October 2010

Quarterly Issue No: 4/2010


This Newsletter is distributed quarterly, free-of-charge, to clients of International Business Center (IBC), and to other parties that have requested it. It is essentially newsworthy items regarding trade in Hong Kong and China, as well as IBC specific news.


News from IBC
China's Urban Turning Point?
Chinese Currency Not Cause of US Economic Woes: Economist
Cruising Ahead
Shanghai Port's Container Throughput Ranks World's 1st
The Starbucks Experience



Hong Kong Holidays

Public holidays this quarter are:

01 OctoberNational Day
16 OctoberChung Yeung Festival
25 DecemberChristmas Day
27 DecemberThe first weekday after Christmas Day

IBC Announcement

  • IBC and our associated charity company - “Smiling Rainbow” will sponsor and participate in a two-day carnival called “Rehab Power Grow Go Goal” organized by “Hong Kong Rehabilitation Power” (27th - 28th November 2010). This carnival will provide fun games, variety shows and camp sites at the Victoria Park in Causeway Bay for the disabled and the general public.
  • IBC Certified Public Accountants Limited will join the World SME Expo at Hong Kong Convention and Exhibition Centre. Please pay us a visit to our booth between 2nd and 4th December, 2010.
  • IBC Capital Limited’s website – www.ibccapital.com is in the process of renovation. It will be up on the Internet with a brand new face during October, 2010.
  • As usual, Teresa will have various business trips in the coming quarter.


Trade shows in Hong Kong in 4th quarter 2010

- Global Sources Electronics & Components12 - 15 Oct, 2010
- Global Sources Security Products12 - 15 Oct, 2010
- HKTDC Hong Kong Electronics Fair13 - 16 Oct, 2010
- Electronic Asia13 - 16 Oct, 2010
- Global Sources Home Products20 - 23 Oct, 2010
- Global Sources Baby & Children’s Products20 - 23 Oct, 2010
- Global Sources Gifts & Premiums20 - 23 Oct, 2010
- HKTDC Hong Kong Internationa Lighting Fair27 - 30 Oct, 2010
- Sports Source Asia27 - 29 Oct, 2010
- HKTDC Hong Kong International Building and Decoration Materials & Hardware Fair27 - 30 Oct, 2010
- Global Sources Underwear & Swimwear27 - 30 Oct, 2010
- Global Sources Garments & Textile27 - 30 Oct, 2010
- HKTDC Hong Kong International Medical Devices & Supplies Fair3 - 5 Nov, 2010
- HKTDC Hong Kong Optical Fair 3 - 5 Nov, 2010
- Eco Expo Asia – International Trade Fair on Environmental Protection3 - 6 Nov, 2010
- HKTDC Hong Kong International Wine & Spirits Fair4 - 6 Nov, 2010
- HKTDC World SME Expo 2 - 4 Dec, 2010
- HKTDC Inno Design Tech Expo2 - 4 Dec, 2010


China's Urban Turning Point?

Has the Chinese mainland’s “demographic dividend” come to an end? The 1954 theory proposed by Nobel Prize-winning economist Arthur Lewis would suggest to some that it has. His “Turning Point” theory holds that industrial wages in developing countries such as the mainland begin to rise quickly at the point when the supply of surplus labour from the countryside tapers off.

There is, as yet, no consensus on this issue, with one mainland economist, Fan Gang, believing it has not. But aggregate supply aside, the flow of labour on the mainland has seen radical changes.

As economic development gathers speed in inland provinces, more jobs have become available locally, thanks to industrialisation and urbanisation. The attractiveness of the coastal regions, notably the Pearl River Delta (PRD), has faded by comparison

Labour issues are certainly among the biggest challenges for Hong Kong companies operating in the PRD. Wages have a direct bearing on production costs. Labour supply is also tied to a host of other issues with more far-reaching implications. These include human resources management and a company’s decision on where to locate production facilities. Many mainland factory operators are bracing themselves for further wage hikes.


Chinese mainland urbanisation has created employment in the non-manufacturing sectors, especially services (photo: EPN)

The demographic profile of Chinese workers today also presents greater challenges to human resources managers. Currently, the post-1980s and post-1990s generations make up more than 60 per cent of rural migrant workers on the mainland. Their expectations are very different from those of earlier generations.

