Will China really open up now?

The weather is lovely when the boat brings me from Kowloon to Hong Kong Island. This is where the enormous, 16-meter-high yellow plastic duck by Dutch artist Florentijn Hofman floated before the summer – a great Dutch export product! Unfortunately, the duck exploded after the summer in Taiwan...

Hong Kong is still the gateway to Asia, even though Shanghai is becoming increasingly attractive. Most international corporations with Asian activities have regional offices in Shanghai, Singapore or Hong Kong. That is why ING has a presence in all three. Rooted in our ‘think global, act local’ thinking, this is where international companies map out their Asian strategy in close consultation with head office. Being close to the action with local people in the same time zone is an additional  advantage. Because Hong Kong is a fairly small market for most businesses, the focus is on the entire region and not so much on Hong Kong itself.

 

The strides are getting bigger
During this trip to Hong Kong, I speak to a large number of our clients about economic developments in China, the Shanghai Free Trade Zone and what outcomes they expect from the Chinese Party Congress. The Chinese Communist Party has announced plans for the further privatisation of sectors, the easing of bureaucratic processes, the partial abolition of the one-child policy and easier access to the country for foreign companies. For years, China has been opening up gradually to the world. ING has been present in China since 1985 and we have followed the process at close quarters. At current, we see that the Chinese government is making bigger strides.

Jeroen Plag, head of International Corporate Clients ING, is now reporting from Hong Kong, where he is speaking to local clients about recent developments in China. He comments on the impact of the reforms announced by the Chinese Communist Party and discusses the future of Hong Kong as a financial centre, focusing on opportunities for Dutch businesses.

It is still unclear what the far-reaching economic reforms will entail precisely, but China will most definitely become more market-focused and the country is looking for a different role for its government. More focused on creating favourable conditions, less on intervention. China also wants to improve income distribution and health care. All of this will hopefully lead to more stable growth and increased clarity on the direction the Chinese want to take. This will create clarity for foreign companies – including Dutch ones –, who will encounter fewer obstacles when investing in China.

 

Opportunities for the Netherlands
This is the time for Dutch companies to investigate opportunities to build a business plan for China – even if it’s for the longer term. The world’s second-largest economy has an  annual economic growth rate of around 7% and a fast-growing middle class.

 

But where do opportunities for Dutch business lie? Specialised infrastructure is an example. In Northern China, for instance, there is a major shortage of water to tap into newer, cleaner sources of energy in order to replace coal-fuelled plants. In addition, 80 new airports are planned throughout China to distribute economic growth inland too. And Chinese production isn’t strong across all regions yet. The Dutch industry is in an excellent position to  complement this. In areas we are good at, such as chemicals, water management, the dredging industry, food and agri, but also in medical technology and environmental technology.

 

Will Hong Kong maintain its position?
What will the new developments mean for the position of Hong Kong? The CEO’s we spoke to had varied opinions on this. They do not expect, however, that Hong Kong will be overtaken by Shanghai as regional financial centre. Hong Kong will maintain its position, certainly in the medium term. Shanghai would really have to take drastic measures to alter this. Hong Kong ranks third in the world as global financial centre (according to the Dow Jones IFCD listing), after New York and London. The concentration of banks, a high degree of transparency and strong supervision, in addition to the British-based legal system, and the  free flow of information, remain an obvious plus for investors. This appears to be underlined by the continuously increasing property prices in Hong Kong. The famous skyline of the harbour city is continuously developing.

 

The role that Feng Shui masters play in this is worth mentioning. The Feng Shui philosophy focuses on how surroundings can influence luck and Feng Shui masters  advise on how to construct a building in order for future residents to ensure a prosperous future. They were consulted on most of the buildings in the HK skyline. The architect of the HSBC building took this to a new level: after the iconic structure was finished, the building of the Bank of China building was erected alongside it, with nicely-lit triangles at night. The position of this building and its sharp corners ‘threatened’ the HSBC building according to Feng Shui lore, which led the architect to decide to build two cannon-like structures aimed in the direction of the Bank of China to avert the ‘threat’!

 

Initially published by Dutch daily 'Het Financieele Dagblad', re-published with permission by ING.