Rightways to Success

Saturday, 27 July 2019

Hong Kong in decline

Losing ground: China’s spectacular rise has affected Hong Kong’s thriving financial services industry, along with development of port services. - Reuters

https://youtu.be/elH1PrASTAU

TWO generations ago cheap goods from Hong Kong were labelled simply “Made in Hong Kong,” but their poor quality soon made that embarrassing.

For marketing reasons they were then labelled “Made in the British Empire” or “Empire Made.” Britain, home of the First Industrial Revolution, was better regarded than any Far Eastern outpost.

However, manufacturing could never suffice for Hong Kong’s economy because of limited land and rising property prices.

Enter the space-efficient financial services industry, along with development of port services. Then a generation ago Hong Kong began to face its biggest challenge: China’s spectacular rise.

But if Hong Kong would be part of China again, wouldn’t it also enjoy the mainland’s rising fortunes?

Hong Kongers always had a problem with the first part ever since Britain’s takeover in 1841.

From the late-1970s the West was all for China’s “opening up” policies. Hong Kongers looked across the water to see Shenzhen’s phenomenal rise from old market town to bustling modern metropolis.

Shenzhen had twice Hong Kong’s population and a much faster rate of development. As just one cog in China’s production behemoth, Shenzhen soon buried Hong Kong’s prospect as a manufacturing centre.

In global references Hong Kong-Shenzhen-Guangzhou is the world’s biggest productive mega region, demographically twice the size of the next biggest in Nagoya-Osaka-Kyoto-Kobe.

But Hong Kongers still regarded themselves as a breed apart from the mainland – a “Made in the British Empire” attitude dies hard.

Surely Hong Kong still had superlative status as a leading port and financial services centre?

Not quite, especially when Shanghai would soon outclass it on both counts.

Hong Kong slipped to fifth place among the world’s busiest container ports. Among the world’s Top 10, six are now on China’s mainland.

The Shanghai Municipality’s population is 3.5 times Hong Kong’s, with an area 5.7 times as large, meaning a more relaxed population density of just 62% of Hong Kong’s.

Shanghai’s 2018 nominal GDP was US$494bil (RM2.04 trillion), which was 136.1% of Hong Kong’s. Even Shenzhen is catching up with Hong Kong, falling short by just 3.3%.

Business is Hong Kong’s business, but the mainland is doing better in both performance and prospects.

The Hong Kong stock market is not necessarily stable. Since the 1960s it has experienced a dozen market crashes.

Shanghai’s Stock Exchange market capitalisation of US$5.01 trillion is larger than Hong Kong’s by 26.5%. Hong Kong’s exceeded Shenzhen’s by only 12.8%.

Hong Kong as business enclave has been eclipsed and outdone by the mainland. At the same time its future increasingly depends on the mainland.

Since 1997, Hong Kong dropped from representing 20% to just 3% of China’s GDP.

For China today Hong Kong is just another Chinese city, meaning it is dispensable. Shenzhen and the rest of the mainland do not need a nettlesome Hong Kong for China’s continued rise.

Hong Kong protesters have committed at least a dozen strategic errors.

One, they assume Hong Kong is essential to the mainland’s future when only the reverse is true. There is no equivalence between Hong Kong and the mainland in any way that works for Hong Kong.

Two, protest appeals to mainlanders for support mistakenly attempt to rekindle the spirit of Tienanmen Square protests a generation ago. Those protesters are now part of the system in a prosperous new China, actively engaged in business or government. Their original 1989 complaint of corruption in high places is keenly addressed by Beijing.

Three, attempts to solicit mainlanders’ support are badly confused with prejudice against them. Within days of trying to spread the protest message to mainlanders in July, protesters attacked mainland traders, shoppers and tourists.

Four, protesters violently attacked police personnel, alienating many Hong Kongers including most protesters. It signalled a slide towards civil disorder.

Five, vandalising the Legislative Council building established illegal conduct and further alienated everyone else.

Six, more violence was targeted at the liaison office when sympathisers had thought protesters would never do that. It confirmed the criminality discrediting the protests as a whole.

Seven, besides disrupting traffic and commerce, harassing passengers at the airport and train stations. It did nothing to promote their cause to the general public but quite the opposite.

Eight, protests did not subside even after Hong Kong’s Executive backed down on the extradition Bill. It revealed the unreasonable nature of the protests.

Nine, no protester had demanded democracy for Hong Kong in 156 years of British colonial rule. If they had, they may have a legitimate basis for demanding democracy today.

Ten, it was foolish to unfurl the Union Jack and call for reverting to British rule. Seeking the denial of democracy by a foreign hand exposes the hypocrisy of the protests.

