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Belt and Road Initiative: Connecting China, Hong Kong and Malaysia – Part 1

Belt and Road Initiative: Connecting China, Hong Kong and Malaysia – Part 1

By Charles F Moreira, Editor

Malaysia supports the Belt and Road Initiative (China’s One Belt, One Road initiative), as it will enhance trade between Malaysia, China, Hong Kong and other countries along the road, Malaysian External Trade Development Corporation (MATRADE) Chief Executive Officer, Ir. Dr. Mohd. Shahreen Zainooreen Madros told the Belt and Road Initiative: Connecting China, Hong Kong and Malaysia business forum on 9 August 2017.

“Malaysia has developed ties with China at national and provincial levels related to the Belt & Road Initiative (BRI) and it will have a huge impact on trade in terms of goods and infrastructure development such as of ports, railways, highways as well as oil and gas pipelines”, Ir. Dr. Shareen said in his keynote address. “Also, China and Hong Kong have complementary development projects in Malaysia, such as the East Coast Rail Link, Forest City and have important roles to play in various projects in Malaysia”.

Why Hong Kong?

“Hong Kong has a dynamic business environment, is located in the heart of Asia and is an excellent gateway through which to establish business partnerships and conduct trade with mainland China”, Stephen Phillips, Director-General of Invest Hong Kong told the forum.

Prominent Malaysian companies in Hong Kong include the Pappa Rich Restaurant chain, airport lounge operator Plaza Premium Lounge, the cruise line Star Cruise, digital marketing firm Innity and information and communication services provider Telekom Malaysia.

Over 100 airlines operate 1,100 daily flights between Hong Kong and 190 destinations worldwide, including 47 destinations in mainland China. Hong Kong International Airport also is the busiest air cargo airport in the world which handled 4.52 million tonnes of cargo in 2016, according to the Airport Authority of Hong Kong. Hong Kong is ideal for business persons since most of Asia’s key markets are within four hours flight away and it’s up to five hours flight away from half of the world’s population.

Hong Kong also has a well established judicial system and common law which greatly helps protect investors’ intellectual property and other rights. Its corporate income tax rate of 16.5% is low, compared to 17% in Singapore and 25% in Shanghai (tax rates vary across different areas of mainland China and Shanghai is used here as an example). At 15%, personal income tax in Hong Kong is lower than the 20% paid in Singapore and 45% in Shanghai. There is no Value Added Tax, Goods and Services Tax or Sales Tax in Hong Kong compared to 7% GST in Singapore and 17% in Shanghai.

Employer social security and employee social security payments in Hong Kong are also low at 5% each respectively, compared to 16% and 20% respectively in Singapore and 37% and 11% respectively in Shanghai. Hong Kong also has no capital gains tax, withholding tax on investments, estate duty, global taxation or wine duty. Also, Hong Kong has signed Comprehensive Double Taxation Agreements with 37 jurisdictions including Malaysia and is currently in negotiations on double-taxation with 13 other jurisdictions. Such agreements usually seek to relieve foreign owned companies or foreign nationals from being taxed by both jurisdictions at the same time – i.e. from being doubly taxed.

Effective 7 July 2017, Hong Kong provides for reduced corporate tax of 8.25% to companies which qualify as Corporate Treasury Centres. One of the industries which has qualified for this concessionary tax is the aircraft leasing industry, where aircraft lessors only pay 8.25% tax, with only 20% of rental being subject to this tax.

Foreign direct investment (FDI) into Hong Kong amounted to US$108 billion in 2016, according to UNCTAD’s World Investment Report 2017, which places Hong Kong fourth for FDI inflows after the United States (US$391 billion), the United Kingdom (US$254 billion) and China (US$134 billion), and Malaysia is Hong Kong’s 14th largest foreign investor.

Key sectors for investment in Hong Kong include transport & industrial, tourism & hospitality, financial services (asset management), maritime, innovation & technology, business & professional services, financial technology (FinTech) and smart city.

Hong Kong also is a destination along the 21st Century Maritime Silk Road, which connects Guangzhou and Quanzhou in China, Thailand, Indonesia, Sri Lanka, Bangladesh, India, Africa through Kenya, the Middle East by sea and it connects to the land based Silk Road Economic Belt which runs through Europe to Russia, Turkey, Central Asia and China. This Belt & Road passes through over 60 countries which accounted for about 31% of the world’s GDP in 2016, have about 62% of the world’s population and which accounted for about 33% of the world’s merchandise trade that year, according to the Hong Kong: A key link for the Belt & Road report by the Belt & Road Initiative. The five cooperation priorities of Belt & Road are unimpeded trade, financial integration, people-to-people bonds, policy coordination and facilities connectivity.

In this regard, Hong Kong offers high-end professional services in which her professionals can provide quality services in M&A financing, professional consultancy, legal, construction engineering and management and so forth. As an international financial centre Hong Kong is a member of the Asian Infrastructure Investment Bank and of Stock Connect and Bond Connect. As an international logistics, shipping and transport hub, Hong Kong is one of the world’s busiest and most efficient transport hub and provides high-end logistics services, including global supply chain management solutions. As for innovation and technology, Hong Kong has advanced communications and technology facilities, a sound legal system that protects intellectual property rights and high quality education and research capabilities.

Hong Kong also is a part of the Greater Bay Area which also includes Macau and nine Guangdong cities, altogether comprising a land area of 56,000 sq km with a combined population of 68 million and a combined GDP of US$1,328 billion.

The “Framework Agreement on Deepening Guangdong-Hong Kong-Macao Cooperation in the Development of the Bay Area“ was signed on 1 July 2017, with the aims to:

• promote infrastructure connectivity
• enhance the level of market integration
• build a global technology and innovation hub
• build a system of modern industries
• cultivate new strengths in international cooperation

The Guangzhou-Shenzhen-HK Express Rail Link enables around 14 minutes travel time between Hong Kong and Futian Station, Shenzhen North (around 23 minutes), Humen (around 33 minutes) and Guangzhou South (around 48 minutes).

Hong Kong’s reindustrialisation plan aims:-

• To develop Hong Kong as a hub of research and development, design, and advanced technologies in areas such as stem cell and regenerative medicine, smart wearable devices and robotics.
• To turn Hong Kong into a creative melting pot, where innovators, investors and industrialists can connect, inspire each other and create game-changing products and services.
• The above will be achieved by attracting companies to Hong Kong to set up advanced production facilities, the city will enjoy all-new levels of economic development and create an exciting array of employment opportunities.

Whilst Hong Kong’s strengths are more in the ‘soft’ areas, mainland China’s are more in the ‘hard’ areas and the 10 priority sectors in the Made in China 2025 initiative are:-

1) Advanced Rail & Equipment
2) Agricultural Machinery and Technology
3) Aviation and Aerospace Equipment
4) Biopharmaceuticals and High-end Medical Equipment
5) Power Equipment and Technology
6) High-end Manufacturing Control Equipment and Robotics
7) Integrated Circuits and New Generation Information Technology
8) Advanced Marine Equipment and High-tech Vessels
9) New and Advance Materials
10) Low and New Energy Vehicles

In financial technology (FinTech), Hong Kong has a FinTech ecosystem which:-

• Is an industry-led ecosystem with government support
• Has major focus areas in artificial intelligence, insurance technology, blockchain, cyber security, regulatory technology, wealth technology and so forth.
• Has a strong talent pool
• Enables global collaboration
• Enables integration with the Greater Bay Area



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