Business Asia Spring 2010

SPRING 2010Business AsiaGambling Kings of Asia:An entrepreneurial story

Thaksinomics

Winning in Asia

Cybercrime in China

Staff List

EDITORIALSo Young AnSuthinee Buranaphong Eric Ang Teck ChinDeborah Chian Peng ChongBrandon Ho Teck HonRichardson Handjaja KilisSeo Hyun KimNik KumarJonathan LauDiya LiYun Qi MokJoseph NingEdwina ReginaSandy TunRichard Wei Cathy Meng Xue

CONTRIBUTORSJulie Lam, University of Hong Kong

Andy Li, Chinese University of Hong Kong

PRESIDENTEDITOR-IN-CHIEF

CHIEF ADMINISTRATIVE OFFICERTREASUREREVENTS COORDINATORS

DESIGN

COPY EDITORS

BUSINESS ASSOCIATES

Jeremy VasquezPamela Hidajat

Phoebe YuBethany ZhangGrace ChanMary FormanJoshua Lyons

Moqian ChenMichael HongCerise Marcela

Chelsea DengelRichard Wei

Jessica ChengWing Wai David LamJill Da Eun SeongJu SongBethany Zhang

Business Asia is an independent student publication produced by Cornell Asia Business Forum. We are an independent student organization located at Cornell University who produced and is responsible for the content of this publication. This publication was not reviewed or approved by, nor does it necessarily express or reflect the policies or opinions of, Cornell University or its designated representatives.

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Cover Art by: Moqian Chen

Table of Contents

5 |Editor’s Letter

GENERAL BUSINESS

7 | Rising Regionalization and the Chiang Mai Initiative by Richardson H. Kilis AdeeperlookintotheChiangMaiInitiatives

8 | India’s Renaissance: Golden Pathway of the Emerging Market by Nik Kumar India’snextstepsafterthefinancialcrisis

10 | Toyota’s Crisis of Confidence

by So Young An HowToyotalostsightof itsfocusonquality

12 | Japan: A New Government

Battles Old Challenges by Joseph Ning AlookintoJapan’spoliticalsystem

13 | Thaksinomics: A Tool For

Economic Improvement or Political Power by Suthinee Buranaphong Thaksinomicshasledtophenomenalgrowth,butisitsustainable?

16 | Watch Your Step: Hong Kong

Legaland Compliance Issues for Businessmen and Employers by Andy Li BusinesslawinHongKong

INVESTING18 | China’s Shroud of Secrecy is Not Friendly to Those Outside of it by Jonathan Lau BehindChina’seconomicsuccess

TECHNOLOGY

20 | Cybercrime in China

by Eric Ang Informationrevolutionhasalteredtheworld,butwhatdoesthismeanforChina?

22 | The Chinese Epoch of

Online Shopping by Julie Lam China’se-commerceboomledbyTaobao

ENTREPRENEURSHIP

24 | The Gambling Kings of Asia

by Yun Qi Mok Thetwopeopleyouneverwanttogamblewith

28 | Kai-Fu Lee

by Richard Wei ThemanbehindMicrosoftResearchAsiaandGoogleChina

28 | Top 10

by Richard Wei ThetenwealthiestpeopleinAsia

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REAL ESTATE

32 | Hong Kong’s Real Estate

Market Recovery - What’s Next? by Cathy Meng Xue PostfinancialcrisissituationforHKRealEstateMarket

34 | Real Estate in Singapore

by Grace Chen Theimpactof financialcrisisonSingaporerealestate

36 | Trivia of Southeast Asia, Part 1

by Brandon Ho & Yun Qi Mok FactsaboutcountriesinSouthEastAsia

38 | Outdoor Sports and Activities

in Indonesia by Edwina Regina WhatIndonesia’snatureoffers

41 | The Art of Dim Sum by Brandon Ho Thewondersof DimSum

LIFESTYLE

42 | China’s Peaceful Rise: An

Oxymoron in the Making? by Deborah Cheong AninterviewwithProfessorBush,theDirectorof theCenterforNortheastAsianPolicyStudies

44 | Implications of Cross Broder

Investment Activities by Diya Li AninterviewwithProfessorKarolyi,aprofessorininvestmentmanagement

46 | Entrepreneurship in China,

Part 2: The Business Environment by Sandy Tun AninterviewwithKevinMcGovern,anentrepreneurinChina

INTERVIEWS

CAREERS

48 | Investment Banking in

Hong Kong by Christine Seo Hyun Kim AglimpseatfinanceinternshipinHongKong

49 | The ‘Chimerican’ Partnership:

Knowing the Chinese Counterpart by Christine Seo Hyun Kim UnderstandingbusinesscontextinChina

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Editor’s Letter

Asiawillcontinuetoproveitsstrengththroughout the year. AccordingtotheChinesezodiac,2010istheyearof thegoldentiger,whichsymbolizescourageandfearlesssouls.Andsointhisissue,wecontinuetofocusonthemajorcountriesinAsiaandintroduce you to ongoing developments inother nations. We also cover the changingbusiness landscape in Asia that is affectedbynewregulations,political issues, and thefinancialdownturn.

BusinessAsiahassuccessfullyincreasedthenumberandscopeof ourarticles.Ourmission

istopresentarticleswrittenbystudentleadersatCornellUniversityandotherpartneringuniversitiestobroadenstudents’perspectivesonbusinessissues in Asia. Business Asia continues to focus on global partnershipswithvariousuniversitiestofurtherourmissiontopromoteawarenessof business issues inAsia to students.Weowe the successof this issue toourdedicatedstaff atCornellUniversity,ourcorrespondentsthroughoutBeijing and Hong Kong, and our partners at the University of BritishColumbia,PrincetonUniversity,BostonUniversity,andYaleUniversity.

Finally, we value your opinion as a reader.Wewould greatly appreciateit if you can take aminute tofill outour readership survey available athttp://www.cubusinessasia.com, where you can also learn more aboutourpastissuesandourorganization.Wearealsoactivelylookingfornewcontributors andpartners, andwewelcomeanyonewho is interested [email protected].

PamelaHidajatEditor-In-Chief

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NEW

BUSINESS ASIA • Spring 2010 • 7

OnMarch24th, thirteen countries—tenmembersof the Association of Southeast AsianNations(ASEAN),thePeople’sRepublicof China,Japan,

andSouthKorea—movedonestepclosertowardregionalfinancialcooperationandstability.TheChiangMaiInitiativeMultilateralizationAgreement,acurrencyswaparrangementdrawingfromaforeignexchangereservespoolworth$120billionUSD,cameintoeffect. The Chiang Mai Initiative (CMI) was conceivedontheheelsof the1997financialcrisisthatrockedAsia’seconomies.ItwasannouncedbytheASEAN+3ministersof financeinMay2000duringtheannualmeetingof theboardof governorsof theAsianDevelopmentBank(ADB).TheCMIcalledforanexpansionof theexistingASEANSwapArrangementaswellastheestablishmentof anetworkof bilateral swap and repurchase agreement facilities amongASEANand the threeEastAsiancountries. ByOctober2009,ithadgrowntoanintricatenetworkof arrangementsworth$90billionUSDwithanadditional$2billionUSDavailableexclusivelywithinASEAN. Followingtalksof expansion,ministersof financeandcentralbankchiefsof theparticipatingcountriesagreedonDecember28thtoconsolidatethis loosenetwork.TheexpandedmultilateralarrangemententitleseachparticipanttoswapitslocalcurrencywiththeU.S.dollarforanamountuptoitscontributionmultipliedbyitsrespectivepurchasingmultiplier. Early critics questioned whether the CMI wouldprevent another crisis or delay badly needed reform inAsian economic systems. In an editorial following theannouncement, theAsiaTimeswrote, “The idea that theexistence of a currency swap arrangement or the widerconcept of an Asian monetary fund […] could havepreventedtheAsiancrisisortheworstof it,isbothwrongandpoliticallynoxious.” The CMI almost certainly drew the attention of

the International Monetary Fund (IMF), which has beencriticizedforitsfailuretobringimmediaterecoveryin1997.Ina2001interviewwiththeFarEasternEconomicReview,thenManagingDirectorHorstKöhlerexpressedhissupportfortheinitiativeandstatedthatregionalizationcomplementsratherthanopposestheIMF.HealsosawtheneedfortheIMFtorethinkitsroleinmaintainingglobalfinancialstabilityfollowingtheAsiancrisis. Therehasevenbeentalkof establishingasimilarsystemforEuropeancountries,inlightof Greece’seconomicwoes.AlthoughtheIMFhasnotexplicitlysupportedsuchan arrangement due to the lack of specific proposals,economistsbelieveahypotheticalEuropeanMonetaryFundwillnotcompetewiththeIMF.Theyhighlighttheneedtomanageproblemsonacase-by-casebasisinsteadof applyingglobalgovernance. Manyfearedthatthe1997financialcrisisdestroyedanyhopeof regionalcooperationinAsia.ThemultilateralCMI disproves this sentiment with countries agreeing tohelponeanotherrecoverfromaliquiditycrunch.Itincludesnewmechanismsforsurveillanceandmonitoringtoreassurelenders.Despitethecomplexarrangements,nocountryhasdrawnfromthepoolof foreignreserves,andthesystemhasyettobetested. Discussiononthebenefitsof regionalcooperationhasgrownlouderoverthepast20years,accordingtotheADBManaging Director Rajat Nag, but the breakthrough wasmadewiththeacceptancethatnotallpartieswouldbenefitequally.Oppositiontoregionalgroupingshassoftenedoverthepastseveralyears,buteconomicintegrationinAsiastillhasalongwaytogobecausethereisnosuchprecedentinitshistory.BA

General Business

Rising Regionalization and the Chiang Mai InitiativeBy Richardson H. Kilis, Cornell University

Country Contribution (US Dollars)

Brunei Darussalam 30,000,000

Cambodia 120,000,000

Indonesia 4,770,000,000

Laos 30,000,000

Malaysia 4,770,000,000

Myanmar (Burma) 60,000,000

Philippines 4,770,000,000

Singapore 4,770,000,000

Thailand 4,770,000,000

Vietnam 1,000,000,000

People’s Republic of China 38,400,000,000

Japan 38,400,000,000

South Korea 19,200,000,000

Source: Ministry of Finance, Japan

India’s Renaissance: Golden Pathway of the

Emerging Market[By Nik Kumar, Cornell University]

India has propelled itself robustly forward during the last decade, utilizing its booming economy to cultivate an attractive environment for independent investors and foreign companies. As one of the few markets not catastrophically affected by the recent financial crisis, India is readying itself to push even further and take on its problems of terrorism, lack of credit liquidity, and poor infrastructure in an effort to become a true global superpower.

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8 • BUSINESS ASIA • Spring 2010

Sincetheworldenteredthe21stcentury,Indiahasblossomed as an emergingmarket andput itself attheforefrontof businessleaders,investors,andforeign corporations. While American markets

lost a fifth of their value in the last decade, the IndianSensexindexleaped240%inthesameperiod.Today,asaprominentmemberof theinfluentialBRIC(Brazil,China,India,andRussia),thenationhasturneditseconomyintoadynamiconethatthreatenstheeconomicsupremacyof theWesternelite.AllanConway,headof emergingmarketsatSchrodes,themoneymanagementcompanyinLondon,likensIndia’srisetopostwarJapan.Inaddition,Jeff Immelt,GeneralElectric’sChairmanandCEOstated that “Indiahasneverofferedusmorepotentialthanitdoestoday.If we

cangrowatthesamepaceastheIndianeconomy,wecanbeagreatcompany.”Notably,since2002,India’seconomyhas grownby eight to nine percent per year on average.Thecountry’sfinancialsystemhasbecomelessregulated,allowingIndiatobecomeamoreestablishedandintegratedmemberof theglobaleconomy. AsIndialookstobuilditself internally,itstillfacesseveralobstaclesthatitneedstoironout.AsMarkMobiusputsit,“India’semergingmarkethasroomtorun,butthebeginning couldbebumpy.”Currently,over-regulation inthefinancialmarkets,whilesignificantlylessthanpreviouslevels,isstillprominent.India’simportdutytaxisprohibitive,addingalmost45to55percenttothepriceof goods.Inaddition,securitizationislimitedandthereisnotablyaverysmall and illiquid corporate debtmarket. Banks in Indiaare generally hesitant to give out too much credit, withapproximatelyhalf of depositors’ cashbeingconstrainedin government-issued bonds. While these characteristicsareadentinIndia’shopesforgrowthandexpansion,theyhavealsoprovedtobeashieldof protectionagainst theworst of the global financial crisis. The nation had very

little exposure to complex structured products, and thusthefinancialsectorhadessentiallybeenprotectedfromtheCollateralizedDebtObligation(CDO)subprimedisaster. Anotherproblemfacingthenationisthelacklustermarket for corporate debt. As a result, companies haverelied intensively on foreign capital and equity issuance.As a result, a lot of “hot” money has flowed into theIndianstockmarket,makingprivateequitya largesourceof fundingoutsideof stockmarkets.Althoughthecrisishas had a limited impact, profits have decreased rapidly,exporters have been affected, and industrial sectors suchas automotive, cement, and real estate have contractedseverely.Inaddition,banksarebecomingeventighterontheircreditandlendingevenless.

