(Reprinted from HKCER Letters, Vol. 70 March-June 2002)
China in the 21st Century - A Hong Kong Perspective of
Future Opportunities and Challenges
It is my pleasure to be here to speak on a subject very close to my heart: China's economy in the 21st century. I would like to add that I am going to talk from a Hong Kong perspective. We are from Hong Kong, we very much believe in the Hong Kong story, and the Hong Kong perspective will add the right dimensions to the unfolding of the bigger story.
Many of you are experts, with papers and statistics at hand. I am not from the university; I am a businessman. So I speak from a businessman's perspective.
Now, China is the big dragon in Asia and many people are wondering what this new marketplace will mean. But before we talk about that, I think we must have a good perspective of what is happening around the world.
At the end of last year in Doha, Qatar, the Fourth World Trade Organization Ministerial Conference was held, and China became a member of the World Trade Organization (WTO). But I do not think that was the big story. It was more the technical execution of a decision. I think the major story to come from Doha's WTO meeting was that its agenda was "no agenda," that we have probably come to the end of the road in multilateral world trade discussions.
What we see instead are bilateral discussions, country-to-country discussions. Everybody is now talking about bilateral trade relationships, free trade areas. It is this story that should catch our attention.
In the future, there is not only going to be more government-to-government dialogue, there is going to be more region-to-region dialogue. There are regions within each country that are more dynamic than the country as a whole, and they are going to start saying, "What are our agendas? What are we going to talk about? Who are our strategic partners?" This is significant.
From my visits to Europe, for example, you can see four regional engines of growth: Milan and Lombardy, Stuttgart and Baden-Wuerttemberg, Barcelona and Catalonia, Lyon and the Rhone-Alpes. These areas are small, but they are very dynamic and have growth engine characteristics.
Back in Greater China, we also have four engines of growth, which I will talk about later: Hong Kong and the Pearl River Delta, Shanghai and the Yangtze River Delta, the Bohai Coast area in the north, and, of course, Taiwan is a very strong economic engine too.
A second factor is globalization. Globalization to many people means new markets, bigger markets, and different markets. But to others it means fierce, relentless competition. No matter what you sell today, the sales price is going down, not up. Product cycles are now much shorter. Before your product hits the shelf and is introduced to your customers, your competitor has a new product competing with you. We see overcapacity, that customers have a lot of choices, and that risks are rising in the business environment.
In the context of Asia, there is also this huge phenomenon that we call the "hollowing-out" process, whereby China, besides opening its market, is also unleashing a huge labor force on the world marketplace. This labor force can deal with volume orders, quality orders, and hi-tech orders at a very competitive price.
When I visited Korea, the deputy prime minister told me it was the "China shock." Taiwanese companies are flooding to the Yangtze River Delta and the Pearl River Delta. In Southeast Asia, Foreign Direct Investment (FDI) is reverting to China. Of course, the biggest story is that some people say that in five years, 50% of Japan's industry will have moved to China. These are very significant issues and movements, which will determine the events of the next 5, 10, 20 years in this area.
Let's look at China's foreign exchange reserves. At the end of last year, they stood at US$200 billion, with US$45 billion from FDI. By the end of this year, there is a possibility that they will reach US$300 billion, with the FDI going to China reaching US$50 billion to US$60 billion.
Why is this happening? I think businesspeople instinctively put their future where they think there is a market and a production advantage. Also, many of their competitors are there. These are strong motivations. Companies still keep their core competencies in product development, research and development (R&D), technology, and marketing, but are shifting their production elsewhere.
This phenomenon will greatly benefit China, providing a driving force for new ideas, methods, processes, and talents. Coupled with the initiatives taken by China's state-owned enterprises (SOEs) and private enterprises, we see that the economic changes are going deep and have their own momentum.
The Reform Agenda
For the Beijing leadership, the reform agenda is essential for continued growth. Rapid and sustainable economic growth has become the basis of the government's domestic political agenda, with the disappearance of ideology as a unifying force. One recent development is the concept of "Three Representations": productivity, cultural development, and a society that must cater for the interests of all classes.
