As we welcome the Year of the Pig, The Bulletin spoke to our committee chairmen about their expectations for the year ahead. The trade friction between the United States and Mainland China was a common theme that will certainly have an impact on many Hong Kong businesses in the coming year. Other global factors such as rising interest rates and central bank tightening are also expected to affect the local economy
On the positive side, the Greater Bay Area initiative has been welcomed across the board among our committees, and the growing cooperation with the Mainland that the initiative is helping to foster will provide new opportunities for a wide variety of sectors in Hong Kong.
Uncertainty may be the watchword right now, but our committees are actively seeking ways to protect and promote our members’ businesses as the Year of the Pig progresses.
Emerging Opportunities in Latin America
2018 was a challenging year for Hong Kong. Super Typhoon Mangkhut also served as a reminder of the destructive forces of nature and the impact of climate change. Shrinking exports and a plunging stock market as a result of the trade war have also contributed to an unstable economic outlook.
Amid these negative impacts, the Belt and Road Initiative (BRI) that was launched five years ago has gradually achieved greater global recognition. The detailed plans of BRI show that it is not merely an economic activity, but also aims to create an “ecological civilization.” The Greater Bay Area (GBA) is serving as a pilot scheme of BRI to realize this and to act as a testing bed for green finance.
North American nations have been participating in business in the Far East – with Hong Kong serving as a hub – for many decades. But until recently, very few Latin American countries and companies have been active in the region. This is now changing.
Many Latin American countries like Argentina and Chile have recently shown their strong interest in participating in the BRI and GBA initiatives. The countries have different strengths in areas such as natural resources, human resources, and cultural and technological establishments.
For 2019, our Committee will help companies from across the Americas to work with the Chamber’s members, so both sides can make the most of the substantial opportunities emerging from BRI and GBA.
– Steve Wong, Americas Committee
Making the Most of Our Advantages
While there is uncertainty ahead, the Year of the Pig should not be all doom and gloom. In Hong Kong, we have low unemployment, strong reserves and a stable economy. The million-dollar question is: how do make this sustainable by taking advantage of our unique position in Asia?
I encourage members to explore the opportunities that ASEAN and South Asia offer. India, for example, is expected to remain the fastest growing major economy in the world, and its huge population and growing middle class make it an attractive consumer markets. Amid the Sino-U.S. trade war, one benefit is that some businesses may move their manufacturing operations out of the Mainland and into Southeast Asia.
Africa is another important frontier. With a rising population and the youngest workforce in the world, sub-Saharan Africa has rapidly growing demand for infrastructure and services, which calls for substantial investment. As Internet access spreads, the continent is expected to become the largest consumer of mobile devices by 2020.
I hope the Year of the Pig will turn out to be an auspicious and prosperous one. The waters ahead may be far from calm, but businesses in Hong Kong have always been renowned for resilience and nimbleness. As long as we make use of our position as a global hub, we will sail through the storms.
– Behzad Mirzaei, Asia & Africa Committee
From Tourists to Testing Services, Mainland Provides Demand
Amid various unfavourable factors such as the U.S.-China trade tensions, Brexit, the Federal Reserve’s shrinking balance sheet and rate hikes, the momentum of recovery has been lost in economies around the world. This slowdown means that the Hong Kong economy will face a range of challenges in different aspects in the coming year.
That said, the Mainland economy continues to see strong growth and the financing needs of Chinese businesses keep growing. Growth this year is expected to be driven by small- and medium-sized IPO projects and corporate bond issuance, which will help sustain Hong Kong’s role as the best financing platform for international investors and Mainland enterprises across the Asia Pacific.
On the other hand, the opening of the High Speed Rail and the Hong Kong-Zhuhai-Macao Bridge will boost the number of inbound visitors. Increasing numbers of Mainland business visitors and tourists will use Hong Kong airport as an interchange point, which will strengthen our position as an aviation hub in the Greater Bay Area (GBA) and inject fresh impetus to the tourism and retail industries.
Moreover, with many Mainland enterprises going international, the demand for internationally recognized professional testing and certification services is keen. As such, Hong Kong should take advantage of the liberalization measures on testing and certification services under CEPA and strive to become a hub in the GBA for these services.
– Petrina Tam, China Committee
Embracing New Technologies
Innovation and technology will bring sustainable development and elevate the competitiveness of Hong Kong businesses and society. With the Greater Bay Area initiative, there are lots of opportunities for our entrepreneurs and innovators to capture the markets. Hong Kong’s advantages in key technology areas mean that we can expect to see some fruitful results.
Thanks to the joint efforts of the HKSAR Government and our academic and business sectors, there are plans to allocate more resources to research and development, talent development, providing technological research infrastructure, and strengthening popular science education.
