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Speech by FS


Following is a speech by the Financial Secretary, Mr Henry Tang, at the luncheon of the Second Pearl River Delta Conference held at the Hong Kong Convention and Exhibition Centre this afternoon (October 17)(English only):

Thank you very much Anthony. As you have said I spent a few years as a General Chamber committee member. So walking into this room, I see there are many familiar faces, old friends who I haven't seen for a while. So thank you very much for coming.

Ladies and gentlemen, thank you very much for your invitation to speak today. I really cannot think of a more opportune time to discuss the benefits of the Greater Pearl River Delta business model with you. With the newly signed Closer Economic Partnership Arrangement with the Mainland (CEPA), we in Hong Kong, and our cousins and relatives across the boundary in the Pearl River Delta are extremely well placed to make the most out of this new powerful platform.

CEPA is a once-in-a-lifetime opportunity. I am confident that this partnership of Hong Kong and the Pearl River Delta would best capitalise this opportunity. If past experience is anything to go by, this will certainly happen as Pearl River Delta is perhaps the best kept business secret in the world.

Over the past two decades, Hong Kong and the Pearl River Delta have combined and leveraged our respective strengths to develop one of the world's most efficient and cost-effective manufacturing supply chains. The paddy fields of Shenzhen, Dongguan, Zhuhai and Zhongshan have been transformed into a production powerhouse manufacturing US$300 million worth of goods in a day, every day of a year. Tens of thousands of factories employ millions of workers. And during the same period, Hong Kong's service industries have blossomed and now account for more than 85 per cent of our GDP.

Abundant land and abundant labour, together with increased consumer spending power and business sophistication, will continue to be the main drawcards of businesses wanting to make the most of PRD's resources. At the same time, our services expertise, our position as an international financial centre and our global outlook, will continue to be the main attraction for businesses wanting to place a strategic two-way platform in Hong Kong in order to enter the Mainland. And likewise, it is true for Mainland companies who want to take advantage of this platform to invest and to do business overseas. We will boost our role as a stepping stone to the world markets for these corporations and these entrepreneurs looking to extend their profit horizons beyond the local or national boundaries. It is certainly, in my view, the winning formula that we expect will pay increased dividends together with the implementation of CEPA.

CEPA will serve to increase the investment magnetism and economic prosperity of this region for a number of reasons. First, there will be new opportunities for Hong Kong companies in the PRD ahead of and beyond China's WTO commitments. Second, we are enhancing co-operation between Hong Kong and Guangdong to make sure that we can smooth the increased flows of goods, capital and people resulting from closer economic links. And, third, we will initiate a comprehensive range of joint promotions in major markets around the world to ensure that businesses both big and small have a deeper understanding of these opportunities that are coming on line in Hong Kong, in the Pearl River Delta and beyond the Pearl River Delta to the whole of the Mainland. I will elaborate on each one of those.

As I have said, there will be new opportunities in goods and services trade. In terms of trade in goods, the main opportunities will come for Hong Kong manufacturers already in the Pearl River Delta, as well as Hong Kong and international businesses setting up your new operations in Hong Kong to capitalise on tariff-free status under CEPA for 273 products. For Hong Kong companies already in the PRD, and any new entrants, CEPA provides an opportunity to access the burgeoning PRD market, and indeed for the entire country, as long as they meet the 'Made in Hong Kong' origin rules stipulated under the CEPA.

These concessions will be of particular benefit to industries engaged in the manufacture of brand-name products, or those requiring high intellectual property content where a high percentage of value-added work is carried out in Hong Kong. Normally they are around 30 per cent. Companies can expand their operations in Hong Kong, or set up new ones, to take advantage of our robust legal system and intellectual property protection regime, and then export these products tariff-free to the Mainland. Not to mention increase employment opportunities for the Hong Kong labour force. Industries more likely to benefit include fashion, jewellery and other high-end time pieces.

Tariff-free access for Hong Kong goods will also help spur opportunities in some of the 18 services sectors being opened up under CEPA. For example, problems with intellectual property protection or guarantee of payments can be alleviated simply because more Hong Kong companies will be allowed to engage in distribution businesses in the Mainland. Logistics, freight forwarding, storage, warehousing and transport services will certainly benefit. The banking sector will benefit from lower entry thresholds and also new opportunities to conduct retail banking services such as deposit, consumer credit, mortgage credit and leasing. Similarly, many service industries, such as accounting and management consultancy in which Hong Kong excels - and which are in shorter supply in the Mainland - will gain preferential access to the Mainland. These are certainly WTO plus.

A designated Branch in Trade and Industry Department has been established to handle public enquiries. Indeed ever since September 29, we have received 1,200 enquiries already. This Branch processes applications for the certification of "Hong Kong service suppliers (HKSS)". We have invited applications from the value-added telecommunications sector since October 2, 2003. A circular will be issued to the remaining 17 sectors in November to invite applications for the HKSS certificates. These certificates are necessary in order to enjoy the CEPA benefits that start from January 1, 2004. As far as trade in goods is concerned, manufacturers can apply to the Trade and Industry Department or one of the Government Approved Certification Organisations (GACOs) for a Certificate of Hong Kong Origin (CO) to enjoy zero tariff starting from January 1, 2004. The procedures for issuing CO (CEPA) will be similar to the existing arrangement for issuing regular CO. A hotline has been set up in TID to answer any enquiries about CO (CEPA) application procedures and the relevant rules of origin.

