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Following is a speech by the Chief Executive, Mr Donald Tsang, at the Hong Kong-Guangdong Business Conference held at Le Palais de Congres de Paris, in Paris today (November 10, Paris time):
Distinguished guests, ladies and gentlemen,
Good morning. What a pleasure it is to be back in Paris. And what a pleasure it is to have this great opportunity to talk about the remarkable developments taking place in Hong Kong and our country. Just two weeks ago, President Chirac was in Beijing to augment the strategic partnership between France and China. A key element of that strategy, of course, is to increase the already strong economic and business links between our two nations.
Governor Huang has just given you an update on what Guangdong offers in this equation. Now, it's my turn to tell you what Hong Kong can offer as Asia's world city. The two tales are increasingly intertwined - with each driving and supporting the success of the other. It is truly a case of the "whole being greater than the sum of the parts".
This being a business conference, I will get right down to business. Nowadays, in boardroom meetings around the world, the first item on the agenda is: "How can we grow our business in China?" To help answer this question, I would like to touch on three areas. First, where I see the main opportunities. Second, Hong Kong's role in developing a strategy for doing business in China. And finally, what the future holds.
I say "touch on these areas" as I would like to leave the specifics to the delegation of professionals who have travelled here from Hong Kong - many of whom are closely related to the French business community. These are the people who are living the China story every day. They are ideally placed to give you a "warts and all" assessment.
Before I start, let me share Hong Kong's credentials and tell you why we are qualified to advise on business in China. Quite simply, the Mainland of China is Hong Kong's number one trading partner. Last year, goods worth more than 210 billion euros passed between the two economies.
On top of that, and exceeding it many times over in value, is the flow of things that are less easy to measure: capital and ideas. In fact, Hong Kong is by far the largest source of investment into the Mainland of China. Almost half of Mainland China's incoming investment flows from, or through, Hong Kong. And I'm not talking about just Guangdong, where 80,000 Hong Kong-invested factories employ a workforce of some 11 million. I'm talking about the whole of China. Hong Kong is the largest investor in all the Mainland's major cities: Shanghai, Beijing, Guangzhou, Shenzhen, Chengdu . . . the list goes on.
So when considering the question of "how to grow a successful business in China", Hong Kong has earned its place at the table.
Now, let me turn to my first topic: opportunities in China. As recently as five years ago, the overwhelming reason to look at China was to manufacture or source products. In the past 25 years, China has stunned the world with its ability to manufacture everything from mass-market T-shirts to the highest precision electronic components - at virtually unbeatable prices.
The opportunities in the manufacturing sector continue to be a major draw card for international investment. But to see China simply as a huge factory is a great over-simplification.
Instead, I'd like this morning to look the other way. Into China. You'll have heard the numbers before, but they bear repeating: a decade of close to double-digit economic growth; 1.3 billion people; a 300 million-strong middle class, growing by some 1.5 million people each year; more than 50 cities with a population exceeding 1 million.
Let me put that in perspective. France has a population of 61 million. If you get in a car and drive the two hours from Hong Kong to Guangzhou, where Governor Huang works, you will pass through a region of over 40 million people. Another 80 million people live in the Yangtze River Delta, centred around Shanghai. And there are about 40 million in the Bohai Bay region around Beijing. Three massive commercial centres, 160 million people.
The success of manufacturing in these areas - and Guangdong alone produces goods worth US$300 million every day - has fuelled massive demand from Chinese consumers and businesses alike. Consumers want greater access to a broad range of international products and brands. Companies want to fast-track their growth strategy by upgrading their technology and their financial, management and marketing skills.
This trend is not going to slow down any time soon. It will only get stronger and broader, as local companies and consumers become wealthier, more sophisticated and more international.
This is good news for the region and it's good news for the world - because, simply put - if you have something to sell, what you want are rich neighbours.
I appreciate that the sheer scale and size of China can be daunting. But now is not the time to pull back. Now is the time to look at your product range, to look at your portfolio of services, and ask yourself: "How can I build a strategy for this new market?"
That is a question that every company in Hong Kong has asked itself. Hong Kong was the first economy to feel Mainland China's competitive might when it began its economic liberalisation in the late 1970s.
