Speech by Miss Margaret Fong, Hong Kong Commissioner for
Economic and Trade Affairs, USA
Private Business Roundtable
Presented by the China Roundtable and the Corporation Program
The Chicago Council on Global Affairs
Wednesday, March 28, 2007

“Hong Kong: Gateway to Asia”

Ladies and Gentlemen,

I am delighted to be here today to speak to a distinguished audience of the Chicago Council on Global Affairs. This is my first visit to Chicago since I took up the office as the Hong Kong Commissioner to the US eight months ago. But I still remember well my visit some eight years back - the grand architecture along Michigan Avenue, the wonderful collection of impressionist paintings at the Chicago Institute of Art, the vibrant night scene and, of course, the Frango mints. But Chicago is more than that. It is a thriving business and logistics hub and a major financial centre. I am here today to tell you about another great city which, like Chicago, is a vibrant financial centre with a great skyline and strong local colours – Hong Kong.

2. After 150 years as a British colony, Hong Kong reverted to Chinese sovereignty on 1 July 1997. Under the “One Country, Two Systems” principle, Hong Kong continues to enjoy a way of life familiar to everyone living in a pluralistic and open society. Our rights and freedoms are guaranteed by the Basic Law, our mini-constitution. We continue to practise common law. We remain a separate customs territory with an independent immigration regime. We have our own freely convertible currency. We embrace free trade and Hong Kong is a full and separate member of the World Trade Organization (WTO) and Asia Pacific Economic Cooperation (APEC).

3. Ten years hence, Hong Kong remains a vibrant and robust economy. We have withstood the challenges of the Asian financial crisis and SARS and emerged a leaner and fitter economy. The cumulative growth in our GDP over the past three years stood at 25%. For 2007, we forecast a growth of 4.5%-5.5%, not bad for a mature economy like Hong Kong. 2006 also saw phenomenal growth as Hong Kong’s stock exchange raised over US$42 billion in IPOs, placing the exchange second in the world behind London. At the end of last year, total market capitalisation of our stock market was over US$1.7 trillion, making us the second largest stock market in Asia. Our exports of goods and services registered robust growth at 10.2% and 8.7% respectively in 2006. Our visitor arrivals also reached a record high of 25.3 million.

4. According to UN’s “World Investment report 2006”, Hong Kong was the second largest recipient of FDI in Asia after Mainland China and ranked sixth in the world. The FDI flow into Hong Kong at US$35.9 billion was greater than the total of the next three largest FDI recipients in Asia, namely Singapore, South Korea and India.

5. So, what is it that makes Hong Kong, this small place of 400 square miles and 6.9 million people, the business hub of Asia ?

The answer is simple. Hong Kong is a firm believer in free trade. We have no tariffs, no subsidies and no trade barriers. We believe in a level playing field for all. We are proud to be ranked the freest economy for 13 consecutive year by the Heritage Foundation and the Wall Street Journal since the Index of Economic Freedom was established in 1995.

6. In Hong Kong, the rule of law is paramount underpinned by an independent judiciary and a legal system steeped in the common law tradition. Our regulatory regime is transparent and on a par with the best international practices. Our government is clean and our civil service efficient.

7. We have a well-educated, versatile and cosmopolitan workforce which ranks among the best in the world in terms of management experience in international businesses.

8. We have world-class infrastructure. Every week, 85 airlines operate 5,400 flights to 150 destinations from the Hong Kong International Airport. We have been ranked the world’s busiest international air cargo handling centre since 1996 with throughput reaching a record high of 3.6 million tonnes in 2006. Hong Kong is also the world’s second busiest container port handling 23.5 million TEUs last year.

9. And for every businessman our simple tax regime and low tax rates are a definite attraction. Our tax rates are among the lowest in the world – a maximum of 17.5% for profits tax and 16% for salaries tax. There is no value-added or sales tax and no capital gains tax. Only income sourced in Hong Kong is taxable.

10. Geographically, Hong Kong is located at the heart of Asia on China’s southern coast. We are within a five-hour flight to half of the world’s population. Our strategic location at the mouth of the Pearl River Delta (PRD) has allowed us to connect early with the Greater PRD, the fastest growth engine in Mainland China. Today, Hong Kong firms employ more than 11 million manufacturing workers in PRD. More than 70% of foreign investment in PRD since 1979 comes from Hong Kong.

11. In the last 25 years, economies round the world have been watching with wonder the phenomenal growth of China, the largest single market in the world. China's entry into the WTO has opened up even more opportunities. All are contemplating on how best to capitalise on this expanding market. And this is where Hong Kong comes in.

12. For over one and a half century, Hong Kong has served as the gateway to China. When China opened up in 1978, Hong Kong businessmen were the first to venture in and have been there since. Hong Kong accounts for some 40% of the total FDI of China. We are also the single source of foreign capital for mainland enterprises. Up to end-January this year, mainland enterprises have raised US$190 billion on the stock market in Hong Kong.

13. Not only do we have a long history of dealing with Mainland China, we also have the economic infrastructure, the experienced personnel: lawyers, accountants, auditors, financiers, managers, to make things work.

14. And on top of that, we have CEPA, our Closer Economic Partnership Arrangement with Mainland China. The first FTA Mainland China has entered into.

15. Through CEPA, all goods produced in Hong Kong meeting the rules of origin requirement will enter China tariff free. 27 services sectors will benefit from deeper concessions than what China has committed to in her accession to WTO. And what is most important is that all firms which are incorporated in Hong Kong are considered Hong Kong firms, and will enjoy the same benefits.

16. That is why firms round the world recognise that Hong Kong is where the action is. If you want to find the people who know China well; if you want to get financing for the deals; if you want to introduce certainty into the contract you are entering into with your Chinese partners, you come to Hong Kong.

17. The fact that the total number of regional operations of overseas firms in Hong Kong has been on a steady upward trend since 1996 is a good illustration of the key role Hong Kong plays as a gateway to Mainland China. We are now home to the regional headquarters/offices of 3,845 overseas firms, with US firms accounting for just under a quarter of the total at 889 operations. The Chicago Mercantile Exchange, joined the many overseas enterprises and set up its regional headquarters in Hong Kong last year.

18. But it is not just one-way traffic. Increasingly, we are seeing more and more Mainland enterprises setting up regional/local operations in Hong Kong. They see Hong Kong as the platform to “go international”. Because they know that when they come to Hong Kong, they get not only the best local talents but also talents from round the world.

19. Hong Kong provides a two-way platform: your best entry point into China and the best launching pad for Mainland companies to match up with international partners.

20. The US is Hong Kong’s second largest trading partner. We have long established economic and social ties. We share the same values, we practise the same systems and enjoy co-operation on many fronts from trade to public health to fighting global terrorism. The American Chamber of Commerce in Hong Kong is the largest international chamber in Hong Kong and the American community is the largest expatriate community in Hong Kong. I invite you all to come to Hong Kong to see entrepreneurship at work. And when you are there do not forget to taste our many delightful cuisines and enjoy our spectacular night view. Make Hong Kong your partner in the China and Asia market. Together we can make it happen.

21. Thank you.