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Hong Kong Manufacturers Enjoy Priority in PRD Power Supply Increase

Guangdong plans to increase its installed capacity by 8.35 million kw this year to ease the problem of power shortage, which has forced many factories to "open for three days and close for four days" a week. Hong Kong manufacturers in the PRD will enjoy priority in electricity distribution.

Guangdong's power shortage has been a major headache for enterprises, including Hong Kong manufacturers, who find the practice of "opening for three days and closing for four days" a week unacceptable because it affects their normal production process. In light of this, measures have been taken in recent years to give Hong Kong manufacturers priority in power supply. Under these measures, Hong Kong companies enjoy shorter power cutoff hours and more prompt service. In the event that their power supply is interrupted, they can notify the local foreign trade and economic cooperation department and their problem would be resolved promptly.

Demand for electricity in Guangdong will continue to grow rapidly and steadily this year. Total power consumption is expected to reach 333.9 billion kwh, an increase of 12% year-on-year. Maximum load demand will reach 56 million kw, up 13% year-on-year. Of this, 46.5 million kw are subject to overall planning, up 24% year-on-year. With the increase in installed capacity by 8.35 million kw this year, the problem of power shortage in the province could be eased.

Guangdong will see power generation projects going into operation in Guangzhou, Shenzhen, Zhuhai, Huizhou, Shanwei and other places this year. Three of these projects have 2 x 600,000 kw generating units. Each of them will increase installed capacity by 1.2 million kw and flue gas desulfurization capacity by 1.2 million kw. The three projects are: the installation of generating units Nos. 1 and 2 in the first phase of the Shanwei Power Plant at a cost of Rmb580 million; the installation of generating units Nos. 3 and 4 in the first phase of the Zhuhai Power Plant at a cost of Rmb500 million; and the installation of generating units Nos. 1 and 2 in the first phase of the Huilai Power Plant at a cost of Rmb600 million. Following the completion of these projects, except for the January-April dry season when a small power shortage is to be expected, power supply will be basically well-balanced for the rest of the year under normal circumstances. Overall, the year will see an easing of power shortage.

Proven Track Record Needed When Applying for Foreign-Invested Design Enterprise Qualifications

On 1 February, the Ministry of Construction and Ministry of Commerce jointly issued the Implementing Rules for Regulations on the Administration of Foreign-Invested Construction Engineering Design Enterprises. The new rules set strict standards for the application and verification of qualifications of foreign-invested construction engineering design enterprises.

Under the new rules, when applying for verification of qualifications, foreign-invested construction engineering design enterprises must not only meet the necessary professional requirements, but must also provide documents supporting their track record as foreign service suppliers outside China as well as qualification certificates of individual registered architects and engineers.

As required by the Ministry of Construction, foreign service suppliers should be enterprises engaged in construction engineering design or natural persons who have obtained relevant professional qualifications in their own countries or regions. While foreign enterprises must have proven track record as construction engineering design enterprises in their own countries or regions, natural persons must be registered architects or engineers engaged in construction engineering design in their own countries or regions.

When foreign-invested construction engineering design enterprises employing foreign registered architects or engineers as principal professional personnel apply for qualifications as a construction engineering design enterprise, the professional titles of these personnel will not be verified. Verification will only be conducted on their academic qualifications, number of years of service in engineering design, as well as their registered qualifications, track record and goodwill in engineering design abroad.

Michael Wu with his grandfather, the late S.T. Wu, and great uncle James Wu. The younger Wu has helped to modernise Hong Kong's largest restaurant group. Hands-on maxim a recipe for success by ENOCH YIU

In 1992, Michael Wu Wei-kuo had to make one of those gut-wrenching choices common to the progeny of successful entrepreneurs. About to graduate from Brown University with a degree in applied mathematics and economics, he had been planning to become a banker. But then his grandfather S.T. Wu, co-founder of Maxim's Group, made him an offer: work in the family's half-owned business - Hong Kong's largest restaurant group - and if you do well, you may be the boss one day.

For the 22-year-old, that meant turning down an offer from US investment bank Merrill Lynch for US$40,000 a year plus a US$12,000 annual bonus, to become a HK$8,000-a-month trainee toiling as a delivery boy for the company's fast-food restaurants, as well as waiting tables at the Mandarin Oriental's coffee shop and grill and making pies at Pizza Hut, all which are owned by the Jardine Group and Maxim's 50 per cent stakeholder, Dairy Farm.

Reminiscing about having to carry 20kg loads of frozen chicken legs, he said: "The kitchen staff didn't know I was a trainee. They thought I was a new delivery boy and felt sorry for me, that I was carrying such a heavy load. They gave me a piece of toast, thinking I must be hungry. That was the best piece of toast I ever had - it was hard-earned."

This in-the-kitchen experience, he said, was his most important training, preparing him to take the helm from his grandfather in 2000, at the tender age of 29 (his father had already died).

"It was a gradual transition. My grandfather never really gave up his job when he retired in 2000. He still wanted to know everything, although he let me make decisions and he fully supported me," said Mr Wu.

His challenge, as for many inheriting a business, was to transform a brand established in 1956 into something attractive for a new generation of customers. In part, his hand was forced by the city's changing tastes. Wedding banquets had traditionally been a key income contributor for the group, but in the past decade couples increasingly preferred hosting their nuptials at deluxe hotels. His answer was to launch a brand, m.a.x concepts, unbound by the public impressions of the old, but retaining its organisation and core focus on service. Launched in 1998, it opened a slew of restaurants in Hong Kong, including eating plus, Thai Basil, Mezz and Kiku, which in style and temperament were nothing like their predecessors.

At present, 30 per cent of Maxim's revenue comes from m.a.x concepts, Genki Sushi and Starbucks and the rest from the traditional Maxim's business. It was the same thinking - move on from the old - that led the company to bring Starbucks to Hong Kong.

"Starbucks not only has a good brand worldwide but also has the knowledge, the system and technique to run the coffee chain," he said. Not that this radical change came without a battle. The fiercest was with is grandfather, who died in 2003, aged 92.

"My grandfather was very against Starbucks and many m.a.x concepts restaurants because he didn't like the products or the decorations. After I convinced him that our young customers liked it, he let me try, but made sure I was aware of the risks," he said.

The younger Wu also broke with tradition by eschewing the company's strict adherence to organic growth, opting instead to also expand by acquisition. Last year, the company bought Genki Sushi, the largest sushi chain in the city, becoming number one seller in Hong Kong of a cuisine popular among Michael Wu's contemporaries. In September, Maxim's won the local franchise rights for well-known US steak chain, Lawry's Prime Rib.

In some ways, even as he was moving away from tradition, he was returning to the company roots. Maxim's now might be most recognised for its cake shops around the city or as a place for yum cha in its chain of namesake Chinese restaurants and Peking Garden.

But in fact, the group began with a western restaurant set up in 1956 by S.T. Wu and his brother James in Central, where the Landmark now stands.

From there the company traveled a long road to become Hong Kong's largest restaurant group, with more than 12,800 employees working at 413 outlets - 50 Chinese restaurants, 25 m.a.x. concepts, 150 cake shops, 95 fast food restaurants, 70 Starbucks, and 23 Genki Sushi.

In order to manage the empire, Mr Wu also needed to break from his grandfather's hands-on mode of management. "My grandfather wanted to make decisions on everything, no matter how small. He was very opinionated. That was good, as his judgment was usually correct. As for my management style, I like to delegate more and I like my people to be accountable by giving them authority to make their own decisions," Mr Wu said.

