hkskyline
November 2nd, 2004, 11:21 PM
Journal of Commerce
November 1, 2004, Monday
Big fish in a smaller pond;
Hong Kong transforms itself from the premier gateway to China into a service center focused on the Pearl River Delta
Like many successful multinational corporations, Hong Kong has repeatedly reinvented itself to respond to changing conditions. As recently as the 1970s, Hong Kong was a manufacturing center renowned for low-cost plastics, wigs and other cut-rate goods. By the 1980s, it was a high-rise international financial center and the gateway to China, which was still largely isolated from global trade and investment. Now, with China squarely at the center of the global marketplace, major multinationals don't have to rely on Hong Kong's expertise in finance, transportation, logistics and other services to penetrate booming markets in China. "Hong Kong grew as a result of its role as a gateway for manufacturing centers in South China," said Jon Monroe, a consultant specializing in China logistics. But with the rest of China growing so rapidly, "you can't have just one gateway any more."
How does Hong Kong plan to preserve its prosperity? "Our vision is to be Asia's world city, and the international financial center of our time zone," said Jacqueline Willis, Hong Kong commissioner for economic and trade affairs in the U.S. "We continue to reinvent ourselves. We must not be shy as an economy about leveraging our economic strength," Willis said.
In an era when information is invaluable, Hong Kong's strengths are intellectual property and professional services. This time around, reinvention in Hong Kong largely means exploiting the former British crown colony's expertise in services to strengthen its position throughout the mainland - especially in the nearby cluster of cities and countries known as the Pearl River Delta. Long the focal point of China's low-cost manufacturing, the "PRD" is no longer the dominant, obvious choice for foreign manufacturers. Nevertheless, with its population of 78 million - scattered through Guangzhou, Dongguan, Zhongshan, Shenzhen, Zhuhai, Jiangmen and other nearby areas - the Pearl River Delta boosted its annual export volume from US$10.6 billion in 1995 to US$95.4 billion to 2001. Mean-while, the volume of "actually realized" foreign direct investment in the region grew from US$2 billion to US$15.6 billion, according to Hong Kong government sources.In an era when information is invaluable, Hong Kong's strengths are intellectual property and professional services. This time around, reinvention in Hong Kong largely means exploiting the former British crown colony's expertise in services to strengthen its position throughout the mainland - especially in the nearby cluster of cities and countries known as the Pearl River Delta. Long the focal point of China's low-cost manufacturing, the "PRD" is no longer the dominant, obvious choice for foreign manufacturers. Nevertheless, with its population of 78 million - scattered through Guangzhou, Dongguan, Zhongshan, Shenzhen, Zhuhai, Jiangmen and other nearby areas - the Pearl River Delta boosted its annual export volume from US$10.6 billion in 1995 to US$95.4 billion to 2001. Mean-while, the volume of "actually realized" foreign direct investment in the region grew from US$2 billion to US$15.6 billion, according to Hong Kong government sources.
Although the Yangtze River valley and hot new Chinese locations will grow more rapidly, the Pearl River Delta will continue to grow, Willis said, and Hong Kong will play a major role in that development. Beyond being a major investor in the delta region, Hong Kong-based companies will supply much-needed expertise in transportation, logistics and other professional services. Hong Kong is counting on its proximity and established ties with the region, and expects to derive unique benefits from the Closer Economic Partnership Agreement signed by Hong Kong and China last year.
The first stage of the agreement took effect Jan. 1. Based on the unique "one country, two systems" approach to China-Hong Kong relations, the pact establishes what is, in effect, a free-trade agreement between China and Hong Kong, Willis said. "We are the first to have a free-trade agreement with China," she added.
The agreement, which complies with World Trade Organization requirements, eliminates numerous trade and investment barriers. "It enables Hong Kong-manufactured goods to enter China tariff free," Willis said. Already, 85 percent of Hong Kong-made goods enter China tariff free, if they meet the agreement's rules-of-origin requirements. "This is a major benefit for anyone who wants to sell goods in China," she said.
When the agreement's second stage takes effect next Jan. 1, the huge China market will be uniquely open to Hong Kong-based providers of 26 kinds of services, including airport services, distribution, freight forwarding, logistics, storage, transportation and warehousing. "This enables a Hong Kong company to enter the mainland ahead of China's WTO commitment on services," Willis said. "You get your feet into China before others do. U.S. service companies, for example, can only enter China when the WTO liberalization kicks in the services sector." Willis calculates that this gives Hong Kong service companies a three- to five-year head start in opening subsidiaries in China.
