Inside Justine Lau on a growing interest in the arts. Doing Business in This Qianlong period vase was sold last month at auction by Sotheby’s for $32.4m HONG KONG Page 3 FINANCIAL TIMES SPECIAL REPORT | Tuesday November 16 2010

www.ft.com/hong­kong­2010 | twitter.com/ftreports Model economy’s quest to spread its riches

Tom Mitchell finds there is another side to the world’s most open market and its enormous capacity for wealth generation ong Kong government offi- cials covet the territory’s status as “the world’s fre- est economy”, an honour Hbestowed on it for 16 years running by the conservative, Washington-based Heritage Foundation. That designation tells only half the story. Hong Kong’s admirers like the fact the former British colony and free port, which reverted to Chinese sover- eignty as a “special administrative region” in 1997, taxes very rich people at very low rates. Tax rates on sala- ries and company profits are set in the mid-teens, with capital gains and inheritances exempt entirely. Hong Kong’s capital-friendly regime is just the tip of a much larger and more complicated social compact that, from another perspective, belies its reputation as a model free economy. The territory is much poorer than its impressive per capita GDP figure, $42,800 last year, implies. Half of all workers earn less than HK$9,750 per month – an amount equivalent to, in US dollar terms, just $15,000 per annum. In 2009 the average annual wage of Hong Kong’s 550,000 cleaners, who account for 15 per cent of the workforce, was a mere $7,960. As Leung Chun-ying, a member of the pro-Beijing establishment and a potential future Hong Kong chief executive, put it in a presentation to the Oxford & Cambridge Society ear- Tale of two territories: beneath the spectacular Hong Kong skyline lies a huge gulf between rich and poor, which the government is now beginning to tackle with the introduction of a minimum wage Getty lier this year: “The trickle-down effect has not happened.” their land purchases and home sales tors effectively cornered by a handful the brand.” The company also opened and I’ve never seen that,” says Mr wound down but a research and devel- For overseas professionals, this for maximum profitability, contribut- of tycoons in their late 70s and early what Mr Galli describes as the world’s Galli. “[Product development] is so opment centre opened. “The business combination of low taxes and cheap ing to market volatility.” 80s, the profits their empires rake in “most modern power-tool plant” in fast you can’t believe it. It reminds me was losing $75m a year so the choice labour (for everything from taxi rides The vast profits these companies are self-perpetuating and will soon be Dongguan, a manufacturing centre of the high-tech industry.” was no jobs,” Mr Galli says. “Now to domestic help) make Hong Kong a have reaped from their commercial passed to a new generation. “The old north of Shenzhen, and reduced its The Hoover acquisition saddled TTI Hoover is growing so fast we are add- kind of expat heaven. But the gulf and residential property investments man is in good health, but at his age product-development cycles from 10 with an unproductive operation in ing more [engineering R&D] jobs.” between rich and poor has become an have in turn been the basis for their anything can happen,” says a heir to months to eight, compared with an Ohio. After negotiations with the fac- As a result, he adds: “We have 24/7 embarrassment and a political liabil- dominance of other areas of the econ- one of the region’s great fortunes. The industry standard of one-two years. “I tory’s “enormous union” and the R&D. Right now America is asleep but ity for the government. To the dismay omy, most notably ports, retailing and pampered sons and daughters of Hong was at Black & Decker for 19 years state’s governor, the facility was China is working.” of free-market purists, last week the telecommunications. Kong’s richest men, however, will territory introduced its first minimum Hong Kong’s retail market is such a struggle to take the family business in wage, set at HK$28 ($3.55) an hour. stitch-up that not even as ruthless innovative directions. To help people survive on such low and efficient a competitor as Walmart Hong Kong Inc is at its competitive wages, the government has for dec- has been able to get a look-in. And even and innovative best away from its ades provided public housing to half if suspicions of collusion between the cosy home market. An increasing the population, making it by far Hong territory’s largest companies to number of the territory’s largest for- Kong’s biggest landlord. The govern- exclude outside competitors could be tunes are being made in southern ment-owned MTR Corp also runs what proved, such behaviour would not be China, especially in Guangdong prov- is arguably the world’s best under- illegal in the absence of a competition ince’s Pearl river delta region. The ground and light-rail network, subsi- law. But as with the plight of the territory’s entrepreneurs have thrived dised by property development rights working poor, this too has become an in a hypercompetitive environment the company is granted at the stations embarrassment. The government is characterised by tight margins and along its various lines. currently drafting a competition law. punishing product development This is just the start of the Hong With so many rent-generating sec- cycles. The scale of the Pearl river Kong government’s direct involve- delta’s export sector is difficult to cap- ment in even surprisingly trivial ture, although one comparison quoted areas of the economy. While the Chi- by Michael Enright, a regional devel- nese communist party made a con- opment expert, is particularly telling. scious decision to retain control of the Shenzhen, a city of 10m people and a commanding heights of China’s econ- magnet for Hong Kong investment, omy – state-owned companies monop- exports almost as much as India olise heavy industry, telecommunica- ($162bn in 2009 vs $177bn) and boasts tions and other strategic sectors – the an economy that is one-third bigger territory’s supposedly laissez-faire than Vietnam’s (pop 90m). government has a majority stake in Techtronic Industries is an example Hong Kong Disneyland and, through Inside this issue of a Hong Kong-based manufacturing its Trade Development Council, domi- Appetite for change Enid Tsui juggernaut. Headed by German and nates the market for trade fairs and talks to Margaret Leung, chief Hong Kong entrepreneurs, TTI was exhibitions. executive of Hang Seng Bank, about established in 1985 as a contract man- Elsewhere in the world’s freest the territory’s ability to adapt Page 2 ufacturer with factories in the Pearl economy, de facto cartels operate. One river delta. Contract manufacturing, unintended consequence of the Hong Upwardly mobile Christopher however, can lead a company on a Kong government’s reliance on tightly Dillon finds that the property market downward spiral; manufacturers’ mar- controlled and lucrative land sales for is enjoying a boom period – but it is gins are under constant pressure and revenue – rather than salary, profit not good for everyone Page 3 most of a product’s value flows to its and capital gains tax – has been the brand owner. So TTI began acquiring Hive of industry Michael Enright emergence of a half-dozen property some of the world famous power-tool focuses on the Pearl river delta companies that can compete at auc- region, which is continuing to grow and floor-care clients it used to sup- tions for the territory’s most precious at a phenomenal rate Page 4 ply, such as Milwaukee Tools, Ryobi, commodity. Homelite and Hoover. “Government land policies and high Good neighbours Robin Kwong “We bought [Hoover] for a small prices have concentrated power in the analyses erstwhile frosty relations price because it was losing money, hands of a few large developers,” says with Taiwan, which are finally but we knew it was the best cleaning Christopher Dillon, a Hong Kong showing signs of thawing Page 4 brand in the world,” says Joseph property investor who has written a Galli, TTI chief executive. “The true book about the market. “They time profitability falls to those who supply