Eleven, it was foolhardy to unfurl “Old Glory,” calling for US intervention during a US-China trade war. With trade a major basis of Hong Kong’s survival, it was politically suicidal.

Twelve, protesters fail to understand that no other country can or would do what is necessary to boost Hong Kong’s fortunes. Only the mainland can do that if it wants to.

Young protesters still to find employment amid poor conditions and rising costs may think they have legitimate grievances.

Yet all the solutions – more investment, better job prospects, even improved governance – can come meaningfully only via the mainland.

Beijing can deploy troops to Hong Kong, but to what end?

Hong Kong’s worst punishment is getting exactly what the protesters want – isolation. That will leave it further behind as the mainland prospers, surging ahead.

Hong Kong can stew in its own juices until tender. Beijing may let the anger fester and rot until then.

Hong Kong’s strength as money-making hub is also its weakness. Its stock market can crash again, which can also send a message to Taiwan.

Hong Kong tycoons are already looking for more places abroad to stash their fortunes. Without decisive mainland investment, the economic enclave can die a natural death.

What’s left of Hong Kong’s Establishment will then surely discipline rowdy mobs. The triads have already shown leadership here, symbolising the decline.

By Bunn Nagara, a Senior Fellow at the Institute of Strategic and International Studies (ISIS) Malaysia. The views expressed are entirely the writer’s own.

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Anti-corruption crusade in full force in Corporate Malaysia

Enough time: Ruslan says there should be adequate time for corporates to implement the guidelines by June 1, 2020.

Will the much-anticipated enforcement of Section 17A of the MACC in less than a year result in a corruption-free business scene?

THE Pakatan Harapan government envisions a corruption-free Malaysia in five years’ time, but the journey towards the ambitious objective will be a bumpy one – especially for Corporate Malaysia.

According to PricewaterhouseCoopers’ Global Economic Crime Survey 2018, about 35% of the Malaysian companies surveyed have suffered as a result of bribery and corruption in their daily operations. This marks a sharp increase from just 19% in 2014.

Speaking with StarBizWeek, Transparency International Malaysia (TIM) president Muhammad Mohan cautions that “corruption is rampant and has worsened in the Malaysian business sector over the last few years”.

Despite the worrying trend in Corporate Malaysia, preventive anti-corruption measures among local companies remain limited.

As at end-May 2019, only 59% of listed companies in the country had an internal anti-corruption policy, according to the Securities Commission (SC).

The good news is, the Pakatan administration has been ramping up its anti-corruption initiatives over the last one year.

About a month after the 14th general election (GE14), the government established the Governance, Integrity and AntiCorruption Centre (GIACC) to monitor and coordinate all activities related to combating graft, integrity and governance.

In January 2019, the National AntiCorruption Plan 2019-2023, which was developed by GIACC, was launched by Prime Minister Tun Dr Mahathir Mohamad. The five-year plan has outlined six priority areas and 115 initiatives to achieve zero-tolerance to corruption and bolster good governance.

On July 18, the SC presented its anti-corruption action plan to the Cabinet Special Committee on Anti-Corruption chaired by Dr Mahathir, with recommendations to prevent corruption, misconduct and fraud.

Section 17A comes into force

In addition to these efforts, beginning June 1, 2020, Corporate Malaysia will take its next step towards a corruption-free business environment via the enforcement of Section 17A of the MACC Act.

The new provision, which was inserted into the anti-bribery act before the GE14, establishes the principle of corporate liability among businesses. Under Section 17A, companies and their directors could be deemed personally liable if an associated person such as an employee or subcontractor is caught involved in corruption for the benefit of the commercial organisations.

Section 17A covers companies, partnerships and limited liability partnerships operating in Malaysia.

The companies and directors could defend themselves against prosecution if they have implemented “adequate procedures” such as internal guidelines or staff training within the commercial organisations.

However, senior lawyer and former Malaysian Bar president Datuk Lim Chee Wee says the existence of adequate procedures does not preclude a commercial organisation or the directors from being charged or prosecuted.

“That is to say, a company may still be charged or prosecuted for corruption offence under section 17A (1), but the fact that the company has in place adequate anti-corruption procedures may absolve it from any finding of criminal liability by the court,” he says.

“However, Section 17A does not put an undue amount of responsibilities on the management. While the definition of associated person under section 17A (6) appears to be general and extensive, there is a safeguard in section 17A (7) which provides for the need for a holistic assessment of the relationship between the company and the associated person to be conducted before any liability of the associated person can be imputed on the company,” he says.

With the anti-bribery provision, companies can no longer hide behind third parties such as consultants or subsidiaries. In the past, holding companies and the board of directors could absolve themselves of any blame if there were corrupt practices at the subsidiary levels.

