Hong Kong's vital export role will continue as a conduit between Taiwan and the Chinese mainland

Hong Kong's longtime role as the middleman for Taiwan and the Chinese mainland is set to expand with the impending opening of trade links across the Taiwan Strait. The city has long played a vital role as the re-exporting centre for Taiwan and mainland goods, with cross-strait re-exports rising steadily in the last decade to US$24.1 billion in 2007. While there have been concerns that Hong Kong would lose its status once direct trade, transportation and communication links are introduced across the strait, officials and businesses alike are upbeat that the changes will, instead, bring new opportunities for Hong Kong industries.

The Hong Kong SAR government believes that in the longer term, trade in the Greater China regional will be liberalised, leading to greater opportunities for Hong Kong businesses. "The early implementation of three direct links will strengthen Hong Kong's position as an international financial centre in Asia," said Hong Kong Secretary for Constitutional and Mainland Affairs Stephen Lam. "When more Taiwanese companies can invest in the mainland and more mainland capital also flows to Taiwan, in the future, the best way out for these businesses will be to list on the Hong Kong stock market."

According to a report published by the Hong Kong Trade Development Council (HKTDC), most of the 5,000 Taiwanese companies based in the city use Hong Kong for practical needs and advantages. Taiwan-based TPV Technology is a case in point. The Hong Kong-listed firm is the world's largest contract maker of computer monitors. While its management and research and development teams are based in Taiwan, its corporate finance section is in Hong Kong to oversee the financial arrangements of its worldwide operation.

Financial hub

"Hong Kong is a better place for financial banking compared to Taiwan and the PRC," said Vijo Lee, TPV Manager, Investor Relations. "Even though the mainland has opened quickly, Hong Kong still has the edge when it comes to major financial activities, the free flow of money and its regulations." Ms Lee said the company is not planning any changes once direct links are launched, and will keep its corporate finance activities in Hong Kong.

The HKTDC report cited many Taiwanese companies in Hong Kong and in the mainland agreeing that Hong Kong has an obvious leading edge as a service platform, particularly in areas such as the free flow of capital, a sound and transparent legal system, world-class financial services and a full range of value-added professional and trade support services; consistent with the views of other multinational firms that have set up their regional base or offices in Hong Kong.

The new Taiwan administration has proposed or introduced a raft of measures in preparation for the opening up of direct links across the strait. One of the most recent initiatives lifts the 40 per cent cap on the amount Taiwan's largest companies can invest in the mainland. Such moves have sparked predictions that Hong Kong will lose out as the island further opens up to the mainland. But a study conducted by Hang Seng Bank concluded that potential losses to Hong Kong, in terms of cross-strait trade and investment, will be limited. While Hong Kong's role as the prime base to facilitate cross-strait flow of goods may be affected, the report said Hong Kong is reinventing its role as a financial entrepot by managing offshore trade and facilitating financial and other business transactions. It stated: "Hong Kong is the most important financial entrepot in the region, in particular, the most liquid financial platform for global investors to trade shares of companies with substantial operations in the mainland."