Archives 2007

Is Hong Kong Asia’s New York City

Ten years after the change-over, Hong Kong is positioning itself to become Asia’s New York City.

By George Wehrfritz
Newsweek International

July 2-9, 2007 issue – On the rare days when Hong Kong’s Victoria Peak isn’t shrouded in smog, one of the world’s great maritime hubs is on display from its heights.

Northward in Kowloon, modern container ports—their giant cranes lined up like robotic elephants on parade—load waiting freighters. Barges scurry like worker ants, flags from every port of convenience flap in the breeze and jetfoils buzz back and forth from Macau.

For decades, as East Asia’s export economies rose to pre-eminence, the scene has grown more frenetic year by year. But sometime soon—or perhaps that day has already passed—the vast natural harbor that first attracted British opium traders to this spot on the South China Sea in the 1840s will reach its own peak, and start to fall.

The big question in Hong Kong—and it’s one that has echoed since the jittery pre-handover days back in 1997—is elemental: what’s next? Official statistics suggest a port that’s maxed out, a maritime hub that has slipped from number one in the world to number three and sometime next year will likely be overtaken by a city that didn’t even exist until the final few years of British rule: neighboring Shenzhen. What will happen, many Hong Kongers justifiably worry, when shipping follows the manufacturing up the Pearl River Delta into mainland China? Will their city slip to the global economic periphery, as some analysts forecast, becoming the 21st-century equivalent of Venice?

Ten years after the Union Jack flew over Hong Kong for the last time, change is most certainly afoot. But change, as they say, can be good. And although Hong Kong’s traditional status as East Asia’s premier shipping hub is already lost, the city is on the cusp of a reinvention so profound that the view from the peak will likely look quite different in a few decades. First there will be fewer freighters and barges. Then, perhaps, the dockyards will yield to new urban landscapes as they’ve done previously in places like London and New York. And, if all goes to plan, the scene that unfolds below the peak won’t depend so much on whether the winds kick up to clear the toxic skies.

Think of Hong Kong as China’s New York. Not today’s N.Y.C., to be sure, but the Gotham that had hovered on the verge of bankruptcy in the 1970s and then struggled to reinvent itself by deregulating its two stock markets and becoming the world’s leading financial center at the dawn of the digital age. Now China is the growth engine, and the transformation underway entails providing the financial savvy, rule-based business culture and global logistical reach that the vast Chinese economy demands but can’t create for itself. ”Every economy changes as the major players [in the global arena] change,” says Hong Kong’s Financial Secretary Henry Tang. ”In the past we have always used China as a manufacturing base, but now we look to it as a market [with] a huge demand for world-class financial services. Hong Kong is where we supply it.”

A ”paradigm shift” is underway in the city, Tang says with confidence. And in Hong Kong’s case the consulting jargon actually fits, economically as well as politically. Truth be told, Tang and his fellow cabinet bosses are struggling to come to grips with what’s happening all around them. Whereas New York confronted urban decay, high crime and tense race relations, Hong Kong’s challenges center on today’s rich-poor divide, quality-of-life issues such as air pollution and the city’s still-unmet yearning for one-person, one-vote democracy.

Indeed, the influence tycoons exert on policymaking is under attack as never before. And the government’s management—or, say its critics, mismanagement—of precious waterfronts and green spaces are major concerns among the middle class.

Although opinion polls show that most Hong Kong people support China’s national government, Beijing’s ham-fisted efforts to manage the city’s democracy debate is engendering fear that the motherland could ultimately renege on its pledge to allow Hong Kong ”a high degree of autonomy.”

Perhaps most significant, “a dynamic generational shift” is underway, argues former legislator Christine Loh, founder of the influential think tank Civic Exchange. A new and politicized middle class has emerged, one that’s well traveled, technologically savvy and committed to more than getting rich. Their issues include the environment, education and protecting Hong Kong’s cultural heritage—the common denominator being better official accountability. ”[This generation] presents the tycoons and the government with its next challenge, and it is where [questions over] how our society ought to be run and where our priorities lie will come to a head.”

