As the Internet and E-commerce frenzy (which is close to what it is reaching in Hong Kong) sweeps across Asia, Internet start-up activity in Hong Kong buzzes to an all time high. For example, in June 1999, Richard Li obtained a back door listing on the Hong Kong Stock Exchange by buying Tricom Holdings, essentially a dead, inactive company. At the time Tricom shares traded at 13 cents HKD (Hong Kong dollars). As rumours spread and the stock began to surge, trading was halted by the Hong Kong SFC (Securities and Future Commission). Several days later, as Li’s Tricom deal closed under the new name Pacific Century Cyberworks (PCC), the stock began trading. Its first day out of the gate, early in July, the shares shot up to $4.00 HKD. Over the next several weeks they settled to a low of 99 cents HKD. Today, those same shares in PCC trade at roughly $25.00 HKD. Even $10,000 HKD invested at 99 cents, would today be worth $250,000 HKD. Since then, as PCC rose, hundreds of entrepreneurs have come forward with small start-up ventures in hopes of their own sky rocketing IPO just like PCC.

To nurture and incubate these start-ups, many people in Hong Kong hope to replicate the Silicon Valley entrepreneurial environment, where money and ideas flow. Can this be done in Hong Kong - so far it is highly unlikely. 

There is no doubt that Hong Kong has an entrepreneurial environment, in fact, the territory is know for its hardworking, business focused population. However, there is one characteristic Silicon Valley has that Hong Kong entrepreneurs are grappling with - the ability to share. Silicon Valley has a commonly established practise of sharing ideas, even to the point where individuals will share ideas with competitors in the name of technological advancement when their own abilities fail to produce a breakthrough, or the future demand of a technlogy may be in danger. This type of environment is often referred to as "coopetition." In other words - cooperation between competitors in the name of developing technology, growing markets, or knowing that something currently being created will be in demand. Silicon Valley is known for coopetition. Keep in mind, too, that many of the particpants in this Silicon Valley coopetition phenomenon are children of the self development era. They've done the likes of The Forum and EST (that includes myself), where they learned to basically "get off it" and share with people in the name of moving life forward. (In Hong Kong the equivalent would be AsiaWorks.)

One excellent organisation attempting to create this type of sharing atmosphere in Hong Kong is Internet & Information Asia. (I & I) This organisation’s success in itself resembles that of an Internet company. Founded about the same time Richard Li launched PCC, I & I has gone from a handful of people meeting to network every Wednesday night, to an average attendance of 250 people. Their geography has spread, too, with the same network popping up in Singapore, Manila, Beijing, Shanghai, Silicon Valley and New York just to name a few cities. Each event is normally accompanied by some individual of Internet notoriety speaking for 30 - 45 minutes on the Internet. While the initial purpose of I & I is to bring start-ups together with venture capital, I find these events worthwhile to meet people, and usually learn very interesting things from the guest speakers. But that’s it - I meet people in the Hong Kong Internet scene, and gain valuable information from the guest speakers who are quite forthcoming with their information. After all, most of these guest speakers have strong ties to Silicon Valley.

But, that is all I learn - doesn’t that strike you as odd? I NEVER learn what start-up ideas people have, in fact PEOPLE REFUSE TO TELL ME. And NO ONE has yet to ask me if I have any money to invest. I do, and so do some of my buds who have a hell of a lot more experience with venture capital than I do. (One of them has been involved in several Internet and technology IPOs.) Me, I would be willing to invest $100,000 USD in the right Internet idea. With my buds involved we could pull in anywhere from $500,000 to a Million USD in a week. I’m not kidding either, never underestimate how connected I am.

To add to this ludicrous scene, consider the number of people I know who are launching Internet start-ups. First, there is the friend of mine in the financial industry. I know him, you know, fairly well but a very good friend of mine is best friends with his sister. In fact we are all connected several times over. Anyway, with already one major Internet business model launched and growing like a house on fire, he is working on a closely related second model. According to him this idea is even bigger, better, faster. "Fantastic," I replied, "what is it?" His answer: "I can’t tell you." Okay, I understand, you don’t trust me. (I will spare you the stories of individuals I asked who I did not know.)

