A view of China from Hong Kong

My Notes from the IIMA PGPX 2016~17: International Immersion Program to Chinese University of Hong Kong. This program was scheduled in September 2016.

Day 1:

7:55 am

I’m just done with a great start to the morning, with a short yoga and meditation session. As I closed my eyes to meditate, I could not help but recollect all the sights and sounds that we encountered yesterday, since we have landed at the bristling and populous city-state of Hong Kong, which is in many ways one of the most important gateways to the economic behemoth that is Mainland China. We will take part in a two week program at CUHK’s Asia Pacific Business School with a theme of “Doing Business in China”.

Yesterday being a Sunday, we were able to see the relaxed and leisure seeking face of this city and ran into crowds almost everywhere. Some typical observations that a global Indian with significant work experience (some marketing efforts for the PGPX brand !) would have about Hong Kong if visiting for the first time, as in my case, would be:

1. The Infrastructure: This may well be one of the biggest economic activities for Hong Kong as well as China. We were constantly looking at new construction efforts across land and sea were very impressed particularly with the quality of bridges. The metro system is quick, well connected, relatively inexpensive and convenient as well. Particularly impressive was a bridge which reportedly did not seem to have any end in sight. Must remind Akshay to share this photo!
2. The people: I assumed that we would hardly find any non-Chinese person but was pleasantly surprised to see a smattering of Nihongo. It seems that we landed into the country bang on election day, and there is intense debate among the citizens on what the future of Hong Kong should be like; more on this debate in future blogs! What we primarily saw on the streets of Hong Kong was the new found affluence of the middle class with a particular affinity for brands of the western world. Another striking aspect is the addiction to mobile phones! Even couples who were displaying heavy PDA would frequently pause to check their smartphones.

Food should not be a major point of concern though I feel that the lack of Indian spices will figure in the conversation of at least some among our batch. Otherwise, we are staying at the Hyatt Regency, right next to the CUHK’s Business school building and things are as convenient as they can be. Just like in Ahmedabad, we can practically wake up at the last minute and rush to class if so required.

11:30 pm

We are racing against time to finish up the Amazon ACE Case study challenge. It has been a case of particularly bad timing for us, given that we have been in transit for much of the duration in which the case study has been open. We were initially under the impression that we could finish both the cases (on operations and consumer business). However, saner minds prevailed, and we wrote (what we hope ) is a comprehensive report in a desperate race against time this evening, only to realize that we are in Hong Kong ahead of India time!

As we reflect on today’s class, it has been a light day. We had a couple of sessions before lunch (arranged by our hosts) followed by a briefing from Mr. Kelvin Ho, our affable host, and his gracious team. Dr. Frost was our first lecturer for this program and the architect of what we will be immersed in for the duration of the program.

Dr. Frost won our hearts immediately as he began his lecture when he told us that he had cycled for three months once from Kathmandu to Trivandrum. This animated Aussie, who is not very keen to talk about cricket (which we think is strange) is a long time veteran to business practices in this part of the world and is a renowned consultant on matters of sustainability and CSR. We were exposed to questions of ambiguity which most foreign business people make when they interact with Chinese companies. Also on the hot seat were matters of safety, pollution (to be precise, toxicity !) and ethics. Of much insight was the fact that hidden rules exist within the Chinese systems and how one can be resourceful by being aware of them.  Another aspect which cannot be emphasized enough was the criticality of understanding and managing supply chain risk. All in all, a great start to our IIP schedule and a harbinger of the days of insights up ahead!

Day 2:

8:00 pm

Just two more trains to hop back to University from the Central Hong Kong Station. We had just finished a tour of the city arranged in the afternoon, full of tourist razmataz with funny, English speaking tour guides. We first went to Stanley’s, a distinctively British colony and to its upscale flea market (that’s how it appeared, at least to me) where the men mostly did a reconnaissance of clothes and their rates and the women actually did some shopping. But wait, before everybody thinks we are here in HK just to be tourists and increase their GDP, I will write about what we did in class in the morning.