Currency faces a future of fears and uncertainty

asked with increasing regu- tricky position. Eddie Yue, Dollar peg larity. Few would dispute deputy chief executive, that the peg introduced 27 notes that loose monetary Ben McLannahan years ago has served Hong policy in the US “could on a relationship Kong well, helping it to increase the risk of a prop- Talking point: HK’s dollar withstand a series of erty price bubble in Hong with the greenback, shocks. But there is a grow- Kong”. factors of any property mar- and what happens ing sense that the misalign- But the HKMA cannot ket, which are interest rates ment of the Hong Kong and fully engage in exploring and liquidity,” notes Joseph when it ends US economies can no longer the alternatives, for fear of Tsang, head of capital mar- be reconciled. inviting speculative attacks. kets at Jones Lang LaSalle, In the debate over the Thanks to ultra-low inter- Discussions tend to end the real estate services future of Hong Kong’s cur- est rates, and a determina- with familiar conclusions. firm. rency, two arguments tend tion by the US Federal “Given the small and exter- The HKMA’s tightening to go unchallenged. Reserve to hold them there nally-oriented nature of the measures to date, such as First, the link between until recovery is cemented, Hong Kong economy and its higher downpayment the Hong Kong dollar and Hongkongers have two role as an international requirements and limits on the US dollar will come to problems: skyrocketing trade and financial centre, the debt-service ratio, have an end. Second, that it will asset prices and a currency maintaining exchange-rate been only patchily effective. happen much sooner than that is fast losing value stability against the US dol- Further, there is growing 2047, when “one country, against almost all its neigh- lar remains most appropri- interest among Hong- two systems” becomes “one bours. ate,” says Mr Yue. kongers in holding and country, one system”. The Hong Kong Monetary And yet distortions are in exchanging “the people’s But how much sooner? Authority, the city’s de evidence in the territory. currency”. Renminbi bank And what should replace it? facto central bank and “Hong Kong cannot directly These are questions being guardian of the peg, is in a control the key governing Continued on Page 2 2 ★ FINANCIAL TIMES TUESDAY NOVEMBER 16 2010 Doing Business in Hong Kong Facing a Emerging from the minibond minefield Currency of future of ities, from both a financial improve the co-ordination that – minibonds apart – Regulation stability and consumer pro- between the HKMA and the there were few debits on Regulators Hong Kong Monetary tection perspective. SFC,” says KC Chan, chair Hong Kong’s ledger. Authority (HKMA) Runs Ben McLannahan But as institutions have of Hong Kong’s Financial The HKMA slashed the the moment fear and currency board; manages strayed on to each others’ Services and Treasury rate at which it was pre- analyses changes in reserves; regulates banks. patches, gaps in supervision Bureau. pared to lend emergency Securities and Futures investor protection have opened up. Minibonds, “All regulatory models funds to banks, while eas- Commission (SFC) doubts for example, were invest- were tested by the crisis, ing collateral requirements. Regulates exchanges, creates a stir ment products (approved by and all failed in some way,” Meanwhile, the Deposit Pro- brokers and fund managers; Continued from Page 1 Visitors to Hong Kong’s the Securities and Futures adds Martin Wheatley, chief tection Board extended its authorises prospectuses; financial district don’t have Commission) sold by banks executive of the Securities guarantee to cover 100 per minbi in or out of the main- oversees disclosure. deposits in the territory to wander far to be made (overseen by the Hong and Futures Commission. cent of accounts. Renminbi land for investment pur- Mandatory Provident have swelled rapidly to aware of an inglorious epi- Kong Monetary Authority). “More important is how The linked exchange-rate poses remain subject to Fund Schemes Authority almost Rmb150bn, about 2.6 sode in its recent history. “The current situation is we’ve responded.” system with the US dollar, Robert Cookson approval of Beijing on a (MPFA) Regulates per cent of total system Demonstrations outside a mish-mash of overlapping Among the SFC’s changes meanwhile, helped smooth case-by-case basis. retirement savings scheme. observes the deposits. In its third-quarter some bank branches are a responsibilities,” comments trade frictions. Even so, banks such as Office of the monetary policy report, the legacy of the “minibonds David Webb, a governance Hong Kong came through progress of a Standard Chartered – which Commissioner of People’s Bank of China affair”, in which tens of activist. ‘The current the crisis without big corpo- arranged the McDonald’s Insurance (OCI) Regulates financial juggernaut revealed that cross-border thousands of retail inves- “There’s a strong case for rate failures and no failed bond – are beefing up their situation is a insurers. trade settlement in ren- tors bought HK$20bn of a more consistent approach lenders. teams in expectation that minbi shot up from credit-linked notes that to the licensing, distribu- mish­mash of That is not to say that Sub­regulators Hong Kong may have the market will continue to Stock Exchange of Hong Rmb48bn to Rmb127bn in collapsed in value after tion and selling of financial anyone should take for pegged its currency to grow apace. overlapping Kong Limited (owned by the second quarter. Lehman Brothers imploded products.” granted Hong Kong’s posi- the US dollar, but the ren- Hong Kong Exchanges Hong Kong Exchanges and Late last month, the two years ago. Some have recommended responsibilities’ tion as Asia’s premier inter- minbi is flavour of the year and Clearing, operator of Clearing Ltd) Regulates HKMA was forced to tap its Protests have continued that Hong Kong consider national finance centre. as the territory pushes for the city’s stock exchange, is listed companies, under the renminbi swap arrange- even after last year’s adopting a so-called “Twin There are some obvious stocks, bonds and other also moving to get in on the