Next: another friend of mine, again connected to me in many different ways including through my wife. This person told me about a fantastic idea they were working on. I mean, according to the two of them (a partner was there, too) this was the ultimate, never tried anywhere in the universe, Internet model. "Wow, that’s great. What is it?" The answer: "I can’t tell you." Oh, okay. So after waxing so eloquently for five minutes about how great your idea is (but you won’t tell me), I have now come to the conclusion that you think I am unworthy of knowing about your idea. And you know what, frankly I don’t like being insulted, which is exactly what you have just done to me. And I am also pretty clear you don’t trust me. Next.

The final two stories are so outrageous I am unable to describe them in any detail for fear of destroying relationships. But let me just say, that there are two more individuals starting up completely unrelated and separate Internet companies. Neither of them will talk to me about their idea except of course how great the idea is. (One even had the nerve to diss my suggestions of where they could get help with their start-up.) It would shock you if you knew how these people are connected to me. Obviously these people think I have no integrity. That would leave me both insulted and untrusted.

Those in the know have also recognized a number of other unique factors historically fueling Silicon Valley. One of them is the availability of capital. With Hong Kong almost on the eve of the Tom.Com IPO, one would think that there is no shortage of money to launch technology companies. Everyday, it seems that more and more money is available for new ventures. Compare this to the United States, though, there was one major backer (I said "BACKER, not Hacker!") that started this whole initiative is the United States military. That is a big backer that prides itself on being on the bleeding edge. Very quickly, Internet development efforts shifted from the military to commercial applications, catching on like fire. It doesn't appear Hong Kong has an equivalent. Having a lot of money is very different than the type of entrepreneurial, bleeding edge, testosterone driven culture found in military labs that is eventually transferred to commercial applications.

Finally, (but certainly not last - this debate will go on forever) there is education. Surrounding Silicon Valley are the top schools in the world including the much technology hailed Stanford University. Yes, Hong Kong's education system is advancing quickly, and certainly the Hong Kong University of Science & Technology is an excellent example of an institution attempting to create a technology driven environment. For example, I just finished my MBNA there, through the 16-month Kellogg Graduate School of Management and HKUST School of Management joint program. One of the things HKUST has done is created a "live network." In other words, there is no last mile… it's fiber to the curve. Surfing the Internet can be done at 100 MBPS in most classrooms and 10 MBPS everywhere else. Having the Internet so quickly and readily available fuels the learning appetite. The rapid introduction of broadband in Hong Kong will help, too. 

All this, however, it is not quite the same as growing up or going to school in a technology driven environment. In the long term, yes, perhaps Hong Kong can replicate Silicon Valley. And don't get me wrong, initiatives like I & I Asia are an excellent way to start. But, if even friends cannot share their ideas, the rest of Hong Kong has no hope of achieving a Silicon Valley type environment. Lastly, nothing would give me greater pleasure than to see Hong Kong reach this type of environment. Anyone who knows me, or frequents this web site, knows that I am a huge fan of Hong Kong. That's pretty obvious. But until we realize we are one team, and bring down the insanely competitive mind set which inhibits sharing, I really question if Hong Kong can take itself to where Silicn Valley sits. 

So, I do my own thing. Continue to learn at I & I events, and back to my buds to see what ideas they are cooking up. They’ll take my money, and increase it ten fold, too. Oh yeah, and I am busy speaking at six conferences (two of them The Economist) between now and June. Seems to them that my Internet/E-commerce expertise and two graduate degrees (including an MBA from Kellogg) makes me worthy of talking about the impact of the Internet and E-Commerce. The one in June should be fun - I speak just after Richard Li. 

Charles Caldwell
Hong Kong

Controversy runs rampant in Hong Kong. There is certainly no shortage of it.

The Hong Kong Government is about to launch the Hong Kong Tracker Fund. Recall in 1998 roughly one year ago when the Hang Seng Index dropped so low that the HK Government stepped in to purchase millions and millions (billions in $ HKD) to prop up the market. Since then, there has been considerable discussion as to how the HK Government should sell-off this stock. Never mind the fact they profited significantly. In fact, the HK Government has almost doubled its money in one year. (I think the actual increase is roughly 170%.) Many people criticise the HK Government for its action a year ago, however, I bet there are plenty of other governments and people (fund managers?) who wish they had had such a profitable portfolio in the last year! The bottomline is, now the HK Government is being criticised because people fear purchases of the HK Tracker Fund will dry up liquidity in the market. In addition, the general sentiment towards the HK Tracker Fund is that of an IPO, however, this fund is anything but an IPO. In fact, it is probably overvalued since the stocks that make up the HK Tracker Fund portfolio have all done well in the last several months. Now, we head into the last quarter of the year when the Hang Seng Index traditionally and reliably goes soft.

