26 Aug 2016

One Belt and One Road” and Hong Kong’s Legal Services

By CGCC Vision

Following the Chief Executive’s repeated mention of the development of “One Belt and One Road”, the related topics have been the subject of considerable public discussion. The new policy bears endless opportunities for all, and Hong Kong’s legal profession is, of course, no exception.

Elsie Leung, Deputy Director of the HKSAR Basic Law Committee, believes that as a world power, China should pay close attention to its cultural standing, political and legal systems, and the quality of its people. The “One Belt and One Road” national policy advances the democratic rule of law, deepens the cultural system reform and improves people’s livelihood, which is fully in line with the rise of a world power.

The Uniqueness of “One Belt and One Road”
Leung noted that since the “One Belt and One Road” has no preset rules, it enables China to become proactive. Moreover, the concept has a win-win approach without any threshold and is open, inclusive, mutually beneficial and non-exclusive.

Thus, the areas of cooperation between China and other countries along the “One Belt and One Road” are much diversified, while the Silk Road Fund, AIIB, TPP, international financial institutions and development-oriented financial funds can provide the capital and skills for these countries as required.

Embodiment of One Country, Two Systems
Under the principle of “One Country, Two Systems”, Hong Kong is a part of China while having different systems. It has also become an international financial centre as well as a bridge between the Chinese and Western cultures. On this basis, Leung is convinced that China’s “One Belt and One Road” development initiative and “going global” strategy present major opportunities for Hong Kong’s legal profession.

Hong Kong’s Laws have Obvious Advantages
The country’s development will inevitably involve a large number of contracts. Leung believes that by relying on its existing legal status, Hong Kong can strive to make its laws as the applicable law for the contracts and for its courts and other institutions to become the place for contract dispute resolution, thereby contributing the wisdom and efforts of its lawyers.

She added that Hong Kong’s lawyers are not only adept at the details of both Chinese and Western laws, but also gaining deeper understanding of the legal systems and financing methods of Islamic countries. Furthermore, as Hong Kong’s lawyers are bilingual, they are able to accurately analyze the different requirements of the contracting parties, and share their analyzes with Chinese customers to help them make accurate judgements.

Leung also pointed out that because Hong Kong’s lawyers are in constant contact with a large number of businesspeople from around the world and understand their needs, they are high-quality intermediaries whose participation can prevent misunderstandings and effectively contribute to the negotiations between the contracting parties.

She also commended Hong Kong’s sound and fair international legal dispute resolution mechanism, complete procedural rules, and stringent by-the-book disposal of cases, which are fully in line with international practice. Therefore, Hong Kong is well-positioned to build a legal dispute resolution centre that is generally accepted by the international community. She suggested that Hong Kong should establish a legal dispute resolution centre specialised in serving the “One Belt and One Road” initiative.

Looking Ahead to Seek Opportunities
Looking into the future, Leung looks forward to the various sectors submitting recommendations to the HKSAR Government for inclusion in the Policy Address; she also requested the Central Government to include the recommendations in the “13th Five-Year” Plan for implementation. As in the case of the CEPA, it depends on our proactivity to seek opportunities.

 

This article was firstly published in the magazine CGCC Vision 2016 July issue. Please click to read full report.

 

 

 

 

 

 

HKTDC Research | 2 Sep 2016

“Going Out” to Capture Belt and Road Opportunities (Expert Opinion 8): Marketing Global Brands

As a cosmopolitan city in the Asia-Pacific, Hong Kong is the regional centre for the promotion of many global brands. Its industry players are familiar with the markets in the Chinese mainland, Southeast Asia and elsewhere in the Asia-Pacific region, many of which are countries along the economic corridors of the Belt and Road Initiative. They have extensive experience in the management of global brands through years of offering one-stop services to their multinational clients, including the development of marketing and branding strategies, management of projects, planning for exhibitions, and carrying out all types of creative design. On the other hand, mainland enterprises are actively going to Belt and Road countries and other overseas markets to expand their sales networks or to bring in foreign brands to further tap business opportunities in the mainland market. Against such a backdrop, Hong Kong is in a perfect position to meet the needs of mainland enterprises for services in marketing, branding and design. It is therefore a preferred service platform for mainland enterprises that are “going out” and “bringing in”.

Extensive Experience in Promoting Global Brands

Respecting Brands and Designing Work

“In developing a brand’s business it is necessary to pay attention to maintaining and enhancing the unique features and attributes of the brand in question,” stressed Tse. “If the focus is only on short-term sales and minimising costs, there is likely to be conflicts with the aims of developing the brand’s business and more harm than good will be done. Hong Kong’s market promotion professionals and designers well understand the importance of related requirements and always strive to provide high-quality services.

“What’s more, as international clients recognise that industry players in Hong Kong are respectful of designing work and industry ethics and that there is sound protection of intellectual property rights in the territory, Hong Kong has become an important base for promoting global brands.”

 

 

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[1] ISO 9000 and ISO 14000 are internationally recognised standards for quality management systems and environmental management systems, respectively.

