Remarks of Mr Donald Tong
Hong Kong Commissioner for Economic and Trade Affairs, USA
“Hong Kong: Logistics Hub of Asia”
The Traffic Club of Memphis
April 19, 2011
Thank you, (Larry) Mays, for the kind introduction.
Ladies and Gentlemen,
I am delighted to speak to The Traffic Club of Memphis about Hong Kong and the evolution of its transport and logistics sector. I know that The Traffic Club of Memphis was founded in 1913. To me, this is clear evidence on how serious Memphis is about developing your global transportation and logistics network and its determination in maintaining its position as a leading international hub in this regard. This is something many in Hong Kong can identify with and respect.
With our manufacturing base having moved north across the border to the Mainland of China over the past few decades, Hong Kong has successfully transformed itself into a services-oriented economy. Today, our services sector accounts for roughly 92 percent of GDP. The logistics sector alone contributes about 5 percent of GDP and provides over 200,000 jobs, representing 6 percent of our workforce.
By the end of my remarks, I hope you will come to see Hong Kong as the natural choice for you and your companies in accessing the burgeoning Chinese Mainland and Asia markets.
First of all, some brief background information on who we are. The Hong Kong government maintains three Economic and Trade Offices in the U.S.: Washington, D.C.; New York; and San Francisco. Our mission is to foster closer economic and trade ties between the U.S. and Hong Kong. My colleagues in the New York office are responsible for the Volunteer State and stand ready to assist you in developing your business in Hong Kong.
For those unfamiliar with Hong Kong’s unique status, Hong Kong became a Special Administrative Region of the People’s Republic of China on July 1, 1997. Under the “One Country, Two Systems” principle, Hong Kong enjoys a high degree of autonomy as guaranteed under the Basic Law – our mini-constitution.
Nearly fourteen years on, Hong Kong continues to thrive as an international financial, trading and logistics hub. Today, this city of seven million people enjoys per capita GDP of over US$31,000.
The Basic Law grants Hong Kong a high degree of autonomy, and protects our cherished civil liberties such as freedom of the press, freedom of expression, and the free and unfettered flow of ideas, information, people, and capital. Our currency, the Hong Kong dollar, has been pegged to the U.S. dollar since 1983 and remains a key pillar of our financial stability.
Hong Kong’s laws, economic and monetary policies remain separate from those of the Mainland of China. Our laws are passed by our own legislature, the Legislative Council. Our Common Law system, inherited from the British, has been preserved and upheld by an independent judiciary, with the Court of Final Appeal maintained in Hong Kong, not in the Mainland.
We have a clean and highly transparent civil service and vibrant media. Hong Kong remains a free port and a separate customs territory from the Mainland.
Preservation of our international links is evident by our separate member status in the World Trade Organization, APEC, and the World Customs Organization. Furthermore, Hong Kong continues to negotiate its own bilateral agreements – from airs services to extradition and mutual legal assistance.
We also maintain separate immigration, customs and police and anti-corruption authorities and jurisdictions.
As to our business environment, we adhere to free market principles. Our strategy has been to let the market lead while the government takes a facilitating role. This philosophy has nurtured an environment conducive for overseas businesses and investors.
Earlier this year, the Washington-based Heritage Foundation, in conjunction with the Wall Street Journal, ranked Hong Kong the “world’s freest economy” for the 17th consecutive year. In addition, the World Bank’s 2011 “Doing Business Report” ranked Hong Kong second out of 183 economies for its ease of doing business.
Our tax regime is one of the most competitive. Our philosophy has been that you should keep most of what you earn. Putting that to practice, our tax rate remains simple and low with maximum salaries tax capped at 15 percent and profits tax at 16.5 percent. We do not have to pay taxes to Mainland authorities. We have no sales tax, and do not tax dividends, interest, capital gains, inheritance income or offshore income.
Our stock market is the seventh largest in the world and third largest in Asia by market capitalization with almost US$2.7 trillion.
As Hong Kong has no natural resources – save our fabled deep water port – our 3.7 million strong workforce is our most treasured asset. This well-educated workforce, fluent in both English and Chinese, possesses vast experience in doing business in Mainland and international markets.
While Hong Kong didn’t entirely escape the recent global economic crisis, the economy quickly recovered, growing by 6.8 percent in 2010. This is in large part due to our strong fundamentals, sound banking system and prudent fiscal policy.
Our exports and imports in 2010 experienced real growth of around 18 percent over a year ago. Foreign direct investment in 2010 rose by 32 percent, reaching a record high of US$68 billion. The latest unemployment rate has declined to 3.4 percent.
Looking ahead, we forecast GDP growth of 4 percent to 5 percent in 2011.
Existing Economic Pillars
Hong Kong’s economy has been supported by four key economic pillars, namely trading and logistics, financial services, professional services and tourism. Today, I will focus on the first two: trading and logistics; and financial services.
