Generation 40s – 四十世代

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Four challenges ‘Greater Bay Area’ planners must overcome to ensure success

CommentInsight & Opinion

Feng Da Hsuan and Liang Hai Ming highlight some issues for planners to consider for the Greater Bay Area, including how to tackle the complexities of the massive project, attract talent and prevent a brain drain in smaller cities, and ensure a safety net for failure

The release of a “Greater Bay Area” development plan for linking Hong Kong and Macau with nine cities in Guangdong province is expected to be released early this year. The plan may be a sign of China’s ascent, but this area will be starkly different from, for example, the San Francisco, New York and Tokyo bay areas. While it is all within one nation, it also links two “systems”, three currencies and multiple cities. This makes the plan highly convoluted, and such complexity could pose far more challenges than those found in other bay areas.

Here are four potential issues. First, because the Greater Bay Area consists of cities in Guangdong province, plus Hong Kong and Macau, any kind of amalgamation will be one of multiplicities, rather than natural affinities, and this could mean additional obstacles to the flow of talent, finance, logistics, information and so on.

It has been suggested that the euro-zone experience could provide a good lesson where, to coordinate nations of vast differences as seamlessly as possible, it was necessary to jointly organise and empower a “coordination team” to overcome the difficulties. Indeed, having such a team, at least in principle, should lead to greater affinities. This is why a single currency, the euro, and a single political system known as the European Parliament were established.

One obvious difficulty that the euro zone faced is that the economically weaker nations within it, such as Greece and Portugal, raised their debt levels greatly while under the euro-zone protection umbrella. The actions of these nations resulted in a series of debt crises which led to doubts about the sustainability of the euro zone, roiling financial markets, including those outside Europe. The European debt crisis and Brexit, plus the drama of potential exits by Greece and the Netherlands, have been directly or indirectly due to such actions.

These nations have chosen to leave, or have considered leaving, the euro zone so they can individually decide on exchange rates in order to increase exports and promote economic development. How to overcome or prevent the same fate in the Greater Bay Area is something that needs to be addressed upfront.

Also, the Greater Bay Area may not be able to attract talent within China and worldwide for sustainable development. It will take much more than just money and new projects to make the area a global centre of technological innovation, advanced manufacturing and maritime, finance and trade; what is needed is talent across the board and a global mindset.

There are two main issues to address in this respect. The first is to understand that the vision and ideas of foreign talent, especially people from Europe and North America, are quite different from those in China. Besides requiring high-paying jobs, comfortable living conditions and a pleasant working environment, these people also want a clear project mission, a step-by-step plan and well-designed project funding.

Unfortunately, this is the opposite of how Chinese operate. Generally speaking, while Chinese may have an initial grand vision, they tend to “plan along the way” rather than long-term and without already designated funds. The leadership of this grand development scheme will need great wisdom to bridge the gap.

Second, in euro-zone nations, due to workers’ low wages in the “have-not” nations, talent and indigenous finance tend to flow naturally toward the “haves”, causing a downward spiral for the others, making them even poorer. A similar situation may occur in the Greater Bay Area, where talent in cities outside Guangzhou, Hong Kong and Macau could flow towards those three. This could force such cities to institute favourable policies to retain indigenous talent, which could widen the gap between rich and poor in those cities, resulting in social instability.

The Greater Bay Area could also affect the surrounding regions. Developing the bay area could have a beneficial effect on surrounding, less-developed areas. However, an undesirable “echo effect” may occur; that is, production in those areas could flow back into the Greater Bay Area because of the emphasis on its development, causing the surrounding regions to suffer a loss of resources and production.

Finally, to become a truly successful world-class technological region, there must be a safety net for failure.

Across the world, whether in science, technology or entrepreneurship, failure is the norm and success the exception. If a region allows innovators to fail without a safety net to allow them to rebound, it will not only destroy innovation but also the innovative spirit. This safety net could be in the form of the protection of company dissolution, bank arrears as well as tax burdens. In the United States, San Diego is a successful biotech innovation centre, and one reason for its success is its robust safety net.

It is also important to underscore that the Greater Bay Area will not be the sole new innovation centre in China. Without a safety net, those who want to and are able to rebound may be attracted to other centres. It must be remembered that failure is not forever. After all, innovators who are willing to try again probably have enough energy, creativity and wisdom to succeed in the future.

