Speech by Janet De Silva, President, Canadian Chamber of Commerce in Hong Kong at the opening luncheon of the Chinese Business Conference “Your Road Map to China” at the Toronto Metro Convention Centre on June 21, 2004


The following is issued on behalf of the Canadian Chamber of Commerce, Hong Kong:

Ladies and Gentlemen:

I’m delighted to be here and congratulate the co-organizers on a timely event and an innovative approach, using this conference as a lead-in to trade missions to China later this year.

With the conference’s theme “Your Road Map To China”, my remarks will cover Hong Kong (HK) as a fast track to China.

Hong Kong has been home for the past 3 ½ years and is a Canadian-friendly place. We have The Blackberry, President’s Choice, Molson Canadian Beer and Hockey Night in Canada although we call it Sunday Brunch in HK.

My brother, “the meat & potatoes guy”, visited HK, for the first time, 2 months ago. He was delighted that in 16 days he was able to eat 13 hamburgers. While there is no accounting for taste, this just proves that HK is an international place!

Canada, quite frankly, is the envy of many in the international community due to our size and the strength of the ties that bind HK and Canada. There are 260,000 Canadian passport holders living in HK and 180,000 Canadian university alumni working there. (We recognize there is some, but not full, overlap between these numbers.)

In Canada, our Chinese Canadian population totals 1.2 million.

What these numbers provide is an incredible natural network for research and for business execution. As Canadian’s the door to HK and China is open to us. We just need to explore and to pick our spots.

From my interactions with business people and the media here in Canada, I hear two key themes. On the one hand: China is viewed as too risky and too difficult for a small or medium size Canadian business to contemplate. On the other hand the question is asked, “Has Canada missed the boat on China?” Australia, America and many European countries are actively at work in Hong Kong and China. Are we too late?

I can’t answer this for you or your company. What I can do is share the perspectives I’ve gained by leading a business in Hong Kong and through my role as President of the Canadian Chamber in Hong Kong. I can also tell you, that since September of last year, there has been an incredible influx of new businesses into Hong Kong. This is among the highest level of activity since before the financial crisis in 1997.

Now, in the spirit of transparency and disclosure, I do also need to state my bias about Hong Kong and China. I believe this is our future. Napoleon said: “Let China Sleep…for when she wakes up she will shake the world.” Well China is awake. I believe our generation and the next will be dealing with the amazing global transformation this is creating. China’s awakening will impact us all.

My presentation today will cover:
1. Some insight into China. It’s sheer size & diversity
2. How Hong Kong may be considered as an entry point for China by taking a look at 3 Canadian companies who have begun operations, through HK, in the past 8 months.
4. Lessons Learned about doing business in China/HK
5. A strong close on why you may want to consider HK as a Fast Track to China.

ABOUT CHINA & HONG KONG
China is not a single economy nor is it a single market. China, in fact, has over 31 different provincial and city markets that are highly self-contained, and some of them are huge. If Canada were a Chinese province, then in population terms we’d be one of the ‘little guys’. China has 4 provinces with a population of more than 60 million. No less than 20 of China’s provinces are at least the size of Canada’s 32-million population base.

These provinces, for the past 50 years, lived highly insular lives. There is an old Chinese saying that ’The Mountains are High and the Emperor is Far Away’. This indicated that while Beijing set the policy, the application of that policy was under the control of the provinces and the city mayors. As a result, each area of China had their own banks, airlines, breweries and power stations. Although this is changing, each individual province is highly autonomous and it is very tough to distribute goods or services between them.

These provinces may not yet be individually rich enough to have the consuming power of Canada, but some are not far short and given current growth rates some will be larger consumer economies than Canada sooner than we think.

As you think about building business in China, recognizing that China is not a single market is very important. It is also important to build strong relationships at city and provincial levels. The right partner on the ground plus leveraging key government and chamber connections makes this possible.

Three high profile and well-known business regions in China are Beijing, Shanghai and the Hong Kong/Pearl River Delta. These are clearly the most mature, well-developed parts of China. Elsewhere, the country is in various stages of development. This means different opportunities for different businesses.

To further illustrate the diversity of China markets – GDP per province varies greatly as does business opportunity. Higher GDP provinces are more actively developed and have many characteristics of fast-growing consumer markets. This means an increasingly developed middle and affluent class with the financial ability to afford many of the same goods and services that we purchase in Canada. For the middle tier provinces these are developing markets with the need for infrastructure investments like roads, hydro, construction, industrial parks, and education facilities. The poorer provinces are still some time away from being viable markets.

China’s development is a complex one. The Central People’s Government is very aware of and are actively trying to manage the divide between the “have’s” and the “have not’s”.

China’s Premier Wen Jiaboa summed it best in a speech in Ottawa last year. “China has 1.3 billion people. Even a very small problem, if multiplied by 1.3 billion, becomes a big problem if it is not well-managed.” The governments of the middle and poorer provinces are receiving tremendous support, from Beijing, to ensure opportunities for development in these regions keep pace with the growth of markets like Beijing, Shanghai and Guangzhou.

