By Dr Jonathan Choi, Chairman of CGCC

At the 19th CPC National Congress, General Secretary Xi Jinping mapped out a 30-year ambitious development plan for China and stressed his support for Hong Kong and Macao to further integrate into the country’s overall development through the Guangdong-Hong Kong-Macao Greater Bay Area (GBA). The Chief Executive also mentioned in her first Policy Address that the HKSAR Government will actively take part in the GBA’s development, especially in innovation and technology (IT), to create favourable conditions for Hong Kong’s industrial diversification. It can be anticipated that the GBA plan will bring unprecedented opportunities for Hong Kong’s economy. In particular, we can combine the strengths of Hong Kong and Shenzhen in the IT field and work together to give new impetus to the GBA’s development.

Set up a coordination platform for GBA development

CGCC always keep an eye on and support the GBA’s development. I am glad to see that the Policy Address proposed setting up a GBA Development Office, which will be responsible for coordination with the relevant Central authorities, the Guangdong Government and the Macao Government. The Office will proactively approach trade associations and professional bodies to coordinate efforts related to the implementation of various plans so as uncover new opportunities for Hong Kong people and businesses.

The Policy Address also specifically proposed building a platform in the GBA to further firm up IT cooperation between Hong Kong and Shenzhen on the basis of the Lok Ma Chau Loop's Hong Kong-Shenzhen Innovation and Technology Park (HK-SZ IT Park) to integrate upstream, midstream and downstream industrial development and build an international IT center in the area.

In my CPPCC proposal submitted in March this year, I have also suggested that we should leverage the strengths of Guangdong and Hong Kong in the IT field to produce maximum synergies and develop the HK-SZ IT Park into a technology industrial zone with the highest international standards in China. I agree very much with the policy measures put forward in the Policy Address to promote Hong Kong’s IT industry development. I believe the measures will help lead Hong Kong’s IT development to a new milestone and lay an important foundation for deepening IT cooperation in the GBA.

Maximize synergies between Hong Kong and Shenzhen

In fact, Guangdong has implemented an innovation-driven development strategy in recent years and adopted the Guangzhou-Shenzhen Science and Technology Innovation Corridor plan recently to further enhance the province’s nationwide leading edge in IT development and nurture internationally leading high-tech enterprises. Hong Kong is adjacent to Shenzhen and also has comparative advantages such as world-class higher education, free flow of funds and intellectual property rights protection. The two places can reinforce their complementary strengths through the GBA development platform and fully align with the Guangzhou-Shenzhen Science and Technology Innovation Corridor to provide a new point of breakthrough for promoting a new round of IT cooperation.

Through the HK-SZ IT Park platform, Hong Kong and Shenzhen can use Hong Kong’s appeal and, supported by Shenzhen or even the entire Guangdong Province’s technology industry cluster and huge market size, attract Mainland and international R&D institutions and technology companies to locate here with a simple approval system and preferential policies as well as attract high-end talents by facilitating the work-visa applications of R&D personnel.

The governments of the two places can also step up communication and coordination with the business community for commercialization of scientific research results from the Lok Ma Chau Loop and encourage the IT industries in Guangdong and Hong Kong to fortify cooperation with the traditional industries in the region and, together with Hong Kong’s functions in finance and professional operation management, encourage related IT products and companies to carry out IPO financing and advertising & promotion in Hong Kong to form an economic belt for cooperation and development of IT industries, as well as providing one-stop support and auxiliary services.

In conclusion, stronger cooperation between Hong Kong and Shenzhen in the field of scientific research will help enhance the development potential of IT industries in the GBA and gradually develop the GBA into a high-tech industrial development leader with the highest international standards in China and capture the opportunities arising from the country’s progress towards a new era and innovative development.

This article was first published in the magazine CGCC Vision November 2017 issue. Please click to read the full article.

New data connection between China and Nepal forms backbone of BRI's information-centred high-speed network.

Untangling the web: Chinese technology is set to bring streamlined internet access to Nepal.

Faster, more reliable and cheaper internet access is seen as the first tangible sign of the enhanced co-operation between China and Nepal, envisaged as part of the Belt and Road Initiative (BRI) framework. The upgrade took place last month when China Telecom Global, a subsidiary of China Telecom, the Beijing-headquartered, state-owned telecoms giant, partnered with Telecom Nepal to offer an alternative to the country's existing India-channelled internet connection.

This new terrestrial internet gateway forms part of a major BRI infrastructure project that will see Nepal connected to Europe and the Americas via China. For its part, China Telecom has branded the development as a core component of the "BRI's information-centred high-speed link".

The new fibre-optic link is connected to the landlocked Himalayan country via the Kerung-Rasuwa border crossing and has been channelled through the Hong Kong Data Centre, one of the largest international data centres in Asia. Located in the Sai Kung district of the New Territories, this HK$5 billion (US$640 million), 71,000 sq m facility came online in the December of last year. Jointly operated by China Telecom Global, Daily-Tech, a Beijing-based internet infrastructure specialist, and Global Switch, a Hong Kong-based data-centre developer, this new facility is said to be both a large-scale data carrier and a regional technology hub.

The provision of China-Nepal cross-border internet connectivity was first mooted in 2013, but was significantly delayed by the 2015 earthquake that struck Nepal, leaving 9,000 people dead and rendering much of the proposed data access route inaccessible. Despite this, a formal agreement on the project was struck in Hong Kong in 2016, with the installation and testing phase completed in December 2017.

Overall, enhancing the speed, reliability and cost-effectiveness of Nepal's internet access has been seen as a priority, given the surge in demand from both individual users and the business sector. Of the country's 26.5 million people, 62.94% had internet access as of October 2017, up from 35.7% in October 2014, according to figures provided by the Nepal Telecommunications Authority (NTA).

Impressively, Nepal's online population has more than doubled since 2010, when less than 30% of Nepalis enjoyed internet access. As a sign of the country's appetite for digital communication, in the 12 months to October 2017, some 2.25 million new Nepali users were connected to the internet – approximately 250 every hour.

As has been the case elsewhere in developing Asia, the majority of Nepal's internet users go online via their mobile phones, with such usage given a further boost by the roll-out of 4G services that began last year. Summarising the country's changing digital profile, the NTA's 2017 annual report concluded: "The growth in internet penetration has been facilitated by increasing mobile connectivity across the country and, in particular, by the availability of browsers and data connections on even relatively inexpensive phones."

Although landlocked, Nepal is proving to be a coveted strategic location, with both China and India seeing it as playing a pivotal role in realising their wider commercial aspirations across South Asia. In a clear sign of its intentions to secure greater collaboration with the country, China accounted for about 58% of all of Nepal's foreign direct investment pledges in the first half of the country's current fiscal year. Clearly keen to capitalise on this interest from two of Asia's superpowers, Nepal has introduced a number of new legislative measures designed to facilitate such investment, including the Industrial Enterprises Act, the Special Economic Zone Act and the Foreign Investment Policy.

As of December last year, Nepal's Ministry of Finance was said to be considering 12 further BRI-related development proposals. These include a number of major road, rail, hydropower, transmission line and communication projects, as well as plans for a spectacular railway link connecting Kathmandu, the Nepali capital, with Tibet.

Geoff de Freitas, Special Correspondent, Kathmandu

Hong Kong is ranked as the world’s freest economy.

Hong Kong, ranked by the Heritage Foundation as the world’s freest economy for 23 consecutive years, is renowned for its straightforward business environment, one where most commercial activities can be conducted free from government intervention. Its transparent, low tax regime, as well as its free flows of capital and information, all combine to effectively lower overall operational costs, while enhancing efficiency, ultimately facilitating rapid access to international market opportunities. Although Hong Kong does not offer specific incentives to target foreign investors, mainland enterprises often see Hong Kong as their preferred service platform when pursuing Belt and Road opportunities, because of the economic and commercial benefits it provides.

Preferred Platform for Foreign Investors

As a result of globalisation, countries and regions are keen to compete for foreign investment. In order to attract investors, many countries – including China, Singapore and other ASEAN countries – have drawn up specific foreign investment policies. These often include items such as preferential terms of tax exemption or concession, discounts on the cost of resources such as land, or talent subsidies. They are designed to encourage multinational companies to set up business operations there, in the hope of stimulating local economic growth and employment.

Chinese mainland enterprises see Hong Kong as their preferred service platform when pursuing Belt and Road opportunities.

In contrast, Hong Kong does not offer any financial or other specific incentives to attract foreign investment. Yet it is one of the major recipients of foreign direct investment (FDI) in the world[1]. Hong Kong is the main stepping stone for foreign enterprises looking to invest on the Chinese mainland. Statistics show that, as of the end of 2016, 44.7% of approved foreign investment projects on the Chinese mainland were related to Hong Kong. Of the FDI that was actually utilised, a cumulative total of US$913.7 billion came from Hong Kong, 51.8% of the overall FDI inflow into China[2].

Hong Kong is also a major outbound investment platform for mainland enterprises. In 2016, the Chinese mainland made a total of US$114.2 billion worth of outbound direct investment (ODI) through Hong Kong, 58.2% of its overall ODI for the year. As of the end of 2016, a cumulative total of US$780.7 billion, or 57.5% of China’s cumulative ODI, had been made through Hong Kong[3]. The territory’s ability to attract foreign investment has made it the preferred platform both for foreign companies looking to invest on the Chinese mainland, and also for mainland Chinese enterprises wanting to invest overseas.

