That is a question for Simon Galpin, who is Associate Director-General of Invest Hong KongHK, the government’s inward investment promotion department. His division is responsible for attracting foreign investment in four priority sectors – business and professional services, transportation, financial services and trade-related services. Before joining InvestHK he spent ten years with the Scottish Enterprise, the British economic development agency for Scotland, and worked extensively in Asia establishing their offices.

“We are regularly asked to compare the Pearl River Delta with the Yangtse River Delta”, admits Galpin. Both regions are what he calls “growth engines” for China and are suitable “bite-sized chunks” for potential foreign investors to understand. “China is just too big for people to get their head round otherwise,”, he warns.

So what is his feel for business sentiment in Hong Kong and its surrounding region ? Galpin is optimistic, despite the apocalyptic headlines in early April, “The people we talk to are generally bullish about the medium-term,”, he says, adding that for all the problems, “the fundamentals are strong”. He expects 2003 will be another “very busy and successful year for foreign investment here”. The local media often cause him – and others – to “despair” with their continual focus on doom and gloom. However, he does offer one note of caution – Hong Kong must watch its costs. “We must not become uncompetitive and price ourselves out of the market.”.

Posed the oft-asked question on comparing Hong Kong with Shanghai, Galpin notes that “neither operate in a vacuum”, and that they are different. Shanghai is focussed more on manufacturing, and has been driven by the state controlled economy. Hong Kong, on the other hand, specialises in services and consumer goods, and is driven by the private sector. At a regionally economic level, the Pearl River Delta is also bigger than the Yangtse River Delta (see comparative in related ‘Cover Story’ in this issue).

This attractiveness is why Hong Kong continues to enjoy significant success with foreign companies looking for a home in Asia. In 2002, InvestHK successfully attracted and assisted 117 firms to set up or expand operations – the highest number ever. Overall these projects generated total investment of more than US$174m and created over 2,070 jobs.

HK’s FDI in 2001 is larger than the combined total for the next four Asian markets of Singapore, Japan, Taiwan and Thailand. As Galpin says, “Hong Kong remains foreign companies’ launch pad of choice for international brands and new products, and their preferred Asian base to tap the huge potential of the mainland China market.”.

However, Galpin admits there is a “Shanghai fever”, and that the city is now demonstrating “a tremendous confidence”, having achieved much in a very short time. Everyone is trying to “ride the boom”, and InvestHK is no exception – the department established a Shanghai office in summer 2002, to attrract business from the east coast city and the neighbouring provinces of Jiangsu and Zheijiang.
During 2002, InvestHK hosted two mainland Chinese private sector delegations to Hong Kong, and held investment promotion seminars in Jinan (Shandong), Chengdu (Sichuan) and Nanjing (Jiangsu).

Hong Kong needs to retain a competitive edge, of course, and to find its new role post-1997. What should this be ? First of all, says Galpin, it should “be the route for foreign direct investment into the Pearl River Delta”. Secondly, Hong Kong can offer particular skills to Chinese small and medium-sized enterprises (SMEs), for example those who wish to “go global”. Hong Kong, as a modern Western city in China, can offer a good stepping stone to the rest of the world, and value-added services like branding, marketing and efficient distribution.

These sort of ‘soft’ skills are how Hong Kong should help Shanghai businesses, argues Galpin. Finally, Hong Kong can benefit from its extremely advantageous geographic position, with superb international air connections, to be a bridge between North-East Asia and South-East Asia and the base of choice for Asia-Pacific regional headquarters (RHQs) for multinationals and SMEs other large firms.

Galpin notes that 96 of the existing RHQs are in fact mainland Chinese, as well as 170 regional offices and 290 local offices, out of about 2,000 other mainland companies in Hong Kong.

But what about the other way around – what can Shanghai offer Hong Kong ? “Put simply, market entry – Shanghai is a more inward looking market than Hong Kong,”, says Galpin. And investment, too, of course – Hong Kong accounts for about 48% of all external investment in China, while the mainland accounts for about 31% of direct investment in Hong Kong.

The relationship between Shanghai and Hong Kong is, and will continue to be, “a close and productive one”, concludes Galpin. “Our slogan is ‘Hong Kong means business’ and I am delighted to see that Shanghai does too ! Long may that continue”.