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The way to China

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After UK prime minister David Cameron signed £1.4bn-worth of trade agreements with Chinese premier Wen Jiabao in June, and announced the intention to build $100bn of bilateral UK-China trade by 2015, many UK companies will have been wondering: what will this mean for us? Is it really possible to mitigate stagnant UK and eurozone markets by tapping into China? And what are our best first steps in a sometimes treacherous marketplace?

Some detail and reassurance are emerging this week, as Real Business has attended a series of high-level briefings, as part of the Think Asia, Think Hong Kong programme.

Hong Kong is long established as a comfortable base for UK companies. Pervasive use of English as the business language; a familiar common-law system; and a truly open market have enabled UK businesses to prosper in this business-obsessed city. The challenge, over the intervening 14 years, has been to prevent Hong Kong becoming a “museum piece”, and ensure it remains relevant amid the dramatic emergence of Asia as the centre of the world’s economic gravity.

Since returning to mainland Chinese rule in 1997, the city has changed gradually but inexorably. More than 20m mainlanders now visit Hong Kong each year drawn, largely, by the awesome opportunities to shop. While the Basic Law (which guarantees the preservation of Hong Kong’s open system for 50 years) persists, the political clout now lies in Beijing.

So for UK companies, while some of the familiarity remains, there are new rules to learn – and, potentially, new opportunities to exploit.

Creativity and innovation rule

For decades, Hong Kong was the world’s garments capital; in more recent history, it’s flourished as a financial centre. The new wave of incoming international businesses are from the creative industries, says Simon Galpin, director-general of InvestHK (pictured). 

British designers and engineers have been doing well for a while in China. Arup, Atkins and Benoy have been involved in landmark projects. Among the more recent is UK architect Purcell Miller Tritton, engaged in renovating Hong Kong’s central police station. “We’re seeing more and more small, high-growth, entrepreneurial businesses,” says Galpin. StartCreative and iFix are two more recent arrivals.

A related, and significant, development is the emergence of a Hong Kong-based (and, by proxy, China-focused) technology sector. Tony Tan, CEO of the Hong Kong Science Park, admits that the city isn’t known as an innovation centre (though it did pioneer the RFID technology that underpins the Octopus travel card in HK), but today 300-plus companies are based on the New Territories site.

Science Park residents are a mixture of the very large (Philips) and the micro (Asia Pioneer). Notably, DuPont has based its global development facility for thin-film photovoltaic technology on the site, benefiting from close proximity to its own manufacturing plant on the other side of the border, in Shenzhen. The other significant benefit is greater IP protection than on the mainland.

The campus-like park focuses on five sectors: electronics, info/comms tech, precision engineering, biotech, green tech. Tan claims that, of 280 incubated start-ups, 220 are still in business. (Sadly, on the day of our visit, none seemed to be around; Hong Kong’s self-confidence as a world innovation centre still has a way to go.)

Andrew Lai, deputy commissioner for innovation and technology in the Hong Kong government, calls the science park “our flagship technological infrastructure.” Its chief appeal for overseas companies is R&D support, he explains – well equipped labs, well-trained technicians and, of course, that IP protection. Mainland Chinese electrical vehicles maker BYD recently announced that it will be basing its technical development at the park. Lai says this is a first for a mainland company, using Hong Kong as a platform for selling new-age cars into Europe.

Lai admits that it’s “a real challenge” for Hong Kong to attract the attention of risk/venture capital to local start-ups and tech companies. (It’s still way too easy to make a buck in the property sector.) So the government supports the Small Entrepreneur Research Assistance Programme (Serap), which provides matched funding of up to HK$4m (£320,000) to Hong Kong-registered companies developing new technologies. Some 300 ventures have been supported through the scheme over ten years and, Lai is keen to explain, loans are only repaid if the company moves into profitability. “We are very generous,” he smiles.

Hong Kong, traditionally focused on services, is clearly determined to become a player in the global innovation scene. (Its big regional rival, Singapore, has had its eye on this ball for quite a while.) The Hong Kong Science Park is about to undergo a HK$5bn (£400m) phase three development, creating space for 120 more companies. 

The message to overseas, and particularly UK, companies could not be clearer: come take a look.

Over the coming days, we’ll be looking at opportunities for China-focused UK companies around:

  • Raising money in Hong Kong;
  • The offshire RMB (remnimbi) market; and
  • Luxury goods.

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