oversight of the SFC. ment with the PBoC, after government-brokered settle- Peaks” approach, similar to are: a requirement for improvements to be made: financial products denomi- action, and hopes to offer Hong Kong Federation of demand for trade settle- ment between holders of Australia’s, which allocates products to be accompanied the listing rules adminis- nated in the mainland cur- shares denominated in ren- Insurers (HKFI) Operates ment using the currency the notes and the banks responsibility for prudential by a simple “key facts tered by the stock rency. minbi by next year. the Insurance Agents’ outstripped supply. that sold them. regulation and conduct of statement,” and a new exchange, for example, lack Financial groups are Yet the growth of the Registration Board. The HKMA faces a choice, That ensures the spot- business regulation to two entitlement to a five-day the statutory backing of rushing to take advantage renminbi capital markets Hong Kong Confederation says Peter Redward, head of light remains on Hong separate agencies, APRA cooling-off period, during many other jurisdictions, of key reforms introduced in Hong Kong will depend of Insurance Brokers emerging Asia research at Kong’s unusual regulatory and ASIC respectively. which investors can be while the listing regulator by China in July, which lib- on the speed and extent Regulates insurance brokers Barclays Capital: continue structure, where four main Rather than tear up the refunded almost in full if sits within the for-profit eralised the flow of ren- to which the Chinese under the approval of the as is, allowing the steady regulators govern four sub- structure, however, local they decide to change their Hong Kong Exchanges and minbi in Hong Kong and currency flows out of the OCI. “renminbi-isation of Hong regulators (see panel). regulators have simply minds. Clearing – an obvious con- paved the way for a burst of mainland and into the pock- Professional Insurance Kong”; or realign monetary At its core, the structure resolved to do their jobs The difference between flict of interest. financial innovation. ets of foreign investors. On Brokers Association settings towards the ren- is simple: a firm’s legal sta- better. Hong Kong and some of the But modifications can “This is a huge opportu- this count, the city’s deal- Regulates insurance brokers minbi. tus – bank, broker or insur- “The lesson we all learnt jurisdictions that are be made. “Change for nity for Hong Kong,” says makers have grounds for under the approval of the For John Greenwood, the ance company – determines from the minibonds affair revamping their regulatory change’s sake is painful and John Greenwood, Invesco optimism. OCI. economist credited with which regulator is responsi- was that to improve inves- structures – such as the costly,” says the SFC’s Mr chief economist and archi- The pool of renminbi designing the 1983 peg, such ble for supervising its activ- tor protection, we needed to UK and New Zealand – was Wheatley. tect of the exchange rate deposits in Hong Kong’s talk is nonsense. He insists mechanism that governs banking system has been that Hong Kong’s trade- the Hong Kong dollar, the expanding exponentially in dependent economy cannot territory’s main currency. recent months, reaching be shackled to a currency The liberalisation of the Rmb149bn in September, that cannot be exchanged renminbi in Hong Kong is more than twice the level at freely on both the current part of China’s plan to the start of the year. and capital accounts. transform it from a domes- And while the renminbi Even at the current rate Powerful tic currency into a global still constitutes less than of development, full con- one. Since July, any com- 3 per cent of total deposits vertibility of the renminbi pany in the world has been in Hong Kong, bankers will take several years, if free to open a renminbi expect that proportion to not decades. bank account in Hong Kong rise rapidly in the coming “If the Hong Kong dollar while groups in the city are years as China allows more were to be pegged in a cur- dynamics now able to transfer funds of its currency to flow out rency board format to the among themselves and cre- of the mainland. renminbi, Hong Kong-based ate new renminbi-denomi- “It doesn’t take much banks would need to be nated investment products. deposit migration from the able to pay renminbi for the Joseph Yam, former chief mainland to Hong Kong to right to issue Hong Kong at the hub executive of the Hong Kong dollar banknotes. They Monetary Authority, says Joseph Yam, couldn’t do that easily, or in Hong Kong is “the ideal lab- former chief large volumes, as long as oratory” within which Bei- executive of the renminbi is not convert- jing can experiment as it Hong Kong ible,” says Mr Greenwood, internationalises its cur- Monetary now chief economist at Lon- of change rency. Foreign companies, Authority don-based Invesco Asset the thinking goes, will be Management. following the 1984 Sino- more willing to use the ren- Another option is to peg Interview British joint declaration, minbi in cross-border trade have a phenomenal effect,” the Hong Kong dollar to a Margaret Leung which set the stage for deals if they are able to says Robert Minikin, a for- Singapore-style basket of Hong Kong’s return to invest or hedge the Chinese eign exchange strategist at currencies, weighted A leading banker Chinese rule on July 1 currency in the sophisti- Standard Chartered. against the city’s main 1997. cated financial system of As well as through trade, trade partners. talks to Enid Tsui “People in Hong Kong the former British colony. the renminbi flows into More simply, the HKMA are very [adaptable], she The pace of change has Hong Kong from residents could widen the band in says. “They do the right been dramatic. Banks, fund who are allowed to buy as which the Hong Kong dollar argaret Leung thing at the right time, or managers, and insurance much as Rmb20,000 per day can trade against the US says wistfully: what’s perceived to be the companies have launched a with foreign currencies. dollar, thus allowing a “You used to right thing at the right wide array of products These flows are expected to steady appreciation. The be able to see time. In the 1980s, lots of denominated in the ren- continue apace given the default option is to create, Mthe harbour from here,” people sought a second minbi, seeking to capitalise widespread expectations over time, a dual currency standing by the window of passport in the lead-up to on fervent investor demand that the renminbi will system, similar to Macao’s. her office in the Hang 1997. I did the same, so I Different viewpoint: Margaret Leung in her office at the Hang Seng Bank Colin Beere for exposure to the Chinese appreciate sharply against There, the pataca is still Seng Bank headquarters on went to Australia.” currency. In the foreign the US dollar. A new source legal tender; it has a 49 per busy Des Voeux Road. The self-imposed exile centre – where Beijing reminiscent of the city’s flow of human capital and exchange markets, renmin- of renminbi to the Hong cent share of currency in Unfortunately for her, lasted three years, but her allows the Chinese role as a conduit for a