Lecture3 The mainland-hong Kong Link Role of Hong Kong in China s Economic Development 香港的作用 1.Early contribution to mainland s development 早期的贡献 2.Advantage of Internationalization 国际化的优势 3.Recent difficulties 近期的困难 4.Prospect of CEPA 的实施 5.Further collaboration 合作的前景 6.Platform for Chinese enterprises in their internationalization bid 国企国际化的平台,350 家国企在香港上市, 总资金达 1400 亿美元 1
Economic Development of Hong Kong Rapid economic development since the 60s Capital and industrialists from Shanghai Role of entreport trade Rising consumer wealth - hardworking Low cost OEM manufacturing Small domestic market and outward-oriented economy Agriculture industrialization labor intensiveexport No room for import-substitution Economic Miracle of Hong Kong Subject to global market factors and cycles Rising cost, financial crisis, trade regulations Key industries: toy, watch, financial services, logistics, real estate The biggest FDI investor in China mostly exportoriented resource seekers One of the most competitive economies in the world From industrialization to positive noninterventionism ( 積極不干預主義 ) 2
Hong Kong: Colonial government laissez-faire policy, positive nonintervention and the freest economy Little investment in education, S&T, or R&D Economic development led by SMEs, trade, real estate, and financial services Realization of the problem in 80s: Universities, R&D projects Cyberport, S&T Park, HKPC, Biotech, Medicine R&D spending by firms and government remain low less than 1% Consultation paper: Innovation and Technology Bureau, 13 industries, funds, patents, R&D centers Lag behind other tigers/dragons: Taiwan, Singapore, and Korea (to top Japan in electronics in 2015) Competition from Macao, Shanghai, Shenzhen and Guangzhou Hong Kong s Future in Jeopardy Hollowing out of HK 1997 Asian financial crisis --unemployment rising Continue with OEM and low-value products About 80% of service now Reliance on real estate and financial services Common problem: sustainable growth and competitiveness lack of policy and initiatives on innovation and technology Marginalization of Hong Kong? "front shop, back factory" model Weakened competitive position Rapid development of rivals across the border 3
What to do Hong Kong Two divergent views: Focus on manufacturing technologies despite the hollowing Optimistic, coops, govt support, never to late Leave R&D to others (India and Taiwan) but focus on the Service innovations Already too late, don t have the prerequisites Focus on the mainland market Gov t led R&D not the model If alliances in R&D, how to coop? How to coop with mainland enterprises and R&D abilities? Importing talent? Hong Kong s Weakening Advantages Declining roles as a window or a front office for Mainland China High cost of doing business Traditionally reliant on others for technologies International competitions as a capital source as well as a service provider Competition as regional headquarters from other cities such as Singapore and Shanghai Aging population, lack of investment in human capital Closures of factories during financial tsunami, rising cost of doing business in Guangzhou, labor shortage 4
Hong Kong s Economy Strong Growth Tied to China Solid, broad-based upturn in Hong Kong economy Real GDP rose by 6.5% in 1H 2005 Consumer prices posted a gain of 0.8% (Aug 2005) Unemployment rate stood at 5.7% in the three months ended Aug 2005, down from 6.8% in 2004 Total exports and imports of goods grew by 11% and 8.7% (Aug 2005) Tourist arrivals increased by 40.4% to 21.8 million in 2004 and another 9.6% in 1H 2005 Continuous growth due to China-driven initiatives CEPA I & II CEPA III (early 2006) Individual Travel Scheme Pan Pearl River Delta co-operation RMB currency reform in China New Opportunities China Hong Kong Closer Economic Partnership Arrangement (CEPA) Pan-Pearl River Delta (PRD) Regional Cooperation and Development Forum Major infrastructure projects linking Hong Kong and PRD More HK companies entering China Promoting HK brands in mainland Leveraging HK s advantages: services, design 5
CEPA Essentially a bilateral Free Trade Agreement between China and Hong Kong Phase I effective 1 January 2004 Phase II effective 1 January 2005 Phase III effective 1 January 2006 A building-block approach which contains a mechanism for further liberalization measures and prescribes a method for consultation with business community How to Benefit from CEPA? Partnering with, investing in or buying a CEPAqualified firm in Hong Kong to gain full benefits from CEPA Enjoying zero tariffs by manufacturing brand name products, or locating manufacturing processes with high valued-added content or substantial intellectual property input in Hong Kong 6