To qualify as a "Hong Kong company" under the new agreement, a company must be incorporated under the laws of Hong Kong, be liable for corporate profit taxes in Hong Kong, and employ 80 percent or more of its staff in Hong Kong. The company must have engaged in "substantive business operations" in the sector for at least three years. Since the agreement, there has been a jump in applications to register as Hong Kong companies, Willis said. Half of those applications are coming from abroad, and the U.S. is among the top three countries. Willis predicts many Hong Kong-based subsidiaries of third-party logistics providers will take advantage of the opportunity.
Earlier this year, the Hong Kong-based subsidiary of Kuehne & Nagel (Asia Pacific) became the first global logistics provider to receive a license under the Closer Economic Partner-ship Agreement to operate a wholly owned enterprise on the Chinese mainland. The company's managing director, Andy Weber, said at the time that opening a fully owned subsidiary in Shanghai would put his company at least two years ahead of rival firms that cannot obtain similar benefits until China's restrictions are lifted.Earlier this year, the Hong Kong-based subsidiary of Kuehne & Nagel (Asia Pacific) became the first global logistics provider to receive a license under the Closer Economic Partner-ship Agreement to operate a wholly owned enterprise on the Chinese mainland. The company's managing director, Andy Weber, said at the time that opening a fully owned subsidiary in Shanghai would put his company at least two years ahead of rival firms that cannot obtain similar benefits until China's restrictions are lifted.
Inspired by such prospects, foreign direct investment in Hong Kong has remained strong.
According to the World Investment Report 2004, released recently by the U.N. Conference on Trade and Development, Hong Kong retained its position as Asia's second-largest destination for foreign direct investment in 2003, trailing only China. While flows of foreign direct investment dropped worldwide and in North America last year, foreign direct investment to Asia and the Pacific increased to US$107 billion from US$84 billion in 2002. Despite the SARS outbreak and slowing global markets, the inflow of investment to Hong Kong reached US$13.6 billion in 2003, up 40 percent from 2002.
Many multinational corporations continue to choose Hong Kong - rather than nearby locations on the mainland - for their headquarters. The roster of regional headquarters and offices in Hong Kong reached all-time highs in 2004, according to a recent report. As of June, 1,098 foreign companies had regional headquarters in Hong Kong, up from 966 in 2003. Regional offices totaled 2,511, up from 2,241 a year earlier.
"The figures reflect that our city continues to attract investors from traditional markets, including the U.S. and Japan," said Mike Rowse, director general of investment promotion at Invest Hong Kong. "Hong Kong's traditional advantages - including a simple and low tax regime, absence of exchange controls and free flow of information - keep Hong Kong competitive among neighboring markets in Asia."
Willis agreed. "In our core strengths, we continue to attract investors, even though we may not be the flavor of the month," she said. "This is not a zero-sum game. No temptation or pressure can move us away from being a free trader."
Although Hong Kong's trading relationship with the mainland has become much closer since the British left in 1997, Willis expects Hong Kong-based service providers to continue to play a unique role in raising standards of logistics, transportation and other services in the Pearl River Delta, and elsewhere in China. Under the Closer Economic Partnership Agreement, overseas service providers don't necessarily have to establish their own companies in China. They can partner with a CEPA-qualified Hong Kong service provider, invest in such a provider or purchase such a provider.
Hong Kong has more than its share of skilled professionals. Its container port is still the largest in the world, and its airport provides service to 4,500 destinations a week, via more than 70 airlines. Under the terms of a new aviation agreement, the total number of weekly flights between Hong Kong and the mainland will grow from 1,200 today to 1,600 by 2006. The number of weekly all-cargo flights will double from 42 (21 flights in each direction) to 84. "Timely delivery to market is very important to us," Willis said.Hong Kong has more than its share of skilled professionals. Its container port is still the largest in the world, and its airport provides service to 4,500 destinations a week, via more than 70 airlines. Under the terms of a new aviation agreement, the total number of weekly flights between Hong Kong and the mainland will grow from 1,200 today to 1,600 by 2006. The number of weekly all-cargo flights will double from 42 (21 flights in each direction) to 84. "Timely delivery to market is very important to us," Willis said.
