Freedom Barometer ASIA

Hong Kong’s Death

Hong Kong’s Death: Greatly ExaggeratedA Special Report on Hong Kong 15 Years After the Handover

by Andrew Work

“The reports of my death are greatly exaggerated.”-Mark Twain

So it goes with Hong Kong. However, just because the patient is alive does not mean he is leading a healthy lifestyle.

In 1995, Fortune magazine ran a cover story entitled “The Death of Hong Kong.” This was the most famous of a cohort of negative Nostradamuses who were sure that the end of the British era was the end for the charmed colony on the shore of the South China Sea. To quote the authors of the article, Louis Kraar and Joe McGowan, “the naked truth about Hong Kong's future can be summed up in two words: It's over.”

On the 15th anniversary of the 1997 Handover, it is obvious that it is not over. In fact, Hong Kong has grown stronger and weathered many storms. The dire predictions have not come true. However, some developments not foreseen by Fortune have a very high likelihood of weighing down Hong Kong’s legendary resiliency in the face of economic hardship.

“A Place to Make Money”Kraar and McGowan’s article was not all doom and gloom - only mostly. “With its six million enterprising citizens (mostly overseas Chinese), its magnificent harbour and financial wealth that includes some US$ 52 billion in government reserves [1995] alone, Hong Kong will remain the gateway to fast-growing South China. As such, it will continue to be, as one local billionaire puts it, 'a place where you can make plenty of money.'”

That much has remained true - in a sense. Hong Kong is surely a place where many have made their fortunes. Since the Handover, the vast majority of wealth has been made in real estate and the stock markets.

A 2010 report described how the number of millionaires rose and fell with the state of the real estate and property markets. A full 47% of millionaires were classed “non - working” (housewives and retirees), but had significant wealth tied up in assets.1 One in 14 Hong Kong citizens were considered millionaires with an average of HK$ 3.8 million in liquid assets and net assets of almost HK$ 10 million. However, in many other areas, the article was well off the mark.

1 http://www.thestandard.com.hk/news_detail.asp?pp_cat=30&art_id=94927&sid=27175826&con_type=3

Requiem for “a Vibrant International Commercial and Financial Hub”?What's indisputably dying though is Hong Kong's role as a vibrant international commercial and financial hub - home to the world's eighth - largest stock market, 500 banks from 43 nations, and the busiest container port on Earth.

Today Hong Kong stands an even more important “international commercial and financial hub.” In 2008, Fortune’s sister publication named the world’s three great cities that sit at the heart of global trade and finance and coined a term for them: “Nylonkong2.”

While the awkward moniker did not catch on, the sense that Hong Kong was, as its government self-styles it, “Asia’s World City” became accepted by its denizens and the global community.

Instead of being the world’s eighth largest stock market, it is the seventh3. Two on the list are almost purely national affairs (Tokyo and Shanghai). By value of securitised derivatives, it is number one in the world. Most impressively, Hong Kong was the number one global issuer of IPOs in 2006, 2007, 2009, 2010 and 20114. In addition to mega-Chinese financial and industrial IPOs, it has attracted a variety of international firms ranging from Russian aluminium firms (Rusal), to Swiss mining interests (Glencore), to famous Italian luxury brands (Prada). The Hong Kong Stock Exchange is developing new rules to enable the listing of mining firms, starting with later stage firms, which are hoped to allow more speculative ventures.

Particularly noteworthy is Hong Kong’s development as an RMB trading centre. In 2011, over 187 banks (165 of which are overseas banks) from over 30 countries were involved in Hong Kong’s RMB trading platform5. Regular citizens can withdraw cash in RMB from ATMs in many locations in the city. As the RMB becomes more freely available, Hong Kong stands to benefit as the clearing house for the RMB global trading network. Hong Kong currently hosts offices from over 244 banks6. The growth, rather than the decline, of the sector calls into question where Kraar and McGowan sourced their original estimate.

2 http://www.time.com/time/magazine/article/0,9171,1704398,00.html

3 http://www.world-exchanges.org/files/file/stats%20and%20charts/2011%20WFE%20Market%20Highlights.pdf

4 http://online.wsj.com/article/SB10001424052702303822204577464263469270318.html

5 http://www.hkma.gov.hk/media/eng/publication-and-research/hkrmb/hkma-rmb-booklet.pdf

6 Hong Kong Monetary Authority - http://vpr.hkma.gov.hk/cgi-bin/vpr/index.pl Broken down: licensed banks – 154; restricted license banks – 20; deposit taking companies – 20; local representative offices - 60.

