HK's competitive edge gets sharper (hktdc.com)


	Hong Kong will remain a clear choice for MNCs setting up regional headquarters, says David O’Rear, Hong Kong General Chamber of Commerce Chief Economist

Hong Kong is staying well ahead of Shanghai in terms of business competitiveness, a new survey has found.

In a poll of 248 chief executive officers (CEOs) from domestic and multinational corporations in the two cities, Hong Kong achieved high overall marks of 4.1 out of 5. Shanghai was well behind with 3.2 out of 5 in the survey which asked the executives to give scores in 32 categories.

"Hong Kong's competitiveness score is still ahead of that of Shanghai in 2005 by almost 1 point, a consistent behaviour observed during the past four years," stated the Better Hong Kong Foundation, which commissioned the study from academics at Hong Kong Chinese University. The results were released in May.

The poll has been carried out annually since 2001, with Hong Kong actually widening the gap on Shanghai in the latest results.

Excelling in all categories

Hong Kong came ahead of Shanghai in all categories except one, macroeconomic structure, which was tied. Hong Kong did particularly well in the investment environment category, coming 1.2 points ahead of Shanghai.

Other categories in which Hong Kong was also judged to excel were in commercialising achievements made in research, and development and adaptation to economic fluctuations.

Shanghai is enjoying rapid growth as China transforms into a market economy from its central command economic model, and should flourish under the central government's 11th five-year plan announced this year.

"The recent 11-5 plan will definitely push the city forward to achieve more rapid growth in service industries and urban modernisation infrastructure," stated the Better Hong Kong Foundation, a non-profit agency which promotes business links between Hong Kong, China and the rest of the world.

While Hong Kong and Shanghai are often portrayed as vying for the title of financial capital of China, the two cities had different functions which made both essential to China's development, the foundation asserts. "Hong Kong's proper positioning and distinctive path of development as the core city of the Pearl River Delta regional economy is the critical strategic direction for her economic development in the decades to come," it says.

Attractive to foreign firms

Hong Kong's good marks in the poll were not surprising as it was further up the ladder in terms of adding economic value, said David O'Rear, Chief Economist of the Hong Kong General Chamber of Commerce.

"The main thing is they do things we don't do any more," he said, pointing to the manufacturing sector. On the other hand, "there are no foreign companies listed in Shanghai and Shenzhen - that is one of the things we do".

Other examples of Hong Kong's advantages were in providing internationally recognised dispute arbitration and offering derivative financial products, both of which required the firm rule of law to thrive, Mr O'Rear said.

"We are not really competing with Shanghai, we are competing with New York and London," he added.

Hong Kong was likely to remain the obvious choice for multinational companies setting up regional headquarters due to its top-quality telecommunications and comprehensive air links around the region, Mr O'Rear added.

Partner for China

The city's success was based on its attraction for sophisticated, high valued-added companies such as accountants, consultants and lawyers to set up shop and provide essential services to industrial players in China.

"The really big variable is China. If China can stay on the course of modernisation, then one of the biggest winners can be Hong Kong," said Bob Broadfoot, Managing Director of the Hong Kong-based Political and Economic Risk Consultancy.

For Hong Kong to keep its edge it needs to make sure business costs, particularly office rents, did not get too high, he added.

Mr Broadfoot's consultancy is a good example of how the city plays its regional headquarters role, with many of its clients, including those in Indonesia and Cambodia, increasingly seeking advice on the impact from the rising power of China.

Another cornerstone of Hong Kong's advantage was providing China with an international fund-raising centre, said David Devine, Managing Director of fund management company Lynas Capital.

HK's role assured

Hong Kong and its freely convertible currency would be needed for a long time to come, giving the city a lasting edge in the financial services sector, he said. "In a financial sense, Shanghai just can't compete until it has an open capital account and their currency is convertible."

That might not happen for at least five to 10 years, said Mr Devine, judging by the slow pace of appreciation of the yuan since it was allowed to trade in a wider band last July. The currency has moved up less than 2 per cent against the US dollar since then. Hong Kong's convertible currency makes the city the first choice for stock market listings by Chinese companies, with a share sale in Shanghai only a secondary issue, he added.

The Chinese government was reluctant to free up the country's capital account and currency as this would mean surrendering many of the levers of control over the economy, Mr Devine explained. That left Hong Kong with an essential and important role to play in China's development.