Expanding Hong Kong’s role as a logistics services hub for Southeast Asia has become a high government priority. At the Third Asian Logistics and Maritime Conference last November, Hong Kong chief executive, C. Y. Leung told the audience, “Here in Hong Kong we are preparing to negotiate a Free Trade Agreement (FTA) with the 10-member ASEAN bloc. The Hong Kong-ASEAN FTA will help to strengthen trade and logistics in our region and add to the competitiveness and efficiency of our supply chains.
“ASEAN represents important opportunities for investors to connect with some of the world’s most dynamic emerging economies. Massive public sector infrastructure programs in countries such as Thailand and new markets such as Myanmar and Cambodia present exciting opportunities for the logistics and maritime sectors.”
Canada is also optimistic about expanding its presence in the region as well. Anne Waldes, Hamilton-based president Trade Link International Ltd, who led the Canadian contingent to the conference, said “As ASEAN’s economic importance to Canada increases, it has become a priority market under the Harper government’s Global Commerce Strategy.
“It has more than 600 million consumers, a growing middle class and abundant natural resources including mining and minerals, oil and gas, and lumber as well as agriculture in which Canadian expertise has developed marketable services, technology and equipment.”
Citing a recent Hong Kong Trade Development Council survey that identified Hong Kong’s strength in high-value logistics, Chief Executive Leung also stated, “We are also working to enhance efficiency at our container terminals and identify land for the development of third-party logistics service clusters. As neighbouring ports become more efficient, Hong Kong’s logistics and maritime sectors must move up the value chain.”
To help achieve such goals, he noted that the government will set up a C$14.20-million (HK$100-million) maritime and aviation training fund and create a strategy and roadmap for expanding Hong Kong’s maritime services cluster.
Geographically, the ASEAN region’s South China Sea is a logistics choke point through which an estimated 50% of the world’s seaborne traffic must pass. It links the burgeoning Asia Pacific markets with India, the Middle East, Africa and Europe.
According to James Woodrow director Cathay Pacific Cargo, Hong Kong is actively serving as an ASEAN hub with passenger belly load capacity and more important, frequent freighter services to major cities in the region including Singapore, Hanoi, Ho Chi Minh City, Kuala Lumpur, Penang, Bangkok, Jakarta, Manila, Phnom Penh (Cambodia), Yangon (Myanmar) and Vientiane (Laos).
Hong Kong Without Tears
Canadian firms can reap huge benefits by incorporating a company in Hong Kong and setting it up there as a virtual business. For starters, they pay less tax. Says Simon Wong, Toronto-based president with Redstone Sales (Canada) about his new Hong Kong company, Bridgeport Enterprises Limited, “We pay lower taxes on income earned in Hong Kong where the corporate tax rate is 16.5% compared with 30% to 35% in Canada.”
The combined companies source consumer goods and promotional items for smaller retailers and distributors across Canada.
“They tell us what products they need and the price they are willing to pay and we go to Hong Kong to find suppliers who can deliver them at a price which enables us to earn a profit,” says Wong.
But instead of establishing a physical footprint there that involves renting space and hiring employees etc., he outsources those burdens to Meridian Partners Limited. Besides handling all the necessary legal and regulatory paper work including setting up a business bank account, it also helps clients save time and money and avoid hassles by looking after their day-to-day, back-office accounting, finance, tax and logistical needs.
Help with the last-named is crucial. “Before, we left it up to our Chinese suppliers to find freight forwarders to arrange shipping goods back to Canada. But they did not always choose carriers offering the best rates or service. But after Meridian assumed the task, their more business-like approach helped us to reduce costs and ensure reliable deliveries,” he says.
Like many other overseas buyers, Wong is now facing higher Chinese production costs. “One supplier recently told us his labour costs have risen 25%. As a result, we may have to start sourcing products in Southeast Asian countries such as Vietnam and Cambodia,” he says.
If so, Meridian Partners is standing by. Says June Ko, the Toronto-based director, with Meridian Partners Limited Canada, “Regardless of where the client is sourcing from, Hong Kong simply acts as the hub for the international trade for documentation and money arrangements. Some of our clients already source from Thailand, Indonesia and Vietnam.”
Meridian Partners’ innovative approach levels the playing field for Canadian small-and medium-sized trading companies, distributors and others expanding into Asia. They can now enjoy the convenience and comfort of engaging a trusted on-site partner to manage and monitor the work of Hong Kong professional and logistics service providers. In the past, such an option was limited to very large players.
Hong Kong Basics
With a population of close to 7 million people or slightly more than that of the GTHA (Greater Toronto-Hamilton Area), Hong Kong is the world’s 11th largest trading economy. For the past 18 years it has been named the world’s freest economy, thanks to its low-tax, light-regulation approach to government. The Hong Kong Stock Exchange is the third largest in Asia. Many of the world’s largest firms have set up regional offices there attracted by its independent judicial system, and a transparent and efficient bureaucracy, not to mention a full range of business, legal, financial and related service providers. Business is conducted in both English and Chinese.