April, 1999:
The Technology Driven Recovery 

Is Internet Investment Mania finally hitting Hong Kong? Markets soared in Southeast Asia and Hong Kong on Friday, April 16 as overseas investors bought up banking, property and technology-related stocks amid signs of growing liquidity and confidence in the region. The Hang Seng Index smashed through 12,000 points for the first time in 17 months and then kept on going, ending the day up 4.41 per cent at 12,490.3. (Graphic courtesy of the South China Morning Post.)

One year ago, almost to the week, regional markets posted incredible First Quarter 1998 turn arounds. The optimists said Asia was turning around while the pessimists said the worst was yet to come. Then, regional stock markets fell, almost to their worst levels ever. This was when the Hang Seng Index in Hong Kong fell below 7,000. NOW, one year later the exact same scenario is being played out. The question is: has Asia really turned, and will the markets doom or zoom?

Actually, the whole thing depends on the sentiments of funds flowing into Asia. With Thailand, Korea and Taiwan current accounts turning positive for a few months, and China's almost confirmed entry into the WTO, international funds are turning bullish on Asia as a whole. That's why everything is up almost everyday. But this does not mean things are really getting better in Asia, as funds can easily change their direction quickly once they spot an excuse to leave. In a fund-driven market, fundamentals may matter much less, but fundamental analysis can help people get paid off handsomely over a long haul. 

The point is, the recent bullish tone in Asia markets does not mean that Asia will really ZOOM. In the end, the real economic recovery or fundamentals will determine the ultimate outcome for the markets. But for the time being, it looks as though confidence is significantly returning to Asia.

Last week in Hong Kong, investors went for high tech stocks... even the ones that were dogs. Founder, a Chinese computer company, is promising for the future but in the present it has some serious internal problems. China-Sci Technology traded like a maniac last week -- but it isn't making any money. Champion Technology, with interim reports of healthy sales and profits, traded actively but its share prices were flat. Go figure. Similarly, when Wharf announced a partnership with Yahoo, its shares went through the roof. New Wharf stock owners soon found out that all Wharf was doing was using Yahoo's search engine technology later this year when it launches an ISP arm. The agreement isn't even non-exclusive. Still, companies like this, along with Hong Kong Telecom, are seeing their share prices rise healthily.

Maybe what all this tells us is that Hang Seng investors are hungry for some good news. It has been a while since Hong kong saw some good news, which would make one think that the government's Cyberport Project would have received a warmer welcome from the community. The experts claim it will still be a while before the Nasdaq-type tech stocks reach Asia. It is also possible they may never reach here, since an offering on Nasdaq can generate far greater capital than a listing on an Asian market. That's why Hong Kong Bank (HSBC) is considering a NYSE listing - to boost its capitalisation. Furthermore, the whole point of the Internet is that you don't need to come to Asia -- you can run your own C.NET from any corner of the world that you want to. But in the meantime investors can't wait to see the Amazon.Com's of the world arrive in Asia and they want in on the ground floor. And that flurry of optimism and hunger may just be enough to rekindle the entrepreneurial spirit that Hong Kong is known for. 

January 6, 1999: Crisis finally takes hold of Hong Kong economy. 

Hong Kong welcomed in the New Year with dismal economic prospects but plenty of cheer. But let’s put this into perspective. The introduction of the Euro Currency weakened the US dollar, in turn weakening the Hong Kong dollar relative to regional currencies. This is a good thing - it decreases the probability that the Hong Kong dollar peg will collapse. Annual salaries will still increase by 3%, even though the media claims 70% of Hong Kong companies will freeze salaries. Who do you believe the media or the HR Compensation Consultants? Many multinationals plan to increase salaries, even this small amount, as a staff retention tool. 

Tess and I spent Christmas in Hong Kong. Judging by the mobs of people Christmas shopping one would never suspect we are in he middle of a recession. A new mall called "Festival Walk" opened, and when visiting it the last Sunday prior to Christmas Day it was virtually impossible to move there were so many people. True, though, what Tess pointed out – very few of these people were carrying shopping bags.