Market-oriented Business Environment

Hong Kong offers a wide range of high-quality professional services (1).

Unlike some Asian economies, Hong Kong does not offer specific preferential treatment to foreign companies. Indeed, any concessions and subsidies are available to all companies incorporated in Hong Kong, be they local businesses, or ones from the Chinese mainland or further afield. To discover whether this affected Hong Kong’s ability to compete for foreign investment against Asian economies which do offer preferential treatment, HKTDC Research and the Shanghai Municipal Commission of Commerce jointly interviewed a number of Hong Kong organisations and companies. The study found that although there were pressures on Hong Kong due to the competition in the region, this was more than offset by the territory focusing its development strategy on the provision of a favourable environment for businesses generally. Upholding the principles of impartiality and efficiency, Hong Kong offers a wide range of high-quality professional services to help businesses lower costs and take advantage of opportunities in international markets.

One example of this, often cited by Invest Hong Kong (InvestHK), is that no government approval is required to set up a regular company in Hong Kong. Another is that, because of its transparent low tax regime, the overall tax liability borne by a company in Hong Kong is lower than those in other economies, even those which offer specific tax incentives to foreign companies. Furthermore, Hong Kong’s world-class infrastructure, including international traffic and transport networks and communication facilities, means companies can connect easily and quickly with the Chinese mainland and other parts of the world. Other factors, such as the free flows of capital and information in Hong Kong, have made the territory one of the least restrictive economies in the world. All this has attracted ever increasing numbers of foreign investors who rely on Hong Kong as a service platform for expanding their operations in the Chinese mainland and international markets.

Support for foreign investors is also available through agencies such as InvestHK and other public institutions. They help investors find the professional services and staff they need; assist in liaising with other government departments and completing formalities such as applying for business licences and employment visas; put them in contact with local trade sectors; and provide consultation services to help companies apply for subsidies and start-up support from the Hong Kong government.

Shanghai-Hong Kong Co-operation in Tapping Global Business Opportunities

Under China’s Belt and Road Initiative, mainland enterprises have been stepping up their efforts to “go out” and go global. This is particularly true in the coastal areas that serve as China’s major centres for economic co-operation with foreign countries, and especially so in Shanghai and the Yangtze River Delta (YRD) region. In 2016, 83.4% of the Chinese mainland’s total ODI came from its eastern coastal areas, with Shanghai ranked first among all provinces and cities in terms of ODI volume. Companies in Shanghai and the YRD region have become increasingly active in working through Hong Kong to capture Belt and Road opportunities.

Hong Kong offers a wide range of high-quality professional services (2).

Against this backdrop, HKTDC Research and the Shanghai Municipal Commission of Commerce conducted a survey in Shanghai and the YRD region in the first quarter of 2017. Of those businesses who responded, nearly half (46%) said they regarded Hong Kong as their preferred destination for seeking professional services outside the mainland when looking to take advantage of Belt and Road opportunities[4].

Another survey, conducted by the same two organisations in Hong Kong in the 4^th quarter of 2017, was aimed at assessing how Hong Kong can help mainland enterprises expand their international business. Many companies and organisations which responded to the survey acknowledged that local companies and foreign enterprises set up in Hong Kong enjoy the benefits offered by Hong Kong’s business environment.

Investors lacking a thorough knowledge of the picture, however, may be prone to presume that the absence of specific incentives has a negative effect on foreign investment in Hong Kong. Yet once they evaluate the overall costs and benefits available to their projects, it becomes clear that Hong Kong is the ideal and efficient service platform for their investment.

Given that Shanghai and other mainland provinces and cities are stepping up their efforts to strengthen co-operation with Belt and Road countries, Hong Kong is the ideal service platform to support the Chinese mainland, both in making overseas investments and in attracting foreign investors.

Note: For details of the company interviews conducted jointly by HKTDC Research and the Shanghai Municipal Commission of Commerce, please refer to other articles in the research series on Shanghai-Hong Kong Co-operation in Capturing Belt and Road Opportunities.

[1] According to the World Investment Report 2017 published by the United Nations Conference on Trade and Development (UNCTAD), Hong Kong was the 4^th largest recipient of FDI in the world in 2016, behind the US, UK and Chinese mainland.

[2] Source: China Monthly Statistics

[3] Source: Statistical Bulletin on China’s Outward Foreign Direct Investment 2016

[4] For further details of the survey results, please refer to: Hong Kong Services Help Yangtze River Delta Enterprises Capture Belt and Road Opportunities

Thanks to the active overseas investment of Chinese enterprises in recent years and the Chinese government’s advancement of the Belt and Road Initiative, China was the world’s third-largest source of foreign investment for the fourth consecutive year in 2015. In fact, many mainland enterprises are stepping up their efforts in “going out” to look for brands, technologies and other resources to boost their competitiveness, while bringing in the advantages of foreign partners as a way to further develop Chinese and overseas markets.

Moreover, the majority of enterprises surveyed said they would consider “going out” further to tap business opportunities in countries along the Belt and Road routes, particularly in ASEAN countries and other Southeast Asian markets. As well as aiming to sell more industrial/light consumer products to Belt and Road markets, they also wish to carry out sourcing and investment activities such as setting up factories.

The largest proportion of the surveyed enterprises (50%) said that, in the course of “going out”, they would be most interested in going to Hong Kong to seek professional supporting services and business partners. This is in line with the results of similar surveys carried out by HKTDC Research in the past three years, namely in the Pearl River Delta (PRD) in 2013, the Yangtze River Delta (YRD) in 2014 and the Bohai Rim in 2015. Therefore, whether in the coastal regions or in western China, it is apparent that Hong Kong is the preferred services platform for mainland enterprises intent on “going out”.

New Pattern of Opening Up Under the 13th Five-Year Plan

Chinese enterprises have been actively investing overseas in recent years.

China is not only a leading destination for foreign direct investment (FDI), but it also ranks among the world’s top sources of FDI. Indeed, China has in recent years significantly relaxed its administrative measures on outbound investment in order to facilitate the “going out” of enterprises to invest overseas. Furthermore, the Belt and Road Initiative strengthens mutually beneficial co-operation with countries along its economic corridors.

Adopted in March 2016, China’s 13th Five-Year Plan[1] stresses the need to establish a new pattern of all-round opening up in the next five years (2016-2020). It encourages enterprises to “go out” to establish sales networks in foreign markets and to bring in the advantages of foreign partners to enhance competitiveness. Meanwhile, bilateral and multilateral co-operation mechanisms will be improved to encourage co-operation and investment in countries along the Belt and Road routes, infrastructure connectivity and trade facilitation advanced, and co-operation in energy and industry chains strengthened. It can therefore be expected that China’s outbound investment activities will see further expansion.

(For further details, please see Opportunities Arising from China’s 13th Five-Year Plan: An Overview.)

The World’s Third-Largest FDI Source

According to the latest United Nations Conference on Trade and Development (UNCTAD) figures[2], for four straight years since 2012 China has been the world’s third-largest source of FDI. China’s total outward FDI flows have increased from US$123.1 billion in 2014 to about US$127.6 billion in 2015, trailing only the United States (US$300 billion) and Japan (US$128.7 billion).

Although China has entered into a “new normal” of slower economic growth in the past few years, it has gradually become a main investor in certain developed countries. In particular, investment through cross-border mergers and acquisitions has been increasing, and has moved away from the previous pattern of focusing on energy and natural resources to a diversified pattern covering wholesale and retail, transportation and shipping/warehousing, and real property development. Furthermore, many Chinese enterprises have engaged with their foreign partners in co-operation projects involving technology, or are carrying out various types of commercial co-operation activities with foreign brands, as a way to further develop Chinese and overseas markets.

Meanwhile, China’s direct investment in Belt and Road countries is continually increasing, rising substantially from about US$400 million in 2004 to US$13.66 billion in 2014, an average annual increase of about 43%. Ministry of Commerce figures show that in 2015 Chinese enterprises made non-financial sector direct investment totalling US$14.8 billion (+18.2%) to 49 Belt and Road countries, accounting for 12.6% of China’s total non-financial sector direct investment that year. The investment flows were mainly directed towards Singapore, Kazakhstan, Laos, Indonesia and Russia.

It is worth noting that a considerable number of Chinese enterprises choose Hong Kong as their main channel for carrying out outbound investment – not only because Hong Kong is an international financial centre in the region with such advantages as free flow of capital. Abundant global communications and market network resources, as well as the availability of a complete range of professional services, are also key factors attracting mainland enterprises to use the Hong Kong platform in “going out”.

According to Ministry of Commerce figures, in 2014 the Chinese mainland routed US$70.9 billion in outward FDI through Hong Kong, accounting for 57.6% of the mainland’s total FDI outflows that year. Based on cumulative investment stock as at the end of 2014, the mainland has made US$509.9 billion in outward FDI through Hong Kong, accounting for 57.8% of the mainland’s outward FDI stock.[3]

China is the world’s third-largest source of FDI.

A considerable number of Chinese enterprises choose Hong Kong as their main channel for outbound investment.