But in at least one way, Mr Wu adheres to his grandfather's credo of close control. The company has turned down requests to open outlets in London and Vancouver, because, he said, "one has to be very hands-on in the restaurant business. If we don't have control of the chefs and managers, it is very difficult to manage".

Despite reports every year of investment bankers receiving multimillion-dollar bonuses, Mr Wu has no regrets about his choice of career. "The restaurant business is fun," he said. "I can create something - a new concept or brand - and if people like the food and concept, it is very satisfying. Even more fulfilling is if it makes money."

A new life - In the first big share offering of the new year, China Life debuted on the Shanghai stock exchange, its stock price more than doubling in value to make it the third-largest insurance company in the world with a market value of US$141 billion. The company will be added to a number of Shanghai bourse indices before the end of the month. The market rose from 2,650 to over 2,800 on the strength of the offering. Meanwhile, the company’s Hong Kong shares fell 4.7% amid general profit-taking on mainland companies. China’s second-largest insurance company, Ping An, is expected to list in Shanghai later this year.

Setting the tone - In a series of addresses, top Chinese officials outlined the country’s outlook for 2007. PBOC Governor Zhou Xiaochuan said the central bank would continue to keep a keen eye on overinvestment and liquidity, starting with a 50-basis-point raise of the reserve requirement ratio, the fourth hike in seven months. He also hinted that regulators would allow greater flexibility in the official RMB exchange rate. President Hu gave a few speeches indicating that both the prosecution of corrupt officials and the buildup of the nation’s armed forces would carry on. Meanwhile, it was reported that certain members of the leadership were urging Hu to step down from the presidency – an unlikely outcome, it would seem.

Mutual appreciation - As the value of China’s mutual fund market passed US$100 million for the first time, up 83% in the last year, regulators announced a freeze on the creation of new funds to last “a few months” with the aim of cooling the market. According to one source, “mutual funds are required to start buying shares within 10 days of launching, which obviously pushes up stock prices”. At the same time, the bond market is looking to expand: mainland financiers will soon be permitted to sell RMB-based bonds in Hong Kong, further expanding yuan-based business in the Special Administrative Region.

Flexible measures to attract overseas talented people

Chinese Ministry of Personnel has vowed to work harder to provide better channels for overseas talented people to serve the motherland.

According to MOP's 11th five year plan, China will implement three major measures to attract three types of talented people including leading persons in academic research, senior managerial personnel and special talents in need to help build a well-off society and independent innovation.

First, the leading persons who master the core technology and are capable of independent innovation in academic field. China will encourage the national key laboratories, universities and scientific and research institutions to openly recruit their leaders or leading research fellows both home and abroad in order to introduce a group of world's first class scientific and technological leaders and strategic scientists. Meanwhile, in combination with the national key programs and important innovation projects, China will also introduce high level overseas talented people, scientific and research teams and creative talented people who have great potential to contribute in technology and independent innovation in the fields of energy, water, mineral resources, environment and agriculture, biotechnology, advanced manufacturing and new materials.

Second, senior management and operation personnel who are familiar with international practices and capable of international operation. In order to grasp the important opportunities of the new round of optimization and industrial transfer of global production factors, in combination of the demand of China's upgrading of industrial mix and utilization of foreign investment, China will actively introduce a group of senior management personnel in financial, legal and trade fields.

Third, special talented people who have special expertise for the economic and social development. According to the special introduction plan, China will take flexible and special methods to introduce top strategic talented people.

According to the plan, a group of industrial bases will be established on the basis of market demand. They will provide good momentum for returned overseas talents to produce, study and research.

In the following five years, Ministry of Personnel will continue to cooperate with the local governments to establish special zones for returned overseas students and encourage them to help the latter apply for government supported projects in proper procedures, support the zones recruit advanced personnel home and abroad and find proper projects for them. A total of 10 thousand enterprises are expected to settle in 150 special entrepreneurs' zones.

In order to encourage overseas talented people to come back, a series of favorable measures will be taken: supporting the transfer of patents, special know-how and scientific and technological achievements by allowing the returned overseas personnel to hold shares or establishing new enterprises, providing them with convenience in tax, co-financing and labor and personnel. A co-financing mechanism in high-tech transfer will be established and foundations for returned overseas students will be set up. Special zones with better conditions are encouraged and supported to introduce venture investment funds or entrepreneurs' fund so that those who returned from overseas can get funding easily.

MOP encourages overseas talented people to take part in the construction of China in various forms. The plan proposes to make full use of those talented people surrounding the strategy of opening up. Overseas talented people can serve China in a broader extend and higher level through part-time work, cooperative research, giving lectures in China, conducting academic exchanges, visiting or providing intermediate services as long as it is conducive to promoting domestic reform and development. During the 11th five year plan period, MOP plans to attract a total of 200 thousand people to come back and work for the country in various ways.

To facilitate the service channel, MOP is more open for new ways, for example, appointing someone to a certain position for certain term or contracting certain projects so that it is easier for more overseas talented people to serve China. A stimulating model will be established for the talents by participating in the distribution of production factors including knowledge, technology and management. MOP will constantly complete the new mechanism for overseas talented people to work for China and encourage them to organize teams and establish bases for them to have opportunities to support key field and industry in China.

MOP will continue to host various returned overseas talented people's exchange program, provide exchange platform and widen the service field and make the service channel smooth.

MOP vows to complete the work mechanism for returned overseas students and create a 'green passage'. It proposes to complete policies and measures in attracting overseas talents to work for the motherland and providing convenience for their work, career and living conditions. A working mechanism will be formed and the role of the working office for the overseas talented people should be exerted. MOP will encourage the hosting of the annual liaison meeting and guide the overall development of the work of attracting more overseas talented people.

MOP's plan also stresses to take flexible and special methods to open a 'green passage' for high level overseas talented people to come back. Those people will be provided with convenience in applying programs, appraising professional titles, rewards, spouse's employment, children's education and entrance and exit of the border. To create new working methods, MOP can treat special talented people with special service. With a better work environment, harmonious relations among people, democratic academic environment, respect and understanding in society, MOP hopes to attract more overseas talented people to come back to China.

High-Tech Hong Kong: Into a New Era - Has high-tech left Hong Kong behind? Not according to Peter Woo. HKTDC’s Chairman argues that Hong Kong is already more high-tech than it realises. He contends that the logical next step for Hong Kong is to develop a high-tech partnership with Shenzhen and climb to a new and dynamic level of business. Let's start with a misconception. There is a saying in Hong Kong's local industry that "high-tech means losing money". Some also say Hong Kong is not perceived as a place for front-end research and development (R&D) activities. No massive production plants for high-tech products of well-known brands are visible. Many conclude Hong Kong is simply not a place for tech development.Well, just where do we stand on that? For a start, industry insiders say that Hong Kong possesses certain key technologies that have contributed to its success in international trade.

Riding on China's Coat Tails in Uncertain Times: Hong Kong Merchandise Export Outlook 2007 - Hong Kong's traders should see a modest wind in their sails over the next 12 months. While the US leads a slower global economy, Hong Kong should benefit from a more dynamic Asia, led by the Chinese mainland. But there’ll be "down drafts" - in particular, Chinese regulatory uncertainty. China is going to make much of the running in the global economy in 2007. A softer US outlook implies slower global growth, but that won't be the dominating wind of economic change swirling through Hong Kong's merchandise export sector. Rather, it will be China's inward and outward trade performances, allied to the dynamism of other Asian economies.

