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Following is a speech by the Secretary for Commerce and Economic Development, Mr Frederick Ma, at the seminar on "Hong Kong – Russia: Strategic Partners for a New Era of Business Opportunities" in St Petersburg today (September 28):
Distinguished guests, Ladies and Gentlemen,
Good morning. I am very pleased to be here in St Petersburg today to share with you some thoughts on the scope for greater partnership between Russia and Hong Kong. This is my first visit to your country, and I have been impressed with the dynamic atmosphere and the beauty of the architecture in Moscow and St Petersburg. My own city is also known for its vibrant atmosphere and striking architecture, and I see these similarities as a good sign for the development of stronger economic interaction between Russia and Hong Kong.
Russia's Recent Economic Growth
In recent years, Russia has been one of the world's fastest growing economies. In 2006, GDP was just short of US$1 trillion. According to the Organisation for Economic Co-operation and Development, Russia's trade has increased more than three-fold since 2001.
At the same time, there has been a rapid liberalisation of Russia's business and trade environment. The rouble has become a fully convertible currency for foreign trade, and Russian entrepreneurs can buy foreign currencies freely to settle their import payments. As Russia gears up for accession to the World Trade Organisation (WTO), it is expected to open up its market further, presenting more opportunities for economic development.
Russia's transition towards becoming a successful international market economy has attracted interest worldwide, including in Hong Kong, where for many years Russia was seen as a remote and very challenging market, especially when compared to what was happening in our own backyard.
China and Hong Kong
The massive economic growth that has taken place in China over the past 30 or so years has meant that Hong Kong businesses have focused their attention on investment opportunities much closer to home. Our proximity to Mainland China has been a key factor in Hong Kong's own economic success, and our position as a natural gateway for trade with China, and easy access to investment in the manufacturing boom in the southern provinces has helped Hong Kong to become the world's 11th largest trading entity.
Hong Kong companies continue to leverage their decades of experience of doing business in China, and we are still the largest source of foreign direct investment there. Our geographical location and cultural ties put us in an almost unique position to benefit from China's growth, and these advantages are instrumental in attracting partners from other economies looking to position themselves to reap similar benefits.
Hong Kong is also renowned as one of the world's most dynamic financial centres, and our stock market ranks sixth globally and second in Asia in terms of market capitalisation. In terms of fund-raising, Hong Kong last year surpassed New York to become the world's second largest market in terms of IPO funds raised. We are also one of the largest asset management centres in the region, with approximately US$790 billion worth of assets under management, of which 64% come from overseas investors. We are also proud to be the sixth largest foreign exchange market in the world, and Asia's third largest international banking centre, with about 70 of the world’s top 100 banks operating in Hong Kong. Hong Kong's world class financial, marketing and technical expertise and sophisticated infrastructure combined with China's rapidly developing manufacturing and services base has created new opportunities for investors from around the globe, and thousands of international companies involved in China trade have chosen to establish their beachhead in Hong Kong.
China and Russia
Of course, when talking to a Russian audience, the question of geographical proximity to China needs to be seen in perspective. While St Petersburg might be a long way from Shanghai, the fact remains that Russia has a border with China that stretches for 4,300 kilometres. Furthermore, trade along that border alone amounted to US$7 billion in 2006, about one fifth of total trade between China and Russia.
Therefore the question that needs to be addressed today is: given that you already have close ties with and its own proximity to China, what advantages can Russia gain by entering into a closer partnership with far-away Hong Kong? I would like to answer this question in two parts.
Hong Kong and the PRD
First of all, Hong Kong has the critical advantage of strategic location. We are right on the doorstep of Guangdong Province, at the heart of the Pearl River Delta, the area that is becoming known as the “production base of the world”. This is not just any part of China. Guangdong Province alone generates 12% of China’s total Gross Domestic Product, and accounts for nearly one third of China’s foreign trade. In 2006, trade between Hong Kong and Guangdong amounted to US$113 billion – and to put this in perspective, that is more than three times the total amount of trade between Russia and the whole of China.
A presence in Hong Kong is a therefore a presence in China’s most economically progressive region – and this is a region that will continue to grow.
In June 2004, Hong Kong, together with Macau and nine Mainland provinces and autonomous region signed a regional co-operation agreement aimed at further economic integration extending well beyond the Pearl River Delta. This Pan-Pearl River Delta agreement covers together an area of southern China that accounts for more than 40% of China’s GDP. The international bridge to this region is Hong Kong, and firms based in the city are already expanding their reach into the vast hinterland of the Pearl River Delta, recognising the tremendous potential that is offered by an area with a combined population of more than 450 million people.