But Hong Kong companies chose not to sit on their hands. Or perhaps they had no choice. In any case, they were among the first companies to shift their manufacturing facilities into the Mainland of China. In doing so, they were able to concentrate high-value business activities in Hong Kong, while ensuring cost-competitiveness via their Mainland-based operations.
So it's clear that there are opportunities in China - both as a manufacturing base and as a massive new market. But, to turn around a cliche, opportunities rarely come without challenges.
This brings me to my second point: Hong Kong's role - as a low-risk starting point - in developing a strategy for doing business in China.
The Mainland has made incredible advances in the past 25 years. Major cities such as Beijing, Shanghai, Shenzhen and Guangzhou are all now attracting huge volumes of international business and offer attractive living standards for expatriates.
As a result, in boardrooms around the globe, executives face a tough choice. Is Hong Kong still the best route into China, or are there other options?
Well, I think it depends on a range of factors, including your sector, your business model, your liquidity and your size. Also, it's rarely an either/or decision. The reality is that if you are looking to develop a successful China strategy, you will ultimately need multiple bases.
What Hong Kong provides is a platform where you can get your foot in the door - and this is doubly true for small-to-medium-sized companies.
Hong Kong is a starting point that offers a transparent and familiar business environment, and a legal system that is independent and impartial. A starting point that speaks English - with a good smattering of French as well. A starting point that has a communications and transport infrastructure second to none in Asia, a low and simple tax system, a corruption-free government, a business-friendly environment, and no exchange controls.
But perhaps most important, Hong Kong is a starting point full of companies that have the know-how, contacts and experience to give you a head start in China. As the President of the French Chamber of Commerce and Industry in Hong Kong said recently: "Working with Hong Kong gives you a decade of China experience overnight".
At the other end of the spectrum, for multinational corporations, Hong Kong is a clear leader in Asia as an international financial and professional services centre. In terms of project financing, corporate governance and the free flow of information, Hong Kong has few rivals.
Since 1997, the number of overseas companies with regional operations in Hong Kong has grown by over 50%. We now have well over 3,800 overseas companies with regional operations, confirming Hong Kong as the most popular place in Asia to establish a base. These companies recognise Hong Kong's value as the best platform for doing business, not only in the Mainland of China, but in the Asia-Pacific region as a whole.
It is telling that when Mainland companies want to raise money, they come to Hong Kong. Since 1993, Mainland enterprises have raised over 142 billion euro, including Industrial and Commercial Bank of China's record-setting IPO just two weeks ago.
But it's not only capital that is flowing into Hong Kong from the Mainland of China. In the past two years, the easing of travel restrictions under the Individual Visit Scheme has prompted a huge influx of Mainland tourists, as well. About 12.5 million visited last year - nearly twice our local population. In the first eight months of this year, a remarkable 9 million tourists from the Mainland of China visited Hong Kong.
The knock-on effect has been stunning. Hotels, restaurants and retailers are all recording high levels of occupancy and spending. Major international brands - Louis Vuitton, Christian Lacroix, Hermes, Chanel and many more - have opened flagship stores, launching their latest collections to discerning Mainland buyers. Our Central shopping area now boasts more international brands than Fifth Avenue, Oxford Street, or even the Champs Elysees.
So, at both ends of the spectrum - small companies taking their first steps in Asia and major blue chips looking for a premium business location - Hong Kong has proved itself.
Attracting trade and investment is a major part of what governments do today. And it's a common practice to offer tax, land or financial incentives. But not in Hong Kong. Our firm belief is that the best incentive is the quality of our business environment and the potential of the region. Hong Kong offers a wholesome venue, second to none.
But you don't have to take my word for it. Just check out the numbers. Next July, Hong Kong will celebrate the 10th anniversary of reunification with our country. And from 1997 to 2006, the economic indicators are overwhelmingly up. This is no mean feat, given that since 1997 Hong Kong has survived the Asian financial crisis, a property slump, high unemployment and the SARS outbreak.