The Mystery of the Disappearing Industry - Manufacturing has mostly disappeared from Hong Kong. But have the huge benefits forindustrialists setting up on the Chinese mainland removed a central pillar of the SAR's economy- and with it, added to local unemployment? A new HKTDC evaluation looks at whether it's time to hold a requiem or a re-think on the economic model.
Every so often, doomsayers have been forced to recant when they've warned of Hong Kong's sudden demise. But there's been one story which has so far refused to lie down: That's the disappearance of Hong Kong's manufacturing base across the boundary to the Chinese mainland, and whether it could spell the SAR's eclipse, should the remainder of Hong Kong's core economic activity take the same route.

China's Agent of Change - Chinese mainland firms are readying themselves to develop brands, upgrade technology and generally "go out" to create investment opportunities on world markets - all are goals that have been set out under the country's 11th Five-Year Plan. A study reveals that to make the right adjustments for change, they need look no further than Hong Kong's services sector. Chinese mainland executives worry a lot about how to create the kind of brands that will appeal in global markets - rightly so, since there are currently precious few beyond the likes of TV manufacturer Haier and computer giant Lenovo that actually have great resonance away from home.

The Promise of Europe’s Eastern Lands - Not everything about Central and East European trade is uniformly positive. But EU accession and a growing bridge to Asian manufacturers and markets are giving East European companies new imperatives to look even further east for better business. Ask Hungarian, Czech or Romanian importers about the business they expect with Asia in the future and many are single minded: They want to recognise the opportunities and are determined to take action.

The highs and lows - The Shanghai composite climbed above 2,000 points for the first time in five years, continuing the market’s 2006 bull run. The Shanghai Stock Exchange has gained 74% in value since the beginning of the year as it and the Shenzhen exchange have gotten closer in line with China’s overall economic growth. But not all is well with China’s story of prosperity. A new report from the World Bank revealed that the lowest decile on the economic ladder – some 130 million people – saw their incomes drop 2.4% in 2001-2003; conversely, the richest 10% had income gains of 16% over the same period. Meanwhile, the chief of the PBOC drew attention to the country’s growing pension problems; the environmental agency said that the captains of industry were continuing to pollute the air and water; and, most worryingly, the Ministry of Health confirmed that the number of HIV/AIDS patients is up 30% on the year. Something is rotten in the state of China.

Bankrolls - Since the release last week of new banking regulations further opening the sector to overseas competition, applications for new branches have been flowing into the banking regulator’s office. At least 10 foreign banks, including HSBC and Standard Chartered, have applied for local subsidiaries which would allow them to offer RMB services to Chinese clients throughout the country. Meanwhile, the acquisition of domestic banks continues unabated, as deals were announced by Banco Bilbao Vizcaya Argentaria of Spain and Australia’s ANZ.

Eastern summit - The leaders of the world’s two most populous nations sat down to talk. Hu Jintao said that China’s economy is “complementary” to India’s and that the two nations should work together rather than against one another as they both regain prominence in world affairs. A flurry of accords and agreements were signed as President Hu and Indian Prime Minister Manmohan Singh vowed to double bilateral trade to US$40 billion by 2010. More difficult issues – such as the presence of the Dalai Lama and the 120,000 Tibetan exiles in India, and China’s arms sales to Pakistan – saw zero progress. Hu left India for Pakistan on Thursday.

At the plush Four Seasons, in addition to near-capacity room occupancy, guests are spending on spa treatments and fine dining

Hong Kong hotels are basking in a bumper 2006, a year that is exceeding projected business forecasts to achieve near-record results. As business and leisure travellers flock to Hong Kong, occupancy rates across all categories of hotels and guesthouses leapt to 89 per cent in August, three percentage points higher than for the same month in 2005. In the bustling tourist areas of Kowloon (Yau Ma Tei and Mong Kok), hotels recorded a near-capacity occupancy of 93 per cent. Demand for beds continues to increase, despite the fact that Hong Kong’s hotel room supply grew by 3.4 per cent between August 2005 and August 2006. The average room rate across all hotel categories also increased to HK$920 (US$118), 18.3 per cent higher than in August 2005.

Good news all round - James Lu, Executive Director of Hong Kong Hotels Association (HKHA), said hotel operators had expected a bumper 2006, but the results exceeded expectations. “Firstly, all major (tourism) markets registered double digit growth this year, and in particular the MICE market (meetings, incentives, conferences and conventions, and exhibitions) has done exceptionally well,” Mr Lu said. “We’ve had more events in Hong Kong and each event has had more participants, both in exhibitors and buyers. “The positive business performance in both Hong Kong and China has triggered a strong surge in business travelers, while the stable economies of the region have resulted in increased intra-Asia travel in both business and leisure categories.”

Peter French, General Manager of the Mandarin Oriental Hotel, which reopened last month following a HK$1.09 billion (US$140 million) refit, agrees. “For the past three years Hong Kong has experienced a stable business demand from all of its major markets, both long haul and short haul. The outlook going forward is very positive, predominantly from the Asian markets and of course in particular, China,” Mr French said. “On the back of strong room occupancy, room rates have returned to levels not seen since 1997.” On current figures, HKHA expects to end the year with overall room occupancy of 86 - 87 per cent across all hotel categories – close to the record 88 per cent achieved in the late 1990s and again in 2004. With an additional 8,000 hotel beds coming on stream in 2007, Hong Kong is positioning itself for a further influx of visitors resulting from major attractions such as Disneyland, Nong Ping 360 Cable car and the Hong Kong Wetland Park, and by business tourism drawn to world-class events at the Hong Kong Convention and Exhibition Centre and AsiaWorld-Expo.
“Hong Kong is well entrenched as a must-visit destination, both for doing business and for leisure,” HKHA’s Mr Lu said. “The mood among hotel operators is buoyant.”

William Mackay, Vice-President and General Manager of Hong Kong’s Four Seasons Hotel

Hong Kong’s plush new Four Seasons Hotel, which recently completed its first full year of business, had “fulfilled our expectations and more”, Vice-President and General Manager William Mackay said. “In fact, this opening remains one of the most economically successful Four Seasons has ever had.” “Besides the hotel’s own strength in terms of location, service quality and produce quality, we were fortunate to open when the market was just sizzling, and it has remained sizzling ever since,” said Mr Mackay, whose hotel is running very close to capacity. Going forward, he said the outlook is extremely positive given a broad range of indicators ranging from office absorption rates and rentals, to residential rentals, business registrations in Hong Kong, and unemployment at a record low.
“The economy here is so well managed there is not the danger of overheating,” Mr Mackay added. “We are in an almost ideal business situation. And as people are economically successful, so the brands and suppliers of luxury products also benefit. There is a feelgood factor that works well not only for room occupancy, but because people feel comfortable spending more on spa treatments and fine dining.”

SMEs thrive in world’s freest economy - Global entrepreneurs flock in their thousands to Hong Kong’s annual SME World Expo

Executives from the world’s leading small and medium-sized enterprises (SMEs) flocking to Hong Kong this month will find a city that has long counted the sector as its main economic growth engine.
Entrepreneurs from 30,000 SMEs will converge on Hong Kong’s Convention and Exhibition Centre on November 29 for three days of networking seminars and marketing, in an event organised by the Hong Kong Trade Development Council. (World SME Expo) A particular focus will be on how to exploit China’s accession to the World Trade Organisation and Hong Kong’s Closer Economic Partnership Arrangement (Cepa) with China, which allows Hong Kong-based enterprises special access to mainland markets. The world’s SMEs will find their Hong Kong counterparts have an enviable environment in which to operate. The city’s economy has for years been dubbed the freest in the world by global think-tanks, allowing SMEs to thrive in the city.

