Following is a speech by the Chief Secretary for Administration, Mr Donald Tsang, at the Hong Kong - Japan Partnership 2002 Lunch, Hotel Okura, Tokyo, today (November 26):
Distinguished guests, ladies and gentlemen,
Thank you for your warm welcome and for the opportunity to speak with you today. Like many people in Hong Kong, I thoroughly enjoy visiting Japan. We feel at home with the hustle and bustle of Tokyo and the bright lights of the Ginza. We deeply appreciate the friendliness and politeness of the Japanese people.
Back in Hong Kong, there is a pervasive Japanese influence. The names of Japanese companies light up our skyline. Japanese appliances fill our homes. Japanese fashion and accessory designers have established niche appeal. And of course we all love to buy Japanese food, which explains why Hong Kong alone accounts for one fifth of Japan's global food exports.
There are strong people links - about 1.8 million people traveled back and forth between Hong Kong and Japan last year. About 23,000 Japanese expatriates live in Hong Kong. We have Japanese schools, Japanese business associations, Japanese cultural groups. There is a very strong and active Japanese business presence in Hong Kong - about 2,000 companies ranging in size from large multi-nationals to one and two-man entrepreneurial operations. Banks and insurance companies. Japanese companies are very active in wholesale, retail, trade-related services and professional services. With our support services and minimal bureaucracy, my Japanese friends tell me that it is easier for them to start a trading business in Hong Kong than in Japan.
Many of you already know this. But it is important to reinforce just how close these existing links are. It is important because I want you to know that we deeply value these links. It is important because Hong Kong and Japan are entering a new era of economic development that holds enormous promise for both of us. And that is why I am here today to talk about how we can further strengthen the long-standing Hong Kong - Japan partnership.
Without a doubt, the single biggest factor that will affect our partnership is the continued opening up and rapid development of China. Japanese enterprises are no exception. In the past two years, Japanese FDI into China has doubled. Within the next five years it is predicted that 50 per cent of Japanese manufacturing will take place in the Mainland. Sony plans to relocate their procurement offices to the Mainland; NEC expects to shift 70% of its production to China within the next year; Sanyo plans to make all of its air-conditioners in China by 2004, to cite a few examples.
But what is especially important and exciting for the Hong Kong - Japan Partnership is the amount of activity taking place in the Pearl River Delta. The PRD, as we call it, is often referred to nowadays as the 'factory of the world'.
The PRD is China's most important export basin, and the destination of about 30 per cent of all FDI into China. It is also a burgeoning consumer market of almost 50 million people, who have the highest per capita GDP in the country. It is home to about 7,500 large foreign manufacturing enterprises and tens of thousands of smaller and medium-sized establishments. Among them are hundreds of large, medium and small Japanese corporations. Sanyo, Honda, Nissan, Fujitsu, Canon, Matsushita, Toshiba, Mitsumi, Miyakawa - that is just a small sampling.
We estimate there are about 2,000 Japanese companies in Hong Kong, and another 2,000 in the Pearl River Delta. Indeed, in the past three years some 40 per cent more Japanese companies have come to Hong Kong to establish regional operations. So, why is it contrary to what we hear from some quarters these days that business does not need Hong Kong anymore? You might also ask why companies choose to put their factories in the PRD but maintain their headquarters in Hong Kong.
The answers are simple. Japanese companies, and many others from abroad, find the PRD and Hong Kong to be a perfect match. They know the best formula for success is to manufacture in the PRD but to manage their businesses and live in Hong Kong. Japanese companies are using Hong Kong to leverage the respective strengths of three elements - the technical and innovative excellence of Japan; the manufacturing excellence of China; the logistics, information, management and financial services excellence of Hong Kong. All of the major cities in the PRD have their own special strengths. This clustering of expertise makes the PRD a manufacturing Mecca.