simple and low tax bi-dollar trading volumes Kong market is the HKMA, circulation, versus the the 18-year-old building career did not suffer. currency to be traded more foreign direct investment system, she adds. have surged to more than the city’s de facto central Hong Kong dollar at had become enveloped by Having joined HSBC in liberally than in the tightly to the mainland in the She refuses to discuss $200m per day. Forwards, bank, which last month 48 per cent. even newer high-rises in 1978, she continued to controlled mainland 1980s and 1990s. “And 20, politics, but advises the swaps and options are also drew down Rmb10bn of its But the longer the terri- the heart of Central work for the bank in market – is a boon for the 30 years ago, people were city’s youths – many of starting to trade but at low Rmb200bn currency swap tory imports loose mone- district by the time she Sydney. financial sector, she says. sceptical about the whom have become volumes. “This market is facility with the People’s tary conditions through the joined the bank as vice- Upon her return to Hong “The central government mainland. So [foreign disillusioned with the going to grow in an expo- Bank of China. current system, the louder chairman and chief Kong, a steady climb up doesn’t want to [open up companies] would put their widening wealth gap in the nential way,” says Jens But the reason the HKMA the calls will become for executive last year. the ladder ensued, trading of the renminbi] in money in Hong Kong, set city and the slow process Scharff-Hansen, co-head of exercised the swap in the more radical action. Visitors to Hong Kong culminating with her a mainland city at the up a separate company in of political reform – to foreign exchange trading first place was that Bank of Hong Kong, after all, has and residents alike appointment as group here and use Hong Kong “work hard”, saying Hong for Asia at Deutsche Bank. China (Hong Kong), the a tradition of flexibility: sil- comment on the relentless general manager and people to go into mainland Kong remains a land of But the biggest splash city’s designated clearing ver dollars were used as building and rebuilding of global co-head of ‘People here are China.” Hong Kong is opportunity. came in the bond market in bank for renminbi trade set- legal tender until 1935, after the city, either as an commercial banking before adaptable . . . they again playing the role of a “There are many small- August when McDonald’s, tlement, had reached the which the local currency exciting sign of a dynamic she moved to Hang Seng “firewall”, she says, but, to-medium size businesses the US burger chain, limit of its 2010 quota for was fixed to sterling until economy or unnerving Bank, a local lender do the right thing this time, it is protecting in Hong Kong that are became the first multina- renminbi conversion. The 1972, then US dollars for the symbol of impermanence. majority-owned by HSBC. at the right time’ the mainland against the very nimble. Their ability tional company to sell ren- news took the market by following two years. For Mrs Leung, ceaseless Today, she heads a retail unfamiliar risks of opening to adapt is something minbi bonds in Hong Kong, surprise, since Beijing had From 1974 until 1983, it change is inherent in the and corporate bank with up to global capital. Hong Kong is very proud raising Rmb200m ($29m). never announced that the allowed its currency to place, and the best plan is an extensive China moment. Onshore, they She is also an of. People here do accept Financiers hope the city supply of renminbi for trade float. A dynamic currency to go with the flow. network. don’t want any enthusiastic advocate of change and grab will eventually become an settlement was subject to a regime that shifts according She was born here in the As with many others in disturbance. The reason greater integration between opportunities out of it,” important fundraising cen- quota. to wider conditions has 1950s, a time when the corporate world, any why mainland China Hong Kong and the Pearl she says. tre for groups that have Whatever the hopes of been the foundation of hundreds of thousands of uncertainty she might have escaped in 1998 and 2008 is River delta region in As if to prove her point, operations in China. How- Hong Kong’s financial com- Hong Kong’s success. mainland Chinese refugees once had about Hong because it’s a closed southern China. she stands by the window ever most observers reckon munity, there are likely to Whatever it says in pub- settled in the then-British Kong’s future had long economy and the currency Yet, the city’s attraction and asks the photographer this will happen only if Bei- be even more hidden bottle- lic, the HKMA should keep colony as they fled from turned into unequivocal is not freely convertible. I as a place to do business is to use the building jing scales back the strict necks when it comes to the an open mind in private. the new communist regime support for Beijing’s think they will still unlikely to diminish opposite – the one blocking controls on flows of capital growth of offshore renminbi in Beijing. Hundreds of economic policies. proceed cautiously, using relative to the mainland, her sea view – as from Hong Kong to the financial markets. Beijing thousands were on the The city’s growing role Hong Kong as a platform.” as long as it maintains a background. “It is a nice mainland. At present, will not allow things to go Contributors move again in the years as an offshore renminbi This, she says, is sound legal system, a free looking building,” she says. approvals to move the ren- too far too fast. Tom Mitchell South China Correspondent

Ben McLannahan Asia Lex writer Store colossus sets a firm course for domination Zach Coleman Asia World News Editor Resources’ retail group, says.“We over most trade between the Growth has come from a com- The company launched a con- Robert Cookson China resources want to be the leading player in mainland and Hong Kong, bination of new stores and M&A, venience store format from Hong Asia Markets the domestic market. We have including pork and most pro- with China Resources Enterprise Kong and the neighbouring Correspondent Zach Coleman finds more understanding of the mar- duce. As China embraced market gradually taking over a series of mainland city of Shenzhen three a retail growth story ket.” reforms, China Resources in 1984 store groups with support from years ago. This year, it opened Christopher Dillon The group’s goal, Mr Wang capitalised on its role as food its parent, China Resources its first two standalone wine Property investor and with no end in sight says, is to more than treble supplier to open its first super- (Holdings). This has expanded shops in Hong Kong and last author annual revenues from $4.6bn to market in the British colony and the company’s store base from month debuted a new health and Justine Lau $15bn within five years and soon became a solid but distant southern China up the coast beauty chain with two city Hong Kong For almost half a century, the become one of China’s three larg- number three behind entrenched toward Shanghai and Beijing stores. This year it also launched Correspondent business of China Resources