Fung Business Intelligence | 2 Jun 2015

Asia Sourcing Update May 2015

WORLD BANK PREDICTS CAMBODIA’S ECONOMIC GROWTH TO S LOW SLIGHTLY

In its East Asia and Pacific Economic Update released in April, the World Bank predicts that the real GDP growth in Cambodia will moderate slightly from 7.0% yoy last year to 6.9% yoy in 2015 and 2016, and 6.8% yoy in 2017. The slowdown is attributable in part to the concerns over reduced competitiveness in the garment industry and the modest growth in the agricultural sector amid weak agricultural commodity prices.

The garment industry, which accounted for 77% of the country’s total exports last year, is facing increasing challenges. The 28% wage increase at the beginning of this year makes Cambodia’s garment exports less competitive among its neighbouring sourcing countries. At the same time, the appreciation of the US dollar, to which the Cambodian riel is pegged, also makes garment exports to the EU – the largest export market for Cambodia’s garments – less competitive in euro terms.

According to Ken Loo, secretary general of the Garment Manufacturers Association of Cambodia (GMAC), only 13 new export-oriented garment factories opened in 1Q15, compared to 40 exportoriented factories opened in the same period last year. While the World Bank’s prediction is among the least optimistic, the Asian Development Bank and Cambodia’s Prime Minister both forecast that Cambodia’s real GDP growth will accelerate to 7.3% yoy in 2015.

GARMENT EXPORTS GROW 11% YOY IN 1Q15

Cambodia exported US$1.73 billion worth of garments in 1Q15, up by 11% over the same period last year, according to data from the Ministry of Commerce. The figure points to a possible recovery of the garment industry, which grew a mere 4% yoy in terms of export value in 2014 due to falling orders.

By export destination, Cambodia’s garment exports to the EU increased by 16% yoy to US$680 million in the first quarter, while those to the US fell 1% yoy to US$537 million. Garment exports to other markets rose 21% yoy to US$521 million, indicating that the country’s efforts in diversifying its export markets have started to pay off.

The EU has accounted for an increasingly large share in Cambodia’s garment exports, overtaking the US as the largest export market for Cambodia’s garments. This is due mainly to the duty-free privileges granted by the EU to Cambodia under the “Everything but Arms” arrangement.

As labour strikes over minimum wage have gradually subsided, the growth of garment exports is likely to accelerate in the rest of the year.

VARIOUS PROJECTS UNDERWAY TO BOOST ELECTRICITY SUPPLY

Cambodia’s state energy provider Electricité du Cambodge (EDC) announced in March its plan to develop a high-voltage distribution network that can enhance the transmission capacity in a number of provinces along the Tonlé Sap Lake.

The project, funded by a concessional loan from China, will include the construction of a distribution network connecting Battambang, a province in north-western Cambodia, to the Siem Reap, Kampong Thom and Kampong Cham provinces. Another network will also be constructed to connect the Kampong Speu province to Takhmao, a city in the Kandal province, via a circular-grid network crossing the Tonlé Sap Lake, upper and lower Mekong River and Bassac River. To be completed over the next three years, together the new grids will extend the existing networks by about 450 kilometres in length.

To meet the growing domestic demand for power and reduce the reliance on imported electricity, Cambodia has been actively developing electricity generation capacity by coal and hydropower.

The Russei Chrum Krom River hydroelectric dam has begun operating in January. With power generation capacity of 338 megawatts, the dam is so far the largest hydropower station in Cambodia. It is the fifth dam built by Chinese investors in the country. The sixth one, with power generation capacity of 246 megawatts, will also become operational later this year.

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HKTDC Research | 3 Jun 2015

Guangdong Pilot Free Trade Zone: Opportunities for Hong Kong

Summary

The GDFTZ is making great efforts to deepen financial co-operation between Guangdong, Hong Kong and Macau. These include promoting cross-boundary renminbi business, a development that is bound to strengthen Hong Kong’s position as an offshore renminbi centre. A plan to launch pilot reforms of foreign exchange control will also help expedite the pace of internationalisation of the renminbi. Meanwhile, the Hong Kong business platform is the top choice for mainland enterprises, especially Guangdong enterprises, in their “going out” strategy of making outward direct investment. Coupled with the fact that the GDFTZ is proactively leading the Pearl River Delta (PRD) region to “go out” and undergo transformation and upgrade, this development will create more opportunities for Hong Kong service suppliers.

 

 

Positioning: In-depth Co-operation Between Guangdong, Hong Kong and Macau

 

Reducing Market Access Restrictions on Foreign Investment

Special administrative measures relating to national security, public order, public culture, financial prudence, government procurement, subsidies, special procedures and tax-related matters not on the negative list are subject to existing provisions. Foreign investment concerning national security is subject to review in accordance with the Tentative Measures for the National Security Review of Foreign Investment in Free Trade Zones.

Hong Kong Companies Entitled to Both FTZ and CEPA Concessions

Based on China’s Industrial Classification for the National Economy[3], the negative list issued by the State Council contains 50 project types under 15 categories, with 122 items subject to special administrative measures. It is specifically stated that Hong Kong investors investing in the FTZs must comply with the negative list. However, if the measures offered under CEPA and its supplements are applicable to the FTZs – and prove to be more open and preferential for qualified investors – then the CEPA provisions shall prevail[4]. In light of this, Hong Kong investors should check the provisions set out in CEPA and the FTZ negative list and choose whichever is more beneficial to them in developing their market access to the mainland and Guangdong.

Meanwhile, the Agreement between the Mainland and Hong Kong on Achieving Basic Liberalisation of Trade in Services in Guangdong (the Guangdong Agreement), signed under the CEPA framework and which came into effect in March 2015, contains both negative and positive listings for Hong Kong companies entering the Guangdong market. Under the Guangdong agreement, Guangdong opens up 153 service sub-sectors to Hong Kong, accounting for 95.6% of the 160 sub-sectors[5]. Some of its measures are even more liberal than the FTZ negative list. Thus Hong Kong companies entering the Guangdong market can simultaneously enjoy the liberal market access requirement of the GDFTZ as well as the preferential measures offered in CEPA and the Guangdong Agreement. In light of this, Hong Kong companies have an advantage over foreign investors, by being able to expand into the Guangdong and even the entire mainland markets in greater breadth and depth. For instance:

• Mining, Prospecting and Exploration

  Under the CEPA Guangdong Agreement where access to “services incidental to mining” in Guangdong has been added, Hong Kong companies are granted national treatment. However, according to the negative list applicable to GDFTZ, foreign investors are still subject to various restrictive measures in areas such as certain types of prospecting and exploration, oil and natural gas exploration, and rare earth and metal ore mining and processing.[6]

• Manufacturing

  With the exception of those industries classified under the prohibited category in the Catalogue for the Guidance of Foreign Investment in Industries, Hong Kong companies are allowed under CEPA to provide “services incidental to manufacturing” on the mainland. These take the form of equity joint ventures, contractual joint ventures or wholly owned enterprises, with no restrictions on taking controlling stakes. However, foreign investors wishing to invest in manufacturing projects in the GDFTZ – which are not even listed under the prohibited category[7] in the Catalogue for the Guidance of Foreign Investment in Industries, such as aircraft building, shipbuilding, automotive/rail transport equipment manufacturing, and communications equipment manufacturing – are still subject to various restrictions like taking controlling stakes.[8]

• Gas, Heat and Water Supply

  CEPA stipulates that when Hong Kong companies engage in the construction or operation of gas, heating, water supply and drainage networks in Guangdong cities larger than one million people, the mainland party must take a controlling stake in the project. But in the GDFTZ, if foreign investors wish to engage in such business in Chinese cities with a population of more than 500,000, the mainland party must take a controlling stake.

• Telecommunications Services

  Under the positive list of the CEPA Guangdong Agreement, Hong Kong service suppliers are allowed to establish joint-venture or wholly owned enterprises in Guangdong to provide telecommunication services on the mainland including multi-party communications, store and forward, call centre services, and Internet access services for online users (with business scope limited to Guangdong Province).

  By contrast, foreign investors in the GDFTZ are only allowed to invest in those telecommunications services liberalised under the commitments made when China joined the World Trade Organization (WTO). Also, the negative list states that foreign equity ratio in value-added telecommunications services (except for e-commerce) may not exceed 50%. The mainland stake in basic telecommunications services may not be less than 51%.

• Banking

  CEPA has listed in detail the lower market access requirements on Hong Kong banks entering the mainland. For instance, Hong Kong banks wishing to set up wholly owned banks or branches on the mainland must have assets totalling US$6 billion at the end of the year preceding their application. This is much lower than the US$20 billion threshold imposed on foreign banks. Besides, the Guangdong Agreement further removes the minimum operation period and profit requirements on Hong Kong banks wishing to establish business arms in Guangdong to conduct renminbi business. The minimum amount requirement on operating funds that incorporated banks established on the mainland must transfer to their Guangdong branches has also been lifted.