Our teacher for the day was Prof. Ahlstrom, a long term veteran in the Dept. of Management Studies at CUHK. Prof. Ahlstrom’s lecture was on the rise of China, and it’s impact on global business. Prof. Ahlstrom had significant research experience in the economic history of China and delved deep into many aspects of the same. I liked his book recommendations (given below) and will surely make an attempt to finish one book in each section outlined. We understood the geography and demographics in better detail and were able to understand the macro picture of many things Chinese. We were also privy to a detailed explanation on many understandings and misunderstandings about China. Two totally unrelated but unique nuggets of Chinese realities remain in my mind; the fact that China retains only a small value of the final price of a product in spite of being the world’s factory, and the haunting images of ghost cities which have sprung up all over China.

Having finished this piece of learning, we gathered after a quick lunch and boarded two buses as we headed into the main Hong Kong island, via Kowloon. I had fun explaining to Snehal about the origin of Chinese characters (though I admit I hardly remember any of them from my Japanese Kanji learning days) and we were in Stanley in no time. Having passed through some posh localities (note: Mr. Chan, that famous martial arts master lives here and no, he was not sighted by our group !).  Our next stopover was Victoria Peak, where Akshay and I left the rest of the crowd way below and ascended to the sky terrace to take some astonishing vistas of the Hong Kong skyscape. This is surely as impressive as that of any present day financial capital of the world (yours truly having seen New York, Singapore, and Tokyo) and the membership of this city-state is poised to remain intact, with its close link to China which is the emerging superpower of the world.

We descended into the city in a robust cable car which seemed to be designed in another century by (who else but) the British. The cable car deposited us bang in the middle of the Central financial district of Hong Kong (Citibank, Standard Chartered, Bank of America, you name it). Some of us decided to give the bus ride back to the hotel a miss and meander into the heart of Hong Kong. We were indeed rewarded for this decision as we soon entered the bay area which also houses the Hong Kong tower, very similar to the London Eye. There is a spectacular sound and light show which happens here in the evening.

Having spent some time here at the pier, I decided to head back as my batteries were drained out. A short walk back to the Central Metro stations, and the University station, the Hyatt Regency and my bed (in the same order) do not seem very far away, given the speed and efficiency of Hong Kong’s MRT system.

Suggested books on China by Prof. Ahlstrom

1. Marketing: Tom Doctoroff.
2. General  reading: James McGregor: One billion customers
3. Doing business in China: One hour China book, China Street-smart, Mr. China
4. Debts: Red Capitalism, Capitalism with Chinese characteristics, China’s future
5. Quality: Poorly made in China
6. China demographics: Unnatural selection

Day 3:

1:40 pm

Today is a fully working day, as two practicing management professors of seasoned worldly experience and wisdom engage us on two popular topics; finance and innovation. It has been a quick lunch for me and I sit in class thinking about the morning’s session on finance.

Prof. Stan Ho has been an investment banker, a credit rating professional and a professor of finance in the same chronological order. He has a broad and deep expertise of on the financial markets of Asia and holds fort on the unique features of the markets and stock exchanges in Hong Kong and Shanghai. We discuss the perceptions of China (Big Daddy) about Hong Kong (smart and naughty son) and Macau (dumb and loyal son). Prof Ho is also the most animated among our instructors till now, with impromptu imitations of characters as random as an Italian designer (?) and easily sways the audience’s attention to complex matters of interconnectedness in finance with great metaphors. We talk about why companies would choose to list their IPOs in either the Hong Kong or Shanghai Stock Exchange, how the anti-corruption drive in China is hurting the sales of Rolex watches in Hong Kong and how top American management teams in rating agencies make rating decisions about Asian sovereignties without even having set foot in many of them. The class also takes him off course on many occasions, and he obliges by talking about popular topics like gambling in Macau and the comparison between Hong and Singapore.

11:20 pm

It has been a long day, and we have an early start to tomorrow as half of are visiting the Invest HK Office, and later in a Start-up environment. Our teacher for today’s afternoon is Prof. Bernard Suen, a veteran in the IT industry. He has spent time in Silicon Valley and clearly seems to be much influenced by the way Steve Jobs used to dress and speak. I think his session on innovation and entrepreneurship has been one of the most balanced and holistic I have heard. He focuses on culture as an added enabler to innovation and emphasizes that along with the territory, talent, and technology, tolerance is also important for fostering new ideas. In the break, time, we engage him in a conversation on Industry 4.0. We also compare India and China on the Global Innovation Index to find that China has improved leaps and bounds whereas India has some catching up to do. I need to catch up on some sleep, and tomorrow seems like an exciting day. Signing off!

