“Welcome to the first world,” these were the words I heard from my former boss when he met me on my first ever visit to Hong Kong four years ago. Indeed, when coming to Hong Kong from Mainland China you are dawned with instant understanding that Hong Kong or Xianggang as this special administrative area of the People’s Republic of China is called in Chinese is not exactly China. It makes you feel as if you happened to get from a wantonly burgeoning industrial power right into an accomplished civilized state. Everything is different there – the Chinese, their approach to business, their laws and currency, their financial, fiscal and legal systems and even the air.
According to Antwerp Facets, when the People’s Republic of China re-gained its sovereignty over Hong Kong which happened on June 30, 1997 impending changes were everyone’s expectation with some fearing that freedom which used to be Hong Kong’s usual frame of mind will be limited, while others predicted a secondary role to Xianggang as a financial and business centre.
However, the territory was granted wide autonomy at least until 2047 meaning that within 50 years after gaining sovereignty the central government of the People’s Republic of China will take care of issues related to the territory’s defense and foreign policy, while Hong Kong reserves control over legislation, police forces, financial and monetary systems, customs duties and immigration policy, and also maintains representation in international organizations and events. Besides, China is not going to kill the goose laying golden eggs and rehash Hong Kong to fit the mainland yardstick. At least so far as everything is economically expedient and harmonious within a mode labeled “one state - two systems.”
But 13 years later, to the outside observer life in Hong Kong appears to have changed very little. Indeed, they have gotten better. Sales of jewellery in the former colony, particularly to tourists, while not insignificant and providing employment for thousands of store and factory workers, are a relatively minor part of the area's diamond story. Hong Kong is quite simply the gateway to the huge emerging market of China.
When government control over Hong Kong switched back to China 13 years ago, there was still relatively little interest by foreign investors in China. Since the start of the last decade, however, the situation has been transformed. Not least of all in the jewellery business, with proof of that to be seen again at the June 24-27 Hong Kong Jewellery and Gem Fair which will feature more than 40 Belgian exhibitors and around 1,000 others from around the world. Approximately 17,000 visitors from more than 100 countries and regions are expected to attend the show.
Meanwhile, around 90 Antwerp diamond firms are expected to take part in the September 14-20 edition of the show, which attracts huge worldwide interest and is regarded as a key gauge of the state of the global diamond markets, according to the Antwerp World Diamond Centre (AWDC).
«Other alternative to visiting of the Hong Kong jeweller exhibitions does not exist», - the head of department of sales of one of the Antwerp companies speaks. «There are some jeweller to an exhibition of smaller value which can be passed, but Hong Kong – is exact not from their number. All of us know that China is the market of the future and we meet each other again and again at the Hong Kong exhibitions».
“There is no alternative but to attend the Hong Kong fairs,” said the head of the sales department of one Antwerp firm. “There are some fairs around the world, the smaller ones, that can be disregarded, but there is no way that you can ignore Hong Kong. We all know that China is the market of the future and we all run into each other again and again at the Hong Kong fairs.”
Both exhibitions, in June and September, have already won support of the local jewelry industry. The Hong Kong Gemstone Manufacturers’ Association and the Hong Kong Pearl Association assisted in their organization and will recommend their members to take part.
Hong Kong is a very attractive place for international business as it offers optimum business environment, business protection under international standards and at the same time has a number of important advantages for companies wishing to enter the Chinese market. Besides, business the Chinese style is known for its basic difference from the western style sometimes causing insurmountable problems in trying to establish business relations with Chinese partners, whereas Hong Kong which absorbed Eastern and Western culture can act as an ideal intermediary between them.
It is possible to point out the following major advantages of Hong Kong as a tool of international business:
1. Favorable tax regime.
Taxation of Hong Kong companies is based on a territorial principle meaning that corporate incomes are taxed only if earned on the territory of Hong Kong. The only tax levied from companies (profits tax) amounts to 16.5%. Incomes gained by Hong Kong companies beyond the territory are not subject to taxation in Hong Kong. In Mainland China, according to the redrafted Law of the People’s Republic of China effective from 01.01.2008 “On Profits Tax Levied on Enterprises,” the general profits tax rate is established at 25%.
2. Simple procedure for establishing and maintaining a business.
To register a business in Hong Kong it will take you just one or two days, while the minimum paid-up authorized capital is 1 dollar whereas starting up a company in Mainland China will take you a total of 3 to 6 months, and you will have to pay from 100,000 to 300,000 USD or more as authorized capital (its size strongly varies depending on the place of registration).
Hong Kong boasts of a well-developed financial system offering convenient payments control from any spot on the globe in the absence of foreign exchange restrictions and permitting free movement of capitals (within the FATF requirements).
3. Free flow of information.
Unlike Mainland China which censors mass-media and the Internet and blocks objectionable network resources, in Hong Kong information is open and easily accessed. Currently China is banning such sites as Facebook, Twitter, Youtube and some western information portals.
4. Legal environment adapted to international standards.
Hong Kong companies are organized under the legislation which is based on the English law and their financial reporting is based on international standards of financial reporting which considerably facilitates office-work connected with corporate business worldwide.
5. Strategic gateway to Mainland China.
The Closer Economic Partnership Arrangement between Hong Kong and Mainland China, legal provisions allowing permanent residents of Hong Kong to launch businesses in China under a simplified scheme, developing foreign trade settlements in yuans between the Chinese and Hong Kong companies in some fields - these and other measures serve to generate a favorable mode of access for Hong Kong companies to the domestic market of China.
According to Antwerp Facets, Mainland China and Hong Kong together account for about 25 percent of the polished diamonds exported from Antwerp each month, and that is seen growing in the coming years as Chinese consumers increase their purchases of diamond jewellery. Antwerp’s polished diamond exports to China in 2009 equalled $250.8 million, and that was in addition to the $1.85 billion that was exported to Hong Kong, a major portion of which would eventually be sold in China. In the first four months of 2010, Hong Kong imported 23 percent of Antwerp's polished diamonds in financial terms at $756.9 million, an increase of 41.5 percent on the same period of 2009.
Antwerp Facets asks, whether can overtake Shanghai in the future Hong Kong and become the leading centre of diamond trade in Asia? In the 1920s and 1930s, Shanghai was the major centre of international trade and finance in East Asia, the portal says. However, its status as the “Pearl of the Orient” began to decline with the outbreak of the Sino-Japanese War in 1937. Following World War II, the Civil War in China and the victory of the Chinese Communists in 1949, most foreign firms transferred their offices to Hong Kong from Shanghai as foreign investors made a quick exit. The rivalry between the two cities has grown in the past decade, with Shanghai presenting itself as a real Chinese city while Hong Kong is seen by some in China as an artificial foreign creation.
The current measures taken by the central government are aimed at turning Shanghai into a global financial centre and the aggregate turnover of the Shanghai Stock Exchange already exceeds performance indicators displayed by its Hong Kong counterpart although mainly due to yuan-based transactions. As the process of remodeling the Shanghai Stock Exchange and its integration into the world financial space are going on it is possible to expect that the aim set by the Chinese government will be reached. Besides, Shanghai has one more important advantage – its hosts China’s official diamond exchange. But so far business goes where it feels convenient and economically expedient to go – to Hong Kong, so that it can get where it would like to be tomorrow – in China.
Olga Patseva, Rough&Polished, Shanghai