They’re less likely to be single-minded fortune seekers, placing greater emphasis instead on emotional and spiritual needs. This invariably adds to the daily challenge of factory managers.But factory operators are understandably more concerned about the availability of workers than their manageability. Neither is easy to predict.

In the longer term, the movement of rural migrant workers is affected by a host of factors, including the degree of economic development in different regions and changes in workers’ attitudes.

While the mainland’s coastal regions have attracted the largest number of rural migrant workers over the years, the central and western regions have picked up a larger share more recently. Various studies have found that more and more rural folk today prefer to work closer to home.

Jobs at Home

A survey of rural migrant workers from Nanchong, Sichuan, reveals that the share of the central and western regions increased by three percentage points in 2009. Another study conducted in Shenzhen also shows that the share of rural migrant workers from provinces such as Sichuan and Hunan has dropped, while that of Guangdong workers rose significantly in 2009.

The overall conclusion is that rural migrant workers nowadays prefer to stay in their own province and work closer to home. According to the National Bureau of Statistics, the number of rural migrant workers stood at 230 million in 2009, of which 84 million worked locally and 150 million worked outside their home towns.


Recent economic growth and urbanisation in the mainland’s central and western regions have created more job opportunities for the rural population (photo: EPN)

The number of rural migrant workers making a living outside their home towns rose by 4.9 million, compared to 2008 totals. While the number has increased, the destinations of these workers to places of employment were quite different. In 2009, the number of rural migrant workers in the eastern region dropped by 8.9 per cent, while the central and western regions saw increases of 33.2 per cent and 35.8 per cent respectively.

Further, the number of rural migrant workers employed in their own provinces increased by 8.2 per cent, while those who worked in other provinces fell by 0.6 per cent. In general, rural migrant workers chose to work as near to their own provincial roots as possible.

A relatively large proportion of rural migrant workers from the central and western regions still works in other provinces, but the share of those staying in their own provinces has also increased noticeably.

Drivers of Change

The contraction of the mainland’s exports in 2009 may have affected the flow of rural migrant workers to the eastern coastal region. Yet, that doesn’t fully explain the shift. Rather, economic growth and urbanisation in the central and western regions in recent years have created more local job opportunities for the rural population.

The gap between coastal and inland incomes has narrowed considerably. In fact, in provinces that are the major sources of rural migrant workers, both economic growth and industrial output have surpassed those of the coastal regions over the past three years.

Urbanisation is closely related to economic development and industrialisation. Industrialisation fuels rapid urbanisation which, in turn, contributes to higher efficiency, economic growth and rising income levels.

As shown by official statistics, economic growth has gone hand-in-hand with urbanisation in the central and western regions over the past few years. And both have advanced at an accelerating rate.


Factories in the PRD can no longer rely on hiring more workers to expand production much less sustain existing capacity (photo: EPN)

The average income level has also been rising more rapidly as a result. For instance, the average monthly wage of rural migrant workers in the western region rose by 8.5 per cent in 2009, compared to 5.2 per cent in the eastern region.

In Hunan Province, rural residents working locally enjoyed a 16 per cent rise in incomes in 2009, 5.5 percentage points higher than their peers working elsewhere. These trends give a more complete picture of the mainland’s shifting labour movement pattern.

Urban Aspirations

Over the past 30 years to 2008, mainland cities increased by 462 to 655. But among the “new cities,” 286 have populations of less than 500,000. Accordingly, China’s urbanisation strategy is focused on small- and medium-sized cities and towns.

In deepening reform of the household registration system (hukou), the government’s approach is to relax eligibility criteria for residence in these smaller cities and towns.

The smaller cities are expected to drive the mainland’s pace of urbanisation and are likely relocation targets for rural migrant workers. The proportion of these migrant workers in large- and medium-sized cities at prefecture level or above dropped by 0.3 percentage points in 2009 from a year earlier.

As a result, urbanisation has brought about more job opportunities in the non-manufacturing sectors, especially services. The new generation of rural migrant workers is attracted to jobs that offer a more favourable working environment.

