PUBLISHED to mark tHE 2014 HIgH-LEvEL Hong kong govErnmEnt vISIt

China’s business and services hub seeks to broaden its global remit

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© First 2014FIRST gRaTeFully acknowledgeS The coopeRaTIon oF The goveRnmenT oF

The hong kong SpecIal admInISTRaTIve RegIon and ITS economIc and TRade oFFIce In london

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Chairman and Founder rupert Goodman dl Chairman, Advisory Council rt Hon Lord Hurd of Westwell ch cbe pc

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Regional Publisher Declan Hartnett, Head of Special Projects Waqäs Ahmed Designer Jon Mark Deane Marketing Administrator Chris Cammack, PA – Chairman’s Office Hilary Winstanly

Research Assistant Anna Vexler, Editorial Consultant Jonathan Gregson, Design Consultant stanley Glazer, Senior Staff Writer Nicholas Lyne Award Advisory Panel rt Hon Lord Woolf, rt Hon Lord Howe of Aberavon ch qc,

Hon Philip Lader, Lord Plant of Highfield, Chief Emeka Anyaoku gcvo Tc cFR, Marilyn Carlson Nelson, Dr Daniel Vasella, rt Hon Lord robertson of Port Ellen kT, gcmg, ratan tata, Howard schultz and Philippa Foster Back cbe

Special Advisor, China, Lord Powell of Bayswater kcmg, Special Advisor, Russia sir Andrew Wood gcmg Special Advisor, Latin America Jacques Arnold dl, Special Advisor, Global Issues Professor Victor Bulmer-thomas cmg obe

First IS compoSed oF The opInIonS and IdeaS oF leadIng buSIneSS and polITIcal FIguReS. all InFoRmaTIon In ThIS publIcaTIon IS veRIFIed To The beST oF The auThoRS’ and publISheRS’ abIlITy, buT no ReSponSIbIlITy can be accepTed

FoR loSS aRISIng FRom decISIonS baSed on ThIS maTeRIal. wheRe opInIon IS expReSSed, IT IS ThaT oF The auThoRS.

HONG KONGS p e c i a l R e p o Rt

Special adminiStRative Regionof tHE PEoPLE’S rEPUBL Ic of cHIna

InnovatIvE • connEctED • crEatIvE • rESILIEnt

OfficialReport_297mmH_220mmW_23Oct2014_OL.indd 1 23/10/2014 ��5:27

Introduction by The Rt Hon Lord Hurd of Westwell ch cbe pc

Chairman of the FIRST Advisory Council

it gives me great pleasure to introduce this special First report on the Hong Kong special Administrative region (sAr). We at First would particularly

like to thank Erica Ng, the Director-General of the Hong Kong Economic and trade Office in London for all her support. We are also very grateful to Hong Kong’s Chief Executive, the Hon CY Leung, as well as the many other senior figures who have contributed such important and personal interviews and articles to this special report.

i must at this stage sound a personal note. i have visited Hong Kong many times both as a young diplomat in the 1950s and from 1989-1995 as Foreign secretary.

the United Kingdom, as a co-signatory of the sino-British Joint Declaration with the People’s republic of China, has an enduring relationship with, and commitment to, the sAr following the transfer of sovereignty in 1997, the ceremony of which i attended. this close cooperation includes regular exchanges on a range of policy issues including education, financial services, law enforcement and climate change.

Hong Kong is the UK’s second-largest market in the Asia Pacific region for the export of goods and is the home to half of all UK investment in Asia. the British government works closely with the government of the Hong Kong sAr on issues such as offshore renminbi (rMB) internationalisation, low-carbon growth and policy issues concerning financial services regulation.

Hong Kong’s economy is regularly voted the freest in the world and is highly dependent on international trade and finance. the Chinese Mainland is by far Hong Kong’s largest trading partner, accounting for around half of all Hong Kong’s trade by value. Hong Kong has also established itself as the preeminent stock market for Chinese companies seeking to list

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outside Mainland China. Mainland Chinese companies account for about half of the firms listed on the Hong Kong stock Exchange and contribute nearly 60 per cent of the exchange’s market capitalisation.

in 2013 the sAr and Mainland Authorities signed new agreements under the Closer Economic Partnership Agreement (CEPA) to establish even closer economic ties between the Mainland and Hong Kong. these measures, which became effective in January 2014, cover services and trade facilitation. these links, along with international economic relationships have propelled Hong Kong’s annual GDP per capita to around Us$55,000 – the fifteenth highest in the world. the sAr also enjoys a budget surplus of nearly 2 per cent of GDP.

Hong Kong’s increasingly powerful economy is underpinned by the principle of ‘One Country, two systems’ under which the People’s republic of China provides the region with a high degree of autonomy and preserves its economic and social systems for 50 years from the date of the handover. Given the sAr’s key role as a major corporate and banking centre, as well as being a vital conduit for Mainland China’s rapidly growing outward investment, it is in all our interests that Hong Kong’s peace and stability is maintained.

recently there has been strong argument in Hong Kong regarding the process for electing the next Chief Executive of the sAr in 2017. it is in the interests of all to find in discussion a solution which will enable Hong Kong to resume without interruption its economic and social progress under institutions which command general support.

We at First are delighted to have been asked to produce this special publication on Hong Kong and hope that it contributes, in a small way, to the further development of the sAr’s international relationships, particularly in the areas of trade and investment. F

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IntervIew wIth The hon C Y Leung, gbm, gbs, jpChief exeCutive of the hong Kong SAR

We are listening to the views of the people, whether they express them through legal dem-onstrations or the illegal occupation of Central, but the key thing is to go back to the Basic Law

Getting back to basics

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You are almost at the halfway point of your administration, the major tasks of which you have identified as constitutional development, constructive engagement with the Mainland and improving the lives of the ordinary people of Hong Kong. How would you assess your progress to date and what are your priorities and objectives for the remainder of your term?

these are what i call the three big ‘buckets’ of work for this government, and i would like to address them individually, if i may.

the first of these is constitutional development, and we are in the midst of it at the moment, as we work towards the introduction of universal suffrage for the election of our next Chief Executive in 2017 – a truly historic moment for the people of Hong Kong. As you know, the National People’s Congress standing Committee (NPCsC) announced their decision on August 31st on the framework of how Hong Kong’s universal suffrage will go ahead, and we’re in the process of preparing for the next round of consultation to flesh out the details within that framework.

it is important to bear in mind a couple of key constitutional facts in this regard. One is the right of the Central Government to appoint Chief Executives of Hong Kong, which is a substantive right, not simply a ceremonial one. it is set out in the Basic Law (Hong Kong’s constitutional document) for the Central Government to appoint the elected Chief Executives. so, democracy in Hong Kong, when it comes to electing the Chief Executive, is not what i call ‘self-contained’ democracy. the joint declaration signed between the UK government and Chinese government back in 1984 actually says that the Chief Executive of Hong Kong shall be “appointed, on the basis of consultation or election held locally, by the Central People’s Government.” so, we have a different type of democracy compared to other jurisdictions. And the Central Government reserves that right, essentially, because the Chief Executive of Hong Kong has much greater powers than the leaders of other local democracies – such as the Mayor of London, for example, because we have such a high degree of autonomy.

the second key fact to bear in mind is that to change the method of electing the Chief Executive – and again, this is in the Basic Law – from the electoral college which elected me two years ago to universal suffrage,

needs three parties to agree: a two-thirds majority in the Legislative Council (LegCo), the consent of the Chief Executive, and the approval of the NPCsC. Now, i know the constitutional framework of any country can be a very dry document. it’s not easy to convince people that they have a duty to read all 160 Articles in the Basic Law, and therefore there’s room for misunderstanding or mis-interpretation. And some influential political figures in Hong Kong have misconstrued the Basic Law to think that the change of method of electing the Chief Executive is entirely within the autonomy of Hong Kong – it is not so. it’s in the Basic Law, in black-and-white, that the NPCsC’s approval is needed. so, there is no question of anyone having ‘moved the goal posts’ as some would have it.

Hong Kong is a pluralistic society, so we don’t expect everyone to think the same way; and yes, different people have different ideal models. But it’s interesting to note that in a recent poll, 69 per cent of the people surveyed said that if we had universal suffrage to elect the Chief Executive in 2017 in accordance with the recent NPCsC decision, they would go to the polling station and vote. When people were asked whether they supported the NPCsC’s decision the split was roughly half-and-half, but those who said they would exercise their right to vote for the first time were in a big majority – almost 70 per cent.

As the Biblical saying goes, no man can serve two masters, and you often use the term nei jiao, or ‘internal diplomacy’, to define how you see Hong Kong’s relationship with the Central Authorities. Would you say that Hong Kong still behaves towards the Mainland as if it were a foreign power? How does this internal diplomacy work in practice?

this brings me to the second ‘bucket’, which is managing relations between Hong Kong, the Mainland and the Central Authorities.

We operate under this rather unique model of One Country, two systems: Hong Kong people ruling Hong Kong with a high degree of autonomy. And although the framework arrangements for this are stipulated in chapter two of the Basic Law, the actual day-to-day implementation of that is subject to interpretation. We exercise a high degree of autonomy but we are not fully autonomous, so there’s an interface between Hong Kong, other regional authorities on the

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Opposite: CY Leung, Chief Executive of

the Hong Kong SAR

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To quote Sir Percy Cradock, ‘In diplomacy, it is not the other side you need to worry about, but your own’

Mainland and the Central Authorities in Beijing.if i may quote sir Percy Cradock, who was

Britain’s Ambassador to China during the original negotiations on Hong Kong’s future in his book Experiences of China, published in the late 1980s, he said: “in diplomacy, it is not the other side you need to worry about, but your own.” similarly, in managing our relations with the Mainland, with the Central Authorities, the difficult part is not so much on the Mainland or the Central Authorities side, it’s the Hong Kong side – convincing the people of Hong Kong that what you are doing, namely abiding by the Basic Law, is in their best interests.

it’s not entirely dissimilar to the situation faced by municipal leaders in Western countries: you have national interests and then you have your local constituents to whom you are accountable. the only difference is that i exercise a high degree of autonomy while doing it under a different system from the rest of the country.

the One Country, two systems arrangement gives me, gives the government, and gives Hong Kong a unique advantage. As i tell business people when i meet them overseas, when they come to Hong Kong they have all the advantages of being in China, with its huge market and its fast-growing economy, but with all the added advantages of operating under a different system, with its common law system and other familiar aspects. sometimes there is pressure between the two systems when the two systems cannot see eye-to-eye; there are differences in culture, in political beliefs and so on and so forth, but somehow, we manage that interface quite well.

t h e r e a r e i n c i d e n t s where we’ve had to act and we’ve had to put Hong Kong’s interests first, with the support of the Central Government in Beijing, and with the support of the provinces on the Mainland.

One of the main examples is housing, which falls into the third ‘bucket’ i mentioned earlier.

Poll after poll has been telling us that the number one priority for the government is to address the question of shortage, and therefore high cost, of housing. Before we brought in demand management measures, by way of additional tax on property transactions, 10-20 per cent of units in new housing projects were being bought up by Mainland buyers, which seriously aggravated the shortage and drove prices even higher. And so, in a rather bold move that is unlike Hong Kong, we actually drew a line between Hong Kong permanent resident buyers and others, and said non-Hong Kong permanent residents buying residential properties in Hong Kong would have to pay an additional tax or stamp duty on the transaction, as well as introducing other demand management measures.

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Photography: Terry Duckham

Poll after poll has been telling us that the number one priority for the government is to address the question of shortage, and therefore high cost, of housing

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We also implemented – again untypical of Hong Kong – demand management measures on the purchase of infant formula milk powder and took steps to manage the numbers of tourist arrivals from the Mainland. Now, these measures do incur the wrath of residents on the Mainland, but we had to put Hong Kong’s people’s interests first.

As you say, the high cost of housing has a huge impact on people’s living standards, particularly at the lower end of the economic spectrum. How do you balance the needs of low-income residents in a freewheeling capitalist society like Hong Kong?

this brings me back to the third ‘bucket’, which is quality of life, consisting of three main items: housing, which i touched on; environmental issues, such as air and harbour water quality; and poverty alleviation.

We were the first government in Hong Kong to publicly recognise that we have a problem with poverty, which is why we re-established the Poverty Commission, set the first ever official poverty line and are now looking at the pros and cons of introducing a retirement protection scheme, essentially to look after people who are not able to look after themselves in their old age. We have an ageing society. in four years’ time our workforce will begin to shrink.

i think we’ve made good progress in all these areas, but probably most notably on the housing front, where we’ve managed to cap prices and rent, which is not easy.

And people have been patient, partly because i

believe that they have seen two things: firstly that there is definitely no cahoot, so to speak, between this Hong Kong government and the property development industry, and secondly, that this government is making a huge determination to increase supply.

That said, Hong Kong is constrained by nature and geography.

it’s not exactly a physical lack of land. We do have land – forget about the country parks, i won’t touch them – but outside of the country parks we do actually have some green space and open land that is underdeveloped on which we could increase development densities and so on. But we need to get the local people on-side. We have a very elaborate consultation process, and a very vigilant town Planning Board, made up of mostly non-official members. We need to have these checks and balances, and they are a small price to pay for having democratic processes in making major development decisions.

Despite its many natural advantages, Hong Kong seems to face constant challenges from regional competitors like Singapore, as well as Mainland cities like Shanghai, often in its core competencies. What measures are you taking and your government taking to future-proof the Hong Kong advantage and guard against further erosion of its position?

As i said, Hong Kong offers the combined advantages of One Country and two systems. that makes us pretty unique. singapore provides the benefits of two systems but not the benefit of one country. shanghai provides the benefits of one country but not the benefits of two systems. We provide both. Between Hong Kong and singapore, between Hong Kong and shanghai, we don’t have to eat each other’s lunches. Firstly both Hong Kong and singapore are quite small economies – we are 7.1 million people, singapore is about 6 million. so we don’t have this huge appetite; we don’t need to be all things to all men. We just do what we are good at.

secondly, we’re quite far apart. A flight between Hong Kong and singapore takes about 3 hours 45 minutes, so no regional business – and i have good experience of this – can aspire to cover the entire Asia-Pacific region without being in Hong Kong and singapore at the same time. You can’t cover india from Hong Kong, for example. Nor can you cover Malaysia or thailand for that matter. And you can’t cover shanghai and Beijing from singapore. so, you need to have what i call the two eyes of Asia-Pacific: both Hong Kong and singapore. that gives you the full geographical perspective, rather like the two eyes of a person. As for Hong Kong and shanghai, the China

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Some influential political figures in Hong Kong have misconstrued the Basic Law to think that the change of method of electing the Chief Executive is entirely within the autonomy of Hong Kong – it is not so

market is quite big. Look at shanghai-Hong Kong stock Connect, for example. this historic link-up between the two exchanges will give investors outside Mainland China access to some 560 shanghai-listed stocks for the first time, while Mainland investors will be able to buy some 260 Hong Kong-listed shares. it will be mutually beneficial and it’s a very good example to illustrate how Hong Kong and shanghai will continue to benefit at the same time through further reform and opening-up of the Mainland economy. Already financial services account for one-sixth of our GDP, and i can see this growing.

to be quite frank with you, the issue that we face in Hong Kong as an economy is not competition, is not lack of opportunities, it is under-capacity. We have capacity issues – land and people. We have a general labour shortage and our unemployment rate is about 3.3 per cent.