Hong Kong: a Preferred Platform

Many cities and economic regions along China’s coast have been open to the outside world for many years. As China’s economy and investment outflows expand, coastal regions, provinces and cities, such as the PRD, YRD and Bohai Rim, have become main sources of outbound investment. On the other hand, with the western region including Sichuan province and Chongqing municipal benefiting from the Western Development strategy and other preferential policies, and with the efforts of provinces and cities concerned in attracting outside businesses and capital, the economy in the western region has been developing rapidly. Western China has always been an important gateway, a trading and logistics hub and an industry exchange ground connecting to Central Asia, South Asia and West Asia, and now enterprises in the region are also developing related investment and trading opportunities under the country’s “going out” and Belt and Road initiatives.

In May 2016, HKTDC Research conducted a questionnaire survey at the SmartHK fair held in Chengdu, the capital city of Sichuan province. As well as seeking to understand what challenges enterprises in western China are facing in their operations, the survey also aimed to find out about their intentions concerning transformation and upgrading, in “going out” to tap Belt and Road business opportunities, and their demand for professional services.

The survey followed similar studies carried out by HKTDC Research in the past three years in the PRD (2013), the YRD (2014) and Bohai Rim (2015) regions.[4] In the current survey, 237 effective questionnaires were completed by mainland enterprises (comprising trading companies, manufacturers and service suppliers) mainly from Sichuan, Chongqing and elsewhere in the western region.[5] The opinions of these 237 mainland enterprises on “going out” to tap Belt and Road business opportunities are outlined below.[6]

Hong Kong offers a full range of professional services.

Hong Kong is the preferred services platform for the “going out” of mainland enterprises.

• Challenges in Business Operations

  Of the enterprises surveyed, 96% said they had come across different types of challenges in their operations in the past year. The three main problems they faced were (1) difficulties in financing; (2) rising labour, land and/or other production costs; and (3) a weak mainland market and inadequate orders. These accounted for 39%, 38% and 36%, respectively, of the enterprises surveyed.

  In addition, 26% of the enterprises indicated they were worried about their lack of capability in product design and technological R&D; 22% pointed out that, in the face of keen competition in the international markets, they lacked competitive brands to help develop international markets and business; and 20% said they were affected by weak international markets and inadequate orders. By comparison, relatively few enterprises (only 9% of those surveyed) said the volatile renminbi exchange rate, including depreciation of the currencies in their target markets, was a hindrance.

• Adjusting Operating Strategy

  Confronted with market competition and other challenges, 95% of the enterprises surveyed said they had already adjusted their business and operating strategies and made relevant investment, or would consider doing so in the next one to three years. As to the direction of adjustments in business and operating strategies, most enterprises indicated they would do more to develop overseas markets, accounting for 44% of all enterprises surveyed (including 29% saying they would do more to develop overseas mature markets and 25% saying they would do more to develop overseas emerging markets). In addition, 43% said they would develop/strengthen their own-brand business, while 41% said they would like to do more to develop the Chinese mainland market.

  Compared with the results of previous surveys, enterprises in western China appeared to be as keen as their PRD counterparts in wanting to develop both overseas markets and the Chinese mainland market. In comparison, enterprises in the YRD and Bohai Rim regions were more concerned with bringing in foreign advantages to develop the mainland market, showing that the development strategies of enterprises in different regions were not all the same.

• Intention of Tapping Belt and Road Opportunities

  In the current survey, enterprises were also asked about their opinion on Belt and Road opportunities. Among all the enterprises surveyed, 81% said they would consider tapping opportunities in countries along Belt and Road routes in the next one to three years. Among these enterprises, most (65%) said they would like to sell more industrial products and light consumer goods to Belt and Road markets. A smaller proportion of the enterprises (34%) would like to go to Belt and Road countries to carry out sourcing activities, including the sourcing of consumer goods/food products to sell in the mainland market or the sourcing of raw materials for production on the mainland. Some enterprises (26%) would like to invest and set up factories in Belt and Road countries. In addition, 17% would like to set up transit warehouses in overseas locations including Belt and Road countries to enhance international logistics efficiency.

  On the other hand, more than half of the enterprises (53%) said they would be most interested in going to Southeast Asia, such as ASEAN countries, to tap Belt and Road opportunities. Other locations of interest included South Asia (27%), Central and West Asia (20%), Central and Eastern Europe (19%) and the Middle East and Africa (18%).

• Keen Demand for Hong Kong and Overseas Services

  Facing all types of business and operating challenges and aiming to advance transformation and upgrading, the enterprises surveyed were keen for various types of professional services. In line with the results of HKTDC’s surveys conducted previously in the PRD, YRD and Bohai Rim regions, the three main types of services most sought by western China enterprises were: (1) brand design and promotion strategy; (2) marketing strategy for the development of new business and new markets (including the development of Belt and Road markets); and (3) product development and design. These accounted for 46%, 45% and 44%, respectively, of the enterprises surveyed. This shows that, irrespective of the direction of transformation and upgrading of mainland enterprises or the focus of their operating strategies, the professional services needs of enterprises from different regions are more or less the same.

  Other services western China enterprises need to seek from the outside included: marketing activities tailored to overseas markets, including Belt and Road markets (37%); financial services such as banking, financing and project valuation (36%); services in energy conservation, emission reduction and environmental protection technology (33%); and supply chain management and support services, such as materials and product inventory and logistics management (31%). Of those enterprises surveyed requiring these services, more than 60% indicated they would use the services provided by Hong Kong or overseas suppliers, with the exception of energy conservation and environmental protection technology.

• “Going out” To Seek Business Partners

  Meanwhile, 81% of the enterprises surveyed expressed an interest in seeking, or had already “gone out” to seek, business partners overseas. The majority of the enterprises (about 50%) said they were interested in co-operating with foreign brands to increase sales. This is similar to the results from the surveys previously conducted in the PRD, YRD and Bohai Rim regions. (Coincidentally, enterprises from different regions considered brand co-operation as their top reason for seeking foreign partners.)

  In addition, 22% of the western China enterprises surveyed said they would like to acquire minority equity stakes in foreign companies to expand their overseas/mainland sales networks, 20% would like to enter into technological co-operation with overseas institutions, while 15% would like to redouble their efforts in purchasing high-tech equipment, raw materials and key parts and components from overseas.

• Hong Kong as the Preferred Services Platform for the Mainland’s “Going Out”

  About half (50%) of the enterprises surveyed indicated they would like to go to Hong Kong to seek the professional services mentioned above and/or to look for foreign business partners. Although this proportion is slightly lower than in the previous three surveys, Hong Kong remains the “going out” platform preferred by most western China enterprises, and attracts the preference of a much higher proportion of enterprises surveyed than other locations such as the US, Germany, Taiwan, Japan and Singapore, which account for 26%, 20%, 19%, 17% and 14%, respectively, of the enterprises surveyed. It is therefore apparent that, irrespective of the location of a mainland enterprise or whether it is from the PRD, YRD, Bohai Rim or China’s western region, Hong Kong is the preferred services platform for “going out” from the mainland.

[1]  The 13th Five-Year Plan refers to the Outline of the 13th Five-Year Plan for National Economic and Social Development of the People’s Republic of China adopted at the fourth session of the 12th National People’s Congress in March 2016.

[2]  World Investment Report 2016, UNCTAD.

[3]  Source: 2014 Statistical Bulletin of China’s Outward Foreign Direct Investment.

[4]  For the research topics and results of the surveys conducted respectively in the PRD, YRD and Bohai Rim, please see Guangdong: Hong Kong Service Opportunities Amid China’s “Going Out” Strategy published in December 2013; China’s “Going Out” Initiative: Jiangsu/YRD Demand for Professional Services published in September 2014; and China’s “Going Out” Initiatives: Professional Services Demand in Bohai published in September 2015.

[5]  The HKTDC held a SmartHK Expo fair at Chengdu Century City New International Exhibition & Convention Centre on 12-13 May 2016. During the CEO Forum and four thematic seminar sessions related to “going out” to tap Belt and Road opportunities, HKTDC Research conducted a questionnaire survey on the attendees. Of the 469 questionnaires collected afterwards, 237 were deemed to be effective ones filled out by mainland enterprises (including trading companies, manufacturers and service suppliers).

[6]  The options in the current survey are slightly different from those in the three previous surveys, so only some of the results can be compared.

China’s 13th Five-Year Plan (2016-2010): on the drawing board

At the fifth plenary session of the 18th Central Committee of the Communist Party of China, held on 29 October 2015, the Suggestions of the Central Committee of the Communist Party of China on the 13th Five-Year Plan for National Economic and Social Development (Suggestions) were passed. It was later stated at a State Council Executive Meeting that the 13th Five-Year Plan (2016-2020) will be formulated according to the Suggestions [1].