In addition, Hong Kong and Shenzhen will jointly develop the Hong Kong-Shenzhen Innovation and Technology Park at the 87-hectare Lok Ma Chau Loop, which will be the largest ever innovation and technology platform in Hong Kong.
However, we are also facing ever-increasing and dramatic changes, in areas including 5G Mobile, connected cloud, blockchain, artificial intelligence, augmented reality, virtual reality and the Internet of Things. These developments may present challenges to businesses.
But let us embrace new technologies and always be prepared for disruption. Nurture your team with customer-focused and change-welcoming attitude. Count the opportunities and move fast. Watch and follow tech trends. These game-changing trends will eventually affect our businesses, but we believe they present more opportunities than threats.
– Eric Chin, Digital, Information & Telecommunications Committee
Brexit Uncertainty, But Other Opportunities
Brexit is undoubtedly casting a shadow of uncertainty over Europe as we enter 2019. As far as I can recall, the last time Europe faced such a collective challenge was when the Euro was introduced, nearly 20 years ago.
This time the impact might be more serious, as the uncertainty affects a wide variety of areas and the daily life of ordinary people. But as the Chinese saying goes: “Where is danger, there is opportunity.” With the pound sterling having dropped considerably against the Hong Kong dollar, there are a lot of investment opportunities in the United Kingdom. Parents with children studying in the U.K. will be happy to see the low pound continue for a while.
But Brexit is not the only European story right now. For continental Europe, especially the stronger economies like Germany, the Netherlands and France, moderate growth will continue. Some southern and eastern European countries are likely to continue to explore Asia to expand their markets, which will provide business opportunities for Hong Kong.
In the Europe Committee, we have received quite a number of delegations from these parts of the continent in recent years, and I expect this trend will continue. On the whole, I would say a “life still goes on” climate will prevail even amid the Brexit uncertainty, with around 1.5% growth expected for this year in Europe.
– Jennifer Chan, Europe Committee
Headwinds, Not a Hurricane
The global economy is set to slow in 2019, but while most indicators are pointing to economic headwinds, they are not suggesting an economic hurricane.
One of the most reliable indicators of economic prospects is the U.S. bond market. Whenever the yield curve becomes inverted – when yields on shorter duration government bonds are higher than those on longer term bonds – that is telling us that markets are expecting a slowdown. Recently, this inversion has occurred.
We all know the main risks facing the global economy. Trade conflict is at the top of the worry list, and of course is particularly important to Hong Kong. The recent postponement of hostilities between the U.S. and Beijing gives us some hope that this situation can be resolved.
But other issues are still of concern. Central banks around the world are cutting back on the quantitative easing that has fuelled the economic recovery of recent years. Liquidity is going to get tighter and interest rates are set to rise from their record low levels. Globally, aggregate debt is now way higher than before the 2008 global financial crisis. However, at this stage, it does not look like a financial meltdown in major markets is likely.
To preserve our competitive position, Hong Kong authorities need to be more proactive in enhancing our role as a global financial centre. The city is way behind the curve in providing suitable incentives and regulatory environment in areas such as fintech, blockchain, new forms of asset management and capital markets.
– Peter Churchouse, Economic Policy Committee
Commitment to Sustainable Strategies
In the coming year, pressure on business to incorporate more sustainable business practices and strategies will continue to grow. Since the 2015 announcement of the United Nations Sustainable Development Goals and the signing of the Paris Agreement on climate change by over 175 nations, expectations are slowly but surely mounting for countries to show progress on their commitments and goals.
Meanwhile, Mainland China is not only one of the signatories of the Paris Agreement, but its commitment to develop an “ecological civilization” has been illustrated by its centralization of environmental enforcement under a new and larger Ministry of Ecological Environment.
Many businesses in Hong Kong will need to face the challenges of both international and local environmental, social and governance (ESG) related policies and regulations, as well as changing consumer and public expectations. The introduction of medium- to long-term targets (such as for 2030 and 2050) will be needed to manage reputational risk as well as provide milestones towards more sustainable business strategies.
While businesses can anticipate and adapt to the changing business environment, certain sectors will still need support from Government. This could come in the form of updated or new policies and regulations that create new business opportunities that are aligned with the changing expectations of the world. This would help provide a level playing field for businesses who are playing the long game and call Hong Kong home.
– Jeanne Ng, Environment & Sustainability Committee
Technology Adaptation and GBA ‘Connector’
Hong Kong remains cautiously optimistic about the financial outlook in 2019. Externally, challenges lie ahead amid rising concerns about Mainland China’s growth outlook (as referenced in the Central Economic Work Conference in December 2018), and lingering pressure from the U.S.-China trade war. As Hong Kong is a small and open economy, both our economy and the financial markets may face headwinds on account of the resulting uncertainty.
