Hong Kong by Vision 2030

UK: Commercial & Residential

TRINIDAD & TOBAGO:

BARBADOS: An In-Depth

Property Investment North of the Watford Gap.

The Industrialised Caribbean Republic’s Airport Infrastructure

Look at Partners on the Ground in the Barbadian Economy

GOVERNMENT:

HONG KONG The The Gateway Gateway to to Business Business in in China China

One Country Two Systems. China’s plan for the future of Hong Kong

BUSINESS: Everything you need to know about setting up a business in Hong Kong

POLITICS: The former British Colony Calls For Democracy

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contents Hong Kong from pg. 3

w w w. c e o - f i n a n c e . c o m

HONG KONG Macro Economics ............................................................................................................................2 Hong Kong - Economic Overview ........................................................................................................................3-4 Here We Go, Hong Kong ......................................................................................................................................5-7 Starting up a Business in Hong Kong ......................................................................................................................8 Where there be Dragons ......................................................................................................................................9-11 The Politics of it All ..........................................................................................................................................12-13 China Tax & Investment Consultants ................................................................................................................14-15 The Peoples’ Republic of China ........................................................................................................................16-18 Commodity Trading Rights in China ................................................................................................................19-20 One Good Turn Deserves Another ....................................................................................................................21-22 Open Account Trading In Asia - Trends, Issues and Solutions ........................................................................23-25 Sallmanns ..........................................................................................................................................................26-27 Tai Fook Securities Group Limited ..................................................................................................................28-30 DHL - The International Giant Undergoes Re-branding..................................................................................31-32 MYOB Hong Kong Limited ..............................................................................................................................33-35 Hong Kong as a Trading Hub for Sourcing in China........................................................................................36-38 IT Solutions Get HardCORE ............................................................................................................................39-41 LRF Designers LTD ..........................................................................................................................................42-44 Empire Hotels ....................................................................................................................................................45-47 GOAL - A Charitable Approach can be good for business ..............................................................................48-50 UK Property Market................................................................................................................................................50 Residential an Commercial Property Investment in the UK, North of the Watford Gap ................................51-53 TRINIDAD & TOBAGO Macro Economics ..........................................................................................................53 Developments in the Taxation of Cross Border Transactions in Caricom ........................................................54-55 Airports Authority of Trinidad and Tobago ......................................................................................................56-57

UK from pg. 50

BARBADOS Macro Economics ............................................................................................................................58 The Barbados Investment & Development Corporation ..................................................................................59-60 Caribbean Financial Services Corporation........................................................................................................61-62 Concorde Bank ..................................................................................................................................................63-64 Coordinating Your Caribbean Initiative ............................................................................................................65-67 Barbados National Terminal Company Limited ................................................................................................68-69 Illuminat ............................................................................................................................................................70-71 B&B Distribution ..............................................................................................................................................72-73 Pinehill Dairy ..........................................................................................................................................................74 Realtors Ltd........................................................................................................................................................75-76 Long Beach Club ..............................................................................................................................................77-78 Neptune Tours ....................................................................................................................................................79-81 Little Arches Hotel ............................................................................................................................................82-83 C.E.O. FINANCIAL Hong Kong Business Directory ......................................................................................84-91 C.E.O. FINANCIAL Business Reply......................................................................................................................92 CEO Market Research Questionnaire ....................................................................................................................93 Hong Kong’s Whos Who ..................................................................................................................................94-95

Trinidad & Tobago from pg. 53

Produced & Published by:

C.E.O. Financial Ltd, Brookfield House, Carysfort Avenue, Blackrock, Co. Dublin, Rep. of Ireland. T: +353 1 283 3500 T: +353 87 747 3779 F: +353 1 283 3592 E: office@ceo-finance.com W: www.ceo-finance.com

Design by:

i.e. design ltd, 1A Hermes Business Park, Kill Avenue, Dun Laoghaire, Co. Dublin, Ireland. T: +353 1 663 9032 E: info@iedesign.ie W: www.iedesign.ie Copyright 2004 ©. All rights reserved. C.E.O. Financial Ltd., accepts no responsibility for errors, mistakes or omissions. No unauthorised reproduction is permitted. Prior written consent is required from C.E.O. Financial Ltd. before any reproduction of any piece of this trade journal.

Cover Photo courtesy of Hong Kong Tourism Board

Barbados from Pg 58 1

HONG KONG

Hong Kong Budget (expenditures):

$30.7 billion, including capital expenditures of $NA (FY02/03)

(per $ GDP):

$15.46 per $100

(per capita):

$4151.91 per person

Budget (revenues):

$22.8 billion

Central bank:

Hong Kong Monetary Authority

Currency:

Hong Kong dollar (HKD)

Currency code:

HKD

Debt - external:

$49.5 billion (2002 est.)

Economy - overview:

Hong Kong has a free market economy highly dependent on international trade. Natural resources are limited, and food and raw materials must be imported. Imports and exports, including reexports, each exceed GDP in dollar value. Even before Hong Kong reverted to Chinese administration on 1 July 1997 it had extensive trade and investment ties with China. Hong Kong has been further integrating its economy with China because China's growing openness to the world economy has increased competitive pressure on Hong Kong's service industries, and Hong Kong's re-export business from China is a major driver of growth. Per capita GDP compares with the level in the four big economies of Western Europe. GDP growth averaged a strong 5% in 1989-1997, but Hong Kong suffered two recessions in the past 6 years because of the Asian financial crisis in 1998 and the global downturn of 2001-2002. The Severe Acute Respiratory Syndrome (SARS) outbreak has also battered Hong Kong's economy but the resumption of strong growth began in 2003.

Exchange rates:

Hong Kong dollars per US dollar - 7.8 (2002), 7.8 (2001), 7.79 (2000), 7.76 (1999), 7.75 (1998)

Exports:

$200.3 billion f.o.b., including reexports (2002 est.)

Exports - commodities:

electrical machinery and appliances, textiles, apparel, footwear, watches and clocks, toys, plastics, precious stones

Exports - partners:

China 34%, US 19.5%, UK 5.5%, Japan 4.8% (2002)

Fiscal year:

1 April - 31 March

Foreign investment:

$22,834

GDP:

$198.5 billion (2002 est.)

GDP - real growth rate:

2.3% (2002 est.)

Imports:

$208.1 billion (2002 est.)

Imports - commodities:

foodstuffs, transport equipment, raw materials, semimanufactures, petroleum, plastics, machinery, electrical equipment; a large share is reexported

Imports - partners:

China 37.5%, Japan 12.2%, Taiwan 7.3%, US 6.2%, Singapore 5.3%, South Korea 5% (2002)

Industries:

textiles, clothing, tourism, banking, shipping, electronics, plastics, toys, watches, clocks

Inflation rate (consumer prices):

3% (2002 est.)

Stock exchange:

Hong Kong Stock Exchange

Transnational corporations (parents):

819

HONG KONG

Hong Kong Economic Overview Written by: Joe Brennan

Hong Kongâ&#x20AC;&#x2122;s economy depends on trade as it is first and foremost a trading centre. It has virtually no natural resource base and is therefore dependent on imports for raw materials, food and fuel. Whereas Hong Kong, Singapore, Taiwan and South Korea all started out as low-cost, labour intensive manufacturing bases, Singapore, Taiwan and South Korea have all high

technology industries, whereas Hong Kong has become a services centre, in particular for companies (foreign as well as domestic) doing business in China. The structure of the economy has therefore changed dramatically over the past decade. The magnificent harbour in Hong Kong has facilitated rapid development of foreign trade, with its principal trading partners being mainland China, U.S., Japan, Taiwan, Germany, Singapore and South Korea.