As a special administrative region (SAR) of China since 1997, Hong Kong retains control over most domestic policy as outlined in its constitution called the Basic Law. The Closer Economic Partnership Agreement (CEPA) with China, similar to NAFTA, facilitates the movement of duty-free goods, capital and business people into China.
Hong Kong is also a global transportation and logistics giant that serves as a major Asian regional distribution centre. In 2012 Chek Lap Kok airport ranked number one in air cargo tonnage handled while Hong Kong’s port facilities ranked third in container traffic.
Modern Infrastructure Galore
Further modernization of Chek Lap Kok International Airport and other related projects mark the latest chapter in Hong Kong’s non-stop upgrading of its already world-class transportation and logistics infrastructure.
Already in place is the C$850 million (HK $5.9 billion) Cathay Pacific Cargo Terminal, which officially opened on February 2014 after a yearlong phase-in period. Capable of handling of 2.6 million tonnes of freight annually, it will serve as a common-use facility for all airline customers.
“A tremendous effort by our dedicated team has finally resulted in the new terminal moving into full operation It took a lot of hard work and commitment to ensure a smooth transition over the past eight months. The new facility will not only enable the Cathay Pacific Group to offer tailor-made services to our own cargo customers, but it will also raise service standards within the industry to new heights,” says James Woodrow, director, Cathay Pacific Cargo.
Thanks to ultra-modern technology involving RFID, LED displays and other innovative equipment, truck drivers no longer have to wait 60 to 90 minutes to drop off and pick up loads. As well, online booking and RFID-powered iPasses increase visibility and security throughout the entire building.
The use of automated materials handling systems including elevator transfers have been expanded. Loose items now move in boxes on rollers and are not just left sitting on the floor for manual movements. Similarly, Hong Kong customs officials can easily summon any containers for inspection stored in secure floor-to-ceiling racks.
The aircraft-to-terminal cargo transfers are no longer done manually outdoors but moved by machines under cover for greater safety and protection. Overall, such streamlined handling processes have boosted productivity and efficiency enabling Cathay Pacific to extend cargo cut off times by 30 minutes.
Similarly, the introduction of quick transfers (QT) for trans-shipments can now be completed in five rather than eight hours since incoming shipments no longer have to first be broken down to be cleared as imports only to be reconsolidated as exports.
Not to be outdone, the Hong Kong Airport Authority is also busy conducting an environmental impact study to advance its plans to build a third runway. With a target completion date of 2023, the project will expand the airport’s capacity to handle more than 600,000 flight movements a year by 2030 while doubling the current volume of cargo and passenger traffic. The expansion will deliver three new passenger concourses and a new, exclusive, cargo freighter apron featuring tunnels under the runway to connect with the centre runway.
The project’s total cost may exceed C $12.23 billion (HK $100 billion). It will involve 650 ha. of reclaimed land as well as landfill from marine sand and urban building sites. A 13 km-long seawall will surround the third runway system and all supporting service areas. By comparison, the original airport, which opened in 1997, occupied 12.48 sq. km or 1248 hectares of land, including 950 ha of reclaimed land resulting from flattening Chek Lap Kok Island and two adjacent islands as well as 2.83 million cubic m. (100 million cubic ft.) of land fill. As a result of current environmental regulations, there will be no sea dredging.
The airport ‘s role as a true intermodal hub will finally be fulfilled thanks to the extensive highway links resulting from the 2016 completion of the Hong Kong-Zhuhai-Macao tunnel-and-bridge project. The 42 km-long roadway will directly link Hong Kong’s western end with the both the eastern and western sections of the Pearl River Delta (PRD). The region is often called the world’s shop floor because of its high concentration of factories.
Before, trucks leaving the airport had to drive through the heart of Hong Kong to reach border crossings before entering neighbouring Guangdong Province. But a new customs clearance/toll collection plaza is being erected on man-made islands visible from Cathay Pacific Cargo’s airport offices.
Trucks leaving the airport will be able to reach Macao and Zhuhai in about one hour and three hours to most of the Western PRD’s major towns and cities. Today, the region is all but inaccessible by road from Hong Kong.
The Hong Kong Family
At a recent Hong Kong Canada Business Council (HKCBA) event, Gloria Lo, Director of the Toronto-based Hong Kong Economic and Trade Office (HKETO), outlined recent changes to its corporate ordinances that will streamline and simplify compliance and other business-related procedures. To nurture high tech development, she outlined an increase to C$l.42 million (HK $10 million) in the Enterprise Support Scheme for private sector R&D, opening up 150 new spaces at the Hong Kong Science Park for the further expansion of the Digital 21 Strategy, including the Smarter Hong program that aims to double the number of free Wi-Fi spots within the city.
As well, Andrew Yui, director, Canada, of the Hong Kong Trade Development Council (HKTDC) Toronto Office reminded the audience that his organization is the major trade show organizer in Hong Kong. Besides sponsoring dozens of incoming and outgoing trade missions between Canada and Hong Kong, it also offers one-on-one business matching services. Its 43 worldwide offices can share the latest market information about trade opportunities throughout Asia.