29 Jan 2002
HONG KONG: PARTNER AND PLATFORM FOR THE CHINA MARKET
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29 Jan, 2002
Speaking notes for Mr. Michael C. C. Sze, Executive
Hong Kong Trade Development Council,
for a luncheon address in Lyon, France, on 29 January 2002
HONG KONG: PARTNER AND PLATFORM FOR THE CHINA MARKET
Senator-Mayor Collomb, Consul General of the PRC Mrs Chen, distinguished guests, ladies and gentlemen,
- I am delighted to be in Lyon, my first visit to the vibrant centre of French
industry, commerce and entrepreneurship. Lyon and the Rhone-Alpes region is one
of the leading regional growth engines of Europe, with GDP growth ten per cent
higher than the EU average. It has a strong service sector and handles a considerable
proportion of France's external trade, as well as being a leading industrial and
entrepreneurial hub. In many of these respects, it shares similarities with Hong
- Delighted also to see the Consul-General of the People's Republic
of China, Mrs. Meifen Chen, here today.
- My heartfelt thanks goes
to Mr Senator-Mayor Collomb, for joining us at this lunch and for making available
such a magnificent venue. I feel particularly honoured to be standing in a building
which has been host to the august company of leaders of the G7 in recent years.
Particularly pleased to be able personally to cement a long-standing link between
TDC and the city of Lyon, and to reciprocate Mayor Collomb's visit to Hong Kong
- Thanks is also due to Credit Agricole, who helped to organise
the excellent business seminar this morning. Looking forward to building on these
foundations by extending business links between Lyon and Hong Kong through strategic
partnerships - such as the one between TDC's Paris office and the Lyon Chamber
of Commerce. More of that later.
- I will first of all discuss Hong Kong's French connection; then brief you on Hong Kong's current challenges and how we are tackling them; and finally discuss how we can together "accept" China's invitation to explore the opportunities presented by its accession to the WTO.
First the French Connection:
- Trade and investment links
between Hong Kong and France are strong and have been so for many years, a fact
TDC recognised when it set up its office in Paris way back in 1977. Around US$2.6
billion worth of products flowed in each direction between January and October
of last year. French wines, perfumes and luxury fashion items are household names
in Hong Kong. Hong Kong despite its small size is France's second-largest Asian
market for many of your exports including clothing, accessories and leather goods.
A substantial proportion of trade flows between the Chinese mainland and France
also goes via Hong Kong.
- There is also extensive French involvement
in our economy in many lesser-known areas. In the first ten months of 2001, 33%
of our imports from France comprised aircraft and related items. Telecommunications
equipment, as well as IT-related items. Many of these products originated in Lyon
and the Rhone-Alpes region.
- I was fascinated to learn recently that
Francis I and Henri IV established the Lyon silk-making industry in the 16th century,
in a bid to break the Genoese monopoly that then existed. Building on this foundation,
local weavers developed specialist local skills, such as block printing, which
distinguished them from weavers in other places. This led, over time, to the region
becoming a world leader in textile design today, as well as the source of 25 per
cent of French tech-textiles. Thus your links with China and the far east goes
back a long way.
- Cumulative direct French investment in Hong Kong
stood at over 1.4 billion euros in 2000. In that year alone, French companies
invested over 290 million euros in Hong Kong. Our landmark convention and exhibition
centre was constructed by none other than Bouygues. Some 500 French companies
have operations in many sectors in Hong Kong, including banking, insurance, construction,
luxury goods, airlines, transport and the media.
- So French products
and services are greatly appreciated by Hong Kong consumers and will continue
to be enthusiastically received. Paris tops the list of priority destinations
of many a Hong Kong tourist, especially now that SAR passport-holders like me
can travel to the EU visa-free. Likewise, we welcomed over 127,000 French tourists
in the first 11 months of last year. These links demonstrate the ever-increasing
importance of our relationship.
- But this is just a start. We would like to take this opportunity to update you on the current situation in Hong Kong and to tell you about the vast new opportunities for business now arising on the Chinese mainland following its accession to the WTO.
Hong Kong's Challenges and Strengths
- You must have read from the international
media reports from Hong Kong - not always favourable e.g. EIU says we are 3rd
most expensive city a couple of days ago. So what are the major issues facing
Hong Kong? I will be frank.
