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Growing Hong Kong's Core Business – Trade

Introduction

Ms Choi, Mr Law, distinguished guests, ladies and gentlemen.

I'm delighted to be here. Trade and Industry Department has done a great service by organising this event.

Several speakers this morning have focused on globalisation and China's impending entry to the World Trade Organisation. These are indeed transforming the global business and investment environment. Their implications are huge and, in my view, overwhelmingly positive for Hong Kong's trade, the focus of my remarks this afternoon.

Hong Kong's core business

Trade is Hong Kong's core business, worth well over three trillion (HK) dollars a year. Trade accounts for close to half our income and nearly half our jobs. It keeps us going through good times and tough times. We have seen this over and over. Most recently, our external trade performance has again led Hong Kong out of the worst recession in a generation. Hong Kong's total trade grew by 17.8 per cent last year.

Hong Kong's heroes

Driving Hong Kong's trade are some 300,000 small and medium-sized enterprises (SMEs). These are Hong Kong's true heroes. They create real value for their global partners and real jobs at home. Entrepreneurial and flexible, they have secured a huge share in world markets relative to their size.

That is because our SMEs, many of them with fewer than 30 employees in Hong Kong, know how to leverage advantage. They assign labour-intensive work across borders, where costs are lower and where they employ hundreds and sometimes thousands of workers. They concentrate higher value-added work in Hong Kong where finance, management, logistics, transportation and support services, such as design, are integrated with super efficiency. This is the Hong Kong business model.

Hong Kong companies pioneered this model two decades ago in southern China. Look where it has led. In little over 20 years, Hong Kong's world trade ranking moved up from 23 to 10. We are world leader in nine types of consumer exports. In a further seven categories we rank second or third. Our container port is the busiest in the world, as is our airport in terms of international cargo. Think, also, how the Pearl River Delta has been transformed. This economic basin of 22 million people is the mainland's most dynamic, prosperous region. Now the world is moving towards the Hong Kong model. This includes global supply chains. In essence, they are Hong Kong-style platforms for rationalising production costs and adding value.

Hong Kong's SMEs are also pioneers at cracking markets open. Small companies that depend on trade for a living cannot afford to wait two, three or more years while governments hammer out trade agreements or the World Trade Organisation edges towards a new multilateral round. They would soon go out of business. That is why our SMEs don't wait. They advance into markets by partnering with indigenous manufacturers and distributors. With this strategy, they have built a strong first mover advantage in the mainland earned from successes and failures.

Opportunities to grow Hong Kong's trade

At gatherings such as this, we ask ourselves what should Hong Kong do to keep growing economically. It is an important question. I believe we should concentrate on our core business: we should grow Hong Kong's trade. My 1992 article "Hong Kong Plus" offered this simple formula for understanding the Hong Kong phenomenon: trade equals cargoes, equals work, equals employment, equals stability and prosperity.

In the past three difficult years, many Hong Kong manufacturers and traders may have cut costs, postponed new investments and restructured debts. Such measures were understandable for short-term survival. But now, recovery at home is converging with new prospects that are impossible to ignore. It is time to think longer term and take a more expansive approach. This, I know, is never easy. It is easier if you consider the potential rewards.

Enormous opportunities are unfolding for our companies to accelerate up the value chain. They have e-commerce and the Internet to help them, including TDC's trade portal tdctrade.com, which attracts more than a million hits a day.

Increasingly, buyers place a premium on qualitative aspects of manufacturing, such as quality control and reliability, brand image, just-in-time delivery and fast response. These are Hong Kong's strong suit. In Asia, global buyers look to Hong Kong as a place that is world class in orientation and standards.

Many Hong Kong companies are already shifting to higher value-adding strategies and processes. A recent TDC survey indicates that 62 per cent of Hong Kong companies are involved in original design manufacturing (ODM) while 36 per cent have brand name production. This is encouraging. It means more Hong Kong companies are oriented to innovation, design and product development.