For us as business people, this insight is helpful in researching and identifying which parts of China may be the best fit for your business. If you are in natural resources and infrastructure development then focus on the developing provinces. If you are in consumer goods, business and financial services then research your opportunities in the more mature markets.

HONG KONG & THE PEARL RIVER DELTA
On the topic of mature, developed markets I would like to turn our sights to Hong Kong and the Pearl River Delta -an area that, to many Canadian business people, is China’s best kept secret.

The Greater Pearl River Delta (or PRD) is an area encompassing cities along the Pearl River of Southern China and the Special Administrative Regions of Hong Kong and Macau. (Macau was a former Portuguese Colony.)

In the late 1970’s, China set up a special economic zone in the Pearl River Delta to test the opening up of China’s economy and to leverage HK’s active trading port strengths.

Until then this part of China was at the margins of China’s economy. The steel and power industries were up in the far north. Cotton and silk was developed along the Yangze provinces surrounding Shanghai and China’s science and defense industries were located as far as possible away from the south.

The opening up of PRD as a special economic zone resulted in the shift of manufacturing out of HK and the transition of HK to a logistics, design and marketing hub.

Since the onset of this program, the PRD has been “the fastest growing part of the fastest growing province in the fastest growing large economy in the world!”

Today, the PRD accounts for more than 1/3rd of China’s exports and is referred to as the ‘factory to the world’. It is the base for the world's top manufacturers and exporters of consumer goods including watches, telephones, radios, toys, footwear and clothing.

If the PRD were a country it would have the 16th highest GDP worldwide and would be the 12th largest trading economy.

The role of private sector companies is unique in this region. The PRD accounts for 35% of China’s foreign investment and is home to over 40% of China’s foreign-invested enterprises.

For Canadian business people the PRD can be considered in 3 ways:

1. As A Source of Manufacturing Advantage
Companies source or manufacture competitively in the PRD and then use HK's logistical services to export their products to the world. Major PRD cities offer world class manufacturing facilities, manned by a skilled workforce, with strong quality control. Hong Kong companies employ 11 million workers in their PRD operations.

2.As A Natural Market
The PRD is home to more than 24 million permanent residents (not including migrant labor).

Shenzhen is the most affluent city in China. More cars were sold in Shenzhen (pop 7 million) in 2003 than in Shanghai (pop 17 million). In 2003 an average of 300 new car licenses a day were issued in Shenzhen.

Rapid economic development in the region has made them the mainland's biggest spenders.

This is also creating a robust tourism boom in HK. In July 2003, China began to ease travel for mainland visitors to HK. By July 1, 2004 an estimated 150 million citizens will be able to visit without restriction and believe me, they are visiting and they are shopping.

3. As A Base for China Business
Many foreign-owned companies use HK and the PRD as their distribution base for selling into China. PRD consumers provide a strong bell-weather for testing overseas products on the domestic Chinese market.

In 2003, a “Closer Economic Partnership Agreement” (CEPA) was enacted between China’s PRD and HK. This form of free-trade agreement grants easier access to China markets for HK-made products, and HK-based service companies. As Canadian business people we can access this by partnering in HK with a CEPA qualified organization.

So think of PRD for high value added goods export and as a possible market for your products.

2. A LOOK AT HONG KONG
With this as background, I’d like to talk specifically about Canadian businesses that have recently started up through HK.

Securac, headquartered in Calgary, is a software and consulting services company that specializes in enterprise risk management. Securac offers unique web-based software that helps organizations identify, measure, manage and mitigate their physical, operational, IT and regulatory risks.

The global threat of terrorism, heightened corporate governance and China’s admission to the World Trade Organization are creating strong demand for risk management tools – both in developed Asian markets and in Mainland Chinese businesses hoping to go public on international stock markets.

Why Hong Kong?
1. Its geographic proximity to other major Asian centres
2. Its well-developed legal system that respects intellectual property rights
3. Its enthusiasm to embrace new ideas around IT
4. Access to HK’s capital markets (including a very active venture capital market) to fund Securac’s Asian growth
5. HK’s beneficial CEPA (closer economic partnership agreement status with Mainland China) status
6. HK’s strong links to Canada offer highly beneficial networking opportunities.

Getting Started:
§ Made their first exploratory trip to HK in August 2003.
§ Secured their first customer in January 2004
§ Worked closely with InvestHK and Canada’s DFAIT (department of foreign affairs and international trade) office in HK to establish the business. Through the Canadian Chamber’s IT committee and general membership were able to network for business prospects and funding.

Triple O’s By White Spot: In November 2003 Triple O’s by White Spot opened its first international store in HK. Boy, was this big news in the Canadian community!

The idea for international expansion was triggered by a HK/Canadian family who continually heard people in the community say ‘the first thing I do off the plane in Vancouver is head to White Spot”. They approached the head office of this 75-year old Canadian chain and an international franchise agreement was secured.

Why Hong Kong?
1. HK seemed to be an obvious first Asian market as there are many existing HK/Vancouver commuters who are customers of the brand.
2. Plus, there are a large number of HK residents who travel to Whistler each year for vacation.