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13 Sep 2016

One Belt, One Road (OBOR): China's regional integration initiative

By Gisela Grieger (European Parliamentary Research Service)

Summary

In 2013, China launched its 'One Belt, One Road' (OBOR) initiative. OBOR is China’s broadly sketched vision of how it plans to boost regional integration in its wider neighbourhood. The initiative is unprecedented in terms of China's financial engagement and the innovative network-based project design which is intended to contribute to a more inclusive global governance. It contrasts sharply with existing treaty-based integration concepts where the geographical scope, partner countries, strategy, principles and rules were clearly defined at the outset. China's new development vision has been seen as an alternative to regional trade agreements which do not include it; as a strategy for asserting its leadership role in Asia in response to the US pivot to Asia; as an economic outreach towards Asian countries for resolving territorial and maritime disputes by exporting China’s domestic development policies; as a means of tapping into new sources of growth to check the marked downturn in its economy; as a tool for tackling the socio-economic divide between its inland and coastal provinces; and finally, as a venue for addressing security challenges on its western periphery as well as energy security issues. The response to China's regional integration vision has been mixed. While the idea of enhancing connectivity has drawn considerable interest, given the huge infrastructure gaps across Asia, scepticism regarding China's potential hegemonic ambitions has prevailed notably among regional rivals India and Japan as well as the USA. Whether OBOR will be mutually beneficial for China and the EU will depend on the two sides agreeing on the 'rules of the game', including for joint projects in third countries. Potential synergies between OBOR and the EU connectivity initiatives are being explored under the EU-China Connectivity Platform.

In this briefing:
• Geopolitical and economic drivers of China's regional integration strategy
• The One Belt, One Road (OBOR) regional integration initiative
• OBOR's significance for China
• OBOR's significance for the EU
• Outlook
• Further reading

Please click to read full report.

 

 

 

 

 

 

20 Sep 2016

One Belt – One Road: China’s Re-Engineering of the Global Business Environment

By Jean-Pierre Lehmann, IMD – International Institute for Management Development, Lausanne

Perceptions about OBOR

The international community is still struggling to understand the gist and impact of OBOR since China has difficulty in explaining its intentions. Initially, OBOR was referred to as “China’s Marshall Plan” by some Western media and more recently it has been seen as a countermeasure to the US-led Trans Pacific Partnership (TPP) and pivot to Asia….

Opportunities

The first opportunity OBOR presents for China is that it will open new markets, which will help to resolve issues of domestic overcapacity. Moreover, the infrastructure thrust will reduce trade costs through central Asia and shift competitiveness inland. As the land corridors are set to run along the major Eurasian countries, through China-Mongolia-Russia, China-Central and West Asia, China-Indochina Peninsula, China-Pakistan, Bangladesh-China-India-Myanmar, it will also enable the integration of inland and coastal China, bringing growth and stability to the region. An example upheld as a symbol of success for OBOR, the Trans-Eurasia Chongqing-Xinjiang-Europe international railway route, which starts in Chongqing and ends 11,179 km later (following 16 days of travel) in Duisburg, Germany, is currently being used by companies like BMW and HP.

China needs more such infrastructure projects to sustain its economic growth and to support important domestic industries. In fact, Marc Laperrouza [a guest contributor to this article] senses a kind of desperation among Chinese businesses and government agencies to find new projects/acquisitions on technology and infrastructure. He feels that the country is currently obsessed with innovation. In fact, in southern China large-scale low-cost manufacturing is transforming into design houses in an effort to move up the value chain. China wants to move beyond its traditional role of exchanging infrastructure against natural resources, as in the case of its investments in Africa. By progressing with OBOR, it will take projects coupled with financing mechanisms to countries lacking in infrastructure, such as Indonesia or the Philippines. This will, in turn, allow China to offer its products and services to these countries in the longer term. Beyond hard infrastructure, Marc sees the potential for China to export standards for the very first time. China has been intensifying its efforts to set indigenous standards for homegrown ultrahigh voltage (UHV) transmission technology and aims to contribute to UHV standards internationally. Two factors are creating a window of opportunity for Chinese UHV technologies to gain acceptance as the de facto global standard: (1) It is the only country currently deploying UHV technology on a large scale and (2) No international UHV standard has yet prevailed.

While OBOR signals a new phase in China’s globalization process, what about soft infrastructure? Despite all its success, China lacks attractiveness and battles inferior quality perceptions. According to Marc, out of 7 million annual university graduates, there are 700,000 engineers but only a fraction of them are world-class. This situation could give rise to fundamental questions about quality and security for key strategic assets, for example as the UK’s next generation of nuclear power plants will be built in collaboration with China Guangdong Nuclear Power Group. Marc wonders if China’s infrastructure-driven hard power can translate into winning soft power. “Exporting the local advantage sounds good on paper but what about the ground reality of the specific OBOR countries? It was an African honeymoon for China until a few years ago but now the situation is growing tense.”

Ultimately, China wants better return on investment. While it is the biggest holder of US debt, it is also looking to invest elsewhere to not only enhance its returns but also to win friends in the process. Evidently, with OBOR the investment preference (e.g. M&A, EPC projects) will shift toward developing countries where priorities are power, transport infrastructure, telecommunication and water. The next open question is whether there is an actual business case for OBOR investments and whether it can bring sufficient returns….

© 2016 IMD- International Institute for Management Development

Please click here to view the full article on the IMD website.