A strong management team will manage this mission/ agenda. Visit China today, and you can meet mayors and vice-mayors from the age of 42 up. There is a meritocracy. Anyone who takes these positions must be capable of delivering the economic agenda and productivity. And this management team is highly motivated to achieve what needs to be achieved in order to move on in the next decade or two.
So I believe the three M's -- mission, management, and motivation -- provide the driving force to undertake this very big mandate.
Regional Economic Cooperation
From a broader perspective, the hollowing-out process has forced many people within the Asian region to move up the value chain because it is impossible for many countries to compete with China on cost and efficiency. This process, as with Hong Kong, is a win-win proposition, and I believe we are going to see more initiatives dealing with integration of regional economies.
Take the Boao Forum, which was held on Hainan Island earlier this year. That was a strong and very important initiative--a starting point whereby East Asian economic cooperation can be systemized and put in dialogue.
We have seen the North American Free Trade Agreement (NAFTA) and the European Community, and we should be watching closely how Boao unfolds, because the four pillars of Boao were China, Japan, South Korea, and the ASEAN countries. I believe the agenda was right at the first meeting. I think the second meeting will be better and that the next five years could see the unfolding of a regional initiative that may develop into something very meaningful for this area.
In the meantime, there is urgency on the Mainland, primarily in terms of bringing the economy in line with WTO requirements. It will take massive transformation over the next five years. By 2020, I believe we are going to see a very different China from the one that we see today.
The Chinese Mainland can afford to do this because of its relatively closed economy over the past decade. This closed economy has enabled China to avoid collapse, unlike other economies around the region, during the last two major downturns in Asia.
However, a large, complex country such as China will never be without issues to sort out. People here will be talking about the SOEs, unemployment, bad loans in banks and also, perhaps, agricultural reform. But it is clear that without a robust economic agenda, these problems would be even more serious and difficult to resolve. That is why I said earlier that a strong agenda of sustained economic development is a priority in order to deal with many of the issues that must be dealt with.
In Beijing, about three or four months ago, I was at a meeting that the prime minister attended. I asked how the central government was going to deal with what I call "black hole" risks. A black hole is when you see a bank making a terribly bad loan, or an SOE making a very silly investment that results in the money being reduced to zero, and in the past 20 years they have had more than their fair share of these black holes.
The prime minister made this point very clear. He said they understand, and it is a problem. How are they going to make sure that the resources collected by the overall fiscal system and state institutions are not subjected to this huge black-hole risk? They want to centralize resources and channel them into countrywide infrastructure development, where they can touch the investment, know the investment is going to be helpful to the overall economic development of the country. There is a strong emphasis on ensuring resources are channelled into this crucial aspect of economic growth.
Hong Kong's First Milestone
Now I would like to bring in the Hong Kong perspective. The first milestone was in 1979 when China opened up.
This means Hong Kong has actually been hollowing out over the past 20 years. It happened much earlier here than anywhere else, and we are more intensively hollowed out because we lost 1 million jobs in manufacturing. But we have created 1 million jobs in services. Today, services represent 86% of Hong Kong's gross domestic product (GDP). Some say it is almost 90%. I believe 90% is probably closer. During this process, Hong Kong has transformed itself into a service platform and a service provider.
In this period of time, Hong Kong also moved up the value chain so that today, 36% of our companies own their own brand and 62% of our companies do original design manufacturing. In 1979, we were ranked 23 in world trade; today we are ranked number 10. In nine categories of consumer products, we are ranked number 1 in the world. In another six or seven categories, we are ranked number 2 in the world.
This is competitiveness, and anybody who questions Hong Kong's competitiveness must look at our final output to the marketplace to measure whether we are competitive or not.
Why has Hong Kong been successful? "三優四通" (the three advantages and the four flows). The first advantage is our location, which is unbeatable.
The second is our institutions. An Italian high trade officer said to me: "Hong Kong is a China that speaks English, where you can understand the institutions, and the laws work."
The third advantage is our tax regime. This regime was created by Scottish merchants, and you know how Scottish merchants feel about taxes! Hong Kong is a place where you can work hard and work smart, and you can build your wealth.
With regard to the four flows, we ensure that we have free flow of people (that is, talent), free flow of capital, free flow of merchandise, and also free flow of information. We have the freest press in Asia. Nobody can beat that. We should be proud of it, and we should maintain it.
