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CO-WRITTEN / PARTNER | editor, Hong Kong

Eugene Liu joins the panel of judges in Hong Kong Business Awards 2020

RSM Hong Kong’s managing partner shares suggestions for business to become more sustainable amidst the pandemic.

Eugene Liu, Managing Partner of RSM Hong Kong, has over 25 years of experience in the accounting profession, providing auditing, financial advisory, business valuation and transaction support services to clients in a variety of industries.

He is also the partner-in-charge on over twenty initial public offers in Hong Kong Stock Exchange. Eugene is also the Head of Consulting, China Practice and Japanese Practice, the Leader of Financial Services, the Convener of Capital Market Group of the Firm.

Eugene sees Hong Kong as an international financial centre and global hub, with advantages such as a simple tax system, highly transparent supervision mechanism, mature financial industry, free flow of funds, diversified investment products and the global hub for offshore renminbi business.

“Together with various cross-border measures, it naturally attracts many high-assets from China, also becoming the first choice for international wealth management companies to enter the China market. It will help further strengthen Hong Kong's position as an international asset management centre and business hub,” he added.

In an interview with Hong Kong Business magazine, Eugene Liu further shares his insights on Hong Kong’s position as a global hub and on the Wealth Management Connect, as well as his advice to SMEs affected by the pandemic.

What can SMEs and other homegrown businesses learn from the crisis? For those who have been badly hit, what do they need to consider to become more profitable and sustainable in the future?

Due to the pandemic, small and medium sized enterprises (SMEs) and home-grown business have been seriously affected. There is an increase in reported defaults, insolvencies and bankruptcies. Here are three fatal causes. First, the global market is shrinking, people’s purchasing power and consuming desire both decline during the pandemic period, no doubt that affected different industries; Second, insufficient funds for these companies, SMEs are relatively difficult to raise fund and it may easier for them to encounter the issue of capital shortage; Third, lack of technological support, technology solutions like cloud storage or cyber security required high cost and it may hard for SMEs to afford these expenses.

However, lessons and experiences have been given to these SEMs during the pandemic which may eventually improve their development in the future.

First, “don’t put all eggs in one basket”. SMEs have less resources for business compared to the listed company, therefore they should utilize all their resources by build-up an efficient and diverse supply chain, they may put more focus on services or products which are valued by the consumers. Meanwhile, SMEs have lesser pressure and more possibility of transformation, with a diverse supply chain, it would be an advantage for them while the SMEs can respond to the changes of the market through transforming to either product with higher demand sufficiently and that may help to reduce their damages induced by COVID-19.

What’s more, “do rely on technology solutions”. Due to the quarantine, it affected the communication between colleagues and their clients. Digital applications like Zoom or Microsoft Teams can help to maintain daily connection of these parties. In addition, the digital world provided a new platform for most of the industries to sell their products. While online can prevent face to face contact, thus it becomes the new trend for the market at this moment. In order to minimize the effect induced by COVID-19, the best way is to follow the new trend and process a digital transformation. If you are running a services based company instead of selling products, providing suggestions or advice for product based companies to process their digital transformation will be a constructive way to deal with the crisis.

For those who have been badly hit, there are some suggestions for them to become more profitable and sustainable in the future.

SMEs should ensure their cash flow is stable. Capital is the foundation of a company's operations. It is necessary to keep track of the amount of loss and ensure adequate sources of funds, in order to maintain the normal operation of the company. Homegrown businesses should save operating costs. For homegrown businesses, rental is often one of the main factors causing high costs, it can be used as a priority to save costs. In addition, take this opportunity to streamline the company structure and reduce personnel costs, it is also a direction that SMEs can consider.