The magnificent harbour in Hong Kong has facilitated rapid development of foreign trade, with its principal trading partners being mainland China, U.S., Japan, Taiwan, Germany, Singapore and South Korea. Having enjoyed economic growth in the past because of its strong manufacturing sector, recent years have seen the services sector surpassing it in importance and it now accounts for 85% of GDP. The major components of Hong Kongâ&#x20AC;&#x2122;s service trade are shipping, civil aviation, tourism and various financial services. With one of the Worldâ&#x20AC;&#x2122;s most sophisticated telecommunications and technology infrastructures, Hong Kong functions as a major regional and international financial and commercial centre. The manufacturing sector contributes 3

HONG KONG approximately 10% less to GDP than ten years ago, and the percentage employed by this sector has been replaced by a rapidly expanding services sector. Wholesale, retail and import/export trades, and community, social, and personal services are Hong Kong’s two largest services sectors over the last couple of years. Hong Kong and China agreed in August to extend the scope of the Closer Economic Partnership Agreement (CEPA), which offers tariff-free access to the mainland market for Hong Kong-made goods. A further 713 items will be covered from January 2005. Efforts by the Chinese Government to slow mainland economy, coupled with high global oil prices and increases in interest rates, means that the momentum of GDP growth is likely to slow. Consequently forecasts for GDP growth in 2005 of some 4.7%. Photo courtesy of the Hong Kong Tourism Board

With the real GDP reaching double digits in 2000 after being as low as 3.1% in 1999 helped ease the unemployment rate to 4.8% in mid 2000. Hong Kong has often been cited by people as an example of the benefit of laissez-faire capitalism. However, many analysts believe that this characterisation of the Hong Kong economy is inaccurate, as the Hong Kong government, both under British and Chinese rule, have often intervened quite actively in the economy, for example by determining the amount of land to be sold and in quite actively maintaining the peg to the U.S. Dollar. After a slump caused by the region wide Asian financial crises that began in 1997, Hong Kong’s economy has been temporarily on the rebound. With the real GDP reaching double digits in 2000 after being as low as 3.1% in 1999 helped ease the unemployment rate to 4.8% in mid 2000. The banking sector remains solid and this is helped by the government being committed to the U.S. – Hong Kong dollar link. The economy suffered from the SARS outbreak in early 2003. As of May 2003, the unemployment rate was 8.2%. This brief overview of Hong Kong’s economy shows to anyone thinking of starting a business venture in the SAR (Special Administrative Region) that it is a growing and developing one, with the one of the best base structures in the world to encourage, facilitate, connect and maintain business growth and partnerships. There are enough incentives to have your business in Hong Kong without the government having to implement any, yet it still does, with some inviting tax reliefs to encourage foreign investment.

HONG KONG

Here we are, HONG KONG New measures on Hong Kongbound investment by mainland enterprises Written by: By Danny Po, China Tax Partner and Shirley Yu, China Tax Manager Previously Published in the Financial Times - 6th October 2004 Chinaâ&#x20AC;&#x2122;s accession into the World Trade Organisation ever since 11 December 2001 has opened the door to foreign investors worldwide for capturing a share of the lucrative market. Mainland enterprises are under increasing pressure to look for opportunities abroad as their share of the home countryâ&#x20AC;&#x2122;s market will inevitably shrink in the face of growing foreign competition after full market liberalisation. Many of them have taken outbound investment as an excellent opportunity to capture learning experience in areas such as international business practices and management methodology. It is also believed to be the most direct and efficient way to raise a companyâ&#x20AC;&#x2122;s international profile and building corporate image.

What makes Hong Kong an attractive location for outbound investment is self-explanatory as it provides all the right elements for accessing the international market. Hong Kong has been one of the most popular locations of mainland enterprises for "going out". Statistics from the Ministry of Commerce (MOC) show that Hong Kong has drawn in investment capital of USD1.15 billion, representing approximately 40% of the total committed capital of USD 2.85 billions by mainland enterprises in the year 2003. Forty three percent of the enterprises with outbound investment are state-owned enterprises (SOEs) which are believed to be in a better position than other private enterprises in realising their overseas investment plan given their strong government relationship and fund raising capability.

The free flow of information makes the collection of market intelligence much easier and faster. Mainland enterprises can also use Hong Kong as a springboard to develop the global market and internationalise their brands. What makes Hong Kong an attractive location for outbound investment is self-explanatory as it provides all the right elements for accessing the international market. In Hong Kong, mainland enterprises can easily benchmark themselves with other foreign companies and MNCs for improvement in product or service quality as well as corporate governance. The free flow of information makes the collection of market intelligence much easier and faster. Mainland enterprises can also use Hong Kong as a springboard to develop the global market and internationalise their brands. Meanwhile, there are no definitive laws and regulations governing outbound investment of mainland enterprises and the local provinces may run their own practices in granting approval according to the local regulations. In some provinces, the enterprises are required to knock on the doors of the local planning commission, economic and foreign trade commission at provincial levels as well as the PRC embassy in the destination country of outbound investment for approval. The approval process will become more complicated if the investment is directed to a country which does not have diplomatic relationship with China. In this 5

HONG KONG case, the final approval for outbound investment will need to be granted by the Ministry of Commerce. On top of the approval formalities, the State government also introduced foreign exchange control measures to monitor and limit the outflow of foreign capital. This added difficulty would be one to substantially deter the outbound investment plan of mainland enterprises. As a general rule of thumb, PRC investors are required to perform verification on the source and usage of investment capital with the State Administration of Foreign Exchange (SAFE). Investment capital that goes beyond the designated threshold would need the prior approval of SAFE at the State level before they can actually be used for overseas investment. Fairly speaking, government bureaucracy and approval requirements have made outbound investment something not easily accessible to the mainland enterprises in general.

In order to boost outbound investment by mainland Photo courtesy of the Hong Kong Tourism Board

Harbour view of Hong Kong from Kowloon

However, things are expected to change following the promulgation of the "Measures on the Approval of Mainland Enterprises to Establish Enterprises in Hong Kong and Macau Special Administrative Regions" ("the Measures") by the MOC and the Hong Kong and Macau Affairs Office of State Council on 6 September 2004. The Measures are the first of their kind to detail the requirements and approval procedures for Hong Kong- and Macau-bound investment by mainland enterprises. Mainland enterprises can now apply for outbound investment in Hong Kong and Macau as part of the State Governmentâ&#x20AC;&#x2122;s commitment to facilitate trade and investment under the context of CEPA. The previous hurdles that used to hold back outbound investment may gradually disappear as mainland enterprises can now find an easier way to go "international".

HONG KONG enterprises in Hong Kong and Macau, the approval procedures have been simplified under the Measures. The approval jurisdiction has been delegated to the MOFCOM at the provincial level with the least intervention from the State government. Under the simplified approval system, the approval procedures can be completed in 20 daysâ&#x20AC;&#x2122; time and based on this rough estimation, a mainland enterprise can easily realise their investment plan in less than a month if the process goes smoothly.

Under the simplified approval system, the approval procedures can be completed in 20 daysâ&#x20AC;&#x2122; time and based on this rough estimation, a mainland enterprise can easily realise their investment plan in less than a month if the process goes smoothly.

investment policy. The policy has also been well-received by Hong Kong as this "Going-Out Policy" is regarded as the enterprise version of a solo travel scheme to boost Hong Kongâ&#x20AC;&#x2122;s economy further. With the growing demand for IPO activities in Hong Kong, the need for accounting, banking and finance as well as legal professional services is expected to grow at the same speed and scale, with more job opportunities created under the influx of mainland investment. Hong Kong will become a place where mainland enterprises can learn how to live up to the world standard and pave way for future expansion in the world market. The new outbound investment policy will create a win-win situation that would be irresistibly attractive to both Mainland and Hong Kong.

Photo courtesy of the Hong Kong Tourism Board

By now, manufacturing, distribution and construction sectors are the three most popular sectors for outbound investment, taking up 27%, 19% and 11% of the total outbound investment respectively. However, the share as shown is expected to change as the mainland enterprises are allowed to invest in a variety of industries under the Measures. Among Lippo Centre the investment list is trading, subcontracting, labour services, manufacturing, transportation, tourism, service provision, R&D activities, investment and technology development. The diversification tells the determination of the State government to boost outbound investment. The ultimate goal of this could extend far beyond seizing the market share of foreign countries but more importantly, the learning experience, whether it be corporate governance or management methodology, that is valuable to mainland enterprises.

With the growing demand for IPO activities in Hong Kong, the need for accounting, banking and finance as well as legal professional services is expected to grow at the same speed and scale, with more job opportunities created under the influx of mainland investment.

