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Following is the speech by the Secretary for Commerce, Industry and Technology, Mr John Tsang, at a Toronto Board of Trade Luncheon today (November 15, Toronto time):
Hong Kong - New Era, New Opportunities
Ladies and Gentlemen,
It is a great pleasure for me to be here in Canada's premier city, Toronto. On the flight from Hong Kong, I racked my brain trying to remember how long it has been since my last visit to this great city; and I came to the sad conclusion that it must have been about 30 years ago. At that time, I was living a bit south of here in Boston. I couldn't remember anything specific about the visit except for the piercing wind, but there is one indelible memory I carry with me to this day - Toronto was the city where the best Chinese food could be found anywhere in the whole of North America. And I'm eager to test my memory on this!
Food aside, my main objective today is to bring you up to date with what has been happening half a world away in another great city, Hong Kong, my home town, or as we like to call it, Asia's world city. I would like to thank first of all the Toronto Board of Trade for providing me with this opportunity to speak to you. I understand one of the principal functions of the Board is to represent the interests of many small and medium sized enterprises - the SMEs that largely reflect the make up of Canadian business today. I can certainly relate to that, because it is a mirror image of Hong Kong where the vast majority of our 300,000 business establishments are SMEs. In fact, they are the backbone of our economy.
Indeed, there is considerable interaction between Hong Kong and Canada, not just from the cultural and social ties stemming from the tens of thousands of Canadians in Hong Kong - many of them former Hong Kong citizens who now carry Canadian passports and are back living and working in our city - but from a business and investment point of view. Our bilateral trade last year was worth some five billion Canadian dollars. And our cumulative investment in each other's economies is also in the range of five billion dollars. But, perhaps one of the most illustrative indicators of our business links is the presence of the Canadian Chamber of Commerce in Hong Kong. With more than 1,000 members, it is the biggest Canadian business association outside Canada and one of the largest and most influential business groups in the Asia Pacific.
The chamber's members have business interests in Canada, Hong Kong and the Mainland, and there are good reasons for this which I will explain in detail a little later; but it has a lot to do with the title of my speech "Hong Kong - New Era, New Opportunities". First, however, I would like to bring you up to speed with how the Hong Kong economy is performing. And I'm delighted to report that we are in pretty good shape.
The economy has rebounded from the dark days of just over a year ago in the aftermath of the SARS outbreak. GDP is forecast to grow by 7.5% this year - indeed, in the second quarter it was 12.1%, the fastest growth in four years. The deflationary cycle, which dogged Hong Kong for five-and-a-half years, is over, and we are now registering slight inflation. Exports of goods and services continue to increase in double-digit figures. The property market is showing healthy signs of recovery, especially in the luxury sector, highlighted by a record post-1997 price of HK$9.4 billion (C$1.5 billion) for a piece of prime land in Kowloon at a land auction last month. Tourists are arriving in record numbers. Unemployment, though still quite high at 6.8%, is slowly coming down. And consumer sentiment is improving. In other words, we are seeing a broad-based, sustained recovery. Of course, all this is tempered, as it is everywhere else in the world, by the escalating price of oil, the threat of interest rate rise and the macro-economic adjustment in the Mainland.
Nevertheless, we have several major factors in our favour, starting with China's entry to the World Trade Organisation in late 2001 that sparked renewed international interest in Hong Kong; and put beyond doubt the fact that we are the pre-eminent two-way platform for international companies wanting to access the China market, as well as for Chinese companies wanting to expand onto the global scene. This is underscored by the results of the latest survey which shows that in the past 12 months, the number of overseas regional headquarters and regional offices in Hong Kong increased by 400 to 3,600. And if you include local offices of overseas companies, their number has risen by more than 1,000 in the two years to June, 2004.
Clearly, we remain on the radar screen of international business despite what you might hear from time to time about Hong Kong being by-passed. International companies continue to be attracted by our low taxes, reliable legal system, level playing field for business, clean and efficient government, Mainland and global connectivity, well-educated workforce, and a critical mass of the full range of business-related services. There's nowhere else quite like Hong Kong. Our door is always open to help you get started, whether you are re-locating or seeking access to the Mainland market. It doesn't matter if you're a large or small company; we have the expertise and we have the experience to make the right connection, for you.
We have been leveraging on our location at the crossroads of East-West trade and business for decades. So, it is only natural that we should further capitalise on our unique position as a Special Administrative Region of China to look at how we can help develop our hinterland while at the same time open up new opportunities for our own enterprises. For some time, we have been channelling investment and resources across the border, particularly into neighbouring Pearl River Delta. This helps to give greater access to the Mainland market for our businesses and professionals; as well as further consolidate our position as an international financial centre and capital formation centre for China.