 

 

 

 

 

 

27 Sep 2016

The EU–China Bilateral Investment Agreement: Between High Hopes and Real Challenges

By Insa Ewert, Visiting Fellow at the Egmont Institute from December 2015 to January 2016
 
The need for investments in Europe and China alike is driving the negotiations. From this outset it is likely that the different objectives in the negotiations can be consolidated. In addition, as OBOR on the Chinese side and the EFSI on the EU side are already under way, they can serve as tools to increase bilateral investments in the short-term and bridge the period of time until the BIA comes into effect. In contrast, even though negotiations on the BIA may be – by optimistic calculations – concluded within one year, the agreement would only come into effect after several years, depending on the possibly extended ratification process. The BIA therefore serves as a long-term tool to enhance investment between the EU and China, rather than promising short-term benefits.
 
Another factor to be kept in mind are the economic developments in China and worries about a significant slowdown of the Chinese economy. As undecided as economists are in predicting what might happen in China in the next year and to what extent the Chinese Communist Party has the tools to mitigate a possible hard landing, the long-term effects on European economies also remain to be seen. However, due to the overall slow-down of the Chinese economy, China’s interest in increasing its investments abroad, and its ambition to progress towards an FTA with the EU are all strong indications of China’s willingness to finalize the negotiations in the near future. 6 To conclude, successful negotiations have the potential to not only increase investment flows and contribute to economic growth, but also to strengthen the EU’s overall relationship with China. They can further serve to demonstrate the effective implementation of the EU’s trade and investment strategy internally and strengthen the EU’s economic relevance in global trade and investment regimes. However, policy-makers on both sides of the negotiations need to remain aware of the potential obstacles. In order to obtain the best outcome, the EU needs to follow a coordinated approach and ensure that the implementation of the agreement actually significantly improves the situation for European companies in China. As the example of the Shanghai Free Trade Zone has shown, all that glitters is not gold.
 
Please click to read full report.

 

 

 

 

 

 

29 Sep 2016

New Trade Opportunities with Vietnam

By CGCC Vision

Hong Kong’s total exports to Vietnam grew 21% annually, and Vietnam was Hong Kong’s fifth largest export market in the first seven months of 2015. It is evident that trade relations between Hong Kong and Vietnam are increasingly close. In fact, Vietnam also has close relations with China, France and the US. Therefore, many Western countries are optimistic about the emerging market of Vietnam.

Currently, Vietnam is a part of the China-ASEAN Free Trade Area, and it has signed agreements on avoidance of double taxation with more than 60 countries and regions, including Mainland China and Hong Kong. Doan Duy Khuong, Vice-Chairman of Vietnam Chamber of Commerce and Industry (VCCI), pointed out that as the private sector is bound to become the main driving force of Vietnam’s economy in the future, ASEAN can create an open and level playing field for this sector.

Going global for investment opportunities

With the formal establishment of the ASEAN Economic Community (AEC) in late 2015, trade is expected to be more frequent and economic development will be more rapid in ASEAN. Hence, now is a good time to invest in Vietnam. Doan believes that in the future as trade, investment, economic and technical collaborations surge, agreements will mainly focus on these areas, which will also help resolve trade disputes. Under the current ASEAN Framework Agreement, it is hoped that there will be a broader and deeper involvement.

Challenges present opportunities

Doan expects Vietnam to face very intense competition in the region. He believes that at this stage, the Vietnamese Government should accelerate the reform of its business environment and strengthen institutional transparency. Moreover, other policies that will help enhance competitiveness, such as those for attracting foreign direct investment and infrastructure development, should be implemented concurrently. Overall, Doan believes that on the strength of its political, economic and resource advantages, Vietnam is one of Asia’s most attractive investment regions.

This article was firstly published in the magazine CGCC Vision February 2016 issue. Please click to read the full article.

 

 

 

 

 

 

4 Oct 2016

Potential Macroeconomic Implications of the Trans-Pacific Partnership

By the World Bank

Over the last quarter century, trade flows of goods and services have increased rapidly. The value of world trade has more than quintupled, from $8.7 trillion in 1990, to more than $46 trillion in 2014. The relative importance of trade has increased too, from 39 percent of world GDP in 1990, to 60 percent in 2014. That said, global trade growth has slowed to about 4 percent per year since the crisis from about 7 percent, on average, during 1990-07. This slowdown in world trade reflects weak global investment growth, maturing global supply chains, and slowing momentum in trade liberalization….

This analysis discussed the features of new-generation free-trade agreements and TPP, specifically, and traced out potential macroeconomic implications for member and non -member countries. As a new-generation, deep and comprehensive trade agreement, TPP addresses a wide range of complex trade policy issues that go beyond the scope of traditional trade agreements. The agreement will reduce tariffs and restrictiveness of non-tariff measures as well as harmonize a range of regulations to encourage the integration of supply chains and cross-border investment.

TPP could be an important complement to other policies to lift medium-term growth:

• By shifting resources towards the most productive firms and sectors and expanding export markets, TPP has the potential to lift overall GDP of member countries by 1.1 percent by 2030. The impact could be considerably more in countries facing currently elevated barriers to trade (as much as 10 percent in Vietnam and 8 percent in Malaysia). In countries that export labor-intensive products, incomes of low-income and low-skilled households could expand strongly.

• To the extent that the TPP produces positive spillover benefits for other countries, detrimental effects on non-member countries may be limited. Such positive spillovers could arise from harmonized regulatory regimes in TPP export markets.

• TPP could also lift member countries’ trade by 11 percent by 2030. This would be an important counterweight to the trade slowdown underway since 2011. At current 2011-14 trends, member countries’ trade would fall 25 percent below pre-crisis trend by 2030.