Another promising breakthrough of the Measures is that mainland enterprises are not restricted to realising their outbound investment by setting up new companies. They can explore alternative means such as mergers and acquisitions, stock investment, capital injection, share swap, etc. Again, this diversified form of investment is expected to open up opportunities for PRC investors who are eager to join the international market in the most timely and cost effective manner. Meanwhile, not just mainland enterprises are excited by the new 7

HONG KONG

Starting-up a Business in Hong Kong Written by: Joe Brennan Being one of the worldâ&#x20AC;&#x2122;s major trading and financial centres makes Hong Kong an excellent place to set up a business. Hong Kong has a simple tax system and low rate of tax and with the incentives to outside business. Income with a source outside Hong Kong is not usually subject to tax and corporation tax on local income is at the rate of only 17.5% which makes it an inviting place to establish a new business. To do business in the Special Administrative Region you can set up a sole proprietorship, a partnership or register your own company incorporated elsewhere as an overseas company in Hong Kong. The private limited company is the most common form of business entity. This limits the liability of the shareholder to the capital subscribed. The incorporation of a tailor-made company takes eight to ten days but if you buy a "shelf company" which is ready-made you can start business immediately. As it has never traded since incorporation, it has no liabilities. Shelf companies normally have an authorised capital of HK$10,000 with standard Memorandum and Articles of Association. One can change the name, amend the Articles or increase the authorised share capital at any time. Shelf companies are incorporated with one subscriber share of HK$1. There is no obligation to subscribe and pay up further capital.

To have a Limited Company, the basic requirements are: Capital: The shelf company has an authorised capital of HK$10,000 and an issued capital of HK$1. The authorised share capital may be increased but capital duty at the rate of 0.1% is payable on each dollar above HK$10,000. Directors and Shareholders: Every Hong Kong company must have at least one director and at least one shareholder. They do not need to be a Hong Kong resident and can be either an individual or a corporation. Company Secretary: The company must have a company secretary who is either an individual who ordinarily resides in Hong Kong or a body corporate with it registered office or place of business in Hong Kong. The company must keep its normal statutory books such as the register of members and the register of transfers etc. together with minute books of the meetings of its directors and shareholders. Also each year, it must hold an AGM at which the audited accounts are presented, the directors reelected and the auditors re-appointed, etc. it must also file a return with the Companies Registry of its present company structure at the anniversary date of its incorporation. Registered Office, Accounting, Auditing and Tax Compliance: A Hong Kong company must have a registered office within its territories and every company must have its annual accounts audited and is also required to attend to various tax filing matters.

HONG KONG

“Where There Be Dragons...”

Advice on the profits and perils of breaking into the Chinese consumer market from HKBI CEO Edwin Lee. Written by: Joan Lai So, you’d like to start an enterprise in China. World’s second largest economy; potentially (inevitably?) the largest. The single largest potential consumer base on the planet. 1.3 billion souls whose retail consumer spending quadrupled during the last decade of the past century and has continued to grow at a break-neck pace hovering around ten percent per year thereafter.

Established in 2001, HKBI has rapidly become a leading business intermediary providing an ideal platform for business brokerage, franchising and licensing opportunities in the Greater China Region. But how to tap this vast resource, or at least make a healthy living from it? In fact, why not forego all the peptic ulcers and messy uncertainties of starting a venture from the ground up and hit the ground running with a well-established franchise? Starbucks. MacDonalds. Seven Eleven. Surely, it must only take a good idea, a little capital, some hard work, right? Not necessarily, according to Edwin Lee, CEO of Hong

HONG KONG Lee advises"...China is like Europe. It's not one country - it's many local regions that are very different, and you have to approach each one as such. Success in one region of China does not necessarily mean success in another. You have to approach each individually, one at a time." Kong Business Intermediary Co. (HKBI). The variables involved in making a success story a reality are much more subtle and delicate, requiring sophisticated local knowledge and experience. Franchises who remain heavy-hitters in the West have learned this the hard way. Burger King, despite doing it your way, and Subway, even with Jared and his giant pants, have both come back from the land of dragons feeling a little punch-drunk. The good news is help is available.

Established in 2001, HKBI has rapidly become a leading business intermediary providing an ideal platform for business brokerage, franchising and licensing opportunities in the Greater China Region. We asked CEO Mr. Lee, then, what are the keys to a successful business venture, if a powerful Western brand name can't guarantee success - and may even prove a failure? "Basically, there are three key areas necessary for a franchise to succeed," he outlines. First, according to Lee, "a successful venture must present a product with a localized flavour." He mentions a product cannot afford to be too rigidly standardized, neglecting to take into account the local preferences. Flexibility in this regard is essential, and becoming sensitive to local cultural standards can be a lot easier than trying to introduce a paradigm that may have been a success somewhere else. Lee points out the fact that numerous menu items available under such familiar banners as Hardees, KFC, and even the Golden Arches themselves would be virtually unrecognizable to a visitor from their western counterparts. This 'local flavour' will go a long way towards a speedy reception of the product into the community. Secondly, Lee turns his attention to the potential franchisee. A successful franchise operation looking to expand its brand into the Chinese market needs to evaluate what Lee describes bluntly as "a lot" of potential franchisees in order to ensure that those eventually licensed will represent the brand satisfactorily. In a market with this combination of enthusiasm, urgency and sheer population, there are bound to be as many or more unqualified applicants as there are competent ones, and it is crucial, according to Lee, to be very careful in selecting franchisees at this early stage, rather than having to play catch-up later on, dealing with problems that could have been prevented. Finally, Lee proposes the initially cryptic term of "the Right System". As Lee explains further, a good system is one that is self-sufficient enough to maintain a low dependence on individual people (see inappropriate franchisees above). This would include a comprehensive, top-down training program for all involved. It is no good, Lee quips, for a brand company to just give somebody a few machines, some uniforms, and a fancy logo and expect them to take it from there. In order to succeed over a large area of vastly diverse regions, great attention must be paid to giving each representative of that brand a thorough training that reaches a given standard for all franchisees. To this end, Lee also stresses the indispensability

HONG KONG of strong internal communication between all parties to monitor feedback and ensure quality control for the brand. He concludes his definition with a familiar admonition modest pacing. "You don't want to get too big, too fast." When asked if there is one idea or piece of advice in particular that could sum-up the climate for these types of ventures in China, Lee pauses only briefly before leaning back into his chair with a knowing grin. "The way you have to remember to look at China," he muses, hands outstretched slightly above and in front of him, positioning them around an invisible map of the land, "is that China is like Europe. It's not one country - it's many local regions that are very different, and you have to approach each one as such. Success in one region of China does not necessarily mean success in another. You have to approach each individually, one at a time."

VERY optimistic future ahead... For those out there looking to establish a brand in Hong Kong as a foothold into the larger mainland market - especially in light of certain trade advantages incurred through the much-hyped CEPA policy Lee remains warmly admonishing, seeing anything that plays up this angle as a bait and switch of sorts; "Hong Kong and China are very different, " he chuckles, playfully suggesting the slogan 'two markets, two systems' may be more apropos when describing this type of relationship between the two. So what are his feelings about the future of this market with seemingly endless potential? Lee grins widely again and says simply, broadly, "VERY optimistic," while motioning again with his hands as if indicating the size of a fish he'd caught, "because of the spirit of the Chinese people - very enthusiastic, hardworking and committed to success."

HONG KONG

The Politics of It All Hong Kong demands Universal Suffrage from a Communist Chinese Government Written by: Grant Leech

Needless to say, the Americans are watching developments closely, despite the fact that terrorism has now usurped communism as the primary focus of foreign policy matters. The Beijing government, of course, knew that this issue would rear its head at some stage after the handover from the British in 1997. The only difference is that, now, Hong Kong residents are really turning up the heat.

Photo courtesy of the Hong Kong Tourism Board

When more than half a million people take to the streets, you know that they’re not happy about something. That is what happened in Hong Kong last July. It was the second consecutive year that protestors dressed in white, marched to express their frustration with the Government of the Peoples’ Republic of China in not allowing direct elections for the Special Administrative Region. That’s what happens when a small outpost enjoys prosperity under a foreign power and is then handed back to a government which just happens to be communist. The clash of the two opposing political ideologies has turned Hong Kong into one of the globe’s foremost political focal points.

