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Speech by SCIT at luncheon hosted by HK
Association in London (English only)


    Following is the speech by the Secretary for Commerce, Industry and Technology, Mr John Tsang, at the luncheon hosted by the Hong Kong Association in London on May 6 (London time): (English only)

Baroness Dunn, distinguished guests, ladies and gentlemen,

    Good afternoon.

    It is a great pleasure for me to be back in London again, and it is doubly delightful for me to be here today in the company of steadfast supporters of Hong Kong. We have always valued the work of the Hong Kong Association in developing and promoting business links between Hong Kong and the United Kingdom and in helping to inject a rational and informed voice in any debate on issues in Hong Kong. Henry Keswick, your distinguished Chairman of recent past, ensured that I knew well the paramount importance of the Hong Kong Association when I was Commissioner of the Hong Kong Economic and Trade Office a few years ago, and now as a Principal Official of the Special Administrative Region Government, I have locked into my system that a visit to London is not complete until I have touched base with the Hong Kong Association.

    So here I am. And in the aftermath of a Vatican conclave and the election of a new Pope, a royal wedding and yesterday's general election here as well as a few recent Hong Kong events that have attracted a fair bit of attention, I hope you will find what I have to say worthy of your time. I would like to focus today on my bailiwick, which is commerce.

    In essence, I wish to bring you up to date on our rapidly expanding economic co-operation with the Mainland, particularly with the implementation of CEPA, and the opportunities that this offers to British investors.

    CEPA is a unique, WTO-compliant free-trade pact between the Hong Kong SAR and the Mainland. It covers three broad areas. In terms of trade in goods, CEPA offers zero import tariffs for over 1,000 products that are made in Hong Kong for export to the Mainland. On trade in services, CEPA covers 26 services sectors, including banking, distribution, construction, logistics and warehousing. CEPA also provides a framework for the facilitation of trade and investment, which is turning out to be the most exciting part of the arrangement.

    CEPA covers "Hong Kong manufacturers and services suppliers", a nationality-blind category that includes British companies too. Under CEPA rules, any foreign services provider that has been established in Hong Kong for over three years is treated as a Hong Kong company. This requirement does not even apply to manufacturing, where the only eligibility criterion is rule of origin.

    Some have scoffed at CEPA, claiming that it is nothing more than a public relations exercise at the time of its announcement. So let us knock a few myths on the head.

    Myth number one: CEPA has had no economic impact.

    When it comes to manufacturing, Hong Kong will never return to the old days of flatted factories and hillside squatter operations before we became a services-oriented economy. But after three years of declining domestic exports, CEPA did help boost domestic exports by 3% last year.

    In 2004, more than 3,000 certificates of origin were issued under the first phase of CEPA, involving manufactured products with a total value of 1.2 billion dollars that enjoyed tariff-free import into the Mainland. The expectation is for that figure to double in 2005.

    In the area of services, by the end of February 2005, 720 Hong Kong-registered services companies had been issued with Hong Kong Service Supplier certificates, giving them a powerful "first mover" advantage in the Mainland market.

    According to a recent survey, companies in six of the 26 services sectors ? telecommunications, distribution, tourism, advertising, road passenger transport and logistics ?increased their capital investment by nearly 1 billion dollars last year as a result of CEPA. This spending is expected to jump more than four-fold this year, to 4.2 billion dollars. That represents 9% of the average annual business investment in those six sectors over the previous decade. Most of the investment has been in the distribution and logistics sectors. This is a natural outcome given the increased movement of goods and services between Hong Kong and the Mainland stemming from CEPA. So you can see that CEPA is having a substantial economic impact.

    Myth number two: CEPA has created no jobs.

    Again, in the six service sectors I have just mentioned, a total of 2,000 new jobs were created last year as a result of CEPA. In 2005, we expect that number to jump to 7,200. And those are on top of the 16,500 jobs generated last year by the Individual Visit Scheme, which I will get to in a moment. All told, it is estimated that 30,000 new jobs will be created in the first two years of CEPA.

    Myth number three: CEPA does not help the Mainland.

    It may seem at first blush that CEPA is all in Hong Kong's favour because Mainland goods have always been allowed into Hong Kong tariff-free. Some people have even gone so far to say that CEPA was Beijing's gift to Hong Kong. So, you might ask, "what's in it for them?" CEPA is by no means a one-way street. It is a win-win situation.