The new generation aspires to modern lifestyles and upward mobility. For these reasons, the relaxation of household registration requirements in cities and towns will become a major attraction to rural migrant workers, who want the same medical and education benefits as urban residents.

Based on various surveys conducted with new-generation rural migrant workers, some 89 per cent no longer do any agricultural work. Nearly 80 per cent are single and many are expected to raise families in the next few years. About 56 per cent have plans to work, buy a flat and live in the city.

Although these new workers generally aspire to live in coastal cities, many will more likely settle for the inland regions, especially the smaller cities. That longer-term perception is due to various factors, including the household registration policy, but also prospective income growth and cost of living. Property prices, which generally far exceed the affordability levels of these workers, are also major hurdles when it comes to relocating to the mainland’s east coast.

In short, factories in the PRD can no longer rely on hiring more workers to expand production or even sustain existing capacity. To tackle the labour shortage problem in the coastal regions, factory operators will have to consider other options, such as adjusting overall production planning and increasing their level of mechanisation. This, if anything, is the true “turning point” that Hong Kong manufacturers face.

©  Hong Kong Trade Development Council  d


Chinese Currency Not Cause of US Economic Woes: Economist

BEIJING - Structural problems with the United States rather than China's currency were responsible for the current difficulties facing the world's largest economy, an economist said on Monday.

"The current anti-China moves in the US Congress are purely a publicity attempt to distract attention from the real problems facing the US economy," John Ross, a visiting professor at Antai College of Economics and Management, Shanghai Jiaotong University, told Xinhua.

Ross' words come one week after 93 US lawmakers signed a letter urging Democratic leaders in the House of Representatives to schedule a vote on a bill to get tougher with China.

The bill would allow the US Commerce Department to slap countervailing and anti-dumping duties on "injurious imports from any country that persistently undervalues its currency."

Ross, former director of economic and business policy for mayor of London Ken Livingstone from 2000 to 2008, said the Chinese currency was not the root cause of the United States' trade deficit with China.

Many economists attribute the difficulties facing the US economy in the form of high unemployment and staggering fiscal deficit to the structural problems that the present administration has not been able to address.

"The problem in the US economy is that its savings level is so low that it cannot even finance its own investment," said Ross.

During the last two years, capital consumption in the United States exceeded savings in the country, which meant that the world's largest economy was not actually creating any capital at all, he said.

"This has not been seen in America since 1929-1932 at the beginning of the Great Depression."

Even with a stronger Chinese currency, "no extra jobs would be created in the US, and US consumers would simply have to pay higher prices," he said.

"America does not competitively produce the great majority of the goods which China exports, so even if Chinese products were kept out of America, they would be replaced by imports from other low cost producers."

The only way for the US economy to recover was to sharply increase its own savings level so that it could finance its own investment and not rely on inflows of capital from abroad, he said.

Many analysts have said that increasing the Chinese currency's exchange rate would not reduce China's trade surplus.

"Indeed, the reverse would occur. This was already seen in the 2005-2008 period when the renminbi's exchange rate went up by over 20 percent and China's trade surplus increased," said Ross.

China's trade surplus with the United States mainly stemmed from the international division of labor and the specific development stage of China's economy, he said.

Ross said that "what leads to China's trade surplus falling is rapid expansion of China's economy, as was seen in the first eight months this year."

Official trade data showed that China's trade surplus continued to narrow in August, which totaled $20.03 billion in August compared with July's $28.73 billion, on stronger domestic demand.

"If a US Congressman really wanted to improve the US trade balance with China, they would be urging China to expand its economy rapidly."

In addition, there is another role for the United States to play.

"The US should end the restrictions on exports of various types of goods to China so that US exports could rise even more rapidly," said Ross.

Sources: China Daily


Cruising Ahead

Hong Kong is entering a new chapter in its travel and leisure industry with the opening, in a few years’ time, of a US$100 million cruise terminal at the former Kai Tak Airport.

