15 November 2018
Hong Kong’s financial, legal and other professional services help mainland firms tap overseas markets. Photo: Bloomberg
Hong Kong’s financial, legal and other professional services help mainland firms tap overseas markets. Photo: Bloomberg

Why HK is still very much needed by mainland firms

Although mainland media often downplays Hong Kong’s importance to China, our long-established legal and business infrastructure and strong ties with global markets continue to attract companies from across the border.

Chinese firms tap Hong Kong for its various needs. Here are some case studies cited in a Hong Kong Trade Development Council report that could explain the city’s unfading appeal.

Grand Future Group was incorporated in Hong Kong in 2012. The Shandong Energy Group subsidiary serves as the bridgehead for the parent’s “going out” strategy—acquisition of overseas resources, sourcing of advanced energy equipment and identification of partners in clean energy.

The company has already secured mining rights in countries like Canada and Australia. Hong Kong offers a wide range of financial expertise that can help it identify the cost-effective funding channels.

Our professionals are also familiar with conditions in foreign countries and therefore able to provide proper evaluation of overseas projects, as well as advice on suitable legal and tax arrangements to lower investment risks.

Grand Future is also making the most of Hong Kong’s liberal immigration policy to get talents from abroad. Our international and transport network comes handy when the firm deals with shipping issues.

The value of international business handled through Grand Future’s Hong Kong office is worth over 13 billion yuan (US$2.05 billion).

Grand Future is not alone in trying to secure overseas resources. In view of rising demand in China for high quality wood, Tongren Foodstuff moved into the new business of wood importing.

Tongren already owns some woodland in North America and looks to further expand its investment to ensure a steady supply.

To cope with the financing needs and foreign exchange risks that come along with its overseas expansion, the firm plans to tap Hong Kong’s financial services to raise capital and manage the FX risk.

“Funds aside, we also need to obtain timely information on foreign countries. Whenever there are transport and dock workers’ strikes in the US, if we get to know the relevant developments promptly, we can make early arrangements to alleviate any impact,” Tongren general manager Lixian Song told HKTDC.

“We also have to pay quite heavy taxes on our investment and purchasing activities in the US. We hope that Hong Kong professional service providers can help optimize our tax arrangements and reduce any unnecessary burden,” Song added.

Surging production costs and trade barriers are two issues haunting many mainland manufacturers. So there are also lots of companies going out for those reasons.

Again, Hong Kong expertise can help Chinese firms looking to relocate some of their production facilities to lower-cost regions.

Baoli Textiles, Embroidery and Drawnwork specializes in bedding, curtains and clothing. It set up a plant in Cambodia in 2013, drawn by the country’s cheaper labor and tax breaks.

Qi Hao, president and general manager of Baoli, said he can find better support from Hong Kong when it comes to understanding local investment environment, labor and environmental protection laws, while such professional services are not quite available in China.

Baoli’s first Cambodian plant was up and running last year. Professional support and financing are some of the key issues that will determine whether the company will transfer its high-end production lines to Cambodia in the future.

Qingdao KKF also went to Cambodia in 2013, not only for the cheaper costs but more importantly to dodge trade barriers through overseas investment.

The steel pipe provider said anti-dumping rules imposed by Europe and the United States are targeted at selected metal and steel products originating in China.

The company is hoping to draw on Hong Kong’s considerable familiarity with overseas markets to help it gain overseas projects as part of its long-term development.

As more Chinese enterprises, from large to small and medium-sized firms, seek to tap overseas markets for investment and sourcing of labor and materials, Hong Kong’s financial, legal and other professional services will be in demand, and our office space, too.

While there is fear that the flagging tourist industry and China’s slowing growth are going to hit Hong Kong’s economy hard, the ongoing influx of mainland firms at least gives us a reason to be more upbeat.

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EJ Insight writer

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