, co-founder and managing partner of Beyond Ventures, told Hong Kong Business.

HOTTEST STARTUPS 2020 Industry breakdown of startup investments

Lap Man

Source: HKVCA

In addition, HKVCA noted that H1 2019 had 31 deals with a total deal amount of US$872.1m. Comparably in H2 2019, it only saw 27 deals garnering US$399.73m.

“In 2018, you saw big fundraising rounds. So they’re very cashed up right now and have been executing for quite a while. There have been some political barriers raised by the US government in relation to what they call ‘the blacklisting’. But given that they have already raised significant rounds in 2018, [startups] have been able to execute quite well,” said Denis Tse, founding managing partner of Asia-IO Holdings.

Rising government support Despite the drop in funds injected into Hong Kong, the government has been showing continuous support for deeptech startups. “We still see some deals in HK initiated

by VC Funds and co-invested by those VC Funds and HKSAR Government,” Man added.

“The government has been quite supportive in two separate directions: through co-investing with a few of these venture managers by means of a formalised co-investment programme; and also the government indirectly through their secretary bodies and affiliated organisations have also set up their venture funds,” Tse, of Asia-IO Holdings, stated.

One of these funds is the Innovation and Technology Venture Fund (ITVF), which serves as a co-investment vehicle that goes alongside selected VC funds as coinvestment partners. They invest in local I&T startups at a matching investment ratio of approximately one to two.

In the first batch, it co-invested in seven deeptech startups in H2 2019. In HKB’s Hottest Startups list, there are three startups that received indirect funding from IVTF, namely, Mapxus, Genvida and enabot. The funding scheme was due close applications for another round of funding on 31 March.

In addition, the Hong Kong Budget last February mentioned that $380m of the $30b fiscal stimulus would be used to subsidise the rents of Hong Kong Cyberport and Hong Kong Science & Technology Park’s tenants.

Banks adopting blockchain Even though there have been no big funding rounds in fintech lately, Ameen stated that blockchain startups have been getting a lot of attention as banks turn their heads toward technology investments. “Every bank and most large financial institutions are assessing blockchain

Alfred Lam

opportunities right now—whether that’s a direct investment or integrating blockchain into their internal operations.

“I see this trend continuing given the favourable regulations in Hong Kong compared to other jurisdictions around the world,” Ameen added.

Apart from blockchain, Man observed another trend amongst startups. “Those Chinese companies producing products, such as fast-moving consumer goods, beverage, cosmetic and electronic appliances, leveraging the China brand. These goods used to be monopolised by the Western brands,” Man stated.

He noted that in the past one or two years, the quality and design of those products and services are catching up or even outperforming those Western brands with more competitive prices.

“Chinese investors tend to look at Hong Kongbased ventures run by Hong Kong founders, or in other instances, Hong Kong-based entrepreneurs that have been actively reaching out into the China market. So there has to be some connectivity already between the entrepreneurs. They have their attention on the China market” Tse explained.

Alfred Lam, research and policy director of HKVCA, is also expecting to see more online tutorial platforms in Hong Kong and China as education technology has become an attractive segment for retail investors.

VCs also mentioned other underserved verticals have been gaining traction, including insurance technology, healthcare technology, biotech and life sciences, logistics, supply chain, and marine shipping.

1. Mapxus

Founders: John Chan, Ocean Ng Funding: Mapxus (Maphive Technology Limited) has raised $23.28m (US$3m) in funding over a seed round in November 2019, led by Beyond Ventures.

Start of operations: 2018 AI startup Mapxus brings the location technology commonly developed for outdoors to indoor spaces through its indoor mapping technology platform. The startup digitises indoor navigation by providing a ready-touse software development kit so that business organisations, government bodies, and social enterprises alike can build city-based indoor map applications for public sharing. In July 2019, the startup became part of Apple’s Indoor Maps programme, providing indoor mapping services to enable app development for iPhones and iPads.

HONG KONG BUSINESS | Q3 2020

21

HOTTEST STARTUPS 2020 2. Area28 Technologies

Founder: Tony Zander Funding: Area28 Technologies bagged $16.69m (US$2.15m) from a seed round in December 2019, led by Vectr Ventures and Alibaba Hong Kong Entrepreneurs Fund.

Start of operations: 2017 Gametech startup Area28 develops a collaborative Googledocs-like platform for game developers. The firm claims to be the first and only cloud-based game engine. Area28’s Content Development Suite (CDS) feature enables realtime collaborative development amongst dispersed game developer teams. It also eases game builders’ workflow by allowing game testers to play multiple iterations. The platform is also said to feature stakeholder reviews, where game studios can track the progress and feedback of the individual aspects of the development process.

4. HOMI SmartHome

Founder: Amar Dhillon Funding: In July 2019, HOMI SmartHome raised $13.19m (US$1.7m) in a seed round led by Singapore-based investors SeedPlus, AngelCentral, and Xoogler Angels.

Start of operations: 2017 HOMI SmartHome is a consumer IoT services company that provides smart home services across Asia. It offers consolidated smart home systems with consultations, installation, and 24/7 customer support and charge their customers for as low as $2 a day. The startup’s products include a wide array of products such as light switches, smart locks, cameras and modules. It comes with an app for efficient management of these smart home devices. Their installation services can take no more than three hours.

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HONG KONG BUSINESS | Q3 2020

3. MOTIF

Founder: Alvanon Global fashion innovation company Funding: In November 2019, MOTIF secured $15.52m ($2m) in a seed round from The Mills Fabrica.

Start of operations: 2017 Started by global fashion innovation company Alvanon, MOTIF is a fashion industry-focused e-learning platform for professionals and companies, built to respond to the fast-paced emergence of new skills in the apparel industry.

Aiming to close the skills gap in this segment, the learning hub offers eight programmes, which include courses on 3D transformation, apparel costing, and how to run a fit session.

They also have courses aimed at corporate HR or business teams that need to make sure employees have sound fundamentals and cross-functional understanding. They plan to add more courses on commercial and soft skills.

5. Booqed

Founders: Charles Oh, David Wong, Ken Huang Funding: In October 2019, Booqed bagged $13m ($1.68m) in a seed funding led by real estate management firm Colliers, US-based seed accelerator Techstars and investment firm Lazard Korea.

Start of operations: September 2016 Booqed is an online platform for booking short-term meeting and working spaces with operations across nine cities in Asia. Guided by the goal of making every space attainable for business, the platform facilitates transactions between tenants and landlords, helping tenants find shortterm spaces and aiding landlords in monetising unused spaces. Aside from coworking spaces, Booqed also boasts a mobile app for faster transactions and a concierge dedicated to meeting every clients’ needs.

HOTTEST STARTUPS 2020 6. OneOneDay

Founder: Rick Tsing Funding: In May 2019, OneOneDay secured $10.09m (US$1.3m) in a pre-series A funding round from individual investors such as Tiberius Holdings’ founding partner Rohan Malhotra.

Start of operations: 2017 Adtech startup OneOneDay allows users to block out and plays ad videos that the user only wants to see. Its app uses blockchain, artificial intelligence and psychometrics analysis for viewers to register their preferences and replace intrusive ads. It will then put together a ‘playlist’ of ads that users can choose. Watching an ad also allow viewers to earn cash rewards, whilst a part of that revenue goes to charity works.

Users may choose on what causes they would like to support.

8. OliveX

7. Genvida

Founders: Daniel So, Chi Yip Ho, Ka Wai Hong Funding: Genvida raised $10m (US$1.28m) in a series A funding round through the government’s Innovation and Technology Fund.

Start of operations: 2019 Founded by a group of engineers, biotech firm Genvida aims to help physicians, government officials and the patient themselves make better decisions. Their key product is the Solid State Nanopore Sequencing (SONAS) technology, which offers a fourth-generation nucleic acid sequencing solution. Genvida claims that this tech makes the lowest possible per base and per run cost, assuring high quality results by their systems’ ultrahigh accuracy. It partnered with the Hong Kong Science and Technology Parks Corporation to establish the Sensor Lab.

9. Volt14

Founder: Keith Rumjahn Funding: In 2019, OliveX secured $7.76m (US$1m) in a seed round from Lithuanian strategic investors Alabaster and Anatanas Guoga.

Start of operations: 2017

Founders: Adam Haldar, Animesh Kumar Jha Funding: Volt14 bagged $7.41m (US$955,000) in a seed funding round on November 2019, from 500 Durians, Hong Kong Science and Technology Park’s venture arm, and Entrepreneur First.