It is our earnest hope that the Greater Bay Area development plan will address some or all of the challenges mentioned here.

We firmly believe that the designers have the wisdom, experience and vision to create a successful Greater Bay Area with Chinese characteristics, and propel it into the ranks of world-class bay areas internationally.

Feng Da Hsuan is senior adviser of the China Silk Road iValley Research Institute. Liang Hai Ming is chairman and chief economist of the institute


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How China is leading the ‘new retail’ revolution

CommentInsight & Opinion

Edward Tse and Jackie Wang say market moves by Chinese firms like Alibaba, Tencent and show how key players are experimenting with various forms of tech-driven ‘new retail’ in the O2O world, making the industry more dynamic than ever

While the past two years may have been brutal for brick-and-mortar stores worldwide, China’s online and offline retailers have witnessed a “new retail” revolution, driving an increasingly stronger national consumption.

Since China launched economic reforms in 1978, the country’s retail industry has undergone multiple stages of development.

With foreign retailers flooding in after China joined the World Trade Organisation in 2001, the scene was diversified. Offline retail started to be challenged by Taobao, Alibaba’s online shopping platform, which was founded in 2003 and grew ­exponentially in the following decade. The transaction amount for Alibaba’s “Singles’ Day” 24-hour online sales each November 11 has grown from 50 million yuan (HK$59 million) in 2009 to 168 billion yuan this year.

With e-commerce booming, businesses have been adopting an “online to offline” (O2O) model, using online channels to attract offline traffic. In the past few years, this phenomenon has evolved into the notion of “new retail”.

New retail represents a trend of online merging seamlessly with offline, resulting from the prevalence of digital technology, like mobile payment, wireless internet, sensors and artificial intelligence (AI).

In this model, online is no longer just a sales channel, but provides ubiquitous touchpoints to interact with consumers and their social groups. By contrast, offline retailers are trying hard to keep consumers in their brick-and-mortar stores for longer, offering better customer experiences by leveraging digital technologies.

From sales and marketing to ­logistics and inventory management, the new retail revolution is transforming the industry. For example, Amazon Go, the pioneer in new retail in the US, tracks purchasing behaviour with sensors placed on supermarket shelves. After consumers choose their products, they can just walk out of the store, with the amount payable automatically deducted from their mobile payment account.

Some aspects of the retail operation are also becoming less human-led. In China, logistics firm Cainiao is incorporating hi-tech-enabled hardware and software to improve efficiency. In its logistics park, ­Cainiao deploys drones to monitor the security of the venue. Within the warehouse, several robots called “Geek+” work with staff to sort packages. It also uses computer vision to identify, monitor and ­arrange different orders.

Improved logistics efficiency is contributing to the consumer experience as well. Consumers will not only receive their packages faster, but also with fewer errors and get fresher goods.

Whereas in America, Amazon is at the forefront of the new retail revolution, China’s speed and intensity have gone into orbit. Players big and small are experimenting with various forms of new retail, making the industry more dynamic than ever.

Driven by the huge market ­opportunities and abundant venture capital, start-ups in China are actively participating in this revolution. For example, Xingbianli, a convenience store and vending machine start-up, offers many popular Korean and Japanese products that could mostly only be bought via daigou (individuals who shop overseas and resell to Chinese consumers). More importantly, it is testing the area of unmanned retail.

Products have their own bar code, which can be scanned by consumers when they choose their shopping and then check out on the Xingbianli app. There is also a mini-library and a ­café within the convenience store, aimed at making consumers linger.

Traditional local retailers are also incubating their own new retail formats, such as Super Species, a subsidiary of China’s largest supermarket chain, Yonghui Superstores.

Super Species specialises in selling fresh produce, such as vegetables and seafood, and combines the traditional market with restaurants, ­cafés, florists, and so on. It has also introduced a Yonghui Partnership Plan, allowing staff to present more innovative retail ideas and pilot them within the stores. Super Species itself is becoming an incubator for those innovative ideas, and new retail here is no longer just about changing the store format, but also the mindsets of all staff.

Tech giants like Alibaba, Tencent and are heavily investing and competing head to head in the offline battleground. Alibaba ­invested US$2.9 billion in one of China’s largest supermarket chains, Sun Art Retail Group, in November. It aims to transform Sun Art’s offline business of over 400 ­Auchan and RT-Mart branded ­hypermarkets and provides technology to enhance customer data and inventory management.