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Commerce and TradeHong Kong is still the world’s third busiest container port, after Shanghai and Singapore. It peaked in volume in 2011, moving 24.4 metric TEUs7 after a slowdown in 2010 in response to conditions in the United States and Europe. This growth occurred even as multiple local competitors proliferated. Other top ten ports in China include Shenzhen, Ningbo-Zhoushan, Guangzhou Harbour and Qingdao. Two of the other top ten are in the Pearl River Delta near Hong Kong. Clearly, the competition has not hurt Hong Kong, and it continues to be a vibrant centre of international trade.

Taxation and Government SpendingTaxation and government spending are intimately linked, the former being justified mostly by the latter. In this respect, Hong Kong continues to outperform.

The taxation system has remained largely unchanged since the Handover. Indeed, denizens of Hong Kong who are not tax professionals find tax news from other jurisdictions perplexing. Hong Kong still has no capital gains tax, no dividend tax, no tax on interest, no machinery tax, no import or export tax, no GST or VAT, and no tax on wine and beer. As such, the complex web of exemptions that complicate many jurisdictions’ tax codes simply does not exist in Hong Kong.

Hong Kong does tax spirits (of the alcoholic variety), tobacco and newly imported cars. Corporate tax rates stand at 16.5% with relatively few exemptions. There is only one level of taxation that contrasts favourably with federal jurisdictions, which may have multiple taxation levels (for example, national plus state/provincial plus municipal). PricewaterhouseCoopers’ Paying Taxes 2012 report shows Hong Kong at the top of its three measures, namely, Ease of Paying Taxes (#3), Tax Payments (#1) and Time to Comply (#12)8.

Income tax is progressive and only applies above a threshold that exempts more than half of the households in Hong Kong from any tax. The top tax rate is 17%, but very few pay it. Combining household income exemptions and reductions in taxable income for children and adult dependents mean that income tax is a relatively rare imposition in Hong Kong. Taxation is simple and those who qualify can normally complete the two-page form in a couple of minutes. Tax is paid in advance, anticipating earnings, but is easily reduced or waived in the event of changing personal circumstances such as leaving Hong Kong, unemployment or starting a new business, usually with a simple one-page letter. As mentioned, dividends are not taxed, so risk-taking business owners can receive their income tax-free.

The Hong Kong government can maintain this low tax system by keeping spending below revenue. While this seems simple, the governments of most developed nations have a difficult time doing so. Deficits in Hong Kong are a once-in-a-decade occurrence, considered to be wildly irresponsible and made bearable by massive reserve holdings. The government regularly predicts dire outcomes in perhaps one of the most successful budgetary sandbagging exercises in the history of the world. In

7 http://www.pdc.gov.hk/docs/Hkport.pdf

8 PwC’s Paying Taxes 2012 report shows Hong Kong at the top of its three measures, namely Ease of Paying Taxes (#3), Tax Payments (#1) and Time to Comply (#12).

recent years, the problem has been excess revenue, even after eliminating taxes (hotel taxes, wine and beer tax), lowering taxes (corporate tax) and exempting (one-off reductions on income tax) taxes9. Plans to reduce or exempt taxes have given way from public demand to one-off payouts and energy subsidies for residents. So few people pay taxes that tax waivers and reductions would not benefit them.

The government has a stated intent of keeping government expenditure below 20% of the GDP, i.e. at 17.3% from 2011 to 201210. It has ranged above that in recent years11, but there does seem to be a commitment to use it as the benchmark.

The government does receive support for its spending through the Hong Kong Jockey Club’s massive charitable work. The Jockey Club’s government enforced monopoly on gambling enables their donations to reach virtually every aspect of Hong Kong life, including universities, schools, basic research projects, orphanages, sports, job training and many more. This is not accounted for in government spending records, and the determination of funding is made by the 12 Stewards of the Hong Kong Jockey Club Foundation, not government officials.

Is the Rule of Law under Threat?But as Hong Kong becomes a captive colony of Beijing and increasingly begins to resemble just another mainland city, governed by corruption and political connections rather than the even-handed rule of law, it seems destined to become a global backwater.