Start of operations: 2018

OliveX is a fitness app that utilises artificial intelligence and gamification to help users track their fitness habits. One of its apps is KARA Smart Fitness, which allows clients to exercise with celebrity trainers by streaming pilates, yoga, boxing, and high intensity interval training (HIIT) workouts.

Their second app is Ba Duan Jin, which is a Google Play users’ choice award nominee for 2019. It is a gamified fitness app that teaches users the martial art of eight brocades, which is a scientifically proven exercise that improves fitness for all ages, especially for the elderly.

Volt14 is a nanotech startup which develops ultra-high performance materials for lithium-ion (Li-on) batteries, aiming to double the energy densities of mass-produced batteries. They claim that its anodes will accelerate battery energy densities by up to 70%, which eliminates range anxiety of dollar per kilowatt-hour ($/kWh) storage costs by almost 40%. The anodes can be used by any Li-on battery, from 3C applications to defence and space.

Volt14 stated that compared to other battery materials startups, they use a wet chemistry approach where a battery producer can use their existing production lines to mass produce their anodes without any manufacturing bottlenecks.

HONG KONG BUSINESS | Q3 2020

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HOTTEST STARTUPS 2020 10. Carnot Innovations

Founders: Ashish Jerry Justin, Chris Choy Funding: In November 2019, Carnot Innovations secured $6.21m (US$800,000) from 500 Startups’ Southeast Asia-focussed 500 Durians Fund, MTZ Holdings, and Entrepreneur First (EF).

Start of operations: 2018 Carnot Inovations uses advanced machine learning algorithms to detect and predict maintenance, control logic and operations defects in HVAC systems such as chillers, pumps, cooling towers, heat pumps, AHUs. They assist facility managers to perform targeted defect rectifications at optimal times and ensures persistent energy and maintenance cost savings of over 20%. It also features equipment life and efficient utilisation of operator time and enables AI-powered continuous commissioning.

12. ZuBlu

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11. Enabot

Founder: Erika Zhu Funding: Its latest funding round raised $3.88m (US$500,000) in a pre-series A funding round last January.

Start of operations: 25 June 2018 Enabot is a technology startup, manufacturing smart robots equipped with artificial intelligence. Its main product Ebo, is a smart robot companion for cats that works in various ways. It can take photos and videos of cats remotely, allows users to interact with their pets, roll and spin around to entertain cats and functions as a trainer. Other features include self-learning AI, automatic docking and charging.

In addition, it comes with a smart collar that allows Ebo to monitor cat’s activity and mood trackers. All of these features can be accessed through a mobile app.

13. Wizpresso

Founders: Adam Broadbent, Matthew Oldfield Funding: ZuBlu has raised a total of $2.33m (US$300,000) from Betatron.

Start of operations: 2017

Founder: Calvin Cheng Funding: Wizpresso has raised a total of $2m in a pre-seed round raised last March 2019.

Start of operations: 2018

ZuBlu is an innovative travel platform to search, compare and book scuba diving and underwater adventure travel in Asia. With ZuBlu, divers can make sustainable travel choices effortlessly, whilst actively contributing to ocean conservation. With over 250 eco-friendly resorts and liveaboards to choose from, guests can explore some of the best diving throughout Indonesia, Malaysia, Philippines, Thailand, Pacific, Maldives and the Red Sea. An experience-driven platform, ZuBlu puts the power of discovery in the hands of the user, offering the choice to search the best location based on a desired encounter - from seeing sharks, turtles and manta rays, to diving coral reefs, shipwrecks as well as underwater caves.

Looking to take the pain away from the conventional paperwork, Wizpresso allows investors and analysts collect, benchmark and analyse operational and alternative data online. It uses proprietary machine learning algorithms with search engines across public filings of listed companies in Hong Kong, China and the US. The startup’s CEO, Calvin Cheng claims this also takes the pain away from the fact that some companies do not reveal susbstantial operational data or even alternative data. The platform’s subscription plans are said to have the same costs with a cup of coffee every day, thus complementing their name “Wizpresso”.

HONG KONG BUSINESS | Q3 2020

HOTTEST STARTUPS 2020 14. Gitstart

Founder: Hamza Zia Funding: GitStart has raised a total of $1.16m (US$150,000) last August 2019 in a seed round led by Y Combinator and Pioneer Fund.

Start of operations: 2017 As companies scramble in acquiring the best tech talent suitable for their company, GitStart aims to equip software developers with the necessary skills for firms in need of a specific skillset.

Through its AI-powered platform, developers who wish to improve their skills may start with small coding jobs. As they improve, GitStart will then recommend these individuals to companies for full-time hiring. The platform sets a base income higher than the minimum wage. Their CEO Hamza Zia, said that they’ve accepted 200 developers from the launch of their platform and rejected 1,200 at the same time.

16. Zhenhub

15. Neufast

Founders: Agnes Wun, Dennis Lee Funding: Neufast Limited has raised a total of $1.16m (US$150,000) last February 2020 from the Hong Kong Science and Technology Parks Corporation (HKSTP) and Chinaccelerator .

Start of operations: 2018 Human resources startup Neufast has created a platform that scans a candidate’s CV, matches their abilities to the job requirements, and benchmarks against the skills the candidate should have. It then puts the candidate through an array of online psychometric tests before finally moving to a 30-minute video interview with the hiring manager. This technology is rooted in the research of I/O psychology and AI computing. assessment needs. After a few tests, it submits the overall performance score to the HR manager, which is said to predict their success in the workplace.

17. Bookairfrieght

Founders: Eric Choi, Sheldon Li, Vince Poon Funding: ZhenHub bagged a total of $1.16m (US$150,000) in a seed round on October 2019, led by Betatron and SparkLabs Accelerator.

Start of operations: 2016

Founders: Daisy Jiang, Stefan Vanberg Funding: Bookairfreight has raised a total of $775,225 (US$1m) in a seed round in October 2019, led by VC firm and startup accelerator Betatron.

Start of operations: 2018

Logistics startup Zhenhub enables retailers to execute global logistics operations in one platform, from ecommerce vendor’s search for warehouses, gathering quotes, inbounding products, and to tracking those products after they’ve been shipped. Their free platform allows merchants to manage their inventory, integrate with sales channels and fulfill their orders. Zhenhub claims that they take their users away from messing around in Excel for checking every error. Some of its partners are Shopify and crowdfunding firms Indiegogo and Kickstarter.

Bookairfrieght calls themselves a one-stop freight solution for SMEs. They provide instant quotations, transparent pricing and trackings. They also cover up to US$10,000 on insured value and offer compensation for late deliveries. The startup’s platform carries a network of tier 1 freight forwarders across 51 countries and its transparent pricing service lays out wholesale air freight rates before clients are committed to a purchase. Its Instant Quotation feature claims to save 72 hours of clients’ time and that their rates are 20% cheaper than other air freight booking platforms.

HONG KONG BUSINESS | Q3 2020

25

SALARY SURVEY

Hong Kong Disneyland made salary cuts to some of their senior managers last April.

Pay cuts, salary stagnation await workers in post-pandemic workplace Salary hikes will be few and far between as firms grapple with COVID-19’s sudden impact.

W

hen Matthew’s employer asked him to work from home late in February, the father of two was initially jubilant. “I thought it was great to have more time to spend with the kids,” he shares. But as the coronavirus pandemic ran its course, Matthew found himself longing for the comfort of the office. “Keeping productive at home was difficult—my kids would sometimes smash my keyboard or ask to watch videos while I’m working.”

Soon, though, he had no choice but to find a way around the distractions.

He ended up exclusively working from home for over six weeks, and his employer has implemented a reduced work week once restrictions were lifted.

“I don’t mind working from home, but it’s hard to juggle it all with childcare, amongst other things” he says.

Matthew is one amongst thousands of Hong Kong workers who had to rapidly transition to a work from 26

HONG KONG BUSINESS | Q3 2020

home setup due to the coronavirus pandemic. “Historically, Hong Kong hasn’t had a huge ‘flexible working’ culture. Because most firms were forced into it to get some productivity outcomes during the work from home period, most are realising it is a really good thing and a huge retention factor for their millennial workforce,” notes Sharmini Wainwright, senior managing director at Michael Page Hong Kong. “I think this is one of the best outcomes to come out of the pandemic as it has forced organisations to embrace technology and flexible working solutions.

However, Hong Kong does have one significant constraint in that most people live in apartments without the luxury of having a designated ‘study’ area,” she adds.

