Following is the speech by the Secretary for Commerce, Industry and Technology, Mr John Tsang, at a luncheon organised by the Asia Society / Hong Kong Australian Business Association in Sydney, Australia today (November 24) (English only):
Distinguished guests, ladies and gentlemen,
It is a great pleasure for me to join you all today. Mondays are usually slow days, but I guess today is a bit slower than usual, now that all the Rugby World Cup excitement has come to an end. And what a momentous and heroic finish it was. I am not a big follower of the rugby code, but Saturday night's final was a stupendous game of football in any language. Although the Wallabies were pipped at the post, they did themselves and their country proud. I know they say that Rugby is the game played in heaven, but I didn't know that they wrote the scripts there as well.
The title of my speech today is "Hong Kong: Australia's Key to Business Success in Asia". On reflection, I think a better title would be "Australia's key to even greater business success in Asia". Certainly, Australian companies are already doing very well in Asia. And I am happy to say that a lot of that activity is managed from Hong Kong. So today I want to talk about Hong Kong in a broader context, and how we are positioning ourselves to meet the challenges of globalisation, and, in particular, a more open and transparent Mainland market. In the process, I hope I can provide you with some insights into the enormous changes taking place in our part of the world, and how this will throw up tremendous opportunities for business in Hong Kong, and for Australian companies in Hong Kong.
Before I do that, I must first tell you that Hong Kong is recovering strongly from the after-effects of the SARS outbreak earlier in the year. When Hong Kong was taken off the World Health Organisation list of affected cities back in late June, we thought we might need a long convalescence before we'd be back in healthy shape again. But, actually, the recovery has been faster and more robust than we could have imagined. So much so that just last month we revised our 2003 GDP growth forecast up to 3%, compared to the 2% forecast which we revised upwards by 0.5% back in August in the aftermath of SARS. We are beginning to see the light at the end of the tunnel of an economic restructuring that started with the Asian financial crisis in 1997 and was exacerbated by SARS, the wars in Iraq and Afghanistan and the 9-11 terrorist attacks.
There are a number of reasons to be optimistic about sustaining this recovery to build a new era of growth and development in Hong Kong. One is the continued opening up and reform of the Mainland market under its WTO commitments. This will have an enormous effect on global trade and investment flows, and this will benefit Hong Kong. Another is the signing of a Closer Economic Partnership Arrangement between Hong Kong and the Mainland. This landmark free trade agreement will give Hong Kong manufacturers and service providers a head start over the competition in accessing the massive Mainland market. Yet another is the closer economic ties we are developing with the Pearl River Delta, often referred to as the "factory of the world". Let me touch on each of these areas.
In the broader context, Hong Kong will continue to benefit from China's rapid economic development. Indeed, we have been doing so for well over 150 years, but the process has accelerated since China opened its doors to the world in the late 1970s. Today, the Mainland economy is growing at an average annual rate of about 7%, and is still attracting sizeable inward direct investment. More than any other place or earth, to be precise. On top of that, opening up under the WTO commitments will provide impetus for further international investments over the next decade and beyond.
The World Bank predicts that by 2020, China will be the world's second largest exporter. For Hong Kong that means we will continue to see good growth in cargo throughput in our port and airport and flow-on benefits for our transport and logistics-related sectors as well as the financial services sectors, which serve not only the Mainland market but also East and Southeast Asia. Financial services will continue to benefit because Hong Kong remains the best-placed international financial centre in the region with the concentration of banks and finance-related professionals, the experience and support mechanisms, a fully-convertible currency and high standards of corporate governance, to effectively service the Mainland market. The Hong Kong stock exchange remains the location of choice for major Mainland enterprises seeking to tap the international financial markets. All of this points to growth opportunities for Hong Kong. And what's good for Hong Kong is good for the 500 Australian companies in Hong Kong.
China's emergence as an economic power will present challenges and opportunities, not just for other Asian economies but for the global economy. Within ASEAN, for example, there has been some concern that China's opening up and development will have a negative impact on their own exports to major markets such as the US and the EU. In fact manufacturers in the US and EU have also started to express their own concerns about dwindling export growth.
I believe that China's opening up presents more opportunities than it does disadvantages. There is significant scope for more co-operation among the Asian economies. I know that Australia and New Zealand are pursuing FTAs in the region. The proposed China-ASEAN Free Trade Area by 2010 is a good example of the potential we are talking about when you combine the relative strengths of China - with a market of 1.3 billion - and all of ASEAN with a market of well over 400 million.
This also highlights that in today's competitive world, a small economy like Hong Kong can no longer compete effectively on its own in the global arena. Similarly, a regional economy pooling strengths, leveraging competitive advantages, is also a logical way forward to bring the benefits of globalisation to ALL. So we must hone our competitive advantages while reaching out to integrate our resources with those of other regional economies.
This process in Hong Kong will be hastened thanks to the signing of our Closer Economic Partnership Arrangement with the Mainland. This landmark free trade agreement, which comes into effect on January 1 next year, will allow Hong Kong enterprises to make full play of their strengths while gaining early access to the Mainland market ahead of its WTO commitments.