Troops of the People's Liberation Army, which has already formed links with the powerful local criminal gangs known as "triads," will stroll the streets.

Broadly speaking, Hong Kong has kept itself clean. Like any developed economy, there is occasional hanky-panky that comes to the attention of local law enforcement and the territory’s very free press. The Independent Commission Against Corruption, in perhaps an example of too much of a solution for very minor a problem, had to resort to a major investigation of hotel concierges taking a cut of revenue from hotel clients they referred to local tailors12. They have had meatier targets in recent years, but the problems have thus far been confined to local mishaps - not incidents directly involving Beijing, the PLA or a mainland conspiracy. Some seemingly sweetheart deals for former top-level political figures to obtain cut-rate retirement premises in Hong Kong made the press, resulting in investigations in some cases, and retraction before execution in others. The biggest scandals surrounding the recent, vigorously contested election for Chief Executive (Hong Kong’s highest office) centred on whether the candidates had illegal structures (meaning structures that fail to comply

9 http://www.thenational.ae/thenationalconversation/industry-insights/economics/hong-kong-flush-with-surplus-but-government-remains-unloved

10 http://www.heritage.org/index/country/hongkong#limited-government

11 http://www.economist.com/node/16591088

12 http://www.thestandard.com.hk/news_detail.asp?we_cat=4&art_id=67632&sid=19491871&con_type=1&d_str=20080624&fc=212http://archive.news.gov.hk/isd/ebulletin/en/category/lawandorder/081009/html/081009en08004.htm

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with building codes) in their various properties in Hong Kong. This is hardly the stuff of a civilisation in terminal decline.Transparency International’s 2011 Corruption Perceptions Index gave Hong Kong a score of 8.4 out of 10 (compared to China’s 3.6). This placed it at #12 in the world - just ahead of its one-time ruler, the United Kingdom (tied at 16th with Austria and Barbados). The Index measures the perception of “bribery of public officials, kickbacks in public procurement, embezzlement of public funds and the effectiveness of public sector anti-corruption efforts.” It seems that corruption and political connections have some way to go yet in making Hong Kong into “just another mainland city.”

The PLA does have a presence in Hong Kong through its occupation of former British military premises - although many of those were turned into recreational facilities for Hong Kong community groups. However, the only time one would see anyone from the PLA in Hong Kong would be on their wildly popular open days, with thousands of tickets being scooped up in a couple of hours each year. Indeed, much more visible are the frequent visits from foreign navies, especially American, whose visits provide a welcome retail spending boost in some of the more salacious sectors of the economy.

Hong Kong vs. the World: Reactions to the Global Financial CrisisIn 2008, the world plunged into what has been called the biggest financial crisis since the Great Depression of the 1930s. Then, as now, Hong Kong was impacted by a general slowdown in global trade.

However, it has not reacted to the global crisis as many jurisdictions did. Time Magazine’s famous 1965 cover declaring “We Are All Keynesians Now”13 rang true in 2008 as American, European, and Asian governments took enthusiastically to easy money and government deficits. Even Canada, after running a decade of consecutive surpluses, was dragged into deficit spending14.

Hong Kong, however, was different. Increasing local calls for government spending did produce much head-nodding and promises to attend to the coming disaster with more unspecified government support and stern warnings about the likelihood of depressed government revenues. However, the government continued its practice of projecting small surpluses or deficits and then producing (often ginormous) surpluses.

Hong Kong has not had it all easy during this time. Following the Handover, growth from 1997 to 2002 stood at only 1.9%. However, this was not seen as a result of Kraar and McGowan’s “Death of Hong Kong” article, but was due to the Asian Financial Crisis that swept through the region. 2003 was a disastrous year as SARS hammered Hong Kong. However, this did not significantly change Hong Kong’s practice of conservative budgeting to create surplus after surplus. The city has bounced back quickly from each setback.