Getting Started:
The first store is located in the Great Food Hall in Pacific Place – a flagship shopping mall (a HK “Bloor Street/Rodeo Drive”-type place). Promoted essentially through chamber promotions, word of mouth and a high visibility location, business has done extremely well and has broadened beyond people with a Canadian affiliation to people who love luxury burgers of high quality in a setting of high service. Today, their market includes local HK Chinese as well as mainland Chinese tourists.

Future sites are now being researched to fit their niche market for a luxury burger. These sites include further openings in HK as well as Macau and Southern China.

This is a good example of utilizing our strong HK Canadian population base to develop and expand your business to HK/China. (Sure would love to see Tim Horton’s in HK!)

Royal Bank Capital Markets:
A large company but a good example of an organization that didn’t bring their full Canadian business model to Asia. The opening of their Capital Markets branch was triggered by their search for an expanded market for specialized expertise they had developed. RBC Capital Markets (Hong Kong) provides wholesale financial services to large corporate, government and institutional clients.

Why Hong Kong?
1. Asia is a very large place. Although they have offices in Sydney, Singapore and Tokyo they recognized that HK/China is its own dynamic region and can only be covered properly by a presence there.
2. HK was their preferred location for it combines a professional, international business friendly environment with a strong, effective regulator.
3. It is the perfect stepping stone to China.

Getting Started:
For them, the set-up was intensive.
§ In the early stages they worked with the DFAIT Office in HK to effectively research the market and get connected to the regulator.
§ Once they decided to enter HK it took about 6 months to obtain the necessary approvals from the HK Monetary Authority. Through the process the monetary authority was very strict and very helpful. This gave them comfort that a world-class regulator was regulating the market.
§ They also worked with the Canadian Chamber to connect to possible customers within our membership base and to promote the opening of their business.

How are they feeling about their new business in Hong Kong?
They are very happy with the response, progress and support from the community. They believe HK’s long, close relationship with Canada gives a Canadian bank a positive reception.


CANADIAN CONNECTIONS
On the topic of Canadian connections…this has been a common theme throughout my remarks. Canadian business people have a large, active, credible base of connections to draw upon in considering business in HK or China. To name a few:
§ The Canadian Chamber of Commerce in Hong Kong is the largest Canadian business association outside Canada. We have 1,200 active members and 3,000 business people affiliated with our network.
§ Hong Kong Economic Trade Office (HKETO)/ Invest HK/Trade Development Council (TDC)
§ Canada’s Department of Foreign Affairs and International Trade (DFAIT)
§ Canadian University Alumni groups

You don’t have to start from scratch in exploring the fit of your business and HK/China. Each of the companies I profiled made active use of some or all of these connections to get started.

LESSONS LEARNED
To summarize, the lessons our business community has learned doing business in HK/China:
§ Understanding that China is a number of markets, take your time to investigate and pick the market that is right for your business.

§ Product range and sophistication varies with the dynamics of each of these markets. Be prepared to tailor your offering. For example, in Financial planning, while the Canadian practice supports a 1-2 hour information gathering activity, in HK, you have 15-20 minutes – tops!

§ The Right Partner Makes The Difference: I realize many Canadian business people have difficulty finding the right partner. This takes time. Start your investigations through organizations you can trust like DFAIT, HKETO, InvestHK, Canadian Chamber of Commerce in Hong Kong, Hong Kong Canada Business Association and local Canadian Chinese Associations. Keep looking until you feel comfortable that you’ve found someone who shares your values. This is not a 2 –3 lunch a year, long–distance relationship. This requires time, on the ground, to build the trust. This requires people, on the ground, to maintain the relationship. This requires personal time and attention from people at the top of your organization to make it work. This requires continuous investment to nurture it. At Sun Life Financial, our worldwide CEO and our President visit Asia 2-3 times per year, each. During these visits they spend time with senior executives at our joint venture partners, strategic alliance partners and major customers. This sends a strong message of commitment and interest to our market.

§ Importance of Knowing Who Your Customer is – how they wish to purchase and what. Don’t assume what worked in Canada will work here.

§ Cross-cultural training – two-way. Your Asian employees need to know how to interact with Canadian corporate contacts as much as your corporate office and board need to understand the cultural nuances of doing business together.

IN CLOSING
Give some thought to the potential fit of HK as an entry point for your China business.

It sits at the heart of China’s strongest region – the Pearl River Delta

It is truly international – its regulations and business practices are world-class and oriented to international business. This provides a high degree of comfort and familiarity for Canadian business. It offers a highly educated workforce with strong English language skills.

It is both a city of entrepreneurs as well as service professionals. You will find numerous highly qualified firms to assist with legal, accounting, capital financing and business establishment matters. Several of these firms are participating in this conference.

Of course HK remains a city of business. It offers businesses a low & simple corporate tax rate of 16% and a business–friendly environment.

I opened my remarks with Napoleon’s wish to “Let China Sleep…for when she wakes up she will shake the world.” So let me close with my wish to “Let Canadians benefit from the strong connections that tie Hong Kong, China and Canada and open the door to new opportunities.”

On behalf of the Canadian Chamber – we look forward to welcoming the trade mission to Hong Kong and to helping get you connected. Thank You!