Who can benefit from CEPA? High savings in tariffs Depending on imported raw materials or intermediate goods from overseas rather than sourcing from the mainland Production for which Hong Kong commands a good image or reputation, hence able to charge a higher price for the "Made in Hong Kong" label High-price products with value-added in terms of brand, design, quality, technology, etc. rather than the labour input Predominant share of IP input in the overall cost structure, hence requiring strong IP protection Limited quantity rather than mass production Availability of sufficient skilled workers in Hong Kong, or more realistically, ability to adopt advanced technology in production The Greater PRD Guangzhou Zhaoqing Huizhou Foshan Dongguan Shenzhen Jiangmen Zhongshan Zhuhai Hong Kong Macau Source: Michael Enright, University of Hong Kong Definition Hong Kong Macao PRD Economic Zone Combines Manufacturing powerhouse in Guangdong Financial, service excellence in Hong Kong Tourism development in Macao 7
Role of Hong Kong in Greater PRD Hong Kong provides Capital Management Professional services World-class infrastructure Access to and knowledge of international markets Transport and communications Connections to the international business community Technology A base for foreign firms to access the Greater PRD and China 9 Provinces + 2 SARs ( 9+2 ) Provinces Guangdong, Fujian, Hainan, Guangxi, Guizhou, Hunan,Yunnan, Sichuan and Jiangxi SICHUAN GUIZHOU HUNAN JIANGXI FUJIAN Special Administrative Regions Hong Kong and Macao YUN NAN GUANGXI GUANGDONG MACAU HONG KONG H AINAN 8
Objectives of Pan-PRD Regional Cooperation Promote infrastructural development to improve accessibility with the region Establish an open market Open further to outside For interior provinces Access to coastal and global markets Local and international investment For Greater PRD To be the center for an economy of 450+ million Funneling trade and commercial flows into Greater PRD Broadening hinterland of Greater PRD Implications of Pan-PRD Cooperation For China Enhance development of the interior Move toward a single national economy For Hong Kong Extends demand for management & coordination Greater demand for professional services Financial, trade, & commercial flows to intensify Greater markets for Hong Kong goods & services Greater manufacturing base for Hong Kong manufacturers 9
Infrastructure Projects for Better Connectivity with Mainland China Shenzhen Western Corridor Guangdong-Shenzhen-Hong Kong Express Rail Link HK-Zhuhai-Macao Bridge Hong Kong Companies Though Already in China Find it Difficult to Apply their Proven Business Models Top 3 Considerations of HK Companies Already in China Environmental Considerations 1. Keen competition from local-based companies 2. Risk in payment collection from customers 3. Difficult to deal with the government Operational Considerations 1. Difficult to acquire reliable business information and intelligence 2. Difficult to develop standardized process 3. Difficult to control different points of operation Management Considerations 1. Different management culture 2. Difficult to manage operation from a distance 3. Inability to apply the successful HK business model Human Resources Considerations 1. Difficult to recruit staff with right skills 2. Difficult to recruit experienced staff 3. Low ethical standard of staff Source: CUHK Study, 2005 10
Hong Kong Brands? Low cost OEM manufacturing and sourcing Neglected brand building Early entry: Apple, Goldlion, Crocodile Newcomers: Giordano, HSBC, HW OEM ODM OBM Success stories in mainland Opportunities of CEPA and globalization Mainland economy switching from FDI, export and government investment to consumption driven: testing grounds for Hong Kong brands Which HK brands for mainland consumers, and why??? Wanchai dumpling Hong Kong brands Top Ten List Peninsula Hotel, Cathay Pacific Airways, Tai Koo Shing, HSBC, Hong Kong Airport, IFC, Shangri-La, Mandarin Oriental, SCMP. The not so popular ones are dept stores, ISP, retail stores, IT and entertainment companies. Big names do not necessarily mean good reputation, such as PCCW. Late entrants: Chow Tai Foo, Chuan Pei Pe Pa Go, McDull, watches and jewelry, etc.. 11
Hong Kong needs marketing and creative talent! According one survey, SaSa is a popular HK brand among mainland visitors. Others include Watsons CTS, Ocean Park, Broadway, Chow Tai Foo, 卓悦纤体 优之良品 Giordano, Wing On, Wellcome, Sinoland, Midland, etc.. 發揮 CEPA 的潛力及效益 Fully utilize the potentials and benefits of CEPA 內地企業 走出去 Mainland enterprises going out 香港作為 跳板 " 的獨特角色 Hong Kong plays unique role as Springboard 商業及貿易專題小組報告 Focus Group on Trade and Business 12
為珠江三角洲內港資工廠提供協助 Provide assistance to the Hong Kong owned factories in the Pearl River Delta 開拓內地消費市場 Tapping Mainland consumer market 遵守內地法規 Complying with Mainland rules and regulations 商業及貿易專題小組報告 Focus Group on Trade and Business An Update Strengths of HK Creativity: many young talented designers! Rule of law, relatively speaking! Product safety + service quality Wanchai Dumpling! Mooncakes! 陈巧珍 incident is a good reminder! Co-opetition with the mainland Appeal to the better side! 13