Corporate cost-cutting Hong Kong’s experience of the coronavirus pandemic is significantly

In the worst case scenario, if economic conditions continue to deteriorate in Hong Kong, firms may trigger their redundancies in December and January.

different from other countries. Unlike in other jurisdictions, the Hong Kong government has not imposed mandatory rules in relation to workplace arrangements for employees in the private sector. However, compared with other Asia-Pacific countries, Hong Kong has also reported fewer wide-scale layoffs and retrenchments.

A survey by Wills Towers Watson revealed that only 2% of employers in Hong Kong state that they will implement salary reductions, compared to a staggering 18% in neighbouring Singapore. Meanwhile, 7% of employers in Hong Kong are mulling layoffs.

And although there have been a few high-profile redundancies—such as Sa Sa Cosmetics, which axed 3% of its 2,500-strong workforce and reduced pay by up to 40%—experts expect that the job market will remain relatively resilient.

“Whilst we have seen a small portion of layoffs, it has not been as large scale as we expected and to some degree,

SALARY SURVEY Top strategic priorities for Hong Kong CFOs in financial services In 2020

Murray Sarelius

Source: Hays Salary Survey 2020

Hong Kong should benefit from a somewhat ‘V’-shaped recovery that Mainland China has a chance of achieving,” Generous government subsidies may be a key reason behind the relatively smaller number of layoffs in Hong Kong. In recent weeks, the government introduced a range of budgetary measures to keep employees at work. In particular, the government has introduced the Employer Support Scheme, where eligible employers will receive a maximum of $9,000 per employee per month in exchange for an employer undertaking to implement no redundancies and to spend all government wage subsidies in paying wages to their employees.

“The government subsidy scheme is effective from June through to November 2020, and all firms partaking need to make a pledge to not enact redundancies within their organisation,” Wainwright explains.

“The best case scenario is that this will allow firms to get through the most challenging period with support, with a view of being self-sufficient from December. In the worst case scenario, if economic conditions continue to deteriorate in Hong Kong, firms may trigger their redundancies in December and January.”

KPMG’s latest executive salary outlook reveals that more hiring managers expect headcount to be reduced in 2020. The wary sentiment was especially pronounced in the consumer markets and real estate sectors, where 41% and 27% forecast headcount reductions as compared to 18% and 8% respectively in

Simon Lance

2019. Sectors that bucked the trends included the innovation and technology sector, where 52% expected an increase in headcount, compared to 44% in 2019. The higher headcount demand for innovation and technology is likely due to the growing reliance and openness of consumers across the Greater Bay Area to use digital tools.

These forecasts have already started to play out during the height of the pandemic. In April, Hong Kongheadquartered booking platform Klook revealed that it has reduced its global headcount and furloughed a portion of its workforce due to COVID-19, whilst the startup’s founders will forego pay until the end of the crisis. Meanwhile, cruise ship and casino operator Genting Hong Kong revealed that its top executives will waive their fees and compensation from February until the end of the year, whilst other senior staff will suffer pay cuts ranging from 10% to 50%.

“With many businesses urgently

Sharmini Wainwright

looking at cost management strategies, we found that redundancies and workforce reductions are not the first actions that organisations necessarily choose to take. Common alternatives include hiring freezes, furloughs, reduction in benefits and limits on overtime or other expenses,” explains Edward Hsu, leader of data services and compensation software for Asia Pacific at Wills Towers Watson. “Some organisations are also considering enacting early retirement programmes.

Amongst the 73% of organisations that do not have a hiring freeze in place, 26% would plan to implement other cost reduction measures before redundancy.

Whilst the change is likely to be disruptive, Hsu adds that employers have already taken many steps to safeguard their employees. Many are cutting the salaries of their senior staff, including at the CEO level; retail, restaurant, and gig economy firms have adjusted leave policies to provide pay to staff recovering from a coronavirus-related event; whilst tech companies are paying hourly workers impacted by office closures.

“With the evolving situation, business priorities will be reviewed and resources will be re-allocated according to changing business objectives. For instance, we can already observe some employers focusing on key talent retention and incentivisation, which may have a positive impact on business in an uncertain environment,” Hsu says.

No salary growth, no hiring As companies grapple with the scale of the pandemic, experts warn that there will be minimal to no salary growth this year. “For corporate professionals, our overall salary growth outlook is minimal.

HK jobseekers prioritise the following non-financial benefits

Source: Hays Salary Survey 2020

HONG KONG BUSINESS | Q3 2020

27

SALARY SURVEY Top strategic priorities for Hong Kong CIOs in 2020

Source: Hays Salary Survey 2020

We envisage that the focus will be more around ‘retaining roles’ than salary growth,” Wainwright notes.

Corporate perks will also disappear in the near future, she adds. “Usually in a normal market these perks are viewed as being very important. I think this challenging period has allowed most working professionals to be grateful for continued employment, hence the lack of ‘perks’ are at the bottom of their priority list.”

This sentiment is echoed by Murray Sarelius, head of people services at KPMG China. “The priority is checking that people are safe and then implementing business continuance plans if they’re available, or working out how to react and cope in the new environment,” he said.

In terms of hiring, experts warn that domestic hiring will grind to a halt during the course that companies ride out the pandemic. “When the pandemic moved from Greater China to Asia, then, globally we experienced both domestic firms and multinational organisations question their hiring needs and prioritise what were viewed as business critical roles,” Sarelius says.

For fresh graduates or entry-level jobseekers, Wainwright notes that despite job prospects currently looking more bleak, some customer service roles may remain open amidst the pandemic. “A number of notable management training programmes have been put on hold and graduate intakes have significantly reduced in size for the typical large hirers. If these individuals have been “flexible” they are likely a natural talent pool for customer service roles, many of which 28

HONG KONG BUSINESS | Q3 2020

have increased (vacancies) during this period,” she notes.

Job prospects of mid-career professionals vary per industry. Mid career professionals in technology, digital, analytics, procurement, risk, credit and accounting functions are in high demand, due to the nature of work they provide being directly linked (with workload increased) during this pandemic. However, the most impacted professions are human resources, marketing, administration and property. “Mid-career professionals who are immediately available and out of work can actually secure some meaningful contract work during this period, as organisations may have resourcing needs but not be able to commit to a permanent headcount,” Wainwright says.

There remains a silver lining when it comes to hiring during this period.

“We have recently seen a strong emergence in hiring activity from Mainland China-headquartered firms in Hong Kong whilst domestic and multinational firms are slower to pick up in their hiring volumes. Within our work portfolio, we currently have the highest number of confidential searches, signifying that a number of organisations are using this pandemic season as a reason to replace and upgrade senior members of their leadership team, particularly in the sales function,” she shares.

The end of the office?

With regard to continued work-fromhome arrangements, employers have the discretion to allow requests for more permanent work from home

Mid-career professionals who are immediately available and out of work can actually secure some meaningful contract work during this period.

arrangements, taking into account the health and safety of its employees. “It is advisable for employers to clearly communicate their work from home policy and provide proactive support, such as IT support to make WFH accessible and convenient. In addition, such a policy should clearly stipulate the obligations of both employers and employees during any work from home arrangement,” notes Ken Ng, associate at Baker McKenzie Hong Kong.

But overall, the jury is still out as to whether the pandemic will spell an end to the workplace as we know it.

“We are already seeing clients adapt their property plan for their next lease renewal with a smaller property footprint—taking into account that a portion of their workforce will work from home at any day,” Wainwright says. “However, I don’t see such a dramatic change to areas such as the open plan workspace, but no doubt more consideration will be put into the layout and spacing between desks and the amount of people in any one designated area. Again, flexible working helps with this problem.”

Simon Lance, managing director for Greater China at Hays, notes that the pandemic will push organisations to rethink their use of physical office space. “There is some discussion in China about the overall purpose of physical office space, when tasks can be done efficiently elsewhere. Its purpose has progressed beyond just the completion of tasks and there are issues about innovation or collaboration, team culture, and emotional support,” he notes. “I think everyone is still feeling their way about how to integrate that into a company’s operations, but it will perhaps prompt organisations and even entire industries to rethink how they feel and think and plan about physical office space.”

As the pandemic runs its course, both employers and employees should be proactive and flexible. “The advice that I’ve been giving to a lot of senior-level or executive candidates is to rethink how their value to an organisation is going to be perceived in a radically different world. From an executive recruitment position, companies are now extremely interested in someone’s aptitude for ongoing learning and selfdevelopment,” Lance notes.