Do you think key decision makers in Beijing ‘get’ Hong Kong? Do they understand what makes it special and therefore valuable to them?

i was involved in the preparation of Hong Kong’s special Administrative region for 13 years, as Vice-Chairman of the Preparatory Committee before 1997 and then as a member and then Convener of the Executive Council since 1997, before i resigned to run for the position of Chief Executive. so, i have had pretty long contacts with the Mainland authorities at both Central Government level and local level, and i have to say they have a very good collective or ‘corporate’ memory of Hong Kong. the principle of One Country, two systems has been followed through all these years, since ’82 when negotiations started with the British government. they have been sticking to it religiously, so they have a pretty good understanding of the principle, the letters and the spirit of the Basic Law. And they’ve been talking and listening to Hong Kong people as well, so they know what Hong Kong people want. in Hong Kong, on the other hand, i have to say, relative to the importance of the relationship that we have with the Mainland and with the Central Authorities, we could do better by way of understanding the aspirations and the apprehension of Beijing. For example, while LegCo organises many foreign trips, to Europe and elsewhere in Asia, they very rarely organise trips to the Mainland. And given the rapid pace of developments on the Mainland, you have to be on the ground to appreciate the speed and scale and the nature of the changes taking place there.

As i’ve said many times, i am here to facilitate better communication between LegCo and the society at large on one side and the Mainland/Central Authorities on the other. i think it’s important; even

if one sets aside the fact that we’re part of the same country, the fact that the Mainland is our biggest neighbour, it’s our single most important economic partner, and it’s a society with whom we have very close and strong social ties – more than one-third of all marriages registered in Hong Kong every year involves a Mainland partner, for example. in my view, everyone in public service in Hong Kong is obliged to enhance his or her understanding of things on the Mainland.

Does the Occupy Central movement risk damaging the ‘brand’ of Hong Kong internationally, or is it simply a distraction from Hong Kong’s traditional business of making money?

i’ve been told that if New York still has an ‘Occupy Wall street’ – and it does – then Occupy Central is probably a compliment to the importance of Central as a financial district. But seriously, Hong Kong is an open society. We’re a pluralistic society, so we respect different views.

We are listening to the views of the people, whether they express those views through legal demonstrations or the illegal occupation of Central – we’re all ears. But the key thing is to go back to the Basic Law. One of the reasons why people in Hong Kong have occupied Central to vent their frustration is that they believe that they’ve been denied civic nomination – nominating Chief Executive candidates in 2017 – but it’s not in the Basic Law. that’s the key thing: the Basic Law stipulates nomination by a Nominating Committee.

The problem is that people have ratcheted up the rhetoric so much now that there has to be some kind of release mechanism. Does the consultation process you mentioned offer a potential way forward, in your view?

Yes, i think it does. the framework decision has been made. We should stop questioning that and try to move forward. As i said, it will be a big historic moment for Hong Kong to be able to empower the people to vote for the first time in this one-man-one-vote way, instead of watching the proceedings of the Election Committee on television. the vast majority of Hong Kong people still want to vote on that day, so it’s a big thing for Hong Kong.

there are important details to be fleshed out. For example, the composition of the Nominating Committee. And then should we have a first-past-the-post arrangement? Or require a successful candidate to command a majority? All these are details, but important details. And everyone in Hong Kong should join in this consultation, so that we have not only the first opportunity to vote in the Chief Executive by universal suffrage, but also an election system that actually works. F

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Opposite: Hong Kong’s Chief Executive, CY Leung, in conversation with Alastair Harris, Executive Publisher and Editor of FIRST

IntervIew wIth The hon Carrie Lam, gbs, jpChief SeCRetARy foR AdminiStRAtion, goveRnment of the hong Kong SAR

CARRIE LAm has held numerous senior government positions, including Permanent Secretary for Planning and Lands, Permanent Secretary for Home Affairs and Director-General of the Hong Kong economic and Trade Office in London. She was appointed Secretary for Development in 2007 and became Chief Secretary for Administration in 2012.

Navigating uncharted waters

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How serious a distraction has the debate and subsequent protests over constitutional reform been to the day-to-day running of government in Hong Kong?

Well, constitutional development is one of the major policy priorities of this term of government, and in addition to my usual portfolio as Chief secretary for Administration i’m leading a three-person task force to take forward constitutional development in the sAr. so, until very recently, when the so-called Occupy Central protests began, on 28th september, i would say that the discussion on constitutional development has not affected other day-to-day business. As far as the impact of the recent protests goes, it is too early to tell. Of course, the blockage of major trunk roads in Admiralty, Wan Chai, Causeway Bay and Mong Kok has affected the normal commuting by people but, generally speaking, we are still keeping the city running, although inconvenience has certainly been caused. that’s why we are monitoring the situation around the clock, especially at the very senior level.

Personally, i am expecting this protest to last for a while because we will be taking a more tolerant attitude, in recognition of the sensitivities involved. so, a prolonged period of public protest, depending on the scale of magnitude, might cause disruptions to normal businesses, particularly to shops in the vicinity of the protest areas and in some cases, to the operation of schools.

How concerned are you about the international perceptions of Hong Kong arising from these protests?

i am quite worried about the perception of Hong Kong because we have been monitoring the overseas media reports on these incidents very closely and generally speaking there is quite a degree of misunderstanding and the reporting is rather negative. i think that most people who are in Hong Kong feel that this place is still very calm and orderly, but for people who are far away and reading the news it can present a very different impression. so, we are doing a lot of outreach work in order to dispel some of the misunderstandings among our overseas friends.

Are you worried that the protests may have an adverse effect on Hong Kong’s relations with the Mainland?

As far as relations with the Mainland are concerned, prior to the current protest there had been certain local livelihood issues that had given rise to tension between Hong Kong people and Mainlanders, such as the bulk buying of baby milk powder, buying flats in Hong Kong, using private hospital maternity services and so on. the relationship is a bit strained at the moment but i certainly hope that this will be of a short-term nature, because Hong Kong is now an integral part of the Mainland economy and we are seeing all sorts of economic benefits arising from that closer partnership.

A recent poll suggested that as many as one in five Hongkongers would consider leaving the city if universal suffrage were denied to them. Is Hong Kong in danger of losing many of its brightest and best over what many see as an unnecessary confrontation?

i think whenever there is a major incident you will have those sorts of poll findings. i’m not surprised by them and i’m not particularly worried, because Hong Kong remains a very attractive place in which to live and work. Yes, we may lose some of our talents due to globalisation and regional competition, but at the same time we are competing for talent in a global marketplace. so, while we may lose some we will gain others. the most important thing is that we continue to make every effort to improve the quality of life in Hong Kong, in order to maintain our competitive edge.

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Open door policy: the Central Government

Offices at Tamar

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Of course, as citizens of Hong Kong we aspire for more democracy – I aspire for more democracy – but that has to be undertaken in the context of One Country, Two Systems

You told the Occupy Central organisers back in July that democracy would never be achieved through civil disobedience, yet a cursory glance through the history books suggests otherwise. Do you think that the second round of consultation, scheduled for later this year, offers a potential way out of the current impasse?

We have to acknowledge and recognise that Hong Kong is not an independent political entity. Of course, as citizens of Hong Kong we aspire for more democracy – i aspire for more democracy – but that has to be undertaken in the context of One Country, two systems. And that makes Hong Kong unique in her search for greater democracy. Unlike other places, we have this relationship between the Central Authorities and the Hong Kong special Administrative region – and in terms of constitutional development, the Central Authorities have the final say in how we are going to change our political structure. in what we call a five-step process to press ahead with constitutional development, two of these steps involve approval by the Central Authorities.

After studying a report submitted by the Chief Executive (CE), and taking account of opinions expressed by various sectors in Hong Kong, the National People’s Congress standing Committee (NPCsC) has to make a decision on whether we could make changes to the electoral system. We have now received this decision, that we could introduce changes to the selection process for the CE, so that in the next round of election, in 2017 we could have one-person-one-vote. imagine that: five million eligible voters in Hong Kong will be able, for the first time, to select the CE by universal suffrage. And that arises from a decision made by the NPCsC. But in the subsequent steps, even if we manage to get a two-thirds majority of support in the Legislative Council (LegCo), that package still has to go back to the NPCsC for approval. in other words, we could only succeed in delivering universal suffrage by following exactly the statutory, legal and constitutional framework laid down in the Basic Law, as well as in the decision made by the NPCsC on 31st August.

Coming back to your question about the second round consultations, in terms of filling in the details of the electoral arrangements for the selection of the CE, these could not go beyond the existing legal and constitutional framework. so if people, including many of the protestors, dislike the statutory and constitutional framework as laid down by the 31st August 2014 decision of the NPCsC, then there’s very little that the second round public consultations could offer, because we could only work within that framework. But i am confident that some of the details in the electoral arrangements, which we are going to consult the public on in the second round

consultations, will impress upon people that this is going to be a fair, open, transparent, and competitive process in selecting the Chief Executive.

What kind of details might satisfy them?Well, firstly, the NPCsC has said that we need to form a “broadly representative” Nominating Committee. so, one of the areas for discussion is how we form that committee. At present, we have four main sectors forming the nominating committee; these four main sectors cannot be changed according to the NPCsC decision. But beneath the four main sectors there are 38 sub-sectors, made up of 1,200 members. Whether we could broaden the electorate of these sub-sectors is one of the issues that we could address.

secondly, the NPCsC has decided that the Nominating Committee could nominate two or three candidates. so, we need to produce a pool of potential candidates for the committee to pick and choose from. there is a lot of room to devise arrangements for coming up with this pool of candidates because the NPCsC decision has said absolutely nothing about that part of the process. so, for example, if we could devise a much lower threshold for anybody wishing to seek nomination to become a candidate for Chief Executive, then we could have a sufficiently good pool of possible candidates or contenders. these contenders would then go through a very open and transparent process in order to gain the support of the 1,200 members on the Nominating Committee to put forward their names as candidates for the Chief Executive for universal suffrage. so, there are still quite a lot of details to be devised and i do feel that when we come to the second round of public consultations, when people actually see the concrete details of the electoral arrangements, that

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Hong Kong’s Chief Secretary for Administration, Carrie Lam in conversation with Alastair Harris, Executive Publisher and Editor of FIRST

If Hong Kong’s actual situation changes in the future, and there is a demand from the people to make changes to the electoral process, Annex I of the Basic Law does provide for that situation

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they would realise that this is going to be a genuinely competitive process.

the competition lies in three main aspects: one is the formation of the Nominating Committee, which has to be formed afresh towards the end of 2016. Whilst it is true that at the moment there are only about 300,000 voters electing these 1,200 members, i do believe it would be a very competitive process. Nobody can say right now that it is going to be a Beijing-dominated committee. For example, take the sector of engineers: all the registered engineers in Hong Kong could select 30 engineers to sit on the Nominating Committee. so, who can say at this moment in time that these 30 engineer Nominating Committee members would all be Beijing-appointed or dominated engineers?

the second aspect of the competition lies in what i’ve just mentioned: that we aim to devise an arrangement for more people to join the pool to contend for the two or three CE candidates. And the third area of competition lies, of course, in the universal suffrage. When these two or three candidates are put forward for universal suffrage then the five million eligible voters will have a chance to listen to what these candidates have to say in terms of their manifestos, to look at their track records, and to examine the promises they make to the people of Hong Kong.

One of the reasons passions are running so high is that people fear it is now or never – that this is their one chance to change the system that they will have to live with. Are their fears justified?

Within the Basic Law, the method for selection of the Chief Executive is laid down in Annex i. And in Annex i there is a very explicit provision, under Paragraph 7, which says that if there is a need to amend the method for selecting the Chief Executive then certain rules and procedures need to be followed. so, as long as this Paragraph 7 in Annex i is retained – and the NPCsC has not struck it out – it means that the arrangements that we are going to put in place in 2017 could be changed in the future, particularly because in Article 45 (of the Basic Law), which governs the selection for the Chief Executive, there is a reference to such arrangements being undertaken “in accordance with the actual situation in the Hong Kong special Administrative region and in accordance with the principle of gradual and orderly progress”. thus, if Hong Kong’s actual situation changes in the future, then there will be a demand from the people for changes to be made to the method for selecting the Chief Executive – and Annex i of the Basic Law does provide for that situation.

in short, all these arrangements or instruments remain in force to enable Hong Kong to move forward in her democratic development.

For the people of Hong Kong to be able to select our Chief Executive on a one-person-one-vote basis represents historic progress in Hong Kong’s democratic development, and it would be a great pity to forego this opportunity. that’s why we have been working so hard to try to explain and convince the people, including the Pan-Democratic members in the Legislative Council, that we really hope that we could take this first step, so that we could then continue to work together to refine, improve, and perfect the system for selecting the Chief Executive.

Do you sympathise at all with the view held by many people in Hong Kong that the current Chief Executive’s report to the NPCSC undersold the appetite for greater democracy and reform?

Not really. if you have the time to read through the report on the public consultation, you will find that we have been very honest in presenting the views that we have collated during the five-month consultation. We did not say that there is consensus on every issue. there are certain major issues, what we call the core issues, on which we were not able to get a consensus. What we have done is to reflect all the different views on that particular issue so the NPCsC has the full benefit of the different views expressed in Hong Kong. And it is precisely these differing views on certain core issues which might make the second round consultation very difficult, because if you can’t get a consensus in the first round, you will continue to get very diverse opinions in the second. so, it’s not as if we told NPCsC that these are the consensus views in Hong Kong. We did not. We said that there is a diverse range of opinions, and having considered those diverse opinions, the NPCsC made certain decisions which are entirely within its constitutional duty and power to promulgate.