• Policy reforms are needed to enhance the benefits of TPP—like other RTAs—in developing countries. Governments in several member countries see the liberalization required by the TPP as a driver for difficult policy changes. However, implementation of MRTAs, including the TPP, requires institutional capacity not available to some developing countries (Michalopoulos 1999; Hoekman et al. 2003). As the TPP is implemented over time, emphasis on the following issues would be important to mitigate unfavorable effects on developing countries:

• Capacity building. Capacity building and technical assistance for developing country members are an important building block of the TPP.

• Liberal rules of origin. TPP members and nonmembers will benefit if rules of origin mandating higher-cost inputs from TPP members are implemented in a permissive rather than restrictive manner.

• Liberalize labor- and resource-intensive industries. Low- and middle-income economies often have a comparative advantage in labor-and natural-resource intensive industries. By cutting tariffs for labor-intensive garments, the TPP thus benefits countries like Vietnam.

• Multilateral framework. Bringing MRTAs into a global framework would broaden the gains to a wider set of countries and reduce detrimental diversion effects for non-members. Implementation of the “living agreement” clause that keeps TPP membership open is particularly important.

Against the background of slowing trade growth, rising non-tariff impediments to trade, and insufficient progress in global negotiations, the TPP represents an important milestone. The TPP stands out among FTAs for its size, diversity and rulemaking. Its ultimate implications, however, remain unclear. Much will depend on whether the TPP is quickly adopted and effectively implemented, and whether it triggers productive reforms in developing and developed countries. Broader systemic effects, in turn, will require expanding such reforms to global trade, whether through TPP enlargement, competitive effects on other trade agreements, or new global rules.

Please click to read full report.

 

 

 

 

 

 

7 Oct 2016

One Belt One Road and the Implications for China-EU Relations

By ThinkChina, University of Copenhagen

In this policy brief, Professor François Godement, Director of ECFR’s Asia & China Programme, discusses the background and future of the Chinese Government’s One Belt One Road initiative.  Godement concludes, among other things, that Europe’s overemphasis on internal competition stands in the way of the coordinated effort that could leverage China’s aims.

The Policy Brief:

• Argues that China’s recent initiatives to boost overseas investment, e.g. AIIB and the National Development Bank, are not game-changing developments for the international financial architecture, but present strong competition for pre-existing international funders, and a potential investment over-supply in Asia.

• Asserts that China does not want to emphasize the geopolitical aims of OBOR, even though these were often cited in the first phase of the initiative.

• States that European policy towards China is intrinsically weak – whether in terms of collective bargaining and leverage, or on principled stands.

• Contends that China retains a massive current account surplus, and a fear of re-evaluation of the yuan.

 
Please click to read full report.

 

 

 

 

 

 

HKTDC Research | 13 Oct 2016

Western China: The Route to Success along the Belt and Road

China’s 13th Five-Year Plan (2016-2020) emphasises optimising the spatial development, accelerating development of the western region, and balancing regional development. Since the central government implemented the Go West policy, economic development of the western region has been making good progress, with the economic level of some areas gradually moving close to that of the coastal region. Worth noting in particular is the Chengdu-Chongqing district formed by Chengdu, the capital of Sichuan province, and the nearby Chongqing municipality. This has developed into a commercial and financial centre as well as a transport hub of China’s western region. It is also developing into the bridgehead for the western region in establishing economic co-operation with the outside world under the Belt and Road Initiative.

The western region’s abundant supply of land, labour and technology talent, as well as lower production costs than the coastal region, attracted the attention of many companies some years ago. As a result, a number of domestic and foreign enterprises have relocated part of their production activities to places such as Sichuan and Chongqing, which have higher degrees of industrialisation. Many of these production activities involve high-tech and high value-added industries. As such, this shift has not only turned the region into a base for production relocation from the coastal region, but has also helped places such as Sichuan and Chongqing to evolve into modern manufacturing centres of the western region.

Owing to these changes, the whole industry chain in the western region is moving towards maturity while production, business and commercial activities are expanding, directly stimulating demand for all kinds of industrial and production materials as well as related business services. This in turn can bring about extra market opportunities for Hong Kong’s upstream materials suppliers and service providers. Moreover, companies in the western region are actively seeking to “go out” to make investments abroad. They hope to establish sales channels in overseas markets and to acquire technologies and other resources in order to increase their competitiveness and further expand the domestic and overseas businesses.

The western region has always been an important gateway through which China connects with countries in Central Asia, South Asia and West Asia. In recent years, cities such as Chengdu and Chongqing have quickened their pace in launching China-Europe freight-train services. They have also strengthened external multimodal transport services by air, sea and land and enhanced external transport and logistics links in order to further promote economic growth. Under the government’s efforts to implement the Going Out and Belt and Road development strategies, enterprises in Sichuan, Chongqing and other parts of the western region are expected to seek more foreign investment and trade opportunities. In doing so, their demand for various types of support services will be strong.

Hong Kong has long served as a foreign business and trade centre for the Chinese mainland. It is also the preferred service platform for mainland enterprises that are “going out” to make investments overseas. Hong Kong has rich experience in serving mainland enterprises, providing them with services related to supply chain, production and international trade. It also offers a full range of professional services such as financial, legal and risk management to mainland enterprises that are “going out”. As enterprises in the western region accelerate their pace of “going out” and “bringing in”, and the mainland authorities continue to unfold the Belt and Road development strategy, Hong Kong companies in related fields stand to benefit from the resulting opportunities.