  In the banking sector, the FTZ negative list sets out the shareholding company type requirements as well as the qualifications and equity ratio of the banking institutions. For example, foreign-invested financial institutions must satisfy a total assets requirement of a certain amount. Some restrictive conditions are also imposed on foreign banks, such as the head office of foreign bank branches must transfer operating funds to them at no cost, and the funds must exist in a specific form meeting corresponding administration requirements. The relevant departments have yet to promulgate the relevant detailed regulations and measures.

• Legal Services

  Under CEPA, Hong Kong law firms that have set up representative offices on the mainland are allowed to operate in association with between one and three mainland law firms. The positive list in the Guangdong Agreement stipulates specifically that in Guangdong, mainland law firms can assign mainland-practising lawyers to the representative offices of Hong Kong law firms to act as mainland legal consultants. Meanwhile, Hong Kong law firms can assign Hong Kong lawyers to mainland law firms to act as Hong Kong-related or cross-boundary legal consultants. Also, Hong Kong law firms can operate in partnership with their mainland counterparts in Qianhai, Nansha and Hengqin in Guangdong on a pilot basis.

  However, foreign law firms can only set up representative offices in the GDFTZ and are not allowed to handle Chinese legal matters, nor employ Chinese lawyers.

• Technical Testing and Analysis

  Under CEPA, Hong Kong testing organisations accredited by the Hong Kong Accreditation Service (HKAS) are allowed to co-operate with designated mainland organisations to undertake testing of all products processed in Hong Kong that require China Compulsory Certification (CCC). These organisations can also undertake testing on food items and other products subject to voluntary certification in Guangdong on a pilot basis. Moreover, the positive list in the Guangdong Agreement accords them the right to co-operate with designated mainland organisations to undertake testing under CCC of audio and visual products that are designed and prototyped in Hong Kong and processed or manufactured in Guangdong. But no such measures are offered to foreign industry players.

• Individually-owned Businesses

  According to CEPA, Hong Kong permanent residents with Chinese citizenship may set up individually-owned businesses in various mainland cities and provinces to engage in designated business without being subject to the approval procedures applicable to foreign investments or any restrictions on the number of employees and the business area (excluding franchise operations). The Guangdong Agreement further expands the designated business scope for Hong Kong individually-owned businesses.

  However, the FTZ negative list states that foreign investors may not engage in business activities as investors in individually-owned businesses or individually wholly-owned enterprises in the FTZ.

(Note: For details and measures on the above, please refer to relevant documents such as the FTZ negative list and CEPA.)

Advance Liberalisation of Trade in Services between Guangdong, Hong Kong and Macau

In addition to market access, the overall GDFTZ plan also states clearly that, under the CEPA framework (and the Guangdong Agreement), efforts will be made to deepen liberalisation of trade in services between Guangdong, Hong Kong and Macau and to further expand the scope of opening up the service sector to Hong Kong and Macau. Action to be taken includes exploring the possibility of removing or liberalising the access restrictions on qualification criteria, equity ratio, and business scope imposed on Hong Kong and Macau investors, with an emphasis on services serving the financial, transportation and shipping, commercial, professional and technical sectors. Meanwhile, steps will also be taken to look into the feasibility of offering a special arrangement between Guangdong, Hong Kong and Macau that mutually recognises the professional qualifications of employees in the service sector. In view of this, Hong Kong companies entering the service market in Guangdong, while capitalising on CEPA’s facilitation measures, should also pay close attention to the detailed facilitation measures introduced by the GDFTZ.

Strengthen International Trade Functions

Meanwhile, the GDFTZ will encourage Guangdong, Hong Kong and Macau to jointly strengthen trade ties with countries and regions along the 21st Century Maritime Silk Road in a move to expand the international market. Enterprises will be encouraged to set up headquarters in the GDFTZ and establish operations centres integrating the functions of logistics, trade and settlement. Action will be taken to jointly develop offshore trade with Hong Kong and Macau. Efforts will also be made to strengthen co-operation between Guangdong, Hong Kong and Macau in the convention and exhibition industry. This will allow industry players to set up bonded goods displays and trading platforms in special customs supervision zones under the premise of strictly implementing the policy of levying taxes on import and export goods. Other measures include:

- Support parallel import of automotives on a pilot basis;
- Encourage the development of innovative financing and leasing business;
- Support development of futures bonded delivery and warehouse receipt financing in special customs supervision zones;
- Develop an innovative interactive development mode for e-commerce between Guangdong, Hong Kong and Macau; actively develop cross-boundary e-commerce;
- Set up an intellectual property operation centre for the south China region;
- Actively undertake service outsourcing, and advance the development of such services as software development, industrial design and information management;
- Strengthen Guangdong-Hong Kong-Macau co-operation in product inspection and testing technology as well as standards formulation.

As for building a logistics hub on the 21st Century Maritime Silk Road, the GDFTZ will set up an interactive mechanism for seaports and airports in Guangdong, Hong Kong and Macau. It will explore the feasibility of aligning regulations and standards with Hong Kong and Macau in freight forwarding and freight transportation. The GDFTZ will also proactively develop such industries as international maritime transport, international ships management, international crew services, and international shipbroking. Support will be given to Hong Kong and Macau enterprises to invest in international ocean-going and air transport services. Industry players will be allowed to operate, on a trial basis, the business of consolidation and transit of air courier items from foreign countries, Taiwan, Hong Kong and Macau. Meanwhile, action will be taken to liberalise the equity ratio restriction on Chinese-foreign contractual joint ventures engaged in international shipping.

Hong Kong is a trade and shipping hub in the Asia-Pacific region, and an important gateway to the international market for Guangdong and other provinces in China. The city hosts large numbers of ship owners, consignors and traders, and has developed a full spectrum of shipping services: shipping financing, insurance, broking, ships management and related legal services. Many Hong Kong companies conduct international trade in Guangdong and, by capitalising on the development of Hong Kong’s trading and shipping services support industry, have broadened the horizons of Hong Kong’s trading and shipping sectors.

For instance, even before it was officially launched in the GDFTZ, the Nansha Area of Guangzhou had made it a priority to develop producer services. This included relying on Hong Kong’s position as an international financial, trade and shipping centre to promote Guangdong-Hong Kong-Macau co-operation in related industries. As at the end of April 2015, about 800 Hong Kong-invested enterprises had established a presence in Nansha. Among them is Kingboard Chemical Holdings Ltd, whose petrochemical production and distribution project in Nansha carries out the production and distribution of chemical products such as epoxy and Tetrabromob ispheno1-A. The Nansha Cargo Park Co Ltd in Panyu, Guangzhou, invested and set up by the Henry Fok Ying Tung Group, engages in integrated logistics in Nansha, including wharf operation, bonded supervision, logistics and delivery, freight forwarding and insurance, and logistics solution consultation. Meanwhile, Enpro Supply Chain Management Ltd of Hong Kong operates a plastics packaging supply chain centre in the Nansha Bonded Logistics Park. The firm takes advantage of the bonded logistics facilities in Nansha and the international shipping network of Hong Kong to provide a one-stop plastics packaging supply chain, as well as regional delivery services for the Chinese mainland and Southeast and Northeast Asia.

As the GDFTZ strengthens trade ties with economies along the Maritime Silk Road jointly with Hong Kong and Macau in the hope of becoming a logistics hub on the Maritime Silk Road, this is bound to provide Hong Kong industry players with extra room for development, as well as enhancing Hong Kong’s position as a trade and shipping centre in the Asia Pacific.

 

 

Trade in Goods: Cross-border E-commerce Operators and CEPA Concessions One of the focusses where trade in goods is concerned is cross-border e-commerce import. Currently, Guangzhou and Shenzhen are among the designated pilot cities authorised to conduct e-commerce imports[9]. Some cross-border e-commerce operators have already started business in the Qianhai and Nansha sub-zones in the GDFTZ. These industry players enjoy facilitation in customs clearance, inspection and quarantine for their imports, and also take advantage of the FTZ’s bonded import and warehousing arrangements to lower costs and to apply for personal postal articles tax for their goods. Goods imported into China under “general trade” are subject to import tariffs and 17% VAT. But cross-border e-commerce operators in pilot bonded areas may adopt the “bonded reserve goods mode”, whereby merchandise sourced from foreign countries in bulk can be delivered to designated cross-border warehouses in the bonded area first. After the consumer has placed an order online, the e-commerce operator will then complete customs clearance procedures and make a customs declaration for the goods concerned to be imported as “personal articles” and pay personal postal articles tax. After verification by Customs, the merchandise is delivered to the consumer by courier companies. Currently, four tax rates apply to personal postal articles: 10%: e.g. books and newspapers; publications; original audio tapes, video tapes; gold, silver and articles thereof; food and beverages; 20%: e.g. textiles; audio-visual equipment and other electrical appliances; bicycles; general watches and clocks; 30%: e.g. golf gear; high-end watches (priced over Rmb10,000); 50%: e.g. cigarettes, liquor, cosmetics. However, cross-border e-commerce operators conducting imports in the form of “personal articles” must meet the above criteria of placing orders online and delivery by courier company, as well as observe the principle of “for personal use and in reasonable quantity”. The value of personal postal articles carried by an international traveller is limited to Rmb1000[10] per trip, otherwise, these articles would be treated as imported goods under “general trade” and are subject to customs clearance and payment of import tariff and VAT[11]. The import of “personal articles” is tax free if the tax amount is below Rmb50. The lower 10% personal postal articles tax rate applies to certain goods, but for other items it remains as high as 20% or more. However, if the goods meet the Hong Kong origin requirement, Hong Kong companies may consider taking advantage of the zero tariff rate concession offered under CEPA and paying the 17% VAT[12]. As to which import arrangement is more advantageous, it all depends on the type of product imported, the applicable tax rate, the country of origin, and the sales strategy of the company concerned.

