FIRST Hong Kong Report 2014

PUBLISHED to mark
the 2014 High-level Hong Kong government visit
China’s business and services
hub seeks to broaden its global remit
HONG KONG
S p e c i a l R e p o rt
Special Administrative Region
Of the People’s Republic of China
Innovative • Connected • Creative • Resilient

FIRST
© First 2014
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The Hong Kong Special Administrative Region and its Economic and Trade Office in London
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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
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Research Assistant Anna Vexler, Editorial Consultant Jonathan Gregson, Design Consultant Stanley Glazer,
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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
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HONG KONG
S p e c i a l R e p o rt
Special Administrative Region
Of the People’s Republic of China
Innovative • Connected • Creative • Resilient

Introduction by
The Rt Hon Lord Hurd
of Westwell ch cbe pc
Chairman of the FIRST
Advisory Council
I
t 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
FIRST
HONG KONG
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
3

Interview with The Hon C Y Leung, gbm, gbs, jp
Chief 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
4
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
HONG KONG
FIRST
Opposite: CY Leung,
Chief Executive of
the Hong Kong SAR

5
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.
There are incidents
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.
FIRST
Photography:TerryDuckham

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
6
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
HONG KONG
FIRST

7
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
FIRST
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, JP
Chief 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
8
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.
HONG KONG
FIRST
Open door policy:
the Central Government
Offices at Tamar

9
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
FIRST
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
10
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
HONG KONG
FIRST

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Interview with The Hon John C Tsang, GBM, JP
Financial 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
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
12
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
HONG KONG
FIRST

13
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
FIRST

By NICK LYNE
Senior 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
14
N
obody 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.
HONG KONG
FIRST
Start me up:
Co-working spaces
like CoCoon are
nurturing Hong
Kong’s vibrant
creative and
technology sectors

15
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
renewedfocustoHongKong;they’rereallyworkinghard
tomakethingshappen.ConcernsthatHongKongmight
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 hub
InvestHK 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.”
FIRST
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
16
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 hub
Hong 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
HONG KONG
FIRST

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 Group
Shui On Land Limited
Hong Kong Office
Address: 34/F., Shui On Centre,
6-8 Harbour Road, Wanchai, Hong Kong.
General Tel: (852) 2879 1888
General Fax: (852) 2802 4396
E-mail: corpcomm@shuion.com.hk
Website: www.shuion.com.hk
SOCAM Development Limited
Address: 12/F., New Kowloon Plaza,
38 Tai Kok Tsui Road,
Kowloon, Hong Kong.
General Tel: (852) 2398 4888
General Fax: (852) 2787 3874
E-mail: socamcc@shuion.com.hk
Website: www.socam.com
Shui On Land Limited
Shanghai Office
Address: 26/F., Shui On Plaza,
333 Huai Hai Zhong Road,
Shanghai 200021, PRC.
General Tel: +86 (21) 6386 1818
General Fax: +86 (21) 6386 7070
E-mail: cc-sh@shuion.com.cn
Website: www.shuionland.com
Shui On Centre in Hong Kong

Interview with The Hon Gregory So, GBS, JP
Secretary 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
Commerce and Economic
Development of the fourth
term Government of the
HKSAR on 28 June 2012.
Putting the tiger in China’s tank
18
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
HONG KONG
FIRST

19
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
FIRST

Interview with The Hon Professor K C Chan, GBS, JP
Secretary 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
20
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
HONG KONG
FIRST

21
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
FIRST

Fanny Law
Chairman, HKSTPC
‘Silicon Harbour’ comes of age
22
U
ntil 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
RD 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
HONG KONG
FIRST
Which came first?
Science Park’s iconic
‘golden egg’ Charles
K. Kao Auditorium
Professor Wei Shyy
Provost, HKUST
Simon Squibb
CEO, Nest
By NICK LYNE
Senior Staff Writer, FIRST

23
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,
FIRST
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
24
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-ups
HKSTPC’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
HONG KONG
FIRST
Taking the long view:
Science Park’s Phase 1

25
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
FIRST
Learning curve:
Science Park’s
futuristic amphitheatre

Interview with Michael Lynch and Jerry Liu
CEO, West Kowloon Cultural District Authority and Head of CreateHK, respectively
Hong Kong joins the culture club
26
H
ong 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
HONG KONG
FIRST
MICHAEL LYNCH
Chief Executive Officer,
West Kowloon Cultural
District Authority
JERRY LIU
Head, CreateHK
PMQ, the former
Police Married
Quarters, now a
creative industries
landmark with a
focus on design

FIRST Hong Kong Report 2014

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