Trading and Logistics
Trading and logistics represent the largest sector of our four pillar industries. Together they account for over 24 percent of GDP and employed nearly 790,000 people in 2009.
As an externally oriented economy, trade is vital to Hong Kong’s sustained growth. Our trade to GDP ratio is more than 300 percent. In 2010, Hong Kong was also the 10th largest merchandise trading entity in the world, according to the World Trade Organization.
This is due, in large part, to the city’s proximity to the Pearl River Delta which is often referred to as the “the world’s factory.” Our geographical location puts all of Asia’s key markets within three to four hours flight time. Half of the world’s population could be reached within five hours flight time from Hong Kong.
Our Government is committed to enhancing the city’s position as the preferred regional logistics hub – providing critical infrastructure to enhance connectivity all along the supply chain.
An important component of our strategy is public-private cooperation. The Government has long nurtured a constructive partnership with the private sector by engaging advisory bodies such as the Hong Kong Logistics Development Council, Hong Kong Port Development Council, and Hong Kong Maritime Industry Council. This approach allows us to benefit from private sector expertise and ensure that we are able to nurture an environment and infrastructure conducive to the sector’s further development.
One example is the government’s sponsorship of the On-Board Trucker Information System, a project of the Hong Kong Logistics Development Council. This initiative, expected to be completed later this year, will increase efficiency in the transport and handling of road cargo by using GPS and Radio Frequency Identification technology (or RFID) for fleet management and tracking-and-tracing. It will also enable companies to make advance booking for cargo pick-up and drop-off at container terminals and air cargo terminals, meaning less time wasted and greater cost-effectiveness among trucking fleets.
In addition, last year our Customs and Excise Department launched the Road Cargo System to streamline cargo clearance. All cross-border trucks which do not require inspection can enjoy seamless clearance at our land border with the Mainland.
To accommodate trade flows, Hong Kong maintains remarkably efficient port facilities. Our container port, the world’s third busiest, handled over 23 million TEUs in 2010, an increase of around 12 percent over the previous year.
The port serves not only Hong Kong, but one of the fastest industrializing areas in the world. Over 70 percent of Hong Kong’s container traffic is related to southern China.
To maintain our competitiveness, our Government has commissioned a study on the development of a 10th container terminal to handle growing port traffic.
Separately, we have commenced a technical study on how to meet the draught requirements of the next generation of ultra-large container vessels.
As for air services, we are glad to report that our Hong Kong International Airport alongside the Memphis International Airport have been ranked consistently as the top two busiest air cargo hubs in the world. As the global economic environment improved in 2010, the airport handled over 4.1 million tonnes of air cargo, up by 23 percent from 2009. In addition, we saw passenger volume reach an all-time high of over 50 million last year.
Our airport is a pioneer in the world to fully utilize RFID in baggage handling. Since early 2008, the integrated RFID baggage tags have replaced traditional barcode tags, increasing processing speeds and improving reliability.
Currently, we are developing the midfield area between our two existing runways to meet the medium-term needs of the airport up to 2020. Upon its scheduled completion of the first phase in 2015, the annual handling capacity of the airport will reach 70 million passengers.
We are also building a new air cargo terminal which will increase our annual handling throughput by 2.6 million tonnes a year. With its commissioning in early 2013, we expect further improvement in our cargo handling business in terms of costs, service and efficiency, and will go a long way to sustain Hong Kong's competitiveness in the global airfreight market.
To cope with long-term air traffic growth, we would need to study the feasibility of building a third runway at our airport.
At present, an average of around 44,000 vehicles and 470,000 people cross the land border between Hong Kong and the Mainland everyday. This is in addition to the over 1,500 cargo vessels, passenger ferries, trains and air connections which take place each day.
To cope with increasing cross-border passenger and cargo flows and further consolidate Hong Kong’s position as the main south gate of the Mainland Transport networks, we are undertaking a number of cross-border infrastructure projects.
One of the most notable is the 18-mile Hong Kong-Zhuhai-Macao Bridge which will bring 50-million consumers within a three-hour commuting radius from Hong Kong. The Bridge will comprise a sea conduit of 14 miles linked by three cable-stayed bridges, plus a tunnel of over 4 miles. It will shorten the current four-hour trip to less than 40 minutes.
Expected to open by 2016, the Bridge will give new impetus to Hong Kong’s freight and logistics sector by bringing our airport and port facilities closer to the industrial centers west of Pearl River in the Mainland. On completion, the Bridge will also be the longest bridge-cum-tunnel dual-three lane vehicular sea-crossing in the world.
Separately, we have started construction on the Hong Kong section of the Guangzhou-Shenzhen-Hong Kong Express Rail Link which will link the Mainland city of Guangzhou and Hong Kong. When completed in 2015, commuters could travel from Hong Kong to Guangzhou in 48 minutes as compared to the 100 minutes journey now.