In 2015, invested US$700 million in Yonghui Superstores. This month, Tencent, a close ally of, acquired a 5 per cent share in Super Species, and made capital injection for a 15 per cent stake in Yonghui Yunchuang Technology, Yonghui’s supply chain and logistics subsidiary.

To further compete with Alibaba online and enrich their own ecosystems, Tencent and are ­investing in, a Chinese e-commerce platform specialising in discounted products for women.

They will together own 12.5 per cent of and, as they further monetise their traffic, the new retail battle with Alibaba will ­get fiercer.

Foreign companies are also ­actively piloting their new retail strategy in China. Earlier this month, the world’s largest Starbucks ­Reserve Roastery opened in Shanghai, leveraging Alibaba’s technology to give consumers a more immersed Starbucks journey.

This is also the first mass offline application of augmented reality (AR) technology. Consumers can use the Taobao app to unlock the AR features in the store, such as learning about the details of the Starbucks coffee brewing process.

Technologies are enabling these companies to create new business approaches, while intense competition is driving all players to ­become better. They can’t afford to slow down. China’s scale also allows companies to use the market as a business laboratory and to experiment with business models.

Through fast launch and adaptation, players can fine-tune their business model at a rapid pace.

Beyond retail, the future consumption landscape will be much more complicated and sophisticated. Digital technologies, especially AI, 5G network and the internet of things, are already blurring the boundaries of industries.

Eventually, retail will be merely one layer of the consumer lifestyle, albeit a high-frequency one. The internet of things will create a new ecosystem that is ubiquitous and interconnected. Also, 5G network development will facilitate this process in the near future and bring about disruption in the retail world.

Assisted by machine learning and big data, consumers will ­increasingly be viewed as a “segment of one” and receive more personalised solutions, not just in ­retail, but in every facet of their life.

To that end, China will be at the global forefront of innovation and experimentation.

Edward Tse is founder & CEO of Gao Feng Advisory Company, a global strategy and management consulting firm with roots in Greater China. Jackie Wang is a senior consultant of the firm

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Artificial intelligence will change the job market and Hong Kong isn’t ready

CommentInsight & Opinion
Janet Pau writes that Hong Kong is behind its Asian neighbours in how well it is preparing for artificial intelligence, as well as how flexibly its job market will respond to automation

In a crowded competitive field for artificial intelligence around Asia, Hong Kong is lagging behind other major economies.

AI technologies using machines increasingly able to perform human tasks more quickly and accurately, generating results or insights when given access to large amounts of data, can make manufacturing and services more efficient and make people’s lives more convenient. AI can help Hong Kong diversify its economy and provide opportunities for the city’s young educated people to develop innovative ideas, gain employment and build wealth.

But Hong Kong fares poorly in the Asia Business Council’s Asian Index of Artificial Intelligence, which uses 11 data indicators to analyse eight Asian economies’ preparedness for and resilience to an AI-led future. China topped the overall ranking with a big lead. Singapore and India followed. Japan, Taiwan and South Korea ranked in the middle, with Hong Kong ahead of only Indonesia.

An economy’s AI preparedness is reflected in the ability of companies and talent to capitalise on opportunities brought about by AI. The weak link between research and industry is shown in Hong Kong’s low overall start-up activity and AI start-up equity funding. China leads other Asian economies in total equity funding for start-ups focused on AI, according to the online database Crunchbase.

A relatively small share of students in Hong Kong’s top universities study science, technology, engineering and maths. Such students are needed to form a pipeline of future tech workers and entrepreneurs. A larger share of students choose STEM subjects in top Chinese universities, and the Chinese comprise an outsized share of international students in the United States earning advanced degrees in these subjects.

Hong Kong’s strength is in the quality of its AI publications, with higher education institutions making significant contributions to AI research based on the amount of citable documents about AI in Scopus, the world’s largest database of peer-reviewed scientific publications. China has more citable documents, but Hong Kong has far higher citation impact, an oft-used measure of publication quality.

AI resilience is economies’ ability to adapt to and withstand broader structural changes brought about by AI. Hong Kong’s secretary for innovation and technology announced plans this year to offer financial and tax incentives to attract technology enterprises, especially those specialising in big data, internet of things and AI, though details remain sparse. Current policies are much less proactive than in Singapore, Japan and mainland China.

