The Value of Hong Kong

|China

Hong Kong Bashing

Against the background of five years having passed since Hong Kong was handed back to China and with the southern and eastern delta regions of China enjoying prosperity, there have been a remarkable number of media reports taking up the issue of the “Hong Kong bashing phenomenon”. Some claim that Hong Kong will lose its advantage and will soon be overtaken by Shanghai.

In fact, there are already fifty thousand Hong Kong companies in Guangdong and foreign companies that set up in southern China do not always base themselves in Hong Kong as a first step.

In addition, Hong Kong is no longer the only place with transportation infrastructure and infrastructure in mainland China has gradually come to be used. The first international container shipping lane was opened last June, between Guangzhou and the west coast of the U.S., served by five container ships of the 2,500 TEU class, thereby making it possible to connect China and the U.S. in 12 hours; it is said that transportation costs on this route will be much cheaper than the route via Hong Kong. It seems that the position of Hong Kong, home to the world’s largest international cargo center with cutting-edge equipment (airport) and the world’s busiest container facility in terms of freight handled (port), has come under threat.

In addition, according to a survey about the scale of their future business in Hong Kong conducted by NNA Ltd. among Japanese companies in Hong Kong (96 valid responses) between the beginning of May and the beginning of June, 72.9% of companies were very uncertain about business in Hong Kong or were retrenching, with 42.7% saying they were unsure about their future plans, 30.2% responding that they planned to scale down their operations and 20.8% answering that they planned to expand. Comparing this with mainland China, which is enjoying an influx of foreign capital, Hong Kong seems to be the loser, while China is the winner.

Business-Friendly

In terms of the business environment, the differences between Hong Kong and the mainland China are evident.

  • Free and fair competition without special treatment or favoritism
  • Clean government, no corruption
  • One of the world’s leading financial centers
  • No regulations on the inflow and outflow of capital
  • A simple and consistent tax system (income tax of 16% for companies with no limits on the losses that can be carried forward, a top-band personal income tax rate of 15%, no value-added tax or sales tax, no capital gains tax and no withholding of tax at source on dividends or interest.)
  • An open market, i.e. no tariffs, quotas or exclusive regulations, no limits on domestic or international investment and no foreign exchange control regulations.
  • Perfect government by law; and so on.

These are things that China will be unable to achieve easily even though it has joined the WTO.

It is reported that the number of Japanese companies which have established their Asian headquarters or branch offices in Hong Kong with the aim of enjoying this friendly business environment has increased by 40% from 482 in 1999 to 693 at the end of 2001 (Hong Kong Trade Development Council). In addition, many foreign enterprises are transferring their Asian operational headquarters from Singapore to Hong Kong.

There was a boom in Hong Kong investment in China between January to June this year, with 4,841 individual cases of investment reported (an increase of 32.8% on the same period of last year). The amount of cargo handled at Chek Lap Kok airport in June increased significantly, rising 25.4% on the same month of the previous year, while the amount of cargo loaded, which indicates exports, increased 33.9%. One hundred and fifty years after Hong Kong opened its doors as a trade port, the “south gate” to mainland China is still going strong.

From what I have seen of Hong Kong, which has changed and been developed as a city of international finance and business, I believe that the formation and development of the Northeast Asian economic subregion would accelerate if a gateway with the same function were to emerge in northern China. However, no sign of this has yet been seen.

[Translated by ERINA]