INTERVIEW | Wednesday, 05 December 2007

A Gateway to China and Asia

Can you please give a short introduction about Hong Kong and its role as a Special Administrative Region of China after the end of British rule?
Hong Kong returned to be part of the People’s Republic of China on the 1st July 1997. Then we became a Special Administrative Region (SAR), which is a unique formulation that allows Hong Kong to continue as a major international city with its unique style of life, the British legal system and all based on a fundamental document that we call the Basic Law.
It’s like a constitutional document, which provides for freedom of speech, freedom of association, freedom of religion, the development of a democratic system and the perpetuation of our pre-existing systems such as our Customs, our Immigration – as I said our legal, social and cultural systems.
Our relationship with China has developed over the last ten years to a point where we have closer economic integration through various written agreements, the most significant of which is probably the Closer Economic Partnership Arrangement.
That provides opportunities for Hong Kong businesses and international businesses based in Hong Kong to gain access to China’s market on preferential terms.
We’ve also developed as the international financial centre for China. We have been designated as such in the latest five-year programme issued by the People’s Republic of China earlier in the year.
That means that there have been a number of initiatives taken by China to provide Hong Kong with preferential treatment in that sense to deal with things like international public companies, R&D exchange and, more recently, through a process called Qualified Domestic Institutional Investment scheme (QDII) to act as the exit point for capital from China to the international market.
In addition, our relationship with China has allowed us to build our international situation. We continue to be member of the World Trade Organisation (WTO) in our own right, separate from China.
We also continue to be member of the Asia-Pacific Economic Council and other international bodies. Again, our situation is provided for through the Basic Law. And Hong Kong ten years after re-unification is more confident, more prosperous than we were in 1997.

So what is the status of the diplomatic relationship between Malta and Hong Kong?
First and foremost, the relationship is based on trade. We have established regular and in fact growing trade relations over the past few years. There are some similarities in the economy – financial services are one of the fundamental elements of the Hong Kong economy.
Tourism is another important element of our economy which we share in common. The development of higher technologies such as IT and biotechnology is another important common element. Therefore I think that the relationship is very good. As a former colony, we share other similarities – a very similar legal system and a very similar approach to human rights and freedom of the press, among other things. I think that the relationship is very substantial.

Can you quantify the trade relationship between Malta and Hong Kong?
Total trade between Hong Kong and Malta grew at an annual average rate of 10.5 per cent between 2002 and 2006, reaching US$ 1,165 million last year. In 2006, Malta was a net exporter to Hong Kong to the tune of US$ 101 million.
In 2006, Malta ranked 64th among our trading partners worldwide and 20th among the EU Member States. In the same year, Hong Kong was the fifth ranking trading partner of Malta excluding the EU in 2006.
In 2006, US$77.8 million worth of trade between Malta and the Chinese Mainland or 38.7 per cent of their total trade for that year was routed through Hong Kong.
In 2006 Malta was Hong Kong’s 54th largest market for domestic exports, totalling US$ 6 million. Metalworking machinery (other than machine-tools) and parts (81.9 per cent of Hong Kong’s total domestic exports to Malta) and clothing (12.2 per cent) were the top exported items.
As Hong Kong’s 106 ranking market for re-exports (totalling US$18 million in 2006), the major re-exports to Malta included clothing (29.3 per cent of Hong Kong’s total re-exports to Malta); toys and games (13.1 per cent); telecommunications equipment (8.3 per cent); jewellery (5.8 per cent) and glass (5.4 per cent).
With regards to imports, last year Malta was Hong Kong’s 50th largest source of imports, totalling US$ 1,165 million in 2006. Major items imported included cathode valves and tubes/transistors/integrated circuits/semi-conductor devices (82.5 of Hong Kong’s total imports from Malta); and parts and accessories of office machines and computers (14.5 per cent).
Due to a surge in the demand for cathode valves and tubes/transistors/integrated circuits/semi-conductor devices, imports from Malta almost doubled in 2006 and continued to rise even more significantly in the first six months of 2007.

What is the role of the Hong Kong Economic and Trade Office in Brussels in promoting trade between Malta and Hong Kong?
As you know, our office is the official representation of the Hong Kong Government to the European Union (EU) and its Member States. As a result, we are also responsible for the bilateral political, economic and cultural relations between Hong Kong and Malta.
We visited Malta earlier this year in January and this was our second visit to Malta this year. As regards the seminar we organised, this was co-organised with the Hong Kong Trade Development Council and the Malta Chamber of Commerce and Enterprise.
There were about 40 participants who learned more about Hong Kong, its gateway role to China and how Maltese companies could use Hong Kong for entering the Chinese market.