I would like to point out that under CEPA we have also agreed to promote co-operation in trade and investment facilitation. This may not be as interesting as tariff-free or as sexy as enhanced access for services, but it is just as important. That is because CEPA is a first step for better access, it is not a substitute for other regulatory requirements in the Mainland. So we hope that through further consultations on the CEPA's third pillar, that is, trade and investment facilitation, we will also be able to help Hong Kong businessmen to better navigate their way through the Mainland's trade, investment and business regulations and practices. I know from my involvement with the CEPA negotiations that our Mainland counterparts are also very eager to ensure that both Hong Kong and Mainland companies are able to gain maximum benefit from this agreement.

I would like to emphasise once and again that the genuine power of CEPA lies not only on the existing agreement itself, but it is an open and continuous process under which the Mainland and Hong Kong can explore new areas of cooperation and to enrich the content of CEPA over time.

This is where the Hong Kong/PRD business model comes into its own under CEPA. Although Hong Kong enterprises are the largest single investors in most Mainland provinces and cities, it is the PRD that has attracted a larger share than anywhere else. This is understandable given our close geographical proximity, and also the language, cultural and family ties with Guangdong Province. But this also means we have a much more experience in doing business there than anywhere else in the Mainland. And, because of the huge international investments that are already in the PRD, businesses and governments across the boundary also have more experience with international trade practices and standards compared to other Mainland provinces as well as municipalities.

By and large, business has led the way in this process. In recent years governments on both sides of the boundary have been doing much more to facilitate the rapid growth of economic interdependence between Hong Kong and the PRD. The Chief Executive of Hong Kong SAR, and the Guangdong Governor, both co-chair a high-level Co-operation Joint Conference with a shared vision to develop the greater PRD region into one of the world's most vibrant economic hubs within the next two decades.

Under the framework of the Joint Conference are 15 expert groups to take forward cross-boundary co-operation on matters such as tourism, transport infrastructure and environmental protection. And we are also in the process of streamlining the flows of goods, the flows of people, the flows of services as well as the flows of capital. Work is certainly underway on the construction of the Hong Kong to Shenzhen Western Corridor and priority is given to the bridge linking Hong Kong to Zhuhai and Macao. This will be certainly an awe-inspiring engineering feat and will enable people and also goods to cross between here and the western part of the Pearl River Delta within half an hour, opening up endless opportunities for trade and commerce. We are also pursuing initiatives such as co-located Customs facilities and greater use of technology to smooth the passage of cargo and passengers. A seamless transition is what we are looking for.

Under the framework of the Joint Conference, the "Guangdong - Hong Kong Strategic Development Coordination Group", led by the Development Planning Commission and the Development and Research Centre of Guangdong Province will conduct research studies into a wide range of themes which are crucial for Guangdong - Hong Kong economic development. Similarly in Hong Kong, a new research group headed by the Central Policy Unit will conduct comprehensive and in-depth researches on subjects relating to Hong Kong - Guangdong cooperation. These studies would most certainly enrich our scope of cooperations in the future.

What we are seeing is a more integrated and homogenous economic entity emerging, but one with very distinct and complementary roles for Hong Kong, for Macao, and for all major cities within PRD, and for the greater part of Guangdong.

You will be familiar with our Economic and Trade Office in Guangzhou that promotes economic links with Guangdong at a government level. It enhances support for Hong Kong businesses in this province. The office also provides information and services to companies headquartered in Guangdong with an aim to facilitating inward investment flow from the province to Hong Kong.

Invest Hong Kong is helping overseas companies, both multi-nationals and SMEs, to access opportunities in the Greater PRD through establishing offices in Hong Kong. And the Hong Kong Trade Development Council promotes Hong Kong's external trade in goods and services, with the Greater PRD as a core focus.

Invest Hong Kong and TDC are also pulling out all stops to promote the advantages of doing business in the PRD to both international and Mainland audiences. Seminars, symposiums, roadshows - too many to mention - are being organised over the next few months to highlight the PRD business model, as well as new opportunities arising under CEPA.

And, as I mentioned earlier, we are also seeing more joint efforts from Hong Kong and PRD authorities to promote the combined strengths of Hong Kong and the PRD as an investment destination and a services and trading platform. There have recently been joint promotions in Germany, and there will be more coming up in France, the US, Japan, Korea and Taiwan. We want international investors and international businesses to see first hand the advantages of coming to Hong Kong and the PRD to access the Mainland market. Perhaps we should let the rest of the world in on this best kept business secret.

As you can see there is a flurry of activity now taking place to maximise the publicity and promotion of all these new opportunities that are coming up as a result of CEPA.

I believe that Hong Kong and the PRD is on the verge of a new cycle of growth and prosperity, it is a cycle that will be driven by closer economic co-operation between Hong Kong and Guangdong authorities, and these new opportunities offered under CEPA. We in government will be doing our best to facilitate this process; it is up to the market, up to the businesses to make sure these opportunities germinate and to capture the potentials of these opportunities. We, in the government, are here to assist, whenever appropriate, in your business endeavours. And as always, we very much welcome views and suggestions from you on how best to further take forward the cooperation between the Mainland and Hong Kong and our initiatives in the greater Pearl River Delta.

Thank you very much.

Ends/Friday, October 17, 2003


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