Dynamic force - Private sector employment in Hong Kong rose 2 per cent in March versus a year earlier in the most recently available government figures, with 1.8 per cent of the extra jobs being created by SMEs and only 0.2 per cent by large enterprises. SMEs are defined as manufacturing companies with less than 100 employees and non-manufacturing businesses with less than 50 staff. “SMEs provide a very dynamic force in the Hong Kong economy. They provide a major source of employment and they are also a source of Hong Kong’s economic flexibility,” said Hong Kong government economist K.C. Kwok. “Typically if you have a new type of business, the SMEs are there first,” he said. “Some of them may fail but others survive and that provides the dynamism”. Hong Kong had nearly 271,500 SMEs at the end of March, accounting for 98 per cent of business establishments by number. They provided 1.18 million jobs or about 50 percent of total employment outside the civil service.

Bedrock of Hong Kong - “My impression is that SMEs have not only been the bedrock of the Hong Kong economy but have a major share of Hong Kong’s productivity [gains],” said Simon Lee, co-founder of Lion Rock Institute, a Hong Kong-based free-market think tank. “That contribution to the economy has been because the economy has been driven by a free market. There are virtually no barriers to entry for people to start their own business, especially in goods and services.” Hong Kong has a corporate profits tax rate of 17.5 per cent, one of the lowest in the world, while unincorporated businesses pay only 16 per cent. All tax payers are treated equally, regardless of their residential status. No tax is levied on profits arising from abroad. The biggest portion of Hong Kong SMEs are in the import/export trade, underlining the importance of small businesses in the city’s traditional role as middleman for commerce between Asia and the West. The real estate, insurance and financial sectors are also heavily populated with SMEs. “Setting up the company in Hong Kong was super-easy. It only took a few days,” said fund manager David Devine, who decided to open his own business, Lynas Capital, in 2002.

Strong support - Hong Kong has great support services for SMEs with specialist lawyers and corporate facilitators on hand to speed the creation of a new company. “You can even buy a new company off the shelf,” said Mr Devine, whose company has grown quickly to have more than HK$467 million (US$60 million) under management. He also noted that Hong Kong officials were efficient and fair, a big plus in a region which has its share of corrupt bureaucracies for business people to deal with. SMEs in other parts of the world often have to suffer the heavy hand of regulators and local officials, but Hong Kong small business owners say the light touch in terms of red tape in their city means entrepreneurs can focus on business rather than completing endless official documents. “It was pretty straight forward to set it up and once it’s up and running it’s easy as well,” said Brie Sievert, a 34-year-old Canadian who operates a landscape garden business in Hong Kong called Asian Earth. Asian Earth imports plant pots and other supplies from Indonesia and Vietnam and Ms Sievert has found processing the imports through Hong Kong’s port straightforward. That’s a rarity in Asia where form filling and unscrupulous customs officials can make importing goods into a country a real headache.

Help when needed - On occasion, entrepreneurs need help from officialdom. Corinne Jedwood, who runs a successful community magazine, Inside DB, for Hong Kong’s Discovery Bay district, recalled being impressed with how the city’s Small Claims Tribunal helped her recover some overdue payments. Hong Kong’s SME-friendly environment has played a part in helping her business thrive. “I had never done a publication before. I started working from home in a little corner of my living room. I just wanted to do something small and it got bigger and bigger,” said Ms Jedwood, a French national who is a long-time Hong Kong resident. She now has seven full and part-time employees and this year has successfully launched a second magazine, Square Foot, which focuses on the city’s property market. One lasting impression for her when she was starting up was how executives at established companies in Hong Kong would offer help, advice and even capital. “People were very supportive. There was a need for the magazine and now we have a niche in the market.”

New Vision Arts inspires and delights - The dynamic New Vision Arts Festival runs

Avant-garde, unconventional and cutting-edge - these are the themes that inspire and run through the New Vision Arts Festival due to hit Hong Kong in mid-October. Artistes from around the world will converge in Hong Kong, collaborate with local talent, and put on a unique show for the pleasure of an arts-hungry audience.

“This festival is being organized for the third time in Hong Kong, and the aim is to give our audiences something really new and cutting-edge in terms of crossover art forms,” said Elaine Yeung, Senior Manager at the Festivals Office of the Leisure and Cultural Services Department (LCSD).

“Most of our programs are not readily available on the market, and many of them are specially commissioned for this festival. This festival is also a platform for artistes in Hong Kong to work with talent from around the world, and create something entirely unique in the process.”

East-West fusion - In the spirit of East-West fusion, crossover music will break new ground as Mongolian long songs and throat singing by the Khoomii Sound Machine blend with Western jazz and contemporary music played by artistes from Sweden, Austria, Korea and Argentina, and Hong Kong’s Dickson Dee.

The Hong Kong Philharmonic Orchestra will perform one of the most controversial works of the 20th Century, Igor Stravinsky’s Rite of Spring. They will also perform Iris Dévoilée (Iris Unveiled) - an orchestral suite devoted to the nine facets of a woman – composed by Paris-based Chinese composer Chen Qigang.

Opening the festival will be two signature pieces by US-based Chinese contemporary dance choreographer and painter Shen Wei, who is renowned for his unique style that combines dance with visual art.

Groundbreaking Singaporean director Ong Keng Sen will present Geisha, uncovering fresh insights into the famous Japanese cultural symbol; while Japanese Ryuichi Sakamoto will team up with German Alva Noto to bring insen, a unique collaboration where evocative music is transformed into digital sonic and visual images on a large LED screen.

World premiere - A specially-commissioned collaboration will be the world premiere of city:zen, blending the talent of British-Asian choreographer Shobana Jeyasingh with Hong Kong dancer and choreographer Mui Cheuk-yin. More eclectic fusion will be on display as the Yoshida Brothers of Japan put on their unconventional shamisen concert, mixing traditional Japanese instrumental music with elements of punk, folk, rock and jazz.

The festival will also host the “Theatre Criticism Project for Tertiary Students” in conjunction with the International Association of Theatre Critics (IATC) and the leading universities in Hong Kong. The aim is to foster the skills of arts appreciation and critique-writing in local students through a series of forums for exchange of ideas and views.

The New Vision Arts Festival, organized by the LCSD, will run from October 20 to November 19.

First Negotiated Bidding for 2007 Textile Export Quotas

The Ministry of Commerce (MOFCOM) issued a notice on the first negotiated bidding for 2007 quotas for textile exports to the EU and the US on 22 September. According to the Measures for the Administration of Textile Export (Provisional), textile products under categories 4, 5, 6, 7, 26 and 31 for export to the EU and products under categories 338/339, 340/640, 347/348, 349/649, 638/639, 647/648 and 847 for export to the US will be open for negotiated bidding.

A minimum number of quotas for bidding is set for each category, while the maximum number of quotas individual enterprises may bid for is worked out on the basis of their export value between January and July 2006 and the formula stipulated in Article 11 of the Measures for the Administration of Textile Export (Provisional). Enterprises may decide to bid for any number of quotas between the minimum and maximum amounts in the categories they are qualified to bid for.

The negotiated bidding price for different categories are determined in the light of the market situation in the following year and after consultations carried out by the China Chamber of Commerce for Import and Export of Textiles on the views of leading enterprises.