Authorities expect the new terminal to attract more vessels to call. “We estimate that the economic benefits brought by the cruise industry will range from HK$1.5 billion to HK$2.6 billion per annum, and the additional jobs generated will be around 5,300 to 8,900 by 2023,” said Hong Kong Assistant Tourism Commissioner Clement Lau, who noted that the construction project itself will create about 3,800 jobs.

The terminal building and the first berth, which will be able to accommodate the world’s largest cruise vessel, will be commissioned around mid-2013. The second berth will start operation in 2014 for berthing medium-sized cruise vessels, and will be upgraded to berth mega-cruise vessels in 2015.


Hong Kong’s new cruise terminal is scheduled to start operation in mid-2013

Industry Boost

“The new Kai Tak Terminal will alleviate the issue of using passenger tenders out to the middle of Victoria Harbour to join the big arrivals or transfers to the less-than-scenic container terminal at Kwai Chung – not the best way to show off this fantastic city,” said Sue Davis, Manager of Concorde Cruising. “With easier and quicker check-in facilities, this will surely lead to Asia’s World City being number-one on the list of cruise ports to visit.”

Concorde Cruising is one of several businesses that recently opened in Hong Kong to tap into the growing sector. “The cruise industry in Asia is still young, and although there are some seasoned cruisers, the majority of people aren’t aware of the choice on offer,” she said. “I believe there’s a huge number of potential cruisers out there, but they just don’t know where to start.”

The options, she said, are endless: from three nights on a rice barge cruising down the Chao Phraya river in Thailand; or 15 nights cruising the wilderness of Spitsbergen searching for Polar Bears onboard a Russian Ice breaker; to a full world-cruise in excess of 100 nights, onboard a five-star luxury ship.


Major transatlantic liners such as the Queen Mary 2 will soon be making port calls at the new Hong Kong cruise terminal

“We realise that so much choice can often be daunting, especially for the first-time cruiser, but with our expertise, we will help the client find the cruise that suits them. As we are not beholden to any particular cruise line, the clients will always receive unbiased suggestions,” Ms Davis said.

So far, the number of cruise-ship passengers to Hong Kong is relatively small in proportion to the total tourist numbers. Last year, cruise visitors, excluding Hong Kong residents, numbered about 600,000. For the first quarter of this year, there were 210,000 passengers, a year-on-year increase of 11 per cent.

Porthole of Opportunity

Australian online cruise travel agency, ecruising, opened a regional headquarters in Hong Kong two years ago to tap into the growing trend.

“When we looked at expansion beyond Australia, Hong Kong stood out as having the greatest potential for our new regional headquarters,” said Brett Dudley, ecruising Asia Pacific founder and General Manager.

“Cruising from Hong Kong is currently seen as a volume business for the low-end of the market for short trips,” said Jackie Harris, founder of Charlotte Travel, which also offers cruise bookings. “The luxury cruise segment is undersold and suffers from being a travel product that starts in far-away destinations in Europe or the Caribbean, which require long-haul flights to reach.”

Charlotte Travel advises on the better cruise lines; in part from personal experiences and also from client references. Ms Harris said there are some interesting cruise destinations around Asia for the higher end of the market, including Vietnam and Indonesia, as well as river cruises, for example, on the Mekong and the Ganges rivers.

“These are generally high quality, low-volume products that are undersold in Hong Kong, and which we have found to be welcomed by our clientele, as they offer interesting cultural experiences on top of the wining and dining that is normally associated with cruises.”

Full Speed Ahead 

Hong Kong has always been a popular destination for cruises, but Ms Harris said being able to start a trip from Hong Kong will add a new dimension to the luxury outbound travel business. “I am very optimistic that the new terminal will generate opportunities for us, provided the right cruise products are offered and they are properly packaged and marketed.” 

“With all of the talk surrounding the long-awaited new cruise terminal in Hong Kong, there has most definitely been an increase in interest in the idea of a cruising holiday,” said Graham Elsom, Managing Director of Concorde Travel, which set up Concorde Cruising. “Cruises come in many different ways and in infinite varieties. It is essential that one receive sound advice when considering a cruise, because there are great differences between the cruise ships themselves and the itineraries on offer. Different cruise ships cater for different types of people.” 