Willis sees major opportunities emerging as a result of continued improvements in the infrastructure of the Pearl River Delta. Construction of a Hong Kong-Zhuhai-Macao bridge make bring Jiangmen, in the relatively remote western part of the Delta, more accessible to Hong Kong. To strengthen ties further, Hong Kong, Macao and the eight other nearby provinces signed the Pan-PRD Regional Cooperation and Development Forum, last June.Willis sees major opportunities emerging as a result of continued improvements in the infrastructure of the Pearl River Delta. Construction of a Hong Kong-Zhuhai-Macao bridge make bring Jiangmen, in the relatively remote western part of the Delta, more accessible to Hong Kong. To strengthen ties further, Hong Kong, Macao and the eight other nearby provinces signed the Pan-PRD Regional Cooperation and Development Forum, last June.
Skeptics argue that all these initiatives are not likely to return Hong Kong to the spotlight. But they acknowledge that Hong Kong will remain a top regional center.Skeptics argue that all these initiatives are not likely to return Hong Kong to the spotlight.
"CEPA is not nonsense," Monroe said. After all, Beijing has a vested interest in preserving Hong Kong's prosperity. "The government of China wants to maintain Hong Kong as a viable economic region."
Monroe noted, however, that China's national government also has an ambitious five-year "Go West" initiative aimed at developing regions such as Chengdu, Xian and other currently remote areas of the vast interior. Many workers drawn to the Pearl River Delta from other regions may decide to leave the delta region and go deeper into the interior, Monroe said. The city of Dongguan in Guangdong prefecture has 7 million people, but 5 million of them are migrants from elsewhere, with few roots in Dongguan. "If they had more jobs at home, they might go back home," Monroe said.
Is a regional role too modest for Hong Kong, a high-flying city-state long known for its boundless ambition? Willis doesn't think so. The Pearl River Delta may be only one corner of China, but its gross domestic product is as large as the entire Association of Southeast Asian Nations bloc, she said. A leading role in a region that large should offer plenty of opportunities for Hong Kong to reinvent itself once again.
November 1, 2004, Monday
Big fish in a smaller pond;
Hong Kong transforms itself from the premier gateway to China into a service center focused on the Pearl River Delta
Like many successful multinational corporations, Hong Kong has repeatedly reinvented itself to respond to changing conditions. As recently as the 1970s, Hong Kong was a manufacturing center renowned for low-cost plastics, wigs and other cut-rate goods. By the 1980s, it was a high-rise international financial center and the gateway to China, which was still largely isolated from global trade and investment. Now, with China squarely at the center of the global marketplace, major multinationals don't have to rely on Hong Kong's expertise in finance, transportation, logistics and other services to penetrate booming markets in China. "Hong Kong grew as a result of its role as a gateway for manufacturing centers in South China," said Jon Monroe, a consultant specializing in China logistics. But with the rest of China growing so rapidly, "you can't have just one gateway any more."
How does Hong Kong plan to preserve its prosperity? "Our vision is to be Asia's world city, and the international financial center of our time zone," said Jacqueline Willis, Hong Kong commissioner for economic and trade affairs in the U.S. "We continue to reinvent ourselves. We must not be shy as an economy about leveraging our economic strength," Willis said.
In an era when information is invaluable, Hong Kong's strengths are intellectual property and professional services. This time around, reinvention in Hong Kong largely means exploiting the former British crown colony's expertise in services to strengthen its position throughout the mainland - especially in the nearby cluster of cities and countries known as the Pearl River Delta. Long the focal point of China's low-cost manufacturing, the "PRD" is no longer the dominant, obvious choice for foreign manufacturers. Nevertheless, with its population of 78 million - scattered through Guangzhou, Dongguan, Zhongshan, Shenzhen, Zhuhai, Jiangmen and other nearby areas - the Pearl River Delta boosted its annual export volume from US$10.6 billion in 1995 to US$95.4 billion to 2001. Mean-while, the volume of "actually realized" foreign direct investment in the region grew from US$2 billion to US$15.6 billion, according to Hong Kong government sources.In an era when information is invaluable, Hong Kong's strengths are intellectual property and professional services. This time around, reinvention in Hong Kong largely means exploiting the former British crown colony's expertise in services to strengthen its position throughout the mainland - especially in the nearby cluster of cities and countries known as the Pearl River Delta. Long the focal point of China's low-cost manufacturing, the "PRD" is no longer the dominant, obvious choice for foreign manufacturers. Nevertheless, with its population of 78 million - scattered through Guangzhou, Dongguan, Zhongshan, Shenzhen, Zhuhai, Jiangmen and other nearby areas - the Pearl River Delta boosted its annual export volume from US$10.6 billion in 1995 to US$95.4 billion to 2001. Mean-while, the volume of "actually realized" foreign direct investment in the region grew from US$2 billion to US$15.6 billion, according to Hong Kong government sources.
