Market Overview

* Hong Kong prospects are bright, despite the global economic downturn.  The economic crisis has caused a sharp reduction in growth rates in the region, especially Southern China. However, it is expected that the relatively better economic performance of the Chinese economy, together with government-driven compensatory measures aimed at supporting the Mainland and Hong Kong markets, will buffer the sharpest impact of the global downturn. Hong Kong has proven itself in past economic crises to be exceptionally resilient and will likely bounce back faster than most markets in the region. Ongoing local government economic stimulus efforts focus on speeding up local infrastructure projects, providing low-cost loans to SMEs, gradually expanding the scope of Chinese currency (RMB) business in Hong Kong and increasing the number of mainland Chinese visitors.

* Hong Kong is an ideal market platform for doing business in Asia, especially Mainland China.  Hong Kong is a free port with virtually no duties or tariffs.  Its strong rule of law and respect for property rights make it an ideal strategic platform for U.S. companies, especially small- and medium-sized firms, seeking to do business in Asia.  Hong Kong businesses typically know, and have close links to, markets in mainland China and the rest of Asia. Four thousand Asian and Western multinational firms with interests in mainland China have headquarters in Hong Kong. There are over 300 U.S. firms with regional headquarters, and over 600 U.S. firms with regional offices in Hong Kong.    

* Key charateristics: Open to international tourism, trade and investment.

• Population: 7 million (year-end 2008).
• Visitors: 29.5 million (2008).
• GDP Per Capita: US$29,918 (2007).
• GDP Growth: 1.7% (3Q/2008).
• Trade to GDP Ratio: 344% (2007).
• U.S. Exports: US$20.3 billion, 5.5% of Hong Kong's imports (Jan - Nov 2008).
• Major Trading Partners: Mainland China, U.S., EU, Japan, and Taiwan.
• Other: World-class infrastructure; free flow of information; no restrictions on inward or outward investment; no foriegn exchange controls; no nationality restrictions on corporate or sectoral ownership; simple low-tax regime, and world financial center.

* Special Administrative Region of China: Hong Kong has its own common law legal system (as distinct from the PRC), currency and customs jurisdiction.  Hong Kong's financial, marketing and technical expertise, and sophisticated infrastructure, combined with the Mainland’s manufacturing base, create wide-ranging business opportunities.  A majority of Hong Kong manufacturers have moved production to South China’s Pearl River Delta (PRD), with Hong Kong functioning as the region’s services and trade hub.  Mainland China is Hong Kong’s largest trading partner.  

* Closer Economic Partnership Arrangement (CEPA) with Mainland China: This free trade agreement offers Hong Kong's products and firms preferential access to the Mainland's market.  CEPA goes beyond mainland China's World Trade Organization (WTO) commitments, eliminating tariffs and allowing earlier or preferential access to some services sectors.  Overseas companies can partner with, invest in, acquire, or buy into a CEPA-qualified firm in Hong Kong. 

Market Challenges

* Increasing integration with the Mainland: Even as Hong Kong’s mainland China market access and opportunities have grown, higher costs have led to a hollowing out of its manufacturing sector.  Mainland rivals present increasing competition, even in sectors where Hong Kong has long been dominant, like container port handling, logistics and related trade services.

* Firms are bypassing Hong Kong: Companies that go directly to the mainland China market without sufficient due diligence, however, often face higher costs and longer delays than if they had first engaged a Hong Kong-based intermediary.

* Pearl River Delta Slowdown: Contraction in the Chinese export sector, especially among Hong Kong-owned factories in Southern China/Pearl River Delta, has led to a marked decline in cargo shipments through the Hong Kong port and airport; Demand for U.S. inputs and related financial and transportation services is likely to be affected.

Market Opportunities

* Major public infrastructure plans include:  Hong Kong International Airport Expansion Plan, Kai Tak Airport Redevelopment, Tourism Infrastructure and City Improvement, West Kowloon Cultural District,  Hong Kong University Campus Expansion, Ocean Park Revamp Plan, Harbor Area Treatment Scheme, the Hong Kong-Macau-Zhuhai Bridge, multiple subway and light rail lines, and the Guangzhou-Shenzhen-Hong Kong Express Rail Link. The Hong Kong Government will likely speed up planning (and spending) on major infrastructure projects as part of its stimulus plan to confront the current economic downturn.

* Excellent prospects for U.S. suppliers:  Leading export sectors for U.S. firms include computer hardware and software, plastic materials & resins, electronic components, drugs and pharmaceuticals, environmental technologies including industrial emissions reduction and energy efficiency expertise, green building technologies, aviation and airport equipment and components, mass transit equipment, safety and security equipment, retail, and consumer goods such as packaged food, wine, cosmetics and toiletries.

* Hong Kong-based Procurement:  Hong Kong is home to a large number of procurement agents and purchasing offices. U.S. suppliers who take time to investigate these networks will find that many purchasing decisions for major projects and conglomerates in Macau, mainland China or other countries are actually made in Hong Kong.  In addition, over 7.1% of all Hong Kong Government procurement contracts were awarded to U.S. firms in 2007.

Market Entry Strategy

* Hong Kong agents and distributors can increase sales of U.S. products in both Hong Kong and mainland China.  Given mainland China's size and diversity, it is usually advantageous to work with different agents for different regions of mainland China. Hong Kong-based agents and distributors usually include Macau and Southern China in their coverage territory, and often have networks to other major regions in mainland China.

* Hong Kong firms are eager to work with serious exporters.  U.S. firms can show commitment to success in this market by using metric measurements, providing Chinese-language materials, responding quickly to inquiries, meeting relevant standards, and visiting the market for first-hand understanding and relationship building. 

* Companies considering entering this market should understand Hong Kong's fast-paced business climate.  Decisions are made quickly.  Firms must respond immediately to inquiries or risk losing opportunities to faster-moving competitors.