Nevertheless, we note that Hong Kong is well positioned for success amid supportive policies such as the development of the Greater Bay Area (GBA). The GBA will place Hong Kong in a big and unified market in which further pilots in capital account liberalization could take place. Within this framework, Hong Kong’s comparative advantage in legal, accounting and regulatory systems could help to deepen its role as the “connector” between the Mainland and the rest of the world.
Fintech received a big push as the Hong Kong Monetary Authority (HKMA) officially launched its guidelines on the authorization of virtual banks in May 2018. The HKMA expects to start granting virtual banking licenses in the first quarter of this year, while the first virtual insurance license was granted in December. Together with the launch of the Open Application Programming Interface (API) framework, Faster Payment System and eTradeConnect in 2018, the bar for technology adaptation is rising fast in the banking industry and intense competition is likely among players.
– Agnes Chan, Financial & Treasury Services Committee
FTAs and New Technologies
As part of the Asia Pacific Services Coalition, the HKCSI recognises the important role that services will play in the growth of our region over the coming decade. New technologies are increasing our ability to trade in services while creating platforms that allow many service providers, including SMEs, to participate.
Our committee will continue to address barriers that inhibit our businesses from competing in services markets. We will cooperate with the regional and global service coalitions and governments to support concrete actions to facilitate services trade and investment, to ensure regulations promote fair competition, and adoption of new technologies that will help enhance the competitiveness of the sector.
Hong Kong’s service industries have benefited from the conclusion of free trade agreements (FTAs) with ASEAN and with Australia. The agreements will bring about legal certainty and better market access as well as investment protection. They will also help reduce the restrictions in doing business and expand opportunities for enterprises.
Modern trading rules on e-commerce, financial services, telecommunications and intellectual property will also provide regulatory certainty for businesses and the confidence to make long-term investment decisions.
The HKCSI will continue to support the Hong Kong Government in its efforts to negotiate FTAs and Investment Agreements with economies that have strong economic connections with the HKSAR, markets with development potential or at strategic locations – as well as restarting talks in the stalled global Trade in Services Agreement (TiSA).
– Mark Michelson, HKCSI
Forging a Path Through Uncertainty
As 2018 drew to a close, the world economy was in an uncertain state. The world’s two largest economies, the United States and Mainland China, have entered a trade war and this has been reflected in stock markets around the world in recent months.
I expect 2019 will be a rough year because there are too many variables; too many uncertainties. How long the will the trade war last? And what will its impact be on the global economy? With all these uncertainties, it is difficult to implement long-term strategies, but in the meantime we must work on our short-term strategies. We should make good use of the latest technology developments such as big data analytics to plan our production and procurement. Just-in-time procedures must be implemented to cut down waste and be more efficient.
All in all, we must remain calm! We should try to see the dark side of the moon, as the Chinese spacecraft did recently, by exploring new areas. We need to use tools, and be creative and innovative. We must change our modes of productivity, think outside the box, and be adaptive in order to survive.
As Chairman of the Industry & Technology Committee, I think it is particularly important to reach out to other groups to seek help. We can also offer our help to relevant parties as we ride through this chaotic period. Hong Kong has been through rough times before, but the unity of the business sector with the Government will help to bring about win-win solutions.
– William Lai, Industry and Technology Committee
Staying Ahead of Legal Developments
In the coming year, the Legal Committee will continue to monitor implementation of the Competition Ordinance, which came into effect in 2015, together with related proceedings and the forthcoming LegCo review of the law. We are very interested in, for example, the possible extension of the merger control provisions beyond the telecommunications and broadcasting sector.
We will also monitor expected developments in relation to existing antidiscrimination laws, which have already been the subject of a LegCo review, and consider changes to the Evidence Ordinance relevant to the admissibility of hearsay evidence, designed to bring Hong Kong in line with the position in other major common law jurisdictions.
The Companies (Corporate Rescue) Bill may be introduced this year. The proposed provisional supervision procedure would provide an alternative to winding-up if a business can be rescued, akin to the process of administration in the United Kingdom, while the proposed insolvent trading regime would introduce new provisions relating to directors’ liability to stakeholders. Finally, labour-related proposals are often of concern, particularly if the economic impact is material. Employers in Hong Kong should not be expected to undertake obligations inappropriate to this jurisdiction.
– Fiona Loughrey, Legal Committee
Transformation and Tight Labour Market
2019 is expected to be another challenging year. With heightened international tensions such as Brexit and the U.S.-China trade war, Hong Kong businesses working in an externally oriented economy are subject to increased uncertainty.