 

 

Deepen Financial Co-operation between Guangdong, Hong Kong and Macau

The GDFTZ devotes great efforts to deepening financial co-operation between Guangdong, Hong Kong and Macau. It implements financial reform and innovation in order to strengthen and give full play to Guangdong, Hong Kong and Macau’s joint role in advancing the mainland’s financial reform and innovation. It also promotes liberalisation of trade in services between the three places and propels economic transformation and upgrade. Detailed development directions include:

• Promoting development of cross-boundary renminbi business between Guangdong, Hong Kong and Macau:

  • To turn the renminbi into the major denomination and settlement currency for cross-border large-amount transactions and investments between the GDFTZ and Hong Kong, Macau and foreign countries.

  • To advance two-way renminbi financing between the GDFTZ and Hong Kong and Macau.

  • To allow banking financial institutions in the GDFTZ to conduct cross-boundary renminbi lending business with their Hong Kong and Macau counterparts.

  • To allow non-banking financial institutions such as securities companies, fund management companies, futures companies and insurance companies in the GDFTZ to conduct cross-boundary renminbi business with their Hong Kong and Macau counterparts.

• Further opening up to Hong Kong and Macau:

  • To look into the possibility of introducing cross-boundary renminbi credit assets transfer business under the CEPA framework.

  • To improve the negative-list management approach for the financial sector in a bid to promote further liberalisation of the financial services sector in the GDFTZ to Hong Kong and Macau.

• Strengthening financial services for enterprises “going out”:

  • This includes giving support to financial institutions in Guangdong, Hong Kong and Macau to jointly set up renminbi overseas investment funds in the GDFTZ.

In addition to promoting Guangdong-Hong Kong-Macau financial co-operation, the GDFTZ will also enhance investment and financing facilitation and make use of innovative measures to meet the financial needs of enterprises in the FTZ. These include:

- To launch a new management model for local and foreign currency accounts, and introduce innovations in such areas as account opening, account business scope, funds transfer, and dynamic monitoring mechanism.
- To look into the possibility of rolling out innovative cross-boundary financing business by way of free trade account and other risk control methods.
- To introduce, under the premise of risk control, foreign exchange control pilot reforms with emphasis on renminbi convertibility under the capital account.
- To allow organisations in the FTZ to bring in, under the macro-prudential framework, local and foreign currency funds from abroad and to issue local and foreign currency bonds offshore.
- To introduce on a pilot basis renminbi convertibility under the capital account within a set limit, allowing qualified organisations to carry out transactions such as direct investment, mergers and acquisitions, bond instruments and financial investment within the set limit.

 

Enhancing Hong Kong’s Position as an Offshore RMB Centre In recent years, many financial institutions in Hong Kong have been making use of the mainland’s increasingly open financial policies and CEPA’s market liberalisations to gradually participate in the mainland financial market and develop business. By doing so, they accumulate practical operation experience in the hope of acting as first-movers when the mainland further liberalises its relevant policies, as well as identifying business opportunities brought about by liberalisation. For instance, Qianhai, in Shenzhen, had already identified trial financial reforms and innovation as the focusses of its liberalisation policies even before the GDFTZ was officially launched. The aim is to create a modern services systems and mechanisms innovation zone, as well as a pioneer zone for close co-operation between Hong Kong and the mainland. It also explored the possibility of broadening the channels for diverting renminbi funds from overseas to support the development of offshore renminbi business in Hong Kong, and to build an innovative pilot zone for cross-boundary renminbi business. As of 30 April 2015, some 1,335 Hong Kong-invested enterprises had established a presence in Qianhai, with the total registered capital reaching Rmb215.4 billion[13]. Among the different industries, the financial sector is one of the major areas of Qianhai-Shenzhen-Hong Kong co-operation. For instance, commercial banks including the HSBC, Hang Seng Bank, Bank of East Asia, Standard Chartered Bank and China Merchants Bank have set up branches in Qianhai. Many of these banks make use of Qianhai’s advantages to develop cross-boundary renminbi business and participate in lending projects related to Qianhai. Since Qianhai launched its cross-boundary renminbi lending projects on 22 January 2013, the total cross-boundary loans obtained by Qianhai enterprises from Hong Kong reached Rmb82.6 billion by the end of 2014[14]. These loans have supported the development of the real economy in Qianhai, and have contributed to financial innovations of the existing currency supply mechanism and renminbi exchange rate system. The renminbi’s role in cross-boundary transactions, as well as the renminbi lending business of Hong Kong’s financial institutions, have been strengthened, effectively further enhancing Hong Kong’s position as an offshore renminbi trading centre. As the GDFTZ further implements reforms and opening up to deepen financial co-operation between Guangdong, Hong Kong and Macau, this move helps to promote cross-boundary renminbi business. The possibility of further opening up the FTZ to Hong Kong and Macau under the CEPA framework is also bound to bring about greater market opportunities for Hong Kong industry players.

 

 

Engine for Regional Development

The GDFTZ will also develop into an important platform leading the development of the Pearl River Delta and other regions, including:

• Leading the transformation and upgrade of the PRD:

  • To build public service platforms for technology R&D, industrial design and intellectual property serving the transformation and upgrade of processing trade.

• Creating a Pan-PRD integrated service zone:

  • Relying on closer co-operation with Hong Kong and Macau, efforts will be made to encourage enterprises in the GDFTZ to conduct co-ordinated international and domestic trade, support and foster integrated foreign trade services enterprises, and provide such services as customs clearance, financing, tax refunds and international settlement for small and medium-sized enterprises.

• Building an important window for mainland enterprises “going out”:

  • Relying on the advantages of Hong Kong and Macau in financial services, information, international trade networks, and risk management, action will be taken to build the GDFTZ into a window and integrated service platform for mainland enterprises and individuals embracing the “going out” strategy, while support will be given to mainland enterprises and individuals to participate in the building of the 21st Century Maritime Silk Road.

Helping Guangdong Undergo Transformation and Upgrade in “Going Out” Guangdong has long been one of the important provinces in China’s foreign economic and trade co-operation. The province plays an active role in promoting the development of the south China region and pan-PRD. It is also a major source of China’s outward investment, especially non-financial investment. It is worth noting that currently a majority of Guangdong enterprises are eager to undergo transformation and upgrade. They want to make use of the “going out” strategy, and “bring in” the advantages of their business partners, in order to develop the mainland and overseas markets simultaneously – and the Hong Kong service platform is the top choice of those enterprises. According to an HKTDC survey conducted in 2013 in Guangdong province on the “going out” strategy and “transformation and upgrade”, more than 90% of the surveyed enterprises indicated that they would consider, or had already, increased investment as a way of boosting competitiveness. Their most sought-after service support included financial and professional services such as brand design, product development, marketing, business consultancy, and legal/accounting and banking/financing. Meanwhile, 91% of the enterprises indicated that they would “go out” to seek co-operation partners. The majority of enterprises expressed interest in sourcing services and business partners from Hong Kong, accounting for 65% of the surveyed enterprises[15]. Hong Kong service suppliers have handled matters relating to trade and investment in Hong Kong and foreign markets on behalf of mainland enterprises for many years. The GDFTZ is leading the PRD region in transforming and upgrading, and is becoming an important window for the mainland’s “going out” policy. It can be expected that more detailed measures will be introduced to help enterprises in the FTZ make use of the Hong Kong platform to acquire services and co-operation partners. This is bound to create more opportunities for Hong Kong service suppliers.

 

 

Opportunities for Hong Kong

Under the premise of in-depth co-operation between Guangdong, Hong Kong and Macau, the GDFTZ has liberalised market access for foreign investment. The record filing system has been introduced on top of the negative list in order to streamline foreign investment administration. This, coupled with the liberalisation and concessionary measures offered to Hong Kong under CEPA, has greatly expanded the scope for Hong Kong companies to enter and develop the Guangdong and the entire mainland markets.

