Recent rises in key economic indicators are creating growing confidence in a genuine long-term economic recovery for Hong Kong. But a smooth passage to economic growth, especially in the fragile recovery stage, requires astute guidance from the government, and-and even in a laissez-faire economy like ours - calls for more support and assistance than usual. Tradelink Talk recently spoke to the man behind Hong Kong’s economic blueprint in order to get a preview of the challenges awaiting us, and some insights into the projects that top the agenda.

With more than 20 years of civil service experience, principally in the economic and finance arenas, Mr Stephen Ip, Secretary for Economic Development and Labour, is amongst the most knowledgeable of our top office holders when it comes to Hong Kong’s economic progress and future plans.

Tradelink Talk was honored to have 30 minutes with Mr Ip to talk about the challenges we’re facing, our bond with the Pearl River Delta and our government’s mission in helping local industries-logistics in particular.

Hong Kong’s biggest challenges

The prosperity of an economy is closely related to its neighbouring regions. In Hong Kong, none would disagree with the influence of China, but many now view China as a major threat that has lured business away from Hong Kong since it opened its doors.

Mr Ip, however, sees opportunities. Looking at it from another angle, he perceives Hong Kong’s tight bonds, both geographically and commercially, with China as two of our most valuable and unbeatable advantages. Indeed, the biggest challenge lies in the ways to maintain and fully utilise these advantages.

“We should lean on our motherland while facing the world,” he says. “The Pearl River Delta (PRD) is currently the fastest growing region in China. It is widely recognized as the ‘world’s factory’ contributing the majority of the world’s manufacturing output. Contrary to this manufacturing focus, service industries account for 87% of Hong Kong’s economic activities. The divergence actually makes room for bilateral reliance, producing synergy like never before. We should, on one hand, make good use of our geographic proximity to China and benefit from its immense growth, and on the other continue with what we are best at: the four economic pillars of logistics, tourism, trade and finance.”

The government has wasted no time in coming up with new initiatives to ensure these industries maintain their positions. To name a few, expansion of the aviation network, signing of favourable air transport agreements and opening of new routes have all provided greater convenience for the local logistics industry.

But challenges don’t come alone. Mr Ip points to operating costs as a major obstacle, especially in transportation and logistics. Although China has been catching up in economic development and prosperity in recent years, its operating costs remain some distance behind Hong Kong’s.

“We are definitely providing more flexibility in ship shipping schedules, better services and networks and superb reliability. But higher costs compared to neighbouring regions will eventually drive our customers away”

The government’s continuous efforts in infrastructure development and ongoing communications with Mainland authorities to steamline customs procedures will help. A way to effectively minimise transport and turnaround time must be sought in order to reduce costs, and the government has several major infrastructure projects on hand that target this specific objective. Topping the list is the Western Corridor that links Hong Kong and Shenzhen and is scheduled to enter service by the end of 2005 or early 2006. The widely discussed Hong Kong-Zhuhai-Macau Bridge and the smaller-scale Huanggang Bridge will also be completed in a few years’ time. Together, they will speed both passenger and cargo flows.

Bureau’s role as facilitator

Echoing the Chief Executive’s Policy Address to “develop (Hong Kong) as a logistics hub to link the Mainland with the world”, the Hong Kong Logistics Development Council (LOGSCOUNCIL) was established in 2001. Chaired by the Secretary for Economic Development and Labour, the Council provides a forum for public and private sectors to exchange views and cultivate a better environment for the logistics industry, which currently contributes 4.8% of our GDP and employs 6.0% of the local labour force.

Despite the government’s far-reaching measures and large-scale projects, Mr Ip contends the roles of the government and the Bureau have never changed. “Right from the beginning, the government has acted only as a facilitator to the business sector, which is led by the market. And it remains so today,” he says.