was est retail companies, projecting chains owned by Hutchison and, with an acquisition this a new supermarket concept posi- selling Chinese goods and com- the opening of 60-80 hypermar- Whampoa and Jardine Matheson. year, into several interior prov- tioned between its mainline and Michael Enright modities in Hong Kong. These kets among 500-600 total new “Business in Hong Kong was inces. Sales have climbed, as the upscale chains with two outlets Sun Hung Kai Professor, days, the company makes most stores each year. good, but the market was too company has upgraded stores in Hong Kong before taking the University of Hong Kong of its money using international China Resources’ voracious small,” says Mr Wang. and opened niche outlets. brand to Shanghai. retailing strategies that it appetite for growth contrasts In the early 1990s, China Although Hong Kong now “Because Hong Kong is an Enid Tsui Asia News Editor, FT.com imported via Hong Kong back to with its relative stasis until the Resources opened its first super- accounts for only 6-7 per cent of international city and the retail the mainland. mid-1980s. At that point, it oper- markets and department stores China Resources Enterprise’s China Resources owns Vanguard market is very prosperous, it can Martin Brice The turnround has been a ated five downmarket depart- in the mainland. store count and retail revenue, serve as a platform for innova- Commissioning Editor great success. China Resources is ment stores and a similar Soaring consumer sales and the city’s outlets generated an according to Matthew Crabbe, tion,” Mr Wang says. Steven Bird now one of the mainland’s larg- number of Chinese Arts & Crafts Beijing’s desire to cultivate outsize 41 per cent of the group’s managing director at Access This year, China Resources Designer est food retailers, with more stores, all in Hong Kong. domestic chains that could stand retail earnings before interest, Asia, a market research com- also bought Pacific Coffee, a Andy Mears than 3,000 stores and a much Both store groups were the leg- up to the likes of Walmart when tax, depreciation and amortisa- pany in Shanghai. Hong Kong-grown rival to Star- Picture Editor wider network in the world’s acy of patriotic efforts to pro- entry to the World Trade Organi- tion. Hong Kong remains a key cen- bucks, for HK$330m. The com- most populous country than mote Chinese products in colo- sation removed investment barri- The company’s profit margin is tre for China Resources’ retail pany plans to put outlets into its For advertising, contact: close western rivals Carrefour nial Hong Kong and earn hard ers to foreign operators led 10 times higher in Hong Kong technology development, plan- upscale hyper- and supermarkets Angela Mackay and Walmart. currency for the mainland. China Resources Enterprise, the than on the mainland owing to a ning, store management and in China to reinforce their afflu- +852 2905 5552 “Our strategy is to target the As an arm of what is now group’s Hong Kong-listed arm, to combination of expansion costs design efforts. “Hong Kong is a ent appeal. [email protected] entire country,” Wang Weiyong, China’s commerce ministry, set its focus on the mainland and oligopolistic gains in the very good place to test new con- senior vice-president of China China Resources had a monopoly officially in 2002. former colony’s mature market, cepts,” Mr Wang says. Additional reporting by Tracy Tu FINANCIAL TIMES TUESDAY NOVEMBER 16 2010 ★ 3 Doing Business in Hong Kong Art of the possible aims to

Artistic merit: transform a cultural desert Alice Cheng and the Qianlong period vase she bought at auction similar signs of ebullience are stock exchange is the biggest in ART HK, says things are changing. for $32.4m Arts expected. Thanks to growing Asia. When it comes to “cultural”, “When we got here a few years wealth in Asia, a friendly tax however, “desert” is the word that ago, everybody was talking about Justine Lau reports on a regime and the logistical ease it usually follows it. Hong Kong being a cultural desert. offers, Hong Kong has become the “Arts and culture are not built “You don’t hear people talking growing creative energy world’s third largest auction mar- into everyday life here. It takes an about it like that any more,” he that is crafting a ket, after New York and London. effort for people to go to a gallery,” says. In his view, on top of the Meanwhile, leading galleries says Lorraine Kiang, manager at record-breaking auction sales, new new landscape on such as Gagosian, Edouard Edouard Malingue. galleries and ART HK, a bigger Asia’s blank canvas Malingue and Ben Brown have set Douglas Young, founder of life- change to come will be the up shops or are doing so, bringing style brand Goods of Desire, says HK$21.6bn multi-arts complex the works by artists such as Picasso or government has been planning n a packed salesroom in Hong rising stars such as Caio Fonseca since the last decade. Kong last month, local collec- to the city. ‘Arts and culture are In West Kowloon, the centre – tor Alice Cheng beat the In 2008, Hong Kong also saw the not built into everyday the first phase of which is sched- crowd to a yellow-ground birth of its first truly international uled for completion in 2016 – will Ifamille-rose double-gourd vase modern and contemporary art fair. life here. It takes an have museums, performance ven- from the Qianlong period in the Although ART HK is still a far cry effort for people to go ues, theatres and concert halls. 18th century with her bid of from the more established Art The project has enlisted services $32.4m. Basel or Frieze, it is considered the to a gallery’ of prominent figures, including The deal not only set a world best in Asia, according to Eric Graham Sheffield, former director record for any Chinese work of art Chang, Christie’s head of Asian of London’s Barbican Centre, and or porcelain at auction at that contemporary art. while Hong Kong has the potential Lars Nittve, former head of Lon- time, it helped Sotheby’s fetch Leaving art trading aside, and intention to become a cultural don’s Tate Modern. $400m from its seven-day sale – the whether Hong Kong has what it centre, it lacks the right economic Nick Simunovic, Gagosian’s best auction series ever held in takes to become an arts hub is a set-up. managing director in Hong Kong, Hong Kong. bigger question. “The most lucrative businesses says the city is “on its way” to When Christie’s hold its autumn A former fishing village, Hong here are not creative at all . . . Art- becoming an arts hub, although a sale this month, selling more than Kong has long prided itself on the ists are having to subsidise their lot will depend on the relevance 2,800 lots of wine, modern and con- trading port and financial centre it passion with day jobs. In effect and richness of West Kowloon’s temporary art, traditional Chinese has become over the past century. they are confined to being ama- offerings. “Hong Kong is close to paintings, watches, jewellery and The city has one of the world’s teurs,” he says. a tipping point [towards] being an antiques for an expected $220m, largest container ports and its But Magnus Renfrew, director of arts hub. Be patient,” he says.

