Business Opportunities in Hong Kong

November 9, 2007



Opportunities in Hong Kong



FREDERICK MA SI-HANG

Secretary for Commerce and Economic Development, the Government of the Hong Kong SAR Business



A joint meeting of The Empire Club of Canada and The Hong Kong-Canada Business Association

Chairman: Catherine S. Swift

President, The Empire Club of Canada



Head Table Guests:



Barry Macdonald: Chairman, Federation of Hong Kong Business Associations Worldwide, Immediate Past National Chair, The Hong Kong-Canada Business Association, and Partner, PricewaterhouseCoopers, Vancouver

Rev. Dr. John S. Niles: MSM, Senior Minister, St. Andrew’s United Church, Markham, and Immediate Past President, The Empire Club of Canada

Ana Paula Pacheco: Manager, User Acceptance Testing, Customer Operations-Operations Planning and Support, MTS Allstream Inc.

Harry T. Seymour: President, Waterston Financial Inc., Past President, The Empire Club of Canada, and Former Partner of Fred Ma at Pitfield Mackay Ross and Dominion Securities, now part of RBC Financial Group

Madam Zhu Taoying: Consul General, Consulate General of the People’s Republic of China in Toronto

Derek Lee: Chairman, Canada Hong Kong Parliamentary Friendship Group

The Hon. Michael Chan: MPP, Minister of Citizenship and Immigration, Government of Ontario

Frank Monteiro: President, The Hong Kong-Canada Business Association

Doug Morris: Owner, Morris Glass/Humidity Solutions, and Director, The Empire Club of Canada

Helio Dias: President, Solid Wall Concrete Forming Ltd.

Olivia Chow: Member of Parliament for Trinity-Spadina, NDP Immigration Critic, and Critic for Children and Youth

David Matheson: Honorary Advisor, Federation of Hong Kong Business Associations Worldwide (FHKBAW)

Bassanio So: Director, Hong Kong Economic and Trade Office Canada

Anthony S. Fell: Chairman, RBC Capital Markets.



Introduction by Catherine Swift:



The history of Hong Kong is long, rich and colourful, through the various famous dynasties, opium wars, occupations by other countries to its current status of Special Administrative Region of the People’s Republic of China. Modern Hong Kong is one of the world’s major trade and financial centres.



There was much debate about the fate of Hong Kong 10 years ago when it was handed back to China, but despite some political challenges Hong Kong has maintained its vibrant economy and role as a financial hub linking Western economies to the rapidly growing Asian countries. One of Hong Kong’s most important roles at present is that of an agent of modernization to mainland China, as China’s impact on the rest of the world becomes ever more overwhelming.



We are fortunate to host Frederick Ma, Secretary for Commerce and Economic Development in the Government of the Hong Kong SAR. After graduation from university, Mr. Ma joined the Chase Manhattan Bank and subsequently worked for the bank in Hong Kong, New York and Toronto. His career in the financial services industry also includes key posts in Pacific Century Cyberworks Ltd., JP Morgan Private Bank, Kumagai Gumi (HK) Ltd., Pitfield Mackay Ross and RBC Dominion Securities. His Canadian experience was extensive and led to him becoming one of the best-known bank analysts in Canada.



He first joined the Hong Kong government in 2002 as the Secretary for Financial Services and the Treasury, and is currently the Secretary for Commerce and Economic Development. He has also held a number of public service positions, including serving on the Hong Kong Exchanges and Clearing Limited and the Hong Kong Securities and Futures Commission.



Given the immense influence of China on our global economy, we are fortunate to have such a highly ranked official with such extensive Canadian experience to speak to us today on how a new direction for Hong Kong means new opportunities for Canadian business.



Please join me in welcoming Frederick Ma.



FREDERICK MA:



Distinguished guests, ladies and gentlemen: I am delighted to be back in Toronto. This is my second visit here in about six months.



In fact, Toronto has been like a second home to me ever since I worked here for a few years in the 1980s. I was fortunate to make a lot of good friends during those days, and I am delighted to see some of them here today. They look as young and energetic as ever, just like Toronto!



Today, I hope to give you all some very good reasons to pay us a visit in Hong Kong in the near future. For a start, Hong Kong and Canada have much in common in a wide variety of areas, spanning business and commerce to social and cultural ties. We also share many of the same philosophies that guide the continuous development of our societies.



We both believe in open economies and free markets. We attach great importance to the rule of law and freedom of speech. We practise acceptance and tolerance and both our cities respect cultural, ethnic and religious diversity. It should come as no surprise to anyone that Hong Kong and Canada have established close economic relations over the years.



Last year, Canada was our 18th-largest trading partner, with total trade of over Cdn$5 billion. There are more than 80 Canadian companies in Hong Kong, 46 of them being regional offices or regional headquarters. I thank you all, especially our hosts today, the Hong Kong Canada Business Association, for your continuous strong support to Hong Kong. This year we are celebrating the 10th anniversary of the establishment of the Hong Kong Special Administrative Region.