Day 4:

9:45 pm

Today was one of the lightest regarding work schedule. We spent an hour in the Invest HK offices where Dr. Chiang, Associate Director and head of Hospitality and Tourism walked us through the facilities available for people willing to invest in HK. The second highest FDI inflow in the world comes to HK, even ahead of China. However, I believe that much of this will be routed back to the mainland. It is to be noted that even here, the selling point of Hong Kong is its proximity, both geographical and political to China. We are out by 10.30 am and have much time to kill.

Neil and I head out to the Central Financial District to wander around and land up in front of HSBC’s headquarters in Hong Kong. They have a set of beautifully archived photos from the late 1800s, which trace the journey of both the bank the island. Both of us are in awe of the beautiful buildings which have housed HSBC’s headquarters over the years. We also notice that there has been a significant reclamation of the shorelines with the space being utilized to house many landmark buildings. Another concept which I like very much and feel that we should be using in India is the creative and lucrative use of expensive real estate which the utilities like railways own in prime locations in cities, thus integrating public good with commercial viability

We head to the Cyberport in the afternoon. The Cyberport is Hong Kong’s initiative to develop IT based start-ups (they have another initiative, the Science Park which is focused on science and engineered products). Once in, we are given a quick tour of the apps being developed (not very exciting, we are exposed to much better work in India) as well as the co-working spaces and some digital studios. Much of the crowd feels a sense of deja vu, having worked in the IT industry and in places like Bengaluru, Chennai, and Mumbai which already have such facilities established. The academic day finishes early, and it is time to head back to our home for two weeks, the Hyatt Regency. We don our tourist hats to explore the city further; I wander off to the Mong Kok area to check out the Ladies Market.

Day 5:

5:00 pm

Sahil and I just missed the 3.30 ferry to Macau and had to take the 5.00 pm instead. Macau is an hour away, and the immigration procedure seems to be simple. Hopefully, not much time will be lost. We haven’t made up our minds whether to stay at Macau for the night or not, since we still have reservations at the Hyatt for the weekend. We will probably decide, based on the time it takes to cover the list Sahil has prepared.

We had a unique experience of learning the Human Equation in China, courtesy of Dr. Gilbert Cheung, who is an Honorary visiting fellow. Dr. Cheung has a Ph.D. in Hotel Management and has also worked in the hospitality industry in Hawaii, South East Asia and Hong Kong for more than two decades. He is now a much sought-after consultant on matters of Chinese culture, especially in the business context and has advised not just foreign companies but Chinese ones as well. We are given a crash course on Maslow’s Law (omnipresent !), and take a deep dive into Chinese cultures, values and beliefs which drive behavior.

Some of the key learnings from this class for me are on conflict management, conduct during meetings, the importance of hierarchy in family and business and the dispelling of commonly held myths about the Chinese people. I was also familiar with the concept of “Saving Face”, which seems to drive much of the behavior around why the Chinese are perhaps not as direct and forthcoming as are other people. The Chinese are also not ‘argumentative” like us Indians, and if an opinion is forcefully thrust upon them, they will probably accede to it (no guarantees that they will not hate you for thrusting that opinion on them also !).

Day 7: Sunday, 12 September

9:00 am

I have had a sumptuous breakfast and have nothing planned for the day particularly. Will probably catch up on some unwatched movies. We have been promised that Hong Kong is the right place to catch such videos

Macau was, as one of my classmates (I think it was Joban) aptly put it Las Vegas on steroids. Everywhere you go, there are attempts to imitate that desert city in the United States and the ongoing construction of casinos. I was quite taken by the Portuguese influence on the city island, being familiar with Goa. We actually saw a street named Goa very close to the Senado Square which is  a UNESCO world heritage site. This site has quite a few beautiful old world style buildings which are click-worthy.

