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  • Jul 28, 2014
  • Updated: 11:22pm
CommentInsight & Opinion

Hong Kong businesses must seek new opportunities in western China

Vincent Lo says recognising and capitalising on business opportunities on the mainland, particularly in the west, remain Hong Kong's best bet for growth. That's why the appeal of Chongqing should not be overlooked

PUBLISHED : Thursday, 05 December, 2013, 9:27pm
UPDATED : Friday, 06 December, 2013, 3:03am

Hong Kong has been in a long soul-searching process of redefining its identity both socially and economically since as far back as the 1997 handover. We often hear the suggestion that Hong Kong needs a new economic engine, or that we lack one. There is no single solution to this problem, but, at least in economic terms, part of the answer will rest with Hong Kong's companies' continual flexibility in capturing opportunities in mainland China.

Over the past three decades, manufacturers in Hong Kong have played a significant role in transforming the Pearl River Delta into the world's factory and acted as conduits of trade between mainland China and the world.

However, due to evolving changes in the regional economic landscape, Hong Kong enterprises operating in the Pearl River Delta have had to deal with escalating costs in all aspects.

The strengthening renminbi also affects exports. Many companies are considering relocating their manufacturing plants to places with lower costs or that are closer to the consumer markets.

Since the onset of the global financial crisis in late 2008, the recovery of the US and European economies has been slow. In contrast, the Chinese economy has continued to flourish, fuelled by ongoing urbanisation and an expanding middle class, and these trends are projected to continue in the foreseeable future.

Particularly notable has been the vast improvement in infrastructure and investment environment in China's inland areas, thanks to the national "Go West" development strategy. These changing dynamics have led many Taiwanese enterprises to relocate their production lines to western China, and many have achieved remarkable success as a result of such a move.

Whether Hong Kong's businesses can overcome at least some of the existing challenges will very much depend on their timely participation in the "Go West" development, with the bustling city of Chongqing offering some of the best opportunities.

Chongqing is the only direct municipality in western China and a prominent economic centre in the upper reaches of the Yangtze River. Chongqing's development is an important step in China's goal of achieving a better-balanced regional growth pattern. Chongqing achieved growth of 13.6 per cent last year, making it one of the three fastest growing cities in China for three years in a row.

In recent years, a strong investment promotion campaign has attracted over US$10 billion of foreign direct investment, raising the number of global 500 enterprises in Chongqing to 225 last year. At present, one in every five notebook computers manufactured in the world is assembled in Chongqing.

Chongqing has embarked on a public rental housing programme and implemented household registration reform to facilitate urbanisation, which ensure a steady labour supply. The price of land is still relatively low, at half that of Shanghai.

Chongqing has also integrated its railway and expressway networks, which greatly enhance its connectivity to the world. The Chongqing-Xinjiang-Europe railway and highway linkages to Southeast Asian nations provide efficient logistical facilities for shipments to Europe and Southeast Asia.

Chongqing is also offering preferential policies to Hong Kong investors. A major business delegation, led by Chief Executive Leung Chun-ying visited a proposed Hong Kong Industrial Park in Chongqing's Banan district in September, when a memorandum of co-operation was signed for the project. The memorandum provides favourable taxation policies and local labour policies to facilitate the hiring of workers.

At present, 270,000 square metres of factory space at the industrial park has been completed and is ready for use.

One of Hong Kong's highly competitive sectors, the jewellery industry, is set to benefit from the development.

A part of the park will be earmarked for use as a base for the Hong Kong jewellery industry, which is expected to bring in more than 300 enterprises, generating annual production and sales value of at least 70 billion yuan (HK$88 billion).

Apart from production and export, Hong Kong companies can also take advantage of the huge consumer market in Chongqing and its vicinity, with a total population of 310 million in the five neighbouring provinces and the 30 million middle-class consumers among them.

With the world economy undergoing rebalancing and realignment of industrial specialisation, Hong Kong enterprises have to be increasingly flexible in order to cope with the changing business climate.

The phenomenal success of the Pearl River Delta can be replicated if Hong Kong enterprises manage to capture the opportunities in western China and Chongqing.

Through geographic diversification, Hong Kong businesses can expand their market while reaping first-mover advantages.

Vincent H. S. Lo is chairman of Shui On Group and a Hong Kong delegate to the Chinese People's Political Consultative Conference

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