17 Oct 2012
The Springboard Effect
A large proportion of the Chinese mainland’s capital invested in Hong
Hong Kong has graduated from being solely a gateway for foreign investment in China to being also a springboard for China’s investment abroad. The pace is picking up: at the end of last year, China’s cumulative outward foreign direct investment (FDI) was US$424.8 billion, and Hong Kong was far and away the front runner in those investment flows.
In fact, the level of investment has been rising for some time. The 11th Five-Year Plan to 2010 saw China’s average annual growth rate of outward investment at 34.3 per cent. The identity of the players has been changing too. While many of the foreign investment enterprises are still large state-owned enterprises (SOEs), the number of private enterprises is steadily increasing.
At the same time, the government’s National Development and Reform Commission (NDRC) and several departments have been encouraging companies to “go out” by relaxing the examination and approval procedures for outside investment, providing credit support and encouraging enterprises to enhance their ability to develop international business.
This is very much to Hong Kong’s advantage. As of the end of 2011, China’s cumulative investment in the city amounted to US$261.5 billion, accounting for 61.6 per cent per cent of its total outward FDI. At the same time, a large proportion of the mainland’s capital invested in Hong Kong is used for making investments in other parts of the world.
To get a sense of Hong Kong’s advantages in helping mainland enterprises internationalise, the HKTDC interviewed several mainland firms in Hong Kong, including state-owned and private enterprises and intermediary organisations assisting mainland enterprises to invest overseas. In a resulting survey, the majority concurs that free capital flows represent Hong Kong’s most important advantage.
Diverse Financial Tools
Hong Kong’s diverse financing channels and methods can meet the needs of mainland enterprises, while the presence of a large number of international financial institutions in the city offers varying types of professional advice. One Hong Kong-listed private enterprise pointed out that in addition to raising funds by going public, it could also seek loan financing in Hong Kong.
Obtaining mainland loans is difficult, so many firms raise funds through Hong Kong initial public offerings (IPOs), or by issuing US dollar bonds in Hong Kong to pay off mainland loans. The huge number of international financial institutions in Hong Kong is an obvious advantage. Some enterprises even pointed out that Hong Kong’s financial sector could advise firms that plan to go international on financial arrangements, and how to design and establish an appropriate internal financial management system.
Being Heard Internationally
Mainland survey respondents view Hong Kong as an ideal place for obtaining global information and a free and open channel for information flows useful for data processing.
A mainland communications company said it set up in Hong Kong because of its role as an information hub with multiple resources and varied international resources. Such firms also use the city to link to locations around the world. In other sectors, the volume of market information that enterprises obtain via the Hong Kong platform is greater and more international in nature, survey respondents said. Such information can even change the views of mainland head offices.
International Professional Services
The large number
One mainland legal firm said that in the course of making foreign investments, due diligence investigation is an important step and Hong Kong is in a favourable position to provide such services. International investments, especially for large projects, involve legal systems in different regions and due diligence investigations may also involve legal teams in different regions. Hong Kong’s seasoned lawyers are in a better position to act as leading counsel on legal work involving different jurisdictions. Other Hong Kong attributes include its proximity to the mainland and its position as a mature centre for international business networking, serving as a bridge for mainland enterprises to establish cooperative relationships with foreign partners. According to one mainland legal firm, Hong Kong’s ability to attract large numbers of multinational companies and mainland enterprises is a big plus. All these enterprises need legal services in relation to China and other countries.
Hong Kong, as an international trade centre, is the first choice of such firms for learning about international practices. It also helps them integrate with other international companies, create greater economies of scale and access more internal resources.
A computer software company pointed out that most foreign firms involved in the industry choose to establish their Asia-Pacific regional headquarters in Hong Kong or Singapore when they venture into the China market. Mainland enterprises therefore have easier access to companies also seeking international partners for joint ventures when focusing on third markets, including the United States or European Union.
Foreign Partners Prefer Hong Kong
Hong Kong professional services
Such firms are familiar with Hong Kong’s legal system and are confident in the legal protection it offers, including in arbitration and trade settlement. Mainland electronics enterprises believe they can import new technology from abroad more easily through Hong Kong.
A technology sector respondent said one reason for choosing Hong Kong is because of the mainland’s strict customs control and import-export procedures. Hong Kong’s import and export management is also rated as among the world’s most secure and impartial. A biotechnology company pointed out that one reason for choosing to develop business in Hong Kong is that China exercises tight customs control, especially where biological samples are concerned.
Some enterprises interviewed see Hong Kong as a base for personnel training and accumulating market intelligence. As China’s outward FDI flows faster, it seems logical that the Hong Kong will continue to grow as a base for “sharing” foreign business experiences, making Hong Kong more relevant still as a venue for organising seminars and conferences on topical subjects, such as international mergers and acquisitions.