bodyType

customContents

entityId

entityUuid

articlePageQuery

filter

article

articleBaseAdvertisingInfoArticle

articleListArticle

articleSeoArticle

helpersCheckIsPostiesArticle

hooksArticleAcknowledgementGateOverlayArticle

hooksTrackPageViewArticle

hooksContentInterestArticle

articleLinkingDataContent

hooksAmpRedirectArticle

articleSchemaContent

liveArticle

advertZone

sentiment

contentLock

topics

types

sections

moreOnThisArticles

urlAlias

commentCount

authorLocations

authors

paywallTypes

corrections

sponsorType

displaySlideShow

multimediaEmbed

printHeadline

seriesContainer

socialHeadline

headline

flag

firstTopic

glossary

flattenTypeIds

publishedDate

additionalInfoBoxes

images

image

relatedLinks

relatedNewsletters

__typename

createdDate

sponsor

pdfFiles

seriesReverseOrder

series

disableOffPlatformContent

published

updatedDate

summary

subHeadline

body

keywords

readingTime

customTimezone

liveContents

SCMP Reporter

SINCE 1985, Hong Kong's transfer of sovereignty has stimulated intensified political and economic integration between the territory and China.

 Mainland economic entities, in particular, have increasingly participated in business activities and taken more economic stakes in various sectors, triggering an unprecedented change in Hong Kong's economic landscape.

  China-owned firms have mushroomed in Hong Kong, their numbers increasing from 200 in 1985 to 15,000 by last year.

  They have provided jobs for more than 90,000 employees, almost four per cent of the territory's labour force - with 10,000 of them mainlanders, five times the number in the early '80s.

   Although no accurate figure is available, a conservative estimate puts total capital assets and investment by mainland entities in Hong Kong at more than US$30 billion, 10 times that in 1985.

  China's economic stake in Hong Kong is conservatively estimated to account for nearly 15 per cent of the territory's economy.

  Mainland firms have not only grown quantitatively, but also have greatly improved business quality.

  Some have become dominant players in their business sectors, with the Bank of China group developing from a relatively small retail bank in the early '80s into the territory's number two bank.

  Mainland economic entitles also have developed from their traditional business of banking and China-related trading in the early '80s into seven major economic sectors.

  In the financial sector growth is attributed to several major state-owned enterprises. Before 1984, mainland firms were generally discouraged by Beijing from participating in the financial sector, but their expansion began in late 1984, with the Bank of China Group, Conic Investment and CITIC (HK) invited by the Hong Kong Government to take part in the rescue of financially troubled banks in the mid-'80s.

  In the past few years mainland firms have aggressively engaged in corporate activities and by last year, mainly through backdoor listings and H-share flotations, they controlled more than 50 territory-listed companies.

  In the banking sector, the Bank of China founded its Hong Kong headquarters in the '50s. Since those modest beginnings the mainland presence has soared, with CITIC and China Merchants acquiring local banks, Ka Wah and Union Bank in the late '80s.

  Recently the number has increased further with the People's Construction Bank and Everbright taking over territory banks.

   By the start of this year, mainland firms have taken direct and indirect control of more than 20 banks.

  As a result, China-controlled banks have topped both the Hongkong and Shanghai Bank and Hang Seng Bank in business in the territory.

   By the end of 1993, deposits taken by the Bank of China group alone account for 24 per cent of total bank deposits in the territory.

  In the property market, mainland firms were traditionally more cautious, but since 1985 - partly because the market started dramatically reactivating, and partly because China's ''window firms'' began mushrooming in Hong Kong - mainland firms have been engaging boldly in the industry.

   By the end of 1993, it was estimated that mainland investment in property reached more than HK$30 billion.

  In 1992 alone, Chinese investment reached about $6.5 billion, accounting for 25 to 30 per cent of all property deals of more than $100 million each, leaving the mainland the third biggest investor after Japanese and Taiwanese firms in that year.

  Although an austerity programme, launched to cope with China's overheating economy in late 1993 was thought to have slowed down mainland investment, no firms have been seen selling properties.

  In addition, there are clear signs that mainland firms' property investment is heating up following deals done by both China State Real Estate Development Corp and CITIC Pacific.

   Moreover, several mainland construction firms, including China Overseas Land, are busily engaged in property investment.

   It is estimated that more than 50 per cent of property transactions in 1993 involved mainland firms, suggesting that territory tycoons are investing in the mainland market, and mainlanders are jumping in to fill the gap in Hong Kong.

  Thanks to China's reform policy, trade between China and Hong Kong has increased at double-digit rates since 1985 and mainland firms are benefitting due to the fact that almost all China-related firms are engaged in import-export business.

  Although no precise figures are available, it is estimated that mainland firms have taken at least 85 per cent of the total volume of China trade, amounting to 20 per of Hong Kong trade, or up to $107.7 billion in 1993.

  Mainland firms can be expected to continue to dominate the business because of economic integration which will intensify rapidly in the coming three years.

  In addition, mainland firms traditionally have taken a considerable stake in land and sea transport, and also of China-related warehousing business in Hong Kong.

   Mainland firms, including China Merchants, China Travel, Continental Mariner and provincial ''window'' firms, have drastically expanded business in the transportation sector.

   It is estimated that mainland firms have shared about 15 to 20 per cent of total business turnover in the sector since 1990.

  CITIC, China Travel and China Merchants already have taken as much as 15 per cent of air transport services and MTR services.

  Mainland firms are taking more stakes from British-backed utility firms in the public transportation sector, a trend likely to continue in the run-up to 1997.

  Another area of rapid mainland-interest growth is the tourist industry.

  In the past eight years, mainland firms have jumped into Hong Kong's tourist industry. Only three main tourist firms were registered in the early '80s but, by 1992, 36 agencies were owned by mainland firms, accounting for about 10 per cent of turnover.

  They have a virtual monopoly of China-Hong Kong tours and now own 13 hotels and a number of unregistered small hostels, worth about $6 billion.

  One sector where mainland participation has been relatively small has been manufacturing.

   According to Hong Kong Government figures, in 1985 only 15 Chinese firms were engaged in manufacturing, mainly related to toys, electronics and textiles.

   However, mainland firms have maintained constant investment in the manufacturing sector over the past few years and by last year more than 100 Chinese firms were directly engaged in the manufacturing industry in Hong Kong.

   Direct investment by mainland firms accounted for up to 12 per cent of total foreign investment in the territory's manufacturing sector between 1992 and 1993.

  In the past eight years, mainland firms have lifted their shares by 10 to 15 per cent in each of the seven key economic sectors and are playing an increasingly important role in Hong Kong's economy.

  Yet this appears likely to be only the beginning of the Chinese economic presence in Hong Kong.

  Despite some negative impact which may seemingly be imposed by mainland business expansion, Hong Kong's business environment as a whole appears to have been enhanced rather than disadvantaged.

   No matter how aggressive mainland expansion is in Hong Kong, it is now welcomed by the territory's business community.

Nick Ni is an economist with Nomura Research Institute.



Mainland investment surges into HK