The Bulletin: Congratulations on being elected Chairman of the Hong Kong General Chamber of Commerce. What are your priorities for the coming year?
Aron Harilela: My first priority is to examine how we can strengthen Hong Kong’s competitiveness. The economy is growing at its strongest pace since 2008, but so too is the competition from our neighbours. We also have a slew of uncertainties making global markets nervous, so the current upswing that we are now enjoying could very quickly change.
As part of this, we need to keep lobbying the Government about the dangers of regulatory creep, the red tape that exists in Hong Kong, and the resulting costs, which impact our competitiveness. If we are not careful, these will deter businesses from setting up here. In my own business alone, I have a million stories that I could share about how regulations are costing me time and money, not to mention frustration.
I believe part of the problem is that government departments don’t always talk to each other, or they operate in silos, and then red tape is allowed to creep in. As many departments have also probably been happily doing the same thing they have been doing for years, there is a natural resistance to change. So we need to focus on the benefits new changes can bring, rather than the process of change. The world is changing and Hong Kong needs to adapt or we will be left behind.
The third priority is to examine how Hong Kong can maximize the benefits of the Greater Bay Area and the Belt and Road initiatives. I think these will be the big economic drivers for Hong Kong in the coming decade. Although they will present new opportunities for Hong Kong companies, they also mean more competition, which is why I said we need to make sure we are keeping ahead of the changes so we are in good shape to beat our competition.
And my fourth priority is to address the city’s manpower shortages. Companies are bringing in new business, but we are suffering from a lack of senior professionals and skills. We need to make sure we can offer talent a good quality of life here, international school places for their children, affordable housing, etc. All these influence the decisions of the overseas talent that we need to come to Hong Kong.
B: You have been active in the Chamber for many years. Why do you feel it is important to make this time, given you are already extremely busy running your group’s businesses?
AH: Hong Kong is my home, so if I have the opportunity to contribute to improving it in some way, then I feel it is important to seize that chance. My family has been here since 1930; we are Hongkongers through and through. Our business started here, and all the wealth that we made originally germinated from Hong Kong. It’s important to me, not only for the economic benefit of Hong Kong, but also for the love I have for Hong Kong. It’s the best city to live in the world, and it’s the best city to do business, so I am very committed.
B: You have been quite vocal about the issue of outdated regulations. Why is this a problem, and what should the Government do about it?
AH: We have outdated and impractical regulations in many aspects of doing business in Hong Kong. Regulations have to change and they have to evolve to meet the changing times. Many of the regulations in Hong Kong date back to when we were under the British system, or when things like e-commerce and warehouse automation didn’t even exist. For example, our Innovation and Technology Bureau is pushing for innovation in various sectors, such as fintech. But financial institutions need to comply with existing rules and regulations under the Financial Services and Treasury Bureau, which has yet to define regulations covering fintech. So part of the problem also relates to Government departments and the civil service working in silos and not talking to each other.
For my own case, I’m building a hotel in Wan Chai. Three different departments are telling me how I need to build the building. For example, the Transport Department has dictated that I have to have 86% of the ground floor as deliveries and car parks, which seems ridiculous. Government guidelines in many areas are extremely inflexible and often show a lack of common sense.
If they stick to such rigid regulations, I and other businesses faced with similar restrictions will basically have to build car parks at street level, which will turn vibrant neighbourhoods into ugly, less pedestrian-friendly areas. Then people will ultimately not want to go to these areas.
As I just alluded to, the issue of mismatched regulations in high-tech sectors is even more absurd. The Government is trying to encourage start-ups and tech companies to grow by throwing money at these sectors. Yet if I want to open an online business and sell certain types of vitamins online, for example, it is illegal to do so because the laws governing those products were written so long ago. Of course we need regulations to help guide us, but if those regulations are unfit for purpose we need to look at the bigger picture and resolve the issues.
This is why the Chamber has been pushing hard for the Government to implement a comprehensive Regulatory Impact Assessment system. This will save everyone, including the Government, a great deal of time, money and frustration, and ultimately everyone will benefit from more practical, effective and suitable regulations.
B: The Government’s plans to abolish MPF offsetting is an emotional debate. How will its latest proposal affect businesses, and what are your thoughts on the issue?
AH: The whole MPF system needs a big shake-up. For many years, the returns have been lackluster and high fees have wiped out some of the gains. Consequently, the MPF is unable to provide a reasonable standard of living after retirement for the average employee. We agree that more must be done to ensure a better quality of life for our senior citizens, but singling out the MPF offsetting arrangement is not the way forward.
The Government’s own study has warned that the additional financial burden that SMEs will have to shoulder will simply be more than they can bear. Retirement protection should not be the sole responsibility of employers. It needs to be a shared responsibility among employees, employers and the Government.
B: You touched on the shortage of talent, what effect is this having, and what are the possible solutions?
AH: There are two sides to this. Firstly, there is the highly skilled talent, who are very difficult to attract to Hong Kong as they can pick and choose where they work. We are dependent on the financial sector and other service industries that demand a strong base of professional talent. Hong Kong is a very small place, so we have to import some of that intellectual manpower that we need. To do that successfully, we need to create the conditions that make it attractive for people to move here. The tax system is great, but other quality-of-life issues such as housing and schooling are not so good.
