Hong Kong Delegation Visits the Tri-State
On Tuesday, October 18, 2011, Commissioner Donald Tong visited Northern Kentucky to meet with business, community and academic leaders. Commissioner Tong shared insights on opportunities and advantages of building relationships within the Hong Kong Special Administrative Region. Commissioner Tong’s speech follows.
Remarks of Mr Donald Tong
Hong Kong Commissioner for Economic and Trade Affairs, USA
Northern Kentucky Chamber of Commerce
Fort Mitchell, Kentucky
October 19, 2011
Thank you Steve for the very kind introduction.
I would like to start by thanking the Northern Kentucky Chamber of Commerce for arranging the event.
If you ask anyone from Hong Kong what Kentucky means to them, likely the first name to come to mind is Kentucky Fried Chicken. When the fast-food giant opened its first stores in Hong Kong in 1985 and Mainland China in 1987, few would have foreseen it becoming the largest and fastest growing restaurant chain in China.
KFC’s success story illustrates the role played by Hong Kong as a gateway to the Mainland as well as the advantages of being a first mover into new markets.
Today, I would like to introduce the functions of my officers, provide an update on Hong Kong developments, and detail how Hong Kong has become an international business and financial center serving as a gateway to the Mainland of China and the Asia-Pacific region. More importantly, by the end of my remarks, I hope I would have identified new opportunities for Kentucky businesses.
Let me begin by briefly describing my office. The Hong Kong Economic and Trade Office is the permanent representative of the Hong Kong Special Administrative Region Government. Its mission is to strengthen economic, trade and cultural ties between Hong Kong and the U.S.
Aside from the headquarters in Washington, D.C., we have offices in New York and San Francisco. They are primarily tasked with investment promotion. The two offices offer free and customized services for U.S. companies interested in operating or expanding operations in Hong Kong and beyond.
Anita Chan, director of our New York office, and her colleagues are with me today. As her office covers Kentucky (and Ohio), please do not hesitate to contact them with any questions about these services.
Let me say a few words about Hong Kong.
Hong Kong became a Special Administrative Region of China on July 1, 1997 after 150 years of British Administration. As guaranteed in the Basic Law – our constitutional document – the pre-existing economic, legal and social systems – separate from the Mainland of China – are to be, and have been, maintained.
The Basic Law enshrines the principle of “One Country, Two Systems”. It allows Hong Kong a high degree of autonomy except in the areas of defense and foreign affairs.
Hong Kong people continue to enjoy pre-1997 civil liberties, such as freedom of the press, freedom of expression, freedom of assembly, and the free and unfettered flow of information.
Further demonstrating the continuity of our way-of-life, we retain our British Common Law legal system, buttressed by an independent judiciary. The Court of Final Appeal rests in Hong Kong, not in the Mainland. In addition to local Hong Kong judges, the Court of Final Appeal seats judges from other Common Law jurisdictions such as the United Kingdom, Australia and New Zealand. Our laws are passed by our own legislature, the Legislative Council.
Preservation of our international links is evident by our separate membership in the World Trade Organization, APEC, and World Customs Organization. Furthermore, Hong Kong negotiates its own bilateral agreements – from air services to extradition and mutual legal assistance.
We have a freely convertible currency, the Hong Kong dollar, which has been pegged to the U.S. dollars since 1983.
We preside over our own economic and monetary policies as well as maintain our own tax regime. We do not need to pay taxes to Mainland authorities.
Our tax rate remains low, with maximum salaries tax capped at 15 percent and profits tax capped at 16.5 percent. We do not have sales tax, VAT or capital gains tax.
But more than anything, what has sustained Hong Kong is our staunch commitment to free trade. Our devotion to free-market principles has allowed Hong Kong, with a population of 7 million, to attain per capita GDP of over US$31,000.
In addition, it has won Hong Kong accolades. Earlier this year, the Heritage Foundation, in conjunction with the Wall Street Journal, ranked Hong Kong the world’s freest economy for the 17th consecutive year. We have also been granted similar ranking by another study published by the Cato Institute and Fraser Institute of Canada.
While Hong Kong didn’t entirely escape the global economic crisis, our economy quickly rebounded. Thanks to robust growth in the Mainland and the regional markets, our economy grew 7 percent in 2010.
Our GDP grew by 6.3 percent in the fist half of this year and we forecast real growth of 5 percent to 6 percent for 2011. On the labor front, our jobless rate has declined to 3.2 percent.
Hong Kong-Mainland Relations
I talked about the “Two Systems,” but equally important is the “One Country” aspect.
With the opening up of China since 1978, Hong Kong’s business community has been able to derive economic benefits by relocating manufacturing plants to the Mainland to take advantage of lower production costs. Today, services account for 92 percent of GDP.
The loss of our low-end manufacturing industry became the impetus for our evolution into an international financial, trading and logistics center. To do so, we have had to invest heavily in our education system which accounts for nearly one quarter of our government budget.
The Mainland of China is Hong Kong’s largest trading partner, accounting for nearly 49 percent of our total trade value.
In 2010, Hong Kong was the largest external investor in the Mainland. About 42 percent (or over US$450 billion) of the total value of external direct investment in the Mainland came from Hong Kong.