And yet, here we are: a decade on and stronger than ever. Our gross domestic product rose 8.6% in 2004, 7.3% last year, and 6.6% in the first half of this year. Hong Kong is currently the world's 11th largest trading economy. That's only six places down the ladder from France and well above economic powerhouses like Korea and India. Not bad for a city of 7 million people with no more than 1,100 square kilometres of land mass. We are also home to the world's eighth largest stock market by market cap. On top of all that, Hong Kong is the most popular international business location in Asia for the past decade - and with an unbroken 12 years at the top of the "World's Freest Economy" list.
So this is where we stand. But what of the future? Despite having experienced one of the most eventful decades in our history, the next chapter of Hong Kong's story looks to be just as eventful.
A big part of Hong Kong's growth strategy is leveraging our closer relationship with Mainland China, while at the same time servicing the Mainland's economic liberalisation. One way we are doing this is CEPA, which stands for Closer Economic Partnership Arrangement. It's a free trade pact under which all Hong Kong goods can be exported duty-free to the Mainland, and Hong Kong companies in 27 services sectors have early-bird access to the Mainland market, ahead of China's WTO obligations. European companies can take advantage of CEPA by setting up in Hong Kong or partnering with Hong Kong companies.
Beyond the Pearl River Delta, Hong Kong forms part of a regional co-operation initiative across an extensive swathe of southern China. Known informally as Pan-Pearl River Delta or "9+2", it covers nine provinces plus the Special Administrative Regions of Macau and Hong Kong. This region is home to more than 470 million people. That's one-third of China's entire population, and equal to the population of the European Union. Indeed, Pan-PRD has been described as a "budding European Community", such is its potential for trade in goods and services.
An essential and unique component of this rapidly developing region is Hong Kong, which - as it has done for its immediate neighbours in Guangdong - will provide world-class trade and logistics support, capital, legal and business services, and international expertise. We will be a bridge that links the region with the international market. And Hong Kong will provide this burgeoning regional economy with a strong financial infrastructure - international banks, global standards, corporate governance rules, security, liquidity and a convertible currency. In our entire country, only Hong Kong can provide all of these things.
The business potential of the Pan-PRD region is awe-inspiring. Hong Kong already has one of the world's busiest container ports, with a cargo catchment area of 200 kilometres. Imagine it with a catchment area five times as large. Hong Kong is already the world's busiest international air cargo hub. Imagine how much more cargo the 9+2 region will provide. And Hong Kong is already the biggest investor, fundraiser and business services centre for the 75 million permanent residents of Guangdong. Imagine the energy that eight more provinces will bring. It's going to be an incredible ride.
As for the near-term, there will be a lot going on in the next couple of years to keep us busy. Next month, Hong Kong will welcome 60,000 visitors for ITU Telecom World 2006. It will be the first time in its 33-year history that this leading event will be held outside its home base of Geneva. And 2008 is fast approaching, when we will have the honour of hosting the equestrian events of the Beijing Olympics.
In terms of major infrastructure projects, two new boundary crossings will open next year to smooth the heavy flow of people and cargo between Hong Kong and Guangdong. And plans for an ambitious bridge linking Hong Kong with Macau and Zhuhai in the western Pearl River Delta are well advanced.
By way of a conclusion, I'd like to share a short story. The majority of the 567 French companies in Hong Kong are small to medium-sized players. Let me focus on just one as a typical example. He is a French entrepreneur who landed in Hong Kong over 10 years ago to source a handful of garments for a small Marseilles-based retailer. And never left. Ten years on, he runs a 30-person business advising some of the world's largest fashion chains on sourcing, quality control and supply-chain management. He has offices in the Mainland of China, in Turkey and in South America - but he has his headquarters in Hong Kong. Why? Because Hong Kong keeps him close to his suppliers. Because he - and his money - can get in and out quickly and efficiently. And because Hong Kong offers a standard of living that keeps his wife and daughters happy - which, as any husband knows, is the most important consideration in a man's life.
Ladies and gentlemen, there is only so much I can say from behind this podium. Like the entrepreneur from Marseilles, I'm a firm believer that coming to Hong Kong is the best way to feel the energy of our city. And that like him, and like many of our guest speakers today, you may never want to leave.
Thank you very much.
Ends/Friday, November 10, 2006
Issued at HKT 18:01
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