Manpower is also an issue in lower-skilled jobs. In my industry, the hotel industry, we have to employ a lot of overseas staff. This is because many Hong Kong people are not interested in working in restaurants or housekeeping. We still have shortages, so I think the Government needs to make it easier for businesses to bring in staff from overseas.
We understand that the Government is trying to protect the workforce here, and doesn’t want to see unemployment among local people. But some businesses are becoming uncompetitive because of higher labour costs. If people are dissuaded from opening and expanding businesses due to high labour costs, the whole city won’t grow.
B: The land debate is a recurring issue that we seem to be making little progress on solving. What is your view on the land and housing problem?
AH: I think land and housing are gigantic issues, with no simple answer. We have a serious lack of housing, and as apartments are getting smaller, why would you want to live here if your standard of living is of such a horrible quality? I recently visited the home of one of my own staff, where five people are living in a 300-square-foot flat.
We need to provide people with incentives to work and study hard. If you can’t afford an apartment, it is more difficult to get married or have children. In the past, Hong Kong people wanted to study, go on to university and get a good job. But if you still have to live with your parents even after getting a degree, why would you study? Why would you work hard? Or why would you even stay in Hong Kong, when you could go overseas for a better standard of living?
So what is the solution? The solution is to find land. There is land – for example there are brownfield sites and there is land in the New Territories – but we need to solve the issue of moving the scrapyards, container storage sites or whatever businesses are renting the land. We need to provide an alternative to those who hold the land to move.
We also need to change regulations to make planning and building requirments less painful. Hong Kong used to be a very nimble society; we used to move very quickly. Yes, we have gotten bigger, yes our population has grown, and some of our problems have been exacerbated, which is natural when you are a growing city, but it doesn’t mean we have to stand still. Look at developments like Kai Tak or West Kowloon – they are moving at a snail’s pace. The Kai Tak airport closed in 1998 and we still don’t have much there now – it’s quite absurd.
B: Tourism is a hugely important part of Hong Kong’s economy, and also a key focus of the Harilela Group. The sector has rebounded recently in Hong Kong. What trends and challenges do you see for the industry?
AH: Last year, almost 59 million visitors came to Hong Kong, and about 75% of them were from the Mainland. We have to appreciate that the Mainland is a huge part of the tourism sector, and also the retail and food and beverage industries, but we also need to understand that we can’t be too reliant on one region. We had quite a tapering off in the number of Mainland visitors coming to Hong Kong when we had some anti-Mainland sentiment among some people, so the Hong Kong Tourism Board and the Government shifted its focus to Southeast Asia.
This was quite successful, and we attracted a lot of new visitors from Southeast Asia, but visitors from that region are not as big spenders as Mainland visitors, so do not spend the same amount on eating out, on shopping, or on hotel rooms. But it does show with sufficient marketing, we can attract tourists from other regions and diversify our source of visitors, so all our eggs are not in the same basket.
B: The Government has the unusual problem of having too much money in its fiscal reserves. What you do think it should do with these funds?
AH: The Government has been running a surplus in probably 17 or 18 of the 22 years since then. They always say ‘we are saving it for a rainy day,’ but they have so much money it is quite ridiculous. It also shows that the Government is taking more money out of the economy than it needs. As a result, it is leaving companies with less money to grow their businesses. It also means consumers have less money left in their pockets so they are unlikely to make purchases that they want.
As part of this, the Chamber put forward the idea for a two-tiered profits tax system some years ago, which is now in effect for the coming fiscal year under review. This is a great result, as it particularly benefits Hong Kong’s SMEs and start-ups, who often have cash flow challenges, and in turn will nourish the whole economy.
Traditionally, the Government would spend its surpluses on infrastructure and public utility services, as they invest in the future. Recently, it has been trying to stimulate new industries, such as the $50 billion that the Financial Secretary allocated to the innovation and technology industries. This is a good strategy, but the Government needs to make sure it provides sufficient software, such as talent, and that archaic regulations do not hinder growth of these sectors. Just throwing money at something is not enough to make it a success.
Education is another thing that we should be investing more in for our future. We need to build more schools, both international and local. When talent is considering coming to Hong Kong, a key consideration is always schooling. If they cannot secure a school place for their children then they simply won’t come here. Another area often overlooked is training and vocational education. In many developed countries, vocational education is encouraged and even respected – in Germany, for example, which is famous for its cutting-edge engineering expertise.
B: The Chamber’s Business Prospects Survey, released at the end of 2017, revealed growing optimism among businesspeople in Hong Kong. Do you share their outlook on the city’s future prospects?
AH: I’ve always been optimistic about Hong Kong. When I moved back here shortly before the handover, people were saying ‘Shanghai’s going to take over from Hong Kong,’ or ‘Singapore’s going to take over from Hong Kong.’ I never believed that would happen. Hong Kong’s value cannot be simply replicated elsewhere. If you are an SME or a multinational coming from abroad you have much more security and safety investing in Hong Kong.
We have intrinsic elements and assets that we can leverage – although we need to move with the times if we are to ensure that we don’t slip behind. But overall, I’m very optimistic. As I mentioned earlier, I’m building a new hotel in Wan Chai right now. If I didn’t have ultimate faith in Hong Kong as a great place to invest and do business I wouldn’t be building here.