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Hong Kong's new Business Environment

Introduction: A New Era of Business Opportunity

Mr Kodaira (Koda-ira), Mr. Shinohara (Shi-no-hara), distinguished guests, ladies and gentlemen.

It is a great pleasure to welcome you to the Hong Kong Business Conference and I am delighted to be here in Tokyo.  Thank you for giving me the opportunity to come and exchange some views with you.  Many outstanding Hong Kong business leaders are also here to share with you the advantages of utilising Hong Kong's global resources in your corporate development strategy.

I took on this role with the Hong Kong Trade Development Council in October.  Before the end of the year, I will have visited 10 cities in 10 weeks in the U.S., Europe, the Chinese mainland and now Japan. Although I have been to Japan many times, this is the first as the Chairman of TDC. 

For Hong Kong, it is clear that the last three years have been of crucial importance.  Facts have replaced fears about Hong Kong's position as a Special Administrative Region of China.  Now we have a three-year track record under "One Country, Two Systems" where our way of life remains unchanged, as we continue to build on our heritage as a free, open, tolerant society under the rule of law.  Ours is a system that is market driven with the government's role being one of "maximum support and minimum intervention." 

Hong Kong has rebounded from Asia's financial crisis.  From a business standpoint, with 10 per cent GDP growth forecast for 2000, we have emerged stronger than before.  Operating costs have come down.  Exports are up by over 18 per cent so far this year.  Investments have returned and our stock market is active.

We have also seen an increase in tourism.  In the first 6 months of this year, Japanese arrivals shot up by 23 per cent.  For the full year we're anticipating more than one million Japanese tourists, which means we're closing in on pre 1997 levels.   We are happy to see the return of our many Japanese friends, and we look forward to welcoming new visitors from Japan to experience the vibrancy and beauty of our unique city.

Hong Kong's dynamism

Trade and commerce has been the key to carrying Hong Kong through good times and bad, and through 18 years of Sino-British political transition.  Trade is the most sustainable source of wealth creation and growth for Hong Kong.

We are experiencing a new trade dynamism, brought on in part by China's imminent entry to the World Trade Organisation (WTO). For the first time, Hong Kong is able to look seriously upon the mainland as a domestic market for goods and services.

This is very exciting.  For as Japan has proven, an important part of succeeding in global trade is leveraging a domestic market.  It is therefore remarkable that even without a domestic market, Hong Kong has climbed from 23rd to 10th place in terms of trading territories in little over 20 years.

It is estimated China's trade with the world will double in the first five years after accession.  What does this super opportunity mean?  This rapid expansion will surely need strong service support.  With 85 per cent of our economy in services, Hong Kong will have a particular role to play in augmenting and developing this sector in the mainland, where services account for only 33 per cent of GDP.  And Hong Kong's world-class business services will continue to provide an important platform for companies--multinationals and SMEs alike--entering the mainland market.

A recent survey by the Japan Chamber of Commerce and Industry in Hong Kong showed that Japanese firms had great optimism concerning Hong Kong's business environment and the development of mainland markets.  Our "first mover" advantage in the Chinese mainland is something we are happy to share with our Japanese partners. 

Hong Kong "hits triples"

I'd like to provide you my own thoughts on where Hong Kong fits in to this dynamic scene and tell you the Hong Kong story.  Let me use the baseball analogy of "hitting a triple."

Our game began 50 years ago, when Hong Kong hit singles by manufacturing in Hong Kong and selling to the world.  In the 1980s, as China began to open up, Hong Kong manufacturers moved most of their production to the mainland and expanded their output.  This helped Hong Kong hit doubles: that is manufacturing in China and selling to the world, and elevating our rank to number 10 in the world in trade.

This run to second base, helped small and medium enterprises (SMEs) gain the critical mass they needed.  They quietly moved up the value chain closer to the consumer.

Now, with China's impending WTO accession we will hit triples:  Hong Kong and our partners manufacturing on the mainland, selling to the world and selling to the mainland.  This is Hong Kong's new paradigm.

Japanese companies can capitalise on this triple play opportunity by developing partnerships and alliances with Hong Kong businesses.  For example, in addition to working with Hong Kong as an OEM base, Japanese companies will want to explore partnership opportunities with Hong Kong's ODM manufacturers.  TDC estimates that more than one-third of Hong Kong's manufacturers  have developed their own global brands.  Many would be interested in working with Japanese companies to further develop products, distribution and after-sales servicing.

An entrepreneurs' haven  

Why Hong Kong?  In Hong Kong, we have both the skills and the business infrastructure to provide a super efficient platform for international business in trade and commerce.

