As the world's third largest trading country and a prime destination of foreign direct investment, China stands not only as a global factory, but also a lucrative market for overseas goods and services. The rapid development of the Chinese mainland has created numerous opportunities for Hong Kong to provide value-added services for overseas companies intending to do business with the mainland. This report is prepared jointly by the Hong Kong Trade Development Council (HKTDC) and the Asia Pacific Foundation of Canada (APF Canada), with a view to promoting the partnership between companies in Hong Kong and Canada.

Hong Kong as a Trading and Investment Platform to the Chinese Mainland

Based on the survey conducted by APF Canada for this study, the respondents, most of which have business relations with Hong Kong, are generally of the view that Hong Kong is an important trading and investment platform to the Chinese mainland. About 90% of the respondents agree that Hong Kong is an excellent base from which to do business with the Chinese mainland and the rest of East Asia, as well as a good place to get information about business opportunities in the Chinese mainland. Most of them also concur that Hong Kong is a good place to find partners for doing business on the Chinese mainland, as well as to raise investment capital for their businesses.

While the indigenous companies of the mainland continue to reach out directly to foreign buyers, Hong Kong remains a major sourcing centre for mainland-made goods. The survey finds out that respondents value highly Hong Kong's legal protection, low tax, good telecommunication and transportation infrastructure, professionalism in conducting international trade, the status as a free port, and the availability of financial services.

Hong Kong's Prominent Roles in the Region

Hong Kong has a prominent role to play when foreign companies intend to do business with the mainland. Hong Kong is more than an international financial centre offering comprehensive financial services and investment advice for Canadian companies to develop mainland business and for mainland companies to invest in Canada. Hong Kong is a commercial centre, which hosts world-renowned exhibitions connecting buyers with sellers.

Hong Kong also provides state-of-the-art logistics services for mainland and overseas companies for the movement of goods. Many foreign companies use Hong Kong to showcase their products and services to mainland companies, as well as to use Hong Kong to test the mainland market.

Hong Kong and Canada maintains a close economic tie. Canada was Hong Kong's 12th largest export market, amounting to US$ 3.1 billion, in 2004. Evidently, Hong Kong is an important conduit for channeling Chinese products to Canada. In 2004, Hong Kong's re-exports of China-origin to Canada accounted for 34% of the mainland's total exports to Canada. Canada, on the other hand, was Hong Kong's 21st largest source of imports, amounting to US$ 1.2 billion. In 2004, Hong Kong's re-exports of Canada-origin to the mainland accounted for 8% of the mainland's total imports from Canada.

Meanwhile, Canadian direct investment in Hong Kong amounted to 2.5 billion Canadian dollars as at end-2003, with certain Canadian companies making use of Hong Kong to develop their mainland business. Hong Kong, for its part, is an important source of investment for Canada. Hong Kong's direct investment in Canada totalled 4.7 billion Canadian dollars as at end-2003, accounting for 26% of all foreign direct investment from Asia and Oceania in Canada. Interestingly, certain Hong Kong investment in Canada may contain mainland interests.

The Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA)

CEPA expands the opportunities for both indigenous and foreign companies in Hong Kong to take advantage of the liberalising China market. Under CEPA, the Chinese mainland applies zero tariffs to a total 1,108 Hong Kong-made products. Canadian companies can benefit from the tariff preferential treatment under CEPA by means of setting production lines or forming partnerships with Hong Kong manufacturers to produce goods for the mainland market. As for trade in services, CEPA provisions on market access cover 26 services sectors. Eligible Hong Kong companies can enjoy earlier and wider access to the mainland's service markets. Canadian companies can partner with, invest in or acquire a CEPA-qualified Hong Kong service provider, drawing on the latter's understanding of and experience in the mainland market.

Since CEPA has only been in place for one and a half years, only slightly more than half of the respondents are of the view that they are well informed of the provisions of CEPA. As such, Canadian companies are encouraged to better acquaint themselves with CEPA and its implications. Undeniably, CEPA is more relevant to some companies than others. It is therefore not surprising that CEPA does not carry the same value to each respondent. In any event, about 15% of respondents either strongly agree or agree that CEPA has benefited them directly and around 30% indirectly, while about 15% of respondents have already expanded or will expand their operations in Hong Kong as a result of CEPA.

Prospects

The survey results show that respondents are generally optimistic about the economic conditions of Hong Kong as well as Hong Kong's status as a gateway to the mainland in the coming future. Respondents hold a rosy view on trading with and investing in the Chinese mainland and Hong Kong. As a global factory as well as a lucrative market for foreign services and products, the Chinese mainland offers attractive opportunities for respondents. None of the respondents are planning to reduce investment on the Chinese mainland. While 80% of the respondents show that they will either expand or hold their present investment in the Chinese mainland, 79% of them hold the same view as to Hong Kong.

In the eyes of the respondents, Hong Kong is a preferred location to source mainland-made products. Most respondents (68%) agree that the share of their trade with the Chinese mainland that goes through Hong Kong will most likely expand or remain at the present level in the coming one to three years. Against this background, there are good prospects of partnerships between companies in Hong Kong and Canada to advance business activities on the mainland.

This new report is available at TDC's Retail Outlets. It can also be purchased through the TDC Bookshop section in the TDC's trade portal: info.hktdc.com.