The Hong Kong SAR Government, headed by Chief Executive Tung Chee-hwa has had its powers reduced by the introduction of a new bureaucratic system which puts Beijing firmly at the centre of all matters relating to the world’s busiest port. The fact of the matter however, is that, instead of increasing Hong Kong’s level of autonomy, the first march in July 2003, resulted in Beijing tightening its hold on the SAR. The Hong Kong SAR Government, headed by Chief Executive Tung Chee-hwa has had its powers reduced by the introduction of a new bureaucratic system which puts Beijing firmly at the centre of all matters relating to the world’s busiest port. China’s Vice President, Zeng Qinghong, is in charge of the Central Leading Group, a government entity based in Beijing which is now responsible for policy-making in Hong Kong. A Liaison Office in Hong Kong is then responsible for the implementation of these policies on the ground. 12

Government House

HONG KONG So where does this leave the democracy-hungry protestor? Widespread dissatisfaction with Tung Chee-Hwa manifested itself in September, 2004 when record numbers turned out to vote in the most important Legislative Council election since the handover. Out of the 60 seats at stake in this election, half were reserved for pro-Beijing candidates. So, strictly speaking, the traditional one man-one vote system is still not in operation in Hong Kong. Democratic Party candidates, who currently curry the favour of the majority of Hong Kong voters, are set to demand direct, one man- one vote elections in 2007, at the end of Tung’s tenure. Beijing, however, has made it clear that universal suffrage is not likely to be introduced until at least 2012. This of course, will give the

Chinese government an opportunity to install a Chief Executive who will be more favourable in the eyes of the Hong Kong populace than Tung has proven to be, before going to direct elections. The dissatisfaction that Tung has engendered since 1997, has served to consolidate the democratic movement in a city which has traditionally concerned itself far more with matters commercial than political. The administration’s responses to the financial crisis in 1997-98, as well as its response to the SARS epidemic in early 2003 are issues which still play on the minds of voters when looking for alternative leadership. The fact that soon after the SARS crisis, an attempt to introduce an antisubversion bill to limit civil liberties was made, did little to inspire confidence in those seeking greater freedoms and representation. This was in fact, part of the reason that the first march in 2003 went ahead. The sheer magnitude of the protest shocked Beijing and forced the administration to make a U-turn on the proposed legislation. So, how will Beijing handle this little dilemma that the one-country, two systems dichotomy has brought about? Hong Kong is of unique importance to mainland China as its commercial bridge to the rest of the world, so they need to keep its citizens happy. However, they must balance that with the desire not to let Hong Kong’s democratic aspirations spread to the rest of the Peoples’ Republic. Watch this space.

HONG KONG

China Tax & Investment Consultants Written by: Grant Leech Having been in operation for over ten years, China Tax & Investment Consultants Ltd is an entity which may prove invaluable to you as a partner on the ground in Hong Kong when you are trying to infiltrate the vast Chinese market. Alfred Chan, a qualified C.P.A. and article contributor to reputed international professional journals, who also runs a successful accounting practice, is the managing director of the company which has positioned itself as an essential strategic partner for a foreign investor seeking to take advantage of the emergence of China as an economic power house.

Alfred Chan - Managing Director

The companyâ&#x20AC;&#x2122;s strategic position is key to its continued partnership with many international clients As Mr. Chan puts it; "There are two ways to look at China from the perspective of the foreign investor. You set up manufacturing operations in China because you can take advantage of the low labour and rental costs. You must also bare in mind that there are 1.3 billion people in China, so if you are looking at it from the point of view of a consumer market, it obviously has the potential to be huge. The third thing is that the business opportunity also emerges to serve those who already established presence in China earlier. That is evidenced by the ever-increasing number of foreign investment enterprises when China further opens up the service markets" The companyâ&#x20AC;&#x2122;s strategic position is key to its continued partnership with many international clients. "Hong Kong is the obvious place for a Western company to launch a Chinese initiative from," declares Chan, "the obvious historical ties with Britain means that the environment here is easy for Westerners to do business in, whereas they can also make partnerships with us in order to facilitate their entry to the mainland. All of our material is bilingual and we also know the way that the mainland Chinese like to do business." China Tax & Investment Consultants Ltd. Provides a broad and comprehensive scope of services to their clients. The accounting business obviously handles all accounting, taxation and auditing issues, while the consultancy side offers advice with regard to PRC Sino-foreign equity joint ventures

HONG KONG and the entrance of all types of enterprise into mainland China, post-incorporation compliance issues, China business consultation, entry modes for foreign investors including mergers and acquisitions and the assistance offered even extends to finding suitable factory sites and licenses for its clients.

experience can be enjoyed by all. We have the track record, expertise and experience to facilitate a foreign investor in his endeavors in China and to make sure that he does not get his fingers burnt."

Photo courtesy of the Hong Kong Tourism Board

"China is in a state of evolution with regard to both the law and the economy" Although the Peopleâ&#x20AC;&#x2122;s Republic of China was admitted to the World Trade Organisation in December 2001, the European Union recently refused to recognize it as a full market economy. Obviously, the constraints placed on markets by a Communist government are still in effect to a certain extent, but they are being loosened constantly and consistently. "China is in a state of evolution with regard to both the law and the economy." states Mr. Chan. The fact that his is a bilingual firm means that they have the ability to translate the changes in the law and administrative rules to their clients on a real time basis. When markets are moving so fast, a simple distinction like this can prove to be crucial. "What foreign investors must recognize is that issues in mainland China are not necessarily transparent. There are minefields out there for the unassuming investor." warns Mr. Chan. "With the right partner on the ground however, this minefield can be successfully negotiated and a fruitful

China Tax & Investment Consultants Ltd. Unit 1506, 15/F., Wing On House, 71 Des Voeux Road,

Tel: (852) 2374 0067 Fax: (852) 2374 1813

Central,

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HONG KONG

The Peoplesâ&#x20AC;&#x2122; Republic of China A Wholesale and Retail Business Opportunity

Written by: Alfred Chan Pursuant to the commitment China made to the WTO members, the Chinese government promulgated in 16th April 2004 "the Administrative Measures of the Commercial Sectors for Foreign Investments". The Administrative Measures axe the requirement for the qualification of the foreign investor, the amount of minimum registered capital for the foreign invested enterprises, and the restriction on geographic locations, quantity, and percentage of foreign ownership. Within this year, foreign investors will have access to Chinese domestic market in the field of wholesale and retail distribution in all dimensions. What is the effective date for the newly promulgated "Administrative Measures of the Commercial Sectors for Foreign Investments"? The Administrative Measures shall take effect on 1st June 2004. "The Experimental Measures for Foreign Invested Commercial Enterprises" promulgated in June 1999 shall cease to have effect on the same date. What business activities can the foreign invested commercial enterprises be engaged? The business activities to be engaged by foreign invested commercial enterprises are: 1. Commission agent: acting as distributors for merchandise goods, brokers or auctioneers, or the sale of goods by the wholesale distributor as consignee for a commission under contracts, and the provision of related subordinated services; 2. Wholesaling: the sales of goods to retailers, industrial users, institutions, or the sale of goods of other whole salers, and the provision of related subordinated services; 3. Retailing: the sale of consumer goods to individual or groups at fixed locations, or via television, telephone, post, internet, vending machines, and the provision of related subordinated services; 16

4. Franchising: the granting of trademarks, business names, and business models for purpose of rewards or royalties by way of licensing agreements. What is the requirement for the registered capital of the foreign invested commercial enterprises? According to the Experimental Measures promulgated in 1999, the amount of minimum registered capital for foreign invested commercial enterprises is RMB 80 million (for