HONG KONG BUSINESS | Q3 2020

29

RANKINGS: BANKS

Hang Seng Bank

Crisis speeds up online banking take-up by 200% Local banks are focused on ramping up digital offerings, gearing themselves by expanding their remote banking services.

C

hange had come to Hong Kong’s banking industry with the dawn of virtual banking, but never before had the lenders’ tried-and-tested ecosystem been shaken as much as it had during the ongoing pandemic crisis. Now, banks are scrambling to fill up the cracks in their digital servicing capabilities to continue operations amidst a new world of face masks, health precautions, and social distancing—or else say adieu.

In Hong Kong Business’ 2019 Licensed Banks rankings, Hong Kong ans Shanghai Banking Corporation (HSBC) managed to maintain their headcount at 31,000, becoming the largest bank the list.

Second placer Bank of China Hong Kong (BOCHK) reported staff numbers of 12,592, whilst Hang Seng Bank’s employee count is at 8,515. Standard Chartered (Hong Kong), who nabbed the fourth spot, had around 8,500 employees and fifth placer Bank of East Asia (BEA) Hong Kong reported 5,564 employees in the city. Further, Dah Sing Bank also reported a 2.4% YoY rise to 2,970 as of end-2019 over its

30

HONG KONG BUSINESS | Q3 2020

A significant number (of banking customers) still greatly value the reassurance that comes from face-to-face assistance and advice.

2018 figures.

Overall, the number of employees across 19 local licensed banks rose marginally by 1.87% to 92,545 as of April 2020 compared to only 90,844 in 2019, on the back of dramatic increases and contractions across lenders.

However, many of these numbers were reported before the full effect of the pandemic was expected to be felt, which could reflect by end-Q3 or even Q1 2021.

HSBC announced its plan to axe 35,000 workers globally from its more than 232,957-strong global fleet as part of its third major restructuring in a decade. Just in Q1, the lender also saw its pre-tax profits plummet 48% to $3.2b in Q1. “You will have seen that our profits fell in the first quarter, and virtually all economic forecasts point to challenging times ahead,” Quinn said in a memo to staff in June. He added that layoffs were “even more necessary today”, as a result of the worsening economy.

Near, far, wherever you are The past few months saw lenders

roll out a plethora of new or improvements to their digital banking services as they strive to maintain close ties with their customers despite the physical distance imposed by lockdowns across the city.

Although BOCHK kept its more than 190 branches open, the bank actively encouraged customers to access services online by rolling out additional services.

“We have introduced a number of fee concessions for our electronic services and extended service hours of certain online banking services, such as forex exchange, setting up of time deposits, opening of savings and investment accounts, and activation of mobile banking and internet banking services,” a spokesperson from BOCHK told Hong Kong Business in an exclusive correspondence.

Hang Seng Bank, who nabbed the third spot in the rankings, revealed that it has rolled out more than 140 innovations and enhancements for its digital services in 2020. Many of these involve remote video and audio meeting capabilities.

“Whilst many may prefer to use online, mobile and automated channels for their day-to-day banking, a significant number still greatly value the human touch and reassurance that comes from face-to-face assistance and advice when dealing with more complex financial needs,” a spokesperson from Hang Seng Bank said.

For example, the bank is currently using video conferencing app Zoom to have “face-to-face” meetings with their customers.

Overall, Hang Seng Bank reported a rise in its e-banking transactions, with a 50% increase in June compared with January.

Average number of new e-banking registrations also rose by 110% during the same period.

Other banks reported a similar trend. BOCHK reported a 56% increase in total mobile banking transactions, and over 20,000 new US Stock Accounts since the year began—whilst the number of transactions for both setting up time deposits and securities

RANKINGS: BANKS trading online jumped by 40%.

In an exclusive interview, Citi Hong Kong revealed that more than 77% of its clients are active users of their digital banking channels. The bank saw its institutional clients open over 1,000 accounts digitally in APAC, of which over 50% are from Hong Kong. Citi also noted that banking behaviours had already begun to change even before the pandemic struck, the latter which only hastened the inevitable.

“There has been a lot of talk on how COVID-19 will reshape the way we live, work, and do business. The current situation will only accelerate the broad shift to digital, which has already been transforming the banking industry,” a Citi representative noted in response to queries.

“The pandemic has necessitated us to engage with each other digitally, and to a certain extent, digital is now the preferred way for clients to engage and bank with [Citi].”

BOCHK echoed a similar assessment of customer behaviour.

“The epidemic has become an unexpected catalyst in making more customers and businesses turn to digital channels,” a spokesperson stated, saying that they are working to digitalise their services to address customer needs anytime, anywhere.

Local lenders still have a lot to patch up with their digital and mobile banking capabilities, however. A recent report by consulting management firm Sia Partners noted that not a single Hong Kong mobile app made it into the top 10 best banking apps globally. European banks got the edge due to their breadth of investment-related and banking e-services, and for providing better in-app advisory services.

Amongst local banks, Londonbased HSBC and Hang Seng Bank were identified as the topperforming apps in the city. On the other end of the spectrum are the apps of family-run Hong Kong banks BEA Hong Kong and Dah Sing Bank. The last two banks

have arguably relied more heavily on their historical clients and branch networks than on their different mobile solutions, the report noted.

Safety first It was not just the digital front that experienced a period of rapid change: now that lockdowns have been lifted, bankers and customers find themselves facing a new normal of social distancing and other strict health and safety measures being implemented.

For banks, the biggest change lies in their workforce, with remote working becoming the new norm. When the infection rate first began to spike, Citi immediately heeded calls for social distancing and enabled over 90% of their staff to work from home. The arrangements continued until mid-May, when the infection rate gradually decreased, prompting the lender to reduce its share of WFH staff down to 50%.

BOCHK also implemented a split-team arrangement, with only essential staff at the office, whilst the remainder of its staff worked remotely from their homes.

Bankers now returning to the office are met with a plethora of new measures to combat the spread of the virus. This meant an everyday life of face masks, constant temperature checks, and frequent handwashing. Many will likely get used to working confined in transparent spaces, with plastic walls and working in half-empty premises.

Hang Seng Bank, for example, placed portable acrylic screens in their open bank counters.

Citi is also reportedly planning to put plastic partitions in some workstations, whilst ramping up their cleaning schedules.

“Our premises cleaning protocols are elevated to include daily cleaning with disinfectant supplemented by hourly cleaning of all high touch areas, including elevator buttons, door handles, work cafés and pantries,” Citi’s spokesperson shared.

The epidemic has become an unexpected catalyst in making more customers and businesses turn to digital channels.

Lenders have also taken to giving extra incentives to their skeletal crew and provide further support to those who had to work at the office. BOCHK is providing free lunch to those working at their offices and branches. Skeletal team members are eligible for accrued leave extension, additional medical coverage, and provision of health and sanitary products, amongst other added benefits.

To the rescue Banks also saw themselves rising to help their pandemic-stricken customers weather the ongoing crisis—at the possible expense of asset quality. A report by Fitch early this year already expects lower profits for 2020, the crisis only compounding the earlier negative effects brought about by the local sociopolitical protests.

Many lenders offered mortgage and loan relief for their retail, trade, investment, and wholesale banking customers. Amongst the very first to launch financial support initiatives is BOCHK, who rolled out a moratorium for mortgage loans for both commercial and residential properties. The measure has since been extended to cover subsidised sale flats under the Hong Kong Housing Authority.

“This measure has been well received since its launch, with over 18,000 customer enquiries and 3,400 cases being approved,” the BOCHK spokesperson said.

Many of these measures were aimed to provide relief to small and medium enterprises (SMEs).

BOCHK introduced a 100% loan guarantee that allowed SMEs to borrow as much as $4m (US$510,000). The bank has approved more than 3,100 applicants for the guarantee and recently launched a special loan scheme for SMEs without collaterals. Likewise, Citi announced a principal moratorium of up to six months for eligible mortgage clients, primarily small and medium enterprises (SMEs) who were the most impacted by the downtrodden economy.