Inanefforttocombatthis,theReserveBankof Indiahasengagedinaseriesof actionstofreeupthemarketandinjectliquidity,butwhatreallyneedstobedoneistomakesurethatliquiditymovestowardtheprivateindustry.Asforeigncapitaldriesup,thegovernmentneedstoheavilyinvestininfrastructuredevelopmenttorejuvenatetheeconomy.Inaddition,toencouragebankstofundinfrastructuredemand,thegovernmentneedstoprovideappropriateguaranteestocoverthecreditriskof largeprojects.Thiswillencouragebanks to lend to corporations again and restart the cashflowcycle. India’sRenaissancetoaneconomicpowerhasbeenspectacular,andtocontinuedownthegoldenpathwaythegovernmentneedstoliftthenationoutof itsinfrastructuredoldrumthat isweighing thecountrydown.Oncecrediteases and liquidity flows in India, the economy of thisAsianTigerwillcontinuethejourneytoglory.Today,India’semergingmarket could be likened to its native elephant,slow and lumbering getting to its feet, but once up andstandingstrong,itseconomyandconsumptionappetitewillbevoracious.BA

India has never offered us more potential than it does today. If we can grow at the same pace as the Indian economy, we can be a great company. ❞

Jeff ImmeltChariman and CEO of General Electric

❝



Thesecondlargestmanufacturerof automobiles,Toyota, is now facing its biggest crisis yet.As soon as it overthrewGeneralMotors toreach the throne of the largest automobile

manufacturer,Toyotahadtomakeanembarrassingrecallof 437,000hybridcarsworldwideduetoafaultybrakesystem. The recall left Toyota with a humiliating blackmark on its image.Many consumers still feel betrayedby Toyota, and this loss of faith has impacted Toyota

sales. Now, Toyota is experiencing the largest recallin automotive history, and it seems that this crisis willnot stop anytime soon.Asof February 2009,Moody’sInvestorsServiceconfirmedithadplacedtheAa1seniorunsecuredlong-termratingof Toyotaunderreviewforapossibledowngrade. In order to restore the company’s image andrescueitscreditfromtheabyssof distrust,Toyotaneedstorectifyitsmistakes.Itsuspendedthesaleof eightpopular

General Business

Toyota’s Crisis of Confidence

[By So Young An, Cornell University]

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models, includingCorolla,forpotentialsafetyproblems.Thecompanysaidthat itwouldprovidefreealternativetransportationnationwidetoownerswhiletheirrecalledcarswerebeingrepaired.Furthermore,AkioToyoda,thepresidentof ToyotaMotorCorp.,heldanewsconference,offeringa“heartfeltapology”tocustomers.Mr.Toyodasaidthatheandthecompanywouldestablish“aspecialglobalqualitycommittee”andhaveadvicefromoutsideexperts tore-examandre-evaluateeverything inToyotathatisrelatedtoconsumersafety. Why couldn’t Toyota see this problem beforelaunchingthemodelintothemarket?If theyhadtestedtheirmodelsenough,theycouldhavebeenabletoavoidthishugecrisis.Therecallof thePriusmodelinparticularhasincreasedyearbyyearsince2000andthequestionof fundamentalsafetyhasbeenlurkingunderthesurfaceof consumerism since2005.Thequestiononemay ask is:whathasbeenwrongwithToyotasince2000,andwhyisitseeminglyunfixable? Experts say that one of the reasons can beattributed to flawed entrepreneurship by KatsuakiWatanabe, former president of Toyota. Japanese pressnamedthisrecallthe“Watanabe’scurse,”suggestingthatthere was a problem with decreasing production costswhichWatanabehadpursuedfor10years.ItclaimedthatasWatanabeacceleratedadecreaseincostsof components,Toyota started neglecting the quality of cars and safetychecks.YomiwuriPressalsoagreedwithotherJapanesepress, adding that Toyota in particular did not checkoutsourcedmachinecomponentscautiouslyenough;thebrakepedal,whichwasthemajorcauseof therecall,wasoutsourced inanareawith lessstringentqualitycontrolprocedure. In addition, Toyota Union said that forcingtheplantodecreaseby30%productioncostseveryyear,caused them toneglect safety checksof cars.AlthoughToyotabecamethelargestautomakerin2008,ithad,byMarch2009,thegreatestdeficitrecordedinthecompany’shistory.Asaresult,WatanaberetiredhispositionandAkioToyodabecametheCEOof Toyotaasof June2009. Anotherfactorof thishugecrisiswasincreasingnationalandglobalproductivityinashortperiodof time.Intheearlierpartof thisdecade,ToyotanoticedweaknessamongitsU.S.competitorsandopportunitiesinemergingmarketslikeChinaandIndia.Asaresult,Toyotabeganaheadlongexpansionspreearoundtheworld.Duringthisenormousexpansionprocess,Toyotaabandoneditsownprinciple,whichistoneverbuildanewproductinanew

factorywithanewworkforce(duetostabilityconcerns).AnynewToyotafactorywouldproduceamodelthatwasalreadyoncebuilt inanexistingToyota factorybecausedoing in this way minimized quality control variable.Experts say that this “recall crisis”might be caused byToyotapursuingitsnewcontradictoryprinciple:unificationof components,localizationandabruptexpansion.

While Toyota regards this recall as a severecrisis,othermanufacturersof automobilesview itasanopportunityforthem.ExpertssaythatHondatookthegreatestadvantageof Toyota’srecallcrisis; increasingitsmarketshareby5%.GeneralMotorsmeanwhilere-tooktheplaceof thelargestautomakerandHyundai’smarketshare increased from 5.3% to 7.5% in the U.S. Unlikeotherautomakers,Hyundai’smarketshareintheU.S.wasrelativelylowandthus,Toyota’srecallwoesareallowingsmallercompaniessuchasHyundaiimprovetheirbrandimagesandmakethisshort-termincreaseinmarketshareaslong-termaspossible.BA

Japanese press named this recall the “Watanabe’s curse, ” suggesting that there was a problem with decreasing production costs which Watanabe (former Toyota President) had pursued for 10 years.


EvenbeforethegeneralelectionsthattookplaceonAugust 30th, 2009, the popular speculationwasthattheLiberalDemocraticPartyof Japan

(LDP),thepartythathadruledalmostcontinuouslysincethe1950s,wouldlosetoitsrivals,theDemocraticPartyof Japan(DPJ).Multiplefactorssuchascontinuouseconomicstagnation,adecliningfertilityrate,agrowingpopulationof elderly citizens, an inefficient and cumbersomebureaucracy, and the perceived incompetence of theLDPleader,TaroAso,contributedtoaneweraof DPJgovernance.TheDPJ,ledbyYukioHatoyama,cameintopoweronasweepingmandate.Inanelectionwithwhatwasestimatedtohavea70percentvoterturnout,theDPJwasabletogarner308outof 480seats,whiletheLDPonlymanagedtowin119.Yet,eveninthefaceof thismomentousvictory,Hatoyama,nowthePrimeMinisterof Japan,acknowledgedthattherewasmuchworktobedoneforhisparty,whichhasonlyruledfor11monthsin

thehistoryof post-WorldWarIIJapan. Indeed, the dramatic circumstances of theDPJ’s rise to power seem to have set the exceedinglyhighexpectationswhich ithasdashed in thesucceedingmonths. During the election, Hatoyama and the DPJpromised Japanese citizens significant changes includingrestructuringtheaforementionedbureaucracy,cuttingthefueltax,raisingtheminimumwage,andgrantingeachfamilyamonthly26,000JPY($300USD)stipendforeachchildithas.Giventhemassivedebt theJapanesegovernmentaccumulated from stimulus spending incurred by thepreviousLDPadministration, thenewDPJgovernmentwasalreadyhamstrungtoacertainextentabouttheactionsitcouldtaketoaddresstheeconomiccrisis. In recent months, the DPJ government hastakencertainstepstotrytolifttheworld’ssecondlargesteconomyoutof recession.Hatoyama’s governmenthasinjected another massive 7.2 trillion JPY ($80 billionUSD) stimuluspackage into the economy inDecember2009. It also provided incentives to consumers to buyenergy efficient automobiles and appliances. Althoughencouraging signshave shownon the radar, including adecrease in the unemployment rate, deflation remainsa severe problem for Japan.Economic growthhas alsodisappointed those in the financial sphere, as Japan’seconomyunderperformedtheexpectationsof analystsinthefourthquarterof 2009.Hatoyama’spartyhastakenhitsinthepollsbecauseof thisandmultiplefinancialscandalsthatthepartyenduredlatelastyear.AstheDPJactivelyseekstofulfillitsothercampaignpromises,suchasshiftingpower to elected officials from entrenched bureaucrats,the government will find it increasingly difficult as itstrugglestomaintainaunitedfront.ItalsoremainstobeseenwhetherHatoyamawillbeabletoeffectivelyaddressthelongstandingissuesof lowfertility,thegrowingelderlypopulation,andincreasinggovernmentdebt.BA

By Joseph Ning, Cornell University

Japan: A New Government Battles Old Challenges

A van with speakers roams around Tokyo blasting political propaganda admist the presidential election season

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Thaksinomics: a Tool for economic improvemenT or poliTical powerBy Suthinee Buranaphong, Cornell University

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In July 1997, the Asian Financial Crisis raisedfears of a worldwide economic downturn. ThecrisisfirststartedinThailandwhenformerPrimeMinisterChavalitYongchaiyudhdeclaredtofloat

the Thai baht because of the collapse in real estateandmortgagemarkets.Due to theThai government’sinabilitytosolvethisfinancialcrisis,re-electionoccurredsubsequently.PrimeMinisterThaksinShinawatracameintopowerandpromisedtheThaicitizenstorescuetheireconomyfromtherecessionwithhiseconomicpolicy,namelyThaksinomics. Thaksinomics is a setof populist policies thataimsat ruralpeople,particularly inagriculturalsectors.Thaksinomics policies are implemented to increase inloansfrombankstofarmersandextendpaybackperiods,toencouragesmallandmedium-sizedenterprisesbytheOneTambonOneProductprogram, tosubsidize fuelcost,tocreatethe30bahtuniversalhealthcareprogram,to privatize state-owned enterprises, and to buildmegaprojectsforpublicinfrastructure. After these policies came into effect in 2001,Thailand’s GDP growth in 2002 reached 5.3%, thehighestsince1996,followedby7.1%in2003and6.3%in 2004. Whether Thaksinomics led to this dramaticimprovementhasbecomeapointof significantdebate.Supporters claim that by injectingmoney directly intohouseholds, thesepoliciesencouragemoredemandof internalgoods,thusmakingtheeconomylessvulnerabletoexternalshocks.TheyalsopointoutthattheThaksinadministration repaid thedebtpayment incurred fromtheAsianFinancialCrisistotheIMF.Onthecontrary,critics of Thaksinomics argue that these policies are

simply the traditional Keynesian fiscal policies whichstimulate the economy only in the short-run whileignoring long-term development. They also questionthe slower GDP growth of 4.5% in 2005. From theeconomicpointof view,althoughThaksinomicsseemstomarkadecentstepingrowthrate,thepoliciesareadestructivemechanismontheeconomicstructureinthelong-run. First, consider the most principal policy inThaksinomics—increasing loans to farmers, villages,and small and medium enterprises. The governmentordered state-owned banks to increase loans to low-incomepopulationespeciallyinagriculturalsectorsandalso issuedfour-yeardebtmoratoriumsforfarmers.Inshort run, this policy stimulated the demand side of the economy by increasing the budget constraint of households. The increase in spending was observedquicklyaftertheimplementationof thepolicy,leadingtogreaterinvestmentandaggregateoutput.Asmentionedearlier, from2002 to2004, the reportedGDPgrowthrateswere5.3%,7.1%and6.3%respectively.However,problems arose when banks made loans without duediligence to people who had little means of repayingthe loans. In addition, banks cannot infinitely makeextended loans. The newly issued loans accumulatedwithpreviouslyloansincreasedthepercentageof non-performing loans(NPL).Moreover, thispolicycreatedillusive consumption power that led to overspending.People did not fully recognize that their purchasingpowerwas fundedbyborrowing future income .Thisis why the GDP growth rate eventually dropped asthe increase in demand did not originate from actual

What Thaksin’s Supporters say:

...by injecting money directly into households, these policies

encourage more demand of internal goods, thus making

the economy less vulnerable to external shocks

What Thaksin’s Critics say:

...these policies are simply the traditional Keynesian fiscal policies which stimulate the economy only

in the short-run while ignoring long-term development


increasesinincomebuttheillusionof wealthcreatedbythe government. Themassive amount of NPLswouldlater on become the government’s burden and low-incomepeoplewouldsufferfromdebtrepaymentduetooverspending.Inthelongrun,thispolicyledtheeconomyinthewrongdirection. ThesecondfactoristheOneTambonOneProduct(OTOP)program,whichstimulatesthedevelopmentof rural small- and medium-sized enterprises. The policyencourageseachregiontocomeupwithitsownproductsbasedonlocallyavailableresources.Thegovernmentwillhelppromotetheseproductsonthenational level.Thisprogramwasaimedatgeneratingmoreeconomicactivityfor local villages so that they obtain steady sources of incomeandbecomelessvulnerabletovolatileeconomicsituations. However, in reality, to sell OTOP products,theruralbusinessesweretremendouslydependentontheinternationalfinancialsituation.Insteadof strengtheninglocaleconomies,theOTOPprogramexposedthemevenmoretoexternalshocks.Localvillagersareinfluencedbyeveryswayof thedemandinexternalmarkets,thuslosingtheircompetitiveness. The thirdpointof concern is thegovernmentsubsidyonoilprices. In thebeginning, this subsidy ledto an increase in investment and aggregate output duetotheloweroilprices.However,inlongrun,thispolicycontributed to a huge deficit in government spending.It failed to encourage real GDP growth because theobservedincreaseinoutputandproductionlevelscamefromtemporarymonetaryinjectionsfromthegovernmentin the formof transportationcost subsidies.Sooneror

later,thegovernmentwouldhavetopayoff thisdeficitbyraising taxrevenueorbyaddingtariffs tooilprices.Fromtheperspectiveof politics, thispolicycangatherpopularity for the political party currently in power.However, it makes little difference in real economicvariables. Lastly, we must analyze the 30 baht universalhealthcareprogram.Thisprogramguaranteesuniversalhealthcarecoverageforonly30baht($0.75USD)duringa visit at any statehospital.Atfirst sight, itwashailedas one of the most successful policies, shown by themassive number of low-income people who can nowenjoymedicalservices.Nevertheless,astimepassed,thegovernment didnot hold enough revenue to subsidizethestatehospitalsandleftthemtofundtheservicesontheirown.Themedicationbecamesub-parandhospitalsbegantodenypeoplewithhealthcarecards. In conclusion, despite the statistical increase inGDPfrom2002to2004,thisboostof adrenalinedidnotrepresent real growth in the economybut rather shorttermresponse togovernment intervention,or inotherwords, expansionary Keynesian fiscal policy. AlthoughThaksinomicscanturnthetidesinthenextelectionbywinningovervoters,itisincapableof makinglong-termimprovementstotheeconomy.Furthermore,thispolicycanbecomedestructivetowardsThailand’ssustainabilityand growth as people become dependent on thegovernment’s care, raising doubts to whether ThaksinShinawatra enforced Thaksinomics to further his ownpoliticalpowerortoimproveThailand’seconomy.BA

The “red-shirt” movement, many of them followers of former PM Thaksin Shinawatra and his policies, show their support on the streets

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Working within the Law Your employee, whose job requires her to move andarrangetablesandchairsregularly,hasjustinformedyouthatsheispregnant.You,outof compassion,suggestthatshetemporarilyswitch toanother jobwitha lower level of physicaldemand,butunfortunatelyyoucouldbesuedfordiscriminationagainstpregnancyright away.However, employees are somehow not protected fromreligiousorsexualorientationdiscriminations. Your employee has justmade a seriousmistake and hewas duly dismissed.To your surprise, your lawyers told you thatyoushouldre-considerthedismissalbecausecourtswouldweighhismistakeagainstthenegativeimpactshewillsufferasaresultof thedismissal.Thejudgescanforceyoutowithdrawthedismissalbecausetheemployeewouldloseasubstantialamountof long-termpaymentdueuponnormalterminationof theemploymentcontract. Astheproverbsays,“wheninRome,doastheRomansdo”.Whilemostof the lawsare in tunewithcommon sense, some of them are counter-intuitive. Itwouldbeprudent forbusinessmen topay attention tominutedetailsof thelegalenvironmentinwhichtheyplantotrade inorder toavoid legalcomplications.Lawyers’advicesareinvaluablehere.Themosttroublesomefieldstendtobeemploymentandunionlaws,wheredifferentjurisdictionshavedifferentviewsregardingtheextentof employees’rights–usuallyattheexpenseof employers.

InHongKong,theemployment lawiswritten,generally, in favour of employees. When we arrive ata grey area, an employee’s legal position is usually beprivileged. The Labour Tribunal was set up to handleemploymentdisputes;employeescanaskthegovernmentfor compensationdue if their employers areunable topaytheirwages.AnothernotablefeatureinHongKongis the lackof astatutoryminimumwage level–whichmightbeapieceof goodnewstoemployers.

Dealing with the Taxman Re-structuring a remunerationpackage to bemore tax-efficient?Thetaxmanwillchaseafteryouinthenameof deliberatetaxavoidance.Structuringsuchatax-efficientpackageatthetimeof employment?Thistime,youareperfectlywithinlegalbounds. HongKonghaslongbeenfamousforitslowtaxrates and simple, straight-forward taxation system.Theterritorial concept is employed,whichmeans that onlyactivitiescarriedoutwithinHongKongcanbetaxed.At16.5%,theincometaxforlimitedcompaniesiscertainlyconducive to investments, perhaps second only to taxhavensliketheBritishVirginIslandsandCaymanIslands. Thenagain,whatisthefunof doingbusinessif you’respendingyourenergyfollowingrulesandregulationsalldaylong?TheHongKongtaxationframeworkallows

Hong Kong has long been hailed as one of the best business environments in the world. How does the often cumbersome legal and regulatory framework operate in such a business utopia? What minimum requirements and assets are considered indispensible in this laissez-faire economy?