Nevertheless, ever present over the holidays was the appearance of consumer spending: malls were busy, restaurants were busy, movie theatres were sold out. All this while most of Hong Kong vacationed. Christmas is always a wonderful time of year because the streets are deserted much more often. Getting to work in the morning is a dream, even if shopping is still a mad house.

New Year’s Eve in Lan Kwai Fung was a well organized street party. Ever since the New Year’s Eve deaths of several years ago the police have erred on the side of caution. I will write more in the next few days on how Hong Kong is fairing amidst the regional economic crisis. Stay tuned for details. 

Lot's happened since the last scoop. Hong Kong held its first elections since the handover. There was 53% voter turnout (1.8 million people and the highest in Hong Kong ever) despite absolutely horrific weather conditions on that day. Unfortunately world wide media published mixed reports about the elections. For example, Australia reported low voter turnout, having this be the focus of their story. Australian media, however, reported this prior to the polls closing, and most of the upward push in voter turnout happened in the few hours prior to closing. Way to go, Australian media! Let's also put this in perspective... last time around President Clinton's election commanded an astounding turnout of less than 40%... the lowest in American history. In Hong Kong the Democratic Party won 18 seats - more than any other party. This does not give the party a majority (HK doesn't work that way yet) but it puts the cause well on its way. Beijing had no adverse reaction to election results. 
 

This week saw the anniversary of that dreaded Tiannamen Square incident in 1989. Everyone wanted to know what would happen this week in Hong Kong with all sorts of weird predictions! Well guess what happened... with torrential downpours, roughly 16,000 people converged on Victoria Park for a mass demonstration. It was totally peaceful and went without incident. Several other parades occured in the days leading up to June 4th. There were no incidents - everything was completely peaceful and demonstrators had free reign to promote their cause. Take that doomsayers!  In the accompanying photo, Hong Kong's Victoria Park is turned into a sea of light Thursday night June 4, as thousands of people held a candlelight vigil in the heavy rain to mark the ninth anniversary of the military crackdown in Tiananmen Square on a pro-democracy student movement in Beijing on the same day. The memorial is also the first time held under the Chinese rule.(AP Photo/Vincent Yu) 

Indonesia is calm for the moment but most analysts remain skeptical. Inside sources claim Habibie is just as crooked and twisted as Suharto. These sources predict more riots 3 - 4 months down the road, or a full blown civil war. Time will tell.

Well folks, things are heating up in Asia but this is not all bad, it just doesn't look good!

Japan thus far has failed to stimulate its economy. The tax stimulation package unveiled a few weeks ago (the size of it LARGER than most countries GDP!!) had little or no effect on the economy. There have been several high ranking suicides which doesn't bode well for what could be going on inside the country's machinery that might trigger such actions.

Meanwhile Indonesia is ready to blow. Perhaps a little pessimistic of me, though. Students stage more and more protests. The difference this time, however, is that they are gaining more and more support within the population. This week at a student protest, a professor clambered on top of a truck just as the crowds of students and police were beginning to push against each other. He applauded the students' cause, encouraging them that their cause was a just cause. Then he begged the students not to let it reach the point of violence. The entire crowd broke into cheers, with students and police "high-fiving" it with each other. In another incident, a factory containing extensive supplies of staples was looted by citizens... including the city's MAYOR. Tell me this doesn't smell like change!! These reports obtained from The Herald Tribune and CNN.

Regional stock markets are a bit sluggish at present. The general drift is neutral with a few slipping downwards, including Hong Kong. HK's economy is going soft, and recession could be in the cards. This week concern focused on HK's new high unemployment... something like 3.5%. Everyone is appalled. Let's put this into perspective... I am originally from Toronto, a city currently enjoying 7% unemployment. Yes, I said ENJOYING, everyone is ECSTATIC that Toronto's unemployment is so low. Hong Kongers are an industrious type... they will get through this.

Right now it is a gorgeous hot day in Hong Kong. Boats buzz about, cars zoom by... it LOOKS just the same as always.

I have received some comments asking why Hong Kong is isolated by the Asia Currency Crisis. The following is an update to show how it is affected.