By most accounts Hong Kong is on the mend as it prepares to begin its second decade as a special administrative region of the People’s Republic. Back in 1997, euphoria over the gala July 1 handover yielded quickly to an Asia-wide financial crisis that sent stock and property markets tumbling. Then the city sank into political indecisiveness, suffered a deadly SARS outbreak and after a botched 2003 government move to pass a new public-security law, experienced the largest political protests on Chinese soil since the 1989 Tiananmen Square demonstrations in Beijing.

The setbacks cost Hong Kong’s first chief executive, Tung Chee-hwa, Beijing’s confidence and eventually his job (he resigned citing ”health issues” in early 2005). And since then, Tung’s successor, the bow-tie-clad Donald Tsang, has renewed public confidence, delivered strong economic growth and vowed ”to break barriers and realize Hong Kong’s potential in an ever-changing world,” as he said recently.

The clearest evidence of Hong Kong’s transformation comes not from official rhetoric but in the city’s economic data. Since 1997, market capitalization on the main stock exchange has ballooned almost fivefold to just under $2 trillion, about one sixth the size of the New York Stock Exchange today. Over the past three years, Chinese companies have raised about $84 billion with initial public offerings in Hong Kong, and, according to the accounting firm Ernst & Young, the city’s main bourse generated 17 percent of the total capital raised worldwide during the first 11 months of 2006, ahead of London (15 percent) and New York (11 percent). The main driver was the Industrial and Commercial Bank of China’s $22 billion dual listing, which garnered $16 billion in Hong Kong and $6 billion in Shanghai. This flurry of activity broke an old pattern whereby Chinese companies, fearing a lack of liquidity in Hong Kong, preferred listing simultaneously in either London or New York. ”We have always been successful, but these past few years have really put us on the map,” says Tang.

Hong Kong’s financial sector now accounts for 13 percent of GDP, up from 10 percent in 1997. And as big as it is, today’s IPO boom represents only a part of what Hong Kong’s money tribe can offer China.

Consider: the IPO market sends capital into the mainland from outside investors (both Hong Kong Chinese and foreigners). But increasingly, China’s main challenge isn’t raising funds abroad, but disposing of the enormous pools of money it has amassed by running huge trade surpluses.

Now trapped inside the country’s closed financial system, this liquidity is too hot for China’s banks and stock exchanges to handle. This year’s stock bubbles in Shanghai and Shenzhen, for example, feature extreme volatility, rampant insider trading and price inflation driven by too much money chasing too few good companies.

China’s embarrassment of riches represents a huge opportunity for Hong Kong. According to the city’s top government economist, K. C. Kwok, Beijing has little choice but to channel ever-larger amounts of financial business Hong Kong’s way. One example is a scheme enacted late last year that will allow Chinese banks to invest $75 billion in overseas assets, with much of it expected to land in Hong Kong. Another influx is coming from Chinese multinationals, which are gradually being freed from a longstanding requirement that they repatriate foreign earnings back to the motherland. A third source (and by far the largest) is Chinese households, which together have an estimated $2 trillion in savings squirreled away. ”Imagine you are a mainland Chinese sitting on a pile of money in your bank account,” says Kwok. ”You look at all these companies going to Hong Kong to list and you think, ‘Why can’t I invest there, too?’ ”

Tourism is another growth sector with promise beyond filling hotel rooms or selling tickets to Hong Kong Disneyland. Since Beijing permitted its citizens to visit Hong Kong four years ago, not only have they bolstered a local travel industry slammed hard by the SARS epidemic, they’ve also revived the prospects of Hong Kong’s private hospitals. Some had been struggling until Chinese nationals began showing up for everything from heart surgery to maternity care. ”You can’t just walk in and get a [hospital] room because Chinese who are rich enough and do not trust their own hospitals are there,” says Jimmy Lai, publisher of the Apple Daily and a harsh critic of Beijing. ”If you believe Hong Kong’s rule of law, free-flowing information, professionalism and integrity are part of our comparative advantage, you can assume that the more we integrate with China the more our advantages will be manifested.” Even the old port is transforming into a modern service industry. From 1995 to 2005, the percentage of Hong Kong’s GDP derived from freight transport and storage stagnated; its contribution to the economy rose just a single point, to 4.8 percent, while container traffic to Shanghai and Shenzhen doubled every few years. But in a shift that remains ”off the radar screen” to many analysts, says Kwok, trade and logistics actually rose as a percentage of the city’s GDP, from 18 to 23 percent, during the past decade. The new business comes from services that include managing complex supply chains that link Asian factories to American and European consumers, regional product sourcing and third-country trading that doesn’t bring products into Hong Kong at all. ”We’re seeing the globalization of production,” says Kwok. ”And Hong Kong is the nerve center for a lot of these activities.”