Watch Your Step:Hong Kong Legal and Compliance

Issues for Businessmen and

EmployersBy Andy Li Yu Hin,

The Chinese University of Hong Kong

General Business


youtouseasmanytax-efficientarrangementsaspossible,providedthatyouadoptthemrightfromthestart.Theleastyoucandoistaking$100,000HKD($12,888USD)outof annualprofitsassalarytotakeadvantageof themaximum personal salary tax allowance of the sameamount(forthefiscalyear2009-10).That’s$16,500HKD($2,127USD)youtakebackfromthetaxman’shandsandstraightbackintoyourpockets!

Meeting the Standards You spotted a perfect opportunity in the Hong Konginsurancemarket.You decided to abandon your bankruptU.S.Companyandsetupyourbusinessthereassoonaspossibletogainaheadstartaheadof yourcompetitors.Whenyouapplyforalicenseat theOfficeof theCommissionerof Insurance, the guy replied,“Insurancebusiness?Noproblem!Coughup$10millionHKDincapital,andfindsomeoneelsetoconductyourbusiness.Youfailedthe‘FitandProper’testfordirectors”. WhileHongKongdoesnothave strange laws,like the prohibition of “naming a pig ‘Napoleon’” in

France,itdoessetahighentryrequirementfortwosetsof industries.Thefirstisfinancial-relatedindustries,mostnotablybanks,insurancecompanies,andmoneylenders.Theothersetincludesindustriesthatwouldaffectalargenumberof consumers if theywere tomakeamistake.Examplesareeducation, food, andbeverage industries.Inbothcases,compliancerequirementsservetoprotecttheinterestof consumers. Industries in Hong Kong have a tendency toestablish their own regulatory organizations. Theseorganizations set industry standards on quality and acode of ethics. As the industries develop, regulatoryorganizations generally become statutory bodies, thusreinforcingtheindustry-specificcompliancerequirements.Firmswouldhavetomeettheminimumrequirementsinordertobegrantedalicensetoconductbusiness.Someindustriesevenhavetheirownby-laws–moreheadachesforexecutives,unfortunately.Intheend,theseshouldn’tcomeasasurprise.Afterall,theregulatoryrequirementsaresetbytheindustriesthemselves!BA


Evenbefore China emerged from theGreatRecession,investorshadlongbeenattractedtothenation.Chinacontinuedtogrowandsignificantly improve its economy; itsGDP

grewby8.7%lastyear.Chinahasthetremendousgrowththatprovideshugeopportunitiesformanyfirms,anditdoesnothavethepoliticalinstabilitythatotheremergingmarketshave.Thestatisticsspeakforthemselves;Chinanow has three of the four largest banks by marketcapitalization,andthetwolargestinsurancecompanies. China’s rise to prominence is quite apparent,butwhat isn’tclear ishowfinancialdecisionsaremadeinthisnation.ThereasonbehindthisisbecauseChina’s

government, the Communist Party, and financialinstitutionsaresoentangledthatitisdifficulttodeterminewhoreallymakesthefinaldecisions.ConsistentwithhowtheCommunistPartyoperates,evenattemptstospeculategovernmentfunctionswillputyouindangerouswaterswithdubioussecrecylaws.ThisisnottosaythatChinahasnothadincentivetomakeitself moretransparenttobecome more competitive in the global economy. Onthe contrary, China’s State Administration of ForeignExchangerecentlyannouncedthatitwouldbeginreleasingdataonbalanceof paymentsonaquarterly,insteadof onasemi-annualbasis,inanefforttomakemoreeconomicdataavailabletoglobalinvestorsandpolicymakers.

China’s Shroud of Secrecy is Not Friendly to Those

Outside of ItBy Jonathan Lau, Cornell University

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However,theChinesegovernmentlovestobeambiguousand subtle, even if itmeans being deceptive.A smallexampleof thisistheannouncementmadebyPremierWenJiabaoin2008thatChina’smilitarybudgetwouldbe$60billion,instarkcontrastof Pentagonestimatesof upto$150billion.AccordingtoTheEconomist,inlightof thenewsthatSichuanTengzhongHeavyIndustrialMachineryCo.plannedtobuyoutGeneralMotor’sHummerunitlastmonth, theMinistryof Commerce repeatedly toldreportersthatitneverreceivedany“application”forthedeal,playingon itsdefinitionof “application.”Chineseofficialsemployasimilarapproachintheirpolicymaking;theywanttobeambiguoussothattheycanusedifferentinterpretations of what they say, or in other words,changetheirmindsatwill.Theonlyrepercussionstheywillfacearecriticismsandridiculeforbeingambiguousandunclear. In the United States, investors pay undividedattentiontotheFederalReservechairman,BenBernanke,andthedecisionshemakesaboutthecountry’smonetarypolicies. In China, there isn’t such a public figure thatinvestorscanturnto.Alongwithambiguouspoliciesandinformation, this is another contributing factor to theexistenceof informationasymmetry inChina.Unequalaccess to information provides those who have theinformationanunfairadvantageoverthosewhodonot.However,thiscomparisonisnotfairtobeginwithsinceChinahasneveropenlysupporteddemocracy.

On the other hand, there are someimportantobservationstobemade.Theclose-knit nature of China’s financial institutionsand government is somewhat related tohowtheUnitedStatesoperate.Highrankingofficials in the U.S. government have longbeencriticizedforhavingconflictingintereststhatbenefitindustriesfromwhichtheycame,instead of the overall economy. Known asthe revolving door in politics, this principlestates that highly influential individuals arebroughtintogovernmentrolesforafewyears,implementpoliciesorpetitionforgovernmentspending in such away that is beneficial totheir industries, and return to their formerjobsoncetheirservicetermsend.ProminentexamplesincludeformerVicePresidentDickCheney,whocamefromtheoilfieldservicesindustry, former Treasury Secretary Henry

Paulson,andotherhighrankingexecutiveswhoworkedatGoldmanSachs. If the people whomake financial decisions inChina are handpicked by the Communist Party itself,asmanyof thecountry’sbankingexecutivesledcareersthat were carefully managed and predetermined, thenwill therebe any conflictsof interest?Theymightnothave incentives tomake conditionsmore favorable forany one industry, but they can still benefit themselves.Manyexamplesserveas indirectproof. Chinesebankscanbedescribedaspureutilities,sincethegovernmenttakesanactiveroleinmakingimportantcreditdecisions.Becauseof this,afirm’sgreatestassetinChinaisoftenits ties to the government, which often determine itssuccess.Whensuchimportanceisplacedongovernmentrelations,unfairplaybecomesaconcern.Chinahaslongbeennotoriousforaplaceof insidertrading,especiallybetweengovernmentofficialsandbusinesses Coupledwith the fact thatChina stilldoesnothavetheregulatoryframeworktoensureinvestorsafety,as companies still post false and misleading financialstatements, the average investor can only be cautiouswhen investing in China. The growth and investmentopportunities are certainly there, but it becomesmuchharder to pinpoint true opportunities when they areshrouded in secrecy. Perhaps the only conclusive thingfromChina’sambiguityisthatthosewhocansecuregoodgovernmenttieswillmostlikelybenefitthemost.BA

Chinese officials employ a similar approach in their policy making; they want to be ambiguous so that

they can use different interpretations of what

they say, or in other words, change their minds at will


The information revolution of the past twodecades has fundamentally changed theworld, enabling fast and instantaneousexchange of information across the world

and tearing down the barriersof formerlyreclusivecountrieslike China. Indeed, China’swidespread adoption of theInternethasheraldedanewageof transparency and freedomwithin its borders, with socialnetworkingtoolslikeTencent’sQQleadingthepack.However,just as every rose has itsthorns, China’s disgruntledintellectual elites have beentaking advantage of this new-found freedom for their ownnefariouspurposes. InJanuary2010,GoogleChinadisclosed inablogpostthat it had detected a “highlysophisticated and targetedattack on [its] corporateinfrastructure originating fromChina.” Google claimed thatthis hacking attempt resulted

in the lossof intellectual property frommore than33major multi-national corporations, including industrygiants likeIntelandYahoo. Moresignificantly,GoogleassertedinthepostwrittenbyChief LegalOfficerDavid

By Eric Ang, Cornell University

CyberCrime

in China

China was one of the top countries from which malicious software and spam spread in 2009

Top countries hosting malware on their servers, 2009

Top countries relaying spam from their servers, 2009

39.6%

14.7%

6.3%

4.3%

3.5%

2.7%

2.5%

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US

China

Russia

Peru

Germany

South Korea

Turkey

15.7%

10.7%

6.0%

5.1%

4.7%

4.3%

3.5%

US

Brazil

China

India

Turkey

South Korea

Russia

Hot Zone(Source: Sophos)

Technology

39.6%

14.7%

6.3%

4.3%

3.5%

2.7%

2.5%

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US

China

Russia

Peru

Germany

South Korea

Turkey

15.7%

10.7%

6.0%

5.1%

4.7%

4.3%

3.5%

US

Brazil

China

India

Turkey

South Korea

Russia


Drummond that a primary goal of the attackers wasto access theGmail accountsof Chinesehuman rightsactivists.Google did not specifically accuse any source,but itannouncedonJanuary12th,2010that itwas“nolongerwillingtocontinuecensoring[itssearch]resultsonGoogle.cn.” In response to rising international pressure torestrain cybercrime in China, Chinese officials havestarted to take action on hot-zones of cyber crime,namely universities and online forums. TheNewYorkTimes reported that thehacking attemptonGoogle.cnwas traced to computers at China’s Shanghai JiaotongUniversityandLanxiangVocationalSchoolinShandongProvince. Onthe9thof February2009,officialsinShanghaiannouncedthebustof amajorcyber-hackingring,knownasBlackHawkSafetyNet,whichwaslabeled“thecountry’slargest distributor of tools used in malicious Internetattacks”bythestatemedia.AccordingtoChina’sXinhuanewsagency,thisonlinecrimenetworkgeneratedaround$1millionfrommorethan12,000subscribers.However,industry experts suspect that this move by Chineseofficials served simply to placate therisingchorusof voicescallingforactionagainstcybercrime.Fundamentally,theenforcement actionbeen takenby theChinesegovernmentisbutatinydropinanendless,roilingsea.Inasurveyof morethan600informationtechnologyexecutives in 14 countries, China wasranked 2nd in the world in terms of the likelihood of being a cyber attackorigin. China’sonlineworldresemblesa free-wheeling,anything-goes frontierdespite the Chinese government’sstate-run censorship system.Anythingfrom hacking software, which iseuphemisticallynamed“trainingtools,”to pornography can be easily gottenfor a fee, despite China’s best effortstoclampdownonsuchtrade,whichitregardsasanoutrageof itsConfucianphilosophy.China’sInternetcensorshippolicy is labeled as “pervasive”by theOpenNet Initiative’s global Internetfilteringmap,theworstrankingused.

US

China

Russia

U.K.

France

Germany

Other

36%

33%

12%

5%

2%

2%

10%

Nations in Survey deemed to be of ‘most concern’ as source of

cyberattacks

Hacker Havens(Source: Center for Strategic and International Studies)

Despite China’s roaring economic success anddouble digit GDP growths, the quality of life for theaverageChinesecitizenmaynotbeashighasitshouldbe,duetotheseriouscurtailmentof freedominallaspectsof life,especiallyintheonlineworld.However,manyof China’sintellectualeliteshavefoundwaystocircumventthe paternalistic state’s censorship and control of theInternet.Indoingso,thesehackershavebeenlabeledashei-kebytheChinesegovernment,whichtranslatesliterallyto“anevilperson”. Certainly,itishardtocondonethecontributionsthat the talented hackers in China are making in therealm of cyber-crime, but our condemnation of theiractionsmustbeweighedagainstthestrugglethattheyarespearheading inorder to achieve freedomof speech intheonlineworld.Theidealsof freedomwhichweholdsodear shouldextend into theonlineworld just as theSecretaryof State,HilaryClinton,remarkedinherspeechonInternetFreedomonJanuary21,2010thatitwastheresponsibilityof theUnitedStatesto“helpensurethefreeexchangeof ideas,[anidealthat]goesbacktothebirthof ourrepublic.”BA


While Google has become a verb for onlinesearching, Taobao has entered the Chinesevocabulary as “online shopping”. With an

internetpopulationof over380milliongrowingat18%annually,Chinaispoisedtowelcomethenexte-commerceboom. Taobao, which literally means treasure-huntingin Chinese, is the largest shopping website in Chinaestablished by the Alibaba group in 2003. Accordingto latestfigures, itsmembershipcounthas reached145million, and its transaction volume of skyrocketed to$99.96 billion RMB ($14.64 billion USD). How doesTaobaobuilditssuccessuponastilldevelopingChinesesociety?

Building Confidence WheneBayenteredChina,itexpectedtocultivateand capture the China online shopping market easily.Instead, its payment system–PayPal, bank transfer, orcreditcardpayment–completely lost itsswayinChinaanddraggeddownthewholeattempttoenterthemarket. Jack Ma, the CEO of Alibaba, realized thatdirectly transferring payment to the sellers before theconfirmation of the receipt would not work in China.Backin2003,whenTaobaowasfirstestablished,onlineshoppingwasstillagrowingtrendinChina.Transferringmoneytoonlinesellersthatyounevermetlookedexactlylike anonline fraud toChinese consumers.Theydidn’ttrustonlinesellerswhocanevaporatebehindthescreen

The Chinese Epoch of

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By Julie Lam, The University of Hong Kong

Technology


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themomentyoutransfermoneytotheiraccount.Inshort,the online shopping market was too immature for theChinesetotrustonlinesellers.Buyersrejectedtopayfirstbecauseof the risk;but sellers also rejected to ship thegoodsfirstforfearof buyersdefaulting. JackMa found the balance by dividing the risk50/50.HeestablishedAlipay,athirdpartyonlinepaymentplatform, and used it to process Taobao transactions.SellersareobligedtoshipthegoodsafterbuyersdebittheamounttotheircorrespondingAlipayaccounts.Buttheamountwillnotbe transferred to sellers’ accountsuntilthebuyers’receivethegoods.

Filling the Communication Gap The sense of insecurity in online shoppingarosefromthefact that thebuyercannotscrutinizethecommodityinpersonbeforeclickingthepaybutton.Theobvioussolution is to facilitatecommunicationbetweenthe two parties who can exchange information aboutthe commodities, hence building consumer confidence.Embedding an instant messenger onto the website isundoubtedly the most plausible and effective optionas it provides an instant platform for communication.However,mostonlineshoppingwebsites,includingeBay,rejectthisoptionasinformationexchangethroughinstantmessengersisdifficulttocontrol.If usersmanagetosettlethepaymentprivatelythroughinstantmessengers,eBay’scommissionfromonlinepaymentwilldisappear. JackMathoughtotherwise.Heboldlyintroducedaspecializedinstantmessenger,Aliwangwang,inTaobaotobridgethecommunicationgapbetweensellersandbuyers.Besides enabling information exchange, conversationrecordsinAliwangwangalsoservedaslegalproof incaseanydisputes arise from the transaction.The immaturityof theonlineshoppingindustryinChinaturnedouttobeanadvantageforTaobao.MostusersregardthesecurityprovidedbyAlipayasindispensable.Consequently,privatesettlement through instant messenger communicationis the least concern. According tomany Taobao users,theypreferTaobaotoeBayinChinaduetotheformer’sprovisionof Aliwangwang.