Most of Hong Kong's trade has been done by Hong Kong's 300,000 SMEs.  The average size of a Hong Kong company is only around 16 people, though typically they employ hundreds or even thousands of workers in the mainland.  Hong Kong's SMEs demonstrate their flexibility to respond at high speed to new and emerging trends, and play an important complementary role to large multinational companies. 

They are Hong Kong's heroes and champions in world markets, creating real value for their global partners-and real jobs at home.  There are estimates that over 10 million jobs are created on the mainland by Hong Kong enterprises.  Hong Kong's first mover advantage in this regard is compelling. 

Just as important, we are a haven for the world's entrepreneurs and it is crucial to understand why.

Two key elements underpin Hong Kong entrepreneurial appeal: Our position as Asia's premier trade financing hub and our low taxes.

Hong Kong is a world-class trade finance and logistics machine. Our very own super efficient customs regime is the best in the world.  It is a critical element of our logistical chain.  Banks, transport logistics, and our air and sea port, together provide a seamless and dependable movement of goods.  Entrepreneurs demand predictability to do "just-in-time" manufacturing; they certainly have it in Hong Kong and they are further supported by our trade finance expertise.  Hong Kong's super trade machine runs like a Ferrari, making us the most efficient in the world.   

Second, not only are Hong Kong's flat taxes reckoned to be the lowest in the region, there is no sales tax, no capital gains tax, no dividend tax, no tax on overseas income and no estate duty tax on non-Hong Kong assets.  Come to Hong Kong and you benefit from it.  For an entrepreneur this is the place that you work hard, work smart and keep your profit.  The government stays out of your back pocket leaving capital and real economic power in the hands of individual entrepreneurs and their second generation.  This is ultimate incentive and a real motivator.

The three "ts"

This simple concept of the three "ts" -- triple play, trade finance and tax advantage makes Hong Kong tick.  It explains why now, and in the future, Hong Kong is much more than a middleman; much more than a gateway for Japanese companies.

Trade in goods and services is our core business and a springboard to new business.  For a small city with six and a half million people, in the first 10 months of this year our trade has hit a record of 44 trillion yen (HK$3.1 trillion).

We are a trading market-place, a platform for international business transactions and alliances, with our entrepreneurs working with global partners to reach new customers of an opening market that is huge.  We exist because we create wealth by creating value for our partners.

TDC: A catalyst

I would be remiss to close without mentioning the fourth "t"- the Trade Development Council.  Think of TDC as an international organisation working for you, as well as Hong Kong companies.  This means when you set up in Hong Kong, you are one of us. When you come to Hong Kong, you are our stakeholder.  Let TDC serve you. 

Trade is a team sport and connection is TDC's game.  As we promote and develop Hong Kong's external trade, a top priority for TDC is to help multiply the number of players signing on to Hong Kong's global platform. Through our offices in Tokyo, Osaka, and Nagoya we wish to build alliance opportunities and trade opportunities, especially with those Japanese mid-sized companies that are relatively new to international trade.

We see technology as an accelerator and facilitator for trade and trade alliances. At TDC, this is evidenced by the growing use of our Internet trade portal, tdctrade.com, which receives more than one million hits a day.  This cyber marketplace is an indispensable tool for entrepreneurs at home and overseas to access valuable trade contacts, information and services.

Conclusion: Partnering for the future

In my recent trips overseas, I purposely met with mid-sized companies in Chicago, Detroit, Milan, Frankfurt, and London.  Many told me that over the next decade, mid-sized companies will be the main driving force in global business.  I agree.  I learned that over the next several years they are seeking suitable strategic partners to tackle the international and especially the China market.  This coincides with what I hear from Hong Kong's SMEs. 

Hong Kong's SMEs can of course also add value for Japanese mid-sized companies or divisions of large Japanese companies who are looking for strategic partners.  A high percentage of our SMEs operate across two or more international boundaries making them strongly disposed to global alliances.

There are many success stories on overseas companies achieving greater results, with reduced risks, when they enter the Chinese mainland with a Hong Kong company.  In baseball terms, teaming up with Hong Kong is like bringing in the best hitter from another team to be your pinch hitter.

Hong Kong has the experience and understanding of mainland markets to help you succeed.  We have close ethnic, cultural and language ties with the mainland yet we are very different from any other mainland city.

Everyone knows that the mainland is a complex market.  Hong Kong provides the predictability, transparency, information and experience Japanese companies can tap into when operating on the mainland.  Over 20 years our entrepreneurs have built a successful business model in the mainland and surely we can work with Japan's enterprises to achieve similar results for mutual benefit. 

We invite Japanese entrepreneurs to complement the strengths of our own entrepreneurs and to use Hong Kong as their global platform for business development and thus become part of Hong Kong's success story.  I am positive that we can help each other catapult to the next level of economic dynamism.  Remembering always that your success is Hong Kong's success. 

Thank You.

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