Want to go to China? Start in Hong Kong20th Sep '16
If trading in the People’s Republic sounds daunting, the former UK colony could provide a solution. Continuing the Routes to Growth series on doing business in Asia, Hazel Davis looks at the options
‘We are a super-connector between China and the rest of the world’
China can be a challenging environment for a UK business. Communication is sometimes tricky and expansion costly. That’s why many companies use Hong Kong as an entry point to Asia.
It’s forward-thinking, legally simpler and its well-established financial market easier to navigate for someone used to British ways.
“We like to call ourselves a ‘super-connector’,” says Andrew Davis, head of investment promotion at InvestHK, which works with overseas and Chinese entrepreneurs, SMEs and multinationals that wish to set up an office – or expand their existing business – in Hong Kong.
“Hong Kong has major financial and professional services sectors and it’s the only place in the world where you can fly five hours and reach half the world’s population,” says Mr Davis. “There are a thousand flights a day to 200 destinations.”
Beijing, Shanghai, Singapore, Taipei, Manila, Kuala Lumpur and Perth are in the same time zone as Hong Kong, and Bangkok, Jakarta, Seoul and Tokyo are within one hour’s difference. Moreover, 70 per cent of all Chinese companies’ first step outside of the mainland is Hong Kong.
The 2016 Belt and Road Summit took place in May and saw business leaders and senior ministers discuss Hong Kong’s role in business co-operation between East and West. The Belt and Road strategy is China’s plan to promote economic co-operation among countries along the original Silk Road and its modern equivalents on land and sea.
Speaking at the summit, Laura Cha, chairman of the Hong Kong Financial Services Development Council, said its status as a major centre for Initial Public Offerings (IPOs) could attract more global placements, too. “We are a super-connector between China and the rest of the world.”
UK businesses are attracted to the city, says Mr Davis, “by various enduring advantages such as the rule of law, an independent judiciary, free flow of capital, simple tax systems and the people”. Most business professionals there speak excellent English, but many people also speak Cantonese – the most widely spoken language in the city – and Mandarin – the principal language of China.
Employees in Hong Kong are taxed only on how many days they spend there – compared with, say, Singapore, where employees have to pay full taxes even if they spend time elsewhere. This makes it much easier to recruit.
The territory also has a phenomenal logistics-based infrastructure, says Mr Davis: “It’s the busiest port in the world, there’s Wi-Fi everywhere and the IT network is very established.”
Commercially, Hong Kong offers easy access to mainland China’s business opportunities. The Pearl River Delta, the country’s largest and most productive manufacturing region – in and around the cities of Shenzhen, Guangzhou and Dongguan – is immediately to the north of Hong Kong and home to thousands of factories owned by Hong Kong and overseas companies.
Hong Kong is Asia’s trade-fair capital. Every year, the Hong Kong Trade and Development Council (HKTDC) organises more than 30 exhibitions in the city. They attract more than 764,000 trade visitors from nearly 200 countries and regions.
The transport infrastructure is improving, too, with new links under construction such as the Guangzhou-Shenzhen-Hong Kong Express Rail Link, which will connect with existing train services on the mainland. This will make Wuhan accessible in five hours and Shanghai in eight.
One of the hardest things for companies to negotiate in China is social media. In Hong Kong, says Mr Davis, Chinese and Western forms merge. “A lot of people from Hong Kong have What’sApp as well as WeChat. The software of the Hong Kong market is multi-lingual.”
Most importantly, says Mr Davis, Hong Kong is great for making contacts. The business network – known as guanxi – is welcoming. Hong Kong has a liberal and open immigration regime, which enables companies to bring in specialist staff from mainland China and overseas, making connecting with future staff, clients and contractors easier.
Mr Davis says: “If you come with good guanxi to the mainland you’ll do well.” And where better to develop that than Hong Kong?