President Xi Jinping and Premier Li Keqiang also remarked that the core goals of the 13th Five-Year Plan are to build a “moderately well-off society” and to overcome such challenges as the “medium-income trap”. While efforts will be made to optimise the economic structure, improve the environment, and enhance the quality and benefit of development, steps will be taken to achieve economic growth. Specific goals include: [2]

• Maintaining economic growth at a medium to high speed, with average annual growth over 6.5%

• Raising per-capita GDP to US$12,000 (up from around US$7,600 in 2014)

• Accelerating industrial upgrade and propelling the economy to develop at medium to high level

• Balancing urban and rural development and ecological construction

• Strengthening social fairness and justice and balanced development

Encourage Innovation and Enhance Quality of Economic Development

According to the Suggestions, the 13th Five-Year Plan will place emphasis on advancing mass entrepreneurship, encouraging technological innovation, and promoting the development of new industries, in a bid to inject new vigour into the economy. It will focus on developing high technology and high value-added industries, while strengthening supporting infrastructure, revamping related financial systems, and improving the business environment to promote further growth of related industries. The target industries and development sectors will include:

13th Five-Year Plan: Technological innovation a priority

13th Five-Year Plan: New energy industries to receive boost

• Developing emerging industries

  This includes developing such emerging industries as energy saving and environmental protection, biotechnology, information technology, smart manufacturing, high-end equipment, and new energy, as well as giving support to traditional industries to undergo upgrade.

• Bolstering infrastructure construction and encouraging innovation

  This includes building high-speed and safe next-generation information infrastructure, as well as quickening the pace of implementing the “Internet +” action plans, developing IoT (Internet of Things) and big data technology and application, and formulating plans to develop the next generation of Internet and related technology.

• Encouraging corporate innovation

  Efforts will be made to encourage R&D, strengthen technology integration capability, and import technology from abroad, targeting advanced technologies including next-generation information communication, new energy, new materials, aviation and space, biomedicine, and smart manufacturing. Action will also be taken to improve tax concession policies for corporate R&D expenses, and expand preferential treatment for accelerated depreciation of fixed assets to encourage enterprises to replace their equipment and apply new technology.

• “Made in China 2025”

  Steps will be taken to encourage mainland industries to develop from “Made in China” to “Created in China”, and to achieve the task of industrial upgrade moving “from big to strong”. This includes raising the level of product technology, technical equipment, energy efficiency and environmental protection across the board, as well as liberalising market access for modern services in a bid to promote development of the specialised high-value producer service industry, and assist the manufacturing industry in increasing value-added.

• Developing new systems

  Action will be taken to simplify the industry and commerce administration systems, accelerate the pace of financial system reform, raise the efficiency of the financial sector in serving the real economy, and further develop the capital market in a bid to lower the financing costs of medium, small and micro enterprises.

Based on the above development directions, it can be expected that implementation of the 13th Five-Year Plan will boost the mainland’s demand for various types of new and high technology. However, in certain high-tech industries such as IoT applications and development of the next-generation Internet, as China is currently still short of total and standard solutions and lacks user experience in certain areas, related R&D and technology application is somewhat constrained. Hong Kong’s technical personnel, who are well-versed in advanced foreign technology and excel in using technologies developed by international standards/frameworks to provide technological and management system solutions, can assist in the commercialisation of related projects in the mainland and meet the technological demands listed in the 13th Five-Year Plan.

Meanwhile, the mainland hopes to make use of innovation to facilitate industrial upgrades. For instance, the policy paper “Made in China 2025” stated that enterprises will be encouraged to strengthen their product design capability and brand building so that more enterprises will shift from OEM to ODM, as well as develop their own branded business. This should provide opportunities for Hong Kong’s design and branding service suppliers. A recent survey conducted by the Hong Kong Trade Development Council found that mainland enterprises wish to obtain service support from Hong Kong or foreign countries in the following areas: (i) product development and design; (ii) brand design and promotional strategy; and (iii) marketing strategy. [3]

Hong Kong, as an international financial centre in the region, can provide mainland enterprises with the necessary loan and financing services, such as providing cost-effective capital for relevant technology and industrial projects, helping mainland enterprises to lower financial cost. Also, as Hong Kong is one of the largest venture capital management centres in Asia, a large number of top-notch international fund managers wishing to grasp business opportunities in China have already established a foothold in Hong Kong, which can offer more financing channels for mainland enterprises. It can be expected that during the 13th Five-Year Plan period the mainland will further open up its financial services market, this should bring about more opportunities for Hong Kong financial service suppliers to enter the mainland market.

Balanced Regional Development

The Suggestions also stress that during the 13th Five-Year Plan period efforts will be made to strengthen the balanced development of various regions, including placing equal emphasis on urban and rural development, as well as synchronising the pace of development of the more developed eastern coastal region with that of the central and western regions. The emphasis of the plan is expected to include:

• Advancing coordinated regional development

  This includes deepening the Go West initiative and promoting development of the central region. Emphasis will be placed on encouraging the coordinated development of certain regions, such as advancing the coordinated development of the Beijing-Tianjin-Hebei region and the Yangtze River Economic Belt. Regional development will be achieved by way of optimising urban development planning, encouraging regional transportation integration, and improving regional environmental planning.

• Advancing new urbanisation construction

  Steps will be taken to advance a people-centred new urbanisation plan; enhance the level of urban planning, construction and management; deepen household registration system reform; and assist rural migrants capable of working steadily in urban areas in obtaining urban resident status.

The importance attached by the Suggestions to the strategy of balanced development of the eastern and western regions and urban and rural areas aims to tackle problems brought about by disparities in regional development in the past and by the rapid pace of urbanisation of some localities. These problems include:

• Insufficient transport facilities, environmental resources and supporting municipal facilities in certain city clusters

• The polarised development of the urban and rural areas has quickened the pace of people flow into cities, increasing the pressure on urban development

• As the pressure on the transportation and communication systems continues to grow, the efficiency of logistics services is in dire need of improvement

• Water and air pollution problems are increasingly serious, creating a strong demand for environmental services, such as energy saving and emission reduction

Integrated regional transport links a development focus

New-style urbanisation in full swing

The rate of urbanisation in the mainland rose rapidly from 36% in 2000 to 55% in 2014. The pace is particularly fast in more developed regions, for instance, the urbanisation rate in some of the YRD provinces exceeds 65%, which has created the problems mentioned above. [4] In view of this, the 13th Five-Year Plan is likely to take a further step in making “new” urbanisation a development direction, devoting great efforts to enriching the content of urban and rural development and making the enhancement of urban quality a development objective, instead of simply seeking urban construction or expanding the boundary of cities.

Against this backdrop, the 13th Five-Year Plan will not only bring about the upgraded development of coastal cities, but will also stimulate the construction and economic activities of urban and rural areas in the central and western regions, as well as the old industrial regions in the northeast. For instance, where building new city clusters is concerned, efforts will be made to strengthen the construction of daily-life supporting facilities in the relevant urban and rural areas, and to upgrade infrastructure, such as cross-regional intercity and trans-regional transport systems.

Hong Kong is not only an international financial centre, but also an important commercial services platform in the Asia-Pacific region. With a pool of local and foreign infrastructure construction service suppliers in extensive fields, Hong Kong has rich experience in different modes of urban development and management. Meanwhile, in the mainland, as the scope of urban construction continues to expand, infrastructure enterprises with comprehensive service abilities are needed to satisfy market demand for infrastructure and overall planning services. Also, as mainlanders’ income level continues to rise, they are becoming more demanding where the quality of urbanisation is concerned. Hence, when government departments in charge of planning and developers set out to advance urbanisation, priority is given to development quality over speed and quantity. This will create opportunities for qualified service suppliers wishing to tap the China market.

On the other hand, regional development and urbanisation are bound to change the urban landscape rapidly in different regions. The emergence of new commercial districts will prompt the distribution and retail sector to shift toward modern business modes, as well as bolster development of the consumer market in small coastal cities and in the central and western regions. However, Hong Kong companies wishing to enter these “emerging markets” must assess local purchasing power, pay attention to the consumption pattern of different cities, and avoid intense price competition from online businesses.

Moreover, under the 13th Five-Year Plan, the mainland may quicken its pace of building smart city clusters and apply next-generation information technology to raise the efficiency of city management. This should directly boost the demand for the application of IoT technology in a number of areas, such as transport, environmental monitoring and municipal management, generating opportunities for relevant service suppliers to enter the market.

As development of the transport logistics network in the mainland becomes increasingly mature, it will promote the further development of logistics services and e-commerce. For instance, as the mainland’s demand for cold chain logistics is rising rapidly, it is in urgent need of importing advanced cold chain solutions in order to raise overall operation efficiency and quality. Moreover, while domestic online shopping is growing in leaps and bounds in the mainland, cross-border e-commerce and related logistics services have yet to develop. In comparison, Hong Kong not only has rich experience in cold chain logistics management but also a sound e-commerce and logistics platform. Hong Kong is therefore well positioned to capture additional opportunities created by the 13th Five-Year Plan.

Sustainability is Main Development Strategy

Both the Suggestions and the leadership have stressed on many occasions that, while efforts will be made to advance social and economic construction, action will also be taken to accelerate the building of a resource-efficient, eco-friendly society and strengthen environmental protection in order to ensure sustainable social and economic development. In fact, the extensive growth mode of China’s economic development in the past has caused serious environmental pollution, with the resulting economic cost and social problems arousing great concern from both the government and the general public. Against this background, it can be expected that the 13th Five-Year Plan will include the following development plans:

• Strengthening environmental protection measures

  Action will be taken to implement the green city development plan, strengthen clean production management, encourage enterprises to upgrade and revamp their technical equipment, develop green finance to help enterprises strengthen environmental management and green operation, and encourage society to pursue green consumption.

