The Canadian Chamber of Commerce in Hong Kong Capitalizing on opportunities in the PRD Region via Hong Kong

4. PRD – The Past Twenty-five Years In 1979 as part of the launch of China’s reform program, three Special Economic Zones (SEZs) were permitted to set up. Two of these were in the Pearl River Delta, one in Shenzhen (just across the border north of Hong Kong) and the other one in Zhuhai (just across the border from Macau). The PRD’s GDP grew from just over US$8 billion in 1980 to US$221.2 billion in 2005. The Pearl River Delta region has been the fastest growing region in the world in the terms of economic development with an average GDP growth of around 15% on an annual basis for the past twenty five years. In 2005, the PRD SEZ accounted for almost 10% of China’s GDP, close to 20% of FDI in the Chinese Mainland and approximately 29% of total trade. With most of its factories moving north of the border, Hong Kong’s economy was transformed from primarily a manufacturing economy in late 70’s to a service economy in late 90’s and even more so today. Neighboring Shenzhen has transformed from a dormant coastal town to become a major cosmopolitan modern city with over 10 million people coming from all over China. Shenzhen is home to one of the two main stock markets in China and has also a cluster of high tech industries. HK-Shenzhen boarder crossing is the world’s busiest with over 200,000 people using the 4 immigration check points (one of them operating 24 /7) daily. In 1979 as part of the launch of China’s reform program, three Special Economic Zones (SEZs) were permitted to set up. Two of these were in the Pearl River Delta, one in Shenzhen (just across the border north of Hong Kong) and the other one in Zhuhai (just across the border from Macau). The PRD’s GDP grew from just over US$8 billion in 1980 to US$221.2 billion in 2005. The Pearl River Delta region has been the fastest growing region in the world in the terms of economic development with an average GDP growth of around 15% on an annual basis for the past twenty five years. In 2005, the PRD SEZ accounted for almost 10% of China’s GDP, close to 20% of FDI in the Chinese Mainland and approximately 29% of total trade. With most of its factories moving north of the border, Hong Kong’s economy was transformed from primarily a manufacturing economy in late 70’s to a service economy in late 90’s and even more so today. Neighboring Shenzhen has transformed from a dormant coastal town to become a major cosmopolitan modern city with over 10 million people coming from all over China. Shenzhen is home to one of the two main stock markets in China and has also a cluster of high tech industries. HK-Shenzhen boarder crossing is the world’s busiest with over 200,000 people using the 4 immigration check points (one of them operating 24 /7) daily.