HONG KONG BUSINESS | Q3 2020

31

RANKINGS: BANKS 2020 RANKING

BANK

Number of Employees 2020

Number of Employees 2019

2019 RANKING

CEO OR COUNTRY HEAD

1

HONG KONG AND SHANGHAI BANKING CORPORATION

31,000*

31,000

1

Peter Wong (Deputy Chairman and Chief Executive, Asia Pacific)

2

BANK OF CHINA (HONG KONG)

12,592

12,278

2

^

3

HANG SENG BANK LIMITED

8,515

8,523

3

Louisa Cheang

4

STANDARD CHARTERED BANK

6,500

6,000

4

Mary Huen

5

THE BANK OF EAST ASIA, LIMITED

5,564*

5,376

5

Adrian LI Man-kiu and Brian LI Man-bun

6

CITI HONG KONG

4,200

4,500

6

Angel Ng

7

DBS BANK (HONG KONG) Limited

4,000

4,000

7

Sebastian Paredes

8

INDUSTRIAL AND COMMERCIAL BANK OF CHINA (ASIA)

3,187*

2,966

8

Wu Long

9

DAH SING BANK

2,970*

2,482

10

Hon-Hing Wong (Derek Wong)

10

CHINA CONSTRUCTION BANK (ASIA) CORPORATION

2,500**

2,500

9

Jun Zhang

11

OCBC WING HANG BANK

2,104

2,165

11

Wu Beng Na

12

CHINA CITIC BANK INTERNATIONAL

2,000

2,000

12

Bi Mingqiang

13

CHONG HING BANK

1800

1500

15

Jianxin Zong

14

CMB WING LUNG BANK (renamed from Wing Lung Bank)

1763

1,674

13

Hong Bo

15

SHANGHAI COMMERCIAL BANK

1,633

1,664

14

David Sek-chi Kwok

16

FUBON BANK

1,000

995

16

Raymond Lee

17

CHIYU BANKING CORPORATION

620**

620

17

Zheng Wei

18

PUBLIC BANK

564**

564

18

Tan Yoke Kong

19

TAI SANG BANK

33

37

19

Patrick Ching Hang Ma

TOTAL

92,545

90,844

*as of December 31, 2019 **figures retained from 2019 data

32

HONG KONG BUSINESS | Q3 2020

^As of press time, BOCHK has not yet appointed a new CEO or Country Head. It will be announced in a later date.

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RANKINGS: ACCOUNTING

PwC

Auditing buoys accounting firms as mergers tail off Compliance work remains their strongest suit, but shifting client needs required major changes on how they do it.

A

s clients shift their financial plans to make sure that their cash flow will withstand another few months of impact from the COVID-19 pandemic, accounting firms are still considered lucky enough that some services, such as auditing, remain essential and are just enough for them to stay strong amidst the storm. But even that has taken a turn that may change the process forever, further weighed by other services that took a severe hit.

In Hong Kong Business’ 2020 edition of the annual Accounting Rankings survey, PwC Hong Kong continues to take the helm in terms of having the largest number of employees in the industry, with around 4,600 employees as of 31 March. EY came in second place with about 3,250, followed by third placer Deloitte with around 3,000 employees. KPMG ranked fourth with an estimated 2,200, and rounding up the top five is BDO with 1,100 staff.

Overall, the 23 largest accounting firms in Hong Kong have about 17,800 employees in 2020, which

34

HONG KONG BUSINESS | Q3 2020

There are unique challenges for audit clients due to the COVID-19 and which may directly impact an auditor’s risk assessment and response.

remained unchanged compared to the same period last year. Some firms have cut their headcount, whilst some hired more.

Comprehensive auditing Even as these figures suggest that there is neither stability nor anything serious to dread, Hong Kong’s accounting scene is not out of the woods yet. Managing director of BDO Clement Chan stated that transaction-based services, such as M&A, due diligence and IPO activities, are badly hit as clients become more cautious on which opportunities they invest their money into.

He also shared that they had long-term clients whose cash flows had suddenly dried up because of the abrupt stop of all economic activity. “They need us to give them a longer credit period at this difficult time. At times, we are faced with the extreme difficulty in balancing the need to collect fees before starting current year’s work so as not to compromise our independence and allow a longer credit period because of the

cash-strapped situation of clients,” Chan said. Thankfully, compliance services, like audit and tax, are keeping these firms afloat given that these services will always be required. However, firms revealed that there have been a lot of struggles in this area as well.

Prior to the events of COVID-19, accounting and auditing work would require their staff to travel to their clients’ offices and plants on a regular basis, and this field work had been crucial to accounting firms in Hong Kong as they have many clients based in Mainland China. These professionals have then begun to seek help from their mainland branches to do some of the work, stated Stephen Weatherseed, managing director of Mazars Hong Kong.

“With wide-ranging COVID-19 travel restrictions in place for an undetermined period, auditors are encountering unanticipated barriers to obtain the information needed to perform audit procedures and form conclusions when audited entities have operations in affected jurisdictions, or if there are financial reportingrelated functions located therein,” said Roy Lo, managing partner of ShineWing in Hong Kong.

Apart from increased workload because of the lockdowns implemented, RSM Hong Kong’s managing partner Eugene Liu stated that auditors became burdened with extra financial reporting considerations and facing challenges when conducting their audits. Lo further explained that accountants used to perform audits in the last two months of the financial year, but has now evolved to a continuous, year-long communication with clients.

As a result, auditors are required to perform additional procedures to better assess the management’s ability to continue their operations as a going concern, any asset impairment resulting from the direct impact of COVID-19, or the continuing indirect impact of uncertainty on the business and wider economic environments.

However, BDO’s Chan reminded

RANKINGS: ACCOUNTING Average compliance and advisory service revenue in the last 12 months

Eugene Liu

Roy Lo

Source: Xero

that “the work requirement will not change significantly as our regulators are rightly expecting the same quality of output and work from all stakeholders. It is really down to how one successfully renovates and evolves with new and better ways of doing things under the new environment.”

It then became fairly obvious that digitisation is the way to go forward. Weatherseed shared that in Mazars, they’ve upgraded their facilities and softwares to enable smoother internal and external communications. Ewan Clarkson, chief people officer at PwC Mainland China and Hong Kong, stated that agility, leadership, and active communication across national, regional, and local businesses are critical to ensuring engagement, quality and execution addressing client needs throughout the period of social distancing and remote working.

“The event has accelerated our digital transformation journey, which involves implementing new workspace practices and getting the right technology infrastructure that enables collaboration while upholding compliance and regulation crucial for remote working,” said Clarkson. He also added that apart from putting digital tools in place, they are also upskilling and investing towards a more agile, innovative and digitally-enabled workforce against emerging market demands.

Though most firms, especially the larger accounting firms, had

always reiterated that modernising their operations was their main focus even prior to COVID-19, RSM’s Liu argues that these are not enough. “We always need to deal with large data in person, remote communication for our staff and clients affects the effectiveness and the efficiency of the financial reporting and disclosure controls.

Meanwhile, there are unique challenges for audit clients due to the COVID-19 and which may directly impact an auditor’s risk assessment and response,” Liu said.

Specifically, Liu stated that they were not able to do crossborder audit work, investigation, investment analysis and enterprise management. And as businesses halt operations or shut down, the accounting industry has suffered from a loss of clients. “(The number of) new businesses setting up in Hong Kong have dramatically slowed down, and whether it’s M&A transactions, or just general expansion of the businesses, or doing more businesses from one company to another, needing professional help at the back end of that has obviously slowed down as well,” Mazars’ Weatherseed added.

This, as a result, could then spill over to Hong Kong’s position as a global financial centre.

Treading carefully Weatherseed believes that the demand for ongoing compliance work will still rise in the next few months. “I think there is likely to

Stephen Weatherseed

Ewan Clarkson

be more businesses that are going to be going out-of-business or finding financial difficulties. Then the shareholders, creditors or the investors, they’re going to turn to accounting firms for assistance and advice and how to deal with those situations,” he said.

RSM’s Liu agrees. “There is an increase in consulting services.

Uncertainty of COVID-19 created a large number of challenges for our clients on their operations, cash flow and the impairment of the assets etc. For instance, clients seek alternative financing options, transaction advisory and funding advisory to apply government funding, which can provide them a short-term cash flow,” said Liu also added that more clients are also increasingly seeking advice on technology solutions and digital transformation given the pandemic. And even as accountants under M&A advisory have noticed that there are low to zero new clients, Weatherseed shared that they’ve been keeping busy from doing post-merger integration (PMI) work.

But looking ahead, ShineWing’s Lo is feeling optimistic on what the future holds for Hong Kong’s accounting scene. However, he warned that businesses should always stay vigilant.

“In view of the business sustainability, businesses should develop and implement a contingency operation plan and risk assessment mechanism not only for the current pandemic but also any other occurrence of force majeure,” Lo said.

Further, Liu also clarified that even if things may get back to normal by end-2020, it won’t necessarily mean immediate return to growth. “No one can accurately predict the future but many companies did take actions, such as reviewing portfolios to minimise the loss during COVID-19. It also means rebalancing portfolios of assets more frequently through acquisitions and disposals. Increase in demand on M&A is beneficial to accounting firms to address the incredible challenges,” Liu stated.