In return, Hong Kong provides an offshore platform for Mainland enterprises to access international capital and global markets.
Traditionally, Hong Kong’s economy has been buttressed by four economic pillars, namely financial services, tourism, trading and logistics, and professional services. Tonight, I would focus on financial services, and trading and logistics.
Hong Kong is the only place in the world where the global and China advantages converge. In recent years, Hong Kong has fast assumed the roles of both an international financial center and China’s global financial center. Foreign direct investment into Hong Kong in 2010 rose by 31 percent year-on-year, reaching a record high of US$69 billion.
Our stock market is the sixth largest in the world and the second largest in Asia by market capitalization with almost US$2.8 trillion. Hong Kong is also the world’s 10th largest international banking center and the 6th largest center for foreign exchange trading.
In recent years, Hong Kong has been serving as the testing ground for Mainland China’s financial reforms and liberalization of its currency, the Renminbi.
Renminbi business in Hong Kong covers a number of areas, including banking, bond issues and trade settlement. Since July 2009, overseas companies, including U.S. firms, have been able to settle trade with eligible Mainland companies using RMB.
As you may know, China is the third largest export destination for U.S. products. In 2010, Kentucky exported nearly US$840 million worth of goods to China which has become your seventh largest export destination.
I would encourage Kentucky businesses to leverage Hong Kong’s experience in offshore RMB business to settle your trade in RMB with Mainland enterprises. This may help your companies offset the risks of exchange rate fluctuations and give more certainty to your business transactions, particularly if the RMB continues to appreciate.
Currently, Hong Kong is the only jurisdiction outside the Mainland with a RMB bond market. Multinational companies such as McDonald’s and Caterpillar have issued RMB bonds in Hong Kong, benefiting from a lower interest rate, to finance their projects and activities in the Mainland. U.S. companies seeking to expand their operations in China should consider this alternative instead of counting exclusively on borrowing RMB loans from banks in the Mainland of China.
Another significant development is Hong Kong’s status as an international capital formation center. For two years in a row, Hong Kong was the world’s top spot for initial public offerings. Total funds raised in Hong Kong through IPOs reached US$58 billion last year. Listings this year include Prada, Samsonite and MGM China. We strongly welcome other American companies to conduct IPOs or list their stocks in Hong Kong.
Trading and Logistics
Trade is vital to Hong Kong. Hong Kong is the world’s 10th largest merchandise trading entity with a trade-to-GDP ratio of 440 percent.
Our container port is the third busiest in the world while our airport recently became the number one air cargo hub in the world.
To cope with increasing Hong Kong-Mainland cross-border passenger and cargo flows, we are undertaking a number of major cross-border infrastructure projects. These include an 18-mile bridge linking Hong Kong to Zhuhai and Macao, and a high speed rail link with the Mainland city of Guangzhou which will connect us to the Mainland’s high-speed railway network. All these projects will be completed within the next few years.
On professional services, we continue to explore further liberalization measures under the Closer Economic Partnership Arrangement, or CEPA, our “free trade agreement” with the Mainland.
Under CEPA, Hong Kong businesses enjoy preferential market access in the Mainland in 44 service sectors, such as financial and legal services. In addition, goods of Hong Kong origin are entitled to tariff-free entry into the Mainland market.
One important element of CEPA is that it is nationality blind. That is, overseas companies incorporated in Hong Kong, including American firms, can enjoy its full benefits.
Developing New Industries
While we strengthen our traditional economic pillars, we are broadening our economic structure by nurturing six new areas of development where Hong Kong enjoys clear advantages. These include testing and certification; medical services; innovation and technology; cultural and creative industries; environmental industry; and educational services.
Development of many of these sectors will be in collaboration with the Mainland and present unique market opportunities for American firms.
Hong Kong-US Relations
Hong Kong and the U.S. have long enjoyed close ties. The U.S. is our second largest trading partner after the Mainland of China. Last year we imported over US$26 billion worth of goods from the U.S., making Hong Kong the 12th largest export destination for U.S. products.
The most recent annual trade data shows that Kentucky companies exported over US$580 million worth of goods to Hong Kong in 2010, an increase of 54 percent from 2009. Key exports to Hong Kong were nonmetallic mineral products, transportation equipment, computer and electronic products, and chemical goods.
Illustrating the significance of the U.S. commercial presence in Hong Kong, the U.S. routinely tops the list of non-local companies in Hong Kong. There are now over 1,260 American operations in Hong Kong including some 800 regional headquarters and regional offices. Kentucky companies like KFC, Pizza Hut, and General Cable all have a presence in Hong Kong.
But the relationship goes beyond commercial interests as our governments work in tandem on issues ranging from port security to combating money-laundering and global public health issues.
As an externally-oriented economy, Hong Kong has learned to be resilient. We have managed to weather various economic crises by adhering to free-market principles, upholding the “One Country, Two Systems” principle and retaining our entrepreneurial spirit.
Hong Kong does have a lot to offer to business visitors and tourists. We look forward to welcoming you in Hong Kong.
Thank you. I would be happy to take some questions.