Features | Politics | East Asia

Hong Kong: Gateway to China

In stand-alone terms, Hong Kong’s statistics are impressive. It was the world’s 12th largest trading economy in 2007, with a GDP in excess of US$200 billion.

In stand-alone terms, Hong Kong’s statistics are impressive. It was the world’s 12th largest trading economy in 2007, with a GDP in excess of US$200 billion. Home to some of the Asia-Pacific’s most important corporate headquarters, it is also the most popular city for Asian billionaires, with 21 members of that exclusive club living there.

On those terms alone, Hong Kong is a place to want to do business, but it is its location as the gateway to mainland China that adds immeasurably to its appeal.

Kevin Rudd has spoken repeatedly about the importance of China to Australia’s overall economy and long-term job security, and as Foreign Minister Stephen Smith has said, ‘Hong Kong plays a significant role in this’. With around 55,000 Australian expats and 1700 Australian businesses in Hong Kong, the personal links are significant.

Despite being a Chinese Special Administrative Region, Hong Kong is a member of both the World Trade Organization (as a separate customs territory) and the Asia-Pacific Economic Cooperation (APEC) forum. Under the Basic Law that serves as Hong Kong’s ‘mini-constitution’, the region’s capitalist system is guaranteed until 2047 (50 years after British control was formally returned to China) in accordance with the ‘one country, two systems’ principle set down in the lead-up to the transfer of governance.

According to the Department of Foreign Affairs and Trade (DFAT), Hong Kong enjoys ‘independent executive, legislative and judicial powers’ and ‘is allowed to maintain and develop limited international relations, and to conclude and implement agreements with states, regions and international organisations. It does so in areas such as the economy, trade, shipping, fishing regulation, communications, tourism, culture and sport.’

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Hong Kong’s form of government remains substantially the same as that inherited from the British colonial administration. It is headed by the Chief Executive (CE), currently Donald Tsang Yam-kuen, who under the Basic Law is ‘accountable to the Central People’s Government and the Hong Kong Special Administrative Region’.

The CE is elected by an 800-member Election Committee made up of members of professional, business and community bodies, Hong Kong deputies to China’s National People’s Congress, and Hong Kong members of the Chinese People’s Political Consultative Conference. Following election, the CE is officially appointed by Beijing.

Opportunities for Australian companies

Economic ties between Hong Kong and the mainland were further strengthened in 2004 with the signing of the Closer Economic Partnership Arrangement (CEPA). This free trade deal is significant for potential foreign investors as it is non-nationality specific, meaning any company can benefit, subject to meeting the CEPA criteria. This, says the Hong Kong government, has ‘made Hong Kong an attractive location for overseas companies interested in expanding into China in sectors that may otherwise have restrictions.’

CEPA provisions cover three broad areas: trade in goods; trade and investment facilitation; and trade in services. This means almost all goods that qualify as ‘Made in Hong Kong’ can be exported duty-free to mainland China. Non-Hong Kong companies can partner with or outsource production to manufacturers whose products satisfy the CEPA ‘Rules of Origin’ in order to benefit from this arrangement.

Under CEPA, the Hong Kong and China governments have agreed on a series of measures designed to make business between the two economies easier and more efficient. These measures cover customs clearance, inspections and quality standardisation, e-business, transparency in legal issues and improving intellectual property protection.

CEPA also covers a broad range of service sectors, and reduces – or removes – geographical, financial and ownership restraints. This provision applies to a company of any nationality that is incorporated in Hong Kong, has a three- to five-year operating history (depending on the sector), is liable to tax in Hong Kong, and employs at least half its staff in Hong Kong.

Given that services account for over 90 per cent of Hong Kong’s GDP (compared with just over three per cent for manufactures), this last area is of most significance to Australian companies. Manufactures made up around 94 per cent of Hong Kong’s import-export trade in 2007, with the bulk of that re-exported to or from China.

DFAT believes there are significant opportunities for Australian companies in Hong Kong: ‘The Hong Kong government’s plans to stimulate the region’s economy by committing to 10 major infrastructure projects and a number of minor district-level works provides further opportunities for civil engineering, design, construction and associated business services. The. renewed focus on green [environmentally sustainable] buildings offers commercial opportunities for Australian providers of green building materials, design and construction.’

Australia is also an ‘Acceptable Inspection Regime’ under the Hong Kong Code on Unit Trusts and Managed Funds, making the marketing of Australian managed funds possible in Hong Kong. However, more prohibitive legislative requirements mean that, in practice, few Australian funds are marketed in the region.

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Australian food and drink products are already exported in large quantities to Hong Kong, but the region’s plans to become a wine trading and distribution centre for Asia presents real opportunities for Australian wine producers and providers of wine-related services like wine storage and auctioning.

The Australia-Hong Kong relationship

The region’s three principal trading partners are China, the US and Japan, but economic ties with Australia are well-established, with Hong Kong being this country’s 20th largest merchandise trading partner. DFAT figures reveal that Australian merchandise exports were worth over $2.8 billion in 2007-08, with imports totalling nearly $1.4 billion for the same period.

Education is a particularly important export, with some 20,000 Hong Kong students enrolled in Australian institutions, making it Australia’s sixth largest source of international students. That in turn means Australia is the major English-speaking destination for full fee-paying students in Hong Kong. In monetary terms, education and related travel was worth $574 million in 2007-08, while tourism brought in $383 million.

According to DFAT, ‘as well as strong education and tourism exports, services account for an unusually large proportion of total trade value.’ Indeed, services exports were worth almost $1.6 billion and imports were worth over $1.7 billion in 2007.

At $365 million, crustaceans topped the list of Australia’s major merchandise exports to Hong Kong in 2007-08, followed by zinc ($270 million), pearls and gems ($170 million) and aluminium ($127 million). In import terms, telecom equipment and parts were most significant ($162 million), followed by jewellery ($85 million), computers ($64 million) and printed matter ($61 million).

Hong Kong was also Australia’s fifth largest source of foreign investment in 2007, with $41.7 billion invested in a variety of sectors. Hong Kong is Australia’s 10th largest investment destination, with $17 billion invested in 2007.

Foreign Minister Stephen Smith believes ‘Hong Kong’s continuing success owes much to the stability and transparency of its political and economic model, which does so much to facilitate industry and finance. The strength of its institutions and its ability to adapt to change helps Hong Kong adjust to the social and economic pressures of globalisation felt throughout our region.’

The strong Australia-Hong Kong relationship is, says DFAT, ‘built on mutual cooperation and people-to-people links’, and Smith has stressed that ‘at a government-to-government level, our relations with Hong Kong remain in excellent shape.’
He believes ‘our excellent official relationship, built on healthy economic and social ties, will continue to flourish.’ Assuming they do, Australia and Australian businesses have much to gain.