In which areas would you like the trading relationship between Malta and Hong Kong to grow?
If I was being honest I’d say I would like it to grow all over, but I think that at a practical level, there seem to be opportunities in terms of financial services, perhaps technology areas, particularly because Hong Kong is pretty much best the gateway into China.
I think small and medium-sized enterprises wishing to develop markets in China often will find it’s easier for them to go through Hong Kong than to try to access China direct. So that’s one of the areas where the opportunities for trade might grow.
Likewise, as I understand it, Malta is positioning itself really as a key entry point into Europe and into North Africa. And some of our businesses perhaps might be interested in the opportunities that that provides. So I think there are areas where there could be developments.

What is the situation of foreign direct investment (FDI) from Hong Kong to Malta?
To be honest, I don’t think we have the figures for that. Frankly those are commercial decisions; that’s not something a government should get involved with. Our role is to facilitate the opportunities for people to decide to invest in Hong Kong or from Hong Kong…

So you do not have any figures for that…
No, as I said, we don’t track outbound foreign direct investment; obviously we track inbound direct investment because that’s where…

…Let me re-phrase my question. Why should Hong Kong be an investment opportunity for Maltese entrepreneurs?
Well, I think that the most important opportunity is our tax situation. Our overall tax rate for businesses is 16.5 per cent, and it will be further reduced to 15.5 per cent in the next year and a half to two years. But, more importantly, there is so much attention now being placed on investments in China.
It’s a difficult decision to take to invest in somewhere where the systems are so different to those that exist, for example, in Europe, particularly in Malta. What we offer for businesses to invest in Hong Kong in a familiar environment.
Many of the issues that become important to a company – the ability to repatriate profits, the ability to sign contracts and see those contracts are enforced, the ability to have access to the information that you need about your partners, about your investments – all of that can be provided about China through Hong Kong.
One small example – we have an agreement with China that allows for what we call the Reciprocal Enforcement of Judgements, so if you have a contract with a Chinese firm signed in Hong Kong and you have a dispute, Hong Kong courts would be able to deal with that dispute and the results of the dispute could then be enforced in China.
Now, surely for a small company wishing to protect themselves, it’s far better to work with a system that’s familiar than to take a big step into the unknown with a legal system that is very different.
In fact, it is still under development, and with the uncertainties that can arise from differences of language, differences of concept which, frankly, we do not have in Hong Kong. We speak English, he have the British legal system, which is the same as that here. That’s one of the most significant benefits for an investment.

Do you offer any incentives to attract companies to invest in Hong Kong?
We don’t actively offer incentives. We believe that an investment decision should be based on the facts of the case. Is it in your best interests to invest in Hong Kong? Can you secure the resources that you need? What we do offer is stability, a low-tax system and freely-convertible currency.
You can invest in China but the Yuan is not fully convertible – you always have the risk that your repatriation of profit might be a problem. You don’t have that risk in Hong Kong.
Thirdly, you have a very cosmopolitan Western-looking society, which makes it much easier for your staff to come from Malta and to work and live happily there.
Plus we have the infrastructure – we have one of the best airports in the world, we have the second biggest port in the world, we have magnificent connections in terms of telephone, Internet and broadband connections. We also have a free press.
One of the key decision-making requirements for any business is access to information. Can I get the information I need about the company or about the product or about their situation very easily? In some places you can, in some places you can’t.
It’s not just about Hong Kong. Hong Kong is in the centre of Asia. Within five hours’ flying time you have access to roughly half of the world’s population. You can’t get a better location than that!
And finally, something to keep in mind is the scale of what you’re buying into in Hong Kong. Hong Kong is the dominant economic force in Southern China. It’s about something like eighty thousand enterprises in Southern China actually controlled through Hong Kong.
We employ twelve million plus people in Southern China. The total population of Southern China is actually greater than the total population of the European Union. These are the things that we offer without the need to provide incentives like other countries because let’s be honest, you have a tax-free situation for a number of years because your tax situation in some places is so bad.
In Hong Kong you know exactly what you’re going to be faced with: a low tax regime, a very simple tax system. That’s what really matters for any business.

Has there been any interest by Maltese entrepreneurs to invest in Hong Kong?
Sure. We’ve got forty odd people signed up for a seminar we ran last Thursday. That seems to me to suggest there is interest in Hong Kong from Malta. Most of these companies are importing-exporting companies that trade between the two countries.
One of the interesting things is the development of the financial services system internationally. Banks are increasingly looking to be based in the key financial sectors of the world. Hong Kong is one of those. We have something like 80 of the top 100 international banks now based in Hong Kong. That speaks a lot for itself.

