Hong Kong : Making
the most of globalisation
By Joshua Law, Director-General of Trade and Industry
Hong Kong Special Administrative Region Government
Ladies and gentlemen:
It is a great pleasure to be back in Sydney. I was last here about two years ago and I must say there is definitely a greater air of excitement today, with a little over three months to go until the Olympics. I was kind of hoping that I might be asked back for another speaking engagement around the time of the men's 200m freestyle finals or even better, the closing ceremony. Who knows, I might get lucky. I have been advised by my Australian friends in Hong Kong that I must make due reference to the victory by New South Wales in this year's State of Origin series. I must confess that I have absolutely no idea what that means, but I have been assured that any mention of the Blues' victory over the Banana Benders will stand me in good stead with any audience in Sydney. At the same time, I am advised that it would not be wise to mention the rugby union unless I was making speech in Brisbane.
As much as I would like to, I won't be talking about swimming or rugby today. Instead, I'd like to talk about the challenges thrown up by competition within the global economy - the challenges arising from international economic integration, trade liberalisation, the dramatic expansion of international capital flows, technological revolution. I would like to share some of my observations about globalisation, and to give you an insight into how Hong Kong is embracing these changes and preparing for the challenges and opportunities ahead.
Let me first make a few general points about globalisation. Globalisation is not exactly new. What is globalisation, after all, but trade between nations, be it goods or services. It has been progressing even before the days the Cutty Sark gave up the tea run to China for the more lucrative journey to Sydney for a cargo of merino wool. These days the deal would probably be done on the Internet. But globalisation has gained considerable and irreversible momentum in the past decade. The ongoing integration of capital, technology, information and markets across national boundaries has reached the point of no return. Globalisation is here to stay.
Improved transportation, communications and technology - and of course the Internet - have changed the way we live, work, do business, govern, learn and even the way we buy a take-away pizza. But trade and investment liberalisation have also played a pivotal role in the ongoing process of globalisation - in fact, they have gone hand in hand.
WTO figures show that world trade increased 15-fold over the past 50 years, while world output increased eight-fold during the same period. Outflows of foreign direct investment (FDI) grew even faster, rising 25-fold in the past 25 years from US$14 billion to US$350 billion a year. And in the past 20 years, world services trade has grown from US$825 billion to US$2,675 billion. In the Asia Pacific Region, the average annual growth in trade in the past decade within the APEC economies was 8%, compared to 6.5% for the world as a whole. Average real GDP growth of APEC economies was 2.7% per annum during the same period, compared to 3.1% for the world as a whole. In addition, FDI inflows into the region grew by 210% in the past decade, while FDI outflow from the Region doubled during the same period. These figures mirror the enormous benefits brought about by the progressive dismantling of import and export barriers as well as the freer flow of investment capital.
The lowering of trade and investment barriers has greased the movement of goods, services and capital. It has enabled businesses to get closer to their markets and to rationalise production and supply chain management. The emergence and success of many multinational enterprises (MNEs) is an obvious example of 'economic globalisation' at work. But small and medium enterprises (SMEs) are now beginning to become more 'globally' integrated. They too will benefit - perhaps even more so than MNEs - from the greater efficiencies and greater global access now available because of advances in information technology.
So, information technology is also driving globalisation. The widespread use of e-commerce - the booming business-to-consumer (B2C) and the emerging business-to-business (B2B) sectors - has enabled enterprises to become more adaptive and responsive to changes in market conditions. By setting up a web-based electronic data interchange system, a company can update its key suppliers with forecast demand, so that raw materials and parts are ordered just-in-time. E-commerce is not only changing our consumption patterns; it is revolutionising business operations. It has been estimated, that the value of business conducted over the Internet world-wide amounted to US$43 billion in 1998. By 2003, the figure is estimated to reach US$1.3 trillion, or about 9.5% of all B2B transactions world-wide. While e-commerce spurs globalisation, the ongoing economic integration accelerates the development of e-commerce. The two actually complement each other perfectly.
So how is Hong Kong facing up to this New World Economic Order? How are we preparing for the challenges and opportunities ahead?
As a committed free trader, Hong Kong firmly believes that trade and investment liberalisation promotes economic growth. International economic integration leads to lower prices for consumers and producers; it provides greater choice, expanded services and helps maximise production efficiency. As sure as night follows day, Hong Kong remains committed to a free and open trading system.