HONG KONG BUSINESS | Q3 2020

35

RANKINGS: ACCOUNTING 2020 RANKING

Accounting Firm

2020 Total Staff

No. of Accounting Professionals

2019 RANKINGS

2019 TOTAL STAFF

Managing Partner

1

PricewaterhouseCoopers

4,600

<4,600

1

4,600*

Raymund Chao

2

Ernst & Young (EY)

3,250

<3,250

2

3,300

Agnes Chan

3

Deloitte Touche Tohmatsu HK

3,000

UNDISCLOSED

3

2,700

Edward Au

4

KPMG

2,200

1,850

4

2,300

Ayesha Lau

5

BDO

1,100

1,000

5

1,100

Clement Chan Johnson Kong

6

RSM Hong Kong

600

550

6

680

Stephen Wong Eugene Liu

7

HLB Hodgson Impey Cheng

>450

<430

7

>450

Raymond Cheng

8

ShineWing HK CPA LTD

450*

400*

8

400*

Roy Lo

9

Crowe (HK) CPA Limited

368

260

9

368

Charles Chan

10

Mazars CPA Ltd.

343

298

10

300

Stephen Weatherseed

11

Baker Tilly Hong Kong

310

280

10

300

Cynthia Lo

12

Grant Thornton

200**

170**

11

200**

Daniel Lin

12

Cheng & Cheng

200**

UNDISCLOSED

11

200

Andrew Cheng Hong Kei Francis Cheng Hong Cheung

14

PKF Hong Kong Ltd.

110

84

12

125

David Leong

15

Pan-China (H.K.) CPA LIMITED

100**

<100**

14

100**

Patrick Ng

16

Wong Brothers & Co.

94**

UNDISCLOSED

15

94**

Charles CL Chow

17

HLM CPA

85

78

17

75

Derek Chan

18

Ting Ho Kwan & Chan CPA

80**

18**

16

80**

Stephen Ting

19

Patrick Wong CPA

70

50

14

100**

Patrick Wong

20

FTW & Partners CPA Ltd.

68**

45**

18

68**

Frederick Tsang

21

C K Yau & Partners

42

40

19

50

KT Tam

22

Lawrence Cheung CPA

40**

11**

20

40**

Lawrence Cheung Wai-Kou

23

KLC CPA

34

24

19

50

Kennic L.H. LUI

TOTAL

17,794

TOTAL

17,794

*estimated figures **info reatined from 2019

36

HONG KONG BUSINESS | Q3 2020

HONG KONG BUSINESS | Q3 2020

37

HR BRIEFING

How employers prepare for “new normal” Staggered return and split teams may not be enough to squash their employees’ concerns.

H

ong Kong companies are still divided over whether they should continue on with their work- from-home (WFH) arrangements or have their employees face the “new normal” outside the comfort of their homes. Either strategy will require additional costs and adjustments in order to satisfy workers’ changing needs and placate the fear that another wave of infections might surge.

In a Bain & Company’s study, many CEOs reported that the lockdown has been liberating as organisations have changed their systems. “We have had many interesting conversations with clients about the ‘new normal’. Speculations span the possibility of leapfrogging to a virtual working model, a reduction of office footprint, and a new travel paradigm,” Mercer Hong Kong’s chief executive Vicki Fan told Hong Kong Business.

However for most workers, WFH is not as “liberating” as with their companies’ plans.

“From the employee’s viewpoint, working from home allows them to save on commuting hours and unwarranted interruptions in an office environment.

With other responsibilities and obligations outside of one’s day to day job, employees now have the flexibility to schedule their days to accommodate aspects of their lives. However, some may experience varying levels of frustrations or symptoms associated with prolonged self-isolation,” said Randstad’s managing director for Greater China Natellie Sun. A survey by Randstad noted that three out of 10 employees are not adequately supported to work remotely. Information and communication tech requirements, data accessibility, and information security are essential to address such challenges.

Currently, some companies have adjusted their weekly catch up to online and hosting webinars to educate employees on how to cope with such work arrangements. Business leaders are also designing a new set of KPIs to drive productivity remotely.

But in the event that such issues do not get

Universum ranked Google as one of the best workplaces in Hong Kong.

38

HONG KONG BUSINESS | Q3 2020

Tiffany Wong

Vicki Fan

Natellie Sun

addressed, Robert Walters’ director of human resources Tiffany Wong explained that it will lead to communication gaps between managers and the staff, bringing difficulties in monitoring their work as some are not mentally ready to handle WFH independently.

“This lack of communication is certainly a worrying one as it will negatively impact productivity in the long run,” Wong said.

Sun also added that Hong Kong’s fast pace and tight spaces will also pose challenges in WFH. As many work in bedrooms or study rooms, this will eventually also make them easy to forget taking a break for lunch or end work and will unfortunately lead to a burnout.

Fan also noted that many Hong Kong families do not have a home office set up, which results in a blurring line between their personal and professional realms.

Many employees are also experiencing ‘digital fatigue’ where employees are overloaded with virtual content and interactions.

“In the course of the pandemic, employees are looking to their employers as a key, critical source for support. We’ve seen many companies step up to support—for example, allowing for flexibility in work schedules, offering emergency funds, and, most importantly, showing empathy and building togetherness,” Fan stated.

Wong also suggests that employees may maintain a routine for work even if they are at home to address the drawbacks of working remotely. They may also use online communication tools more often to stay connected with colleagues and occasionally work at public spaces or cafes.

Back to “normal”?

Despite employees’ qualms on getting back to the office, many Hong Kong companies have developed a return-to-work transition plan. Trends seen by HR firms on this note are staggered return, split teams, continuation of flexible work arrangements, and combinations. Some companies are continuing to use shift work arrangements to minimise the number of employees in the office and to prevent overcrowding.

Robert Walter’s Wong revealed that most companies start off with shifts to allow their employees gain confidence in taking public transport before resuming work full time. However, she warned that companies should still also consider factors such as the feasibility of continuing WFH arrangements, office’s hygiene level, social distancing, and flexible working hours in their preparations.

Apart from prioritising health and safety, Randstad’s Sun reminded employers that they need to keep in mind the logistical costs that can be used for demarcating the work stations to achieve the usual health measures in place such as social distancing.

LEGAL BRIEFING

New ordinance opens doors for investors This aims to attract private equity and venture capital funds to set up and operate in Hong Kong.

I

n recent years, private equity (PE) funds are gaining popularity amongst investors and driving the growth of wealth and asset management (WAM) business. However, Hong Kong’s existing legislation for limited partnerships, the Limited Partnership Ordinance (Cap. 37) or LPO was enacted about a century ago, which makes it difficult for it to meet the needs of investment funds, which are a relatively modern invention.

Thus, a new framework for the constitution of limited partnership funds (LPFs) was gazetted in the form of the Limited Partnership Fund Bill (LPF Bill) on 20 March.

This follows the Financial Services and the Treasury Bureau (FSTB) proposal on a limited partnership regime specifically for use by investment funds in Hong Kong. The bill is now expected to be enacted as the Limited Partnership Fund Ordinance (LPFO) will come into effect on 31 August.

Simmons & Simmons’ partner Rolfe Hayden notes that the primary benefit of the LPF Bill is that it will allow Hong Kong fund managers and advisers to use a Hong Kong domiciled, domestic closed-end fund vehicle. Instead of establishing a fund offshore Hong Kong, a fund will be able to be set up in Hong Kong and enjoy similar contractual freedom as in other jurisdictions but with greater legal certainty in the Special Administrative Region.

This seeks to attract investment funds, including private equity and venture capital funds, to set up and operate in Hong Kong. It is also said to provide for the registration of funds as limited partnership funds similar to other jurisdictions, which use registration schemes such as Cayman Islands- or Delawareregistered limited partnership.

Although there are many similarities, Eversheds Sutherland partner Paul Moloney and of counsel Helen Wang said that one noteable difference is that the LPF regime requires the general partner (GP) to appoint an investment manager who can be itself but needs to be a Hong Kong resident over the age of 18, a company incorporated in Hong Kong, or an overseas company registered in Hong Kong.

This is said to be the same with Singapore’s requirements in registration, but there is no such limitation in the Cayman Islands regime, which could make it more transnational and versatile for those managers with global presence and who may not want to be perceived to have any particular ties to Hong Kong or Singapore.

What are the differences between LPF Bill and the Limited Partnership Ordinance?

