To understand what will happen to Hong Kong with China in the WTO, we need to look back in history, Li & Fung (Trading) Ltd Group Managing Director Dr William Fung told the audience in his keynote luncheon address at the business summit.

Trading has always been Hong Kong's lifeblood. But in 1948, Hong Kong lost its hinterland as China closed its doors on the world and opted out of GATT the following year. Despite losing its base, the territory prospered over the next 30 years on its initiative. It set up its own manufacturing base. It also became China's window on the world.

Deng Xiaoping's reforms in 1979 pried open the door on China and again transformed Hong Kong's relationship with the Mainland.

"That is when what I call the 1.2 billion toothbrush dream started," he said. "If you could sell one toothbrush to everyone in China then you would be rich."

It was at this time that Hong Kong started moving its factories north. This exodus turned many small enterprises into world-class companies, and actually boosted Hong Kong's ability to compete in the global marketplace, a fact which we must not forget, Dr Fung said.

"There were people who said the migration was bad for Hong Kong; that we were losing our lifeblood. But many small companies became big companies," he said. "The fact is that we now have the opportunity and scale to compete with anyone in the world. If we had stayed in Hong Kong we wouldn't have that scale [and ability today]."

The downside to manufacturing in the Mainland was that China was not part of the world trade system. So every year companies went through the heartache and worry of having to move their manufacturing base if countries slapped anti-dumping charges against China. That worry is now over, because China will now be able to seek recourse against such claims, and many companies are expected to re-establish manufacturing plants in the Mainland.

"In order for Li & Fung to function properly, China really has to be a part of the world trade system. We see China is going to be part of the WTO, and now China can take action on the anti-dumping regulations against it," he said

One issue of concern, however, is that the U.S. has been talking about drafting an antisurge mechanism if anti-dumping charges are quashed.

Business looks bright for Hong Kong manufacturers in the Mainland, but they must now figure out how to turn the production outflow around to sell to the China market, he said.

The proverbial 1.2 billion toothbrush dream, however, is proving to be a bit of a nightmare.

"Everyone I know who has tried to deal with the [Mainland] domestic market has lost money. Those that are doing reasonably well say that it is a very hard slog. That is because China is a closed market, and it is also very provincial."

Often, the only way to get a piece of these markets is to form a joint venture with a company in each area, which is impractical. China's chief WTO negotiator, Long Yongtu, said that China will be meticulous in implementing its WTO commitments to the letter. But when it comes to enforcing these commitments at a regional level, that is going to be another long march, he said.

With China in the WTO, companies could find themselves having to pay more tax. Many countries offer tax breaks to attract investors, and China is no exception, but there is already talk of standardising the tax rate for foreign enterprises to bring it in line with the local rate of around 20 per cent.

This will exacerbate the already rapidly rising cost of doing business in China. With every man and his dog saying businesses must go to Shanghai, the cost of having a presence in the city is becoming very high.

Even Mainland companies are now complaining that they are having difficulty competing on price with the likes of Bangladesh and Pakistan.

Hong Kong's low tax regime is one of its many advantages, along with it having a truly international perspective. But Dr Fung warns that Hong Kong business must not fall foul of being blinkered on China.

If a company with a global perspective wants to enter the China market, then Shanghai is not the place to do so, nor is Shenzhen. Hong Kong is the only place that can offer a global -- as opposed to a regional -- perspective, he said.