|Tuesday, 16 September 2014, 18:30 HKT/SGT|
|Growing Chinese ODI Boosts Hong Kong's Services Sector|
HONG KONG, Sept 16, 2014 - (ACN Newswire) - Chinese mainland enterprises are increasingly active in "going out" to seek 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, at the same time, "bring in" the competitive advantages of these foreign partners to develop the China market. Growing cross-border investment flows have thrust China into the top tier of countries in terms of outward investments. According to the latest figures from the United Nations Conference on Trade and Development (UNCTAD), while global outward direct investment (ODI) in 2013 grew 5% year-on-year, China's ODI increased by about 15 per cent to US$101 billion, accounting for about 7 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, on the heels of the United States and Japan. Recently, the Central Government has significantly relaxed its measures for administering outward investment in a bid to further encourage enterprises to "go out" to upgrade and transform their operations and increase their competitiveness.
|HKTDC Survey: Hong Kong - Preferred|
PRD and YRD turn to Hong Kong
At the Third Plenary Session of the 18th CPC Central Committee last November, the government proposed that China should continue opening up both internally and externally, and this should be coupled with the strategy of "going out" to invest overseas and "bringing in" the advantages of foreign partners. Nicholas Kwan, HKTDC Director of Research, believes that, to encourage external investments by mainland enterprises as well as individuals, the Third Plenary Session advocates closer cooperation with Hong Kong, Macau and Taiwan to further open up the China market.
"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," Mr Kwan said.
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) that includes Jiangsu Province. In the YRD, increasing numbers of mature enterprises are going overseas to seek investment and cooperation opportunities in order to further develop their business. This has made the YRD another main source of China's external investment, along with the PRD. The HKTDC has recently conducted a survey of more than 200 YRD enterprises to find out Hong Kong's advantages in supporting mainland enterprises to "go out" further. More than 90 per cent of the YRD enterprises surveyed are planning 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.
HKTDC Economist, Wing Chu, said: "Last year, when we carried out a similar survey in Guangdong, we discovered that PRD enterprises prefer "going out" to cooperate with foreign partners and develop both the domestic and overseas markets simultaneously. The current survey shows that YRD enterprises are placing 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 enterprises in both areas (PRD and YRD) to seek support services and business partners."
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 in the "going out" process, so as to minimise investment risks effectively. Hong Kong offers:
- Corporate financing services that can help enterprises secure funds at lower costs and help them 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 terms of both quality and logistics.
For more than three decades, Hong Kong services practitioners have assisted a large number of mainland enterprises in handling their trading and investment matters in Hong Kong and overseas markets. Mr. Chu said that services practitioners in Hong Kong are providing a broader 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," Mr Chu said.
Local export confidence weakens
The HKTDC also today unveiled its Hong Kong Export Index for the third quarter of 2014. The Index, which measures exporters' confidence, dropped 5.9 points from the previous quarter to 41.7. HKTDC Director of Research Mr. Kwan said the Export Index's dipping below the 50-point line, the level between expansion from contraction, indicates that enterprises are pessimistic about Hong Kong exports in the short term.
Except for clothing, export indices for all major industries dropped for the third quarter of 2014. The pessimistic sentiment in toys and electronics exporters was relatively milder, with Index ratings of 42.6 and 42 respectively. Among the major markets, exporter confidence in the US, Japan and the mainland has dropped slightly while sentiment towards the EU shows a slight improvement compared to the previous survey.
Daniel Poon, HKTDC's Principal Economist (Global Research), said the edging down of the Trade Value Index in the third quarter of this year to 50.9 is the second consecutive quarterly decline. He said this indicates that traders in Hong Kong believe that prices will continue to increase, but that the room for increase has narrowed further. Furthermore, in this latest quarter, the Procurement Index has dropped below the 50 mark, reflecting that procurement sentiment has turned negative.
HKTDC Research: www.hktdc.com/research
HKTDC Export Index 3Q14: Export Confidence Weakens http://bit.ly/1qIoxcx
China's "Going Out" Initiative: Jiangsu/YRD Demand for Professional Services:
- Executive summary http://bit.ly/1t4uNL9
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The Hong Kong Trade Development Council (HKTDC) is a statutory body established in 1966 to promote, assist and develop Hong Kong's trade. With 50 offices globally, including 13 in Mainland China, the HKTDC promotes Hong Kong as a two-way global investment and business hub. The HKTDC organises international exhibitions, conferences and business missions to create business opportunities for companies, particularly small and medium-sized enterprises (SMEs), in the mainland and international markets. The HKTDC also provides up-to-date market insights and product information via trade publications, research reports and digital news channels. For more information, please visit: www.hktdc.com/aboutus. Follow us on Twitter @hktdc and LinkedIn.
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