“Now, the directors and companies are accountable for everything. Even consultants who act for companies come under the MACC Act and the employee hiring processes must be accounted for,” says a CEO of a listed firm.

He adds that the focus should be more on the wide implications of Section 17A, rather than the cost of compliance.

“It is not whether the corporate liability provision is difficult or adds to costs of Malaysian companies.

It is a question of whether the companies and directors are aware of the wide implications with the act coming into force next year.

“The MACC act together with the beneficial ownership laws gives MACC the bite to act on corporations, directors and owners. If they want to get you, they can,” he says.

If found guilty of an act of corruption under the soon-to-be-enforced Section 17A, the penalties imposed on a commercial organisation would be severe.

A company could be fined not less than 10 times the value of the gratification or RM1mil, whichever is higher, or be subject to imprisonment not exceeding 20 years, or to both.

In short, it will not be “business as usual” for Corporate Malaysia come 2020.

Delay in compliance

While there are only 10 more months before Section 17A is enforced, many businesses in the country have yet to introduce adequate procedures to prevent corruption in their organisations, in line with the “Guidelines on Adequate Procedures”.

On Dec 10, 2018, Dr Mahathir launched the “Guidelines on Adequate Procedures”, which serve as reference points for any anti-corruption policies and controls an organisation may choose to implement towards the goal of having adequate procedures as required under Section 17A.

SC says that even among the listed companies that have an anti-corruption policy, “the majority of these policies contain gaps when compared to the Guidelines on Adequate Procedures”.

TI-M’s Muhammad Mohan hinted that not all government-linked companies (GLCs) will be ready by June 2020 for Section 17A.

“GLCs especially the larger ones are making preparations to handle the corruption risks involved. The problem is many GLCs and non-GLCs have wasted so much time by not implementing or preparing their organisations for this.

“Many businesses are expecting U-turns or extensions to be given,” he says.

Federation of Malaysian Manufacturers president Datuk Soh Thian Lai says the organisation supports the introduction of Section 17A and has undertaken several sessions to educate its members on the implementation of “adequate procedures” as well as the ISO 37001 Anti Bribery Management System.

As the deadline for the enforcement of Section 17A nears, Soh points out that concerns
remain on the readiness and capacity of the small and medium enterprises (SMEs) in ensuring that adequate internal measures have been put in place to potential acts of corruption. specially still lack the know-how lementing such measures. There e greater capacity building in place to assist SMEs,” he says.

However, among major corporations in uch as those related to Nasional and the Employees Fund, the guidelines are being owed, says a CEO of a listed company.

The compliance department has grown bigger, he says. In an email interview with StarBizWeek, SC says that it will take steps to mandate companies to establish and implement anti-corruption measures.

"While there may be additional costs in putting these anti-corruption in place, it is important for comealise that these measures will m to avail themselves of the statutory ddefence provided for under Section 17A (4) of the MACC Act,” says the commission.

Vulnerable businesses

Past experiences indicate that compaed with procurement, governracts and the construction sector ulnerable to corruption and kickbacks.

While government and key industry ve introduced several anti-coreasures such as open tender corrupt practices continue to be prevalent in such sectors.

In fact, between 2013 and 2018, nearly 43% of the total complaints received by MACC were on the procurement sector.

Experts say that the trend is expected to change as businesses in Malaysia fully comply with Section 17A, following its enforcement. The adoption of anti-bribery ISO 37001 standards will also bolster Corporate Malaysia zero-tolerance approach towards corruption.

Facilities management service provider GFM Services Bhd, which is actively involved in government contracts, welcomes the enforcement of Section 17A.

Group managing director Ruslan Nordin believes the corporate liability provision not only upholds a business’ integrity, but also protects shareholders’ value and preserves profitability of the company.

“We view that there is adequate time for corporates in Malaysia to implement the guidelines by June 1 next year,” he says.
Senior lawyer Lim says that Section 17A imposes a duty on all businesses, its directors and officers to be honest in their internal and external dealings.

“This is to be welcomed, corruption increases the cost of transaction, and with this new provision, it should reduce the cost of business,” he says. UHY Malaysia managing director Steven Chong Hou Nian believes that compliance with Section 17A offers businesses an opportunity to exhibit positive values in their corporate culture.

“I opine that the qualitative gains from Section 17A compliance outweigh the additional costs,” he says.

He was also asked whether Section 17A will be successful in reducing corruption within procurement and tendering for government contracts.

To this, he said that the government has pledged to re-design the entire public procurement system while introduce relevant technologies to facilitate a clean, efficient and transparent procurement regime.

“The effectiveness of what Section 17A seeks to achieve, would naturally be premised upon the ecosystem that the MACC Act would operate within.

