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BUSINESS
September 2003
Issue

Hong Kong -- Still a Fantastic Place for Business
The combination of competitiveness, economic freedom and service provider to
"the world's workshop" underlines the unique position Hong Kong holds in the
business world, writes ANTHONY NIGHTINGALE
This article first appeared in the South China Morning Post on August 11.
Hong Kong's headlines in the past month or so have more to do with
politics than usual, and less to do with business than one might expect. The casual
observer might wonder if this Special Administrative Region (SAR) of China would survive
the turmoil. The answer, I believe, is a resounding "yes."
Three events of recent weeks, while largely unrelated, put Hong Kong on
the front pages of the world's newspapers. On June 29, Hong Kong and Beijing signed
China's first-ever free trade agreement. Two days later, 500,000 people marched in the
streets peacefully over pending national security legislation and governance problems.
Then, just over a week later, the Fraser Institute named the SAR the most economically
free economy in the world, for the seventh year running.
So, which is it? Has Hong Kong been confirmed as the crucial partner for
doing business in China, by signing an agreement envied by many other countries? Is the
political climate heating up? Or, is the SAR just an excellent example of a modern
globalised economy? The answer is -- all of the above.
New officials have just been named to take over the finance, commerce and
security portfolios. Clearly, their priority will be to help the Chief Executive Tung
Chee-hwa unite the community and solve the difficult financial problems of Hong Kong. But
while their tasks are daunting, we should be comforted by the fact that differences of
opinion within our society are dealt with in a constructive and civil way and the fact
that our economic fundamentals and entrepreneurial energies are still formidable. The fact
is, Hong Kong is still the best city in the Asian half of the world to do business.
Closer Economic
Partnership Arrangement
First, Hong Kong now has CEPA. Under CEPA, Hong Kong companies -- local
and foreign-owned alike -- will find it easier to access the booming China market. This
agreement, which complies with the rules of the World Trade Organisation (WTO), will open
the doors to goods and service-related investments between the world's most dynamic
economy and one of the best business cities on earth, earlier than China had promised to
the WTO.
While many local companies would benefit, many foreign businesses
incorporated in the city also will make the grade. Of course, much will depend on the
negotiations over the next few months as to rules of origin and similar technicalities.
What is interesting is that to qualify to establish a wholly owned foreign trade company
in China, for example, the rules are very simple: the business must be registered in Hong
Kong and show proof of premises, taxes and other such bona fides.
The same is true for retail business, management consultancy and a host of
other businesses: if the company meets the criteria, nationality doesn't matter. In order
for the economy of an international city like Hong Kong to flourish, both local and
foreign invested businesses must grow, and CEPA has the potential of helping them do that.
China's first free trade agreement should have been headline news around
the world, but a half-million people marching in the streets has a certain newsworthiness
of its own. We should note that this was the city's first significant protest in history
that was not related to China, the first truly local demonstration. Demonstrations in past
years in Hong Kong were almost always about China; this one was about Hong Kong.
Article 23
National security legislation is always sensitive in any country, and so
the concerns raised in Hong Kong are to be expected. Yet, most people in the SAR -- either
protest organisers or pro-government types -- would agree that the draft law was not the
main reason so many people felt it necessary to make their views known. General
unhappiness with the government, record-high unemployment, the challenges of persistent
deflation -- particularly in property prices, certainly all played a part, in addition to
concerns about some provisions of the draft legislation.
This law, required under Article 23 of the Basic Law, is based on similar
legislation in other jurisdictions, and contains numerous safeguards protecting the rights
of the people. And let us not underestimate the solid rule of law tradition here --
witness the appointment of two new foreign senior jurists, who are internationally
reputed, to Hong Kong's Court of Final Appeal recently.
Our Chamber had studied the draft in detail and suggested numerous changes
to the government. Most of these were accepted. We also counselled patience and extensive
consultation, to allow the community time to debate the wording and to digest the enormous
responsibility such a piece of legislation entails. That, too, is now happening.
Not Seattle,
Gothenburg or Prague
But, what stuck in my mind as the spectacle of street politics unfolded on
July 1 were not the shouted slogans or colourful banners but the things that didn't
happen. There was no tear gas, no baton charge, no burning cars and no shattered windows.
The protests were not anti-business, or race related. And, unlike other similar
demonstrations elsewhere in the world, the worst injuries were twisted ankles and
dehydration.
In the aftermath of the demonstrations, the administration paused, as any
responsible government would, to reconsider its position. Perhaps the original law was
poorly drafted, overly ambitious, or just badly presented to the public. Certainly,
national security legislation is, by its very nature, a sensitive issue. Further, the
community needs time to digest the myriad of changes in the draft law, and to recognise
that being part of China carries with it both rights and responsibilities.
Mr Tung assured the community he heard the message of July 1. As a gesture
of understanding to the community, he announced that the government had asked the
Legislative Council to delay acting on the bill. Mr Tung also accepted the resignation of
Security Secretary Regina Ip, who was often criticised for her management of the unpopular
campaign to pass the law.
The Third Story
Many journalists, and not a few business people, have asked me if the
draft law or the protests will undermine Hong Kong's attraction as a place to do business.
My answer to them is a firm "no." The Fraser report mentioned above, and others
like it, supports that assessment.
In their admirable quest to understand better what makes one economy work
well and another less so, academic researchers have attempted to quantify concepts such as
freedom and competitiveness. Some, such as Fraser, assume economic freedom is related to
the size of government and level of taxes, the freedom to trade and invest, and sound
regulation of credit, labour and business. The World Economic Forum's Global
Competitiveness Report 2002-03, highlights institutional integrity and infrastructure as
the key components of competitiveness. A third judge of economic character, The Heritage
Foundation's Index of Economic Freedom, is more policy oriented.
Regardless of which measures are used, Hong Kong sits at or near the top
in just about every critical category, year after year. The consensus is that the SAR is
one of the best business cities in the world.
Given that none of these ratings consider geography, the city's location
is the icing on the cake. The combination of competitiveness, economic freedom and the
status as the service provider to "the world's workshop" -- China's Pearl River
Delta -- underlines the unique position Hong Kong holds in the business world.
We haven't come to a final conclusion to this burst of political activity,
but we can point with pride to the fact that the process is developing peacefully, with
all views being heard, and in a manner that will not diminish Hong Kong's enormous
business advantages.
Anthony J L Nightingale is the Chairman of the Hong Kong General
Chamber of Commerce. |
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