Pearl River Delta Conference January 9, 2003 hkcec

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Pearl River Delta Conference

January 9, 2003 – HKCEC

Remarks by Jim Thompson
By now you’ve heard some excellent presentations about why Hong Kong’s future lies with the integration with the Pearl River Delta.
Inasmuch as foreign investment is so important to Hong Kong and China I’d now like to give you my thoughts on the need to integrate with the PRD from the foreign investors viewpoint.
Let me start by giving you a few responses to questions from our recent Business Outlook Survey which reflected the views of our membership.
First let me discuss China.
We asked the question “How does your Hong Kong company (office) view the outlook for business environment in Mainland China for the next five years.” 100% of the respondents said it was good or satisfactory, in fact, 80% of them said it was good.
In response to other questions we asked our members, 78% said they had a presence in Mainland China now and 89% of them said they plan to make an additional investment over the next three years.
So it’s quite clear that most of the companies in Hong Kong also have offices in China
Now, with relation to Hong Kong.
85% of the respondents were satisfied with the business environment in Hong Kong and 88% said they would either expand or maintain their business here. These are very impressive numbers.
I wanted to start off with these statistics to emphasize the fact that the international companies based in Hong Kong are bullish on both China and Hong Kong. But they most certainly intend to maintain their Hong Kong base while building up their operations in China.
However one other fact was clear and that’s the fact that Hong Kong is the preferred location for Regional offices of international companies. 86% of the respondents that have regional headquarters here planned to maintain them and, of the remaining 14%, - 10% were not quite sure. So that means they hadn’t decided to move away but didn’t really know what there future plans would be. That totals 96% and means that almost none of the member companies that replied are going to be leaving Hong Kong.
These are figures from AmCham’s survey but I firmly believe the percentages would be the same for other international chambers if the same questions were asked.
So the quick conclusion is that China and Hong Kong are very much the choice for international investors going forward. These businesses are largely undeterred by any temporary local issues that we may face here in Hong Kong. In fact the reduction in costs of operation is proving to be an advantage to businesses that are here or that are intending to come here.
But this panel is about Hong Kong and the Pearl River Delta so let me now give you my thoughts on this – again from an international point of view.

The American Chamber of Commerce, like many foreign Chambers, has numerous opportunities to present our views about this region to visiting businessman, trade delegations, news reporters, academics and other interested parties that come to Hong Kong on a regular basis. Most of them come here to learn about the developments in the region from an economic point of view as well as from a political view. As a matter of fact we will be meeting with one of the largest Congressional delegation to visit Hong Kong on Tuesday and we will cover this topic in our discussion with them.

