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Invest in Hong Kong & Zhaoqing

Friday 20 June, 2008

I attended this event recently Hong Kong-Zhaoqing your winning combination China Here’s what I gleaned from the conference.

Growth in Hong Kong GDP has been 6.3% & it’s the 2nd largest destination of foreign direct investment after the mainland. Zhaoqing has grown @ a 15% rate & garnered $775M in fdi. Mike Rowse, Dir-Gen of Invest Hong Kong, suggested Hong Kong as the best jumping off point for E. Asia. A domestic market of 7M, no GST, VAT, & sales taxes, common law, & English language proficiency add to the arguement. It also provides access to world-class products @ a “China price.” His organization provides “how-to.”

The mayor of Zhaoqing offered a surprisingly environmentally-friendly speech, focusing on hygiene & environmental protection, water power, wetlands, etc. There are 1300 foreign-funded firms there from 30 countries. The US has started 59 projects worth $103M.

Former head of Citigroup Hong Kong presented a case study for finance in the region. Citi located their regional HQ there because of location, information flow, proximity to China, local market, financial resources, & talent, & the law. They entered mainland China via a JV with Shanghai-Pudong Bank in Guandong Development Bank which resulted in the 1st foreign management of a Chinese bank.

Arnold Berney of Leggett & Platt provided an industrial case study where they now have 15 operations (to be near their customers) which are 100% owned. He focused on different rules, cultures, practices, i.e. teamwork is good among family members, but not among strangers. He noted finding the right partner is 90% of your success.

Peter Guang Chen of Deloitte focused on structuring finances & taxes in Hong Kong & China. Generally Hong Kong is an autonomous free market with low taxes & few restrictions. Many legal structures are available. Hong Kong is a “tax paradise” with no GST, VAT, sales taxes. There are taxes on property, profits, & salaries. China has benefited from an explosion of FDI ($5B->$70B in 1981->2007). Taxes are being reformed. There are a number of foreign investment vehicles (rep ofc, branch, JV, WOFE). Equity & loan financing are available. You must comply with forex exchange regulations & filing, registrations, & reporting requirements.

The Director of the Zhaoqing Foreign Trade & Economic Cooperation Bureau Director said e-government is a focus.

Q&A revealed the biggest financial challenge is the regulatory environment. Credit cards are just starting there. Intellectual property protection is not assured, but the Mayor made a special point of saying there is a strict law with severe punishment which is being implemented. Rowse mentioned the the farther from Beiging you are, the harder it is & suggested splitting up IP among different locations.

I requested presentations from Gary Clinton & Peter Guang Chen, but have yet to receive them. The following further information was provided: Zhaoqing high technology industry development zone

I visited Hong Kong a few years ago & can attest, it’s an amazing metropolis. I ventured into China from there, & even on a Sunday, it was 1 big construction zone. I can’t evaluate each as an investment destination because every investor’s requirements are different, but will suggest that starting out in more westernized Hong Kong makes more sense than jumping right into vastly different China.

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