The main difference between the LPF Bill and the LPO is that LPO was first enacted in 1912 and is not fit for purpose in a private equity fund context.

Simmons & Simmons’ Hayden notes that the LPO has

40

HONG KONG BUSINESS | Q3 2020

Rolfe Hayden

Allianz and NPS will launch an APAC real estate investment platform.

Helen Wang

Paul Moloney

never been really over-hauled and updated to cater for funds. For example, the LPO does not have provisions for flexibility in capital contributions and distribution of profits, or allow a fund to have the necessary contractual flexibility, or provide a straightforward winding-up mechanism. The existing law is unclear and limited in scope on the freedom of the partners to contract on the commercial terms. There is limited protection for investors with safe harbour activities also being unclear and very limited in scope,” said Eversheds Sutherland’s partners Moloney and Wang.

Moreover, there is a lack of confidentiality with information about the limited partnership and its limited partners which makes the Hong Kong limited partnership vehicle unsuitable as a private equity fund structure. Eversheds Sutherland’s partner Moloney and Wang notes that a 0.8% tax on all contributions from limited partners acts as the “final nail in the coffin” in this situation.

In contrast, the LPF Bill is designed specifically for the PE/venture capital (VC) industry, adopting many of the key points made by the industry, and the shortcomings mentioned are resolved.

How will the bill enhance the attractiveness of Hong Kong’s asset and wealth management industry?

FSTB’s proposal notes that the bill is expected to bring more jobs and business opportunities to the local fund and related industries. With the growth of PE funds, the LPF regime offers a viable structure that will enable Hong Kong to compete with other major fund centres globally.

Moloney and Wang adds that once the LPF bill has passed into law, it will promote Hong Kong as the vibrant centre in Asia not just for PE/VC fund managers but also to the WAM industry more generally. “In addition, if the LPF regime is a success, foreign private equity houses may consider the LPF regime as a factor in choosing to locate into Hong Kong as a China or regional base. Moreover Hong Kong service providers, including Hong Kong law firms, will also benefit as the fund formation ecosystem is developed further,” said Hayden.

NUMBERS Will Hong Kongâ&#x20AC;&#x2122;s office space crunch extend beyond 2020?

In an effort to address the office property shortage, the government moved to increase commercial land supply in its latest Land Sales Programme, revealing commercial sites providing a total floor area of about 3.6 million sqft to the market with most of the sites located in Kowloon East. However, as time is needed for planning and development, Knight Frank Hong Kong expects these supply will only be released to the market after 2020. So far, the report said that new supply during 2017-2020 is at an average of 1.9 million sqft per year. Following this, the office supply could accelerate in the new decade once urban districts such as CBD2 and West Kowloon have materialised.

Existing stock of Grade-A office space in Hong Kong

Overall Hong Kong Grade-A office stock distribution by age

New supply of Grade-A office space in 2013-2016

Rents and vacancy in Two IFC in Central

Growth of Grade-A office space in major office clusters in 2017-2020

Rents and vacancy in Kowloon East

Source: Knight Frank Hong Kong

HONG KONG BUSINESS | Q3 2020

41

ANALYSIS: STOCKS

The Hong Kong Stock Exchange headquarters

Will the stocks shrug off the national security law issue?

Hong Kong benefits from a consistent current account surplus and an ongoing capital inflow from both China and other markets.

S

ince Fortune published its “The Death of Hong Kong” article in 1995 (two years before the handover), the Hang Seng Index (HSI) has risen 149%.

A Jefferies report is expecting a similar international sentiment as China imposed the National Security Law on Hong Kong.

However, the HSI will likely benefit from 1) roughly $4.32b (US$557b) of listing migration from Chinese American depositary receipt (ADRs), 2) inclusion of new-economy weighted voting rights (WVR) Chinese stocks, and 3) global capital inflow.

Even so, radical housing solutions are needed to keep Hong Kong competitive.

“Whilst this could easily lead western media and governments to draw the same conclusion as Fortune did in 1995, we are optimistic that the Hong Kong stock market will eventually shrug off such a risk,” said Jefferies’ analyst Edison Lee. Lee added that Hong Kong has a consistent current account

42

HONG KONG BUSINESS | Q3 2020

The most likely response by USlisted Chinese companies to this potential threat is to move their listing back to Hong Kong or China.

surplus and that the HKD peg against the USD and the US Fed’s unlimited QE should ensure that interest rates in Hong Kong should stay low for the next few years. It also leverages from a relatively stable RMB, keeping Chinese companies earning RMB attractive. There is also an ongoing capital inflow from both China and other markets if Hong Kong continues to offer attractive investment opportunities.

“We believe the proposed National Security Law may not be the most important driver of perceived risk,” Lee added. “We see the following four factors as more important: free flow of capital, especially when the RMB remains non-convertible; continued upholding of the protection of private property rights; continued use of the common law especially in all business and financial dealings; an independent court.”

Further, the downside risks will be 1) an intensification of violent actions by radical protesters, and

2) the possibility that the US will punish Hong Kong and/or China for introducing this law.

Lee stated that the US reaction will likely be intertwined with the escalating trade and tech war between China and the US. Part of the escalating trade and tech war between the US is taking place in the US stock market, centering around the potential ban of Chinese companies from listing in the US, and forcing existing listed companies from China to de-list from the US. The US argues to de-list Chinese ADRs and ban Chinese companies from listing in the US. Both Marc Rubio (US Senator - the Equitable Act) and John Kennedy (US Senator - Holding Foreign Companies Accountable Act) have introduced bills that address such issues. The Holding Foreign Companies Accountable Act was passed by the US Senate with bi-partisan support on 20 May. However, the argument to protect investor interests and prevent certain SOEs that may create perceived national security risk to the US from being able to raise capital in the market is quite strong. As a result, Jefferies expects some form of control to finally come, although it may not be a blanket ban.

“The most likely response, in our view, by US-listed Chinese companies to this potential threat is to move their listing back to Hong Kong or China, or at least do a separate listing in Hong Kong or China, as a backup. But listing in China is not ideal, since not every current ADR holder will be able to own A shares. Moreover, RMB is not yet a convertible currency, and thus raising HKD will likely be more desirable for many of these Chinese companies. Given the proposed legislation in the US, we estimate Chinese ADRs will have two to three years to plan this move,” Lee explained.

Jefferies stated that 145 China ADRs are listed in the US, of which 130 do not have a secondary listing.

OPINION

Legal professionals: Fighting against money laundering without compromising clients’ interests

H

BY ERIC MAYER

BY SANDRA BACHA Partner Senior Associate Thomas, Mayer & Associés Thomas, Mayer & Associés

ow do we know whether we are winning the counter-money laundering war? Since the inclusion of legal professionals in the scope of professionals in the FATF1 Recommendations in 2003, there has been a wide-ranging debate as to whether the application of the FATF Recommendations is consistent with fundamental human rights of clients and the ethical obligations of legal professionals.

requirements. Understanding the nature and the purpose of the client’s business relationship is essential. Lawyers must always pay great attention to all reasonably available information regarding the matters that are entrusted to them by their clients.

The fight against money laundering by legal professionals must not, however, under any circumstances, be done by sacrificing their clients’ legitimate interests.

Legal professionals’ involvement in anti-money laundering In many cases, criminals use legal professionals to provide an impression of respectability to dissuade suspicion from financial institutions and to create an added step in the chain of any possible investigations. For this reason, legal professionals have always been subject to strict ethical obligations and professional rules. The following point must be made clear: legal professionals have duties to the Court with take precedence over duties to the client, meaning that they must not act in a way which facilitates the engaging in criminal conduct by their clients. Lawyers should, therefore, be naturally deterred from willfully engaging in money laundering or terrorist financing (ML/TF). However, legal professionals remain globally vulnerable to ML/TF risks considering the specific legal services they provide.

The Anti-Money Laundering and Counter Terrorist Financing Ordinance (AMLO) has been extended to legal professionals from 1st March 2008 to ensure that legal professionals comply with due diligence and record keeping obligations regarding their clients. The Law Society of Hong Kong has further published Practice Direction P to guide legal professionals by enacting clear compliance rules for them under the AMLO. Most importantly, red flag indicators assist legal professionals to comply efficiently with their customer due diligence

Protecting client’s interests Legal professional privilege is considered to be a fundamental human right and legal professionals are required to protect it. The right of a client to obtain legal representation and advice, to be transparent with his/ her legal adviser and not to be afraid of disclosure of those discussions, is recognized as a fundamental right of access to justice. However, the following limitations to this fundamental right should be noted: legal professional privilege applies only in relation to events (e.g. crimes, wrongdoings) to which the lawyer is a total outsider and cannot concern crimes to which lawyers have contributed by providing legal assistance and advice.