China understands all these issues very well. That's why our way of life has remained unchanged, and the 1997 transition has been a success. I do not see any domestic issues in Hong Kong that Hong Kong cannot solve. And the future is fantastic for Hong Kong. In these 20 years, we have become the largest investor in China. We have gained first-mover advantage in China and, as a result, Hong Kong has become the best risk manager on China.
China Risk Management
When I travel overseas--I have now visited almost 70 cities--I meet a lot of taxi drivers, and all can multiply 1.2 billion by whatever you have to sell and see it is a big market. But potential is not the issue. Risk management is the issue because many people who invested in China over the past 20 years, particularly from overseas, have met with failure. Companies, especially medium-sized and smaller ones, are scared of investing in China, of going it alone.
That is why over the past two years, American companies have opened 30% more offices in Hong Kong, Japanese companies have opened 40% more, Australians 50% more, and Europeans over 20% more. I think they are all worried about how you deal with the execution risk after entry.
When I was in Japan recently, a Japanese investor said, "I was in Xian with a big contract. Before I signed the contract, there were parties and it was great fun; after I signed the contract it was a completely different story." He asked me what he should do. I said "Come to Hong Kong. Find a partner. Maybe you will have a better time." With Hong Kong's tremendous service platform and tax regime, it really is a center for private enterprise and entrepreneurs. Many large companies that are bureaucratic end up losing money because you cannot run a China business bureaucratically.
Through such enterprise, the Pearl River Delta has emerged as the biggest single manufacturing basin in the world. The three top exporters in China, according to 2001 figures, were Shenzhen with US$37 billion, Shanghai with US$27 billion, and Dongguan with US$19 billion. As you can see, Shenzhen and Dongguan together have doubled the output of Shanghai.
So Hong Kong is a two-way business and service platform. It provides one-stop shopping for going into China and one-stop shopping to the world marketplace.
To make ourselves more effective, powerful, and competitive, Hong Kong is also building critical mass.
We are building critical mass in logistics. We send two tons of cargo into the air every minute, making us the largest single international air cargo transporter. We send 36 containers to sea every minute of the year, making us the largest single seaport in the world. Our airport handles 36 million passengers today and has a capacity of 86 million passengers throughput. The Atlanta airport in the United States handles 86 million passengers, and no doubt the idea is that we build critical mass and become the Atlanta here.
We are developing critical mass as a marketplace. After 911, our inflow of exhibitors and buyers actually increased by double digits. Exhibitors and buyers from the Mainland doubled that. The reason? Critical mass. Before 911, people typically went to 9 or 10 conventions a year. Since 911, they go to 3 or 4, and the places they select are the ones with critical mass.
Our portal, our cyber marketplace is tdctrade.com. When I became chairman about 20 months ago, it received 600,000 hits a day. Today it receives well over 2 million hits a day and sometimes tops 3 million.
But we are not only building critical mass in merchandise trade. In financial services, I see an offshore renminbi market as a natural development, just like the Euro-dollar market developed in Europe. With that, you will see a gravitation of the bond market and the foreign exchange market. There are about 4 million private Small Medium Enterprises (SMEs) on the Mainland, and they require the financial services that we offer.
We are building critical mass with regard to our institutions. The Hong Kong International Arbitration Centre is going to help enormously here because even now Mainland companies, in contracts between themselves, have a clause for arbitration in Hong Kong.
These areas of critical mass are vital. They are going to help China to fulfill WTO requirements at a much faster pace. Hong Kong is a partner in this process, a service provider.
Hong Kong Business Model
When I go overseas, the message I take, with regard to opportunities and the issues I have outlined, has been very well received. I have seen over 12,000 businesspeople. Yet when I come back to Hong Kong, I see many long faces. Everybody thinks it is the end of the world.
The answer is no. Hong Kong has great prospects because we have a platform that can out-compete anybody. Our hollowing-out process is faster than anybody else's so we are best positioned. But we have to remember we cannot be inward looking. We must look toward the market. Hong Kong only succeeds by going toward the marketplace. And the marketplace is the overseas market, which we are very familiar with, and now the China market. This is our future.
