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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 Director,
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,

Introduction

  • 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 Kong.

  • 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 last year.

  • 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 be strengths.

  • 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.

  • The 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.

  • I 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 economy.

  • 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 include:

    • 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;

    • partnerships 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 coastal China;

    • 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.

  • No 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.

Conclusion

To conclude,

  • 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.

  • Thank 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.

Content provided by Hong Kong Trade Development Council