Let me give you a few examples. Guangzhou is a domestic transportation hub. Its pillar industries are IT and software development, automobiles and petrochemicals. Honda will double the capacity of its car plant there by next year to supply the Mainland market. Shenzhen is the PRD's largest manufacturing and export basin, with a concentration of high-tech industries. Dongguan is the world's leading producer and exporter of electronics and computer products. It also has strong industry clusters in IT products, toys, footwear, plastics and furniture. Foshan is home to entrenched Mainland brands such as Midea, Kelon and Rongshen. It is a fertile sourcing ground for the world's leading household electrical appliance manufacturers. Zhuhai is an important supply hub for the western parts of the delta, and is strong in pharmaceuticals and aquatic farming.
Most, if not all, of these cities already have a strong Japanese business presence. Consider Dongguan, where there are more than 13,500 foreign-funded enterprises. Japanese companies account for the largest share of multi-national companies in this city, just over a one-hour trip from Hong Kong.
In Shilong town, at the heart of Dongguan, Minolta has set up a manufacturing plant that can produce up to 500,000 copiers and printers a year. Sankyo-Seiki is making micro-motors there. Kyocera has a joint venture manufacturing Yashica cameras and optical instruments.
Of course, there are other advantages in setting up manufacturing operations in the PRD. Stable labour costs is one - Japanese companies' reported operating costs have not increased for the past eight years because of a constant inflow of workers from around the country. Low-cost supplies for production are within close range, which help enhance price competitiveness. Local transport links are getting better and more sophisticated. World-class science, industrial and technology parks with all the required infrastructure are in place.
But still, Japanese companies come to Hong Kong to integrate our international business and financial know-how with their Mainland operations. Hong Kong is the business and management hub for the PRD. We are a world-class financial and business centre. We have a large and active pool of professionals available to foreign companies. They have good international exposure and knowledge of international markets. They adopt international standards in businesses practices. They have a good track record in reliability. They provide efficient and high quality service. And they know how to apply their knowledge of the China market to fit the business needs of foreign companies. Global business and funds are all managed in this international financial centre.
Hong Kong also has a free and transparent business environment. We have a legal system you can understand. This is no arbitrary process and the rule of law prevails. Contracts are enforceable and our intellectual property regime protects your innovations and inventions. We have the free flow of information, a level playing field for business; a clean and efficient government, low taxes; a fully convertible currency. Indeed, these are our unique advantages that are preserved and safeguarded as under our status as a Special Administrative Region of China. This is the 'two systems' part of the 'One Country, Two Systems' that we have successfully implemented since 1997.
All this explains why companies such as NEC, Casio, Olympus, Epson, Sanyo, Fuji Xerox, Ricoh, Canon and Omron have business operations in the PRD but still have their management offices in Hong Kong. More still, Hong Kong's strengths act as a gravitational force for small and medium companies also wishing to tap into the potential of the PRD. I believe many more SMEs from Japan and other countries will find Hong Kong an attractive place to come. One Japanese bank alone in Hong Kong has registered over 60 new Japanese corporate accounts this year, a majority of which are related to SMEs. The cluster effect is building fast. Why?
While the big names may already know how to operate in the PRD, many SMEs are equally keen to source competitive supplies and sell in the Mainland. But the SMEs do not know where and how to start in this mammoth market. They do not have the knowledge or resources to do so. They also look for a business friendly environment that provides them with all the support they need. Hong Kong is exactly the one-stop window they are clustering with other Japanese firms in the same field, looking for to source products from, or sell to, the Pearl River Delta.
We have been there for two decades and Hong Kong is the number one investor in each of 12 leading cities in PRD. For that matter we are the number one investor, by a large margin, in each of 32 Provinces, autonomous Regions or Municipalities in the Mainland. We are of course the number one external investor in Beijing and Shanghai. We have the local and cultural knowledge to help them market and sell products in the PRD. We provide unrivalled transport and logistics facilities to take products to the global market. InvestHK, our business promotion agent, will help set up business, while our Trade Development Council will help locate your strategic business partner in the PRD. You can set up a company in one day, and start work the next.