What is the Hong Kong business model that can support this? It is simple. Companies maintain product-development skills, R&D, technology; we have our financial, insurance, logistics, tax and legal services; and we outsource production. With this business model, whether you are in hi-tech, low-tech, middle-tech, or no tech, there is business in Hong Kong because there are huge marketplaces for us to service.
In the old days, we could no longer be a wig manufacturer for obvious cost-production reasons. Today, if the China market wants wigs, I do not see that we should rule out a Hong Kong company becoming a very successful wig manufacturer. In fact, the company will be a wig marketer because that is what Hong Kong is now all about. This is the importance of the first milestone.
The Second Milestone
The second milestone is WTO because I see the big dragon stretching with the WTO situation.
Last October at the Asia-Pacific Economic Cooperation (APEC) meeting in Shanghai, people said China had arrived. This echoed a statement made in 1970 when Osaka held its expo, and it was said that Japan had arrived.
When looking at China, it is interesting to examine the macro picture, which is huge and complex. But you can also choose to look at particular aspects you feel will be relevant and significant. I choose to look at three regions in China - the Pearl River Delta, the Yangtze River Delta, and the Bohai area. When I talk about the Bohai Bay area, I really mean Beijing, Tianjin. Hubei, Liaoning Province, and Shandong Province.
I see that these areas are three Japan equivalents. Not just one Japan equivalent, three Japan equivalents. Look at Shanghai, for example. With Jiangsu and Zhejiang, there are 100 million people in that region.
These areas have higher growth rates than other areas, and they are always the first stop for anybody interested in China. It is important to look at these key areas and try to understand them.
Here are some interesting figures. These three areas added together comprise about 10% of China's total geographical area, but the sum of their GDP is about 60% and their exports about 85% of China's total.
What about the West? What about the poor areas? Yes, these are issues. But unless the three areas I have mentioned continue to grow, the problems in the other areas will be even worse because there are no engines to support them.
I believe these three areas will catch up in terms of macro numbers much faster than the rest of China. In terms of the population, they have about one-third of China's total. In terms of GDP, if you add the three areas together, it is really Japan of the late 1970s. If you look at the trade and export side, it is really Japan of the late 1980s. We are talking 15 years apart in time. That is significant.
However, I would also like to make one point very clear. China has done well, and it will continue to do well. But I do not think that we should say it has done exceptionally well. If you compare the numbers, in growth and dynamics, with the rest of the little dragons in Asia, it is actually in line. It is simply China's turn.
Of course, when everyone else is down and China's turn comes up, it is significant. But we should not be blinded by the fact that it is just another success story in Asia. It is nothing exceptional, and we must look at it from a pragmatic standpoint.
The Quick Dragon
So, finally, if China is the big dragon, Hong Kong is the quick dragon. Hong Kong, the quick dragon, has achieved number 10 ranking in world trade without a domestic market. We have 6 million people in this city, and we have never had a domestic market to speak of. Now a de facto domestic market is emerging next to us. Think of what that means to Hong Kong's ability to trade.
Also, in 1949, the change of regime meant China's service industry was greatly reduced. Today, its service industry is 33% of GDP, while in Hong Kong, as I said before, it is 86%. So there is a tremendous arbitrage opportunity for our services. Hong Kong's mandate is very clear: to help rebuild China's service industry.
The service industry is about reducing and mitigating "delivery risks," and Hong Kong has a service industry culture where we can deal with delivery risks. Today, China enterprises come to Hong Kong to sign service contracts because they believe that a Hong Kong company will loyally, diligently, deliver that service contract.
Although we talk about the difficulties of merchandise trade, the service industry is even more difficult. When you sign a service contract and your business depends on the delivery of it, you are going to go to somebody you can rely on. It requires predictability and reliability, and these are areas where Hong Kong can compete very well.
Hong Kong, just like any service company, wants a lot of clients. You want your clients to increase. You want to see your clients getting stronger and bigger so you have more business. This is how Hong Kong must look at the China market. In 1979, our trade with China was 6%. Today, it is 37%. So the stronger China is, and the more cities like Shanghai develop, the more business for Hong Kong, because we are a service platform.
As the big dragon stretches, I believe the quick dragon will reach for this new market and new partners. We are blessed with "天時地利人和" (being in the right place at the right time, and in harmony with our neighbor).