HONG KONG wholesale business) and RMB 50 million (for retail business). In accordance with the Closer Economic Partnership Arrangement (CEPA) entered between the Chinese Central Peopleâ&#x20AC;&#x2122;s Government and the government of the Hong Kong Special Administrative Region, qualified Hong Kong companies have a lower requirement, the amount of the minimum registered capital is RMB50 million (for wholesale business) and RMB 10 million (for retail business) respectively. However, the capacity of the companies is restricted to those who have acquired the certification of Hong Kong service suppliers, in accordance with annex 5 of the CEPA. According to Aricle 7 in the Administrative Measures, the amount of minimum registered capital for foreign invested commercial enterprises shall be RMB0.5 million (for wholesale business) and RMB 0.3 million (for retail business) in accordance with the PRC Companies Law. The new Administrative Measures has given foreign investors national treatment in respect of the amount of minimum registered capital, except for the business activities as set out below: (1) Foreign invested enterprises engaged in the wholesale distribution of books, newspapers, and magazines shall have a minimum registered capital of RMB30 million, foreign invested enterprises engaged in the retail distribution of the same shall have a minimum registered capital RMB 5 million; (2) Hong Kong service suppliers engaged in the retail distribution of vehicles shall have a minimum registered capital of RMB10 million; those in the Central and Western region should have a minimum registered capital of RMB 6 million. Article 25 of the Administrative Measures refers. What is new in the Administrative Measures about the relaxation on geographical locations, quantity, and foreign share ownership? In respect of geographic locations, Article 22 of the Administrative Measures provides that foreign invested commercial enterprise engaged in retail distribution should restrict its business activities in the locations of the provincial capitals, the capital of autonomous regions, the municipalities directly administered by the State Council, the municipalities with independent development plans, and the special economic zones before December 11, 2004. All the abovementioned geographic restrictions will be lifted after 11 December 2004. Hong Kong service suppliers engaged in the retail distribution sectors will be given market access to all prefecture-level cities, and all the county-level cities within the Guangdong province after 1st January, 2004. The Administrative Measures provides that with effect from 1st June 2004, all geographic restrictions shall be lifted for foreign invested commercial enterprises engaged in wholesale distribution. The Administrative Measures removes all existing

restrictions imposed on the number of commercial enterprises the foreign investor may set up and the number of branches a foreign invested commercial enterprise may set up throughout the country. Hong Kong service suppliers are permitted to set up wholly foreign owned commercial enterprises with effect from 1st January 2004. The restrictions of relative foreign ownership shall be removed on 11th December 2004. All foreign investors are permitted to set up wholly foreign owned commercial enterprises after 11th December 2004. However, the lifting of restriction on foreign ownership shall not apply to those enterprises engaged in the distribution of books, newspapers, magazines, vehicles (whose restriction will be lifted on 11th December 2006), pharmaceutical products, pesticides, mulching films, processed oil, foodstuffs, vegetable oil, sugar, and cotton. A single foreign investor with the number of shops in excess of 30 in the aggregate and engaged in the distribution of the abovementioned goods, shall not have an ownership exceeding 49% in the foreign invested commercial enterprise. Has the Administrative Measures imposed other requirements for the investors? The Administrative Measures removes the requirement for the amount of average annual sale and the net assets, except for the engagement in retail distribution of vehicles and products subject to designated trading. According to Article 25 of the Administrative Measure, Hong Kong companies that already obtain Hong Kong service supplier certificates are permitted to set up wholly foreign owned commercial enterprise engaged in retail distribution of vehicles. The Hong Kong service suppliers must have average annual sales of no less than USD 100 million 3 years preceding the application, net asset of no less than USD 10 million 1 year preceding the application. To set up the foreign 17

HONG KONG invested commercial enterprise for retail distribution of vehicles, the amount of minimum registered capital shall be no less than RMB 10 million, and RMB 6 million in the Central and Western regions respectively. Nature rubber, timber, plywood, wood, acrylic, and steel are products subject to designated trading, as provided in Article 16 of the Administrative Measure. Enterprises that have the right to trade those products should have a minimum registered capital of RMB10 million, and have a track record of engaging in import and export trading for no less than 2 years. Will the existing foreign invested enterprises be approved to engage in wholesale and retail distribution activities as well? Yes, existing foreign invested enterprises are permitted to engage in wholesaling and retailing business if they amend their scope of business by submitting the application to do so, in accordance with the provisions of capital contributions as per requirement from the State Administration of Foreign Exchange. What is the scope of businesses for the foreign invested commercial enterprises in the wholesale and retail distribution business? The Administrative Measures provides that the scope of businesses is as follows: -

Retail distribution

Wholesale distribution

Merchandise goods retailing;

Merchandise goods wholesaling

Imports of merchandise goods on the list of own trading items

Commission agent (except for auctioneering)

Sourcing domestic goods for export

Import and export of merchandise goods

Other related subordinated services

In contrast, the "Experimental Measures" promulgated in 1999 prohibits foreign invested enterprises engaged in wholesale distribution from buying imported goods not on the list of its own trading items. That is inconsistent with the WTO rules. The Experimental Measures also prohibits the foreign invested enterprises engaged in wholesale distribution from acting as agents for the buying and selling of goods. The Administrative Measures lifts the requirement for local contents regarding the procurement of goods, and allow foreign investors to carry on business as commission agents. 18

Is there any timetable on the market access to specified goods? In respect of time restrictions imposed on market access to certain specified goods that are related to the state economic planning and the welfares of the people, the "Administrative Measures" adheres to the commitment China has made to WTO members. Foreign invested enterprises engaged in the wholesale distribution shall not deal in pharmaceutical products, pesticides, and mulch films before 11th December 2004, and shall not deal in chemical fertilizers, possessed oil and cruel oil before 11th February 2006. Foreign invested enterprises engaged in the retail distribution shall not deal in pharmaceutical products, pesticides, mulch films, and possessed oil before.11th December 2004, shall not deal in fertilizers before 11th December 2006. Foreign invested enterprises engaged in wholesale distribution shall not deal in salt and tobacco. Those engaged in retail distribution shall not deal in tobacco. Are there any additional requirements for the distribution of specified goods? Foreign invested enterprises engaged in the distribution of books, newspapers, and magazines should acquire an "operating license for printed materials" and meet the requirement for the minimum registered capital. Those engaged in the retail distribution of processed oil at gasoline stations and drugs, shall acquire the "operating license for processed oil" and the "operating license for pharmaceutical products" in accordance with the requirements of the administrative rules as promulgated by the State. How do the foreign investors formulate their action plans to enter into the Chinese wholesale and retail market? Commencing from 1st June 2004, foreign investors are permitted to set up wholesale or retail operations in the form of Sino-foreign equity or cooperative joint venture enterprises. Commencing from 11th December 2004, they have the option to turn those JVs into wholly foreign owned enterprises by buying out the shares of the Chinese party. Those Hong Kong investors who have been granted the certificate of Hong Kong service suppliers can set up wholly foreign owned enterprises starting from 1st June 2004. In addition, foreign investors may accelerate the speed to establish the PRC market presence by acquiring the interest in existing wholesale or retail business inside the PRC market. Is there any latest development in direct selling in China? The enactment of the PRC direct selling law is under way and will be announced later this year. Please contact us for latest update by visiting our website: www.china-tax.net , or e-mail to us at enquiry@china-tax.net , or alfred@china-tax.net

HONG KONG

Commodity Trading Rights in China Written by: Alfred Chan The Chinese government liberalized the availability of the trading rights to import and export goods from China (foreign trade rights) on July 2004. Early in June 2004, the Chinese government also lifted its restriction on foreign investment in the distribution service sectors. At present, foreign investors can carry on foreign trade and provide wholesale and retail distribution services in China. The following is a brief introduction on the scope and contents of the trading rights in China. If a Chinese company does not have the import export right, it does not have any customs declaration rights. All production type foreign investment enterprises acquire the import export right and declaration rights after obtaining the approval certificate and completing the customs registration. Production-type FIEs have the right to import materials for own use and export self-produced goods. They cannot import or export the goods without performing any processing activities, or act as third party distributors.

International couriers or transportation companies in China have the right to declare goods for their principles. However, they are not allowed to do import and export trading because they do not possess the trading rights. Furthermore, the declaration right is limited in that they cannot declare goods for behalf of those who are not the parties to the transport service agreement. Professional customs declaration companies have the right to declare goods for their clients. They can declare goods at the customs as independent service providers for those who have the import and export rights. However, their scope of activities is limited to provide customs declaration services. They cannot be engaged in import and export trading activities in that they do not have the trading rights. Goods imported to China or exported out of China are classified into the prohibited category, restricted category, or freely traded category. Foreign trading rights are subject to

A table may help illustrate the difference between trading right and declaration right IMPORT / EXPORT RIGHT (FOREIGN TRADE RIGHTS)

CUSTOMS DECLARATION RIGHT

Foreign invested wholesale commercial Enterprise

Yes, it can do wholesale business, import and export own goods and third party goods

Yes, but limited to the goods they buy and sell it their own name

Foreign invested retail commercial Enterprise

Yes, it can do retail business, import goods for own retail sale and export domestically purchased goods

Yes, but limited to the goods they buy and sell it their own name

Foreign (or import and export) trade corporation

Yes, it can import and export own goods and third party goods, but does not have domestic distribution rights

Yes, but limited to the goods they buy and sell it their own name

Production type FIE

Yes, but limited to importing materials and exporting own made goods

Yes, but limited to material imported for own use and export own made goods

International transportation company

Yes, but limited to the goods of the shippers

Professional declaration agency company

Yes, provide declaration services to any party who has the foreign trade right.

