FEBRUARY  2000

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Chamber WTO Report Released

With preparation and hard work, Hong Kong business can gain from China's WTO accession

The Hong Kong General Chamber of Commerce released the final report of its study on "China's Entry into the WTO and the Impact on Hong Kong Business" on January 18, 2000. Nine working groups of Chamber members have been studying this issue since May 1999. This study concluded in January 2000.

The Hong Kong General Chamber of Commerce released the final report of its study on "China's Entry into the WTO and the Impact on Hong Kong Business" today. Nine working groups of Chamber members have been studying this issue since May 1999. This study concluded in January 2000.

Chamber Chairman C C Tung said that, "China's WTO membership will be a landmark development affecting the business environment in China as well as in Hong Kong. This Chamber Report concludes that while challenges are going to be plentiful for Hong Kong businesses in the new environment, there are new and widespread opportunities for those who take steps to meet these challenges".

Dr Eden Woon, the Chamber Director, said that, "The Chamber hopes this report provides valuable insights and stimulates every Hong Kong business person to look positively to the future and to action. We must add that this report looks at the initial challenges, and businesses will have to constantly adjust to a dynamic Chinese economy once China is in the WTO."

1. Opportunities The Report believes that the reduction in tariff, the liberalization of service industries, the increasing transparency and rule-based commerce, and the potential rise in living standard in China brought about by China's WTO accession will benefit Hong Kong.

• Market expansion - The total volume of Hong Kong's entrepot trade and offshore trade will increase. Hong Kong's role as "deal maker" providing trade-related sourcing, merchandising, distribution, financing, legal and accounting services will expand.

• Market access - Liberalization will benefit services sectors, including professional services, banking, insurance, trading, retail and distribution, and telecommunications, which are now heavily regulated in China.

• Middleman - Multinationals, especially SMEs from abroad, will appreciate the know-how and expertise in Hong Kong to help them do business in China?Xa diverse and complex market where the "soft" infrastructure and skills are not readily available. Likewise, Mainland enterprises will need Hong Kong's assistance to help them facing severe international competition.

2. Challenges Ahead

• Barriers and Constraints on doing business with China - In China, high entry requirements and operational restrictions in many sectors will remain; market inefficiency will affect operational effectiveness; the lack of regulatory transparency and predictability will create uncertainties; and the intention of Chinese authorities on how the market should develop will further complicate the situation.

• Increased Competition - Competition will not only come from multinationals but also from the Mainland's own developing indigenous business sector.

• Diminishing Gateway Function - With a more transparent trade regime in the Mainland, the gateway function performed by Hong Kong's "left-hand-right-hand" traders -- those who match sellers and buyers without adding any significant value to the process -- will diminish as more foreign companies may try to go to China directly.

• Mainland's Relationship with Hong Kong - Hong Kong -- being part of China -- cannot engage the Mainland in bilateral negotiations. Mainland's economic policies and regulations can greatly affect Hong Kong.

• Hong Kong's Competitiveness - Hong Kong's operating cost remains high. Hong Kong's education system is having trouble producing enough graduates with the proper technology and English and Putonghua skills.

3. Preparing Ourselves - In order to survive and stay ahead, the Report suggests that Hong Kong businesses can consider restructuring, diversifying, and upgrading themselves.

• It is extremely important for the business community to maintain its international character and to play up our role as the "Value-added, Two-way Bridge" to and from China.

• Hong Kong businesses should consider establishing strategic alliances with multinationals as well as with Mainland enterprises. Teaming up with multinationals can increase the capital and technical support of Hong Kong enterprises and thus secure a stronger position in the Mainland market. Joining forces with Mainland enterprises can assist them to improve their competitiveness and quality of services, and at the same time, strengthen our knowledge of, and connectivity with, the Mainland.

• SME in Hong Kong can consolidate into fewer bigger and stronger alliances to take advantage of economy of scale to improve competitiveness.

• Hong Kong businesses must develop our knowledge base. Businesses need greater understanding of Mainland rules and regulations, and to polish their language skills -- both English and Putonghua. Hong Kong's advantage in management and other service sector skills must continually be improved to match or stay ahead of international standards.

4. Support from the SAR Government

• A dialogue between the HKSAR and the Mainland governments on liberalization and deregulation will be of great help. The SAR government should consider a more pro-active role in ensuring that Hong Kong gets a fair share of the China market. The possibility of considering Hong Kong companies for pilot schemes during the phase-in period before the sector is fully open should be explored with the Mainland authorities. One possible way is to explore the benefits of a Free Trade Area agreement with the Mainland - similar to the NAFTA type agreement, which would be in keeping with WTO rules.

• Hong Kong SAR government should improve the business environment of Hong Kong by addressing domestic concerns like reducing operating costs, attracting and retaining high-tech personnel, improving language education (especially in Putonghua and English), and improving the quality of management people.

• The Hong Kong SAR Government should do more as Hong Kong's trade facilitator and promoter. Hong Kong's image on quality services, our strengths in management and marketing strategy, our international character, our experience in China trade, our proximity to the Mainland market, and our emphasis on intellectual property rights protection should be promoted to the Mainland and overseas countries. One useful step would be to set up more Hong Kong trade offices for more liaison and promotional work.

The working groups were chaired by David Wong of Dah Sing Bank (Banking), David Ruan of AXA (Insurance), Robert Xie of Simplex Capital Asia (Investments), K K Yeung of K K Yeung Management Consultants (Professional Services), Stanley Ko of Jardine Pacific (Retail and Distribution), Lily Chiang of Chen Hsong (Technology), Norman Yuen of Cable and Wireless HKT (Telecommunications), Christopher Cheng of Wing Tai (Textiles and Clothing), and Hans Michael Jebsen of Jebsen & Co (Trading).