The bidding will be conducted electronically. Enterprises should submit their bids to the bidding office through the "electronic bidding system" between 09:00 hrs on 15 November and 02:00 hrs on 24 November.

For details in Chinese regarding the bidding arrangements, bidding price, minimum number of quotas and list of enterprises qualified to place bids, please visit the website of MOFCOM at: http://www.mofcom.gov.cn/aarticle/b/e/200609/20060903232554.html

For details in Chinese of the Measures for the Administration of Textile Export (Provisional), please visit the website of MOFCOM at: http://www.mofcom.gov.cn/aarticle/b/c/200609/20060903218968.html

China's advertising industry braces for overhaul

China's advertising industry has been told to brace itself for a major overhaul over the next 10 years. Experts attending the 2006 China (International) Creative Concepts Forum in Beijing on Sept. 3 said to expect upheaval and major readjustment during the upgrading process. According to a report released at the forum, the current output value of China's advertising industry is 100 billion yuan (89.38 billion U.S. dollars), and it will take 'only six years' to double that figure.

The ad industry, one of the barometers of social, cultural and economic development, plays a key role in the building of a 'creative society', said Shen Jianjun, secretary of the Party Committee of the Capital University of Economics and Business. Shen added that China's ad industry is attracting worldwide attention because of its high rate of growth in the last six years. In 2000, the British government published a white paper on the creative industry. 13 industries were grouped under this classification. 'Of the 13 industries, advertising industry ranks No.1,' according to Yang Tongqing, a professor at Capital University.

On a global scale, the daily output value of the creative industry has reached 22 billion dollars and this is increasing at an annual rate of 5 percent, Yang added. In developed countries, the annual growth rate of the industry is of course higher; 14 percent in the US, and 12 percent in Britain. The innovations industry has become Britain's second largest industry accounting for 7.9 percent of its GDP, after the financial services industry. The Chinese ad industry will no doubt follow the trend of the times, said Zhang Xiaoping, chief executive officer of the Guangdong Heima Advertising Co. Ltd. 'Once advertising is classified as part of the creative industry, it will upgrade itself quickly to become more professional, varied and colorful.'

In the meantime, however, experts pointed out that the current pace of economic development will continue to place heavier demands on domestic companies who have to fend off competition from big global names. From January 1, wholly foreign-funded advertising companies were permitted to operate in the Chinese market, which many saw as the beginning of the end for domestic players. But Wu Xiabo, general manager of Guangdong Pingcheng Advertising Co., saw it as an opportunity: 'The year 2006 marks the beginning of a new era in the Chinese advertising industry. Now, it is truly on the road to globalization.'

'And with globalization, we can't cling to accepted practices without thinking of making any improvements,' Wu said, adding that this is the time for restructuring and readjustment. But there are challenges ahead. These include restrictions placed on creative concepts by the incumbent economic structure; an underdeveloped professional structure; fixed patterns of urban development and planning; lack of effective intellectual property rights protection; a traditional and conventional education system; and low consumption levels of creative products.

Kang Jun, a member of the Tianjin Municipal Committee of the Chinese People's Political Consultative Conference, added that stronger government support for the development of the industry is required in the face of increasing competition from foreign companies.

China’s Auto Industry Hits Top Gear

By the end of 2006, China is expected to over-take Germany as the world’s third largest producer of cars and vans, with output to reach about 5.9 million units compared to 5.38 million units for Germany. While the US and Japan are still the world’s largest producers with output of 11 million and 10.63 million units respectively, China is inline to be the next top global auto-manufacturing hub. Between 2000 and 2005, China experienced an average of 40 percent growth in export of vehicles and auto parts, with the export of completed cars growing at 70 percent per annum. In 2005, exports reached USD10.9 billion and are targeted to reach USD70 billion by the end of 2010. Nevertheless, China’s export of vehicles and auto parts represents only 1 percent of the world’s market share, signifying the massive potential that is still open to car manufacturers, in particular foreign joint ventures on the mainland. Currently, Chinese-made automobiles are mostly sold to emerging markets such as Russia, South America, Africa and the Middle East.

In recognition of such market potential, the Chinese government has been quick to adopt measures to build the reputation of the industry and incentives to attract further investment in the sector. On 1 July 2006, China reduced its import tariff on light vehicles and small buses from 28 percent to 25 percent, and the tariff on import of auto-parts was reduced from 13.8-16.4 to 10 percent, which is in line with WTO entry commitments.

There are also plans to develop eight automobile export bases with the hope of raising quality standards, encouraging technical innovation as well as protecting intellectual property rights. The eight national bases, which cover 160 manufacturing companies are located in Changchun, Shanghai, Tianjin, Wuhan, Chongqing, Xiamen, Wuhu and Taizhou. Another measure to help raise the quality of Chinese-made automobiles is to only allow “authorized” manufacturers to engage in exports starting in 2007. Those that fail to guarantee product quality or after sales service would be banned from exporting.

As it stands, foreign automotive joint ventures in China are best positioned to take advantage of this enormous market potential. With their strong design capabilities, low cost base and a network of sales channels overseas where they can increase market share and improve profit margins.

US Treasury Secretary Hank Paulson arrived in China this week for his first trip as a government official, though he previously made over 70 journeys here in his capacity as chairman of Goldman Sachs. He was scheduled to meet with senior officials in Beijing. Paulson’s comments on China’s fiscal policy have been a relief to moderates who shrink from the rhetoric of China hardliners such as Senator Charles Schumer. The secretary has been less critical of China than his predecessor John Snow, and has said that he is not looking for any “quick fixes” on US-China trade issues, a blunt reference to congressional calls for immediate, drastic RMB revaluation. Rather, Paulson said he is interested in fostering an "economic dialogue" with China that would focus on long-term issues.

Increasingly credible rumors that the CSRC is going to merge two of China’s share classes drove the B-share market up almost 10% early this week. For some time now, the securities regulator has been talking about merging B-shares, which are relics from the days when foreigners faced heavier investment restrictions in China’s markets, with the dominant A-share market. Investors now believe this could happen by the end of the year. Meanwhile, the CSRC also unveiled China's first financial futures product, which will debut late this year or in early 2007; and Credit Suisse claimed that mainland markets could overtake Hong Kong’s within five years.

74 countries, int'l organizations sign up to Shanghai World Expo

By Monday, 66 countries and eight international organizations had accepted invitations from the Chinese Government to attend the Shanghai World Expo 2010.

About two thirds of the countries that have signed up for the Shanghai World Expo are from Africa and Asia, alongside 14 European nations such as France, the Netherlands, Switzerland and Britain, according to Zhou Hanmin, deputy director of the Shanghai World Expo Coordination Bureau.

Franklin Lavin, U.S. Under Secretary of Commerce for International Trade, said during a recent visit to Shanghai that the United States would support the 2010 Shanghai World Expo and is likely to take part.

International organizations including the United Nations and the World Bank have also officially confirmed they will be participants in the expo scheduled to run from May 1 to Oct. 31, 2010.

Invitations signed by Chinese Premier Wen Jiabao were sent out to 190 countries and 60 international organizations in March, inviting them to take part in the expo. The theme of the expo is 'Better City Better Life'.

'Our ultimate goal is to attract more than 200 countries and international organizations, outnumbering the 155 present at the 2000 World Expo in Hanover, Germany,' said Zhou.

China Adjusts Its Tax Rebate on Exports

On 14 September 2006, the Ministry of Finance together with four other government organisations issued a joint Notice on Adjustments of Tax Rebate on Exports and Additions to the Prohibited Category of Export Processing Trade.

