Hong Kong can be base for SME forays into China

"Hong Kong can be base for SME forays into China | AboutHK.Com - More Information About HK"

YEOW POOI LING Small and medium-scale enterprises (SMEs) or family-owned companies that are interested to penetrate the mainland China can use Hong Kong as their base. “Companies do not need to reinvent the wheel as they can leverage on Hong Kong’s experience in doing business in China,” said Investment Promotion of Invest Hong Kong (InvestHK) director-general Simon Galpin, adding that the city’s rule of law, free flow of information and geographical advantage made it a strategic location. InvestHK is responsible for attracting and facilitating foreign direct investment into Hong Kong. “There were emerging opportunities in the last couple of years. “For example, the double taxation agreement between the mainland and Hong Kong makes the city an attractive base for holding companies,” he said in an interview on the sidelines of the Forbes Global CEO Conference here. Hong Kong’s corporate tax is 16.5% while China’s standard tax rate is at 25%. The Closer Economic Partnership Arrangement between mainland China and Hong Kong offers incentives to manufacturers and the services sector such as the removal of export duties for all “made in Hong Kong” products and goods into China. Galpin added that companies, especially those in retail business, could also take advantage of the increasing number of mainland visitors to Hong Kong. While the city may not be conducive for manufacturing base, manufacturers can use Hong Kong as a sales or distribution centre to serve the large mainland market. There are also companies that use the city for treasury functions due to the professional and legal infrastructure available. Malaysia is Hong Kong’s 11th largest trading partner with bilateral trade amounting to HK$93.3bil in 2008. Hong Kong is also an important entrepot for trade between mainland China and Malaysia as re-export of goods from the mainland via the city to Malaysia rose 6% to HK$16.3bil last year. Hong Kong’s sectors like financial, transport and logistics remain important while new sectors of interest include innovation and technology, medical, education as well as culture industries like product design houses, architecture, multimedia and games. InvestHK’s target were SMEs as well as high-growth companies due to their ability to be embedded into the economy, Galpin said. “Mainland companies use Hong Kong as a launchpad into overseas markets. They come for listings, or raise funds via financial institutions, or find business partners,” he added. “Cost is rarely a barrier if companies really looked into the available options. Funds are also ample due to the competition among financial institutions to provide trade finance,” Galpin said. Some companies might want to enter mainland China on their own due to perceived cost effectiveness, which might not necessarily be the case. It was not costly to set up a company in Hong Kong and was easy in terms of procedures but it could be an unpredictable process in China, he said. Nonetheless, InvestHK does not “hard sell Hong Kong” but takes the view to understand companies’ individual needs and how the city could cater to them. Last year, foreign direct investments into Hong Kong amounted to US$63bil, the highest ever received. The outflow, similarly, was also the highest at US$60bil.