Logistics: Deliver It Cheap and Quick Shipment is another issue for online retailing.Fortunately,Chinahasawelldevelopedandcost-effectivenetworkforexpressdelivery.Theincreasingpopularityof Taobao isaccompaniedby the rapidgrowthof express

delivery companies specializing in delivering goods forsellersonTaobao.Otherthanprovidingastabledeliverychannel,thisdrivesdownthemarketprice.Deliverywithinthe border of China, excluding Taiwan, Hong Kong,andMacau, now costs only some5RMB ($0.73USD)forthefirstkilogramand1RMB($0.15USD)foreverysubsequentkilogramof goods.Thedeliverymerelytakesoneortwodaysdependingonthedistance.

Adopting to the Chinese Market The core ingredient in Jack Ma’s successfulformulaistheabilitytoassimilatethemodelof eBayintothecontextof Chineseculture.ShoppingoneBay isanindividual activity that canbe summarized in two steps.First, check the product introduction and feedbacks onthat specific product. Second, click the pay button orleaveit.Ontheotherhand,Taobaoresemblesanonlinebustlingmarketplace.Besidesgoingthroughthelengthydetails and feedbacks of the products, buyers debatevigorouslyintheforumsconcerningthequalityof specificproducts.TheywillalsosocializewiththeonlinesellersonAliwangwang formore informationbeforepaying.OnesideproclaimsAmericansimplicityandindividuality,whiletheotherimitatesaChinesecommunitywithemphasisonhumaninteraction.Theexperienceof Taobaoisalessononlocalization.

From World Factory to International Brands Thesuccessof TaobaohasaprofoundmeaningtoChina.Thegrowthequationof ChinahasbeenactingastheworldfactorytocheaplyproducegoodsforaffluentWesternconsumers.However,Taobao isenablingmoreandmoresmall-andmedium-sizedfactoriestotaketheirfirststepinestablishingtheirownbrands.Knowledgeandskillsaccumulatedduringtheirexperienceasmanufacturersin the past decades plus the cost-effective online retailchannelprovidedbyTaobaoenabledcompanieslike1%and Ando, shoes and clothing manufacturer-retailers,to sell their own products without a prohibitive capitalinvestment. Perhaps it is crazy to compare those localbrands with world-renowned mega brands right now,but let’s think of the costs cut by eliminating retailingoverheads.ItisnearlyimpossibleforWesterncompaniesto compete with Chinese manufacturers in terms of price.Taobaomighthaveactuallyjump-startedtheeraof Orientalleadership.BA


The Gambling Kings of Asia

For at least half a century, two men ruled the gaming industry of Asia from their thrones

in gambling paradises located in Genting and Macau. Born into poverty in 1918 in Fujian, China, Lim Goh Tong eventually amassed a

fortune of $4.2 billion USD, while Stanley Ho, born in Hong Kong in 1921, rebuilt the fortune

of his clan to an estimated $9 billion USD. These two great entrepreneurs, these two

famous Kings of Gambling, bet everything on their wit and vision to craft empires, which has undeniably changed and reshaped the

courses of their local economies.

By Yun Qi Mok, Cornell University

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Entrepreneurship


Humble Beginnings ThecardsdealttoLimGohTongandStanleyHowerefarfromfavorable,but liketrulyskilledgamblers,they strove topursue their owngoals rather thanwaitfor fortune to fall into their laps. Lim grew up in avillagejustafterthecollapseof theQingDynasty,atimewhen China was being torn apart by foreign invadersand local warlords. Political stability and peace wereunknown, andwhenLimwas19,he joined thewavesof Chinese immigrants fleeing to Southeast Asia andsettledinMalaysia.Hebegantoworkasacarpenter,butthenventuredintothescrapmetalandhardwaretradingindustriesbecausethedemandforheavymachineryafterthe Japanese Occupation of Malaysia was enormous.With such foresight, Lim embarked on his journey togreaterheights. UnlikeLimwhowasbornintopoverty,StanleyHowasashaoye,or“littlemaster”,of theillustriousHoTung family in Hong Kong, until he was thrust intodestitutionwhenthefamilywentbankruptafterthestockmarketcrashin1934.Hegrewuppledgingtobecomeasuccessfulandrichman,apledgewhichheultimatelykept.HestudiedfortwoyearsattheUniversityof HongKongafter receiving a scholarship, buthad toflee toMacaubecauseof theinvadingJapaneseforces.WorkingforaJapaneseimport-exportfirm,hemadehisfirstfortunessmugglingluxurygoodsintoChinaduringWorldWarII.According to Joe Studwell, author of AsianGodfathers:Money andPower inHongKong and SoutheastAsia, itwasthen thatHofirst gainedhis formidable reputationbyregainingcontrolof hisshipfromabandof maraudingpirates.In1943,hesetupakeroseneandconstructionbusiness, which provided him the financial resourcesnecessarytobuildhisrealfortune.

The Casino Empires Asthestorygoes,LimGohTongwasenjoyingthe crisp air of the Cameron Highlands one night in1964, and conceived the idea of building a beautifulcasinoresortontopof amountainnearKualaLumpur,the capital of Malaysia. Research found the Ulu KaliMountains to be the ideal place to set up his resort,despite it being an utterly remote locale.Wagering hisentirefortuneonthisdream,Limbeganthismonumentaltask in the faceof seemingly insurmountable oddsof success anddisapproval from fellowbusinessmen, andsetuptheGentingHighlandsBerhadCompanyin1965;theroadtohisvastrichesstartedwiththeconstruction

of whatwastobecometheGentingHighlandsResort.Theprojectwasfinallycompletedin1971,withhimonthebrinkof bankruptcy,withtheopeningof theresort’sfirsthotel,andwasheartilysupportedbyMalaysia’sthenPrimeMinisterTunkuAbdulRahman(asLim’sprojectwas an effort to increase Malaysia’s tourism industrywithoutanygovernmenthelp).Becausehedaredwherenooneelsedid,Limbecamethesoleholderof acasinolicenseinMalaysia. Without any domestic competition, the resortflourished,andin2006becamethehomeof oneof thelargesthotels in theworld, theFirstWorldHotel.LimcateredhiscasinostothelocalpopulationbyintroducingmanyChinesegamessuchastaisaiandpaigowinsteadof westerngameswhichhebelievedhiscustomerswouldbe unfamiliar with. Aside from providing table games,Limtried tocreateaplaceforchildrenandfamiliesbybuildingvastthemeparks,shoppingplazas,andtheatres,notunlikethestyleof LasVegascasinos.Tomakeaccessto the resortsmore convenient, Lim spent over $73.8millionUSDtobuildaseriesof roadsandcablecarstotheresort.Limdidnotstopwithhisbusinessthere,butcontinued todiversifyhisempirebyventuring into thehighlyprofitableplantation,power,oil,andgasindustries.Bybelievinginwhathecalledinhisautobiographythe“power of conviction,”Limbuilt up his business stepbystep,butunlikethetraditionalmercenaryimageof asuccessful businessman, “avoid[ed] stepping on others’toesandmakingenemies.”AsformerMalaysianPrimeMinister Mahatir Mohamad said, “even without theadvantages of higher education, [Lim] has proven thatnothingisimpossible.” StanleyHo joinedupwithHongKong tycoonHenryFok,YipHonandTeddyYiptowinthebidforMacau’sgamingmonopolybypayingacolossalsumof about $410,000 USD coupled with sweet promises totheMacaugovernment,thenrunbythePortuguese,topromotetourismanddevelopMacau’sweakinfrastructure.Ho’sbrainchild,theSociedadedeTurismoeDiversõesdeMacao(STDM)wasbornin1961withthefamousgoldenLisboaCasinoatitshelm.HealsocreatedtheShunTakHoldingsLtd.whichwas listedonHongKong’sStockExchange, bought over the TurboJET, which bringspassengersbetweenHongKongandMacau,tookoverthe Macau Jockey Club, launched Asia’s first footballandbasketballlottery,andevenanonlinecasinowebsitecalledDrHo888.com(inCantonese,thenumbers888arepronounced“faatfaatfaat,”whichissynonymoustothe


wordmeaningtoprosper). However,evenStanleyHocouldnotfightagainstthemomentoushistoricalchanges takingplacebetweentherealpoliticalkingsbehindMacau,PortugalandChina.WhenPortugalfinallyhandedMacaubacktoChinain1999,BeijingbeganclampingdownonwhatFrankFahrenkopf,president of the AmericanGaming Association, calledHo’s “seedy” gambling businesses; by 2002, his fortyyearmonopoly in thegaming industryfinallycollapsed.American investors,startingwithSheldonAdelsonwithhisglitzy$260millionUSDSandscasinoand$2.4billionUSDVenetiancasinoontheCotaistrip,followedbySteveWynnandhis$1billionUSDWynnMacaucasino,pouredintoMacau, and theywere determined to create a LasVegasof theEast.TheircasinosvariedgreatlyfromHo’sno-frills styled casinos, by including luxurious shoppingcenters, first class restaurants, convention centers andother formsof entertainment besides gaming, and thisnovelconceptdidinitiallyhaulingreatprofits.However,Howasnotfazed,andbettingonhisbelief thatMacau’sgamblersweremuchmore focused on actually gamingthanontheauxiliaryentertainmentsprovidedbyLasVegasstyledcasinos,HoopenedtheGrandLisboa,shapedlikeagiantgoldenlotus,whichcost$1billionUSDtobuild,half thecostof Adelson’sVenetiancasino. When it came time for the showdownbetweenHo and all his new competitors who include his ownchildrenLawrenceandPansyHo,Hosweptthemaway,controlling30percentof thegamblingmarket,followedby Adelson’s Sands which owned 22 percent of themarketinanestimatebyReutersinFebruary2010.Inhis2009GlobalGamingExpoawardacceptancespeech,Ho

remarkedbluntlythat“thesuccessof onemarketmodelcannotberepeated[in]anothermarket.” Unfortunately,hisfameandrisetowealth,unlikeLim Goh Tong’s path of steady hard work, has notbeenwithout scandal.Openlypolygamous,hehas fourwives and seventeen children. Additionally, whisperingsof his underworld connections to Chinese triads havesurrounded his name for decades; prostitutes, sharkloaners, gangs, anddrugdealerswereknown to lurk intheshadowsaroundhisflamboyantandgoldencasinos,especially during the regime of his monopoly. WhileorganizedcrimeinMacauhasdisappearedonthesurfaceafterChinaregainedcontrolof theex-Portuguesecolony,thereislittledoubtthattheycontinuetheiractivitiesdeepunderground,or,astherumorssay,intheVIProomsof thecasinos.Despite the lackof evidence linkingHotothesegroups,Ho’sefforttoexpandhisempireoverseashasbeenmetwithgreatdifficulties;hisbidsforcasinosinCanada,Singapore,andevenAustraliawerenotapprovedby the respective local governments. Nevertheless, Hobelievesthat“what[hehas]doneovertheyearsforMacau’sgamingbusinessandfortheoverallcommunity,fulfilling[his]obligationstosociety,[hasbeen]awonderfulsourceof happinessandsatisfaction.”

The Legacies Lim Goh Tong passed away in 2007, leavingbehindanempirewhichneverthelesscontinuestogrow.Undertheleadershipof LimKokThay,LimGohTong’sson, theGentingGrouphasexpandedmore thanever.ItforayedintotheBritishgamingindustry,andincreaseditsinvestmentinLondonClubsInternationalwhichowns

Pictures from Left to Right: Lim Goh Tong, Stanley Ho

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highendcasinosthroughouttheworld,andboughtintoStanleyLeisurewhichisBritain’slargestcasinooperator.More significantly, the Genting Group which recentlyacquiredtherighttobuildthefirstCasinoinSingapore(alongwithLasVegasSands)in2006witha$4.5billionUSD investment, is opening the doors of theResortsWorldSentosaonSentosaislandthisyear.TheGentingGroupmanagedtowinthebidbecauseof theirbrilliantproposaldetailingtheconstructionof thefirstUniversalStudiosthemeparkinSoutheastAsia.Despitetherisksandcostsbeingenormous,theGentingGroupcontinuesinthespiritof LimGohTong,takingupchallengesandhopefullyturningthemintosuccessstories. Operating in Singapore will undoubtedly bedifficult, because of the restrictions the Singaporeangovernment places on the casinos. For example, as adisincentivetogambleregularly,anentrancefeeof $70USDhastobepaidbylocalSingaporeans.Inaddition,families can request that addicted family members bebarredfromthecasino.AccordingtoCitigroupanalystDominicNoel-Johnson,initialexpectationsforSentosa’sgaming revenues are “far toohigh,” and evenmeetingtheCitigroupgaming revenueestimateof around$1.2billionUSD is already very difficult.Nevertheless, theGentingGroup’sResortsWorldCasinowillhavecreatedthousandsof jobs,andwilldefinitelylettheSingaporeangovernment win by drawing visitors who will havespillovereffectsonhotelsandtourism. DespiteStanleyHo’ssomewhatmurkybusinessdealings, he has in his ownway brought prosperity toMacau, changing its poor business condition into one

that is named by theWorld Bank as a “high incomeeconomy.”Morethan50%of Macau’sGDPisderivedfrom the gaming, tourism, and hospitality industries,andthousandsof jobsarecreatedfromthoseindustries.Despite the7.3%crashof Macau’sgaming revenue in2008, 2009 sawMacau’s gaming scene hit the jackpotwith record revenues of $14.875 billion USD. As theeconomypicksupoverthenextfewyears,thenumbersareonlygoingtoincrease. In addition to molding Macau’s economy, HowasabletousehisvastfortunetobuyanddonatetotheChinese government aQingdynasty relic of a bronzehorse’s head, originally stolen during the burning anddestruction theYuanmingyuan Park, theOld SummerPalaceinBeijing,byforeigninvaders.Asafirmbelieverin thepowerof education,Hohas also setup severalscholarships in his name, including one in PembrokeCollege,Oxford.

Conclusion BothLimGohTongandStanleyHowereself-mademen,who achieved everything throughbelief inthemselvesandhardwork.AsLimoncesaid,“oncethegoalshavebeenclearlydefined,withthegreatestamountof determination andhardwork,one can conclusivelyrealiseone’sgoals.”Inasimilarvein,Hooncecommented,“I’mnotagambler.Peoplecallmethecasinoking,butIdon’tplay.”Thetwomenwhobuilttheirfortunesfromotherpeople’sfailuresingamblingatcasinosknowbestthat lady luckkissesonlythosewhohaveworkedtheirlifetimesforher.BA



The Founder Twoof theworld’smostpowerfulcorporations,Microsoft and Google, went head-to-head in court forthismanandtheimpactheismaking.Inthegoldenageof technologicaladvancement,heworkedwith the likesof SteveJobs,BillGates,andEricSchmidt.Hewasthefounderof MicrosoftResearchAsiaandGoogleChina.HisnameisKai-FuLee. Perhaps,Lee’swasoneof themostunfortunatepathstostardom.Leebecamethefocalpointof thePCand Internet world in 2005 when Microsoft sued himand Google over violation of their non-competitionagreement.Thecasewaseventuallysettledconfidentially

and soon forgotten, but the name Kai-fu Lee had leftitsmark.LeehasservedfourdedicatedyearsatGoogleChina,andwithinthisperiodof time,GoogleChinahassurpassedexpectationstoreachamarketshareof 43%attheendof 2009,secondonlytoBaidu’s56%.

