Hong Kong: Reflections on the Value of Trust
The other day I chaired the first panel discussion at the annual Amcham Hong Kong China Conference at the Four Seasons Hotel.
The conference theme was “Hong Kong’s Role in China’s Next Round of Reforms”, and our panel was entitled “Managing in China’s New Business Landscape.”
Both are timely topics.
First, because China and the world are anxiously awaiting new policy directions from China’s new leadership relating to financial and capital market reforms. Second, because clear signs are emerging that Hong Kong’s role is changing. And third, China’s business landscape has changed dramatically and will continue to do so.
Thinking back to last year’s conference theme, it was “Hong Kong’s Role in China’s 12th Five Year Plan”. This seemed timely, since #12 is the first Five Year Plan that included Hong Kong and Macau. As many readers will be aware, 2015 is the final year in that plan.
Thinking back to the first Amcham Hong Kong China conference, in 1993, the theme was “Business Opportunities in the Greater China Region.” I was involved, and had a hand in selecting this theme. At the time, the term “Greater China” was brand new to the business lexicon. Only a handful of multinational companies had yet restructured to define this region as a new business unit. Foreign business execs were curious about what the future implications would be. There was, however, some initial sensitivity about this term among Chinese officials. Later, they got over it.
Foreign direct investment in China was just ramping up in 1993, and Chinese exports were in an early stage of their big boom era. That year, Qingdao Beer became the first mainland Chinese company to do an IPO in Hong Kong. Hong Kong was less than 5 years away from the handover. Most of China’s big State-Owned Enterprises were bloated and in very poor health.
Qingdao’s listing was considered very successful, raising HK$ 889 million, but it would later be dwarfed by subsequent Chinese IPOs such as ICBC’s, with US$16 billion raised. Today, nearly 750 mainland companies are listed on the Hong Kong Exchange, representing more than 2/3 of the market capitalization.
So it’s surely no exaggeration to talk about how the China business landscape has undergone dramatic changes in just 20 years. Looking forward, the ongoing pace of migration to urban centers, phenomenal expansion of basic infrastructure,and shift in balance to a consumption-lead economy will be some of the key drivers of change.
One of the benefits of the style of the Amcham Hong Kong one-day conference is that apart from two distinguished keynote speakers, the rest of the program is panel discussions with a lot of audience involvement. This enables frank and meaningful dialogue. Members of the working press were present, and the session was on the record. Delegates, panelists and speakers included senior government officials, corporate leaders, and academics.
Achieving the same outcome would be very challenging in other Chinese cities at the present time.
During the day there was much discussion on Hong Kong’s growing role in the internationalization of the RMB. One distinguished Chinese banker commented that the current situation is complex and confusing, highlighting the need for a more effective communications program.
As for Hong Kong’s changing role, there seems to be a consensus that both international companies and mainland Chinese companies are beginning to use Hong Kong in new ways.
Chinese companies are increasingly looking to Hong Kong not only as a staging point for raising capital, but for talent and expertise to assist with going global strategies.
International companies are looking to use Hong Kong in several new ways.
A number of examples were cited of major international companies basing very senior executives with global responsibilities — either overall corporate responsibilities or divisional ones — in Hong Kong. That’s new and interesting.
After all, Hong Kong is in the center of the action and has very attractive and efficient infrastructure (although we have a clear need to improve on the air pollution front).
Another example cited is that with international companies wrestling with the challenge of effectively servicing a fast-growing number of mainland cities, some have found that Shanghai may not be the ideal base from which to service large parts of South and Southwest China.
This is another example of the big changes since 1993, when foreign consumer marketers were essentially focused on only four Chinese cities: Beijing, Shanghai, Shenzhen and Guangzhou. Twenty years later, the majors are in entrenched in 400 cities, and others are playing a furious game of catch-up.
There is a sense among international business that while the welcome mat for foreign investors on the Chinese mainland is still there, it is a more selective, conditional and partial welcome than it once was, and there are much more powerful competing domestic interests at work.
By contrast, in Hong Kong it’s business as usual, with a relatively high degree of transparency and predictability in most areas of government policy as relates to business, a solid rule of law and anti-corruption regime in place, attractive tax and reasonable immigration policies, and a highly productive work force.
Another thing which is hard to put a value on, yet which is immensely valuable, is trust. The willingness to trust others, individually or organizationally, is closely intertwined with the efficacy of rules, enforcement and institutions which are responsible for ensuring that legally binding commitments are honored. In this respect, Hong Kong still benefits from relatively high level of perceived trust in its relevant systems.
The full-day discussion left me more bullish on Hong Kong than I had been. Sure, challenges and pitfalls are many, but I for one am optimistic. I think Hong Kong can and will rise to the challenge in ways that are beneficial for Hong Kong as well as the rest of China.
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