What do you think is a reasonable timeframe for revisiting this question and looking at further stages of constitutional development?

it is difficult to say, but in practice once the Chief Executive is selected on the basis of universal suffrage it means that he or she would be accountable to the seven million people of Hong Kong. so, if at a certain point in time the people in Hong Kong decide that certain changes have to be made to the method for selecting the Chief Executive – for example, taking into account new industries or economic activities which have not been represented previously in the Nominating Committee – then there will be a strong demand that the committee should be changed in order to accommodate them. i think then the situation will be a very interactive one: the people demand and the Chief Executive has to respond. And the Basic Law provides the necessary instruments to take that forward. F

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IntervIew wIth The hon john C Tsang, gbm, jpfinAnCiAl SeCRetARy, goveRnment of the hong Kong SAR

JOHn C TSAnG studied at La Salle College in Hong Kong and Stuyvesant High School in new York City. He pursued his interest in architecture at mIT, and went on to receive a master Degree in Bilingual Education from Boston State College and a master Degree in Public Administration from Harvard University’s Kennedy School of Government. mr Tsang joined the Hong Kong civil service in november 1982, and has served in a number of different capacities, including Director General of the HKETO in London. He was appointed Secretary for Commerce, Industry and Technology in August 2003, Director of the Chief Executive’s Office in January 2006 and has been Financial Secretary since 1 July 2007.

Finding opportunity in adversity

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This year’s budget speech was set against a very different economic background to last year’s, with GDP growth forecasts for 2014 cut to around 2.5 per cent. An over-arching theme of your speech was the need to enhance business competitiveness. What measures do you aim to introduce in order to achieve this goal?

First, let me point out that this year’s reduced GDP growth forecast and the need to improve our business competitiveness are two different matters. in August we revised the GDP forecast for 2014 down to between 2 and 3 per cent because the global economy was not recovering as quickly as we would have liked, but that’s a short-term matter. When i mentioned enhancing competitiveness in my budget speech, i was referring to something in the medium to long term. i believe that Hong Kong’s economic success over the last decades owes a lot to our efforts to grasp the opportunities presented by our country’s development, as well as to our steadfast commitment to free market principles, and also to our firm positioning as a world city; so we will continue to work hard on these fronts. that said; i believe that manpower and land, as well as an ageing population, are the major constraints to our future development. to overcome these constraints, we must endeavour to nurture a wealth of suitable talent for the future, increase land supply to expand the scale of the economy, and plan well ahead for an ageing society. Which is why we are investing heavily in education – from pre-school to vocational training: it takes up almost 22 per cent of our recurrent expenditure. We are also big investors in infrastructure, and are building more roads and railways to better connect the city and enhance usability of limited land; we are also building more tourism facilities so we can serve our guests better, along with more hospitals to prepare for an ageing population.

You have said that a structural deficit will be unavoidable within seven to 15 years. What corrective action do you intend to take to address this threat?

Like many other economies, our population is getting older. this will possibly slow down our economy, thereby reducing government revenue, while at the

same time increasing public expenditure. it’s obvious that this will pose serious risks to public finance in the long run. in response, i set up the Working Group on Long-term Fiscal Planning in June 2013. the Working Group carried out a health check on the current state of Hong Kong’s public finances and made projections on the sAr government’s long-term fiscal position up to 2041-42, taking into account demographic trends, economic growth, and prevailing policies. the Working Group projects that the government’s overall fiscal position in the short to medium term remains healthy. But if public expenditure continues to grow faster than revenue, we will be facing structural deficit in seven to 15 years, depending on the circumstances. there is no single solution to this, so we have to spend less, save more, and perhaps widen our revenue base so that expenditure growth matches revenue growth. i’ve also rolled out a series of expenditure-control measures, including a 2 per cent efficiency enhancement over the next three financial years. All government departments are now reviewing their policy priorities and streamlining their work processes, while at the same time ensuring effective and efficient delivery of public services. We are also looking into measures to stabilise our revenue base and how to enhance the return of government assets – which by the way have become an important source of revenue, contributing to around 10 per cent of government income. the Working Group is also developing proposals for setting up a savings programme.

The worry for Hong Kong’s small, open economy is that it’s been riding high on spending from tourists and foreign-money inflows, neither of which it can control. But a bigger threat comes from capital flows leaving the territory. It looks likely that fund inflows will continue to boost Hong Kong property and stock prices further. How concerned are you that investors could get burned in the property and stock markets if “hot money” flows reverse?there is no denying that Hong Kong is susceptible to changing global economic and financial conditions: they cannot be avoided completely, so the key question is how to manage the potential risks they pose properly.

Hong Kong’s financial infrastructure is very

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We believe Hong Kong will be the first to benefit from the opening up of the Mainland’s economy: our business community is the biggest external investor in every province in China, and we know the Chinese market better than anyone

sophisticated, and we have no problem handling massive capital inflows and outflows day in and day out. it’s true that normalising monetary policy by the Us Federal reserve and other major central banks will make it difficult to predict interest rates and fund flows, but we can deal with it: to counter these potential problems, our regulatory bodies have implemented a range of prudential measures to keep the financial system sound and resilient. For example, our banks have maintained very healthy capital adequacy ratios, averaging just below 16 per cent, almost double the international minimum requirement. to protect the property market, we have put in place six rounds of counter-cyclical macro-prudential measures and three rounds of demand-side fiscal measures, which have yielded the intended effects. in short, we believe that our financial sector is well prepared for any coming problems, but of course individual investors must understand their exposure and take their own risk management measures.

Would you agree that under its three decades-old currency regime an undervalued Hong Kong dollar is attractive to overseas capital? You yourself have warned about the “perfect storm” produced in part by underlying social tension. Add to that distortions from inflation, and surely the government will have no choice but to let the currency break to the upside?

some people have said that the Linked Exchange rate system (LErs) has contributed to high levels of inflation in Hong Kong in recent years, but the fact of the matter is that our inflation rate has been comparable to other regional economies’ with floating currency regimes. the LErs was introduced in Hong Kong in October 1983, and has been the anchor of Hong Kong’s monetary and financial stability since then: it has helped Hong Kong survive even the worst global financial crises. What’s more, it has maintained the stability of the Hong Kong dollar, virtually eliminating the foreign exchange rate against the Us dollar, all of which has helped the development of our financial services and trade sectors. i can’t see any reason why we would abandon the LErs.

One year on, how would you assess the impact of the Shanghai Free Trade Zone (FTZ) on Hong Kong? Can the city maintain its competitive edge, particularly if foreign and joint venture banks and privately funded financial institutions are attracted to the Mainland?

As one of the world’s leading financial centres, Hong Kong has a unique role to play in contributing to our nation’s financial reform. We’re the laboratory

for China’s reforms; a firewall to shield its nascent financial markets from volatility in the international arena. these relationships are constantly being refined and need to be seen in the context of the Mainland’s rapidly changing financial landscape. But let me say that we welcome rapid development in shanghai. We believe that Hong Kong will be the first to benefit from the opening up of the Mainland’s economy: Hong Kong’s business community is the biggest external investor in every province in China, and we know the Chinese market better than anyone else.

You have backed calls for market consultation to possibly alter Hong Kong’s listing rules to allow dual-class share structures. Many in the city’s financial community would welcome such a change, despite resistance to the idea from the regulators. How likely is this to happen?

the Hong Kong stock exchange recently published a concept paper on the issue, so now we’re waiting for the industry to tell us what it thinks. Any amendments to the listing rules would require the approval of the securities and Futures Commission. that said, i’m open-minded about changes to the listing rules, provided that investors are well protected. But any changes must follow due process: we’re not going to bend our rules in the middle of processing a listing application.

The Hong Kong government has increased the pace of land sales, reduced price-to-loan ratios, and lowered the applicable maximum loan-to-value ratio by 10 percentage points for borrowers whose principal income is from outside Hong Kong, which was widely seen as targeting Mainland buyers. How effective have these measures been in tempering Hong Kong’s runaway property market, and what other cards does the government have to play in this respect?Over the last few years Hong Kong has been subject to ultra-low interest rates, abundant liquidity, and tight supply. so the local private property market has continued to believe that property prices would continue to rise. the risk of an asset bubble was increasing rapidly. in response, we introduced six rounds of counter-cyclical macro-prudential measures and three rounds of demand-side fiscal measures between 2009 and 2013, which i think i can say have been effective in changing the market’s expectations: people have been more cautious about buying and selling properties, putting more weight on the risk side of the equation. the measures we’ve introduced have helped contain the systematic risks to the financial sector, while at the same time reducing individual exposure. F

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By niCK LYneSenioR StAff WRiteR, fiRSt

Talking to Hong Kong’s business community, the consensus is that behind the headlines it’s business as usual

Keeping calm and carrying on

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Nobody could accuse the Hong Kong government of playing down the impact of the street protests to hit some areas of the city over the last two months: in

early October, no less than Financial secretary John tsang publicly called on the protestors to see reason, pointing out they are endangering Hong Kong’s reputation as one of the world’s premier financial hubs, while at the same time prudently reminding investors of the risks they face, at least in the short term.

But a month on, the international community shows no sign of abandoning Hong Kong, and talking to Hong Kong’s business community, the consensus is that behind the headlines it’s business as usual.

true, the demonstrations have hit some luxury shops hard, particularly after Beijing cancelled package tours from the Mainland; but the retail sector has been in trouble since at least the beginning of the year, thanks in large part to China’s economic slowdown and an anti-corruption drive.

Admittedly, the Hang seng fell 3.2 per cent in the first two days of the protests; but since then it has steadily risen to pre-demonstration levels.

And some in the media have even raised questions about Hong Kong’s status as an offshore rMB centre, even though Beijing has given no indication it intends

to slow the opening of the capital account. rMB internationalisation is a long-term project, and Hong Kong will remain part of it: the shanghai Free trade Zone is not about to be converted into an rMB centre.

the ratings agencies have taken a more sanguine view of the current situation, saying they foresee no danger to Hong Kong’s AAA, AA1, and AA+ credit ratings, with Fitch, for example, noting: “the protests are not impacting materially on the economy or financial stability of the city”.

A view shared by Karen Bell, the UK’s Acting Consul General: “One Country, two systems has been an overwhelming success. if you look at Hong Kong now, 17 years after the handover, we’re in a place where the rule of law functions, and where people are able to demonstrate, to express concerns about everything from human rights to the operation of government. the reason that British business wants to come here, that the place thrives, is absolutely because of those freedoms and the autonomy that Hong Kong benefits from.”

in short, while the demonstrators are protesting about what they see as Beijing’s interference in the city’s governance, it is precisely Hong Kong’s unique relationship with China – underpinning the sAr’s growth plans in the coming decades – that has prevented panic within the international investment community.

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Start me up: Co-working spaces

like CoCoon are nurturing Hong Kong’s vibrant

creative and technology sectors

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There’s no reason why Hong Kong’s creative sector shouldn’t be the same size as London’s within three to five years

Lest we forget: Hong Kong is a big part of Beijing’s 12th Five Year Plan, its development blueprint for economic and social development between 2011 up to the end of 2015, and this consolidates the city’s already strong position as an international financial, trade and shipping centre. China is helping Hong Kong nurture emerging industries in environmental, medical services, education services, testing and certification, innovation and technology, and in the cultural and creative sectors. Economic co-operation between Hong Kong and the Mainland has also deepened through the 2004 Closer Economic Partnership Agreement (CEPA), which gives Hong Kong companies preferential status.

At the same time, China and Hong Kong are pushing ahead with a comprehensive transportation system throughout the neighbouring Pearl river Delta region and the sAr. A financial co-operation zone is also planned. Meanwhile, the upcoming launch of shanghai-Hong Kong stock Connect will further strengthen Hong Kong’s position as an international iPO centre by giving foreign investors access to shanghai stocks through the Hong Kong stock Exchange, while Chinese investors will be able to trade Hong Kong’s.

Beijing’s vision for Hong Kong has been vigorously backed by Downing street: last year saw two major visits to China by George Osborne and David Cameron, while London has also beefed up resources to help British businesses access the Mainland via Hong Kong, says Andrew Weir, senior partner at KPMG and chairman of the British Chamber of Commerce. “UKti has given renewed focus to Hong Kong; they’re really working hard to make things happen. Concerns that Hong Kong might be bypassed appear to have been overstated, and instead we’re seeing Hong Kong offices being set up by very big

Chinese organisations and China funds based in Hong Kong because it’s nearer the action. And then there’s the trade and investment flows between Hong Kong and the UK. Hong Kong has always found a way to be relevant.”

More than relevant, according to richard Winter, CEO of Quam Capital and chairman of the British Chamber of Commerce’s financial markets committee: “i think Beijing actually looks to Hong Kong to take a leadership role and share best practice. China is open to moving toward our systems and regulatory standards, and Beijing may even be disappointed with our current lack of confidence in financial leadership and initiative.”

in addition to the political privileges it enjoys, Hong Kong is making the most of its geographic proximity to China. “the city really is that old marketing cliché of a gateway into, and out of, China,” says Andrew Davis, associate director general at invest Hong Kong (investHK), the HKsAr government department responsible for foreign direct investment.

Creative industries hubinvestHK has been playing a key role in Hong Kong’s bid to become a creative industries hub. “We have seen a gradual increase in the number of companies in the creative sector, so much so that we structure ourselves around a few priority sectors and we’ve created a new team to focus exclusively on the creative sectors,” says Mr Davis. “We are not talking about one or two channels, we’re seeing multimedia, publishing, broadcasting and internet-based companies: there’s no reason why Hong Kong’s creative sector shouldn’t be the same size as London’s within three to five years. that’s based on the opportunities and growth we’ve seen so far, right across the region.”

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Economic powerhouse: as China’s leading financial centre, Hong Kong is at the heart of RmB internationalisation

Hong Kong currently ranks sixth worldwide and second in Asia in terms of total market capitalisation

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red Ant, a UK-based digital and technology marketing specialist, moved to Hong Kong last year, opening a regional headquarters to complement a local team already established in shanghai. Elisa Harca, the company’s Asia regional director, says Hong Kong was the only choice as the location from which to base its strategy to develop strategic digital partnerships with key brands across Asia, as well as further strengthening relationships with existing clients in China.

Aside from the city’s legendary can-do attitude and welcoming business environment, she says she was impressed by the support for UK companies looking to enter China, albeit with some caveats.

“Compared to some other markets, the UK is really active in helping forge business relationships across the two countries. However, more could be done in terms of expectation-setting for UK companies and helping them better define what they need to do to enter, how they assess the timing and what they should expect. Education about the challenges would be well received and drive more efficiencies.”

Ms Harca’s advice to newcomers is to shed any notion that doing business in China is cheap: “the West’s perception of ‘cheap China’ is out of date and very misleading. the sheer scale of the country and its population means that when you want to reach consumers, you cannot apply a non-investment approach, you have to be willing to allocate spend to tailoring and customising your brand story to the audience and getting into their minds and hands. For example, if you want to run a social media advertising campaign, the cost of that ‘paid’ media is around 5-10 times the cost than you would have in the West.”