Thank you very much.
Question and Answer
[Q1] You paint a very bright picture of an emerging China and a Hong Kong quick enough to identify and take advantage of the opportunities. What do you view as the principal challenges for Hong Kong in dealing with China? What are those black hole issues, and how do you think they will be addressed as the Chinese Mainland goes forward?
[A1] I think China's huge challenge is institutional change. You cannot alter this overnight. It is a cultural issue. You can always set rules, but you also need the culture to back up those rules, and a trust in the system, which I think has room for improvements. China must first bring the country technically in line with WTO, but to ensure it complies in spirit, it will take time. In fact, this challenge becomes Hong Kong's opportunity. You need a component to help alleviate many difficulties during that process. I believe Hong Kong can be that agent.
The SOEs and agriculture are also major challenges. That is why I say being the prime minister of China is the most difficult job in the world. Especially in the next 20 years.
But for Hong Kong, I think the major challenge is people, talent. In Hong Kong, people are our only resource, and right now we have a mismatch. We do not have enough of the resources we need. We also face a situation where we have people who cannot find jobs because their skills have become obsolete. This is a great difficulty. However, we cannot handle this by procrastinating or continuing to ask how we can deal with the problem. The issue is: how do we tackle the opportunities?
A door that is wider open will bring in more skilled people, more entrepreneurs, and, at the end of the day, they are the ones who are going to create jobs. Government can provide short-term relief at best, but nothing sustainable because there is no economic basis for jobs created that way.
Hong Kong is the capital of the world for SMEs. And this place is a historical accident. You cannot create Hong Kong again. So never think of saying we want to be somebody else. We do not want to be a New York. We do not want to be a London. They can never be Hong Kong.
We are much more than New York. We are much more than London because we are a platform for entrepreneurs. How do we maximize this? We must allow more entrepreneurs to come in, not just from America, Europe, India, Japan, but also from the Chinese Mainland. I have already mentioned that there are about 4 million SMEs in China. They want to be in Hong Kong too.
through. You want people who can create transactions that will flow through this service platform. Who can do this best? I believe it is SMEs, because in numbers, agility and creativity, they are the ones that are going to find the opportunities. Government cannot know which industry to go with because it does not have capital at risk. But, for these people, it is their own money. They will risk their capital when they see an opportunity is clearly there.
So we need to look at how to open up this platform to more creative entrepreneurs from all over the world. However, we must not only look at the Hong Kong platform. We must also look at the Pearl River Delta. As more companies shift production there, Hong Kong must try to gain a market share of that hollowing-out process. If we can help the Pearl River Delta grow in its capabilities and production, it is naturally going to benefit Hong Kong.
Therefore, it needs to be a two-pronged approach. We cannot just promote Hong Kong skills and creativity, we also want the Pearl River Delta to prosper, because it is going to create a need for Hong Kong's business services, and also a marketplace. There are already 30 million people in the Pearl River Delta. That is a significant number of consumers. Many European countries do not have populations of 30 million. Now we have that.
[Q2] You have given a wonderful speech about China, and Hong Kong's relationship with China. I know a lot of people have been saying recovery in Hong Kong depends a lot on economic recovery in the United States. What do you think about the relative importance of the United States to Hong Kong vis á vis what you said just now about China? You did not seem to talk about Hong Kong and America.
[A2] Although today's story is about China, I do not want anybody to think that the outside market is not important. It is very important. We do HK$3 trillion worth of trade a year, which is huge. We are a one-stop shop to China; we are a one-stop shop to the world market.
The United States is a very important market. When I saw Wal-Mart's business going up again after 911, I was happy because it was good for Hong Kong. Why? Because Wal-Mart sources through Hong Kong, Wal-Mart sources through the Pearl River Delta.
So, where development of the overseas market is concerned, we will be relentless. The point is, it is not enough. We have been doing this for the past 40 or 50 years; the Hong Kong Trade Development Council (TDC) has been set up for 35 years. It is important, crucial. But right now U.S. trade with Hong Kong totals 28%. Our trade with China is 37%.
However, I don't think we should be looking at whether the percentages are higher or lower. We should examine the type of connection. Our link to the American marketplace is very important in terms of market intelligence. We must know what the customer wants, about product innovation and business trends.