Although the Yangtze River valley and hot new Chinese locations will grow more rapidly, the Pearl River Delta will continue to grow, Willis said, and Hong Kong will play a major role in that development. Beyond being a major investor in the delta region, Hong Kong-based companies will supply much-needed expertise in transportation, logistics and other professional services. Hong Kong is counting on its proximity and established ties with the region, and expects to derive unique benefits from the Closer Economic Partnership Agreement signed by Hong Kong and China last year.
The first stage of the agreement took effect Jan. 1. Based on the unique "one country, two systems" approach to China-Hong Kong relations, the pact establishes what is, in effect, a free-trade agreement between China and Hong Kong, Willis said. "We are the first to have a free-trade agreement with China," she added.
The agreement, which complies with World Trade Organization requirements, eliminates numerous trade and investment barriers. "It enables Hong Kong-manufactured goods to enter China tariff free," Willis said. Already, 85 percent of Hong Kong-made goods enter China tariff free, if they meet the agreement's rules-of-origin requirements. "This is a major benefit for anyone who wants to sell goods in China," she said.
When the agreement's second stage takes effect next Jan. 1, the huge China market will be uniquely open to Hong Kong-based providers of 26 kinds of services, including airport services, distribution, freight forwarding, logistics, storage, transportation and warehousing. "This enables a Hong Kong company to enter the mainland ahead of China's WTO commitment on services," Willis said. "You get your feet into China before others do. U.S. service companies, for example, can only enter China when the WTO liberalization kicks in the services sector." Willis calculates that this gives Hong Kong service companies a three- to five-year head start in opening subsidiaries in China.
To qualify as a "Hong Kong company" under the new agreement, a company must be incorporated under the laws of Hong Kong, be liable for corporate profit taxes in Hong Kong, and employ 80 percent or more of its staff in Hong Kong. The company must have engaged in "substantive business operations" in the sector for at least three years. Since the agreement, there has been a jump in applications to register as Hong Kong companies, Willis said. Half of those applications are coming from abroad, and the U.S. is among the top three countries. Willis predicts many Hong Kong-based subsidiaries of third-party logistics providers will take advantage of the opportunity.
Earlier this year, the Hong Kong-based subsidiary of Kuehne & Nagel (Asia Pacific) became the first global logistics provider to receive a license under the Closer Economic Partner-ship Agreement to operate a wholly owned enterprise on the Chinese mainland. The company's managing director, Andy Weber, said at the time that opening a fully owned subsidiary in Shanghai would put his company at least two years ahead of rival firms that cannot obtain similar benefits until China's restrictions are lifted.Earlier this year, the Hong Kong-based subsidiary of Kuehne & Nagel (Asia Pacific) became the first global logistics provider to receive a license under the Closer Economic Partner-ship Agreement to operate a wholly owned enterprise on the Chinese mainland. The company's managing director, Andy Weber, said at the time that opening a fully owned subsidiary in Shanghai would put his company at least two years ahead of rival firms that cannot obtain similar benefits until China's restrictions are lifted.
Inspired by such prospects, foreign direct investment in Hong Kong has remained strong.
According to the World Investment Report 2004, released recently by the U.N. Conference on Trade and Development, Hong Kong retained its position as Asia's second-largest destination for foreign direct investment in 2003, trailing only China. While flows of foreign direct investment dropped worldwide and in North America last year, foreign direct investment to Asia and the Pacific increased to US$107 billion from US$84 billion in 2002. Despite the SARS outbreak and slowing global markets, the inflow of investment to Hong Kong reached US$13.6 billion in 2003, up 40 percent from 2002.