First, these companies should know prevention is better than cure. Apart from ensuring stable cash flow and beware of the operation cost. They should consider all the transformation possibilities before the crisis as it comes without signal. Which means thereafter SMEs can adjust their business direction easily. Reason of many SMEs will face operational difficulties is due to there being a problem with its market positioning and business direction. SMEs must seize the opportunity to adjust their business direction. Otherwise, even if the economic crisis passes, the company's future will still be difficult. Homegrown businesses can explore corporate advantages, improve business performance under the pandemic. When companies are facing operational difficulties, It is the best opportunity to restart. Operators of homegrown business can spend time thinking about the advantages of their own companies and explore how to use these strengths in the big environment. Careful analysis and thorough preparation are the best strategies for self-rescue in a crisis. It can even help the company grow more rapidly after the crisis.

What’s your take on international companies moving their operations out of the Mainland? Where are the opportunities and how does Hong Kong fare in all these?

The US-China trade war escalated, meanwhile the outbreak of COVID-19, China, as the source of the outbreak, it definitely affected China’s economy but also the world’s economy. International companies are moving their operations out of the Mainland and will properly move their operations to countries in Southeast Asia, for example Vietnam and Cambodia etc. However, China has its advantage of a 1.4 billion market and the strong foundation of its economy which built up in these years. While no more world factory can be, it can push China to change its development strategy to other areas and that may be a chance for China to take its transformation.

Hong Kong as a connection of China and the Western countries, whilst international companies moving their operations out of the Mainland, it will certainly affect Hong Kong’s economy. But Hong Kong ranked the 3rd financial centre in the world after New York and London, its status as a financial hub is strong and stable. Meanwhile, Hong Kong is not acting only as a connection for China and the world, also it is a connection for most Southeast Asia countries. Therefore, Hong Kong can still keep its attractiveness at this stage.

At this moment, data tells that there are still many Western companies who will choose Hong Kong as their local headquarters, with operations covering China, Japan, Australia, Indonesia, and India. More than 1,500 foreign companies have set up their Asian headquarters in Hong Kong, of which about 300 are American companies. More than 9,000 overseas and mainland Chinese companies operate in Hong Kong. Among these companies, more than 1,300 are American companies, and about 85,000 Americans live in Hong Kong. It further proves that Hong Kong is still one of the world’s major financial centres.

HKMA and others recently implemented the Wealth Management Connect in the Greater Bay Area. What roles does this play in Hong Kong’s position as a financial and innovation hub and how does Hong Kong fare in all these?

The Hong Kong Monetary Authority (HKMA), the People’s Bank of China (PBoC), and the Monetary Authority of Macao (AMCM) announced the launch of a cross-boundary wealth management connect pilot scheme (Wealth Management Connect) in the Guangdong-Hong Kong-Macao Greater Bay Area (GBA) in order to promote facilitating personal cross-border investment to residents who lived in Greater Bay Area.

Wealth Management Connect is a crucial action to advance financial cooperation between Hong Kong, Macau and China. It can certainly boost the sales of the financial industry in Hong Kong as there will be an obvious increase of customers which come from the Greater Bay area. Hence, It can promote the growth of the local wealth management business market and the development of the entire financial industry chain such as product sales, asset management, product development and it will meanwhile be an beneficial factor for professionals from this services sector.

Furthermore, Wealth Management Connect has expanded Hong Kong's wealth management industry. It provides more incentives for international financial institutions to set up locations in Hong Kong and invest more resources to serve mainland investors, it also consolidates Hong Kong's position as an International Financial Centre and dominant gateway to Mainland and the global hub for offshore renminbi business.

Wealth Management Connect is expected to increase the number of Hong Kong fund clients tenfold. It will also foster financial integration between Hong Kong and the Mainland, achieving closer interconnection. Hong Kong continues to play a leading role for China in economic development and the opening of financial markets.

GDP in the Greater Bay Area is one of the richest regions in the country. With the implementation of the policy, the obstacles of opening an account in China for Hong Kong citizens will be removed, the huge investment demand for wealth management products by investors in both places has soared, it is an opportunity to increase Hong Kong's financial innovation and technology.

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