Today, there are some 60,000 Hong Kong-invested manufacturers in the Pearl River Delta, employing some 11 million workers - that's almost one third of the entire population of Canada, and a half more than the population of Hong Kong. Quite an astonishing figure and one that is being matched in other areas as the Hong Kong-Mainland connection grows, such as the Individual Visit Scheme. This scheme allows travellers from a number of more prosperous Mainland cities to visit Hong Kong independently instead of coming only in tour groups. The scheme, together with the lifting of some other travel restrictions, has prompted an unprecedented wave of visitors from the Mainland, which reached a record eight million in the first eight months of this year pushing the total number of visitors coming to Hong Kong during this period to a record 14 million. And it's easier for Mainland visitors to spend their money, now that Hong Kong banks can handle personal renminbi transactions such as deposit taking, remittance, exchange and credit cards. This is another first for Hong Kong which is the only place outside the Mainland where personal renminbi business can be cleared.
But closer co-operation doesn't stop there; we are building new bridges, rail links and other cross-boundary infrastructure projects to smooth the flow of goods, people and capital. However, the picture I'm painting of Hong Kong's development is by no means complete. To the portrait we can now add the Mainland-Hong Kong Closer Economic Partnership Arrangement, or CEPA, which came into effect at the beginning of 2004. This landmark free-trade arrangement is allowing us to take advantage of China's growing thirst for quality goods and services by removing tariffs from over 370 Hong Kong products, and by giving preferential access to the Mainland market to 18 major Hong Kong service industries and professions, like banking, distribution, telecommunications, construction and transport. And that's not all, CEPA Phase Two will come into operation from January 1 next year, and will expand the number of Hong Kong products able to enter the Mainland market tariff-free to over 1,000. At the same time, the services sector is being further liberalised with Hong Kong services and services suppliers being eligible for preferential treatment from the Mainland in a total of 26 services, also from the start of the New Year.
You may be asking yourselves whether Canadian companies can benefit from CEPA and, if so, how can you get a piece of the action? My answer is straight forward: there will be excellent opportunities for Canadian and other overseas companies under this free trade arrangement. The best way is to either set up in Hong Kong, partner with a Hong Kong company, or even acquire a company in Hong Kong. While CEPA is designed to benefit the service suppliers of Hong Kong and the Mainland, locally incorporated overseas suppliers who satisfy the Hong Kong service supplier criteria will enjoy the same benefits as Hong Kong companies. Overseas companies acquiring an existing Hong Kong company need to operate in Hong Kong for one year to demonstrate they are carrying on substantive business operations after the acquisition. But I don't believe this one year requirement would be considered onerous for companies genuinely wanting to base themselves in Hong Kong to enter the Mainland market. Of course, if a foreign services supplier acquires less than 50% equity interest in a Hong Kong company, the one year time bar does not apply.
In terms of economic benefits, CEPA has very good potential to open up many new business opportunities in the Mainland for Hong Kong. But it also has the reverse effect. The zero import tariff preference might also attract to Hong Kong the manufacturing of brand name products, and manufacturing processes with high-value added contents and substantial intellectual property input. And the WTO-plus market liberalisation measures for trade in services will give companies in Hong Kong a 'first mover' advantage. However, it's up to business people from Hong Kong and Canada, and elsewhere for that matter, to decide whether and how they would like to leverage on CEPA to gain greater access to the Mainland market.
In tandem with CEPA, an even more exciting development is taking shape - a visionary concept that aims to develop a South China 'common market'. It is the Pan-Pearl River Delta Regional Co-operation and Development Forum, which we have labelled as 'Pan-PRD' as distinguished from PRD or Greater PRD, or simply '9+2'. The initiative brings together nine provinces of southern China, including Guangdong, along with the two Special Administrative Regions of Hong Kong and Macau. To give you some idea of the size and scope of the concept, Pan-PRD with a population of some 450 million, is roughly the size of NAFTA, or the expanded European Union, or ASEAN. The region's combined GDP in 2003 was US$630 billion, accounting for 40% of China's total output.
Pan-PRD is the first attempt to create a regional economic bloc in the Mainland. The idea is that Hong Kong would provide the capital, the international access, expertise, connectivity, and management; and the nine provinces providing land, labour, industrial capacity, and consumer markets. Each province would also work towards breaking down barriers to trade and investment to maximise the potential for markets to grow, to compete nationally and internationally, and to boost affluence and spending power.
We believe Pan-PRD will have far-reaching consequences for China's future in breaking down the barriers between local economies and forging a multi-provincial, regional free-trade area, which is expected to grow into one of the world's largest and most efficient regional economies.
Ladies and gentlemen, I hope I have painted for you a picture of how we see Hong Kong's economic development in the years ahead. It is an exciting future anchored by our traditional links to the Mainland, but enhanced by some inspirational thinking. All helping to strengthen Hong Kong's position as Asia's world city and as the pre-eminent international financial and services centre for the Mainland. Hong Kong is poised to move even further up the value chain for the start of a new era marked by many new opportunities. And we look forward to exploring these opportunities with you.
Thank you.
Ends/Tuesday, November 16, 2004
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