According to a joint report released today by the Hong Kong Trade Development Council (HKTDC) and the Association of Chartered Certified Accountants (ACCA), Hong Kong is the ideal platform for mainland Chinese businesses in the Guangdong-Hong Kong-Macao Greater Bay Area (GBA) to use the Regional Comprehensive Economic Partnership Agreement (RCEP) to go global.
RCEP regulations, which are likely to take effect as early as next year, are expected to further strengthen and integrate regional supply chains, as well as encourage manufacturing specialization in Asia, according to HKTDC Director of Research Nicholas Kwan. “Not only will this create a fresh incentive to commerce between the signatory countries, but it will also provide a fresh impulse to the world economy, which has been heavily struck by the COVID-19 pandemic,” he added.
According to a poll, Hong Kong is the first point of call for mainland GBA enterprises seeking assistance when they “go out” (meaning “expand internationally”). Southeast Asian countries, including RCEP members, were the most appealing overseas destinations.
According to the poll, nearly all mainland GBA enterprises interested in “moving out” need professional services, such as product development and design (31%), banking, financing, and project valuation (30%), brand design and marketing strategies (30%), and related legal and accounting services (30 percent ). Hong Kong was selected by half of these respondents as a source of professional services outside of the mainland, followed by the United States (23%), Singapore (21%), and Japan (14%).
4 Reasons Why Hong Kong is the Ideal Platform for Mainland GBA Firms Pursuing Global Expansion
Preferred Services Hub
According to the Ministry of Commerce, the mainland became the world’s largest foreign direct investment (FDI) source for the first time in 2020, as outbound FDI increased 12.3% to US$153.7 billion, with Hong Kong accounting for 58% of the total. According to Mr. Kwan, “Most mainland investments were made through the
Hong Kong business platform, which served as a springboard to the rest of Asia and other regions.”
“Given the city’s strengths in financial, legal, accounting, and other professional services, Hong Kong can help mainland companies in the GBA minimise risks during overseas expansion.”
He noted that companies considering transferring production or distribution networks to the RCEP zone needed a full awareness of the local political environment, culture, legal, and regulatory regimes. Otherwise, businesses may find it difficult to analyze the situation, such as whether they are eligible for RCEP tariff discounts, because implementation timetables differ among member nations. As a result, enterprises must seek competent counsel and do due diligence in order to fully exploit RCEP potential.”
Strengthening Intra-regional Trade
Mr Kwan also urged Hong Kong businesses to take advantage of RCEP prospects, noting that most raw materials and intermediate products may be traded freely inside the bloc, strengthening intra-regional supply chain linkages.
“The division of labour between different industries will be more precise and clear-cut, while exchanges between upstream and downstream enterprises in different production bases are expected to become more frequent. As such, Hong Kong can expect to play a larger role in trade between RCEP members, especially in electronic products and other industrial items.” Mr Kwan added.
World-class Professional Services
In the words of Jane Cheng, Head of ACCA Hong Kong,
“When raising funds for investment in RCEP countries, mainland enterprises can use Hong Kong’s professional project evaluation and sustainability assessment services. They can also set up regional offices in the city to enhance overall operational efficiency. In addition, Hong Kong also offers matching services to help mainland companies identify and screen potential business partners in the RCEP region.”
She also added that “Having a thriving global community of accounting professionals, ACCA has long been committed to connecting the world and promoting international and intra-regional trade growth. We hope the report will give local industries a better understanding of RCEP opportunities and support them in achieving sustainable recovery and development both during and after the pandemic,”
Fresh RCEP Opportunities
The Regional Comprehensive Economic Partnership (RCEP) is a free trade agreement involving Australia, Brunei, Cambodia, Indonesia, Japan, Korea, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, Thailand, and Vietnam, which was signed in November 2020.
The world’s largest free-trade bloc, which accounts for about a third of global GDP, has implemented initiatives to expedite trade, eliminate tariffs, reduce non-tariff obstacles, promote e-commerce, and expand market access, all of which are intended to improve members’ economic integration.
Ms Cheng noted that there had already been close intraregional cooperation along supply chains in the previous two decades, and that businesses in the Asia Pacific could now benefit from the RCEP, which will eliminate most import tariffs between member countries, simplify customs clearance, apply the principle of accumulation to product-origin rules, and relax declaration regulations for indirect materials and origins.
On services trade and investment, 65% of the bloc’s services sectors are set to open to overseas investors. Ms Cheng added that “In general, RCEP countries use the ‘negative list’ and ‘national treatment’ models, greatly reducing the risk for overseas investors while allowing them greater access to promising markets such as financial and professional services sectors.”
The survey was carried out in the second half of 2019, where the HKTDC interviewed 277 GBA companies, primarily in the manufacturing, import/export trade, financial/legal/accounting services, logistics, information technology and technology R&D, and wholesale/retail trade sectors, in collaboration with the Department of Commerce of Guangdong Province.
HKTDC and ACCA have compiled a list of services that HK can provide to enterprises looking to grow into RCEP markets.
For mainland Chinese enterprises in the Guangdong-Hong Kong-Macao Greater Bay Area looking to develop globally through the Regional Comprehensive Economic Partnership (RCEP) Agreement, Hong Kong has been identified as a “port of call.”
The Hong Kong Trade Development Council (HKTDC) and the Association of Chartered Certified Accountants (ACCA) published a joint report that points to this.
According to the report, half of mainland companies looking to expand prefer Hong Kong as a source for professional services such as product development and design (31%), banking, financing, and project valuation (30%), brand design and marketing strategies (30%), and related legal and accounting services (30 percent).
In the words of HKTDC Director of Research Nicholas Kwan, “Given the city’s strengths in financial, legal, accounting, and other professional services, Hong Kong can help mainland companies in the GBA minimise risks during overseas expansion.”
Jane Cheng, the head of ACCA Hong Kong, said the city-state offers expert project evaluation and sustainability assessment services that mainland enterprises may use to raise funding for investment in RCEP countries.
While Hong Kong has yet to join the RCEP, Kwan believes the city may “play a key role in the latest round of mainland outbound investment into other RCEP markets.” According to Kwan, HK will account for 58 percent of outbound foreign direct investments in the mainland by 2020.
As the pact increases intra-regional supply chain linkages, the HKTDC director stated, HK may anticipate to play a stronger role in trade amongst RCEP members, notably in electronic products and other industrial commodities.