British companies also face increasing competition from italian, German, and French companies. “the French community is the fastest growing in Hong Kong,” according to investHK’s chief marketing officer, Karen Winton, a situation driven primarily by the growing numbers of French luxury goods companies looking to service their Mainland operations from Hong Kong, she believes.

While setting up a business in Hong Kong is easy, finding affordable office space can be a challenge; which is why many young entrepreneurs are turning to the city’s 30 or so new co-working spaces.

Open-plan offices rented to individuals who work alongside each other, rent is comparatively cheap, and terms flexible, explains theodore Ma, co-founder of CoCoon, a co-working space set up in 2012. “Hong Kong’s start-up scene is growing fast. Just look at the number of co-working spaces out there and you can see there is a demand. there are also generous government programmes, such as the incubation programmes at science Park,” he says, highlighting the growth potential of the creative industries sector:

“there is room to grow, and particularly there is a huge demand for people with technical expertise. We see many job postings on our online marketplace CoCoon Market for such people. the angel investment scene is also growing, and will take some time to mature.”

Financial hubHong Kong is not about to lose its long-standing reputation as one of the most popular destinations for raising capital any time soon: it currently ranks sixth worldwide and second in Asia in terms of total market capitalisation of all listed companies, which explains its enduring importance to the UK, says Jo Hawley, Director of trade and investment for the British Consulate in Hong Kong.

“Hong Kong is a priority market for the UK: it’s our eleventh biggest export market, and in part that is because of China trade coming through here,” says Ms Hawley: “in 2013 £7.9 billion worth of exports came through into Hong Kong from the UK.”

As China’s leading financial centre, with its own currency and separate Western-style legal system, Hong Kong has been the traditional first choice for Chinese enterprises going public outside the Mainland, but its confidence was dented in september when the Chinese e-commerce giant Alibaba chose New York over Hong Kong for its blockbuster iPO. As a result, says Andrew Weir, the city’s stock market is starting to rethink rules that stopped it from accommodating Alibaba’s unique management setup. “the Financial services Development Council and stock Exchange continue to raise new initiatives and ways to preserve and develop further Hong Kong’s role as a leading international finance centre. recent examples include the acquisition of London Metal Exchange, the various rMB platforms, shanghai-Hong Kong stock Connect and the concept paper on Weighted Voting rights,” he adds.

As more than one observer has pointed out, the election of the Chief Executive in 2017 is important, but it is far from the only challenge facing Hong Kong. the danger, say some, is that by focusing on an event three years away, Hong Kong risks losing sight of the bigger picture, which is to become an innovative global hub servicing China’s financial evolution and transformation into a services economy.

Old Hong Kong hands have seen it all before, and are confident that the city will not come off the rails: “Hong Kong is incredibly flexible, it’s what makes the place,” says richard Winter. “i remember pre-1997, many feared our world would end. Charles Lee, then head of the Hong Kong stock Exchange, famously noted ‘i can tell you what’s going to happen next month – it’ll be exactly what’s happening now’. And it’s been the same with our various subsequent crises, Hong Kong always bounces back, stronger than ever.” F

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The Shui On Group, founded in 1971 by its chairman Mr. Vincent H. S. Lo, is principally engaged in property development, construction and construction materials with interests in Hong Kong and the Chinese Mainland. The Group’s corporate culture and long term objectives are based on its commitment to quality, innovation and excellence.

In 1997 the construction and construction materials businesses were grouped under SOCAM Development Limited (SOCAM) (HKSE: 983) which was listed on the Hong Kong Stock Exchange in February of the same year. Today, SOCAM is principally engaged in property, construction and cement investment.

Shui On Land Limited (SOL) (HKSE: 272) is the flagship property development company of the Shui On Group in the Chinese Mainland with a proven track record in developing large-scale, mixed-use city-core development projects and integrated residential development projects. The Company has eight projects in various stages of development in prime locations of major cities, with a gross floor area of 12.5 million sq.m. (10.3 million sq.m. of leasable and saleable GFA and 2.2 million sq.m. of clubhouses, car parking spaces and other facilities). The Company was listed on the Hong Kong Stock Exchange on 4 October 2006.

Shui On Holdings Limited (SOH) is the private holding company of the Group, it has property investment with interest in Hong Kong and the Chinese Mainland. SOH also has interests in SOL.

General Enquiries:Shui On GroupShui On Land LimitedHong Kong OfficeAddress: 34/F., Shui On Centre, 6-8 Harbour Road, Wanchai, Hong Kong.General Tel: (852) 2879 1888General Fax: (852) 2802 4396E-mail: corpcomm@shuion.com.hkWebsite: www.shuion.com.hk

SOCAM Development LimitedAddress: 12/F., New Kowloon Plaza, 38 Tai Kok Tsui Road, Kowloon, Hong Kong.General Tel: (852) 2398 4888General Fax: (852) 2787 3874E-mail: socamcc@shuion.com.hkWebsite: www.socam.com

Shui On Land LimitedShanghai OfficeAddress: 26/F., Shui On Plaza, 333 Huai Hai Zhong Road, Shanghai 200021, PRC.General Tel: +86 (21) 6386 1818General Fax: +86 (21) 6386 7070E-mail: cc-sh@shuion.com.cnWebsite: www.shuionland.com

Shui On Centre in Hong Kong

IntervIew wIth The hon gregorY so, gbs, jpSeCRetARy foR CommeRCe And eConomiC development, goveRnment of the hong Kong SAR

GREGORY SO holds mBA, LLB and Bachelor of Economics degrees from Universities in Canada. Before joining the government of the Hong Kong SAR as Under Secretary of Commerce and Economic Development in 2008, he was a practicing solicitor for more than 20 years, initially in Canada and since 1989 in Hong Kong. He is a member and former Vice-chairman of the Democratic Alliance for the Betterment and Progress of Hong Kong. He was appointed Secretary for Commerce and Economic Development of the fourth term Government of the HKSAR on 28 June 2012.

Putting the tiger in China’s tank

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The Chinese authorities have said that they see Britain as a second or third tier economic partner in Europe, behind the likes of France and Germany. What role can Hong Kong play to support Britain’s efforts to increase trade and investment ties with the Mainland?

it is a key priority for Great Britain to increase trade with China, and what better way to do this than through Hong Kong, which has so many cultural, historic, social, and economic ties with Britain? Our way of doing business is very similar to Britain’s, and we can act as a communicator between the British and the Mainland.

We are a major contributor to the Chinese economy through measures such as CEPA, the Mainland and Hong Kong Closer Economic Partnership Arrangement, which effectively opens up China to the UK through Hong Kong: the Chinese authorities have said they will provide whatever assistance Hong Kong requires, and we are prepared to facilitate whatever role the UK wants to carve out for itself.

We see British companies using Hong Kong as a springboard to break into the Chinese market of 1.3 billion consumers, whose purchasing power is increasing rapidly. Britain has a wealth of innovation and technology that could be further developed by refining or repackaging through Hong Kong into the Mainland market. Hong Kong is now the trading hub for intellectual property. By that i mean branding, technology and the creative industries, which are really the core strengths of the British economy. so the UK can use Hong Kong as a platform to enter the Mainland market, and at the same time it enables us to move up the value chain.

How do you go about fostering something as intangible as intellectual property?

i used to be a commercial lawyer, and one of the things i’m good at is making deals and helping people make deals. For intellectual property trading, the due diligence process can be quite tedious and sometimes uncertain. Most people don’t know how to go about doing it. What i’m doing right now in the Commerce and Economic Development Bureau is to make the process much more transparent, easy to understand, and more conducive to getting financing. And for that we will need intellectual property valuation.

One of the key things a foreign company would find inhibiting in moving into the Mainland market is the enforcement of intellectual property rights. the best way forward for British companies is to use Hong Kong arbitration, Hong Kong law, which is based on the British system, along with our mediation, to help resolve any disputes, and to have this arbitration award enforced in Mainland China, saving them the agony of waiting for the judicial process to be completed. that’s where Hong Kong’s strength lies: in making transactions doable, making them simple, low-cost and in compliance as much as possible.

the evidence is in the numbers of start-up companies coming to Hong Kong from the UK, Europe, israel, even silicon Valley. Why? Because they look at the Asian market through the prism of Hong Kong. this is the perfect place to start up a company in Asia, which is why we have around 800 start-up companies here right now, and the number of co-work spaces has risen from three to 32 in just three years.

A recent report notes that while Hong Kong remains top in the ranking of 294 Chinese cities, it lacks the strength to accelerate and sustain growth. Are you concerned that you are losing competitiveness vis-à-vis your immediate neighbours and partners?

i have a very simple answer to that question. Which other commercial centres in Greater China enjoy the benefits of One Country, two systems? None. Hong Kong has its own system in terms of market orientation, the rule of law, and its own currency; i go to APEC meetings and WtO meetings as a separate customs territory – two systems – yet with the benefit of one country to tap into the mainstream of this growing engine of the world economy.

People talk of Hong Kong as the gateway to the Mainland, but i prefer to think of us as the spark plug in the engine of China – that special component that makes the whole thing work.

But isn’t the Shanghai Free Trade Zone an attempt to replicate that function?

the Chinese economy is becoming more open, and is ready to compete. Not only is the Chinese economy expanding, it is opening up investment

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I like to think of Hong Kong as the spark plug in the engine of China – that special component that makes the whole thing work

opportunities elsewhere, and the Mainland has given us the mandate to use Hong Kong to invest overseas. i was in a meeting with European ambassadors and consuls in Hong Kong recently, and the major topic we discussed was how they can use Hong Kong to attract outward investment from the Mainland. so, i want to encourage the growth of other cities there so that we can move even higher up the value chain.

That said, the situation is complicated by the latest growth figures coming out of the Mainland, with credit rating agencies and banks downgrading their growth projections from 7.4 to 7.1 per cent this year. If China sneezes, is it not inevitable that Hong Kong will catch a cold?

i don’t think we’ll catch a cold. What’s happening now is really part of the process when any economy grows; sometimes a segment of the economy will contract, sometimes it will expand. And we are always there.

if anything, adaptability is our strength. We’ll always find a way to make the best of the situation. Hong Kong is constantly growing and moving where the value is, and right now, with the scarcity of land and labour in Hong Kong, services is where we’re at, but we also take advantage of the abundance of labour and land across the border. so, adaptability is our strength.

The tourism sector, which also falls under your remit, has been facing challenges of late. What are your strategies for improving Hong Kong’s competitiveness in this regard?

Our challenges in tourism are largely on the supply side, rather than the demand side. Last year we had 54 million visitors, 40 million of whom came from the Mainland. so it’s a very different tourism mix from other countries.

in the past, we used the supply of hotel rooms as a kind of adjustment mechanism to manage the numbers of tourists coming in. But nowadays a lot of tourists are coming across the border on day trips – they don’t stay overnight. so, we can no longer use the hotel room stock as a way of doing that. that’s why we have been liaising with the Mainland authorities and seeing how we can restructure and rebalance this, while at the same time providing for the healthy growth of the industry. But right now the real constraint is our capacity, which is why we’re increasing the number of hotel rooms in Hong Kong. We are also looking at the possibility of building new purpose-built malls in the boundary towns, so that Mainland visitors who just want to go shopping don’t have to come all the way into the city centre. they can just shop and return to where they

come from. Lantau island is also a largely untapped mass of land that we could use. so we have quite a number of innovative ideas to build up the sector in that area.

Hong Kong’s reputation as the best place in the world to do business rests largely on three pillars: rule of law, light touch regulation, and flexible labour markets – all of which are perceived, in one way or another, to be under threat. What steps are the government taking to ‘future-proof’ and preserve the Hong Kong advantage?

i don’t think that those three pillars are under threat. the rule of law is really our key strength. You only have to look at the number of lawsuits the government loses to third party litigation to see that we respect the rule of law! if anything, joining the government helped me realise that due process takes a long time – often to the detriment of policy implementation – but it is what makes us who we are.

What about the rise in the minimum wage? Does that not lead to a less flexible job market?

We want to protect the basic livelihoods of our labour force, and i think that’s a positive thing. Our economy has to keep moving up the value chain so that we can sustain that kind of growth and sustain that level of living standard for people.

And the perceived rise in the level of regulation of business and financial markets?

i would say that Hong Kong follows international standards. some in the business sector were sceptical of the introduction of the Competition Law – which, incidentally, is highlight of my political career. that legislation has now been passed, although it has not been fully implemented yet. i don’t expect the fears of the business sector to be borne out in reality. i think they will see the benefits of competition that will allow a level playing field for all. Of course, as secretary for Commerce and Economic Development, i am very much aware that we need to keep legislation and regulation to a minimum in order to allow business people to do what they do best.

Do you see any clouds on the horizon?the biggest challenge is really how we think, and i would say the greatest wrong that we could do to our society is the intentional erosion of confidence. We have so much going on, so many positive things going for Hong Kong right now. But if we allow other people to dictate to us and cloud us with negative feelings, then we will never achieve our true potential. there is beauty and adventure in the commonplace for those who have eyes to see beyond. F

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IntervIew wIth The hon professor K C Chan, gbs, jpSeCRetARy foR finAnCiAl SeRviCeS And the tReASuRy, goveRnment of the hong Kong SAR

K C CHAn received his bachelor’s degree in economics from Wesleyan University and his mBA and PhD in finance from the University of Chicago. Professor Chan has held a number of public service positions including Chairman of the Consumer Council and Director of the Hong Kong Futures Exchange. He is a former President of the Asian Finance Association and President of Association of Asia Pacific Business Schools. Professor Chan was Dean of Business and management at HKUST before he was appointed Secretary for Financial Services and the Treasury in July 2007.

Playing a pivotal role

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Arguably the biggest financial story in Hong Kong at the moment is the launch of Shanghai-Hong Kong Stock Connect. How significant a development is this for Hong Kong, and what possibilities does it open up for further linkages with other exchanges on the Mainland?

it’s extremely significant because it’s one of the most important openings of the Chinese stock market to the world – a historic moment for the Chinese capital market. And as at other key points in the opening up of China’s economy, Hong Kong is always playing a pivotal role.

the shanghai-Hong Kong stock Connect is more significant even than previous schemes such as the QFii (Qualified Foreign institutional investor) programme, under which fund managers in the Us or Europe are given quotas to invest offshore renminbi (rMB) in the Chinese stock market, because for the first time, individual investors and fund managers will have a dedicated channel through which they can trade stocks in shanghai directly.

to link up the two markets, it involves a lot of infrastructure – computer programs, trading rule changes, regulatory cooperation and so on – and that’s only possible because of our close working relationship with the Mainland authorities. this clearly illustrates Hong Kong’s unique position and how easy it is to work with the Hong Kong Exchange. if it works out, the next Connect would be with the shenzhen stock Exchange, and through that we would be able to link up to the entire China market.