At the multilateral level, Hong Kong strongly supports the continued development of global free and open trade. We will continue to pursue the launch of a broad-based and balanced new round of multilateral trade negotiations to further the process of trade liberalisation. As you know, the Third WTO Ministerial Meeting in Seattle last November did not succeed in launching a New Round. But Hong Kong has not given up and we continue to actively take part in WTO discussions on this matter. We firmly believe that the WTO's rules-based, multilateral trading system is the most effective forum in which to promote world trade and trade liberalisation, as well as to protect economies from unreasonable or discriminatory acts by trading partners.
Nonetheless, we agree that the challenges arising from globalisation - such as the need to retrain the workforce - should be properly addressed so that the developing and the least developed economies will also benefit from globalisation and liberalisation. We will also maintain an active role within APEC, which aims to enhance the open, multilateral trading system and to promote further liberalisation in trade and investment amongst member economies in the Asia Pacific region. Early this week I was in Darwin attending the Meeting of APEC Ministers Responsible for Trade. I am delighted to note that APEC trade ministers have re-affirmed the importance of trade expansion to making possible the sustainable economic growth and development needed to improve people's lives. Ministers also called for renewed efforts to build global consensus necessary for the launch of a new WTO round at the earliest opportunity. In this connection, Ministers called for preparatory work on industrial tariffs to begin in the WTO as part of the preparation for the new round, without prejudice to the overall agenda for negotiations.
In Hong Kong, we are preparing to meet the demands of the knowledge-based economy of the 21st Century by embracing innovation and technology, which in turn will help maintain our long-term competitiveness. The Hong Kong SAR Government and the entire community fully recognise that innovation and technology are, and will be, the major components of future economic growth.
From an infrastructural point of view, Hong Kong already has one of the world's most advanced broadband networks, funded entirely by the private sector. It covers all commercial buildings and more than 80% of households. We have accelerated the deregulation of our telecoms industry to provide greater efficiency and lower costs. To give you an idea of just how cheap international calls are from Hong Kong - a colleague of mine in Hong Kong spent 45 minutes on the phone to Brisbane last month and it cost him only HK$17 or about A$3.70. He can now call his parents and three sisters, speak to them for an hour each, and still pay less than what it used to cost for a single, half-hour call 18 months or two years ago. That's what competition has done for our telecoms sector.
More choice has also been provided to the investing public. In November last year, the stock exchange launched a Growth Enterprise Market to provide another source of capital for emerging growth companies, particularly those in the high-tech fields. We have liberalised the rules on the admission of talent - in particular highly-skilled scientists and researchers from the Mainland - to boost our stock of the human capital needed in the knowledge-based economy. And through the government's Digital 21 programme, Hong Kong residents can now access a host of government services electronically via the Internet or other digital service booths.
My department - the Hong Kong Trade Department - is a good example of what can be achieved by embracing technology. In the past two-and-a-half years, we have launched an Electronic Data Interchange (EDI) service which makes for faster, more efficient and more accurate handling of certain trade documents such as the Restrained Textile Export Licence, Certificate of Origin and (Textiles) Production Notification. In 1999, we handled more than 1.2 million of these documents. Now, more than 85% of Restrained Textile Export Licence and Production Notification applications are submitted via EDI; Certificate of Origin applications are moving steadily in that direction too. Our ultimate aim - I hope not too far away - is to make the entire trade document process a paperless exercise.
Keeping abreast of innovation and technology is but one way that Hong Kong is dealing with the increased competition, and other challenges, of globalisation. In fact it all falls within our greater vision to position Hong Kong as the World City of Asia - on a par with London in Europe and New York in the Americas. I know that we face stiff competition from Sydney, which also sees itself playing a similar role in the Asia-Pacific region. But we have never been afraid of competition and when it comes from a city with such a tremendous future as Sydney then it makes us try even harder to realise our vision. We'll be watching Sydney very closely, as I'm sure Sydney will be keeping an eagle eye on Hong Kong.
Our ongoing goal is to develop Hong Kong into Asia's most vibrant economy, a regional and global hub for finance, trade, tourism, information and transport; a city with the solid economic foundations needed to provide our residents with a relatively high average income. We already possess many of these key features - we are an international financial centre, Asia's most popular international tourist destination, Asia's second largest stock market, the world's 10th largest trading entity in goods, the world's busiest international air cargo hub and the world's busiest container port. But we cannot rely on past achievements for future fortune. We must do even better to improve these existing pillars of our economic success. If we can, we should be able to play a pivotal role in the global economy, be home to a host of multi-national companies and provide services to the entire region.