This Link will put Hong Kong onto Mainland China’s map of high-speed railways which span nearly 1,000 miles. In future, you would be able to travel from Hong Kong by train to Shanghai in 6 hours and Beijing in 8 hours.
The financial services industry accounts for around 16 percent of Hong Kong’s GDP.
Aside from our emergence as an international financial center on par with New York and London, we are positioning ourselves as China’s global financial center.
In recent years, Hong Kong has been serving as the testing ground for Mainland China’s financial reforms and liberalization of its currency, the Renminbi.
RMB business in Hong Kong covers a number of areas, including banking, bond issues and trade settlement. Since July 2009, overseas companies, including U.S. firms, have been able to settle trade with eligible Mainland companies using RMB.
Knowing China is a major trading partner for Tennessee businesses, I would strongly urge you to consider leveraging Hong Kong’s experience to settle Mainland trade in RMB with over 67,000 Mainland enterprises. This would help Tennessee companies offset the risks of exchange rate fluctuations and give more certainty to business transactions.
Currently, Hong Kong is the only jurisdiction outside the Mainland with a RMB bond market. Multinational companies such as McDonald’s and Caterpillar have issued RMB bonds in Hong Kong, affectionately known as “dim sum” bonds, to finance activities in the Mainland. The World Bank and the Asian Development Bank have followed suit. Tennessee companies may wish to pursue this as, and when, they plan expansion projects in the Mainland.
Another significant development is our status as an international capital formation center. In 2009, Hong Kong led the world in IPO funds raised with US$31 billion, thanks in part to listings by Wynn Resorts and Las Vegas Sands. More IPO funds were raised in 2010 with around US$57 billion. AIG’s Asia operations, AIA, alone raised around US$20 billion last year. We certainly welcome Tennessee companies to conduct IPOs or list their stocks in Hong Kong.
For decades, Hong Kong has been the preferred entry point to the Mainland market. With the rapid modernization of the Mainland economy, there is growing demand for professional services from Hong Kong.
Building upon our well-established economic relationship with the Mainland is the Closer Economic Partnership Agreement, or CEPA – Hong Kong’s “free trade agreement” with the Mainland.
Under CEPA, 44 service sectors, such as logistics, financial and legal services, enjoy preferential market access on the Mainland. In addition, goods of Hong Kong origin can enjoy tariff-tree entry into the Mainland market.
One important element of CEPA is that it is nationality blind. Tennessee firms incorporated in Hong Kong can enjoy its full benefits.
As for the logistics industry, CEPA allows freight forwarding agencies established by Hong Kong companies in the Mainland to open their branches once they have fully injected the registered capital. Other foreign companies are only permitted to do so one year after they have set up the relevant Mainland enterprises.
Leading service suppliers such as DB Schenker, Yusen Air & Sea Service Company Ltd., NYK Group, and K Line Logistics Ltd. have leveraged on CEPA and set up wholly-owned transport and logistics operations in the Mainland.
Developing New Industries
While Hong Kong has been relying on its four traditional pillar industries, the global economic crisis has prompted us to further develop six industries where Hong Kong enjoys clear advantages.
The six industries are: educational services, medical services, testing and certification services, innovation and technology, cultural and creative industries and environmental industries.
Development of many of these sectors will be in collaboration with the Mainland and present unique market opportunities for Tennessee companies, particularly in the burgeoning medical, environmental and educational sectors.
Hong Kong-U.S. Relationship
Hong Kong and the U.S. have long enjoyed close ties. The U.S. is our second largest trading partner after the Mainland. We imported over US$26 billion of goods from the U.S. in 2010, making Hong Kong the 12th largest destination for U.S. products. Your trade balance with us was also the largest of any US trade surplus last year.
U.S. private sector confidence in Hong Kong is illustrated by the number of American firms operating in the city. The U.S. routinely tops the list of countries with regional operations in Hong Kong with more than 1,260 offices.
Hong Kong is now the 18th largest destination for Tennessee exports. In 2010, Hong Kong imported around US$333 million worth of goods from Tennessee, an increase of 15 percent over 2009. Major exports to Hong Kong include chemical products, computers and electronics. A number of Tennessee companies including Fedex, International Paper, and Eastman Chemical, have offices in Hong Kong.
In conclusion, Hong Kong is determined to maintain the city’s position as an international air, sea and land transport and logistics hub as well as a business center for overseas companies.
I hope my remarks provided some useful information on Hong Kong’s advantages and how Tennessee companies could leverage the city’s strengths to expand your businesses.
Our New York office houses an investment promotion unit by the name of InvestHK. It offers free, customized and confidential services to American companies wishing to set-up and expand business in Hong Kong. My colleagues would be more than happy to assist you in exploring new business opportunities in, or through, Hong Kong.