So the first part of my answer to the question: “What can Hong Kong do for Russia?” is simply this. Hong Kong can provide unrivalled connections to the world’s fastest growing economic region. We have the experience, the access and the know-how to operate effectively in southern China. Our businesses continue to invest confidently in a wide range of manufacturing, infrastructure and service-related enterprises – to the extent that in 2006 direct investment from Hong Kong in Guangdong alone was more than US$112 billion, some 63% of total foreign direct investment in the province.
The CEPA Advantage
There are good reasons for the view that partnership with Hong Kong in investment in and trade with southern China are a winning proposition. These reasons are in part based upon our physical and historical connectivity, as I have just described. But there is more – and that brings me to the second part of my answer.
Hong Kong has a unique status within China, a status that can be summarised in the simple but significant phrase: “One country, two systems”. For as a Special Administrative Region of China, Hong Kong has a high degree of autonomy in the management of its affairs. For example, we have our own currency; we have our own separate legal system; we have a separate customs and tax regime; and we are of course members of the WTO in our own right. We even have our own separate Olympic Games team!
This degree of autonomy has over the years brought tremendous benefits both to Hong Kong and to Mainland China, and it remains one of our key attractions for overseas partners.
However, while recognising the benefits of economic autonomy, we have continued to look for ways to enhance our close relationship with the Mainland, and in 2003, we were able to announce a significant development in this regard with the signing of a free trade agreement, known as the Closer Economic Partnership Agreement – or “CEPA”, for short.
The signing of CEPA has reinforced our strategic position in the Mainland’s economic development. The agreement provides tariff-free treatment to over US$1.2 billion worth of Hong Kong products. It also provides preferential access to Hong Kong service providers in 27 service areas – soon to expand to 38 service areas - including legal services, banking, tourism and logistics. This level of access goes beyond China’s commitments under the WTO, and allows Hong Kong service providers to establish an early foothold in the China market, thereby enhancing our comparative advantage in tapping the potential of this market. Since the implementation of the agreement, more than 1,100 Hong Kong companies have set up business on the Mainland on preferential terms.
We see CEPA as a key to opening up broader partnerships with rising economic powers, such as Russia. The agreement will help us to build on the advantages that I described earlier, by providing opportunities for overseas partners to set up operations in Hong Kong and benefit from the “nationality neutral” provisions of the Agreement.
For example, Russian companies will be able to establish manufacturing operations or become partners in existing operations in Hong Kong to produce goods for the China market that will enjoy zero tariff benefits under CEPA. Russian service suppliers will be able to enjoy preferential treatment by incorporating in Hong Kong or by joining forces with local enterprises to tap the business opportunities in Mainland China.
So the second part of my answer to the question: “What can Hong Kong do for us?” is as follows: we can facilitate preferential access to the huge potential of the China domestic market for goods and services. Our legal and financial institutions are transparent and efficient and we have a well established and clear process for overseas firms wishing to set up in Hong Kong. We have a highly motivated and well-educated workforce, and we are very experienced in working in partnership with overseas investors and suppliers.
Conclusions
Trade between Hong Kong and Russia has grown steadily in recent years, at an annual average rate of around 17%. In 2006, our exports to Russia were valued at approximately US$570 million. Major export items included clothing; jewellery; parts and accessories of office machines and computers; and non-electrical machinery.
It is encouraging to see this trade continue to grow, and we believe that we have plenty more to offer the increasingly sophisticated Russian consumer market, particularly in terms of high-end fashion and stylish electronic and household goods. At the “Style Hong Kong in Moscow” exhibition, which opened in the capital on Wednesday, I believe we made a very good impression on our hosts in terms of the quality and innovation of Hong Kong branded products, and I am sure that there are growing numbers of potential customers in the major cities of Russia for the exciting new trends that are emerging from our designers and manufacturers.
My main message to you this morning, however, is that although Hong Kong can offer Russia the very best in contemporary lifestyle products, we can also offer you much more. In a world where connectivity is an increasingly important indicator of value, we offer “value-added connectivity”, through unrivalled access to the largest and most dynamic market the world has ever seen.
The title of today’s seminar is “Hong Kong: Connecting You to a Wealth of Opportunities”. I hope that in my short presentation this morning, you have been able to appreciate that by entering into closer partnership with Hong Kong, you will also be connected to significant opportunities for wealth.
Before closing, I would like to thank the Trade Development Council for the work they have put into this week’s events in Moscow and St Petersburg, and in particular for successfully organising today's seminar. I am sure that this event will help to promote stronger ties between our respective markets, and lead to the further expansion of trade and investment opportunities.
I wish you a fruitful day's discussion, and I look forward in the future to meeting you in Hong Kong.
Thank you.
Ends/Friday, September 28, 2007
Issued at HKT 18:56
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