• Tightening pollution control

  This includes optimising the industrial structure of the developed Beijing-Tianjin-Hebei, YRD and PRD regions and encouraging these regions to move towards high-end production and low pollution. In key ecological functional zones, the negative list will apply to industrial market access; greater efforts will be made to contain air, water and soil pollution; regulatory requirements for industrial pollution sources to meet emission standards will be fully implemented; urban domestic sewage and refuse treatment will be fully advanced; and enforcement of relevant laws will be strengthened.

• Developing environmental protection and related industries

  This includes expediting energy technology innovation; encouraging the development of the new energy industry, such as wind, solar, bio, water and geothermal energy; strengthening smart power grid construction; continuing to promote the development of the new energy car industry; popularising green construction; and boosting development of the waste recycling system and industry.

During the 13th Five-Year Plan period, the mainland will further strengthen energy saving, emission reduction and environmental protection policies. In particular, the new Environmental Protection Law, which came into effect on 1 January 2015, aims to tackle environmental pollution issues, including authorising environmental protection departments to close down facilities which have caused serious environmental pollution and to order units emitting excessive pollutants to limit or cease production; as well as impose heavier penalties and punishment on non-compliance. [5]

Tougher punishments for violations of environmental laws

Greater efforts to tackle environmental problems

The demand of mainland enterprises and relevant units for environmental protection services such as energy saving and pollution prevention and containment is bound to rise rapidly. These enterprises, while facing more stringent legal requirements, are also encouraged by government policies, such as green finance measures. As such, they will take greater initiative to seek environmental protection services in order to meet requirements for energy saving, emission reduction and emission standards. In view of this, the 13th Five-Year Plan should provide environmental protection service and technology companies possessing the right technology and expertise with extensive room for market expansion.

Hong Kong’s environmental protection companies and technical personnel have accumulated rich experience in specialised project management throughout the years. As such, they possess advantages in providing one-stop services and excel in combining advanced environmental protection technology in foreign countries with low cost parts and components in the mainland. With the support of various financial services in Hong Kong, they can also provide mainland clients with project financing services, such as performance contracting for energy and water efficiency, hence they are well-positioned to make a foray into the mainland environmental protection market. This, coupled with Hong Kong’s favourable business environment, has made Hong Kong companies ideal cooperation partners for foreign environmental protection technology players interested in undertaking technology transfer and licensing in the mainland.

It is worth noting that Hong Kong companies wishing to capitalise on the environmental protection opportunities in the mainland have to obtain a qualification licence issued by the relevant department of the mainland government. For instance, if they wish to provide environmental protection system engineering design services or environmental protection facilities operation services, they may need to obtain a qualification licence from the national or local environmental protection department. However, CEPA [6] has introduced a lot of liberalisation measures facilitating Hong Kong companies’ provision of environmental protection services in the mainland (including establishing wholly-owned enterprises in the mainland to provide such services as sewage and waste treatment) and to apply for qualifications to operate environmental pollution control facilities. Furthermore, as Hong Kong has signed an agreement on the liberalisation of trade in services with the mainland, Hong Kong service suppliers entering the mainland environmental protection market are entitled to national treatment. This has given Hong Kong companies the advantage of entering the mainland environmental protection market earlier than their foreign counterparts. [7]

New Horizon in Opening Up

In recent years China has significantly liberalised administrative measures on outbound investment to encourage enterprises to “go out” and invest overseas in a move to establish sales networks in foreign markets and at the same time “bring in” the advantages of foreign partners, in order to enhance competitiveness and seek transformation and upgrade. Meanwhile, China is proactively encouraging free trade zones in Shanghai, Guangdong, Tianjin and Fujian to open up, as well as advancing the Belt and Road initiative in the hope of capitalising on the comparative advantages of the PRD, YRD and Bohai Rim in order to strengthen economic ties with countries along the route. Against this backdrop, the Suggestions point out that the 13th Five-Year Plan should strengthen the following liberalisation measures and development directions:

• Strengthening two-way opening up

  Steps will be taken to strengthen the construction of ports and infrastructure facilities in inland border areas, build cross-border multimodal transport corridors, and bolster the development of border economic cooperation zones and cross-border economic cooperation zones. Efforts will be made to expedite the optimisation and upgrade of foreign trade, further develop trade in services, implement positive import policies, and further open up the market to the rest of the world.

• New opening-up measures

  Action will be taken to encourage enterprises to expand outbound investment and promote “going out” with their equipment, technology and services so that Chinese industries can integrate further with global industry and logistics chains. Meanwhile, efforts will be devoted to encouraging the development of new trade modes, such as cross-border e-commerce, and advancing the construction of free trade zones and related opening-up measures. Besides, steps will be taken to further open up the service sector to the outside world, especially expanding the two-way opening-up of the financial sector, orderly realising convertibility of the RMB under the capital account and paving the way for internationalisation of the RMB.

• Advancing the Belt and Road initiative

  This includes improving bilateral and multilateral cooperation mechanisms, encouraging enterprises to invest in countries and regions along the route, advancing infrastructure connectivity, and strengthening energy cooperation in a bid to jointly build an offshore industry cluster and establish a local industry system. At the same time, cooperation in such areas as education, technology, culture and environmental protection will be unfolded. Detailed measures include enhancing cooperation with international financial institutions; participating in the establishment of the Asian Infrastructure Investment Bank and New Development Bank BRICS; giving full play to the Silk Road Fund; and attracting international funds to jointly build a diversified financial cooperation platform. 

The 13th Five-Year Plan enhances foreign trade and economic cooperation and introduces positive import policies, and the mainland encourages Guangdong and Hong Kong to jointly expand the international market and strengthen trade ties with economies along the Maritime Silk Road. These efforts should help to consolidate Hong Kong’s position as a trade and shipping hub in the Asia-Pacific region.

Hong Kong a preferred platform for mainland’s outward investment

The deepening of the opening-up policies in Guangdong and other free trade zones under the 13th Five-Year Plan, and the deepening of liberalisation of trade in services between Guangdong and Hong Kong under the CEPA framework, will further increase the room for Hong Kong companies to enter the Guangdong and the entire mainland market.

Where further financial sector opening up is concerned, in recent years many Hong Kong companies have proactively taken advantage of the mainland’s liberalising financial policies and CEPA concessions to gradually participate in the mainland financial market, set up networks and accumulate practical operation experience. Today, Hong Kong is a leading RMB offshore trading centre and has developed cross-boundary RMB lending business via Qianhai. All these factors will give Hong Kong financial players the first-mover advantage during the 13th Five-Year Plan period when the mainland further liberalises related policies.

Moreover, China’s Belt and Road initiative will further encourage mainland enterprises to invest in countries along the route. Hong Kong has always been acting as the bridgehead for the mainland’s foreign trade and economic cooperation activities, and is also the mainland’s preferred service platform for making offshore investments. In the past, Hong Kong has handled trade and investment business in overseas markets for a lot of mainland enterprises, providing a full range of professional services, such as financial, legal, taxation, sustainable operation risk assessment, and international certification and inspection services. With the 13th Five-Year Plan strengthening the “going out” strategy and advancing the Belt and Road initiative, it can be expected that more opportunities will be made available to Hong Kong service suppliers.

Raise Level of Social Development

The Suggestions also mention that efforts will be made to strengthen public services, enhance the quality of education, and guarantee people’s basic livelihood in order that the country will evolve into a moderately well-off society. Therefore, it can be expected that where social development is concerned, the 13th Five-Year Plan will cover the following directions for reform and development:

• Promoting balanced growth of the population

  The two-child policy will be fully implemented, proactive action will be taken to tackle the problem of ageing population, and the elderly care service market will be fully liberalised.

• Reforming the social security system

  This includes improving the employee pension insurance system, broadening social insurance fund investment channels, strengthening risk management, and raising investment return rate. Action will be taken to improve the sustainable development of the medical insurance system and deepen medical and health system reform, including introducing separation of consultation from medication, and establishing a basic medical and health system and modern hospital management system covering both urban and rural areas.

• Tightening food safety

  Steps will be taken to advance a stringent and highly efficient food safety management system.

In a bid to promote balanced growth of the population, the two-child policy will be fully implemented during the 13th Five-Year Plan period. This represents a step to be taken to further improve the country’s population control policy after introducing the policy of allowing single-child parents to have two children in November 2013. According to the estimates of the National Health and Family Planning Commission, the new second child generation will mainly concentrate in urban areas, accounting for 76% of all newly born second children. It is projected that by the year 2030 China’s total population will reach 1.45 billion. And by 2050, the population of the labour force aged 15-59 will increase by about 30 million, this will help alleviate the problem of population ageing and contribute to population structure optimisation.

China set to adjust family planning policy

Food safety an issue of wide public concern

In the short term, introduction of the two-child policy can directly stimulate the demand for maternity, baby and infant products and services, such as food, health food, daily use articles, as well as mother and child health service and child care service. In the long run, it will boost the demand for housing, education and medical care. As mainland parents are attaching more and more importance to product quality and safety, as well as the level of professional services, such as education and medical care, Hong Kong companies can capture the opportunities arising from this new development.

