Hong Kong: Springboard for Investment to China
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Hong Kong: Springboard for Investment to China
With free flows of capital, a wealth of international expertise and world-class professional services, Hong Kong is an ideal launch pad for Chinese mainland enterprises to “go out”
Chinese mainland enterprises are increasingly active in seeking cooperation with overseas partners to carry out M&A and other direct investment activities. The national objective is to set up sales networks in overseas markets while bringing in foreign partners to develop the domestic market. Growing cross-border investment flows have pushed China into the top tier of countries for outward investment.
According to latest figures from the United Nations Conference on Trade and Development, while global outward direct investment (ODI) in 2013 grew five per cent year-on-year, China’s ODI increased by about 15 per cent to US$101 billion, accounting for about seven per cent of the world total. Not only is China’s ODI at an all-time high, the mainland has also been ranked as the world’s third-largest investing nation in each of the past two years, behind the United States and Japan. The Central Government has significantly relaxed measures for administering outward investment to further encourage enterprises to upgrade and transform their operations and raise their competitiveness.
PRD and YRD turn to Hong Kong
Nicholas Kwan
HKTDC Director of Research Nicholas Kwan says Hong Kong’s services sector should take advantage of the opportunities from helping mainland enterprises to “go out”
At the Third Plenary Session of the 18th CPC Central Committee last November, the Central Government proposed that China should continue opening up both internally and externally, including by continuing to invest overseas and bringing in foreign partners. To encourage state and private-sector investment overseas, the Third Plenary Session advocates closer cooperation with Hong Kong, Macau and Taiwan, according to Nicholas Kwan, Director of Research, Hong Kong Trade Development Council (HKTDC).
“At a time when China’s external investments continue to grow and enterprises are encouraged to go through Hong Kong to invest overseas, the Hong Kong services sector should take advantage of the opportunity to actively support the “going out” of mainland enterprises to upgrade and transform themselves,” said Mr Kwan.
Historically, China’s coastal regions have been key locations for external economic cooperation, particularly in the Pearl River Delta (PRD) next to Hong Kong, and the Yangtze River Delta (YRD), including Jiangsu Province. In the YRD, increasing numbers of mature enterprises are going overseas to seek investment and cooperation opportunities in order to further develop business. This has made the YRD another main source of China’s external investment, along with the PRD.
The results of a recent HKTDC survey of more than 200 YRD enterprises highlighted Hong Kong’s advantages in supporting mainland enterprises’ overseas investment. More than 90 per cent of the YRD enterprises surveyed plan to increase investment and cooperate with foreign partners. Their chief goals for “going out” include: upgrading their product design and technology development capabilities; and, developing and marketing their own brands by “bringing in” foreign advantages to further develop the vibrant Chinese domestic market.
“Last year, when we carried out a similar survey in Guangdong, we discovered that PRD enterprises prefer to cooperate with foreign partners and develop both the domestic and overseas markets simultaneously,” said HKTDC Economist Wing Chu. “The current survey shows that YRD enterprises place more emphasis on developing the domestic market via cooperation with their foreign counterparts, indicating that the strategies of enterprises in the two areas are not exactly the same.
“Nevertheless, enterprises in both areas are anxious to seek professional support from Hong Kong and overseas in product development and design, branding and promotion strategies, as well as professional services, including finance, legal and accounting services. In particular, Hong Kong is the preferred location for PRD and YRD enterprises to seek support services and business partners.”
Hong Kong Advantage
Some of the expertise Hong Kong offers to facilitate mainland investment overseas include:
• Corporate financing services that can help enterprises secure funds at lower costs and optimise the mix of funding resources, thus facilitating outward investment;
• Hong Kong services practitioners with effective tax planning programmes and taxation arrangements that help reduce the tax burden for enterprises;
• An effective platform for mainland enterprises to contact famous foreign brands in order to carry out multinational brand cooperation, introduce upmarket product designs and step up the development of markets in China and overseas;
• “Professional confidentiality” with Hong Kong services professionals able to provide appropriate confidentiality arrangements for the investment affairs of enterprises to avoid unnecessary investment risks;
• A technology platform that provides technology projects with technical support and services in risk assessment and financing, thereby effectively facilitating mainland enterprises to “go out” to seek the technology they need to cope with global market competition; and,
• Familiarity with foreign markets and the investment environment to facilitate the smooth flow of investment by ensuring that mainland enterprises comply with international benchmarks and that their production and operations are in line with customer requirements in both quality and logistics.
The Hong Kong Solution
Hong Kong is Asia’s central business district. With free flows of capital, a wealth of international expertise and world-class professional services, the city is an ideal launch pad for mainland enterprises to “go out.” According to the latest HKTDC survey, YRD enterprises believe that Hong Kong can provide comprehensive professional services in relation to actual investments and help them solve practical problems during the “going out” process, to minimise investment risks effectively.
For more than three decades, Hong Kong services practitioners have been handling trading and investment matters for mainland enterprises, in Hong Kong and overseas markets. Mr Chu said that services practitioners in Hong Kong provide a broad range of professional services including: branding strategy, due diligence, sustainable operation risk assessments, licensing arrangements and international certification and testing. “With mainland and, in particular PRD and YRD enterprises stepping up the tempo of “going out” and “bringing in,” Hong Kong services enterprises will see many more opportunities.”
