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Special Feature
A New Chapter Opens
Signing ceremony of the FTA with ASEAN

Hong Kong Secretary for Commerce and Economic Development Edward Yau and Philippine Secretary of Trade and Industry Ramon Lopez sign the Hong Kong-ASEAN Free Trade Agreement in Pasay City, the Philippines, on 12 November. The Philippines was the chair of ASEAN in 2017.

Factory in Cambodia

Workers at a garment factory in Cambodia. Many Hong Kong manufacturers are moving production from Mainland China to ASEAN countries.

Yangon Street View

A street in Yangon. The need for infrastructure in emerging economies like Myanmar presents many opportunities for investors with the appropriate skills and experience.

Salt workers in Vietnam

Salt plant workers in Nha Trang, Vietnam. The relationship between Hong Kong and ASEAN has been growing in recent years and is expected to deepen as the FTA opens markets further.

GDP rankings among ASEAN nations

GDP per capita US$

Amid a sluggish global environment, ASEAN has provided a rare bright point in recent years. And this state of affairs is expected to continue, with the IMF predicting in its recent World Economic Outlook that the bloc’s growth will remain buoyant.

This is good news for Hong Kong as the two economies become ever more intertwined, said Owin Fung, Assistant Director-General of the Trade and Industry Department.

“ASEAN as a whole – 20 years ago it was ranked fifth among our trading partners. Today, if you look at the statistics for 2016, ASEAN is Hong Kong’s second largest trading partner in terms of merchandise trading.”

The 10-member bloc is also a major trading partner in services and investment, Fung added.

“It doesn’t matter which angle you look at, the economic relationship between Hong Kong and ASEAN economies is getting closer and closer. I can say with full confidence that ASEAN is the second market, next to the Mainland market, for our traders, manufacturers and service providers.”

For manufacturing, this is part of a longer term trend as rising costs in the Mainland have prompted Hong Kong companies to shift production.

“In recent years, they have been trying to expand their businesses into ASEAN economies, in particular those with lower production costs and labour costs like Myanmar, Cambodia, not to mention Vietnam. That is the trend, so the importance of ASEAN markets will be getting even bigger, at least in the foreseeable future.”

To further enhance these ties, Hong Kong signed a Free Trade Agreement (FTA) with ASEAN on 12 November. Fung anticipates that this will encourage more businesses to refocus on Southeast Asia.

“ASEAN is probably perfect geographically to house their further expansion and further globalization,” he said. 

Perhaps more importantly, the agreement should also bring benefits for Hong Kong’s services sector.  

“Hong Kong in the past 30 years has been undergoing a dramatic transformation in terms of our economic development, transforming from a manufacturing city into a services hub providing all kinds of services. Nowadays, 90% of our GDP is services related.”

Fung pointed out that the agreement will help ASEAN members that are in need of the expertise that Hong Kong has in abundance.

“One of the major reasons why ASEAN agreed to negotiate the FTA with Hong Kong is because we have a lot of strengths in service industries. For instance, our professional services, and expertise in finance, infrastructure development and legal services.”

Less developed nations such as Cambodia and Laos can benefit from Hong Kong’s experience. “This is something that we want to export to them – we want to export our services, our knowledge and our technology transfer.” 

Fung also anticipates that the “legal certainty” provided by the FTA will spur more local companies to investigate these more challenging markets.

Understanding the FTA
The agreement is necessarily a long and complex document, running to almost 4,000 pages, and includes a range of different tariff reductions and schedules.

Thailand, for example, will eliminate all customs duties on watches and clocks within three years, while Malaysia and the Philippines will do the same for more than 90% of their watch and clock lines. In services, Malaysia will open urban planning and landscape architectural services, and maritime freight-forwarding services.

The agreement also opens up opportunities for investors. In Thailand, the allowance for foreign capital participation will jump from 49% to 70% in a number of sectors, and Vietnam will allow full foreign ownership in certain sectors.

To help local businesses get to grips with the agreement, Fung explained that the government has set up a hotline to provide information. 

“At first glance it might be quite complicated, but the government will give them all the assistance they need to help them make good use of the agreement and to capitalize on the opportunities.”

