For Cyprus trade with China, come to Hong Kong

— 10^th anniversary of “One Country, Two Systems”

 

As Hong Kong prepares to celebrate the tenth anniversary of the reunification with China and the establishment of the Special Administrative Region (SAR), its diplomatic and trade missions around the world have embarked on an offensive to promote the “One Country, Two Systems” concept and how this can substantially contribute to international business.

Ambassador Duncan W. Pescod, who heads the Hong Kong SAR office in Brussels, was on a fact-finding mission to Cyprus recently, accompanied by two officials from the Hong Kong Economic and Trade Office main representative office, to look at ways to promote bilateral trade and improve diplomatic and other ties.

Ambassador Pescod said that he had “extremely informative, very direct meetings” both at the Ministry of Finance and at the Central Bank, “where we had a better awareness of issues.”

With the Commerce Ministry he sees possibilities to raise the awareness about Hong Kong, especially as many Cypriot businesspeople attend conferences and visit any one of the four major exhibitions for the trade and entertainment sectors in Hong Kong.

Pescod said that assistance from Hong Kong could come for the establishment of a new Cyprus Investment Promotion Agency, for which he offered some practical help stemming from Hong Kong’s own experience in setting up its Trade Development Council.

Although actual trade between Hong Kong and Cyprus has decreased by about 5% in the past five years, placing Cyprus at the bottom of the list ranking 23^rd among Hong Kong’s 25 EU trading partners, excluding Bulgaria and Romania, on the worldwide scale, Cyprus fares worse, dangling in 93^rd place among all of Hong Kong’s trading partners.

On the other hand, Hong Kong ranked 18^th among Cyprus’ trading partners outside the EU in 2005.

However, Cyprus trade with China routed through Hong Kong has been booming, which at HKD 247.5 mln in 2006 represents nearly 11% of all Cyprus trade with mainland China.

At the same time, Hong Kong is one of the European Union’s main trading partners, with trade now standing at about HKD 532 bln, representing some 10.5% of Hong Kong’s total trade with the world.

 

— Consider Hong Kong as your base

 

Ambassador Pescod believes that the greatest potential lies in cooperation at all levels, not least in trade, where he wants to encourage Cypriots and others seeking to do business with China to consider Hong Kong as their regional base.

“Hong Kong is a developed economy, with a rule of law and basic law very similar to Cyprus, which would make it easier to overcome the legal difficulties of setting up a base or a business in China,” he told the Financial Mirror in an interview.

Taking advantage of Hong Kong’s special relationship with China and the free trade pact between the two, the easiest way to make inroads into mainland China would be to buy up an existing company in Hong Kong and start business immediately, as opposed to waiting for a year or more to go through the motions of setting up a company in China.

The government in Beijing has realized the benefits of Hong Kong’s development as Asia’s world city and China’s pre-eminent international financial centre and chose to keep intact Hong Kong’s role in international bodies and fora, as well as international bilateral agreements with foreign governments, maintaining an independent corporate, economic and customs entity.

Hong Kong has one of the most effective anti-corruption agencies in the world and is one of the world’s safest cities with a multi-cultural, tolerant, pluralistic, well-educated and hard-working society. The six-day week has only recently been abolished for civil servants, who work until late afternoon.

 

— Similarities with Cyprus

 

Ambassador Pescod has the political responsibility for the seat of the European Union, the Netherlands and France and the whole of the Mediterranean basin, while the Hong Kong Economic and Trade Office has a base in Brussels, with smaller offices in Geneva (to deal with WTO issues) and in London, while a new office is opening up in Berlin that will undertake responsibility for the geographical area of north and eastern Europe.

The purpose of Pescod’s visit to Cyprus was to establish contacts on the government side, discovering that there are many similarities between Hong Kong and Cyprus.

“There is better awareness of each other now, as well as some interesting parallels – Cyprus is a portal for the Middle East and former Soviet countries with a desire to develop logistics and financial services and other value added services,” he said.

Describing the parallels, Pescod said that 90% of the Hong Kong economy is services-driven, primarily focused on the financial sector, with tourism accounting for only 2% of GDP, even though Hong Kong attracts some 25 mln tourists a year.

However, he said that Hong Kong can offer its know-how to Cyprus.

“The experience we gained because of the SARS epidemic and the knowledge accumulated while dealing with the crisis, helped us to develop new areas in hi-tech and nanotechnology.

“We build on our strengths – our key strength is our unique position vis-à-vis China. Hong Kong has a free economy and currency, a low tax rate of 16.5%, no exchange controls and sound legal system.”

 

— No threat to China

 

Ambassador Pescod does not regard Hong Kong as a threat to the Chinese economy. “On the contrary, we complement Shanghai, even though there are huge disparities.”

“Hong Kong is more than a gateway. Chinese companies establish themselves in Hong Kong to interact with the world, while 6,300 overseas and mainland Chinese companies have their offices in Hong Kong, of which some 3,800 are regional headquarters or regional offices,” Pescod said.

International companies prefer to established research and design facilities in Hong Kong first and then set up their production in China, he explained.

Pescod said that companies with a base in Hong Kong can benefit from five hours’ flying time to all major production centres in Asia, from China to Vietnam, Singapore to India.

“If you want to invest in Asia you want to do it in a familiar area, where the legal structure is based on the British Commonwealth system, whereas China’s legal system is still developing.

“We have a one-stop-shop arrangement, making it very easy to invest in Hong Kong and from there in China,” he said.

And the investments do not end there. Hong Kong’s stock market capitalization is the sixth largest in the world, a figure that has quadrupled since 1997, while it was also Asia’s largest IPO market in 2006 with USD 43 bln and the world’s second largest after London.

Hong Kong is also the second largest recipient of foreign direct investment (FDI) in Asia after China and the biggest FDI contributor to China.

The Hong Kong economy expects another year of balanced and solid growth with the property market continuing to develop at a healthy pace and unemployment at a six-year low.

A contributing factor is the close economic partnership agreement with China, which makes it barrier- and tariff-free for the 80,000 Hong Kong companies and their 11-12 mln workers.

“Our Hong Kong companies have been dealing with China for nearly 30 years and have accumulated vast knowledge in trade relations with mainland China,” Ambassador Pescod said.

 

— 10^th anniversary of reunification

 

Looking to the future, the tenth anniversary of the reunification is seen as carefully building a partnership, while Hong Kong continues as a capitalist economy.

“We have a HKD 6 bln surplus budget, a robust and large economy. It is not static, it’s dynamic,” the ambassador said, adding that Hong Kong’s status is ensured through an international agreement lodged at the United Nations.

“Our Basic Law provides for a continuation of the capitalist system, with an independent judiciary, police, customs, taxes, all provided for in the document,” he added.

New areas for development in Hong Kong are education and health.

Hong Kong has nine universities with the oldest dating back to the 19^th century. Most offer a three-year plus foundation course with some going up to four years.

“We are expanding our education in line with the targeted needs of the economy. We are recruiting academics and picking up on the Chinese diaspora, even though this is not restricted as we seek to remain an open economy, reinforcing our know-how with the importation of talent,” Pescod said.

“We are actively supporting overseas education for our students, while Hong Kong boasts top level legal training and higher education in the sciences, engineering, as we also provide joint degrees with other internationally reputable universities.”

As regards public and general healthcare, Pescod said that Hong Kong maintains a worldwide reputation for first-world standards in its hospitals as health costs escalate but investment continues in new technology and in the recruitment of local and international talent.