Multinationals, China, Hong Kong and Competitiveness Presentation for The Competitiveness Institute Annual Conference 10 November 2005

Latest economic Data In 2004: GDP up 8.1% Exports of goods up 32.4% Exports of services up 7.3% Hang Seng Index up 3.8% World’s 11th largest trading economy In last 6 months: GDP up 6.5% Inbound tourists for first 9 months of 2005: 16.9 mil GDP, exports of goods, exports of services www.info.gov.hk/censtatd/eng/hkstat/index.html HSI HKEx Factbook 2003 – www.hkex.com.hk/datastatistics.htm See securities market – statistics archive and monthly summary 28 Feb 05 15,821 27 Feb 2004 15,244 = inc of 3.8% Trading economy TDC Tourists HKTB website http://www.discoverhongkong.com/canada/plan/mediakit/me_pres_20040805.jhtml Sources: HK Census and Statistics Dept; HKEx; HKTB; HKTDC

Latest investment data Inward 2nd largest recipient of FDI in Asia after Mainland, 7th in world US$34 billion in 2004 US$20 billion for first half of 2005 Largest investors: Mainland, Netherlands, US, Japan Outward Largest source of outward FDI in Asia; 7th in world Per - http://www.tdctrade.com/main/economic.htm - UNCTAD through http://www.investhk.gov.hk/(ozf0qm45iwjuwgrdkdo1uy45)/readnews.aspx?id=636&parent_id=0 Stat without a source: Outward - Largest investor in every single Chinese province Sources: UNCTAD World Investment Report 2005; HK Census and Statistics Dept.

Foreign Direct Investment Inflow of FDI in Hong Kong Year 2002 2003 2004 2005 (Q1-Q2) Amounts (US$billion) 9.7 13.6 34.0* 19.8* *preliminary figures Source: Census and Statistics Department

Inward Direct Investment by Major Investor Economy Country US$bill Mainland China 99.0 Netherlands 32.9 United States 24.1 Japan 18.3 Singapore 7.5 United Kingdom 6.2 Total $380.5 2003; HK Census & Statistics Dept

FDI Inflows of 10 Neighbouring Economies in Asia (US$ billion) Ranking 2002 2003 2004 1 Mainland China (52.7) Mainland China (53.5) Mainland China (60.6) 2 Hong Kong (9.7) Hong Kong (13.6) Hong Kong (34.0) 3 Japan (9.2) Singapore (9.3) Singapore (16.1) 4 Singapore (5.8) Japan (6.3) Japan (7.8) 5 India (3.4) India (4.3) S.Korea (7.7) 6 Malaysia (3.2) S.Korea (3.8) India (5.3) 7 S.Korea (2.9) Malaysia (2.5) Malaysia (4.6) 8 Philippines (1.8) Brunei (2.0) Taiwan (1.9) 9 Taiwan (1.4) Thailand (1.9) Vietnam (1.6) 10 Vietnam (1.2) Vietnam (1.5) Thailand (1.1)

Inward Direct Investment by Major Economic Activity Investment holdings, real estate, business services Wholesale, retail and import/export trades Banks and deposit-taking companies Other financial institutions Transport and related services Communications Manufacturing Insurance Restaurants and hotels

3,800 regional operation centres More RHQs than any other city in Asia Pacific Source: Report on 2005 Annual Survey of Regional Offices Representing Overseas Companies in Hong Kong, Census and Statistics Department, Hong Kong

One Country, Two Systems Hong Kong retains its advantages Rule of law Level playing field Currency convertibility, separate from Renminbi International business practices Free flow of information Negotiates and signs own economic/trade agreements Hong Kong is a full, separate member of WTO and APEC At the same time, Hong Kong is an integral part of China

Why Hong Kong ? Why do so many international investors establish operations in Hong Kong rather than any other cities in the Asia-Pacific region? Essential to Hong Kong’s appeal and success are competitive advantages that help build the foundation of Hong Kong's prosperity and stability.

Hong Kong - Key advantages Rule of law Unrivalled location Low and simple taxes World’s freest economy Clean government Free flow of information World class infrastructure Skilled workforce International lifestyle Gateway to the Mainland

International financial centre Asia’s 2nd largest stock market Home to 73 of the world’s 100 largest banks Mainland firms have raised over US$100 billion World’s 7th largest foreign exchange centre Asia’s largest fund management and insurance hub, outside Japan Controls over 28% of the venture capital under management in Asia Full currency convertibility Real time USD and Euro settlement system in place Sources: - http://www.tdctrade.com/main/economic.htm - http://www.tdctrade.com/main/si/spbank.htm - http://www.tdctrade.com/main/si/spfundmg.htm - The 2004 Guide to Venture Capital in Asia – Asian Private Equity 300 (hard copy) Sources: HKTDC; The 2004 Guide to VC in Asia

Hong Kong - Key advantages And… OUR PEOPLE

Hong Kong & the Pearl River Delta – A Winning Combination Hong Kong provides the capital, management, technology, market knowledge and access to international markets Mainland PRD cities provide world-class, low-cost manufacturing, and access to a new, demanding consumer base

Closer Economic Partnership Arrangement (CEPA) What is it? China’s - and Hong Kong’s - first free trade agreement Covering trade in goods, services and investment facilitation Reaffirms Hong Kong role as gateway to Mainland Provides easier access to Mainland for HK-made products and HK-based service companies Available to people and businesses of all nationalities WTO compliant Being introduced in phases: CEPA I, fully effective from 1 January 2004 CEPA II, fully effective from 1 January 2005 CEPA III, fully effective from 1 January 2006 Wef 1.1.2006 tariffs on other goods can be lifted Rules of origin still to be fully determined – negotiations to continue and decision in place before 1.1.2004

CEPA Benefits Trade with the Mainland through HK and enjoy CEPA benefits like: Cost savings now Short term gain through earlier market access than WTO (WTO early) Greater market access than WTO will ever allow in some sectors (WTO plus) All Hong Kong-origin products may be exported tariff-free to the Mainland

Our main competition HK as a regional centre HK as part of China Singapore main competitor HK as part of China Shanghai, Beijing HK as part of S. China/GPRD/Pan-PRD Guangzhou, other PRD cities

Parting shot… Hong Kong is a world leading business centre poised at the edge of the world’s biggest market. Hong Kong’s potential is huge and its opportunities unique. www.InvestHK.gov.hk