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Strategies & Market Trends : HONG KONG -- Ignore unavailable to you. Want to Upgrade?

To: Richard Tsang who wrote (2446)	10/18/1998 1:06:00 AM
From: Tom	Read Replies (1) \| Respond to of 2951

Very good. Thank you, Richard.

To: Richard Tsang who wrote (2446)	10/26/1998 12:13:00 AM
From: Richard Tsang	Read Replies (3) \| Respond to of 2951

How will Hongkong be impacted by the fast pace development of Shanghai? First of all, I have to admit that I have left Hongkong for five years . Although I continue to visit my home town once or twice a year I cannot claim that I am up-to-date on what is happening there. I try to keep myself informed using similar media like all of you. I would like to share with you, as promised, my view on the subject question, primarily based on my observations of the two cities in which I have spent quite some time in the past years. Short term, Hongkong will continue to play an important role to help expedite the development of Shanghai. Hongkong people has all the skills and knowledge to make money and will be participating in activities where there is money to be made - and there is plenty such opportunities in Shanghai. Shanghai, on the other hand, needs the skills and experience to make things work in the new system. Longer term (10 years and beyond), the importance of Hongkong to Shanghai will diminish, and will be true too to the country. That does not mean Shanghai will take over Hongkong's role. It will be impossible for any city to replace Hongkong, not even Singapore, which continues to pursue and is in most Singapore people's mind. So what will Hongkong become 10 years from now? Let's examine the success factors that brought Hongkong to what is is now. 1. The Hongkong people, the industrious and entrepreneurial people would capture every opportunity to create value. However we see some changes in people's mind-set. They have become complacent. There are more activities (union led) and legislature that tend to protect the work force. I am not sure that these activities produce more value-add or the reverse. On the contrary, the once very protected work force in Shanghai are undergoing just the opposite. They have to fight hard to stay afloat, a force that resembles the situation of Hongkong people in the 60's and 70's. It is obvious that Shanghai will grow at a much faster rate than Hongkong. 2. The environment in which Hongkong used to enjoy high GDP growth is fast disappearing. In the 60's and 70's, light industry played a very important role in export growth and forex earning. In the 80's, the Hongkong manufacturers outsourced the labor-intensive part of their activities to the other side of the border to keep them competitive. They were able to also maintain a peg to the US$ even with an inflation 2-5 percent points higher than the US. Now, almost the whole production process have already moved to Southern China and the big majority of the GDP are from the service sector. You can't outsource too much of the service work except the backoffice type activities. When Hongkong got hit this time with growing unemployment, it is a much bigger problem than it used to be and it will take long time to get back to normal. In Shanghai, the growth comes from all sectors. Industries being automated, financial reforms being tested and commercial activities getting more competitive everyday. These intense activities will continue to create growth. Their projected industrial output is expected to grow at 12-13% with a target of 700 billion yuan by 2000. 3. Infrastructure - a big part of the GDP growth of Hongkong was attributed to the continuous investment in fixed assets. The mass transit railway (MTR), the tunnels, the bridges, the container port, the airport and auxiliary facilities all played a huge role in the GDP growth, not forgetting the booming property sector. The good news is that Hongkong is equipped with world class facilities and will continue to attract investors to come and create economic activities. The bad news is that such building activity has slowed down, especially in the domestic housing sector. I have not heard of major new public projects, except maybe the extension of the rail road and light rail systems. Shanghai on the other hand just reported a 50% increase in investment in city infrastructure for the first eight months although the overall investment in fixed assets is about the same (rmb 80 billion) as the same period last year. That in Pudong was increasing at a rate of 62%. 4. Legal system - Hongkong will be governed under the existing laws which have supported the extremely efficient government as well as the robust commercial activities. I have a lot of confidence that this will not change and that will continue to make Hongkong one of the most efficient cities to do business with for a long time to come. This is one area Shanghai has a long way to catch up with. However, Shanghai has the advantage of being the most important city in China and the prosperity of Shanghai will be symbolic to the success of the whole reform process. Great support from central government is guaranteed. The recent change in regulations to eliminate barriers for private enterprise to compete with State Owned Enterprise is a good example of government led actions to create growth. Many new ideas and concepts that were piloted in Shanghai were quite successful. The housing reform with the creation of central housing provident fund is now a model for other cities to follow. That proved something. The people in Shanghai are very dedicated people and they can make things work if given the opportunity and support. Actually, a lot of the early business people that helped build Hongkong came from Shanghai. Shanghai is making great progress in their legal infrastructure although they still have a long way to go. I know I am only scratching the surface of the question as I present quite a shallow view of my own. I hope others with deeper knowledge of the situation can add to the discussion. Hongkong is currently going through a difficult period, not because of Shanghai, but for internal economic issues. It may take a longer time to heal, but when it is done, Hongkong is Hongkong again....no other city can match it. Shanghai will grow rapidly and continue to strengthen its position as the financial center for China and an important forex earner. Going forward, I see both cities working together to contribute to the wealth of Chinese people, complementing each other to get the most out of the business. The people in both cities have a lot of respect for the other, at least that has been my experience. I feel much better now....a promise fulfilled. Richard