- Like almost everywhere else, Hong Kong
has been hit badly by the global economic downturn and the aftermath of 11 September.
This came just when we were beginning to recover from the Asian economic crisis
of the late 1990s. Although the exact figures have yet to be verified, it now
appears that GDP did not grow at all in 2001. As perhaps the world's most open,
trade-dependent economy, Hong Kong has felt the ravages of these regional and
global misfortunes in a very direct way.
- Despite the government's
best efforts to reverse the economic recession through a fiscal stimulus package
beginning late last year, confidence is at a low ebb. But this is due largely
to reasons relating to features of Hong Kong that, paradoxically, turn out to
- For example, our open economy means that our companies
are exceptionally vulnerable to the painful short-term effects of the global downturn.
But it also means that those companies swallow their medicine and adjust rapidly
to external changes, restructuring and refocusing their operations very quickly.
- Likewise, our proximity to the Chinese mainland means that our companies
are subject to intense competition from their mainland counterparts, whose operating
costs are far lower. But it also means that they have no option but to cut their
own costs quickly to meet this challenge. They end up leaner and more competitive
themselves as a result.
- Some 150 new immigrants come into Hong Kong
from the mainland every day, putting pressure on our facilities and competing
with our workers for jobs at a time of rising unemployment. But these same immigrants
rejuvenate our economy, providing skills and experience that are in insufficient
supply. They also play an important part in reducing labour costs.
strength of our Hong Kong dollar, which is pegged to the US dollar, makes life
difficult for our exporters as other currencies around the region have devalued.
But it has also been a major factor in maintaining stability and confidence during
turbulent times and is backed by the fourth-largest foreign exchange reserves
in the world, providing a strong cushion against currency shocks.
could go on, but you get the drift. Many of the characteristics of Hong Kong which
are frequently presented by the media as major drawbacks turn out, on closer examination,
to have a strong up-side. While I will not pretend that Hong Kong people find
the current economic climate comfortable or easy, our economy's great strength
is its flexibility and responsiveness to change, and its ability to emerge stronger
on the other side. Many observers have remarked on this characteristic in the
past and I am confident that the same will happen again.
- In addition
to the advantages that I have already mentioned, Hong Kong also enjoys a number
of other strengths. These include:
- A diverse industrial base with major export in a broad range of light consumer goods ranging from garments, toys, watches to gift items;
- Robust institutions under "One Country, Two Systems";
- The freest and perhaps most vociferous press in East Asia;
- 300,000 SMEs, accounting for 98 per cent of our companies. About one third are involved in international trade. They are fast, flexible and entrepreneurial;
- A strong role as the foremost marketplace in Asia. Six of our own 15 trade fairs are the largest of their kind in the region;
- Perhaps most exciting of all - and this relates back to Hong Kong's geographical location which I m entioned just now - a superb position to take advantage of the enormous opportunities presented by the mainland's entry to the WTO last month. We now have a domestic market for the very first time - a potential market of 1.3 billion consumers, or 460 million (considerably larger than the entire EU) if you count only the more affluent urban population. Hong Kong has all the right attributes to make the most of these opportunities - unparalleled hard and soft infrastructure, experience and contacts already in place, and a shared language and culture especially with southern China. Moreover, it lies cheek-by-jowl with the Pearl River Delta - the world's largest, fastest-growing manufacturing basin and China's most prosperous region (excluding Hong Kong). Combined Delta/Hong Kong consumer market of nearly 30 million (equivalent to Canada). Cross-border links now a top priority.
I now come to the final part of my presentation -
The China Opportunity
- So much
for Hong Kong. I would now like to talk a little about the amazing changes taking
place in the Chinese mainland. The mainland became a member of the WTO on 11 December.
Many predict a doubling of China's trade with the rest of the world in the next
five years. Unprecedented opportunities for overseas companies wishing to do business
with the mainland, enhanced even further by build-up to Beijing Olympics in 2008
and "Go West" policy. This is the one bright spot in an otherwise gloomy world
- Foreign companies including those from Hong Kong have been
manufacturing in China to sell to the world for 20 years. Now, for the first time,
they can sell to China's domestic market too, on an equal footing with domestic
producers. Over next 3-6 years, mainland markets for goods and services will liberalise
progressively in line with its WTO commitments. Many overseas firms already positioning
themselves to take advantage of this opportunity.
