Hong Kong: good news for U.S. business

Business America, Nov 18, 1991 by Thomas Lee Boam

As a newcomer to Hong Kong, I arrived this summer with all of my personal belongings and baggage. At that time I didn't realize that I had also brought other "baggage" with me of which I was not even aware. This baggage was a lot of preconceived notions about Hong Kong which I had absorbed from the news media and from discussions with friends and business contacts. Hong Kong had some real surprises for me.

Like most of you, I am not an "old China Hand," so upon arrival in Hong Kong, my ideas about this part of the world were very incomplete to say the least. I had heard about Hong Kong reverting back to Chinese control in 1997, and about the concerns of the local citizens after the terrible incidents to Tiananmen Square in 1989. These reports have dominated the American news reports on Hong Kong, and have shaped our thinking.

I discovered that there is much more to Hong Kong than is presented in the media. Much of what has been written could lead a business to misunderstand the situation in Hong Kong, causing them to avoid this market. With the magnitude of U.S. sales in Hong Kong, this could be a very expensive error, and one which this issue of Business America may help you avoid.

It would be wrong to paint a picture of Hong Kong which denies the concern about 1997. Hong Kong does face an uncertain future, yet the optimism within the 20,000-member American business community in Hong Kong is strong. Members of the local American Chamber of Commerce in Hong Kong present an impassioned defense of the territory, its future, and its business prospects. This is more than just "clientitis" on the part of these American business leaders in Hong Kong. Their companies expect them to show a profit on their local operations, and this is exactly what they do. Their optimism is based on success, and their confidence in Hong Kong reflects this. All American businesses not currently selling in Hong Kong should take a hard look at these facts:

* Hong Kong's stock market and real estate markets hit historic highs this year.

* At over $1,300 per person, Hong Kong consumes more American imports per capita than almost any country on earth. This rate of per capita imports is nearly four times higher than Europe, Japan, or Korea (see chart on page 5).

* The range of American products being sold in Hong Kong is broad, and includes such widely diversified items as engineering services, toxic chemical treatment facilities, two-way radios, franchising services, and even Hamburger Helper. [R]

* American companies have been bidding on, and are being chosen for, numerous tenders on the $17 billion Hong Kong Airport infrastructure project (PADS).

* The Hong Kong government buys more products from American companies than any other source--including Hong Kong companies.

* Hong Kong is the gateway to southern China, the most prosperous part of this 1.3 billion-person market.

* With the current market situation and local inflation, American products become more price competitive every day.

As you can see, Hong Kong is a market which you cannot afford to omit from your business plan. This market is virtually without restriction, tariffs, or other barriers to trade. It accepts American products, and is far from saturated. American products are price competitive, and our styles match local tastes. In short, it is very much like selling your product at home.

Hong Kong and 1997

No discussion of Hong Kong would be complete without talking about 1997. As has been widely reported, Hong Kong will become a "special administrative region" of the People's Republic of China in 1997. The concept behind the plan for 1997 was to have one country, with two distinct and separate economic systems--communism in the existing PRC, and a guaranteed 50 years of non-intervention in Hong Kong's consummate form of capitalism. Although not particularly popular, this idea was tolerated by many of Hong Kong's citizens until the outbreak of violence of Tiananmen Square in Beijing in June 1989. At that time, many people asked themselves if the government of the PRC could be trusted to keep its word in Hong Kong after 1997. This nagging question continues to plague the territory. No one in the West can provide an absolute guarantee of Hong Kong's future, but several important indicators can be observed:

* Through all of the problems of the late 80s, China took no action which was designed to do damage to Hong Kong.

* Chinese investment in Hong Kong is growing at an enormous rate, with more than 40 percent of China's hard currency coming from the territory; China is now the largest investor in Hong Kong.

* Even during the "cultural revolution," China did not interfere with Hong Kong. It was in its own best interest to keep Hong Kong strong.

* More than 60 percent of all Chinese exports flow through Hong Kong. This port is vital to Chinese interests, and supplies much needed infrastructure support to the growth of southern China.

In short, it is highly unlikely that China will intentionally do anything to damage the stability and viability of Hong Kong as a commercial center. Indeed, if the Chinese had wanted to hurt Hong Kong, they could have done so on numerous occasions over the past 50 years--but they didn't. Purely from a historical perspective, we have no reason to assume they would willfully damage Hong Kong when it "belongs to them" after 1997. Their investment and self interest is far too high for them to do something foolish.