Under CEPA and the Guangdong Agreement, Hong Kong already enjoys market access and preferential measures in many sectors, and is a step ahead of foreign investors in expanding the increasingly buoyant mainland market. Preferential policies applicable to Hong Kong are wide ranging. They cover services incidental to mining and manufacturing, as well as services in the areas of telecommunications, finance, legal, and technical testing and analysis services.

The GDFTZ’s liberalisation measures provide Hong Kong companies with even more options to develop the mainland market. For instance, where trade in goods is concerned, Hong Kong companies can choose either the GDFTZ’s facilitation measures and bonded arrangements offered to cross-border e-commerce operators, or the zero tariff preferential treatment granted to Hong Kong products under CEPA. Companies can select the right channel for selling to the mainland market based on their situation.

Meanwhile, the GDFTZ deepens the liberalisation of trade in services between Guangdong, Hong Kong and Macau in the hope of achieving breakthroughs in such sectors as finance, transportation and shipping, trade and commerce, professional services and technical services. Guangdong, Hong Kong and Macau are encouraged to jointly develop the international market, and to forge themselves into an important hub for trade along the Maritime Silk Road. The GDFTZ has introduced detailed development measures including: supporting parallel import of automobiles on a pilot basis; setting up an intellectual property operation centre in the south China region; advancing the development of industrial design; and supporting Hong Kong and Macau enterprises in investing in shipping and air transport services. Against this backdrop, it can be expected that enterprises in Guangdong, Hong Kong and Macau will have increased business co-operation opportunities in these sectors. They can utilise their individual resource advantages in market, talent, management and financing to complement one another, and make more use of the services offered by Hong Kong. This can help Hong Kong consolidate its roles as a trade/shipping hub in the Asia Pacific and as an important regional trade centre for technical services and intellectual property rights.

With regard to the financial sector, the GDFTZ devotes great efforts to deepening financial co-operation between Guangdong, Hong Kong and Macau, and further opening up to Hong Kong and Macau financial services suppliers. This can help Hong Kong’s financial sector to enter the mainland market and enhance the city’s position as an international financial centre. In particular, the GDFTZ’s efforts in promoting the development of cross-boundary renminbi business between Guangdong, Hong Kong and Macau are bound to strengthen Hong Kong’s role as an offshore renminbi trading centre. Also, the GDFTZ’s action in introducing foreign exchange control pilot reforms with an emphasis on renminbi convertibility under the capital account serves to accelerate the pace of internationalisation of the currency. Under the premise of deepening Guangdong-Hong Kong-Macau co-operation, it can be expected that Hong Kong will play an important part. In view of this, Hong Kong industry players should pay close attention to the detailed measures announced by the mainland so as to effectively capture the right business opportunities.

The Hong Kong business platform is also the prime choice of mainland enterprises undergoing transformation and upgrade in their pursuit for “going out”. Possessing such advantages as free capital flow, rich international communication resources, and international-level professional services, Hong Kong can offer mainland enterprises, especially Guangdong enterprises, a full range of services. As the GDFTZ leads the PRD region in undergoing transformation and upgrade, coupled with the fact that the “going out” policy encourages outward direct investment, this development trend is set to provide Hong Kong service suppliers with more opportunities.

Appendix: Functional Positioning of Sub-zones

Nansha Area of Guangzhou

The Nansha New Area, or GDFTZ (Nansha), is blessed with the policy advantages of being a state-level new area, a state-level economic and technological development zone, a bonded port area, and a new and high-tech development zone. With a sound industrial foundation, Nansha New Area is one of China’s three shipbuilding bases, a national auto and spare parts manufacturing and export base, as well as a nuclear power equipment manufacturing base in the PRD region. Where scientific research is concerned, the research base of the Guangzhou Institute of Industry Technology under the Chinese Academy of Sciences is located in Nansha. It has built a technology innovation platform for numerical-control equipment technology research and development, and modern logistics industry planning services. It has also been rated as a state-level technology transfer demonstration base. Moreover, the Hong Kong University of Science and Technology and the Fok Ying Tung Foundation have jointly established a facility for promoting the internationalisation of traditional Chinese medicine in the Nansha New Area.

GDFTZ (Nansha) will devote great efforts to creating a regulated international business environment in line with new international practice. It aims to take the lead in implementing free trade in services with Hong Kong and Macau. Building an international shipping and logistics centre with comprehensive international trade functions and strong financial innovation ability is another goal. It will also develop into a demonstration base for technology innovation co-operation between countries and regions along the 21st Century Maritime Silk Road.

GDFTZ (Nansha) comprises seven functional sub-zones: (1) an international shipping development and co-operation zone; (2) a financial and commercial development experimental zone; (3) a Guangdong-Hong Kong-Macau integrated development experimental zone; (4) an international education and medical co-operation experimental zone; (5) a Guangdong-Hong Kong-Macau scientific and technological innovation and co-operation zone; (6) a comprehensive outbound investment service zone; and (7) a processing trade transformation and upgrade service zone.

Qianhai-Shekou Area of Shenzhen

Qianhai and Shekou are just across the sea from Hong Kong. Leveraging on the close co-operation in modern services between Shenzhen and Hong Kong, and taking advantage of Hong Kong’s rule of law and level of internationalisation, as well as its advanced port development, GDFTZ (Qianhai-Shekou) will give emphasis to developing new strategic services such as finance, modern logistics, information, and technology services. It aims to transform into a pilot demonstration base for China’s financial sector to open up to the world, an important base for trade in services worldwide and an international hub port of China.

Hengqin Area of Zhuhai

The Hengqin New Area, or GDFTZ (Hengqin) is linked to Macau via the Lianhua Bridge. It implements an innovative supervision mode of round-the-island real-time monitoring. Capitalising on the co-operation with higher education institutes such as the University of Macau and the development of the Chimelong Ocean Kingdom in Zhuhai, GDFTZ (Hengqin) will give emphasis to developing a number of industries. These include: tourism, leisure and health; commercial and financial services; culture, science and education; and new and high technology. Action will be taken to set up a pilot zone to open-up cultural and education services and an international commercial services and leisure tourism base, as well as create a new carrier for the diversified development of Macau’s economy.

 

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[1]  At the State Council Executive Meeting held on 12 December 2014, it was adopted that the Guangdong Free Trade Zone was to be established. Occupying an area of 116.2 sq km, the GDFTZ covers three sub-zones: (i) Nansha Area of Guangzhou (60 sq km, including the 7.06-sq km Guangzhou Nansha Bonded Port Area); (ii) Qianhai-Shekou Area of Shenzhen (28.2 sq km, including the 3.71-sq km Shenzhen Qianhai Bay Bonded Port Area); and (iii) Hengqin Area of Zhuhai (28 sq km).

[2]  Here CEPA refers to the Mainland and Hong Kong Closer Economic Partnership Arrangement and its supplements.

[3]  China’s Industrial Classification GB/T4754-2011

[4]  Investments from Macau and Taiwan are subject to the provisions in their respective arrangement/agreement signed with the mainland.

[5]  For details, please visit the website of Hong Kong government Trade and Industry Department at http://www.tid.gov.hk/english/cepa/legaltext/files/Info_Note_2014.pdf

[6]  The sector of “services incidental to mining” under CEPA is defined in accordance with the WTO classification of service industries, while the mining industry mentioned in the FTZ Negative List is classified in accordance with China’s Industrial Classification. The areas covered by the two classifications are not identical.

[7]  Catalogue for the Guidance of Foreign Investment in Industries 2015.

[8]  The sector of “services incidental to manufacturing” under CEPA is defined in accordance with the WTO classification of service industries, while the manufacturing industry mentioned in the FTZ Negative List is classified in accordance with China’s Industrial Classification. The areas covered by the two classifications are not identical.

[9]  Currently, pilot cities in the mainland where cross-border e-commerce imports can be conducted include: Shanghai, Chongqing, Hangzhou, Ningbo, Zhengzhou, Guangzhou and Shenzhen.

[10]  The maximum value of personal postal articles carried by individuals travelling to and from Hong Kong, Macau and Taiwan is Rmb800. In case the value of an article exceeds the set limit, after Customs has examined and verified that the article is really for personal use, it can still go through customs clearance procedures as a personal article provided that it is the only item carried by the traveller at the time.

[11] For details, please see the Circular of the General Administration of Customs on Pilot Online Shopping Bonded Import Mode in Cross-border E-Commerce (Shu Ke Han [2013] No.59), and the Notice on Supervision over Cross-border E-Commerce Import and Export Goods and Articles (GAC Announcement (2014) No.56).