The biggest new opportunity for Hong Kong is right on our doorstep. In the 1980s, as the mainland opened up, we manufactured there and sold to the world. With China's WTO entry and the opening of domestic market, we have a triple play: manufacturing on the mainland, selling to the world and for the first time, selling to the biggest domestic market we ever dreamed of.

Even before WTO accession, many barriers have come down. Laws on foreign-invested enterprises (FIEs) have been amended to allow domestic sales. This has huge implications for Hong Kong companies. Presently, over one third of Hong Kong investment in the mainland involves export processing without domestic sales rights. Investment in FIEs will be a springboard for Hong Kong companies into China's domestic market.

Growing the number of players

Hong Kong has become much more than a gateway for trade with China. We are a trade and business platform for the Asia-Pacific. And platforms are about critical mass. They thrive on ever-increasing, ever-accelerating interactions between products, services, information, ideas and talent. They are made up of multi-layered partnerships and alliances involving companies, sectors and regions. In addition to growing the volume of trade for Hong Kong's existing players, we must therefore grow the number of players.

It is important to motivate more local executive talent and young people to turn to trade, a process that begins with schools, universities and continuous education programmes. We must also attract to Hong Kong's platform new players from overseas, whether in their own right, using Hong Kong as their agent or finding partners here. Already, more than 3,000 overseas companies have regional headquarters or offices in Hong Kong. When they sign onto Hong Kong's platform they become our stakeholders.

TDC is targeting mid-sized companies going international for the first time. I have met with hundreds of such companies on recent TDC overseas missions to the US, Europe and Japan. Region by region, we are delivering a message of how Hong Kong can help them do business in Asia, especially China. Sector by sector, we are organising missions to explore specific opportunities and areas for co-operation.

China's WTO accession will be a particular boon for Hong Kong's service industries. Presently, services account for less than 40 per cent of the mainland's GDP, compared with 85 per cent for Hong Kong. We have a unique opportunity to help fill this service gap while participating in the growth of the mainland's own service sector. Not only will the mainland market open wider, more overseas firms are actively seeking quality strategic partners to help them develop the China market in the next five years. I have learned this from overseas banks and accounting firms that help their mid-sized clients develop business growth strategies. Unlike multinational corporations, smaller companies do not have a support structure of their own. This is what Hong Kong offers. By attracting them to Hong Kong, we also export the services they consume here.

In building Hong Kong's strategic alliances, we should not forget the 40 million SMEs in the mainland. They account for 99 per cent of the mainland's enterprises in population, 50 per cent in asset value, 60 per cent in turnover and 60 per cent in exports. We should actively explore teaming up with them to establish brand names and even develop and commercialise new technology. Hong Kong companies can also be catalysts for three-way alliances with mainland and overseas partners.

TDC's role

These and other strategic priorities are factored into the Trade Development Council's promotional programme. It is a total package designed to help Hong Kong companies compete through added value, market knowledge, e-commerce and strategic alliances.

We have strengthened promotion of Hong Kong-designed and branded products, especially in the Chinese mainland where we have 11 offices. We have stepped up market intelligence-gathering and skills training. Our cyber service hub, tdctrade.com, is becoming a full-fledged e-commerce marketplace. We are expanding and further upgrading our 15 trade fairs in Hong Kong. Our newly-created Federation of Hong Kong Overseas Associations Worldwide, which has over 7,500 SME members, will be further developed as a global networking platform anchored in Hong Kong.

Conclusion

I agreed at the outset that globalisation and China's WTO entry are the new forces for global trade growth. I would like to add that, in my view, the new drivers will be the world's SMEs. With their flexibility, highly-leveraged and networked operations and their predisposition to strategic alliances, SMEs will be at the forefront of these changes taking place in world trade.

If we play our cards right, Hong Kong SMEs will be among the first and biggest beneficiaries of these changes. And Hong Kong stands to become even more important as a marketplace and value-adding platform for global business in the Asian time zone.

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Content provided by Hong Kong Trade Development Council