Over 93 percent of financial sector firms in Hong Kong agree that China’s World Trade Organization membership makes the city a more advantageous location for their operations, according to preliminary findings from an academic study of the territory’s competitiveness by Dr Edmund R Thompson, Associate Professor, Graduate School of Management, Ritsumeikan Asia Pacific University, Japan.
A similar percentage (93%) of business services firms say China’s WTO entry is now a competitive advantage of Hong Kong for their companies, against only 83 percent of export/import firms agreeing the same. Overall, more than 89 percent of foreign firms in the city think China’s WTO entry is an advantage of the SAR for their operations. Among those foreign firms, over 95 percent of British, and more than 91 percent of American, companies agree Hong Kong’s locational advantage for their activities is enhanced by China’s WTO entry, the highest percentages for any nationalities. The lowest levels of agreement are for Japanese firms, at 84 percent, and other (non-Japanese) Asian firms, 78 percent.
Findings are based on data from 1,045 senior managers of firms in Hong Kong and are part of an ongoing study of locational competitiveness in the Asia-Pacific due to be completed by Dr Thompson later this year. The study is the largest reported since China joined the WTO in December 2001.
Plans by financial sector firms to invest more in Hong Kong are found to link strongly with the city’s boosted advantageousness resulting from China’s WTO entry. Statistical analyses reveal a 35 percent correlation (25 percent is high in this type of research) between finance firms’ intentions to make additional investments in the city and their regarding Hong Kong as more advantageous because of China’s WTO membership.
For business services the correlation is 22 percent, and for firms on a country-of-origin basis, the correlation is highest for American firms, at 42 percent. This is followed by correlations of 41 percent for non-Japanese Asian firms, 34 percent for EU (ex-UK) firms, 32 percent for Japanese firms, and 28 percent for UK firms. For local Hong Kong firms the correlation between China’s WTO entry and greater investment in the SAR is only 11 percent.
“Any lingering fears that China’s WTO entry spells doom for Hong Kong as a financial services center are forcefully dispelled by these findings,” commented Dr Thompson. “Of course, more business will be done in, plus go in and out of, China. But in the short-run lots of this increased activity will be coordinated from and/or pass through Hong Kong, boosting key financial and business service sectors, already the core of the SAR economy.”
“Many foreign and local finance sector firms in Hong Kong will locate more activities in China, but their highest value-adding functions will remain and be expanded in the SAR, at least over the short- and medium-terms,” continued Dr Thompson.
“Longer-run, however, China’s WTO membership will help it to evolve a more sophisticated and competitive business environment, including a better developed, less opaque financial services infrastructure,” said Dr Thompson. “With improved, transparent regulation, substantial political reform, and the dynamo of a massive domestic economy needing a full range of financial services, Shanghai could out-class Hong Kong as a finance and service hub – not tomorrow, but sooner than many currently think.”