Written evidence submitted by James Forder,
Fellow and Tutor in Economics, Balliol College, University of
Oxford
CRUCIAL ASPECTS OF UNDERSTANDING BUSINESS OPPORTUNITIES
IN HONG KONG AND THE REST OF CHINA
CONCLUSION
China is a difficult place to do business, but
most of the difficulties can be mitigated by using the skills
and opportunities available in Hong Kong. The business-promoting
arms of the Government should be acutely and consistently aware
of the need to bring this point to the attention of those interested
in Chinese business opportunities.
A crucial consideration is that outside expert
circles the remarkable position of Hong Kong is poorly appreciated.
Hong Kong is part of China but has more economic independence
than typical west European nation states. This combination creates
exceptional opportunities for dealing with exceptional problems.
BACKGROUND CONSIDERATIONS
As is widely understood, British interests in
Hong Kong are extensive. It is less well understood how much official
statistics understate the true position. Recent estimates suggest
that as few as 10 historically British companies have Hong Kong
market capitalizations in excess of £45 billion.
THREE ASPECTS
OF HONG
KONG'S
POSITION
1. The separateness of Hong Kong
Hong Kong retains an extraordinary degree of
economic independence from the rest of China. It has its own currency
(the Hong Kong dollar) which, unlike the Chinese currency, is
free of exchange controls. It has fiscal independence in that
it levies its own taxes and pays none of them to the Chinese government.
Hong Kong also controls its own labour and product market regulation.
Perhaps most surprisingly, Hong Kong's trade policy is separate
from that of the rest of China, and indeed it is a WTO member
in its own right.
These rights and freedoms which are substantially
guaranteed in Hong Kong's constitutional document (the "Basic
Law") are also used by the Hong Kong government with a powerfully
pro-business and free market orientation. One indication of this
is that the Heritage Foundation has ranked Hong Kong the freest
economy in the world every year since 1995.
Hong Kong's separateness goes beyond economic
matters. Most importantly it also benefits from the maintenance
of the Common Law system, the separateness of its Courts from
those of the rest of China and the quality and independence of
its judicial and legal professions.
Freedom of speech, of the press, and of association
are maintained in Hong Kong and English is an official language
and is very widely spoken.
2. The integration of Hong Kong with the
rest of China
At the level of business rather than government,
the Hong Kong economy is very closely integrated with that of
China, and particularly the region of the Pearl River Delta. There
are estimated to be 60,000 Hong Kong owned businesses in that
area, employing about 11 million people (about three times the
workforce of Hong Kong itself). Hong Kong is believed to be the
proximate source of 70% of the inward investment to this very
rapidly developing part of China.
At a policy level too, Hong Kong benefits from
the "Closer Economic Partnership Agreement" which creates
a free trade area between Hong Kong and the rest of China for
many products. Transportation and infrastructure links are strong
and developing rapidly.
3. Business difficulties in China
There is no denying that China is developing
very rapidly—not just economically, but in its legal infrastructure,
financial development, and availability of business support services.
But equally, it should never be doubted that
China remains a very difficult place to do business. The legal
system is developing from a very primitive base; there have until
recently been serious concerns about widespread corruption within
it; and it is in many respects obscure and confusing to outsiders.
At least one British law firm advises its clients of the dangers
of falling foul of laws which are actually unpublished. The protection
of intellectual property rights is notably weaker than that in
Hong Kong.
Similarly the difficulties of coping with the
Chinese negotiating style have become notorious in both academic
discussion and memoirs. These pose an ongoing danger to unwary
businesses.
CONSEQUENCES
As the integration with the Pearl River Delta
shows, Hong Kong offers a huge pool of expertise in doing business
in China. This expertise is a very valuable resource for businesses
seeking to work there.
The respects in which Hong Kong is separate
from China facilitate business there enormously. The understanding
of the rule of law, and widespread use of English, and the free-market
orientation of policy are of particular value.
Equally, the respects in which Hong Kong is
now integrated with the rest of China mean it is no longer "offshore",
but instead benefits from closer and closer infrastructural, business,
economic, and cultural ties with the mainland.
Business-promoting arms of the Government should
ensure that—beside the opportunities—the difficulties
in China are made clear, and most particularly that many of them
can be handled best through establishment or partnership in Hong
Kong. Unfortunately this is not always done as clearly as it could
be.
James Forder
Balliol College
University of Oxford
February 2006
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