HONG KONG restrictions. Those who acquire the foreign trade right are not allowed to import or export goods of prohibited category, or deal with goods that are banned under the law. Goods bearing fake trademarks or firearms are 2 of the examples. In addition, the Chinese government imposes the license and quota requirements on those who import or export goods belonging to the restricted category. All Chinese companies or foreign investment enterprises having obtained the import and export rights should comply with such requirements. The trading right should also include the distribution rights, which can further be divided into wholesale distribution right and the retail distribution right. As from December 2004, foreign investors can set up wholly foreign owned commercial enterprises to deliver services in the capacity of wholesaler or third party distributor or commission agents. However, the distribution right is not without limitations. The foreign invested commercial enterprise does not have the distribution right for any types of commodities. To distribute certain specific goods, either the wholesaler or the retailer needs to obtain the approval from relevant PRC administrative body on the commodity trading right. Goods in China are also classified into the following categories: goods subject to state trading (such as silk and tea), goods subject to designated trading (such as steel and natural rubber), and general goods. For example, the right to wholesale distribution of processed oil is not available to foreign invested commercial enterprise until December 2006. There is a requirement of administrative licensing for certain commodity trading rights. In the case of retail distribution of books, newspaper and magazines, the retailer must obtain administrative approval to get an operating license from the State Administration of Press and Publication. Therefore, it is not sufficient for the foreign investment enterprise to have the business license alone. It must also obtain an operating license for the specific goods. The same licensing requirement applies to the distribution of pharmaceutical products, audio video products, food products, and cosmetics, etc. To sum up, the trading right in Chinese contexts has the following scope and contents: the import and export rights (meaning foreign trade rights), declaration rights, wholesale distribution rights, retail distribution rights, and commodity trading rights. If one has not got any one of those, he or she cannot carry on one-stop shop trading activities in China.

HONG KONG

One Good Turn Deserves Another Hong Kongâ&#x20AC;&#x2122;s economic integration with Mainland China

It may be ironic that, being under the governance of a Communist regime, Hong Kong currently enjoys the benefits of being one of the freest capitalist markets in the world. The pro-business attitude of the powers that be when it comes to the SAR, reflect an appreciation for the pivotal role that Hong Kong plays in world business. A strong Hong Kong sends out a strong message to the rest of the world and this is something of which the Government of China is acutely aware. TIME magazine recently quoted Chinese Premier Wen Jiabao as saying, "Our principle is whatever is conducive to Hong Kongâ&#x20AC;&#x2122;s prosperity and stability, to the common development of Hong Kong and the mainland, we will actively do it and give our full support to it." Such support is of course, very reassuring for the business community in the former British Colony.

Photo courtesy of the Hong Kong Tourism Board

Written by: Grant Leech

The relationship between the captains of industry on the ground, and the administration seems to be quite a healthy one. Having recently spoken at length to 36 CEOs in Hong Kong, I can deduce that although there are some concerns about bureaucratic procedures usurping the "big picture" in certain areas, the general consensus is that the governance has been conducive to good business since the 1997 handover. According to David Whitwham of Mace Consulting and President of the New 21

HONG KONG Zealand Chamber of Commerce in Hong Kong, "The administration seeks to maintain a close relationship with the international business community here, which is good for all of us." Whitwham refers to the regular meetings that are held between Hong Kong’s Chief Secretary, Donald Tsang and his task force and the heads of international chambers. Recent calls by Tsang for the business community to become more politically vocal may be an attempt to counteract the increasing frustration with the administration amongst Hong Kongers seeking universal suffrage. That frustration was multiplied by poor financial performance in the Special Administrative Region in the years following the handover. Residential property prices dropped by more than 60% between 1997 and 2003. The economy, which was maintaining an average growth of 5.1% from 1990 to 1997, hit a recession in 2001 and that growth rate has been approximately 1.9% since then. Unemployment in 2003 was at a record 7.9% due to the difficulty faced in new job creation because of the fact that wages in Hong Kong are relatively high in comparison the rest of the Pearl River Delta region. Realising that, as one of the most sophisticated financial centres in the world, a weak Hong Kong would not be good news for the rest of China, the Beijing government decided to make arrangements to revive the region’s flagging economic fortunes. A change in the regulatory framework which enabled 2.9 million mainland Chinese to travel to the SAR as individuals in the first quarter of 2004, led to a boom in tourism. The GDP of Hong Kong rose to 6.8% within the same time frame and property prices have risen 45%. The Closer Economic Partnership Arrangement (CEPA), which grants Hong Kong businesses preferential treatment over foreign businesses with regard to investments and dealings with mainland entities, has gone a long way to re-energising the sleeping giant. In 2006, a Hong Kong Disneyland is sure to increase mainland tourism drastically. Hong Kong residents, feeling prosperous once more, look to the future optimistically. What shape will that future ultimately take? The Pearl River Delta on Hong Kong’s hinterlands contains some of the world’s most dynamic and ever-expanding manufacturing bases. The city of Shenzen, just north of Hong Kong specialises in producing high-tech goods. Its population has grown exponentially recently and now exceeds that of Hong Kong, where 7 million dwell. Further northward in Guangdong Province lays Guangzhou, formerly known as Canton. This huge, bustling city serves as a major manufacturing centre, not only for the region, but for the world. If it says "Made in China" on it, it may very well have been made in Guangzhou. 22

A recently approved plan by Beijing to introduce further connectivity into the region by the construction of a new super highway connected to Hong Kong by a large bridge from Lantau Island to the mainland, serves to illustrate the vision of many in the region. Hong Kong will serve as the contract winner and capital raiser for major projects to be carried out in the Pearl River Delta region. The simple fact of the matter is that, if you need something manufactured in large quantities, for cost effectiveness, you simply can’t ignore China. The western business culture of Hong Kong means that it is in a unique position to solicit international business for this emerging manufacturing powerhouse of unparalleled proportions. The fact that Hong Kong companies are already responsible for approximately 80% of Guangdong’s FDI, which translates into about $80 billion, means that this trend is set to continue. "Another economic dynamic between Hong Kong and the mainland is the fashion in which mainland companies are increasingly making their initial public offerings (IPOs) on the Hong Kong Stock Exchange", determines Peter Wong, CEO of Tai Fook Securities Group. The Hang Seng was responsible for generating $6 billion in stocks for mainland companies in 2003. The economic integration of Hong Kong with mainland China is a dynamic process in which there are many factors at stake. With Shanghai’s amazing (and possibly untenable) growth of 18% per quarter in the north, the emergence of the Pearl River Delta as a global focal point for manufacturing and Hong Kong’s mature and experienced financial services sector, the economic future of the Peoples’ Republic of China could be very bright, once properly managed.

HONG KONG

Open Account Trading in Asia - Trends, Issues and Solutions Written by: Bertrand Jubault, Managing Director, Export Credit Management Featured in Asian Trade Finance Yearbook 2004 Increased trade in open account leads to new risks and Overview challenges As a consequence of globalization, the volume of Twenty years ago, sourcing in Asia was not so common, international trade is expanding at a fast pace. World and it was considered risky. Exporters could impose advance economies are deregulating, trade agreements are flourishing. payment or a letter of credit (LC) as a means of payment. But At the same time, supply chain management is becoming much has changed since those golden days of Asian trade more efficient. International terms of settlement on sourcing in Asia is now very transactions have gradually common as China becomes the changed over time. In markets like Payment terms usage trends worldâ&#x20AC;&#x2122;s factory. Markets are Asia, this evolution has been the increasingly more favourable for importers becoming more efficient, consequence of increased Open Account competition is increasing, and bargaining power from buyers. The Collection (DA, DP) traditional terms of payment that profit margins are trimming. The Letter of credit supply of most goods and services are more favourable to exporters Advanced payment is surpassing the demand. (letter of credit, cash in advance Consequently buyers see their and deposit with balance before expedition) are gradually being negotiating power increasing, which can allow them to dictate their payment conditions to replaced by terms more favourable to buyers (such as DP and suppliers. DA on a collection basis, and open account). Under open account terms, the parties agree that the exporter will ship the goods and transfer ownership to the importer, prior to payment. This is the highest risk option for an exporter, since the exporter is fully exposed to the importerâ&#x20AC;&#x2122;s credit risk. While open account is the fastest growing payment term in Asia, it brings a high level of risk for exporters and makes it difficult to negotiate trade finance facilities with banks. But solutions are available to address these issues like credit insurance, bills discounting on open account and factoring.