How concerned are you about potential competition from the Shanghai Free Trade Zone (FTZ)? Will RMB convertibility in the FTZ cause problems for Hong Kong?

there might be some competition between Hong Kong and the shanghai FtZ in terms of the offshore business provided by the banks there, but i think this will be easily outweighed by the potential for us to expand the scope of our own businesses. if the shanghai FtZ succeeds in generating and capturing a large amount of offshore rMB liquidity, i can see a lot of potential for the Hong Kong market to play a role of providing services

and products to that liquidity. so, i think at the end of the day there’s going to be more room for mutual benefit. And of course, the shanghai FtZ is really not contemplating setting up an offshore capital market for the time being, so Hong Kong will continue to have a unique advantage.

What is your strategy for maintaining Hong Kong’s status as the largest offshore RMB centre?

We will continue to work on lowering the barriers to access for offshore rMB, both flowing into the China market and outwards, through Hong Kong. We believe that as China’s capital account opens up further it will benefit Hong Kong. Hong Kong is already one of the largest Chinese capital markets, with the largest banks carrying on all kinds of businesses. Hong Kong’s unique position means that we are already one of the largest providers of every kind of financial services for Chinese companies, so we’re going to capture whatever rMB flow that comes out of China. rather than working on specific initiatives to promote Hong Kong, our overall policy is geared towards assisting the opening-up of China’s capital account.

To what extent do the Central Authorities and the PBOC (People’s Bank of China, China’s Central Bank) take advice from Hong Kong, which is obviously far advanced in terms of its financial infrastructure?

the Chinese regulators have a clear vision of where they want their rMB internationalisation policy to be. they understand Hong Kong’s capabilities very well, and in the last 10 to 20 years we have worked together with them very closely. if you look at the major milestones in the development of Hong Kong’s financial market that either involve a Chinese listing or Chinese investment schemes, they are always a product of collaboration between the Hong Kong and Chinese regulators. so, we have a long history of understanding each other’s needs and policy direction.

some people argue that if Hong Kong is to be this offshore rMB centre, shouldn’t rMB just go to Hong Kong alone? But from the outset we have said that this is the wrong approach. it is not right

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The opening of Shanghai-Hong Kong Stock Connect is a historic moment for the Chinese capital market and once again, Hong Kong is at the heart of it

that Hong Kong should have a monopoly on rMB business because it is not our currency to be had. We want to see rMB developing in different parts of the world – whether it be London, singapore or New York – because that is the right way forward for the internationalisation of the rMB, as well as for the development of Hong Kong.

What opportunities do you see for greater cooperation with the likes of London and Singapore in order to facilitate this process?

the rise of the London rMB market will be driven largely by the government-to-government relationship between the UK authorities, their Chinese counterparts and the PBOC. But on the operational level, our banks and the Hong Kong Monetary Authority (HKMA) are also involved in helping banks in Hong Kong and London to tap into each other’s rMB. We have actually extended our rMB clearing hours in Hong Kong in order to make this service available to European banks, so we are already cooperating with them and assisting them in their endeavours.

How serious a blow was Alibaba’s decision to list in New York rather than Hong Kong?

Of course it was a loss for Hong Kong. We would definitely have liked to see the company list in Hong Kong. But Alibaba was a special case in that it wanted to have a very different kind of corporate governance structure to that permitted under our regulatory regime. to list Alibaba would have required a big change to our listing rules, and our regulators did not feel that they could contemplate such a huge change for one company.

But a lot of tech companies nowadays have these types of dual share structures. Is Hong Kong discounting these types of companies altogether, or can some kind of accommodation be reached – for example, creating a separate market for them?

M a n y m a r k e t s w o u l d h a v e d i f f i c u l t i e s accommodating that kind of dual share structure. it’s actually a very difficult question for all markets outside the United states, because there is always an aversion to differential voting rights.

i think the issue is really that we have a stricter corporate governance structure. should we contemplate some changes to the rules? i’m open-minded about that. in fact, our market has produced a concept paper on this question and is in the process of assessing the market’s reaction. All the world’s markets have different rules.

the question is how to accommodate the needs

of the market, and that requires a lot of discussion.

Is there an appetite to create a deep and broad bond market in Hong Kong?

Yes. the difference between Hong Kong and other markets is that, historically, we did not issue government bonds, and our economy was small to begin with. Also, our corporations here have very good access to financing, through the banks. As a result, there has always been a lack of a demand for bonds in Hong Kong.

One potential way for us to develop a deep bond market would be by assisting Chinese companies to issue bonds. Chinese companies have been issuing ‘dim sum’ bonds in Hong Kong for some time, and we see this as an opportunity to develop the bond market for Chinese companies. At the same time we are looking at other ways to drum up interest in the bond market, which is why we have started a government bond programme, even though we don’t need to borrow to cover fiscal expenditure. We recently issued our first sukuk, or islamic bond, as part of this process.

How concerned are you about the level of exposure of Hong Kong’s banking system to Mainland borrowers, particularly given the recently announced downgrade of forecasts for China’s GDP growth?

Well, obviously, Hong Kong’s banking system is very closely connected to the Chinese economy, so it’s only natural to have exposure to it, and that has been growing because of the funding needs of Chinese corporations.

the HKMA has been reminding banks about the guidelines and risk management practices, and they conduct a lot of thematic on-site inspections of the banks’ lending books to see how exposed they are to concentrated risk – whether it be from China, the real estate market or whatever.

Are you worried about the possible long-term damage to Hong Kong’s brand and reputation arising from the on-going street protests and their effect on economic activity?

this is attracting the international media’s attention at the moment, but it is part of Hong Kong’s culture for people to express their views. People feel very strongly about the issue of electoral change, and that’s something we should note.

in terms of the proposition of Hong Kong’s financial markets, the fundamentals remain the same. We continue to have robust regulation, an independent judiciary, very strong capital markets and a very deep banking market. F

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FAnnY LAW Chairman, HKSTPC

‘Silicon Harbour’ comes of age

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Until the late 1990s tolo Harbour was known as a beauty spot tucked away in the Northeast New territories, once famous for its pearl industry, and popular

with day-trippers from Kowloon and Hong Kong in search of peace and quiet. A decade later, it is fast turning into what the city’s government hopes will be China’s answer to silicon Valley.

Occupying a 22-hectare site looking out across to Mirs Bay and surrounded by forested hillsides is the Hong Kong science Park, managed by Hong Kong science and technology Parks Corporation (HKstPC). With the official launch of the latest phase (3) in september, the waterfront site now contains 26 state-of-the-art buildings more than 330,000 sq m of r&D office and laboratory space, along with meeting venues, a clubhouse, and ‘green trail’, all laid out along tree-lined avenues.

“HKstPC illustrates the commitment of the sAr government to give impetus to innovation. the administration has made unprecedented investments to lay the foundations for innovation to create, if you will, a ‘silicon Harbour’ for China and the region,” says Fanny Law, who was appointed HKstPC’s chairman in July this year. she brings 30 years’ experience in a

range of Hong Kong government posts, and is also a Deputy to the 12th National People’s Congress of the People’s republic of China, as well as a Member of the HKsAr Executive Council.

According to Mrs Law, the iconic ‘golden egg’ Charles K. Kao Auditorium embodies the spirit of science Park in hatching technological innovations that brings great benefit to mankind. Also managed by HKsPtC are the innoCentre where product and brand designers turn innovations into products for reaching the mass market, as well as three industrial estates that focus on applying advanced technology into food processing, pharmaceutical manufacturing and data centres.

“the HKstPC provides world-class infrastructure and support services, while working in collaboration not only with universities, research institutions, industry partners, the Productivity Council and Cyberport, but increasingly with the leading academic and scientific institutions of Mainland China as well,” says Mrs Law, adding: “China’s 12th Five Year Plan, announced in 2011, puts renewed impetus on innovation and technology as key economic drivers, characterising a handful of industries as emerging ‘battlegrounds’ where countries will be competing for technological leadership during the next wave of

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Which came first? Science Park’s iconic ‘golden egg’ Charles K. Kao Auditorium

PROFESSOR WEI SHYY Provost, HKUST

SImOn SqUIBB CEO, nest

By niCK LYneSenioR StAff WRiteR, fiRSt

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Hong Kong offers start-ups the best of both worlds. It is the regional hub, less than four hours’ flight from the major cities in Asia, and only a couple of hours by train from the Pearl River Delta

development. these industries, including new energy sources and biotechnology, are distinguished by their high profit growth potential and strategic contribution to the community. in these areas, the government has dedicated itself to incubating national and global champions by helping them gain leading technologies and expanding their commercial capabilities.”

Hong Kong’s achievements in scientific research have been recognised by Beijing, and over the last decade China has designated 16 Partner state Key Laboratories (sKLs) within several Hong Kong higher education institutions, half of which are Bio-medical focused laboratories. two of these, Brain and Cognitive sciences and Emerging infectious Diseases were set up in 2005, and were then the first and only sKLs in their respective fields located outside Mainland China. two more, Liver research and synthetic Chemistry, were established in 2010. the fifth, Pharmaceutical Biotechnology, was established in 2013. sKLs are key components of China’s science and technology research system, serving as the basis for top-level research and applied research development, assembling and nurturing outstanding researchers, as well as taking part in exchange programmes. Hong Kong’s sKLs now work with partner laboratories in China, and can also apply for national level research funding.

Professor Wei shyy, Provost at Hong Kong’s University of science and technology (HKUst), and headhunted in 2010 from his post as Chairman of the Department of Aerospace Engineering at the University of Michigan, Ann Arbor, points out that Chinese universities are increasingly trying to modernise their systems and standards via experience sharing with Hong Kong: “For example, the Mainland universities try very hard to establish the culture of transparency we have in Hong Kong: at the same time, they value our international links. We provide consultation to many Chinese universities, and we will also act as an accelerant. We would like to create more opportunities and a wider contact network for our inland counterparts and connect them more naturally with the world’s research and development trends.”

Although previously based in the United states over the course of his more than 30-year career, Professor shyy has maintained extensive collaborative links with Japan, Korea, and Mainland China, as well as Europe. He points out that under the One Country, two systems policy Hong Kong’s universities receive no direct funding from Beijing, nor are they “accountable” to China. He would, however, like to see the Mainland invest more resources in Hong Kong to strengthen collaboration: “More joint funding would bring more opportunities to improve the system.”

the results of the Hong Kong government’s technological innovation policies and the proximity

to the huge China market are also benefitting the local economy, says Mrs Law: “We are seeing more and more young people come to Hong Kong to start businesses.” this summer, investHK, the government organisation tasked with promoting investment and entrepreneurship in Hong Kong, attracted 550 entries from entrepreneurs in 47 countries for its 2014 startmeupHK Venture Programme.

Competitive advantages“Hong Kong offers start-ups the best of both worlds,” adds Professor shyy. “it is the regional hub, less than four hours’ flight from the major cities in Asia, and only a couple of hours by train from the Pearl river Delta region, which should be taken together with Hong Kong,” he says, adding: “the Pearl river Delta is one of the most advanced industrial areas on the planet; it has tremendous expertise in manufacturing, packaging, and logistics. the iPhone isn’t made there not only for cost reasons, but also for the expertise that factories have established. Hong Kong doesn’t have enough industrial capacity, but it can provide technology, skills, education, and innovation which can be fed into the Pearl river Delta region.”

Hong Kong’s appeal over its Mainland rivals is easy to see: faster and unrestricted internet access; a pro-business approach that makes it possible to open a bank account and register a business in two days; more than 200 per cent cellphone penetration, and five independently owned cellphone providers. since 2010, 18 Chinese high-tech firms have delisted from Wall street to join Hong Kong’s exchange. HKstPC has funded over 300 start-ups over the last few years,

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Free enterprise: Science Park’s Enterprise Place

Hong Kong is a unique place. You can easily have 10 meetings a day and do a week’s work in one day here. An idea in wearable tech can progress to prototype within days

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while investHK puts the total number of start-ups at between 700 and 800. At the same time, the number of co-working spaces in HK has risen from six to over 30 in the past two years, growth that clearly reflects pent-up demand.

simon squibb, a British entrepreneur with 18 years experience as an angel investor, set up incubator Nest in 2010. He cites Hong Kong’s low tax rates, its internationally accepted legal and financial systems, and robust intellectual property protection rules as among the city’s competitive advantages. Having worked here for several years before setting up Nest, he says he has always been impressed by Hong Kong’s prodigious work ethic:

“it’s a unique place. You can easily have 10 meetings a day and do a week’s work in one day here. An idea in wearable tech can progress to prototype within days. Every part of the world has trouble finding programming talent, but in Hong Kong we have easy access to tech talent in india and China, a system HK has been tapping into for quite some time. Doing business in HK is fast and efficient, just what you need in a tech cluster.”

A firm believer in small is beautiful, his advice to Hong Kong’s administration is to keep focusing on developing start-ups: “Let’s not focus all our energy on just bringing big overseas firms that will suck up talent. We need to focus more on bringing in CtOs and entrepreneurs to build Hong Kong brands that can go global rather than bringing in the Microsofts of this world.” He identifies

the trends in which Hong Kong is a leader as “financial, wearable, and education technology”.

Serving start-upsHKstPC’s incubation programmes run from 18 months to four years, rendering comprehensive technological and research support to technology start-ups. in addition to enjoying office facilities, business advice, training and marketing services, companies can also access the 12 state-of-the-art laboratories in the science Park and gain assistance from a team of experienced engineers.

“We incorporate industry-focused support services such as marketing and promotion, training and talent development, mentoring programmes and consultancy services, as well as many investment-matching events to connect angel investors and venture capitalists,” says Mrs Law, who describes the essence of HKstPC’s role as “connection and collaboration”.

Among those connections is Astri, the Hong Kong Applied science and technology research institute, set up in 2000 to improve the city’s competitiveness in technology-based industries through applied research. “Astri helps customers capture business opportunities from the technology market; it has a rich portfolio of commercially viable technologies readily available for customers’ deployment,” says Mrs Law.

to HKstPC’s connecting and collaborating can be added clustering. Different technology sectors can create powerful synergies when they operate

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Taking the long view: Science Park’s Phase 1

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HKSTPC offers overseas universities, research institutes and technology-oriented start-up companies a two-year soft-landing platform for easy take-off in Hong Kong

in the same environment, declares Mrs Law: “We focus on gathering together businesses specialising in biotechnology, electronics, green technology, information technology and telecommunications, and precision engineering. We have seen how they can stimulate each other, and have identified these sectors as those in which Hong Kong has the potential to be a world leader. Companies in the cluster can share expertise and cross-fertilise with ideas. By grouping companies together we provide them with the platform to communicate, work and identify market opportunities with each other.”