For the Japanese entrepreneur, or expatriates with a large company, Hong Kong provides all the comforts of home. We are one of the world's safest cities. We have a fabulous mix of restaurants, nightlife, Japanese and other language newspapers and movies, international schools, good medical services and a clean city. Our lifestyle is as good as that in London and New York, if not better. Hong Kong is such a cosmopolitan city, so different from any other in the PRD, let alone the rest of China. Expats prefer the comfort and security of living in Hong Kong. In addition, they find it extremely convenient to travel from Hong Kong to the PRD on business. We are well connected with road, rail, sea and air links to different cities in the Mainland.
This is the business model I bring to you today. Hong Kong as the global financial and business centre. Hong Kong as the business hub for the PRD. Hong Kong as the place for expatriates to live and build their businesses. Foreign companies have already used our fundamental strengths to their great advantage over the past 20 years. Now, we are continually upgrading Hong Kong to make our city an even better place to live and work. We already have more than 3100 international companies with regional operations in Hong Kong. But we want to see even more. More from Japan, more from everywhere coming to Hong Kong. Particularly, we are encouraging small and medium sized enterprises where there is a natural fit between Hong Kong and Japan.
Back in Hong Kong, the Government is working hard, as a matter of priority, to smooth the flows of people, goods and capital between Hong Kong and the Pearl River Delta. We have a first class airport which has been consistently voted the best in the world for two years running. Our ports are also well known for their reliability and efficiency. But we are not complacent. We are working with the airports in the PRD to expand the cargo business, and to link more cities to our international airport by high speed ferry services. We are working with Mainland authorities to co-locate Customs and Immigration facilities on a new expressway between Hong Kong and the eastern part of the PRD. We are exploring new ways to eliminate unnecessary cargo checks between the two places to leverage on our strength as the region's pre-eminent logistics center. We will be building a new express railway to shorten the traveling time between Hong Kong and the centre of Guangdong to less than an hour. We are also studying the feasibility of a major road link to the western part of the PRD, which has great potential for future growth.
All of this means we are taking a strategic approach in our close economic ties with the Mainland. All of this is designed to smooth access to and from the PRD from Hong Kong; to make the movement of people, goods and capital as efficient as possible. Hong Kong is where it comes together - a hub, an integrator, a facilitator, a risk manager, a supply-chain manager. Yet we are maintaining our political autonomy and way of life under the "Two Systems".
Recently, we have taken a further step to establish our first Economic and Trade Office in Guangzhou - in fact, our first economic and trade office in the Mainland - to provide a focal point for business exchanges between Hong Kong and the Pearl River Delta. Japanese companies in Hong Kong, or indeed Japanese companies wishing to access the PRD market, are most welcome to make use of this resource.
The office can help you find out what PRD business people have to offer, what they want and need from their Hong Kong and international business partners. On the flip side, we are helping Hong Kong businesses to match these needs. And remember, a Japanese company in Hong Kong is treated the same as a Hong Kong business - that's what we mean by a level playing field.
Ladies and gentlemen, everyone has heard of the Fortune 500 companies. As I have just said, many are already taking advantage of the PRD's ample land and labour, while maintaining their front office functions in Hong Kong. They have the international experience and know how to move directly into the Mainland market.
But the more exciting developments will come in what I like to call the 'Fortune 5000' companies - or perhaps one day, even the 'Fortune 50,000'. These second tier, smaller and medium-sized enterprises have also been quick to combine the strengths of Hong Kong and the Pearl River Delta. In the past, they were looking serve the world market, or perhaps just their home market. Now they have a potential market of 1.3 billion people within their grasp.
In Hong Kong, we have a new sense of the need for a shared vision - a vision that includes Hong Kong, the PRD and our business partners from around the world. No longer a win-win, but a win-win-win situation. We very much encourage our Japanese friends, and partners, to be a part of that vision. Your companies and entrepreneurs have long been an integral part of our economic landscape. They provide jobs for our people, and add to the diversity of our international business presence. Your citizens help make Hong Kong the most cosmopolitan city in Asia. And I want you to know that we welcome the presence of more Japanese companies in Hong Kong. Come and visit us to see for yourselves the winning combination of Hong Kong and the Pearl River Delta. And after that, come and join us a partners to take advantage of the many exciting opportunities opening up in Hong Kong and southern China in the years ahead.
Thank you very much.
End/Tuesday, November 26, 2002