Property High Times

After plunging two­thirds in Washington. The Hong the wake of the 1997 Asian Kong government can, financial crisis, Hong Kong’s however, provide guidance property market is on lending policy. booming, writes In August, the Hong Kong Christopher Dillon. Monetary Authority reduced Fuelled by low interest the maximum loan­to­value rates, an open door to ratio for mortgages on foreign investors and a residential properties valued buoyant Chinese economy, at more than HK$12m from the University of Hong 70 per cent to 60 per cent. Kong All Residential Price To date, the authority’s Index rose 28.4 per cent decision has not damped during the 12 months to buyers’ enthusiasm. August 31, 2010. The government also Hong Kong continues to faces conflicting demands benefit from China’s rapid from first­time buyers, who economic expansion. And want affordable flats, and while the infrastructure in existing homeowners, who mainland cities is improving want steadily rising prices. steadily, Hong Kong’s Until 2003, the government transport links, business built and sold subsidised services and rule of law flats for low­income families make it a popular through the Home beachhead for Ownership Scheme (HOS). multinationals operating in The recent increase in China. That role has property prices has sparked sparked increases in the calls for the construction of price of commercial and HOS flats, which the residential real estate. government has resisted. “The rent for a flat In his October 13 policy suitable for an expatriate address, Hong Kong’s chief family of four can easily top executive, Donald Tsang, HK$80,000 ($10,300; announced plans to build £6,400) per month,” notes 5,000 small­ and medium­ Diana Lilauwala, an estate sized flats under a new agent specialising in expat programme, called My rentals. Home Purchase Plan. But it is not only expats Under the plan, tenants who are driving Hong will receive a subsidy equal Kong’s residential property to half the rent that they market. In the first half of have paid, which they can 2010, mainland residents use as a downpayment on reportedly bought one­third a flat. of the new homes sold in A senior government the territory. official, who asks not to be These properties are named, says the new purchased as investments, scheme was launched as alternatives to a hotel because: “We knew we room during shopping or needed to do something — business trips and (until the today — to help people.” rules governing Hong The first 1,000 flats to be Kong’s Capital Investment built under the programme Entrant Scheme were will be completed by 2014. changed last month) as a Some observers worry way to obtain residency. that Hong Kong is in the Expensive “trophy” midst of a property bubble homes are popular with that will collapse when mainland buyers, and interest rates begin rising. concerns that foreigners But this view is not are pricing Hong Kong universal. “Despite property people out of the market prices in Hong Kong rising are prompting demands for significantly from the government intervention. trough in 1998, we expect In spite its reputation as mass residential prices to one of the world’s most increase by 11 per cent in open economies, the Hong 2011,” says Buggle Lau, Kong government plays a chief analyst at Midland large role in the real estate Realty. market. About half the population Christopher Dillon is the lives in government­owned author of ‘Landed: The or subsidised housing and expatriate’s guide to buying — with the exception of the and renovating property in ground under St John’s Hong Kong’ Cathedral — all land in (www.landedbook.com) Hong Kong is owned by the government and made available to users through long­term leases. This ownership structure lets the government expand or restrict the availability of land to meet changing conditions. However, this is a blunt policy tool: it takes years for homes to be built on newly released land, by which time an overheated market can become depressed. In addition, Hong Kong cannot calm or stimulate the property market by raising or lowering interest rates. As a result of the currency board system through which the Hong Kong dollar is pegged to the US dollar, interest rates are in effect set in

One of Hong Kong’s skyscraper blocks 4 ★ FINANCIAL TIMES TUESDAY NOVEMBER 16 2010 Doing Business in Hong Kong Resource groups tap a rich vein of capital Neighbours

leading capital markets for place: Hong Kong saw size and price of its listing, we can go beyond the China dence in the liquidity of the Mining IPOs the resources sector,” says resources and mining IPOs and its share price still fell story and become an Asia Hong Kong market. explore route Mike Elliott, mining and triple from 2008 to 2009, on listing. story,” says Lawrence Fok, Another Brazilian com- The raw materials metals leaders for Ernst & according to PwC. This Others have fared better: chief marketing officer for pany, Agrifirma Brazil, is sector has found Young. “They’ve been quite year’s mining and resources Last month a private Mon- the Hong Kong Exchange. planning to list on the Hong successful this year in IPOs have already raised golian mining company “We enforce our rules and Kong exchange next year, a new centre of attracting new floats.” HK$36bn, according to the with rich deposits of coking regulations without fear or in a sign of how the to friendship attraction, writes In February the listing of company. coal close to the Chinese favour, and that’s why we exchange’s remit is widen- Rusal, the Russian alumin- This trend could acceler- border raised $650m in an attract so much foreign cap- ing. Agrifirma’s business is Leslie Hook ium company controlled by ate thanks to new listing IPO, and has seen its share ital,” he adds. The market to purchase scrubland and made these preparations,” oligarch Oleg Deripaska, rules that the exchange price rise since. capitalisation of the transform it into farmland. Taiwan relations she says. China’s appetite for com- raised $2.2bn, making it one introduced in June, partly exchange is now around Brazil is one of the world’s Hong Kong’s position as modities is having a little- of the largest mining IPOs in an effort to encourage $2,500bn, Mr Fok says. largest exporters of agricul- Opportunities for Asia’s leading financial cen- ‘We enforce rules noticed side effect: global in the world this year. The early-stage resources com- Even chief executive Don- tural commodities, such as integration are high tre means the city will ben- resources companies are listing was highly contro- panies to list there. and regulations ald Tsang has joined the soya beans, to China. efit indirectly from greater increasingly choosing to versial because regulators The exchange eliminated bandwagon, declaring in a Mr Webb says that this on the agenda, cross-strait investments, raise capital next to their imposed unprecedented its requirement that compa- without fear or recent policy address that new strategy makes sense. says Robin Kwong according to a report by the biggest customer by listing restrictions that prevented nies going public had to be favour, that’s why the city would “tap into “I think the exchange Hong Kong-based Bauhinia in Hong Kong. retail investors from buying profitable (many resources business opportunities in should be repositioning Foundation Research Cen- Miners around the world, stock. David Webb, a share- start-ups are not) and we attract so much Russia, Central Asia, India, itself away from the almost When John Tsang, Hong tre, a think tank close to from small coking coal com- holder activist, says that updated its rules about South America and other obsessional focus on main- Kong’s financial secretary, the government. panies to leading iron-ore decision created “a very bad proving mining reserves. foreign capital’ emerging markets to attract land listings towards a blogged about his visit to Direct travel links giants, have sought out the precedent and they The first listing that took more large enterprises to more balanced position as Taiwan at the end of between Taiwan and China Hong Kong exchange this shouldn’t ever do it again”. advantage of the new rules The Hong Kong exchange list in Hong Kong”. an Asian emerging markets August, he began his post alone will boost Hong year for IPOs or share offer- Yet the deal still set the struggled, however, prompt- also sees resources firms as Those ambitions are hub,” he says. with the exclamation: “I’ve Kong’s GDP by HK$17.9bn, ings, attracted by its deep stage for subsequent IPOs ing some to wonder a way to diversify from the