HKstPC also offers overseas universities, research institutes and technology-oriented start-up companies a two-year soft-landing platform for easy take-off in one of the most business-friendly economies in the world, while introducing and exposing their technological innovations to the promising Asian and Chinese markets. HKstPC will sponsor interested parties for an exploration trip to Hong Kong to gain a better understanding of the local support and market opportunities. For those who are keen to make Hong Kong a base for their research and market expansion, a service fee of just HK$10,000 a year will provide them with full-service shared office and research laboratories at Hong Kong science Park for up to 50 workdays, as well as familiarisation programmes on finance, taxation, intellectual property protection and patent registration, a talent pool to recruit local staff, as well as valuable connections to local partners.

HKstPC regularly hosts seminars and trade shows in Hong Kong and shenzhen, so that entrepreneurs and researchers can present their innovations and new ideas to potential licensees from all over Asia face-to-face. “Companies also get to interact with them on a personal level in our matching sessions to impress them. they just need to submit their proposed projects to us, and we will be in touch with them to help them kick-start their business in Asia and China for a small fee. it’s that easy,” explains Mrs Law.

Every year for the last decade, HKstPC has organised innoAsia, a six-day event that plays an important role in knowledge transfer and business matching, linking leading academics, experts, decision makers and thought leaders from across disciplines and geographical boundaries to exchange insights and inspire each other through innovative models and engage in forward-thinking dialogue on policy implementation and adoption of new technologies for the Asian markets. in 2013, it attracted more than 2,200 participants from 17 countries, including 80 speakers from around the world. to celebrate the 10th anniversary, it has been renamed the APAC innovation summit. this December, the theme is shaping the Future, as Fanny Law explains: “Hong Kong is going to play a big role in shaping the future of Asia. Hong Kong is Asia’s world city, no longer just an international financial centre. We are diversifying and growing fast, to become a tech hub: the silicon Harbour of the East.” F

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HONG KONG

Learning curve: Science Park’s futuristic amphitheatre

IntervIew wIth miChaeL LYnCh and jerrY LiuCeo, WeSt KoWloon CultuRAl diStRiCt AuthoRity And heAd of CReAtehK, ReSpeCtively

Hong Kong joins the culture club

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Hong Kong’s privileged position between China and the West is increasingly characterised by its unique cultural identity, one it is taking advantage of

to establish itself as a global arts and creative hub. Already home to major festivals of film and art, it has business-friendly policies backed by a government that is throwing its not-inconsiderable financial weight behind a range of ambitious projects.

Perhaps the most visible of these is the West Kowloon Cultural District (WKCD), which over the last year has finally gained traction after years of planning and consultation, thanks in large part to the efforts of Michael Lynch.

Describing his three-year tenure as Chief Executive Officer of the West Kowloon Cultural District Authority (WKCDA) in spearheading Hong Kong’s flagship cultural project, Mr Lynch uses the phrase “interesting times” on several occasions: an innocent euphemism, or a veiled reference to the fabled Chinese curse?

the idea for a world-class arts district that would symbolise Hong Kong’s plans to reinvent itself as a world city with the cultural infrastructure to match London, Paris or New York dates back to the end of British rule in the late 1990s, when a 40-hectare stretch of reclaimed land jutting out from the western edge of Kowloon, across the water from Hong Kong island, was set aside for the purpose. But for most of the first decade of the new millennium, little progress was made, as there was a call for more active public discussion and engagement in the development of a world-class art hub given its scale.

Before joining WKCDA, Mr Lynch had taken on the challenge of overhauling London’s royal Festival Hall as CEO of the south Bank Centre, a project that had also become mired in politicking for a decade. When he successfully accomplished that task, he was about to celebrate his 60th birthday and says he was pretty much ready for retirement in his native Australia (he’s also a former Chief Executive of the sydney Opera House). so why did he accept what

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mICHAEL LYnCHChief Executive Officer,West Kowloon Cultural District Authority

JERRY LIUHead, CreateHK

Pmq, the former Police married

quarters, now a creative industries

landmark with a focus on design

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Hong Kong’s new Cultural District will be both a showpiece for urban design and a meeting point for the local and international arts communities

many saw at the time as a poisoned chalice?“it was irresistible: they were giving me Us$2.8

billion and a huge chunk of the world’s most expensive real estate for the WKCD project,” he says ebulliently. “i had the necessary expertise, and the scale and scope of the project was utterly compelling. Yes, there were challenges around the cost and the phasing, but it was too good to turn down: i wasn’t worried about the political context, because all the projects i’ve been involved in have been political, and i knew that any project where the government has committed so much money would be difficult. What really surprised me when i took over was just how frustrated Hongkongers were about the failure to get this thing off the ground.”

the upside to the delays, he says, is that it prompted widespread debate among Hongkongers about the role of the arts in the city. “People here have looked at the big cities around the world and realised that something was missing from theirs, but the question has been how to address that. the government’s initial response was typical of Hong Kong in many ways: a project on a grand scale, part of a bigger, very ambitious vision to turn Hong Kong into a cultural hub. Perhaps it was too ambitious, but it has made people think about the role of the arts and entertainment in society.”

WKCD is nothing if not ambitious: the new cultural district aims to bring together a vibrant mix of performing and visual arts, and its CEO says the 40-hectare waterfront site will be both a showpiece for urban design and a meeting point for the local and international arts communities.

“in this cluster of venues and open space, long-term commercial, community and cultural partnerships will encourage a lively arts scene for generations to come. Based on the principle of partnership, the WKCD will be community-driven and people-oriented,” says Mr Lynch.

there are two components of the new development: the M+ Museum, and a range of performing arts facilities. Work has now begun on the Us$642 million M+ Museum, designed by Pritzker Prize-winning team Herzog & De Meuron, and focusing on 20th and 21st century art, design and architecture, and moving image from Hong Kong, China, Asia and beyond. in 2012, swiss art collector Uli sigg announced the donation of 1,463 pieces of works from his collection of contemporary Chinese art, valued at Us$163 million, which is planned to serve as the centrepiece of M+’s new collection when it opens in 2018. the museum also spent Us$23 million to acquire 47 other works from the sigg Collection. the horizontal section of the 60,000 square-metre-inverted-t-shaped building will house the exhibition spaces and galleries, while the vertical bar, devoted to a research centre, a curatorial centre and retail, dining and entertainment facilities on the top floor, is to be equipped with state-of-the-art

LEDs that can showcase digital and moving images. the performing arts venues include Xiqu (Chinese

opera) Centre, Freespace (a Black Box and an Outdoor stage), Lyric theatre, Centre for Contemporary Performance, Medium theatre i & ii, Music Centre, Musical theatre, and Great theatre. there will also be rehearsal/education facilities and a number of resident company centres.

since taking over in 2011, Lynch has worked hard to integrate the site into the local community: an exhibition was staged during the third stage of Public Engagement Exercise at the Hong Kong Heritage Discovery Centre using models, photomontages and panels to show what the future arts hub will look like. the Xiqu Centre broke ground in september 2013, while concerts and events, such as last summer’s Mobile M+: Inflation! exhibition of inflatable art along the waterfront, along with performances of Cantonese opera in a temporary bamboo theatre, and the annual Freespace Fest outdoor arts festival.

Looking to the future, Mr Lynch says that he and his team are determined to ensure the West Kowloon Cultural District Authority fulfills its mission to provide Hong Kong with a world-class arts and cultural district for all.

A creative grass-roots approachthe WKCD is about as high-profile a showcase for Hong Kong’s creative ambitions as could be

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Artist’s impression of the Herzog & De meuron-designed m+ museum

The creative industries have been part of Hong Kong’s brand since the 1970s, when Bruce Lee’s Kung Fu action films captured international markets

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found, but the city’s government is simultaneously pursuing a range of less visible, business-oriented strategies through bodies such as Create Hong Kong (CreateHK), which was set up in 2009 to drive the development of creative industries.

CreateHK is led by Jerry Liu, who took up the job in 2010, bringing 25 years’ experience in the film and television-related industries (he was a co-founder of the Media Asia Group, one of the region’s largest Chinese language film producers and distributors).

“Ours is very much a behind-the-scenes role; we co-ordinate government policy, focus its resources, and work closely with stakeholders of a range of creative industries. in a nutshell, we have three policy directions: nurturing talent and new start-ups; expanding market reach overseas; and consolidating Hong Kong’s position as a regional creative hub,” he says.

Contrary to international perceptions that Hong Kong’s economy is focused solely on finance, Mr Liu points out that the creative industries have been part of Hong Kong’s brand since the 1970s, when Bruce Lee’s Kung Fu action films captured international markets, and quality textile and knitwears were favoured imports in Europe and America. Not surprisingly, the main areas CreateHK works in are film and design, the latter including architecture: “all areas that have creative traditions and legacy to inspire new outputs, and all areas with huge potential in export markets, including Mainland China.”

Hong Kong’s biggest trade showcase in the film sector is FiLMArt, the second biggest film buyers’ event in the world after Cannes, with over 700 exhibitors and 5,000 plus registered buyers in attendance in March 2014. “the Hong Kong film industry in particular has been revitalised by the rapid growth of the Chinese economy: until a decade ago, Mainland China still had relatively few cinemas of high-quality standard, but in recent years new, modern movie theatres have been opening up throughout the country,” he explains. in response, CreateHK has been working through its Film Development Fund (FDF) to provide co-financing support for younger directors and producers to make a new generation of films to take advantage of the enlarged market for Chinese language films.

“We’ve had a number of very encouraging successes with FDF co-financed projects like Echoes of Rainbow (2010), The Break Up Club (2011) and The Way We Dance (2013). the latter was made on a shoestring with no established actors, but was one of the five top-grossing Chinese-language movies in Hong Kong last year. Consequently, it secured release in southern China; and also did well in a few southeast Asian markets.” Another modest commercial success co-financed by FDF in Mainland China from last year was Bends, which received strong critics support at its screening at the Cannes Film Ferstival’s Un Certain regard section.

CreateHK plays an equally active role in promoting Hong Kong’s design industries, supporting the

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Computer-enhanced aerial photo showing the

eventual layout of the West Kowloon Cultural

District facilities

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The former Central Market, a 1930s Bauhaus structure, will shortly be undergoing restoration for eventual usage as a creative outlet

Design incubation Programme which was launched in 2006, since when it has recruited more than 150 companies, more than 110 of which are thriving two years after completing the incubation period. CreateHK also sponsors the Hong Kong Design Centre to organise the annual Business of Design Week (BODW), which had UK, France, Germany, Japan, Denmark and Belgium as partner country in previous years. Apart from lining up speakers from their homeland, these partner countries also brought in large trade delegations to attend the BODW with a view to exploring market opportunities in Hong Kong and Asia. “Companies from these countries set up offices in Hong Kong, using it as springboard into the Pearl river Delta, where cities like shenzhen have established excellence in manufacturing and design as well,” says Mr Liu.

Hong Kong’s new generation of architects is also feeding into the Mainland Chinese market, he adds: “this is another example of how we are able to take advantage of the relaxation of trade barriers into mainland China. We are seeing greater room for development now. Companies, both local and international, are using Hong Kong to build here and across the border.” such is the demand that there is now a shortage of junior-rank architects in the city, he says.

to help meet this demand, as well as in design and other creative sectors, the Education Bureau will deploy additional funding through the study subsidy scheme

for Designated Professions to increase the number of places for government-subsidised university degree courses in creative disciplines, among other professions and sectors. the increase of 250 places each year in the creative disciplines will apply to architecture, fashion design, product design and digital animations.

Heritage conservation is also adding momentum to Hong Kong’s cultural and creative landscape, with a number of heritage-protection or revitalisation projects finding synergies with the burgeoning creative industries sector such as the Former Police Married Quarters on Hollywood road (since rechristened PMQ) which has become a creative industries landmark with a focus on design, while the former Central Police station is being renovated, and will be put to use as a centre featuring visual arts and performing arts. the former Central Market, a 1930s Bauhaus structure, will also be undergoing restoration for eventual usage as a creative outlet. Mr Liu says these sites have the potential to become mini hubs themselves, creating “organic clusters” and attracting more business and activities centred around the creative industries at Hong Kong’s vibrant central district. “When all three of these revitalised projects have been completed and given their proximity to each other and conveniently linked by Hollywood road and the Mid-Levels escalator system, these trio of creative and cultural hubs may well be the Hong Kong island’s answer to WKCD across the harbour.” F

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Hong Kong’s Chief Executive, CY Leung opens Business of Design Week 2013

IntervIew wIth The hon pauL Chan mo-po, mh, jp and The hon Wong Kam-sing, jpSeCRetARy foR development And SeCRetARy foR the enviRonment, ReSpeCtively, goveRnment of the hong Kong SAR

PAUL CHAn mO-PO Secretary for Development Hong Kong SAR

Promoting sustainable growth

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One of the world’s most successful sustainable urban growth stories, Hong Kong’s development over the last four decades has seen it build greenfield

site towns in the New territories and a mass transit railway in the 1970s and 1980s, followed by airport and seaport development in the 1990s, and increased bridge and rail links to the rest of China since reunificiation with the Mainland. in the process, Hong Kong has grown to be one of the most densely populated areas on the planet.

Density is not necessarily a bad thing: Hong Kong is more efficient than most Us or European cities, putting it among the top positions in international city-level sustainability indices.

Nevertheless, high density poses long-term infrastructure and quality of life planning challenges. Hong Kong’s current population of 7.23 million is projected to grow to 8.47 million by 2047, when the One Country, two systems policy ends. For Hong Kong to diversify its economy and establish itself as a creative industries and technology hub in the run up to that milestone, it needs to attract young entrepreneurs from both China and the West, and to do that it knows it needs to make the city a still-more attractive place to live, particularly in the face of competition from locations such as singapore.

Not that demand for business property and accommodation shows any sign of slowing down: Hong Kong remains one of the most popular, and expensive, places on the planet to live and run a business, and prices and rents in Hong Kong continue to reflect soaring demand for space on Hong Kong island.

One solution lies in land reclamation, a strategy the city has pursued for decades: between 1985 and 2000, it created around 1,000 hectares a year in this way, but over recent years it has been less successful; similarly, land resumption, or forced acquisition, is seen by the government as disruptive and potentially conflictive.

Another solution lies north of Hong Kong island across the water to Kowloon East, itself reclaimed land, and the location of the former Kai tak airport, says Paul Chan, Hong Kong’s Development secretary.