The United States has been very innovative, not only on the product side but also in processes and methods, because to deal with competition nowadays, people have to use their brains. There are only a few giants who can compete on price and volume alone. The rest of us have to think up other ways of competing. So you want to tap into the world's most active business brains in terms of market intelligence and customer needs.
Our link with China has a different dimension because China is going through a different phase of development. Do not look at them as the same thing. They are apples and oranges. But we need apples and we also need oranges. Both are just as important to us.
[Q3] I am asking for an extension of your thesis that Hong Kong's continued prosperity will depend on its being the service center for China. My question involves the emergence of other service providers in the region. Perhaps, in the short run, Hong Kong will provide services to China, and possibly with the emergence of Shanghai, Southeast Asia should be the place for Hong Kong's services. But this would depend on Singapore allowing it to happen. I would like to know whether, in the medium term, Southeast Asia will become a lot more important to Hong Kong's prosperity.
[A3] I look at it from a different perspective. I believe it will depend on how competitive we are. There is no guaranteed meal for us. You have got to be good; you have got to be providing a service.
When I am in Singapore, my dialogue is very simple. It is important that Hong Kong and Singapore continue to have interaction, because both Singapore and Hong Kong are service platforms. It is through such interaction that we are both going to get better, and in becoming better, we can be more competitive in the marketplace.
I say there is more work in China than Hong Kong can handle. I think Singapore service providers should join hands with Hong Kong to deal with the demand in China, because they have human resources. We are short of human resources.
I am not scared of competition. In fact, competition is Hong Kong's middle name. How could Hong Kong have survived the past 50 years without competing with the rest of the world? I do not know why people always say Hong Kong is not competitive.
I would look at the situation from the competitive standpoint and allow enterprises to drive this service provision initiative. Shanghai coming up? This is good for the area and good for Hong Kong. It is not bad for Hong Kong. Why worry? We want more clients. We want stronger clients. We know the problem of having no clients. In 1979 we had no clients on the Mainland, and our trade was only 6%.
So I see competition in a positive light. I do not think you can sit back and say "I have a right to make money from the China story." Nobody is going to pay you for doing nothing.
[Q4] I was particularly interested in the strong points about the management of execution risk. This is a very big issue. Yet the situation is imperfect, to say the least. I am interested in how you see this evole, especially as more Mainland SOEs, as well as private companies, come to Hong Kong and get involved in the capital markets. Outside investors -- large fund managers from all over the world - are attracted to Hong Kong because the market is well regulated and, historically, the courts have been fair and effective, as well as technically competent in commercial matters. But there is no mutual enforcement agreement with China. We are now seeing, especially after the handover, a number of cases where the Hong Kong courts make a determination that either attaches the assets of an SOE in China, or even orders their liquidation, and China just ignores these orders. There is no means to enforce the decisions of Hong Kong courts, or Hong Kong arbitrators, in the Mainland, with the result that it is beginning to reflect rather poorly on perceptions of the reliability of the Hong Kong courts and their significance. How do you see this evolving? Will the situation improve? And how specifically will it improve?
[A4] I think there is a strong motivation to make the change we all know is going to happen. But everybody also understands it is not going to be easy, and how much time it will take is anybody's guess.
I would try to separate the issue into two dimensions: the goods and services trade, and the financial services trade.
As far as the goods and services trade is concerned, I can give you an interesting example from when I went to Osaka about 18 months ago. On that occasion, I met a Japanese businessman who has three different businesses in Hong Kong, each with an office of about 60 people and a factory in the Pearl River Delta. I asked him how he handled the execution risk, and he gave me a very simple answer. He said, "I only know my business. When I have to deal with the execution risk, I send my Hong Kong managers." In other words, if you try to go it alone, like many of his compatriots, there are a lot of problems.
No one really thinks about it, but Hong Kong offers this service. That is why I say, Hong Kong people have got to know how to speak Mandarin, English and, of course, Cantonese. "兩文三語" (biliterate, trilingual). Communication skills are very important. If you know how to do business in China, that is additional plus. And anybody who understands commerce, trade, and industry will never have to worry about having a bowl of rice in the future because China and WTO means commerce, trade, and industry. We offer a combination of partnerships, strategic alliances, overseas entrepreneurs, and Hong Kong execution.