 

 

 

Westward Shift of Economic Development

In recent years, China’s economy has faced a number of challenges like lacklustre export markets and rising labour and land costs. This has inevitably constrained the development of many coastal provinces, which have strong economic clout but rely heavily on foreign trade. By comparison, the western region’s economy has been growing steadily, at a rate surpassing the national average. Blessed with abundant land and labour supply as well as lower operating costs, the western region is gradually attracting the attention of companies operating in the coastal region, as well as foreign firms. Thanks to the continuous development of industries in the western region and the constant inflow of foreign investment in recent years, provinces and cities in the region, such as Sichuan and Chongqing, have become new bright spots in China’s economic development.

 

 

Meanwhile, the Chinese government is actively aligning the pace of development in the coastal and inland regions. In particular, under the Go West policy[1], continuous efforts have been made to strengthen connectivity between the eastern and western regions in terms of construction of infrastructural facilities such as transport and communications. A range of preferential policies has also been introduced to encourage industrial development in the western region[2]. Under the 13th Five-Year Plan unveiled by the government in early 2016, emphasis is given to promoting development of the western region under the Go West strategy, including optimising urban development planning in the context of regional development, advancing regional transport integration, and improving regional environmental planning[3].

Moreover, in January 2016 the State Council issued its Several Opinions on Promoting the Innovative Development of Processing Trade, proposing that action will be taken to further optimise the regional distribution of industry and gradually co-ordinate development of the eastern, central and western regions, including giving support to inland and border regions to serve as industrial relocation bases as well as advancing co-ordinated regional development.

In May 2016, the State Council issued its Several Opinions on Promoting Stabilisation and Recovery of Foreign Trade, which stresses that efforts will be made to integrate fiscal and financial policies in support of relocating processing trade to the central and western regions. Steps will also be taken to implement the policy of lowering social insurance premium rates, encourage financial institutions to give financial assistance to processing trade relocation projects, and extend the “one-window” policy[4], which aims to enhance customs clearance facilitation in international trade, from the coastal region to central and western regions with the right conditions. With the government’s efforts, coupled with such advantages as land and labour supply, the western region has been rapidly developing in recent years and currently makes up a significant share of China’s overall economy.

 

 

Sichuan and Chongqing: Economic Hubs in the Western Region

Sichuan’s economy is the largest among the 12 provinces and municipalities in the western region. The Sichuan-Chongqing region, comprising Sichuan province and its neighbouring Chongqing municipality, has become the western region’s largest economic and trade centre. While the income and spending power of Sichuan and Chongqing residents have been rising rapidly in recent years, commercial and infrastructural facilities there have also continually improved, quickly catching up with the development pace of coastal cities. At the same time, conscientious efforts by the local authorities to attract business and investment, as well as the continual inflow of investment funds from other parts of China and foreign countries, have also directly stimulated local industrial and commercial activities.

Not only has the western region been an important gateway connecting China with countries to the south and west, but it has also been a hub for commerce, trade, external logistics and transport. Taking advantage of the country’s “going out” and Belt and Road development strategies, companies in Sichuan and Chongqing are actively exploring opportunities arising from foreign investment and trade. As the Sichuan-Chongqing region is gradually developing into the bridgehead of China’s western region in establishing foreign economic and trade co-operation, its growth potential should not be underestimated.

 

 

Currently, Sichuan province and Chongqing municipality together form the most highly industrialised area in China’s western region. In Sichuan, heavy industries such as coal, energy and metallurgy are the leading sectors, accounting for 67% of total industrial output in 2014[5]. Chongqing is one of the oldest industrial bases in China, focusing on automobiles, defence, iron and steel. In 2014, heavy industry accounted for 74% of the municipality’s total industrial output[6].

 

 

The Sichuan-Chongqing region has also been devoting a lot of effort to diversifying its industries. A large number of strong local enterprises have emerged which have helped to propel the development of the local economy. These range from enterprises in light industries such as food, Chinese medicine, liquor and silk processing, to high-tech industries including micro-electronics, computers, mobile phones, communications equipment and other electronic products, electrical appliances, and machinery. At the same time, positive steps are being taken to develop industries such as building materials, wood processing, natural gas, power, and chemical fibres. The output of some of these industries is among the highest in quantity terms in the western region.

Sichuan province has the largest industry cluster in the western region. Among the top 100 enterprises in the province are Sichuan Changhong Electric Co Ltd (electronic products), New Hope Group (food / dairy products / fast-moving consumer goods), Sichuan Yibin Wuliangye Group Co Ltd (liquor), Panzhihua Iron & Steel (Group) Co Ltd (mineral ore resources), and Tongwei Group Co Ltd (agricultural products / new energy / chemicals / pet food).

 

 

On the other hand, Chongqing municipality is also gradually evolving from an old industrial region to an important modern manufacturing base and a regional economic centre. The top 100 enterprises in Chongqing include Chongqing Changan Automobile Co Ltd, Chongqing Lifan Industry (Group) Co Ltd (automobile / motorcycle), Chongqing Chemical and Pharmaceutical Holding (Group) Co (chemicals / pharmaceuticals), Chongqing Energy Investment Group (energy investment / development / construction), Chongqing Machinery and Electronic Holding (Group) Co Ltd (electrical and mechanical equipment), and Chongqing Light Industry & Textile Holding Group Co (light industry / textile / building materials / property development). Among the well-known Sichuan and Chongqing enterprises, many are state-owned groups.