This shift is tectonic, and it gets to the heart of issues that now fuel much of the political debate in Hong Kong.

Like Japan, Hong Kong pours a staggering amount of concrete—much of it in the service of vested interest. It has spent $3.8 billion a year on capital expenditures since the handover, a figure roughly equal to what India now invests annually on its ambitious national highway program. The bulk has gone into new roads, additional reclamation (some along the scenic downtown waterfront) and campus like facilities built at taxpayer expense to bolster the nascent science and technology industries. Next on the drawing board: a massive government office complex that will occupy the last harborside plot near Hong Kong’s postcard central waterfront, as well as a logistics hub, another container port and a massive bridge to Macau all located on Lantau Island, Hong Kong’s largest remaining wilderness area.

Such projects are increasingly a tough sell in a city where public opinion is turning decidedly greener and local campaigns to preserve historic areas slated for redevelopment garner substantial middle-class appeal. Pressure groups have formed to demand more parkland, oppose demolition of historical landmarks (like the Star Ferry Terminal in Central, which recently went under the wrecking ball) and limit the height of buildings in certain areas to preserve views and keep breezes flowing. Even the business community has begun to lobby for waterfront redevelopment modeled on successful projects that have revitalized docklands in cities like Melbourne, Barcelona and London. ”It’s not that people are against construction,” argues Ma Ngok, a political scientist at the Chinese University of Hong Kong. “They’re against [Hong Kong’s] development-led ideology.”

The opportunity costs of bad policy could be enormous. Hong Kong’s environment is already deteriorating rapidly; air pollution, which on average reached hazardous levels every third day in 2006, is now a major deterrent to the professional talent the city needs to maintain its edge in finance and logistics. Last year, in a survey conducted for the American Chamber of Commerce in Hong Kong by A.C. Nielsen, 95 percent of business executives said they worried the city’s smog would harm them or their families, and more than half said they knew professionals who had declined work opportunities in Hong Kong because of the city’s poor environment. Earlier this year the city took a major PR hit when the Hong Kong Philharmonic’s vaunted Dutch conductor, Edo de Waart, abruptly moved his wife and kids to Wisconsin to escape the city’s ”terrible” smog.

Hong Kong’s have-nots can’t vote with their feet. But because they’ll someday wield ballots, their lot is a major political issue. Since 1997, working-class incomes have stagnated; unemployment peaked at nearly 10 percent a few years back but has since fallen by more than half, and living costs have risen sharply. Job insecurity is also rife as labor-intensive industries continue their exodus to China. Since 1995, official data show, the percentage of semiskilled workers in the economy has declined by almost a quarter and now accounts for just 16 percent of total employment. That’s good news in that it illustrates Hong Kong’s climb up the service chain.

But because the government didn’t implement compulsory education until 1978, there’s a huge demographic of workers now in their 40s and 50s who can’t easily be retrained for the information age and who cling to menial jobs paying meager wages. ”I was a bus washer 20 years ago, and I know a woman who cleans buses today,” says legislative councilor Leung Kwok-hung, a.k.a. Long Hair, a 51-year-old Marxist political activist who won his seat in 2004. ”Her salary is lower than what I got and her working hours are longer than mine were. It’s ridiculous.”

Hong Kong’s tycoons are famous for their resistance to political change. They never pushed for democracy under British rule, and since the handover they’ve argued that the city is not yet ready for it, or that universal suffrage would threaten the economy because low-income voters would elect populists promising costly social programs. ”This is their blind spot, their idée fixe, about people who have no money,” says Loh. ”They think everyone who is poor wants welfare, and they kind of discount the middle class, which is concerned about aging parents, the state of public health and have kids in good public schools.” Loh and other activists say the root of the debate lies in interest-group politics and a business elite that believes ”if we give average people a political say, they’re going to upset our apple cart.”