Many multinational corporations continue to choose Hong Kong - rather than nearby locations on the mainland - for their headquarters. The roster of regional headquarters and offices in Hong Kong reached all-time highs in 2004, according to a recent report. As of June, 1,098 foreign companies had regional headquarters in Hong Kong, up from 966 in 2003. Regional offices totaled 2,511, up from 2,241 a year earlier.
"The figures reflect that our city continues to attract investors from traditional markets, including the U.S. and Japan," said Mike Rowse, director general of investment promotion at Invest Hong Kong. "Hong Kong's traditional advantages - including a simple and low tax regime, absence of exchange controls and free flow of information - keep Hong Kong competitive among neighboring markets in Asia."
Willis agreed. "In our core strengths, we continue to attract investors, even though we may not be the flavor of the month," she said. "This is not a zero-sum game. No temptation or pressure can move us away from being a free trader."
Although Hong Kong's trading relationship with the mainland has become much closer since the British left in 1997, Willis expects Hong Kong-based service providers to continue to play a unique role in raising standards of logistics, transportation and other services in the Pearl River Delta, and elsewhere in China. Under the Closer Economic Partnership Agreement, overseas service providers don't necessarily have to establish their own companies in China. They can partner with a CEPA-qualified Hong Kong service provider, invest in such a provider or purchase such a provider.
Hong Kong has more than its share of skilled professionals. Its container port is still the largest in the world, and its airport provides service to 4,500 destinations a week, via more than 70 airlines. Under the terms of a new aviation agreement, the total number of weekly flights between Hong Kong and the mainland will grow from 1,200 today to 1,600 by 2006. The number of weekly all-cargo flights will double from 42 (21 flights in each direction) to 84. "Timely delivery to market is very important to us," Willis said.Hong Kong has more than its share of skilled professionals. Its container port is still the largest in the world, and its airport provides service to 4,500 destinations a week, via more than 70 airlines. Under the terms of a new aviation agreement, the total number of weekly flights between Hong Kong and the mainland will grow from 1,200 today to 1,600 by 2006. The number of weekly all-cargo flights will double from 42 (21 flights in each direction) to 84. "Timely delivery to market is very important to us," Willis said.
Willis sees major opportunities emerging as a result of continued improvements in the infrastructure of the Pearl River Delta. Construction of a Hong Kong-Zhuhai-Macao bridge make bring Jiangmen, in the relatively remote western part of the Delta, more accessible to Hong Kong. To strengthen ties further, Hong Kong, Macao and the eight other nearby provinces signed the Pan-PRD Regional Cooperation and Development Forum, last June.Willis sees major opportunities emerging as a result of continued improvements in the infrastructure of the Pearl River Delta. Construction of a Hong Kong-Zhuhai-Macao bridge make bring Jiangmen, in the relatively remote western part of the Delta, more accessible to Hong Kong. To strengthen ties further, Hong Kong, Macao and the eight other nearby provinces signed the Pan-PRD Regional Cooperation and Development Forum, last June.
Skeptics argue that all these initiatives are not likely to return Hong Kong to the spotlight. But they acknowledge that Hong Kong will remain a top regional center.Skeptics argue that all these initiatives are not likely to return Hong Kong to the spotlight.
"CEPA is not nonsense," Monroe said. After all, Beijing has a vested interest in preserving Hong Kong's prosperity. "The government of China wants to maintain Hong Kong as a viable economic region."
Monroe noted, however, that China's national government also has an ambitious five-year "Go West" initiative aimed at developing regions such as Chengdu, Xian and other currently remote areas of the vast interior. Many workers drawn to the Pearl River Delta from other regions may decide to leave the delta region and go deeper into the interior, Monroe said. The city of Dongguan in Guangdong prefecture has 7 million people, but 5 million of them are migrants from elsewhere, with few roots in Dongguan. "If they had more jobs at home, they might go back home," Monroe said.
Is a regional role too modest for Hong Kong, a high-flying city-state long known for its boundless ambition? Willis doesn't think so. The Pearl River Delta may be only one corner of China, but its gross domestic product is as large as the entire Association of Southeast Asian Nations bloc, she said. A leading role in a region that large should offer plenty of opportunities for Hong Kong to reinvent itself once again.