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Obstacle Illusion

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Yau Lee

In the period between January and August 2010, the Yau Lee Group signed government deals worth a whopping HK$4.73 billion (US$607 million). Is getting to all those billions really a tricky obstacle course? Two executives tell us all about it during an exclusive interview at the HKTDC International Building Fair late last year

While the rest of the Asian world was starting to feel the aftershocks of the Western recession in 2010, the 52year-old Hong Kong construction company Yau Lee, auspiciously began the year.

On January 5, its subsidiaries bagged 12 prizes at the Quality Public Housing Construction and Maintenance Awards.

By April 16, Yau Lee had sealed a new term contract worth HK$359 million (US$46 million) with the Architectural Services Department of Hong Kong.

May was an exceptionally good month, setting a record for the company. On May 3, the Hong Kong Housing Authority (HKHA) awarded Yau Lee a contract worth HK$2.9 billion (US$372 million) in a joint venture with the Hsin Chong Construction Group.

Seven days later, on May 10, Yau Lee Construction won a government housing contract for the Redevelopment of Lower Ngau Tau Kok Estate Phase 1, worth over HK$1.24 billion (US$159 million).

In August 2010, Yau Lee Construction inked a new deal with the Hong Kong Housing Authority (HKHA) worth over HK$235 million (US$30 million). And the year wasn’t over yet.

But in the middle of the International Building Fair organized by the Hong Kong Trade Development Council at the end of October, the Hong Kong headlines were shouting how property prices were threatening to boil over.

Carmen Y. S. Wong, personal assistant to the vice chairman of Yau Lee Holdings, and Vincent Lau, Business Development Manager of Yau Lee subsidiary REC Engineering, spoke to China Business on the issues affecting their industry.

China Business: It’s been in the news that the property prices in both China and Hong Kong are heating up and property prices in Hong Kong have reached their pre-crisis rate. How has this affected your company?
Carmen Wong: Actually, property is one of the biggest arms of our holding company. So when property prices are up, any impact on us is big.

Vincent Lau: I think property pricing is not solely affecting us. I think it is affecting all businesses in Hong Kong. But the impact on the construction industry is already less because we have our own office. We don’t need a big display area or a big factory in Hong Kong. So the property price, the sensitivity to us is less compared to retail or restaurants.

But doesn’t it affect new projects or opportunities in a market that’s really heating up?
Wong: I think, to the construction industry, the affecting factor is not the property price. But, for example, the shortage of labor or the aging skilled labor. So the focus is quite different [for us] compared to other industries.

Lau: The depreciation of the US dollar may have more of an effect on us.

That’s actually my next question.
(Laughter)

They say the yuan is too low. Pundits in South China are saying it could go up in the next months by as much as 10%. Are you in favor of that?
Wong: You know China is the world’s factory. In the coming 10 years, we think the renminbi will be a strong currency in the world.

But are you in favor of that? Do you really want the renminbi to go up?
Lau: Part of us is in favor because we are factoring in mainland China. So some of our businesses may be a qualification. I think when we validate construction workers or engineers, we can get them more in terms of salary, status, benefits, and give them better career prospects. We think, we hope we can attract more young people to join our industry.

What about the issue of labor migration? As a company looking for skilled labor, of course you want more people from the mainland to probably move...
Lau: This is a very sensitive topic! (Guffaws)

Are you in favor of opening up Hong Kong to labor from the mainland?
Lau: We cannot do what we want about this issue. We have to cope with the government policy on this. That’s not a sustainable solution for us. Even in China, some of our partners, they find it very difficult to get proper workers. That’s in PRC, not Hong Kong. So you can see it is not sustainable.

Wong: We can use another approach to solve this problem. We can change or reengineer the construction program. For example, we have a precast concrete factory in Shenzhen. We can use more precast elements for the Hong Kong projects. We manufacture in Shenzhen, transport to Hong Kong, and install on site. It can reduce a lot of skilled labor for the bar benders, or the concreters. The number of workers can be reduced if we upgrade our construction technology or reengineer the process. It can soften the labor problem.

Yes, but precast is a double-edged sword. It can make your construction cheap and it can make it more expensive. What if you need to precast for a designer who wants something so special you have to create molds just for him?
Wong: We have to think about it.

(Laughter)

Wong: In Hong Kong, in the public housing projects, the housing authority uses over 30% concrete precast elements in construction. So it is a very good insight for developers to consider using precast. And our building department also encourages developers to use more precast by giving GFA exemptions (A Gross Floor Area exemption is an incentive given the developer who helps reach government objectives. Two candidates for GFA exemption are putting more green areas in a development than is required by law and creating spaces that help conserve energy. The exemption is given in the computation of the allowable floor area for a given development—Ed.)

Print ed: 03/11

 

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