First of all, HK is definitely engulfed in the Asia Currency Crisis and directly impacted by the rest of the region. The one thing that has kept HK stable, however, is that the HK currency, the Hong Kong Dollar (HKD) remains pegged to the US$. The HK government has successfully defended the HKD against speculators and the stock market shock waves which would have caused the HKD to come unpegged. If the HKD had unpegged (or if it yet does) then the relative wealth of people in HK will dive, just as it has in other parts of Asia. Instead, it stays pegged, which means that HK has more of an external relationship to Asia. In other words, cost of goods etc would be similar to the US' and Canada's relationship to Asia (Asian goods are cheaper).

However, this comes at great cost to HK. HK is caught in the middle of this whole thing. Yes, HK has remained reasonably stable but there are side effects:

• HK is incredibly expensive compared to the rest of Asia right now, and could therefore could lose its competitive edge.
• Tourism in HK has declined 11% from 1997. This started after the handover when the currency crisis started, and when people thought it was politically unsafe to be in HK because it was now under Chinese rule (this is ridiculous by the way -- I have lived here two years and the buzz on the street is exactly the same).
• The stock market has taken a terrible beating, and many people, especially local Chinese who view the stock market more as a gambling place than a place to invest money over the long term, have lost huge amounts of money.
• Decline of stock markets across the region has resulted in finance firms laying off hundreds of people in HK. This is compounded by anticipated de-regulation of the financial industry in Japan. As a result, many firms are relocating to Tokyo, expecting gains from the freer Tokyo market. 
• To defend the HKD the HK govt hiked interest rates. This hurt the stock market further as investors shifted $$ from the market into safer interest bearing vehicles. It also has the effect of reducing the money supply and reducing consumer spending: people keep their money in the bank instead of spend. 
• I think it is more than safe to say that HK people have the jitters, are spending less, and are grateful just to have jobs. Therefore, the economy has gone soft. HK is expected to grow this year around 4% which is a 1.5% reduction from 1997 but still 1% above the US and 1.5% above Canada. Some organizations, such as the OECD claim HK will grow less than 1%.

• There were just as many shrewd investors in HK who made TONS of money. Billionaire Li Kai Shing reportedly made a 600 million USD profit in one day last year when he bought back his companies shares at bargain prices!! 
• Many argue (including myself) that HK's competitive advantage lies in the labour market in mainland China. The cheaper markets of yesteryear in otherparts of Asia may or may not return with the devalued currencies. HK, however, still has immediate access to cheaper labour in the PRC. (This could be complicated if China, also with a pegged currency, begins to SIGNIFICANTLY lose its competitive advantage. A small loss would not be a big deal.) 
• China continues to grow by leaps and bounds, and HK is a key player in that growth. 
• Meanwhile the Hang Seng Index (HK stock market) is slowly but surely recovering the losses of last year.
• If you look at my SCMP Job Index, you will see that lots of jobs are still being advertised. A year ago the numbers were about 50% higher. Where most of these jobs have been lost is in the finance sector. There are still plenty of job opportunities in HK and PRC. I work at Rockwell, and we are having problems finding the right individuals for several HK/China jobs. 

Moody's (self appointed credit rating company in the US) just down graded Hong Kong's financial status. This is absolutely the epitomy of not knowing what is happening in Hong Kong. Meanwhile this morning the Hong Kong Shanghai Banking Corporation, one of the largest banks in the world and a cornerstone of Hong Kong business, announced record earnings. Lots of companies exposed in the region are in trouble, plenty of others are not.

I received an e-mail from a student in Canada conducting a study on the media's reporting of the handover last year. He wrote, "According to my research, I found that most of the US media expressed a really negative view on the future of HK, which somehow created a fear. In addition, they reported a great deal of democratic issues. In contrast, the local media in HK mostly focused business topics, and they inplied that HK would remain as great as before. Do you agree with my points?" I certainly do. I might also point out that western media made a huge production of PLA troops entering HK. Meanwhile in HK, there were less troops entering than the British had posted here, and it was the most understated entry one could imagine.

Anyway, for any of you that have extra cash, most of Asia is on sale right now and there are bargains galore.

