Made by Hong Kong

Bernard Chan September 04, 2020 10:24

The US recently declared that goods imported from Hong Kong after September 25th, 2020 must be labelled “Made in China”, rather than “Made in Hong Kong.” This is a politically motivated act by the US that will have minor political impact--but it will result in major inconvenience to the many small and medium sized HK businesses for which the US is a key market. (The US is the second largest destination for Hong Kong products, with exports worth US$471 million in 2018).

The HKSAR government understandably wants to defend the interests of our companies, and the 300 Hong Kong brands--many globally recognized--that they represent. It’s considering a challenge to the US at the WTO, where Hong Kong has status as a separate customs territory. That’s a good idea. The “Made in Hong Kong” brand has built a hard-won reputation for quality and innovation over decades, and we should protect it.

However, if we are being entirely honest, we have to recognize that “Made in Hong Kong” is a brand label that doesn’t necessarily represent the complex origins of our manufactured exports. (Nowadays many products--computers, smartphones--are in fact made from components sourced from and assembled in multiple locations. Apple’s iPhones are famously labelled “Designed in Cupertino, California, Assembled in China.”)

“Made BY Hong Kong” is probably a more accurate label for our home-grown exports. When China opened its economy in the late 1970s, most of our local factories moved north to the Pearl River Delta, where labor and land were cheaper. Hong Kong was the “front shop” and the PRD was the “back factory”. In a few decades this model transformed not only Hong Kong’s economy, but China’s too.

The subsequent rise of China as “the world’s factory” is now one of the best known economic stories of our generation. But Hong Kong’s significant role in the mainland’s manufacturing development--and how that collaboration in turn enriched and restructured Hong Kong’s economy-- has received far less attention. Yet it is well deserving of a closer look, especially as we enter the early stages of Greater Bay Area integration.

A recent consultancy study by Lingnan University for the Chinese Manufacturer’s Association of Hong Kong addresses that topic, and makes for fascinating reading. Using company and owner surveys and decades of economic statistics, the study describes and analyses the evolution of front shop/back factory Hong Kong manufacturing over the last 40 years.

Today we think of Hong Kong’s economy as primarily service and finance-led, and relegate the manufacturing sector to an often nostalgic past. (Indeed, the Hong Kong History Museum recently mounted an exhibit, “Made in Hong Kong,” featuring beloved old local products and brands from transistor radios to fireworks and thermos bottles). But the Lingnan report makes it clear that manufacturing never stopped being an important driver of Hong Kong’s economy even after it moved cross-border. Manufacturing simply went “underground”, since Hong Kong-based companies with mainland factories got reclassified as import/export firms--which are counted as part of the service, rather than the industrial sector.

This “invisible” manufacturing sector continued to generate high levels of economic activity on both sides of the border. Hong Kong was the largest source of direct investment in the Mainland. And in 2018, Hong Kong manufacturing enterprises in China employed 2.7 million employees, and accounted for 468 billion dollars of investment.

The economic spillover from external development supercharged the development of Hong Kong’s service and professional industries. As the market for Made By Hong Kong products grew, so did a manufacturer’s need for additional accountants, legal professionals, logistics support, design professionals and insurance companies. The scope and scale of this expansion has been underestimated, along with the profound way it has shaped Hong Kong’s economy and society.

The remarkable thing about Hong Kong’s cross-border manufacturing is how much of this development and growth happened not as a result of government policy and planning, but organically, propelled by individual entrepreneurs and visionaries on both sides of the border who spotted opportunity and leveraged their respective strengths.

The Hong Kong side had experience and contacts with international markets, plus a solid reputation for quality and on-time performance--the famous “can-do” Hong Kong spirit. The mainland side was new to the free market, but quick to learn and eager to work hard and offer value for investment. It proved an unstoppable combination.

Nevertheless, many of the 400 Hong Kong manufacturers surveyed in the Lingnan study said they would be happier with a more robust government industrial policy to support manufacturing development, rather than the organic development approach that has prevailed up to now.

Their wish is about to come true. The Greater Bay Area plan is on track to create a closer, and more complex economic integration between Hong Kong, Macau and nine municipalities in Guangdong. Unlike the first wave of Hong Kong/PRD manufacturing development, this plan incorporates full government support in policy and planning.

The Greater Bay Area integration has the potential to transform the region profoundly: from logistics to standards of regulation and professional licensing. China’s domestic market has grown and will potentially eclipse the international marketplace that used to be our focus. In what ways can our “Made By Hong Kong” industries evolve and adapt to these changing economic realities? We should be thinking about this, and about how to leverage Hong Kong’s special strengths and talents in the next decades.

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Bernard Chan

Executive Council member and former legislator; Hong Kong delegate to the National People’s Congress