being realised too, but more “It’s not surprising then if finally arrived in Taipei!” and longer-term benefits pools of capital and proxim- and put Hong Kong on the whether the exchange had China-based companies that slowly. In September Brazil- we are trying to attract Mr Tsang’s sentiment could reach HK$64.3bn by ity to China. map for other Russian lowered its standards. Rus- have fuelled the exchange ian iron ore group Vale companies from emerging could well be applied more 2038, according to the “Hong Kong is really resources listings. The sian iron ore miner IRC into the global powerhouse announced it would list markets that a lot of those broadly to official relations report. making a strong push to Rusal listing catalysed a went public in October after it is today. depositary shares in Hong companies might come between Hong Kong and Yet the improvement in become one of the world’s trend that was already in it was forced to slash the “As time goes by we hope Kong, in a sign of confi- from resources.” Taiwan, which has taken a cross-strait relations was dramatic turn for the better initially eyed warily by recently after years of Hong Kong. neglect on both sides. In Before direct cross-strait spite of being just an hour flights were established, and half away by air, there Taiwanese businessmen had been no official visits travelling to their factories between Hong Kong and in China had to first stop in Taiwan for 12 years after Hong Kong. The creation of Pearl river the former British colony direct, regularly-scheduled returned to Chinese rule in flights, which came in the 1997. midst of the financial crisis The change in official in late 2008, was seen as a relations began two years blow to Hong Kong. ago, when Taiwan elected “There was a lot of worry delta builds Ma Ying-jeou president and in Hong Kong society,” says embarked on a path to Ms Wang, about the loss of mend relations with China. passengers and revenues Taiwan’s political detente associated with cross-strait with its bigger neighbour, travel. which still claims sover- One airline industry exec- up a future eignty over the democrati- utive had said that Cathay cally-ruled island, has Pacific, the city’s main car- yielded liberalisation and rier, had cut flights increased interaction across between Hong Kong and the Taiwan Strait. Taiwan by between 10 to 20 It has also opened the per cent after direct flights for growth door for greater Hong Kong- between China and Taiwan Taiwan co-operation. Mr were established, but added Tsang was the second Hong that it was hard to gauge tronics products, accounting for Kong official to visit Tai- whether the impact came Regional focus almost three-quarters of provin- wan in the past year, and cial exports, were up was there as the honorary Michael Enright offers 28.9 per cent. Exports of clothes, chairman of the newly- ‘The objective an insight into a region footwear, furniture, and toys were established Hong Kong- criteria exist for up 21.6 per cent, 22.8 per cent, 39.3 Taiwan Economic and Cul- at the forefront of per cent, and 29.8 per cent respec- tural Co-operation and Pro- Hong Kong and global manufacturing tively. motion Council (ECCPC), a Taiwan to . . . be a The area has had to contend quasi-government body set with rising wages, land costs, and up to negotiate Hong Kong- common market’ ong Kong’s economic utility rates; an appreciating ren- Taiwan issues. future is tied to the minbi; a new employment law; “The important thing is Pearl river delta in instances of labour unrest; and the visit itself. So what we from direct flights or from neighbouring Guang- more restrictive export processing are looking forward to is a worsening economic condi- Hdong province. regulations. But, while many indi- good beginning [to greater tions at the time. The The delta was an early benefici- vidual firms have fallen on hard Manufacturing in the Pearl river delta continues to grow Bloomberg co-operation between the report by the Bauhinia ary of China’s reform programme. times, the loss of competitiveness two sides],” he told report- Foundation estimated two- In 1979, two special economic that some predicted has failed to some industries out of the region tries and activities continue to ers at the time. thirds of existing passenger zones were established there, in materialise. to make way for others. Wang shift from Hong Kong into the Leading the world Despite the lack of official flights between Hong Kong Shenzhen and Zhuhai, and The renminbi is still underval- Yang, provincial party secretary, delta. However, Hong Kong ties, Hong Kong and Tai- and Taiwan would be Guangdong was given permission ued, utility rates are well below says it is time to “empty the cage remains the nexus between the Hong Kong continues to be an wan have long had deep affected. Hong Kong also to open up to business before world averages, and real manufac- so new birds can come in”. This most dynamic economic region in extremely important economic links. Hong Kong stood to lose 60 per cent of other parts of China. Its gross turing wages have not caught up approach is reflected in the China and the rest of the world. management centre for foreign is Taiwan’s fourth-biggest its original air shipment domestic product (GDP) grew to productivity gains over the National Development and The territory also remains a high- multinational companies that trading partner, and vice business and 40 per cent of from $8bn in 1980 to $89bn in 2000 past two decades. While reported Reform Commission’s “Outline of end service provider, manage- are operating in the Asia­ versa. the cargo import trade – and to more than $450bn in 2009. manufacturing margins in the the Plan for the Reform and ment centre and financier for Pacific region. Both places are also popu- between the city and Tai- The region’s real GDP growth in delta are low, cost increases have Development of the Pearl River much of the economic activity in According to a survey of lar travel destinations for wan. the period exceeded 16 per cent not resulted in a loss of competi- Delta (2008-2020)”. The commis- the PRD. Activities displaced from 1,000 western and Japanese each other’s residents. Tai- Improving cross-strait ties per year, well above China’s 10 tive position because low margins sion intends the delta to continue Hong Kong are replaced by higher multinationals in 1998 and wanese made 2m trips to could also place Hong Kong per cent. stem more from competition to lead China’s development by value managerial, marketing, and repeated 10 years later, Hong Hong Kong last year, and and Taiwan into competi- The delta has become a manu- among factories than from compe- moving up the value-added lad- financial activities. Kong substantially extended its Hong Kong residents took tion in other areas. facturing platform of global tition between the delta and other der, fostering advanced manufac- China’s leadership recognises lead over Singapore as a 600,000 tours to Taiwan. Both governments, for importance, and a world leader in locations. turing and technology industries, the critical role Hong Kong plays regional (Asia or Asia­Pacific) Wang Yuqing, a research example, are pushing medi- electronic goods, electrical prod- Most exports are made by for- developing globally advanced in the delta’s development. The or sub­regional (North Asia­ fellow at the China Busi- cal tourism as a new indus- ucts, electrical and electronic eign-invested companies, many of NDRC’s plan calls for greater eco- Pacific or South Asia­Pacific) ness Centre of the Polytech- try and source of economic components, watches and clocks, which book their profits outside nomic integration with Hong headquarters location. nic University in Hong growth. Yet, given lower toys, garments, plastic products, China. Re-export margins for ‘The loss of Kong through improved infra- And, while Shanghai is Kong, says the improving costs in Taiwan and the and numerous other goods. It goods shipped through Hong competitiveness that structure (the Hong Kong-Zhuhai- increasing in importance as a cross-strait relationship was island’s bigger capacity to accounts for only 0.6 per cent of Kong, a low-tax centre, have aver- Macao Bridge, the Guan-gzhou- regional centre, it remains way an overall positive for Hong accommodate foreign China’s land area and aged around 25 per cent. some predicted has Shenzhen-Hong Kong Express behind Hong Kong. Kong. “It promotes more patients, it is unlikely Hong 3.5 per cent of its population, but However, the delta’s economy is failed to materialise’ Rail Link and others); streamlined