[12]  For details on zero tariff rate concession and Hong Kong origin requirement under CEPA, please visit the website of the Hong Kong Government Trade and Industry Department: http://www.tid.gov.hk/english/cepa/index.html

[13]  Source: Authority of Qianhai Shenzhen-Hong Kong Modern Service Industry Co-operation Zone

[14]  Source: Authority of Qianhai Shenzhen-Hong Kong Modern Service Industry Co-operation Zone

[15]  For more details, please refer to HKTDC Research’s article Guangdong: Hong Kong service opportunities amid China’s “going out” strategy and report China’s “Going Out” policy: Guangdong’s demand for professional services

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HKTDC Research | 16 Jun 2015

Guangdong-Hong Kong Cooperation to Scale New Heights

In the Outline of the Plan for the Reform and Development of the Pearl River Delta (2008-2020), clear division of functions has been set out for different cities in the PRD. This includes positioning Guangzhou as a modern services centre in the south China region; Shenzhen as a technological research and innovation centre; Foshan and Dongguan as international high-end manufacturing bases; Zhuhai, Zhongshan and Jiangmen as advanced manufacturing bases in the mainland; and Huizhou as a petrochemical base.

As for Hong Kong, its positioning is to serve as the engine propelling PRD cities to go international and develop into global cities. Within the Guangdong-Hong Kong-Macau city cluster, Hong Kong’s biggest comparative advantage is its global network. As a matter of fact, in every city cluster, there is a city whose function is to lead the whole cluster to integrate into the global network. And the city undertaking this function is positioned as a global city. Currently, among the 11 cities in the Guangdong-Hong Kong-Macau city cluster (comprising nine PRD cities, Hong Kong and Macau), Hong Kong is the only global city. In other words, the leader function performed by Hong Kong fully demonstrates her comparative advantage.

Hong Kong takes the lead among PRD cities in international transportation as well as commercial services such as financial and legal services, accounting, and marketing on a global level. Innovative systems being implemented in the Guangdong Pilot Free Trade Zone (GDFTZ) and efforts to further promote liberalisation of trade in services between Guangdong and Hong Kong are bound to strengthen Hong Kong’s role in leading the whole city cluster to integrate with the global network, as well as building the Guangdong-Hong Kong-Macau Big Bay Area into an important hub along the Maritime Silk Road.

In the document Vision and Action on Jointly Building the Silk Road Economic Belt and 21st Century Maritime Silk Road issued earlier by three State Council ministries and commissions, it was specifically mentioned that efforts will be made to give full play to the functions of the GDFTZ in strengthening cooperation with Hong Kong and Macau and creating the Guangdong-Hong Kong-Macau Big Bay Area along the Maritime Silk Road, and that the big bay area will play a very significant role in the building of the Maritime Silk Road.

 

Note: The Guangdong provincial government announced the Implementation Plan of Guangdong Province for Participating in the Construction of “One Belt, One Road” on 3 June, putting forward that efforts will be made to build the Guangdong-Hong Kong-Macau Big Bay Area into a first-class international financial and trade centre, technological and innovation centre, transportation and shipping centre, and cultural exchange centre on the Maritime Silk Road, and that action will be taken to build a logistics hub in the big bay area for trade between China and countries along the Maritime Silk Road.

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Hong Kong Export Credit Insurance Corporation | 30 Jun 2015

Israel: Open Economy with Low Tax Policy

Strengths

• Well-developed science and technology sector
• Large offshore reserves of natural gas

Challenges

• Unstable coalition governments
• Geopolitical tensions

Key Data
Capital	Jerusalem
Population	8.2 million
Currency	New shekel
Official language	Hebrew, Arabic
Form of state	Parliamentary democracy

 

Major Merchandise Exports (% of total, 2013)	Major Merchandise Imports (% of total, 2013)
Chemicals & chemical products (excl. refining) (29.3%)	Fuel (20.5%)
Polished diamonds (16.2%)	Diamonds (11.6%)
Electronic communication, medical & scientific equipment (13.8%)	Consumer non-durable goods (9.3%)
Top three export countries (% of total, 2013)	Top three import countries (% of total, 2013)
USA (31.0%)	USA (11.5%)
Hong Kong (9.5%)	China (7.9%)
UK (6.9%)	Germany (6.6%)

Source: Economist Intelligence Unit (www.eiu.com)

Political Trend

Israel is a country with proportional representation and universal suffrage. The Prime Minister serves as head of government. However, no Israeli administration has completed a full term since the 1984-88 government of national unity. In December 2014, the coalition government under Prime Minister, Binyamin Netanyahu, was in growing divergence over a long list of issues, leading to the dissolution of the government that had just served for less than two years of its four-year term, and prompting an early election in March 2015.

Netanyahu was elected to Prime Minister of Israel for the fourth time during the election in March. The Likud party that he led emerged as the largest party, clearly ahead of the Zionist Union. The new cabinet will need to respond to a number of issues that proved divisive in the outgoing government, including security concerns and continued public discontent over growing income inequality, rising living costs and a shortage of housing, despite relatively healthy economic fundamentals.

On the security front, relations between Israel and the United States appeared to be fraying. In April, Israel issued a formal statement opposing the framework nuclear agreement the P5+1 (the five permanent UN Security Council members plus Germany) agreed with Iran, which had exacerbated its relations with the Obama administration. Meanwhile, security risks in Israel remain elevated despite the Egypt-brokered truce between Israel and Islamist group Hamas in August 2014, as highlighted by protracted violence even after the ceasefire.

Economic Trend

* Estimates ^ Forecast
Source: Economist Intelligence Unit (www.eiu.com)

In 2014, the Israeli economy grew at its lowest rate in the past five years, as the 50-day war against Hamas and other Gaza terror groups in summer weighed down heavily on the country’s tourism and private consumption. Fortunately, the economic impact of the conflicts was proved to be short-term, growth is expected to bounce back to above 3% in 2015, driven by the rebound in domestic demand that followed the end of the Gaza conflict and the projected strengthening of external environment. The economy should also be supported by the ultra-low interest rates, currently at 0.1%, and a pause in fiscal consolidation in 2015. The central bank projected that it will leave the interest rate at its low level in the coming quarters in order to support economic activity and a return of inflation to around the midpoint of the 1-3% target range.

Looking ahead, Netanyahu will seek to promote a policy agenda that emphasizes economic liberalization and low taxes. In fact, Israel’s debt levels have been steadily falling for years, from 81.9% of GDP in 2008 to an estimated 66% in 2014. Currently, Israel was assigned ‘A+’ by S&P for the state’s credit rating with a stable outlook, Still, Israel pays a higher premium on its debt than most other OECD countries. In 2015, Israel was scheduled to pay US$10 billion in interest payments alone, more than two-thirds of its defense spending.

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HKTDC Research | 21 Jul 2015

The Belt and Road Initiative and the Opening Up and Sustained Development of the Chinese Economy

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)

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[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.

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HKTDC Research | 23 Jul 2015

One Belt One Road: Yuxinou Railway Development

As the transport hub of the Silk Road economic belt and Yangtze economic belt, Chongqing connects China’s eastern and western regions with the European markets. Its functions as a shipping centre in the upper reaches of the Yangtze River and a national logistics hub will be further strengthened in China’s new round of economic reform and opening up and implementation of the “One Belt, One Road” strategy. Rail-sea intermodal transportation connecting Chongqing and the “Maritime Silk Road” also opens international trade routes to South Asia and Southeast Asia. According to the Opinions on Implementing the Belt and Road Strategy and Building the Yangtze Economic Belt issued by the Chongqing municipal government in December 2014, investment by the municipal government in infrastructure projects will reach Rmb1.2 trillion by 2020. Among these, the Chongqing-Xinjiang-Europe international railway will be the main Eurasian land bridge between western China and the European markets. The railway is also known as the Yuxinou railway, an acronym for Chinese characters Yu (which stands for Chongqing), Xin (Xinjiang) and Ou (Europe).

Shortening Transport Time between Chongqing and Europe

The Yuxinou railway has greatly shortened transportation time between western China and Europe after its official opening on 18 March 2013. In the past, Europe-bound Chongqing exports were first shipped to Shanghai on the Yangtze River, where they were loaded onto larger ocean-going vessels to continue their shipment to Europe. The entire journey of this river-sea intermodal transportation usually took 45-60 days. Using the Yuxinou railway, it only takes 13 days to export goods from Chongqing to Germany. Besides saving time, this also improves the liquidity of working capital. The Yuxinou railway is still working on the improvement of speed. According to China Railway, transport time between Chongqing and Germany will be further shortened to 12 days after the railway becomes fully operational at the end of 2015.

Up to the end of 2014, a total of 233 trips had run on the railway, with freight volume amounting to 5.4 billion tonnes and the value of imports and exports transported totalling US$6.8 billion. Today, it has more than four trains leaving Chongqing for Europe and one train or more returning from Europe each week. It is estimated that about 300 trips will run on the railway in 2015 with onward and return trips each accounting for 50% of the journeys. The Yuxinou railway operates with fixed stations, fixed routes, fixed train numbers, fixed timetables and fixed prices. A more stable train service will enhance Chongqing’s ability to solicit cargo sources from the surrounding areas.