13 http://www.time.com/time/magazine/article/0,9171,842353,00.html

14 http://www.cbc.ca/news/interactives/canada-deficit/

On the regulatory front, many countries saw fit to dramatically increase the regulation of their financial institutions. While Hong Kong is constantly fine-tuning its financial regulatory environment, it has experienced no American Dodd-Frank or Sarbanes-Oxley style draconian reform. Calls to ban short-selling were resisted in Hong Kong. That being said, naked short-selling has always been banned in Hong Kong, and the Exchange recently tightened rules surrounding short selling15. Capital markets, as opposed to some Southeast Asian counterparts, remained open and free. Regulators are well-regarded and have been recruited to positions in other jurisdictions that are viewed as needing reform, such as the UK. A case in point is Martin Wheatley. The former CEO of the Hong Kong Securities and Financial Commission will be heading the new Financial Conduct Authority, which regulates the British banking sector.

However, most Hong Kong citizens understand than as an open economy, there are only a limited range of options available because the major global economies, especially the United States, continue to enforce rock bottom interest rates and wave after wave of quantitative easing. The Hong Kong dollar’s peg to the US dollar ensures that Hong Kong will continue be “along for the ride” on American monetary policy.

One area where Hong Kong has moved in line with global regulations is double taxation agreements16. On the one hand, this makes Hong Kong a more attractive location for international firms to set up their operations. Profits generated in Hong Kong will be taxed at Hong Kong’s low rates and not taxed a second time when repatriated. However, this also means responding to requests from partner jurisdictions to turn over targeted people or the financial records of certain companies on request – an obligation Hong Kong has avoided for many years.

Growing desperation of Western governments has seen them try to impose themselves on smaller, low tax jurisdictions. Interestingly, and contrary to Kraar and McGowan’s thesis, China’s takeover of Hong Kong actually helped Hong Kong in this respect. The OECD’s Financial Action Task Force (FATF) rejected calls to blacklist Hong Kong in 2000 and 2009, due in large part to China’s support17. What were the offending characteristics of Hong Kong in the FATF’s eyes? “Hong Kong’s low tax system, sophisticated banking facilities and its lack of currency and exchange controls...”18

China may again prove useful to Hong Kong in terms of economic freedom in the area of international commerce. China recently backed Hong Kong’s entry in the proposed China-ASEAN Free Trade Agreement. Given Hong Kong’s openness to general trade, the agreement would be more about Hong Kong-based companies gaining greater access to ASEAN markets. However, as one of Hong Kong’s few taxes are on new cars, Southeast Asian nations may ask for tax free entry for their vehicles.

15 http://www.hkex.com.hk/eng/newsconsul/hkexnews/2012/120510news.htm

16 http://www.ird.gov.hk/eng/tax/dta_inc.htm

17 http://www.thestandard.com.hk/news_detail.asp?we_cat=21&art_id=80518&sid=23372803&con_type=1&d_str=20090406&fc=2

18 http://www.lowtax.net/lowtax/html/hongkong/hong_kong_banking_confidentiality.html

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While the issue of Hong Kong’s involvement will supposedly be decided in November 2012, China appears to be in its corner19.

Economic freedom has been a mighty contributor to Hong Kong’s legendary resilience. The Fraser Institute's Economic Freedom of the World report and the Heritage Foundation’s Index of Economic Freedom have ranked Hong Kong at #1 since their respective inceptions. Hong Kong’s stock markets, real estate and labour costs have all moved up and down with the city’s economic fortunes, allowing for readjustment and recovery. It is in this area where weak spots are arising as regulatory creep comes to Hong Kong.

The Best or the Worst of the West?Hong Kong’s legendary economic freedom has been marvelled at by economists and proved seductive to business people, investors and entrepreneurs alike.

However, a rising civil society demanding more of its government, usually in the streets, has resulted in a mix of defence of freedoms and some stunning retreats from it.

Power in the Streets

The development of Hong Kong’s street protest culture hit a high point in 2003 when approximately 500,000 people took to the streets to protest against the imposition of a law that would address the post-Handover treason legislation, the so-called Article 23 legislation. There have been many peaks since then, including recent efforts to oppose the introduction of a new “Moral, Civic and National Education” seen by many as extolling the virtues of a one-party state20.

However, regulatory creep in some cases and major new programmes in others have reduced economic freedom in ways that will make it hard for Hong Kong to recover from future setbacks and hamper its efforts to face future challenges.

Mandatory Investment?