Offering Open Account to buyers is a competitive advantage in highly competitive markets where goods and prices are often similar between suppliers. Regular buyers are moving away from the LC which is costly and cumbersome and requesting that trade be conducted on open account which is faster and cheaper to implement. Buyers are also requesting longer credit terms, which themselves create greater payment risk. Maximum credit risk for sellers on open account Under open account, the exporter simply bills the customer, who is expected to pay under agreed terms at a 23

HONG KONG future date. Some of the largest importers in OECD countries make purchases under open account only. Open account is the easiest but riskiest way to trade. Open account is a convenient method of payment and may be satisfactory if the buyer is well established, has demonstrated a long and favourable payment record, or has been thoroughly checked for creditworthiness. The credit risks (country political risk and company insolvency risk) are borne entirely by the exporter. In the event of non-payment under an open account transaction, an exporter may have to pursue collections through a local agency or by taking legal action, both of which are expensive propositions in international jurisdictions. This can be avoided with credit insurance. Payment terms

Security

Overall cost

Risk to seller

Cash in advance

Cash

High

Nil

Letter of credit

High

Low

Open account

Credit insurance

Low

Open account

None

Lowest

Highest

Open account and commercial dispute Trading on open account does not protect the seller against the risk of commercial dispute resulting of a quality claim on the goods. This is a key difference with a LC where commercial disputes are ruled out unless there is a discrepancy and the documents have been negotiated and accepted by banks. An exporter offering open account terms to a buyer is fully exposed to the risk of a claim, as the buyers receive the goods before payment is due.

This is crucial to understanding open account trading. It would be possible for an unscrupulous buyer to manufacture a dispute concerning the quality of the goods and hold payment in order to obtain a last minute discount. How can one establish if a claim is legitimate or false? How can one finance such high-risk transactions? New solutions to protect and finance open account activity Solutions are readily available to address the challenges that exporters face due to an increase in open account activity. These include: Credit insurance - Credit insurance is the best tool to protect receivables against non-payment on open account. The role of credit insurance is to guarantee the proper completion of a commercial transaction, consisting of an order, a delivery and invoicing, against the risk of non-payment. A credit insurer will cover the risk of non-payment of the goods or services based on an individual credit assessment of the buyer. Credit insurance companies have created and maintain important credit information databases and monitor millions of companies worldwide. In the case of non-payment, the credit insurer will try to recover the amount on the exporterâ&#x20AC;&#x2122;s behalf, and finally will pay between 80% to 95% of the guaranteed amount if no money can be recovered. Credit insurance is based on the principle of spreading the risk: The insurer requests that the policyholder cover all of its buyers (or a significant number of them), therefore making single buyer protection impossible. Technically, credit insurance combines three services: Risk prevention: Pre-selection of solvent customers though individual credit checks. A credit limit is allocated, if possible, to each major buyer Debt recovery: Legal pursuit of the overdue debt Indemnification: Payment of claims under guarantee if the amount cannot be recovered. Commercial dispute resolution Claims and commercial disputes cannot be completely avoided, but it is possible to anticipate a claim resolution between two trading partners. This is very important given that the buyer tends to have the upper hand in a dispute situation because they are holding payment. It is strongly advisable under open account transactions to ensure that a comprehensive paper trail is created

HONG KONG (written sales contract terms), and that the parties agree on terms to solve a dispute. Such documentation may prove critical in obtaining remedy in the event of a legal dispute or collection effort.

before they grant financing to their clients. The exporter assigns the benefit of his credit insurance cover to the bank which becomes the â&#x20AC;&#x153;loss payeeâ&#x20AC;? of the policy. The bills on open account are then discounted and financing is extended.

One efficient and cost effective way to solve commercial disputes is through arbitration. Arbitration is a method of alternative dispute resolution where a neutral party helps make a decision and the decision is binding. It saves long and very costly legal proceedings between parties.

Factoring of open account receivables - Factoring Incorporates three services in one: payments collection, receivables financing and credit risk cover. Under a factoring agreement, a business sells its short-term receivables to a factoring company at a discounted price. In exchange, the business receives financing immediately - usually within 24 hours - and the factoring company is in charge of payment collection at the due date.

Financing open account business - Open account terms are often extended to the importer due to competitive pressure in the market. Trade on open account often allows for 30- to 90-day payment terms or longer. The exporter typically finances the entire transaction, under the agreed terms, plus any payment delays that might arise. Negotiating finance facilities from banks for trade on open account is more difficult as exporters are exposed to credit risks. In most cases, banks require collateral before they will grant financing. In Hong Kong - where the local economy has historically been property based - banks used to grant trade finance facilities secured by mortgages. The major issue with this practice was that the collateral (the property) was not linked to the risk (trade credit and commercial risks). The Asian financial crisis in 1997 revealed the shortcomings of property-based securitization. Banks were forced to cut credit lines with clients when the value of their collateral collapsed. Bills discounting on open account backed by credit insurance cover - Receivables that are covered by credit insurance can be used to get financing from banks. Banks in Asia are now requesting that credit insurance cover be sought

Factoring as a service is quite similar to bills discounting backed by credit insurance. The major difference is that a transfer of ownership of the receivable is operated in favour of the factor who becomes subrogated in all the rights pursuant to the receivables. Factoring is a very efficient way to outsource the collection and financing of accounts which is why it has become big business in Asia in the recent years. Summary Despite the risks for exporters, open account trade is expanding rapidly in Asia. This flexible but less secure settlement environment is creating greater challenges for exporters who need to find ways to deal with credit risks. Solutions are readily available to address these issues and the companies that implement them will be able to compete more effectively in the global economy. Mr Jubault is independent broker specialized in credit protection based in Hong Kong (www.export-credit.com)

HONG KONG

Sallmanns Written by: Grant Leech The Sallmanns Group is an Asian-wide valuation company. For over sixteen years, the company has provided expert advice to international players in the areas of real estate valuation, plant & machinery valuation, financial valuation, corporate services and residential relocation.

Sallmanns comprises an accomplished group of analysts, researchers and chartered surveyors that have engendered a reputation for making accurate reports regarding the worth of real estate and, in particular, plant & machinery. Paul L. Brown, originally from Cardiff, Wales is the chief executive of the group which, while headquartered in Hong Kong, owns and operates offices in Beijing, Shanghai, Shenzhen, Dalian, Bangkok, Manila, Tokyo and Singapore. These, in conjunction with associate offices in Kuala Lumpar and Seoul means that Sallmanns can truly proclaim a comprehensive presence throughout the continent of Asia. Their expertise in the fields in which they operate has been proven. The track record of the company, which now has

Panoramic view of Hong Kong

over 200 employees, speaks for itself. They handle 35% of the valuations made on I.P.O.s coming from China to be listed in Hong Kong. When one takes a closer look at the facts, it becomes apparent that their role in this crucial arena is even more significant Paul L. Brown than it first appears, due Chief Executive to the fact that they handle somewhere in the region of 65% of the higher net worth companies. Sallmanns has worked hard to acquire its good name within the industry as one of the foremost valuation companies on the continent. Its accomplished group of analysts, researchers and chartered surveyors have engendered a reputation for making accurate reports

HONG KONG "It is essential that anyone planning a venture in China, or another country in Asia, establish a partnership with a reputable firm that can guide them through the initial phases of what they want to do. Having the experience in this market that we do, we are in a primary position to assist corporate entities in real estate, plant & machinery, and business valuation", determines Mr. Brown. regarding the worth of real estate and, in particular, plant & machinery. Their ability to quantify the more intangible aspects of business, such as forecasting earnings of proposed projects, has lead to major international companies utilising their services. The fact that Sallmanns performed the valuation upon the first ever initial public offering from the Chinese mainland into the Hong Kong Stock Exchange, Tsingtao Beer, illustrates the longstanding pole position which the company enjoys in the market. The diversity of the companies with which Sallmanns has worked, from airports to power plants, domestic to multinational, in conjunction with the very different areas in which they display their expertise, from I.P.O.s to joint ventures to mergers and acquisitions, means that they are capable of working with a vast array of clients. These factors demonstrate that, when entrants into the Asian market are considering a valuation company, Sallmanns cannot be ignored. "We have two international partner networks," explains the ever-cordial Mr. Brown, "ATIS REAL-Weatheralls, is our partner in Europe. They are a property investment and tenant representation group which has recently been taken over by BNP Paribas. We are also the Asian representative of the US based group, CRESA Partners. These international partnerships mean that about 10% of our business comes from these regions."