Sahil and I went to the casinos to kill some time in the Venetian and the City of Dreams. I have been to a casino in Singapore once and it was not even close to the Macau experience; my North American friends tell me that even Macau is just an upcoming clone of Las Vegas. The “Ease of doing business” is not particularly high given that much of the signs are in Chinese so we just hung around the slots wasting time and spending money. The crowd is predominantly comprised of mainlanders, who are served by direct flights to Macau from different cities. As we head out of Macau on a late night ferry back to Hong Kong, one contradiction remains in my mind…How does a communist country come to encourage a temple of Capitalist opulence like a casino strip ? Times sure are a changing!

On Saturday, Vinit, Neil and I went to the Ngong Ping 360 tour which included a long train journey, a breathtaking cable car ride and a view of the gigantic and serene Tian Tan Buddha. which perches atop a secluded mountain, adjoined by a beautiful monastery. This was on the island of Lantau, close to the port and the airport. We also saw a bridge connecting Hong Kong to the Mainland  which seemed to stretch forever.  We were lucky that the weather gods did not let us down, though it was raining during our onward journey. We were pleasantly surprised to find a vegetarian cafe attached to the monastery.

On our way back, we spent some time in an outlet mall which seemed to have very reasonable prices on food, clothing, apparel and electronics. The burgeoning population of China’s cities is probably the biggest potential market for any Chinese or global brand and, combined with India is probably going to be the focus of most companies in the next century.

Day 8: Monday, 12 September

6:00 pm

Today was probably the academically most hectic one, with two full sessions on very interesting topics. We first had Prof. Paul McGuinness, an Englishman who has long since settled down in Hong Kong. He teaches finance at the University and compared China’s stock issuers and equity markets with that of Hong Kong’s. I will highlight the key points that he covered in his lecture.

• Global equity boards comparison
• Chinex has most of the activity on the Shenzhen. Shanghai is China’s market for large cap issuers
• Hong Kong was the biggest primary market in 2005~10. Some slippage over the last 5 years but it has bounced back in 2015
• CSRC closed Shanghai and Shenzhen market in 2013 to new IPOs in order to make changes in regulations. Stocks suspended if they move more than 10% either ways.
• The split between retail, institutional and corporate is fairly good. Retail has 25%, compared to 2~3% for western markets. Shanghai and Shenzhen have predominantly retail participants.
• Shenzhen market is full of high tech stocks.
• Alibaba went to New York in 2014. Hong Kong should have got it but Alibaba wanted different weighted voting rights.
• Shanghai Shenzhen markets
  • Closed 9 times since inception. More than 700 companies queuing to list in these markets.
  • OTC Or NEEQ market is a so called third market in China. It’s a platform for companies to issue new stock. Based in Beijing.
  • Price earning ratio has a ceiling of 23 times only on the Shanghai market. They are artificially low.
  • On the first day of trading, the initial rate of return is capped at 44%
  • Restricted: company must be mainland PRC registered, domiciled in China. Hence, Tencent, Alibaba and China Mobile can’t list there.
• The strength of the Hong Kong system is its free systems. No interference. Hong Kong does well because of its proximity of China.
• A & H shares are shares of Mainland China based companies which are listed in the Mainland and in Hong Kong respectively.
• Hong Kong~Shanghai connect for people who want to trade between Hong Kong and Shanghai. Seeing more activity northward rather than southward
• Hong Kong market (CNH) is the largest offshore market for the Renminbi currency.
• QFII and RQFII: for high net worth institutions and individuals who want to invest in China.
• Activity of Shanghai and Shenzhen (monthly trade volume/ market cap) is very high as compared to other places. (from Wikipedia)
• H, red chip or Privately controlled mainland Chinese and China Concepts

In the afternoon, we got to listen to Mr. Dominic Chan, an engineer with a Phd from Cambridge who is a serial entrepreneur as well as an enthusiastic start-up advisor and angel investor. By virtue of his networks in Singapore, he was able to compare and contrast the start-up ecosystems and support mechanisms, both from the Government and otherwise in both these economic powerhouses. Almost every list we saw with relation to innovation, competitiveness, economic freedom and attractiveness for launching a business had these two city nations very high in their rankings, adding evidence to the importance of this region. I have recently been reading about Israel’s start-up culture in a book called Start-up Nation and was curiously following Israel as well along with HK and Singapore, pleased to find out that Mr. Chan was also following the trail of Israel. ! Mr. Chan works with two of Hong Kong’s most thriving ecosystems, Cyberport and Science Park. We were given a brief overview of the opportunities to start-ups provided by both governments. As is done at IIMA, we then had a case based approach to discussing this, with different groups donning the hat of different start-up stakeholders like the government, start-up founder, start-up investor, prospective investor for future rounds and society at large. These groups then analysed the attractiveness of Hong Kong and Singapore’s policies with reference to different parameters and it emerged that the consensus was largely in favour of Singapore as a better start-up destination.