Since the Handover, the government has moved to force people to invest in government-approved mutual fund investments called the Mandatory Provident Fund (MPF). Far from providing people with an adequate retirement fund, the Fund is resented by most Hong Kong residents who see it as an imposition on their choice of how to use their money21 and suspect that its fees are designed to generate profits for approved financial firms22. In 2011, a government proposal to put HK$ 6,000 per

19 http://english.cntv.cn/20120830/100147.shtml

20 http://www.economist.com/node/21562985

21 http://mobile.theasset.com/inside.php?tid=20930

22 http://www.oxfam.org.hk/filemgr/1706/tickingtimebomb_22Mar2011_SCMP.pdf

person into their MPF funds resulted in massive protests and a government climb-down23. The government continues to refine the programme to allow more choice of providers (currently controlled by employers), but the programme remains an unloved imposition on citizens.

Medical Restrictions

The Hong Kong Medical Council (HKMC), with its licensing monopoly over Hong Kong doctors, has become more and more restrictive over time. It has routinely increased the licensing requirements over decades to ensure that the new supply of practitioners is almost 100% Hong Kong-trained. Experienced doctors coming to Hong Kong would need to repeat the onerous conditions of residency imposed on fresh graduates. In addition, it has banned advertising that would allow upstart doctors to compete with doctors with established “brands” (older established doctors). Both moves mean that senior doctors with prestigious foreign degrees can avoid competing with younger, less costly – but similarly credentialed – rivals. With an ageing population, restricting the supply of medical practitioners puts the private and public sectors at the whim of doctors who can charge top dollar for their cartelisation of medical services. Prosecution and enforcement of HKMC rulings is paid for and executed by the government.

The most egregious example of this practice was brought to light when ex-president of the Philippines Estrada came to Hong Kong for an orthopaedic knee surgery. Dr. Christopher Mow, a leading orthopaedic surgeon and Deputy Chief of Orthopaedic Surgery at Stanford Hospital (of Stanford University) was banned from performing the surgery as he was not accredited in Hong Kong.

However, it seems that some doctors are fighting back. The Hong Kong Medical Association (HKMA), a professional association of doctors, has members who have challenged the advertising restrictions in court. Even the Hong Kong government is now seeking to create circumstances where Commonwealth doctors can return to fill urgent vacancies - not a popular move among local doctors24. Faced with overburdened doctors fleeing the public system, they are seeking to loosen the traditional chokehold on supply held by the HKMC25. However, the HKMA is aligned with the HKMC on this issue. The opening of the medical sector may require quite some time and vicious infighting as the government opposes the entrenched sector players they have created through the granting of monopoly.

Labour Regulations

One of the biggest moves in Hong Kong since the Handover that impacts labour flexibility and the territory’s ability to recover from economic adversity is the imposition of a minimum wage in April 2012.

23 http://hongkongbusiness.hk/financial-services/in-focus/each-hong-kong-permanent-resident-receive-6000

24 http://www.hkma.org/english/about/about.htm

25 http://www.thestandard.com.hk/news_detail.asp?we_cat=4&art_id=115507&sid=33854374&con_type=1&d_str=20110926&fc=1

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Introduced at a time of very low unemployment rate, the full impact of minimum wage will only be seen when the next downturn arises. Indeed, anecdotal evidence of senior citizens employed as cleaners and security guards suggest they are losing their jobs, likely the last they will ever have, as employers of small operations jettison their now more expensive employees. While guards and cleaners in large firms are expected to survive the cull, small operators have been shedding low-productivity staff. Guards have received a double hit in recent years with the imposition of a new licensing regime beyond the ability of most senior security guards to comply with, forcing them out of the profession.

If the next downturn results in many people permanently leaving the workforce, welfare applications will rise, putting a strain on government budgets. Exclusion of young people at the entry level of the workforce could see the creation of permanently unemployed people. A regular feature of the so-called developed economies, Hong Kong has escaped this phenomenon due to downward movements in labour costs during downturns. This new floor could pose serious challenges that will only become apparent during downward business cycle trends.

More powerful unions are making good use of their street power after succeeding in getting minimum wage increased. They are going after standard working hours as the next target. Employers, already burdened by new regulations requiring them to track the hours of low income workers (even those whose pay is higher than the minimum wage) and faced with increasing exposure to lawsuits and labour strife, are bracing for another round of job-killing measures and red tape.

Competition Law

In addition, the Hong Kong government has passed a bill to create a competition law that seems to incorporate the worst of all possible legislations. It carries the government exemptions of Singapore, the legal vagueness and openness to political manipulation of the American system and penalties even more draconian than the European system.