“Our job is to create the most conducive business environment possible for industry players through, for instance, investing in advanced and user-friendly infrastructure.” Mr Ip continues, “It is our responsibility to work with Mainland authorities to simplify complex customs procedures, relax regulatory limitations and, if possible, minimise licensing fees imposed within the Pearl River Delta to ultimately reduce local players’ trucking costs. All these rely on our close association with the Guangdong provincial government. Only with improved efficiency and lower costs can Hong Kong logistics enterprises continue to prosper.”

The Bureau is also planning a value-added Logistics Park for the provision of one-stop integrated logistics services, especially for high-value and time-critical merchandise. But before then, we are likely to witness the birth of another great, long-standing initiative: a system that calls for greater information connectivity within the industry.

DTTN: a sophisticated network that takes logistic communication to a new level

DTTN, or Digital Trade and Transportation Network, is a government project in response to time-consuming, tedious communications flows within the local logistics industry.

Believing that a timely and seamless information flow among industry players can help enhance operational efficiency and reduce costs-rucial to Hong Kong’s success as a modern logistics hub - a study on the development of an e-platform for the exchange of information was carried out in 2002.

Through its message format transformation function, DTTN unifies communications, thus overcoming difficulties arising from the use of varied message formats and transmission protocols by different users. It will therefore amplify efficiency and reliability and lower the cost of information flow.

“The network must be ‘neutral’ and ‘open’,” Mr Ip stresses. Neutrality of the system refers to the intention to provide a level playing field for all stakeholders, without undue bias and free from any conflict of interest or sector influence. Openness, or non-exclusiveness, entitles all relevant stakeholders to fair access to the network without discrimination.

“The industry’s support and acceptance will determine DTTN’s initial success. Which is why LOGSCOUNCIL’s e-Logistics Project Group has been collecting and reviewing requirements and opinions of stakeholders, who have agreed that DTTN will help raise our competitiveness and strengthen our position as an international logistics centre. As it is designed to help the industry, its feasibility and effectiveness remain our primary concern.”

The choice of the developing party was also a key question. “We once considered developing DTTN ourselves (the government). But as the urgency to jump-start this project was agreed, we concluded it would be for the best to leave it to private or semi-private solution providers. Right now, we’re in the process of completing the deal with our selected vendor, Tradelink Electronic-Commerce Ltd.. We look forward to the launch of DTTN in 2005.”

The Pearl River Delta: partner or rival?

Hong Kong and the Pearl River Delta (PRD) have been close economic allies for decades. About 80% of the freight throughput handled locally either originates in or is destined for the region. The interlocking of businesses is already astonishing: 68,000 Hong Kong-owned enterprises employ 10 million workers in the PRD.

“Before China opened its doors, Hong Kong was the world’s only logistics gateway to the country. Today, both Hong Kong and the PRD take on more complementary roles,” said Mr Ip.

The PRD has a strong manufacturing base with a booming consumer market. Cargo flow, as well as production costs, have shot up as a result of this robust growth and thereby created more demand for cost-effective logistics services. It is estimated that logistics costs in China make up 25-30% of overall production costs, compared to 8-10% in developed countries.

”With ample experience in global trade, advanced logistics management skills and an international outlook, Hong Kong logistics enterprises offer efficient, reliable and value-for-money services to their Mainland counterparts, and at the same time leverage the PRD as a springboard for further expansion of business to inland provinces.”

Through the Mainland-Hong Kong Closer Economic Partnership Arrangement (CEPA), the local logistics industry could also seize opportunities to provide Mainland enterprises with more diversified and substantive services.

This will strengthen Hong Kong’s role as the main sourcing centre for Mainland products, as well as facilitate the continued development of the Mainland as a more competitive world supplier.

Mr Ip believes that through close

co-operation both Hong Kong and the PRD can achieve synergistic benefits and make a win-win situation possible. “Competition is nothing new to Hong Kong people. By grasping existing strengths, staying humble and insisting on excellence, Hong Kong can overcome any threat from places like Singapore, Japan and Shanghai.”