The capital markets issue is also very important. Many people are worried about Shanghai taking over from Hong Kong. What we should understand is that it is the international marketplace that decides who will be an international financial center. You cannot decide by yourself. To become such a center, there are hurdles to clear.
The first hurdle is currency convertibility. The second is a legal system in terms of settlement, predictability, and transparency. You need to know what you are going to get, what the outcome will be. When you are dealing with financial services, you are talking about huge volumes of transactions every day. The system cannot go wrong. You must have a high degree of trust in that system and how it is going to pan out.
The third is that financial centers such as London or New York are totally private capital. State capital does not come in because otherwise it would not be a level playing field, and we must ensure that government in Hong Kong does not come in.
The fourth hurdle is information. You must have a free press because everybody must have information at the same time and be able to find out information to, again, ensure a level playing field.
Anyone who wants to compete will have to jump these hurdles. When they are able to clear them depends on their own actions and on how the international financial market sees that city's performance in these areas.
[Q5] You pointed out earlier that many companies have set up offices in Hong Kong because of the need for risk management. Do you think this is a temporary phenomenon? Would risk management be better in the long run done close to the scene? How can Hong Kong hold its competitive advantage in being a place where you manage the business remotely?
[A5] Risk management all depends on risk. If there is risk, then you have risk management. If there is no risk, there are no risk management needs.
Where will such management be done? I think there will be many situations where it will be done locally. However, the real issue here is cultural compatibility, and Hong Kong is still much closer to Western business culture in handling contracts, delivery issues, contract integrity, and the spirit of contracts.
With regard to timing, Hong Kong businesses do not operate on a long time frame. They do not expect matters to be permanent. The competitive, worldwide situation confirms that nothing is permanent.
So while this opportunity will not last forever, I can say that in the foreseeable future, the need is going to be intense.
[Q6] The strength of a country's economy may depend on internal markets as in the European Union and the United States. Could you give us a few words about China's internal markets?
[A6] There are economists and people from the university here today that are much more learned than I am on this.
What I can say is that over the past 20 years, China has been export-driven because of the need for foreign capital and foreign exchange reserves to help the domestic side. But if you visit the Pearl River Delta, Shanghai, Beijing, I think you will be able to convince yourself that the domestic market is developing very fast.
You may say how can I tackle 1.2 billion people? Don't look at it that way. There are 900 million people on the farm, leaving 300 million people in the cities. Those 300 million people in the cities are consumers, and I think we are just heading into the next phase where domestic demand will take the economy further.
When is it going to happen? It is happening. On what scale? In some places, it is more intensive, in others, a little bit slower. But the general direction is very clear.
[Q7] You mentioned that we need more talent to move up the value chain. The government has talked about importation of talent for a long time. As one of Hong Kong's leading businessmen and head of TDC, what steps do you think we should take to hasten this?
[A7] My thinking is fairly broad with regard to talent and more companies coming in. We certainly should not bar Mainland companies or entrepreneurs, because they know the domestic market in China and should be an important component of our platform.
For overseas companies too, there are still many restrictions when it comes to working here. We should try to take down the high walls we have built to make Hong Kong a platform that can be adopted by anybody with a business idea.
I have always said that in the past, TDC seemed only to serve Hong Kong companies, and I have suggested that TDC serve any company using the Hong Kong platform, because in utilizing our platform, they will drive more transactions through Hong Kong, and at the end of the day, this means more jobs for Hong Kong. Jobs will be created in Hong Kong through broader networking and allowing business talents to come in to generate more activities.
With regard to immigration policy, TDC does not have that mandate. We are in trade and services, not in the business of people yet. But I am certain the government is well aware of this matter, and I am optimistic something positive will develop.
Mr. Peter Woo GBS, JP is Chairman of the Hong Kong Trade Development Council and the Chairman of The Wharf (Holdings) Limited. This article is a transcript of his keynote speech given at the "China's Economy in the 21st Century" International Conference held on June 24-25, 2002 at the Island Shangri-la Hotel, Hong Kong. The Conference was organized by The Hong Kong Institute of Economics and Business Strategy, The University of Hong Kong.
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