The old apple cart is toppling anyway.

Labor-intensive industries are leaving, and no matter how much the government invests in cross-border roads and additional container terminals, Hong Kong’s days as the pre-eminent maritime gateway to a vast continental economy are over. As with New York and London, necessity is proving the mother of invention.

To avoid decline, Hong Kong has begun to rethink how best to manage its precious green areas, rescue its historic waterfront from overdevelopment and otherwise enhance itself as a financial center worthy of global attention even as it better addresses the needs of the city’s have-nots. Ten years ago such ideas amounted to heresy; now they are central to the political debate. As always, Hong Kong is showing the world it can learn, adapt and stay ahead.

Over foreign opposition, China passes law meant to protect workers

BEIJING // China’s legislature passed a sweeping new labor law yesterday that strengthens protections for workers across its booming economy, rejecting arguments from foreign investors that the measure would reduce China’s appeal as a low-wage, business-friendly industrial base.
The new labor contract law, enacted by the Standing Committee of the National People’s Congress, requires employers to provide written contracts to their workers, restricts the use of temporary laborers and makes it harder to lay off employees.

The law, which is to take effect in 2008, also enhances the role of the Communist Party’s monopoly union and allows collective bargaining for wages and benefits. It softens some provisions that foreign companies said would hurt China’s competitiveness but retains others that American multinationals had lobbied vigorously to exclude.

The law is the latest step by President Hu Jintao to increase worker protections in a society that, despite its nominal socialist ideology, has emphasized rapid capitalist-style economic growth over enforcing labor laws or ensuring an equitable distribution of wealth.

But it could fall short of improving working conditions for the tens of millions of low-wage workers who need the most help unless it is enforced more rigorously than existing laws, which already offer protections that on paper are similar to those in developed economies.

China, India pose different hiring challenges: survey

By Susan Fenton

HONG KONG (Reuters) – Multinational companies in China have a hard task hiring people with leadership skills while in India they face unreasonably demanding fresh graduates, a survey shows.

The fast pace of business expansion in Asia’s two emerging economic powerhouses has created a talent shortage and a host of challenges for employers.

“Staff are impatient and there are a lot of jobs out there,” said Shalini Mahtani, chief executive of Hong Kong-based Community Business. “If companies are not providing good career opportunities, staff will leave.”

Community Business, an organization promoting corporate social responsibility, conducted the survey in Shanghai and Mumbai with Schneider-Ross, a UK-based business consultancy.

Pay is still important as staff in China have no qualms in leaving a company to pick up a higher salary elsewhere, according to the survey. In India, employers say younger professionals are demanding excessive compensation packages, inflated job titles and immediate opportunities for overseas assignments.

One multinational talked of a fresh graduate who came for interview saying he had four job offers on the table and how could the company better that. Such demands were not unusual, the company said.

Pay is talked about openly in India and employees are liable to switch jobs if they know that their fellow graduates from business school are earning more. This makes it difficult for companies to reward good performance, survey participants said.

In China, competition for staff is so acute that one company reported losing a junior member of staff to a local company that more than doubled her salary and offered a position for which she did not have any experience.

The survey interviewed 25 senior managers and HR directors at foreign companies in Shanghai and Mumbai and conducted a focus group in each of the two cities.

A lack of leadership skills among staff poses a real challenge in China and many employees there leave a company because of the attitude or behavior of their boss, survey participants said.

Western multinational companies are no longer routinely seen as the preferred employer, as staff in both countries often see local companies that are expanding globally as a better opportunity to gain visibility and climb the career ladder. Multinationals now are having to approach second and third tier colleges for staff.

Diversity in the workforce, whether by gender, generation or culture, is also difficult to implement because local managers either are not sensitive to the issue or business is growing so fast they have no time to focus on it.

In India stereotyping of women is still common.

“There’s an assumption that women will get married and they’ll leave the workplace,” said Mahtani.

In China, poor leadership skills means companies often havean.