 

 

Formed by Chengdu city and Chongqing municipality, the Chengdu-Chongqing district is not only the focus of development and opening-up in the western region, but is also a regional commercial and financial centre, a transportation and communications hub, and a technology centre of the southwestern region. In 2015, Chengdu’s GDP reached RMB1,080.1 billion, with real growth of 7.9%. In particular, tertiary industry – led by services such as commodity circulation, transport, post and communications, finance and insurance, real estate, technology services, and tourism – is developing rapidly, accounting for 52.8% of the city’s GDP in 2015 and surpassing the share of secondary industry (43.7%). Chongqing is also gradually developing modern services to support its economic growth, including the rapidly expanding transport and logistics sectors. In 2015, tertiary industry accounted for 47.7% of Chongqing’s economy, surpassing the share of secondary industry (45%).

 

 

Foreign Firms Tapping Sichuan and Chongqing Opportunities

Increasingly, domestic enterprises from coastal regions, as well as multinationals, are setting up operations in the western region in a bid to leverage the various advantages there to meet their business needs. In addition to the availability of land and natural resources, these outside enterprises are lured by the more abundant supply of labour and the pool of technology talent in western China. By establishing a presence in the western region, they hope to further tap the potential of the mainland market and also develop their export businesses. In recent years, in the wake of constant investment inflows from outside enterprises, industries in Sichuan and Chongqing have been gradually moving towards high value-added and high-tech areas.

Chengdu, in addition to being a popular city for investments in central and western China for foreign companies, is also favoured by foreign-invested enterprises as a location for the headquarters of their businesses in the region. As of March 2016, among Fortune Global 500 companies, 271 corporations, including Intel, IBM, GE, Microsoft, Cisco, Siemens, Bayer and Volkswagen[7], have established a presence in Chengdu. These companies are involved in scores of industries including semiconductors, electronic information, automobiles, aviation manufacturing, new materials, finance, insurance, retailing and logistics. In fact, Chengdu is first among all cities in central and western China in terms of the number of Global 500 companies with a presence, the total investment amount and the diversity of industries invested.

Meanwhile, a considerable number of technology firms, including some electronics and automobile-related multinationals, have chosen to set up and establish factories in Chongqing. These include HP, Inventec, Tech-Front (of Quanta Group), Hongfujin (of Foxconn), Pegatron (of Pegatron / ASUSTeK Group) and Acer, helping to create the world’s largest computer-industry cluster in the municipality. Chongqing also boasts one of the biggest complete-car/motorcycle industries in the Chinese mainland, including such Sino-foreign joint ventures as Changan Ford, SGMW and Beijing Hyundai. It has also attracted foreign firms such as Honeywell, which has set up an automobile materials factory there.

As industry chains become increasingly developed, industrial and production activities in western China are expanding and diversifying into industries of more sophisticated technologies. This has triggered not only a rapid increase in demand for an extensive array of industrial materials, but also a strong demand for various types of support services, including product design and technology solutions, brand and market promotion services, as well as business services including international logistics. This has provided considerable market opportunities to Hong Kong’s upstream industrial-materials suppliers and services providers.

(For more information, please see Western China’s High-Tech Potential Woos the Multinationals)

Boosting Logistics Services to Connect Mainland and Overseas Markets

The expansion of production and economic activities in Sichuan and Chongqing has also directly driven demand for all kinds of logistics services from companies operating there. Indeed, the freight volumes of Sichuan and Chongqing have been constantly increasing in recent years. As a result, the respective local governments are now upgrading local and regional transportation networks in order to set up efficient logistics systems to further link local industries with supply chains in the coastal regions. It will also strengthen passenger and cargo transportation services, helping to better facilitate access to external markets.

During a recent visit to the Chengdu-Chongqing district, HKTDC Research was told by some local manufacturers and companies relocated from elsewhere that currently, overland freight services to and from the Pearl River Delta (PRD) and other coastal regions are very convenient. For example, from Chengdu, it takes only about two days to reach the PRD. If the starting point is in Chongqing, there is a further option of using waterway transportation to move goods from the upper Yangtze to the Yangtze River Delta (YRD) region. The growing demand for freight services from local manufacturers has been met by logistics services suppliers increasing efficiency, and by offering multimodal transportation services involving motorway, railway, waterway and air transportation.

 

 

Minsheng Logistics Co Ltd of Chongqing, which mainly handles products such as electronics, automobiles and fast-moving consumer goods, told HKTDC Research that it was offering customers in the Sichuan-Chongqing region regular container liner services and could help them to export their goods directly via Shanghai or other ports. Its customers could also choose to ship goods to and from the PRD via motorways or railways – the journey would take about 53 hours via the Chongqing-Shenzhen Railway.

(For more information on the logistics sector, please see Relocating to Chengdu and Chongqing: The Implications for the High-tech Sector).

Meanwhile, local governments are actively building new road networks. Major projects in Chengdu include the scheduled completion by 2020 of an expressway network consisting of three ring roads and 13 spoke roads; an inter-provincial expressway system allowing vehicles to reach Guiyang, Kunming, Xi’an and Wuhan in eight hours; and another to the Beijing-Tianjin-Hebei, PRD and YRD regions with journey times within 20 hours. Chengdu is also building an additional airport, Tianfu International Airport, in order to meet the increasing demands of the international air-cargo services. It is expected to be in service by 2020.