According to the Notice, tax rebate on export items under Chapter 25 of the imports and exports classifications (except salt and cement) will be removed. Tax rebate on some items including iron and steel, textiles, household products, plastic materials and lighters will be reduced. However, tax rebate on items such as IT and pharmaceutical products will be raised.

According to the Notice, all items which no longer enjoy tax rebate are now included in the prohibited category of export processing trade. The new adjustment takes effect on 15 September 2006.

For details of the adjustment, please visit the website of the Ministry of Finance at:
http://www.mof.gov.cn/news/20060915_1556_16612.htm

Planned weddings get a management makeover

China's burgeoning wedding services market has spurred demand for new service options such as bride's secretaries, wedding supervisors and wedding masters of ceremonies (MCs). There is said to be tremendous market potential for these types of management services, bearing in mind the high cost of holding weddings on the Chinese mainland. Take for example Miss Zheng, who works as a bride's secretary at a wedding service company in Beijing. She sees her job as a true bride's "maid": she has to be with the bride all the time during the wedding. She carries with her a host of small "rescue" items such as drinking straws, combs, brushes, rubber bands, needles, pins, threads, stockings and scissors to deal with unexpected situations that may need attention.

The straw is for the bride to drink water through, so as not to ruin her beautifully-adorned makeup. Needles and thread are needed in case of embarrassment, such as if the seams of the wedding gown burst open. An extra pair of stockings will come in handy as the bride may get hers torn when climbing in or out of the wedding limousine. And so it goes on. "The secretary has to be with the bride from the time she leaves home until the time she retires to her nuptial chamber," Zheng explains. "She has to remind the bride of a host of little details, such as not to wear broaches with the wedding gown, not to lift up her gown when she walks, not to look too stiff, and to wear a blouse when putting on makeup - so she can easily slip it off and change into her wedding gown."

In the opinion of Mr Yang, who's a wedding "housekeeper", the custom is old in Beijing but still one that is irreplaceable, particularly when wedding banquets get under way before 12 noon. According to traditional scheduling, the wedding ceremony usually starts at 11:08 am and it is the housekeeper's role to keep the whole business down to within 50 minutes. "On one such occasion, the ceremony started late because of some accident and time was running out. I was absolutely drenched in sweat. I tried to [encourage] the master of ceremonies to stick to the rundown while asking the restaurant to start serving cold dishes. Finally, we managed to start the banquet at 11:58 am."

The housekeeper also has to try out different routes for the wedding party during rehearsals and analyse them one by one, often with different options. If traffic is too smooth on the wedding day, he will have to ask the driver to make up time by driving around to avoid the embarrassment of arriving before the guests. The master of ceremonies also has an important role in the proceedings, as Mr Wu (himself a wedding MC) explains. For example, Wu suggests that music can add to or evoke the right mood for the ceremony. Good music at suitable moments can achieve the right effect, which is not only pleasing to the new couple and the guests - but may also bring the company new business. "These days nearly all wedding ceremonies are accompanied by music," Wu says. "Wedding DJs must be experienced and be able to come up with new ideas."

China's civil affairs departments reckon that over 120,000 couples will register to get married in Beijing this year. Among them, more than half will choose to walk the traditional red carpet. "With only 500 to 600 wedding planners in Beijing, each of them has to plan 100 weddings. This could really wear them out," says Shi Kangning, executive director of the Committee of Wedding Service Industries with the China Association of Social Work.

It is understood that wedding planners will be included in the list of new professions to be announced by the Ministry of Labour and Social Security in the fourth quarter of this year, with the prospect of an acute shortage of wedding service professionals on the market. Efficient and able brides' secretaries are hard to come by. Those who are familiar with wedding ceremonies and nuptial rites, sensitive to the bride's feelings and can deal with emergencies are well worth their weight, when making sure that nothing goes wrong.

Most bride's secretaries charge about Rmb600 (HK$582) each, for taking care of an event. Training courses offered by the Committee of Wedding Service Industries with the China Association of Social Work have trained nearly 100 secretaries. Of course, standard wedding expenses include wedding pictures, jewellery, the rental or purchase of wedding gowns and tuxedos, wedding service companies, the honeymoon - as well as purchases of cigarettes, spirits and sweets, as gifts for guests.

Wedding pictures are important, although they don't constitute the largest items of expenditure. Many new couples are not satisfied with stereotypical pictures taken in studios and would rather spend more money to capture the most beautiful and memorable moments of their lives outdoors. According to figures available through Shanghai's wedding service industries, over 90% of new couples in the city prefer to have their wedding pictures taken outdoors. Time and money permitting, they love to take wedding photo trips with their personal photographers.

The beautiful Siguniang Mountain and Jiuzhaigou in Sichuan, the Yulong Snow Mountain in Yunnan, ancient and mysterious Tibet, the blue sky and clear water of Hainan, as well as coastal cities like Xiamen and Qingdao are considered the ideal venues for taking the right wedding images. The rental and sale of wedding gowns are rapidly-developing businesses. It costs between Rmb100 (HK$96) and Rmb800 (HK$768) to rent a gown, but some people are buying their own because they have personal preferences or want to maintain their dresses as memorabilia.

For those who look for better quality and design, professional wedding gown workshops can look after most needs. But hand-made gowns are by no means cheap and can cost thousands of yuan each. The wedding expenses list prepared by a well-known wedding services company in Beijing for a couple getting married in October this year speaks for itself. Wedding pictures will cost Rmb17,500 (HK$16,975) while jewellery at Rmb100,000 (HK$97,000) includes a 0.5 carat diamond ring, a 1 carat diamond necklace, a diamond broach, diamond earrings and platinum rings.

Then there are other banquet expenses. Features costing up to Rmb14,000 (HK$13,580), include candles, champagne tower, spotlights, bubble machine, cold fire, dry ice and a smoke generator. The list does not cover the wedding gown and tuxedo for bride and groom, the limousine rental, the banquet or honeymoon expenses. For this particular list, the couple both work as managers with foreign companies and so are willing to dig deep for the right event. In fact, this is by no means the most expensive wedding.

Although there are many wedding service companies on the mainland, there are not that many truly innovative wedding planners around. Shanghai is the current market leader, but even in this city, there are only about a dozen wedding planners and often they are all fully booked. The same is true for Beijing. Top wedding planners are booked up a year in advance. "Planning a wedding is like directing a movie and involves script writing, planning and implementation. It requires a director and production assistant, and constant communication with the customer is necessary to come up with the most brilliant ideas," says Mr Zhang, the planner for a wedding service company.

In the opinion of a wedding service company operator, good wedding planning is not only about novelty and extravagance. It is important to pay attention to details and make the guests share warm feelings with the newly-weds. Innovative and touching wedding arrangements are enthusiastically embraced by younger people. The bride and bridegroom could be exchanging vows on the beach, on green lawns, in a garden, by the poolside, in a bar or even under the sea or up in a hot-air balloon.

Traditional wedding processions, such as with trumpets blowing and a bridal sedan chair carried by eight porters, are also popular among retro-minded young people. Shanghai's Wedding Service Industries Association appears to be encouraging the creative wedding arrangements that are very popular among new couples who want to be different.
The creativeness not only finds expression in the ceremony itself but also in gimmicks that reflect the couples' character. Some weddings make use of high-tech wizardry, such as when a magician waves his hand and produces an eight-layer wedding cake from under the table. In another escapade, the bridegroom presses a remote control and a wedding ring drops from the ceiling. Guests can also send sincere, humourous or idiosyncratic messages to the new couple through text messages.