Cargo Sources: Greater Diversity and Larger Catchment Area

Chongqing’s industrial development has always had electronics and automotive industries as its two pillars. Electronic products and auto parts also form the bulk of goods exported to Europe via the Yuxinou railway. As Chongqing’s industries have become more diversified in recent years, the sources of goods have also increased. Today, cargo carried on the Yuxinou railway also includes machinery equipment, food, textiles and light products. The origins of goods also extend from Chongqing to places beyond, with Chongqing itself and the surrounding provinces accounting for 50%, eastern China for 30%, and southern China for 20%. Chongqing’s imports from Europe mainly include cars and auto parts from Germany and high-end consumer goods, timber, machinery equipment, chemicals and instruments from countries like Italy and Spain.

In addition to a larger catchment area for goods, the destinations of cargo shipments have also been extended to cities beyond the Yuxinou railway line to form a unique “1+N” pattern of convergence and distribution network. Here, “1” refers to the main line of the railway from Chongqing to Duisburg, while “N” refers to countries chosen by consignors as their points of convergence and distribution. Today, this has developed into a network of dozens of convergence and distribution points, including Rotterdam in the Netherlands, Antwerp in Belgium, Moscow and Cherkessk in Russia, Kutno in Poland, Pardubice in the Czech Republic, and Almaty and Kostanay in Kazakhstan. From another prospective, these convergence and distribution points may be taken as centres of European exports to Chongqing. Greater diversification of European goods exported from Europe to Chongqing will in turn further enrich the varieties of imported goods in the mainland market.

Railway Transport Cost Drops Steadily

According to a logistics company in Chongqing, goods are mostly exported from Chongqing to Europe by means of river-sea intermodal transportation because both the buying and selling sides are accustomed to this practice. However, as freight rates on the Yuxinou railway keep falling, more companies may consider switching to railway transport. In general, transport costs from Chongqing to Europe on the Yuxinou railway are about 40% lower than by air, but about 100% higher than by river-sea intermodal transportation. For example, it costs about Rmb12/kg to transport ordinary goods from Chongqing to Europe on the Yuxinou railway, about Rmb20/kg by air, and about Rmb5/kg by ship.

The freight rate on the Yuxinou railway was US$1 per TEU/km in 2011, US$0.8 per TEU/km in 2012 and US$0.7 per TEU/km in 2013. It dropped to US$0.55 per TEU/km by April 2015. There should be room for further reduction as freight volume continues to rise. This will enhance Chongqing’s competitiveness as the logistics hub of western China.

Maritime Silk Road

Apart from the Yuxinou railway, goods may also be exported from Chongqing to Europe by rail-sea intermodal transportation to connect with the Maritime Silk Road for the onward journey to Europe. For example, goods may be sent to Shenzhen’s Yantian Port on the Chongqing-Shenzhen Railway, where they will be loaded onto ships bound for Rotterdam via the Maritime Silk Road. The whole journey takes about 27 days. The Chongqing-Guiyang Railway now under construction will run southwestwards to Guiyang. From there, goods will be exported via Kunming and Ruili to Sittwe port in Myanmar, where they will be loaded onto ships and transported to Rotterdam via the Maritime Silk Road. The whole journey is expected to take more than 30 days.

Besides relying on the “One Belt, One Road” strategy to promote port infrastructure and land-sea intermodal transportation, Chongqing is also exerting efforts to open international trade routes to South Asia and Southeast Asia and integrate with the China-Indochina Peninsula economic corridors. Chongqing will strengthen co-operation in the construction of the Chongqing-Kunming Railway[1] and the new Chongqing-Guiyang Railway[2], and encourage its leading car and motorcycle manufacturing, chemical and energy enterprises to expand to South Asia and Southeast Asia. As an important node connecting the Maritime Silk Road and the Silk Road Economic Belt and with its strong influence on the Yangtze River Economic Belt, Chongqing will invest more to further improve its infrastructure in future.

Opportunities for Hong Kong Businesses

The “One Belt, One Road” initiative is China’s important development strategy during the 13th Five-Year Plan period (2016-2020). Under this strategy, Chongqing, which plays an important role as the main transport hub between western China and Europe, will find great scope and opportunities for development. In addition to the Yuxinou railway, Chongqing’s railway network may also help export goods to the European market via the Maritime Silk Road by means of rail-sea intermodal transportation. The “One Belt, One Road” routes that connect the Asia-Pacific economy with the European economy pass through more than 60 countries and regions in Central Asia, Southeast Asia, South Asia and eastern Africa, where 4.4 billion people live. As Chongqing’s external logistics and transportation costs drop, and with the municipal government’s policy of fostering industrial clusters with special advantages, Hong Kong manufacturers may consider extending their production lines to Chongqing not only for export purposes but also to market their products to consumers in China's central and western regions as well as in countries along the "One Belt, One Road".

Apart from manufacturing enterprises, Hong Kong’s logistics companies may also take the opportunity to expand their business in Chongqing and in countries and regions along the “One Belt, One Road”. As freight volume on the Yuxinou railway grows, the catchment area of goods and destinations of delivery will also increase. In particular, the formation of its unique “1+N” pattern of convergence and distribution network will increase demand for logistics and other supporting services (such as finance and insurance) on a local level. On the other hand, the “One Belt, One Road” strategy will generate plenty of room for co-operation in such fields as infrastructure and finance. Hong Kong’s service providers should look out for new opportunities.

 

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[1]  China Railway plans to start construction of the Chongqing-Kunming Railway in 2016. The project is slated for completion in four years. It will only take about 2.5 hours to travel from Chongqing to Kunming when the railway is completed.

[2]  The new Chongqing-Guiyang Railway is due for completion at the end of 2017, by which time it will only take two hours to travel from Chongqing to Guiyang.

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HKTDC Research | 28 Jul 2015

The Belt and Road and the Reshaping and Adjustment of World Economic Order

In the wake of the financial crisis, “de-globalisation” sentiments have spread worldwide and protectionism is on the rise. Not only are import controls proliferating, but highly exclusionary and non-transparent regional trade agreements are coming up one after the other, together with rising localism and increasing trade barriers, it is not surprising that the recovery of the global economy is simply anaemic. Seven years after the crisis, world trade (in terms of global output) and cross-border fund flows have yet to recover to their pre-crisis levels. Though the lesson from the Great Depression of the 1930s has been well learnt and the world economy has avoided the pitfalls of that episode, de-globalisation sentiments have been keeping anxiety over the Great Recession alive.

To revitalise the world economy, we have to thwart protectionism and suppress de-globalisation. Unfortunately, international economic coordination institutions set up after the Second World War, for example, the World Trade Organization, the World Bank and the International Monetary Fund, have all been ageing to one degree or another. In particular, as the gravity of the world economy shifts eastward, and as the growth of the main developing countries accelerates, what the world economy needs is not simple stimulations. What it needs instead is the reshaping of global order and adjustments in multilateral institutions. The Belt and Road initiative is China’s response to the reshaping of world economic order.

Transcending Regional Boundaries

Superficially, as the Belt and Road initiative encompasses mainly countries on the periphery of China and along the Silk Road, it has a strong regional connotation. But, just as stressed by officials repeatedly, the initiative “is designed to uphold the global free trade regime and open the world economy in the spirit of open regional cooperation” and “covers, but is not limited to, the area of the ancient Silk Road.”[1] In other words, it is a strategy with global significance.

Undoubtedly, with its current national strength and its global status, China still lacks the capability to reshape the world economic order by itself. Moreover, with the world becoming increasingly multipolar, it is also not possible for any one country to change the global order single-handedly. The crux is to introduce new elements, principles and momentum for the reshaping of the world economic order. Once such an initiative gains widespread support, changes will follow through naturally.

Three Key Elements

To me, the foremost element in the Belt and Road initiative is “open and inclusive”, which is of paramount importance in suppressing the development of exclusionary regional economic organisations and in upholding the free trade regime and the open world economy. Currently, a number of regional economic organisations, which are highly exclusionary, non-transparent and massive, are in the making. Though all of them are claiming to uphold free trade, they are perhaps more likely to build up trade barriers. In fact, according to WTO data, since the financial crisis, the number of new import restrictions introduced by the G20 has been increasing and now affects over US$800 billion worth of imports each year.

For sure, insofar that the Belt and Road initiative relies on multi-tiered bilateral and multilateral agreements to prompt countries along the Silk Road in opening up markets mutually, a certain amount of regional limitation is inevitable. The key is to uphold the principle of “openness and inclusiveness” so that the contents and membership of these bilateral and multilateral agreements can be expanded continuously. For example, the recently established Asian Infrastructure Investment Bank, which has 57 founding members, is a beneficiary of the “openness and inclusiveness” principle. Of course, it still takes much effort to determine how best to implement this principle.