- But many companies
are wary of the risks involved in entering a huge, diverse, unfamiliar market
for the first time. Others have tried and failed in the past. Solution is to find
a Hong Kong partner, whose intimate knowledge of local conditions and contacts
can help minimise the risk.
- Many overseas companies have already discovered
the advantages of this approach for themselves. You have heard this morning from
one of your local SMEs that has used Hong Kong successfully to penetrate the mainland
market. Overseas companies are currently setting up operations in Hong Kong at
the rate of at least one a week. Number of foreign firms with regional operations
in Hong Kong currently stands at 3,237, of which 944 have chosen to make our city
their regional headquarters.
- There is plenty of French influence
in Hong Kong to make French people and firms feel at home. Around 2,200 French
residents in Hong Kong at the end of 2001 - large enough to support a sizable
French International School.
- Mainland government is currently giving
favourable consideration to a Free Trade Agreement type arrangement with Hong
Kong and Macau. Depending on the details of implementation - still to be worked
out as the proposal is at an early stage - this FTA could be beneficial for both
Hong Kong companies and their overseas partners.
- But in many cases
there will be no need to establish an office in Hong Kong. All you need to do
is to link up with a Hong Kong company that has the expertise and reach you need
to enable you to get into the segment of the mainland market that most appeals
to you. Examples of strategic partnerships that seem to offer great potential
- partnerships that marry French expertise in health
care, biotechnology, environmental technology and tech-textiles - products which
the mainland badly needs for its development but of which it has little or no
experience - with Hong Kong's first-mover advantage in marketing and distribution
in the mainland. Many such partnerships are already under preparation between
the Lyon Regional Office for Foreign Trade and the TDC, with financing from your
French Ministry of Economy, Finance and Industry. Just this morning, I visited
NCV Production, a subsidiary of Porcher, one of your most important tech-textile
firms, and was fascinated to learn of some of their plans for strategic partnership;
- partnerships that tap into the opportunities arising from the mainland
government's commitment to open up its vast western region - perhaps by combining
French expertise in energy exploration, extraction, and infrastructure development
with Hong Kong expertise in BOT plus knowledge of local conditions;
that draw on the shared prowess of both Hong Kong and France in clothing, textiles,
IT, food and beverages to provide new products for the eager urban markets of
- mainland's explosive development will need enormous
support from services sector, but China's economy is less than 35% services, compared
with 86% for Hong Kong (in 2000). Hong Kong's service companies can both help
French producers to access mainland markets and act as partners for French services
companies wishing to operate in the mainland following post-WTO liberalisation.
- partnerships that marry French expertise in health care, biotechnology, environmental technology and tech-textiles - products which the mainland badly needs for its development but of which it has little or no experience - with Hong Kong's first-mover advantage in marketing and distribution in the mainland. Many such partnerships are already under preparation between the Lyon Regional Office for Foreign Trade and the TDC, with financing from your French Ministry of Economy, Finance and Industry. Just this morning, I visited NCV Production, a subsidiary of Porcher, one of your most important tech-textile firms, and was fascinated to learn of some of their plans for strategic partnership;
time to waste. While the opportunities are huge, the competition will be intense
- both from other overseas companies and from the mainland's own firms, whose
products and services are catching up fast with those from the rest of the world.
Many overseas companies already in place to tap into these possibilities - but
the need is so great that there is still plenty of room for those who move now
to take advantage of the opportunities.
- Raymond Yip, the Director of TDC's European operations, spoke at the seminar earlier this morning about how TDC can help French companies find suitable Hong Kong partners to access Chinese mainland markets. I urge you to check our website, tdctrade.com, or contact TDC's office in Paris for further details.
- Hong Kong greatly values its ties with France and Hong Kong people are already
avid consumers of French products and services. But the time has come to take
these links to a whole new level.
- The possibilities in the Chinese
mainland are enormous and unprecedented. The time to take advantage of them is
now. The potential rewards for both French and Hong Kong companies, acting in
partnership, are so much greater than they are if we act alone.
you for coming here today. I look forward in future to seeing more of you in Hong
Kong - your partner and platform for the China market.
- Once again, many thanks to our partners in Lyon for helping to organise this excellent event. I will now hand you back to Mr Collomb for his concluding remarks.