An artist’s impression of the Kai Tak cruise terminal project

Charting a New Course 

The majority of passengers taking cruise holidays from Hong Kong currently comes from the Chinese mainland, prompting the Hong Kong Tourism Board to work with mainland bodies to develop the industry. The China National Tourism Administration and the Hong Kong Tourism Board recently co-hosted the first “2010 Mainland – Hong Kong Cruise Tourism” seminar to strengthen exchanges between Hong Kong tourism and cruise professionals and their mainland counterparts. 

The two-day seminar in the southern mainland city of Guangzhou saw representatives from overseas cruise companies, including Costa Cruises, Royal Caribbean International and Star Cruises, sharing insights in the development of the global cruise industry. 

Two years ago, the Tourism Commission set up the Advisory Committee on Cruise Industry (ACCI), which is made up of representatives from top international cruise lines, including Italian companies, Costa Crociere and MSC Cruises Asia, together with Star Cruises and Royal Caribbean International and Celebrity Cruises, as well as representatives of major Hong Kong travel agencies. A representative from the Disney Cruise Line was more recently appointed to the committee. 

The ACCI is now studying berthing arrangements at the new terminal before it becomes operational; ways to foster cooperation with neighbouring mainland coastal provinces to develop cruise itineraries; as well as training opportunities in the industry.

“We will work closely with the industry and neighbouring ports to facilitate cruise itinerary development, promote cruise tourism in Hong Kong and the Asia-Pacific region, and to ensure a good supply of talent for the cruise market and related industries,” Mr Lau said.

©  Hong Kong Trade Development Council  h


Shanghai Port's Container Throughput Ranks World's 1st

Due to the strong recovery of China's imports and exports, the Port of Shanghai's total container throughput in the first eight months of 2010 stood at more than 19 million standard containers, making it the largest container port in the world.

According to statistics, the Port of Shanghai's container throughput stood at more than 2.6 million standard containers in August 2010, up nearly 21 percent compared to the same period last year, and setting a new monthly record. As the two core ports of the Shanghai International Shipping Center are under construction, the throughput of the Yangshan Deepwater Port and the Waiguoqiao Port also kept increasing.

In August, the Yangshan Port Area's total throughput amounted to 960,800 standard containers, up almost 37 percent compared to the same period last year, including an underwater throughput of 380,400 standard containers, up nearly 9 percent from the previous year. The Waigaoqiao Port Area completed a throughput of more than 1.3 million standard containers, up more than 14 percent compared to the same period of the previous year.

Benefiting from the high-speed growth in August, the port's total throughput has exceeded that of Singapore (19.01 million standard containers), and has taken first place in world for the first time.

The number of the ships and people entering and exiting China in the two ports of Shanghai both reached their highest levels. According to statistics of the Yangshan Frontier Inspection Station, the Yangshan Deepwater Port received and sent 805 ships in August, up nearly 11 percent compared to that of July, and received and sent 18,001 people, up nearly 18 percent compared to that of July.

Sources: China Daily


The Starbucks Experience

Dr Joseph Michelli is best known for his book, The Starbucks Experience: 5 Principles for Turning Ordinary into Extraordinary. In his book, Dr Michelli analyses how the Seattle neighbourhood coffee house sparked a “retail revolution” and, in the process, rewrote many conventional rules of management. In his first speaking engagement in Hong Kong, last week, Dr Michelli shared some of the lessons business can learn from the global brand.


Dr. Joseph Michelli

Why did you choose Starbucks as the subject of your customer service-focused book?

Customers were willing to pay a premium for coffee at Starbucks based largely on the way service is staged and executed inside a Starbucks store. That staging and service delivery, which I refer to as The Starbucks Experience, has led the brand well beyond its initial expansion goals of making it to Portland, Oregon, a two-hour drive from Starbucks’ original location in Seattle, Washington, to launch in more than 50 countries.

Your message centres on the need for businesses to connect on a personal level. That seems obvious to the man on the street. Why aren't companies paying enough attention to this?