In a situation where a legal professional is an accomplice to a crime, there is indeed no place for legal professional privilege. Legal professionals must not assist any potential clients intending to affect the interests of justice, or willfully breach the law.

It is, therefore, essential that legal professionals are able to distinguish between clients with legitimate interests from those intending to complete transactions with the purpose of concealing criminal activity. Lawyers must interact in a prudent but sensitive manner at an early stage of the relationship with their new clients or their existing clients entrusting them with new matters. Sometimes detecting these criminal activities can be a challenge for legal professionals as methods and techniques used by criminals to launder money may also be used by clients with legitimate means for legitimate purposes (ex: setting-up companies, completing standards international transactions, purchasing real estate).

Entrepreneurs and companies seeking privacy in their legitimate business affairs and finances should be aware that, in today’s world, their best allies to achieve these goals are experienced legal professionals who comply with their anti-money laundering obligations: they offer a safe, legitimate haven with the protection of legal professional privilege as well as the protection of law offices where their files and documents are stored, and which cannot be easily accessible, even by civil servants of the various government bodies created under the AMLO.

HKMA fined Guotai Junan Securities $25m for breaching anti money-laundering rules Formed in 1989, the Financial Action Task Force (FATF) is an inter-governmental body comprising the Group of Seven industrialized nations to set standards and foster international action against money laundering.

1

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HONG KONG BUSINESS | Q3 2020

HONG KONG BUSINESS | Q3 2020

45

OPINION

ERIC CHIN

Hong Kong’s possible loss of special status reiterates Singapore’s stability

H

ong Kong has taken a series of unfavourable hits in the last year, their unfortunate magnitude clear to see for the watching eyes of the world. The latest of which is United States Secretary of State Mike Pompeo publicly stating that the country no longer considers Hong Kong to be adequately independent from China.

Whilst just a statement at this stage, sadly there will almost certainly be ramifications for Hong Kong’s reputation as a global investment bridge between East and West. The world’s two biggest superpowers are playing a game of geopolitical chess, and Hong Kong is in danger of being an involuntary pawn on the board.

Looking from the relative stability here in Singapore, It’s a real shame for Hong Kong on many levels. Singapore and Hong Kong have long shared a connection as the two places to be in Asia for foreign investment, and it has been difficult to watch Hong Kong slide from its once proud position as the freest economy in the world.

It’s that declining freedom, most recently in the form of China’s national security law, that has caused the US to publicly state it is not satisfied with Hong Kong’s ability to remain independent from Chinese rule.

Whilst I doubt much will change in the immediate future, the US may have to treat Hong Kong as part of the Chinese Mainland, rather than an independent region. Among other things, this will mean that the US will revoke Hong Kong’s special status afforded to them in 1992, which has allowed them to bypass tariffs put on the Mainland.

China has already threatened to “take strong countermeasures” if the US is judged or considered to be interfering with its sovereignty, and so the tumult would only grow stronger from there. China will most likely want its preferred form of near-total autonomy over the Hong Kong economy, and foreign businesses may well be regulated and controlled accordingly.

We have to remember too, that Hong Kong will be hurt most of all out of the three parties, whilst the much larger and battle-hardened US and China continue their economic and political wrestle. For China, capital of the political variety in Hong Kong is far more important than the economic capital.

This will surely make the 9,000 foreign companies in Hong Kong justifiably nervous, as the inherent advantages of accessing the Chinese Mainland through Hong Kong slowly start to slip away.

Hong Kong’s Hang Seng Index (HSI) echoed that fear almost immediately after China’s announcement of the national security law, enduring its worst day since 2015. If the US actions start to mirror their statements, I can only assume things will get worse.

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HONG KONG BUSINESS | Q3 2020

BY ERIC CHIN Chief Business Development Officer, InCorp Group

Reports say that deposits have been moving from Hong Kong to Singapore.

However we cannot ignore the reality of Hong Kong’s loosening grasp of its own destiny — businesses will surely be looking for alternative safe haven in the region in the future.

I believe Singapore must continue to step up to support businesses in the region, and provide refuge for any business compelled to relocate. High net-worth families who are keen to diversify their wealth will be well supported by the mature and highly trustable banking and wealth management platforms in Singapore.

We have the capacity, and we have the infrastructure.

Singapore is the number two nation on earth to do business with according to the World Bank. We are the most competitive country in the world according to IMD Business School. We are ranked number one in the 2015 OECD Global Education Report. Not to mention, Singapore is just a superb place to live.

Many of the businesses we’ve helped move into Singapore are putting more and more emphasis on the need for political and social stability, and that’s something Singapore can be very proud to offer. Also, we cannot ignore the fact that Singapore remains an attractive financial hub in Asia due to many reasons other than political stability.

Whilst we all hope for the best for Hong Kong’s future, I know Singapore will be waiting and willing to embrace any business that is looking for safe harbour.

As the business environment has highly transformed in Singapore, the incorporation process is smooth and foreigners can look forward to setting up businesses here in a matter of a few hours, if all documents are in place. Foreigners setting up a company in Singapore, are required to engage a corporate service provider to assist with the process.

HONG KONG BUSINESS | Q3 2020

47

OPINION

TIM HAMLETT

Prices that go up must come down … very slowly

F

rom time to time there are bitter complaints from legislators and motoring organisations about the way the price of petrol moves when the price of oil changes.

They say that the price of petrol moves up quickly when the international oil market is on the up, but comes down rather slowly when the movement is in the other direction.

This charge is vigorously contested by the oil companies, who say that any change in prices at the oilwell takes its time to reach them down a long supply chain, and in any case the cost of raw crude is only part of the price of petrol, which has to include processing, transport, running costs of petrol stations and so on.

I am an agnostic on the question whether petrol retailers are as diligent in reducing prices as they are in increasing them. I did notice that when the price of oil futures briefly went negative – that is to say people would pay you to take the stuff off their hands – we did not see petrol stations offering free petrol, let alone bidding for tank space. No doubt there are technical reasons for this.

What cannot be disputed is that the petrol people do not have a mechanism specifically designed to keep prices up when they are trying to go down.

The Hong Kong government, on the other hand, resists reductions in land prices by simply withdrawing from sale any piece of real estate which does not meet its expectations when they are first put up for bids.

Last week, for example, the Lands Department announced the non-sale of a large piece of the former airport at Kaitak, giving as an explanation that bids for it “failed to meet the government’s reserve price”.

Note that in no case has the government ever withdrawn a plot from sale on the grounds that the bids were so high that the ensuing building would be outrageously expensive. Prices are able to increase as high as they like.

They are, on the other hand, not allowed to come down. This was the fourth incident of its kind in the last two years. One of the others was a residential plot. Do you wonder why Hong Kong housing is so expensive?

In the latest case there were actually four bids.

Bidders included some of the usual suspects: Cheung Kong, Sun Hung Kai and Sino Land.

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HONG KONG BUSINESS | Q3 2020

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

The former airport site will turn to a commercial unit.

So this was not a case where there was a single bid of $5, offered in the faint hope that nobody else would bid at all. The bids offered were a result of serious consideration of what a commercial plot was worth these days.

Reporters found several property people willing to complain that the reserve price was too high and the government was “out of touch” with conditions in the market. Between the ongoing political turmoil and the COVID-19 situation this is not a promising time for commercial mega-projects.

But there is a serious question whether the government ought to have a reserve price at all. The government is a major player in the market for new sites and if it withdraws items from sale then the effect, whatever the intention, is to prop up prices.

When the vendor of something is a private individual it is of course up to him whether he wishes to sell for whatever he can get, or prefers to sell only if the price reaches a certain level.

Auctioneers will recognise that if a price is very low the owner of an item may prefer simply to keep it, or to try again later when market conditions have improved. Hence the minimum price.

But the government is not a private landowner and the purpose of land sales is not to fill the relevant account, which is already bulging and which the government refuses to spend on anything useful. The purpose of land sales is to get land into use as soon as possible.

The Kai Tak airport site actually became vacant when the airport moved out in 1998. That is to say the plot in question has already been waiting for the Lands Department to get its act together for more than 20 years.

“The government is a major player in the market for new sites and if it withdraws items from sale then the effect, whatever the intention, is to prop up prices.”

© 2020 Herman Miller Asia Pacific

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