The ‘one country-two systems’ policy, under which Hong Kong got its special status as a SAR of China, is only guaranteed for the first 50 years following Hong Kong’s re-integration with Mainland China in 1997….
The situation is that under the terms of the joint declaration that was signed in the 1980s, constitutionally the return of Hong Kong to China had to be established by way of formal documentation. What China did was to create a law, we call it the Basic Law, that provides for the framework on which Hong Kong will operate as one country, two systems.
In the Basic Law it specifies that certain things will continue for a minimum of fifty years. It’s not just fifty years will pass and suddenly everything stops and changes. The development of Hong Kong as it is today will continue for at least fifty years with no change.
Beyond fifty years there’s no reason to suggest that it will be any different. Why would you change a successful system just because of arbitrary decisions? That’s never been the intention. So when people say fifty years, that’s merely a statement in terms of the minimum period – it’s not the absolute period.

How will this affect Hong Kong’s long-term stability?
The long-term stability of Hong Kong is guaranteed by the Basic Law and by the fact that we’re developing our own systems. Often they are very separate from China’s systems.
You know, appropriate integration is happening in economic terms. Of course that’s happening, but where our system still has advantages, we persist with that system.
And the most important for Malta in our view is the Common Law, which is so fundamental for the success of our system, there’s absolutely no question that that will not be changed. Be it 2050 and beyond that – it’s too important.

Are you thinking in terms of trade for China itself?
Well, China might develop, but you’ve got to bear in mind two things. One, the legal system in China is very different from the legal system in the United Kingdom and Hong Kong.
Secondly, that legal system is only now starting to be developed as a codified system. And that process is something that actually Hong Kong lawyers, the Hong Kong justice department, the Hong Kong judiciary are helping them to deal with because we have experience in some of those areas like Intellectual Property Rights, contract law – these are areas where the legal system is developing and we can help.
But we’re not suggesting that China use our legal system because it wouldn’t work. They have their own system, we have our own system. But the important thing from a business point of view is that we have reached agreements with China so that Hong Kong law can apply to contracts between international companies and Chinese companies…

…Within the mainland?
Yes. If you sign your contract in Hong Kong, Hong Kong law will apply, even if you’re sourcing the actual production of whatever you are trying to buy or make or do is in China. So if you have a dispute between that company and your company, Hong Kong law will apply. It’s a very important opportunity for businesses coming from Europe because it’s much more familiar to them.

Now that Malta has joined the EU, does that make it more attractive to Hong Kong investors?
Well, I think Hong Kong investors take a decision on where to invest based on three things: can they make a profit, can they repatriate their money, and is it going to be safe. And I assume that Maltese investors do the same if they’re looking for an investment.
Joining the EU, and in due course from next year having the euro as the currency are important considerations for any investor of course. But also, beyond any of that, the key decision that any investor has to make is: ‘Is there something here that’s interesting to me in my line of work?’
We have some of the biggest port operators in the world in Hong Kong, like HTL and people like this. Maybe they might have an interest in what is happening here in terms of port development.
If you look at tourism, we have some of the best hotels in the world, perhaps there is an interest in looking at whether one would like to do some joint venture on that basis. We’re investing in tourism; I understand you’re investing in tourism too.
Therefore we’re looking at different sectors, different categories where there might be interest. Last time I was here there had just been the signing of an agreement on the development of an IT city. Hong Kong, again, is heavily involved in that information technology development and there might be opportunities there.
So you have to look at it segment by segment. You can’t just say: ‘Come, we’re open for business!’ You’ve got to be targeted, and that’s what we do. We don’t say: ‘Look, just come to Hong Kong!’
We talk to individual companies. Hong Kong’s investment promotion department looks at what opportunities we can offer people. They provide a one-stop shop in terms of company matching. So if a company from Europe wants to look at sourcing in Hong Kong for a particular type of product, we help them out.

Finally, we can say that there are a lot of similarities between Malta and Hong Kong...
In terms of the fundamentals, we’re a very small place, heavily populated, not much land – there’s the similarity before you start. In terms of the sectors of the economy that we think are going to be important for the future again there seem to be similarities. The fact that we have to a certain extent a shared history as a colony of the UK, a shared legal system, and a common language is another mutual factor between Malta and Hong Kong. Maybe we may be able to use those similarities to our mutual benefit.

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