The CEPA will cover three areas: trade in goods, trade in services and trade and investment facilitation. Australian companies in Hong Kong will be able to benefit. That is because objective and transparent criteria have been laid down on what constitutes a Hong Kong company. In brief, to qualify, a company must be incorporated in Hong Kong, must pay taxes in Hong Kong and must engage in substantive business operations in the city. Ownership, shareholding structure, ethnicity or nationality considerations do not figure in the definition. Under this nationality-neutral test, there is no discrimination against foreign-owned companies incorporated in Hong Kong.
For trade in goods, zero tariffs will apply to Hong Kong exports meeting rules of origin requirements in 273 Mainland product codes. Together with China's WTO commitments, this will eliminate tariffs on about 90% of Hong Kong-made goods from January 1 next year. The rest will go tariff-free on application by January 1, 2006 at the latest. Goods to go tariff-free under CEPA will include electrical and electronics products, plastic articles, paper articles, textiles and clothing, chemical products, pharmaceuticals, clocks and watches, jewellery, cosmetics and metal products. Manufacturers may set up new operations and begin exporting tariff-free straight away - without any restrictions - if their products are covered in CEPA and meet the rules of origin requirements. 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.
For trade in services, CEPA will liberalise market access in 18 services sectors ahead of China's WTO timetable. Those which have special interest for Australian companies include advertising, accounting, construction and real estate, logistics, transport, tourism, legal, banking, securities, insurance and telecommunications.
In most services categories, a company must have been operating in Hong Kong for three to five years. If your business covers these areas, and you are looking to explore opportunities in the Mainland, then now is the time to be looking for a joint venture partner in Hong Kong; or to be considering buying a Hong Kong-incorporated company active in these areas. Australian companies already in Hong Kong, and that meet the CEPA criteria, will be able to take up this chance for a first-mover advantage, if they so wish.
The tariff-free access for Hong Kong goods will actually help spur opportunities in some of the services sectors being opened up. For example, problems with intellectual property protection or payment can be alleviated because more Hong Kong companies will be allowed to engage in distribution businesses in the Mainland. Logistics, freight forwarding, storage and warehousing and transport services will also benefit. There will be new opportunities in the conventions and exhibitions sector, audio-visual services and the film industry and in telecommunications services. The banking sector will benefit from lower entry thresholds and new opportunities to conduct retail banking services such as deposit taking, consumer credit, mortgage credit and leasing.
While CEPA applies to the entire Mainland market, it will have a significant impact on trade and investment flows between Hong Kong and our cousins in the Pearl River Delta, or the PRD as we call it. Australian companies are there now manufacturing and sourcing products for the global market. But what CEPA does is provide a new opportunity to use existing resources in the PRD to access the domestic Mainland market. The PRD is the natural staging post and testing ground to establish a foothold in the Mainland.
Taken as a whole, the Greater PRD - which includes Hong Kong and Macau - is the most prosperous and export-oriented economic groupings in China. With a population approaching 50 million, and a combined GDP of US$270 billion, the PRD is not just a manufacturing powerhouse, it is also a major, and increasingly affluent, consumer market in its own right. Business in Hong Kong now has a new opportunity to make even further headway in the PRD ahead of China's WTO commitments.
To help this process, the Hong Kong government is working hard to enhance co-operation between Hong Kong and Guangdong to smooth the increased flows of goods, capital and people resulting from closer economic links. We are also working closely with our counterparts in Guangdong and the PRD to promote our unique strengths, attraction and potential to markets around the world. As I mentioned earlier, we are honing our strengths, reaching out, leveraging our competitive advantages.
But as an important player in the international economy - we are, after all the world's 10th largest trading economy - we have wider global responsibilities. We are a small, externally-oriented, free trade, free market economy. Free trade is, and has always been our lifeblood.
We have long been a staunch supporter of the rules-based multilateral trading system and have historically punched above our weight in both the GATT and the WTO. Indeed, Hong Kong has been invited to host the next WTO Ministerial Conference. Following the failure at Cancun, the challenge is to resolve the most critical issues identified in that fallout. We will be working closely with the WTO Secretariat and individual WTO members - including Australia - to ensure a successful Hong Kong WTO Ministerial Conference. That's important for all countries, rich and poor, and certainly for a small, resource-challenged economy such as ours.
Ladies and gentlemen, Hong Kong is laying the foundations for a new cycle of economic growth. We are fortunate to be blessed with one of the finest deep-water ports in the world, and a strategic location that has made Hong Kong the premier access point to the Mainland market, as well as a regional hub for trade, finance, business services, communications and tourism. We have a hard-working, well-educated and flexible workforce that provides the human capital required to make any business undertaking a success.
I have good reasons to be optimistic about Hong Kong's future - the Mainland's strong growth, CEPA, closer and more beneficial links with the PRD, and our institutional software protected by the rule of law under the "One Country, Two Systems" principle.
But as the old saying goes - seeing is believing. So ladies and gentlemen, I urge you to come to Hong Kong to see for yourself, to assess the opportunities we believe are presenting themselves, and to feel the pulse, the energy and the dynamism of this Asia's world city. I am sure you will not be disappointed.
Ends/Monday, November 24, 2003