Speech by SCED at Prime Source Forum Hong Kong 2018

Hong Kong (HKSAR) -      Following is the speech by the Secretary for Commerce and Economic Development, Mr Edward Yau, at Prime Source Forum Hong Kong 2018 today (March 8):

Martin (Managing Director of Yeh Shen Limited, Mr Martin Keil), Willy (Chairman of the Hong Kong Productivity Council, Mr Willy Lin), distinguished guests, ladies and gentlemen,

     Good morning. It gives me great pleasure to join you this morning at the Prime Source Forum 2018. May I extend my warmest welcome to you all, particularly to those who have travelled far.

I hope you find Hong Kong a friendly place for tourists and business travellers. So enjoy yourself!

     I am asked to address this audience on the Hong Kong advantage. As usual, I was given a very well crafted speech, covering all the salient points that my team wishes me to say, and after I have delivered my speech, it will be turned into a press release, and hopefully a few lines together with my photo will appear in tomorrow's newspaper.

The whole supply chain of Government news is in the making.

     But one thing seems to be missing, that is you, the audience today. What do One Country, Two Systems, Belt and Road, level playing fields, and Heritage Foundation Freedom Index have to do with your presence here? If my speech here this morning does not connect you with Hong Kong, I fail in my duty.

     So, I have slightly recast my speech to start off by thinking about why you come to Hong Kong and pick Hong Kong as your partner in global sourcing, why Hong Kong matters, and how Hong Kong matters to you and your businesses.

     For that purpose, I casually asked an old friend in the trading business what he is looking for in doing sourcing. He said that the prime consideration these days is of course price, and he kept saying that these days the buyers always press for lower prices.

But when probing him further, he said that lower price is good but not good enough. He said you don’t just look at price, but also the level of abundance of choice, easiness in getting to find suppliers, and then he moved on to say reliability of supply, and better still, get to know who is the person or company that you are trading with and their reputation - you need to know your partner and get a trusted contact as you don't want end up having a rejection of goods or a bad debt.

     To put what my friend said in a more proper context, in modern day sourcing, which has become a highly professional, high value service facilitating global and cross boundary trades, people tend to pick the location that can give them the best value and the most convenient, efficient and reliable service with the widest possible choice. They also need to look at risks associated with their businesses and the way to minimise them.

So, what could Hong Kong offer in this respect?

     First and foremost, with an economy living on trade and with trade and logistics contributing more than 22 per cent of our GDP, and trade volume being over 300 per cent of our GDP, traders putting Hong Kong as the sourcing hub is key to Hong Kong's success - if we are to sustain our income from trade.

     While all traders will chase after a cheaper price, what really drives businesses these days is not price but value. Hong Kong's overall competitiveness - we were ranked first by the International Institute for Management Development in 2016 and 2017 - is of course the best testimony; that you get the more advantageous or competitive environment in trading with or sourcing from Hong Kong. But what Hong Kong offers is the added value of a secured deal which would include the following:
  • low foreign exchange risk due to the Hong Kong-United States (US) dollar peg and the availability of RMB transaction, which is the biggest pool outside Mainland China, accounting for over 60 per cent;
  • mature and proven export credit insurance offered by the Hong Kong Export Credit Insurance Corporation;
  • zero tariff for import, export or re-export through Hong Kong, or reduced tariff and better market access through Hong Kong to those economies that have entered free trade agreements and investment protection agreements with Hong Kong.

     Adding to the value of your prime sourcing through Hong Kong is of course the strong presence of international brand names, merchandisers, buyers, suppliers, designers and related professionals, both physically working in or digitally connected with Hong Kong.

Hong Kong is truly the hub that offers choice, informed choice, services and multi-discipline services that one would require in making a deal, big or small. The high number of international firms finding Hong Kong home for their regional headquarters or offices in the region - over 8,200 - reflects not just their strong presence but also their versatility and trust in our city.

     The presence of international businesses in Hong Kong is more of a result of pull factors. First and foremost, we don't put one company against the other, i.e.

we don't pick winners at will or elbow out losers. The Government is here to facilitate and promote businesses. As the Chief Executive has emphasised, the Government should take up the role of a facilitator and promoter in addition to being a regulator.

We have maintained a low and simple tax system to attract firms from all over the world, and later this year we will make this even more attractive to all companies by halving the profit tax rate for the first $2 million profit from the existing 16.5 per cent down to 8.25 per cent, the lowest across-the-board I believe, globally. We will also offer a super tax deduction up to 300 per cent for R&D which is not unrelated to the sourcing trade, as e-commerce and the application of AI in logistics management are just desperately needed improvement to the industry. You can enjoy all these if your operation is based in Hong Kong.

You can also tap on the resources of fast growing technology start-up clusters in our Science Park and Cyperport, as well as just across the boundary in Shenzhen. In the recently released Budget, we are proposing to cap all trade declaration charges at HK$200, which is equivalent to about US$25. We estimate that about half of the high value products that are transported through our airport could benefit from this.

     You may have heard more often these days of the development of the Bay Area next to Hong Kong.

This Bay Area of Hong Kong and Macao plus nine cities is much closer and more relevant to you in the sourcing trade, because this is exactly the trade-manufacturing-logistics hub where global sourcing has been taking place over the years. This 68 million population cluster of fast-growing cities with an economic strength of US$1.4 trillion is the same cluster of global manufacturing base for consumer products it was in the late last century, but now stands a much greater chance of becoming the next generation base of tech-cum-smart city brain power for China as well as the world. Here, we have 5 per cent of the nation’s population but contribute more than 10 per cent of its total GDP, and it is expected to grow much quicker than the rest of the country.

The beauty of having Hong Kong and Macao being the other "system" under "one country", is that it complements the uniqueness of this Bay Area in terms of its strength in attracting the best talent, managing the highest net worth and accommodating the most diverse professional services, so that together we are standing ready to support global trade and commerce in the wider world.

     The use of multiple languages, the rule of law, the convertible currency and free flow of capital, talents and goods, the protection of intellectual property rights, the availability of international arbitration and dispute settlement, and most important of all, the level playing field, and in particular, the "no fear or favour" by anyone, irrespective of their nationality and background, are a proven track record for those who have done or are going to do business with us in Hong Kong.

     But the future is even more promising, especially for the sourcing trade.

     Hong Kong will continue to be a free port and we will also be the free port for businesses that wish to tap on opportunities given rise from the Belt and Road Initiative. For we are the best gateway into and out of Mainland China for infrastructural investment ventures, the springboard for the wider market intertwined by the Belt and Road collaboration among countries, the surfing platform for unimpeded trade, the house of funding and financing in mega deals, and the home to further cross cultural learning and mutual assistance and exchanges. Through Hong Kong, you connect and collaborate with countries and peoples subscribing to the idea of the Belt and Road; our professional services stand ready to support your venture along the Belt and Road.

     The repeated success in hosting the Prime Source Forum here in Hong Kong for 13 years consecutively, like our award as the world's freest economy for 24 years by the Heritage Foundation in a row, speaks for itself.

Hong Kong never fails to serve you and global trade, for it is our firm and wholehearted belief that free trade is not a zero sum game, and free and unimpeded trade facilitate mutual interest that helps drive economic development. In my own dictionary, free trade is fair. But fair trade could be costly and certainly not free.

The benefits of open and free trade have been highly evident in the neighbourhood we serve, including the Mainland of China, East Asian countries, and in the recent decade, ASEAN as a bloc.

     May I take this opportunity to wish you all great success in your business. Thank you.

Published on: 2018-03-08

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