“We aim to transform Kowloon East (comprising the Kai tak Development area, Kowloon Bay and Kwun tong Business Areas) into an alternative

central business district (CBD). Kowloon East has the potential to provide an additional commercial/office floor space of about 5 million square metres, eventually expanding the total supply in the area to about 7 million square metres,” says Mr Chan.

to fully develop Kowloon East the government is implementing an ambitious plan to improve transport infrastructure, says Mr Chan, adding: “in tandem with these, and in pursuance of making Hong Kong more livable in, we are taking measures to reduce traffic and increase pedestrian areas. We advocate a sustainability concept on ‘walkability’ in Kowloon East to cater for its transformation into an attractive CBD.”

A long-standing complaint among Hongkongers is the city’s poor air quality. its proximity to the manufacturing centres of the Pearl river Delta causes around half of Hong Kong’s air pollution, but the remainder is generated locally. One of the primary causes of this has been a lack of infrastructure planning, resulting in poor airflow through ‘building canyons’ created by high-rise building blocks developed to satisfy housing and other demands, but which trap air pollution. An architect with more than 25 years’ experience in green building design, Hong Kong’s Environment secretary Wong Kam-sing says that recent measures require air-ventilation studies or permeable design for new buildings. the developers of buildings in the city, which consume about 90 per cent of Hong Kong’s power, have also been offered incentives to construct energy-efficient buildings or reduce power use in existing structures, says Mr Wong, adding that Hong Kong is also promoting the application of renewable energy sources such as rooftop solar systems.

A further major contributor to poor air quality comes from shipping emissions at the port, one of the busiest in the world, attracting around 450,000 vessels a year. the government’s Fair Winds voluntary business initiative encourages ocean carriers to switch to lower-sulphur fuels while at the port, and has evolved into a public-private partnership, with the government lowering port fees for participating companies.

then there is the question of Hong Kong’s mounting waste disposal problem. Environment secretary Wong recently warned that the city is on the verge of a waste disposal crisis.

in 2012, Hong Kong’s recycling rate for municipal

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WOnG KAm-SInGSecretary for the EnvironmentHong Kong SAR

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Hongkongers are being asked to choose between importing 50 per cent of their electricity from the Mainland or using costlier natural gas

solid waste was 39 per cent and the city recycled about 84 per cent of all waste when construction waste was also taken into account. By way of comparison, singapore recycled over 60 per cent of all waste in 2012.

Hong Kong’s high-density population and lack of space mean that there is little scope to extend landfill capacity indiscriminately. its three landfill sites are expected to be completely full by 2019.

Mr Wong admits the government has been slow to respond to its mounting rubbish problem for the past few decades: “Hong Kong has fallen behind because we have only taken some of the steps needed. We need to urgently fill in the gaps. Hong Kong is now taking coordinated and simultaneous action on waste prevention, reuse, recycling and recovery, along with treatment and landfilling of rubbish as part of a whole resources management chain, working with communities and districts, collaborating with business stakeholders, and encouraging NGOs to develop projects to make the transition,” he adds. since he took office in July 2012, Hong Kong has launched several long-term plans with specific, measurable, goals.

the government aims to reduce the current municipal solid waste disposal rate by 40 per cent on a per capita basis by 2022, when 55 per cent of rubbish will be recycled: 22 per cent will go to landfill, and 23 per cent will be incinerated. “Hong Kong has a comparatively large waste load compared to neighbouring cities at a similar level of development: at 1.36 kg, its per capita daily domestic waste generation rates are almost double those of tokyo,” says Mr Wong.

Cheap energy has fuelled Hong Kong’s growth for decades, but much of it comes from nearby polluting coal-fired plants on the Mainland. Wong Kam-sing admits that Hong Kong has historically lacked the political will and public commitment to embrace energy efficiency. But in the run-up to the closure of ageing coal-fired generators, Hongkongers are being asked to choose between importing 50 per cent of their electricity from the Mainland or using costlier natural gas. Mr Wong explains that the “grid purchase” option will involve 30 per cent of the sAr’s electricity being sourced from southern China, along with 20 per cent currently provided by the Daya Bay nuclear plant. Local power generated by natural gas will provide 40 per cent, with the remaining 10 per cent coming from coal and renewable energy. the second option would see natural gas increase from 22 per cent to 60 per cent, in addition to the 20 per cent from nuclear energy, with the remaining 20 per cent met by coal and renewable energy. But cleaning up Hong Kong’s energy production will likely see a

significant price increase, warns Mr Wong. Water presents another significant sustainability

challenge: around 80 per cent of Hong Kong’s water comes from the Dong river, an eastern tributary of the Pearl river: Upstream water quality is degraded due to open garbage disposal and untreated wastewater from the Mainland. But as Development secretary Chan points out, Dong water first goes through a biological nitrification process in shenzhen, and is then sent to a pump station. Once it enters Hong Kong, it then passes through 6 water treatment plants where it is filtered and purified. “As a result, the quality of HK water meets EU drinking water standards,” says Mr Chan.

the government has also launched reclaimed water pilot schemes at sewage treatment works to use reclaimed water for non-potable purposes (such as flushing lavatories). “Using reclaimed water will reduce the consumption of drinking water, as well as lowering water pollution levels in rivers and the sea, making for a cleaner ecosystem and aiding sustainable development in the years to come,” says Mr Wong, adding that the government funds the capital cost of all sewage treatment facilities in full, whereas part of the cost of sewage collection, treatment and disposal is shared within the community in accordance with the polluter-pays principle.

Paul Chan emphasises that addressing Hong Kong’s challenges and ensuring sustainable growth will require continued engagement between the government and private sector, as well as civil society, which has traditionally demanded lengthy consultation processes.

“Hong Kong is a free city and its people pride themselves on the freedom to express their views, so it is inevitable that we have different views over planning and development, and at times these differences become contentious. What the government has to do, and society has to see, is that we need to rise above the individual or sectoral interests of different groups of stakeholders, and do what is in the best overall interests of Hong Kong. Finding solutions amid competing demands needs balance, and balance means compromise,” says Mr Chan.

Over the last few years, an increasing number of the right pieces seem to be in place for making Hong Kong a sustainability success story: an engaged and educated population, financial success, population density to create economies of scale, and access to advanced and efficient technologies.

talking to Hong Kong’s government officials, its business community and other stakeholders, it’s clear that there is the will to embrace solutions to help further unlock its potential and put the city squarely on the path to sustainable growth. F

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IntervIew wIth The hon eddie ng, sbs, jpSeCRetARy foR eduCAtion, goveRnment of the hong Kong SAR

EDDIE nG has been Secretary for Education since 1 July 2012. Prior to his appointment he was a member and then Chairman of the Hong Kong Examinations and Assessment Authority (HKEAA) from 2006-12, and Deputy Chairmanof the Council of the Hong Kong Institute of Education (HKIEd) from 2002-07. mr ng has a wealth of experience in human resource management, having held prominent positions in such leading multinational corporations as macquarie Securities Asia, JPmorgan Chase, Jardine Fleming, Lucent Technologies, AT&T, Citibank and motorola.

Fueling the knowledge economy

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During his 2014 policy address earlier this year, Hong Kong’s Chief Executive, CY Leung, reiterated the need for the city to further enhance its competitiveness if it is

to sustain the growth of its knowledge-based economy and maintain its status as a world city.

Proponents of that goal have often criticised Hong Kong’s education system for its exam-focused, rote learning approach, which has been seen as focusing more on academic achievement rather than personal growth.

in 2009, a new educational structure was introduced: the so-called 334 scheme. Under the new senior secondary syllabus, all students now study a broad and balanced curriculum, including four core subjects: Chinese Language, English Language, Mathematics and Liberal studies, along with two to three elective subjects and other learning experiences.

Education secretary Eddie Ng says the four core subjects will “enable students to develop biliterate and trilingual fluencies and enhanced literacy in mathematics. they will also develop critical thinking, inquiry skills and multi-perspective thinking through exploring contemporary issues and positive citizenship in Liberal studies. Other learning experiences, as one of the three components that complement the core and elective subjects, aim further to widen students’ horizons, to develop their lifelong interests and more importantly, to nurture positive values and attitudes.”

He adds that the idea is also to change the way children think about their education. “the question is how best to shift the focus to quality learning and unleash our children’s potential,” he says, adding: “it is also important to help children understand that education is now a lifetime project; they will have to develop new skills as they go through their careers, so they have to be flexible and adaptable.”

At post-secondary level, measures are being introduced to subsidise higher education in healthcare, architecture and engineering, testing and certification, the creative industries, logistics, and tourism, says Mr Ng, adding that there is to be a greater focus on providing opportunities in vocational education in industries where there are labour shortages.

“Education in Hong Kong has entered a new era. the new system is more aligned with other academic systems worldwide, and allows more opportunities for student exchanges with other parts of the world. taking

the opportunity of an additional year at university, our higher education institutions have revamped their curriculum with a view to nurturing global citizens with academic excellence and an international outlook through inter-disciplinary studies, service learning in local and global settings, exchange programmes and enriched learning experiences,” says Mr Ng.

International schools: admission impossible?For Hong Kong’s growing middle classes and ex-pat community, the private sector’s so-called international schools are proving an increasingly popular choice.

As a result, Hong Kong faces a critical shortage of spaces at its 49 international schools. international schools in Hong Kong haven’t kept pace with the record numbers of applicants as companies expand offices to tap growth in China, and the lack of space may hurt the city’s competitiveness by keeping executives with families from relocating. the leading schools are already at full capacity and many have waiting lists.

Earlier this year Mr Ng warned that demand for primary-school places at international schools will rise 23 per cent to 29,281 by 2016 from 2011, creating a forecast shortage of 4,203 places and leading to concerns that planned expansions won’t meet demand from local and expatriate families seeking an English-medium education for their children in the next few years.

in response, the Education Bureau is promoting new schools. three sites were allocated last year to private operators, including New York stock Exchange-listed Nord-Anglia Education (NOrD). the school has capacity for 660 pupils aged between five and 12 (Year One to Year seven). it opened its doors in september, with 400 places for Year 1-7 students, with Years 8 and 9 to be added next year. the school says it will also explore options for Years 10 to 13.

rebecca Merrett, Nord Anglia’s head of admissions, is generally positive about Hong Kong’s education system in general: “the private sector has responded positively in providing a choice for parents who want an alternative, but i believe that Hong Kong should be doing more to attract international schools. As educators, we believe that there is no ‘right fit’ for everyone. instead it’s about looking the best fit for your child’s needs and what kind of teaching will inspire and motivate them, leading them to be academically successful.”

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Hong Kong’s educational institutions have revamped their curriculum with a view to nurturing global citizens with academic excellence and an international outlook

there are some 25 nationalities attending the school, says Ms Merrett. “We adhere to the 70:30 ratio set by the HK Education Bureau in that 70 per cent of our student population are foreign passport holders and 30 per cent are Chinese passport Holders,” she says, adding that Nord Anglia will be training students from Hong Kong’s institute of Education and providing opportunities for work placements for interns from 2015.

in total, five new locations have been set aside for international schools. Harrow international, a branch of the UK institution that educated sir Winston Churchill, opened its Hong Kong campus in september 2012 in tuen Mun, in the New territories. the extra supply should reduce the projected shortfall of primary places to less than 1,500, says Mr Ng.

Regional education hubBy aligning its education system with others worldwide, as well as by opening up the city to international schools, Hong Kong is further strengthening its position as a regional education hub, says secretary Ng.

“We aim to nurture talents for other industries and attract outstanding people from around the world, boosting Hong Kong’s competitiveness and facilitating the city’s long-term development,” he says, adding that to promote internationalisation, the Education Bureau has doubled the non-local student admission quotas of publicly-funded institutions to 20 per cent; it will also provide government scholarships to outstanding non-local students; has relaxed employment and immigration restrictions for non-local students; and implemented the PhD fellowship scheme offering a monthly stipend plus travelling sponsorship for top research students from around the world.

“We will build on these measures and endeavour to attract more quality non-local students to study in Hong Kong, as well as welcoming overseas institutions to set up campuses in the sAr. We will work with our post-secondary education institutions to step up exchange and promotion efforts overseas so as to encourage more students to regard Hong Kong as a destination for education,” adds Mr Ng.

Last year, more than 26,000 non-local students came to Hong Kong from over 70 countries to undertake post-secondary education in Hong Kong.

Mr Ng points out that Hong Kong has many world-class institutions, and that of 18 local degree-awarding universities and colleges three were ranked within the top 50 in 2013 by Quacquarelli symonds, and another two within the top 200. Hong Kong universities also host some of the world’s best executive business management programmes.

“Our goal is to promote the internationalisation, mobility and employability of the talent pool in Hong Kong,” says Mr Ng, who earlier this year met with

senior officials in Belgium to strengthen Hong Kong’s education ties with European Union member states.

Looking to the futureDespite the many changes and improvements that have occurred since 1997, much more still has to be accomplished, says Mr Ng, pointing to the need for increased use of information technology, still more highly-trained teachers, and increased access to education for all.

While there is much uncertainty in the market, the highly discerning nature of students and their parents, coupled with ambitious reforms, will continue to drive competition and higher standards: the recent education reforms have brought Hong Kong’s curriculum into line with international standards, with their focus on more student-centred learning and establishing a broader, more diversified school curriculum.

At the same time, there has been a significant rise in the number of students progressing to higher education in recent years. the relatively low cost of studying in Hong Kong will undoubtedly increase the appeal of programmes to students from the region, although it is important to point out that local students will not find themselves in competition, as subsidised places have been set aside for them. Nevertheless, private education is set to play a bigger role, particularly at the secondary and higher levels.

interest in Hong Kong from the Mainland has also grown in recent years as Hong Kong institutions have climbed in international rankings. Mr Ng says competition for places will continue to drive policy and greater recognition of Hong Kong qualifications, while at the same time creating further opportunities for providers in the dynamic, diverse and internationally-minded Hong Kong education market. F

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PolyU’s Jockey Club Innovation Tower, designed by Zaha Hadid

Tourism is now one of the main pillars of Hong Kong’s economy, contributing almost 5 per cent toward GDP and employing around quarter of a million people

The city that never stands still

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Hong Kong has emerged as one of Asia’s fastest-growing tourism destinations over the last decade, with visitor numbers rising 16.4 per cent since 2009 alone, and

arrivals reaching 40 million in the first eight months of this year: a 12.3 per cent annual increase. As a result, tourism is now one of the main pillars of the city’s economy, contributing almost 5 per cent toward GDP and employing around quarter of a million people, or 6 per cent of the workforce.

travel and tourism is one of Hong Kong’s so-called four-pillar industries. the Hong Kong sAr government and its agency the Hong Kong tourism Board (HKtB) carefully monitor travel and tourism in Hong Kong as well as continuously investing in its development. the government researches inbound tourism in order to understand the situation and help develop the industry. Moreover, it aggressively promotes Hong Kong as a travel and tourism destination to players in the global travel and tourism industry by holding conferences all over the world and

updating its website in various different languages. in addition, the government also invests substantial amounts of money in improving Hong Kong’s tourist attractions such as its theme parks.

to further strengthen Hong Kong’s international brand, the Hong Kong tourism Board is focused on distinguishing the city from its regional competitors in Greater China, singapore, Malaysia, and south Korea, all of which have increased investment in their tourism sectors.