Day 10: Wednesday, 14 September

8:00 pm

We have had a class today and yesterday. Though the afternoon was meant for a working session on preparing for our group presentation, we are anticipating a typhoon tomorrow in lieu of which classes are being advanced. However, the typhoon seems to be giving us a miss, at this point of time. A group of 5 of us also went on a scavenger hunt, trying to track the colonial influence on Hong Kong and later on the presence of arts and crafts in the city. We zeroed in on the Hong Kong Shanghai Banking Corporation for the first part and the Hollywood street for the second. The results of our scavenging are shown below:

On Tuesday morning, we had a deep discussion with Dr. Frost on the topic of sustainability in China’s growth. Having historically grown at double digits for more than 2 decades now, China’s growth will tend to be rationalised in the wake of external factors like reduced demand, anti-dumping lobbying and negative perceptions about Chinese products. However, this rapid pace of growth has also had its effect on China internally. Pollution, desertification, loss of biodiversity, public health and population growth are some of the challenges which have been questioning the growth story. Based on work done by intellectuals like Kenneth Lieberthal who have studied China, some recommendations which are provided for sustained economic growth with due care given to the environment are:

• A development model based on efficiency and institutional capacity
• Ecological urbanisation
• Fair distribution of the benefits of economic development
• Political reform
• Reduction of governmental interference in the market
• Social stability

 

Dr Frost also used the rich experience of having his eyes and ears on the ground in both the specially administered regions of Hong Kong and Macau and the mainland to discuss the role of social activism and the role of Chinese businesses in improving sustainability in the Chinese landscape. An amazing perspective was the ability of Chinese government to do good though their participation in large scale initiatives like solar businesses, which showed the way for the private firms to embrace renewable sources of energy. We discussed some initiatives on social entrepreneurship like the hostels set up for job seeking students.

This afternoon, we were privy to another seasoned veteran from Singapore, Mr. Peck How who used to manage the investments of Temasek Holdings, Singapore’s Sovereign fund in Hong Kong and China. This 68 year old veteran talked about China’s outbound investments and the opportunities it presented for global economies. We had quite a few questions to ask about the large initiatives like the One Belt, One Road policy and China’s interests in Pakistan (grr). Some commonly held perceptions were also discussed and debated. We were able to focus on the India-China partnership and whether it would remain just competitive or become one of a strategic nature.

Day 12: Friday, 16 September

2:00 pm

There was no write up from my side yesterday since it was a day of working in groups to finish our group presentation. We were given the topic of advising an American company of our choice if they had any threat from Chinese “copycats” in their domain. Our topic is on smartphones and the client we are addressing is Apple.

5 groups presented on 5 different topics which included the following:

1. Advising an European luxury brand on ethical issues
2. From an investor’s perspectives, picking one Chinese brand which would be the next unicorn company and deliver multiple X valuation.
3. Strategies for a Chinese tyre company to sell in the US market.
4. Planning for an American Automobile major which is being affected by growth
5. Our topic, on consulting for an American company on the threat it faces from Chinese copycats.

I felt that all the groups did a wonderful job of presenting insightful views, a feeling echoed by our reviewer, Mr. Frost. The essence of what he was trying to imbibe in us was that China presented both challenges and opportunities to global businesses and it would be wise to enter the land of the dragons with our eyes wide open, knowing that help is required in many areas especially on soft skills and culture and with an awareness of where such help may be obtained. It has been a wonderful two weeks, a sort of semi-vacation after a gruelling second term and time really well spent in exploring another land. A heartfelt sense of gratitude to the CUHK and to our PGPX Office as well as all the volunteers for their tireless efforts in ensuring that it was a perfect International Immersion program.