More mainland firms to set up bases in HK
Updated: 2014-05-30 05:02
By Eddy Li(HK Edition)
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Unrelenting changes in the international economic situation have sparked an awareness of risks in the real estate market. I believe Hong Kong's commercial properties, particularly buildings, offer considerable potential for investment. One of the main reasons is that internationalization will increase and more large mainland enterprises will set up their regional headquarters in Hong Kong.
These companies often require several floors or even whole commercial buildings - rather than individual offices - to accurately reflect their corporate image. Therefore, commercial buildings in Hong Kong will soon be highly sought after.
According to statistics provided by the Ministry of Commerce last year, non-financial direct investment by the Chinese mainland in foreign countries or territories reached HK$90 billion. This was a 17 percent increase year-on-year. In recent years, mainland enterprises have been expanding outbound investment. By the end of 2012, the accumulated amount invested was HK$306.4 billion, of which almost 60 percent was invested in the SAR or overseas via Hong Kong.
With China's constantly developing economy, it is likely that in the short-term, there will be a significant increase in mainland companies investing or setting up their head offices in Hong Kong. The reasons for this include:
Firstly, after decades of strong economic growth, some significant companies are expressing interest in overseas markets. Hong Kong, with its legal system, simple tax structure and unrestricted business environment, is a perfect conduit for them to tap into overseas markets.
Secondly, Hong Kong respects market freedoms. If these firms choose to move some of their businesses to Hong Kong, many unnecessary restrictions and complications can be avoided. This will reduce external interference and improve a company's ability to make decisions.
Thirdly, Hong Kong is an international financial center and an offshore Renminbi center. The ability to raise capital and obtain foreign exchange in Hong Kong enables companies to operate more flexibly when financing their operations. Moreover, with a good supply of talented people from all over the world, companies can readily employ more skilled people.
Citic Pacific is a pioneer in this area with its recent acquisition of parent company Citic Group. It will move its headquarters from Beijing to Hong Kong - which was essentially a matter of turning a State-owned company into a Hong Kong-listed firm. The deal will be completed in August at the latest, after which the Citic Group will be free to operate according to Hong Kong market rules. This will be beneficial in helping the company adapt to the many changes internationally which are affecting business. Other mainland companies can learn from its experience.
The Third Plenary Session of the 18th Communist Party of China Central Committee has said that this year's State-owned company reforms would mainly focus on defining their functions, developing mixed ownership, internal corporate reform and other issues. So again, the case of Citic is a good example of the mixed ownership model.
After its move to Hong Kong, Citic said the SAR would improve its overall business efficiency. The many advantages which Hong Kong offers will also help with the future internationalization of the company.
If Citic is successful, Hong Kong will doubtless embrace similar companies. They will bring benefit to our stock market, finance industry, real estate and labor markets. It also reflects the important role Hong Kong is playing in the country's reforms.
The author is vice-president of the Chinese Manufacturers' Association of Hong Kong.
(HK Edition 05/30/2014 page9)