"We are China's only international financial centre"

CHINA FOCUS SITS DOWN WITH MIKE ROWSE, DIRECTOR-GENERAL OF INVESTHK, TO TALK ABOUT FOREIGN INVESTMENT IN HONG KONG.

China Focus (CF): In a hundred words, what does InvestHK do?

Mike Rowse (MR): InvestHK is a department of the Hong Kong (HK) SAR government. Our job is to attract foreign investors to set up in HK and to encourage them to stay and grow. We support companies from around the world to set up in HK, including firms from mainland As far as we are concerned, the mainland is a market like any other, with its very own characteristics, of course.

CF: How do you convince investors of HK's benefits?

MR: Well, we "sell" HK at five levels now, and a sixth is beginning to emerge. First of all, we take HK's own market: 7 million people, high GDP per capita, and 28 million visitors last year, mainly tourists and shoppers. All of the luxury brands have a flagship store in HK and many shoppers are mainland Chinese, for two reasons: we don't have GST and we enforce IP rights. Shoppers are more confident that the products they're buying are genuine.

CF: Is HK's better protection a strong selling point?

MR: The people in Japan, Korea, China and other parts near us, know us well: as a place where the rule of law prevails, where intellectual property is protected and where corruption is low. The further away you get from HK the more that knowledge softens. And to some extent, in North America and Europe we are lumped together with the rest of Asia or China; with questions marks about the rule of law, protection and, indeed, corruption. So we emphasise that while we are a part of China, we are a special part of China.

CF: Back to HK's advantages, what are the other levels?

MR: The second level at which we sell HK is as a coordination
centre for Southern It’s a good bridge into the Southern China market for people looking to sell their products and services. And at the same time, it’s a terrific coordination point for sourcing operations. Some companies will set up their own factories, others will be sourcing from suppliers in the region, but all can handle the logistics, the management and the financing from their HK office. On the third level we sell HK to international investors as a business base for the whole of China. While we have a bit of competition with Guangzhou and Shenzhen at the second level, nationwide, we are competing more with Beijing and Shanghai and there we emphasise how different HK is: we are China’s only international financial centre.

CF: Isn't Shanghai praised as the new financial centre of Southeast Asia?

MR: Shanghai is an incredibly important commercial and, on a domestic level, financial centre. But to be an international finance centre you must have four characteristics: a freely convertible currency with no restrictions on the movement of capital; private ownership of the banking system with the government functioning purely as a regulator; free flow of information; and a legal system which protects private property, is based on the rule of law and is administered by an independent judiciary not susceptible to official‘persuasion'. New York and London have these four characteristics and, in the whole of China, only HK has them. That’s not to denigrate Beijing, Shanghai or Shenzhen, but it does differentiate HK from the other cities. China is a big country and different activities belong in different cities. If you are in an industry which is heavily involved in permits or official approvals such as mineral extraction or perhaps pharmaceuticals, you really need to be in Beijing. Similarly, for heavy engineering you have to be in the North. So it's horses for courses, really.

The fourth level at which we sell HK is as a regional hub, where the only real competition is Singapore. There are no other runners in that race. Even though the list of similarities is striking �both cities have the British Common Law system, English as an official language, low crime, low corruption, an excellent physical infrastructure and a convertible currency � there is one key difference: geography. HK is in the middle of the circle and Singapore is on the edge of it. There’s nothing wrong with Singapore, except it takes all day to fly to Shanghai. The fifth way which we sell HK is to mainland companies, as a springboard out to the rest of the world. We are targeting privately-owned enterprises in the seven most economically advanced provinces in the mainland. I don't play the sixth market up too much, because think it's only just starting. But think there is a degree to which we're becoming a global business centre in the same category as New York and London.

CF: Do you also use soft factors like HK's often quoted quality of life as a selling point?

MR: HK is a place where foreigners do feel welcome and have a great time whether it's in Lan Kwai Fong or in the country parks. We sell HK for its international lifestyle, for its international schools, for its freedom. Read the Straits Times, the China Daily and then the South Morning Post �the difference is striking. are taking a little bit of a hit at the moment on pollution. But if we're competing with Beijing and Shanghai, there is a different perspective, because, frankly, the mainlanders come here for the fresh air.

CF: type of companies do you target?

MR: Service providers. We do get the occasional factory; I remember two cases of factories for traditional Chinese medicine, one Singaporean and one from mainland China. Both of them wanted to be in HK, because they wanted proximity to the raw materials and the market, but they also needed IP protection and high standards of management and logistics. But usually our clients come from the service industry, and they start pretty small. think the average size is somewhere between 10 and 20 [employees], and even though HK may seem expensive to them, its efficiency and right location make up for that. Start small, put a couple of people in a business centre for twelve month, you will know exactly what the costs are going to be. And if that office creates new business or is making a difference in quality control and logistics for procurement purposes, it's worth it already. Then you stay and grow.

CF: Which countries do these companies come from?

MR: 31% of our clients in 2007 came from Europe, 22% from 27% from Asia Pacific and almost 19% from China: foreign investment in HK has worldwide sour- ces, which is why travel so much. If you are trying to attract foreign investors, you can’t sit in your office looking at the harbour saying ‘hope they turn up soon�or putting a desk at Chep Lap Kok and waiting to greet them as they get off the plane. No, we are selling HK. We have to go to where our customers are.

CF: What do clients typically need your help with?

MR: They are asking for buckets of information: about the legal system, the tax system, the general business environment here, their specific business sector. In the next step, they want introductions to law firms, accounting firms, real estate agents or executive search firms. can also introduce them to government departments. So it’s information first, and then it’s help and facilitation. can do publicity when they open and sometimes we can line up a minister to go and cut the ribbon.

CF: What would you say is the main challenge that companies face when they set up in HK?

MR: Costs. HK is a free market and that means the "failure rate" is high in the sense that a company comes in and if they haven't got it in terms of a quality product or a quality service or if they're unlucky, they'll be gone in 3 to 6 months. If they have a quality product or service they can make a lot of money. The challenge is to get the structure and the size right and just go.

CF: Your take on HK's recent tax changes?

MR: In regard to the tax cut on alcoholic beverages, it is great news. There's going to be some big wine auctions coming that used to take place in New York or London. So the companies that do them will be setting up here. But that aside, think the main message is: HK is a low tax economy and it's here to stay.

CF: Where do you see HK in the next 10-20 years? What is the future of HK?

MR: We've got more companies now that are putting global operations to HK. Or if they federalise themselves and have one centre in North America, one in Europe and one in Asia, the Asian operation will be here. We helped a New Zealand company opening their HK operation and after about two years they turned the company upside down, the HK office became the Head Quarters and the Zealand operation became a subsidiary. On a larger scale, China will overtake Germany very soon as the world’s third largest economy and will rival Japan within the next ten years for second place and the largest in Asia. And HK will be its international financial capital.

» Latest News Index
» Subscribe Fiducia Newsletter