ORACLE We Lead You There World SME Expo On-Site Survey of Mainland Enterprises Hong Kong Trade Development Council November 2004

- 2 - Date of Survey:November 16, 2004 Target:267 representatives from Chinese mainland enterprises Format:Face-to-face interview at the Expo venue Methodology

- 3 - Southern China 57% % Distribution of Enterprises by Region Southern China Guangdong Hainan Fujian* Others Northeastern China & others Hunan Shandong Liaoning Chongqing Jilin Others Eastern and Northern China Shanghai Zhejiang Beijing Jiangsu Others Eastern and Northern China 16% Northeastern China and Others 27% Visitor Profile (I) Distribution of Enterprises by City Respondents:267 visitors Q2 * * < 0.5%

- 4 - Respondents: 267 visitors Others 1% Nature of Enterprise Private 72% Manufacturer 49% Nature of Business Importer / Exporter 15% Wholesaler 9% Property Developer 5% Retailer 4% Visitor Profile (II) Q3, Q4 Others 3% Joint stock 14% State-owned 10% Collectively- owned 3% Legal Service 4% Investment & Finance 3% Social Service 5% Commission Agent 3% Majority in following Sectors - Electronics, Technology products & accessories - Ceramics and arts and crafts - Metal products & decorations

- 5 - Less than Rmb 5 million Rmb 5 million to less than Rmb 10 million Rmb 10 million to less than Rmb 50 million Rmb 50 million to less than Rmb 100 millon Rmb 100 million or above % Q25 Business Turnover of Surveyed Mainland Enterprises in 2003 Respondents:267 visitors

- 6 - Q17 Awareness of Facilitation Measures for Mainland Enterprises to Invest in Hong Kong Respondents:267 visitors

- 7 - Expand overseas markets Increase domestic sales and expand market shares Increase product / service competitiveness Strengthen internal management capability % Q6 Future Development Goals of Mainland Enterprises First Priority Second Priority Respondents:267 visitors

- 8 - Insufficient fund for development Shortage of talents Restricted access to market information Restricted access to overseas market sales network and channels Inadequate product development capability Internal management failing to cope with business expansion Insufficient corporate and product advertising and promotion Ineffective communication with overseas clients or vendors Logistics and transport services failing to cope with day-to-day Import / export needs % Q8 Difficulties / Hurdles of Mainland Enterprises in Business Development Process Respondents:267 visitors

- 9 - Project Finance Bank Loan Listing in Mainland Stock Market Listing Offshore Bond Issuance % Q7 Mainland Enterprises’ Most Sought-after Funding Channels Respondents:267 visitors First Priority Second Priority

Usage of and Demand for Services Offered by Hong Kong / Hong Kong Companies in the Mainland Used beforeIntend to use in future % % Loan or financing36 Marketing and promotion30 Personnel training19 Overseas market research19 and analysis Business partner / agent18 Management consulting17 Legal issues and advisory15 service % Loan or financing36 Marketing and promotion30 Personnel training19 Overseas market research19 and analysis Business partner / agent18 Management consulting17 Legal issues and advisory15 service Services demanded Respondents:267 visitors

Anticipated Business Operation of Mainland Enterprises in Hong Kong Without any business operation / presence 63% With office / branch / agent / business partner 37% Current Status of Mainland Enterprises’ Business Operations in Hong Kong Q13, Q14 Respondents: Representatives of 169 surveyed mainland enterprises which currently do not have any business operation/presence in Hong Kong With plans to set up office / branch or seek agent / business partner in HK over the next 1-2 years 62% No plans to set up office or seek agent / business partner in HK in the short term 38% Current Status of Mainland Enterprises’ Business Operations in Hong Kong Respondents:267 visitors

Explore overseas markets and establish sales network Explore Hong Kong market Seek offshore investment and business partners Gather market information Product R & D Establish supplier network and product sourcing Raise working capital or seek listing % Q14, Q15 Mainland Enterprises’ Expectations of the Functions of Hong Kong Branch / Partner Respondents: Representatives of the 105 surveyed mainland enterprises with plans to set up office / branch or seek agent / business partner in Hong Kong