Reunification was the biggest political and legal challenge our city has faced. There had been other less welcome challenges during the past decade such as SARS, two outbreaks of Avian influenza, the Asian financial crisis, a prolonged period of deflation and high unemployment. As you know, Hong Kong has always been up to a challenge.



Today, our stock market is trading at almost record high levels, unemployment is at a nine-year low and the current high-growth, low-inflation era of the past few years is our best economic performance in recent history. Throughout the ups and downs, Hong Kong has remained the freest economy in the world. It has been rated number one for over a decade under the World Economic Freedom Index published by Canada’s Fraser Institute. We are also among the most competitive economies, ranked number three by the IMD World Competitiveness Yearbook 2007.



These attributes help to make Hong Kong the preferred base for international companies in Asia, with over 3,800 foreign companies establishing regional operations in Hong Kong. In typical Hong Kong fashion, we have cleared each hurdle one after another over the past decade, and we have emerged stronger for the experience.



There will no doubt be more bumps along the road. So it is in times like the present, when our economy is doing well, that we should start preparing for the inevitable difficult patches ahead. One thing we have been doing for some time is leveraging on the rapid economic development of Mainland China. This has helped to put Hong Kong on the threshold of a new era. We are also plotting a course to make the most of the new opportunities ahead of us.



Last month, our Chief Executive outlined a new direction for Hong Kong’s development in his policy address. He set out the vision, and more importantly, action plans, to equip Hong Kong with the necessary hardware and software to make the most of the opportunities in a new era of “progressive development.” At the heart of this new direction is the promotion of economic development, as well as community development and social harmony.



I want to talk about what this new direction means for our international partners from countries such as Canada, and how you can also capitalize on these new opportunities. I believe the well-established ties between our two economies will give Canadian companies a head start over their rivals in tapping the Asian market, including China. Infrastructure Development Our Chief Executive pledged in his Policy Address to push ahead with 10 large-scale infrastructure projects covering roads, railways and urban planning. Some of the projects are within Hong Kong, others involve cross-boundary collaboration and will improve our transport links with the Mainland. We estimate that these 10 projects will generate an added value of more than Cdn$12 billion annually to our economy, and generate some 250,000 additional jobs.



Hong Kong provides a level playing field for all businesses, local and foreign. We hope that more overseas enterprises, including Canadian companies, will lend their expertise to our infrastructure development and take part in the bidding process for some of the projects. IT and Creative Industry IT and creative industries represent another area where Hong Kong and Canada can strengthen co-operation in a win-win situation. Canadian high-tech companies, such as Nortel and Research in Motion, are among those doing well in our part of the world. They have brought the latest communication products to Hong Kong and the Mainland, as well as to other parts of Asia. We are also proactive in commercializing and adopting wireless and mobile technologies, including Radio Frequency Identification (RFID). RFID has been under testing at Hong Kong International Airport to track baggage. More recently it was introduced into several shops to help customers with their choices and improve supply chain efficiency. Our industry-support organizations, including Cyberport, will be happy to work with their Canadian counterparts to advance the markets in both places.



I encourage more Canadian companies in these high-tech industries to expand their business in Hong Kong. On creative industries, our Chief Executive announced development plans to foster our position as a creative capital in the region. The government will establish an overarching steering committee, led by the Financial Secretary, to draw up an overall strategy. This will be done in collaboration with industry representatives, NGOs and professional bodies. We welcome input from Canada’s creative talent on the best way forward.



Financial Services



We are also striving to do more and better in areas where Hong Kong already has a lead in the Asia-Pacific region. Reinforcing our position as a global financial centre is one of our top priorities. In fact, our nation’s economic blueprint, the 11th Five-Year Plan, reaffirms Hong Kong’s status as China’s international financial centre, and supports the development of our financial-services industry. Our strategy has concentrated on the introduction of new financial infrastructure and more engagement between the financial systems in Hong Kong and on the Mainland.



Last year a Qualified Domestic Institutional Investor (QDII) scheme was launched to allow Mainland banks and insurers to invest in Hong Kong and overseas. The scheme was expanded this year to include fund management companies and securities firms. Also this year, Hong Kong became the first place outside the Mainland to have a Renminbi bond market. We can expect more capital-raising initiatives to come on-stream in the near future. Bi-lateral Trade Earlier I mentioned the strong trading relations between Hong Kong and Canada. The figures are encouraging, but I believe we can do more to develop this relationship further.