 

 

In fact, Chengdu is already a key air logistics hub in western China. The existing Shuangliu International Airport ranks first among airports in central and western China in terms of passenger numbers, cargo throughput and the number of international flight routes. In 2015, the airport recorded a passenger throughput of 42.24 million (an annual growth rate of 12%) and a cargo/mail throughput of 557,000 tons (annual growth of 1.6%)[8]. It connected to 194 cities through 252 international and domestic routes, of which 85 were international (or regional)[9]. Chengdu’s second airport is expected to further boost air-freight logistics services in Sichuan and even across the whole of western China.

To help businesses further expand into Europe and to tap inland market opportunities along the Belt and Road routes in Asia and Europe, both Chengdu and Chongqing have recently strengthened the China-Europe freight-train services. Furthermore, China is planning to step up communication with ASEAN member states in a bid to access transportation routes in countries such as Vietnam, Myanmar and Laos via the highway and railway networks in southwest China, and also to promote bilateral import-export trade.

(For more information on the China-Europe freight-train services, please see China-Europe Express Trains: On Track to Access Belt and Road Businesses).

Against such a backdrop, Hong Kong’s logistics services companies can enhance their advantages by strengthening their logistics and transportation networks linking western China and Hong Kong. One example is how the Chongqing branch of Kerry EAS Logistics Limited (Kerry EAS), which has its origin in Hong Kong, is using its logistics park facilities in Chengdu and Chongqing to serve businesses in Sichuan, Chongqing and peripheral areas. Most of its customer demands are currently for overland logistics transportation services between western China and eastern and southern China, and the goods carried include car parts, pharmaceuticals, electronics, and products related to e-commerce/cross-border e-commerce.

A Kerry EAS representative told HKTDC Research that as business opportunities emerged under the Belt and Road Initiative, and as China’s economic and trade relations with Southeast Asian countries got ever closer, Kerry Group was using its transportation and logistics networks in southwest China and ASEAN countries to provide customers with one-stop services and comprehensive logistics solutions to help them tap Belt and Road opportunities. In doing so, Kerry was taking advantage of the overland logistics routes that lead from the Chengdu-Chongqing district to the ASEAN markets via Yunnan province and other places, as well as its warehousing, logistics and customs clearance facilities in ASEAN countries.

Enterprises in Western China “Going Out” to Tap “Belt and Road” Opportunities

While capital inflows to western China are growing at an accelerated pace in order to tap local economic and market potential, enterprises from western China are also stepping up efforts to “go out” and seek various resources to raise competitiveness while developing overseas markets further. During 2010-2015, outbound direct investment (ODI) from Sichuan increased about 72%, while that from Chongqing rose more than 300%. The main destinations for Sichuan’s outbound investments are Hong Kong, the United States and Australia, while Chongqing’s investments go mostly to Hong Kong, Pakistan and Malaysia[10]. As well as “going out” to expand their sales networks, enterprises from Sichuan and Chongqing also go overseas to look for resources to support their business development on the mainland.

 

 

One example is New Hope Dairy Holdings Co Ltd, a well-known mainland Chinese dairy enterprise headquartered in Chengdu. During a 2016 HKTDC-led visit to the company by a Hong Kong design and market promotion industry delegation, a New Hope Dairy representative explained that it was always on the lookout for sources of fresh milk in western China and elsewhere in the country. To establish itself as the “No. 1 fresh-milk brand in China”, the company imports premium milk from Europe and, at the same time, develops a number of innovative technologies to ensure the freshness of its products and compliance with stringent quality requirements. In 2015, New Hope Dairy was active in “going out” to set up an Australian joint venture with its overseas partners to invest in upstream and downstream sectors of Australia’s milk-supply chain so that Australia’s superior resources can be used to support the company’s business development on the mainland.

 

 

A recent survey conducted by the HKTDC revealed that, to address the challenges resulting from the slowing down of the market and other changes in the business environment, enterprises in western China are actively seeking professional services from outside, such as brand design and promotion strategies; marketing; product design and development; finance; and law, in order to help their transformation and upgrading. Furthermore, most enterprises surveyed indicated that they would consider further “going out” to tap business opportunities in countries along the Belt and Road routes, ASEAN countries in particular. Other than trying to sell more industrial and light-industrial products to Belt and Road markets, these enterprises also wanted to go to countries along the Belt and Road routes to carry out investment activities, including sourcing and setting up production plants.

(For detailed findings of the HKTDC survey, please see China's “Going Out” Initiative: Service Demand of Western China to Tap Belt and Road Opportunities.)

In the course of “going out”, most of the enterprises surveyed indicated that they would like to go to Hong Kong to seek professional services and to look for business partners. In fact, Hong Kong is the preferred services platform for enterprises in western China as well as the coastal regions when they seek to “go out”. As western China enterprises step up their pace of “going out” – in particular, those operating in economically more developed places such as Chengdu and Chongqing that are actively expanding their overseas businesses – an unending stream of opportunities will emerge for Hong Kong’s services providers.

(For more “going out” examples of enterprises from Chengdu and Chongqing, please see Western China: Access Belt and Road Markets via Hong Kong).

 

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[1]  In November 1999, the Central Committee of the Communist Party of China and State Council convened a central economic work conference confirming implementation of the Go West strategy. In January 2000 the State Council Western Region Development Steering Group convened a meeting fully unfolding work of the Go West strategy. Since then, the Go West strategy has been included in the medium- to long-term plans for national economic and social development to become one of the important strategies of China in building a moderately prosperous society, implementing modernisation, and co-ordinating regional economic development.