One of the first things we’ve come to realize from these meetings is that there is still a great deal of marketing effort that must be done to make people aware of the economic power of the Hong Kong-Pearl River Delta combination. Those of us that live here tend to assume the fact that most business investors are aware of this region. However when you look at the PRD investment statistics you realize that a huge percentage of the investment has come from Hong Kong investors who are naturally familiar with the region that is so close – both physically and culturally – to the businessmen here. Much of the world of international investors – including many SME’s – still have to learn about it. Organizations in Hong Kong such as the Trade Development Council, Invest HK and the Economic and Trade Offices of Hong Kong have organized programs at which people such as those of us on this panel, HK government leaders and others have traveled to various parts of the world to speak about the dynamic Pearl River Delta and we always generate interest from our audiences. The people we speak to make comments such as “We had no idea the region was so productive..” or “We didn’t realize the opportunities available in that region”. This tells us that the message about this production miracle here in Southern China has still not reached as many people as it should.
Think about it. If you were a small or medium size company in the United States, Europe or some other part of the world and you were faced with the that your local production costs were too high what would you do? You may realize that you should look to China but how would you know where to go in China? Shanghai gets quite a bit of press so you might well look to that region when, in fact, the most established region for your needs would be the Hong Kong – PRD combination.
So my first point would be that, just a company must promote its product or service through sales and marketing, Hong Kong and the Pearl River Delta must step up its marketing efforts to continually develop interest in this region. There are many ways to do this. It can be done through publications such as widely distributed high quality quarterly magazine that could have news of the region; or a ‘Speakers Bureau’ made up of Hong Kong or PRD business people who would be willing to address international audiences to explain their successes or the opportunities here. I’m sure there are many more creative ideas to be developed. As a matter of fact, the Trade Development Council that Chris Cheng and I sit on, and Victor previously chaired, has developed a new marketing initiative for the Hong Kong Pearl River Delta Economic Region that includes many excellent ideas to ‘market’ this dynamic region that has so much to do with our future growth here in Hong Kong.
I sincerely believe that an international marketing effort that included successful foreign businessmen living in Hong Kong could go a long way toward the promotion of this dynamic region. I personally think Hong Kong has much more experience in this ‘international marketing effort’ and would be most effective in leading it. But, since the benefits would accrue to both Hong Kong and the PRD, I feel the costs of the promotion should be shared by both.
One positive step that was taken last year was to reduce the waiting time for international journalists based in Hong Kong to obtain visas to China. This in itself will allow the PRD story to be told much more often which will create greater global interest in this region. Another step taken by China this year was the facilitation of visits by foreigners – both businessmen and tourists – to the PRD from Hong Kong by having a special kiosk or border checkpoint for foreigners at Lo Wu. This allows them to speed up their travel back and forth between Hong Kong and the PRD rather than getting caught up in the long queues of normal commuter traffic.
These are very positive steps but I know there is much more we can do.
Facilitate Investors

If we can succeed in a joint effort to tell more of the world about this dynamic region, the next effort would have to come in the form of facilitating these potential investors. By this I mean encouraging them to travel to Hong Kong first and from here to visit the PRD and see for themselves how readily their needs can be met.

Just how this facilitation would be carried out would depend on the nature of the needs of the international investor, but we should help them achieve their objective. Again the TDC is very active in this regard and is a very positive force for Hong Kong. I think the vast majority of the potential investors would fall into the categories of Sourcing, Servicing or Selling.
To date, most of the companies who have chosen the PRD have found it to be a low cost production base for manufactured goods but as we move forward I think more and more companies will also see this region of 40-50 million people as a tremendous market for selling products and services originating in other parts of the world. This provides many more opportunities for increased two-way trade for both Hong Kong and the PRD.
Preference Hong Kong

Despite the continuous growth of China’s economy and the obvious desire that most international businesses have to participate in that growth, the international investors have made a clear statement that they prefer to operate many of the functions related to their China business from Hong Kong. The detailed reasons for this have been made clear in the Business Outlook survey mentioned earlier and we feel these they represent the reality of the situation in Hong Kong and China today.