The Departure from Google WasthistoogoodtobetrueforGoogleChina?Well, itwas.Whathasstifledtheexistenceof YouTube,Facebook, and Twitter in China—the PRC’s GreatFirewall—strikes again.One of Google’smissions is toprovideitsuserswiththemostobjective,unbiasedresultsthrough its engine, a mission more or less impossibleChina.Itsoonbecameclear toGoogleofficialsandtheinternationalcommunitythatchangeshadtobemadeinresponsetothecensorship.InSeptemberof 2009,Kai-fuLeemadethesuddenandsurprisingannouncementthathe

willresignfromGoogleChinaandpursuehisownventureinmainlandChina.HisnewcompanyisInnovationWorks.

The Angel Investor Youmust be asking yourself right now, “WhatexactlyisInnovationWorks?”Thecompanynamehardlyreveals a clue about its nature. In reality, the purposeof Innovation Works (Chinese: 创新工厂) is similarin technique to an incubator, in that it provides start-up funding for young andpromising entrepreneurs andtheir companies. However, Innovation Works will notprovideindiscriminatefundingtoallarraysof companies.Lee announced that the company shall focus in three

fields: “Internet,mobile Internet, and cloud computingtechnology.” Whatcanmakeamangiveupaseniorexecutivepositioninoneof thefastestgrowingcorporationsintheworld?A puzzling question indeed. Regarding this, Leegivesabrief explanation inan interviewwithRobHof of BusinessWeek.LeesaysthatthetimingisperfectforacompanylikeInnovationWorksbecauseof theabsenceof “angels”andsignificantearly-stagefunding inChina,thus Innovation Works will fill this void. In his best-sellerChinesebiography,MakingaWorldof Difference: theKai-fuLeeStory,Leeemphasizeshisburningdesiretoaidtalents inChina and that oneof themotivating factorscomesfromtheworkandattitudeof hisfather,aChinesescholarandhistorian.Throughouthisprofessionalcareer,Lee has held hundreds of public lectures for Chineseuniversity students. However, these reasons combined

By Richard Wei, Cornell University

Kai-Fu Lee

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stilldon’tseemtobeenoughtocauseLeetosuddenlymove away fromGoogle. It is unclear towhether therecent frictionbetweenGoogleChinaandtheChinesegovernment regarding censorship contributed to Lee’sdecision, but Google’s surprising threat to exit Chinajust4monthsafterLee’sabsenceaddsanotherlayerof mysterytothematter.Leehimself hasnotcommentedonanyconnectionsbetweenGoogle’sdilemmaregardingcensorshipandhisdeparture.Nevertheless,thetimingof theseriesof eventsincitesspeculation. Despite the lightning-pacedstartup, InnovationWorkshasamplefundinganditsmethodsareunderway.InnovationWorkshasalreadyraised$115millionUSDfrom the likes of co-founder of Youtube, SteveChenandWIHarperGroup.With a succinct and purpose-oriented website (see below), Innovation Works hasattracted7,000resumesonitsfirstday.Thisastoundingachievementfurtherreflectsthepotentialandenthusiasmof theentrepreneurialenvironmentinChina.Withoutadoubt,Kai-FuLee’spersonalpopularityandinvolvementwitheducationinChinaplayedkeyrolesinthisventure.TheInnovationWorkswebsitealsohasafullyfunctioning

Englishversion,which aims tobetteropenup thenewcompany’s future to global investment.On thewebsite,onecanfindthepassionateanddaringmissionstatement,“InnovationWorkswillpro-activelycollect,analyze,andprioritize projects in Internet, mobile computing, andcloud computing targeted at theGreaterChinamarket,andbuild ‘dream teams’ to execute themostpromisingideas.” ThefuturelooksbrightforInnovationWorks,notonlybecauseof itsexcellent timingandstrongbacking,butalsobecauseof theenormousrateof growthof theChinese entrepreneurial environment. As a prototypeangelinvestor,InnovationWorkswillbewarmlywelcomedandsupportedbythecitizens.Inaddition,Kai-FuLeehasacquired extensive knowledge and experience regardingboth fast-paced technology and executivemanagement.His leadership and charisma will undoubtedly guideInnovationWorks in therightdirection. If Lee’seffortskeepup,hiscompanywilldiscoverandcultivatetalentedmindswhilehelpingthemtobecomegiantsintheworldeconomy.BA

Source: http://www.clariotech.com/en/article/106-304-1.aspx

Kai-Fu Lee’s Statement as Founder of Innovation Works:We will develop an optimized model to match

entrepreneurs, engineers, ideas, and capital, leading to improved success rate and time-to-market. ❞

❝

Chinese Website of Innovation Works(Source: http://www.innovation-works.com)


This page will promise you a list of some of the most prominent and influential people in the business world. We will put aside the common stereotype of the “filthy rich” and take a firsthand look at the Top 10 Wealthiest Businessmen in Asia in 2009.

Top 10By Richard Wei,

Cornell University

Net worth: $19.3 billionCitizenship: IndiaAge: 59Fortune: InheritedIndustry: SteelOccupation: Chairman & CEO of ArcelorMittal

Mittalstartedoutworkinginhisfamily’ssteelmakingbusiness.Duetodifferenceswithhisfamilymembers,hebranchedoutandtookovertheinternationaloperationsof MittalSteel.In2006,themergerbetweenArcelorandMittalmadethismantheheadof thelargeststeelcompanyintheworld.

Net worth: $16.2 billionCitizenship: Hong KongAge: 81Fortune: Entrepreneurship Industry: Real Estate, Retail, Ports, Plastics ManufacturingOccupation: Chairman of Cheung Kong Holdings and Hutchinson Whampoa Ltd.

Li,accordingtoForbes,isrankedthesixteenthrichestpersonintheworldandthewealthiestpersonof EastAsiandescent.Withhiscrownjewels,HutchinsonWhampoaLtd.andCheungKongHoldings,heisbyfartheworld’slargestcontainerterminaloperator.

Net worth: $19.5 billionCitizenship: IndiaAge: 52Fortune: InheritedIndustry: PetrochemicalsOccupation: Chairman of Reliance Industries

Ambaniistheoverseerof India’smostvaluablecompanybymarketshare,RelianceIndustries.Havingbeenapartof Reliancesince1981,heinitiatedReliance’sbackwardintegrationstrategyfromtextilesintopetrochemicals,andfurtherintooilexplorationandproduction.

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Net worth: $5.7 billionCitizenship: IndiaAge: 64Fortune: InheritedIndustry: SoftwareOccupation: Chairman of Wipro Technologies Ltd.

Net worth: $9.0 billionCitizenship: Hong KongAge: 82Fortune: EntrepreneurshipIndustry: Real EstateOccupation: Chairman of Henderson

Land Development, Company Ltd., Hong Kong and China Gas Company Ltd., and Miramar Hotel and Investment

Net worth: $10.1 billionCitizenship: IndiaAge: 50Fortune: InheritedIndustry: DiversifiedOccupation: Chairman of Anil Dhirubhai Ambani Group

Net worth: $10.5 billionCitizenship: Hong KongAge: Raymond Kwok, 58; Thomas Kwok, 59; Walter Kwok, 60Fortune: Inherited

Industries: Real EstateOccupation: Sun Hung Kai Properties

Net worth: $7.7 billionCitizenship: IndiaAge: 52Fortune: Entrepreneurship

Industry: TelecommunicationsOccupation: Chairman of Bharti Airtel

7: Sunil Mittal

Fromtheirfather,thesethreebrothersinheritedSunHungKaiProperties,oneof the largest realestatebusinesses inHongKongandallof Asia.

4: Kwok Brothers

The brother of MukeshAmbani and the third wealthiestperson in India, Anil Ambani is undoubtedly one of themostinfluentialpeopleintheAsianbusinessworld.

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6: Lee Shau-Kee

Hailedas“HongKong’sBuffet”,LeeShau-Keehasastakeinseveralof thelargestfirmsinHongKong.Althoughhiswealthshrunkbyalmosthalf in2009,hestilllandedhimself amongAsia’sbusinessgiants.

Net worth: $5.6 billionCitizenship: IndiaAge: 65Fortune: InheritedIndustry: Steel, Energy, communications, shippingOccupation: Essar Group

Another set of brothers is heretowrapupourTop10list.Theyareinchargeof managingoneof India’s largestconglomerates, theEssarGroup,whichhasholdingsin multiple sectors, includingsteel,energy,communication,andconstruction.

Itmayseemsurprisingthatourseventhplacefinisheristhefirst electronicsbillionaireonour list.Thoughhis fortunedoes not rank at the very top, SunilMittal’s control overIndia’slargestmobilephoneserviceisnottobetrifledwith.

Net worth: $6.0 billionCitizenship: JapanAge: 61Fortune: EntrepreneurshipIndustry: Clothing retailOccupation: President of Fast Retailing

OureighthbillionairecomesfromJapan,acountrythathastraditionallybeentheeconomicleaderinEastAsia.ThefactthatJapan’swealthiestmanranksonlyeighthinthecontinentmay indicate a comparatively more even distribution of wealthinJapanthaninotherAsiannations.

8: Tadashi Yanai

9: Azim Premji

Residinginthetech-savvyBangalore,itisnodoubtthatourninth-place billionaire controls Wipro, one of the largestsoftwarecompaniesinIndia.Wiprowasoriginallyavegetableoiltradingfirm,butwhenAzimtookoveruponhisfather’sdeath,herevolutionizedthecompanyandeventuallyenteredthetechnologysector.

Asof 2009,HongKong has the fifthmostexpensive property market in the world,nexttoMonteCarlo,Moscow,London,andTokyo. Hong Kong’s housing market was

severelyaffectedbytheglobalfinancialcrisis.However,afterfalling18%inrealterms(afteradjustingforinflation)fromJunetoDecember2008,residentialpriceindexroseby21%from2008’slowpointtoAugust2009,accordingto theRatingsandValuationDepartment.HongKongIsland,Kowloon,andtheNewTerritoriesallsawstrongprice increases in thefirst twoquarters of 2009. Pricegainsforluxurypropertyhavesurpassed40%. FactorsthathavecontributedtoHongKongrealestatemarket’srecoveryincludeastrongincreaseinbuyersfrom mainland China, the Hong Kong government’sstimuluspackages,andlowinterestrates. The Chinese government implemented astimulus package amounting to 4 trillion RMB ($585billionUSD) inNovember 2008, reviving theChinesehousing market and prompting a surge of mainlandbuyinginHongKong.Asmuchas40%of thecurrentnew-homebuyerscomefrommainlandChina,accordingtotheWallStreetJournal.Newspaperreportsof luxurypropertiessoldtomainlandChineseatstaggeringprices

arenowcommonplace. Heavy intervention by the Hong Konggovernment also helped – stimulus measures in May2009 included$2billionHKD($256millionUSD)forthe housing sector. Policies include that two months’worth of rent for public housing will be paid by thegovernment;tenantspayingadditionalrentwillonlypaythebasic rent; fornon-elderly tenants, thegovernmentwillpaytwo-thirdsof therent. Thegovernment also strengthened support forthemortgagemarket.FromSeptember2008 toMarch2009, the Hong Kong Monetary Authority (HKMA)increased liquidity assistance to banks including longerborrowings from the discount window and foreignexchangeswapsandincreasedthematuritytimeof thedebtsinthediscountwindowfromonetothreemonths.TheHKMAalsoimplementedmeasuresthatcausedthebestlendingrate–thebasisformortgageinterestrates–tofallto5%inSeptember2009from5.25%inOctober2008,whichbenefitedborrowers.Tostimulateborrowingin the mortgage market, the Hong Kong MortgageCorporation(HKMC)issued,inOctober2009,aFixedAdjustable Rate Mortgage program which enabled

Hong Kong’s Real Estate Market Recovery – What’s next?By Cathy Meng Xue, Cornell University

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borrowerstolockinapredeterminedinterestratewithinanagreedperiod. Due to the stimulus packages, Hong Kong’sfinancial system remained liquid, confidence in theeconomy and the real estate sector was sustained, andborrowing and purchase were encouraged. Loans forhouse purchase increased and transactions rose 10.6%fromJanuarytoAugust2009,ascomparedwiththesameperiodof thepreviousyear. Shortlyafter therealestaterecovery,worriesof overheatingbegantosurface.Since2002,thegovernment,who owns all land in Hong Kong, has tightly limitedthe supplyof new land forhousingpurposes. In2008,completeddwellingsdecreasedby16.1%.Thetightsupplyof newhousesarguablycontributedtotheriseinpropertyprices.Inthe luxurymarket, theprice-to-rentalratio,animportant yardstick to gauge whether housing is over-priced,is42%higherthanthatduringthe1997-peakand122%aboveits1982-2009historicalaverage.Likewise,inthemassmarket,thelatestreadingisnotonlybacktothe1997-peak,butalso53%higherthanitshistoricalaverage.Moreover, the price-to-income ratio, another usefulindicator,isalsosignificantlyhigherthanthatof the1997-peakaswellasitshistoricalaverage. The above signs of over-pricing have incurredconcernsthatlowinterestrates,highliquidity,andatightsupplyof newapartmentscanfuelirrationalexuberance.Theriseinpriceisexpectedtocontinue,atleastforthenear future. A housing bubblemay be forming, whichusuallymeansasharpriseinpropertyprices,generating

expectationsof furtherincreasesandattractingbuyersorspeculatorswhoareintendtomakeaquickprofitfromshorttermbuyingandselling.Thisagaindrivesupdemandand prices to unjustifiable levels. However, an analysisof the various key symptoms including overvaluation,speculativeactivities,leveragescale,andexpectationsforfuturepricegains,showsthatwhilecurrentpricesarehigh,otherindicatorsareyettoreachalarminglevels.Moreover,demand is currentlymainly user-oriented,with 90%of transactionsinthemass-marketproperty,suggestingthatabubblemaynothaveformedyet. Topreventoverheating,theHongKongMonetaryAuthorityhasrequestedbankstolowertheloan-to-valueratiofrom70%to60%forresidentialpropertiespricedat$20millionHKDoraboveForloanslessthan$HKD20million, the 70% ratio remains, but the loan amount iscappedat$12millionHKD.Asaresult,mortgagedemandhaseasedfromafewmonthsago. Ultimately,futuredemandwilldependheavilyonwhether foreign fundswill continue toflow intoHongKong, which in turn is reliant on how fast the centralbanks in the advanced economies exit their ultra-loosemonetarypolicies.Withtheglobalrecoverystillfragile,itcanbedifficultfortheU.S.andEuropeancentralbankstowithdrawmonetary stimulus in the near future.TheHongKongrealestatemarket,whilecloselyregulatedbyadiligentandinsofar,wisegovernment, issoaringfromthebottomof thefinancialcrisiswithyetasmallriskof bubbleformation,allpointingtoapromisingoutlook,atleastinthenearfuture.BA

A view of the Hong Kong skyline from the Victoria Harbor A panoramic view of Hong Kong at night from Victoria Peak