Two major events potentially destabilize the region right now. First, the situation in Iraq. If the US and allies attack Iraq, it could send shockwaves to Asia if Russia gets involved. Keep in mind Russia is next to Asia. (So is the Middle East for that matter.) Second, the rioting in Indonesia. As the world's 4th largest populated nation, and one that is ruled fairly heavy handedly by the government, this could turn into a very ugly situation.

Having said that, the latest buzz on the street is that Asia is still in for another roller-coaster round, even without the two above events. There were indications of this as Asian bourses began convulsing near the end of this past week. Let's be graphic since this is The Year Of The Tiger -- the way a cat does before it loses its cookies!

And Hong Kong? The government just rolled out a huge budget, the largest one ever, and critics immediately jumped on the band wagon screaming that the government was trying to spend its way out of the currect economic slump. If any government could afford to do that it's Hong Kong. Two weeks ago the government announced it had a $55 billion surplus. That alone takes up 25% of the new budget so let's keep things in perspective. Plus, this is a small place when it comes to local municipal matters. This kind of money could go a long way.

To follow the above analogy, the Hang Seng Index still has the convulsing cat flu but is trying desperately to shrug it off. Opinion is split on what will happen but many agree that the current strategy will pay-off for Hong Kong in the long run. Even though it could cost dearly in the short term, Hong Kong needs to flex its muscle, demonstrating that it is not just any old Asian city, but a strong international financial centre that can hold its own. 

This past week I lunched at The American Club (thank's Barb!) and as we looked down at the world there was no lack of activity anywhere. Even as I write this on Sunday morning, outside my window boats buzz about everywhere.

It is out with the ox and in with the tiger as Asia welcomes the Lunar New Year this week. The Lunar New Year, considered the most important holiday in China, begins on the first full moon of the new year and is celebrated for 15 days. 

The Year of the Tiger symbolizes strength, vitality and fortune. The public holiday, which lasts three to four days, is a time for renewal, family gatherings, eating rich foods and wishing for good luck. 

Although much of Asia is worried about a faltering economy, especially while the Indonesian Rupiah fell to a record low of 17,000:1 to the US dollar this week, such matters are far removed from the many celebrations taking place. In fact, many hope the New Year will bring better business luck to Asia.

In Hong Kong, a parade, lion dancers, gongs and a carnival greeted the Year of the Tiger, while many residents also burned incense at temples. The Hong Kong festival will climax tonight when six tons of fireworks will explode over the world's busiest harbor. Meanwhile In Beijing, many residents woke to the sound of firecrackers -- believed to scare off evil spirits. Beijing's historic bell tower sounded 108 times to ward off the same number of misfortunes. 

And misfortunes are what people are worried about: a major financial house collpased last week in Hong Kong. Partly due to taking advantage of financial loop holes in local finance laws, and partly due to misconduct on the part of the firms managers. (Traders were given permission to use client cash to trade on margins without client permission, according to the South China Morning Post.)

If the Posts job ads are any indication of local sentiment (maybe I should call that the SCMP Job Ad Indice), things look no better. Last Saturday, January 24th, there were only 60 pages of ads - half this time last year. The SAR government claims 1998 unemployment will rise, but only to 3%, up half a percent from 1997. I would say, the indice indicates less rollover of jobs post Lunar New Year, and less companies willing to put their money into placing ads.

The Hang Seng Index was still volatile this week, but not nearly as much as it has been in recent times.

Today the South China Morning Post (SCMP) had 112 pages of job ads in their famous weekly job ad day. This is a good indication that companies are still hiring despite the current economic threats across the region. In the finance sector there are lay-offs galore. For example, Peregrine collapsed this week, laying off 700 workers (plus they layed off 250 in November '97.) Many finance companies are also re-trenching back to Tokyo, where they expect upcoming deregulation to bring about some financial opportunities. 

Usually there is a big turnover of jobs following Chinese New Year (CNY) -- people collect their bonuses then move to new jobs for more money. Last year after CNY, there were easily 175 pages or more of job ads. This year the turnover is expected to be low. With the Asian economies spinning out control the way many of them are, people are happy just to have jobs and will probably stay in their current positions. We shall see. There was also an article in the SCMP today about the Chinese government reiterating its commitment to help Hong Kong keep its dollar pegged to the US dollar. A lot of people are speculating that the HKD will float. Personally I do't think that will happen for a while -- it is far too political.

Otherwise it is business as usual in Hong Kong and life doesn't seem any different post-handover.