Let me make a few points that work in Hong Kong’s favor.
On the business side, the features we talk about so often are very strong attractions of Hong Kong. The number one reason Hong Kong is the place of choice for foreign headquarters is the fact that Hong Kong adheres strongly to the rule of law. However, other very important reasons include the excellent tax system, the free port, the ease of doing business, a convertible currency and wide range of sophisticated business services available here. The costs are higher but the value they bring make it worth the extra price for most companies. Lowering costs of rentals and staff are only making Hong Kong more attractive to foreign investors.
But in addition to these reasons, foreign investors and their expatriate families love living here because Hong Kong is a physically beautiful city in many ways. We have this beautiful harbor and we have the South China Sea all around us for those who love that aspect of life. I’m from a Navy family and have always lived by the sea so I understand how wonderful it is.
We also have wonderful hills and mountains with well-established hiking trails that allow us to enjoy nature and get fresh air and exercise while still living in a vibrant city. And we have one of the most cosmopolitan cities in the entire world with an excellent transport system allowing us to easily move about quickly and easily. We’re also able to have household help which shouldn’t be underestimated as an advantage of Hong Kong. This natural beauty and ease of movement makes it a very desirable place to live so most international families are extremely comfortable and happy living here.
We also have excellent international schools, first class medical facilities, excellent clubs and restaurants and some of the world’s most modern office buildings.
These are all quality of life features of Hong Kong but I can assure you that they are very high up the list – if not at the top – of the qualities that international investors look for when they seek a place to establish their office.
So without listing every advantage I can tell you that Hong Kong is one of the most desirable cities in the world for the foreign investor to make his home.
As a result of these advantages we have developed clusters of professions that work closely together and these are going to be Hong Kong’s anchor just as they are New York and London’s anchor. The biggest is the financial industry and I can assure you that they have no intention of moving from Hong Kong now or in the future. With them will be the lawyers, the accountants, the headhunters and all the related services these industries require. All of these companies are very much focused on China business but they will remain in Hong Kong as they build and manage their China operations from here.
Based on everything we’ve heard from our members at AmCham they intend to maintain their offices here in Hong Kong and many plan to expand them. It’s true the numbers have decreased a bit over the past five years but this is not an indication of moving offices from Hong Kong to China. This is more a reflection of the economic realities they are facing relative to their businesses. In fact, we see the same pattern in Japan, Europe, Singapore and certainly Indonesia. I have no doubt this is temporary and that there is a rebound in our future, as there has always been in the past, and perhaps we’ll begin to see it this year.
The picture I’ve presented about the advantages of Hong Kong to the foreign investor is intended to reflect what I’ve seen and heard over the past several years and it’s a reflection of our own survey and those of other foreign Chambers in Hong Kong. Personally, I think this in itself is indisputable evidence that Hong Kong will play a key role in this region as we move into a new phase of growth with the Pearl River Delta.
Having mentioned the strengths of Hong Kong as a regional base for international companies, I’d like to bring this into the context of the HK-PRD combination.
The key, in my opinion, to our success is the clear recognition of the individual strengths of the areas of the PRD and HK and then working together to build those strengths into an unbeatable business and living environment. It’s quite clear that we are moving into a future in which we will be totally dependent on each other for the growth and development of the entire area. For any of us to think we can go it alone would be a mistake. However, because we have a boundary between us and because we operate under two different systems of government and also because there is a significant disparity of personal wealth between individuals in Hong Kong and the PRD, we will find that the ability to cooperate closely will be one of our greatest challenges.
One example of potential cooperation is the bridge to Zhuhai which is unquestionably a good idea for the entire region. There should be no resistance to this project because it will open a whole new area of Guangdong Province for further development and improve the livelihood for a large number of Chinese citizens.
I see Hong Kong and the Pearl River Delta – and perhaps an expanded area of Guangdong Province as we move forward – as having the potential to be the model for prosperity in the world. An area with a sizable population that pulled itself up from a very low base in 1978, an area that has had dramatic growth and continues to grow at phenomenal rates thanks to the hard work of the people on both sides of the boundary

I’m a long term resident of Hong Kong. In June I will have been here 25 years.

I’m also fascinated by history and have a special interest in reading the history of Hong Kong and China. My son is a Manadrin speaker and lives and works in China. We live in an amazing place. One of the world’s great cities built by people who came here from other places. Very few of today’s residents of Hong Kong are third or fourth generation Hong Kong residents. And new people are still coming all the time.
History tells us that the people of Hong Kong have traditionally been close to those from the cities and towns of the Pearl River Delta. It’s hard to imagine that for the first half of the last century we didn’t even have a border between Hong Kong and Guangzhou and people went back and forth freely.
Now as we began the 21st century we’re coming to the realization that our economies, and therefore our livelihoods, are very dependent on each other. Anyone can see that. We may not be in full agreement as to how we proceed but if we know the direction we must go. If we have to climb over a few hurdles to get there I still have no doubt we’ll make it. The Chief Executive has laid out a vision of the future for everyone to follow. If we buy into this and help achieve that vision, I’m sure we’ll get there faster.
Work In Progress

The integration of Hong Kong and the PRD is a work in progress. Building this region into one of the world’s leading economies in 25 years is an amazing feat. The world is impressed with what has been achieved so far but I suspect it will be stunned when it sees what will be accomplished in the future.

Thank you very much.

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