Moreover, the 13th Five-Year Plan’s aim to accelerate the pace of old-age insurance and medical insurance system reform is bound to stimulate the growth of the insurance market. Currently, as China liberalises its financial and services markets, financial and insurance industry players stand to benefit from the emerging market opportunities.

As China’s population gradually ages and the pace of life quickens in tandem with rapid urbanisation, the health care expenses of mainlanders continue to rise, particularly the case with middle-class or above citizens. Coupled with the proposal put forward in the 13th Five-Year Plan for medical system reform and market liberalisation, this will generate opportunities for Hong Kong service suppliers in related fields.

Hong Kong medical service suppliers, by combining health, medical and leisure services and taking advantage of the policy offered by the mainland allowing Hong Kong players to set up wholly-owned hospitals and traditional Chinese medicine hospitals in the mainland on a pilot basis starting from mid-2014, can tap the mainland’s high-end health and medical services market. Apart from capitalising on Hong Kong’s financial services to offer strategic recommendations on financing arrangements for these health and medical projects, Hong Kong companies can also make use of next-generation IoT technology and their experience in providing sustainable medical care service to Hong Kong’s diversified community in the form of private institution to offer custom-made management solutions to mainland projects.

The 13th Five-Year Plan also devotes great efforts to food safety. It can be expected that the mainland government will strengthen food safety system management as well as food certification, supervision and random check measures in a move to protect public health. At the same time, in order to boost consumer confidence, many food production enterprises have joined voluntary food certification schemes, including food safety and green and organic certification.

These developments will directly bolster market demand for food testing, inspection and certification services. Under CEPA, Hong Kong companies are granted concession to enter the mainland testing and inspection service market, this includes allowing Hong Kong testing and inspection organisations offering certification services to expand their business scope to cover food products and voluntary food certification in Guangdong province on a pilot basis. This can help Hong Kong industry players to capture opportunities arising from the 13th Five-Year Plan.

[1]  For more details, please see: http://www.gov.cn/guowuyuan/2015-10/31/content_2957504.htm (31 October 2015);  http://www.gov.cn/guowuyuan/2015-11/05/content_5004881.htm (4 November 2015)

[2]  For more details, please see: http://news.xinhuanet.com/ttgg/2015-11/03/c_1117029621.htm (3 November 2015);  http://www.gov.cn/guowuyuan/2015-11/10/content_5006876.htm (10 November 2015)

[3]  For details, please see HKTDC research report: Outbound Investment of Chinese Enterprises: Hong Kong the First Port of Call for Professional Services

[4]  Source: China Statistical Yearbook

[5]  For more details, please see HKTDC research article: Green Opportunities in the Yangtze River Delta amid China’s Urbanisation Drive

[6]  CEPA here refers to the Mainland and Hong Kong Closer Economic Partnership Arrangement and its supplementary agreements.

[7]  For more details about CEPA, please see HKTDC industry profile: Environmental Protection Industry in Hong Kong

China's Belt and Road Initiative specifically states that Fujian is to become the core area of the "21st Century Maritime Silk Road". One of the goals of the Fujian Free Trade Zone (FJFTZ) [1] is to expand exchanges and cooperation with countries and regions along this Maritime Silk Road route, both in depth and breadth.

In fact, Fujian was not only the main starting point of the ancient maritime Silk Road, but is an important province in China for international trade and co-operation today. The province is also home to ports forming China’s Southeast International Shipping Centre. As such, Fujian is striving to cement closer ties with the ASEAN countries, the Middle East and countries along the coast of the Indian Ocean in the hope of further expanding investment and trade in these regions.

The keen demand for relevant support services will provide ideal opportunities for companies intending to tap the Belt and Road initiative.

Fujian is stepping up connections with countries along the Maritime Silk Road

One of the goals of the FJFTZ is to tap opportunities arising from the 21st Century Maritime Silk Road

Fujian - Core Area of 21st Century Maritime Silk Road

Vision and Actions on Jointly Building the Silk Road Economic Belt and 21st Century Maritime Silk Road [2], issued by the Chinese government called for efforts to accelerate the building of the Belt and Road. It makes clear that China will support Fujian province in becoming a core area of the 21st Century Maritime Silk Road and strengthen port construction in coastal cities, such as Fuzhou, Xiamen and Quanzhou in Fujian and in other provinces. Fujian is to become the main force in the Belt and Road initiative, particularly the building of the 21st Century Maritime Silk Road, and leverage the unique role of overseas Chinese and the Hong Kong and Macau Special Administrative Regions in advancing the Belt and Road development strategy.

Fully-automated container terminal at the FJFTZ’s Xiamen Area

In line with Vision and Actions, Fujian issued an implementation plan in November 2015 in order to develop the province as the core area of 21st Century Maritime Silk Road [3]. On the other hand, the FJFTZ made it a goal to tap the Maritime Silk Road opportunities, including the development of the Majiang sub-zone of the Fuzhou Economic and Technological Development Zone [4] inside the FTZ into an important platform for trade and for the exhibition and exchange of cultural and creative products and other commodities. The FJFTZ will explore innovative modes of cooperation and broaden cooperation with countries and regions along the Maritime Silk Road in such areas as investment, trade, shipping, infrastructure, technology, and cross-border trade settlement in Renminbi.

[For more information about the FJFTZ, see Tapping the Cross-Strait and Maritime Silk Road Opportunities of Fujian Free Trade Zone]

Fujian is an important province for China's economic cooperation with foreign countries. Its trade, investment and industries have seen sustained growth in recent years. It has a mature manufacturing sector including textile, garments and accessories (with industrial added value accounting for 10.1% of GDP in 2014), leather goods and shoe-making (9.1%), non-metal mineral products (7.6%) and computer, telecommunications and electronic equipment manufacturing (6.9%). Its service industry is also gradually maturing. In terms of industrial added value in 2014, its real estate and financial sectors had an 11.4% and 15.2% share of the province's services industry respectively [5]. A robust economy makes Fujian an important hub for promoting cooperation between China and countries along the Maritime Silk Road.

What merits attention is that while implementing the Haixi (or Western Taiwan Straits) Economic Zone development strategy and exploiting its favourable geographical location to promote cross-Straits economic development, Fujian also makes full use of its open policy and port facilities to strengthen foreign trade and investment with other regions. The port of Xiamen, home to the China Southeast International Shipping Centre, is the key port for vessels heading to Taiwan and other overseas countries. As the world's 17th largest container port, it handled 200 million tons of cargoes in 2014, with container throughput reaching 8.57 million TEUs. Cargo handling is expected to soar to 300 million tons by 2018, with container throughput reaching 12 million TEUs. Meanwhile, the port of Fuzhou has also joined the ranks of "100-million-ton class port" and become one of China's hub ports. Its Jiangyin port area with 250,000-ton class berths now ranks among the world's top 100 container ports.[6]

Fujian has frequent trade exchanges with Southeast Asia, South Asia, the Middle East and other regions. In particular, the ASEAN member states along the Maritime Silk Road have become Fujian's second largest trading partner after the US. Fujian-ASEAN bilateral trade amounted to US$18.1 billion in January-September 2015. On the other hand, ASEAN is Fujian's fourth key source of foreign direct investment (FDI) besides being the second main destination of outbound direct investment for Fujian province and Fujian enterprises.[7]

Fujian is also an important hometown of overseas Chinese. The Fujian provincial government estimates that there are currently over 12 million overseas Chinese of Fujian origin living in various parts of the world. Of this number, 80% are living in Southeast Asia. Among the 20 million-plus overseas Chinese living in the ASEAN countries, nearly 10 million came from Fujian. Fujian also has considerable social connections with countries further away. For example, about 50,000 Arabs are currently living in Quanzhou. Under the Belt and Road initiative, these trade, economic and social connections become favourable factors for the Fujian province, and hence the FJFTZ to further develop economic and trade ties with countries along the Maritime Silk Road.

Advancing Business along the Maritime Silk Road

Fujian is planning all kinds of business activities and projects under the Belt and Road development strategy. It hopes to further connect with countries along the Belt and Road and become an important pivot for economic cooperation among the Maritime Silk Road countries. While promoting bilateral trade and investment with ASEAN countries, the province is also actively opening up new markets in South Asia, West Asia, the eastern coast of Africa and other countries along the coast of the Indian Ocean and beyond. The specific measures include:

• Strengthening cooperation with ASEAN countries in the construction and management of facilities such as ports, logistics parks and cargo distribution centres.

• Accelerating the construction of China’s Southeast International Shipping Centre in Xiamen, including the construction of key port areas as well as the construction of an international container trunk line hub port and a regional cruise liner home port.

• Making deployments for airport construction, accelerating the airport expansion projects and development of airport economic parks in Xiamen and Fuzhou, and increasing international routes serving countries in Southeast Asia, South Asia and other regions.

• Promoting the construction of a cross-border optical fibre telecommunications network and cross-border e-commerce and logistics information platforms for trade with ASEAN countries, perfecting the customs clearance mechanism, and promoting information connectivity, customs clearance of goods and facilitation of people-to-people exchanges in regions along the Maritime Silk Road.

• Making positive use of the investment facilitation and liberalisation measures offered by the FJFTZ to strengthen exchanges and cooperation with countries along the Maritime Silk Road.