    China's rapid growth and market liberalisation have spurred much greater demand for services. CEPA enables Hong Kong to connect the Mainland's nascent services industry with the rest of the world, and acts as a stepping-stone for the Mainland to progress towards its WTO commitments to liberalise its services sector. Hong Kong companies are helping upgrade the quality of services in the Mainland by bringing in the proper technology and know-how as well as injecting the needed competition.

    CEPA would help expose Mainland enterprises to international experiences and practices in accountancy, financial and legal services, design, marketing, engineering and others, and it helps improve the corporate management of Mainland enterprises through the engagement of Hong Kong professionals who are well versed in international standards of corporate governance. By lowering the entry asset threshold for Hong Kong-incorporated banks, CEPA allows our banks to bring international standards of operation, risk management, corporate governance and financial discipline to the Mainland's banking industry.

    In a nutshell, CEPA is a big boost in helping Mainland enterprises play on the world stage under Beijing's new "going out" policy.

    CEPA also helps Mainland manufacturers by offering them legal protection of their intellectual property rights in Hong Kong, something that benefits, for example, the makers of traditional Chinese medicine. Indeed, a number of well known traditional Mainland brands have already moved their manufacturing operations to Hong Kong. All in all, CEPA provides Mainland consumers with greater access to lower-priced, higher-quality goods, as well as greater range of choices.  For example, Hong Kong made products from traditional wedding cakes and moon cakes to watches and clocks are making significant headway in the Mainland market.

    Under CEPA, Hong Kong and the Mainland have arranged for mutual recognition of professional qualifications for estate surveyors, structural engineers, securities and futures industry practitioners, architects, accountants, insurance intermediaries and patent agents. The first batch of professionals, including 205 architects and 208 real estate appraisers, obtained mutual recognition of qualifications last summer. This  will foster closer co-operation between the services professionals of both places, and in turn facilitate their business and market expansion.

    Another aspect of CEPA that has had a highly visible economic impact is the Individual Visit Scheme. It is a big reason why visitor arrivals are booming. When this scheme was introduced in mid-2003, just as we were getting over the trauma of SARS, it had a dramatic, almost immediate impact on tourism-related sectors, such as hotels, restaurants and retailing. The Individual Visit Scheme now covers all of Guangdong Province plus 13 other cities ? making a total of 189 million of our Mainland "cousins"  currently eligible to visit Hong Kong on their own while the rest of the Mainland is still required to visit Hong Kong in tour groups. In 2004, these visitors, totalling over four million, generated an additional 6.5 billion dollars in tourist spending. This is not an insignificant sum.

    Another important step in cross-boundary co-operation occurred when Hong Kong banks were authorised to provide personal renminbi business, including deposit, remittance, exchange and credit card services. This helps the flow of people and renminbi funds between the two places. We expect the scope of these renminbi services to expand gradually to the commercial area along with the Mainland's growing development needs.

    CEPA is an ongoing process, continually under discussion by both sides on how we can improve and fine-tune the arrangement. We frequently hear suggestions from our business people on products they would like to see included, or rules they would like to have relaxed, and we take their concerns into consideration when we sit down at the table with our Mainland counterparts.  In fact, all the liberalisation measures contained in the second phase of CEPA that began in January this year were all suggested by the business sector.

    So, CEPA has definitely helped Hong Kong's economic recovery. I would now like to focus on the bigger picture.

    The real impact of CEPA, ladies and gentlemen, is very difficult to measure with any precision. The real impact of CEPA is in the seemingly un-sexy area of what we call "trade facilitation". The real impact of CEPA is the way it is changing the mindset of people who do business in Hong Kong and the Mainland -- and the impact is far-reaching.  We note, however, that the successful players are keeping their ventures mum, and they are definitely not trumpeting their successes, lest the secrets of the successes may be replicated somehow.

    For a long time, Hong Kong has prospered as the world's gateway to the Mainland of China. Today we are still the principal gateway; last year, 31% of Britain's trade with the Mainland was routed through Hong Kong. But we are also much more than a gateway. Now we are inside the gate. Hong Kong is now an integral part of China, a Chinese city with huge economic importance ? indeed, the freest and most sophisticated city in the country.