The results from managers exchanges and ties.” Kong would be able to com- one-tenth of GDP, a quarter of changing. It has moved beyond cross-boundary travel and trade; in Hong Kong also Significant benefits from pete with Taiwan for Chi- trade and a fifth of inward foreign simple assembly to include pro- and co-operation in science, tech- demonstrated that the these official links, how- nese patients should China direct investment. duction of components, inputs, innovation capabilities and build- nology, education, training, logis- territory’s importance to ever, would probably take allow visits to Taiwan as It was affected by the global and capital goods; beyond light ing strong modern service sectors. tics, finance, and the environ- multinationals increased in all time to materialise. “The the next step of liberalisa- downturn in 2009, but growth was industry into heavier industries Specific targets include a per cap- ment. These intentions have been but one activity two sides are focused on tion, Ms Wang said. still impressive and the subse- such as the auto, chemical, and ita GDP up from Rmb62,644 enshrined in the Hong Kong- (import/export) – and in that increasing the flow of peo- Anthony Wu, chairman of quent rebound even more so. machinery industries; and beyond ($9,400) in 2008 to Rmb80,000 Guangdong Co-operation Frame- area it remained the same. ple between Hong Kong and the Bauhinia Foundation Guangdong’s GDP – 80 per cent of low-tech products and simple ($12,000) in 2012 and Rmb135,000 work Agreement signed in April. In part this was because of Taiwan,” in the short term, Research Centre, says: which is generated on the delta – services into higher-tech products ($20,260) by 2020. These are ambi- Hong Kong and the delta are the increased importance of but there is opportunity for “Hong Kong’s transit role grew 11.6 per cent year-on-year to and more advanced services. tious targets, but the delta has likely to benefit from being parts the Asia­Pacific region as a deeper integration between will be inevitably weak- Rmb3,150bn ($473bn) in the first Much of the pressure on low consistently exceeded its targets of the one of the world’s most whole to the companies – the two economies, Ms ened. But, from a long-term three-quarters of 2010 after grow- value-added industries has come over the past 30 years. exciting regional economies. particularly the western Wang says. perspective, [its] economy ing 8.6 per cent last year. Guang- from higher value-added indus- What does this mean for Hong companies in the sample – “The objective criteria will stand to benefit from dong’s exports, 95 per cent of tries competing for land, labour, Kong? Many of the companies Michael Enright is Sun Hung Kai and in part to the expansion of exist for Hong Kong and the cross-Straits develop- which are made in the delta, were and resources. The Guangdong coming under cost pressure in the Professor at the University of Hong Kong’s roles. Taiwan to have closer ments, given Hong Kong’s up 27.8 per cent to $321bn in the government has also embarked on delta are from Hong Kong and Hong Kong. He is co-author of financial co-operation, to be prime location, sound legal first three-quarters of 2010. a big programme to upgrade the also face increased competition The Greater Pearl River Delta Michael Enright a common market. But in system [and] international Exports of mechanical and elec- province’s economy, pushing from Chinese competitors. Indus- (Invest Hong Kong, 2010). fact Hong Kong has not business reputation.” Territory’s middlemen forced to diversify to survive

Kong, some of their smaller The emergence of e-com- Jebsen was left with the say we have to continue to spectacles frames. Most the manufacturing busi- management and food Trading companies rivals simply could not sur- merce companies such as dealership side of the busi- use Jebsen.” recently, it set up a facility ness, which accounts for a processing to its clients, vive. Alibaba presents another ness only. To do that, the company in Dalian in northern China 10th of the company’s reve- such as the maker of Pocari Justine Lau says He says: “Over time, the challenge to the small mid- Mr Hennig says it was built strong market knowl- with a German auto tech- nues at present, will grow Sweat, a Japanese health hongs are having to [Chinese and Hong Kong] dlemen, which largely act “no doubt” a loss of busi- edge and close relationships nology company to make to 30 to 40 per cent in a drink, in order to move up market has become more as buyers and sellers with- ness. “That is the biggest with local governments and car balancer systems. decade. the value chain. acquire fresh skills open and mature. The bar- out providing other value- threat to a trading company customers so that it would Jebsen has chosen to “The business model of “We cannot just be a mid- rier to entry is falling as added services. – you build markets, and not be left out of the supply build its manufacturing manufacturing is very dif- dleman. We need to build well. If you are a buyer or In recent years, China has then you lose them,” he chain. business by forming joint ferent. You need to invest partnerships,” says Clement Flipping through a 1988 producer, you need to have also become too big a mar- says. Additionally, the com- ventures with foreign man- upfront – machinery, equip- Hui, DCH’s chairman. Hong Kong business direc- a very good reason to use ket for multinational com- Therefore, for Jebsen, ufacturers as it realises it ment, plant – and your pay- Mr Hui and Mr Hennig tory as thick as a bible, Hel- an intermediary.” panies to ignore. As a whose other clients include There is does not have the skills to back comes after many are hopeful that trading muth Hennig realises many Long an entrepot where result, some manufacturers Japanese camera makers always a role go solo. years,” he adds. companies will continue to old local trading companies vast amounts of goods that used to outsource their Casio and Pentax, change for those who “We are not a technology Dah Chong Hong, another have a role to play. – or hongs – that acted as move in and out daily, distribution and marketing was the only way out, Mr add value, company. We need to do Hong Kong trading com- “Ten years ago in the dot- middlemen between China Hong Kong gave birth to a functions have taken them Hennig says: “The value says Helmuth joint ventures with people, pany that acts as carmaker com bubble, everyone and the west no longer host of import-export com- back in-house. chain is long and we are Hennig who are either not in a posi- Bentley’s agent on the talked about disintermedia- exist. panies that helped Chinese This has happened to Jeb- sort of the last mile. We are tion to go into China mainland, has a similar tion. They were saying com- Mr Hennig, managing goods to find overseas mar- sen, which focuses on help- just before the customer. because they are too small story to tell. panies would be taken out director of Jebsen & Co, a kets and western brands to ing foreign manufacturers We have to make sure that, pany has branched out into and lack the experience, or The company began life of the supply chain because 115-year-old hong founded tackle the mainland. find customers in China. no matter what we do, it’s manufacturing to diversify they feel that by working as a middleman between customers would be able to by two Danish business- But these trading compa- Two years ago, Porsche, perceived as creating value its revenue streams. with us, they get a much western brands and Chinese talk directly to the suppli- men, says that while big nies have lost a large part the German carmaker and a for the supplier and cus- In 1995, it set up its first faster access to the manu- consumers. More recently, ers but that hasn’t really trading houses such as of their value since China long-time customer, stopped tomer,” he says. joint venture with an Ital- facturing capability of it started offering other happened,” says Mr Hennig. Jardine Matheson, Swire opened its doors in 1979 and asking the Hong Kong “Otherwise, they won’t ian company in the south- China,” Mr Hennig says. services including food “There is always a role and Li & Fung still loom made it easier for foreign company to handle its pay us. It has to be some- ern Chinese city of Shen- It also intends to do it safety testing, product for people who can add large in corporate Hong companies to do business. imports to the mainland. thing that allows them to zhen to make plastics for slowly. Mr Hennig expects repackaging, inventory value to the selling cycle.”