Hong Kong’s employment structure is dominated by sectors such as retail, food service, logistics, finance and insurance, with job types ripe for disruption by AI. AI can in several seconds interpret commercial loan agreements that take lawyers and loan officers more than 300,000 hours of work each year. This technology is a threat to jobs traditionally considered high-skill.

Acting on several key priorities can help. Workers must be trained to work alongside machines, ideally by businesses needing such skills. Thoughtful economic and social policies can encourage AI design to be beneficial to humans and ease the transition for workers whose jobs may be eliminated by AI. Education and vocational training institutes need to prepare those at different skill levels to perform work functions computers cannot do, solve unpredictable problems and learn to understand and interpret more complex data. Education reform in Hong Kong is also urgent, starting with equipping teachers and developing relevant curricula to provide future generations with the complex skills and flexible thinking required in the 21st-century economy.

Finally, Hong Kong lacks large companies investing in developing AI, which means it needs a better ecosystem of funding and partnerships with larger markets like China or the Association of Southeast Asian Nations to increase opportunities for homegrown and overseas AI talent. Doing so would better position Hong Kong to tap into this new source of growth, productivity and prosperity.

Janet Pau is programme director of the Asia Business Council


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Hong Kong needs to throw more caution to the wind when it comes to backing start-ups

The biggest problem is an acute shortage of angel investors and seed money available, even before any venture capital money becomes involved – we need to take unconventional risks to succeed

The Hong Kong government is trying to transform the economy from its traditional to a new innovative economy, but doesn’t realise that creative failure rather than cautious success will lead the way.

Last week, Hong Kong launched its HK$2 billion (US$256 million) Innovation and Technology Venture Fund (IVTF) to encourage investment in local innovation and technology start-ups in an effort to improve economic activity.

The government is inviting venture capital funds to apply to become co-investment partners of the new fund, said Nicholas Yang Wei-hsiung, the Secretary for Innovation and Technology. The government will only make investments alongside VC funds.

The government is risk averse even though it needs to take more risks to build Hong Kong’s new economy. It does not want to directly and autonomously choose which investments to make because historically, civil servants do not want to take responsibility for losses.

Yet successful venture-capital investing requires the ability to accept and learn from losses. So the IVTF is depending on venture capitalists to do the due diligence and cover the bureaucrats’ collective reputations.

Matching funds are the easy way out for the government because this assumes that venture capitalists in Hong Kong are actually effectively serving the unique needs and problems of the city’s start-up ecosystem. Instead, the government needs to take on the most difficult part of kick-starting a new economy – tech or otherwise.

The biggest problem in funding start-ups in Hong Kong is that there is an acute shortage of angel investors and seed money available before venture money.

VCs prefer to invest minimum amounts of about US$3 million and more. Then, there is so much private equity available globally that private companies like Uber can be valued at US$60 billion and still be funded by private money. VC has grown so big that you can’t tell the difference from private equity.

And that tends to crowd out investment at the smaller, seed levels. As high net worth investors would prefer to make bigger investments in bigger, non-listed companies.

But, the problem in Hong Kong’s funding channel is that many start-ups are looking for less than a million US dollars, more like US$500,000 to roll out their product after a few years of development, or angel money of US$100,000 to begin a business.

Start-ups can attract investments of US$3 million and up if they demonstrate revenue or profits, or have completed a desirable technology. But Hong Kong’s relatively new world of new-economy start-ups require more support at an earlier stage. And only the government has the resources.

Hong Kong entrepreneurs have less experience in developing start-ups and even fewer have the initial capital. Even the GoGoVan founders had to desperately scrape together HK$20,000 each seven years ago. Lack of capital and experience are major problems in Hong Kong.

Incubators in Hong Kong tend to rent or give out shared office space; some may render business advice, but few are capable of actually funding start-ups.

Start-ups and their founders also tend to require lots of attention from their investors. Business plans rarely go according to plan. And turnaround strategies rarely turn around, since so much guidance and intervention is required.

The start-up game requires a tolerance of low-level failure. Using a VC expression, this means it is important to “fail early and fail often”.

The success rate is low for start-ups. And most people should be working for someone as employees rather than running their own business. It takes tremendous self-confidence and determination to launch a business. Historically, it has been much easier to flip property.