    The significance of CEPA is that it is the key to the future economic integration of Hong Kong and the Mainland. It works both ways, and our services sector can now serve Mainland enterprises in Hong Kong. A new Central Government initiative introduced last August has streamlined the application process for Mainland enterprises wanting to set up business in Hong Kong cutting a process that took over six months to just two weeks.

    According to the State Ministry of Commerce, in the last four months of 2004 alone, 68 Mainland enterprises were granted approval to invest 470 million US dollars in Hong Kong, nearly half of the total for the whole year. It seems that Mainland enterprises are finding Hong Kong as useful a platform to access world markets as international companies find us to access the Mainland market.

    And this is just the beginning. Down the road, the Pan-PRD Regional Co-operation and Development Forum, formed last year by nine Mainland provinces and the Hong Kong and Macau SARs, will remake the economic landscape of southern China.

    Although Pan-PRD is about co-operation between regions within a single country, it is comparable to many associations of nations or regions elsewhere in the world in terms of population, economic size and foreign trade. For example:

- Pan-PRD had a population of 457 million people at the end of 2003, comparable to the population of the EU or NAFTA.

- The GDP of the Pan-PRD region totalled 636 billion US dollars in 2003, not far behind the GDP of the ASEAN-10 grouping.

- The total foreign trade of Pan-PRD was about 800 billion US dollars in 2003, close to that of ASEAN and Japan.

    Clearly, the development potential of Pan-PRD is enormous.

    There remain, of course, issues to be tackled. For example, a long-term goal of Pan-PRD regional co-operation is to establish an open and ordered market. Like many other places in China, there are problems like provincialism and market segmentation within Pan-PRD that impede regional co-operation. The governments involved need to create a fair and open market environment by removing hindrances to the movement of goods, services, people, capital and information.

    We believe the competitiveness of the region will be greatly enhanced if the unique features of each province and region can be fully utilised, economies of scale achieved, and division of labour rationalised. The strengths of Hong Kong and the other provinces and regions of Pan-PRD are complementary in terms of economic development. Some of the provinces and regions of the Mainland are important manufacturing bases and consumer markets; some are rich in natural resources; and some are abundant in land and labour.

    Hong Kong, as the service capital of China, will play a key role in this massive regional economy. We are a city with myriads of unique attributes and advantages. In Hong Kong, we have retained many of the traditions bestowed on us by the United Kingdom ? traditions such as legal institutions, civil liberties, ethical values, disdain for corruption, and a clean and efficient civil service. All of these advantages, along with low taxes, an ideal location and state-of-the-art infrastructure, are why 3,200 overseas companies have set up regional operations in Hong Kong. That is far more than any other place in the region, and it includes over 300 British companies.

    Ladies and gentlemen, before I wrap up I would like to touch on another important issue that is taking up a lot of my time these days. As you know, Hong Kong has been bestowed the honour and responsibility of playing host to the World Trade Organisation's Sixth Ministerial Conference in December this year. I am not in a position to promise miracles, of course, but we are working hard to facilitate definitive movements.

    Putting the trade and other ministers of 148 different economies into one room could produce an infinite number of outcomes. But I can promise you that, in terms of planning, logistics and security, Hong Kong is doing its utmost. We will create the best conditions possible for the parties to reach a consensus. We will ensure that the proceedings are as transparent as the participants will permit. We will respect the demonstrators' freedom of expression and assembly, while at the same time maintaining order and minimising inconvenience to the public. We would like nothing better than for MC6 in Hong Kong to achieve a substantive outcome and pave the way to complete the Doha Development Round negotiations next year.  We will work hard to achieve this goal.

    So, ladies and gentlemen, my message today is that Hong Kong is committed, engaged and working hard. Committed to global trade liberalisation. Engaged in our nation's economic progress. Working hard to increase opportunities for trade and investment in the Mainland and Asia. The next time you are in Hong Kong, you will see that not all the fun is happening at Disneyland or Ocean Park. There are plenty of exciting opportunities being offered in our financial district, our industrial estates, our high-tech parks, our airport and our shipping terminals as well. So come back soon and get a bit of that Hong Kong buzz.

    Thank you very much.

Ends/Friday, May 6, 2005


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