Industry sources admit that some wedding service companies are still not very professional in their operation. They may raise their prices or change the limousine on the actual wedding day - or even charge additional fees for editing or post-production of wedding videos. Better wedding service companies rely on word-of-mouth to win customers. Established overseas wedding service companies should be able to find great business potential venturing into the mainland market.

HK leads financial hub race for Asia - MarkLee

Hong Kong is the most competitive financial center in Asia Pacific, ahead of Japan and Australia, a survey has found. The city ranked high for its transparent business regulations and low tax base, among other advantages, according to a study by the Securities and Futures Commission. "Hong Kong is clearly ahead of other Asian markets in most factors," said the SFC study, which extracted and compared the scores of 12 regional economies, including the mainland, Hong Kong, Taiwan, Japan, Australia and Singapore, in two recent global competitiveness surveys run by the Geneva-based World Economic Forum and the International Institute of Management Development, based in Lausanne.

Hong Kong slipped seven places to 28th in the WEF's latest Global Competitiveness Report, released last September, but retained second place in the IMD's latest World Competitiveness Scorecard, released in June. The SFC said the SAR scored higher than other economies in financial- services-related areas in the surveys. "Hong Kong may be the most competitive market regionally for equities, but it needs further development of the debt market to be an all-round financial center," said Standard Chartered economist Frances Cheung.

"However, the same can be said of most other Asian financial centers, with the exception of Japan and Australia." A record HK$195 billion was raised in initial public offerings last year on the Hong Kong stock exchange, making it the second largest IPO market in the world behind the New York Stock Exchange. This was largely as a result of several blockbuster share sales by giant mainland companies, including China Construction Bank (0939) and China Shenhua Energy (1088). The trend is continuing this year, with the IPO by Bank of China in June raising a record HK$90 billion.

"There needs to be a further balancing in Hong Kong in favor of other funding channels such as bonds," said John Bailey, director of corporate and infrastructure ratings at Standard and Poor's. The size of the market for corporate and government bonds in Hong Kong stands at less than US$100 billion (HK$780 million) at present, compared with more than US$7 trillion in Japan. "The Hong Kong government doesn't have much need to raise debt, which makes it difficult for the bond market to be kick-started," said Cheung from Standard Chartered.

The relatively lop-sided nature of Hong Kong's financial markets does not detract from their ability to attract international investors, the SFC said. Foreign funds now account for about 34 percent of total stock market transactions in Hong Kong, the SFC said, compared with 30 percent for local retail investors, and 27 percent for domestic institutional investors.

"Hong Kong is one of the more transparent markets for investors, and one of the easiest to work in," said Bailey. "Also, it provides international investors the best opportunities to participate in the growth of the mainland economy." The SFC said Hong Kong also scored higher than the other 11 economies in its ability to produce and attract qualified financial professionals.

There are more than 3,000 certified financial analysts in Hong Kong, compared with just 200 in 1995, the SFC said. The number of certified public accountants has also more than doubled to 25,000, from 11,500 in 1995, the SFC said.

Hong Kong’s Position to be Significantly Enhanced by New Tax Pact

On August 21, 2006, China’s mainland and Hong Kong signed a groundbreaking agreement in a bid to further enhance the potential of Hong Kong as the strategic gateway to China. Essentially a tax treaty in form, the new tax pact will ensure that business profits will not be doubly taxed in the two places, securing Hong Kong’s position as the ideal offshore base for foreign investments flowing into China. Analysts are confident that the new pact will sharpen Hong Kong’s competitiveness and encourage investment in the region by providing added incentives for international investors to enter the vast market on the Chinese mainland via Hong Kong.

Having contributed nearly 42% of China’s US$621 billion foreign investment over the last two decades, Hong Kong firms have played a critical role in developing China from an agrarian socialist state to an economic powerhouse. Unlike the United States, Britain and 80 other countries which have enjoyed preferential status to limit the taxes their nationals pay on items such as capital gains, Hong Kong had to rely solely on other advantages until this moment.

The new tax pact will cover profits that are classified as direct income, such as operating profits and employment income, and indirect income, such as dividends, interest and royalties. According to the new arrangements, maximum withholding tax for dividends a Hong Kong business receives from mainland investments will be reduced from 10 percent to 7 percent, and if the business holds at least 25 percent of the enterprise’s capital in the mainland, the rate can be further reduced to just 5 percent. Also importantly noted is that the pact also introduces a tax-credit agreement that will ensure that the same income will not be taxed twice.

With the new agreement in place, businesses in the region can assume much greater confidence as the preferential tax treatment will enable them to better assess their investment positions and greater synergies can be realized between Hong Kong and the Chinese mainland. The new arrangements will also promote Hong Kong’s economy, enhance its competitiveness and attract overseas capital by promoting cross-border financing arrangements and the transfer of technical know-how and patent rights between the two locations.

The ratification of the pact will be subject to an order under the Inland Revenue Ordinance, subject to the Legislative Council’s review and approval. If the pact is ratified before 31 December 2006, the new arrangement will come into effect with respect to Hong Kong taxes from the year of assessment beginning on or after 1 April 2007. With respect to taxes on China’s mainland, the pact will be effective on the taxable year beginning on or after 1 January 2007.

New deal puts paid to double taxation - Jonathan Cheng

The government has claimed a victory for Hong Kong residents and businesses operating in the mainland, signing an agreement with Beijing that will eliminate double taxation and pave the way for more mainland investment through Hong Kong. The deal, signed in the city Monday by Chief Executive Donald Tsang Yam-kuen and Xie Xuren, the mainland's Minister of the State Administration of Taxation, will cut the top tax rates on direct income, such as operating profits and salary, as well as indirect income, like dividends and interest.

It will also increase cooperation between the two sides to stamp out tax evasion in either jurisdiction. Tsang hailed the new agreement as another attempt to draw both sides closer together economically, saying the new tax agreement would enhance cross-border financing and the exchange of patent rights between Hong Kong and the mainland.

"These will help promote Hong Kong's economy, enhance our competitiveness and attract overseas capital," Tsang said. Under the agreement, Hong Kong residents earning money on dividends, interest income and royalties from mainland enterprises will see the top rates on withholding tax - the tax that is automatically deducted before it even goes to the recipient - slashed by about half.

In particular, top withholding tax rates on mainland dividends for Hong Kong residents would fall from 20 percent to 10 percent, and from 10 percent to 5 percent for local businesses with major stakes in a mainland enterprise. The top withholding rates on mainland- based interest income and royalties, meanwhile, would drop to a standard 7 percent. Also, any Hong Kong entity that makes gains on a transfer of shares in a mainland enterprise will see the taxes diverted entirely to the Hong Kong government.

The new agreement stipulates that any other instances of double taxation will be resolved by issuing tax credits to the taxpayer. Double taxation occurs when a person or company that earns money in two jurisdictions ends up paying both governments for the same income or profits. All told, the terms of the new agreement will help clarify tax responsibilities and "provide a further level of certainty and stability to potential investors," the government said in a statement. The government also said the measures would attract more overseas investment into the mainland through Hong Kong, while the cutback on royalty taxes would encourage artistic creativity and innovation.

