The Japan Times WORLD EYE REPORTS HONG KONG
©THE JAPAN TIMES	Wednesday, June 26, 2002

The place of choice in 21st century Asia

What does the name "Hong Kong" bring to mind? Shopping and exotic dining, perhaps. But from a business perspective, all thoughts lead to the burgeoning economic giant that is China. With China's accession to the World Trade Organization (WTO), the issue at hand is the changing role of Hong Kong in this new world order. Hong Kong's inhabitants are growing anxious about the SAR's place in Asia. Some are fearful that the city may lose its edge as mainland cities like Shanghai continue to grow and more companies enter the Chinese market directly, bypassing its traditional entrepot. Amidst these changes, Hong Kong is striving redefine its role and maintain its importance within the region.

Christopher Cheng, chairman of Hong Kong's General Chamber of Commerce

Hong Kong has undergone a remarkable transformation over the last two decades, from a manufacturing center to a diversified services center. When China decided to begin opening up its economy to the outside world in 1978, Hong Kong's manufacturing sector accounted for over 25 percent of GDP.

In 2000, the manufacturing sector only accounted for 5 percent of GDP, while fully 82 percent of the workforce was employed in the services sector. Such a radical change has required rapid upgrading of skills and made Hong Kong the world's most service oriented economy.

Most of manufacturing has now moved to the Pearl River Delta, located on the coast of the mainland's Guangdong province in the area that stretches from Guangzhou to Shenzhen - just north of Hong Kong.

Now the world's densest manufacturing region, the Delta accounts for 34 percent of China's total exports and 30 percent of its foreign direct investment. Local authorities are forging ahead with vast infrastructure projects and granting more latitude to foreign investors - in the process attracting even more capital.

Much of this capital comes from Hong Kong, with 192,000 Hong Kong-funded enterprises employing some 7 million people in the province of Guangdong alone. Along the same lines, almost all international buying agents establish offices in Hong Kong to source China-made products in nearby Guangdong, clearly illustrating the close ties between these two areas.

Mainland China has become one of the world's greatest exporters of manufactured goods and Hong Kong's prime role has become the investment, management and marketing of this sector.

Hong Kong's magnificent harbor still glitters as Asia's premier business location.

Hong Kong also continues to hold aces that uphold its unique position and allow it to continue to attract investment. The lack of capital controls, a low tax rate, rule of law, the free flow of information, and a freely convertible currency is matched with world-leading infrastructure that would take even Shanghai up to 20 years to reach its current level. Hong Kong remains the prime location for business in southern China and the Asia-Pacific region

Micheal Rowse, director general of InvestHK supports this optimistic view: "As of 2000 there were 3,001 foreign owned companies with regional headquarters or offices in Hong Kong, a 20 percent increase over 1999. In 2001, there was a further 8 percent increase in this figure. Based on studies we've done, we have been opening one new regional headquarter a week since June of 2001."

Dickson Ho, assistant chief economist for the Hong Kong Trade Development Council echoes the sentiment: "The number of Japanese companies setting up offices in Hong Kong has increased by 44 percent in the past two years as well. The majority of corporations use Hong Kong as a brain center to perform high value added services such as marketing, finance and quality control. Hong Kong is simply the place of choice."

Japan leads all other countries in the number of regional headquarters and offices established in Hong Kong. As of 2001, Japan had 160 regional HQ's and 533 regional offices located within the SAR.

Meanwhule, Hong Kong itself is already the largest external investor in mainland China, with about US$170 Billion in cumulative direct investment. It also acts as a major funding center and a source of syndicated loans for mainland firms.

The flow goes both ways. Mainland entities are also playing a larger role in Hong Kong's commercial sector. According to official Chinese estimates, there are more than 1,800 mainland-backed enterprises registered in the SAR.

Hong Kong's long tradition as the gateway to Chinese business has endowed its companies with a cultural affinity and an understanding of the mainland mentality which makes them the ideal bridge for multinational companies who intend to do business there. Foreign companies who are not well-versed in the developing legal system and business culture in China benefit from having Hong Kong firms as intermediaries.

Christopher Cheng, chairman of Hong Kong's General Chamber of Commerce states, "Hong Kong companies have years of experience and expertise as business partners. Foreign companies can find a partner in Hong Kong which already has the benefit of long experience in China."

Currently, Hong Kong is focusing on reaffirming its status as a hub for international finance and logistics. With 265 banking institutions from over 30 countries represented (and Japanese banks constitute one of the largest groups of these), Hong Kong is the world's ninth largest international banking center. It also has the world's fourth most active stock market.

"There is no question that Hong Kong can continue to flourish as an international financial center for Asia." Cheng comments. "For example, London, on the fringe of continental Europe, is still the region's financial center. We can hold that role for Asia too. We just have to continuously improve and stay ahead of the game."

In order to do just that, the government knows it must continue to encourage privatization, deregulation and competition within the domestic market. It must also maintain the value added services that it is known for and ensure that its basic infrastructure remains top class.

The local business community's message remains: don't lose faith in Hong Kong. The city has defied the odds before and endured crises that would have broken less resilient societies. They are confident that it will continue to weather coming storms and come out on top, as it always has.

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