Widely opposed by the business community, the law was gleefully welcomed by the legal sector that saw a windfall in the making. One lawyer was indiscreet enough to post the following quote (which has since been removed):

“The absence of a general competition law in Hong Kong could be denying these [law] firms a chance to build up a new area of practice which in other jurisdictions can be a major profit centre.”26

Businesses are bracing for higher legal fees, a more complex operating environment and a higher level of uncertainty - all the hallmarks of a system that provides disincentive to invest.

26 http://www.legco.gov.hk/yr09-10/english/bc/bc12/papers/bc121115cb1-372-2-e.pdf

Even Finance...

The original draft of this article made a claim that Hong Kong was open for business for locals and foreigners without discrimination. However, in October of this year, the government introduced the first ever measure targeted at “foreigners“ - confusingly applicable to their fellow nationals from mainland China as well as other non-permanent residents of Hong Kong. Residential property buyers without permanent resident status face an additional 15% tax on their purchase of a new property. A populist measure to address local concerns about rising home prices broke unsettling new ground and raises the question of what anti-“foreigner“ measures will come next.

Greatly Exaggerated, but with a Grain of TruthClearly, Kraar and McGowan were off the mark with their predictions regarding Hong Kong. Hong Kong continues to be vibrant and top the Economic Freedom charts worldwide. Freedoms of speech and assembly are vigorously exercised. Rather than “dying” in all the ways predicted by Fortune, the only part they got right was that it would still be a marvellous place to make money and has been for 15 years since the Handover.

Kraar and McGowan predicted Hong Kong’s death on the basis of overbearing Chinese involvement putting the dead hand of bureaucracy on the invisible hand that generates jobs, wealth and success. None of that has transpired. What they did not foresee was home-grown street movements demanding socialist measures that have been the blight of Western economies.

Hong Kong still tops the charts and is even making advances in some ways. Financial regulations are well-regarded and under continual improvement to correct defects and open new markets. Hong Kong by and large did not catch the Keynesian flu that now bedevils developed economies.

The danger is not a mortal wound, but rather death by a thousand cuts. Introducing labour restrictions, new legal entanglements, and costs to individuals and businesses are being implemented at the rate of about one major issue every two years. Taken separately, each one is annoying to business and discouraging for investment. However, a major downturn - many of which have struck in the past 20 years - will reveal where these measures have weakened Hong Kong. The question is whether the improvements in sectors like financial markets and government budgeting will be enough to compensate for the misallocation of resources and increasing regulatory burden generated domestically.

Hong Kong continues to be a beacon to the world as an example of the benefits of economic and personal freedoms. However, if these freedoms are slowly strangled off, it will be a historical example - not a living one. Properly expanded and enhanced, Hong Kong’s freedoms and resulting success could inspire workers, policymakers and entrepreneurs for generations to come.

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About the authorAndrew Work is a co-founder of the Lion Rock Institute, Hong Kong‘s leading free market think tank. His work on economics and public policy has been published in over 15 publications including The Wall Street!Journal Asia, the South China Morning Post, Hong Kong Economic Times, Hong Kong Lawyer and many more. He! has appeared before business organisations, government departments, the Legislative Council of Hong Kong and on!television and radio to promote the work of The Lion Rock Institute.

Andrew is a permanent resident of Hong Kong and passionately committed to the future success of this city. He is the!ex-President of McGill University’s Hong Kong alumni (B.Sc. 1994) and received his MBA from the University of!Victoria (2002). He!is married and has two children, little Hong Kongers Victoria Karen (WEI Nuo) and Charlotte Alisha (WEI Rui).

Andrew cut his teeth on free market ideals in the Free Trade election of 1988 in Canada with the pro-free trade! Progressive Conservatives. In addition to organizing youth sector political activity, he worked for The Honourable! Tom Siddon on Parliament Hill in Ottawa. After coming to Asia, Andrew worked in the events management and!community building sector for 7 years, including stints with The Canadian Chamber of Commerce in Hong Kong and The Economist. Andrew was the Executive Director of The Canadian Chamber of Commerce in Hong Kong from 2007-2012. He is currently pursuing entrepreneurial ventures when not acting as the Section Leader of the Beaver Colony of the 1st Hong Kong Canadian Scout Group.