[2]  Examples include: enterprise income tax at the reduced rate of 15% for companies meeting requirements set out in policies related to the Go West strategy.

[3]  For more details on the 13th Five-Year Plan, please see Opportunities Arising from China’s 13th Five-Year Plan: An Overview

[4]  Under the “one-window” policy, parties participating in international trade and transport may submit standardised information and documentations via a single platform in order to comply with relevant laws, regulations and administration requirements. Companies only have to submit once to the supervisory trade department the relevant information and documentations, which are processed by a unified platform. Under integrated cross-region customs clearance, companies that have handled customs clearance procedures in one location are not required to make customs declaration again in other locations. This policy can help companies save customs clearance time, costs and relevant storage fees.

[5]  Source: Sichuan Statistical Yearbook

[6]  Source: Chongqing Statistical Yearbook

[7]  Source: Chengdu Investment Promotion Commission

[8]  Source: Shuangliu International Airport, Chengdu

[9]  As of March 2016. Source: Chengdu Investment Promotion Commission

[10]  Sources: Sichuan Provincial Department of Commerce; Chongqing Foreign Trade and Economic Relations Commission

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14 Oct 2016

The Trans-Pacific Partnership (TPP): Key Provisions and Issues for Congress

By US Congressional Research Service

The Trans-Pacific Partnership (TPP) is a proposed free trade agreement (FTA) among 12 Asia-Pacific countries, with both economic and strategic significance for the United States. The proposed agreement is perhaps the most ambitious FTA undertaken by the United States in terms of its size, the breadth and depth of its commitments, its potential evolution, and its geo-political significance. Signed on February 4, 2016, after several years of negotiations, if implemented, TPP would be the largest FTA in which the United States participates, and would eliminate trade barriers and establish new trade rules and disciplines on a range of issues among TPP partners not found in previous U.S. FTAs or the World Trade Organization (WTO). In addition, the TPP is designed to better integrate the United States into the growing Asia-Pacific region and has become the economic centerpiece of the Administration’s “rebalance” to the region. Congress would need to enact implementing legislation for the agreement to enter into force for the United States. Such legislation would be considered under Trade Promotion Authority (TPA) procedures, unless Congress determines the Administration has not met TPA requirements.
 
TPP Members
Currently, the TPP includes Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam, which together comprise 40% of the world’s GDP. TPP is envisioned as a “living agreement,” potentially addressing new issues and open to future members, including as a possible vehicle to advance a wider Asia-Pacific free trade area. The United States currently has FTAs with six TPP partner countries. Japan is the largest economy and trading partner without an existing U.S. FTA. Malaysia and Vietnam also stand out among TPP countries without existing U.S. FTAs, given the rapid growth in U.S. trade with the two nations over the past three decades and their generally higher level of trade restrictions.

Potential Outcomes of TPP
The TPP would provide several principal trade liberalization and rules-based outcomes for the United States. These include the following:

• lower tariff and nontariff barriers on U.S. goods through eventual elimination of all tariffs on industrial products and most tariffs and quotas on agricultural products;

• greater service sector liberalization with enhanced disciplines, such as nondiscriminatory and minimum standard of treatment, along with certain exceptions;

• additional intellectual property rights protections in patent, copyrights, trademarks, and trade secrets; first specific data protection provisions for biologic drugs and new criminal penalties for cyber-theft of trade secrets;

• investment protections that guarantee nondiscriminatory treatment, minimum standard of treatment and other provisions to protect foreign investment, balanced by provisions to protect a state’s right to regulate in the public interest;

• enforceable provisions designed to provide minimum standards of labor and environmental protection in TPP countries;

• commitments, without an enforcement mechanism, to avoid currency manipulation, provide transparency and reporting concerning monetary policy, and engage in regulatory dialogue among TPP parties;

• digital trade commitments to promote the free flow of data and to prevent data localization, except for data localization in financial services, alongside commitments on privacy and exceptions for legitimate public policy purposes;

• enhanced regulatory transparency and due process provisions in standards-setting; and

• the most expansive disciplines on state-owned enterprises ever in a U.S. FTA or the WTO, albeit with exceptions, to advance fair competition with private firms based on commercial considerations.

The U.S. International Trade Commission (USITC) has estimated that the TPP would bring modest overall benefits to the U.S. economy once implemented, slightly increasing both output (0.15%) and employment (0.07%) above a baseline scenario without the agreement. According to the USITC study, most agriculture and services sectors would see expansions, while some manufacturing and natural resources sectors would be expected to contract relative to baseline projections as resources shifted within the U.S. economy.

TPP Debate
Views on the likely effects of the agreement vary. Proponents argue that the TPP is in the national interest and has the potential to boost economic growth and jobs through expanded trade and investment opportunities in what many see as the world’s most economically vibrant region. Opponents of TPP voice concerns over possible job loss and competition in import-sensitive industries. Other concerns include how a TPP agreement might limit the government’s ability to regulate in areas such as health, food safety, and the environment. The Obama Administration and others have argued that the strategic value of a TPP agreement parallels its economic value, while others argue that past trade pacts have had a limited impact on broad foreign policy dynamics. In analyzing the agreement and its implementing legislation, Congress may consider the agreement from several of these perspectives, as well as how the TPP promotes progress on U.S. trade negotiating objectives.

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