I want to touch on a couple of areas where we can aim higher, think bigger and achieve more. We have yet to fully utilize the opportunities arising from the Closer Economic Partnership Arrangement (CEPA) between Hong Kong and the Mainland. This free trade agreement provides Hong Kong goods and services with WTO-plus market access opportunities in the Mainland. Currently, CEPA covers 27 service sectors including banking, insurance, legal, logistics, tourism and management consulting services. Another 11 service sectors will be added to the list from next year. Because Hong Kong has a nationality neutral policy, foreign-owned or controlled companies incorporated in Hong Kong can also enjoy the full benefits of CEPA. Since 2004, about 1,100 companies have signed up to CEPA. Almost half (about 45 per cent) are foreign firms.



According to our figures, six of these enterprises have their roots in Canada. There is plenty of room for more to join. And remember that CEPA applies nationally, to all of China and its 1.3 billion people, so just imagine what it could do for your customer base!



Although many of the major Canadian corporations may have already established a foothold in the Mainland, we should not forget the smaller enterprises. In fact, about 98 per cent of all companies in Hong Kong are small and medium enterprises (SMEs) and they employ roughly half the private-sector work force. SMEs are a vital part of the fabric in our community. There are plenty of support groups to help these companies get off on the right foot in Hong Kong, without having to go through the long and sometimes painful process of trial and error before finding their niche in the market. And because of our externally oriented economy and easy access to regional markets, it doesn’t take long to find out if your business will become a hit! Be assured, our deep pool of expertise, knowledge of the China market and well-educated and eager work force will be on your side.



As an international convention, exhibition and tourism capital, you don’t have far to go to showcase your products. There is a constant stream of potential buyers from the Mainland and throughout the region looking for the next big thing to hit the market. Access to market intelligence and making the right contacts can be a problem for many executives entering a new market, and that includes the China market. Here is where bodies like the Hong Kong Trade Development Council (TDC) come in. The TDC has been doing a lot of work in this area by organizing trade missions to Hong Kong and conducting match-making exercises between companies.



Since the start of 2006 there have been about 50 Canadian trade missions organised by the TDC in Toronto, with over 10,000 delegates to Hong Kong. In the annual Hong Kong Forum organized by the TDC last month, among the 350 participants from 21 countries, the Hong Kong Canada Business Association had 100 delegates. It was no contest when it came to handing out the Best Attendance Award! Apart from the TDC, other members of the “Hong Kong family” in Canada, including the Hong Kong Economic and Trade Office, Invest Hong Kong, Tourism Board as well as the Hong Kong-Canada Business Association, all stand ready to contribute.



I was pleased to see last year that the Ontario Chamber of Commerce formed a strategic alliance with the “Hong Kong family.” I am confident this will encourage more companies from this province to use our city as a base for their regional operations in Asia.



Environmental Protection



Finally, I want to bring you up-to-date on our environmental protection strategy. Improving air quality and promoting “green” city living is a top priority for the Hong Kong government. It is also a key part of our goal of “progressive development” that I mentioned earlier. We want Hong Kong to be not only a great place to work, but also to live, for generations to come. On the local front, we have deployed a multi-pronged approach to protecting the environment.



Some of the key issues have involved replacing older diesel vehicles with more environmentally friendly models, converting virtually all (99 per cent) of the city’s taxis to run on Liquefied Petroleum Gas (LPG) and raising public awareness about energy consumption and other environmental issues. We are also well aware that most of the bad air in our region, about 80 per cent, comes from across the boundary. So we are working with Hong Kong businesses based in the Pearl River Delta region to encourage cleaner production techniques. We have also set ambitious joint emission-reduction targets with the neighbouring provincial government in Guangdong by 2010. There is still a long way to go but I believe we are on the right track. The first Canadian environment trade mission to Hong Kong, jointly organized by the TDC, the Canadian government and the British Columbia Environment Industry Association just last week was a good step in the right direction. I look forward to more exchanges of this kind in the future. They will help us to improve our quality of life as well as generate business opportunities for Canada and Hong Kong.



I hope I have been able to give you a clear picture of the role Hong Kong is playing within the international business community today, and how we can further improve ties between our two economies to grasp the opportunities ahead of us. In the context of the Mainland’s booming market, I recall Premier McGuinty’s remark made during his trade mission to Hong Kong in 2005. He said, “We know China’s economic boom is often fuelled by Hong Kong’s savvy, Hong Kong’s expertise, and Hong Kong’s capital.” And I add, who else, if not Hong Kong, can you count on in your China plan? These are exciting times for Hong Kong. Next year we will host the equestrian competition for the 2008 Beijing Olympics. Consider this an invitation to visit Hong Kong and help us celebrate the Olympic spirit. Thank you.



The appreciation of the meeting was expressed by Barry Macdonald, Chairman, Federation of Hong Kong Business Associations Worldwide, Immediate Past National Chair, The Hong Kong-Canada Business Association, and Partner, PricewaterhouseCoopers, Vancouver.