Cruise market keeps growingrecognising the growing potential of the cruise market, the government is pressing ahead with plans to make Hong Kong a leading regional cruise hub. Located at the site of the former airport in East Kowloon, the first berth of the Kai tak Cruise terminal opened to cruise liners in June 2013, with the second berth coming into operation this year, and is able to accommodate the largest cruise ships in the world.

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Shop till you drop: The glittering malls and

boutiques of Central

By niCK LYneSenioR StAff WRiteR, fiRSt

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At the same time as benefitting from the Mainland as a major source of visitors, Hong Kong is positioning itself as the gateway to China

“there is huge regional and global demand for cruise tourism, and Hong Kong intends to capture a significant slice of the market,” says Dr Peter Lam, chairman of the HKtB, adding that Hong Kong is actively participating in international cruise conferences to build up networks with neighbouring ports and cruise companies: earlier this year the HKtB and taipei’s tourism bureau launched the world’s first ever Asia Cruise Fund, which pools regional resources to attract more cruise lines to deploy ships to Asia. in November, Hong Kong is to be the host city of Cruise shipping Asia-Pacific for the first time, the world’s only annual cruise event focused on the entire Pan-Asia cruise market.

With four venues that can handle up to 3,000 guests each, along with a 23,000-square-metre rooftop garden with views across to Hong Kong’s famous skyline, the HKtB believes the new cruise terminal will also persuade MiCE (Meetings, incentives, Conferences and Exhibitions) groups to include cruise travel in their trips to Hong Kong.

Promoting the Hong Kong experienceAs well as enjoying the sights of Hong Kong, growing numbers of visitors are showing an interest in experience-based travel, combining entertainment and culture with a desire to meet local people.

“We have joined hands with performing arts groups and the tourism sector to leverage our arts and

cultural products to enrich visitors’ nightlife and travel experience,” says Dr Lam.

the HKtB actively promotes cultural and arts activities such as the Hong Kong Arts Festival, the Hong Kong international Film Festival and large-scale arts exhibitions in various local museums. the West Kowloon Cultural District, now under construction, will also boost the city’s status as Asia’s arts capital.

in addition, the HKtB is promoting traditional Chinese customs and festivals such as the tin Hau Festival parade in Yuen Long and Cha Kwo Ling, the tam Kung Festival in shaukeiwan, the Cheung Chau Bun Festival and the Birthday of Lord Buddha celebrations at Po Lin Monastery. “these four traditional festivals were bundled under the ‘Hong Kong Cultural Celebrations’ promotion in April and May and visitors were encouraged to take part in the celebrations in different districts,” says Dr Lam.

Eco-tourism potentialLeveraging Hong Kong’s ecological diversity, Dr Lam says the HKtB is promoting green tourism in the Northeast New territories and outlying islands: “in fact, 40 per cent of Hong Kong is conserved as country parks. Many of these green havens are in the New territories, which includes the city’s hinterland and more than 200 islands, but others are within walking distance of Hong Kong island.”

in 2009, the HKtB launched the ‘Great Outdoors

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Time, please: the former Kowloon-Canton Railway Clock Tower, Tsim Sha Tsui, Kowloon

As well as enjoying the sights of Hong Kong, growing numbers of visitors are showing an interest in experience-based travel

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Hong Kong!’ campaign to promote the Hong Kong Global Geopark of China, the natural scenery of outlying islands, popular hiking trails, and other green attractions.

the HKtB is increasingly promoting Hong Kong as an all-year-round destination. Among the highlights aimed at attracting international visitors are the Mid-Autumn Festival in september, which includes the spectacular tai Hang Fire Dragon Dance. October sees the Hong Kong Open, one of the most important tournaments in Asian golf. Later in the month is Hong Kong’s Wine and Dine Festival, a four-day outdoor party that Forbes travel Guide now includes among the top 10 international food and wine festivals. Using 3D projection mapping, music, sound and light, the two-week Hong Kong Pulse 3D Light show is held in November, December, February and March. the multimedia show takes place at the Hong Kong Cultural Centre in tsim sha tsui, coinciding with the Wine & Dine Festival, Hong Kong WinterFest, and the Chinese New Year Celebrations.

Digital strategyto further improve visitors’ experience the HKtB has pioneered the use of digital technology to create a strategy to help visitors explore Hong Kong’s culture, cuisine, and heritage.

this encompasses smartphones, social media, and the internet, including its award-winning website DiscoverHongKong.com, along with designated social media accounts such as Facebook, twitter and

instagram, as well as tailor-made apps. “We are the first in the industry to launch a cross-

channel digital travel guide, it’s called 3-in-1 My Hong Kong Guide, and integrates web portals, mobile applications and social media that can be used on both personal computers and mobile devices,” says Dr Lam, adding: “With this handy digital guide, visitors can plan their itinerary on HKtB’s website with their friends before the trip, retrieve the itinerary on their mobile devices and start exploring Hong Kong when they arrive using this one-stop digital platform. Users can also receive location-specific information and offers in town, and share their travel experience on social media using this application.”

At the same time as benefitting from the Mainland as a major source of visitors, Hong Kong is positioning itself as the gateway to China, taking advantage of ambitious infrastructure projects.

these include the Hong Kong section of the Guangzhou-shenzhen-Hong Kong Express rail Link (XrL), aimed for completion in 2015; the Hong Kong-Zhuhai-Macao Bridge, scheduled to be commissioned in 2016, which will be a mega sea crossing linking the sAr with Zhuhai and Macao; the Hong Kong-shenzhen Western Express Line; and skyPier, a cross-boundary ferry terminal, providing high-speed ferry services for transit passengers travelling to and from eight ports in the PrD and Macao. in the near future, improved rail and road links will bring Hong Kong, shenzhen, Zhuhai, Macao and other regional population centres within a one-hour circle. F

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Hong Kong’s Heritage Fiesta offers visitors an opportunity to explore lesser-known examples

of the city’s heritage

Hike a mountain trail, sail across the harbour, dine under the sunset, lose yourself in the neon... Experience all the wonders of a city like no other. Discover the wonders of Hong Kong.D i s c o v e r H o n g K o n g . c o m Discover Hong Kong

MY TIME FOR CITY WONDERS

7.35pm Central

HKTB_MTFCW_FIRST Full page.indd 1 29/09/2014 13:16

IntervIew wIth LinCoLn LeongChief exeCutive offiCeR (Ag), mtR CoRpoRAtion

LInCOLn LEOnG graduated from Cambridge University in 1982 and qualified as a chartered accountant in England in 1985 and Canada in 1986. Prior to joining mTR, he worked in both the accountancy and investment banking industries in London, Vancouver and Hong Kong. He joined the company as Finance Director in February 2002 and was appointed Deputy CEO in July 2012. mr Leong has been the Acting CEO of mTR since 16 August 2014 and a member of the Executive Directorate since 2002.

An enviable track record

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Not many cities around the world are willing to outsource the running of their subway systems, but among the few metro operators to have consistently

won international tenders is Hong Kong-based Mtr Corporation, one of the biggest operators of metro systems in the world, which carries a global total of more than 3 billion people every year. Aside from running the metro in its home town, Mtr also runs lines in the Chinese mainland cities of Beijing, shenzhen and Hangzhou, as well as in Melbourne, London and stockholm. What’s more, it has just been chosen to run the first privately operated passenger rail line in sydney, as well as London’s flagship transport project, Crossrail. Mtr already runs the London Overground franchise with Arriva.

set up in 1975 as a government-owned statutory corporation to build and operate Hong Kong’s mass transit railway (hence Mtr), the company was partially privatised in 2000, although the government

of the Hong Kong sAr retains a 77 per cent stake. Asked why so many cities opted for Mtr over

domestic rivals, Lincoln Leong, a former Finance and Business Development Director and Deputy Chief Executive Officer, promoted to Acting CEO in August, cites the company’s operations record. “in Hong Kong, the world’s 10th-busiest subway system, we have consistently delivered a 99.9 per cent on-time rate while carrying up to five million people on an average weekday. What’s more, in the past year, Mtr has added 1,200 train trips a week to ease crowding, a long-standing complaint.”

Despite Hong Kong’s relatively modest 120 miles of metro lines, Mtr carries roughly the same number of people as London and New York, each with more than 200 miles of track. Visitors to Hong Kong from those cities marvel at its clean trains, which appear at intervals of every two minutes during rush hour.

the company is justifiably proud of its efficiency, which in large part is due to continual maintenance

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All in a day’s work: mTR carries roughly the same number of passengers in Hong

Kong as London Underground or the

new York subway

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MTR is justifiably proud of its efficiency, which in large part is due to continual maintenance of its track and equipment: in 35 years, track work has caused just one shut-down

of its track and equipment: in 35 years, track work has caused just one shut-down. “Obviously, we work at night, and we also integrate repair work with new-builds, making sure it’s planned and coordinated in advance. We don’t close any part of lines when we connect. We have learned how to do this over the years. it’s a seamless process.”

Mr Leong also attributes the company’s international success to the company’s workforce, or “colleagues”, of around 32,000 people, half of whom are employed in Hong Kong. “We have a safety-first culture: it’s deeply ingrained in the company. it’s a can-do culture, one of continuous improvement. We work as a team. We’re a company that touches the lives of everybody in Hong Kong, not just passengers, but also the shoppers in the malls we own above the stations, the apartment buildings we build and manage, the advertising hoardings in our stations; we have a responsibility to be part of society, of the community. Our vision is to grow communities and connect them.”

Mtr stands apart from its competitors for another important reason: its consistent profitability. Without any direct government support, it made a net profit after tax of Us$1.1 billion in 2013. its profits, more than 90 per cent of which came from its Hong Kong operation in 2013, point to another unique characteristic: in Hong Kong, Mtr benefits from developing the land above and around its stations, allowing it to benefit from Hong

Kong’s booming real-estate market. Mr Leong describes the company’s Hong Kong and

Chinese models as “asset heavy”: “We invest in the rail line, and in Hong Kong, we tender for property development rights above stations.” in other cases, it will cut a deal with shop owners, receiving a share of a mall’s profit, signs a co-ownership agreement, or accepts a percentage of property development fees. “in many cases, we own the entire mall itself,” he explains. two of the tallest skyscrapers in Hong Kong are Mtr property developments, as are many of the offices, malls, and residences next to every transit station, some of which even have direct underground connections to the metro below.

While he admits that the systems Mtr runs overseas don’t quite match its standard of punctuality at home, Mr Leong says they are close. At London Overground, 96.7 per cent of trains operate on time compared with a rate of just 88.4 per cent in 2007, before it took over operations. similarly, on-time performance at Melbourne Metro has risen to 93.7 per cent from 87 per cent in 2009 when Mtr took over.

Expansion abroad…and at homein London, Crossrail is expected to reduce passenger overcrowding on underground trains in central London and to reduce cross-London journey times. the line will see trains running from reading in

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The operation of mTR’s ten Hong Kong rail lines is overseen from its state-of-the-art Operations Contol Centre in Tsing Yi

MTR stands apart from its competitors for another reason: its consistent profitability. Without any direct government support, it made a net profit after tax of US$1.1 billion in 2013

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Berkshire to the west of the capital and as far east as shenfield in Essex, as well as linking to south London. it is one of the most ambitious transport construction projects undertaken in London since the original Underground was built more than 150 years ago.

New trains will begin entering service in 2017. the route through Canary Wharf, the City, and the West End will open in late 2018, with the full route running from late 2019.

Mtr’s enlarged presence in London represents a return home for the company, which was set up when Hong Kong was still a British colony. Over the years, a number of Mtr’s top executives have ended up leading London Underground and other British rail companies. the huge Crossrail project, costing around £15bn to build, is the first complete new underground line in London since the Victoria line was built in the late 1960s. there is another London link: roland Paoletti, the architect dubbed ‘the Medici of London transport’ for his work on the extension to the Jubilee Line, notably Canary Wharf and Canada Water. Back in the mid-1970s Paoletti, who died last year, was the fledgling Mtr’s chief architect, supervising the design of three complete lines, as many train depots (each with vast housing neighbourhoods on top) and 37 stations, all built within a dozen years.

Mtr’s continued expansion outside Hong Kong will likely come from markets it has already entered, including China and London, according to Mr Leong: “Our approach to expansion is to compare our different experiences around the world and to use what we have learned. We’ve used different models in different countries. in Australia, the United Kingdom, and sweden we are operators only. We are great believers

in transferring the knowledge we have gained in Hong Kong to other countries and to other operating systems. We’re able to recruit good local people, but we bolt-on systems, assets, and our ‘culture transfer’ of continuous improvement.”

Mr Leong rebuffs suggestions that the company’s recent growth runs the risk of it overreaching, but the company has been criticised for a two-year delay to Hong Kong’s Express rail Link project, which will connect Kowloon with Guangzhou in Mainland China. the line is now scheduled to open in 2017, meaning that four of Mtr’s five current major construction projects in Hong Kong are now delayed. But heads rolled, and at the highest level: former CEO Jay Walder stepped down in August after he was criticised by the company’s directors for not exercising “more critical judgment” with respect to monitoring the project’s progress.

For the moment, Mtr’s expansion plans are focused abroad, but a Hong Kong government-initiated plan, first formulated in 2000, seeks to maximise its domestic metro system’s connectivity. Early last year, the government launched the second stage of a public consultation on the long-term railway development blueprint aimed at improving the Hong Kong rail system in the coming years – particularly after 2021, when most of the work being planned now will have been completed. seven proposals have already been put on the table. Committed and future railway projects would potentially increase the network to around 186 miles before 2031.

the company will have its work cut out balancing domestic and international growth, admits Mr Leong: “We prefer to grow and expand in the cities we operate

in. it’s like farming, where you start with small plot and expand out. Australia is a case in point: we started out in Melbourne, moved to sydney, and there may be more opportunities there, and the same applies to the UK and China. it’s very encouraging that in september, the Chinese government issued a directive proposing a model in all China’s cities based on Mtr: this would be for high-speed rail, but it could also apply to metro systems. the Chinese have sent delegations to study our malls and stations. Financial synergies come from building the rail system and benefiting from the accompanying increase in property values. it’s about capturing value and reinvesting it.” F

HONG KONG

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Sydney’s new rapid transit train, to

be operated by mTR