“The eventual success of the initiative is anyone’s guess, yet I applaud the nation for boldly taking this step forward. This is indeed a success in its own right,” says Chong.

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Guidelines on Adequate Procedures

Corporate liability laws in other countries - Business News

Declining performance of Malaysia's civil service, World Bank report

Trade War Spurs Recession Risk in Singapore


The Tanjong Pagar container terminal in Singapore.

Shock contraction in quarterly GDP raises risk of job losses
Officials already grappling with aging, productivity threats

Singapore’s economic data have gone from bad to worse this month. Exports slumped to their second-worst rate since the global financial crisis, the purchasing managers index slipped into contraction for the first time since 2016, and the economy shrank the most in almost seven years in the second quarter.

Exports, manufacturing PMIs sink to multi-year lows

After spending much of early 2019 enjoying relative resilience, a recession is now looming. That’s a warning shot for regional and global economies, since Singapore’s heavy reliance on trade makes it somewhat of a bellwether for the rest of Asia.

The severity of the slump may be down to trade tensions and a global slowdown, but Singapore has been grappling with longstanding economic threats that have been slowly eroding the city state’s growth potential: rapid aging, labor market shrinkage, and sluggish productivity among them. Those risks will become more acute for policy makers now.

“Any undue turbulence or prolonged stresses from the trade war are only going to compound the challenges of all the other issues -- productivity, demographics, anything else,” said Vishnu Varathan, head of economics & strategy at Mizuho Bank Ltd. in Singapore. “External demand concerns will be at the top of the list for now, because if you don’t get that one right it’s that much more difficult to solve everything else.”

Singapore remains one of the most export-reliant economies in the world, with trade equivalent to 326% of gross domestic product, according to World Bank data. That puts the city state at the center of the storm stirred up by its top two trading partners sparring over tariffs.

The shock GDP figures earlier this month prompted some analysts to downgrade their Singapore forecasts for the year to below 1%. The government is set to revisit its own 1.5%-2.5% range next month, but for now, it’s remaining calm, seeing no recession for the full year.

What Bloomberg’s Economists Say...

“Barring a swift rapprochement in U.S.-China trade relations, our forecast for a 0.2% year-on-year contraction in Singapore in 2019 remains on course.

The government has ample firepower to cushion the blow, but it may not be enough to avoid a recession.”

-Tamara Henderson, Asean economist

The slump is largely contained so far to manufacturing, which makes up about a fifth of the economy, but could soon spread to other sectors such as retail and financial services. That increases the risk of job losses at a time when businesses like International Business Machines Corp. are already laying off workers and banks such as Nomura Holdings Inc. cut staff.

The number of retrenched workers in Singapore rose to the highest in more than a year in the first quarter, though the unemployment rate has remained fairly steady at 2.2% amid a recovery in construction.

“The labor market looks to be on two tracks at the moment -- there’s a weak market in the manufacturing sector but a steady one in the services sector,” said Shaun Roache, chief Asia-Pacific economist at S&P Global Ratings in Singapore. “High-frequency indicators including industrial production and trade suggest that the environment will remain challenging in manufacturing for the year.”

While those cyclical headwinds buffer the outlook, policy makers are also grappling with structural impediments to growth.

SINGAPORE AGING — An employee clears tables at a food center in Singapore.

Faced with a rapidly aging population, the government has been on an aggressive campaign to re-skill its labor force and prepare workers for a postponed retirement. The median age is set to rise to 46.8 years in 2030 from 39.7 in 2015, faster than the other top economies in Southeast Asia as well as the world as a whole, according to United Nations projections.

Tied to its rapid aging is Singapore’s productivity conundrum.

As the labor pool shrinks and gets older, the city state’s answer to the productivity challenge has been to automate and digitize. With an ambition to become a “Smart Nation,” the government has poured money and energy into digitization projects of all kinds, from helping seniors fine-tune smartphone skills at digital clinics to attracting financial technology giants to set up shop and test their ideas.

It’s that technological advancement, along with its world-beating infrastructure and efficiency, that continues to make Singapore attractive to businesses like Dyson Ltd., the U.K. manufacturer that picked the city state for its location to build its first electric cars. It’s also a reason why officials are confident Singapore can meet its foreign investment targets for this year.

“They’re saying the right thing, doing the right thing,” said Edward Lee, chief economist for South and Southeast Asia at Standard Chartered Plc in Singapore, who has penciled in 1% growth for 2019. “Retraining, ongoing structural reforms on the labor side -- those are the right things.”

By Michelle Jamrisko, Bloomberg

— With assistance by Cynthia Li

(Adds economist comment in 10th paragraph.)