Brown is frank when speaking about the integrity of the work that is performed by Sallmanns, "We simply have to be sure that whatever we put our name to, is done properly. We cannot scupper 16 years of reputation building over one project", he says definitively. The essential issue of trust and reliability is therefore addressed up front. "It is essential that anyone planning a venture in China, or another country in Asia, establish a partnership with a reputable firm that can guide them through the initial phases of what they want to do. Having the experience in this market that we do, we are in a primary position to assist corporate entities in real estate, plant & machinery, and business valuation", determines Mr. Brown. "We also have a residential arm to the company which coincides with the valuation consultancy and the corporate services, and therefore we are in a position to offer our clients a very comprehensive service", he states. In closing, Sallmanns is a reliable and trustworthy company, with an established track record and would make an excellent partner for anybody contemplating entry into the Asian marketplace.

Photo courtesy of the Hong Kong Tourism Board

HONG KONG

TAI FOOK SECURITIES GROUP LIMITED Written by: Grant leech

Tai Fook Securities Group is Hong Kongâ&#x20AC;&#x2122;s premier (nonbank) financial services provider. Having been in operation for the last thirty years, the Group has earned a reputation for high quality service and expertise that is second to none in the SAR. Tai Fook has several divisions which compliment each other to bring a complete and comprehensive service to its substantial client base.

Tai Fook delivers solutions to the retail market (which comprises 55-60% of their business) and also to corporate clients, institutions and high net worth individuals.

The Group, which was listed in 1996, deals with many aspects of the financial services, ranging from investment banking to financing. The mainstay of the business however, is securities. Tai Fook delivers solutions to the retail market (which comprises 55-60% of their business) and also to corporate clients, institutions and high net worth individuals.

Peter S.H.Wong, Managing Director

Peter S.H.Wong, Managing Director of the Group has survived two market crashes since 1987. He has implemented successful systems in every area of the business. "Systems with substance" is the policy he employs in so doing. He emphasises heavily the need for his staff to maintain a high level of expertise with regard to the financial products with which they are dealing, as he puts it, "In order for them to provide value to the client, our staff must know the product inside-out themselves. This is why we provide 40 hours training to each staff member per annum." Mr. Wong sees Tai Fook playing a pivotal role in the development of the Hong Kong marketplace going forward. "We have now established ourselves as the securities house which holds pole position in the Hong Kong market. We also have offices in Shenzhen, Shanghai and Beijing and established good relations there having traded B shares there since 1993. This puts us in the unique position of being a focal point between the emerging financial powerhouse of China, 28

HONG KONG and the rest of the world." explains Mr. Wong. Mr. Wong describes what he sees as Tai Fookâ&#x20AC;&#x2122;s place within the market, "We are a big player in Hong Kong, but internationally, we do not seek to compete with the likes of Morgan Stanley. Rather, we seek to carve our own niche in the market. This will be readily accomplishable given our solid position and strategic location."

The Managing Director is clear in his outlook with regard to the international scene, "It is the large international investors that we seek to attract through making them aware of our proven expertise and the fact that we will be involved in several I.P.O.s in which they may be interested." Photo courtesy of the Hong Kong Tourism Board

HONG KONG Tai Fook recently announced that they have been granted the BS 7799 Certificate for Information Security. This serves as very good news for the Company, whose business model is becoming increasingly I.T. driven. The Managing Director is clear in his outlook with regard to the international scene, "It is the large international investors that we seek to attract through making them aware of our proven expertise and the fact that we will be involved in several I.P.O.s in which they may be interested." Tai Fook’s internal controls are of the highest standard,

ensuring that all compliance matters are dealt with swiftly. There is also a big emphasis on quality assurance. This may be part of the reason why the Group has been in receipt of so many awards in recent years, including the Euromoney award for "Best Local Securities House". Tai Fook was also the first company of its sort to receive the ISO 9002 in Hong Kong. Third party verifications such as these serve to enhance the Group’s reputation for high standards. Tai Fook recently announced that they have been granted the BS 7799 Certificate for Information Security. This serves as very good news for the Company, whose business model is becoming increasingly I.T. driven. "The internet is a great thing for us as it keeps us in communication with the investors of the world at the touch of a button. That is why we must ensure that we have the strictest controls on our information systems as we want our clients to have the utmost confidence in us", declares Mr. Wong. With 60,000 clients and growing, in Hong Kong, Tai Fook truly is a progressive company which caters to the needs of its clients. In the future, its clients will be coming from far and wide in order to avail of their expertise in Hong Kong, China’s gateway to the world.

HONG KONG

DHL

The International Giant Undergoes Re-Branding. Written by: Grant Leech The DHL operation in Hong Kong stems all the way back to 1969. Since then, the Deutsche Post company, under the moniker of Danzas Air & Ocean, has excelled in the market. As Hong Kong is Asiaâ&#x20AC;&#x2122;s "world city", with an international reputation as a key hub in the region, DHL now uses Hong Kong as its focal point for its Asian concerns.

The courier express, logistics and freight services for which DHL has gained international acclaim on account of its uncompromising reliability, are now working in unison in a way that has not been explored by its competitors. The company is currently undergoing a re-branding, having changed its logo. The purpose of this is to reflect the seismic shifts in the internal structure of the operation. DHL has now re-engineered its internal processes, realigning its various services in order to bring a more unified approach to fulfilling the needs of the customer.

The courier express, logistics and freight services for which DHL has gained international acclaim on account of its uncompromising reliability, are now working in unison in a way that has not been explored by its competitors. The added value that will be brought to the client in the coming years with the introduction of this new, streamlined, internal system cannot be underestimated. Kelvin Leung, Managing Director of DHL in Hong Kong, South China and Macau, seeks to emphasise the importance of the internal restructuring of the company to prospective customers, "With our new integrated systems in place, we are better equipped to provide clients with a seamless service. This strategy has been implemented no where else in the industry, making DHL the pioneer in this field." This type of added value is something that the company seeks to deliver to its customers on a global scale. In Hong Kong, this approach has manifested itself in the creation of a

Photo courtesy of the Hong Kong Tourism Board

HONG KONG Business Process & Organisation team. This team works closely with major clients in order facilitate their needs with tailor-made solutions. This continuing philosophy of quality is a factor which has long distinguished the Frankfurt listed enterprise.

“We consider ourselves to be leaders in the sector. Our restructuring means that we are unique and unmatched." Ranked number one in Hong Kong in terms of express delivery, DHL ensures a uniformity of service throughout the world. Leung is quick to point out that clients should expect the same degree of efficiency from the Asian DHL entities, as they do elsewhere in the world. This worldwide standardisation operating in conjunction with another vital ingredient, local expertise, ensures a top quality service is delivered consistently to the customer. Customs issues fall under the rubric of local expertise, and this is obviously an area in which DHL is proficient. Their working relationship with customs officials means that safe, timely delivery can be guaranteed to any company which urgent physical movement of goods. Photo courtesy of the Hong Kong Tourism Board

Harbour

The company’s commitment to Hong Kong is strong. DHL is one necessarily one of the fastest moving companies in the world, literally. Hong Kong is the world’s busiest port. As the base for the region, Hong Kong and its bustling nature seems to fit comfortably with the dynamic world player, the very nature of which, is always in a rush. The DHL hub for the region is located beside the new Hong Kong airport on Lantau Island.

“...We are taking the lead in shaping this industry. Our competitors simply have not come that far...” A tangible measure of the serious manner in which DHL is approaching Hong Kong as a major focal point, is the fact that the enterprise has now gone into a joint venture with Cathay Pacific (the private airline which has come to represent Hong Kong internationally). DHL therefore owns 40% of Air Hong Kong, proof of their commitment, if any was needed. In terms of differentiating DHL from its well-known competitors, Leung returns to the central point of the company’s re-branding endeavours, "The integration of the express and logistics services is unprecedented in the industry worldwide. We are taking the lead in shaping this industry. Our competitors simply have not come that far. They are fragmented. We consider ourselves to be leaders in the sector. Our restructuring means that we are unique and unmatched."

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