5. PRD - Today Today, the Pan PRD region is not only “the factory of the word” for manufactured consumer goods products ranging from garments, shoes, electronic products to automobiles, nut it is increasingly becoming an important market on its own right. According to the recent National census, there are over 45 million people in the PRD. In reality, there are probably close to double that number because you have millions of migrant factory workers not accounted for in the numbers. In major cities like Shenzhen and Guangzhou, you can very often see local residents enjoying coffee at Starbucks and lining up to see a movie at the theatre. This is particular striking in a place where the average income per person is approx CDN2000 and where a Starbucks coffee is about CND$5 to $7 and a movie ticket costs CND$20. (Average factory worker still earns less than CND175 a month). The fact of the matter is the consumer power is rapidly increasing and local residents are picking up the taste and habits of overseas people. To remain competitive, manufacturers have gone up the supply chain. Manufacturers in the PRD have shifted the production of basic items to developing sophisticated products to meet the increasing expectations of their overseas clients. Hong Kong traders, importers/exporters do their trade financing with banks in Hong Kong, they do the design and product development and plan their production and logistic operations from Hong Kong. Manufacturing continues to be in the Mainland. Hong Kong businesses also have become very sophisticated, providing a full range of service from design, product development as well as production, logistics and distribution directly to retailers. The two main features of China’s continuing process of economic liberalization and opening are China’s accession into the World Trade Organization (WTO) and the Closer Economic Partnership Arrangement (CEPA) between Hong Kong and China are already showing very positive benefits for businesses in the Pan PRD region. As a new member of the WTO, China is gradually opening up to both trade and investment for companies from around the world and under CEPA (a free trade agreement between Hong Kong and China similar to the NAFTA agreement amongst Canada, the US and Mexico), Hong Kong companies are able to gain access selling products and services in particular to manufacturers and companies in China, in particular the PRD region. Today, the Pan PRD region is not only “the factory of the word” for manufactured consumer goods products ranging from garments, shoes, electronic products to automobiles, nut it is increasingly becoming an important market on its own right. According to the recent National census, there are over 45 million people in the PRD. In reality, there are probably close to double that number because you have millions of migrant factory workers not accounted for in the numbers. In major cities like Shenzhen and Guangzhou, you can very often see local residents enjoying coffee at Starbucks and lining up to see a movie at the theatre. This is particular striking in a place where the average income per person is approx CDN2000 and where a Starbucks coffee is about CND$5 to $7 and a movie ticket costs CND$20. (Average factory worker still earns less than CND175 a month). The fact of the matter is the consumer power is rapidly increasing and local residents are picking up the taste and habits of overseas people. To remain competitive, manufacturers have gone up the supply chain. Manufacturers in the PRD have shifted the production of basic items to developing sophisticated products to meet the increasing expectations of their overseas clients. Hong Kong traders, importers/exporters do their trade financing with banks in Hong Kong, they do the design and product development and plan their production and logistic operations from Hong Kong. Manufacturing continues to be in the Mainland. Hong Kong businesses also have become very sophisticated, providing a full range of service from design, product development as well as production, logistics and distribution directly to retailers. The two main features of China’s continuing process of economic liberalization and opening are China’s accession into the World Trade Organization (WTO) and the Closer Economic Partnership Arrangement (CEPA) between Hong Kong and China are already showing very positive benefits for businesses in the Pan PRD region. As a new member of the WTO, China is gradually opening up to both trade and investment for companies from around the world and under CEPA (a free trade agreement between Hong Kong and China similar to the NAFTA agreement amongst Canada, the US and Mexico), Hong Kong companies are able to gain access selling products and services in particular to manufacturers and companies in China, in particular the PRD region.

8. How Do The Chinese View Canadians? Norman Bethume Still considered a National hero. Still taught in school and therefore in the mind of all people. Mao 1939 writings Acknowledge and appreciate the differences of Canada vs. US Not pushy Access to North America without dealing with US Not as complicated as far as bilateral and political issues are concerned Raw materials and energy = Best opportunity for Canada/China Very good political relations but not very proactive on a business level Not so many large companies therefore less local representation Mid size companies tend not to put best people in China Disorganized and sometimes too informal with personal protocol Companies tend to rely heavily on bilateral institutions like the Embassy Chinese tend to compare Canadian business to Australian business Similar number/size of companies Australians are generally much better organized and much more proactive putting very good people on the ground in China who are adapting to how the Chinese do business perceived as being much clearer on what they want when seeking business opportunities vs. Canadians who don’t seem to know what they want Norman Bethume Still considered a National hero. Still taught in school and therefore in the mind of all people. Mao 1939 writings Acknowledge and appreciate the differences of Canada vs. US Not pushy Access to North America without dealing with US Not as complicated as far as bilateral and political issues are concerned Raw materials and energy = Best opportunity for Canada/China Very good political relations but not very proactive on a business level Not so many large companies therefore less local representation Mid size companies tend not to put best people in China Disorganized and sometimes too informal with personal protocol Companies tend to rely heavily on bilateral institutions like the Embassy Chinese tend to compare Canadian business to Australian business Similar number/size of companies Australians are generally much better organized and much more proactive putting very good people on the ground in China who are adapting to how the Chinese do business perceived as being much clearer on what they want when seeking business opportunities vs. Canadians who don’t seem to know what they want

9. What Are Canada’s Benefits As Far As China Is Concerned?

10. Be Much More Proactive