State Grid Corp launches worldwide recruitment plan

BEIJING, June 28 — State Grid Corp of China (SGCC), the nation’s largest electricity transmission company, yesterday launched a worldwide recruitment plan for its five research and development (R&D) institutes.

Under the plan, the company will recruit 100 top scientists for its R&D work, including four academicians.

The five R&D centers are China Electric Power Research Institute, Nanjing Automation Research Institute, Beijing Electric Power Construction Research Institute of SGCC, Wuhan High Voltage Research Institute of SGCC and State Power Economic Research Institute.

The five institutes now have 2,699 staff members, including four academicians.

“The move will increase the company’s R&D capabilities. Last year, we made many breakthroughs in the R&D field,” SGCC said in a statement.

The company last year started to build China’s first ultra-high voltage (UHV) transmission line. The pilot project will see 1,000 kilovolts of alternating current linking the southeastern part of Shanxi Province with Jingmen city in Hubei Province, passing Nanyang city in Central China’s Henan Province.

(Source: China Daily)

China to Enact New Labor Law

BEIJING — Abundant low-cost labor has fueled China’s economic boom. But alongside the success stories of bustling factories and surging foreign investment are widespread complaints of unpaid wages, forced labor and other abuses.

When Beijing set out to tackle those problems by proposing a new labor law in 2005, it ignited a heated debate, prompting warnings that the measure might hurt the economy and accusations that U.S. and other foreign companies wanted to erode workers’ rights.

This week, after 18 months of deliberation and a rare government request for public comment on the law, legislators are expected to enact a final version that is meant to set standards for China’s rapidly changing labor market.

The law, the most significant change in Chinese labor rules in more than a decade, would set standards for labor contracts, use of temporary workers and severance pay.

The change reflects Beijing’s willingness to balance its desire for investment against the need to improve conditions for workers at a time of rising tension over a growing wealth gap, said Ronald Brown, a specialist in Chinese law at the University of Hawaii.

“The question facing the decision-makers often has been, ‘What will happen if we have hard enforcement? Will that scare people away and take away our competitive advantage?'” Brown said.

“I think the government has been listening and seeing that maybe it’s not going to hurt its competitive advantage, and that it’s time, and it’s important for social stability.”

The law was proposed in December 2005 amid complaints that companies were mistreating workers by withholding pay, requiring unpaid overtime or failing to provide written contracts.

Many complaints are directed at Chinese employers or smaller companies run by foreign entrepreneurs. Major Western companies are regarded as offering the best pay and working conditions. But state media are quick to publicize accusations of misconduct against well-known American and other Western employers.

In April 2006, the government published the first draft of the law and asked for public comment, an almost unprecedented step in a communist system where most lawmaking takes place in secret.

It received more than 190,000 responses from workers and Chinese and foreign companies.

Foreign business groups expressed alarm at proposed restrictions on firing workers, limits on use of temporary workers and a provision giving the All-China Federation of Trade Unions _ the umbrella group for unions permitted by the communist government _ a voice in staffing decisions.

The law is “like going 20 years backward,” said the monthly magazine of the American Chamber of Commerce in Shanghai, which represents 1,300 U.S. companies. The U.S.-China Business Council warned that restrictions on temporary employees would be “prohibitively expensive.”

Labor activists reacted angrily to the foreign lobbying. The U.S.-based group Global Labor Strategies dubbed companies involved the “sweatshop lobby” and accused them of pushing Beijing to “weaken or abandon significant pro-worker reforms.”

Apparently stung by that criticism, the European Chamber of Commerce in China backed away from earlier criticism of the law, declaring in December that it “stands firmly behind the Chinese government’s efforts to improve working conditions.”

The business comments appear to have prompted Beijing to remove the most contentious provisions. The third draft of the law, the latest version released, no longer requires approval from the official labor body to fire workers.

The Standing Committee of the National People’s Congress, China’s parliament, votes Friday on a fourth version, and its press office said its law committee recommended approval.

The American Chamber of Commerce in Shanghai declined to comment on the latest draft but its chairman, James Zimmerman, expressed thanks to the government for accepting comments.

“We are pleased that the Chinese government has allowed public participation in the law-drafting process, and believe that this has been a constructive exercise in transparency,” Zimmerman said in a written statement.

