HK Companies Urged to Expand Domestic Sales in China'sWTO Era

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Last updated at: (Beijing Time) Friday, November 23, 2001

HK Companies Urged to Expand Domestic Sales in China'sWTO Era

Hong Kong companies are urged to keep abreast with China's market accession commitments and developments in China's WTO era and develop new strategies in light of the new business conditions, economists said Thursday in Hong Kong.

"The majority of Hong Kong companies with production facilities in the Chinese mainland are still taking a watch and see attitude despite the fact that they all agree on the vast potential in domestic sales in China's WTO era," said Edward Leung, chief economist of the Hong Kong Trade Development Council (TDC).

According to a recent TDC survey on more than 3,000 Hong Kong companies, only 27.5 percent of respondents were involved in domestic sales. Among those who had yet sold to the domestic market, only a mere 17.2 percent had definite plans to do so in the next five years, and around 50 percent had yet made up their mind.

"China's WTO entry is a watershed in Hong Kong's economic development," said Leung. He called on Hong Kong companies to adapt to the new business conditions on the mainland promptly and tap into China's domestic markets.

In TDC's latest research report entitled "China's WTO Accession and Implications for Hong Kong," Hong Kong companies are encouraged to get involved in the mainland's logistics, textiles and clothing, electronics, toys, jewelry, timepiece industries and several other service industries which are expected to grow rapidly in China's WTO era.

According to the report, logistics in China's industrial production takes almost 90 percent of the whole production cycle time and 40 percent of general production costs. The report estimates that two-thirds of logistics costs result from product loss damage and unnecessary inventory.

China is well aware of the need to enhance its production efficiency through developing its logistics sector, said Leung. China's logistics market is worth 100 billion RMB (12 billion U.S. dollars and the market is expected to develop into a 300 billion RMB (36 billion U.S. dollars) market.

Hong Kong companies are urged to adopt a more diversified regional strategy. Although the risk of investing in second-tier cities is higher than in the more developed coastal cities, the potential opportunities and reward are also greater, said Leung. As for the textiles and clothing sector, the report estimates that the WTO entry will raise China's share of exports of apparel to world markets from around 19 percent at present to over 47 percent in 2005.

More Hong Kong companies will move their production facilities to the mainland to enhance their cost competitiveness. " Manufacturers can keep an eye on trade measures which will stay effective after 2005," said Leung.

China has committed to participating in the WTO Information Technology Agreement. As a result, import quotas on certain electronic products will be phased out and tariffs will be reduced and canceled, the TDC report said.

That will facilitate the sales of electronics originated in Hong Kong, and the liberalization of the trading and distribution sectors, and the relocation of more sophisticated process by major multinationals to the mainland will likely benefit Hong Kong companies to market their parts and components, said Leung.

Leung also pointed out that the mainland's removal of import tariffs on toy parts and raw materials will benefit Hong Kong producers in the mainland who need to import material inputs for production.

Though more foreign traders will deal directly with mainland companies after China joins the WTO, Hong Kong's sourcing role will continue to grow since Guangdong will continue to be the largest source of exports in China, accounting for 37 percent of the mainland's total exports in 2000, Leung said.

"China's WTO entry will trigger off the next wave of Hong Kong' s investment and economic participation in the mainland. As a result, they are expected to generate a much greater contribution, in income terms, to Hong Kong's GNP than that can be captured in its GDP, " said Leung.

Analysis: China's WTO Accession Brings HK Opportunities, Challenges