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Asthe wave of foreclosures brought on bythe subprime crisis swept across America,American property prices suffered sharpdeclines that cut across all socio-economic

barriers. In SouthEastAsia, however, a different storywas unfolding. Although Asian markets were certainlyaffectedbytherecessionintheWest,theyprovedmoreresilientoverallandcontinuedtomakegainsafterabrief periodof correction. WhileAmericanbankshavenotgenerallybeeningoodshape,Asianbankshavebeenrelativelyunaffectedby the American banking crisis and are still lendingactively,especiallyintheareaof residentialloans.Giventhe recent low rates of growth in the manufacturingandservicesectors, lendingforrealestatehasbeenone

of thestrongestcomponentsof loansgrowthformanyAsianbanks.ThebankingcrisishascausedU.S. interestratestofalltotheneighborhoodof 0%,andmanyAsiancountries that rely on exports to the US and Europefor economicgrowthwere loathe to let their currenciesappreciateagainstthedollar,preferringinsteadtodecreasetheir own interest rates in parallel with the Americansituation.InterestratesinAsiaplungedtorecordlowsasaresult,sharplyincreasingtheaffordabilityof housingloaninstallmentpayments.Oneoverallconsequenceof thisisamuchhigherdemandforhousingthanwouldappeartobejustifiedbythecurrentstateof manyAsianeconomies. InSingapore,demandandpriceswereweakattheendof 2008andthestartof 2009;accordinglytotheUrbanRedevelopment Authority’s quarterly statistics, overall

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prices inSingapore’sprivateresidentialpropertymarketfellby14.1%quarter-on-quarter in1Q2009.However,residential property prices in Singapore increased 7.4%inthelastthreemonthsof 2009asthepropertymarketmadeaquickrecoveryfromabearishstarttotheyear. Inthepublicsectorof thehousingmarket,priceswere rising so fast that members of the public werebecomingincreasinglyvocalaboutthedifficultyof owningandpayingforahomeof one’sown.Inthe3rdquarterof 2009,concernsabout theescalatingpricesof resaleflatsprompted theMinister forNationalDevelopmenttoassureSingaporeansthatHousingDevelopmentBoard(HDB)flatsremainedaffordabletomost. Sinceitsconceptioninthe1960s,theHDBhasbeenresponsibleforprovidinghousingforthemassesataffordableprices.AsmedianincomesinSingaporeroseoverthepastfewdecades,theHDBhastriedtomodifythe housing options it provides along with changingpublic preferences. HDB-built apartments of the pastfew decades were staid affairs that looked mostly thesame from every angle, indistinguishable from eachother. Newer HDB projects, however, have becomemoresimilar to theprivatecondominiumsthatmiddle-incomeSingaporeansaspire toown.Anotableproject,the Pinnacle@Duxton, consists of seven buildingslinkedat the26thand50thfloorsby“skybridges” thatcontain gardens and other facilities, features that haveneverbeforebeen incorporated intoSingapore’spublichousingflats.Executivecondominiumswith swimmingpools,gardensandotherfacilitieshavealsobeenbuiltforhouseholdswithmonthlyincomesof upto$10,000SGD($7,142USD). However, as all public housing in Singapore isbased on a 99-year lease (which, as the name implies,expiresafter99years),investorsmightbemoreinterestedinprivatehousingoptionsbasedon“freehold” tenuresthat do not expire. Since the official formation of therepublicin1965,privateresidentialpropertypriceshaveincreasedbyleapsandbounds,andlooksettocontinuerisingatagreaterpacethaninflation. In the private sector, with fewer governmentalcontrolsinplacethaninthepublicsector,pricesaremorecloselyrelatedwithfluctuationsintheeconomy.WiththeAsianeconomyfastrecoveringfromtheeffectsof the2008financialcrisis,housingpricesinSingaporelooksettobemakingnewhighs.InFebruaryof thisyear,theMinistryof Trade and Industry (MTI) expected gross domestic

producttogrowby4.5percentto6.5percentin2010,upfromaforecastof 3percentto5percentmadeamonthbefore.New-homesalesinJanuary2010,with1,476unitssold,wererecord-settingandseveraltimeshigherthanthe481unitssoldinDecemberand601soldinNovember2009.Onesignthatprivateresidentialpropertypricesaresettosurpasstheprevioushighbeforetherecentcrisisis that the1,476units sold in January2010weremorethantheaverageof 1,230unitssoldpermonthin2007–ayearwhichsawarecord14,811newhomessnappedup.LocalpropertyagencyPropNexconfirmedthat“themiddle-tohigh-endmarketsarecertainlymoving.Some76percentof homesweresoldatabove$1,000SGDpersquarefoot,aproportionnotseenforover30months.”Inaseparatereport,propertyconsultancyDTZResearchstated that themove towardshigher-pricedhomeswasalreadyevidentinthelastquarterof lastyear,whenhomepurchasesof $3millionSGDand abovemadeup8%of alltransactions,aslightincreasefromthe7%of thepreviousquarter. Singapore’s residentialpropertypriceslook set to rise in the near future, but at the presentmomenthavenotyetreachedthepeaksseeninlate2007,justbeforetheworstof thesubprimecrisisemerged.BA


Trivia of Southeast Asia, Part 1By Brandon Ho & Yun Qi Mok, Cornell University

Did you know that the ancient ruin, Angkor Wat in Cambodia, is the largest religious temple in the world? It has become a symbol of Cambodia, appearing on its national flag, and it is the country’s prime tourist attraction.

Did you know that Laos is home to 51 airports? However, only nine of them have paved runways!

Did you know that Brunei is one of the few countries in the world that does not hold elections? As a constitutional sultanate, Brunei has enjoyed such a long period of political stability that has resulted in an absolute rule.

Did you know that East Timor has only 775,000 people? Within this population, two-thirds to three-quarters engage in subsistence agriculture.

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Did you know that Thailand is called the “Land of the Free”? This is derived from the fact that Thailand is the only Southeast Asian country that was never colonized by a European power.

Did you know that Singapore is the largest exporter of ornamental fish in the world? Although it is one of the 20 smallest nations in the world, Singapore accounts for 25% of the world market for ornamental fish exports.

Did you know that Indonesia consists of at least 17,508 islands? The name Indonesia derives from the Greek word nesos, meaning “island”.

Did you know that Myanmar was once called Burma? In 1989, the military government officially changed the English translations of many colonial-era names, including the name of the country to “Myanmar”. This prompted one scholar to coin the term “Myanmarification” to refer to the top-down program of political and cultural reform during which the renaming was done.

Did you know that the currency of Malaysia is the ringgit? It means “jagged” in Malay, referring to the jagged edges of Spanish silver dollars once circulated in the region.

Did you know that in the 1960s, this Philippines was regarded as the second wealthiest in Asia, next to Japan? However, the leadership of Ferdinand Marcos proved disastrous by gradually transforming the market economy into a centrally planned economy. Only in the 1990s with a program of economic liberalization did the economy begin to recover.

Did you know that the traditional female garment of Vietnam is the “Áo Dài”? It is a long dress worn for special occasions such as weddings or festivals. White Áo dài is also the required uniform for girls in many high schools across Vietnam.

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Indonesiaistheworld’slargestarchipelago.Itisdottedwithvolcanoes,coveredwithlushgreenvegetation,andsurroundedbycoralreef.Therefore,onecanenjoyanyimaginableoutdooractivityinIndonesia,makingthis

islandnationoneof thepremierdestinationsforoutdoorenthusiastsof alltypes.Indonesiaisalsohometomyriadrare animal and plant species, such as the orang utans,Komodo dragons, one-horned rhinoceros, anoa, andbabirusa.Exoticwhite-sandbeachesreachtowardswarmtropicalseas,whicharerepletewithcoralandmarvelousmarinelifeinsomeof themostcolorful,breathtakingseagardensintheworld.Indonesia,therefore,isoneof thefewplacesintheworldwhereeveryoneis invitedtobepartof itsnature.

Surfing The island of Bali, a surfers’ paradise, offers anumberof surf spots,withthemostfamousonebeingUluwatu.ThereisalwayssomeswellinUluwatu,soitiscrowdedallyearround.Furthermore,therearedifferenttypesof wavesinUluwatu,makingthisamust-goplacefornoviceandexpertsurfersalike.Forthoselookingoutforamoreadventurousexperience,Grajangan,locatedatthesoutherncoastof JavaandmorecommonlyknownasG-LandorGee-WhizLandwouldbetheperfectplacetovisit.Itsbeautiful,unchartedwavesareoutthere,butitisalong,tedious,andsometimesdangerousjobfindingthem.ThatiswhyG-landdoesnotofferonlytheperfectwave,butalsotheperfectadventure.Iwouldsuggestbringingatleast2boards,becauseIndonesianwavesarepowerfulenoughtobreakboards.Bepreparedforthethrill!

Othersurf spotssuchastheParangtritisBeachintheSouthernpartof Javaofferamysticalexperienceinadditiontothesurfingexperience.ItwassaidthatsomeluckyvisitorsgetthechancetomeetNyiRoroKidul,theIndonesianGoddessthatcomesintheformof agreen-clothedmermaid.Therefore,visitorsarestrictlyforbiddenbythatbelief toweargreencoloredclothingwhengoingouttotheParangtritisBeach.

Diving/Snorkeling ThereareseveraldivingdestinationsinIndonesia.The Banda Islands, located 80 miles from Ambon,Sulawesi would offer an enjoyable trip for beginneror expertdivers. Itoffers stunninga tropical scenery, aremarkable history, friendly villages, and some of theglobe’smostpristine,biologicallydiversecoralreefs.Thewaterreachesadepthof morethan6,500meters.Amongthe10differentdivingsitesarethepresenceof differenttypesof marinelife–includingbutnotlimitedtosharks,enormousturtles,NapoleonWrasse,giantgroupers,tuna,rays,andhugelobsters–thatneighborgenerousschoolsof reef fish.TheseasaroundBandaarethesitesof thefamousMalukuseagardenswiththeirbrightcoralsandcolorfulfishdartingthroughthecrystal-clearwaters;theyareperfectfordiving,snorkeling,orsimplysightseeing. OtherdivingspotssuchastheBunakeninManadoofferentertainment fornon-diversaswell.Touristscantakeastrollalongthebeachonfootorbyridinginoneof the horse-pulled carriages, dokar, which are usuallyforbiddenonmostbeachesexceptafewinIndonesia.

Lifestyle

Outdoor Sports andBy Edwina Regina, Cornell University


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Rafting Only in recent years, Indonesia has startedutilizingitsriverstoprovidehigh-adrenalinerecreationalentertainment, in the form of white-water rafting andkayaking. Whether you are in Bali, Java, Sumatera, orSulawesi, there is always enough adventure to satisfyyourwhite-waterappetite.Additionally,theexperienceiscomplementedbyenvironmentalandculturalexperiences,such as passing by local villagers gathering at the riverbanksasrafterspassthroughthedeepvalleysandterracedricefields. Dependingontheseason,theadventurecanbesomewhatdifferent.Duringthedryandrainlessseason,theadventure is relaxing,butafterheavy rains, the rideturnstoaroller-coasterride.Don’tworry.Sincethesitesare commercially operated, rafting sites will be closedwhentheriver-flowbecomestoodangerous.

Jungle-Trekking Jungle-trekkinginIndonesiawilltakeyouintoclosequarterswith therichbiodiversityandscenicbeautyof thecountry.TherearemanytrekkingpathsinIndonesia’sdensejungles.Forthebesttrekkingexperience,theislandsof Irian Jaya, Kalimantan, and Sumatra offer remoteterrains,butbeautifulanduntouchedtrails.Someof thetripscantakehourswhilemostof IrianJaya’strekstakeaweektocomplete.Thereisapossibilityof encounteringlocaltribesandactivitiesinthemidstof jungle-trekking,thus it is always safe tobring anexperiencedguide toaccompanyyourtrip.Indonesia’sjunglesareunique,inthe

sensethattheyhouseanimals,birds,andexoticfloraandfaunathatcanonlybefoundinIndonesia.Thisexperiencewillstayinyourmindfortherestof yourlife.

Mountain Climbing Puncak Jaya (which literally means “VictoryPeak”) reaches up tomore than threemiles above sealevel, standing as the tallest peak in the entire oceaniccontinent.Due to its height, itwas the only place thatsnowcouldeverexistonthewholeEquator.Infact,JanCarstensz, aDutch explorerwhofirst sighted thepeakin1623was ridiculedbyhis fellowmenforsaying thathehadseensnowneartheEquator.Unfortunately,theclimbisconsiderablyphysicallytaxing,thusbeginnersarenotrecommendedtoparticipateintheclimb. RinjaniMountain,which is located inLombok,the southern island of Indonesia is more suitable forbeginners.Withanelevationthatisabouttwomilesabovesea level, this active volcanic area offers a breathtakingviewof thecraterlakeandthelushvegetationaroundit.Localslivingaroundtheareaarefriendlyandusuallylovetobringtouristsaroundforaguidedtour.

Parks There are several national parks in Indonesia,with themajor one being theKomodoNational Park.It has been identified by theWorldWildlife Fund andConservation International as a global conservationpriorityarea.Thisnationalparkservesas thehomefortheworld’slargestreptileknownastheKomododragon.There are several other terrestrial endangered snake


Activities in Indonesia


species, mammals, and birds. Komodo National Parkisalsooneof theworld’s richestmarineenvironments,consistingof cnidaria,sponges,crustaceans,bonyfishes,marine reptiles, and other marine mammals. SomespecieswithhighcommercialvaluesuchastheNapoleonWrassearehousedwithintheparktoprotectthemfromextinction. Asmost of the activities above are located farfrommetropolitan life, onemight think that there areno fun outdoor activities for urban dwellers that haveto endure the hectic city life. However, the truth saysotherwise.

Golf Therearetensof golf courseslocatedin,outside,andaroundthecapitalcity of Indonesia,Jakarta. Golfing isan important part of city life’s sport andbusinessculture.Mostof the course layoutis challenging andrenownedforitstree-linedfairways,makingitatruetestforgolfersof alllevels. In Indonesia,golfing experienceis enhanced to bemorespecial,becauseafter playing, guestsare indulged with anumber of in-housefacilitiessuchas,jaccuzzi,spa,andsauna.

WhatIhavedescribedarenotallthatIndonesiahastooffer.Non-swimmers,theelderly,andchildrencanfindtheirownparadiseinothertourists’destinationstorelaxandenjoythebreathtakingviewsthiscountrycanoffer.Touristscantakepartinsightseeingtours,culinarytours,culturaltours,monumenttours,andevenshoppingtoursintraditionalmarketsandmodernshoppingcenterslocatedall across the archipelago. In Indonesia, anyonecanfindauniqueandpersonaladventurethatcanneverbefoundanywhereelseintheworld.BA

...one can enjoy any imaginable outdoor activity in Indonesia, making this island nation one of the premier destinations for outdoor enthusiasts of all types

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Whyisthecuisinedimsumcalleddimsum?WhenIfirstheardthetermwhenIwasseven,Ipondered

longandhard.What’ssodimaboutacuisineasartfulasdimsum?Isitasumof sorts,likehowfusionfoodworks?LittledidIknowthatdimsumistheCantonesepronunciationof awonderfullyimaginativeCantonesecuisine. Dimsumhasitsrootsintheyumcha(tea-drinking)cultureinHongKong.Duringthepost-warerain1950sand1960s,HongKongexperiencedaninfluxof refugeesfrommainlandChina.Malerefugees,mostof whomweresingle,metoverbreakfastteatosocializeandexchangetipsonjob-seekingandbirdrearing.ThiswasthetypicalbackdropinHongKongteahousesatthattime.Associetyprogressed,yumchamovedfromavenueforsocializationamongstmentoagatheringplaceforthefamily.Snackfoodswerelaterintroducedtocomplementtea-drinking,andtheyevolvedtowhatweknowasdimsumtoday.Fromtheubiquitousshrimpdumpling,steamedbunsandeggtartstothemorecringe-worthy chicken feet and fried intestine, dim sumistheepitomeof variety.Onecanbeeasilyfascinatedbyeach attractive morsel and tantalized gastronomically bydelectabletreats. Dim sum literally means “touch the heart” inCantonese,andthereisnobetterwaytodescribeit.ChefsinHongKongtrainforyearstomastertheartof makingavarietyof aestheticallyintricatebitesforyearningdiners.Everygarnish,everyfold,andeverynuance,isamasterpieceof the chef ’s culturalpride and an apt expressionof hisculturalidentity.Irememberwatchingaprogramwheretherenowned chef GordonRamseywas helplessly trying tomimictheskillfulexecutionof dimsumpreparationbyasouthernChinesechef.Itwasanimportantremindertomethatfoodisladenwithrichmeanings,farbeyondfunctionalsatiety.TherewassomethingaboutthewaythattheChinesechef keptrejectingthepoorly-wrappeddumplingsthattheBritishchef produced–defiant,persistent,andunyielding.