One of Hong Kong's greatest strengths is its extensive links with the Mainland of China. Over the past 20 years, Hong Kong has benefited greatly from China's open door policy. Now, the world's 9th largest trading entity with a population of 1.2 billion people, China is poised to enter the WTO. Potentially the largest and fastest growing consumer market in the world is about to be more comprehensively and systematically liberalised, adding not only certainty, but meaning and momentum, to globalisation. China's accession is not simply about business opportunities. It is about strengthening economic stability - stability generally - in the region. It is about ensuring that differences on trade issues are resolved sensibly. It is about developing the global economy on responsible, rules-based principles.
That is one reason why Hong Kong has consistently supported China's accession to the WTO. We were very pleased - and a little relieved too, I might add - that the US House of Representatives voted on May 24 to grant Permanent Normal Trade Relations (PNTR) status to China. We remain hopeful that the US Senate will soon pass the legislation to complete the whole process. We were also happy that in early May, the EU signed a deal on China's WTO accession and that on May 22, the formal signing of the Sino-Australian bilateral agreement took place. All of these are important milestones in China's long march to the WTO. And, indirectly, they are also important milestones in Hong Kong's future success.
That is because Hong Kong stands to gain greatly from China's accession to the WTO. Inward investment into Mainland China will make a quantum leap. As one of the major conduits in this area, Hong Kong will benefit. It has been estimated that by 2010, the Mainland's GDP will be 13% higher as a result of WTO accession. Exports will be higher by 22%; imports by 17%. For Hong Kong, this means our exports involving the Mainland will rise by about 15%, and our GDP by another 5.5% by 2010.
Many people, however, are not as optimistic as I am. Some believe that China's entry to the WTO will have an adverse impact on Hong Kong's traditional role as a gateway and middleman for trade with the Mainland. I cannot agree. As China's market continues to open up and liberalise further, enormous business opportunities will emerge. Hong Kong is well-placed - in fact, best-placed - to capitalise on these opportunities. We have first-hand knowledge of the Mainland market, gained through decades of interaction; we have an established business presence - more than 5 million people are employed in neighbouring Guangdong by companies wholly or partly owned by Hong Kong enterprises; we have the language and cultural ties; and we have world-class business and financial services and excellent infrastructure to support all of those endeavours in China. We will have a greater, not lesser, role to play as a gateway to the Mainland market. And we will be able to participate even more in the economic development of our country as more sectors open up to foreign investment.
What does this mean for Australia, in particular Australian companies in Hong Kong? Australia and Hong Kong have a close economic relationship. Hong Kong was Australia's 5th largest destination for foreign investment in 1998. According to the Australian Bureau of Statistics, Australia's total investment in Hong Kong amounted to A$10 billion in 1997/98. Australia has a strong business presence in Hong Kong, around 350 companies are based there and a further 1,000 have representative offices. There are about 45,000 Australian citizens living in Hong Kong, one of the largest groups of expatriates. No doubt these businesses and people-to-people contacts will be put to good use to leverage the significant opportunities created by China's entry to the WTO. I would like to see more Australian companies joining those already in Hong Kong to capitalise on the head-start that we can offer as China's market continues to open up and expand.
Before closing, let me say a few words about our economy. Since the latter part of last year, Hong Kong's economy has been moving ahead quite strongly. Trade, investment and consumption sentiment have improved enormously. In the first quarter of 2000, real GDP growth was an impressive 14.3% year-on-year. This was the fastest growth in over 12 years. We are now forecasting GDP growth of 6% in real terms for 2000, up from our original forecast of 5%. We expect that exports of goods and services will continue to benefit from the global economic upswing and improved competitiveness for Hong Kong's output helped by on-going cost adjustments in our economy and a rebound in East Asian currencies. Continued robust growth in exports from the Mainland should also lift Hong Kong's exports.
Ladies and Gentlemen, Hong Kong has largely overcome the pain brought about by the Asian financial crisis. We are well prepared to take full advantage of the sustained regional economic recovery and, in the longer term, the greater opportunities brought about by ongoing global trade and investment liberalisation as well as the continued opening up of Mainland China.
I am pleased to have this opportunity to speak to you in my first visit to Australia in the new Millennium. I look forward to seeing all of you in Hong Kong when you visit us, whether for business or pleasure.