SAR’s ‘su­per-con­nec­tor’ role a key stay­ing power

China Daily (Canada) - - FRONT PAGE -

a grow­ing trend known as “trade dis­in­ter­me­di­a­tion”.

“But, there’s only Hong Kong be­cause it’s where it is ge­o­graph­i­cally,” says Bert Peels, chief ex­ec­u­tive of­fi­cer of S.T.I. Elec­tron­ics (for­merly known by its brand name LENCO).

Faced with mount­ing com­pe­ti­tion from other re­gional ju­ris­dic­tions, he notes that Hong Kong has been bet­ting on its fu­ture on what’s go­ing on across the bor­der — the Chi­nese main­land — where ris­ing costs have also led to a chal­leng­ing busi­ness en­vi­ron­ment, with wages in Shen­zhen hav­ing risen by nearly 20 per­cent last year alone.

“It’s not easy for Hong Kong to re­tain its crown as the re­gion’s trad­ing hub,” Peels ar­gues.

Hong Kong’s vis­i­ble trade last year, in­clud­ing re-ex­ports, do­mes­tic ex­ports and im­ports of goods, came to $8.4 tril­lion — al­most four times the city’s GDP — fig­ures from the 201516 Bud­get show.

The im­port-and-ex­port trad­ing sec­tor and the whole­sale in­dus­try, boasts nearly half-amil­lion em­ploy­ees — the largest work group for any sec­tor in Hong Kong — with more than 7,500 over­seas and main­land en­ter­prises hav­ing of­fices in the city, about half of which are cor­po­ra­tions’ re­gional head­quar­ters or of­fices.

Bob Partridge, Greater China trans­ac­tion ad­vi­sory ser­vices leader at Ernst & Young, says: “Ge­o­graph­i­cally, Hong Kong is centrally lo­cated, mid­way be­tween North Asian and Southeast Asian coun­tries, and is the main en­try and exit point for trade with the world’s sec­ond-largest econ­omy, backed by ex­cel­lent in­fra­struc­ture in terms of a Grade-A in­ter­na­tional air­port and con­tainer ter­mi­nal.”

Hong Kong’s unique as­set as a launch­ing pad to other Asian mar­kets can be seen from its po­si­tion as the world’s eighth-largest trad­ing en­tity in goods in 2014, the sev­enth-largest im­porter and the ninth-largest ex­porter.

As an im­por­tant link and a “su­per-con­nec­tor” be­tween the Chi­nese main­land and the world, Hong Kong can eas­ily see you off to al­most half of the world’s pop­u­la­tion in a mat­ter of hours,” says Hong Kong Trade Devel­op­ment Coun­cil (HKTDC) prin­ci­pal econ­o­mist Daniel Poon Wing-choi.

For­eign in­vestors stand to reap the benefits from the world’s man­u­fac­tur­ing pow­er­house — the Greater Pearl River Delta.

“We have a strong backup from the main­land. Sin­ga­pore, in that sense, is some­what

dif­fer­ent

vice-pres­i­dent

a well-es­tab­lished fi­nan­cial net­work, free trade and free in­for­ma­tion flow, cou­pled with so­phis­ti­cated in­tel­lec­tu­al­prop­erty pro­tec­tion, a com­pre­hen­sive ser­vices sec­tor and a well-ed­u­cated work­force,” says Derek Lee Wai-ching, a part­ner at Price­wa­ter­house­Coop­ers’ (PwC) re­gional cus­toms and in­ter­na­tional trade and world trade man­age­ment ser­vices.

Be­sides, Hong Kong is a world-renowned free-trade port ba­si­cally with­out cus­toms duty, sales tax and val­ueadded tax, and has one of the low­est cor­po­rate tax rates in Asia and in­ter­na­tion­ally, at 16.5 per­cent, Poon said.

Hong Kong’s com­pre­hen­sive ser­vices sec­tor ac­counts for 92 per­cent of GDP, he says, adding that the sec­tor of­fers solid ac­count­ing, legal and fi­nan­cial sup­port for more than 100,000 lo­cal and in­ter­na­tional trad­ing com­pa­nies with of­fices here.