A second important element of the Belt and Road initiative is “mutual benefit”. The reason for the spreading of the de-globalisation sentiment worldwide is that the balance and distribution of benefits in the course of globalisation have not been handled well. As a result, what one side has gained is what the other side has lost, and the negative impacts of globalisation have eclipsed its positive contributions. The reason that restructuring the world economic order has met a lot of resistance is also because of this “zero-sum game” mentality that presumes there is a life-or-death competition between the new and old orders. To free ourselves from the curse of de-globalisation and to restructure world economic order, we have to do a better job of handling the balance of benefits between the new and the old orders, and to maximise benefits by seeking common ground and shelving differences.

To achieve “mutual benefit”, it takes not only proper planning and actions by coordinating institutions that can fairly represent the interests of all parties, but also the availability and following of a set of practical, reasonable, commonly-accepted and transparent codes. It also requires another important element for the success of the Belt and Road initiative: abiding by “market rules and international norms”. The difficulty with this is that a lot of Belt and Road cooperation projects are infrastructure investments that require policy support and the input of public funds. As many of the countries along the Belt and Road are still developing, their market economies are immature and international norms may not be widely accepted. How best to use “market rules and international norms” to achieve “mutual benefit” would therefore be critical to the success of the Belt and Road initiative.

 

This article originally appeared in Hong Kong Economic Times (27 July, 2015)

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[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.

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Royal Institution of Chartered Surveyors | 31 Jul 2015

RICS Indonesia Commercial Property Monitor Q2 2015

Q2 2015: Indonesia Commercial Property Monitor

Weaker macro climate weighs on occupier and investment sentiment

Key macroeconomic trends

Indonesia’s GDP growth softened to 4.7% year-over-year in Q1 from 5% in Q4 2014, the weakest pace of expansion since September 2009. The slower-than-expected growth was driven partly by weakening private consumption and government expenditure, which undermined positive contributions from exports and steady investment growth. More worryingly, some of the recent high frequency economic indicators point to a further moderation in growth. Going forward, private investments are likely to be negatively affected by the slow and disappointing pace of reforms. Furthermore, a weak rupiah and subdued sentiment will likely continue to weigh on the recovery in private spending. Current external uncertainties, including the impact of the Chinese slowdown, sluggish commodity prices and the ongoing turmoil in the euro area suggest continued weakness in external demand in the near term. On the policy front, while there is a clear need to boost growth momentum, Indonesia’s central bank will likely stick to its tight monetary policy stance for some time to come due to volatile conditions and rising inflation.

Occupier Market

• The headline Indonesia Occupier Sentiment Index recorded a value of –15 in Q2.
• Occupier demand varied substantially between sectors. Sharp contraction was seen in the office segment, there was no change in the retail sector and demand increased slightly in the industrial segment.
• Available space for occupancy declined modestly in the retail sector, while increasing across office and industrial units.
• Near term rent expectations remain negative at the headline level, largely as a result of a weak office sector sentiment. By way of contrast, healthy growth is projected in the industrial and retail segments.
• Over the next twelve months, the prime and secondary office units are anticipated to be the weakest areas of the market.

Investment Market

• The Investment Sentiment Index was in broadly neutral territory at –1, which signals little change occurred over Q2.
• Investment enquiries declined slightly in the office sector, but rose in the industrial sector and in the retail segment. Demand from foreign buyers was broadly flat.
• Supply of retail units to the market tightened while availability of office and industrial properties for sale grew, although the office sector experienced the sharpest rise.
• Both over the three and twelve month time horizons, capital values are expected to edge up in the industrial and retail sectors while office property prices are anticipated to decline.

 

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HKTDC Research | 3 Aug 2015

Israeli Technology: Targetting the Emerging Markets

Facilitating Technology Transfer to Asia: The Hong Kong Bridge

Accounting for 57% of the world’s GDP[1] , developing countries are becoming the new investment and export destinations for many global corporations. In view of the rapid economic growth in developing Asia, many multinationals are progressively expanding into Asia’s emerging markets. With its technology-dominated export sector, Israel is looking beyond the developed markets and increasingly targeting emerging markets. In particular, it is focussing on the Chinese mainland and a number of countries in Southeast Asia, looking to provide technologies as well as high-tech products to cater to their needs.

As the premier business and financial hub in Asia – and as a technology marketplace – Hong Kong is the ideal partner and gateway for Israel’s technologies and high-tech exports when they come to enter the region’s emerging markets, particularly the Chinese mainland. Thanks to its strong intellectual property (IP) rights protection, Hong Kong is in a good position to facilitate technology transfer from Israel to the emerging markets in Asia, while providing full-fledged professional services, including legal and financial services, and assisting in the customisation and localisation of Israeli technologies. 

Israeli Technologies – Addressing Global Environmental Issues

In recent years, climate change and abnormal weather conditions have increased the demand for environmental technologies, including renewable energy and water management systems. With developed disaster-proof facilities found to be immature, developing countries are relatively vulnerable to adverse natural conditions. In this regard, Israeli cutting-edge R&D in environmental and clean-tech sectors is in a good position to meet the technological demand in the emerging markets. Israel is a global leader in environmental technologies for water conservation and greenhouse gas reduction, which are important for addressing global environmental issues, such as drought and water treatment.

 

Israel’s Cutting-edge Water Technologies With its scarcity of water resources, Israel has striven hard to develop water preservation and wastewater treatment technologies. Israel has the world’s highest water recycling rate (80%), and it is home to the world’s largest seawater reverse osmosis desalination plant[2]. In terms of agriculture, Israel is home to the world’s largest company for drip irrigation, a process which sees water and fertilizers delivered directly to the root system, rather than to the entire field surface, thereby saving water and fertilizers. Drip irrigation has been in use in Israel since the mid-1970s, and currently Israel exports more than 80% of its drip irrigation products.

Continued urbanisation of developing countries has driven up water and energy consumption by the household, commercial and industrial sectors. To an extent, such demand has been strengthened by the growing number of infrastructure projects in those developing countries that are supported by official development assistance (ODA). This has induced more government and private sector procurement needs for projects in energy, water, telecommunications and agriculture. In particular, ODA inflow in the East Asia and Pacific region registered double-digit growth in 2012-2013, surpassing that of other regions.

Complementing existing multinational institutions, such as the World Bank and Asian Development Bank, the establishment of the China-led Asian Infrastructure Investment Bank (AIIB), along with the "One Belt, One Road" initiative, is expected to accelerate infrastructure construction in developing Asian countries. In this regard, urbanisation in emerging markets presents great potential for the Israeli technology sector to help establish modern infrastructure in those expanding cities. Hong Kong has a large pool of world-class services providers in engineering, surveying and project management. These, along with the city’s legal professionals who can provide comprehensive legal advice on construction, financing and environmental issues, place Hong Kong in the ideal position to connect Israeli technology exporters with those Asian countries that need appropriate technological solutions for infrastructure development.

Targeting the Consumer Markets in Developing Countries

The opportunities arising from the fast-expanding consumer markets in developing countries are also being recognised by the Israeli business community. Despite the increased focus on the growing middle-class in the emerging markets over the past decade, Israel has yet to make significant inroads into these consumer markets. Since the 2008 financial crisis that weakened the economic performance in the West, Israeli exporters have started to develop emerging markets in Asia. In 2014, Israeli exports to Asia totalled US$10 billion, accounting for 21% of the country’s total exports. The EU market accounts for a 32% share, and the US for 22%. China was Israel’s largest export destination in Asia, accounting for about a quarter of Israeli exports to the region. Currently, the bulk of exports to Asia are dominated by industrial inputs - in particular, electronic components shipped to Intel’s assembly plants across Asia. 

According to a number of Israeli technology industry players interviewed during a recent HKTDC field trip to Israel, many local SMEs and exporters are not familiar with the distribution networks in Asia and are unable to engage in the mass-production of technological products that is necessary in order to be price-competitive in Asia’s emerging markets. As a result, they are neither targeting nor developing products for the consumers in this region. In this regard, Hong Kong intermediaries could play a useful role in linking Israeli technology entrepreneurs with those multinationals that have a presence in developing Asia, or to help them partner with local firms in the development of products targeting the emerging markets.

Healthcare Market Gaining Heed

Growing concerns over health and fitness, an aging population and an expanding middle-class in the emerging markets are all driving the demand for more advanced medical devices, pharmaceuticals and healthcare services. In 2014, consumer expenditure on health products and medical services in developing countries reached US$318.7 billion, up by 60% compared to 2009. In particular, the figure for Chinese consumers doubled during the same period. To seize opportunities in the fast growing healthcare markets, Israeli healthcare exporters have become more active in penetrating Asia. For example, Teva Pharmaceutical, the world’s largest generic medicines producer, has expanded to China, Japan and Korea over the past decade. Moreover, during that decade, the number of life science companies in Israel has grown fivefold to about 1,000, with about half of them engaged in exports. Many international healthcare and pharmaceutical companies, including GE Healthcare, Siemens and Phillips Healthcare, have established operations in Israel and are developing advanced medical equipment, medications and healthcare IT solutions.