• Broadening two-way investment channels, guiding foreign investment into Fujian's leading industries, new and high-tech industries, modern services and energy-saving and environmental protection industries, supporting qualified domestic enterprises to build economic and trade cooperation areas and bases for trade logistics, production and processing of raw materials and production of traditional leading products abroad, and promoting two-way investment.

• Promoting development of the China-ASEAN Marine Product Exchange.

  The port of Mawei in Fuzhou is a major distribution centre for fish caught by Chinese ocean-going vessels, as well as an important port for the import and export of marine products. Over 300,000 tons of fish caught by ocean-going vessels cleared customs at Mawei each year, with annual turnover exceeding Rmb30 billion. The China-ASEAN Marine Product Exchange at Mawei has China's one and only dedicated fishing wharf with direct access to a marine products market, in addition to a robust cold-chain logistics system. Its platform for "online transaction, offline delivery and cross-border settlement" of bulk spot marine products can provide the China-ASEAN marine economy industry chain with unified standards for the orderly and traceable transactions of marine products and promote the development of the fishing industry in both China and the ASEAN.

• Accelerating the construction and utilisation of the Fujian Commodity City outlets in Krasnodar (in Russia), Poland and other countries, and guiding enterprises in "going out".

• Actively take part in the UN Maritime-Continental Silk Road Cities Alliance to promote trade and investment among Silk Road cities.[8]

New Opportunities for Fujian-Hong Kong Cooperation

Fujian needs all kinds of professional services in trying to strengthen trade ties with countries along the Maritime Silk Road and promote outbound investment by enterprises in these countries. This will be a perfect chance for Hong Kong companies intending to tap opportunities arising from the Belt and Road initiative. In fact, Hong Kong is not just Fujian's major trading partner but is also its largest source of FDI, as well as a key destination for its outward FDI.

The flow of foreign investment from Hong Kong to Fujian amounted to US$4.52 billion in 2014, accounting for 63.5% of utilised FDI in the province. Investment mainly went to the manufacturing, wholesaling and retailing, and real estate sectors in cities like Xiamen, Quanzhou and Fuzhou. In the same year, Fujian's direct investment in Hong Kong reached US$1.23 billion, accounting for 44.4% of the outbound direct investment from the province.[9] Besides investing in the Hong Kong market, most of these funds are using Hong Kong as a springboard to invest in other regions overseas.

During a business promotion highlighting Fujian-Hong Kong cooperation held in Hong Kong in June 2015, the Fujian provincial government indicated its hope to make greater use of Hong Kong's advantages in developing the FJFTZ and promoting the building of Fujian as a core area of the 21st Century Maritime Silk Road.[10] In fact, Hong Kong is not just a regional commercial and trading centre but can provide extensive professional services in such areas as finance, logistics and law to enterprises in Fujian and in countries along the Maritime Silk Road and beyond with its leading edge in the services industry. Also, as the first port of call for professional services for mainland enterprises, Hong Kong can effectively promote their "going out" efforts and help them make the best of opportunities arising from the Belt and Road initiative. Fujian enterprises resolving to step up their development of trade and investment with countries along the Maritime Silk Road provide a perfect chance for Hong Kong companies intending to tap opportunities arising from Belt and Road initiative.

[Note: For more details concerning Hong Kong's support for mainland enterprises in their outbound investment, see Outbound Investment of Chinese Enterprises: Hong Kong the First Port of Call for Professional Services.]

[1]  The Fujian FTZ in this report refers to the China (Fujian) Pilot Free Trade Zone.

[2]  This document was jointly issued by the National Development and Reform Commission, Ministry of Foreign Affairs and Ministry of Commerce in March 2015.

[3]  For details, please see HKTDC’s Business-Alert China article: “Fujian Announces Core Area Construction Plan for 21st Century Maritime Silk Road” (25 November 2015)

[4]  The Majiang sub-zone is part of the Fuzhou Sub-zone of the Fujian FTZ and includes the 0.6 km2 Fuzhou Free Trade Zone.

[5]  Source: Fujian Statistical Yearbook 2015

[6]  Source: Xiamen Port Authority and Fuzhou City Bureau of Commerce

[7]  Source: Fujian Provincial People's Government

[8]  The UN Maritime-Continental Silk Road Cities Alliance is a joint initiative by the UN Office for South-South Cooperation (UNOSSC), UN Development Programme (UNDP), UN Industrial Development Organisation (UNIDO), UN Educational, Scientific and Cultural Organisation (UNESCO), UN World Tourism Organisation (UNWTO) and China International Center for Economic and Technical Exchanges. It aims to facilitate the coordination of policies, building of partnerships, formulation of initiatives and access to finance, leading to intensified trade, investment and exchange among participating cities.

[9]  Source: Fujian Statistical Yearbook 2015; Hong Kong and Macau Section of the Department of Commerce of Fujian Province

[10]  For more information on the "Presentation on Fujian-Hong Kong Cooperation", see article in Chinese published on the website of the Department of Commerce of Fujian Province on 5 June 2015: .

China is now the world’s third largest source of foreign direct investment (FDI). In recent years, the Chinese government has substantially relaxed the relevant administrative measures for dealing with overseas investments and introduced the Belt and Road development strategy in order to strengthen economic co-operation with the regions concerned. In light of this, China's level of outward investment will further expand, while its investment in countries along the Belt and Road is expected to show sustained growth.

Hong Kong is the preferred services platform for China’s outward investment activities and has provided a full range of professional services for mainland enterprises looking to invest abroad. In particular, it has specialised in providing assistance in the areas of finance, law, tax, the risk assessment of sustainable operations, and international testing and certification, among others. As the mainland accelerates the pace of its “going out” activities and advances the Belt and Road initiative, more business opportunities will inevitably become available to services practitioners in Hong Kong.

Hong Kong is the preferred services platform for China's outward investment.

Hong Kong provides a full range of professional services for Chinese enterprises looking to invest abroad.

Outward Investment on a Steady Rise

China’s overseas investment activities have continued to grow in recent years, making the country one of the leading sources of global FDI. According to the latest figures from the United Nations Conference on Trade and Development (UNCTAD), China’s total outward FDI rose from about US$101 billion (US$107.8 billion, according to China) in 2013 to an estimated US$116 billion [1] in 2014 (US$123.1 billion, according to China), placing it behind only the US and Hong Kong [2]. This has made China the world’s third-largest source of FDI for three consecutive years, starting from 2012.

In recent years, China has substantially relaxed its outbound investment management procedures and actively built platforms to help more businesses in order to “go out” and co-operate with foreign partners to transform and upgrade themselves. In particular, the resolution  adopted by the Third Plenary Session of the 18th CPC Central Committee at the end of 2013 proposed that, in order to meet the needs of economic globalisation, China should continue opening up both internally and externally and combine the strategies of “going out” to invest overseas with “bringing in” the advantages of foreign partners to achieve the most effective allocation of international and domestic resources.

The National Development and Reform Commission (NDRC) subsequently issued the Administrative Measures for the Approval and Record Filing of Outbound Investment Projects. This greatly narrows the scope of investment requiring the approval of the departments concerned. As of May 2014, general outbound investment projects with an investment level of less than US$1 billion only require filing in terms of a record being kept. At the end of 2014, the NDRC announced the scrapping of approval for general outbound investment projects with an investment of more than US$1 billion (except for projects involving sensitive countries, regions and sectors) [4]. Since then, record filing has replaced approval for all general outbound investment projects, unless those involve sensitive countries, regions or sectors.

Belt and Road: A Long-term strategy and a Boost to Investments

China is now promoting the Belt and Road initiative, an external development strategy centring on the Silk Road Economic Belt and the 21st Century Maritime Silk Road. In March 2015, China issued Vision and Actions on Jointly Building the Silk Road Economic Belt and the 21st Century Maritime Silk Road (Vision and Actions). This proposed the acceleration of the Belt and Road Initiative in order to encourage countries along the routes to achieve economic policy coordination, promote the orderly and free flow of economic factors and undertake a more efficient allocation of resources and a deeper integration of the relevant markets. The ultimate aim is to create an open, inclusive and balanced regional economic co-operation architecture that is of benefit to all parties concerned.

The Vision and Actions document stresses that investment and trade co-operation are the key requirements for building the Belt and Road. In line with this, China hopes to work with the countries along the Belt and Road to improve bilateral investment and trade facilitation, and to remove any investment and trade barriers. The purpose is to create a sound business environment within the region and in all of the relevant countries. Hence, considerable emphasis will be placed on pushing forward negotiations with regard to bilateral investment protection and double taxation avoidance agreements in order to protect the lawful rights and interests of investors, while expanding mutual investment areas.

Notably, China’s FDI outflow to countries along the Belt and Road has increased rapidly in recent years. Such outflows rise from about US$400 million in 2004 to US$13.66 billion in 2014, growing at an average annual rate of approximately 43% in the period. This pace of growth is far higher than the average annual growth rate of 36% enjoyed by China’s overall outward FDI flows during the same period. The share received by the Belt and Road countries as part of China's total outward FDI flows also increased from about 7% in 2004 to 11.1% in 2014.

According to the figures published by the Ministry of Commerce (MOFCOM), Chinese enterprises made direct investments totalling US$12.03 billion in 48 countries along the Belt and Road between January and September 2015, up 66.2% from the same period last year. The key destinations for China’s FDI outflows were Singapore, Kazakhstan, Laos, Indonesia and Russia.