More im­por­tantly, the city’s well- ed­u­cated work­force helps Hong Kong sell it­self as a base for com­pa­nies wish­ing to do busi­ness in the re­gion.

“When launch­ing our of­fice in Shang­hai, we had dif­fi­cul­ties in find­ing enough lo­cal for­eign trade tal­ents to make up a team,” re­calls Ivan Lo Si­uwing, direc­tor of Hong Kong­based trad­ing firm Inno Life­styles Ltd.

How­ever, Hong Kong has been go­ing the ex­tra mile to re­tain its com­pet­i­tive edge in the Asia Pa­cific amid a mount­ing threat from re­gional economies.

More­over, with the grow­ing trend of di­rect deal­ing be­tween cus­tomers and man­u­fac­tur­ers, known as “trade dis­in­ter­me­di­a­tion”, Hong Kong has to live with a more chal­leng­ing busi­ness en­vi­ron­ment.

HKTDC’s Poon be­lieves that large multi­na­tional com­pa­nies can af­ford to by­pass Hong Kong to do busi­ness di­rectly with the main­land, although small- and medi­um­sized en­ter­prises, which dom­i­nate West­ern mar­kets but lack thor­ough un­der­stand­ing of the main­land, still need Hong Kong as a gate­way.

The fal­ter­ing growth in de­vel­oped economies has led West­ern com­pa­nies to switch their fo­cus to over­seas mar­kets, thus fu­el­ing the urge to troop into the vast main­land mar­ket. “That’s where we come in,” he says.

Poon be­lieves the city can ride out the cur­rent wave of main­land en­ter­prises “go­ing global”.

How­ever, such ini­tia­tives are tak­ing on a new di­men­sion — from ac­quir­ing nat­u­ral re­sources to ac­quir­ing third- and forth-tier brands over­seas — and this is where Hong Kong could act as a testing ground or spring­board for their over­seas ex­pan­sion aims, while of­fer­ing a com­pre­hen­sive pack­age of ac­count­ing, fi­nanc­ing and legal backup ser­vices, he adds.

Still, to make the city tick and help ward off po­ten­tial threats, Hong Kong needs to up­date and re­de­fine its re­gional role, says Partridge at Ernst & Young, adding that ef­forts should also be made to ex­tend the city’s value chain, from its com­fort zone OEM (Orig­i­nal Equip­ment Man­u­fac­turer) to ODM (Orig­i­nal De­sign Man­u­fac­turer) and OBM (Orig­i­nal Brand Man­u­fac­turer).

Poon fur­ther notes that there are some emerg­ing prod­uct sec­tors where Hong Kong could build on its new ad­van­tages, adding that the city should go well be­yond its tra­di­tional ex­port items to ex­plore mar­ket po­ten­tial for baby and pet prod­ucts, as well as prod­ucts cater­ing to an aging pop­u­la­tion.

Hav­ing seen ne­go­ti­a­tions on a Free Trade Agree­ment (FTA) be­tween Hong Kong and ASEAN (the As­so­ci­a­tion of Southeast Asian Na­tions) launched in July last year, and the FTA with Chile com­ing into ef­fect last Oc­to­ber, PwC’s Lee be­lieves that the gov­ern­ment could do more to foster the city’s trad­ing busi­ness by fa­cil­i­tat­ing more FTAs.

He wants the gov­ern­ment to start cre­at­ing a sin­gle plat­form to deal with all tradere­lated li­cens­ing.

Such a fa­cil­ity — some­thing the World Trade Or­ga­ni­za­tion has long been en­cour­ag­ing coun­tries to im­ple­ment — could serve as an in­cen­tive for for­eign com­pa­nies keen to do busi­ness with or in Hong Kong, he says.

Zhou Chao­ran,

PARKER ZHENG / CHINA DAILY

Ex­perts be­lieve Hong Kong stands a chance to fly with the tail­wind gen­er­ated by West­ern com­pa­nies shift­ing their fo­cus over­seas as well as the wave of main­land en­ter­prises “go­ing global”.

Ivan Lo Siu-wing,

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