Most business leaders have been trained in the essentials of a product-centric strategy. In essence, they understand the importance of contract negotiations, logistics, supply-chain management, aggressive pricing and winning business at the margins of profit. As products have evolved and have become more similar and more global, leaders in brands that excel understand how service and, more importantly, the emotional connections that are forged through service, provide an essential brand differentiator. Many business leaders understand this, but some are entrenched in product-centric strategies that were better suited for a prior generation of consumers.

Your new book will talk about what has happened to Starbucks since your initial book came out. How did Starbucks lose its way? And do you think the company is back on track?

I believe Howard Schultz, the CEO of Starbucks, is best suited to tell that story of repositioning the brand, and his book on that issue will be made available early next year. I have a collaboration agreement to take an outsider’s view, and release a book in 2012, examining the troubles and revitalisation process Starbucks has engaged. From my vantage point, and I know it is a view shared by Howard Schultz, Starbucks became misguided and strayed from the course that led to its initial success. A coffee house must be an intimate and personal setting, which is rich with charm, home-like ambiance and enlivened, in part, by the aroma of coffee. Many decisions Starbucks leadership made during their most rapid expansion stages worked against those customer-experience elements and, in fact, emphasised the short-term stockholder experience in a way that led to the gradual degradation of key in-store experience elements.

During the days when Starbucks leadership was making seemingly benign decisions that were compromising the customer experience, their store growth was so rapid that selection and training in the desired experience for customers was less than optimal. Subsequently, Starbucks leadership closed all operating units for a short period of time to simply retrain all staff on what was necessary to deliver “the Starbucks Experience.” Many other concrete business decisions have been made to return the business focus to coffee, and to creating the “living room of the community.”

Are there other high-profile companies that have been good at personalising customer service? What about SMEs? Are they doing enough in this area?

Many companies in the luxury area are excellent at personalised service; some luxury brands, however, are about upscale products and do not personalise the delivery of service around those products. A legendary luxury-service provider is the Ritz-Carlton Hotel Company. I wrote about it in my book The New Gold Standard. I am also featuring an online shoe company, Zappos, in a book that will be released in 2011. Zappos took the fear out of purchasing shoes online by demonstrating an unwavering commitment to serving the customer. That approach was so successful that Amazon bought the company last year for US$1.2 billion. Service excellence does produce value – to those served and to the businesses that execute experiences customers crave.

Small and medium-sized enterprises (SMEs) need to leverage on their unique relationship with their community, to offset the price advantages that some of the multinationals can offer. I don’t think that SMEs capitalise on it enough. I think, often, they get scared of the pricing advantage that the competition has and don’t play to their strengths. Instead, they play to their weakness, which is trying to be competitive on price when they can’t get the price breaks that the large companies can. So you have to get even better in your relationships with customers when the big players come to town. And the ones that really survive, it’s not about prices, it’s about relationships.

How is customer service perceived in Asia compared to the West? What are the cultural differences in service expectations?

The wants, needs and desires of customers are definitely shaped by cultural elements, but my experience has been that there are common desires among all people. Customers want companies to demonstrate competence and integrity and treat consumers with appreciation and respect. I am not sure there is an Asian way of serving or a Western way of service. Clearly there are differences in Asia, which can be operationally excellent, but not prone to going outside operational guidelines, and Western service, which can be emotionally engaging but not as consistent. What is most important from a service perspective is creating rapport that is relevant to the person being served, expediting service within cultural parameters, emotionally engaging customers where possible, and practising impassioned service recovery when necessary.

China is seen as the next big consumer market. In your opinion, what is unique about this market? Why is it especially important in this market to create the perception of luxury?

Given the speed with which wealth is being amassed in China, I see the luxury market becoming very crowded. Companies will associate their products with an affluent lifestyle, and consumers will buy those products based on a desire to acquire those elements of wealth. After racing to simply fulfill the needs of this consumer demand, many of these brands will struggle to retain those customers for future purchases unless those leaders invest in the development of customer-relationship management programmes and customer-experience strategies. I think the great business leaders of China will not only harvest the profits of the booming marketplace, but position themselves to retain those customers through forward-thinking customer-experience design and customer-relationship management approaches. Loyalty of affluent customers, not just acquisition of those customers, must be the long-range goal.

© Hong Kong Trade Development Council h


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