Hong Kong as the Major Service Platform for “Going-out” Enterprises: 2019 YRD Survey Results.
China, the world’s second largest economy, enjoys vibrant trade and economic ties with international communities. Although the world economy is affected by uncertainty due to the recent trade conflict between China and the US, many mainland Chinese enterprises are still pursuing their “going out” and “bringing in” strategies with the aim of opening new markets and diversifying their market risks. They are also looking to improve their sustainable development capability by bringing in outside partners and optimising their business portfolios.
Against this backdrop, mainland enterprises increasingly need professional services that are in line with international practices to support their growing international business, while helping them adapt to the increasingly complicated investment environment. Shanghai and the coastal provinces in the Yangtze River Delta (YRD) are among the centres for economic cooperation with foreign countries, as well as major sources of outflows of foreign direct investment (FDI) in China. Enterprises in these areas are actively seeking professional services to help them improve their “going out” strategies.
To assess the latest developments, HKTDC Research conducted a new round of questionnaire survey with mainland enterprises in the YRD in the first quarter of 2019, with the support of the Shanghai Municipal Commission of Commerce. Despite the on-going China-US trade dispute, 72% of the mainland enterprises surveyed said they would consider exploring business opportunities in overseas countries in the next one to three years, including the advanced economies as well as those along the Belt and Road Initiative (BRI) routes. Of these, 45% indicated that Hong Kong was their preferred choice when seeking professional services outside the mainland. Among those mainland enterprises with clear overseas destinations in mind, more than half said Hong Kong was their preferred service platform for “going out”.
Overseas destinations that respondents showed the greatest interest in exploring included advanced economies such as Europe, the US and Japan (39%) and BRI regions like Southeast Asia (38%). 71% said they were interested in selling more products to overseas markets, 38% were looking to source goods abroad, while 26% were looking to invest in and set up factories.
Hong Kong service suppliers have been providing a wide range of professional services to mainland enterprises and helping them conduct trade and investment activities in Hong Kong and overseas markets for many years. Their services make Hong Kong the preferred platform for mainland enterprises to manage their “going out” businesses. Further efforts by mainland/YRD enterprises to capture overseas business opportunities are therefore bound to generate more business for Hong Kong.
“Going Out” to Expand Business Overseas
Mainland enterprises are increasingly involved in economic activities overseas. China’s foreign trade volume stood at US$4.6 trillion in 2018, higher than any other country . Total trade with BRI countries amounted to US$1.3 trillion, up 16.3% from the year before, and accounted for 27.4% of China’s total foreign trade last year. On the other hand, China was ranked as the second-largest source of FDI outflows only after Japan last year . Chinese figures showed that outflows of FDI in non-financial sectors by mainland investors totalled US$120.5 billion in 2018 (up 0.3% year-on-year), and encompassed 5,735 companies in 161 different countries and regions . FDI outflows to BRI countries in particular saw sustained growth. Direct investments in non-financial sectors by Chinese enterprises in 56 BRI countries reached US$15.64 billion, up 8.9% year-on-year and comprised 13% of China’s total non-financial FDI outflows last year. Most of this was in countries like Singapore, Laos, Vietnam, Indonesia, Pakistan, Malaysia, Russia, Cambodia, Thailand and the United Arab Emirates.