Following is a speech by the Secretary for Commerce, Industry and Technology, Mr John Tsang, at the dinner co-organised by Hong Kong Association of Southern California and Hong Kong Schools Alumni Federation today (November 23, Los Angeles time) on "Hong Kong - New Era, New Opportunities":
Ladies and Gentlemen,
It is a great pleasure for me to be here in Los Angeles - a city that never ceases to amaze me - a city that has something for everyone - and then more! And to be here at this time of the year, a day before Thanksgiving eve, is an added bonus for me. In my younger days living on the East Coast, I can vividly remember the delights of celebrating with family members our Thanksgiving with Chinese characteristics with roast turkeys stuffed with sticky rice and Chinese sausages. More importantly, Thanksgiving is an occasion to reflect, step back and give thanks in the company of family members for all the blessings that we have received in the past year. So, thank you for coming out tonight to enable us all to be together on this very special occasion.
I spoke to some of you right here in LA about four years ago when I was the Commissioner of Customs and Excise. We talked about the economic situation in Hong Kong at that time, the protection of intellectual property, our anti-piracy work and trade facilitation, the mainstay of my previous portfolio. Today, I would like to bring you up to date with what has been happening generally in Hong Kong and also some of the key features of my current portfolio.
But first of all, I would like to thank the Hong Kong Association of Southern California and the Hong Kong Schools Alumni Federation for providing me with this opportunity. The association does a tremendous job in promoting trade and business between our two communities, and your links with other business organisations around the world keep you well informed of key global developments. Equally, the Alumni Federation has made significant contribution in establishing a network for co-operation and communication among the Hong Kong school alumni associations in Southern California, and in promoting cultural, educational, and social activities of common interests. Indeed, some of you here tonight may have just returned from attending the 2004 Hong Kong Forum held last week at the Convention and Exhibition Centre in Wan Chai. This annual event organised by the Federation of Hong Kong Business Associations Worldwide is surely a great opportunity for networking, and learning first hand the latest developments in the world of Asian business. This year, of course, there was the added bonus of attending the Hong Kong Trade Development Council's World SME Expo.
These events clearly demonstrate the considerable interaction between Hong Kong and the United States from a business and investment point of view and also from the cultural and social ties stemming from the 50,000 Americans living and working in Hong Kong. You may be aware that in 2003, the US was our second largest trading partner after Mainland China. Our bilateral trade was worth more than US$54 billion. While that was marginally down from the previous year, I'm pleased to say that in the first seven months of this year, total trade is already showing an impressive 8% increase over the same period in 2003. The US also continues to be one of the top five investors in Hong Kong with a total stock of almost US$24 billion at the end of 2002. There are also more than 1,000 US firms in Hong Kong, concentrated in trading, banking, finance and transport. In fact, the American Chamber of Commerce in Hong Kong is one of our city's leading business organisations.
There are very good reasons why the US has such a significant presence in Hong Kong, and I will explain in detail a little later; and 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 (US$1.2 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 6.7%, 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 on 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. Not surprisingly, the US tops the list with over 800 companies having their regional headquarters or regional offices in Hong Kong.
Clearly, we remain on the radar screen of international business despite what you might hear from time to time about Hong Kong being bypassed. US and other 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 relocating or seeking access to the Mainland market. It doesn't matter if you are 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 our 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 roughly the same as the entire population of Los Angeles County, 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 in tour groups only. 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 service industries and professions, like banking, distribution, telecommunications, construction and transport. And that's not all, CEPA Phase Two will come into operation from 1 January next year, and will expand the number of Hong Kong products able to enter the Mainland market tariff-free to more than 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 US companies can benefit from CEPA and, if so, how can you get a piece of the action? My answer is straightforward: there will be excellent opportunities for American 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 per cent 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 the US, 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. 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 on 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.
Ends/Wednesday, November 24, 2004