But some raised concern about the exchange of personal information between Hong Kong and mainland taxation authorities, saying investors wary of mainland prying would be more reluctant to pour money into the mainland after Monday's announcement. That concern aside, most tax experts and business leaders praised the new agreement. "This is a step forward," said Wong Ting-kwong, a pro-Beijing legislator who heads the Hong Kong Chinese Importers' and Exporters' Association. Wong said some businessmen who frequently shuttled between Hong Kong and the mainland often got caught between the two jurisdictions, leaving them with "the worst of both worlds."

"It was a problem that needed to be resolved, and this agreement highlights the central government's support for the Hong Kong government, and shows that the relationship between them is very close," he said. Taxation Institute of Hong Kong president Richard Chow Yeung-tuen welcomed the announcement saying it would help taxpayers and the two governments avoid gray areas. Marcellus Wong Yui-keung, a member of the Taxation Institute and a tax partner at PricewaterhouseCoopers, said the treaty would strengthen the competitiveness of Hong Kong investors and businesses.

"With fewer tax burdens, Hong Kong's financial position will be strengthened," Wong said. He said Hong Kong businesses would benefit from the fact that any capital gain made by transferring shares would not be taxed in Hong Kong, as long as the gain is not an operating profit or sourced in Hong Kong. Paul Chan Mo-po, president of Hong Kong Institute of Certified Public Accountants, said the deal could make the territory a "springboard" for overseas investment into China.

The Hong Kong General Chamber of Commerce had no comment on the agreement, while the American Chamber of Commerce in Hong Kong was not available for comment.

The new deal, which will take effect when both the sides ratify the agreement, will have no expiry date, and officials said the agreement was meant to be a permanent part of the tax landscape, though either government could request a review of the conditions if any problem arose later. Hong Kong's commissioner of inland revenue, Alice Lau Mak Yee- ming, emphasized that withholding rates would be lower than those agreed upon in parallel agreements Beijing had made with both Macau and Singapore. But she conceded that it was hard to estimate how much extra tax revenue the agreement would bring the Hong Kong government, or to predict exactly how many people and businesses would benefit from the agreement. But she pointed to figures showing that 228,000 Hong Kong residents were working in the mainland in 2004, saying she anticipated that "more and more will work there" as a result of Monday's announcement and other conditions under the Closer Economic Partnership Arrangement.

She also said the new deal would not affect China's World Trade Organization obligations.

Financial Secretary Henry Tang Ying-yen said the new arrangements would allow investors to accurately gauge their tax burdens.

Overview

By arranging cargo transport, the freight forwarding industry has contributed fundamentally to Hong Kong's success as the 11th largest merchandise trading entity and one of the most trade-oriented economies in the world.
Most of the larger freight forwarders have a wide network of overseas branches, and act as agents for international air and ocean liners.
The industry is responding to customers' needs by also providing more value-added services such as warehousing, packing, sorting, distribution and total logistics solutions.
The industry has benefited from Hong Kong's leading freight infrastructure:

The combined cargo handling capacity of Hong Kong's two air cargo terminals has already amounted to 3 million tonnes. In particular, Asia Airfreight's new air cargo terminal (T2) is expected to be in operation by the end of 2006 with a handling capacity of 910,000 tonnes.
The Marine Cargo Terminal, which was opened in March 2001, provides a one-stop service linking the airport with various river ports in the Pearl River Delta.
The Airport Freight Forwarding Centre provides on-airport premium warehousing services and houses over 50 freight forwarding/logistics companies and ancillary service providers.

Industry Data - Total (Inward+Outward) Freight Movement (million tonnes)

-	Seaborne	River	Road	Rail	Air	Total
2001	131.0	47.5	36.9	0.4	2.1	217.6
2002	138.3	54.2	39.4	0.4	2.5	234.7
2003	148.6	59.0	39.4	0.3	2.6	250.0
2004	158.6	62.3	40.5	0.3	3.1	264.7
2005	161.5	68.7	39.2	0.2	3.4	273.0

Source: Summary Statistics on Port Traffic of Hong Kong,Port, Maritime and Logistics Development Unit

-	2005
Number of Air Cargo Forwarders	750
Employment	14,208
Number of Sea Cargo Forwarders	2,126
Employment	20,369

Source: Quarterly report of Employment, Vacancies and Payroll Statistics, 2005, Census and Statistics Department

	2001	2002	2003	2004
Business Receipts of Air/Sea Cargo Forwarding Services	78,750	87,409	92,680	121,554
Exports - Cargo Forwarding	12,609	12,888	13,667	16,665
Contribution to Services Exports	3.9%	3.8%	3.8%	3.9%

Source: Report on Hong Kong Trade in Service Statistics for 2004,Census and Statistics Department

Range of Services

The core business of a freight forwarder is to move a shipper's consignment to the consignee within the stipulated time, in perfect order and at the most competitive cost. Responding to changing customer demands, many freight forwarders also provide more value-added services such as warehousing, distribution and total logistics solutions.

The services offered by the industry vary according to the sophistication of the freight forwarder. The larger and more comprehensive freight forwarders offer a full range of transportation and logistics services including warehousing, consolidation, air express, trucking, distribution and customs clearance, tracking and monitoring of freight being transported, and applying electronics data interchange (EDI) technology to facilitate just-in-time based supply chain management. Their customers, particularly those in the time-sensitive manufacturing, trading and retail sectors, can thus concentrate on their core competencies and reduce their business cycle time.

In general, the smaller freight forwarders provide more basic and economical services. Related services involved in the import/export process, such as the preparation of shipping documents, customs clearance and logistics, may be undertaken by the import and export traders or their agents. The smaller firms do provide more flexibility and a more personalized service. In addition they have lower overheads as they "piggyback" on the fixed capacities of the larger companies, and therefore can often provide lower rates.

Service Providers

The Hong Kong Association of Freight Forwarding Agents (HAFFA), formed in 1966, is a local association representing the interests of the freight forwarding industry. It has been renamed as Hong Kong Association of Freight Forwarding and Logistics Ltd to reflect the sophisticated nature of the business.

The larger sea freight forwarders tend to target big companies for exclusive deals. They provide value-added services and invest in information technology to ensure that they meet the expanding needs of the customer's changing markets. They can also set up individual logistics subsidiaries to provide tailor-made and specialized services in order to work as a service partner for their customers. Generally speaking, larger companies' well-established brands and far-reaching logistics networks have enhanced their significant market shares in the global export market. The smaller regional players, however, have better understanding of the business culture, better knowledge of their markets and have established networks in the region.

As reliable and speedy delivery is the key to successful freight forwarding services, Hong Kong's forwarders' understanding of the international practices and their networks can help them to secure the confidence of international customers.

The specialist freight forwarders such as conference freight forwarders also provide industry expertise which is not offered by many other companies.

Exports

The destinations of freight forwarding services mirror the trade routes. The main markets for international freight forwarders are thus North America, Europe and Japan. The Chinese mainland is the most important source of cargo for Hong Kong's freight forwarders.

The larger freight forwarders often follow their big international customers to new markets. In some instances transport service providers set up business in the new markets before recommending their customers to follow suit. They expand overseas usually by setting up subsidiaries, joint ventures or appointing agents to render global services.

In order to provide an integrated, seamless storage and distribution network, freight forwarders often build warehouses, logistics bases and other supporting facilitates in other countries.

Major Export Markets of Cargo Forwarding Services 2001-2004 (HK$ million)

-	2001	Share (%)	2002	Share (%)	2003	Share (%)	2004	Share (%)
Asia	3,430	27.2	2,929	22.7	4,809	35.2	4,897	29.4
North America	5,506	43.7	5,645	43.8