New partnership reinforces Hong Kong as gateway to China
Julian Nixon reports on ever closer cooperation between the region and New Zealand and how Kiwi businesses are using Hong Kong as a springboard to doing business in mainland China.
A Closer Economic Partnership (CEP) agreement to be signed this month will make it easier for New Zealand companies to do business in Hong Kong and to use the China Special Administrative Region (SAR) as a launch pad into China.
The CEP between New Zealand and Hong Kong is designed to foster cooperation between customs officials, reduce compliance costs for businesses through the removal of technical and administrative red tape and create greater transparency in areas such as business law.
According to the Ministry of Foreign Affairs and Trade, the agreement will encourage bilateral trade flows and generate new employment opportunities in New Zealand through export-led growth. It will also encourage Hong Kong and other Asian investors to invest directly in New Zealand.
Hong Kong Trade Development Council (HKTDC) Director, New Zealand and Australia, Bonnie Shek (pictured), said “the CEP is an important step in building relations between the two economies and reinforces Hong Kong’s traditional role as the gateway to China.
“Under the CEP, New Zealand exporters will enjoy greater certainty and transparency when conducting business in Hong Kong which will give them a head-start over competitors in accessing the mainland market,” Ms Shek continued.
“New business opportunities in Hong Kong and China for New Zealand companies exist in sectors such as biotechnology, medical, software, information and communciation technology (ICT) and environmental technology,” she said.
To date, food and beverage exporters have accounted for the lion’s share of New Zealand exports to Hong Kong which increased 13.4 percent to $793.9 million in 2009.
Services provided by HKTDC to companies seeking to conduct business in Hong Kong include market intelligence and business matching. HKTDC also organises international trade fairs in which exporters can showcase their products and services including Filmart (22-25 March), Hong Kong Electronics Fair (13-16 April), ICT Expo (13-16 April) and Food Expo (12-16 August).
Another Hong Kong Government Department represented in New Zealand, InvestHK, works with companies to help them make informed decisions about putting the right part of their business in Hong Kong for the right reasons.
A Hong Kong Government priority is to maintain economic growth while improving the business environment. To this end, it is spending almost US$13 billion on infrastructure to improve the SAR’s transport connections with the mainland which involves cooperating with neighbouring Guangdong province in areas such as town planning.
Although formally part of China, Hong Kong has a high degree of autonomy under the ‘one country, two systems’ framework established by the Basic Law. It is the world’s 12th largest trading economy and has been voted the world’s freest economy according to US-based Heritage Foundation for the 15th consecutive year.
Ms Shek said Hong Kong’s commitment to open markets, free trade and economic integration makes it an ideal base from which to launch into China – a country with more than 300 million Internet users, 747 million mobile phone users, 6.9 million private enterprises, a ‘middle class’ of 200 million people and an urban population that will reach 350 million by 2025, according to McKinsey Global Institute.
Charles Williams (pictured, first from left), Chief Executive Officer and Director of Seperex Nutritionals Ltd, a private New Zealand company which sells specialty food ingredients derived from dairy and marine sources, said “the establishment of an office in Hong Kong was an important factor in the company achieving success in China.
“By registering a subsidiary company in Hong Kong and establishing an office in the Hong Kong Science Park we were taking advantage of the SAR’s world-class facilities for research and development and positioning ourselves at the top-end of the market,” Mr Williams said.
“Seperex positions its bio-active functional food ingredients at premium prices that are significantly higher than standard commodity products so market positioning is important,” he said.
“Also, we are comfortable in the knowledge that Hong Kong offers a robust and efficient banking system, intellectual property protection, an absence of foreign ownership restrictions and a legal system with teeth.
“Over time we are expanding our operations from Hong Kong into China and to other parts of Asia as we make connections, build working relationships and learn from our experiences,” he said.
More than half of Seperex’s total sales are in China and Hong Kong with the balance in Korea, Japan, Taiwan and other parts of Asia, Australia and New Zealand.
Mr Williams said the products produced by Seperex, which is based in the Centre for Innovation at the University of Otago, potentially have a global market but the company has been successful in building a viable business in Asia which is a good reason for us to continue focusing on this market.
“In any business, orders and reorders are critical as they convert to cash flow which is oxygen, so we are taking one step at a time and keeping in good health,” he said.
Strong demand in Asia for value-added ingredients is underpinned by increasing demand for organic foods from ‘safe’ sources following a series of food-safety scandals including the San Lu issue involving melamine being added to Fonterra milk.
Mr Williams said “Seperex’s high-quality specialty functional food ingredients are stringently tested in New Zealand to comply with New Zealand Food Safety export standards. The company works closely with the University of Otago Departments of Pharmacology, Food Sciences, Biochemistry, Human Nutrition, Microbiology and Immunology and Massey University’s Bone Health and Nutrition Unit.”
Another company welcoming the CEP is New Zealand wine producer, Bascand Estate which began delivering wines to bars and restaurants in Hong Kong before expanding operations via distributors onto the mainland.
Bascand Wines General Manager, Gwyn Thomas, said “we understood the types of wines that would be successful in Hong Kong’s British-style bars and built the business from there.
“Once customers were convinced that we could meet their requirements on volume and price, 365 days a year, the business started to grow although it took about three years before we achieved meaningful volumes,” Mr Thomas said.
Asked what advice he would give Kiwi companies looking to export to Hong Kong as part of a grand plan to realise business opportunities in China, Mr Thomas said “be prepared”.
“Our recipe for success was to understand the product, understand the market and understand the consumer,” Mr Thomas said.
“On your first trip to Hong Kong you need to be prepared with brochures, business cards and ‘tasting cards’ if wines are your business. All of these need to be in Chinese as well as English. A website is also important because it helps to establish credibility. First impressions are important,” he said.
“A small New Zealand company could expect to invest around NZ$15,000 a year over four years on visits to Hong Kong and China before making a profit but once the business is established, the sky is the limit,” he said.
- by Julian Nixon