High operating costs in Hong Kong Lack of understanding and information about setting up offices in Hong Kong Restrictions imposed by Hong Kong on the entry, residence and work of mainlanders Mainland authorities’ complex approval procedures for offshore investments Lack of resources on the part of enterprises Stringent foreign exchange control on mainland enterprises investing offshore % Q16 Biggest Hurdles Facing Mainland Enterprises Wishing to Invest and Set up Offices in Hong Kong Respondents:267 visitors

Business development support offered by Hong Kong to mainland enterprises in the areas of market development, capital and management, as well as information on relevant service providers Legal protection for mainland enterprises investing in Hong Kong Operating costs in Hong Kong, such as salary, rental and professional service fees Procedures and capital requirement for mainland enterprises to set up companies in Hong Kong Restrictions on the entry, residence and work of management and other staff of mainland enterprises in Hong Kong % Q19 Information/Assistance Most Needed by Mainland Enterprises Wishing to Set up in Hong Kong Respondents:267 visitors

Q18a, b Factors encouraging mainland enterprises to invest or discouraging mainland enterprises from investing in Hong Kong % Hong Kong’s high operating costs55 Mainland approval procedures18 Foreign exchange control13 Entry and residence issues11 Limited market demand3 Respondents: Representatives of the 94 surveyed enterprises which may or may not set up office / business in Hong Kong Mainland Enterprises’ Intention to Invest in Hong Kong Following the Simplification of Approval Procedures Respondents:267 visitors

Characteristics of Guangdong Enterprises Guangdong Enterprises Higher awareness about the simplification of approval63%> 47% procedures for mainland enterprises investing in Hong Kong More interested in exploring overseas markets75%>65% More enterprises have set up office / branch or 52%>23% appointed agent / business partner Non-Guangdong Enterprises

Characteristics of Non-Guangdong Enterprises Guangdong Enterprises Higher average business turnoverRmb33.8 million<Rmb million Greater need for development capital - More enterprises consider capital shortage as a hurdle in29%<56% the process of business development Interested in project finance as a means of funding55%<71% Interested in making use of Hong Kong financing services27%<45% More enterprises consider the lack of understanding and 21%<38% information on setting up in Hong Kong a hurdle in investing in Hong Kong Non-Guangdong Enterprises

ORACLE We Lead You There Summary

Summary - I Development of Mainland Enterprises 70% of the mainland enterprises consider expansion into overseas market as their top priority development goal. Guangdong enterprises are especially keen in this respect compared to other parts of the country. Expanding sales and market share in the domestic market is also a major development target of mainland enterprises. Mainland enterprises encounter various difficulties and hurdles in their business development process. Over 40% of them are faced with capital shortage. The situation of non- Guangdong enterprises is worse than that of their Guangdong counterparts. Other hurdles include the shortage of talents and limited access to market information.

Summary – II Over 60% of the surveyed mainland enterprises which do not have a business presence in Hong Kong indicate they intend to set up an office or appoint business agents in Hong Kong over the next one to two years. Most of them expect their Hong Kong business partners will help them establish sale networks in overseas and Hong Kong markets. Usage of the services of Hong Kong companies by mainland enterprises will increase. Currently, less than 30% of the surveyed mainland enterprises have used Hong Kong services. However, the vast majority (90%) of them indicate that they would use the services offered by Hong Kong companies in the mainland in future. Services that are most sought after include financing, marketing and promotion. Development of Mainland Enterprises in Hong Kong

Summary – III About two-thirds of the mainland enterprises indicate that they are more interested in investing in Hong Kong following the simplification of approval procedures. The relatively high operating costs continues to be the main reason for not setting up in Hong Kong. Simplified Approval Procedures for Mainland Enterprises Investing in Hong Kong

ORACLE We Lead You There