A quote by E.N. Anderson, Professor of Anthropologyat the University of California, Riverside, says that “theChinesefondnessforsnacksandsmalleatsreachesakindof apotheosis.”Becausefoodisdivineandbecauseculturecannotbereproduced,dimsumbecomesanassetthattheCantonesehastosafeguard.PerhapstheChinesechef willneverapproveof GordonRamsey’sshrimpdumpling. Butthingshavechanged. When I first saw “boiled coke with ginger”,“luncheonmeatramen”and“saffronchickenstew”featuredonamenuinaHongKongrestaurant,itsuddenlyhitmelikeanasteroid. Itwashard to ignore theabsenceof oldmenintheirtightsingletsproppingtheirlegsonthetablelike in thepast.Nomore cigarette smoke,only clear, air-conditionedair.Noloudbantering,onlyhushed,softvoices.Nomoretraditionalbamboobaskets,onlyfunctionalmetalcontainers.Youngwaitressesareintightskirtspushingcartsaround.Theeagertouristissnappingphotosof food.Themenus are replete with awkward English translations. Anewhybridbeveragecalledyinyeung,whichisamixtureof coffeeandtea,makesitsadvent.MealsaresobigthatHongKonghealthofficialsarebeginningtowarnagainstdimsumduetoitssaturatedfatandsodiumcontent.Doesdimsumstill“touchtheheart”?Ordid it simplyclogourarteries?Worsestill,doesitpolluteourculture? Asasophisticatedcosmopolitancityononehand,and an extension of Chinese culture with long-standingCantonese traditions on the other, Hong Kong perfectlyexemplifiestheeffectsof globalization.Asdimsumevolveswiththeeraandfightsforspaceonthedinnertablewithnewentrantslikeburgers,sushi,andburritos,wetoohavetoevolve.However,wemustnotforgetthetenetsthattheartof dimsumexpresses–creativity,tenacity,andarespectfortradition.Onlythencanweprogressgraciously,marchforwardas apeople,without forgettingourgloriouspast.BA

Lifestyle

The Art of Dim Sum By Brandon Ho, Cornell University

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BA: As of late, “China’s Peaceful Rise” has been acatchphrase used by many foreign policy officials todescribeChina’s foreign policy approach as shemovesforward.Despitehermanyreassurancesthatshewillbea responsible world leader, there have been signs suchas the recent show of military might during her 60thAnniversarycelebrationsthatsuggestotherwise.WhatareyourthoughtsontheseconflictingmessagesanddoyouthinkChina’srisecanbepeaceful?

RB:If IwereinChina’spositionandsawtheanxietyof neighboring countries, I would do exactly as they aredoing–explainoverandoveragainthatmyintentionsarebenignandthatmygrowingpowerisnotgoingtoresultinwar.However,oneof thelitmusteststodeterminethetruenatureof China’sintentionswillbetoobservehowfarshetriestopushoutwardintotheoceanicareawheretheU.S.militarycurrentlyoperates.

Furthermore,whetherChina’sriseendsupbeingpeaceful,dependsverymuchalsoonhowwe,theUnitedStates, interacts going forward. The cumulative of allactionsbetweenChinaandotherpowerswilldefinewhatkindof greatpower shewillbe again.Of course, it isnot possible to conclude for sure thatChina’s risewillbepeaceful.Hypothetically,ChinacouldhavegoalsthatcouldbeachallengetotheU.S..However,shecouldbewaitingtillshewasmorepowerfulbeforefullypursuingthesegoals,andpracticingarisk-adverseattitude inthemeantime. Hence, the U.S. cannot be 100% confidentandshouldcontinuetoguardourinteractionswithNorthKorea,Taiwan,etc.WedonotwantChinatochallengeusbecauseof misunderstandings.

BA:Onthatnote,whetherornotChina’sriseispeaceful,do you believe that the US should feel threatened bytheactionsthatChinahas takenvis-à-visattemptingtoexpandheroceanicpresence?

Richard C. Bush III is the Director of the Center for Northeast Asian Policy Studies, a Senior Fellow for Foreign Policy, and the Michael H. Armacost Chair at the Brookings Institution, a think-tank based in Washington DC. Before joining Brookings, his two-decade public service career included stints in Congress, the intelligence community, and the U.S. State Department. He currently focuses on China-Taiwan relations, U.S.-China relations, the Korean peninsula, and Japan’s security. He is the author of, among other works, A War Like No Other: The Truth About China’s Challenge to America, Untying the Knot: Making Peace in the Taiwan Strait, and At Cross Purposes: U.S.-Taiwan Relations Since 1942.

Interviews

China’s Peaceful Rise:

By Deborah Cheong, Cornell University

an Oxymoron in the Making?

BA: Business Asia || RB: Richard Bush


RB: Some of what China is doing makes sense. AsChina has had a very limited defense perimeter, she,likeanyothercountrywouldwanttopushthisoceanicbufferoutwards.However,someof theotherthingsthatChinaisdoingarenotaseasilyexplained.Forexample,herrecentmilitarybuildupagaisnttoTaiwan,giventhattheirpoliticalrelationshipisinbettershape,isasituationwhichIdonotfullycomprehend.Thus,theU.S.hasseenitnecessarytoprovidearmstoTaiwansothatTaiwanislessvulnerable.Butinthelongterm,therearemanyotheropportunitiesforbothsidestoshowthattheyarebenign,thusreducingthefeelingsof threat.

BA: Additionally, many people have touted the 21stCenturyasonethatbelongstotheChinese.Therealsoseemstobeaschoolof thoughtbelievingthatChina’srisecoincideswiththedeclineof theWestortheU.S.Whatareyourthoughts?Specifically,whatimpactdoesChina’srisehaveontheU.S.?

RB:Thiscorrelationcouldbetrue,butitisdefinitelynotautomatic.Whetherwe(theU.S.)declineisuptous.WehavethecapacitytomaintainourleadoverChinavis-à-vis ourmilitary, scientific, and economic prowess. Thequestioniswhetherwewanttoornot.IstheAmericanpublic willing tomake the sacrifices that are necessaryto build a strong country?Whether or not we declinedependsalotonhowweseeourplaceintheworldandnotjusthowweseeChina’splaceintheworld. FortheU.S.,China’srisemeansthatwemustbewillingtoengagewithher.Also,thereisaneedtoensurethat,ourmilitaryispresentinAsiainavisibleandseriouswaywhilecontinuallyworkingtomaintainallianceswithJapan, South Korea, Australia, and other powers. Oursecurity presence need not challenge China, but this

creates boundaries for China and acts as a stabilizingforceinAsia.ForChinatobehaveinaconstructiveway,theperception thatU.S. is strong inEastAsiamustbemaintained.If andwhenweshowourweaknesses,Chinacaneasilytakeadvantageof usandourallies.Forexample,with regard to theNorthKoreadenuclearization issue,Japanreallycaresthatthisbeaddressedseriously.ThisisalsotheU.S.’opinionontheissue.However,itisnotasclearhowstronglyChinafeelstowardNorthKoreagivingupitsnuclearweaponssinceChina’swordsandactionsdonotpaintthesamepicture.Thus,inthiscase,if theU.S.was not to remain firm, itmight be the case thatJapanandSouthKoreaendupbending toChina’swillandaccommodatingher.

BA:Onasurfacelevel,itseemsthatChina’srisehassparkedthe American imagination. Many young Americansare studying Chinese, there are TV programs teachingchildren to speak conversationalChinese (NiHao, Kai-Lan),andPresidentObamahasrecentlyannouncedthathe will sendmore students on academic exchanges toChina.Surely thishasan impactonUS-ChinarelationsandhowtheUSplanstonegotiateChina’srise?

RB:Theseprograms,efforts,etc.cannothurt.Therehasbeen a lot of misinformation that students across theyearshavereceived.However,intheend,Idonotthinkthese will greatly impact U.S.-China relations. What ismostimportantishowtheU.S.andChinesemilitaryandgovernmentvieweachother.Itismuchmoreimportanttoget that right than topossess theability to speakorunderstand Chinese. The latter is not trivial but realimpactonpolicystemsfromactiveandvocalminoritiesandgroupinterests,notpublicopinionasawhole.BA

...one of the litmus tests to determine the true nature of China’s intentions will be to observe how far she tries to push outward into the oceanic area where the US military currently operates


Professor George Andrew Karolyi is an internationally known scholar in the area of investment management, with a specialization in the study of international financial markets. He has published extensively in journals in finance and economics, including the Journal of Finance, Journal of Financial Economics and Review of Financial Studies. He is a recipient of the Fama/DFA Prize for Capital Markets and Asset Pricing (2005), the William F. Sharpe Award for Scholarship in Finance (2001), the Journal of Empirical Finance’s Biennial Best Paper Prize (2006) and of the Fisher College of Business’ Pace Setter Awards for Excellence in Research and Graduate Teaching.

Professor Karolyi received his Bachelor of Arts (Honors) in Economics from McGill University in 1983 and worked at the Bank of Canada for several years in its Research Department. He subsequently earned his M.B.A and Ph.D. degrees in Finance at the Graduate School of Business of the University of Chicago. He joined the faculty of the Cornell University’s Johnson School in 2009, after teaching for 19 years at the Fisher College of Business of The Ohio State University. He leads various executive education programs in the U.S., Canada, Europe, and Asia, and is actively involved in consulting with corporations, banks, investment firms and stock exchanges.

Interviews

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A remarkable phenomenon of the past quarter century all around the world has been the decline in state-owned business. However, in the last five years or so, governments have begun accumulating stakes in purely private companies through cross-border investment activities. Government institutions acquiring such stakes include not only large sovereign wealth funds, like the Abu Dhabi and Kuwaiti Investment Authority, Singapore’s Temasek Holdings, and the China Investment Corporation, but also large state-controlled corporations and agencies.

These powerful government institutions tend to come from countries like China, Singapore, UAE, and Saudi Arabia, that have maintained large foreign currency reserves through strong export-led growth or large stocks of oil wealth, but they also include countries, like France, Italy, Sweden and Japan, which have large government-controlled state agencies that dominate markets. Most notably, these government acquirers have been actively targeting investments in developed economies, including in the U.S., U.K., Australia, Canada, Hong Kong, and much of Western Europe. There have been serious and growing concerns by the regulatory officials in these targeted countries about the security implications from the expanded role of government-controlled acquirers. Some of the most prominent deals have include failed attempts, such as Dubai World Port’s incomplete acquisition of Peninsular and Oriental Steam Navigation in 2006 for $7 billion, China National Offshore Oil Corporation’s attempt to acquire Unocal in 2004, and, most recently, Aluminum Corporation of China Limited’s failed $20 billion acquisition of a 20% stake in Rio Tinto in 2009.


BA: Business Asia || GK: Professor George Karolyi

BA:Hastherebeenanincreaseinforeignacquisitionsof AmericantargetsbyAsiancompanies?

GK: There has been $620 billionworth of cross-borderacquisitionactivityledbygovernment-controlledacquirersoverthepast20yearsof which$310billion,orone-half,hastakenplaceinthelastfouryearsalone(2005-2008).TheUShasbeenthelargesttargetbyfar($124billionoverthewholeperiod) and$45billion (or about40%)has arisenfromAsianacquirers.

BA:Inwhichindustrieshavethesedealsbeenmostactivein?

GK: They have been targeting a variety of industries,althoughtheyhavebeenfocusingonbanksandfinancialservicesduringthemostrecentyears.

BA:Whatdoyouthinkisthereasonbehindit,giventhatmostof themdonothavesuchexperiencedecadesago?Doyouthinktheacquisitionsaresuccessful?

GK: I think there has been this dramatic increase ingovernment-controlled cross-border acquisition activityinlargepartbecauseof thelargeaccumulationof foreigncurrencyreservesinthesesovereignwealthfunds.So,thereasonthattheyareinvestinginstakesinoverseasprivatecompaniesisbecauseof theopportunitiesintermsof riskandreturnnoteasilyfoundintheirhomemarkets,inothertypesof assets,orsecuritiesmarkets.

BA: What are some obstacles Asian firms face whenacquiringAmericancompanies?

GK: In 2007, the U.S. Congress passed the ForeignInvestment and Security Act that gave legal status to alittle-knownCommitteeonForeignInvestmentintheU.S.(CFIUS),amulti-agencygroupformedin1975tomonitorU.S.policyonforeigninvestmentsthatmighthaveanimpactonnationalsecurity.ThisnewActgivessignificantlymorepower andcontrol toCFIUSwith specificguidelinesonwhatkindsof acquisitionscouldtriggerareview.Itexplicitlyidentifies the potential security concerns associated withgovernment-controlled acquirers.Many countries aroundtheworldarenowchangingtheirregulationswithrespect

topotential securityconcerns fromoverseasgovernment-controlledacquirers.

BA: In times of globalization, do you think that nationalconcernswill gradually adapt to the changing investmentlandscape?

GK:Iamsurethatwehavenotseentheendof thedebateor discussion about thesenational security concerns.Theworrieswillbeexpressedbythosegovernmentspromotingthe overseas acquisition activity through their own state-controlled agencies as well as the regulators in countriesthatrepresenttheirprimarytargets.Globalizationisaforceof changeinglobalcapitalmarketsthatistoostronginthelong-runforthesetemporaryregulatoryrestrictionstoslow.

BA: What are the some synergies from mergers andacquisitions between Asian and American companies forthefirmsandthegeneraleconomy?

GK:Myresearchstudy(withProfessorRoseLiaoof RutgersUniversity)entitled“WhatisDifferentaboutGovernment-ControlledAcquirers inCross-BorderAcquisitions?” triestoanswerthisquestion.Weexamine5,300of thesecross-border dealsworthover $620billion ledby government-controlledacquirersandcomparethemtothe150,300suchdealsvaluedcumulativelyatover$11trillionof corporate-ledcross-borderdeals.Weshowthattheflowof suchactivityintermsof thehomecountryfromwhichtheacquirerscomeorthedestinationcountryinwhichthetargetislocatedisnodifferentbetweenthetwotypesof deals.Themotivesforthosetwotypesof dealsandtheeconomicconsequencesalsoappeartobenodifferent.Thetypesof dealsthattheygoafterintermsof attributesof thetargetfirm,thetermsof theoffersandevenhowtheshareholdersof thetargetsreact(whichistypicallypositivefortargetstakesabove5%)arealsonodifferent.

BA:WhatarethedifferencesbetweentheAsian,American,andEuropeancapitalmarkets?