Local Hong Kong investors tend to ask start-ups the wrong questions. They ask, “How does it make money?” The right question is “ What problem does this solve?” There’s a big difference in mentality and mission.

It is difficult to raise VC money in Hong Kong. Many of them are interested in businesses that can scale outside Hong Kong, into mainland China and internationally. They are looking to turn a 10-million dollar company into a billion-dollar company in a few years. Mainland China is the only place in Asia where this can happen quickly.

I detect a natural prejudice against Hong Kong Chinese-founded start-ups. Most VCs think Hong Kong Chinese cannot operate successfully in China and are treated like foreigners in China as they need to take on a mainland joint venture partner.

This is especially risky in terms of divergent management attitudes or outright intellectual property theft or misappropriation.

The entire government and local financial community needs to take on more risk if it wants to transform the Hong Kong economy away from property development and traditional industries.

Hong Kong’s financial industry professionals are still divided over how they can remake the city’s stock exchange. Many of the conservative, traditional stockbrokers think the proposed start-up board is too risky in terms of regulation.

But we will need to take unconventional risks to succeed.


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Hong Kong must focus on innovation and science to maintain its edge over economic rivals

South China Morning Post
CommentInsight & Opinion

Ken Chu says its core values and a free, open market still set Hong Kong’s economy apart despite some challenges, but continued success in the digital age will depend on its ability to innovate and upgrade

Hong Kong has been named the world’s most competitive economy by the IMD Business School in Switzerland for the second straight year. The title is indicative of our strong fundamentals due to our core values and, together with “one country, two systems”, this sets Hong Kong apart from its rivals.

Therefore, we must safeguard and uphold our core values for continued economic success.

Given its small economy and market size, Hong Kong does not enjoy the economies of scale like mainland China. Relatively high wages mean Hong Kong does not have the advantage of competing on cost.

But, as Financial Secretary Paul Chan Mo-po noted shortly after the IMD rankings were announced, we do have a solid legal framework and rule of law that international investors feel comfortable with, an efficient administrative system, and sound banking, financial and transport infrastructure. Above all, we have an open and free market.

We must strive to maintain the cosmopolitan nature and openness of our market for Hong Kong to play the role of a super connector, for the mainland as well as the world at large. Only then will Hong Kong be able to maintain its long-term competitiveness. Competitiveness could mean high productivity, the capacity to produce more units with a given set of raw materials than rivals; it could mean efficiency, or producing at the lowest cost; it could also mean having what competitors do not.

Management guru Peter Drucker believes that, in the 21st century, knowledge-worker productivity is the real competitive advantage. That seems logical, in view of the new economy sweeping the globe. Economies everywhere need more knowledge-based workers, such as programmers, system analysts, animation artists, product designers, and so on. The more productive they are, the more competitive the new digital age economy is. If we agree, we should train workers with high technical expertise, and scientific and technological knowledge.

Harvard professor Michael Porter says competitiveness hinges on the capacity of industry to innovate and upgrade. This could be another way to maintain our competitiveness. However, we seem to have problems in innovation and science.

Hong Kong continues to slip down the Global Innovation Index rankings. Moreover, the Programme for International Student Assessment (Pisa), says Hong Kong’s performance has dropped significantly in science. Our STEM (science, technology, engineering and maths) curriculum must be strengthened to make future generations tech-savvy, or Hong Kong will lose out.

Fortunately, we still have a distinct edge over competitors – our strategic location. Being next to innovation hub Shenzhen and within the Guangdong-Hong Kong-Macau Greater Bay Area lets us tap a rich pool of technological talents and innovation resources.

Setting up a tech park at the Lok Ma Chau Loop and boosting financial aid to innovation start-ups represent the right way to spur technological advances.

Yet, there are challenges that undermine our competitiveness – high living costs, exorbitant rents, escalating labour costs, damage to our natural landscape and a widening wealth gap, highlighted by the latest Gini coefficient index.

After all, a city needs not only “hardware”, such as infrastructure, financial systems and innovation parks, to boost its competitiveness, but also people to drive economic growth and energise innovation. If talented people find it isn’t worth working and living in the city, they will eventually abandon it.

Dr Ken Chu is group chairman and CEO of the Mission Hills Group and a National Committee member of the Chinese People’s Political Consultative Conference