As the Greater Bay Area (GBA) moves towards high-end development and businesses in the region seek to expand outwards, the ASEAN market is increasingly becoming a preferred trading partner and investment destination. Hong Kong can play an important role in linking these two markets.
At a webinar on “Trade and Investment between GBA and ASEAN and the Roles of Hong Kong” on 12 May, Irina Fan, Director of Research at HKTDC, said China’s trade and investment relations with ASEAN had been growing at a remarkable pace over the past two decades. By 2009, China had surpassed United States, the European Union, United Kingdom and Japan to become the region’s largest trading partner – and the growth has continued since then at a rapid pace.
“The share of China’s trade with ASEAN has doubled since the global financial crisis in 2008,” Fan explained. “We saw the same doubling with Hong Kong’s direct investment to ASEAN since 2015.”
Today, Hong Kong is the bloc’s second largest source of inward FDI, only behind the U.S.
Hong Kong is well positioned to serve as a trade platform bridging the regions, Fan said, noting that trade also goes in the other direction. “Almost 80% of the products Hong Kong imports from ASEAN are re-exported to the Mainland.”
According to a recent survey conducted by HKTDC Research and UOB Hong Kong with over 600 GBA-based enterprises, close to 60% of GBA companies are planning to expand into ASEAN in the next three years, and a majority of those already there are looking to double their footprint within the same timeframe. Singapore, Vietnam, Malaysia and Thailand remain the most popular destinations, followed by Indonesia and the Philippines.
Fan said different sectors had different priorities when looking at ASEAN as a trading partner and investment destination.
“Consumer goods companies, for example, are attracted to ASEAN’s good availability of reliable and credible local partners,” she explained. “The real estate, hospitality and construction sectors, on the other hand, eye the region’s abundant resources such as land and natural attractions.”
In general, GBA businesses are drawn to ASEAN by its cost-effectiveness for business, huge consumer market, abundant resources, and attractive government incentives.
Ricky Ng, Head of Wholesale Banking at UOB Hong Kong, said the population in ASEAN was shifting rapidly to the middle-income class, with forecasts pointing to a middle-class population of 472 million in 2030, over 2.7 times that in 2010.
“That will represent 67% of the total population in ASEAN,” Ng said. “This shows it is no longer a location for cheap labour and low-cost production, but instead a growing consumer market with high purchasing power.”
He said each ASEAN market had its own attractions, and that the RCEP’s cumulative rules of origin will encourage its each member country to focus on their advantages and specialize in certain areas and sectors, in turn raising the efficiency of the industrial chain and value chain.
Internet access, advanced manufacturing, and sustainable city solutions were the region’s most promising emerging opportunities, he said, with a projected potential boost of US$1 trillion to the region’s economy by 2025.
Business in ASEAN is not without challenges, however, Ng said. “ASEAN countries still do not have standardised trade documents, regulations or practices. At its current pace of growth, the region also requires US$100 billion infrastructure investments per year.”
The bloc’s member states are also at very different stages of development. “Ease of doing business varies across the board, with Singapore ranking second globally, and Myanmar sitting at 171th,” he added. “Investors also need to observe the diverse cultures and language barriers. In the Mainland, workers don’t mind or even prefer working overtime and earning more, but workers in ASEAN prefer not to work overtime.”
He added that Hong Kong was an ideal stepping stone for Chinese enterprises entering ASEAN, as its state-of-the-art professional services sector can offer lower costs of financing and more flexible cash flows.
Also speaking at the event, Eva Tsang, Executive Director at Opal Cosmetics (Hong Kong) Limited, shared her experience of expanding her company’s range of personal care and beauty products into the ASEAN market.
She suggested that the first thing members should pay attention to when entering the market was to find a reliable partner, and ensure that your business trademarks are correctly registered in the relevant jurisdictions.
“It is a long and difficult journey and you will need guidance from legal specialists from both Hong Kong and in the target country,” she said. “It’s not only about making the effort at the registration stage, but also actively monitoring and protecting your brand.”
Local partners can also help with company registration and taxation, which entail varying procedures and regulations in different countries.
But despite the challenges, her company’s investment in ASEAN has paid off well, and has been able to tap into the region’s growing consumer base.
“The spending power of Southeast Asian consumers has been catching up with China’s first-tier cities,” Tsang said. “The consumer market is huge, and there’s an abundant demand for e-commerce.”
Tsang also recommended companies make sure they take into consideration local needs, such as getting halal certification in Muslim-majority countries, so that their products are permissible under Islamic law.
“Exporting products to Indonesia requires a halal certificate, and halal and non-halal products are displayed separately in supermarkets.”
“Most shoppers won’t even approach the non-halal shelves,” she said.