The proposed law adds to a series of government steps to update China’s legal and political systems to keep pace with explosive economic and social change.

A law passed in March ended two decades of blanket tax breaks for foreign investors, equalizing their rates with those paid by Chinese companies.

The All-China Federation of Trade Unions has been setting up branches at hundreds of foreign companies in a campaign launched last year.

The ACFTU often is regarded not as an advocate for better pay and working conditions for employees but as an intermediary that represents employers to workers.

But if the proposed labor law is enacted, it could force the body to act more like a Western-style union by giving it formal responsibilities to stand up for workers, Brown said.

“As these new laws are enforced,” he said, “the labor union is likely going to have to accept a larger role as an adversary and an advocate, negotiating better conditions for its members.”

On Wednesday, China announced a new crackdown on illegal labor practices following an outcry over revelations of slave labor at brick factories in the country’s central provinces.

The two-monthlong inspection campaign starting next week will focus on small-scale kilns, coal mines and workshops, according to a statement posted on the central government’s official Web site.

Officials have been ordered to “fix illegal labor practices, attack illegal criminal behavior, conscientiously protect the personal interests of the broad masses of the people, and resolve … problems of the protection of the rights of migrant workers,” the statement said.

China has been in the throes of a slavery scandal that has unleashed a flood of negative publicity against officials in Shanxi and Henan provinces. Hundreds of children and adults were abducted and sold to brickyards in those areas. Operators, often acting with local government protection, beat, starved and forced workers to labor long hours without pay.

Nearly 1,000 workers have been released following police raids in recent months, prompted in part by accusations posted on the Internet that authorities were ignoring such practices.

Beijing to recruit record 22,000 Olympic torch bearers

Beijing – Organizers of the 2008 Olympics on Saturday unveiled plans to recruit nearly 22,000 torch bearers for next year’s torch relay, almost double the number taking part in the Athens 2004 torch relay.

The Beijing organizing committee (BOCOG) will start recruting 21,880 torch bearers from Saturday, including 19,400 from mainland China, Zhang Ming, the director of BOCOG’s Olympic Torch Relay Centre, told reporters.

The previous highest number of torch bearers was 13,300 for the 2000 Olympics in Sydney. Atlanta in 1996 had almost the same number as Sydney, while Athens recruited 12,102. Montreal in 1976 used just 1,214 torch bearers, BOCOG said.

‘Under the theme of ‘Journey of Harmony’ and slogan ‘Light the Passion, Share the Dream’, the torchbearer selection programme aims to involve the public participation in a most broad and extensive way.’ Zhang said.

‘It will recruit a group of torchbearers who are most deserving and worth of carrying the Olympic Flame within their communities,’ she said.

Among the selction criteria, all torch bearers must ‘patriotic and dedicated to the Olympic Movement’, have contributed to the ‘building of a harmonious society’, and be ‘distinguished for remarkable feats in his or her profession or community’, Zhang said.

According to Olympic tradition, the Olympic flame will be lit in ancient Olympia, Greece, on March 25, 2008.

The torch relay will travel across Greece to the Panathinaiko Stadium in Athens, the site of the first modern Olympic Games in 1896.

A handover ceremony will be held in the stadium before sending the Olympic flame to Beijing on March 31, 2008.

One torch will carry the flame to dozens of cities in five continents, while a special high-altitude torch will carry the flame to the 8,844-metre summit of Mount Everest in May.

The torch relay will culminate in the lighting of the cauldron in the Olympic stadium at the August 8, 2008, opening ceremony of the Beijing Games. The last torch-bearer is one of the best-kept secrets at Olympic Games.

BOCOG listed Taiwan in the torch relay route that would include the island state under political conditions that it deemed unacceptable.

Jiang Xiaoyu, the BOCOG executive vice president, on Saturday said he still hoped Taiwan’s leaders would accept an agreement that he said the island’s Olympic officials had made.

Taiwan objected to China’s listing of Taiwan in the route immediately before the Chinese territories of Hong Kong and Macau, which are followed by a succession of Chinese mainland cities, saying Beijing could attempt to portray the island as part of its domestic leg.