Against such a backdrop, business leaders are under pressure to speed up the transformation of their companies in order to stay competitive. In today’s extremely tight labour market, HR professionals have a difficult task to recruit talent with the necessary skills and knowledge to fuel innovation and transformation.
The recent rapid economic and technological development of our neighbouring cities such as Shenzhen and Guangzhou, and the rest of the Greater Bay Area, presents a new stream of talent including IT professionals and innovators who can benefit businesses in Hong Kong. To attract such talent, it is important for the Government to put in place policies that facilitate talent mobilization between Hong Kong and the other GBA cities.
Another heated HR topic is the proposed abolition of the MPF offsetting mechanism. This proposal has aroused major concerns due to its complexity and significant cost implications for employers, especially SMEs. We will continue to monitor the development of this issue.
To help senior executives tackle the biggest talent challenges, the Manpower Committee will present the biannual CEO Manpower Conference later this year, so that our members can pick the brains of the brightest minds and learn about the best practices in the HR field.
– Connie Lam, Manpower Committee
Supply And Development Challenges
The chronic land shortage continues to be a challenge for Hong Kong in the immediate and medium term. It is therefore encouraging that the Government has confronted the issue by asking the public for views on the various options put forward by the Task Force on Land Supply in its consultation last year.
The Task Force has now submitted its report, but some of its recommendations will not sit well with certain parts of the community, which is understandable given the various and sometimes conflicting interests involved. Going forward, we will need firm and decisive leadership from the Government so that the problems associated with inadequate land supply can be addressed properly and effectively.
One of the recurring tasks of this Committee is to draw attention to the planning and land development approval process, which would benefit immensely from a review. We have proactively engaged with the respective agencies on the matter and are heartened by the Government’s efforts to consider stakeholders’ suggestions on refining the existing regime. Such changes are overdue and should be carried out as a matter of urgency if the Government is serious about expediting the process for bringing to market “spade-ready” sites.
We will continue to liaise with the Government to ensure the timely provision of land and infrastructure, as well as in enhancing Hong Kong’s appeal as a livable city.
– Douglas Woo, Real Estate & Infrastructure Committee
Seeking New Source Markets for Tourists
In 2019, it is expected that a slower expansion of Hong Kong’s economy will certainly affect the tourism and retail sectors. This comes on the heels of promising growth last year, when we saw significant increases in total retail sales value and total visitor arrivals over the same period in 2017.
While an unstable global trade environment and fluctuating exchange rates will likely impact Hong Kong’s consumer confidence and economic growth, the recent opening of the Hong Kong-Zhuhai-Macao Bridge as well as the Hong Kong section of the Guangzhou-Shenzhen-Hong Kong Express Rail Link serve to bolster our role as a “super-connector,” providing further benefits to the tourism and retail industries.
Given this scenario, we must further develop a more diversified portfolio of visitor source markets, increase our competitiveness as a conventions and exhibitions hub on a region-wide level, and expedite the introduction of new technologies for transportation as well as crowd management at public attractions and in shopping areas.
During the Year of the Pig, traditionally a period that bodes good fortune and wealth, the Retail and Tourism Committee will continue to collaborate with major stakeholders in various sectors and government departments to drive a series of well-orchestrated strategic efforts in order to overcome challenges and achieve success for our industries as well as Hong Kong at large.
– Sylvia Chung, Retail & Tourism Committee
Enhancing Our Tax Competitiveness
There was great excitement in the tax arena in 2018 with a number of pieces of new tax laws enacted. Among them is the implementation of a two-tiered profits tax rates regime. The Chamber has long been beating the drum on the need for such a regime to sharpen Hong Kong’s tax competitiveness. In addition, we are pleased to see the introduction of a new law that grants super tax deduction for research and development (R&D) expenditure. This should encourage more enterprises to invest in R&D in Hong Kong and enable us to catch up in the innovation and technology race.
Looking to 2019, we believe that the Government will continue to consider tax concessions for targeted industries. The Chief Executive revealed in her 2018 Policy Address that the Government will introduce tax concession measures to promote maritime leasing and marine insurance.
The Belt and Road Initiative presents an exceptional opportunity for Hong Kong to take advantage of its sound legal system, sophisticated financial market and excellent professional services platform to play a “super-connector” role connecting Mainland China with countries along the Belt and Road. We urge the Government to introduce incentives to encourage enterprises to set up their regional headquarters in Hong Kong; and direct more resources toward the negotiation of comprehensive avoidance of double taxation arrangements with other jurisdictions.
– Grace Tang, Taxation Committee