TVB Interview

Question 1: As a leading Hong Kong financial industry player, can you share with us the challenges that HK experts are facing, especially in exporting their services to overseas or mainland?

Answer: HKG is an international financial centre with many participants from all over the world. The international participants have overseas offices or were originally from overseas. The challenge that HK based financial services firms have to face is how to offer our services overseas. We can tie-up with an overseas firm or set up our own offices. In order to consider the most appropriate option, we need to spend substantial time and resources studying the overseas market, identifying potential partners, and negotiating the appropriate set-up. Many HK based firms do not have the resources to do this on our own.

Question 2: Would you share with us your experiences of joining HK Trade Development Council’s delegation to Moscow and St. Petersburg which led by the Financial Secretary in 2009 and Asian Financial Forum?

Answer: I have participated in many TDC delegations in China, Asia and Europe. Many HK based financial services firms have explored the markets in China and Asia but Europe has always been a little too far away both in terms of distances and time zones. The TDC’s delegation to Moscow and St. Petersburg was very useful to me personally as I was able to gauge the level of interest in the HK financial market from similar sized organisations in the Russian Federation, and from potential clients.

Many companies in Russia are looking at various financial centres for fund raising but have been disappointed in the European markets’ recent performance. They have come to realise that HKG is an important financial centre for China, and that many M&A deals can be done with Chinese entities through HKG. Russian financial advisors are also looking at tying up with partners in HKG in order to compete with the international banks.

I have attended every AFF since its inauguration. In addition to the high quality of the speakers, I have found it an excellent venue to meet potential partners. By coming to HKG to attend the AFF they already have interest in either investing in HKG or developing HKG tie ups. You might even say that they are more or less pre-qualified so we are talking to people with genuine intent.

Question 3: What is the contribution of HKTDC in promoting HK financial services to the world?

Answer: The problems faced by HK based financial services institutions are the same ones faced by HKG manufacturers and traders in the early years. How do we reach international markets with our services? How do we identify potential partners in international markets?

In the same way that TDC has helped the manufacturers and traders, it is now helping financial services firms. In addition to manufacturing and trading, HKG is now an international financial centre. The TDC has recognised this shift and has re focused itself to assist HKG financial services firms to tackle overseas markets.

The job is different and much harder. We do not have physical products to sell or show in exhibitions. What we have is our network, knowledge, expertise, and perhaps some physical infrastructure e.g.. internet trading etc. Without the leadership of TDC, I would not have been able to even consider overseas markets. The investment in time and efforts (not to mention costs) would have been too big.
In the same way that the TDC helped HKG become the premier trading centre of the world (with China as our work shop), it is now helping promote HKG as an international financial centre.

International financial institutions were successful in bringing foreign capital to China. Now that China has accumulated USD2.4 trillion of foreign currency reserves, HKG will become the fund raising centre for many international companies.

How much of "Made in China" is made in China?

The Federal Reserve Bank of San Francisco published a study which tries to answer this question. The short answer is US consumers spent 2.7% of total personal expenditure on goods which are "Made in China". The study goes further is point out that out of every dollar spent on these goods, $0.55 goes to US businesses and workers for marketing, rents, transportation, electricity, etc. Thus, only $0.45 goes towards the costs of "Made in China" goods.

However, the study did not go far enough in analysing the $0.45 that supposedly goes to China. Many US businesses (read WalMart etc) have buying offices in China which places the orders with Chinese manufacturers. The goods are shipped off to the US after a hefty markup by the buying office to drop off the profits in a lower tax regime.

For example, an iPhone which retails for $500 "costs" $179 to make in China. Of the $179, $172.50 actually goes to parts that are not made in China. So $6.50 is the assembly costs that is earned by the Chinese or 1.3% of the retail price.

So why do we think that "everythjing we buy is made in China"? The answer is simply mis-perception. Blame this on the media.

We keep reading about the US trade deficit with China and how this is growing. However, as a percentage of total US production this is only a smal percentage (2.9% of a $10 trillion economy).

According to the study, 88.5% of consumer spending is on goods and services made in the US. The key word here is services, think mortagage repayment, car repayment, insurance payment, school fees, etc.

Forcing China to revalue the RMB upwards by 30% would only increase the Chinese component of the costs by $1.95, hardly enough to discourage imports from China but increasing costs to consumers. 

Would US workers be willing to work for $500 per month assembling iPhones? Probably not, so the work and money will go to some other low costs countries. US businesses do their sum everyday. If they can make it cheaper and more efficiently somewhere else, they would have already done so. The benefit is passed on to US consumers in terms of lower prices, and to US businesses as higher profits which enable them to hire US employees.