Friday, December 08, 2006, The Jakarta Post
The Hong Kong Trade Development Council (HKTDC) invited journalists from Australia, Asia and Europe, including The Jakarta Post's Vincent Lingga, to attend the 7th Hong Kong Forum of business associations from around the world. The meeting discussed the future role of Hong Kong amid the astronomical growth of mainland China's economy, which will probably become the second largest in the world within three to four years. Below are his reports.
Its integration into the global supply chain, its strategic location in the center of Asia and its position as the gateway to the world's fourth largest economy, China, have been and will continue to be the main advantages Hong Kong offers investors.
But the fundamentals that will sustain and even increase Hong Kong's role as the leading trading and financial center in Asia, despite the fantastic growth of China's Shenzhen, Shanghai and Beijing, are what senior economist Helen Chan calls the Hong Kong brand.
Ms Chan, with the Hong Kong Finance Secretary's Office, describes the key components of the Hong Kong brand: a strong rule of law, good governance, first class infrastructure and a credible financial services regulatory system.
Hong Kong Trade Development Council (HKTDC) Chairman Peter Woo uses a slightly different term: the Hong Kong Platform.
The recent issuance of the world's largest initial public offering, US$16 billion worth of shares, on the Hong Kong stock exchange is another indicator of Hong Kong's growing global role.
The Hong Kong equity market is the second largest capital market in Asia and the fourth in the world. With a total market capitalization of over $1.5 trillion, it raised $50 billion in the first 10 months of this year alone.
"As of October, 355 mainland Chinese enterprises were listed in Hong Kong, representing one third of the total number of listed companies and 46 percent of the total market capitalization," Financial Secretary Henry Tang told the Hong Kong Forum. In addition, Tang said, Hong Kong also is a leader in asset management, with $580 billion worth of business last year.
Hong Kong's extensive financial and business service cluster is unique in Asia for its breadth, depth, sophistication and mix of international and local firms. This cluster includes private banking, fund management, corporate finance, currency trading, insurance, venture capital finance, direct corporate investment and stock brokerage as well as support services such as legal, accounting, management consulting, executive search, public relations, advertising, communications and information technology support.
"Hong Kong will remain the leading financial and trading center in Asia," says Bramono Dwiedjanto, general manager of the state-owned Bank Negara Indonesia (BNI), which has operated a full branch in Hong Kong since 1962.
Dwiedjanto told The Jakarta Post last week that a number of financial and trading companies had moved their offices to Singapore immediately after the 1997 financial crisis in East Asia. But most of them have returned to Hong Kong due to its advantages.
" I don't think Singapore will ever take over Hong Kong's position," added Dwiedjanto, who worked for two years at the BNI branch in Singapore.
"Our long international business experience and our knowledge of China make us the best partners for foreign companies to do business with or in China, and for mainland Chinese companies to do business with the outside world," said HKTDC Executive Director Fred Lam.
Lam acknowledged that several cities in China have also been developing as major financial and trade centers.
"But it is not a zero-sum game between Hong Kong, Shenzhen, Shanghai or Beijing. They will supplement each other," Lam said.
Hong Kong is thus poised to play a pivotal role in the modernization of the Chinese economy.
There has been lingering concern about the sustainability of China's economic miracle under its one-party authoritarian system.
But almost 30 years after the opening of China's economy to the outside world, and nearly ten years after Hong Kong's reunification with China, their economic integration is proceeding quickly and smoothly. The "one country, two systems" principle has allowed Hong Kong to retain its capitalist economy and its own legal system.
Clusters of industries
Today many manufacturing companies have moved out of Hong Kong in search of lower-cost land and labor, notably to the Pearl River Delta region in southern China. Still, many industries remain active in Hong Kong, operating their local offices as trading companies and business headquarters that support offshore production.
They mastermind and control the production process from their headquarters in Hong Kong, making the most of location advantages and division of labor.
The relocation of Hong Kong's industry should thus be viewed as an expansion of Hong Kong's industrial sector, according to a 2005 study by Sung Yun Wing and Chou Win Lin of the Chinese University of Hong Kong.
Hong Kong is also a favorite base for the Asian regional headquarters and offices of foreign companies.
" As of October, there were almost 4,000 regional headquarters or offices of foreign companies operating in Hong Kong," said Mark Michelson, an associate director of InvestHK, Hong Kong's investment promotion body.
Superb logistics
Hong Kong manufacturers and exporters have increasingly played the role of integrators, matching demand from North America or Europe with sources of supply throughout Asia and beyond.
Hong Kong can fill this need because it is home to a number of dynamic clusters of interrelated industries that draw on common skill bases and can reinforce each other's competitive positions.
This role was described by Michael J. Enright, Edith E. Scott and Ka-mun Chang in their book,
The Greater Pearl River Delta and the Rise of China. A Hong Kong company might help a garment company in the United States design its autumn collection, for example, and then organize purchasing, manufacturing and logistics to get the product onto retail shelves on time, meeting quality and budget specifications.
Hong Kong's infrastructure and real estate development cluster links property and construction groups with engineers, architects, surveyors and interior designers. Its seaport is among the world's busiest and most efficient container ports.
Hong Kong also offers legal expertise in the area of air and maritime regulations and dispute resolution, as well as finance and insurance for air and sea cargo.
Pearl River Delta
One of the regions that has benefited from Hong Kong's position as a financial and trade center is the Pearl River Delta (PRD), one of the most economically dynamic regions on the Chinese mainland.
PRD has developed into a manufacturing center of global importance and one of the world's fastest growing economic regions, thanks largely to the role of Hong Kong as an international financial and supply chain management center.
PRD, Hong Kong and Macao are now known as the Greater Pearl River Delta economic zone.
While Hong Kong, with a population of only seven million, has developed as a leading center for management, coordination, finance, information and business services, PRD, with a population of more than 60 million, has emerged as a manufacturing powerhouse.
"Greater Pearl River Delta, with a $410 billion gross domestic product last year, accounted for one-fifth of China's $2.2 trillion economy," said economist Chan.
The attractiveness of mainland China, especially its southern region, has shifted investor interest from Southeast Asia to Northeast Asia. Hong Kong has gained a bigger share of these investments, at the expense of Singapore, thanks to its infrastructure, clear and transparent rules and regulations, international access and proximity to large markets.
Since the 1997 Asian financial crisis, major international financial service companies have increasingly concentrated their regional activities in Hong Kong.
The emergence of the PRD region has allowed Hong Kong companies to decentralize many activities from Hong Kong into the surrounding areas. PRD thus accounted for the bulk of Hong Kong-mainland China trade, which totaled $265 billion last year.
Hong Kong has cumulatively invested more than $260 billion in the mainland, mostly in manufacturing plants in the PRD region.
"Some 75 percent of the estimated 80,000 factories established in the PRD region since the late 1970s have been owned by Hong Kong companies," said Michelson.
Future role
In this changing environment, Hong Kong firms may move further up the value chain, upgrading their services and assuming more front- and back-end roles, such as contributing to product design and development.
China's participation in the World Trade Organization and the development of industries in the Pearl River Delta region will provide a greater scope for high-value activities linking these industries through Hong Kong to the rest of the world.
These developments will also provide additional opportunities for foreign investment and the location of management activities for a wider range of multinational companies in Hong Kong. Hence, Hong Kong is positioned to perform high value-added managerial, financial, coordination and information activities across more industries.
"High-technology, research and development activities should be the next dimension of our economy to make Hong Kong not only the trade and financial but also the technology center in Asia," HKTDC Chairman Peter Woo said at the Hong Kong Forum last week.
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