According to industry experts in the Israeli healthcare and medical sector, several challenges are hindering the growth of Israel’s health goods exports to the emerging markets, notably China and India. Constantly changing regulations, for example, make it hard for Israeli products to comply with the latest standards and requirements. In addition, there is a lack of well-trained professionals and advanced facilities to perform R&D activities. In this regard, Hong Kong is the ideal platform for the marketing and distribution of Israeli healthcare products in Asia.

Notably, the 2015 edition of the Hong Kong International Medical Devices and Supplies Fair welcomed more than 250 exhibitors from 11 countries and regions, all showcasing a wide range of healthcare equipment and household medical products. With solid market knowledge and strong experience in developing the China market, Hong Kong companies make ideal partners for Israel when it comes to developing healthcare goods to meet local needs and in compliance with the relevant regulations. In addition, Hong Kong companies could find opportunities to collaborate with Israeli counterparts to conduct R&D and develop new healthcare products.

Strengthening R&D Collaboration with Emerging Markets

Israel has been active in fostering technological R&D collaboration with developing countries in recent years. The Israeli government has entered into bilateral Industrial R&D Support Agreements with a number of major emerging markets, such as India and the Chinese mainland. The first Israel-China bilateral R&D co-operation programme was launched in 2009 with Jiangsu Province. Since then, more than 200 applications have been submitted by joint companies from both countries, with total funding of more than US$20 million as of 2014. Israel has signed a Memorandum of Understanding (MoU) with the Chinese mainland and Hong Kong respectively, providing the framework for bilateral programmes to promote joint R&D and innovation activities. The MoU enhances Hong Kong’s role as a springboard for those Israeli companies aiming to expand in Asia (more details can be found in “Israel: Technology and R&D Collaboration Opportunities”).

Through collaborative research and product development with Israeli companies, Hong Kong could serve as the bridge for Israeli innovations to the technology markets in Asia. Israeli technology firms could leverage the strong production capacity and distribution network of Hong Kong manufacturers on the mainland to establish a foothold in China and the rest of Asia. Notably, Hong Kong is one of world’s top five exporters of technological products, including telecoms devices and equipment, electronic integrated circuits, and computer parts and accessories. With well-established global networks and close business ties with the Chinese mainland, Hong Kong companies may partner with Israeli high-tech firms to facilitate the production, sales and distribution of technological products, as well as any necessary customisation and repackaging to cater for local market preferences across Asia. In addition, Hong Kong could be a platform for technology transfer and commercialisation, and act as a springboard for Israeli R&D services providers, including engineers and scientific researchers, to market their technical know-how and expertise in the region.

Useful Contacts

 

The Israel Export & International Cooperation Institute (China Unit)	Tel: +972-3514 2866 Email: peggym@export.gov.il Website: www.export.gov.il/eng/Branches/Technologies/TargetMarkets/
The Israel Industry Center for R&D (China-Israel R&D Co-operation programmes)	Tel: + 972-3511 8166 Email: talia@matimop.org.il Website: www.matimop.org.il/china.html
Federation of Israeli Chambers of Commerce	Tel: +972-3563 1020 Email: chamber@chamber.org.il Website: www.chamber.org.il
The Office of the Chief Scientist (OCS), Ministry of Economy	Tel: +972-02-6662456 Email:  Aviram.Zolti@ocs.moital.gov.il Website:  economy.gov.il/RnD/pages/default.aspx
Hong Kong Trade Development Council (Tel Aviv Consultant)	Tel: +972-52633 3644 Email:  tel.aviv.consultant@hktdc.org Website: http://hkmb.hktdc.com/en/contact-hktdc/TEL-AVIV
Consulate General of Israel in Hong Kong and Macau (Economic and Trade Department)	Tel: +852-2821 7509 Email:  winkie.lui@israeltrade.gov.il Website: embassies.gov.il/hong-kong/Departments/Pages/economic-affairs.aspx

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[1]  According to IMF’s estimate for 2014, World Economic Outlook Database (April 2015)
[2]  A cost-efficient water purification facility built by Israel’s IDE Technologies , producing more than 200 million cubic metre annually and accounting for 20% of the household water consumption.

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HKTDC Research | 5 Aug 2015

“The Belt and Road” and Hong Kong’s Economic Transformation and Challenges

To Hong Kong, the Belt and Road initiative is in one way a cause for joy, but in another, a matter of concern. The reason for rejoicing is that business opportunities brought about by the initiative may allow Hong Kong a chance to embark on a whole new course of development. The reason for concern is that the epochal changes that may be triggered off by the initiative may further marginalise Hong Kong. Yet nothing is absolute in the affairs of the world; whether it is a cause for joy or a matter of concern is not predestined. From past records, I believe it is more likely joy than concern; but the key is to grasp and respond to situations flexibly.

Capitalise on strengths by leveraging geographic and sector advantages

The notion of marginalisation is not a new one: as early as the 1980s when the local manufacturing sector relocated northwards en masse, there were already worries about a “hollowing out of industries”. Later, as the mainland opened up, intermediary sectors such as trading and logistics had also been under the threat of “dis-intermediation”. It turned out that old and outdated industries were “hollowed out” in no time, while related but higher value added industries in business services such as design, finance and marketing emerged quickly. Of course, in the process of conversion there was much suffering, but being such a tiny place, if Hong Kong had not changed with time, the outcome would have been much worse.

At first glance, the Belt and Road initiative presents Hong Kong with two predicaments. The first is geography: along the Belt and the Road are many regions such as Central Asia, Western Asia and Central and Eastern Europe, with which Hong Kong does not have strong ties. The second is industry sectors: high-speed rails, resources development, mining and metallurgy do not play into the strengths of Hong Kong.

The key in turning these predicaments into opportunities lies with responding flexibly to situations, capitalising on strengths and avoiding weaknesses. In terms of geography, Hong Kong should focus on regions with which it has stronger economic and business ties, such as Southeast Asia, South Asia and the Middle East. Particular attention should be paid to countries such as India, Indonesia, Vietnam and hub cities like Dubai, which are either among Hong Kong’s top export destinations or ones with great potential. There is a need to tighten ties with relevant countries; to participate actively and enter into bilateral and multi-lateral economic, trade and taxation agreements; and to intensify our promotion efforts and encourage multi-level exchanges and training. For regions such as Central and Western Asia and Central and Eastern Europe, to better build a strong foundation for more extensive economic and trade exchanges we should concentrate on developing official and civilian exchange channels and facilitate tourism, trade and investment by improving convenience in visa granting, transportation, customs clearance, certification and tax matters.

In terms of industry sectors, we should provide support to the Belt and Road initiative by leveraging our advantages as a service centre along the Belt and Road routes that are most internationalised and most familiar with Chinese matters. We should zero in on four sectors in particular:

1. Finance: Including raising funds, financing, foreign exchange, insurance, treasury and risk management, and renminbi internationalisation.
2. Shipping and logistics: Including regional distribution, intermodal transportation and value chain management.
3. Business and trade promotion: Including conventions and exhibitions, business matching, quality inspection, design, property right transactions and brand management.
4. Cross-border investments: Including services such as helping the “going out” of Chinese enterprises through mergers and acquisitions, as well as legal, arbitration and regional headquarters related services.

Market-oriented and Global Approach

In addition to the above-mentioned regional and sector focuses, Hong Kong also has two roles in the development of the Belt and Road initiative that should not be ignored. The first is its grasp of international market rules, and the second is its connections to regions outside the Belt and the Road.

To a large extent, the success of the Belt and Road initiative depends on whether or not it can align organically to the long-term economic development needs of the countries along the Belt and Road routes and achieve mutual benefit. This requires giving maximum play to market functions and doing things according to economic needs and international practices. The Belt and Road initiative, however, involves a large number of infrastructure projects that require the planning and participation of public sectors. So how to integrate market planning with balancing the interests of public and private institutions would be the key to success. In Hong Kong, many infrastructure areas such as power, harbour, telecommunication, bridges, tunnels, railways and airports are invested or operated either by private companies, or through public-private partnership or statutory corporations. Many local examples of such infrastructure are run very efficiently and have attained a high level of international standards. They can serve as important references, and help with the development of Belt and Road infrastructure projects.

Another key factor to the success of the Belt and Road initiative is that it should eventually reach beyond the Belt and Road and evolve into a global development strategy that drives the new world economic order. This requires a super connector that can convey the message of the Belt and Road to places outside its realm, particularly to the main industrial centres of North America, Europe and Japan. With its extensive economic and trade connections in developed markets, Hong Kong fits squarely into this indispensable role and can contribute towards extending the Belt and Road concept to the whole world. This way, Hong Kong not only can leverage the strengths of the Belt and Road initiative to consolidate the advantages of its own pillar industries, expand into markets along the Belt and Road routes and accelerate its transformation and upgrading. It can also play a more important role in the new world economic order.

 

This article originally appeared in Hong Kong Economic Times (4 August, 2015)

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