GK:Everincreasingly,lessandlessisdifferentaboutthesemarkets. Foreign investors – both in direct and portfolioforms– are a growingpresence in termsof holdingsof localmarkets and their traded securities.More andmorecompaniesaresourcingtheirdebtandequitycapitalfromoverseas.Theforceof globalizationismakingsureof it.BA


A graduate of Cornell University, Kevin McGovern ’70 is currently the chairman and CEO of McGovern Capital, a private investment firm and global intellectual property rights strategist. He is the key shareholder in more than 15 companies and has engaged in multiple ventures in Asia. In 2007, he was honored the Cornell Entrepreneur of the Year award, which is given to those who exemplify entrepreneurial achievement, community service, and high ethical standards. An active member of the Cornell Board of Trustees, McGovern also founded the Cornell Club in New York City.

McGovern earned a law degree from St. John’s University School of Law (1975) and also studied at the London School of Economics. McGovern is also the co-chairman of Angstrom Publishing, and of the Silver Shield Foundation, which provides scholarships and benefits to children of police and firefighters killed in the line of duty in New York, New Jersey, and Connecticut. McGovern is currently working on The Water Initiative, a system aimed at providing clean water, which will be active in Asia very soon.

BA: Business Asia || KM: Kevin McGovern

BA: Asyousaidinourpreviousinterview,Chinaislookingmoreatmulti-nationalcompanies.Andit’shardforthemiddlemarkettodevelopthere.Doyouseethatchanging?

KM: Definitely.TheChinesehavelearnedfromtheAmericansthatthebackboneof theAmericaneconomy isnot themultinationalcompanies. It’s what’s called SME: SmallMedium Size business.That’sthebackbone.That’swheretheinnovationtakesplaceinthiscountry.IthappensinSiliconValley,inRoute128,etc.Ithappenswhereinventorsaregivenfreedomtocreateandinnovate.Peopleall over theworld including theAsians are learning that smallerbusinesses and encouraging entrepreneurs to develop their ownbusinesses is thebestway that theycan innovateandcreatenewopportunities, technology,etc.So it’svery important tocreateanatmospherethatspawnsandencouragesearlystagebusinessestogrow, particularly around intellectual centers, such as universitieswherethere’ssomuchgoodpeculationof thought.Youwanttohaveafertileatmosphere,anatmosphereforcompanies togrowandforearlystageentrepreneurswhetherit’sgraduatingstudents,graduatestudents,orprofessors incollaborationwithstudentstoallowthemtobuildcompanies.

BA: Youhavealotof experienceinChina.WheredoyouseeChina

By Sandy Tun, Cornell University

Entrepreneurship in China, Part 2: The Business Environment

Interviews


headinginthenext5-10years?Arethereparticularareasthatyouseedevelopingfaster?

KM: IthinkChinarightnowistoodependentonexports.They really have to develop a greater consumptionof theirgoodsbytheirownpeople.Sothemindsetof consumerismhastogrowmuchmoreinChinaforittobecomethematuregiantthatitwantstobe.Ithinkitwilltakeplace.Igotosomeof themainshoppingboulevardsandyes,it’scrowded,buttherealbrandnamesfromtheU.S. arenot socrowded. I think there’smore statisticalevidence of consumerism than physical evidence. InChina,Idon’tseeitasmuch.Alotof themoneyinvestedbythegovernmentisininfrastructure.It’sintheBeijingOlympics.It’sintheShanghaiExpo.It’sinconstruction.What it needs is investment in entrepreneurship inbusiness,inlawstoprotectbusinesspeople,andinlawstoprotectintellectualproperty.Chinaisnowrealizingthatthe ability toprotect your rights is important for theminternally.Otherwise,whentheygrow,theywillgothroughsome pains. And now we’re a little old. China is veryyoungandmaybetheycanlearnfromus.Andmaybewecanjointogethertocreatesomethingwecanindividuallyform.Irealizethat1plus1,ChinaandtheU.S.,togethercan equal somuchmore than the twoof us trying tocompetewitheachotherateverylevel.Collaborationandcooperationonaneconomiclevelwillhopefullytranscendanypoliticalissuesthatwemayhave.AndIthinkChinaneedsthat.IamveryworriedaboutChina’secologicalandenvironmentalissues.IknowthewaterinChinaisalongtermhealthproblem.Alotof theirwaterispolluted,somykeyfocusnowiscleanwater.Chinaisbecomingmuchmoreenvironmentallyconscious,but itwouldstillneedmuchmoregreeninvestment.

BA: ItseemsthatonlyafewpeoplecontrolthebusinessesinAsia.Whatisyourtakeonthat?

KM: Justlikeeveryplaceintheworld,asmallgroupof peoplecontroltheeconomyandmaketheinvestmentstohelpoutthebusinesseconomy.Traditionallyovercenturies,theChinesehasbeenmerchantsandthebusinessclassof Asia.Evenif IgotoMalaysia, it’softentheChineseinMalaysiawhoarethebusinessleaders.SimilarlywhenIgotoThailand,it’stheThaiwithChineseancestrywhoaremuchmorebusinessoriented.It’samazingthatit’sasmallloopof peoplewhoallknoweachother.Myfavoriteplace

togoinAsiaotherthanChinaisSingapore.There’saverypowerfulChinesecommunityinSingapore,soagainit’sacirclebacktorelationships.

BA: What are some advantages you see are unique tobusinessesinAsia?

KM: BusinessesinAsiaarebuiltmoreonrelationships.Iamalawyer,soIamverysensitivetolegalinfrastructure.

The best I can say as a foreign person doing businessinAsia is thatIdon’t relyasmuchonthe legalsideasmuchasIdointheUnitedStates.AsIhavesaid, it’sapeoplething.Youreallyneedlocalexpertise.JustbecauseIamagoodbusinessmanintheUnitedStates,itdoesn’tmakemeagoodbusinessmaninChina.If IhavegoodinstinctsandIlearnfromthepeopleIhireinChinawhounderstandChina,Iwillbeokay.ButIamnotgoinginonmyown.Idonotbelieveingoingintodobusinessbymyself.Ialwaystrytofindsmartpeoplewhocanreallyhelp me understand the subtleties. Sure, we can readbooks and regulations.But it’s the subtleties thatmakeus successful in understanding the cultural differences.The understanding of the subtleties of doing businesscantakealifetime.Thatdoesnottakeayearof learning.Youneedtobuildateamof localexpertiseplusglobalexpertise.That’sthebestof all.BA

Just because I am a good businessman in the United States, it doesn’t make me a good businessman in China. If I have good instincts and I learn from the people I hire in China who understand China, I will be okay. But I am not going in on my own.

BA: Business Asia || YC: Yunyun Cai

BA:Whatisyourbackground?

YC: I am from Shanghai, China. As a freshman, I wasmoreinterestedinthehumanities,asIwantedtoexplorejournalismasacareer.However,asIprogressedacademically,IrealizedthatIenjoyedmorequantitativeclassesanddecidedtochangemymajortoMathandEconomics.

BA: Whatfirstdrewyouintofinance?

YC:WhenIcame toCornell, I joinedmyfriendsandattendedinformationsessionsforbanks.Thetopicsduringthepresentationwere interesting, and Iwanted tofindoutmoreaboutfinance.ThemoreexposureIhadtofinance,themoreIfoundittobeintellectually-stimulating as it combined various disciplines,including math, economics, and psychology. After speaking topeopleinthefinancialservicesindustry,Ifoundthatacareerinfinance involvesa lotof interactionswithpeople,whichmakesitfunandexciting.Afterconsideringmystrenghts,Iknewthatacareerinfinance,especiallyintheinvestmentbankingdivision,fitsperfectlywithmyskillset,asitinvolvesbothsocialandtechnicalaspects,i.e.financialmodeling,research,etc.

BA:Howdidyoudecidewhichdivisionwithinabankthatyouwouldbemostattractedto?

YC:IthoughtaboutwhereIwouldthrivebest.Hoursareusuallylongintheinvestmentbankingdivision;butcomparedtotrading,thepace in the investmentbankingdivisionwouldallowmetohavemoretimetomakedecisionsandimplementingtheseintoactions.Theenvironment in the investmentbankingdivision isquieterthanthatof trading,butitisstilldynamic,cooperative,andrequiresalotof patience.Inadditiontothat,Ihavealwaysbeeninterestedinthefinancialmodelingaspectof thework.

BA:Howdidyoupreparefortheinterview?

YC: I reviewed the Vault Guide to Finance Interviews. It wasveryhelpful as itpreparedme for the technical andbehavioralpartsof theinterview.Fortechnicalquestions,IfoundreviewingthecoursematerialonaclassinFinancialStatemnetAnalysistobe especially helpful. Interviewers fromAsia tend to focus on

technicalskillswithalotof follow-upquestions.Forbehavioralquestions,Ilookedthroughmyresumeandsummarizeit.Ithoughtof differentexperiencesthatIhaveandhowtheyarerelevanttothepositionthatIaminterviewingfor.Ihavealwaysbelievedthatinterviewingisalsoaprocessof knowingmoreaboutmyself.Thebestwaytoprepareforinterviewsistointerview!Interviewscanbeintimidatingatfirst,butyoushouldjustgointotheinterviewroomandgetcomfortablewiththeintenseatmosphere.

BA: Did you talk to alumni, info session, or people at careercenters?

YC:Attending informationsessionshelp,but it isnot themostessentialpart.Bytalkingtopeoplewhoarecurrentlyworkinginthefinancialservicesindustry,Ihavebecomemorecomfortablewith the fast-paced and high stakes environment. I have alsoreachedouttothepeopleinthecareercenters,andtheyarereallyhelpfulwithreviewingresumesandcoverletters.

BA: AretheredifferenceswithintheinterviewinAsiaorU.S.,andhowmanyrounds?Howisitdifferent?

YC:Theformatsof theinterviewsinAsiaaredifferentfromtheonesintheUnitedStates.TheapplicationprocessforbanksinAsiarequireapplicantstocompleteonlinenumericaltests.InAsia,weusuallyhavefirstroundinterviewsconductedthroughthephone.Then,if wepassthefirstround,wewillgetinvitedforaSuperDayinNewYorkCity.Thesecondsetof interviewsareusuallythreetofourrounds.Thereareinstanceswhereintervieweesareaskedtocompletepaperbasednumericaltestsandmandarintests.Keep inmind that culturesdovary amongbanks inAsia, andintervieweeswillhavehigherchanceof beingacceptedwhentheyfindthattheyhavethingsincommonwiththeinterviewers.

BA:Anyothercomments?

YC: ThefinanceindustryinAsiaisdynamicandfast-growing.If youhaveaninterestinfinance,considerworkinginAsia,asitwillprovidemanyopportunitiesinyourfuturecareerButmybiggestadvice is to reachout toalumniand learnasmuchaspossibleabouttheindustry.Besurethatitfitswithyourpersonalityandstrengths.If youhavenopreviousbackgroundinAsia,donotbeintimidatedastherearealotof peoplewillingtohelpif youreachouttothem.

Investment banking in Hong KongBy Christine Seo Hyun Kim, Cornell University

Yunyun Cai, a junior in College of Arts and Sciences, who has gotten into Deutsche Bank in Hong Kong, was interviewed for her success in finding this internship.

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Interviews


After31yearsof U.S.-Chinatradenormalization,“Chimerican” business strategies have recentlybeen reemerging.Understandingone’sChinesebusinesscounterpartisacrucialmethodforU.S.orforeignbusinesstogainprolongedsuccessin

China. Creatingamutuallybeneficialstrategyisakeytosustaining a prolonged economic relationship betweenU.S. and China. For instance, twice the population of U.S. uses cell phones, while 74% of the businessesremain very profitable. On the Chinese side, however,due to an increasingly domestic-driven economy, morecompanies are reluctant to accept foreign investments

withoutextensiveresearch.Recently,Chinesecompaniesarebeingmorecautiousbeforeenteringintopartnershipswithforeigninvestors,thusmakingjointventurestheonlypossiblesolution.Therefore,itistheforeignfirms’dutytohelpdesignawin-winstrategythatwillcontinuouslyallowChinesefirmstoaccepttheminthefuture. The win-win strategy is also exemplified inKorean-Chinese businesses. With a similar culture andhistory, China remains the most lucrative market forKorean companies. For instance, SK Group, the thirdlargest multinational corporation in Korea, has beenestablishingChinesebusinessinfrastructurebyadaptingtoChina’slocalinvestmentventureinenergysectors(i.e.SK

The ‘Chimerican’ Partnership: Knowing the Chinese CounterpartBy Christine Seo Hyun Kim, Cornell University

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Wohorimand local technologysales).Also,SKGroupwas successful in receiving an official medical permitfromChina,thefirstforanyKoreancompanytodosoinBeijing.Theopeningof hospitalventuresalsomeanstheexpandingof thepossiblebusinesssector.Thus,evenforSouthKorean companies, understanding the Chinese-counterpartisthekeytolong-termsuccess.

Challenges remain in understanding thecomplexity of Chinese government, the people, andnation-based cultural preference. For instance, whataU.S.partymayconsidertobeafinishednegotiationsmaynotbecompleteontheChineseside.Ratherthanpresentingallissuesattheoutset,adaptingthe“wheninRome”approachinChinabyfollowingthelocalpractice

iswithoutdoubtacleverstrategyforforeigncompanies.This mutual understanding of different businessprotocolsservesasastrongandlastingbusinessstrategy.These contextual challenges can only be overcomeif research is done about the nuances of theChinesemarketbeforetheactualbusinessinitiatives. In addition, there is misunderstandingsurroundingguanxi,whichliterallymeans“relationship,”an important element of Chinese business. Contraryto popular belief, guanxi is not a necessity for foreignbusinesses to succeed, and guanxi does not necessarilymean corruption. Through guanxi, companies cannavigatetheirwaythroughChina’scomplexbureaucracyby interacting with reliable local personnel—rangingfromgovernmentofficials,businessleaders,consultants,etc. InChina,mianzi,which literallymeans“face,”alsoplays an important role whether it be in transactionsor internal businesses. Foreigners should especially becognizantof givingtheirChinesecounterpartstheirduemianzi. Finally, understanding Chinese collectivistculture in business environmentsmay help individualsunderstandeachotherbetter.BusinesscultureintheU.S.is goal-oriented andbasedon individual achievements,whereas business culture in Asia focuses on harmonyand conformity. Individuals who cannot work well ingroupsettingscannoteasilyfit intotheAsianbusinesscultureeven if theyhaveall thenecessaryskillsets.Inaddition,inAsia,employeesusuallywaittoleaveuntilthebossfinisheshisworkasacourtesy.InternalizingthesenuancesmayhelpanyforeignbusinessfullyunderstandtheChinesebusinesssector.Thus,aligningbusinessplanswithChina’sworkingcultureisextremelyimportant. Thefinancialcrisishasbroughtagreaterfocusto China, a land of opportunity that also requiresdeeper insight into internal customs and perspectives.Economically, a stronger Chinese business sectorrequires foreign companies to form a joint venture tosucceed.Socially,understandinggovernmentregulationsandculturalsentimentswillserveaneffectivelong-termbusinessstrategytogainprominenceinChina.Althoughentering business in China requires as much insightas any other markets, one’s willingness to understandthe Chinese business counterpart will add to bilateralpartnership between China and any other foreigncountriesinthefuture.BA

Business culture in the U.S. is goal-oriented and based on individual achievements, whereas business culture in Asia focuses on harmony and conformity. Individuals who cannot work well in group settings cannot easily fit into the Asian business culture even if they have all the necessary skill sets.

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Business Asia Spring 2010