China’s implementation of the Belt and Road strategy is expected to further boost outbound investment by many mainland enterprises in the countries along the Belt and Road. China has also indicated that it will adopt a more proactive opening up strategy, giving full scope to the comparative advantages of different regions, including the Pearl River Delta (PRD), the Yangtze River Delta (YRD) and the Bohai Rim area. All such regions will be granted a greater degree of economic openness as well as enhanced economic strength in order to promote the building of the Belt and Road and comprehensively raise the level of China’s open economy. China's outbound investment, including that destined for countries along the Belt and Road, is expected to further expand in the future in line with this scenario. In line with the Vision and Actions agenda, the major investment projects in the countries along the Belt and Road are likely to focus on the following areas:

• Infrastructure construction, including facilities relating to roads, shipping, aviation, energy and communications.

• Agriculture, forestry, animal husbandry and fisheries, including the production and processing of related products.

• Oil, gas, energy and metal ores, including co-operation in exploring and developing traditional and new energy resources.

• Emerging industries, such as new-generation information technology, biotechnology and new materials.

• Co-operation in science and technology, including establishing joint laboratories and carrying out technology transfers and maritime co-operation.

Chinese enterprises are most interested in going to Hong Kong to seek their desired services.

Hong Kong is the main channel for China’s FDI outflows.

Opportunities for Hong Kong Companies

Over the years, service practitioners in Hong Kong have helped countless mainland enterprises handle their trading and investment businesses both in Hong Kong and in many overseas markets. With its inherent advantages when it comes to supporting mainland enterprises in their overseas investments, such as its free flow of capital, abundant international information resources and world-class professional services, Hong Kong is the preferred services platform for many mainland enterprises when they look to undertaking overseas ventures. Its professional services cover all aspects of such endeavours, including finance, law, tax, the risk assessment of sustainable operations, and international testing and certification.

Hong Kong is the main channel for China’s FDI outflows. In 2014, the amount of China's outward FDI carried through Hong Kong amounted to US$70.9 billion - or 57.6% of the mainland's total outward FDI flow. In terms of cumulative investment up until the end of 2014, the total amount of outward FDI from the mainland carried via Hong Kong was US$509.9 billion, accounting for 57.8% of the total cumulative investment as at end-2014.

According to surveys undertaken by HKTDC Research in the PRD, the YRD and the Bohai Rim between 2013 and 2015, most local enterprises intend to adopt the "going out" development strategy, as well as "bringing in" the advantages of foreign partners in order to develop both their domestic and overseas markets. In order to facilitate this, mainland enterprises need the support of wide-ranging professional services.

It is worth noting that more than half of the enterprises surveyed express a keen interest in using Hong Kong to find the services they need or to help identify suitable overseas partners. Indeed, some 65% of the surveyed enterprises in the PRD, 56% in the YRD and 60% in the Bohai Rim rate Hong Kong as the preferred service platform for “going out”. As the mainland accelerates its pace of “going out” and “bringing in” and advances its Belt and Road initiative, more business opportunities will inevitably become available to service practitioners in Hong Kong.

[Remarks: For more information on China’s outward FDI and the details of the HKTDC research findings, please see the HKTDC research report: Outbound Investment of Chinese Enterprises: Hong Kong the First Port of Call for Professional Services]

[1]  Source: World Investment Report 2015, UNCTAD

[2]  Hong Kong is the leading destination for the mainland’s FDI outflow, as well as the largest source of FDI for the mainland.

[3]  The 18th CPC Central Committee adopted at its Third Plenary Session on 12 November 2013 the "Decision of the CPC Central Committee on Major Issues Concerning Comprehensively Deepening Reforms".

[4]  NDRC Decree No. 20: "Decision of NDRC on Amending the Relevant Clauses of the Administrative Measures for the Approval and Record-Filing of Outbound Investment Projects and Administrative Measures for the Approval and Record-Filing of Foreign Investment Projects". (27 December 2014)

If the “reform and opening up” in the past 30-plus years have transformed China from a semi-industrialised, closed and centrally planned economy to the world’s top trading country and processing factory, the role of the Belt and Road initiative is perhaps to further elevate this “world processing factory” into a “world economic nexus” of the 21st century.

If the “reform and opening up” of the past 30-plus years have been China’s uni-directional opening up focusing on its coastal regions, then the Belt and Road initiative is a new phase of comprehensive opening up and development of the Chinese economy that gives equal emphasis to the coastal and inland regions.

If the “reform and opening up” of the past 30-plus years have been a development course of China relying on the capital, technology and markets of advanced economies, then the Belt and Road initiative can be considered a new Chinese development strategy making use of the  resources and markets of both the industrial and developing world.

The Belt and Road initiative not only could lead to a change in China’s economic position in the world, it is also instrumental to the transformation and upgrading of China’s own economy, especially in its escape from the “middle-income trap” and its sustainable development.

Silk Roads Past and Present

Ever since Zhang Qian, an official in the Han Dynasty (202 BCE-220 CE), led an envoy to explore the western regions of China (Central Asia) in the second century BCE, for over a thousand years the “Silk Road” was China’s thoroughfare for opening to the outside world as well as the main artery for economic and cultural exchanges between the East and the West. From the Song Dynasty (960-1279 CE) onwards, the Maritime Silk Road has offered a major channel for opening up to the outside world. Due to the limitations set by an agrarian society and by technology, impacts of both the land and maritime silk roads on China’s economy had been limited. It was not until the “reform and opening up” started more than 30 years ago that fundamental changes were brought about to the Chinese economy.

But then time and situations have changed. In particular, after the financial crisis, protectionism has been rising, recovery of European and American economies has been anaemic and emerging markets are on the rise, so China’s development strategy of relying on exports to the industrial economies is now under constraints. No matter in the search for markets, access to resources or technologies, there is a need for new and more comprehensive breakthroughs in China’s “opening up” strategy.

Geographically, the gateways in China created by the Belt and Road initiative constitute an “all-round” pattern of opening up: extending from the coastal regions to the inland; expanding from the east to the west and the south; and evolving from using predominantly sea routes to using both sea and land channels. It also involves the connection of domestic and overseas resources to various markets and a more balanced development of the economies in China’s eastern and western regions.

From a development perspective, the Belt and Road initiative broadens the targets of China’s opening up from developed countries in Europe and America to developing countries in its neighbourhood and along the silk roads. This fittingly reflects the shift of China’s economy from one of being export oriented to catering to domestic and overseas demands and to imports as well as exports; from focusing on processing and manufacturing to paying equal attention to downstream as well as upstream industries, and to a more balanced development of manufacturing and services sectors. This is related to whether or not China’s economy can break up regional, industrial, hierarchical and urban-rural boundaries so that it can raise productivity more comprehensively, escape from the “middle-income trap” and develop in a sustainable manner.

Limitations and Challenges

Nevertheless, the Belt and Road initiative is not without its limitations and challenges. Foremost is that geographic misunderstandings may arise. The land and maritime silk roads were routes for East-West dealings in ancient times and are very different to the extent of coverage of the main transportation and communication networks of today. Furthermore, the centre of world economic gravity in the pre-industrial revolution days is very different to the world economic landscape in the Internet era of today. If we limit China’s opening up to territories along the ancient land and maritime silk roads, we would overlook a lot of vital regions such as North and South America and the African continent.

For sure, in the official elaboration of the Belt and Road concept, it has also been mentioned that the initiative “covers, but is not limited to, the area of the ancient Silk Road. It is open to all countries, and international and regional organisations for engagement...” [1] But objectively misunderstandings can occur regarding the regions covered by the Belt and Road, particularly when shown and mentioned in highly generalised maps and briefings (for example, in the media, we often come across the mentioning of how many countries and how many people are covered by the Belt and Road, as well as other such details). Admittedly the Belt and Road initiative will mainly start with countries on the periphery of China and along the ancient silk roads, but as long as this initiative cannot surpass the scope of the ancient silk roads, it will not be able to achieve its task of guiding the comprehensive opening up of China.

Another Belt and Road challenge is how to draw the line between the roles of governments and markets. Though the Chinese government stresses that the initiative has to “follow market operations” and that “it will abide by market rules and international norms, give play to the decisive role of the market in resource allocation and the primary role of enterprises”, in actual practice it is not easy. This is mainly because many of the countries along the silk roads are still developing and their market economies are relatively under-developed. Considering also that they have insufficient infrastructure and their land transportation connections with China are poor, there is a need for massive long-term developmental investments which are not easily undertaken by ordinary private enterprises. This is also the reason why the initiative emphasises policy coordination and promotes intergovernmental cooperation and mutual political trust.

Though the Chinese government and state enterprises have accumulated a lot of experience, and have developed capabilities in domestic infrastructure construction during the past few decades, they are still relatively inexperienced in the area of cross-border investments. It will therefore be a big challenge to strike a good balance between the roles of governments and markets, while abiding by market rules and international norms in places where markets are not well developed and rules are not internationally applicable.

This article originally appeared in Hong Kong Economic Times (20 July, 2015)

[1] Vision and Actions on Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road, jointly issued by the National Development and Reform Commission, the Ministry of Foreign Affairs and the Ministry of Commerce, March 2015.