The DIT currently has an office in Singapore and one in Jakarta, and plans to set up a third in Bangkok. “This indicates the importance of the ASEAN market to Hong Kong,” he said. “The only other big region where we have three offices is in Europe.”

Global focus
The global spotlight has swung to Asia in recent years, and Fung noted that the European Union is trying to forge FTAs with individual ASEAN economies. Interest in the region is also strong on the other side of the planet.

“We talk to people in the southern hemisphere, including in New Zealand and Australia, and they are all knocking on the doors of ASEAN. Because ASEAN is a blooming market and the potential is unlimited – in particular in the developing countries.”

Political and social stability is a key concern for investors, and ASEAN has been improving in this regard.

“As a whole, ASEAN, particularly in the past five or 10 years, is getting more and more stable. Even the less developed countries are making bigger steps to open their economies. The rule of law is getting better and transparency of governments is getting better. These are all welcoming factors for businesses and enterprises to get into the markets there.”

Impact on businesses
Mark Michelson, Chairman of the Chamber’s CSI-Executive Committee, gave an insight into the role of the bloc for local businesses. “First of all, it’s important to point out that ASEAN is one of the leading trade partners of Hong Kong,” he said. However, this fact has remained something of a “secret” among many businesspeople in the city.

Michelson, who is also Chairman, Asia CEO Forum at IMA Asia, said that the deal was particularly important as it targets sectors where Hong Kong is strong, including professional services, financial services, construction and tourism. 

“That is a big opportunity,” he said. “The devil is in the details, but it does make doing business in the region a little bit easier. If the agreement is publicized and communicated effectively it might make Hong Kong companies more aware of the opportunities.”

Stephen Olson, Research Fellow at the Hinrich Foundation, broadly welcomed the agreement. “Any progress that can be made in reducing trade barriers is positive,” he said. But he added that even with an FTA in place, barriers will still remain.

“I think and I hope that it will at least encourage Hong Kong business and investors to investigate opportunities in ASEAN markets. The extent to which this will translate into actual business deals remains to be seen.”

Olson noted that that the bloc has many attractions for businesses and investors.  “ASEAN is home to rising middle classes, increasing per capita incomes and some of the fastest growth rates in the world, so it would be a grave mistake for Hong Kong not to pay close attention to the region.”

However, he added that it is still far from being a single market or production base. “The political rhetoric about regional integration has not always been translated into reality, so businesses will need to keep their eyes open.”

Building the Belt and Road
Looking at the bigger picture, ASEAN is a key part of the Belt and Road Initiative, with all of its member states being part of the 21st Century Maritime Silk Road.

“It’s a very grand initiative,” Assistant Director-General Fung said. “It is also one of the very important policies from the Central Government, and Hong Kong definitely needs to make use of the initiative to export mainly our services.”

The FTA will “bring a complementary impact to Hong Kong’s participation in the Belt and Road” and help the city make the most of the opportunities arising as a result of the initiative. 

Michelson noted that that the boost to the construction sector likely to result from the FTA also fits in with the Belt and Road Initiative, which has a strong focus on infrastructure. 

“The ASEAN economy is part of the Belt and Road system. And there will be a lot of investment from China and the AIIB (Asian Infrastructure Investment Bank) and others. These provide opportunities for Hong Kong companies.”

Already, Belt and Road and AIIB projects are starting to take shape, including a flood management project in Metro Manila and a slum upgrading project in Indonesia. “Those are solid,” Michelson said, “and most are in partnership with other organizations like the World Bank.”

Fostering free trade
Michelson remarked on the full house for the talk by Director General of the Trade and Industry Department Salina Yan at the Chamber shortly after the agreement was signed. 

“The turnout for the talk by Salina Yan is very encouraging. It is a small indicator that there is interest out there, but the interest has to be stoked up.” On this point, he sees a role for the Chamber to inform the local business community about the opportunities.

As the global environment has swung towards protectionism in certain parts of the world, the FTA also provides a sign of the willingness in this region to remove trade barriers, something that Yan highlighted during her talk at the Chamber

“Free trade is in Hong Kong’s DNA,” she told members. “At a time when free and open trade and investment is not to be taken for granted, the agreement sends a very timely and strong message to the world about our common aspiration to push forward the frontier of trade and investment in this part of the world.”

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