Since China opened its doors to overseas investment at the end of the 1970s, paving the way for its emergence as one of the world’s trading powers, Hong Kong has been its dominant foreign direct investment (FDI) partner and one of its leading trade partners.

Last year Hong Kong accounted for 38 per cent of all FDI in China (US was second with 11 per cent). In the first quarter of 2001, Hong Kong was the country’s third biggest trade partner, accounting for around 10 per cent of China’s imports and exports (after Japan with 18 per cent and the US with 15 per cent).

China’s entry into the World Trade Organisation (WTO), this key position will strengthen - ensuring that Hong Kong remains the jumping-off point for foreign companies looking to do business with China, especially in its richest markets of the country’s south.

However, the nature of Hong Kong’s role is set to change. Chief China economist of the London-based Economist Intelligence Unit Ken Davies said: “Hong Kong benefited from China’s first opening up because it was able to transfer its manufacturing industry there. This time things will be really different because WTO means rule-based behaviour.”

This change, Mr Davies suggests, will lead to investment being concentrated more in high-tech and services, and focused more on the long term. It also points to China developing as a domestic market rather than as a manufacturing base for export-oriented industries.

As this happens, foreign companies entering China will need support services, such as banking, accountancy, consultants and distributors. According to Mr Davies, companies “will be able to go direct to the mainland, but Hong Kong is a ready-made base for them, where all these sectors are already well developed’’.

The president of the American Chamber of Commerce in Hong Kong, Frank Martin, also sees changes ahead. While south China-based manufacturers will continue to be important, he says Hong Kong’s role in deal making and providing distribution and sourcing will increase.

As the barriers come down to doing business in China, they will have little impact on Hong Kong’s advantages as an international business hub. “Plans to relocate support operations, or even ship directly from the mainland, certainly will not be realised - not in the near term. The mainland just doesn’t have the transportation links between southern China and Europe and the US,” says Mr Martin.

Even the possibility of Hong Kong’s role as a financial centre being overtaken by Shanghai has been highly exaggerated, he suggests. With China almost certain to keep its currency non-convertible for at least five years, and possibly for far longer, there is no chance of Hong Kong being overtaken as the main market where Chinese companies go to raise foreign exchange though initial public offerings.

“Hong Kong has arguably the best-regulated banking system in Asia,” says Mr Martin.

Read more about "China's WTO Accession and Implications for Hong Kong"